AVIAT NETWORKS, INC.
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 1, 2010
or
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number 001-33278
AVIAT NETWORKS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 20-5961564 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| 5200 Great American Parkway | ||
| Santa Clara, California | 95054 | |
| (Address of principal executive offices) | (Zip Code) |
(408) 567-7000
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
No changes
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by checkmark whether the registrant (l) has 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. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer þ | Non- accelerated filer o (Do not check if a smaller reporting company) | Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12 b-2 of the
Exchange Act). Yes
o
No
þ
The number of shares outstanding of the registrant’s Common Stock as of November 4, 2010 was
59,718,344 shares.
AVIAT NETWORKS, INC.
FORM 10-Q
For the Quarter Ended October 2, 2009
INDEX
2
Table of Contents
AVIAT NETWORKS, INC.
(Unaudited)
| Quarter Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
| (In millions, except per share amounts) | ||||||||
|
Revenue from product sales and services:
|
||||||||
|
Revenue from product sales
|
$ | 84.9 | $ | 84.9 | ||||
|
Revenue from services
|
24.2 | 35.1 | ||||||
|
|
||||||||
|
Total revenue
|
109.1 | 120.0 | ||||||
|
Cost of product sales and services:
|
||||||||
|
Cost of product sales
|
(68.0 | ) | (53.2 | ) | ||||
|
Cost of services
|
(16.7 | ) | (27.0 | ) | ||||
|
Amortization of purchased technology
|
(0.2 | ) | (2.1 | ) | ||||
|
|
||||||||
|
Total cost of product sales and services
|
(84.9 | ) | (82.3 | ) | ||||
|
|
||||||||
|
Gross margin
|
24.2 | 37.7 | ||||||
|
Research and development expenses
|
(11.1 | ) | (10.7 | ) | ||||
|
Selling and administrative expenses
|
(29.2 | ) | (30.8 | ) | ||||
|
|
||||||||
|
Total research, development, selling and administrative expenses
|
(40.3 | ) | (41.5 | ) | ||||
|
Amortization of identifiable intangible assets
|
(0.7 | ) | (1.5 | ) | ||||
|
Restructuring charges
|
(5.6 | ) | (1.1 | ) | ||||
|
|
||||||||
|
Operating loss
|
(22.4 | ) | (6.4 | ) | ||||
|
Loss on sale of NetBoss assets
|
( 3.9 | ) | — | |||||
|
Interest income
|
0.1 | — | ||||||
|
Interest expense
|
(0.6 | ) | (0.5 | ) | ||||
|
|
||||||||
|
Loss before provision for income taxes
|
(26.8 | ) | (6.9 | ) | ||||
|
Benefit from (provision for) income taxes
|
5.5 | ( 0.9 | ) | |||||
|
|
||||||||
|
Net loss
|
$ | (21.3 | ) | $ | (7.8 | ) | ||
|
|
||||||||
|
Net loss per common share of Common Stock
|
||||||||
|
Basic
|
$ | (0.36 | ) | $ | (0.13 | ) | ||
|
|
||||||||
|
Diluted
|
$ | (0.36 | ) | $ | (0.13 | ) | ||
|
|
||||||||
|
Basic and diluted weighted average shares outstanding
|
59.3 | 58.9 | ||||||
|
|
||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
Table of Contents
AVIAT NETWORKS, INC.
(Unaudited)
| October 1, | July 2, | |||||||
| (In millions, except share amounts) | 2010 | 2010 | ||||||
|
Assets
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 107.8 | $ | 141.7 | ||||
|
Receivables
|
120.5 | 104.8 | ||||||
|
Unbilled costs
|
27.5 | 30.2 | ||||||
|
Inventories
|
68.8 | 73.5 | ||||||
|
Other current assets
|
24.3 | 22.3 | ||||||
|
|
||||||||
|
Total current assets
|
348.9 | 372.5 | ||||||
|
Long-Term Assets
|
||||||||
|
Property, plant and equipment, net
|
36.7 | 37.6 | ||||||
|
Goodwill
|
6.2 | 6.2 | ||||||
|
Identifiable intangible assets, net
|
6.6 | 7.5 | ||||||
|
Deferred income taxes
|
14.8 | 13.1 | ||||||
|
Other assets
|
2.3 | 10.1 | ||||||
|
|
||||||||
|
Total long-term assets
|
66.6 | 74.5 | ||||||
|
|
||||||||
|
Total assets
|
$ | 415.5 | $ | 447.0 | ||||
|
|
||||||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Current Liabilities
|
||||||||
|
Short-term debt
|
$ | 6.0 | $ | 5.0 | ||||
|
Accounts payable
|
53.4 | 58.6 | ||||||
|
Accrued compensation and benefits
|
11.6 | 14.5 | ||||||
|
Other accrued expenses
|
45.7 | 45.3 | ||||||
|
Advance payments and unearned income
|
31.6 | 37.2 | ||||||
|
Restructuring liabilities
|
7.2 | 6.0 | ||||||
|
|
||||||||
|
Total Current Liabilities
|
155.5 | 166.6 | ||||||
|
Long-Term Liabilities
|
||||||||
|
Restructuring and other long-term liabilities
|
3.2 | 2.7 | ||||||
|
Redeemable preference shares
|
8.3 | 8.3 | ||||||
|
Reserve for uncertain tax positions
|
5.6 | 5.6 | ||||||
|
Deferred income taxes
|
0.6 | 0.6 | ||||||
|
|
||||||||
|
Total Liabilities
|
173.2 | 183.8 | ||||||
|
Commitments and contingencies
|
||||||||
|
Stockholders’ Equity
|
||||||||
|
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued
|
— | — | ||||||
|
Common stock, $0.01 par value; 300,000,000 shares authorized; issued and
outstanding 59,327,974 shares as of October 1, 2010 and 59,400,059 shares
as of July 2, 2010
|
0.6 | 0.6 | ||||||
|
Additional paid-in-capital
|
787.3 | 786.5 | ||||||
|
Accumulated deficit
|
(542.6 | ) | (521.3 | ) | ||||
|
Accumulated other comprehensive loss
|
(3.0 | ) | (2.6 | ) | ||||
|
|
||||||||
|
Total Stockholders’ Equity
|
242.3 | 263.2 | ||||||
|
|
||||||||
|
Total Liabilities And Stockholders’ Equity
|
$ | 415.5 | $ | 447.0 | ||||
|
|
||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
Table of Contents
AVIAT NETWORKS, INC.
