Annual report pursuant to Section 13 and 15(d)

Basis of Presentation

v2.4.1.9
Basis of Presentation
 12 Months Ended
Mar. 31, 2015
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 telephone companies. Noran Tel, Inc. is a wholly owned subsidiary of Westell, Inc. Noran Tel's operations focus on power distribution product development and sales of Westell products in Canada. On April 1, 2013, Westell, Inc. acquired 100% of the outstanding shares of Kentrox, Inc. (Kentrox). Kentrox designs and distributes intelligent site management solutions that provide comprehensive monitoring, management and control of any site. On March 1, 2014, Westell, Inc. acquired 100% of the outstanding shares of Cellular Specialties, Inc. (CSI). CSI designs and develops in-building wireless solutions including distributed antenna systems (DAS) products and small cell connectivity equipment. The assets and liabilities acquired and the results of operations relating to Kentrox and CSI are included in the Company's Consolidated Financial Statements from the dates of acquisitions. See Note 2, Acquisitions.
Discontinued Operations
Sale of Conference Plus, Inc.
On December 31, 2011, the Company sold its wholly owned subsidiary, Conference Plus, Inc. (CPI) 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 sale price, $4.1 million was placed in escrow at closing for the purpose of post-closing claims. During the fiscal year 2013, the Company recorded a contingent liability of $1.5 million, pre-tax, relating to 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. In fiscal years 2013 and 2014, $1.6 million and $2.5 million of the escrow were released with $3.0 million returned to the Company and $1.1 million paid to Arkadin. In fiscal year 2015, the Company reversed a contingency reserve related to potential indemnity claims that resulted in $0.1 million of income from discontinued operations. The activity for contingencies related to the sale of ConferencePlus presented herein have been classified as discontinued operations.
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 sale, the Company agreed to indemnify NETGEAR following the closing against specified losses in connection with the CNS business and generally retained responsibility for various legal liabilities that may accrue. A balance of $3.4 million was placed in escrow at closing for the purpose of post-closing claims. NETGEAR made a $0.9 million claim against the escrow balance for a dispute and indemnity claim regarding an interpretation of the sale 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 when the Company resolved the dispute through arbitration. The escrow was released at that time with $2.6 million refunded to the Company and $0.9 million paid to NETGEAR.  The Company discontinued the remaining operations of the CNS segment in the first quarter of fiscal year 2014.
The Consolidated Statements of Cash Flows include discontinued operations.
Revenue and income before income taxes reported in discontinued operations is as follows:
 
Fiscal Year Ended March 31,
(in thousands)
2015
 
2014
 
2013
Discontinued CPI Revenue
$
—

 
$
—

 
$
—

Discontinued CNS Revenue
—

 
—

 
1,236

Total discontinued operations revenue
$
—

 
$
—

 
$
1,236

 
 
 
 
 
 
CPI income (loss) before income taxes
$
227

 
$
—

 
$
(1,358
)
CNS income (loss) before income taxes
—

 
(45
)
 
(951
)
Total discontinued operations income (loss) before income taxes
$
227

 
$
(45
)
 
$
(2,309
)

Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of the Company and its majority owned subsidiaries. The Consolidated Financial Statements have been prepared using accounting principles generally accepted in the United States (GAAP) and include the results of companies acquired by the Company from the date of each acquisition. 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. The Company bases its estimate on historical experience and on other assumptions that its management believes are reasonable under the circumstances. Actual results could differ from those estimates.
Voluntary Change in Accounting Principle
Effective April 1, 2014, the Company made a voluntary change in accounting principle to classify shipping and handling costs associated with the distribution of finished product to our customers as cost of revenue (previously recorded in sales and marketing expense). The Company made the voluntary change in principle because it believes the classification of shipping and handling costs in cost of revenue better reflects the cost of producing and distributing products. It also enhances the comparability of the financial statements with many industry peers. As required by U.S. generally accepted accounting principles, the change has been reflected in the Consolidated Statements of Operations through retrospective application of the change in accounting principle.

Reconciliation to Previously Reported Financial Data

The following table provides the reconciliation from previously reported financial data as adjusted:
 
 
Fiscal Year ended March 31, 2014
 
Fiscal Year ended March 31, 2013
(in thousands)
 
Previously reported
 
Effect of Accounting Principle Change (1)
 
Effect of CSI Purchase Accounting Adjustment (2)
 
Adjusted
 
Previously reported
 
Effect of Accounting Principle Change
 
Adjusted
Revenue
 
$
102,073

 
$
—

 
$
—

 
$
102,073

 
$
38,808

 
$
—

 
$
38,808

Cost of revenue
 
60,115

 
1,359

 
138

 
61,612

 
25,483

 
709

 
26,192

Gross profit
 
$
41,958

 
$
(1,359
)
 
$
(138
)
 
$
40,461

 
$
13,325

 
$
(709
)
 
$
12,616

Gross margin
 
41.1
%
 
 
 
 
 
39.6
%
 
34.3
%
 
 
 
32.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
 
$
14,663

 
$
(1,359
)
 
$
—

 
$
13,304

 
$
7,492

 
$
(709
)
 
$
6,783

Intangible Amortization
 
$
4,908

 
$
—

 
$
(19
)
 
$
4,889

 
$
887

 
$
—

 
$
887

Income tax (expense) benefit
 
$
8,782

 
$
—

 
$
(322
)
 
$
8,460

 
$
(29,392
)
 
$
—

 
$
(29,392
)
Net income (loss)
 
$
5,367

 
$
—

 
$
(441
)
 
$
4,926

 
$
(44,038
)
 
$
—

 
$
(44,038
)
(1) See Voluntary Change in Accounting Principle above
(2) Certain amounts have been adjusted to reflect measurement period adjustments related to the CSI acquisition (see Note 2).

The impact of this change in accounting principle was an increase to cost of revenue and a reduction to sales and marketing expense of $1.4 million and $0.7 million in the fiscal years ended March 31, 2014 and 2013, respectively. Gross profit and gross profit percentage were reduced accordingly. The amount included in cost of sales that would have been included in sales and marketing historically was $0.9 million for the fiscal year ended March 31, 2015. The change had no effect on income from continuing operations, net income, earnings per share, or retained earnings for any period.
Reclassifications
In addition to the reclassification of shipping and handling costs disclosed above, certain amounts in the Consolidated Financial Statements for fiscal year 2014 have been reclassified to reflect measurement period adjustments related to the CSI acquisition. See Note 2, Acquisitions.