Company Quick10K Filing
Quick10K
Clearfield
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$14.21 14 $194
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-07-25 Earnings, Exhibits
8-K 2019-05-09 Enter Agreement, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-02-21 Regulation FD, Exhibits
8-K 2019-02-21 Shareholder Vote
8-K 2019-01-31 Earnings, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2018-11-29 Officers
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-11-06 Earnings, Officers, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-02-22 Shareholder Vote
8-K 2018-02-20 Enter Agreement, M&A, Exhibits
8-K 2018-01-25 Earnings, Exhibits
UMPQ Umpqua Holdings 3,770
ICAD iCAD 96
ENT Global Eagle Entertainment 73
RIOT Riot Blockchain 54
ZN Zion Oil & Gas 36
HHS Harte Hanks 21
DYSL Dynasil of America 18
ECMT Eco-Mat 0
EMITF Elbit Imaging 0
XCO Exco Resources 0
CLFD 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Net Income per Share
Note 3. Cash, Cash Equivalents and Investments
Note 4. Stock-Based Compensation
Note 5. Revenue
Note 6. Inventories
Note 7. Major Customer Concentration
Note 8. Goodwill and Patents
Note 9. Income Taxes
Note 10. Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 exh_311.htm
EX-31.2 exh_312.htm
EX-32.1 exh_321.htm

Clearfield Earnings 2019-06-30

CLFD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 f10q_080119p.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

 

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-16106

Clearfield, Inc.

 

(Exact name of Registrant as specified in its charter)

 

Minnesota 41-1347235
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

7050 Winnetka Avenue North, Suite 100, Brooklyn Park, Minnesota 55428

(Address of principal executive offices and zip code)

 

(763) 476-6866

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.01 par value CLFD The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

[X] YES       [_] NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

[X] YES       [_] NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [_]       Accelerated filer [X]       Non-accelerated filer [_]

 

Smaller reporting company [X]       Emerging growth company [_]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

 

1

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

[_] YES       [X] NO

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

 

Class: Outstanding at July 19, 2019
Common stock, par value $.01 13,651,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

CLEARFIELD, INC.

FORM 10-Q

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION 4
ITEM 1. FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19
ITEM 4. CONTROLS AND PROCEDURES 19
PART II. OTHER INFORMATION 19
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 1A. RISK FACTORS 19
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. MINE SAFETY DISCLOSURES 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS 20
SIGNATURES 20

 

 

 

 

 

 

3

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CLEARFIELD, INC.

CONDENSED BALANCE SHEETS

 

   (Unaudited)
June 30,
2019
 

(Audited)

September 30,

2018

Assets          
Current Assets          
Cash and cash equivalents  $6,030,842   $8,547,777 
Short-term investments   14,638,219    8,930,225 
Accounts receivables, net   9,302,944    12,821,258 
Inventories, net   9,424,262    10,050,135 
Other current assets   883,613    742,136 
Total current assets   40,279,880    41,091,531 
           
Property, plant and equipment, net   4,470,145    4,744,584 
           
Other Assets          
Long-term investments   22,519,000    17,974,000 
Goodwill   4,708,511    4,708,511 
Intangible assets, net   5,242,689    5,482,555 
Other   202,856    227,461 
Total other assets   32,673,056    28,392,527 
Total Assets  $77,423,081   $74,228,642 
           
Liabilities and Shareholders’ Equity          
Current Liabilities          
Accounts payable  $1,566,900   $2,363,380 
Accrued compensation   2,247,934    2,048,904 
Accrued expenses   280,484    568,507 
Total current liabilities   4,095,318    4,980,791 
           
Other Liabilities          
Deferred taxes   104,935    104,935 
Deferred rent   251,759    268,040 
Total other liabilities   356,694    372,975 
Total Liabilities   4,452,012    5,353,766 
           
Shareholders’ Equity          
Preferred stock, $.01 par value; 500,000 shares; no shares issued or outstanding   -      -   
Common stock, authorized 50,000,000, $.01 par value; 13,651,869 and 13,646,553, shares issued and outstanding at June 30, 2019 and September 30, 2018   136,519    136,466 
Additional paid-in capital   56,901,470    55,483,759 
Retained earnings   15,933,080    13,254,651 
Total Shareholders’ Equity   72,971,069    68,874,876 
Total Liabilities and Shareholders’ Equity  $77,423,081   $74,228,642 

 

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

 

4

 

 

CLEARFIELD, INC.

CONDENSED STATEMENTS OF EARNINGS

UNAUDITED

 

   Three Months Ended
June 30,
  Nine Months Ended
June 30,
   2019  2018  2019  2018
             
Net sales  $21,892,244   $21,480,590   $61,065,759   $55,178,369 
                     
Cost of sales   13,479,617    12,988,545    37,681,191    32,798,083 
                     
Gross profit   8,412,627    8,492,045    23,384,568    22,380,286 
                     
Operating expenses                    
Selling, general and administrative   6,870,994    6,087,362    20,374,613    19,856,922 
Income from operations   1,541,633    2,404,683    3,009,955    2,523,364 
                     
Interest income   212,894    116,549    517,474    331,650 
                     
Income before income taxes   1,754,527    2,521,232    3,527,429    2,855,014 
                     
Income tax expense   454,000    766,000    849,000    462,000 
Net income  $1,300,527   $1,755,232   $2,678,429   $2,393,014 
                     
Net income per share Basic  $0.10   $0.13   $0.20   $0.18 
Net income per share Diluted  $0.10   $0.13   $0.20   $0.18 
                     
