Acquisition

6 Months Ended

Jul. 16, 2011

Acquisition

Acquisition

4. ACQUISITION

On May 20, 2011, a wholly owned subsidiary of the company merged with Tasty Baking Company ("Tasty"). Tasty operates two bakeries in the Philadelphia, Pennsylvania area and serves customers primarily in the northeastern United States under the TastyKake snack brand. The results of Tasty's operations are included in the company's consolidated financial statements as of May 20, 2011 and are included in the company's DSD operating segment. As a result of the merger, the company has expanded into new geographic markets and has increased our manufacturing capacity. In addition, the TastyKake brand will increase our position in the snack cake branded products category.

The aggregate purchase price was $172.1 million, including the payoff of certain indebtedness, Tasty transaction expenses and change in control payments. The change in control payments have been accrued as they were not paid concurrent with closing. The merger was completed through a short-form merger following the company's tender offer through a wholly owned subsidiary for all of the outstanding shares of common stock of Tasty for $4.00 per share in cash, without interest and less any applicable withholding tax. Each share of Tasty not accepted for payment in the tender offer was converted into the right to receive the $4.00 per share in cash as merger consideration, without interest and less any applicable withholding taxes, which is the same price in the tender offer.

The company incurred $4.5 million and $5.3 million of acquisition-related costs for the twelve and twenty-eight weeks ended July 16, 2011, respectively. These expenses are included in selling, distribution and administrative expense in the company's Consolidated Statement of Income.

The following table summarizes the consideration transferred to acquire Tasty and the amounts of identified assets acquired and liabilities assumed based in the estimated fair value at the merger date (amounts in thousands):

Fair value of consideration transferred:
Total tender, merger consideration, debt cash payments and change in control payments	$	172,109
Recognized amounts of identifiable assets acquired and liabilities assumed:
Financial assets	$	44,078
Inventories		7,830
Property, plant, and equipment		99,796
Identifiable intangible assets		51,419
Deferred income taxes		14,856
Financial liabilities		(66,192	)
Net recognized amounts of identifiable assets acquired	$	151,787
Goodwill	$	20,322

The following table presents the allocation of the intangible assets subject to amortization (amounts in thousands, except for amortization periods):

	Amount		Weighted average Amortization years
Trademarks	$	36,409		40.0
Customer relationships		13,487		25.0
Distributor relationships		1,523		15.0
	$	51,419		35.3

Goodwill of $20.3 million is allocated to the DSD operating segment. Goodwill is primarily attributable to the distribution of TastyKake products throughout our distribution network and Nature's Own products throughout the legacy Tasty distribution network. None of the intangible assets, including goodwill, are deductible for tax purposes.

The fair value of the assets acquired includes trade receivables of $17.3 million. The gross amount due is $20.2 million, of which $2.9 million is expected to be uncollectible. The company did not acquire any other class of receivable as a result of the merger with Tasty.

Tasty contributed revenues of $20.2 million and income from operations of $0.2 million for the period from May 20, 2011 to July 16, 2011. The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Tasty occurred at the beginning of fiscal 2010 (amounts in thousands, except per share data):

	For the twelve weeks ended				For the twenty-eight weeks ended
	July 16, 2011		July 17, 2010		July 16, 2011		July 17, 2010
Sales:
As reported	$	642,596	$	607,716	$	1,444,421	$	1,402,742
Pro forma	$	677,506	$	660,797	$	1,496,036	$	1,508,427
Net income:
As reported	$	28,210	$	33,756	$	69,371	$	74,443
Pro forma	$	25,749	$	34,254	$	73,378	$	79,885
Basic net income per common share:
As reported	$	0.21	$	0.25	$	0.51	$	0.54
Pro forma	$	0.19	$	0.25	$	0.54	$	0.58
Diluted net income per common share:
As reported	$	0.21	$	0.24	$	0.51	$	0.54
Pro forma	$	0.19	$	0.25	$	0.54	$	0.58

These amounts have been calculated after applying the company's accounting policies and adjusting the results to reflect additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant, and equipment, and amortizable intangible assets have been applied. In addition, pro forma adjustments have been made for the interest incurred for financing the merger with our credit facility and to conform Tasty's revenue recognition policies. The pro forma also reflects adjustments for our acquisition costs of $4.5 million and $5.3 million for the twelve and twenty-eight weeks ending July 16, 2011, respectively. Taxes have also been adjusted for the effect of the items discussed. These pro forma results of operations have been prepared for comparative purposes only, and they do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred on the date indicated or that may result in the future.