Acquisitions and dispositions

12 Months Ended

Jul. 01, 2012

Acquisitions and dispositions

Acquisitions and dispositions

Note 4. Acquisitions and dispositions

        The Company accounts for business combinations in accordance with ASC Topic 805 which requires, among other things, the acquiring entity in a business combination to recognize the fair value of all the assets acquired and liabilities assumed; the recognition of acquisition-related costs in the consolidated results of operations; the recognition of restructuring costs in the consolidated results of operations for which the acquirer becomes obligated after the acquisition date; and contingent purchase consideration to be recognized at their fair values on the acquisition date with subsequent adjustments recognized in the consolidated results of operations. The fair values assigned to identifiable intangible assets acquired were determined primarily by using an income approach which was based on assumptions and estimates made by management. Significant assumptions utilized in the income approach were based on company specific information and projections which are not observable in the market and are therefore considered Level 3 measurements. The excess of the purchase price over the fair value of the identified assets and liabilities has been recorded as goodwill. Operating results of the acquired entity is reflected in the Company's consolidated financial statements from date of acquisition.

Sale and franchise of Fannie May retail stores

        On November 21, 2011, the Company and GB Chocolates LLC (GB Chocolates) entered into an agreement whereby, the Company sold 17 existing Fannie May stores, to be operated as franchised locations by GB Chocolates, for $5.6 million, recognizing a gain on the sale of $3.8 million. Upon completion of the sale, the Company also recognized initial franchise fees associated with these 17 stores in the amount of $0.5 million. In conjunction with the sale of stores, the Company and GB Chocolates entered into an area development agreement whereby GB Chocolates will open a minimum of 45 new Fannie May franchise stores by December 2014. The agreement provides exclusive development rights for several Midwestern states, as well as specific cities in Florida and Ohio. The terms of the agreement include a non-refundable area development fee of $0.9 million, store opening fees of $0.5 million, assuming successful opening of 45 stores, and a non-performance promissory note in the amount of $1.2 million, which becomes due and payable only if GB Chocolates does not open all 45 stores as set forth in the development agreement. The Company has deferred the $0.9 million area development fee associated with the 45 store area development agreement, and will recognize such fees in income on a pro-rata basis, when the conditions for revenue recognition under the area development agreement is met. Both store opening fees and area development fees are generally recognized upon the opening of a franchise store, or upon termination of the agreement between the Company and the franchisee. The Company recognized approximately $0.2 million, of the $1.2 million promissory note, based upon its assessment of the likelihood that the performance criteria under the agreement will be achieved. The fair value is impacted by estimates around the possibility of GB Chocolates opening 45 stores, discounted for present value, and the risk associated with counterparty payment. Changes in these assumptions could result in an increase or decrease in fair value which would impact the income statement. There were no significant changes in these estimates during 2012.

Acquisition of Flowerama

        On August 1, 2011, the Company completed the acquisition of Flowerama of America, Inc. (Flowerama), a franchisor and operator of retail flower shops under the Flowerama trademark, with annual revenue of approximately $6.1 million and annual operating income of $0.1 million in its most recent year end prior to acquisition. The purchase price, which included the acquisition of receivables, inventory, eight retail store locations and certain other assets and related liabilities, was approximately $4.3 million. Of the acquired intangible assets, $2.1 million was assigned to amortizable investment in licenses, which is being amortized over the estimated useful life of 20 years, based upon the estimated remaining life of the franchise agreements. Approximately $2.4 million of purchase price was assigned to goodwill which is not deductible for tax purposes. The acquisition was financed utilizing available cash balances. Since the date of acquisition, Flowerama's net revenues and income before income taxes of $5.9 million and $0.5 million, respectively, were included in the Company's Consolidated Statement of Operations for the fiscal year ended July 1, 2012.

