Annual report pursuant to Section 13 and 15(d)

Basis of Presentation

v2.4.0.6
Basis of Presentation
 12 Months Ended
Mar. 31, 2013
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
Basis of Presentation:
Description of Business
Westell Technologies, Inc. (the “Company”) is a holding company. Its wholly owned subsidiary, Westell, Inc., designs and distributes telecommunications products which are sold primarily to major telecom service providers. Noran Tel, Inc. is a wholly owned subsidiary of Westell, Inc. The Company completed the plan to relocate the majority of its Noran Tel operations to the Company’s location in Aurora, Illinois, with the intent to optimize operations (the “Noran Tel relocation”). The relocation was completed in fiscal year 2013 and impacted approximately 35 employees located in Canada. Noran Tel's remaining Canadian operations focus on power distribution product development and sales of Westell products in Canada.
Business Acquisition
On May 15, 2012, the Company acquired certain assets and liabilities of ANTONE Wireless Corporation (“ANTONE”), including rights to ANTONE products, for $2.5 million cash, subject to an adjustment for working capital, plus contingent cash consideration of up to an additional $3.5 million (the "ANTONE acquisition").  The contingent consideration is based upon profitability of the acquired products for post-closing periods through June 30, 2016, and may be offset by working capital adjustments and indemnification claims.  The acquisition included inventories, property and equipment, contract rights, customer relationships, technology, and certain specified operating liabilities that existed at the closing date. The Company hired nine of ANTONE’s employees.  ANTONE products include high-performance tower-mounted amplifiers, multi-carrier power amplifier boosters, and cell-site antenna sharing products.  The acquisition qualifies as a business combination and is accounted for using the acquisition method of accounting.
The results of ANTONE’s operations have been included in the Consolidated Financial Statements since the date of acquisition and are reported in the Westell operating segment. The Company incurred $0.1 million of related acquisition costs in fiscal year 2013 which are reflected in general and administrative costs in the Consolidated Statement of Operations.
In accordance with the acquisition method of accounting for business combinations, the Company allocated the total purchase price to identifiable tangible and intangible assets based on each element’s fair value. Purchased intangibles are amortized over their respective estimated useful lives. Goodwill recorded from this acquisition is the residual purchase price after allocating the total consideration to the preliminary fair value of assets acquired and liabilities assumed, and represents the expected synergies and other benefits from this acquisition that relates to the Company’s market position, customer relationships and supply chain capabilities. All goodwill recorded on the ANTONE acquisition is expected to be amortized and deductible for U.S. federal and state income tax purposes. The goodwill, which was evaluated under the Westell reporting segment, was determined to be impaired and therefore written off in the fourth quarter of fiscal year 2013. Refer to Note 4, Goodwill and Intangible Assets.
The following table summarizes the fair values of the assets and liabilities assumed as of the May 15, 2012, acquisition date:
(in thousands)
 
Inventories
$326
Deposit
3

Intangibles
3,230

Liabilities
(612
)
Goodwill
2,086

Net assets acquired
$5,033
Cash consideration transferred
$2,524
Contingent consideration
3,038

