NOTE 2. ACQUISITIONS

Welch Allyn

On September 8, 2015, we completed the acquisition of Welch Allyn Holdings, Inc. and its subsidiaries (collectively, “Welch Allyn”) for a consideration of $1,687.3 million in cash ($1,633.6 million, net of cash acquired) and 8,133,722 shares of Hill-Rom common stock for a total combined purchase price of approximately $2.1 billion. Welch Allyn is a leading manufacturer of medical diagnostic equipment and offers a diversified portfolio of devices that assess, diagnose, treat, and manage a wide variety of illnesses and diseases.

The cash portion of the consideration is preliminary and subject to adjustment for various true-up provisions as described in the terms of the merger agreement. The transaction was funded with new borrowings, including $1.8 billion in term loans and $425.0 million of senior notes issued in a private placement debt offering. Funds from this new financing were also used to retire pre-existing debt. Refer to Note 4 for additional information regarding our debt obligations.

The following summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition. These results are preliminary and subject to normal true-up provisions in the purchase agreement and other fair value adjustments.

	Amount

Trade receivables	$	63.2
Inventory		110.5
Other current assets		52.7
Current deferred income taxes		27.3
Property, plant, and equipment		93.2
Goodwill		1,203.5
Trade name (indefinite life)		434.0
Customer relationships (12-year useful life)		516.8
Developed technology (7-year weighted average useful life)		54.0
Other intangibles		19.9
Other noncurrent assets		30.6
Current liabilities		(161.5	)
Noncurrent deferred income taxes		(368.7	)
Other noncurrent liabilities		(25.6	)
Total purchase price, net of cash acquired	$	2,049.9


Fair value of common stock issued	$	416.3
Cash payment, net of cash acquired		1,633.6
Total consideration	$	2,049.9

Goodwill from the Welch Allyn acquisition, which is not deductible for tax purposes, is primarily due to enhanced customer relevance and a stronger competitive position resulting from the business combination, including a complementary commercial position, product portfolio, and enhanced synergies. As stated in Note 11, Welch Allyn is reported as a reconciling item in our segment disclosures for the year ended September 30, 2015. Accordingly, the goodwill from the Welch Allyn acquisition has not yet been allocated to a reportable segment.

Our total revenue on an unaudited pro forma basis, as if the Welch Allyn acquisition had been consummated at the beginning of our 2014 fiscal year, would have been higher by approximately $638 million and $677 million for the years ended September 30, 2015 and 2014, respectively. On the same unaudited pro forma basis, our net income would have been lower by approximately $59 million and $61 million for the years ended September 30, 2015 and 2014, respectively. The pro forma net income in each year has been adversely impacted by significant costs related to the transaction including deal costs, financing costs, restructuring costs incurred in relation to our synergy initiatives, costs associated with triggering the change-in-control provisions of certain equity-based compensation programs at Welch Allyn, and purchase price accounting, including the nonrecurring effects of the inventory step-up. These results are not indicative of expected future performance.

The unaudited pro forma results are based on the Company's historical financial statements and those of the Welch Allyn business and do not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning of the comparable period presented and are not indicative of the results of operations in future periods.

Trumpf Medical

On August 1, 2014, we completed the acquisition of Trumpf Medical (“Trumpf”) and funded the transaction with a combination of cash on hand and borrowings. Trumpf Medical provides a portfolio of well-established operating room (OR) infrastructure products such as surgical tables, surgical lighting, and supply units and expands our product offerings in the surgical suite.

The purchase price was $232.9 million ($226.6 million net of cash acquired). The results of Trumpf are included in the Consolidated Financial Statements since the date of acquisition. Our reported revenue included $39.0 million for the year ended September 30, 2014 related to Trumpf products and the impact to net income was not significant.

The following summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition. These results are now considered final.

		Amount

Trade receivables	$	67.6
Inventory		63.6
Other current assets		23.4
Property, plant, and equipment		42.1
Goodwill		66.0
Trade name (5-year useful life)		6.7
Customer relationships (10-year weighted average useful life)		15.8
Developed technology (8-year weighted average useful life)		17.8
Other intangibles		4.8
Other noncurrent assets		0.7
Deferred tax asset		12.9
Current liabilities		(74.4	)
Long term debt		(6.0	)
Noncurrent liabilities		(8.1	)
Total purchase price	$	232.9

Goodwill was allocated entirely to our Surgical and Respiratory Care segment. The goodwill related to the acquired German operations will be tax deductible while the remaining goodwill will not be deductible for tax purposes.

Our total revenue on an unaudited pro forma basis, as if the Trumpf acquisition had been consummated at the beginning of our 2013 fiscal year, would have been higher by approximately $218 million and $235 million for the years ended September 30, 2014 and 2013. The impact to net income on an unaudited pro forma basis would not have been significant to our financial results for those years. The unaudited pro forma results are based on the Company's historical financial statements and those of the Trumpf business and do not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning of the comparable period presented and are not indicative of the results of operations in future periods.

Virtus, Inc.

On March 31, 2014 we completed a stock purchase agreement with the stockholders of Virtus, Inc. (“Virtus”) to acquire the entire equity interest in Virtus: a supplier of finished surfaces and components for our bed and stretcher products. The acquisition of Virtus insources a component of our supply chain.

The purchase price was $17.6 million ($13.0 million net of cash acquired). We funded the transaction primarily with borrowings. The results of Virtus are included in the Consolidated Financial Statements since the date of acquisition.

The following summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition. During the third quarter of fiscal 2014, the remaining provisions of the stock purchase agreement were settled and the purchase price is now final.

	Amount
Inventory	$	2.6
Other current assets		5.4
Property, plant, and equipment		1.9
Goodwill		9.4
Current liabilities		(1.6	)
Deferred tax liability		(0.1	)
Total purchase price	$	17.6

Goodwill is not deductible for tax purposes and was allocated to both our North America and International segments.

The impact to our total revenue and net income on an unaudited proforma basis, as if the Virtus acquisition had been consummated at the beginning of our 2013 fiscal year, would not have been significant for the fiscal years ended September 30, 2014 and 2013.

Other

We have used cash on hand for other business acquisitions and equity investments which we do not consider individually material to the Company's financial position or results of operations. These included one equity investment in which the investee was determined to be a VIE and Hill-Rom was determined to have a controlling financial interest, resulting in consolidation of the investee. The portion of this investee's assets, liabilities, and operating results which are not attributable to Hill-Rom's equity investment are recognized in our Consolidated Financial Statements as attributable to noncontrolling interests.