ACQUISITIONS

9 Months Ended

Apr. 30, 2011

ACQUISITIONS

ACQUISITIONS

2. ACQUISITIONS

During the first quarter of fiscal 2011, the Company, within its wholesale segment, completed its acquisition of the Rocky Mountain and Southwest distribution business of Whole Foods Market Distribution, Inc. (“Whole Foods Distribution”), a wholly owned subsidiary of Whole Foods Market, Inc. (“Whole Foods Market”), whereby the Company (i) acquired inventory at Whole Foods Distribution’s Aurora, Colorado and Austin, Texas distribution facilities; (ii) acquired substantially all of Whole Foods Distribution’s assets, other than the inventory, at the Aurora, Colorado distribution facility; (iii) assumed Whole Foods Distribution’s obligations under the existing lease agreement related to the Aurora, Colorado distribution facility; and (iv) hired substantially all of Whole Foods Distribution’s employees working at the Aurora, Colorado distribution facility.  In connection therewith, on October 11, 2010, the Company amended the existing Agreement for the Distribution of Products, dated as of September 26, 2006 between the Company and Whole Foods Market as subsequently amended on June 2, 2010, pursuant to which the Company became Whole Foods Market’s primary distributor in its Rocky Mountain Region, which includes Colorado, Kansas, New Mexico, Utah, Idaho, Montana and Wyoming, and its Southwest Region, which includes Texas, Louisiana, Oklahoma and Arkansas.  The Company expects to generate incremental annual revenues of approximately $160 million from Whole Foods Market as a result of this transaction. For the three and nine months ended April 30, 2011, it is impracticable for the Company to provide complete financial results for this business since it was absorbed by the operations of our broadline distribution business. Net sales resulting from the transaction totaled approximately $39.2 million and $94.3 million for the three and nine months ended April 30, 2011, respectively.  We do not record the expenses for this business separately from the rest of the broadline distribution business, and no separate financial statements are produced.

During the first quarter of fiscal 2011 the Company recorded certain adjustments to the amounts recorded during the fourth quarter of fiscal 2010 related to the acquisition of certain Canadian food distribution assets of the SunOpta Distribution Group (“SDG”) business of SunOpta Inc. (the “SDG assets”) acquired by the Company’s Canadian subsidiary (“UNFI Canada”) on June 11, 2010.  These adjustments included an unfavorable lease liability of $0.7 million recorded within other liabilities based on updated valuation information, and an adjustment of $0.3 million to reduce the amount receivable related to the working capital adjustment, which increased goodwill by a total of $1.0 million. As of April 30, 2011, the Company does not expect any further material changes to the amounts recorded in the financial statements related to this transaction. Net sales resulting from the acquisition totaled $56.7 million and $148.6 million for the three and nine months ended April 30, 2011, respectively.  Net income was not significant in either period compared to the Company’s consolidated net income. Total assets of UNFI Canada were approximately $94.9 million as of April 30, 2011.

During fiscal 2011, the Company recorded adjustments to a liability related to certain restructuring activities at Distribution Holdings, Inc. and its wholly-owned subsidiary Millbrook Distribution Services, Inc. (“DHI”), which the Company acquired on November 2, 2007. These restructuring activities, which included termination of a management agreement with the former owner, reductions in staffing and the planned elimination of a facility, were charged to the cost of the acquisition of DHI and a corresponding liability of $7.2 million was included in other long-term liabilities for the fiscal year ended August 2, 2008. This liability was reduced in fiscal 2010 by $1.7 million ($1.0 million net of tax) due to an adjustment in the timeline of certain of the planned restructuring activities.  This liability was further reduced during fiscal 2011 by $1.2 million ($0.7 million net of tax) due to another adjustment in the timeline of certain of the planned restructuring activities and a payment of $0.6 million.

During the nine months ended April 30, 2011, the Company recorded an increase of less than $0.1 million to its intangible assets in recognition of ongoing contingent consideration payments in the form of royalties ranging between 2-4% of net sales (as defined in the applicable purchase agreement) related to two of its branded product company acquisitions.  A third branded product company acquisition requires ongoing contingent consideration payments in the form of earn-outs over a period of five years from the acquisition date.  These earn-outs are based on tiers of net sales for the trailing twelve months, and no such amounts were earned or paid during the nine months ended April 30, 2011.  During the nine months ended May 1, 2010, the Company did not make any acquisitions but did make contingent consideration payments of approximately $0.3 million under these agreements.