| Organization and Summary of Significant Accounting Policies | 1. Organization and Summary of Significant Accounting Policies
Inventure Foods, Inc., a Delaware corporation (referred to herein as the “Company,” “Inventure Foods,” “we,” “our” or “us”), is a leading marketer and manufacturer of healthy/natural and indulgent specialty snack food brands with more than $269 million in annual net revenues for fiscal 2016.
On September 22, 2017, the Company sold certain assets, properties and rights related to its frozen fruits, vegetable blends and beverages, and frozen desserts business (the “Frozen Fruit Business”) of the Company and its wholly owned subsidiaries, Rader Farms, Inc. (“Rader”) and Willamette Valley Fruit Company (“Willamette”), to Oregon Potato Company (“OPC”) pursuant to an Asset Purchase Agreement, dated as of September 8, 2017, by and among the Company, Rader, Willamette, and OPC ( the “OPC Purchase Agreement”). In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory (the “Frozen Fruit Asset Sale”) .
We specialize in two primary product categories: healthy/natural food products and indulgent specialty snack products. We sell our products nationally through a number of channels including: grocery stores, natural food stores, mass merchandisers, drug and convenience stores, club stores, value, vending, food service, industrial and international. Our goal is to have a diversified portfolio of brands, products, customers and distribution channels.
In our healthy/natural food category, products include Boulder Canyon® brand kettle cooked potato chips, other snack and food items, private label healthy/natural snacks and, prior to September 22, 2017, all of the products included in the Frozen Fruit Asset Sale.
In our indulgent specialty snack food category, products include T.G.I. Friday’s® brand snacks under license from T.G.I. Friday’s Inc. (“T.G.I. Friday’s”), Nathan’s Famous® brand snack products under license from Nathan’s Famous Corporation, Vidalia® brand snack products under license from Vidalia Brands, Inc., Poore Brothers® brand kettle cooked potato chips, Bob’s Texas Style® brand kettle cooked chips, and Tato Skins® brand potato snacks. We also manufacture private label snacks for certain grocery retail chains and co-pack products for other snack manufacturers.
Prior to the Frozen Fruit Asset Sale, we operated in two segments: frozen products and snack products. In September 2017, the Company completed the Frozen Fruit Asset Sale, which consisted of the sale of our remaining operations of the frozen products segment. All products sold under our frozen products segment were considered part of the healthy/natural food category. The frozen products segment included frozen fruits, fruit and vegetable blends, beverages, side dishes and desserts for sale primarily to grocery stores, club stores and mass merchandisers. The snack products segment includes potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded products for sale primarily to snack food distributors and retailers. The products sold under our snack products segment include products considered part of the indulgent specialty snack food category, as well as products considered part of the healthy/natural food category.
On September 22, 2017, we entered into a License and Distribution Agreement with OPC (the “OPC License Agreement”), pursuant to which the Company granted OPC an exclusive, revocable license to use certain Boulder Canyon Authentic Foods trademarks in connection with the manufacture, distribution, sale, advertising and promotion of conventional and organic frozen riced vegetable products and bowls consisting of fruit, vegetables and grains in agreed upon distribution channels, as set forth in the OPC License Agreement. The OPC License Agreement has a term of three years and requires OPC to pay the Company a royalty of 3% of OPC’s Gross Sales (as defined in the OPC License Agreement) during the term of such agreement.
Following the Frozen Fruit Asset Sale, we operate manufacturing facilities in three locations. Our snack products are manufactured at our Phoenix, Arizona and Bluffton, Indiana facilities, as well as select third-party facilities for certain products.
Our fiscal year ends on the last Saturday occurring in the month of December of each calendar year. Accordingly, the third quarter of fiscal 2017 commenced July 2, 2017 and ended September 30, 2017.
Strategic and Financial Review Process
In July 2016, we announced that our Board of Directors (“Board”) had commenced a strategic and financial review of the Company with the objective to increase shareholder value. We engaged Rothschild Inc. to serve as our financial advisor and assist us in this process.