| Quarter Ended | ||||||||
| October 1, | October 2, | |||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Operating Activities
|
||||||||
|
Net loss
|
$ | (21.3 | ) | $ | (7.8 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
||||||||
|
Amortization of identifiable intangible assets
|
0.9 | 3.7 | ||||||
|
Depreciation and amortization of property, plant and equipment and capitalized software
|
3.6 | 6.0 | ||||||
|
Non-cash share-based compensation expense
|
0.8 | 1.0 | ||||||
|
Deferred income tax (benefit) expense
|
(1.7 | ) | 0.4 | |||||
|
Loss on sale of NetBoss assets
|
3.9 | — | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Receivables
|
(12.5 | ) | 28.8 | |||||
|
Unbilled costs and inventories
|
4.3 | (1.9 | ) | |||||
|
Accounts payable and accrued expenses
|
(5.2 | ) | (13.4 | ) | ||||
|
Advance payments and unearned income
|
(5.7 | ) | (7.2 | ) | ||||
|
Restructuring liabilities and other
|
(3.9 | ) | (5.2 | ) | ||||
|
|
||||||||
|
Net cash (used in) provided by operating activities
|
(36.8 | ) | 4.4 | |||||
|
Investing Activities
|
||||||||
|
Cash received from sale of NetBoss assets
|
3.8 | — | ||||||
|
Cash paid related to acquisition of Telsima in prior fiscal year
|
— | (4.2 | ) | |||||
|
Sales and maturities of short-term investments
|
— | 0.3 | ||||||
|
Additions of property, plant and equipment
|
(2.0 | ) | (3.9 | ) | ||||
|
Additions of capitalized software
|
(0.3 | ) | (0.9 | ) | ||||
|
|
||||||||
|
Net cash provided by (used in) investing activities
|
1.5 | (8.7 | ) | |||||
|
Financing Activities
|
||||||||
|
Proceeds from short-term debt arrangement
|
6.0 | — | ||||||
|
Payments on short-term debt arrangement
|
(5.0 | ) | — | |||||
|
|
||||||||
|
Net cash provided by financing activities
|
1.0 | — | ||||||
|
Effect of exchange rate changes on cash and cash equivalents
|
0.4 | 0.5 | ||||||
|
|
||||||||
|
Net decrease in cash and cash equivalents
|
(33.9 | ) | (3.8 | ) | ||||
|
Cash and cash equivalents, beginning of year
|
141.7 | 136.8 | ||||||
|
|
||||||||
|
Cash and cash equivalents, end of quarter
|
$ | 107.8 | $ | 133.0 | ||||
|
|
||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 1, 2010
(Unaudited)
October 1, 2010
(Unaudited)
Note A — Basis of Presentation and Nature of Operations
The accompanying condensed consolidated financial statements of Aviat Networks, Inc. and its
subsidiaries (“we,” “us,” and “our”) have been prepared by us, without an audit, in accordance with
U.S. generally accepted accounting principles for interim financial information and with the rules
and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include
all information and footnotes necessary for a complete presentation of financial position, results
of operations and cash flows in conformity with U.S. generally accepted accounting principles. In
the opinion of management, such interim financial statements reflect all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation of financial position,
results of operations and cash flows for such periods.
The results for the quarter ended October 1, 2010 (the “first quarter of fiscal 2011”) are not
necessarily indicative of the results that may be expected for the full fiscal year or any
subsequent period. The balance sheet as of July 2, 2010 has been derived from the audited financial
statements but does not include all of the information and footnotes required by U.S. generally
accepted accounting principles for annual financial statements. We provide complete financial
statements in our Annual Report on Form 10-K, which includes information and footnotes required by
the rules and regulations of the SEC. The information included in this Quarterly Report on Form
10-Q (this “Report”) should be read in conjunction with the Management’s Discussion and Analysis of
Financial Condition and Results of Operations, and the Consolidated Financial Statements and
accompanying Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K
for the fiscal year ended July 2, 2010 (“Fiscal 2010 Form 10-K”).
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from those estimates and
assumptions.
Nature of Operations
— We design, manufacture and sell a range of wireless networking
products, solutions and services to mobile and fixed telephone service providers, private network
operators, government agencies, transportation and utility companies, public safety agencies and
broadcast system operators across the globe. Our products include both point-to-point (PTP) and
point-to-multipoint (PMP) digital microwave transmission systems designed for first/last mile
access, middle mile/backhaul and long distance trunking applications. Our PMP product portfolio
includes base stations and subscriber equipment based upon the IEEE 802.16d-2004 and 16e-2005
standards for fixed and mobile Worldwide Interoperability for Microwave Access (WiMAX). We also
provide network management software solutions to enable operators to deploy, monitor and manage our
systems, third party equipment such as antennas, routers and multiplexers to build and deploy a
wireless transmission network and a full suite of turnkey support services.
Note B — New Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting
Standards Board (the “FASB”) or other standards setting bodies that are adopted by us as of the
specified effective date. Unless otherwise discussed, we believe the impact of recently issued
standards that are not yet effective will not have a material impact on our consolidated financial
position, results of operations and cash flows upon adoption.
6
Table of Contents
Note C — Accumulated Other Comprehensive Loss and Comprehensive Loss
The changes in components of our accumulated other comprehensive loss during the first quarter
of fiscal 2011 and 2010 were as follows:
| Total | ||||||||||||
| Accumulated | ||||||||||||
| Foreign | Other | |||||||||||
| Currency | Hedging | Comprehensive | ||||||||||
| Translation | Derivatives | (Loss) Income | ||||||||||
| (In millions) | ||||||||||||
|
Balance as of July 2, 2010
|
$ | (2.9 | ) | $ | 0.3 | $ | (2.6 | ) | ||||
|
Foreign currency translation gain
|
0.1 | — | 0.1 | |||||||||
|
Net unrealized loss on hedging activities
|
— | (0.5 | ) | (0.5 | ) | |||||||
|
|
||||||||||||
|
Balance as of October 1, 2010
|
$ | (2.8 | ) | $ | (0.2 | ) | $ | (3.0 | ) | |||
|
|
||||||||||||
|
|
||||||||||||
|
Balance as of July 3, 2009
|
$ | (4.4 | ) | $ | (0.4 | ) | $ | (4.8 | ) | |||
|
Foreign currency translation gain
|
1.4 | — | 1.4 | |||||||||
|
Net unrealized loss on hedging activities
|
— | (0.3 | ) | (0.3 | ) | |||||||
|
|
||||||||||||
|
Balance as of October 2, 2009
|
$ | (3.0 | ) | $ | (0.7 | ) | $ | (3.7 | ) | |||
|
|
||||||||||||
Total comprehensive loss for the first quarter of fiscal 2011 and 2010 was comprised of the
following:
| Quarter Ended | ||||||||
| October 1, 2010 | October 2, 2009 | |||||||
| (In millions) | ||||||||
|
Net loss
|
$ | (21.3 | ) | $ | (7.8 | ) | ||
|
Other comprehensive income (loss):
|
||||||||
|
Foreign currency translation gain
|
0.1 | 1.4 | ||||||
|
Net unrealized loss on hedging activities
|
(0.5 | ) | (0.3 | ) | ||||
|
|
||||||||
|
Total comprehensive loss
|
$ | (21.7 | ) | $ | (6.7 | ) | ||
|
|
||||||||
Note D — Receivables
Our receivables are summarized below:
| October 1, 2010 | July 2, 2010 | |||||||
| (In millions) | ||||||||
|
Accounts receivable
|
$ | 131.4 | $ | 113.6 | ||||
|
Notes receivable due within one year
|
4.2 | 4.5 | ||||||
|
|
||||||||
|
|
135.6 | 118.1 | ||||||
|
Less allowances for collection losses
|
(15.1 | ) | (13.3 | ) | ||||
|
|
||||||||
|
|
$ | 120.5 | $ | 104.8 | ||||
|
|
||||||||
To comply with requests from our customers for payment terms, we often accept letters of
credit with payment terms of up to one year or more, which we then discount with various financial
institutions. Under these arrangements, collection risk is fully transferred to the financial
institutions. We record the cost of discounting these letters of credit as interest expense. During
the first quarter of fiscal 2011 and 2010 we discounted customer letters of credit totaling $4.3
million and $20.8 million and recorded related interest expense of $0.1 million and $0.2 million.
7
Table of Contents
Note E — Inventories
Our inventories are summarized below:
| October 1, 2010 | July 2, 2010 | |||||||
| (In millions) | ||||||||
|
Finished products
|
$ | 55.1 | $ | 60.4 | ||||
|
Work in process
|
8.0 | 8.0 | ||||||
|
Raw materials and supplies
|
5.7 | 5.1 | ||||||
|
|
||||||||
|
|
$ | 68.8 | $ | 73.5 | ||||
|
|
||||||||
Prior to fiscal 2011, we capitalized most of the costs associated with our internal
manufacturing operations as a component of the overall cost of
product inventory. Beginning in the first quarter of fiscal 2011, the production of all our products is outsourced
to contract manufacturers and we no longer manufacture products internally. Accordingly, the costs
associated with our internal operations organization are now expensed as incurred. Gross margin in
the first quarter of fiscal 2011 was negatively impacted by the
immediate expensing of $6.0 million
of such costs.
