Hormel Foods 2015 Annual Report Download - page 47

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The Company recognized approximately $4.8 million of trans-
action costs in fi scal year 2014 related to the acquisition and
the charges were reported in selling, general and administra-
tive expense in the Consolidated Statement of Operations.
On November 26, 2013, the Company acquired the China
based SKIPPY® peanut butter business from Conopco, Inc.
(doing business as Unilever United States Inc.), of Englewood
Cliffs, N.J. for a fi nal purchase price of $41.9 million in cash.
This acquisition included the Weifang, China manufacturing
facility and all sales in Mainland China. The purchase price
was funded by the Company with cash on hand.
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.
On January 31, 2013, the Company had previously acquired
the United States based SKIPPY® peanut butter business
from Unilever United States Inc. for a fi nal purchase price
of $665.4 million in cash. This acquisition included the Little
Rock, Arkansas manufacturing facility and all sales world-
wide, 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 fi nal working capital adjustments.
Therefore, an allocation of the fi nal 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 refl ects 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.
The Company recognized approximately $7.7 million of trans-
action costs in fi scal 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.
funds from its revolving line of credit. The agreement provides
for a potential additional payment of up to $20.0 million sub-
ject to meeting specifi c fi nancial performance criteria over the
two years subsequent to the year of acquisition. The Company
recognized a $10.3 million liability related to this potential
payment through purchase accounting. In fi scal year 2015, the
Company had a positive $8.9 million adjustment related to this
accrual due to a current evaluation of net sales and earnings
targets associated with the acquisition.
CytoSport is the maker of Muscle Milk® products and is a lead-
ing provider of premium protein products in the sports nutri-
tion category. CytoSport’s brands align with the Company’s
focus on protein while further diversifying the Company’s
portfolio.
The acquisition was accounted for as a business combination
using the acquisition method. The Company has estimated the
acquisition date fair values of the assets acquired and liabil-
ities assumed, using independent appraisals and other anal-
yses, and determined fi nal working capital adjustments. The
fi nal allocation of the purchase price to the acquired assets,
liabilities, and goodwill is presented in the table below.
(in thousands)
Accounts receivable $ 30,580
Inventory 62,246
Prepaid and other assets 3,133
Property, plant and equipment 8,119
Intangible assets 188,500
Goodwill 270,925
Current liabilities (52,811)
Long-term liabilities (30,140)
Deferred taxes (59,700)
Purchase price $420,852
The liabilities shown above include $15.0 million representing
potential payments owed under a supplier agreement, which
are contingent on future production levels through fi scal year
2018.
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 refl ects the value
of the assembled workforce, manufacturing synergies, and
the potential to expand presence in alternate channels. The
goodwill balance is not expected to be deductible for income
tax purposes. The goodwill and intangible assets have been
allocated to the Specialty Foods and International & Other
reporting segments.
Operating results for this acquisition have been included in
the Company’s Consolidated Statements of Operations from
the date of acquisition and are refl ected in the Specialty Foods
and International & Other reporting segments. The acquisition
contributed an incremental $249.7 million of net sales for
fi scal year 2015, and incremental $73.5 million of net sales for
fi scal year 2014.