On March 23, 2017, the Company sold certain assets, properties and rights (the “Fresh Frozen Foods Business”) of our wholly owned subsidiary, Fresh Frozen Foods, Inc. (“Fresh Frozen Foods”), to The Pictsweet Company (“Pictsweet”) pursuant to an Asset Purchase Agreement, dated as of such date, among the Company, Fresh Frozen Foods and Pictsweet (the “Pictsweet Purchase Agreement”). In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory (the “Fresh Frozen Asset Sale”). As consideration for the acquisition, Pictsweet paid the Company $23.7 million in cash. The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, and were used to pay down amounts outstanding under the Credit Facilities (defined below).
On September 22, 2017, the Company sold the Frozen Fruit Business of the Company and its wholly owned subsidiaries, Rader and Willamette, to OPC pursuant to the OPC Purchase Agreement. In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory. As consideration for the acquisition, OPC paid the Company $50.0 million in cash. The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, and were used to repay in full the indebtedness under the ABL Credit Facility (defined below) and to pay down indebtedness under the Term Loan Credit Facility (defined below), as required under such Credit Facilities. On September 22, 2017, $2.0 million of the net proceeds were held in escrow to be released upon final determination of the working capital adjustment.
On October 25, 2017, the Company entered into an Agreement and Plan of Merger (the “Utz Merger Agreement”) with Utz Quality Foods, LLC, a Delaware limited liability company (“Utz”), and Heron Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”). Pursuant to the Utz Merger Agreement, and upon the terms and subject to the conditions described therein, Merger Sub will (and Utz will cause Merger Sub to) commence a tender offer (the “Offer”) to purchase any and all of the Company’s outstanding shares of common stock, par value $0.01 per share, at a price per share of $4.00, net to the seller in cash, without interest and subject to any required withholding of taxes. Following the consummation of the Offer, subject to the satisfaction or waiver of certain customary conditions set forth in the Utz Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Utz (the “Utz Merger”).
Since entering into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives. There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms.
In determining to proceed with entering into the Utz Merger Agreement, the Company’s board of directors considered a number of factors, including the following:
·
The Company has incurred recurring losses from operations in each of the quarterly periods since its voluntary product recall in April 2015 and its dependence on additional financing to fund its ongoing operations;
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The Company is currently operating under a limited waiver of certain covenants required by
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The Company has previously required six amendments and waivers to the Term Loan Credit Facility in consecutive periods dating back to March 2016, which were necessitated by the Company’s failure (or anticipated failure) to meet certain financial covenants (the “Prior Waivers”), and absent the Prior Waivers or amendments, the Company would have been in default under the BSP Credit Facility and would not have had sufficient liquidity to operate its business; and
·
The fact that the Company has, despite thorough and extensive efforts, been unsuccessful in obtaining additional funding from private or public financing sources (including both debt and equity), and its limited financial resources greatly reduce its ability to continue operations and invest in its sales, research and development and other aspects of the Company’s business as needed.
