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Acquisition | 6 Months Ended
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Dec. 31, 2017
Business Combinations [Abstract] |
Acquisition | Acquisitions China Mist Brands, Inc. On October 11, 2016, the Company, through a wholly owned subsidiary, acquired substantially all of the assets and certain specified liabilities of China Mist Brands, Inc. dba China Mist Tea Company (“China Mist”), a provider of flavored and unflavored iced and hot teas. As part of the transaction, the Company assumed the lease on China Mist’s existing 17,400 square foot distribution and warehouse facility in Scottsdale, Arizona which is terminable upon twelve months’ notice. The Company acquired China Mist for aggregate purchase consideration of $12.2 million, consisting of $11.2 million in cash paid at closing including estimated working capital adjustments of $0.4 million, post-closing final working capital adjustments of $0.6 million, and up to $0.5 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the calendar years of 2017 or 2018. This contingent earnout liability is estimated to have a fair value of $0.5 million as of the closing date and is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at December 31, 2017 and June 30, 2017. The earnout is estimated to be paid in calendar 2019. The financial effect of this acquisition was not material to the Company’s condensed consolidated financial statements. The Company has not presented pro forma results of operations for the acquisition because it is not significant to the Company’s consolidated results of operations. The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated amount recorded as goodwill. The purchase price allocation is final. The following table summarizes the final allocation of consideration transferred as of the acquisition date:
(In thousands) | Fair Value |  | Estimated Useful Life (years)
Cash paid, net of cash acquired | $ | 11,183 |  |  |
Post-closing final working capital adjustments | 553 |  |  |
Contingent consideration | 500 |  |  |
Total consideration | $ | 12,236 |  |  |
Accounts receivable | $ | 811 |  |  |
Inventory | 544 |  |  |
Prepaid assets | 48 |  |  |
Property, plant and equipment | 189 |  |  |
Goodwill | 2,927 |  |  |
Intangible assets: |  |  |
Recipes | 930 |  |  | 7
Non-compete agreement | 100 |  |  | 5
Customer relationships | 2,000 |  |  | 10
Trade name/Trademark—indefinite-lived | 5,070 |  |  |
Accounts payable | (383 | ) |  |
Total consideration, net of cash acquired | $ | 12,236 |  |  |
In connection with this acquisition, the Company recorded goodwill of $2.9 million, which is deductible for tax purposes. The Company also recorded $3.0 million in finite-lived intangible assets that included recipes, a non-compete agreement and customer relationships and $5.1 million in indefinite-lived trade name/trademark. The weighted average amortization period for the finite-lived intangible assets is 8.9 years. See Note 13. The determination of the fair value of intangible assets acquired was primarily based on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP. The fair value assigned to the recipes was determined utilizing the replacement cost method, which captures the direct cost of the development effort plus lost profits over the time to re-create the recipes. The fair value assigned to the non-compete agreement was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings with the agreement in place versus projected earnings based on starting with no agreement in place. Revenue and earnings projections were significant inputs into estimating the value of China Mist’s non-compete agreement. The fair value assigned to the customer relationships was determined based on management’s estimate of the retention rate utilizing certain benchmarks. Revenue and earnings projections were also significant inputs into estimating the value of customer relationships. The fair value assigned to the trade name/trademark was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed contributory asset charge. West Coast Coffee Company, Inc. On February 7, 2017, the Company acquired substantially all of the assets and certain specified liabilities of West Coast Coffee Company, Inc. (“West Coast Coffee”), a coffee roaster and distributor with a focus on the convenience store, grocery and foodservice channels. As part of the transaction, the Company entered into a three-year lease on West Coast Coffee’s existing 20,400 square foot production, distribution and warehouse facility in Hillsboro, Oregon, which expires January 31, 2020, and assumed leases on six branch warehouses consisting of an aggregate of 24,150 square feet in Oregon, California and Nevada, expiring on various dates through November 2020. The Company acquired West Coast Coffee for aggregate purchase consideration of $15.5 million, which included $14.7 million in cash paid at closing including working capital adjustments of $1.2 million, post-closing final working capital adjustments of $(0.2) million, and up to $1.0 million in contingent consideration to be paid as earnout if certain sales levels are achieved in the twenty-four months following the closing. This contingent earnout liability is estimated to have a fair value of $0.6 million as of the closing date and is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at December 31, 2017 and June 30, 2017. The earnout is estimated to be paid within twenty-four months following the closing. The financial effect of this acquisition was not material to the Company’s condensed consolidated financial statements. The Company has not presented pro forma results of operations for the acquisition because it is not significant to the Company’s consolidated results of operations. The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated amount recorded as goodwill. The purchase price allocation is final. The following table summarizes the final allocation of consideration transferred as of the acquisition date:
(In thousands) | Fair Value |  | Estimated Useful Life (years)
Cash paid, net of cash acquired | $ | 14,671 |  |  |
Post-closing final working capital adjustments | (218 | ) |  |
Fair value of contingent consideration | 600 |  |  |
Total consideration | $ | 15,053 |  |  |
Accounts receivable | $ | 956 |  |  |
Inventory | 910 |  |  |
Prepaid assets | 16 |  |  |
Property, plant and equipment | 1,546 |  |  |
Goodwill | 7,630 |  |  |
Intangible assets: |  |  |
Non-compete agreements | 100 |  |  | 5
Customer relationships | 4,400 |  |  | 10
Trade name—finite-lived | 260 |  |  | 7
Brand name—finite-lived | 250 |  |  | 1.7
Accounts payable | (833 | ) |  |
Other liabilities | (182 | ) |  |
Total consideration, net of cash acquired | $ | 15,053 |  |  |
In connection with this acquisition, the Company recorded goodwill of $7.6 million, which is deductible for tax purposes. The Company also recorded $5.0 million in finite-lived intangible assets that included non-compete agreements, customer relationships, a trade name and a brand name. The weighted average amortization period for the finite-lived intangible assets is 9.3 years. See Note 13. The determination of the fair value of intangible assets acquired was primarily based on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP. The fair value assigned to the non-compete agreements was determined utilizing the with and without method. Under the with and without method, the fair value of the intangible asset is estimated based on the difference in projected earnings with the agreements in place versus projected earnings based on starting with no agreements in place. Revenue and earnings projections were significant inputs into estimating the value of West Coast Coffee’s non-compete agreements. The fair value assigned to the customer relationships was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed contributory asset charge. The fair values assigned to the trade name and the brand name were determined utilizing the relief from royalty method. The relief from royalty method is based on the premise that the intangible asset owner would be willing to pay a royalty rate to license the subject asset. The analysis involves forecasting revenue over the life of the asset, applying a royalty rate and a tax rate, and then discounting the savings back to present value at an appropriate discount rate. Boyd Coffee Company On October 2, 2017 (“Closing Date”), the Company, through a wholly owned subsidiary, acquired substantially all of the assets and certain specified liabilities of Boyd Coffee Company (“Boyd Coffee” or “Seller”), a coffee roaster and distributor with a focus on restaurants, hotels, and convenience stores on the West Coast of the United States. The acquired business of Boyd Coffee (the “Boyd Business”) is expected to add to the Company’s product portfolio, improve growth potential, increase the density and penetration of the Company’s distribution footprint, and increase capacity utilization at the Company’s production facilities. At closing, as consideration for the purchase, the Company paid the Seller $38.9 million in cash from borrowings under its senior secured revolving credit facility (see Note 15), and issued to Boyd Coffee 14,700 shares of the Company’s Series A Preferred Stock, with a fair value of $11.8 million as of the Closing Date. Additionally, the Company held back $3.2 million in cash (“Holdback Cash Amount”) and 6,300 shares of Series A Preferred Stock (“Holdback Stock”) with a fair value of $4.8 million as of the Closing Date, for the satisfaction of any post-closing working capital adjustment and to secure the Seller’s (and the other seller parties’) indemnification obligations under the purchase agreement. Any Holdback Cash Amount and Holdback Stock not used to satisfy indemnification claims (including pending claims) will be released to the Seller on the 18-month anniversary of the Closing Date. In addition to the Holdback Cash, as part of the consideration for the purchase, at closing the Company held back $1.1 million in cash (the “Multiemployer Plan Holdback”) to pay, on behalf of the Seller, any assessment of withdrawal liability made against the Seller following the Closing Date in respect of the Seller’s multiemployer plans. As the Company has not made this payment as of December 31, 2017 and expects settling the pension liability will take greater than twelve months, the Multiemployer Plan Holdback is recorded in other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet at December 31, 2017. See Note 17. The parties are in the process of determining the final net working capital under the purchase agreement. At December 31, 2017, the Company estimated a net working capital adjustment of $(8.1) million, which is reflected in the preliminary purchase price allocation set forth below. The following table summarizes the preliminary allocation of consideration transferred as of the acquisition date:
(In thousands) | Fair Value |  | Estimated Useful Life (years)
Cash paid | $ | 38,871 |  |  |
Holdback Cash Amount | 3,150 |  |  |
Multiemployer Plan Holdback | 1,056 |  |  |