Weighted average shares outstanding:                    
Basic   13,446,289    13,430,503    13,422,885    13,441,619 
Diluted   13,451,671    13,430,503    13,434,009    13,473,123 

 

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

 

5

 

 

CLEARFIELD, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY

UNAUDITED

 

For the nine months ended June 30, 2019

 

   Common Stock  Additional  Retained  Total share-
   Shares  Amount  paid-in capital  earnings  holders’ equity
Balance as of September 30, 2018   13,646,553   $136,466   $55,483,759   $13,254,651   $68,874,876 
Stock-based compensation expense   -      -      1,535,628    -      1,535,628 
Restricted stock issuance, net   (6,890)   (69)   69    -      -   
Issuance of common stock under employee stock purchase plan   37,235    372    313,519    -      313,891 
Exercise of stock options, net of shares exchanged for payment   5,440    54    (30)   -      24 
Tax withholding related to vesting of restricted stock grants   (30,469)   (304)   (431,475)   -      (431,779)
Net income   -      -      -      2,678,429    2,678,429 
Balance as of June 30, 2019   13,651,869   $136,519   $56,901,470   $15,933,080   $72,971,069 

 

For the three months ended June 30, 2019

 

   Common Stock  Additional  Retained  Total share-
   Shares  Amount  paid-in capital  earnings  holders’ equity
Balance as of March 31, 2019   13,668,408   $136,684   $56,725,019   $14,632,553   $71,494,256 
Stock-based compensation expense   -      -      433,438    -      433,438 
Restricted stock issuance, net   (6,538)   (65)   65    -      -   
Issuance of common stock under employee stock purchase plan   19,923    199    167,752    -      167,951 
Exercise of stock options, net of shares exchanged for payment   -      -      -      -      -   
Tax withholding related to vesting of restricted stock grants   (29,924)   (299)   (424,804)   -      (425,103)
Net income   -      -      -      1,300,527    1,300,527 
Balance as of June 30, 2019   13,651,869   $136,519   $56,901,470   $15,933,080   $72,971,069 

 

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

 

 

 

6

 

 

CLEARFIELD, INC.

CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

UNAUDITED

 

For the nine months ended June 30, 2018

 

   Common Stock  Additional  Retained  Total share-
   Shares  Amount  paid-in capital  earnings  holders’ equity
Balance as of September 30, 2017   13,812,821   $138,128   $55,406,888   $8,980,104   $64,525,120 
Stock-based compensation expense   -      -      1,488,304    -      1,488,304 
Repurchase of common stock   (119,715)   (1,197)   (1,370,217)   -      (1,371,414)
Restricted stock issuance, net   (5,049)   (50)   50    -      -   
Issuance of common stock under employee stock purchase plan   30,174    301    297,559         297,860 
Exercise of stock options, net of shares exchanged for payment   6,925    69    21,105    -      21,174 
Tax withholding related to vesting of restricted stock grants   (31,213)   (312)   (348,215)   -      (348,527)
Net income   -      -      -      2,393,014    2,393,014 
Balance as of June 30, 2018   13,693,943   $136,939   $55,495,474   $11,373,118   $67,005,531 

 

For the three months ended June 30, 2018

 

   Common Stock  Additional  Retained  Total share-
   Shares  Amount  paid-in capital  earnings  holders’ equity
Balance as of March 31, 2018   13,811,076   $138,111   $56,296,908   $9,617,886   $66,052,905 
Stock-based compensation expense   -      -      519,223    -      519,223 
Repurchase of common stock   (100,133)   (1,001)   (1,134,389)   -      (1,135,390)
Restricted stock issuance, net   (3,640)   (36)   36    -      -   
Issuance of common stock under employee stock purchase plan   15,932    158    149,442    -      149,600 
Exercise of stock options, net of shares exchanged for payment   1,250    12    3,214    -      3,226 
Tax withholding related to vesting of restricted stock grants   (30,542)   (305)   (338,960)   -      (339,265)
Net income   -      -      -      1,755,232    1,755,232 
Balance as of June 30, 2018   13,693,943   $136,939   $55,495,474   $11,373,118   $67,005,531 

 

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

 

 

 

7

 

 

CLEARFIELD, INC.

CONDENSED STATEMENTS OF CASH FLOWS

UNAUDITED

 

   Nine Months Ended June 30,
   2019  2018
Cash flows from operating activities          
Net income  $2,678,429   $2,393,014 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   1,613,394    1,546,661 
Change in allowance for doubtful accounts   210,000    -   
Amortization of discount on investments   (43,601)   -   
Deferred taxes   -      (384,000)
Loss on disposal of assets   -      (20,358)
Stock based compensation   1,535,628    1,488,304 
Changes in operating assets and liabilities:          
Accounts receivable   3,308,314    (2,413,875)
Inventories, net   625,873    1,546,081 
Other assets   (116,872)   289,305 
Accounts payable, accrued expenses and deferred rent   (901,754)   (146,317)
Net cash provided by operating activities   8,909,411    4,298,815 
           
Cash flows from investing activities          
Purchases of property, plant and equipment and intangible assets   (1,099,089)   (920,356)
Purchases of investments   (17,444,393)   (5,403,075)
Proceeds from sale of property, plant, and equipment   -      83,052 
Proceeds from maturities of investments   7,235,000    4,444,000 
Business acquisition   -      (10,350,000)
Net cash used in investing activities   (11,308,482)   (12,146,379)
           
