Business Acquisitions

12 Months Ended

Dec. 30, 2017

Business Combination Disclosure Text Block

2. Business Acquisitions

Sunrise Holdings (Delaware), Inc.

On October 9, 2015, the Company completed the acquisition of 100% of the issued and outstanding common shares of Sunrise Holdings (Delaware), Inc. (“Sunrise”), pursuant to a Purchase and Sale Agreement dated July 30, 2015 (the “Sunrise Acquisition”). Sunrise is a processor of conventional and organic frozen fruit in the U.S. and Mexico. The acquisition of Sunrise was accounted for as a business combination under the acquisition method of accounting. The results of Sunrise have been included in the Company’s consolidated financial statements since the date of acquisition and are reported in the Consumer Products operating segment. The acquisition of Sunrise is aligned with the Company’s strategic focus on organic and healthy foods.

Total consideration for the Sunrise Acquisition was $472.7 million in cash paid at the acquisition date, which included the repayment of all outstanding obligations under Sunrise’s senior credit facility in the amount of $171.5 million. In addition, the total consideration included $23.0 million paid by the Company to the holders of Sunrise stock options. As all outstanding Sunrise stock options vested upon the consummation of the Sunrise Acquisition, pursuant to the terms of Sunrise’s pre-existing stock option agreements, the cash consideration paid to the option holders was attributed to services prior to the Sunrise Acquisition and included as a component of the purchase price. The total consideration also included $20.9 million paid by the Company to settle acquisition-related transaction costs incurred by Sunrise in connection with the Sunrise Acquisition. As none of these costs were incurred by Sunrise on behalf of the Company, the cash consideration paid to settle these costs was included as a component of the purchase price.

The following table summarizes the fair values of the assets acquired and liabilities assumed as at the acquisition date

							$
Cash and cash equivalents							1,728
Accounts receivable							26,090
Inventories⁽¹⁾							124,829
Income taxes recoverable							12,025
Other current assets							3,982
Property, plant and equipment							46,068
Intangible assets⁽²⁾							170,000
Accounts payable and accrued liabilities							(24,169)
Long-term debt, including current portion							(7,620)
Deferred income taxes, net							(75,193)
Net identifiable assets acquired							277,740
Goodwill⁽³⁾							196,709
Non-controlling interest⁽⁴⁾							(1,781)
Net assets acquired							472,668

(1) Includes an estimated fair value adjustment to inventory of $19.0 million, of which $15.0 million and $4.0 million was recognized in costs of goods sold for inventory sold during 2016 and in the fourth quarter of 2015, respectively.

(2) The identified intangible assets relate to customer relationships in existence at the acquisition date between Sunrise and major U.S. retail and foodservice customers. The customer relationships intangible assets will be amortized over an estimated weighted-average useful life of approximately 23 years. The estimated fair value of the intangible asset was determined using an income approach (discounted cash flow method), which applied a risk-adjusted discount rate of approximately 12.0%.

(3) Goodwill is calculated as the difference between the acquisition-date fair values of the total consideration and the net assets acquired. The total amount of goodwill has been assigned to the Consumer Products operating segment and is not expected to be deductible for tax purposes. The goodwill recognized is attributable to: (i) cost savings, operating synergies, and other benefits expected to result from combining the operations of Sunrise with those of the Company; (ii) the value of longer-term growth prospects in the private label frozen fruit market; (iii) the value of acquiring the current capabilities and low-cost position of the existing Sunrise business (i.e., the higher rate of return on the assembled net assets versus acquiring all of the net assets separately); and (iv) the value of Sunrise’s assembled workforce.

In 2017, the Company recorded a $115.0 million impairment charge related to the goodwill that arose from the Sunrise Acquisition (see note 11).

(4) Represents the estimated fair value of the non-controlling interest in Sunrise’s 75%-owned Mexican subsidiary, Opus Foods Mexico, S.A. de C.V. (“Opus”). In 2017, the Company acquired all of the non-controlling interests in Opus (see note 3).

