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ACQUISITION OF BUSINESS
 12 Months Ended
Oct. 31, 2013
ACQUISITION OF BUSINESS [Abstract]  
ACQUISITION OF BUSINESS
  4. ACQUISITION OF BUSINESS

 

On July 1, 2013, we acquired the machine tool component business of an Italian designer and manufacturer of electro-mechanical components and accessories for machine tools. We are operating this business through our wholly-owned Italian subsidiary, LCM. The purchase price has been preliminarily allocated to the assets acquired and the liabilities assumed based on their fair values. The purchase price for the acquired assets and the assumed liabilities was $5.0 million. The allocation of the opening balance sheet of LCM as of July 1, 2013 is as follows (in thousands):

 

Current Assets   $ 6,723  
Property plant and equipment     933  
Intangibles     1,437  
Goodwill     2,477  
Total assets   $ 11,570  
         
Current Liabilites   $ 4,821  
Short term debt     4,643  
Non-current liabilities     1,726  
Total liabilities   $ 11,190  
         
Cash expended, net of cash acquired     380  
Indebtedness assumed     4,643  
Total purchase price   $ 5,023  

 

Intangible assets of $1.4 million were recorded as a result of the purchase of the LCM assets. The fair value of the intangible assets was based upon a discounted cash flow method that involves inputs that are not observable in the market (Level 3). Intangible assets are amortized primarily using a straight-line methodology. The intangible assets preliminarily consisted of the following (in thousands):

 

          Remaining
Economic
Useful Life
Trademark/name   $ 274     13 years
Technology and manufacturing know how     1,111     13 years
Customer relationships     52     16 years
    $ 1,437      

 

Intangible asset amortization expense was $31,000 for fiscal 2013. Annual intangible asset amortization expense for the next five fiscal years is estimated to be $119,000 per year.

 

The excess purchase price over the fair value of the assets acquired and the liabilities assumed was recorded as goodwill in the amount of $2.5 million. Goodwill recognized in the acquisition relates primarily to advancing our machine tool technology and expanding our current product offering. We expect the amount recorded as goodwill to be fully deductible for tax purposes.

 

The results of operations of LCM have been included in the consolidated financial statements from the date of acquisition. We incurred various costs related to the purchase of the LCM assets, including professional fees for due diligence, legal fees and accounting services. These costs totaled approximately $675,000 for the fiscal year ending October 31, 2013, and have been recorded as Selling, general and administrative expenses in the Consolidated Statements of Income.