BUSINESS COMBINATIONS

9 Months Ended

Sep. 30, 2011

BUSINESS COMBINATIONS [Abstract]

BUSINESS COMBINATIONS

NOTE 4 - BUSINESS COMBINATIONS

NABCO

On July 29, 2011, Signature acquired 100% of the common stock of NABCO. NABCO, headquartered in Burbank, California, is a nationwide quick-turn supplier of circuit breakers that maintains a significant depth of certified, new product inventory used in various commercial, industrial and residential applications, including products that have been discontinued by the manufacturer and are no longer broadly available. NABCO operates from five distribution centers across the country to offer customers quick and reliable delivery nationwide in the repair and replacement niche.  The total consideration paid at the closing of the transaction was $36.9 million, which included a cash payment of approximately $23.4 million, the issuance of $5.0 million in subordinated, unsecured promissory notes (“Seller Notes”), the issuance of Signature common stock with a fair value of $1.8 million, the assumption of $3.1 million in liabilities and a $3.5 million estimated liability for contingent consideration. The former NABCO shareholders may earn contingent consideration of up to $4.0 million, subject to the achievement of certain earnings before interest, taxes, depreciation, and amortization milestones for the fiscal year ended December 31, 2012.  At the time of acquisition, the Company identified temporary differences related to the book basis and tax basis of the acquired identifiable assets and assumed liabilities and recorded a deferred tax liability of $2.7 million.  The recognition of this $2.7 million deferred tax liability resulted in a reduction in the valuation allowance against the Company's deferred tax assets.  In addition, the Company recorded acquisition related transaction costs of approximately $0.2 million.

The following table presents the components of the purchase consideration and allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed:

(Dollars in thousands)
Cash consideration	$	23,413
Signature Group Holdings, Inc. common stock		1,837
Seller Notes		5,000
Assumption of liabilities		3,149
Contingent consideration		3,478
Total purchase consideration	$	36,877
Purchase price allocation:
Assets:
Cash	$	165
Trade receivables		5,119
Inventories		6,800
Other assets		1,012
Identifiable intangible assets		8,150
Total assets		21,246
Liabilities:
Identifiable intangible liabilities		100
Deferred income tax liabilities		2,650
Total liabilities		2,750
Estimated fair value of net assets acquired		18,496
Goodwill		18,381
Total purchase consideration	$	36,877

The following table presents the estimated fair value of identifiable intangible assets and liabilities and related estimated useful lives:

(Dollars in thousands)	Estimated Fair Value			Useful Life (Years)
Identifiable intangible assets and liabilities:
Customer relationships	$	7,300			7.5
Trade name		850			5.0
Lease intangibles		(100	)		3.0
Total	$	8,050

Total amortization of intangibles was $0.6 million for the three and nine months ended September 30, 2011 and zero for the three and nine months ended September 30, 2010.

At September 30, 2011, aggregate future amortization of identifiable intangibles is estimated to be:

(Dollars in thousands)
2011	$	857
2012		2,346
2013		1,588
2014		1,074
2015		758
Thereafter		857
Total	$	7,480

The operating results of NABCO are included in the Company's consolidated financial statements from the acquisition date.  For the period from the acquisition date through September 30, 2011, NABCO's total revenues and net earnings were $6.1 million and $0.3 million, respectively.

The following selected unaudited pro forma results of operations of the Company for the three and nine months ended September 30, 2011 and 2010, give effect to this business combination as though the transaction occurred on January 1, 2010:

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2011		2010			2011			2010
Total revenues:
As reported	$	6,612	$	62		$	7,880		$	237
Pro forma		9,665		7,896			25,775			19,858
Net loss attributable to Signature Group Holdings, Inc.:
As reported	$	1,275	$	(9,536	)	$	(9,092	)	$	(31,514	)
Pro forma		2,015		(8,586	)		(6,025	)		(27,481	)

Cosmed

On February 18, 2011, Cosmed, a newly-formed subsidiary of Signature, acquired certain assets and assumed certain of the liabilities of Costru Company, LLC (“Costru”) for consideration totaling $2.7 million.  Cosmed, which does business under the trade name CosmedicineTM, manufactures a line of skin care products for women, which is available in retail stores across the country.  Signature currently owns 92% of the outstanding common stock of Cosmed, with the remaining 8% held by the former owners of Costru.

