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Acquisitions | 12 Months Ended
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Jan. 02, 2016
Business Combinations [Abstract] |
Acquisitions |
Note 8. | Acquisitions
Alpine Valley Bread Company On October 13, 2015, the company completed the acquisition of 100% of the outstanding common stock of Alpine, a leading organic bread baker, from its shareholders for total consideration of approximately $121.9 million inclusive of payments for certain tax benefits. We paid cash of $109.3 million and issued 481,540 shares of our common stock to the sellers in a private placement. We believe the acquisition of Alpine strengthens our position as the second-largest baker in the U.S. by giving us access to the fast growing organic bread category. The Alpine acquisition has been accounted for as a business combination and is included in our Warehouse Segment. The results of Alpine’s operations are included in the company’s Consolidated Financial Statements beginning on October 14, 2015. The total preliminary goodwill recorded for this acquisition was $36.0 million and it is deductible for tax purposes. During fiscal 2015, the company incurred $1.6 million of acquisition-related costs for Alpine. The acquisition-related costs for Alpine are recorded in the selling, distribution and administrative expense line item in our Consolidated Statements of Income. Alpine contributed $11.9 million in sales during fiscal 2015. Alpine’s operating income since the acquisition was immaterial to our fiscal 2015 results of operations. The following table summarizes the consideration paid for Alpine based on the fair value at the acquisition date. This table is based on preliminary valuations for the assets acquired and liabilities assumed. The identifiable intangible assets, property, plant and equipment, and certain financial assets are still under review. We will continue reviewing the final recognized amounts of identifiable assets acquired and liabilities assumed (amounts in thousands):
Fair Value of consideration transferred: |  |  |
Cash consideration paid | $ | 109,340 |
Stock consideration paid |  | 12,602 |
Total consideration paid |  | 121,942 |
Recognized amounts of identifiable assets acquired and liabilities assumed: |  |  |
Property, plant, and equipment |  | 15,614 |
Identifiable intangible assets |  | 64,600 |
Financial assets |  | 5,687 |
Net recognized amounts of identifiable assets acquired |  | 85,901 |
Goodwill | $ | 36,041 |
The following table presents the acquired intangible assets subject to amortization (amounts in thousands, except amortization periods):
|  | Total |  |  | Weighted average amortization years |  |  | Attribution Method
Trademarks |  | $ | 20,900 |  |  |  | 40.0 |  |  | Straight-line
Customer relationships |  |  | 43,700 |  |  |  | 25.0 |  |  | Sum of year digits
|  | $ | 64,600 |  |  |  | 29.9 |  |  |
Alpine operates two production facilities in Mesa, Arizona and has widespread distribution across the U.S. The primary reason for the acquisition was to purchase a brand of organic bakery products in the U.S. and to add organic production capacity. The fair value of trade receivables is $4.8 million. The gross amount of the receivable is $4.8 million with an immaterial amount determined to be uncollectible. We did not acquire any other class of receivables as a result of the acquisition. Dave’s Killer Bread On September 12, 2015, the company completed the acquisition of 100% of the outstanding common stock of Dave’s Killer Bread (“DKB”), the nation’s best-selling organic bread, from its shareholders for total cash payments of approximately $282.1 million inclusive of payments for certain tax benefits. We believe the acquisition of DKB strengthens our position as the second-largest baker in the U.S. by giving us access to the fast growing organic bread category and expanding our geographic reach into the Pacific Northwest. The DKB acquisition has been accounted for as a business combination and is included in our DSD Segment. The results of DKB’s operations are included in the company’s Consolidated Financial Statements beginning on September 13, 2015. The total preliminary goodwill recorded for this acquisition was $145.9 million and it is not deductible for tax purposes. During fiscal 2015, the company incurred $4.6 million of acquisition-related costs for DKB. The acquisition-related costs for DKB are recorded in the selling, distribution and administrative expense line item in our Consolidated Statements of Income. DKB contributed $37.6 million in sales during fiscal 2015. DKB’s operating income since the acquisition was immaterial to our fiscal 2015 results of operations. The following table summarizes the consideration paid for DKB based on the fair value at the acquisition date. This table is based on preliminary valuations for the assets acquired and liabilities assumed. The identifiable intangible assets and certain financial assets are still under review. We will continue reviewing the final recognized amounts of identifiable assets acquired and liabilities assumed (amounts in thousands):