           
Cash flows from financing activities          
Repurchases of common stock   -      (1,371,414)
Proceeds from issuance of common stock under employee stock purchase plan   313,891    297,860 
Proceeds from issuance of common stock upon exercise of stock options   24    21,174 
Tax withholding related to vesting of restricted stock grants   (431,779)   (348,527)
Net cash used in financing activities   (117,864)   (1,400,907)
           
Decrease in cash and cash equivalents   (2,516,935)   (9,248,471)
           
Cash and cash equivalents, beginning of period   8,547,777    18,536,111 
           
Cash and cash equivalents, end of period  $6,030,842   $9,287,640 
           
Supplemental disclosures for cash flow information          
Cash paid during the year for income taxes  $1,081,068   $48,987 
           
Non-cash financing activities          
Cashless exercise of stock options  $17,390   $5,782 

 

SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS

 

8

 

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

Note 1. Basis of Presentation

 

The accompanying (a) condensed balance sheet as of September 30, 2018, which has been derived from audited financial statements, and (b) unaudited interim condensed financial statements as of and for the three and nine months ended June 30, 2019 have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to these rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the full year or for any other interim period, due to variability in customer purchasing patterns and seasonal, operating and other factors. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2018.

 

In preparation of the Company’s financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses during the reporting periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

 

Certain comparative figures have been reclassified to conform to the current period's presentation. These reclassifications did not affect the prior periods' net income, shareholders’ equity, or cash flows.

 

Recently Adopted Accounting Pronouncements

 

Effective October 1, 2018, we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), and ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which deferred the effective date of ASU 2014-09 by one year. ASU 2014-09 supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The adoption of ASU 2014-09, using the modified retrospective approach, had no material impact on our results of operations, cash flows, or financial position. Revenue continues to be recognized at a point in time for our product sales when products are delivered to or picked up by the customer and revenue for shipping and handling charges continues to be recognized when products are delivered to or picked up by the customer. Additional information and disclosures required by this new standard are contained in Note 5, “Revenue.”

 

Note 2. Net Income Per Share

 

Basic net income per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the reporting period. Diluted EPS equals net income divided by the sum of the weighted average number of shares of common stock outstanding plus all additional common stock equivalents, such as stock options and restricted stock awards, when dilutive.

 

9

 

 

The following is a reconciliation of the numerator and denominator of the net income per common share computations for the three and nine months ended June 30, 2019 and 2018:

 

   Three Months Ended June 30,  Nine Months Ended June 30,
   2019  2018  2019  2018
Net income  $1,300,527   $1,755,232   $2,678,429   $2,393,014 
Weighted average common shares   13,446,289    13,430,503    13,422,885    13,441,619 
Dilutive potential common shares   5,382    -      11,124    31,504 
Weighted average dilutive common shares outstanding   13,451,671    13,430,503    13,434,009    13,473,123 
Net income per common share:                    
Basic  $0.10   $0.13   $0.20   $0.18 
Diluted  $0.10   $0.13   $0.20   $0.18 

 

 

Note 3. Cash, Cash Equivalents and Investments

 

The Company currently invests its excess cash in money market accounts and bank certificates of deposit (CDs) with a term of not more than five years. CDs with original maturities of more than three months are reported as held-to-maturity investments and are carried at amortized cost. Investments maturing in less than one year are classified as short term investments on the balance sheet, and investments maturing in one year or greater are classified as long term investments on the balance sheet.

 

The maturity dates of the Company’s investments as of June 30, 2019 and September 30, 2018 are as follows:

 

  

June 30,

2019

 

September 30,

2018

Less than one year  $14,638,219   $8,930,225 
1-5 years   22,519,000    17,974,000 
Total  $37,157,219   $26,904,225 

 

Note 4. Stock-Based Compensation

 

The Company recorded $433,438 and $1,535,628 of compensation expense related to current and past option grants, restricted stock grants and the Company’s Employee Stock Purchase Plan (“ESPP”) for the three and nine months ended June 30, 2019, respectively. For the three months ended June 30, 2019, $410,784 of this expense is included in selling, general and administrative expense, and $22,654 is included in cost of sales. For the nine months ended June 30, 2019, $1,450,493 of this expense is included in selling, general and administrative expense, and $85,139 is included in cost of sales. The Company recorded $519,223 and $1,488,304 of compensation expense related to current and past option grants, restricted stock grants and ESPP for the three and nine months ended June 30, 2018, respectively. For the three months ended June 30, 2018, $477,193 of this expense is included in selling, general and administrative expense, and $42,030 is included in cost of sales. For the nine months ended June 30, 2018, $1,362,213 of this expense is included in selling, general and administrative expense, and $126,091 is included in cost of sales. As of June 30, 2019, $2,553,214 of total unrecognized compensation expense related to non-vested restricted stock awards and stock options is expected to be recognized over a period of approximately 5.2 years.

 

Stock Options

 

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted. During the nine months ended June 30, 2019, the Company granted employees non-qualified stock options to purchase an aggregate of 172,000 shares of common stock with a contractual term of four years, a three year vesting term, and an exercise price of $12.17. During the nine months ended June 30, 2018, the Company granted employees non-qualified stock options to purchase an aggregate of 72,000 shares of common stock with a contractual term of five years, a three year vesting term, and an exercise price of $13.35. The fair value at the grant date for options issued during the nine months ended June 30, 2019 was $3.53.

