XML 76 R10.htm IDEA: XBRL DOCUMENT

Acquisitions and Divestitures

9 Months Ended

Jun. 23, 2012

2. Acquisitions and Divestitures

Fiscal Year 2012

On October 3, 2011, all the outstanding shares of Van Houtte USA Holdings, Inc., also known as the Van Houtte U.S. Coffee Service business or the “Filterfresh” business, were sold to ARAMARK Refreshment Services, LLC (“ARAMARK”) in exchange for $149.5 million in cash. Approximately $4.4 million of cash was transferred to ARAMARK as part of the sale and $7.4 million was repaid to ARAMARK upon finalization of the purchase price, resulting in a net cash inflow related to the Filterfresh sale of $137.7 million. The Company recognized a gain on the sale of $26.3 million during the thirteen weeks ended December 24, 2011. Filterfresh had been included in the Canadian business unit (“CBU”) segment.

As of September 24, 2011, all the assets and liabilities relating to the Filterfresh business were reported in the Consolidated Balance Sheets as assets and liabilities held-for-sale.

Filterfresh revenues and net income included in the Company’s consolidated statement of operations were as follows (dollars in thousands, except per share data):

	Thirteen		Thirteen		For the period September 25, 2011 through		For the period December 17, 2010 (date of acquisition)
	weeks ended		weeks ended		October 3, 2011		through
	June 23, 2012		June 25, 2011		(date of sale)		June 25, 2011
Net sales	$	—	$	29,352	$	2,286	$	62,619

Net income	$	—	$	3,947	$	229	$	9,276
Less income attributable to noncontrolling interests	—		382		20		776
Net income attributable to GMCR	$	—	$	3,565	$	209	$	8,500

Diluted net income per share	$	—	$	0.02	$	—	$	0.06

After the disposition, the Company continues to sell coffee and brewers to Filterfresh, which prior to the sale of Filterfresh were eliminated and were not reflected in the Consolidated Statement of Operations. For the thirteen weeks ended June 25, 2011, the Company’s sales to Filterfresh that were eliminated in consolidation were $7.2 million. For the thirty-nine weeks ended June 23, 2012, the Company’s sales to Filterfresh through October 3, 2011 (date of sale) that were eliminated in consolidation were $0.6 million. For the thirty-nine weeks ended June 25, 2011, the Company’s sales to Filterfresh during the period December 17, 2010 (date of acquisition) through June 25, 2011 that were eliminated in consolidation were $15.0 million.

Fiscal Year 2011

On December 17, 2010, the Company acquired all of the outstanding capital stock of LJVH Holdings, Inc. (“LJVH” and together with its subsidiaries, “Van Houtte”), a specialty coffee roaster headquartered in Montreal, Quebec, for approximately USD $907.8 million, net of cash acquired. The acquisition was financed with cash on hand and a $1,450.0 million credit facility. Van Houtte’s functional currency is the Canadian dollar. Van Houtte’s operations are included in the CBU segment.

At the time of the acquisition, the Company accounted for all the assets relating to the Filterfresh business as held-for-sale.

The Company finalized the valuation and purchase price allocation for Van Houtte during the third quarter of fiscal 2011. The Van Houtte acquisition was accounted for under the acquisition method of accounting. The total purchase price of USD $907.8 million, net of cash acquired, was allocated to Van Houtte’s net tangible assets and identifiable intangible assets based on their estimated fair values as of December 17, 2010. The fair value assigned to identifiable intangible assets acquired was determined primarily by using an income approach. The allocation of the purchase price is based upon a valuation determined using management’s and the Company’s estimates and assumptions. The table below represents the allocation of the purchase price to the acquired net assets of Van Houtte (in thousands):

	Total			Van Houtte Canadian Operations			Filterfresh Assets Held For Sale
Restricted cash	$	500		$	500		$	—
Accounts receivable	61,130			47,554			13,576
Inventories	42,958			36,691			6,267
Income taxes receivable	2,260			2,190			70
Deferred income taxes	4,903			3,577			1,326
Other current assets	5,047			4,453			594
Fixed assets	143,928			110,622			33,306
Intangible assets	375,099			355,549			19,550
Goodwill	472,331			409,493			62,838
Other long-term assets	1,577			962			615
Accounts payable and accrued expenses	(54,502		)	(46,831		)	(7,671		)
Other short-term liabilities	(4,330		)	(3,404		)	(926		)
Income taxes payable	(1,496		)	(1,496		)	—
Deferred income taxes	(117,086		)	(104,866		)	(12,220		)
Notes payable	(2,914		)	(1,770		)	(1,144		)
Other long-term liabilities	(2,452		)	(1,683		)	(769		)
Non-controlling interests	(19,118		)	(9,529		)	(9,589		)
	$	907,835		$	802,012		$	105,823