Fair value of Series A Preferred Stock (14,700 shares)(1) | 11,756 |  |  |
Fair value of Holdback Stock (6,300 shares)(1) | 4,825 |  |  |
Preliminary estimated post-closing working capital adjustment | (8,059 | ) |  |
Total consideration | $ | 51,599 |  |  |
Accounts receivable | $ | 7,166 |  |  |
Inventory | 9,415 |  |  |
Prepaid expense and other assets | 1,951 |  |  |
Property, plant and equipment | 4,936 |  |  |
Goodwill | 11,032 |  |  |
Intangible assets: |  |  |
Customer relationships | 31,000 |  |  | 10
Trade name/trademark—indefinite-lived | 2,800 |  |  |
Accounts payable | (15,080 | ) |  |
Other liabilities | (1,621 | ) |  |
Total consideration | $ | 51,599 |  |  |
______________ (1) Fair value of Series A Preferred Stock and Holdback Stock as of the Closing Date, estimated as the sum of (a) the present value of the dividends payable thereon and (b) the stated value of the Series A Preferred Stock or Holdback Stock, as the case may be, adjusted for both the conversion premium and the discount for lack of marketability arising from conversion restrictions. The acquisition was accounted for as a business combination. The fair value of consideration transferred was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition date, with the remaining unallocated amount recorded as goodwill. The purchase price allocation is preliminary as the Company is in the process of finalizing the valuation inputs including growth assumptions, cost projections and discount rates which are used in the fair value calculation of certain assets as well as the determination of the final post-closing net working capital adjustment. The preliminary purchase price allocation is subject to change and such change could be material based on numerous factors, including the final estimated fair value of the assets acquired and liabilities assumed and the amount of the final post-closing net working capital adjustment. In connection with this acquisition, the Company recorded goodwill of $11.0 million, which is deductible for tax purposes. The Company also recorded $31.0 million in finite-lived intangible assets that included customer relationships and $2.8 million in indefinite-lived intangible assets that included a trade name/trademark. The amortization period for the finite-lived intangible assets is 10.0 years. See Note 13. The determination of the fair value of intangible assets acquired was primarily based on significant inputs not observable in an active market and thus represent Level 3 fair value measurements as defined under GAAP. The fair value assigned to the customer relationships was determined based on management's estimate of the retention rate utilizing certain benchmarks. Revenue and earnings projections were also significant inputs into estimating the value of customer relationships. The fair value assigned to the trade name/trademark was determined utilizing a multi-period excess earnings approach. Under the multi-period excess earnings approach, the fair value of the intangible asset is estimated to be the present value of future earnings attributable to the asset and this method utilizes revenue and cost projections including an assumed contributory asset charge. The following table presents the net sales and income before taxes from the Boyd Business operations that are included in the Company’s Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2017 (unaudited):
| Closing Date through December 31, 2017
(In thousands) |
Net sales | $ | 26,290 |
Income before taxes | $ | 511 |
The Company has not presented pro forma results of operations for the acquisition because it is not significant to the Company’s consolidated results of operations. However, the Company considers the acquisition to be material to the Company’s financial statements and has provided certain pro forma disclosures pursuant to ASC 805, “Business Combinations.” The following table sets forth certain unaudited pro forma financial results for the Company for the three and six months ended December 31, 2017 and 2016, as if the acquisition of the Boyd Business was consummated on the same terms as of the first day of the applicable fiscal period.
|  | Three Months Ended December 31, |  | Six Months Ended December 31,
|  | 2017 |  | 2016 |  | 2017 |  | 2016
(In thousands) |  |  |  |  |  |  |  |
Net sales |  | $ | 167,366 |  |  | $ | 166,107 |  |  | $ | 321,061 |  |  | $ | 319,411 |
Income before taxes |  | $ | 2,142 |  |  | $ | 34,171 |  |  | $ | 779 |  |  | $ | 36,414 |
At closing, the parties entered into a transition services agreement where the Seller agreed to provide certain accounting, marketing, sales and distribution support during a transition period of up to 12 months. The Company also entered into a co-manufacturing agreement with the Seller for a transition period of up to 12 months as the Company transitions production into its plants. Amounts paid by the Company to the Seller for these services totaled $9.2 million in the three and six months ended December 31, 2017. The Company incurred transaction costs related to the Boyd Business acquisition, consisting primarily of legal and consulting expenses of $1.0 million and $3.4 million during the three and six months ended December 31, 2017, respectively, which are included in general and administrative expenses in the Company's Condensed Consolidated Statements of Operations.

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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 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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