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Note 2 - Acquisitions | 12 Months Ended
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May 27, 2012
Mergers, Acquisitions and Dispositions Disclosures [Text Block] | 2. Acquisitions GreenLine Holding Company On April 23, 2012 (the “GreenLine Acquisition Date”), Apio acquired all of the outstanding equity of GreenLine Holding Company (“GreenLine”) under a Stock Purchase Agreement (the “GreenLine Purchase Agreement”) in order to expand its product offerings and enter into new markets such a foodservice. GreenLine, headquartered in Perrysburg, Ohio, was a privately-held company and is the leading processor and marketer of value-added, fresh-cut green beans in North America. GreenLine has four processing plants one each in Ohio, Pennsylvania, Florida and California and distribution centers in New York and South Carolina. Under the GreenLine Purchase Agreement, the aggregate consideration paid at closing consisted of $62.9 million in cash, including $4.7 million that is held in an escrow account to secure the indemnification rights of Landec with respect to certain matters, including breaches of representations, warranties and covenants. In addition, the Company may be required to pay in cash up to an additional $7.0 million in earn out payments in the event that GreenLine achieves certain revenue targets during calendar year 2012. The earn out is comprised of $4.0 million for achieving a certain revenue target during calendar year 2012, and up to an additional $3.0 million for exceeding the revenue target by $3.0 million or more. The Company has performed an analysis of projected revenues for GreenLine and has concluded that there is a more likely than not probability that GreenLine will meet, but not exceed, the initial revenue target and therefore, the Company has recorded $3.9 million, representing the present value of the fair market value of the expected earn out payment. The operating results of GreenLine are included in the Company’s financial statements beginning April 23, 2012, in the Food Products Technology operating segment. Included in the Company’s results for the fiscal year 2012 was $9.1 million of GreenLine's net sales. The following table provides unaudited pro forma results of operations of the Company for fiscal years 2012 and 2011 as if the acquisition of GreenLine had occurred as of the beginning of each of the fiscal periods presented. The unaudited pro forma results include certain recurring purchase accounting adjustments such as depreciation and amortization expense on acquired tangible and intangible assets and assumed interest costs. However, unaudited pro forma results do not include certain transaction-related costs including the effect of a step-up of the value of acquired inventory, cost savings or other effects of potential integration of GreenLine. Accordingly, such results of operations are not necessarily indicative of the actual results as if the acquisition had occurred at the beginning of the dates indicated or that may result in the future.
|  | Year ended May 27, 2012 |  |  | Year ended May 29, 2011 |
(in thousands) |  |  |  |  |  |  |  |
Pro forma revenues |  | $ | 401,766 |  |  | $ | 368,831 |
Pro forma net income |  | $ | 14,324 |  |  | $ | 6,766 |
Basic net income per share |  | $ | 0.55 |  |  | $ | 0.26 |
Diluted net income per share |  | $ | 0.55 |  |  | $ | 0.25 |
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of GreenLine to reflect the adjustments to depreciation expense and amortization expense assuming the fair value adjustments to property and equipment and intangible assets had been applied on May 31, 2010 and the adjustments to interest expense on long-term debt entered into in conjunction with the acquisition as if the debt had been borrowed on May 31, 2010. The proforma adjustments were tax affected at the Company’s effective tax rate for the periods presented. For the fiscal year ended May 27, 2012, the proforma net income includes actual expenses at GreenLine incurred prior to the close of the acquisition of $2.7 million for writing-off a related party receivable and for direct acquisition related expenses, primarily professional services and legal expenses. The acquisition date fair value of the total consideration transferred was $66.8 million, which consisted of the following (in thousands):
Cash |  | $ | 62,900 |
Contingent consideration |  |  | 3,926 |
Total |  | $ | 66,826 |
The assets and liabilities of GreenLine were recorded at their respective estimated fair values as of the date of the acquisition using generally accepted accounting principles for business combinations. The excess of the purchase price over the fair value of the net identifiable assets acquired has been allocated to goodwill. Goodwill represents a substantial portion of the acquisition proceeds because of the workforce in-place at acquisition and because of GreenLine’s long history and future prospects. Management believes that there is further growth potential by extending GreenLine’s product lines into new channels, such as club stores. The following table summarizes the estimated fair values of GreenLines assets acquired and liabilities assumed and related deferred income taxes, effective April 23, 2012, the date the Company obtained control of GreenLine (in thousands).