Note F — Property, Plant and Equipment
Our property, plant and equipment are summarized below:
| October 1, 2010 | July 2, 2010 | |||||||
| (In millions) | ||||||||
|
Land
|
$ | 0.7 | $ | 0.7 | ||||
|
Buildings
|
9.3 | 9.8 | ||||||
|
Software developed for internal use
|
6.7 | 6.7 | ||||||
|
Machinery and equipment
|
95.3 | 94.1 | ||||||
|
|
||||||||
|
|
112.0 | 111.3 | ||||||
|
Less accumulated depreciation and amortization
|
(75.3 | ) | (73.7 | ) | ||||
|
|
||||||||
|
|
$ | 36.7 | $ | 37.6 | ||||
|
|
||||||||
Depreciation and amortization expense related to property, plant and equipment, including
amortization of software developed for internal use, was $3.6 million and $5.3 million during the
quarters ended October 1, 2010 and October 2, 2009.
Our outstanding debt consisted of short-term debt of $6.0 million as of October 1, 2010 and
$5.0 million as of July 2, 2010.
As of October 1, 2010, we terminated our previous credit facility with two commercial banks
and entered into a new $40.0 million credit facility with Silicon Valley Bank for a term of one
year expiring on September 30, 2011. The outstanding debt of $5.0 million under the previous
credit facility was repaid on October 1, 2010 with the proceeds of a new loan under the new
facility in the amount of $6.0 million.
Our new credit facility provides for a committed amount of $40 million. The facility provides
for (1) demand borrowings (with no stated maturity date), (2) fixed term Eurodollar loans for up to
six months and (3) the issuance of standby or commercial letters of credit.
Demand borrowings carry an interest rate computed at the daily prime rate as published in the
Wall Street Journal
. Interest on our Eurodollar loans is computed at LIBOR plus a spread of between
2.00% to 2.75% based on our current leverage ratio. The interest rate on Eurodollar loans was set
initially at a spread of 2.75% for the fiscal quarter ending October 1, 2010 and is adjustable
quarterly thereafter based on the computed actual leverage ratio for the most recently completed
fiscal quarter.
Available credit as of October 1, 2010 was $24.4 million reflecting borrowings of $6.0 million
and outstanding letters of credit of $9.6 million. The weighted average interest rate on our
short-term borrowings was 3.25% as of October 1, 2010.
Standby letters of credit includes a standby letter of credit issued in the amount of $2.3
million covering $2.1 million in standby letters of credit outstanding under the previous credit
facility at the time of termination of that facility on October 1, 2010. The
8
Table of Contents
amount of this supporting letter of credit may be amended at any time to exclude the
letters of credit issued under the previous facility as they expire.
Note H — Accrued Warranties
Changes in our warranty liability, which is included as a component of “Other accrued
expenses” on the Condensed Consolidated Balance Sheets, during the first quarter of fiscal 2010 and
2009 are as follows:
| Quarter Ended | ||||||||
| October 1, 2010 | October 2, 2009 | |||||||
| (In millions) | ||||||||
|
Balance as of the beginning of the fiscal year
|
$ | 3.2 | $ | 5.5 | ||||
|
Warranty provision for revenue recorded during the first quarter
|
0.2 | 0.7 | ||||||
|
Settlements made during the first quarter
|
(0.3 | ) | (0.9 | ) | ||||
|
|
||||||||
|
Balance as of the end of the first quarter
|
$ | 3.1 | $ | 5.3 | ||||
|
|
||||||||
Note I — Restructuring Activities
We have two ongoing restructuring plans.
During the first quarter of fiscal 2011, we implemented a new restructuring plan to reduce our
operational costs (the “Fiscal 2011 Plan”). The Fiscal 2011 Plan is intended bring our cost
structure in line with the changing dynamics of the worldwide microwave radio and telecommunication
markets, primarily in North America, Europe and Asia. During the first quarter of fiscal 2011, our
restructuring charges from the Fiscal 2011 Plan totaled
$4.7 million and consisted of the following
items:
| • | Severance, retention and related charges totaling $2.5 million from reduction in force activities for the closing of the Morrisville, North Carolina office. |
| • | Severance, retention and related charges totaling $1.4 million from reduction in force activities resulting from sale of the NetBoss assets. |
| • | Severance, retention and related charges totaling $0.8 million from reduction in force activities of a portion of global sales personnel. |
In addition, during the first quarter of fiscal 2011, we continued restructuring activities
that commenced during fiscal 2009 to reduce our workforce in the U.S., France, Canada and other
locations throughout the world (the “Fiscal 2009 Plan”). These activities primarily consisted of
outsourcing our San Antonio manufacturing operations to a third party in Austin, Texas. During the
first quarter of fiscal 2011, our restructuring charges from the Fiscal 2009 Plan totaled $0.9
million and consisted of the following items:
| • | Severance, retention and related charges totaling $0.8 million for reduction in force activities. |
| • | Charges totaling $0.1 million for facility lease obligation adjustments. |
During the first quarter of fiscal 2010, we continued executing our Fiscal 2009 Plan to reduce
our workforce in the U.S., France, Canada and other locations throughout the world. During the
first quarter of fiscal 2010, our restructuring charges totaled
$1.1 million and consisted of the
following items:
| • | Severance, retention and related charges totaling $0.9 million from reduction in force activities. |
| • | Charges totaling $0.2 million related to the relocation of U.S. employees to North Carolina from Florida. |
9
Table of Contents
The information in the following table summarizes our restructuring activity during the
quarter ended October 1, 2010 and the remaining restructuring liability as of October 1, 2010.
| Severance | Facilities | |||||||||||
| and | and | |||||||||||
| Benefits | Other | Total | ||||||||||
| (In millions) | ||||||||||||
|
Restructuring liability as of July 2, 2010
|
$ | 2.2 | $ | 4.2 | $ | 6.4 | ||||||
|
Provision in the quarter (Fiscal 2011 Plan)
|
4.7 | — | 4.7 | |||||||||
|
Provision in the quarter (Fiscal 2009 Plan)
|
0.8 | 0.1 | 0.9 | |||||||||
|
Cash payments in the quarter
|
(2.9 | ) | (1.7 | ) | (4.6 | ) | ||||||
|
|
||||||||||||
|
Restructuring liability as of October 1, 2010
|
$ | 4.8 | $ | 2.6 | $ | 7.4 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Current portion of restructuring liability as of October 1, 2010
|
$ | 4.7 | $ | 2.5 | 7.2 | |||||||
|
Long-term portion of restructuring liability as of October 1, 2010
|
0.1 | 0.1 | 0.2 | |||||||||
|
|
||||||||||||
|
Total restructuring liability as of October 1, 2010
|
$ | 4.8 | $ | 2.6 | $ | 7.4 | ||||||
|
|
||||||||||||
The following table summarizes our costs incurred through October 1, 2010 and costs expected
to be incurred for our Fiscal 2011 Plan:
| Total Costs | ||||||||||||||||
| Incurred During | Cumulative | |||||||||||||||
| The | Costs Incurred | Total | ||||||||||||||
| Quarter Ended | through | Estimated | Restructuring | |||||||||||||
| October 1, | October 1, | Additional Costs | Costs Expected | |||||||||||||
| 2010 | 2010 | to be Incurred | to be Incurred | |||||||||||||
| (In millions) | ||||||||||||||||
|
North America:
|
||||||||||||||||
|
Severance and benefits
|
$ | 3.9 | $ | 3.9 | $ | 4.8 | $ | 8.7 | ||||||||
|
Facilities and other
|
— | — | 3.2 | 3.2 | ||||||||||||
|
|
||||||||||||||||
|
Total North America
|
$ | 3.9 | $ | 3.9 | $ | 8.0 | $ | 11.9 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
International:
|
||||||||||||||||
|
Severance and benefits
|
$ | 0.8 | $ | 0.8 | $ | 1.2 | $ | 2.0 | ||||||||
|
Facilities and other
|
— | — | 0.3 | 0.3 | ||||||||||||
|
|
||||||||||||||||
|
Total International
|
$ | 0.8 | $ | 0.8 | $ | 1.5 | $ | 2.3 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Totals for Fiscal 2011 Plan
|
$ | 4.7 | $ | 4.7 | $ | 9.5 | $ | 14.2 | ||||||||
|
|
||||||||||||||||
Our Fiscal 2011 Plan is underway with the costs shown above incurred during the first quarter
of fiscal 2011. We expect to incur further costs to complete the consolidation of our finance
function at our California headquarters and to reallocate research and development resources
between our facilities in the United States, Slovenia, New Zealand and India.
