ACQUISITIONS

9 Months Ended

Apr. 28, 2012

ACQUISITIONS

ACQUISITIONS

3.             ACQUISITIONS

During the first quarter of fiscal 2012, the Company finalized its valuation of the customer relationship intangible asset related to the first quarter fiscal 2011 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”).  The Company, within its wholesale segment, (i) acquired inventory at Whole Foods Distribution’s Aurora, Colorado and Austin, Texas distribution centers; (ii) acquired substantially all of Whole Foods Distribution’s assets, other than the inventory, at the Aurora, Colorado distribution center; (iii) assumed Whole Foods Distribution’s obligations under the existing lease agreement related to the Aurora, Colorado distribution center; and (iv) hired substantially all of Whole Foods Distribution’s employees working at the Aurora, Colorado distribution center.  In connection therewith, on October 11, 2010, the Company amended the existing Agreement for the Distribution of Products by and between the Company and Whole Foods Market, as amended on June 2, 2010, pursuant to which the Company became Whole Foods Market’s primary distributor in its Rocky Mountain and Southwest Regions.  It is impracticable for the Company to provide complete financial results for this business since it was absorbed by the operations of the Company’s broadline distribution business and the Company does not record the expenses for this business separately from the rest of the broadline distribution business. The amount of incremental net sales resulting from expanded distribution associated with the transaction totaled approximately $25.4 million for the nine months ended April 28, 2012 compared to the nine months ended April 30, 2011.  This incremental net sales impact was the result of expanded distribution for the entire first quarter for the current fiscal year, rather than only a portion of the first quarter in the prior year.

During the second quarter of fiscal 2012, through the Company’s wholly-owned subsidiary, UNFI Canada, Inc. (“UNFI Canada”), the Company acquired substantially all the assets of a private specialty food distribution business located in Ontario, Canada.  Total cash consideration paid in connection with this acquisition was $3.0 million. In addition, the asset purchase agreement provides for potential earn-outs of up to $1.95 million from November 2011 through November 2014.  This acquisition was financed through borrowings under the Company’s then existing revolving credit facility.  The fair value assigned to identifiable intangible assets acquired was determined by using an income approach. Identifiable intangible assets recorded based on the provisional valuation include customer lists of $0.8 million, which is being amortized on a straight-line basis over an estimated useful life of approximately 9.7 years. Significant assumptions utilized in the income approach were based on company specific information and projections, which are not observable in the market and are considered Level 3 measurements as defined by authoritative guidance. The Company completed its final valuation of these acquired intangibles during the third quarterof fiscal 2012, and does not expect any further material changes to these estimates or assumptions. Acquisition costs related to this purchase were insignificant, and were expensed as incurred and included within “Operating Expenses” in the Consolidated Statements of Income.  Net sales resulting from the acquisition have been included in the Company’s operating results since November 15, 2011 and the increase in total assets related to this acquisition was included in total assets as of April 28, 2012, which in each case were not significant compared to the Company’s consolidated amounts.

During the nine months ended April 28, 2012, the Company recorded an increase of approximately $0.2 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 acquisitions of assets of branded product companies during fiscal 2009.  The acquisition of assets of a third branded product company during fiscal 2009 requires ongoing contingent consideration payments in the form of earn-outs over a period of five years from the acquisition date of November 2008.  These earn-outs are based on tiers of net sales for the trailing twelve months, and $0.2 million was paid during the nine months ended April 28, 2012.  During the nine months ended April 30, 2011, the Company recorded an increase of less than $0.1 million in recognition of ongoing contingent consideration payments for these same agreements.