Under purchase accounting, the total purchase price was allocated to Costru's assets, identifiable intangible assets and liabilities based on their estimated fair values at the acquisition date. The estimated fair value of the noncontrolling interest was determined using a market value approach considering the fair values of the assets acquired and liabilities assumed, adjusted to account for the lack of control.

During the first quarter of 2011, the Company recorded acquisition-related costs of approximately $72 thousand, which are included in selling, general and administrative expenses in the Company's consolidated statement of operations for the nine months ended September 30, 2011.

The following table presents the components of the purchase consideration and allocation of the purchase consideration to the estimated fair value of the assets acquired and liabilities assumed:

(Dollars in thousands)
Cash consideration	$	1,000
Assumption of liabilities		1,569
Noncontrolling interest		100
Total purchase consideration		2,669
Purchase price allocation:
Trade receivables		572
Inventories		1,350
Property and equipment		5
Identifiable intangible assets		1,225
Trade payables		(90	)
Deferred tax liabilities		(112	)
Net assets acquired		2,950
Gain on acquisition	$	281

The Company recorded a gain on acquisition of $0.3 million during the first quarter of 2011, based on the difference between the fair value of assets acquired and liabilities assumed and the total purchase consideration.  The gain recognized at the time of the acquisition resulted from depressed market conditions within the consumer products industry and Signature's ability to negotiate a purchase price below the estimated fair value of the net assets acquired.

In addition to the initial cash consideration, the Company is obligated to make an additional earn-out payment of up to $5.0 million, subject to a revenue target of $60.0 million in annualized revenues being achieved over any three month period within 36 months of the acquisition date, or if the Company sells Cosmed for at least $60.0 million during a specified time period, not to exceed 39 months from the acquisition date. At both the acquisition date and at September 30, 2011, management determined the fair value of this contingent consideration to be zero, based upon current and projected revenues over the requisite earn-out period.

The following table presents the estimated fair value of identifiable intangible assets and related estimated useful lives:

(Dollars in thousands)	Estimated Fair Value		Useful Life (Years)
Identifiable intangible assets:
Product formulas	$	800		10.0
Trademarks		190		10.0
Customer lists		125		3.0
Domain names		100		3.0
Non-compete agreements		10		10.0
Identifiable intangible assets	$	1,225

Total amortization of intangible assets was $78 thousand and zero for the three months ended September 30, 2011 and 2010, respectively.  Total amortization of intangible assets was $0.2 million and zero for the nine months ended September 30, 2011 and 2010, respectively.

At September 30, 2011, aggregate future amortization of identifiable intangible assets is estimated to be:

(Dollars in thousands)
2011	$	78
2012		193
2013		164
2014		109
2015		101
Thereafter		399
Total	$	1,044

The operating results of Cosmed are included in the Company's consolidated financial statements from the acquisition date.  For the period from the acquisition date through September 30, 2011, Cosmed's total revenues and net loss were $1.1 million and $0.9 million, respectively.

The following selected unaudited pro forma results of operations of the Company for the three and nine months ended September 30, 2011 and 2010, give effect to this business combination as though the transaction occurred on January 1, 2010:

	Three Months Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2011		2010			2011			2010
Total revenues:
As reported	$	6,612	$	62		$	7,880		$	237
Pro forma		6,612		715			8,428			2,387
Net earnings (loss) attributable to Signature Group Holdings, Inc.:
As reported	$	1,275	$	(9,536	)	$	(9,092	)	$	(31,514	)
Pro forma		1,312		(9,773	)		(8,917	)		(32,059	)