10
Table of Contents
The following table summarizes our costs incurred through October 1, 2010 and costs expected
to be incurred for our Fiscal 2009 Plan:
| Total Costs | ||||||||||||||||
| Incurred During | Cumulative | |||||||||||||||
| The | Costs Incurred | Total | ||||||||||||||
| Quarter Ended | through | Estimated | Restructuring | |||||||||||||
| October 1, | October 1, | Additional Costs | Costs Expected | |||||||||||||
| 2010 | 2010 | to be Incurred | to be Incurred | |||||||||||||
| (In millions) | ||||||||||||||||
|
North America:
|
||||||||||||||||
|
Severance and benefits
|
$ | 0.8 | $ | 8.5 | $ | 3.3 | $ | 11.8 | ||||||||
|
Facilities and other
|
0.1 | 3.1 | 1.1 | 4.2 | ||||||||||||
|
|
||||||||||||||||
|
Total North America
|
$ | 0.9 | $ | 11.6 | $ | 4.4 | $ | 16.0 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
International:
|
||||||||||||||||
|
Severance and benefits
|
$ | — | $ | 4.9 | $ | 1.0 | $ | 5.9 | ||||||||
|
Facilities and other
|
— | 0.2 | — | 0.2 | ||||||||||||
|
|
||||||||||||||||
|
Total International
|
$ | 0.0 | $ | 5.1 | $ | 1.0 | $ | 6.1 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Totals for Fiscal 2009 Plan
|
$ | 0.9 | $ | 16.7 | $ | 5.4 | $ | 22.1 | ||||||||
|
|
||||||||||||||||
Our Fiscal 2009 Plan to restructure and transition our North America manufacturing operations
and general restructuring of our supply chain will be completed by the end of fiscal 2011.
Note J — Share-Based Compensation
Compensation expense for share-based awards was $0.8 million and $1.1 million for the first
quarter of fiscal 2011 and 2010. Amounts were included in our Condensed Consolidated Statements of
Operations as follows:
| Quarter Ended | ||||||||
| October 1, 2010 | October 2, 2009 | |||||||
| (In millions) | ||||||||
|
Cost of product sales and services
|
$ | 0.1 | $ | 0.1 | ||||
|
Research and development expenses
|
0.2 | 0.1 | ||||||
|
Selling and administrative expenses
|
0.5 | 0.9 | ||||||
|
|
||||||||
|
Total compensation expense
|
$ | 0.8 | $ | 1.1 | ||||
|
|
||||||||
During the first quarter of fiscal 2010, we awarded options for the purchase of 14,247 shares
of our common stock and 7,133 performance shares to one employee and 6,780 shares of restricted
stock to a non-employee director (none during the first quarter of fiscal 2011).
11
Table of Contents
Note K — Major Customer and Business Segments
During the first quarter of fiscal 2011, none of our customers accounted for 10% or more of
revenue. During the first quarter of fiscal 2010, the MTN group in Africa (“MTN”) and Middle East
Telecommunications Company (“METCO”) each accounted for 12% of our total revenue (two customers
accounted for 24% of our total revenue).
Revenue and loss before income taxes by segment are as follows:
| Quarter Ended | ||||||||
| October 1, 2010 | October 2, 2009 | |||||||
| (In millions) | ||||||||
|
Revenue
|
||||||||
|
North America
|
$ | 35.6 | $ | 48.0 | ||||
|
International
|
73.5 | 72.0 | ||||||
|
|
||||||||
|
Total Revenue
|
$ | 109.1 | $ | 120.0 | ||||
|
|
||||||||
|
|
||||||||
|
Loss Before Income Taxes
|
||||||||
|
Segment Operating Loss:
|
||||||||
|
North America (1)
|
$ | (13.6 | ) | $ | (3.2 | ) | ||
|
International (2)
|
(12.7 | ) | (3.2 | ) | ||||
|
Net interest expense
|
(0.5 | ) | (0.5 | ) | ||||
|
|
||||||||
|
Loss before provision for income taxes
|
$ | (26.8 | ) | $ | (6.9 | ) | ||
|
|
||||||||
| (1) | During the first quarter of fiscal 2011 in our North America segment, we recorded $4.8 million for restructuring charges, $3.9 million from the loss on sale of NetBoss assets and $0.7 million for share-based compensation. | |
| During the first quarter of fiscal 2010 in our North America segment, we recorded $0.8 million for restructuring charges and $1.0 million for share-based compensation. | ||
| (2) | During the first quarter of fiscal 2011 in our International segment, we recorded $0.8 million for restructuring charges and $0.1 million for share-based compensation. | |
| During the first quarter of fiscal 2010 in our International segment, we recorded $0.3 million for restructuring charges and $0.1 million for share-based compensation. |
Note L — Income Taxes
The determination of benefit for income taxes for the first quarter of fiscal 2011 of $5.5
million and provision for income taxes for the first quarter of 2010 of $0.9 million was primarily
based on our estimated annual effective tax rate adjusted for losses in separate jurisdictions for
which no tax benefit can be recognized. The current quarter also incorporates an income tax benefit
of $1.9 million associated with the expiring favorable tax ruling granted by the Singapore Economic
Development Board which increases the tax rate applied to established local country deferred tax
assets. The determination of first quarter fiscal 2011 income tax benefit and first quarter fiscal
2010 tax provision reflected tax benefit and expense generated in certain foreign jurisdictions.
Our effective tax rate varies from the U.S. federal statutory rate of 35% due to results of
foreign operations that are subject to income taxes at different statutory rates and certain
jurisdictions where we cannot recognize tax benefits on current losses.
As of July 2, 2010 and October 1, 2010, we had a liability for unrecognized tax benefits of
$14.9 million for various federal, foreign, and state income tax matters. During the first quarter
of fiscal 2011, the liability for unrecognized tax benefits did not change. If the unrecognized tax
benefits associated with these positions are ultimately recognized, they would not be expected to
have a material impact on our effective tax rate or financial position.
We account for interest and penalties related to unrecognized tax benefits as part of our
provision for federal, foreign, and state income taxes. We accrued an additional amount for such
interest of less than $0.1 million during the first quarter of fiscal 2011 and 2010. No penalties
have been accrued on any of the unrecognized tax benefits.
We expect that the amount of unrecognized tax benefit may change in the next year; however, it
is not expected to have a significant impact on our results of operations, financial position or
cash flows.
12
Table of Contents
We have a number of years with open tax audits which vary from jurisdiction to jurisdiction.