Accounts receivable, net |  | $ | 7,057 |
Inventories, net |  |  | 1,409 |
Property and equipment |  |  | 11,669 |
Other tangible assets |  |  | 306 |
Intangible assets |  |  | 43,500 |
Total identifiable assets acquired |  |  | 63,941 |
Accounts payable and other liabilities |  |  | (8,391 | )
Deferred taxes |  |  | (1,882 | )
Total liabilities assumed |  |  | (10,273 | )
Net identifiable assets acquired |  |  | 53,668 |
Goodwill |  |  | 13,158 |
Net assets acquired |  | $ | 66,826 |
The Company used a combination of the market and cost approaches to estimate the fair values of the GreenLine assets acquired and liabilities assumed. During the measurement period (which is not to exceed one year from the acquisition date), the Company is required to retrospectively adjust the provisional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. Inventory Inventory of $86,000 was recorded in the allocation of the purchase price based on the market value of the inventories less the estimated costs to sell the inventories. During fiscal year 2012, all of the step up was charged to cost of product sales as the inventories were sold before fiscal year ended May 27, 2012. Intangible Assets The fair value of indefinite and finite-lived intangible assets was determined using a DCF model, under an income valuation methodology, based on management’s five-year projections of revenues, gross profits and operating profits by fiscal year and assumes a 40% effective tax rate for each year. Management takes into account the historical trends of GreenLine and the industry categories in which GreenLine operates along with inflationary factors, current economic conditions, new product introductions, cost of sales, operating expenses, capital requirements and other relevant data when developing its projection. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions. The projected cash flows from these intangibles were based on key assumptions such as estimates of revenues and operating profits related to the intangibles over their respective forecast periods. The resultant cash flows were then discounted using a rate the Company believes is appropriate given the inherent risks associated with each intangible asset and reflect market participant assumptions. The Company identified two intangible assets in connection with the GreenLine acquisition: trade names and trademarks valued at $36.0 million, which is considered to be an indefinite life asset and therefore, will not be amortized; and customer base valued at $7.5 million with a thirteen year useful life. The trade name/trademark intangible asset was valued using the relief from royalty valuation method and the customer relationship intangible asset was valued using the distributor method. Goodwill The excess of the consideration transferred over the fair values assigned to the assets acquired and liabilities assumed was $13.2 million, which represents the goodwill amount resulting from the acquisition which can be attributable to GreenLine’s long history, future prospects and the expected operating synergies from combining GreenLine with our Apio fresh-cut, value-added vegetable business. None of the goodwill is expected to be deductible for income tax purposes. The Company will test goodwill for impairment on an annual basis or sooner, if indicators of impairment are present. As of May 27, 2012, there have been no changes to the amount of goodwill initially recognized upon the acquisition of GreenLine. Liability for Contingent Consideration In addition to the cash consideration paid to the former shareholder of GreenLine, the Company may be required to pay up to an additional $7.0 million in earn out payments based on GreenLine achieving certain revenue targets in calendar year 2012. The fair value of the liability for the contingent consideration recognized on the acquisition date was $3.9 million and is classified as a non-current liability in the Consolidated Balance Sheets as of May 27, 2012. The Company determined the fair value of the liability for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. The Company expects to pay $4.0 million of the potential earn out during the third quarter of fiscal year 2013. Deferred Tax Liabilities The $1.9 million of net deferred tax liabilities resulting from the acquisition was primarily related to the difference between the book basis and tax basis of the intangible assets and net operating losses that were assumed by the Company in the acquisition. ‘Acquisition-Related Transaction Costs The Company recognized $1.4 million of acquisition-related expenses that were expensed in the year ended May 27, 2012 and are included in other operating expenses in the Consolidated Statements of Income for the year ended May 27, 2012. These expenses included investment banker fees, legal, accounting and tax service fees and appraisals fees. Lifecore Biomedical, Inc. On April 30, 2010, the Company acquired all of the common stock of Lifecore Biomedical, Inc. (“Lifecore”) under a Stock Purchase Agreement (“Lifecore Purchase Agreement”) in order to expand its product offerings and enter into new markets. Lifecore was a privately-held hyaluronan-based biomaterials company located in Chaska, Minnesota. Lifecore is principally involved in the development and manufacture of products utilizing hyaluronan, a naturally occurring polysaccharide that is widely distributed in the extracellular matrix of connective tissues in both animals and humans. Under the Lifecore Purchase Agreement, the Company paid to the former Lifecore stockholder at closing $40.0 million in cash, which included $6.6 million held in an escrow account. Half of the escrow or $3.3 million was released and paid to the former Lifecore shareholder in May 2011, the other half was released and paid to the former Lifecore shareholder in May 2012. In addition to the cash consideration paid to the former shareholder of Lifecore, the Lifecore Purchase Agreement included an earn out payment of up to an additional $10.0 million based on Lifecore achieving certain revenue targets in calendar years 2011 and 2012. These revenue targets where achieved in calendar year 2011 and the $10.0 million earn out payment was paid by the Company to the former shareholder of Lifecore on May 29, 2012.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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