Note

. Acquisitions and Dispositions

Disposition of Fannie

May

Confections Brands, Inc.

March 15, 2017,

the Company and Ferrero International S.A., a Luxembourg corporation (“Ferrero”), entered into a Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which Ferrero

agreed to purchase from the Company all of the outstanding equity of Fannie

May

Confections Brands, Inc., including its subsidiaries, Fannie

May

Confections, Inc. and Harry London Candies, Inc. (“Fannie

May”)

for total consideration of

$115.0

million in cash, subject to seasonal working capital adjustment. At that time, the Company determined that the Fannie

May

business met the held for sale criteria, as prescribed by FASB ASC

360

but did

not

meet the criteria to qualify as a discontinued operation.

May 30, 2017,

the Company completed the disposition of Fannie

May,

and in

August 2017,

the working capital adjustment was finalized, resulting in an

$11.4

million reduction to the purchase price. The resulting gain on sale, in the amount of

$14.6

million, is included within “Other (income) expense, net” in the Company

’s consolidated statements of income for the fiscal year

2017.

In connection with the working capital adjustment of

$11.4

million, the Company has an

$8.5

million payable to Ferrero, included in the“Accrued expenses” line item in the Company’s consolidated balance sheet as of

July 2, 2017.

Per FASB ASC

350

40,

when a portion of reporting unit that constitutes a business is to be disposed of, goodwill associated with that business shall be included in the carrying amount of the business in determining the gain or loss on disposal. The amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. Fannie

May

represented a business, as defined by FASB, and was included in the Company's Gourmet Food & Gift Baskets reporting unit. As a result, we allocated

$15.1

million of goodwill to the Fannie

May

business based on the relative fair value of Fannie

May

to the Gourmet Food & Gift Baskets reporting unit. The Company estimated the fair value of the Gourmet Food & Gift Baskets reporting unit in a manner consistent with its significant accounting policy for goodwill, described in Note

above.

The Company and Ferrero also entered into a transition services agreement whereby the Company will provide certain post-closing services to Ferrero and Fannie

May

for a period of approximately

months, related to the business of Fannie

May,

and a commercial agreement with respect to the distribution of certain Ferrero and Fannie

May

products.

Operating results of Fannie

May

are reflected in the Company

’s consolidated financial statements through

May 30, 2017,

the date of its disposition, within its Gourmet Food & Gift Baskets segment.

During fiscal

2017,

Fannie

May

contributed net revenues of

$85.6

million. Operating and pre-tax income during such period were

not

material.

Acquisition of Harry & David

September 30, 2014,

the Company completed its acquisition of Harry & David, a leading multi-channel specialty retailer and producer of branded premium gift-quality fruit, gourmet food products and other gifts marketed under the Harry & David brands. The transaction, for a purchase price of

$142.5

million, includes the Harry & David

’s brands and websites as well as its headquarters, manufacturing and distribution facilities and orchards in Medford, Oregon, a warehouse and distribution facility in Hebron, Ohio and

Harry & David retail stores located throughout the country.

During the quarter ended

June 28, 2015,

the Company finalized the allocation of the purchase price to the identifiable assets acquired and liabilities assumed based on its estimates of their fair values on the acquisition date. The determination of the fair values of the acquired assets and assumed liabilities (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. The estimates and assumptions include the projected timing and amount of future cash flows and discount rates reflecting risk inherent in the future cash flows. Of the acquired intangible assets,

$5.2

million was assigned to customer lists, which are being amortized over the estimated remaining lives of between

years,

$35.5

million was assigned to trademarks,

$1.1

million was assigned to leasehold positions and

$16.0

million was assigned to goodwill, which is

not

expected to be deductible for tax purposes. The goodwill recognized in conjunction with our acquisition of Harry & David is primarily related to synergistic value created in terms of both operating costs and revenue growth opportunities, enhanced financial and operational scale, and other strategic benefits. It also includes certain other intangible assets that do

not

qualify for separate recognition, such as an assembled workforce.

The following table summarizes the final allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition:

	Harry & David Final Purchase Price Allocation
	(in thousands)
Current assets	$	126,268
Intangible assets		41,827
Goodwill		16,042
Property, plant and equipment		105,079
Other assets		(131	)
Total assets acquired		289,085

Current liabilities, including short-term debt		104,513
Deferred tax liabilities		42,048
Other liabilities assumed		24
Total liabilities assumed		146,585
Net assets acquired	$	142,500

The estimated fair value of the acquired work in process and finished goods inventory was determined utilizing the income approach. The income approach estimates the fair value of the inventory based on the net retail value of the inventory less operating expenses and a reasonable profit allowance. Raw materials inventory was valued at book value, as there have

not

been any significant price fluctuations or other events that would materially change the cost to replace the raw materials.