Our major tax jurisdictions include the U.S., Singapore, Poland, Nigeria, France and the U.K. The
earliest years still open and subject to potential audits for these jurisdictions are as follows:
United States — 2003; Singapore — 2006; Poland — 2004; Nigeria — 2004; France — 2006; and U.K -
2006. As of October 1, 2010, we are under audit by the U.S. Internal Revenue Service.
Note M — Fair Value Measurements of Assets and Liabilities
We determine fair value as the price that would be received to sell an asset or paid to
transfer a liability in the principal market (or most advantageous market, in the absence of a
principal market) for the asset or liability in an orderly transaction between market participants
as of the measurement date. We try to maximize the use of observable inputs and minimize the use of
unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that
prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair
value are as follows:
| • | Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| • | Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data; |
| • | Level 3 — Unobservable inputs reflecting our own assumptions. |
The carrying amounts, estimated fair values and valuation input levels of our financial assets
and financial liabilities as of October 1, 2010 and July 2, 2010 are as follows:
| October 1, | July 2, | |||||||||||||||||||
| 2010 | 2010 | |||||||||||||||||||
| Carrying | Fair | Carrying | Fair | Valuation | ||||||||||||||||
| Amount | Value | Amount | Value | Inputs | ||||||||||||||||
| (In millions) | ||||||||||||||||||||
|
Financial Assets:
|
||||||||||||||||||||
|
Cash
|
$ | 70.5 | $ | 70.5 | $ | 60.4 | $ | 60.4 | Level 1 | |||||||||||
|
Cash equivalents
|
$ | 37.3 | $ | 37.3 | $ | 81.3 | $ | 81.3 | Level 1 | |||||||||||
|
Foreign exchange forward contracts
|
$ | 0.1 | $ | 0.1 | $ | 0.1 | $ | 0.1 | Level 2 | |||||||||||
|
Financial Liabilities:
|
||||||||||||||||||||
|
Short-term debt
|
$ | 6.0 | $ | 6.0 | $ | 5.0 | $ | 5.0 | Level 2 | |||||||||||
|
Redeemable preference shares
|
$ | 8.3 | $ | 8.3 | $ | 8.3 | $ | 8.3 | Level 3 | |||||||||||
|
Foreign exchange forward contracts
|
$ | 0.2 | $ | 0.2 | $ | 0.1 | $ | 0.1 | Level 2 | |||||||||||
Our cash equivalents consist primarily of shares in prime money market funds purchased from
two major financial institutions. As of October 1, 2010 and July 2, 2010, these money market shares
were valued at $1.00 net asset value per share by these financial institutions.
Foreign currency forward contracts are valued using an income approach for the remaining term
of the contract based on forward market rates less the contract rate multiplied by the notional
amount.
The amortized cost of short-term debt approximates fair value due to the variable interest
rate under the arrangement applicable to such debt.
We have valued our redeemable preference shares at face value as of October 1, 2010 and July
2, 2010 due to the existence of a put option one of the holders has with our former majority
shareholder Harris, our current intent not to redeem these shares before their stated termination
date and the non-existence of a market for comparable financial instruments.
Note N — Risk Management, Derivative Financial Instruments and Hedging Activities
We are exposed to global market risks, including the effect of changes in foreign
currency exchange rates, and use derivatives to manage financial exposures that occur in the normal
course of business. We do not hold or issue derivatives for trading purposes or make speculative
investments in foreign currencies.
13
Table of Contents
We formally document all relationships between hedging instruments and hedged items, as
well as the risk-management objective and strategy for undertaking hedge transactions. This process
includes linking all derivatives to either specific firm commitments or forecasted transactions. We
also enter into foreign exchange forward contracts to mitigate the change in fair value of specific
assets and liabilities on the balance sheet; these are not designated as hedging instruments.
Accordingly, changes in the fair value of hedges of recorded balance sheet positions are recognized
immediately in cost of product sales on the consolidated statements of operations together with the
transaction gain or loss from the hedged balance sheet position.
Substantially all derivatives outstanding as of October 1, 2010 are designated as cash flow
hedges or non-designated hedges of recorded balance sheet positions. All derivatives are recognized
on the balance sheet at their fair value. The total notional amount of outstanding derivatives as
of October 1, 2010 was $46.2 million, of which $10.2 million were designated as cash flow hedges
and $36.0 million were not designated as cash flow hedging instruments.
As of October 1, 2010, we had 45 foreign currency forward contracts outstanding with a total
net notional amount of $22.3 million consisting of 12 different currencies, primarily the Canadian
dollar, Philippine peso, Polish zloty, Singapore dollar and Republic of South Africa rand.
The following is a summary by currency of the contract net notional amounts grouped by the
underlying foreign currency as of October 1, 2010:
| Contract Amount | Contract | |||||||||
| (Local Currency) | Amount | |||||||||
| (In millions) | (USD) | |||||||||
|
Canadian dollar (“CAD”) net contracts to receive (pay) USD
|
(CAD) | 5.7 | $ | 5.5 | ||||||
|
Philippine peso (“PHP”) net contracts to receive (pay) USD
|
(PHP) | ( 138.7 | ) | $ | (3.2 | ) | ||||
|
Polish zloty (“PLN”) net contracts to receive (pay) USD
|
(PLN) | 27.1 | $ | 9.0 | ||||||
|
Singapore dollar (“SGD”) net contracts to receive (pay) USD
|
(SGD) | 4.5 | $ | 3.4 | ||||||
|
Republic of South Africa rand (“ZAR”) net contracts to receive (pay) USD
|
(ZAR) | 43.0 | $ | 6.1 | ||||||
|
All other currencies net contracts to receive (pay) USD
|
$ | 1.5 | ||||||||
|
|
||||||||||
|
Total of all currencies
|
$ | 22.3 | ||||||||
|
|
||||||||||
The following table presents the fair value of derivative instruments included within our
Consolidated Balance Sheet as of October 1, 2010.
| Asset Derivatives | Liability Derivatives | |||||||||||
| Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||
| (In millions) | ||||||||||||
|
Derivatives designated as hedging instruments:
|
||||||||||||
|
Foreign exchange forward contracts
|
Other current assets | $ | 0.1 | Other current liabilities | $ | 0.2 | ||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||
|
Foreign exchange forward contracts
|
Other current assets | — | Other current liabilities | — | ||||||||
|
|
||||||||||||
|
Total derivatives
|
$ | 0.1 | $ | 0.2 | ||||||||
|
|
||||||||||||
The following table presents the amounts of gains (losses) from cash flow hedges recorded in
Other Comprehensive (Loss) Income, the amounts transferred from Other Comprehensive (Loss) Income
and recorded in Revenue and Cost of Products Sold, and the amounts associated with excluded time
value and hedge ineffectiveness during the first quarter of fiscal 2010 and 2009:
| Quarter Ended | ||||||||
| Locations of Losses Recorded From Derivatives Designated as Cash Flow Hedges | October 1, 2010 | October 2, 2009 | ||||||
| (In millions) | ||||||||
|
Amount of loss of effective hedges recognized in Other Comprehensive Income
|
$ | (0.3 | ) | $ | (0.2 | ) | ||
|
|
||||||||
|
Amount of loss of effective hedges reclassified from Other Comprehensive Income into:
|
||||||||
|
Revenue
|
$ | (0.2 | ) | $ | — | |||
|
Cost of Products Sold
|
$ | (0.1 | ) | $ | (0.1 | ) | ||
|
Amount recorded into Cost of Products Sold associated with excluded time value
|
$ | — | $ | — | ||||
|
Amount recorded into Cost of Products Sold due to hedge ineffectiveness
|
$ | — | $ | — | ||||
14
Table of Contents
Cash Flow Hedges
The purpose of our foreign currency hedging activities is to protect us from the risk that the
eventual cash flows resulting from transactions in foreign currencies, including revenue, product
costs, selling and administrative expenses and intercompany transactions will be adversely affected
by changes in exchange rates. It is our policy to utilize derivatives to reduce foreign currency
exchange risks where internal netting strategies cannot be effectively employed. As of October 1,
2010, hedged transactions included our customer and intercompany backlog and outstanding purchase
commitments denominated primarily in the Canadian dollar, Euro, Philippine peso, Polish zloty,
Singapore dollar and Republic of South Africa rand. We hedge up to 100% of anticipated exposures
typically one to three months in advance, but have hedged as much as six months in advance. We
generally review our exposures twice each month and adjust the amount of derivatives outstanding as
needed.
