10. ACQUISITION

On February 2, 2016, we acquired Lamrite for $150.0 million, prior to certain purchase price adjustments, utilizing our cash on hand. Lamrite operates an international wholesale business under the Darice brand name and 33 arts and crafts retail stores (32 as of the acquisition date), located primarily in Ohio and the surrounding states, under the Pat Catan’s brand name. We incurred integration related costs of $4.1 million during the quarter ended April 30, 2016. These expenses have been included in SG&A in the consolidated statements of comprehensive income.

The acquisition was accounted for using the purchase method of accounting in accordance with ASC 805, Business Combinations. The acquisition resulted in goodwill primarily related to the expected benefits resulting from enhancements to our private brand development capability, direct sourcing initiatives and business-to-business capabilities, as well as the value of the existing Lamrite workforce. The goodwill recognized is expected to be deductible for tax purposes.

The fair values of the intangible assets acquired were primarily determined by using the income approach. The income approach indicates value for a subject based on the present value of cash flows expected to be generated by the asset. Projected cash flows are discounted at a market rate of return that reflects the relative risk of achieving the cash flows and the time value of money. The fair value of inventory was determined based on the estimated selling price of the inventory less the expected costs of selling efforts and a reasonable profit margin.

The following table summarizes the cash consideration for the acquisition of Lamrite (in thousands):


Purchase contract amount	$	150,000
Additional consideration to Lamrite shareholders for taxes		6,500
Working capital and other adjustments		(3,090)
Total purchase consideration	$	153,410

The following table summarizes the fair values of the assets acquired and liabilities assumed from the acquisition of Lamrite as of February 2, 2016 (in thousands):


Cash and cash equivalents	$	2,310
Trade accounts receivable		22,254
Merchandise inventory		83,700
Other current assets		1,202
Property, plant and equipment		25,367
Net favorable leases		2,450
Intangible assets (1)		21,800
Other assets		306
Current liabilities (2)		(30,490)
Other long-term liabilities		(273)
Fair value of net assets acquired		128,626
Goodwill		24,784
Total purchase consideration	$	153,410

(1)

Includes customer relationships, trade and brand names and propriety product designs. Intangible assets include $9.4 million of assets that are being amortized over a range of 6 to 18 years.

(2)

Includes accounts payable, accrued expenses, accrued payroll and accrued taxes.

Since the date of acquisition, the results of Lamrite's operations have been included in the Company’s results of operations. The Company has not presented pro forma financial information for prior periods because the impact on our previously reported consolidated financial statements would not have been material.