Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v2.4.0.8
Acquisitions
 6 Months Ended
Sep. 30, 2014
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
Acquisition
CSI Acquisition

On March 1, 2014, the Company's wholly-owned subsidiary, Westell, Inc. acquired 100% of the outstanding shares of CSI for a purchase price of $39.0 million in cash plus a $5.0 million working capital adjustment. CSI is an innovator of in-building wireless connectivity solutions for 3G/4G cellular services, enabling coverage anytime, anywhere. ClearLink, CSI’s high performance, low Passive Intermodulation Distortion (PIM) brand of in-building products are designed for distributed antenna systems and small cells. ClearLink products include Universal DAS interface Trays (UDIT), passive DAS interface units, system components, and antennas. CSI’s portfolio also includes digital repeaters and E911 and location-based enhancement solutions for wireless networks.
The Company incurred $39,000 and $0.2 million of related acquisition costs, which were expensed as incurred and reflected in general and administrative costs in the Condensed Consolidated Statement of Operations for the six months ended September 30, 2014, and twelve months ended March 31, 2014, respectively.
The results of CSI's operations have been included in the Condensed Consolidated Financial Statements since the date of acquisition and are reported within the In-Building Wireless (IBW) reporting segment (See Note 5). CSI contributed $8.6 million and $17.8 million to revenue and $0.7 million and $0.9 million to operating loss in the three and six months ended September 30, 2014, respectively. Operating loss reflects amortization of intangibles based on the estimated fair value of assets acquired.
In accordance with the acquisition method of accounting for business combinations, the Company preliminarily allocated the total purchase consideration transferred to identifiable tangible and intangible assets acquired and liabilities assumed at the acquisition date based on each element’s estimated fair value with the remaining unallocated amounts recorded as goodwill. Certain estimated values are not yet finalized and are subject to change, which could be significant. Specifically, amounts for intangible assets, deferred income taxes, and other items are pending finalization of valuation efforts. Purchased intangibles will be amortized over their respective estimated useful lives. Goodwill represents the expected synergies and other benefits from this acquisition that relates to the Company’s market position, customer relationships and supply chain capabilities. Goodwill recorded on the CSI acquisition is not expected to be amortized or deductible for U.S. federal and state income tax purposes. The goodwill from the CSI acquisition is included in the IBW reporting unit.
The following table summarizes the preliminary estimated fair value of the assets acquired and liabilities assumed as of the March 1, 2014, acquisition date:
(in thousands)
Preliminary Amounts Recognized as of Acquisition
 Date (1)
 
Measurement Period Adjustments
 
Adjusted Preliminary Amounts Recognized
 Cash
$
6,513

 
$
—

 
$
6,513

 Accounts receivable
2,920

 
(20
)
(c)
2,900

 Inventories
7,625

 
(242
)
(c)
7,383

 Prepaid expenses and other current assets
158

 
(23
)
(c)
135

 Property and equipment
816

 
(45
)
(c)
771

 Intangible assets
16,230

 
(57
)
(a)
16,173

 Accounts payable, accruals and other liabilities
(2,875
)
 
(37
)
(c)
(2,912
)
 Income tax payable
(1,175
)
 
—

 
(1,175
)
 Deferred income tax liability
(6,616
)
 
87

(a)
(6,529
)
 Goodwill
20,142

 
641

 
20,783

 Total Consideration
$
43,738

 
$
304

(b)
$
44,042


(1) As previously reported in the Notes to the Consolidated Financial Statements included in our 2014 Form 10-K.
(a) Intangible asset fair value adjustment for trade name and related tax effect
(b) Payment for final working capital adjustment
(c) Other measurement period adjustments mostly related to inventory adjustments
Under ASC 805, Business Combinations (ASC 805), the Company is required to recognize adjustments to provisional amounts during the measurement period as they are identified, and to recognize such adjustments retrospectively, as if the accounting for the business combination had been completed at the acquisition date. The March 31, 2014, balance sheet has been adjusted to reflect the measurement period adjustments including the working capital adjustment which was included in accounts payable.
The following table summarizes the acquired identified intangible assets, the respective fair value, and estimated useful life at the date of acquisition:
(in thousands)
 
Fair Value
 
Estimated Life
Backlog
 
$
90

 
1 month
Customer relationships
 
11,410

 
9 years
Trademark
 
303

 
1 year
Developed technology
 
3,860

 
3 years
Non-compete
 
510

 
2 years
Total intangible assets
 
$
16,173

 
 

The following unaudited summary information is presented on a consolidated pro forma basis as if the CSI acquisition had occurred on April 1, 2012. The pro forma amounts reflect the accounting effects of the business combination, including the application of the Company's accounting policies, amortization of intangible assets based on the estimated fair value and the impact of other fair value purchase accounting impacts such as inventory valuation step-up. The pro forma results are based on historical information and is not necessarily indicative of the combined results had the acquisition been completed at April 1, 2012, nor are they indicative of future combined results.
(in thousands)
 
Three months ended September 30, 2013
 
Six months ended September 30, 2013
Consolidated pro forma revenue
 
$
41,992

 
$
73,366

Consolidated pro forma operating income
 
$
4,924

 
$
4,109