A derivative designated as a hedge of a forecasted transaction is carried at fair value with
the effective portion of the derivative’s fair value recorded in other comprehensive income or loss
and subsequently recognized in earnings in the same period or periods the hedged transaction
affects earnings. Any ineffective or excluded portion of a derivative’s gain or loss is recorded in
earnings as it occurs. In some cases, amounts recorded in other comprehensive income or loss will
be released to net income or loss some time after the maturity of the related derivative. The
consolidated statement of income classification of effective hedge results is the same as that of
the underlying exposure. For example, results of hedges of revenue and product costs are recorded
in revenue and cost of product sales, respectively, when the underlying hedged transaction is
recorded.
As of October 1, 2010, we had $0.2 million of deferred net losses on both outstanding and
matured derivatives accumulated in other comprehensive loss that are expected to be reclassified to
net income or loss during the next twelve months as a result of underlying hedged transactions also
being recorded in net income or loss. Actual amounts ultimately reclassified to loss will be
dependent on the exchange rates in effect when derivative contracts that are currently outstanding
mature. As of October 1, 2010, the maximum term over which we are hedging our cash flow exposures
is five months.
We formally assess both at inception and on an ongoing basis, whether the derivatives that are
used in the hedging transaction have been highly effective in offsetting changes in the value or
cash flows of hedged items and whether those derivatives may be expected to remain highly effective
in future periods. We discontinue hedge accounting when the derivative expires or is sold,
terminated, or exercised or it is no longer probable that the forecasted transaction will occur.
When it is determined that a derivative is not, or has ceased to be, highly effective as a hedge,
we discontinue hedge accounting and re-designate the hedge as a non-designated hedge, if it is
still outstanding at the time the determination is made.
When we discontinue hedge accounting because it is no longer probable that the forecasted
transaction will occur in the originally expected period, the gain or loss on the derivative
remains in accumulated other comprehensive income or loss and is reclassified to net income or loss
when the forecasted transaction affects net income or loss. However, if it is probable that a
forecasted transaction will not occur by the end of the originally specified time period or within
an additional two-month period of time thereafter, the gains and losses that were accumulated in
other comprehensive income or loss will be recognized immediately in net income or loss. In all
situations in which hedge accounting is discontinued and the derivative remains outstanding, we
will carry the derivative at its fair value on the balance sheet, recognizing future changes in the
fair value in cost of product sales.
Non-Designated Hedges
The total notional amount of outstanding derivatives as of October 1, 2010 not designated as
cash flow hedging instruments was $36.0 million. The purpose of these hedges is to offset realized
and unrealized foreign exchange gains and losses recorded on non-functional currency monetary
assets and liabilities, including primarily cash balances and accounts receivable and accounts
payable from third party and intercompany transactions recorded on the balance sheet. Since these
gains and losses are considered by us to be operational in nature, we record both the gains and
losses from the revaluation of the balance sheet transactions and the gains and losses on the
derivatives in cost of products sold.
15
Table of Contents
During the first quarter of fiscal 2011 and 2010, we recorded in cost of products sold the
following amount of net losses recorded on non-designated hedges as follows:
| Location of Gain | ||||||||||||
| (Loss) Recognized in | ||||||||||||
| First Quarter of | First Quarter of | Income on | ||||||||||
| Fiscal 2011 | Fiscal 2010 | Derivatives | ||||||||||
| (In millions) | ||||||||||||
|
Derivatives not designated as hedging instruments:
|
||||||||||||
|
Losses on foreign exchange forward contracts
|
$ | (0.9 ) | $ | (1.9 ) | Cost of products sold | |||||||
Credit Risk
We are exposed to credit-related losses in the event of non-performance by counterparties to
hedging instruments. The counterparties to all derivative transactions are major financial
institutions with investment grade credit ratings. However, this does not eliminate our exposure to
credit risk with these institutions. Should any of these counterparties fail to perform as
contracted, we could incur interest charges and unanticipated gains or losses on the settlement of
the derivatives in addition to the recorded fair value of the derivative due to non-delivery of the
currency. To manage this risk, we have established strict counterparty credit guidelines and
maintain credit relationships with several financial institutions providing foreign currency
exchange services in accordance with corporate policy. As a result of the above considerations, we
consider the risk of counterparty default to be immaterial.
We have informal credit facilities with several commercial banks under which we transact
foreign exchange transactions. These facilities are generally restricted to a total notional amount
outstanding, a maximum settlement amount in any one day and a maximum term. There are no written
agreements supporting these facilities with the exception of one bank which provided us with their
general terms and conditions for trading that we acknowledged. None of the facilities are
collateralized and none require compliance with financial covenants or contain cross default or
other provisions which could affect other credit arrangements we have with the same or other banks.
If we fail to deliver currencies as required upon settlement of a trade, the bank may require early
settlement on a net basis of all derivatives outstanding and if any amounts are still owing to the
bank, they may charge any cash account we have with the bank for that amount.
Note O — Net Loss per Share of Common Stock
We compute net loss per share of common stock using the two-class method. Basic net loss per
share is computed using the weighted average number of common shares outstanding and unvested
share-based payment awards that contain rights to receive non-forfeitable dividends or dividend
equivalents (whether paid or unpaid) during the period. Such unvested share-based payment awards
are considered to be participating securities.
During the first quarter of fiscal 2011 and 2010, we recorded a net loss, so the potential
dilution from the assumed exercise of our stock options is anti-dilutive. Accordingly, our basic
and diluted net loss per common share amounts are the same.
Note P — Legal Proceedings
We and certain of our current and former executive officers and directors were named in a
federal securities class action complaint filed on September 15, 2008 in the United States District
Court for the District of Delaware by plaintiff Norfolk County Retirement System on behalf of an
alleged class of purchasers of our securities from January 29, 2007 to July 30, 2008, including
shareholders of Stratex Networks, Inc. who exchanged shares of Stratex Networks, Inc. for our
shares as part of the merger between Stratex Networks and the Microwave Communications Division of
Harris Corporation. This action relates to the restatement of our prior financial statements as
discussed in our fiscal 2008 Annual Report on Form 10-K filed with the Securities and Exchange
Commission on September 25, 2008. Similar complaints were filed in the United States District Court
of Delaware on October 6 and October 30, 2008. Each complaint alleges violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, as well as
violations of Sections 11 and 15 of the Securities Act of 1933 and seeks, among other relief,
determinations that the action is a proper class action, unspecified compensatory damages and
reasonable attorneys’ fees and costs. The actions were consolidated on June 5, 2009 and a
consolidated class action complaint was filed on July 29, 2009. On July 27, 2010, the Court denied
the motions to dismiss that we and the officer and director defendants had filed. We believe that
we have meritorious defenses and intend to defend ourselves vigorously.
On February 8, 2007, a court order was entered against Stratex do Brasil, a subsidiary of
Aviat U.S., Inc. (formerly Harris Stratex Networks Operating Corporation), in Brazil, to enforce
performance of an alleged agreement between the former Stratex Networks,
Inc. entity and a supplier. We have not determined what, if any, liability this may result in,
as the court did not award any damages.
16
Table of Contents
We have appealed the decision to enforce the alleged
agreement, and do not expect this litigation to have a material adverse effect on our business,
operating results or financial condition.
From time to time, we may be involved in various legal claims and litigation that arise in the
normal course of our operations. While the results of such claims and litigation cannot be
predicted with certainty, we currently believe that we are not a party to any litigation the final
outcome of which is likely to have a material adverse effect on our financial position, results of
operations or cash flows. However, should we not prevail in any such litigation; it could have a
material adverse impact on our operating results, cash flows or financial position.
