Equity Method Investments

6 Months Ended

Jul. 02, 2016

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments

EQUITY METHOD INVESTMENTS

As part of our acquisition of Diamond, we obtained 51% of the outstanding shares of Yellow Chips Holding B.V. (“Yellow Chips”), which produces vegetable chips and organic potato chips primarily for the Dutch and other European markets. The investment is accounted for under the equity method as the other owners have substantive participating rights that provide them with the more significant influence over the financial performance of Yellow Chips. The investment was measured at fair value as part of the purchase price allocation when we purchased Diamond. However, the initial valuation of Yellow Chips is preliminary and may be adjusted in future quarters. The carrying value of the investment as of July 2,2016 was $8.6 million. We also have a loan receivable outstanding with Yellow Chips of $1.6 million as of July 2,2016. Our share of income from Yellow Chips for the period subsequent to February 29, 2016 is not material and is included in other income, net in the Condensed Consolidated Statements of Income.

The agreement with Yellow Chips includes call and put options on the remaining 49% outstanding equity that we or the other Yellow Chips shareholders can exercise if a certain EBITDA target is met after 2018 or under other circumstances. The agreement also includes rights for us to sell our ownership interest and require the remaining shareholders to sell their holdings to the same buyer in the event that we want to sell our shares if the EBITDA threshold is not met. There are similar rights for the other shareholders to sell their shares and requires us to also sell our shares to the same buyer if we have not first exercised our right to initiate a sale. If the party initiating such a sale does not require the other shareholder(s) to sell, the other shareholder(s) can in any case choose to require the same buyer to also buy their shares.

We also obtained 26% of the outstanding shares of Metcalfe’s Skinny Limited (“Metcalfe”), owner of Metcalfe’s Skinny Popcorn, a premium ready-to-eat popcorn brand in the United Kingdom, in conjunction with our acquisition of Diamond. The investment is accounted for under the equity method. The investment was measured at fair value as part of the purchase price allocation when we purchased Diamond. However, the initial valuation of Meltcalfe is preliminary and may be adjusted in future quarters. The carrying value of the investment as of July 2,2016 was $4.3 million. Our share of income from Meltcalfe for the period subsequent to February 29, 2016 is not material and is included in other income, net in the Condensed Consolidated Statements of Income. The agreement with Meltcalfe also includes a call option on the remaining 74% outstanding equity that we or the other shareholders can exercise.

The fair value of equity method investments measured on a non-recurring basis is classified as a Level 3 fair value measurement. The fair value determinations were made using the discounted cash flows under the income approach, which required us to estimate unobservable factors such as the discount rate and identify relevant projected revenue and expenses.