Annual report pursuant to Section 13 and 15(d)

Note F - Acquisition

v3.19.3
Note F - Acquisition
 12 Months Ended
Sep. 30, 2019
Notes to Financial Statements  
Business Combination Disclosure [Text Block]
NOTE F – ACQUISITION
 
On
February 20, 2018,
the Company completed the acquisition of a portfolio of Telcordia certified outdoor active 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 active 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 active 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.
 
The following table summarizes the 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
  
 
The active cabinet acquisition 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 active cabinets includes the expected synergies and other benefits that we believe will result from combining the operations of active 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 was
12.5
years as of the acquisition date.
 
As the active cabinet business was
not
operated as a separate subsidiary, division or entity, Calix did
not
maintain separate financial statements for the active cabinet business. As a result, we are unable to accurately determine earnings/loss for the active 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 active cabinet business were combined with the Clearfield business for the years ended
September 30, 2018
and
2017.
 
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   Pro Forma
    Year Ended   Year Ended
    September 30,
2018		   September 30,
2017
    (unaudited)   (unaudited)
Net sales   $
80,958,789
     $
89,672,074
  
                 
Income from operations   $
5,554,766
     $
8,174,841
  
                 
Net income   $
4,794,757
     $
5,809,018
  
                 
Net income per share:                
Basic   $
0.36
     $
0.43
  
Diluted   $
0.36
     $
0.43
  
 
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.