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• | Licensing Agreements - The Company valued licensing agreements using the income approach. Under this method, the asset value was determined by estimating the revenue stream over the implied life of the agreements. |
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• | Customer relationships - The Company valued customer relationships using an income approach, the multi-period excess earnings method. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. Only expected sales from current customers were used, which are estimated using annual expected growth rates of 2.0% to 12.1%. The Company assumed a customer retention rate of approximately 95.0%, which is supported by historical retention rates. Income taxes were estimated at 38% and amounts were discounted using a rate of 9.5%. |
The following unaudited pro forma combined financial information presents the Company’s pro forma results for the years ended September 30, 2015 and 2014 had the results of AAG been combined as of October 1, 2013:
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| | 2015 | | 2014 |
(in millions) | | (Unaudited) | | (Unaudited) |
Pro forma net sales | | $ | 4,966.2 |
| | $ | 4,872.4 |
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Pro forma net income | | 217.3 |
| | 235.5 |
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The 2015 unaudited pro forma combined financial results exclude (1) a non-recurring interest expense of $35.7 million related to the extinguishment of AAG debt recognized in connection with the acquisition, (2) $47.3 million of acquisition and integration related charges incurred as a result of the acquisition (3) $18.8 million of non-recurring expense related to the fair value adjustment to acquisition date inventory and (4) $10.4 million of accelerated share based compensation costs incurred as a result of the acquisition.
Salix
On January 16, 2015, the Company completed the acquisition of Salix, a vertically integrated producer and distributor of natural rawhide dog chews, treats and snacks. The results of Salix’s operations are included in the Company’s Consolidated Statements of Income, and as part of the PET segment.
The Company has recorded an allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the January 16, 2015 acquisition date. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets was recorded as goodwill, which includes value associated with the assembled workforce, including an experienced research team. The calculation of the purchase price and purchase price allocation is as follows:
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| | | | |
(in millions) | | Purchase Price |
Cash consideration | | $ | 146.8 |
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Contingent consideration | | 1.5 |
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Total purchase price | | $ | 148.3 |
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(in millions) | | Purchase Price Allocation |
Cash and cash equivalents | | $ | 0.5 |
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Receivables | | 10.7 |
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Inventories | | 17.0 |
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Prepaid expenses and other current assets | | 2.5 |
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Property, plant and equipment, net | | 1.2 |
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Goodwill | | 71.5 |
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Intangible assets | | 55.5 |
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Accounts payable and accrued liabilities | | (8.5) |
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Other long term liabilities | | (2.1) |
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Net assets acquired | | $ | 148.3 |
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