Annual report pursuant to Section 13 and 15(d)

Acquisitions Acqusitions

v3.3.0.814
Acquisitions Acqusitions
 12 Months Ended
Mar. 31, 2015
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block]
Acquisitions:
CSI Acquisition

On March 1, 2014, the Company's wholly-owned subsidiary, Westell, Inc. acquired 100% of the outstanding shares of Cellular Specialties, Inc. (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 indoor wireless coverage anytime, anywhere. ClearLink, CSI’s high performance, low PIM brand of in-building products are designed for distributed antenna systems (DASs). ClearLink products include Universal DAS interface Trays (UDIT), passive DAS interface units, system components, and antennas. CSI’s portfolio also includes digital repeaters, bi-directional amplifiers, and E911 and location-based enhancement solutions for wireless networks.
The Company incurred $39,000 and $0.2 million of related acquisition costs in fiscal year 2015 and 2014, respectively, which were expensed as incurred and reflected in general and administrative costs in the Consolidated Statement of Operations.
The results of CSI's operations have been included in the Consolidated Financial Statements since the date of acquisition and are reported within the In-Building Wireless (IBW) reporting segment. CSI contributed $29.5 million and $3.7 million to revenue and $26.9 million and $0.4 million to operating loss in fiscal year 2015 and 2014, respectively. Operating loss includes a write off of goodwill in fiscal year 2015.
In accordance with the acquisition method of accounting for business combinations, the Company 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. 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. In the third quarter of fiscal year 2015, the Company performed an in interim evaluation of goodwill and concluded that the $20.5 million from the CSI acquisition, which was evaluated under the IBW reporting unit, was fully impaired and recorded as a charge to Consolidated Results of Operation in that quarter. Refer to Note 5, Goodwill and Intangible Assets.
The following table summarizes the 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
 
Final Amounts Recognized
 Cash
$
6,513

 
$
—

 
$
6,513

 Accounts receivable
2,920

 
(20
)
(4) 
2,900

 Inventories
7,625

 
(242
)
(4) 
7,383

 Prepaid expenses and other current assets
158

 
(23
)
(4) 
135

 Property and equipment
816

 
(45
)
(4) 
771

 Intangible assets
16,230

 
(57
)
(2) 
16,173

 Accounts payable, accruals and other liabilities
(2,875
)
 
(37
)
(4) 
(2,912
)
 Income tax payable
(1,175
)
 
—

 
(1,175
)
 Deferred income tax liability
(6,616
)
 
323

(2) 
(6,293
)
 Goodwill
20,142

 
405

 
20,547

 Total Consideration
$
43,738

 
$
304

(3) 
$
44,042


(1) As previously reported in the Notes to the Consolidated Financial Statements included in our 2014 Form 10-K.
(2) Intangible asset fair value adjustment for trade name and related tax effect.
(3) Payment for final working capital adjustment.
(4) Other measurement period adjustments mostly related to inventory adjustments.

Under ASC topic 805, Business Combinations, 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 and 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

 
 

Kentrox Acquisition
On April 1, 2013, the Company's wholly-owned subsidiary, Westell, Inc., acquired 100% of the outstanding shares of Kentrox, Inc. (Kentrox) for a purchase price of $30.0 million in cash, plus a $1.3 million working capital adjustment, pursuant to an agreement dated March 15, 2013.  Kentrox is a worldwide leader in intelligent site management solutions, providing comprehensive monitoring, management and control of any site. The machine-to-machine communications Kentrox provides enable service providers, tower operators, and other network operators to reduce operating costs while improving network performance. Kentrox provides solutions to customers in North and South America, Australia, Africa, and Europe. The acquisition added a highly complementary product line that is wireless focused, software centric and globally deployed.
The Company incurred $0.3 million of related acquisition costs in the fourth quarter of fiscal year 2013 which were expensed as incurred and reflected in general and administrative costs in the Consolidated Statement of Operations.
The results of Kentrox's operations have been included in the Consolidated Financial Statements since the date of acquisition and are reported as a separate operating segment. Kentrox contributed $46.2 million to revenue and $7.3 million to operating income in the twelve months ended March 31, 2014. The Kentrox operations were merged into Westell, Inc.'s operations and separate financial information is not available for fiscal year 2015.
In accordance with the acquisition method of accounting for business combinations, the Company 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. 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 Kentrox acquisition is not expected to be amortized or deductible for U.S. federal and state income tax purposes. In the second quarter of fiscal year 2015, the Company performed an in interim evaluation of goodwill and concluded that the $11.5 million from the Kentrox acquisition, which was evaluated under the CSG reporting unit, was fully impaired and recorded as a charge to Consolidated Results of Operation in that quarter. Refer to Note 5, Goodwill and Intangible Assets.
The following table summarizes the fair values of the assets acquired and liabilities assumed on the April 1, 2013, acquisition date:
(in thousands)
As previously reported
 
Adjustments (1)
 
As restated (1)
Cash
$
2,355

 
$
—

 
$
2,355

Inventories
5,045

 
—

 
5,045

Accounts receivable
4,325

 
—

 
4,325

Land held-for-sale
1,044

 
—

 
1,044

Other assets
882

 
—

 
882

Intangible assets
15,980

 
—

 
15,980

Deferred revenue
(2,963
)
 
—

 
(2,963
)
Accounts payable and accruals
(3,393
)
 
(1,445
)
 
(4,838
)
Deferred income tax liability
(2,530
)
 
550

 
(1,980
)
Goodwill
10,555

 
895

 
11,450

Total consideration
$
31,300

 
$
—

 
$
31,300


(1) See Note 1 for restatement information.
The fair value of intangible assets is as follows:
(in thousands)
 
Fair Value
 
Life
Backlog
 
$
1,440

 
1 year
Customer relationships
 
8,960

 
10 years
Trade name
 
1,170

 
7 years
Developed technology
 
4,410

 
9 years
Total intangible assets
 
$
15,980

 
 

ANTONE 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. ANTONE products include high-performance tower-mounted amplifiers 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 CSG operating segment. The Company incurred $0.1 million of related acquisition costs in fiscal year 2013 which were expensed as incurred and 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 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. Purchased intangibles are being 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. All goodwill recorded on the ANTONE acquisition is expected to be amortized and deductible for U.S. federal and state income tax purposes.
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

Intangible assets
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 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 was evaluated with the Company's annual goodwill test in the fourth quarter of fiscal year 2013. The Company concluded that the goodwill was impaired and recorded an impairment charge in that quarter. See Note 5, Goodwill and Intangible Assets.
In fiscal year 2013, the Company recorded a $0.3 million warranty obligation for pre-acquisition sales made by ANTONE related to a specific product failure. See Note 7, Product Warranties.
Pro forma information all fiscal year 2014 acquisitions
The following unaudited summary information is presented on a consolidated pro forma basis as if the Kentrox and CSI acquisitions had occurred on April 1, 2012. The pro forma amounts reflect the accounting effects of the business combinations, 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, deferred revenue reduction and the add back of interest expense. 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)
 
2014 (restated (1))
 
2013
Consolidated pro forma revenue
 
$
141,456

 
$
92,671

Consolidated pro forma operating income (loss) from continuing operations
 
$
7,494

 
$
(22,843
)
(1) See Note 1 for restatement information.