 

10

 

 

This fair value was estimated at the grant date using the assumptions listed below:

 

  

Nine months ended

June 30, 2019

Dividend yield   0%
Average expected volatility   37.77%
Average risk-free interest rate   2.92%
Expected life (years)   3 
Vesting period (years)   3 

 

The expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating the expected life. The expected life represents the period of time that options are expected to be outstanding after their grant date. The risk-free interest rate reflects the interest rate at grant date on zero-coupon U.S. governmental bonds having a remaining life similar to the expected option term.

 

Options are granted at fair market values determined on the date of grant and vesting normally occurs over a three to five-year period. However, options granted to directors have a one year vesting period and a six-year contractual term. The maximum contractual term is normally six years. Shares issued upon exercise of a stock option are issued from the Company’s authorized but unissued shares.

 

The following is a summary of stock option activity during the nine months ended June 30, 2019:

 

   Number of options  Weighted average exercise price
Outstanding at September 30, 2018   138,500   $10.99 
Granted   172,000    12.17 
Exercised   (6,750)   2.58 
Cancelled or Forfeited   (12,000)   12.17 
Outstanding at June 30, 2019   291,750   $11.83 

 

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. As of June 30, 2019, the weighted average remaining contractual term for all outstanding stock options was 1.14 years and their aggregate intrinsic value was $253,413. During the nine months ended June 30, 2019, the Company received proceeds of $24 from the exercise of stock options. During the nine months ended June 30, 2018, the Company received proceeds of $21,174 from the exercise of stock options.

Restricted Stock

 

The Company’s 2007 Stock Compensation Plan permits its Compensation Committee to grant stock-based awards, including stock options and restricted stock, to key employees and non-employee directors. The Company has made restricted stock grants that vest over one to ten years.

 

During the nine months ended June 30, 2019, the Company granted non-employee directors restricted stock awards totaling 4,340 shares of common stock, with a vesting term of approximately one year and a fair value of $14.40 per share.

 

During the nine months ended June 30, 2018, the Company granted non-employee directors restricted stock awards totaling 3,795 shares of common stock, with a vesting term of approximately one year and a fair value of $16.45 per share. Also, the Company granted employees a restricted stock award totaling 3,000 shares of common stock, with a vesting term of one year and a fair value of $13.35 per share.

 

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Restricted stock transactions during the nine months ended June 30, 2019 are summarized as follows:

 

   Number of shares  Weighted average grant date fair value
Unvested shares at September 30, 2018   248,613   $14.65 
Granted   4,340    14.40 
Vested   (84,237)   17.16 
Forfeited   (11,230)   14.44 
Unvested at June 30, 2019   157,486   $13.31 

 

Employee Stock Purchase Plan

 

Clearfield, Inc.’s ESPP allows participating employees to purchase shares of the Company’s common stock at a discount through payroll deductions. The ESPP is available to all employees subject to certain eligibility requirements. Terms of the ESPP provide that participating employees may purchase the Company’s common stock on a voluntary after-tax basis. Employees may purchase the Company’s common stock at a price that is no less than the lower of 85% of the fair market value of one share of common stock at the beginning or end of each stock purchase period or phase. The ESPP is carried out in six month phases, with phases beginning on January 1 and July 1 of each calendar year. For the phases that ended on June 30, 2019 and December 31, 2018, employees purchased 19,923 and 17,312 shares at a price of $8.43 per share. After the employee purchase on June 30, 2019, 49,846 shares of common stock were available for future purchase under the ESPP.

 

Note 5. Revenue

 

Revenue Recognition

 

Net sales include products and shipping and handling charges. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring the promised products to the customer, with substantially all revenue recognized at the point in time the customer obtains control of the products. Revenue which has been recognized but not yet billed to the customer is recorded as a contract asset and is included in Other Current Assets on the condensed balance sheet. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. The majority of our contracts have a single performance obligation and are short term in nature. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales.

 

Disaggregation of Revenue

 

The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Sales outside the United States are principally to countries in the Caribbean, Canada, Central and South America.

 

Our revenues related to the following geographic areas were as follows for the three and nine months ended:

 

   Three Months Ended June 30,  Nine Months Ended June 30,
   2019  2018  2019  2018
United States  $20,243,752   $19,669,143   $55,861,025   $51,232,706 
All other countries   1,648,490    1,811,447    5,204,734    3,945,663 
Total Net Sales  $21,892,242   $21,480,590   $61,065,759   $55,178,369 

 

In addition to a proprietary product line designed for the broadband service provider marketplace, Clearfield provides build-to-print services for original equipment manufacturers requiring copper and fiber cable assemblies built to their specification.

 

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The percentages of our sales by markets were as follows for the three and nine months ended:

 

   Three Months Ended June 30,  Nine Months Ended June 30,
   2019  2018  2019  2018
Broadband service providers   97%   96%   95%   95%
Build-to-print customers   3%   4%   5%   5%
Total Net Sales   100%   100%   100%   100%

 

Accounts Receivable

 

Credit is extended based on the evaluation of a customer’s financial condition and collateral is generally not required. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company writes off accounts receivable when they become uncollectible; payments subsequently received on such receivables are credited to the allowance for doubtful accounts. As of June 30, 2019 and September 30, 2018, the balance in the allowance for doubtful accounts was $289,085 and $79,085, respectively.

 

See Note 7, “Major Customer Concentration” for further information regarding accounts receivable and net sales.

