Note 2 - Business Combinations

9 Months Ended

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.