Acquisitions

On May 1, 2017, the Company completed its acquisition of Pineland. The Acquisition increases our side-dish production capacity and provides us with the capability to produce and sell diced and shredded potato products in both the retail and food-service channels. The acquisition also diversifies our production capability by adding a second state-of-the-art potato processing facility with approximately 180 million pounds of annual capacity. Pineland also owns and operates a 900-acre potato farm and is surrounded by an estimated 55,000 acres of annual potato production.

The Company purchased and acquired all of the equity interests of Pineland outstanding immediately prior to the closing. Net of working capital adjustments and cash acquired, the Company paid $115,811 in cash, and may be required to pay up to an additional $25,000 in cash as potential earn-out consideration, which is subject to the achievement of certain operating EBITDA performance milestones over a consecutive 12-month period during the 24 months following the acquisition date. The following table summarizes the total preliminary purchase price allocated to the net assets acquired:



(in thousands)
Cash paid	$	115,811
Preliminary fair value of contingent consideration	23,746
Total purchase price to allocate	$	139,557

The earn-out consideration arrangement requires the Company to pay a maximum of $25,000 to Pineland's former shareholders, if Pineland reaches certain EBITDA performance milestones over a consecutive 12-month period during the 24 months following the acquisition date. The preliminary fair value of the earn-out consideration at the acquisition date was estimated to be $23,746. We preliminarily estimated the fair value of the earn-out consideration using a probability-weighted discounted cash flow model. The key assumptions in the discounted cash flow model were Pineland forecasted revenues and profits over the 24 month period following the acquisition date. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. Subsequent adjustments to the fair value of the earn-out consideration will be recorded to the general and administrative expense line of the Consolidated Statements of Net Income.

The following table summarizes the estimated fair value of assets acquired and liabilities, on the acquisition date. We are in the process of obtaining a third party valuation of the assets acquired and liabilities assumed, including the earn-out consideration, and as a result the provisional measurements disclosed below are preliminary and subject to change.



(in thousands)	Acquisition date fair value
Accounts receivable	$	6,008
Inventory	3,216
Other assets	944
Property, plant and equipment	35,133
Identifiable intangible assets	35,491
Goodwill	81,665
Total identifiable assets acquired	$	162,457

Current liabilities assumed	5,081
Deferred tax liabilities	$	17,819

The identifiable intangible assets acquired include preliminary values of $33,466 associated with customer relationships that will be amortized over a 10-year period, and $2,025 associated with trademarks that will be amortized over a 20-year period. The trademarks were preliminarily valued using the relief-from-royalty method while the customer relationships were valued using the excess-earnings method. Key assumptions in the preliminary valuation of identifiable intangible assets included projected sales and profit margins, customer attrition rates and other third party benchmarking information. There are inherent uncertainties and management judgment required in these determinations.

The preliminary valuation of the Pineland acquisition resulted in a purchase price that exceeded the estimated fair value of net assets acquired, which was allocated to goodwill. We believe the amount of goodwill relative to the fair value of consideration relates to several factors including potential synergies related to market opportunities for our product offerings, the potential to leverage our combined sales force to attract new customers and potential synergies that will result in cost reductions for the combined company. None of the goodwill is expected to be deductible for income tax purposes.

We incurred $557 of integration costs during the three months ended July 28, 2017, primarily related to legal and professional fees associated with the acquisition of Pineland. These expenses were primarily recorded in the general and administrative expenses line of the Consolidated Statements of Net Income. The following table represents sales and operating income associated with the acquired Pineland business in the first quarter of fiscal 2018:



(in thousands)
Net sales (excluding intercompany sales)	$	8,583
Operating income	$	524

Pro Forma Information

The following pro forma financial information presents our combined results of operations as if the acquisition of Pineland had occurred on April 30, 2016, the first day of fiscal 2017. The unaudited pro forma financial information is not necessarily indicative of what our condensed consolidated results of operations actually would have been had the acquisition been completed on April 30, 2016. In addition, the unaudited pro forma financial information does not attempt to project the future results of operations of the combined company.



(in thousands)	Q1 2017 pro forma results
Revenue (excluding intercompany sales)	$	95,094
Operating income	8,135
Income before taxes	6,428
Provision for income taxes	2,073
Net income	$	4,355