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Business Acquisition
 3 Months Ended
Jan. 31, 2012
Business Acquisition

Note 2 - Business Acquisition

 

On June 15, 2011, RF Industries, Ltd. completed its acquisition of Cables Unlimited. Cables Unlimited is an established fiber optic custom cable manufacturer based on Long Island, New York. Cables Unlimited is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture optic products that are backed by Corning Cable Systems' extended warranty. The products manufactured by Cables Unlimited include custom fiber optic cable assemblies, adapters and electromechanical wiring harnesses for communications, computer, LAN, automotive and medical equipment. All of Cables Unlimited’s assets are located in the United States. There were no earnouts or contingent considerations included in the acquisition agreement.

 

The acquisition was accounted for in accordance with the acquisition method of accounting. The acquired assets and assumed liabilities were recorded by RF Industries, Ltd. at their estimated fair values. RF Industries, Ltd. determined the estimated fair values with the assistance of appraisals or valuations performed by an independent third party specialist. Cables Unlimited is an established fiber optic custom cable manufacturer based on Long Island, New York. Cables Unlimited is a Corning Cable Systems CAH Connections SM Gold Program member, authorized to manufacture optic products that are backed by Corning Cable Systems' extended warranty. The products manufactured by Cables Unlimited include custom fiber optic cable assemblies, adapters and electromechanical wiring harnesses for communications, computer, LAN, automotive and medical equipment. These products supplement and enhance the existing markets of RF Industries, Ltd. as well as tap into new fiber optic cable markets that the Company would not have been able to enter without incurring substantially more costs than incurred in the purchase of Cables Unlimited. The capital and other resources required to enter the fiber optic market would have greatly exceeded the purchase price of $5.6 million. These factors, among others, contributed to a purchase price in excess of the estimated fair value of Cables Unlimited’s net identifiable assets acquired, and as a result, we have recorded goodwill in connection with this transaction.

 

Goodwill acquired was allocated to our operating segment and reporting unit, Cables Unlimited, as part of the purchase price allocation. We do not expect the goodwill recorded to be deductible for income tax purposes. Acquired amortizable intangible assets are being amortized on a straight-line basis over their estimated useful lives ranging from 6 months to 9.6 years. The purchase price allocation was finalized in the fourth quarter of fiscal 2011.

 

 

 

The following table summarizes the components of the purchase price at fair value:

 

Cash consideration paid   $ 2,800,000  
RF Industries, Ltd. common shares issued, (762,738 shares)     2,800,000  
Total consideration   $ 5,600,000  

 

The following table summarizes the allocation of the purchase price at fair value:

 

Other assets   $ 6,000  
Accounts receivable     814,000  
Inventories     442,000  
Property, plant and equipment     313,000  
Intangible assets     2,415,000  
Goodwill (all non-deductible for tax purposes)     3,076,000  
Interest bearing liabilities     (7,000 )
Non-interest bearing liabilities     (423,000 )
Deferred tax liabilities     (1,036,000 )
Net assets   $ 5,600,000  

 

The results of Cables Unlimited operations subsequent to June 15, 2011 have been included in the Company’s consolidated results of operations.

 

The following unaudited pro forma financial information presents the combined operating results of RF Industries, Ltd. and Cables Unlimited as if the acquisition had occurred as of the beginning of the periods presented. Pro forma data is subject to various assumptions and estimates, and is presented for informational purposes only. This pro forma data does not purport to represent or be indicative of the consolidated operating results that would have been reported had the transaction been completed as described herein, and the data should not be taken as indicative of future consolidated operating results.

 

Pro forma financial information is presented in the following table:

 

    (Unaudited)  
    Three Months  
    Ended January 31,
2011		  
         
Revenue   $ 5,636,525  
Net income   $ 395,246  
         
Earnings per share        
Basic   $ .07  
Diluted   $ .06