 

Note 6. Inventories

 

Inventories consist of the following as of:

 

  

June 30,

2019

 

September 30,

2018

Raw materials  $6,601,647   $6,013,166 
Work-in-progress   773,652    560,988 
Finished goods   2,048,963    3,475,981 
Inventories, net  $9,424,262   $10,050,135 

 

Note 7. Major Customer Concentration

 

For the three months ended June 30, 2019, Customers A and B comprised 19% and 12%, respectively, of the Company’s net sales. Both Customers A and B are distributors. For the nine months ended June 30, 2019, Customers A and B comprised 18% and 10%, respectively, while Customer C comprised 11% of the Company’s net sales. Customer C is a private label original equipment manufacturer. For the three months ended June 30, 2018, Customers A and B comprised 20% and 13%, respectively, of the Company’s net sales. For the nine months ended June 30, 2018, Customers A and B comprised 22% and 14%, respectively, of the Company’s net sales.

 

As of June 30, 2019, Customers A and B comprised 17% and 15%, respectively, of the Company’s accounts receivable. As of September 30, 2018, Customers C and A comprised 35% and 10%, respectively, of the Company’s accounts receivable.

 

Note 8. Goodwill and Patents

 

The Company analyzes its goodwill for impairment annually or at an interim period when events occur or changes in circumstances indicate potential impairment. The result of the analysis performed in the fourth quarter ended September 30, 2018 did not indicate an impairment of goodwill. During the nine months ended June 30, 2019, there were no triggering events that indicate potential impairment exists.

 

The Company capitalizes legal costs incurred to obtain patents. Once accepted by either the U.S. Patent Office or the equivalent office of a foreign country, these legal costs are amortized using the straight-line method over the remaining estimated lives, not exceeding 20 years. As of June 30, 2019, the Company has 17 patents granted and multiple pending applications both inside and outside the United States.

 

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Note 9. Income Taxes

 

For the three and nine months ended June 30, 2019, the Company recorded a provision for income taxes of $454,000 and $849,000, respectively, reflecting an effective tax rate of 25.9% and 24.1%, respectively. The Tax Cut and Jobs Act of 2017 (the “Tax Reform Act”) was enacted on December 22, 2017. The Tax Reform Act reduced certain federal corporate income tax rates effective January 1, 2018 and changed certain other provisions. Additionally, differences between the effective tax rate and the statutory tax rate are related to discrete items for the three and nine months ended June 30, 2019, including unfavorable tax shortfalls related to stock-based compensation awards, nondeductible meals and entertainment, and research and development credits.

 

As of both June 30, 2019 and September 30, 2018, the Company had a remaining valuation allowance of approximately $105,000 related to state net operating loss carry forwards the Company does not expect to utilize. As a result of recording the impact of the Tax Reform Act on its deferred assets and liabilities, the Company recorded an increase in its valuation allowance against state net operating losses carried forward of approximately $32,000 in the nine months ended June 30, 2018. Based on the Company’s analysis and review of long-term forecasts and all available evidence, the Company determined that there should be no further change in the valuation allowance for the three and nine months ended June 30, 2019.

 

For the three and nine months ended June 30, 2018, the Company recorded income tax expense of $766,000 and $462,000, respectively, reflecting an effective tax rate of 30.4% and 16.2%, respectively. The effective tax rate for the nine months ended June 30, 2018 is a blended rate reflecting the anticipated benefit of three quarters of federal tax rate reductions for fiscal 2018. Our nine months tax expense reflects a lower tax rate and a one-time benefit of $384,000 related to the favorable impact of a revaluation of our net deferred tax liability that decreased the income tax provision for the nine months ended June 30, 2018 and reduced long-term deferred tax liabilities during the nine months ended June 30, 2018. Additionally, differences between the effective tax rate and the statutory tax rate are related to discrete items for the three and nine months ended June 30, 2018, including unfavorable tax shortfalls related to stock-based compensation awards, nondeductible meals and entertainment, favorable domestic manufacturing deduction and research and development credits.

 

Deferred taxes recognize the impact of temporary differences between the amounts of the assets and liabilities recorded for financial statement purposes and these amounts measured in accordance with tax laws. The Company’s realization of deferred tax temporary differences is contingent upon future taxable earnings. The Company reviewed its deferred tax assets for expected utilization using a “more likely than not” criteria by assessing the available positive and negative factors surrounding its recoverability.

 

As of June 30, 2019, we do not have any unrecognized tax benefits. It is the Company’s practice to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company does not expect any material changes in its unrecognized tax positions over the next 12 months.

 

Note 10. Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to present right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The guidance is to be applied using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements and is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company has begun evaluating the new lease standard, including the review and implementation of the necessary changes to our existing processes and systems that will be required to implement this new standard effective with the Company’s fiscal year beginning October 1, 2019. While we are unable to quantify the impact at this time, it is expected the adoption of this standard will lead to a material increase in the assets and liabilities recorded on the balance sheets.

 

In January 2017, the FASB issued ASU 2017-04 which offers amended guidance to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. This guidance is to be applied on a prospective basis effective for the Company’s interim and annual periods beginning after January 1, 2020, with early adoption permitted for any impairment tests performed after January 1, 2017. The Company does not believe the adoption of this ASU will have a material impact on our financial statements.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to future events and typically address the Company’s expected future business and financial performance. Words such as  “plan,” “expect,” “aim,” “believe,” “project,” “target,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other words and terms of similar meaning, typically identify these forward-looking statements. Forward-looking statements are based on certain assumptions and expectations of future events and trends that are subject to risks and uncertainties. Actual results could differ from those projected in any forward-looking statements because of the factors identified in and incorporated by reference from Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended September 30, 2018, as well as in other filings we make with the Securities and Exchange Commission, which should be considered an integral part of Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All forward-looking statements included herein are made as the date of this Quarterly Report on Form 10-Q and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

 

The following discussion and analysis of our financial condition and results of operations as of and for the three and nine months ended June 30, 2019 and 2018 should be read in conjunction with the financial statements and related notes in Item 1 of this report and our Annual Report on Form 10-K for the year ended September 30, 2018.