The estimated fair value of the deferred revenue was determined based on the costs to perform the remaining services and/or satisfy the Company

’s remaining obligations, plus a reasonable profit for those activities. These remaining costs exclude sales and marketing expenses since the Deferred Revenue has already been “sold,” and

additional sales and marketing expenses will be incurred. The reasonable profit to be earned on the deferred revenue was estimated based on the profit mark-up that the Company earns on similar services.

The estimated fair value of property, plant and equipment was determined utilizing a combination of the cost, sales comparison, market, and excess earnings method approaches, as follows:

Under the cost approach a replacement cost of the asset is

first

determined based on replacing the real property with assets of equal utility and functionality, developed based on both the indirect and the direct cost methods. The indirect cost method includes multiplying the assets

’ historical costs by industry specific inflationary trend factors to yield an estimated replacement cost. In applying this method, all direct and indirect costs including tax, freight, installation, engineering and other associated soft costs were considered. The direct cost method includes obtaining a current replacement cost estimate from the Company and equipment dealers, which includes all applicable direct and indirect costs. An appropriate depreciation allowance is then applied to the replacement cost based on the effective age of the assets relative to the expected normal useful lives of the assets, condition of the assets, and the planned future utilization of the assets. The determination of fair value also includes considerations of functional obsolescence and economic obsolescence, where applicable.

The sales comparison approach was considered for certain real estate property. Under the sales comparison approach, an estimate of fair value is determined by comparing the property being valued to similar properties that have been sold within a reasonable period from the valuation date, applying appropriate units of comparison.

The market approach was considered for certain assets with active secondary markets including agricultural equipment, automobiles, computer equipment, and general equipment, mobile equipment, packaging machinery and semi-tractors. Under the market approach market, comparables for the assets are obtained from equipment dealers, resellers, industry databases, and published price guides. The market comparables are then adjusted to the subject assets based on age, condition or type of transaction. All applicable direct and indirect costs are also considered and reflected in the final fair value determination.

The fair value of orchards in production was determined based on the excess earnings method under the income approach. This valuation approach assumed that the orchards

’ production could be sold independently through a wholesale market rather than Harry & David’s retail channel. The excess earnings method required calculating future crop revenue as determined by multiplying the future crop volume in tons to be produced by the projected price per ton based on the USDA “Agricultural Prices” report released

January 31, 2015

by the National Agricultural Statistics Services. Appropriate expenses were deducted from the sales attributable to the orchards and economic rents were charged for the return on contributory assets. The after-tax cash flows attributable to the asset were discounted back to their net present value at an appropriate rate of return and summed to calculate the value of the orchards.

The estimated fair value of the acquired trademarks was determined using the relief from royalty method, which is a risk-adjusted discounted cash flow approach. The relief from royalty method values an intangible asset by estimating the royalties saved through ownership of the asset. The relief from royalty method requires identifying the future revenue that would be generated by the trademark, multiplying it by a royalty rate deemed to be avoided through ownership of the asset and discounting the projected royalty savings amounts back to the acquisition date. The royalty rate used in the valuation was based on a consideration of market rates for similar categories of assets. The discount rate used in the valuation was based on the Company

’s weighted average cost of capital, the riskiness of the earnings stream association with the trademarks and the overall composition of the acquired assets.

The estimated fair value of the acquired customer lists was determined using the excess earnings method under the income approach. This method requires identifying the future revenue that would be generated by existing customers at the time of the acquisition, considering an appropriate attrition rate based on the historical experience of the Company. Appropriate expenses are then deducted from the revenues and economic rents are charged for the return on contributory assets. The after-tax cash flows attributable to the asset are discounted back to their net present value at an appropriate intangible asset rate of return and summed to calculate the value of the customer lists.

Operating results of Harry & David are reflected in the Company

’s consolidated financial statements from the date of acquisition, within its Gourmet Food & Gift Baskets segment.

Harry & David contributed net revenues of

$359.7

million and operating income of approximately

$24.6

million from

September 30, 2014

through

June 28, 2015.

These amounts are

not

necessarily indicative of the results of operations that Harry & David would have realized had it continued to operate as a stand-alone company during the period presented due to integration activities since the acquisition date, and due to costs that are now reflected in the Company’s unallocated corporate costs which are

not

allocated to Harry & David.

Disposition of Colonial Gifts Limited ("iFlorist")

During

October 2015,

the Company completed the sale of substantially all of the assets of iFlorist to Euroflorist AB (“Euroflorist”), a pan-European floral and gifting company headquartered in Malmo, Sweden. As consideration for the assets sold, the Company received an investment in Euroflorist with a fair value on the date of sale of approximately

$1.5

million. (The Company will account for this investment using the cost method as it does

not

possess the ability to exercise significant influence over Euroflorist.). The Company recorded a loss on the sale in the amount of

$2.1

million which is included within “Other (income) expense, net” in the condensed consolidated statements of operations.