Going Concern Uncertainty
We have incurred losses from operations in each of the quarterly periods since our voluntary product recall in April 2015 of certain varieties of the Company’s Fresh Frozen TM brand of frozen vegetables, as well as select varieties of our Jamba® “At Home” line of smoothie kits. This fact, together with the projected near term outlook for our business and our inability to complete a strategic transaction (other than the Fresh Frozen Asset Sale and the Frozen Fruit Asset Sale) by the end of our fiscal year 2016 or that a transaction was imminent, raised substantial doubt about our ability to continue as a going concern as of the end of our 2016 fiscal year. We reported this going concern conclusion in our 2016 Form 10-K filed wit h the SEC on March 31, 2017, together with the following specific conditions considered by management at such time in reaching such conclusion:
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Our five-year, $85.0 million term loan credit agreement with BSP Agency, LLC (“BSP”), as administrative agent, and the other lenders party thereto (the “BSP Lenders”) (with all related loan documents, and as amended from time to time, the “Term Loan Credit Facility”) required us to, among other things, comply with Total Leverage Ratio and Fixed Charge Coverage Ratio (each as defined in the Term Loan Credit Facility) covenants by the end of the second quarter of fiscal 2017 and a minimum EBITDA target covenant (the “EBITDA Covenant”) by the month ended April 30, 2017, which target we did not meet (the “EBITDA Covenant Default”). As discussed below, we received temporary waivers of such default. The Total Leverage Ratio, measured at the end of our second fiscal quarter in 2017 was required to be 4.25:1, and the Fixed Charge Coverage Ratio, measured at the end of our second fiscal quarter in 2017 for the four quarterly periods then ended, was required to be 1.1:1. We previously reported that absent the completion of a strategic transaction yielding sufficient cash proceeds (in addition to the proceeds received from the Fresh Frozen Asset Sale in March 2017 and the Frozen Fruit Asset Sale in September 2017) to pay down debt, waivers or amendments by our lenders, or a refinancing of our debt, we would not be able to comply with these covenants when required to do so. And we reported that the failure to meet these covenants would result in a default under such credit facility and, to the extent the applicable lenders so elected, an acceleration of the Company’s existing indebtedness, causing such debt of approximately $63.7 million at September 30, 2017 (including $2.3 million of other equipment financing indebtedness that includes cross-default provisions) to be immediately due and payable. At such time the Company did not have, and does not currently have, sufficient liquidity to repay all of its outstanding debt in full if such debt were accelerated.
·
Prior to the pay-off of our ABL Credit Facility (defined below) on September 22, 2017 with the proceeds from the Frozen Fruit Asset Sale, our five-year, $50.0 million revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other lenders party thereto (the “Wells Fargo Lenders”) (with all related loan documents, and as amended from time to time, the “ABL Credit Facility” and, together with the Term Loan Credit Facility, the “Credit Facilities”), required us to, among other things, comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) if our liquidity as of the date of any determination was less than the greater of (i) 12.5% of the Maximum Revolver Amount and (ii) $6.125 million, subject to certain conditions.
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The Term Loan Credit Facility also required (and the previous ABL Credit Facility required) us to furnish our audited financial statements without a “going concern” uncertainty paragraph in the auditor’s opinion. Our consolidated financial statements for the fiscal year ended December 31, 2016 in our 2016 Form 10-K contained a “going concern” explanatory paragraph. Under the Credit Facilities, a going concern opinion with respect to our audited financial statements was (and is) an event of default (the “Going Concern Covenant Default”). As of the date our 2016 Form 10-K was filed with the SEC, we had obtained temporary waivers of the Going Concern Covenant Default until May 15, 2017.
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On May 10, 2017, we entered into a Limited Waiver and Third Amendment to the Credit Agreement with the BSP Lenders (the “Term Loan Third Amendment”). Under the terms of the Term Loan Third Amendment, the BSP Lenders granted the Company (i) an extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017, and (ii) a temporary waiver of the EBITDA Covenant Default until July 17, 2017. The Term Loan Third Amendment also required that the Company comply with the EBITDA Covenant commencing with the fiscal month ending June 30, 2017, measured over the 12-months then ended, and increased the Company’s prepayment fees in the event of a payment or prepayment of principal under the Term Loan Credit Facility (excluding regularly scheduled principal payments).
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On May 15, 2017, we entered into a First Amendment to Credit Agreement and Limited Waiver, effective as of May 12, 2017, with Wells Fargo and the Wells Fargo Lenders (the “ABL First Amendment”). Under the terms of the ABL First Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from May 15, 2017 to July 17, 2017. In addition, the terms of the ABL First Amendment provided for, among other things, (i) an increase in the Company’s Applicable Margin for Base Rate and Libor Rate Loans (as such terms are defined in the ABL Credit Facility) effective May 1, 2017 by 100 basis points, (ii) additional financial and collateral reporting obligations and projection requirements, (iii) the immediate right of the Agent (as defined in the ABL Credit Agreement) or the Wells Fargo Lenders to exercise all rights and remedies under the ABL Credit Facility (in lieu of waiting until the earlier of ten business days after the date on which financial statements are required to be delivered for an applicable fiscal month), and (iv) the elimination of the right to issue curative equity.
