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Note A - Summary Of Significant Accounting Policies
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Sep. 30, 2012
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| Significant Accounting Policies [Text Block] |
NOTE
A – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of
Business: Clearfield, Inc., (the Company)
is a manufacturer of a broad range of standard and custom
passive connectivity products to customers throughout the
United States. These products include fiber
distribution systems, optical components, Outside Plant
(OSP) cabinets, and fiber and copper cable assemblies that
serve the communication service provider, including
Fiber-to-the-Premises (FTTP), large enterprise, and
original equipment manufacturers (OEMs) markets.
Revenue
Recognition: Revenue is recognized when persuasive
evidence of an arrangement exists, the product has been
delivered, the fee is fixed, acceptance by the customer is
reasonably certain and collection is
probable. This generally occurs upon shipment of
product to the customer. The Company records freight
revenues billed to customers as revenue and the related
shipping and handling cost in cost of sales. Taxes
collected from customers and remitted to governmental
authorities are presented on a net basis.
Cash and Cash
Equivalents: The Company considers all highly liquid
investments with original maturities of three months or
less to be cash equivalents. Cash equivalents at
September 30, 2012 and 2011, respectively consist entirely
of short-term money market accounts.
The
Company maintains cash balances at several financial
institutions, and at times, such balances exceed insured
limits. The Company has not experienced any
losses in such accounts and believes it is not exposed to
any significant credit risk on cash.
Investments:
The Company currently invests its excess cash in bank
certificates of deposit (CD’s) that are fully insured
by the Federal Deposit Insurance Corporation (FDIC) with a
term of not more than three years. CD’s with original
maturities of more than three months are reported as
held-to-maturity investments and are recorded at amortized
cost, which approximates fair value. The maturity dates of
our CD’s at September 30, 2012 are as follows:
Accounts
Receivable: Credit is extended based on
the evaluation of a customer’s financial condition
and collateral is generally not required. Accounts that are
outstanding longer than the contractual payment terms are
considered past due. The Company determines its
allowance by considering a number of factors, including the
length of time trade receivables are past due, the
Company’s previous loss history, the customer’s
current ability to pay its obligation to the Company, and
the condition of the general economy and the industry as
whole. The Company writes off accounts
receivable when they become uncollectible; payments
subsequently received on such receivables are credited to
the allowance for doubtful accounts. The
following table illustrates balances and activity for
fiscal years 2012 and 2011:
Fair Value of
Financial Instruments: The financial statements
include the following financial instruments: cash and cash
equivalents, short term investments, accounts receivable,
accounts payable and accrued expenses. All financial
instruments’ carrying values approximate fair values
because of the short-term nature of the instruments.
Inventories:
Inventories consist of finished goods, raw materials and
work in process and are stated at the lower of average cost
or market. Inventory is valued using material
costs, labor charges, and allocated factory overhead
charges and consists of the following:
Property, Plant
and Equipment: Property, plant and equipment are
recorded at cost. Significant additions or improvements
extending asset lives are capitalized, while repairs and
maintenance are charged to expense when incurred.
Depreciation is provided in amounts sufficient to relate
the cost of assets to operations over their estimated
useful lives. Estimated useful lives of the
assets are as follows:
Leasehold
improvements are amortized over the shorter of the
remaining term of the lease or estimated life of the
asset.
Property,
plant and equipment consist of the following at:
Goodwill:
The Company analyzes its goodwill testing for impairment
annually in the fourth quarter or at an interim period when
events occur or circumstances change that would more likely
than not reduce the fair value of a reporting unit below
its carrying amount.
The
Company assesses the valuation or potential impairment of
its goodwill annually. We consider our net book
value and market capitalization when we test for goodwill
impairment because we have consolidated our reporting units
in prior years into the parent company, resulting in one
reporting unit. If the carrying amount of a reporting unit
exceeds its fair value, the Company measures the possible
goodwill impairment loss based on an allocation of the
estimate of fair value of the reporting unit to all of the
underlying assets and liabilities of the reporting unit,
including any previously unrecognized intangible assets.
The excess of the fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the
implied fair value of goodwill. An impairment loss is
recognized to the extent that a reporting unit's recorded
goodwill exceeds the implied fair value of goodwill. This
test for the period ended September 30, 2012 resulted in no
change to goodwill from the prior period.
