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Note 2 - Business Combinations | 9 Months Ended
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Jun. 24, 2023
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
Note 2 | Business Combinations
On June 21, 2022, J & J Snack Foods Corp. and its wholly-owned subsidiary, DD Acquisition Holdings, LLC, completed the acquisition of one hundred percent (100%) of the equity interests of Dippin’ Dots Holding, L.L.C. (“Dippin’ Dots”) which, through its wholly-owned subsidiaries, owns and operates the Dippin’ Dots and Doc Popcorn businesses. The purchase price was approximately $223.6 million, consisting entirely of cash, and may be modified for certain customary post-closing purchase price adjustments. Dippin’ Dots is a leading producer of flash-frozen beaded ice cream treats, and the acquisition will leverage synergies in entertainment and amusement locations, theaters, and convenience to continue to expand our business. The acquisition also includes the Doc Popcorn business operated by Dippin’ Dots. The financial results of Dippin’ Dots have been included in our consolidated financial statements since the date of the acquisition. Sales and net earnings of Dippin’ Dots were $31.4 million and $6.8 million for the three months ended June 24, 2023, and $60.8 million and $6.0 million for the nine months ended June 24, 2023. Post-acquisition sales and net earnings of Dippin’ Dots were $2.2 million and $0.6 million for the three and nine months ended June 25, 2022. Dippin’ Dots is reported as part of our Food Service segment.
Dippin' Dots Results Included in the Company's Consolidated Results
|  | Three months ended |  |  | Nine months ended |
|  | June 24, |  |  | June 25, |  |  | June 24, |  |  | June 25, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |  |  | (in thousands) |
Net sales |  | $ | 31,417 |  |  | $ | 2,218 |  |  | $ | 60,762 |  |  | $ | 2,218 |
Net earnings |  | $ | 6,786 |  |  | $ | 621 |  |  | $ | 5,956 |  |  | $ | 621 |
Upon acquisition, the assets and liabilities of Dippin’ Dots were adjusted to their respective fair values as of the closing date of the transaction, including the identifiable intangible assets acquired. In addition, the excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. The fair value estimates used in valuing certain acquired assets and liabilities are based, in part, on inputs that are unobservable. For intangible assets, these include, but are not limited to, forecasted future cash flows, revenue growth rates, attrition rates and discount rates. During the prior quarter ended March 25, 2023, we recorded a measurement period adjustment to the estimated fair values initially recorded on June 21, 2022 which resulted in an increase in Other Current Liabilities of $0.7 million and an increase in Goodwill of $0.7 million. In fiscal year 2022, we previously recorded measurement period adjustments to the estimated fair values initially recorded on June 21, 2022, which resulted in an increase to Property, plant, and equipment, net of $6.5 million, and reductions in Goodwill, Identifiable intangible assets, and Inventories of $4.0 million, $2.2 million, and $0.3 million, respectively. The measurement period adjustments were recorded to better reflect market participant assumptions about facts and circumstances existing as of the acquisition date and did not have a material impact on our consolidated statement of income for the three months, or the nine months, ended June 24, 2023. The following table reflects: (i) the Company’s preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date; (ii) measurement period adjustments made to the preliminary allocation during the measurement period; and (iii) the final allocation of the purchase price to the assets acquired and liabilities assumed:
Final Dippin' Dots Purchase Price Allocation
|  | Preliminary Value |  |  |  |  |  |  |  |  |
|  | as of acquisition |  |  |  |  |  |  |  |  |
