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ACQUISITIONS OF BUSINESSES
 12 Months Ended
Oct. 31, 2015
Business Combinations [Abstract]  
ACQUISITIONS OF BUSINESSES
5.
ACQUISITIONS OF BUSINESSES
 
Milltronics and Takumi
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. 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 acquisitions were accounted for in accordance with ASC Topic 805, Business Combinations. Accordingly, the total purchase price was allocated on a provisional basis to assets acquired and net liabilities assumed in connection with the acquisitions based on their estimated fair values as of the completion of the acquisitions. These allocations reflected various provisional estimates that were available at the time and were subject to change during the purchase price allocation period as valuations were finalized. All valuations are now final.
 
The following table summarizes the fair value of assets acquired and liabilities assumed as of the closing dates. The adjustments were due to the step-up in inventory and final valuation of property, plant and equipment. The total fair value of the net assets acquired was approximately $17.7 million, which equated the total purchase prices of $12.5 million for Milltronics and $5.1 million for Takumi.
 
(in thousands)
 
Initial
Valuation
 
Adjustments
 
Adjusted
Values
 
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
22,091
 
$
105
 
$
22,196
 
Property plant and equipment
 
 
1,099
 
 
(105)
 
 
994
 
Total assets
 
 
23,190
 
 
—
 
 
23,190
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
5,540
 
 
—
 
 
5,540
 
 
 
 
 
 
 
 
 
 
 
 
Total purchase price and cash expended
 
$
17,650
 
$
—
 
$
17,650
 
 
The results of operations of Milltronics and Takumi have been included in our consolidated financial statements from the respective dates of acquisitions. The Milltronics business recorded revenues of $6.7 million and net loss of $0.1 million during the period following our acquisition on July 14, 2015 through October 31, 2015. The Takumi business recorded revenues of $3.3 million and net income of $0.4 million during the period following our acquisition on July 28, 2015 to October 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 $732,000 for the fiscal year ended October 31, 2015, and have been recorded in Selling, general and administrative expenses in our Consolidated Statements of Income.
 
The following unaudited condensed pro forma financial information is presented as if the acquisitions were completed as of November 1, 2013 (in thousands):
 
 
 
Fiscal Year Ended October 31,
 
 
 
2015
 
2014
 
Sales and service fees
 
$
246,619
 
$
265,918
 
Net income (loss)
 
 
11,772
 
 
11,345
 
 
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 fiscal years ended October 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 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 fiscal year ended October 31, 2014 unaudited pro forma results presented above, but not in the fiscal year ended October 31, 2015 results.
 
LCM Precision Technology
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 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 Liabilities
 
$
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 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
 
 
 
 
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. The amount recorded as goodwill will 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 were recorded as Selling, general and administrative expenses in the Consolidated Statements of Income.