 

OVERVIEW

 

General

 

Clearfield, Inc. designs, manufactures and distributes fiber optic management, protection and delivery products for communications networks. Our “fiber to the anywhere” platform serves the unique requirements of leading incumbent local exchange carriers (Traditional Carriers, within the Tier 2 and Tier 3 broadband markets), including large national and global telecom providers (Tier 1), wireless operators, MSO/cable TV companies, utility/municipality, enterprise, data center and military markets, while also serving the broadband needs of the competitive local exchange carriers (Alternative Carriers). The Company also provides contract manufacturing services for original equipment manufacturers (OEM) requiring copper and fiber cable assemblies built to their specifications.  

 

The Company has historically focused on the un-served or under-served rural communities who receive their voice, video and data services from independent telephone companies. By aligning its in-house engineering and technical knowledge alongside its customers, the Company has been able to develop, customize and enhance products from design through production. Final build and assembly of the Company’s products is completed at Clearfield’s plants in Brooklyn Park, Minnesota, and Mexico, with manufacturing support from a network of domestic and global manufacturing partners. Clearfield specializes in producing these products on both a quick-turn and scheduled delivery basis. The Company deploys a hybrid sales model with some sales made directly to the customer, some made through two-tier distribution (channel) partners, and some sales through original equipment suppliers who private label their products.

 

RESULTS OF OPERATIONS

 

Three months ended June 30, 2019 vS. three months ended June 30, 2018

 

Net sales for the third quarter of fiscal 2019 ended June 30, 2019 were $21,892,000, an increase of approximately 2%, or $412,000, from net sales of $21,481,000 for the third quarter of fiscal 2018. Net sales to broadband service providers and commercial data networks customers were $21,127,000 in the third quarter of fiscal 2019, versus $20,543,000 in the same period of fiscal 2018. Among this group, the Company recorded $1,648,000 in international sales for the third quarter of fiscal 2019, versus $1,811,000 in the same period of fiscal 2018. Net sales to build-to-print and OEM customers were $765,000 in the third quarter of fiscal 2019 versus $938,000 in the same period of fiscal 2018. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 8% and 8% of total net sales for the third quarters of fiscal 2019 and 2018, respectively.

 

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The increase in net sales for the quarter ended June 30, 2019 of $412,000 compared to the quarter ended June 30, 2018 is primarily attributable to an increase in sales to Tier 1 customers in the amount of $1,040,000. Offsetting this increase were decreases in sales to OEM customers of $173,000, International sales of $171,000, and broadband service providers of $284,000 when compared to the same period due to a decrease in demand. Revenue from all customers is obtained from purchase orders submitted from time to time. Accordingly, the Company’s ability to predict orders in future periods or trends affecting orders in future periods is limited.

 

Cost of sales for the third quarter of fiscal 2019 was $13,480,000, an increase of $491,000, or 4%, from $12,989,000 in the comparable period of fiscal 2018. Gross profit percent was 38.4% of net sales in the fiscal 2019 third quarter, a decrease from 39.5% of net sales for the fiscal 2018 third quarter. Gross profit was $8,413,000 for the three months ended June 30, 219, or relatively unchanged from $8,492,000 in the comparable period in fiscal 2018. The decrease in gross profit percent was due to tariff costs and product mix.

 

Selling, general and administrative expenses increased $784,000, or 13%, to $6,871,000 in the fiscal 2019 third quarter from $6,087,000 for the fiscal 2018 third quarter. The increase in the third quarter of fiscal 2019 is a result of an increase of $632,000 in compensation costs due primarily to additional personnel and performance incentive plan compensation, and $213,000 in external sales commissions and agent fees. These were slightly offset by a decrease of $61,000 in professional fees in the quarter.

 

Income from operations for the quarter ended June 30, 2019 was $1,542,000 compared to income from operations of $2,405,000 for the comparable quarter of fiscal 2018, a decrease of approximately 36%. This decrease is primarily attributable to increased selling, general and administrative expenses for the quarter ended June 30, 2019 as noted above.

 

Interest income for the quarter ended June 30, 2019 was $213,000 compared to $117,000 for the comparable quarter for fiscal 2018. The increase is due mainly to higher interest rates earned on its investments in fiscal 2019. The Company invests its excess cash in FDIC-backed bank certificates of deposit, treasury securities, and money market accounts.

 

We recorded a provision for income taxes of $454,000 and $766,000 for the three months ended June 30, 2019 and 2018, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The decrease in tax expense of $312,000 from the third quarter of fiscal 2018 is primarily due to decreased income from operations in the third quarter of fiscal 2019. The decrease in the income tax expense rate to 25.9% for the third quarter of fiscal 2019 from 30.4% for the third quarter of fiscal 2018 is primarily due to the Tax Reform Act that resulted in a lower federal tax rate and higher tax shortfalls related to stock-based compensation awards in the third quarter of fiscal 2018.