Note Q — Loss on Sale of NetBoss Assets
On September 7, 2010, we sold our NetBoss assets consisting of intellectual property and
certain equipment to a third party named NetBoss Technologies, Inc. and recognized a $3.9 million
loss in our Condensed Consolidated Statement of Operations during the first quarter of fiscal 2011.
NetBoss Technologies Inc. is a new company formed by its management team, our former development
partner for NetBoss, and private investors. As part of the terms of the sale, we will assign our
customer contracts for NetBoss software and maintenance to NetBoss Technologies, Inc. We will
continue to license NetBoss to operate our Network Operations Centers.
17
Table of Contents
This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” contains forward-looking statements that involve
risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct,
could cause our results to differ materially from those expressed or implied by such
forward-looking statements. All statements other than statements of historical fact are statements
that could be deemed forward-looking statements, including statements of, about, concerning or
regarding: our plans, strategies and objectives for future operations; our research and development
efforts and new product releases and services; trends in revenue; drivers of our business and the
markets in which we operate; future economic conditions, performance or outlook and changes in our
industry and the markets we serve; the outcome of contingencies; the value of our contract awards;
beliefs or expectations; the sufficiency of our cash and our capital needs and expenditures; our
intellectual property protection; our compliance with regulatory requirements and the associated
expenses; expectations regarding litigation; our intention not to pay cash dividends; seasonality
of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying
any of the foregoing. Forward-looking statements may be identified by the use of forward-looking
terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,”
“intends,” “plans,” “estimates,” “strategy,” “anticipates,” “projects,” “targets,” “goals,”
“seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,”
“potential,” or the negative of these terms, and similar words or expressions.
These forward-looking statements are based on estimates reflecting the current
beliefs of the senior management of Aviat Networks. These forward-looking statements involve a
number of risks and uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Forward-looking statements should therefore be
considered in light of various important factors, including those set forth in this document.
Important factors that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include the following:
| • | continued price erosion as a result of increased competition in the microwave transmission industry; | ||
| • | the impact of the volume, timing and customer, product and geographic mix of our product orders may have an impact on our operating results; | ||
| • | our ability to maintain projected product rollouts, product functionality, anticipated cost reductions or market acceptance of planned products; | ||
| • | the ability of our subcontractors to perform or our key suppliers to manufacture or deliver material | ||
| • | continued weakness in the global economy affecting customer spending; | ||
| • | retention of our key personnel; | ||
| • | our ability to manage and maintain key customer relationships; | ||
| • | uncertain economic conditions in the telecommunications sector combined with operator and supplier consolidation;the timing of our receipt of payment for products or services from our customers; | ||
| • | our failure to protect our intellectual property rights or defend against intellectual property infringement claims by others; | ||
| • | the effects of currency and interest rate risks; and | ||
| • | the impact of political, economic and geographic risks on international sales. |
Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk
Factors” in our Annual Report on Form 10-K for more information regarding factors that may cause
our results to differ materially from those expressed or implied by the forward-looking statements
contained in this Quarterly Report on Form 10-Q.
You should not place undue reliance on these forward-looking statements, which
reflect our management’s opinions only as of the date of the filing of this Quarterly Report on
Form 10-Q. Forward-looking statements are made in reliance upon the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, along with provisions of the Private Securities Litigation Reform Act of
1995, and we undertake no obligation, other than as imposed by law, to update forward-looking
statements to reflect further developments or information obtained after the date of filing of this
Quarterly Report on Form 10-Q or, in the case of any document incorporated by reference, the date
of that document.
18
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RESULTS OF OPERATIONS
-
Quarter Ended October 1, 2010 compared with October 2, 2009
Highlights
Operations results for the first quarter of fiscal 2011 include:
| • | Net loss was $21.3 million, or $0.36 per common share, in the first quarter of fiscal 2011 compared with a net loss of $7.8 million, or $0.13 per common share, in the first quarter of fiscal 2010; | ||
| • | Revenue decreased 9.1 percent to $109.1 million in the first quarter of fiscal 2011 from $120.0 million in the first quarter of fiscal 2010; | ||
| • | Our North America segment revenue decreased 25.8 percent to $35.6 million and the segment recorded an operating loss of $13.6 million in the first quarter of fiscal 2011 compared with an operating loss of $3.2 million in the first quarter of fiscal 2010; | ||
| • | Our International segment revenue increased 1.5 percent to $73.5 million and the segment recorded an operating loss of $12.7 million in the first quarter of fiscal 2011 compared with an operating loss of $3.2 million in the first quarter of fiscal 2010; | ||
| • | Net cash used in operating activities was $36.8 million in the first quarter of fiscal 2011 compared with net cash provided by operations of $4.4 million in the first quarter of fiscal 2010. |
Discussion of Consolidated Results of Operations
Revenue and Net Loss
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Revenue
|
$ | 109.1 | $ | 120.0 | (9.1 | )% | ||||||
|
Net loss
|
$ | (21.3 | ) | $ | (7.8 | ) | N/M | |||||
|
% of revenue
|
(19.5 | )% | (6.5 | )% | ||||||||
Revenue by region comparing the first quarter of fiscal 2011 with the first quarter of fiscal
2010 and the related changes are shown in the table below:
| Quarter Ended | Amount | Percentage | ||||||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | Increase/(Decrease) | |||||||||||||
| (In millions, except percentages) | ||||||||||||||||
|
North America
|
$ | 35.6 | $ | 48.0 | $ | (12.4 | ) | (25.8 | )% | |||||||
|
International:
|
||||||||||||||||
|
Africa
|
23.0 | 29.9 | (6.9 | ) | (23.1 | )% | ||||||||||
|
Europe, Middle East, and Russia
|
28.7 | 18.6 | 10.1 | 54.3 | % | |||||||||||
|
Latin America and Asia Pacific
|
21.8 | 23.5 | (1.7 | ) | (7.2 | )% | ||||||||||
|
|
||||||||||||||||
|
Total International
|
73.5 | 72.0 | 1.5 | 2.1 | % | |||||||||||
|
|
||||||||||||||||
|
Total Revenue
|
$ | 109.1 | $ | 120.0 | $ | (10.9 | ) | (9.1 | )% | |||||||
|
|
||||||||||||||||
Our revenue in the first quarter of fiscal 2011 was $109.1 million, a decrease of $10.9
million or 9.1%, compared with the first quarter of fiscal 2010. This decrease in revenue resulted
from significant declines in all regions, except Europe, Middle East
and Russia where incremental backhaul product orders were delivered
in the first quarter of fiscal 2011. Declines resulted
primarily from reduced customer demand due to the global economic recession and the effects of the
continuing credit crisis on our customers’ ability to finance expansion, as well as increased
competition from our competitors. Increased competition has affected product pricing and the
ability to combine microwave equipment with other product sales and services. Furthermore, revenue
has been negatively affected by anticipated or planned consolidation of our customers and foreign
government-based subsidized financing, particularly in Africa.
During the first quarter of fiscal 2011, none of our customers accounted for 10% or more of
revenue. During the first quarter of fiscal 2010, the MTN group in Africa (“MTN”) and Middle East
Telecommunications Company (“METCO”) each accounted for 12% of our total revenue (two customers
accounted for 24% of our total revenue).
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Table of Contents
Our net loss in the first quarter of fiscal 2011 was $21.3 million compared with a net loss of
$7.8 million in the first quarter of fiscal 2010. The net loss in the first quarter of fiscal 2011
and 2010 included amortization of purchased intangibles, rebranding expenses and share compensation
expense. In addition, we incurred substantial charges associated with two ongoing restructuring
plans. During the first quarter of fiscal 2011, we incurred $5.6 million of restructuring charges
compared with $1.1 million in the first quarter of fiscal 2010. Finally, we recognized a $3.9
million loss on the sale of NetBoss assets to a third party in the first quarter of fiscal 2011.