The purchase price allocated to Filterfresh was the fair value, less the estimated direct costs to sell Filterfresh established at the acquisition date. The fair value of Filterfresh was estimated using an income approach, specifically the discounted cash flow (“DCF”) method. Under the DCF method the fair value is calculated by discounting the projected after-tax cash flows for the business to present value. The income approach includes assumptions about the amount and timing of future cash flows using projections and other estimates. A discount rate based on an appropriate weighted average cost of capital was applied to the estimated future cash flows to estimate the fair value.

An income approach, specifically the DCF method, was used to value the noncontrolling interests.

Amortizable intangible assets acquired, valued at the date of acquisition, include approximately $263.1 million for customer relationships, $10.9 million for trademarks and trade names, $1.4 million for franchises and $0.3 million for technology. Indefinite-lived intangible assets acquired include approximately $99.4 million for the Van Houtte trademark which is not amortized. The definite lived intangible assets classified as held-for-sale are not amortized and approximated $19.5 million. Amortizable intangible assets are amortized on a straight-line basis over their respective useful lives, and the weighted-average amortization period is 10.8 years.

The cost of the acquisition in excess of the fair market value of the tangible and intangible assets acquired less liabilities assumed represents acquired goodwill. The acquisition provides the Company with an expanded Canadian presence and manufacturing and distribution synergies, which provide the basis of the goodwill recognized with respect to the Van Houtte Canadian operations. As discussed above, the purchase price allocated to Filterfresh was the fair value, less the estimated direct costs to sell Filterfresh established at the acquisition date. The excess of the purchase price (fair value) allocated to Filterfresh over the fair value of the net tangible and identifiable intangible assets represents goodwill. Goodwill and intangible assets are reported in the CBU segment. The goodwill and intangible assets recognized are not deductible for tax purposes.

Acquisition costs were expensed as incurred and totaled approximately $10.7 million for the thirty-nine weeks ended June 25, 2011 and are included in general and administrative expenses for the Company.

At June 23, 2012, approximately $8.9 million of the purchase price is held in escrow and is included in restricted cash with the corresponding amount in other current liabilities.

The acquisition was completed on December 17, 2010 and accordingly results of operations from such date have been included in the Company’s Statement of Operations. For the thirteen weeks ended June 23, 2012, the Van Houtte acquisition resulted in an additional $104.5 million of consolidated revenue and $14.1 million of consolidated income before income taxes. For the thirteen weeks ended June 25, 2011, the Van Houtte acquisition resulted in an additional $111.7 million of consolidated revenue and $13.0 million of consolidated income before income taxes. For the thirty-nine weeks ended June 23, 2012, the Van Houtte acquisition resulted in an additional $308.4 million of consolidated revenue and $34.2 million of consolidated income before income taxes. For the thirty-nine weeks ended June 25, 2011, the Van Houtte acquisition resulted in an additional $221.0 million of consolidated revenue and $10.3 million of consolidated income before income taxes.

Supplemental Pro Forma Information

The following information reflects the Company’s acquisition of Van Houtte as if the transaction had occurred as of the beginning of the Company’s fiscal 2011. The pro forma information does not necessarily reflect the actual results that would have occurred had the acquisitions been combined during the periods presented, nor is it necessarily indicative of the future results of operations of the combined companies.

The following table represents select pro forma data (dollars in thousands except per share data):

	Thirteen		Thirty-nine
	weeks ended		weeks ended
	June 25, 2011		June 25, 2011
Unaudited Consolidated proforma revenue	$	717,210	$	2,037,846
Unaudited Consolidated proforma net income	$	56,348	$	148,485
Unaudited Consolidated proforma diluted earnings per common share	$	0.37	$	0.99