Acquisition

On May 14, 2018, we acquired the stock of Ainsworth Pet Nutrition, LLC (“Ainsworth”) in an all-cash transaction, valued at $1.9 billion, inclusive of a working capital adjustment. The transaction was funded with a bank term loan and borrowings under our commercial paper program of approximately $1.5 billion and $400.0, respectively. For additional information on the financing associated with this transaction, refer to Note 9: Debt and Financing Arrangements.

Ainsworth is a leading producer, distributor, and marketer of premium pet food and pet snacks, predominantly within the U.S. The majority of Ainsworth’s sales are generated by the Rachael Ray^® Nutrish^® brand, which is driving significant growth in the premium pet food category. Ainsworth also sells pet food and pet snacks under several additional branded and private label trademarks. Prior to acquisition, Ainsworth was a privately-held company headquartered in Meadville, Pennsylvania. In addition to its headquarters, the transaction included two manufacturing facilities owned by Ainsworth, which are located in Meadville, Pennsylvania, and Frontenac, Kansas, and a leased distribution facility in Greenville, Pennsylvania.

The transaction was accounted for under the acquisition method of accounting, and accordingly, the results of Ainsworth's operations, including $184.2 and $347.0 in net sales and $4.5 and $0.4 in operating income, are included in our consolidated financial statements for the three and six months ended October 31, 2018, respectively. The operating income for the six months ended October 31, 2018, includes the recognition of an unfavorable fair value purchase accounting adjustment of $10.9, attributable to the acquired inventory.

The purchase price was preliminarily allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. We estimated the fair values based on independent appraisals, discounted cash flow analyses, quoted market prices, and other estimates made by management. The purchase price exceeded the estimated fair value of the net identifiable tangible and intangible assets acquired, and the excess was recognized as goodwill.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date.



Assets acquired:
Cash and cash equivalents	$	1.6
Trade receivables	66.3
Inventories	97.8
Other current assets	4.8
Property, plant, and equipment	83.8
Goodwill	680.9
Other intangible assets	1,239.6
Other noncurrent assets	0.3
Total assets acquired	$	2,175.1
Liabilities assumed:
Current liabilities	$	82.5
Deferred tax liabilities	172.0
Other noncurrent liabilities	16.0
Total liabilities assumed	$	270.5
Net assets acquired	$	1,904.6

Estimated fair values for the acquisition, including goodwill, other intangible assets, property, plant, and equipment, contingent liabilities, and income taxes, are not yet finalized. The purchase price was preliminarily allocated based on information available at the date of acquisition and is subject to change as we complete our analysis of the fair values at the date of acquisition during the measurement period, not to exceed one year, as permitted under FASB Accounting Standards Codification ("ASC") 805, Business Combinations.

As a result of the acquisition, we recognized goodwill of $680.9 within the U.S. Retail Pet Foods segment. Our expectation is that a portion will be deductible for tax purposes, the amount of which will be refined and ultimately determined during the measurement period. Goodwill represents the value we expect to achieve through the implementation of operational synergies and growth opportunities as we integrate Ainsworth into our U.S. Retail Pet Foods segment. The goodwill and indefinite-lived trademarks within the U.S. Retail Pet Foods segment remain susceptible to future impairment charges, as the carrying values approximate estimated fair values due to impairment charges recognized in 2018, as well as the recent acquisition of Ainsworth. Any significant adverse change in our near or long-term projections or macroeconomic conditions would result in future impairment charges.

The purchase price was preliminarily allocated to the identifiable other intangible assets acquired as follows:



Intangible assets with finite lives:
Customer and contractual relationships (25-year useful life)	$	935.0
Trademarks (5-year useful life)	1.6
Intangible assets with indefinite lives:
Trademarks	303.0
Total other intangible assets	$	1,239.6

Ainsworth's results of operations are included in our consolidated financial statements from the date of the transaction within the U.S. Retail Pet Foods segment. Had the transaction occurred on May 1, 2017, unaudited pro forma consolidated results for the three and six months ended October 31, 2018 and 2017, would have been as follows:



	Three Months Ended October 31,				Six Months Ended October 31,
	2018		2017		2018		2017
Net sales	$	2,021.5	$	2,085.3	$	3,951.4	$	3,989.9
Net income	189.7		183.8		322.8		293.6

The unaudited pro forma consolidated results are based on our historical financial statements and those of Ainsworth, and do not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period presented. The most significant pro forma adjustments relate to the elimination of nonrecurring acquisition-related costs incurred prior to the close of the transaction, amortization of acquired intangible assets, depreciation of acquired property, plant, and equipment, and higher interest expense associated with acquisition-related financing. The unaudited pro forma consolidated results do not give effect to the synergies of the acquisition and are not indicative of the results of operations in future periods.