Hormel Foods 2014 Annual Report Download - page 47

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The Company recognized approximately $7.7 million of trans-
action costs in fiscal year 2013 (excluding transitional service
expenses) related to the acquisition and the charges were
reported in selling, general and administrative expense in the
Consolidated Statement of Operations.
Operating results for both of these SKIPPY® acquisitions have
been included in the Company’s Consolidated Statements
of Operations from the date of acquisition and are primarily
reflected in the Grocery Products and International & Other
reporting segments. The China based business contributed an
incremental $28.9 million of net sales for fiscal year 2014. The
United States based business contributed an incremental $86.5
million of net sales for the first quarter of fiscal year 2014, and
an incremental $272.8 million of net sales for fiscal year 2013.
SKIPPY® is a well-established brand that allows the Company
to expand its presence in the center of the store with a non-
meat protein product and reinforces the Company’s balanced
product portfolio. The acquisition also provides the opportunity
to strengthen the Company’s global presence and complements
the international sales strategy for the SPAM® family of products.
Pro forma results of operations are not presented, as no acquisi-
tions in fiscal years 2014, 2013, or 2012 were considered material,
individually or in the aggregate, to the consolidated Company.
Note E
Inventories
Principal components of inventories are:
October 26, October 27,
(in thousands) 2014 2013
Finished products $ 604,946 $ 544,858
Raw materials and work-in-process 274,105 248,411
Materials and supplies 175,501 174,708
Total $ 1,054,552 $ 967,977
On January 31, 2013, the Company had previously acquired
the United States based SKIPPY® peanut butter business from
Unilever United States Inc. for a purchase price of $665.4
million in cash. This acquisition included the Little Rock,
Arkansas manufacturing facility and all sales worldwide,
except sales in Mainland China. The purchase price was
funded by the Company with cash on hand generated from
operations and liquidating marketable securities.
The acquisition was accounted for as a business combina-
tion using the acquisition method. The Company estimated
the acquisition date fair values of the assets acquired and
liabilities assumed, using independent appraisals and other
analyses, and determined final working capital adjustments.
Therefore, an allocation of the final purchase price to the
acquired assets, liabilities, and goodwill is presented in the
table below.
(in thousands)
Inventory $ 49,156
Property, plant and equipment 48,461
Intangible assets 264,500
Goodwill 303,597
Current liabilities (299)
Purchase price $ 665,415
Goodwill is calculated as the excess of the purchase price
over the fair value of the net assets recognized. The goodwill
recorded as part of the acquisition primarily reflects the
value of the assembled workforce, cost synergies, and the
potential to integrate and expand existing product lines. The
goodwill balance is expected to be deductible for income
tax purposes. The goodwill and intangible assets have been
allocated to the Grocery Products and International & Other
reporting segments.
Note F
Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the fiscal years ended October 26, 2014, and October 27, 2013, are presented
in the table below. The additions during the fiscal year ended October 26, 2014, are due to the acquisitions of CytoSport on
August 11, 2014, and the China based SKIPPY® peanut butter business on November 26, 2013. The additions during the prior
fiscal year ended October 27, 2013, are entirely due to the acquisition of the United States based SKIPPY® peanut butter business
on January 31, 2013.
Grocery Refrigerated Specialty International
(in thousands) Products Foods JOTS Foods & Other Total
Balance as of October 28, 2012 $ 123,316 $ 96,643 $ 203,214 $ 207,028 $ 674 $ 630,875
Goodwill acquired 199,626 – – – 103,971 303,597
Balance as of October 27, 2013 $ 322,942 $ 96,643 $ 203,214 $ 207,028 $ 104,645 $ 934,472
Goodwill acquired – – – 263,829 28,105 291,934
Balance as of October 26, 2014 $ 322,942 $ 96,643 $ 203,214 $ 470,857 $ 132,750 $ 1,226,406