Quarterly report pursuant to Section 13 or 15(d)

Note 11 - Acquisition

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Note 11 - Acquisition
 9 Months Ended
Jun. 30, 2018
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
Note
11.
Acquisition
 
On
February 20, 2018,
the Company completed the acquisition of a portfolio of Telcordia certified outdoor powered cabinet products from Calix, Inc. (“Calix”) upon the terms and conditions contained in an Asset Purchase Agreement dated
February 20, 2018.
 
The introduction of the Clearfield powered cabinet line provides customers a single point of contact for cabinet solutions—both passive and powered. The acquisition enables Clearfield to expand its Fiber-to-Anywhere expertise to include powered electronic cabinet platforms while leveraging its supply chain. The acquisition also enables Clearfield to capitalize on and expand its reach to a broader customer base, including service providers in the Tier
1
and Tier
2
markets.
 
Acquisition date fair value of the consideration transferred totaled
$10,350,000
which was comprised of a cash payment of
$10,350,000
from the Company’s cash operating account. 
 
We assumed
no
liabilities in the acquisition. As part of the acquisition, we also agreed to purchase a minimum of
$3,500,000
in inventory and purchase orders from subcontractors.  We expect to fulfill this commitment during the normal course of business.  The allocation of purchase consideration to assets acquired is
not
yet finalized as we continue to evaluate the fair value of certain assets acquired. The following table summarizes the preliminary estimated fair values of the assets acquired at the acquisition
date:
 
    February 20, 2018
Inventories   $
2,781,000
  
Property, plant and equipment    
58,000
  
Trademarks    
563,000
  
Customer relationships    
3,742,000
  
Product certification    
1,068,000
  
Goodwill    
2,138,000
  
Total Assets   $
10,350,000
  
 
Pending finalization of the fair value of the intangible assets in the
fourth
quarter of
2018,
the powered cabinet acquisition has preliminarily resulted in
$2,138,000
of goodwill, which is expected to be deductible for tax purposes
.  Specifically, the goodwill recorded as part of the acquisition of the Calix powered cabinets includes the expected synergies and other benefits that we believe will result from combining the operations of powered cabinet lines with the operations of Clearfield, Inc.
 
The Company incurred approximately
$106,000
in legal, professional, and other costs related to this acquisition accounted for as selling and administrative expenses when incurred. The remaining weighted-average useful life of intangible assets acquired is
12.5
years.
 
As the powered cabinet business was
not
operated as a separate subsidiary, division or entity, Calix did
not
maintain separate financial statements for the powered cabinet business. As a result, we are unable to accurately determine earnings/loss for the powered cabinet business on a standalone basis since the date of acquisition.
 
The following table below reflects our unaudited pro forma combined results of operations as if the acquisition had taken place as of
October 1, 2016
and shows the net sales and net income as if the powered cabinet business were combined with the Clearfield business for the
three
and
nine
months ended
June 30, 2017
and
June 30, 2018.
The pro forma includes estimated expenses relating to the amortization of intangibles purchased, the amortization of the inventory fair value adjustment, and estimated personnel costs:
  
 
 
 		  
 
 		 Pro Forma
Three Months Ended
June 30, 2017		  
 
 		 Pro Forma
Nine Months Ended
June 30, 2017		  
 
 		 Pro Forma
Nine Months Ended
June 30, 2018
    (unaudited)   (unaudited)   (unaudited)
Net sales   $
23,517,078
     $
68,237,433
     $
58,485,804
  
                         
Income from operations   $
1,946,661
     $
6,130,794
     $
3,007,279
  
                         
Net income   $
1,162,370
     $
4,135,565
     $
2,913,224
  
                         
Net income per share:                        
Basic   $
0.09
     $
0.30
     $
0.22
  
Diluted   $
0.09
     $
0.30
     $
0.22
  
 
The pro forma unaudited results do
not
purport to be indicative of the results which would have been obtained had the acquisition been completed as of the beginning of the earliest period presented or of results that
may
be obtained in the future.  In addition, they do
not
include any benefits that
may
result from the acquisition due to synergies that
may
be derived from the elimination of any duplicative costs.