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On July 17, 2017, we entered into a letter agreement with BSP and the BSP Lenders (the “BSP Letter Agreement”), pursuant to which the BSP Lenders granted the Company (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017, and (ii) a temporary waiver of the financial covenants the Company was required to comply with under the Term Loan Credit Facility (the “Term Loan Financial Covenant Default”) until July 24, 2017.
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On July 17, 2017, we also entered into a Second Amendment to Credit Agreement (the “ABL Second Amendment”) with Wells Fargo and the Wells Fargo Lenders. Under the terms of the ABL Second Amendment, the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 17, 2017 to July 24, 2017. In addition, the ABL Second Amendment provided for, among other things, additional reporting obligations, a reduced revolver commitment over a period of time ($49.0 million prior to the effective date of the ABL Second Amendment; $40.0 million from and after the ABL Second Amendment date through August 1, 2017; and $35.0 million from and after August 1, 2017), and adjusted advance rates.
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On July 20, 2017, we entered into a Limited Waiver and Fourth Amendment to Credit Agreement with BSP and the BSP Lenders (the “Term Loan Fourth Amendment”). Under the terms of the Term Loan Fourth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until August 31, 2017. In addition, the BSP Lenders agreed to provide $5.0 million of additional financing to the Company in the form of a term loan, payable in equal monthly installments of $12,500 commencing on September 30, 2017, with the balance due and payable on November 17, 2020, which is the maturity date of the Term Loan Credit Facility. The net proceeds of this new $5.0 million loan were used for working capital purposes, subject to certain restrictions in the Term Loan Credit Facility, and is subject to the terms and conditions of the Term Loan Credit Facility.
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On July 20, 2017, we also entered into a Third Amendment to Credit Agreement (the “ABL Third Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from July 24, 2017 to August 31, 2017.
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On August 31, 2017, we entered into a Limited Waiver and Fifth Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Fifth Amendment”). Under the terms of the Term Loan Fifth Amendment the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017, and (ii) a temporary waiver of the Term Loan Financial Covenant Default until September 30, 2017.
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On August 31, 2017, we also entered into a Fourth Amendment to Credit Agreement (the “ABL Fourth Amendment”) with Wells Fargo and the Wells Fargo Lenders, pursuant to which the Wells Fargo Lenders granted the Company a further extension of the temporary waiver of the Going Concern Covenant Default from August 31, 2017 to September 30, 2017.
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On September 22, 2017, the net proceeds from Frozen Fruit Asset Sale were used to repay in full the indebtedness under the ABL Credit Facility, as required under such facility.
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On September 29, 2017, we entered into a Limited Waiver and Sixth Amendment to Credit Agreement with which further amended the Term Loan Credit Facility (the “Term Loan Sixth Amendment”). Under the terms of the Term Loan Sixth Amendment, the BSP Lenders agreed to (i) a further extension of the temporary waiver of the Going Concern Covenant Default from September 30, 2017 to October 31, 2017, (ii) a temporary waiver of the Term Loan Financial Covenant Default until October 31, 2017, and (iii) amend certain other provisions of the Term Loan Credit Facility.
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On October 25, 2017, we entered into a Limited Waiver, Consent and Seventh Amendment to Credit Agreement with BSP, which further amended the Term Loan Credit Facility (the “Term Loan Seventh Amendment”). Under the terms of the Term Loan Seventh Amendment, the BSP Lenders (i) agreed to a further extension of the temporary waiver of the Going Concern Covenant Default from October 31, 2017 to the Waiver Deadline (as defined below), (ii) agreed to a temporary waiver of the Term Loan Financial Covenant Default until the Waiver Deadline, (iii) agreed to amend certain other provisions of the Term Loan Credit Facility, and (iv) consented to the Company’s entering into the Utz Merger Agreement and consummation of the Offer and the Utz Merger, provided that the net proceeds are applied to prepay in full the loans and all other amounts due under the Term Loan Credit Facility. The Waiver Deadline is the earliest to occur of January 15, 2018, the occurrence of an e vent of default under the Term Loan Credit Facility and the termination of the Utz Merger Agreement . In addition, the BSP Lenders agreed to provide the Company $5 million of additional financing in the form of a term loan, payable in equal monthly installments of $12,500, commencing on December 30, 2017, with the balance due and payable on December 29, 2020. The net proceeds of this new $5 million loan will be used for paying interest on outstanding indebtedness under the Term Loan Credit Facility and payment of trade payables in the ordinary course of business, subject to certain restrictions in the Term Loan Credit Facility.
