Note 11 - Acquisition of Nestor Cables

12 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE 11 – ACQUISITION OF NESTOR CABLES

On July 26, 2022, the Company, through its newly formed wholly owned subsidiary, Clearfield Finland Ltd., acquired 100% of the share capital of Nestor Cables Ltd (“Nestor”), a leading developer and manufacturer of fiber optic cable solutions located in Finland, upon the terms and conditions contained in a Share Sale and Purchase Agreement entered into on May 17, 2022. The total purchase price and the acquisition date fair value of the consideration transferred for the shares totaled €7.9 million ($8.0 million) in addition to €7.6 million ($7.8 million) related to the repayment of certain of Nestor’s debt. The purchase price was funded from a draw of $16.7 million under the Company’s revolving line of credit. The purchase of Nestor Cables is expected to provide the Company with the ability to vertically integrate the supply fiber optic cables and fulfill customer demand more rapidly. Nestor Cables technical expertise is expected to extend the supply of the Company’s FieldShield product line into the North American market, to reduce cost and complexity of transportation. Finally, Nestor enhances the possibility of introducing Clearfield, Inc.’s cassette-based fiber management solutions into the European market.

The following table summarizes the estimated fair value of the assets and liabilities acquired as of July 26, 2022:

(in thousands)
Cash	$	72
Accounts receivables		10,562
Inventories		11,377
Other current assets		173
Total current assets		22,184
Property and equipment		7,689
Intangibles assets		1,840
Right of use lease asset		1,297
Goodwill		1,762
Other		55
Total assets	$	34,827
Accounts payable		5,839
Accrued compensation		1,430
Accrued expenses		1,916
Deferred tax liability		621
Lease liability		1,297
Factoring liability		5,849
Long term debt		2,045
Total liabilities	$	18,997
Net assets acquired	$	15,830

The Nestor acquisition resulted in approximately $1,700,000 of goodwill due to intangible assets not qualifying for separate recognition as well as expected synergies. The goodwill created from the acquisition of Nestor Cables is expected to be deductible for tax purposes.

Nestor Cables acquired accounts receivable balance is the gross amount which is expected to be collected, which approximates fair value. As of the acquisition date no allowance for uncollectible amounts is deemed necessary.

The intangible assets acquired include customer relationships, developed technology and trademarks. The remaining weighted average useful life of intangible assets acquired is 12.78 years as of the acquisition date. Refer to Note 1 for further information.

The Company incurred approximately $1,600,000 in legal, professional, and other costs related to the acquisition which were accounted for as selling, general and administrative expenses when incurred. Refer to Note 12-Segment Reporting for the operating results of Nestor Cables from the date of acquisition through September 30, 2022.

The Company has a fiscal year end of September 30 and reports its financial results in U.S. GAAP. Nestor Cables has historically had a fiscal year end of December 31 and reported its results under Finnish Accounting Standards. Accordingly, it is impracticable to disclose the revenue and earnings of the combined entity as though the business combination occurred as of the beginning of the comparable prior year periods due to the differing basis of accounting and reporting periods of the entities requiring assumptions about management’s intent that cannot be independently substantiated. In addition, these disclosures would require significant estimates that are not possible to reliably establish in order to distinguish objective information that provides evidence of circumstances that existed on the dates at which those amounts would have been recognized, measured and disclosed and would have been available when the financial statements for that prior period were issued.