Fair Value of consideration transferred: |  |  |
Cash consideration paid | $ | 282,115 |
Recognized amounts of identifiable assets acquired and liabilities assumed: |  |  |
Property, plant, and equipment |  | 9,769 |
Identifiable intangible assets |  | 176,300 |
Deferred income taxes |  | (60,142 | )
Financial assets |  | 10,263 |
Net recognized amounts of identifiable assets acquired |  | 136,190 |
Goodwill | $ | 145,925 |
The following table presents the acquired intangible assets subject to amortization (amounts in thousands, except amortization periods):
|  | Total |  |  | Weighted average amortization years |  |  | Attribution Method
Trademarks |  | $ | 107,700 |  |  |  | 40.0 |  |  | Straight-line
Customer relationships |  |  | 68,000 |  |  |  | 25.0 |  |  | Sum of year digits
Non-compete agreements |  |  | 600 |  |  |  | 2.0 |  |  | Straight-line
|  | $ | 176,300 |  |  |  | 34.1 |  |  |
DKB operates one production facility in Milwaukie, Oregon and has widespread distribution across the U.S. and Canada. The primary reason for the acquisition was to purchase the leading brand of organic bakery products in the U.S. The fair value of trade receivables is $14.2 million. The gross amount of the receivable is $14.4 million of which $0.2 million is determined to be uncollectible. We did not acquire any other class of receivables as a result of the acquisition. Unaudited pro forma consolidated results of operations for the DKB and Alpine acquisitions are not included because the company determined that they are immaterial individually and in the aggregate. Modesto acquisition On July 27, 2013, the company completed the acquisition of a bun line in Modesto, California that serves the California market for a total cash payment of $10.3 million. This acquisition is included in our DSD Segment and the total goodwill recorded for this acquisition was $4.2 million. Acquired Hostess Bread Assets On July 19, 2013, the company completed its acquisition of Hostess’ Wonder, Nature’s Pride, Merita, Home Pride, and Butternut bread brands, 20 closed bakeries, and 36 depots (the “Acquired Hostess Bread Assets”) for a total cash payment of $355.3 million. The company had filed a complaint in July 2008 alleging that Hostess infringed upon Flowers Foods’ Nature’s Own trademark by using or intending to use the Nature’s Pride trademark. This lawsuit was settled at the closing of the Acquired Hostess Bread Assets acquisition, and we recorded a $1.4 million gain during the third quarter of our fiscal 2013 to reflect our estimate of the settlement fair value, determined as the saved future legal expenses as a result of the settlement, at closing. The gain was recorded in selling, distribution and administrative expense in our Condensed Consolidated Statements of Income. We believe the acquisition of the Acquired Hostess Bread Assets strengthens the company’s position as the second-largest baker in the U.S. by adding brands and bakeries that are expected to enhance our ability to steadily expand the geographic reach of our fresh breads, buns, and rolls into new markets. The Acquired Hostess Bread Assets are included in our DSD Segment. Late in the third quarter of fiscal 2013, we began to re-introduce these acquired brands through our DSD Segment and are continuing to do so in new markets as we expand into new regions of the country. During fiscal 2013, the company incurred $16.0 million of acquisition-related costs for the Acquired Hostess Bread Assets. A second proposed Hostess asset purchase agreement provided for the purchase of the Beefsteak brand for $30.0 million. This second agreement was topped by another bidder and the agreement terminated. In connection with this termination we received a break-up fee of $0.9 million during the first quarter of fiscal 2013. The acquisition-related costs for the Acquired Hostess Assets and the break-up fee related to the second proposed Hostess acquisition are recorded in the selling, distribution and administrative expense line item in our Condensed Consolidated Statements of Income. The following table summarizes the consideration paid for the Acquired Hostess Bread Assets and liabilities assumed based on the fair value at the acquisition date (amounts in thousands):
Fair value of consideration transferred: |  |  |  |
Cash consideration transferred |  | $ | 355,342 |
Recognized amounts of identifiable assets acquired and liabilities assumed: |  |  |  |
Property, plant, and equipment |  | $ | 153,990 |
Identifiable intangible assets |  |  | 189,000 |
Financial assets |  |  | 5,153 |
Net recognized amounts of identifiable assets acquired |  | $ | 348,143 |
Gain on legal settlement |  |  | (1,400 | )
Net recognized amounts of identifiable assets acquired and gain on settlement |  | $ | 346,743 |
Goodwill |  | $ | 8,599 |