Impairment of
Long-Lived Assets: The Company assesses potential
impairments to its long-lived assets or asset groups when
there is evidence that events occur or changes in
circumstances indicate that the carrying amount of an asset
or asset group may not be recovered. An impairment loss is
recognized when the carrying amount of the long-lived asset
or asset group is not recoverable and exceeds its fair
value. The carrying amount of a long-lived asset or asset
group is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and
eventual disposition of the asset or asset group. Any
required impairment loss is measured as the amount by which
the carrying amount of a long-lived asset or asset group
exceeds its fair value and is recorded as a reduction in
the carrying value of the related asset or asset group and
a charge to operating results. Intangible assets with
indefinite lives are tested annually for impairment and in
interim periods if certain events occur indicating that the
carrying value of the intangible assets may be impaired. No
impairment of long-lived assets has occurred during any of
the periods presented.
Income
Taxes: The Company records income taxes in
accordance with the liability method of
accounting. Deferred taxes are recognized for
the estimated taxes ultimately payable or recoverable based
on enacted tax law. The Company establishes a
valuation allowance to reduce the deferred tax assets when
it is more likely than not that a deferred tax asset will
not be realizable. Changes in tax rates are
reflected in the tax provision as they occur.
In
accounting for uncertainty in income taxes we recognize the
financial statement benefit of a tax position only after
determining that the relevant tax authority would more
likely than not sustain the position following an audit.
For tax positions meeting the more likely than not
threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than
50 percent likelihood of being realized upon ultimate
settlement with the relevant tax authority. The Company
recognizes interest and penalties accrued on any
unrecognized tax benefits as a component of income tax
expense.
Stock-Based
Compensation: We measure and recognize compensation
expense for all stock-based payments at fair value over the
requisite service period. We use the Black-Scholes option
pricing model to determine the weighted average fair value
of options. Equity-based compensation expense is included
in selling, general and administrative expenses. The
determination of fair value of stock-based payment awards
on the date of grant using an option-pricing model is
affected by our stock price as well as by assumptions
regarding a number of subjective variables. These variables
include, but are not limited to, the expected stock price
volatility over the term of the awards, and actual and
projected employee stock option exercise behaviors.
The
expected terms of the options are based on evaluations of
historical and expected future employee exercise behavior.
The risk-free interest rate is based on the U.S. Treasury
rates at the date of grant with maturity dates
approximately equal to the expected life at grant date.
Volatility is based on historical and expected future
volatility of the Company’s stock. The Company has
not historically issued any dividends and does not expect
to in the future. Forfeitures are estimated at the time of
the grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from estimates. The Company
uses a forfeiture rate of 10%.
The
weighted average per share fair value of options granted
during the years ended September 30, 2012 and 2011 was
$4.12 and $4.14. If factors change and we employ different
assumptions in the determination of the fair value of
grants in future periods, the related compensation expense
that we record may differ significantly from what we have
recorded in the current periods.
Net Income Per
Share: Basic and diluted net income per share is
computed by dividing net income by the weighted average
number of common shares outstanding.
Weighted
average common share outstanding for the years ended
September 30, 2012 and 2011 were as follows:
Employee
stock options in the amount of 323,500 and 300,000 for
fiscal years 2012 and 2011, respectively, have been
excluded from the diluted net income per common share
calculation because their exercise prices were greater than
the market price of the Company’s common stock and
were considered anti-dilutive.
Use of
Estimates: The preparation of financial statements
in conformity with accounting principles generally accepted
in the United States of America requires management to make
estimates and assumptions that affect the reported amounts
of assets and liabilities, related revenues and expenses
and disclosure about contingent assets and liabilities at
the date of the financial
statements. Significant estimates include the
deferred tax asset valuation allowance and reserves on our
inventory and accounts receivables. Actual
results may differ materially from these estimates.
Recently Issued
Accounting Pronouncements:
From
time to time, new accounting pronouncements are issued by
the Financial Accounting Standards Board or other standard
setting bodies that may have an impact on the
Company’s accounting and reporting. The Company
believes that such recently issued accounting
pronouncements and other authoritative guidance for which
the effective date is in the future either will not have an
impact on its accounting or reporting or that such impact
will not be material to its financial position, results of
operations, and cash flows when implemented.
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