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ACQUISITIONS OF BUSINESSES
 9 Months Ended
Jul. 31, 2015
ACQUISITIONS OF BUSINESSES [Abstract]  
ACQUISITIONS OF BUSINESSES

8.     ACQUISITIONS OF BUSINESSES

 

On July 14, 2015, we acquired the assets of the machine tool business of Milltronics Manufacturing Company, Inc., a U.S.-based manufacturer of CNC mills, lathes, and vertical and horizontal machining centers. We are operating this U.S. business through our newly-formed subsidiary, Milltronics USA, Inc. (“Milltronics”). Also, on July 28, 2015, we acquired the assets of the machine tool business of Takumi Machinery Co., Ltd. (“Takumi”), a Taiwan-based designer and manufacturer of CNC vertical machining centers, double column machining centers, high speed bridge machines and other machine tools equipped with industrial controls. We are operating this Taiwan business through our subsidiary, Hurco Manufacturing Limited. These acquisitions contribute to our efforts to expand our consolidated product range, customer base and global platform, and accelerate emerging market penetration, particularly in strategic markets such as China and South America. The combined Hurco, Milltronics and Takumi businesses represent a comprehensive product portfolio with more than 150 different models. The combined machine tool product lines also provide benefits from the development of product enhancements, technologies and models due to leverage of shared resources and cross-utilization of proven engineering designs, allowing us to achieve manufacturing cost reductions from economies of scale and manufacturing efficiencies.

 

The purchase prices for these acquisitions have been preliminarily allocated to the assets acquired and the liabilities assumed based on their estimated fair values. The purchase prices for the acquired assets and the assumed liabilities were $12.5 million for Milltronics and $5.1 million for Takumi. The allocations of the purchase price as of the acquired dates were as follow (in thousands):


 

Current assets   $ 22,091  
Property plant and equipment     1,099  
Total assets   $ 23,190  
         
Current liabilities   $ 5,540  
         
Total purchase price and cash expended   $ 17,650  

 

We performed a preliminary assessment of the fair values of the acquired assets and assumed liabilities for both Milltronics and Takumi using a discounted cash flow method that involves certain inputs that are not observable in the market (Level 3). The preliminary results indicated the fair values of the acquired assets and assumed liabilities did not exceed the purchase price, resulting in zero goodwill and intangibles. The preliminary fair values of assets acquired and liabilities assumed in the acquisitions are subject to change as we obtain additional information for our estimates during the applicable measurement period. The primary areas that are not yet finalized relate to cost of goods sold expenses associated with the estimated step-up in inventory, amortization expenses associated with potential intangibles and residual goodwill.

 

The results of operations of Milltronics and Takumi have been included in our condensed consolidated financial statements from the respective dates of acquisitions. The Milltronics business recorded revenues of $0.9 million and net loss of $0.3 million during the period following our acquisition on July 14, 2015 through July 31, 2015. The Takumi business recorded revenues of $0.1 million and minimal net loss during the period following our acquisition on July 28, 2015 to July 31, 2015. We incurred various costs related to the purchase of these businesses including professional fees for due diligence, legal services and travel expenses. These costs totaled approximately $647,000 and $732,000 for the three and nine month periods ended July 31, 2015, respectively, and have been recorded in Selling, general and administrative expenses in our Condensed Consolidated Statements of Income.

 

Unaudited Condensed Pro Forma Results

 

Milltronics and Takumi operating results have been included in our consolidated results of operations since the respective effective dates of the acquisitions.  The following unaudited condensed pro forma financial information is presented as if the acquisitions were completed as of November 1, 2013 (in thousands):


 


Three Months Ended   Nine Months Ended  
July 31,   July 31,  
2015   2014     2015     2014  
Sales and service fees $ 59,244     $ 66,358     $ 181,048     $ 193,589  
                                 
Net Income (loss)     (17 )      3,418       6,944       7,521  


 

The unaudited condensed pro forma financial information presented is for information purposes only and is not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the respective period, nor is it necessarily indicative of future consolidated operating results..  The 2015 and 2014 unaudited condensed pro forma financial results reflect Milltronics and Takumi operations for the three and nine month periods ended July 31, 2015 and 2014.   As the unaudited condensed pro forma financial information is presented as if the acquisitions had occurred on November 1, 2013, a net income reduction and employee costs was reflected in the first quarter of fiscal 2014 related to acquisition costs of $0.7 million. Therefore, the effect of this item is included in the nine-month period ended July 31, 2014 unaudited pro forma results presented above, but not in the nine month period ended July 31, 2015, or in either of the three month periods.