The goodwill is deductible for tax purposes and is included in our DSD Segment. Sales were $26.6 million during fiscal 2013, when the brands were reintroduced, for the brands acquired as part of the Acquired Hostess Bread Assets. The identified intangible assets in the table above are for trademarks that were assigned indefinite lives and are discussed in Note 7, Goodwill and Other Intangible Assets. The table below presents the changes to goodwill from December 28, 2013 to January 3, 2015 for the Acquired Hostess Bread Assets (amounts in thousands):
Goodwill reported on December 28, 2013 for the Acquired Hostess Bread Assets |  | $ | 5,419 |
Changes in goodwill for spare parts and final fair value adjustments |  |  | (3,503 | )
Changes in goodwill for property, plant and equipment final fair value adjustments |  |  | 6,683 |
Net changes to goodwill |  | $ | 3,180 |
Final Acquired Hostess Bread Assets goodwill |  | $ | 8,599 |
Sara Lee California and Earthgrains acquisition of trademark licenses On February 23, 2013, the company completed its acquisition from BBU, Inc., a subsidiary of Grupo Bimbo (“BBU”), of (1) perpetual, exclusive, and royalty-free licenses to the Sara Lee and Earthgrains brands for sliced breads, buns, and rolls in the state of California and (2) a closed bakery in Stockton, California for a total cash payment of $50.0 million. In addition, we received a perpetual, exclusive, and royalty-free license to the Earthgrains brand for a broad range of fresh bakery products in the Oklahoma City, Oklahoma market area. The acquisition of the Oklahoma license was completed during fiscal 2012 for immaterial consideration. The results of operations of these acquisitions are included in our DSD Segment. The following table summarizes the consideration paid to acquire these licenses and the amounts of identified assets acquired and liabilities assumed based on the fair value at the acquisition date (amounts in thousands):
Fair value of consideration transferred: |  |  |  |
Cash consideration transferred |  | $ | 49,950 |
Contingently refundable consideration (the “holdback”) |  |  | (7,600 | )
Total consideration, net |  | $ | 42,350 |
Recognized amounts of identifiable assets acquired and liabilities assumed: |  |  |  |
Property, plant, and equipment |  | $ | 6,476 |
Identifiable intangible assets |  |  | 117,290 |
Deferred income taxes, net |  |  | (31,345 | )
Net recognized amounts of identifiable assets acquired |  | $ | 92,421 |
Bargain purchase gain |  | $ | 50,071 |
The following table presents the acquired intangible assets (amounts in thousands, except amortization periods):
|  | Total |  |  | Weighted average amortization years |  |  | Attribution Method
Trademarks |  | $ | 79,500 |  |  | N/A |  |  | Indefinite life
Customer relationships |  |  | 12,000 |  |  |  | 21.0 |  |  | Sum of year digits
Distribution rights |  |  | 25,790 |  |  | N/A |  |  | N/A
|  | $ | 117,290 |  |  |  |  |  |  |
The primary reason for this acquisition was to expand the company’s footprint into the California markets. The trademarks are non-amortizable assets and the customer relationships are being amortized over 21 years. The distribution rights were reclassified to assets held for sale immediately after the acquisition. We believe the acquisition resulted in a bargain purchase because the U.S. Department of Justice (the “DOJ”) required BBU to divest these assets, which resulted in a more favorable price to us than may have resulted from an arms-length negotiation. The bargain purchase gain is recognized in the line item “Gain on Acquisition”. During the third quarter of fiscal 2013 we recorded a measurement period adjustment related to the distribution rights. The fair value of the distribution rights was reduced by $2.0 million as additional information became available. This reduction decreased the amount of the bargain purchase gain by $1.2 million, which is net of deferred taxes of $0.8 million. The measurement period adjustment was recorded as a revision to our first quarter 2013 Condensed Consolidated Balance Sheet and the Condensed Consolidated Statements of Income. The asset purchase agreement included a holdback provision (the “holdback”) in the amount of $10.0 million of the cash consideration paid at closing that remained in escrow until disbursed based on the possible occurrence of one of two triggering events. The purpose of the holdback was to encourage the company to increase production capacity serving the California market. The first triggering event related to the co-pack arrangement and the second triggering event related to the possible opening of the acquired Stockton Bakery. We entered into a co-pack arrangement with BBU at the acquisition date under which BBU was required to supply the company with Sara Lee branded product in California and Earthgrains branded product for a period of up to 18 months ending August 17, 2014. If we terminated the co-pack agreement (“co-pack decision”) or reopened the Stockton Bakery (“bakery decision”), potential payments from the holdback would be made to us. The amount of such payments was determined based on the company making the co-pack decision and/or the bakery decision by certain specified dates. The total amount available under the holdback was capped at $10.0 million. The table below reflects the potential payments to us under each scenario (amounts in thousands):