 

The Company’s net income for the three months ended June 30, 2019 was $1,301,000, or $0.10 per basic and diluted share. The Company’s net income for the three months ended June 30, 2018 was $1,755,000, or $0.13 per basic and diluted share.

 

NINE months ended JUNE 30, 2019 vS. NINE months ended JUne 30, 2018

 

Net sales for the nine months ended June 30, 2019 were $61,066,000, an increase of 11%, or approximately $5,887,000, from net sales of $55,178,000 for the first nine months of fiscal 2018. Net sales to broadband service providers and commercial data networks customers were $57,887,000 for the first nine months of fiscal 2019, versus $52,541,000 in the same period of fiscal 2018. Among this group, the Company recorded $5,205,000 in international sales versus $3,946,000 in the same period of fiscal 2018. Net sales to build-to-print and OEM customers were $3,179,000 in the first nine months of fiscal 2019 versus $2,637,000 in the same period of fiscal 2018. The Company allocates sales from external customers to geographic areas based on the location to which the product is transported. Accordingly, international sales represented 9% and 7% of total net sales for the first nine months of fiscal 2019 and 2018, respectively.

 

The increase in net sales for the nine months ended June 30, 2019 of $5,887,000 compared to the nine months ended June 30, 2018 is primarily attributable to an increase in sales to an OEM manufacturer in the amount of $3,753,000 driven by the acquisition of our active cabinet line in February 2018. In addition, sales to international customers increased $1,237,000 due to higher demand in the Company’s Latin America market. Sales to build-to-print customers also increased $541,000 during the same period due to an increase in demand.

 

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Cost of sales for the nine months ended June 30, 2019 was $37,681,000, an increase of $4,883,000, or 15%, from $32,798,000 in the comparable period of fiscal 2018. Gross profit percent was 38.3% of net sales in the fiscal 2019 first nine months, down from 40.6% for the comparable nine months in fiscal 2018. Gross profit increased $1,004,000, or 4.5%, to $23,385,000 for the nine months ended June 30, 2019 from $22,380,000 in the comparable period in fiscal 2018. The decrease in gross profit percent was primarily due to the integration of the Company’s acquired powered cabinet line into its manufacturing processes as well as a higher percentage of sales associated with these products, which have lower gross margins.

 

Selling, general and administrative expenses increased 3%, or $518,000, from $19,857,000 for the first nine months of fiscal 2018 to $20,375,000 for the first nine months of fiscal 2019. The increase in the first nine months of fiscal 2019 consists primarily of an increase of $1,515,000 in compensation costs due primarily to additional sales and engineering personnel and performance based compensation accruals, $313,000 in external sales commission and agent fees, $210,000 in bad debt expense, and an increase of $198,000 of depreciation and amortization expense. These were partially offset by a decrease of $2,033,000 in legal expenses, mainly due to the defense of the patent infringement litigation including a one-time payment of $850,000 in settlement of that litigation that occurred in the fiscal 2018 second quarter,

 

Income from operations for the nine months ended June 30, 2019 was $3,010,000 compared to income from operations of $2,523,000 for the first nine months of fiscal 2018, an increase of $487,000, or 19%. This increase is primarily attributable to increased gross profit, offset by increased selling, general and administrative expenses as described above.

 

Interest income for the nine months ended June 30, 2019 was $517,000 compared to $332,000 for the comparable period for fiscal 2018. The increase is due mainly to higher interest rates earned on its investments in fiscal 2019.

 

We recorded a provision for income taxes of $849,000 and $462,000 for the nine months ended June 30, 2019 and 2018, respectively. We record our quarterly provision for income taxes based on our estimated annual effective tax rate for the year. The increase in tax expense of $387,000 from the nine months ended June 30, 2018 is primarily due to the Tax Reform Act enacted on December 22, 2017 that resulted in a lower federal tax rate and a one-time benefit of $384,000 related to the favorable impact of a revaluation of our net deferred tax liability that decreased the income tax provision and lower profitability in the first nine months fiscal 2018, as well as increased income from operations in fiscal 2019. The increase in the income tax expense rate to 24.1% for the first nine months of fiscal 2019 from 16.2% for the first nine months of fiscal 2018 is primarily due to the Tax Reform Act as described above.

 

The Company’s net income for the first nine months of fiscal 2019 ended June 30, 2019 was $2,678,000, or $0.20 per basic and diluted share. The Company’s net income for the first nine months of fiscal 2018 ended June 30, 2018 was $2,393,000, or $0.18 per basic and diluted share.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of June 30, 2019, our principal source of liquidity was our cash, cash equivalents and short-term investments. Those sources total $20,669,000 as of June 30, 2019 compared to $17,478,000 as of September 30, 2018. Our excess cash is invested mainly in certificates of deposit backed by the FDIC, treasury securities, and money market accounts. Investments considered long-term were $22,519,000 as of June 30, 2019, compared to $17,974,000 as of September 30, 2018. We believe the combined balances of short-term cash and investments along with long-term investments provide a more accurate indication of our available liquidity. We had no long-term debt obligations as of June 30, 2019 or September 30, 2018.

 

We believe our existing cash equivalents and short-term investments, along with cash flow from operations, will be sufficient to meet our working capital and investment requirements for beyond the next 12 months. The Company intends on utilizing its available cash and assets primarily for its continued organic growth and potential future strategic transactions, as well as execution of the share repurchase program adopted by our Board of Directors. The share repurchase program was originally adopted on November 13, 2014 with $8,000,000 authorized for common stock repurchases. On April 25, 2017, our Board of Directors increased the authorization to $12,000,000 of common stock.