Working capital adjustment (shortfall)
(529
)
Total preliminary consideration
$5,033
The identifiable intangible assets include $2.8 million designated to technology and $0.4 million designated to customer relationships, each with estimated useful lives of 8 years. The Company calculated values based on the present value of the future estimated cash flows derived from operations attributable to technology and existing customer contracts and relationships. The $2.1 million of goodwill, which was evaluated under the Westell reporting segment, which is comprised of the entire business except the CNS segment, was determined to be impaired and therefore written off in the fourth quarter of fiscal year 2013. See Note 2, Summary of Significant Accounting Policies.
In the twelve months ended March 31, 2013, the Company recorded a $303,000 warranty obligation for pre-acquisition sales made by ANTONE related to a specific product failure. See Note 6, Product Warranties. Pre-acquisition warranty costs in excess of $25,000 are indemnified by the seller and have been adjusted in the valuation of the contingent consideration. Refer to further discussion of the contingent consideration in Note 13, Fair Value Measurements.
Sale of Conference Plus, Inc.
On December 31, 2011, the Company sold its wholly owned subsidiary, Conference Plus, Inc. including Conference Plus Global Services, Ltd (“CGPS”), a wholly owned subsidiary of ConferencePlus (collectively, “ConferencePlus”) to Arkadin for $40.3 million in cash (the “ConferencePlus sale”). Of the total purchase price, $4.1 million was placed in escrow at closing for one year as security for certain indemnity obligations of the Company. The Company subsequently agreed to extend the escrow period to June 10, 2013. During the three months ended December 31, 2012, the Company recorded a contingent liability of $1.5 million, pre-tax, relating to impending claims raised by Arkadin under the indemnity provisions of the purchase sales agreement. This, along with certain other adjustments, resulted in a $1.4 million loss for fiscal year 2013 and is presented in the table below. In the quarter ended March 31, 2013, $1.6 million of the escrow was released. The Company expects the cash held in escrow that is in excess of the obligation covered by the indemnity provisions to be released to the Company during fiscal year 2014. The escrow amount has been classified as restricted cash on the Consolidated Balance Sheets as of March 31, 2013, and March 31, 2012. The results of operations of ConferencePlus presented herein have been classified as discontinued operations. The Consolidated Statements of Cash Flows include discontinued operations.
During fiscal year 2012, the Company recorded an after-tax gain of $20.5 million on the ConferencePlus sale which is included in discontinued operations on the Consolidated Statement of Operations.
The gain on the sale is calculated as follows:
(in thousands)
 
Cash Proceeds
$
40,331

Less: Net value of assets and liabilities as of December 31, 2011, and transaction costs
(7,483
)
Total gain before income taxes
32,848

Income tax
(12,359
)
Total gain, net of tax
$
20,489


ConferencePlus revenue and income before income taxes reported in discontinued operations is as follows:
 
Twelve months ended
March 31,
(in thousands)
2013
 
2012
 
2011
Revenue
$
—

 
$
31,746

 
$
42,328

Income (loss) before income taxes
$
(1,358
)
 
$
3,509

 
$
4,868


CNS Asset Sale
On April 15, 2011, the Company sold certain assets and transferred certain liabilities of the Customer Networking Solutions (“CNS”) segment to NETGEAR, Inc. for $36.7 million in cash (the “CNS asset sale”). The Company retained a major CNS customer relationship and contract, and also retained the Homecloud product development program. The Company completed the remaining contractually required product shipments under the retained contract in December 2011.
As part of the agreement, the Company agreed to indemnify NETGEAR following the closing of the sale against specified losses in connection with the CNS business and generally retained responsibility for various legal liabilities that may accrue. An escrow balance of $3.4 million was established for one year for this purpose or for other claims and is reflected as restricted cash on the Consolidated Balance Sheet. NETGEAR made a $0.9 million claim against the escrow balance for a dispute and indemnity claim regarding an interpretation of the Asset Purchase Agreement. The Company had previously recorded a $0.4 million contingency reserve for this claim at the time of the sale and recorded an additional expense of $0.5 million during fiscal year 2013. In fiscal year 2013, the Company resolved the dispute through arbitration and the escrow was released with $2.6 million refunded to the Company and $0.9 million paid to NETGEAR. 
During fiscal year 2012, the Company recorded a pre-tax gain of $31.7 million in connection with this asset sale. In connection with the CNS asset sale, the Company entered into a Master Services Agreement and an Irrevocable Site License Agreement under which the Company provided transition services and subleased office space to NETGEAR. The sublease expired in April 2012.
The pre-tax gain on the CNS asset sale for the twelve months ended March 31, 2012, is calculated as follows:
(in thousands)
 
Cash Proceeds
$
36,729

Less: Net value of assets and liabilities sold or transferred as of April 15, 2011, and transaction costs
(5,075
)
Total gain before income taxes
$
31,654


Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. The Consolidated Financial Statements have been prepared using accounting principles generally accepted in the United States (“GAAP”). All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and that affect revenue and expenses during the periods reported. Estimates are used when accounting for the allowance for uncollectible accounts receivable, net realizable value of inventory, product warranty accrued, relative selling prices, stock-based compensation, goodwill and intangible assets fair value, depreciation, income taxes, and contingencies, among other things. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the Consolidated Financial Statements for prior periods have been reclassified to conform to the current period presentation. Previously reported amounts in the Consolidated Statement of Operations have been adjusted for the effects of the discontinued operations described above. The reclassifications related to discontinued operations had no impact on previously reported amounts for total assets, total liabilities, total stockholders’ equity or net income (loss).