|  | February 23, 2013 – November 20, 2013 |  |  | November 21, 2013 – February 18, 2014 |  |  | February 19, 2014 – May 19, 2014 |  |  | May 20, 2014 – August 17, 2014 |
Co-pack decision |  | $ | 10,000 |  |  | $ | 7,500 |  |  | $ | 5,000 |  |  | $ | — |
Bakery decision |  | $ | 10,000 |  |  | $ | 10,000 |  |  | $ | 7,500 |  |  | $ | 5,000 |
If we did not make the co-pack decision by May 19, 2014 or did not make the bakery decision by August 17, 2014, any remaining amount of the holdback would be distributed to BBU. The holdback fair value of $7.6 million represented our assessment, at the time of acquisition for inclusion into the purchase price allocation, of the probability that we would terminate the co-pack arrangement and/or open the Stockton bakery. This probability was assessed at each reporting period and changes in the fair value of the holdback were recorded through earnings in the period of change. There were no changes as a result of the probability assessment in the second or third quarter of fiscal 2013. We initially notified BBU of our intent to terminate the co-pack agreement during the fourth quarter of fiscal 2013 and, upon completion of these notifications, we received $7.5 million during the first quarter of fiscal 2014. This holdback amount was recorded as a current receivable at December 28, 2013 on the Consolidated Balance Sheet. As a result of our initial notification, during the fourth quarter of fiscal 2013, we recorded a $0.1 million reduction to the fair value of the holdback (recorded in selling, distribution and administrative expense). The final delivery date under the supply agreement was February 14, 2014. Sales from the Sara Lee California and Earthgrains acquisitions during fiscal 2013 were $79.7 million. We incurred $1.5 million in acquisition-related costs during fiscal 2013. These expenses were included in the selling, distribution and administrative line item in the company’s Consolidated Statement of Income for fiscal 2013. Since the acquisition date, we developed distribution rights for territories to sell to independent distributors who serve California. The territory development took place in several phases in fiscal 2013. Amounts received upon sale of these distribution rights are shown in our Consolidated Statement of Cash Flows as an investing activity. Acquisition pro formas We determined that the consolidated results of operations for the DKB and Alpine acquisitions are immaterial in the aggregate and the pro forma financial statements are not required for fiscal 2015. The following unaudited pro forma consolidated results of operations have been prepared as if the acquisition of Lepage and of the Acquired Hostess Bread Assets occurred at the beginning of fiscal 2012. Unaudited pro forma consolidated results of operations for the Sara Lee California and Earthgrains asset acquisitions are not included because the company determined that they are immaterial. Hostess filed for bankruptcy and ceased operations in November 2012 (the “Hostess Shutdown”). As a result, there were no sales related to the Acquired Hostess Assets for fiscal 2013 because of the Hostess Shutdown and there is no data to include in the pro forma presentation below. The acquisitions’ results from operations were included in our Consolidated Statements of Income during fiscal 2014 and, as a result, no pro forma data is presented (amounts in thousands, except per share data):
|  | Fiscal 2013 |
|  | 52 weeks |
Sales: |  |  |  |
As reported |  | $ | 3,732,616 |
Pro forma |  | $ | 3,732,616 |
Net income: |  |  |  |
As reported |  | $ | 230,894 |
Pro forma |  | $ | 227,076 |
Basic net income per common share: |  |  |  |
As reported |  | $ | 1.11 |
Pro forma |  | $ | 1.09 |
Diluted net income per common share: |  |  |  |
As reported |  | $ | 1.09 |
Pro forma |  | $ | 1.07 |
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 had been applied. In addition, pro forma adjustments have been made for the interest incurred for financing the acquisitions with either the credit facility or the senior notes. 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.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1500-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1524-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4922-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4934-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4926-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
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