Niagara Natural Fruit Snack Company Inc.

On August 11, 2015, the Company acquired the net operating assets of Niagara Natural Fruit Snack Company Inc. (“Niagara Natural”). Niagara Natural is a manufacturer of all-natural fruit snacks located in the Niagara Region of Ontario. The acquisition of the net operating assets of Niagara Natural was accounted for as a business combination under the acquisition method of accounting. The results of Niagara Natural have been included in the Company’s consolidated financial statements since the date of acquisition and are reported in the Consumer Products operating segment. The transaction included a cash purchase price of $6.5 million, subject to certain post-closing adjustments, plus contingent consideration of up to approximately $2.8 million based on specific performance targets. The fair value of the contingent consideration obligation was determined to be $2.3 million as at the acquisition date.

The following table summarizes the fair values of the assets acquired and liabilities assumed as at the acquisition date:

	Provisional Amounts Recognized as at the Acquisition Date	Measurement Period Adjustment⁽¹⁾	Final Amounts Recognized as at the Acquisition Date
	$	$	$
Current assets	2,220	(292)	1,928
Machinery and equipment	3,414	-	3,414
Intangible assets⁽²⁾	2,459	-	2,459
Current liabilities	(687)	-	(687)
Net identifiable assets acquired	7,406	(292)	7,114
Goodwill⁽³⁾	1,636	-	1,636
Net assets acquired	9,042	(292)	8,750

(1) The measurement period adjustment reflected the final determination of net working capital as at the acquisition date.

(2) Intangible assets comprise customer relationships and non-competition arrangements, which will be amortized over an estimated weighted-average useful life of approximately 19 years.

(3) The total amount of goodwill was assigned to the Consumer Products operating segment.

On May 5, 2016, the Company and the owners of Niagara Natural entered into an agreement to settle the contingent consideration obligation in exchange for a one-time cash payment of $0.6 million. In 2016, the Company recognized a gain of $1.7 million in connection with this settlement, based on the difference between the fair value of the contingent consideration obligation and the cash payment, which is recorded in other expense on the consolidated statement of operations for the year ended December 31, 2016.

Citrusource, LLC

On March 2, 2015, the Company acquired 100% of the issued and outstanding units of Citrusource, LLC (“Citrusource”), a producer of premium not-from-concentrate private label organic and conventional orange juice and citrus products in the U.S. The acquisition of Citrusource was accounted for as a business combination under the acquisition method of accounting. The results of Citrusource have been included in the Company’s consolidated financial statements since the date of acquisition and are reported in the Consumer Products operating segment. The transaction included a cash purchase price of $13.3 million, subject to certain post-closing adjustments, plus contingent consideration based on the incremental growth in Citrusource’s base business. The fair value of the contingent consideration obligation was determined to be $18.0 million as at the acquisition date. In 2017 and 2016, the Company paid $4.1 million and $3.9 million, respectively, to the former unitholders of Citrusource in partial settlement of the contingent consideration obligation.

The following table summarizes the fair values of the assets acquired and liabilities assumed as at the acquisition date:

							$
Accounts receivable							2,351
Inventories							1,745
Machinery and equipment							164
Customer relationships intangible asset⁽¹⁾							14,000
Accounts payable and accrued liabilities							(1,666)
Net identifiable assets acquired							16,594
Goodwill⁽²⁾							15,136
Net assets acquired							31,730

(1) The customer relationships intangible asset was recognized based on contracts in existence at the acquisition date between Citrusource and major U.S. retail customers. This intangible asset will be amortized over an estimated useful life of approximately 12 years.

(2) Goodwill is calculated as the difference between the acquisition-date fair values of the consideration transferred and net assets acquired. The total amount of goodwill has been assigned to the Consumer Products operating segment and is expected to be fully deductible for tax purposes. The goodwill recognized is attributable to: (i) operating synergies expected to result from combining the operations of Citrusource with those of the Company; and (ii) opportunities to leverage the business experience of Citrusource’s management team to grow the Company’s existing citrus beverage program.