|  | date (as previously |  |  | Measurement |  |  |  |  |
|  | reported as of |  |  | Period |  |  |  |  |
|  | June 25, 2022) |  |  | Adjustment |  |  | As Adjusted |
|  | (in thousands) |
Cash and cash equivalents |  | $ | 2,259 |  |  |  |  |  |  | $ | 2,259 |
Accounts receivable, net |  |  | 12,257 |  |  |  |  |  |  |  | 12,257 |
Inventories |  |  | 8,812 |  |  |  | (301 | ) |  |  | 8,511 |
Prepaid expenses and other |  |  | 1,215 |  |  |  |  |  |  |  | 1,215 |
Property, plant and equipment, net |  |  | 24,622 |  |  |  | 6,548 |  |  |  | 31,170 |
Intangible assets |  |  | 120,400 |  |  |  | (2,200 | ) |  |  | 118,200 |
Goodwill (1) |  |  | 66,634 |  |  |  | (3,397 | ) |  |  | 63,237 |
Operating lease right-of-use assets |  |  | 3,514 |  |  |  |  |  |  |  | 3,514 |
Other noncurrent assets |  |  | 243 |  |  |  |  |  |  |  | 243 |
Total assets acquired |  |  | 239,956 |  |  |  | 650 |  |  |  | 240,606 |
Liabilities assumed: |  |  |  |  |  |  |  |  |  |  |  |
Current lease liabilities |  |  | 619 |  |  |  |  |  |  |  | 619 |
Accounts payable |  |  | 6,005 |  |  |  |  |  |  |  | 6,005 |
Other current liabilities |  |  | 3,532 |  |  |  | 650 |  |  |  | 4,182 |
Noncurrent lease liabilities |  |  | 2,954 |  |  |  |  |  |  |  | 2,954 |
Other noncurrent liabilities |  |  | 3,285 |  |  |  |  |  |  |  | 3,285 |
Total liabilities acquired |  |  | 16,395 |  |  |  | 650 |  |  |  | 17,045 |
Purchase price |  | $ | 223,561 |  |  | $ | - |  |  | $ | 223,561 |
(1) Goodwill was assigned to our Food Services segment and was primarily attributed to the assembled workforce of the acquired business and to our expectations of favorable growth opportunities in entertainment and amusement locations, theaters, and convenience based on increased synergies that are expected to be achieved from the integration of Dippin’ Dots.
Acquired Intangible Assets
|  |  |  |  |  | (in thousands) |
|  | Weighted average |  |  | June 21, |
|  | life (years) |  |  | 2022 |
Amortizable |  |  |  |  |  |  |  |
Trade name |  | indefinite |  |  | $ | 76,900 |
Developed technology |  |  | 10 |  |  |  | 22,900 |
Customer relationships |  |  | 10 |  |  |  | 9,900 |
Franchise agreements |  |  | 10 |  |  |  | 8,500 |
Total acquired intangible assets |  |  |  |  |  | $ | 118,200 |
As the measurement period ended on June 21, 2023, the adjusted purchase price allocation amounts included in the table above are no longer subject to change. Any adjustments to the purchase price allocation required after the one-year measurement period are expected to be recorded in the consolidated statement of earnings as operating expenses or income. The following unaudited pro forma information presents the consolidated results of operations as if the business combination in 2022 had occurred as of September 26, 2021, after giving effect to acquisition-related adjustments, including: (1) depreciation and amortization of assets; (2) amortization of unfavorable contracts related to the fair value adjustments of the assets acquired; (3) change in the effective tax rate; (4) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions occurred as of September 26, 2021; and (5) merger and acquisition costs.
J & J Snack Foods Corp and Dippin' Dots Unaudited Pro Forma Combined Financial Information
|  | Three months ended |  |  | Nine months ended |
|  | June 25, |  |  | June 25, |
|  | 2022 |  |  | 2022 |
|  | (in thousands) |  |  | (in thousands) |
Net sales |  | $ | 404,182 |  |  | $ | 1,028,079 |
Net earnings |  | $ | 17,838 |  |  | $ | 31,501 |
Earnings per diluted share |  | $ | 0.93 |  |  | $ | 1.64 |
Weighted average number of diluted shares |  |  | 19,234 |  |  |  | 19,198 |
The pro forma information does not reflect the potential benefits of cost and funding synergies, opportunities to earn additional revenues, or other factors, and therefore does not represent what the actual Net sales and Net earnings would have been had the companies actually been combined as of this date.

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