Acquisition of FineStationery

        On May 10, 2011, the Company acquired selected assets of FineStationery Solutions, Inc. (Fine Stationery), a retailer of personalized stationery, invitations and announcements, with annual revenue of approximately $10.1 million in its most recent year end prior to acquisition. The purchase price, which included the acquisition of inventory, production equipment and certain other assets, was approximately $3.3 million, including cash consideration of $2.8 million, plus additional consideration of $0.5 million based upon achieving specified operating results during fiscal 2012 through 2014, which is included in other liabilities in the Company's consolidated balance sheet. Of the $1.2 million of acquired intangible assets, $1.1 million was assigned to trademarks that are not subject to amortization, while the remaining acquired intangibles of $0.1 million were allocated to customer related intangibles which are being amortized over the estimated useful life of 3 years. In addition, approximately $1.5 million of the purchase price was assigned to goodwill, which is expected to be deductible for tax purposes. The acquisition was financed utilizing available cash balances. Fine Stationery's net revenues and loss before income taxes of $8.3 million and ($1.1) million, respectively, were included in the Company's Consolidated Statement of Operations for the fiscal year ended July 1, 2012. Based upon the financial performance of Fine Stationery during fiscal 2012, the earn-out for fiscal 2012 was not achieved, and the Company reduced its associated earn-out liability by approximately $0.2 million.

Acquisition of Mrs. Beasley's

        On March 9, 2011, the Company acquired selected assets of Mrs. Beasley's Bakery, LLC (Mrs. Beasley's), a baker and marketer of cakes, muffins and gourmet gift baskets for cash consideration of approximately $1.5 million. The acquisition included inventory and certain manufacturing equipment, which was consolidated within the Company's baked goods manufacturing facilities. Approximately $0.6 million of the purchase price was assigned to tradenames that are not subject to amortization, while $0.3 million was assigned to goodwill which is expected to be deductible for tax purposes. The amounts of net revenues and income before income taxes from the Mrs. Beasley's acquisition included in the Company's fiscal 2012 operating results were not significant.

        The Company is in the process of finalizing its allocation of the purchase prices to individual assets acquired and liabilities assumed as a result of the acquisition of Flowerama. This may result in potential adjustments to the carrying value of its respective recorded assets and liabilities, the establishment of certain additional intangible assets, revisions of useful lives of intangible assets, some of which will have indefinite lives not subject to amortization, and the determination of any residual amount that will be allocated to goodwill. The preliminary allocation of the purchase price included in the current period balance sheet is based on the best estimates of management and is subject to revision based on final determination of asset fair values and useful lives. The following table summarizes the allocation of purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition of Flowerama, Mrs. Beasley's and Fine Stationery:

	Flowerama Purchase Price Allocation		Fine Stationery Purchase Price Allocation		Mrs. Beasley's Purchase Price Allocation
	(in thousands)
Current assets	$	1,090	$	360	$	353
Intangible assets		2,106		1,184		585
Goodwill		2,440		1,541		308
Property, plant and equipment		76		269		204
Total assets acquired		5,712		3,354		1,450
Current liabilities		620		20		—
Other liabilities assumed		756		—		—
		1,376		20		—
Net assets acquired	$	4,336	$	3,334	$	1,450

Pro forma Results of Continuing Operations

        The following unaudited pro forma results of continuing operations has been prepared as if the acquisitions of Flowerama, Fine Stationery and Mrs. Beasley's had taken place at the beginning of fiscal year 2010. The following unaudited pro forma information is not necessarily indicative of the results of operations in future periods or results that would have been achieved had the acquisitions taken place at the beginning of the periods presented.

	Years Ended
	July 1, 2012 (pro forma)		July 3, 2011 (pro forma)		June 27, 2010 (pro forma)
	(in thousands, except per share data)
Net revenues from continuing operations	$	716,730	$	689,010	$	674,419
Operating income from continuing operations	$	23,010	$	14,283	$	4,707
Net income (loss) from continuing operations	$	13,007	$	6,388	$	(1,066	)
Net income (loss) per common share from continuing operations
Basic	$	0.20	$	0.10	$	(0.02	)
Diluted	$	0.20	$	0.10	$	(0.02	)