XML 24 R11.htm IDEA: XBRL DOCUMENT v3.10.0.1
Note 2 - Acquisition of O
 12 Months Ended
May 27, 2018
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
2.
           
 
Acquisition of
O
 
On
March 1, 2017,
the Company purchased substantially all of the assets of
O
for
$2.5
million in cash plus contingent consideration of up to
$7.5
million over the next
three
years based upon
O
achieving certain EBITDA targets.
O
, founded in
1995,
is based in Petaluma, California, and produces specialty olive oils and wine vinegars. Its products are sold in natural food, conventional grocery and mass retail stores, primarily in the United States and Canada.
 
The potential earn out payment up to
$7.5
million is based on
O
’s cumulative EBITDA over the Company’s fiscal years
2018
through
2020.
At the end of each fiscal year, beginning in fiscal year
2018,
the former owners of
O
will earn the equivalent of the EBITDA achieved by
O
for that fiscal year up to
$4.6
million over the
three
year period. The former owners can then earn an additional
$2.9
million on a dollar for dollar basis for exceeding
$6.0
million of cumulative EBITDA over the
three
year period.  During the
fourth
quarter of fiscal year
2017,
the Company performed, with the assistance of a
third
party appraiser, an analysis of
O
’s projected EBITDA over the next
three
years. Based on this analysis the Company recorded a
$5.9
million liability as of
May 28, 2017,
representing the present value of the expected earn out payments. During the
fourth
quarter of fiscal year
2018,
the Company performed, with the assistance of a
third
party appraiser, an analysis of
O
’s projected EBITDA over the next
three
years. Based on this analysis, and primarily due to
O
’s financial results in fiscal year
2018,
which were well below the prior year projections for fiscal year
2018
due primarily to significant delays in completing the construction of
O
’s new vinegar production facility, the Company recorded to SG&A a
$1.9
million reduction into the contingent consideration liability, resulting in a liability of
$4.0
million at
May 27, 2018.   
 
The operating results of
O
are included in the Company’s financial statements beginning
March 1, 2017,
in the Other segment.  Included in the Company’s results for
O
for the fiscal year
2018
was
$3.8
million of revenues and a loss of
$960,000.
 
 
Intangible Assets
 
The Company identified
two
intangible assets in connection with the
O
acquisition: trade names and trademarks valued at
$1.6
million, which are considered to be indefinite life assets and therefore, will
not
be amortized; and customer base valued at
$700,000
with an
eleven
year useful life. The trade name/trademark intangible asset was valued using the relief from royalty valuation method and the customer relationship intangible asset was valued using the excess earnings method.
 
Goodwill
 
 
The excess of the consideration transferred over the fair values assigned to the assets acquired and liabilities assumed was
$5.2
 million on the closing date, which represents the goodwill amount resulting from the acquisition which can be attributable to
O
’s long history, future prospects and the expected operating synergies with Apio’s salad business and distribution and logistics capabilities. The Company will test goodwill for impairment on an annual basis or sooner, if indicators of impairment exist.
 
Acquisition-Related Transaction Costs
 
The Company recognized
$159,000
of acquisition-related expenses that were expensed in the year ended
May 
28,
2017
and are included in selling, general and administrative expenses in the Consolidated Statements of Income (Loss) for the year ended
May 
28,
2017.
These expenses included legal, accounting and tax service fees and appraisals fees.