 

 

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Operating Activities

 

Net cash provided by operating activities totaled $8,909,000 for the nine months ended June 30, 2019. This was primarily due to net income of $2,678,000, non-cash expenses for depreciation and amortization of $1,613,000, and stock based compensation of $1,536,000 in addition to changes in operating assets and liabilities providing cash. Changes in operating assets and liabilities providing cash include decreases in accounts receivable and inventories of $3,308,000 and $626,000, respectively. Accounts receivable balances can be influenced by the timing of shipments for customer projects and payment terms. Day’s sales outstanding, which measures how quickly receivables are collected, decreased from 52 days at September 30, 2018 to 39 days at June 30, 2019. The decrease in inventory is a result of stocking levels being maintained by suppliers, which reduced the Company’s inventory.

 

Net cash provided by operating activities totaled $4,299,000 for the nine months ended June 30, 2018. This was primarily due to net income of $2,393,000, non-cash expenses for depreciation and amortization of $1,547,000, and stock-based compensation of $1,488,000, slightly offset by a non-cash benefit to deferred taxes of $384,000 related to the newly enacted Tax Reform Act, in addition to changes in operating assets and liabilities using cash. Changes in operating assets and liabilities providing cash include a decrease to inventories of $1,546,000, net of the acquisition of $2,781,000 in inventories as a result of the product line acquisition of Calix powered cabinets that occurred during the nine months ended June 30, 2018. Changes in operating assets and liabilities using cash include an increase in accounts receivable from September 30, 2017 to June 30, 2018 of $2,414,000. The increase in accounts receivable was primarily due to increased net sales for the three months ended June 30, 2018 when compared to the three months ended September 30, 2017. Additionally, day’s sales outstanding, which measures how quickly receivables are collected, increased five days to 41 days from September 30, 2017 to June 30, 2018.

 

Investing Activities

 

We invest our excess cash in money market accounts, treasury securities, and bank CDs in denominations across numerous banks. We believe we obtain a competitive rate of return given the economic climate along with the security provided by the FDIC on these investments. During the nine months ended June 30, 2019, we used cash to purchase $17,444,000 of both FDIC-backed and treasury securities and received $7,235,000 on CDs that matured. Purchases of patents and capital equipment, mainly related to information technology and manufacturing equipment, consumed $1,100,000 of cash in the nine months ended June 30, 2019.

 

During the nine months ended June 30, 2018, we acquired the powered cabinet product line from Calix for the amount of $10,350,000, which was paid from our available cash. Additionally, we invest our excess cash in money market accounts and bank CDs in denominations across numerous banks. We believe we obtain a competitive rate of return given the economic climate along with the security provided by the FDIC on these investments. During the nine months ended June 30, 2018, we used cash to purchase $5,403,000 of FDIC-backed securities and received $4,444,000 on CDs that matured. Prosecution of patents and purchases of capital equipment, mainly related to information technology and manufacturing equipment, consumed $920,000 of cash in the nine months ended June 30, 2018.

 

Financing Activities

 

For the nine months ended June 30, 2019, we received $314,000 from employees’ participation and purchase of stock through our ESPP and used $432,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. We did not repurchase our common stock under the repurchase program in the nine months ended June 30, 2019. As of June 30, 2019, we had authority to purchase approximately $5,400,000 in additional shares under the repurchase program announced on November 13, 2014 that was subsequently increased on April 25, 2017.

 

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For the nine months ended June 30, 2018, we received $298,000 from employees’ participation and purchase of stock through our ESPP. We also received $21,000 from stock option exercises. The Company used $349,000 to pay for taxes as a result of employees’ vesting of restricted shares using share withholding. Additionally, we used $1,371,000 to repurchase our common stock in the nine months ended June 30, 2018. As of June 30, 2018, we had authority to purchase approximately $5,798,000 in additional shares under the repurchase program announced on November 13, 2014 that was subsequently increased on April 25, 2017.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting policies. The accounting policies considered by management to be the most critical to the presentation of the financial statements because they require the most difficult, subjective and complex judgments include revenue recognition, stock based compensation, deferred tax asset valuation allowances, accruals for uncertain tax positions, and impairment of goodwill and long-lived assets.

 

These accounting policies are described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended September 30, 2018. Management made no changes to the Company’s critical accounting policies during the quarter ended June 30, 2019.

 

In applying its critical accounting policies, management reassesses its estimates each reporting period based on available information. Changes in these estimates did not have a significant impact on earnings for the nine months or quarter ended June 30, 2019.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management carried out an evaluation, under the supervision and with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2019. Based upon that evaluation, the Company’s Chief Executive Officer and the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, that occurred during the quarter ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

There are no pending legal proceedings against or involving the Company for which the outcome is likely to have a material adverse effect upon its financial position or results of operations.

 

ITEM 1A. RISK FACTORS

 

The most significant risk factors applicable to the Company are described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2018. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. Exhibits

 

Exhibit 31.1 – Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act

 

Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act

 

Exhibit 32.1 – Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

    CLEARFIELD, INC.
     
August 1, 2019    /s/ Cheryl Beranek
   

By: Cheryl Beranek

Its: President and Chief Executive Officer

    (Principal Executive Officer)
     
August 1, 2019   /s/ Daniel Herzog
   

By: Daniel Herzog

Its: Chief Financial Officer

    (Principal Financial and Accounting Officer)

 

 

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