Acquisition

9 Months Ended

Oct. 08, 2011

Acquisition [Abstract]

Acquisition

4. ACQUISITION

On May 20, 2011, a wholly owned subsidiary of the company acquired 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. The acquisition facilitated our expansion into new geographic markets and increased our manufacturing capacity. In addition, the TastyKake brand increased our position in the branded snack cake 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 because they were not paid at closing. The acquisition 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 pursuant to the acquisition into the right to receive $4.00 per share in cash as consideration, without interest and less any applicable withholding taxes.

The company incurred $0.7 million and $6.0 million of acquisition-related costs for the twelve and forty weeks ended October 8, 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 on the estimated fair value at the acquisition date (amounts in thousands):

Fair value of consideration transferred:
Total tender, acquisition consideration, debt cash payments and change in control payments	$	172,109
Recognized amounts of identifiable assets acquired and liabilities assumed:
Financial assets	$	44,160
Inventories		7,830
Property, plant, and equipment		99,796
Identifiable intangible assets		51,419
Deferred income taxes		14,856
Financial liabilities		(66,752	)
Net recognized amounts of identifiable assets acquired	$	151,309
Goodwill	$	20,800

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

	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 $20.8 million was allocated to the DSD operating segment. The primary reasons for the acquisition are to distribute TastyKake products throughout our distribution network and Nature's Own products throughout the legacy Tasty markets. 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 Tasty acquisition.

Tasty contributed revenues of $52.2 million and income from operations of $(0.1) million for the twelve weeks ended October 8, 2011. Tasty contributed revenues of $72.4 million and income from operations of $0.1 million from the acquisition date through October 8, 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 12 weeks ended		For the 40 weeks ended
	October 9, 2010		October 8, 2011		October 9, 2010
Sales:
As reported	$	597,894	$	2,119,790	$	2,000,636
Pro forma	$	647,125	$	2,213,084	$	2,155,552
Net income:
As reported	$	31,166	$	100,390	$	105,609
Pro forma	$	29,809	$	99,799	$	109,047
Basic net income per common share:
As reported	$	0.23	$	0.74	$	0.77
Pro forma	$	0.22	$	0.74	$	0.79
Diluted net income per common share:
As reported	$	0.23	$	0.73	$	0.76
Pro forma	$	0.22	$	0.73	$	0.79

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 acquisition with our credit facility and to conform Tasty's revenue recognition policies. The pro forma also reflects adjustments for our acquisition costs of $0.7 million and $6.0 million for the twelve and forty weeks ending October 8, 2011, respectively. These costs were removed from the Tasty fiscal 2011 results. 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.