2. Acquisitions

On June 16, 2015, we completed the previously announced acquisition of Animal Health International, Inc., a leading production animal health distribution company in the U.S. This acquisition more than doubled the size of Patterson’s animal health business. Our animal health business now offers a range of products and services to a broader base of customers in North America and the U.K. Under terms of the merger agreement, we acquired all of Animal Health International’s stock for $1,100,000 in cash, subject to customary working capital adjustments.

In connection with the acquisition, we entered into a credit agreement consisting of a $1,000,000 unsecured term loan and a $500,000 unsecured cash flow revolving line of credit, described further in Note 11 to the Condensed Consolidated Financial Statements.

The acquisition has been accounted for in accordance with ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the acquisition date. A valuation of the assets from the business acquisition was performed utilizing cost, income and market approaches resulting in $589,833 allocated to identifiable net assets. The initial accounting for the acquisition is not complete because certain information and analysis that may impact our initial valuations are still being obtained or reviewed as a result of the short time period since the closing of the acquisition. The significant assets and liabilities for which provisional amounts are recognized at the acquisition date are property, plant and equipment, intangible assets, goodwill, working capital adjustments and deferred income taxes. The provisional amounts recognized are subject to revision until our valuations are completed, not to exceed one year, and any material adjustments identified that existed as of the acquisition date will be retroactively recorded.

The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed related to the acquisition, as of the acquisition date:


Cash	$	1,100,000
Net working capital adjustment		7,704

Fair value of total purchase price consideration	$	1,107,704


Receivables	$	161,427
Inventory		195,367
Prepaid expenses and other current assets		33,005
Property and equipment		44,178
Identifiable intangibles		434,300
Other long-term assets		40,869

Total assets acquired		909,146


Accounts payable		122,129
Accrued liabilities and other current liabilities		19,395
Deferred tax liability		177,789

Total liabilities assumed		319,313


Identifiable net assets acquired		589,833
Goodwill		517,871

Net assets acquired	$	1,107,704

As a result of recording the stepped up fair market basis for GAAP purposes, but receiving primarily carryover basis for tax purposes in the acquisition, we recorded a deferred tax asset and deferred tax liability of $2,569 and $177,789, respectively.

The goodwill of $517,871 resulting from the acquisition reflects the excess of our purchase price over the fair value of the net assets acquired. The goodwill recorded as part of the acquisition primarily reflects the value of the assembled workforce, cost synergies, and the potential to integrate and expand existing product lines. We allocated all of the goodwill to our Animal Health reporting segment. None of the goodwill recognized is deductible for income tax purposes, and as such, no deferred taxes have been recorded related to goodwill.

Revenues of $171,922 and operating income of $1,653 attributable to the acquisition are included in our condensed consolidated statement of income for the quarter ended August 1, 2015. Included in operating income is amortization expense related to the identifiable intangible assets acquired in the transaction, transaction-related costs and integration expenses.

The following summarizes the intangible assets, excluding goodwill, acquired as of June 16, 2015. Intangible assets are amortized using methods that approximate the pattern of economic benefit provided by the utilization of the assets.


	Gross Carrying Value		Weighted Average Life (years)
Unamortized – indefinite lived:
Trade names	$	12,300		indefinite
Amortized:
Customer relationships		291,900		15.0
Trade names		111,400		10.0
Developed technology and other		18,700		12.2

Total amortized intangible assets		422,000		13.6

Total identifiable intangible assets	$	434,300

The following unaudited pro forma financial results for the combined results of Patterson and Animal Health International for the quarters ended August 1, 2015 and July 26, 2014 assume the acquisition occurred on April 27, 2014. The unaudited pro forma financial results may not be indicative of the results that would have occurred had the acquisition been completed as of April 27, 2014, nor are they indicative of future results of operations.


	Three months ended
	August 1,		July 26,
	2015		2014
Net sales	$	1,335,906	$	1,291,817
Net income from continuing operations		27,717		34,345

Net income from continuing operations includes $11,800 of income tax expense related to the repatriation of foreign earnings, described further in Note 12 to the Condensed Consolidated Financial Statements.