Since we entered into the Utz Merger Agreement on October 25, 2017, we have ceased our efforts to explore other strategic alternatives. There can be no assurance that we will be able consummate the Utz Merger or the transactions contemplated by the Utz Merger Agreement in time to address our financial covenant requirements and going concern qualification, or at all, or if we do complete the Utz Merger or another strategic transaction it will be on commercially reasonable terms. As a result, our liquidity and ability to timely pay our obligations when due could be adversely affected.
The accompanying condensed consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern, other than the reclassification of certain long-term debt and the related debt issuance costs to current liabilities and current assets, respectively.
Our lenders may resist renegotiation or lengthening of payment and other terms through legal action or otherwise if we are unsuccessful in our efforts to complete a strategic transaction. If we are not able to timely, successfully or efficiently implement the strategies that we are pursuing, we may need to seek voluntary protection under Chapter 11 of the U.S. Bankruptcy Code.
Basis of Presentation
The condensed consolidated financial statements for the fiscal quarter ended September 30, 2017 are unaudited and include the accounts of Inventure Foods and all of its wholly owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. The condensed consolidated financial statements, including the December 31, 2016 consolidated balance sheet data which was derived from audited financial statements, have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the condensed consolidated financial statements not misleading. A description of our accounting policies and other financial information is included in the audited financial statements filed with our 2016 Form 10-K. The results of operations for the fiscal quarter ended September 30, 2017 are not necessarily indicative of the results expected for the full year.
Discontinued Operations
On March 23, 2017, the Company sold its Fresh Frozen Foods Business to Pictsweet pursuant to the Pictsweet Purchase Agreement. In accordance with the Pictsweet Purchase Agreement, Pictsweet acquired Fresh Frozen Foods’ frozen food processing equipment assets, certain real property and associated facilities located in Jefferson, Georgia and Thomasville, Georgia, and other intellectual property and inventory. As consideration for this acquisition, Pictsweet paid the Company $23.7 million in cash. The net proceeds from the Fresh Frozen Asset Sale were $19.5 million, after payment of professional fees and other transaction expenses, which were used to pay down amounts outstanding under the Credit Facilities. The results of operations for the Fresh Frozen Foods Business have been classified as discontinued operations for all periods presented. The assets and liabilities that were included in the Fresh Frozen Asset Sale have been presented as held for sale as of December 31, 2016. As required by the terms of the Pictsweet Purchase Agreement, we have changed the name of our Fresh Frozen Foods subsidiary from Fresh Frozen Foods, Inc. to Inventure – GA, Inc.
