2.Acquisitions

 

Sin In A Tin

 

On September 29, 2014, we acquired the assets and intellectual property of a small boutique frozen desserts business, Sin In A Tin, for approximately $160,000 in cash. An additional amount of up to $0.5 million is payable to the seller in the form of an earn-out based on future net revenues from the Sin In A Tin products.  At the time of acquisition, the contingent consideration was recorded at $0.2 million based on the fair value assessment.   Additionally, we recorded $0.1 million of identifiable intangible assets and $0.1 million of net tangible assets that were assumed as a part of this acquisition based on their estimated fair values, and $0.2 million of residual goodwill.

 

The above allocation will remain preliminary until the Company has all of the information necessary to finalize the allocation of the purchase price, which shall be no later than one year following the acquisition date.

 

Fresh Frozen Foods

 

On November 8, 2013, we acquired substantially all of the assets, properties and rights of Fresh Frozen Foods, a branded frozen vegetable processor.  As consideration for the acquisition, we assumed certain liabilities and obligations of Fresh Frozen Foods and paid an aggregate purchase price of $38.4 million in cash plus a working capital adjustment of $0.4 million.  A portion of the purchase price was used to settle Fresh Frozen Foods’ existing debt as of the closing of the transaction.  An additional amount of up to $3.0 million could have been payable to Fresh Frozen Foods as contingent consideration in the form of an earn-out based on 2014 performance.  At the time of acquisition, the contingent consideration was recorded at $2.7 million based on the fair value assessment at acquisition.  Such contingent payment, if any, would be paid during the first quarter of 2015.   Acquisition costs of $1.1 million were incurred during the year ended December 28, 2013 and are included within selling, general and administrative expenses.  The amount of net revenues attributable to Fresh Frozen Foods included in the consolidated statements of operations since the acquisition date were $8.9 million in fiscal 2013.  We do not allocate certain selling, general and administrative expenses and therefore, it is impracticable for us to separately identify earnings of the acquired entity since acquisition.

 

The following table summarizes the purchase price and estimated fair value of assets acquired and liabilities assumed at the date of acquisition (in thousands):

 

 

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.  The excess purchase price over fair value of net assets acquired was recorded as goodwill.  The goodwill recorded as a result of the acquisition of Fresh Frozen Foods is expected to be deductible for tax purposes.

 

Identified intangible assets of $20.0 million consist of customer relationships and trade name.  The customer relationships are amortized using the straight-line method over the estimated useful life of twelve years.  We believe the acquired trade name has the continued ability to generate cash flows indefinitely, and therefore the trade name has been determined to have an indefinite life.

 

Goodwill of $8.3 million represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from Fresh Frozen Foods. In accordance with current accounting standards, the goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year.

 

See Note 3 “Goodwill, Trademarks and Other Intangible Assets” for additional information.

 

Based on Fresh Frozen Foods’ financial performance for fiscal 2014, we concluded the earn-out would not be paid.  Accordingly, the liability for contingent consideration was adjusted to $0, which resulted in a decrease in operating expenses of $2.7 million during the year ended December 27, 2014.

 

Willamette Valley Fruit Company

 

On May 28, 2013, we enhanced our berry purchase and freezing capabilities by acquiring the berry processing business of Willamette Valley Fruit Company, LLC, one of the Pacific Northwest’s leading processors of high-quality berry products, for a cash purchase price of $9.3 million.  An additional amount of up to $3.0 million may be payable to Willamette Valley Fruit Company as contingent consideration if certain performance thresholds are met during the seven-year period following the closing of the transaction.  Under the terms of the purchase agreement, we acquired substantially all of the berry processing equipment assets, including a new Individually Quick Frozen (“IQF”) tunnel, and other intellectual property and inventory rights.  We also entered into leases of the land and buildings containing the purchased assets in connection with the transaction.  The amount of net revenues attributable to Willamette Valley Fruit Company included in the consolidated statements of operations since the acquisition date were $14.1 million in fiscal 2013.  We do not allocate certain selling, general and administrative expenses and therefore, it is impracticable for us to separately identify earnings of the acquired entity since acquisition.

 

The following table summarizes the purchase price and the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition and provides certain supplemental cash flow information (in thousands):

 

 

Under the acquisition method of accounting, the purchase price as shown in the table above is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values.  The excess purchase price over fair value of net assets acquired was recorded as goodwill.  The goodwill recorded as a result of the acquisition of Willamette Valley Fruit Company is expected to be deductible for tax purposes.  The estimated values of current liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.

 

Identified intangible assets of $3.9 million consist of customer relationships and trade name.  The customer relationships are amortized using the straight-line method over the estimated useful life of ten years.  We believe the acquired trade name has the continued ability to generate cash flows indefinitely, and therefore the trade name has been determined to have an indefinite life.

 

Goodwill of $3.1 million represents the excess of the purchase price over the estimated fair value assigned to tangible and identifiable intangible assets acquired and liabilities assumed from Willamette Valley Fruit Company. In accordance with current accounting standards, the goodwill is not amortized and will be tested for impairment annually in the fourth quarter of our fiscal year.

 

See Note 3 “Goodwill, Trademarks and Other Intangible Assets” for additional information.

 

During the first quarter of 2014 we paid $0.5 million of the contingent consideration upon completion of certain thresholds achieved during the 2013 fiscal period.  We also paid $0.8 million in holdbacks upon expiration of certain indemnification and completion of post-acquisition obligations.  As of December 27, 2014, we reduced our estimate of the total earn-out expected to be achieved.  Accordingly, the liability for contingent consideration was adjusted to $1.6 million, which resulted in a decrease in operating expenses of $0.3 million during the year ended December 27, 2014.

 

Consolidated Pro Forma Financial Information

 

The following unaudited pro forma consolidated results of operations (in thousands, except per share data) assumes the Willamette Valley Fruit Company and Fresh Frozen Foods acquisitions occurred as of the beginning of the earliest period presented.  The unaudited pro forma results include estimates and assumptions regarding increased amortization of intangible assets related to the acquisitions, increased interest expense related to debt acquired in order to fund the acquisitions and the related tax effects.  The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been completed as of the beginning of each of the periods presented, nor are they necessarily indicative of future consolidated results.  Pro forma information related to the Sin In A Tin acquisition has not been included as it is not material.