On September 22, 2017, the Company sold its Frozen Fruit Business to OPC pursuant the OPC Purchase Agreement. In accordance with the OPC Purchase Agreement, OPC acquired Rader’s and Willamette’s frozen fruit processing equipment assets, Sin In A Tin frozen desert processing equipment, certain real property and associated facilities located in Lynden, Washington, Bellingham, Washington, Salem, Oregon and Pensacola, Florida, and other intellectual property and inventory. As consideration for the acquisition, OPC paid the Company $50.0 million in cash. The net proceeds from the Frozen Fruit Asset Sale were $38.9 million, after payment of professional fees and transaction and other expenses, which were used to repay in full the indebtedness under the ABL Credit Facility and to pay down indebtedness under the Term Loan Credit Facility, as required under such Credit Facilities. Also on September 22, 2017, $2.0 million of the net proceeds were placed in escrow to be released upon final determination of the working capital adjustment required under the OPC Purchase Agreement. The results of operations for the Frozen Fruit Business have been classified as discontinued operations for all periods presented. The assets and liabilities that were included in the Frozen Fruit Asset Sale have been presented as held for sale as of December 31, 2016. As required by the terms of the OPC Purchase Agreement, we have changed the names of our Rader subsidiary to Inventure – WA, Inc. and our Willamette subsidiary to Inventure – OR, Inc.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. We classify our investments based upon an established fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are described as follows:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
Level 2 Quoted prices in markets that are not considered to be active or financial instruments without quoted market prices, but for which all significant inputs are observable, either directly or indirectly
Level 3 Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
At September 30, 2017 and December 31, 2016, the carrying value of cash, accounts receivable, accounts payable and accrued liabilities approximate fair values since they are short term in nature. The carrying value of the term debt approximates fair value based on the borrowing rates currently available to us for long-term borrowings with similar terms. The following table summarizes the valuation of our assets and liabilities measured at fair value on a recurring basis at the respective dates set forth below (in thousands):
September 30, 2017
December 31, 2016
Non-qualified
Non-qualified
Deferred
Earn-out
Deferred
Earn-out
Compensation
Contingent
Compensation
Contingent
Plan
Consideration
Plan
Consideration
Balance Sheet Classification
Investments
Obligation
Investments
Obligation
Other assets
Level 1
$
742
$
—
$
650
$
—
Current liabilities held of sale
Level 3
—
—
—
(270)
Noncurrent liabilities held of sale
Level 3
—
—
—
(1,521)
$
742
$
—
$
650
$
(1,791)
Considerable judgment is required in interpreting market data to develop the estimate of fair value of our assets and liabilities. Accordingly, the estimate may not be indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.
The Company’s non-qualified deferred compensation plan assets consist of money market and mutual funds invested in domestic and international marketable securities that are directly observable in active markets.
The earn-out consideration obligations relate to the acquisitions of Sin In A Tin TM in September 2014 and Willamette in May 2013 and were assumed by OPC as part of the Frozen Fruit Asset Sale in September 2017. Prior to the Frozen Fruit Asset Sale, the fair value measurement of the earn-out contingent consideration obligations were included in accrued liabilities and other long-term liabilities in the consolidated balance sheets. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the obligation are recorded as income or expense in our consolidated statements of operations. To determine the fair value, we valued the contingent consideration liability based on the expected probability weighted earn-out payments corresponding to the performance thresholds agreed to under the applicable purchase agreements. The expected earn-out payments were then present valued by applying a discount rate that captures a market participants view of the risk associated with the expected earn-out payments.
A summary of the activity of the fair value of the measurements using unobservable inputs (Level 3 liabilities) for the nine months ended September 30, 2017 is as follows (in thousands):
Level 3
Balance at December 31, 2016
$
1,791
Earn-out compensation paid to Willamette
(230)
Earn-out compensation paid to Sin In A Tin
(9)
Contingent consideration assumed by OPC in Frozen Fruit Asset Sale
(1,552)
Balance at September 30, 2017
$
—
Income Taxes
Income tax expense was $10,000 for the fiscal quarter ended September 30, 2017, compared to a tax benefit of $1.3 million for the fiscal quarter ended September 24, 2016. Our effective tax rate was (0.2)% and 42.9% for the fiscal quarters ended September 30, 2017 and September 24, 2016, respectively.
Income tax expense was $31,000 for the nine months ended September 30, 2017, compared to a tax benefit of $2.8 million for the nine months ended September 24, 2016. Our effective tax rate was (0.3)% and 36.0% for the nine months ended September 30, 2017 and September 24, 2016, respectively.
Income tax expense for the fiscal quarter and nine months ended September 30, 2017 was impacted by the full valuation allowance which was initially recorded in the fourth quarter of 2016. Therefore, income tax expenses was a result of certain state minimum taxes and deferred tax liabilities not subject to the valuation allowance.
Loss P |