Other assets on our Condensed Consolidated Balance Sheet as of
October 1, 2010 decreased by approximately $8.0 million compared with
July 2, 2010 as a result of the sale of NetBoss assets.
These charges and expenses are set forth on a comparative basis in the table below:
| First | First | |||||||
| Fiscal | Fiscal | |||||||
| Quarter | Quarter | |||||||
| 2011 | 2010 | |||||||
| (In millions) | ||||||||
|
Restructuring charges
|
$ | 5.6 | $ | 1.1 | ||||
|
Loss on sale of NetBoss assets
|
3.9 | — | ||||||
|
Amortization of trade names and customer relationships
|
0.7 | 1.5 | ||||||
|
Rebranding expenses
|
0.3 | 0.1 | ||||||
|
Amortization of developed technology
|
0.2 | 2.1 | ||||||
|
Amortization of the fair value adjustments related to fixed assets and inventory
|
— | 0.2 | ||||||
|
Share-based compensation expense
|
0.8 | 1.1 | ||||||
|
|
||||||||
|
|
$ | 11.5 | $ | 6.1 | ||||
|
|
||||||||
Gross Margin
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Revenue
|
$ | 109.1 | $ | 120.0 | (9.1 | )% | ||||||
|
Cost of product sales and services
|
(84.9 | ) | (82.3 | ) | 3.2 | % | ||||||
|
Gross margin
|
$ | 24.2 | $ | 37.7 | (35.8 | )% | ||||||
|
% of revenue
|
22.2 | % | 31.4 | % | ||||||||
| N/M = Not statistically meaningful |
Gross margin in the first quarter of fiscal 2011 was $24.2 million, or 22.2% of revenue,
compared with $37.7 million, or 31.4% of revenue in fiscal 2010. Prior to fiscal 2011, we
capitalized most of the costs associated with our internal manufacturing operations as a component
of the overall cost of product inventory. Beginning in the first quarter of
fiscal 2011, the production of all our products is outsourced to contract manufacturers and we no
longer manufacture products internally. Accordingly, the costs associated with our internal
operations organization are now expensed as incurred. Gross margin in the first quarter of fiscal
2011 was negatively impacted by the immediate expensing of $6.0 million of such costs.
Gross margin in the first quarter of fiscal 2011 was also negatively impacted by low margins
in our WiMAX contracts and by geographic and product mix issues.
Research and Development Expenses
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Revenue
|
$ | 109.1 | $ | 120.0 | (9.1 | )% | ||||||
|
Research and development expenses
|
$ | 11.1 | $ | 10.7 | 3.7 | % | ||||||
|
% of revenue
|
10.2 | % | 8.9 | % | ||||||||
Research and development (“R&D”) expenses were $11.1 million in the first quarter of fiscal
2011 compared with $10.7 million in the first quarter of fiscal 2010. As a percentage of revenue,
these expenses increased to 10.2% in the first quarter of fiscal 2011 from 8.9% in the first
quarter of fiscal 2010 due to 9.1% lower revenue and a 3.7% increase in spending. The increase in
R&D spending in the first quarter of fiscal 2011 compared with the first quarter of fiscal 2010 was
primarily attributable to investments in new product innovation.
20
Table of Contents
Selling
and Administrative Expense
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Revenue
|
$ | 109.1 | $ | 120.0 | (9.1 | )% | ||||||
|
Selling and administrative expenses
|
$ | 29.2 | $ | 30.8 | (5.2 | )% | ||||||
|
% of revenue
|
26.8 | % | 25.7 | % | ||||||||
| The following table summarizes the significant increases and decreases to our selling and administrative expenses comparing the first quarter of fiscal 2011 with the first quarter of fiscal 2010: | ||||||||||||
| Increase/(Decrease) | ||||||||||||
| (In millions) | ||||||||||||
|
Decrease in spending on information technology
|
$ | (0.9 | ) | |||||||||
|
Decrease in salaries and wages due to lower employment levels
|
(0.9 | ) | ||||||||||
|
Increase in commissions paid to sales agents
|
0.9 | |||||||||||
|
Other, net
|
(0.7 | ) | ||||||||||
|
|
||||||||||||
|
|
$ | (1.6 | ) | |||||||||
|
|
||||||||||||
| Income Taxes | ||||||||||||
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Loss before income taxes
|
$ | (26.8 | ) | $ | (6.9 | ) | N/M | |||||
|
(Benefit from) provision for income taxes
|
$ | (5.5 | ) | $ | 0.9 | N/M | ||||||
|
% of (loss) income before income taxes
|
N/M | N/M | ||||||||||
| N/M = Not statistically meaningful |
The determination of benefit for income taxes for the first quarter of fiscal 2011 of $5.5 million and provision for income taxes for the
first quarter of 2010 of $0.9 million was primarily based on our estimated annual effective tax rate adjusted for losses in separate jurisdictions
for which no tax benefit can be recognized. The tax benefit in the first quarter of fiscal 2011 also includes a credit of $1.9 million from the
expiring favorable tax ruling granted by the Singapore Economic Development Board which increases the tax rate applied to established local
country deferred tax assets. The determination of first quarter fiscal 2011 income tax benefit and first quarter 2010 tax provision reflected
tax benefit and expense generated in certain foreign jurisdictions.
Our effective tax rate varies from the U.S. federal statutory rate of 35% due to results of foreign operations that are
subject to income taxes at different statutory rates and certain jurisdictions where we cannot recognize tax benefits on current losses.
Discussion of Business Segment Results of Operations
North
America Segment
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Revenue
|
$ | 35.6 | $ | 48.0 | (25.8 | )% | ||||||
|
Segment operating loss
|
$ | (13.6 | ) | $ | (3.2 | ) | N/M | |||||
|
% of revenue
|
(38.2 | )% | (6.7 | )% | ||||||||
| N/M = Not statistically meaningful |
North America segment revenue decreased by $12.4 million, or 25.8%, in the first quarter of fiscal 2011 compared with the first quarter of
fiscal 2010. This decrease in revenue resulted primarily from the economic recession and the continuing credit crisis adversely affecting
our North America customers’ expansion.
The North America segment first quarter fiscal 2011 operating loss included $4.8 million of
restructuring charges, $3.9 million from the loss on sale of NetBoss assets and $0.7 million for share-based compensation.
21
Table of Contents
The North America segment first quarter fiscal 2010 operating loss included $0.8 million
for restructuring charges and $1.0 million for share-based compensation.
International Segment
| Quarter Ended | Percentage | |||||||||||
| October 1, 2010 | October 2, 2009 | Increase/(Decrease) | ||||||||||
| (In millions, except percentages) | ||||||||||||
|
Revenue
|
$ | 73.5 | $ | 72.0 | 2.1 | % | ||||||
|
Segment operating loss
|
$ | (12.7 | ) | $ | (3.2 | ) | N/M | |||||
|
% of revenue
|
(17.3 | )% | (4.4 | )% | ||||||||
| N/M = Not statistically meaningful |
International segment revenue increased by $1.5 million or 2.1% in the first quarter of fiscal
2011 compared with the first quarter of fiscal 2010. This increase in revenue resulted from a $10.1
million increase in the Europe, Middle East and Russia region partially offsets by a $6.9 million
decrease in Africa and $1.7 million decrease in Latin America and Asia Pacific. The economic
recession and the continuing credit crisis adversely affecting our customers’ expansion, as well as
increased competition from our competitors, particularly in Africa, negatively affected our
International segment revenues.
The International segment first quarter fiscal 2011 operating loss included $0.8 million for
restructuring charges and $0.1 million for share-based compensation.
The International segment first quarter fiscal 2010 operating loss resulted primarily from the
decline in revenue when compared with levels prior to fiscal 2010 without a corresponding decrease
in cost structure and included $0.3 million of restructuring charges and $0.1 million for
share-based compensation.
Liquidity and Capital Resources
Sources of Cash
As of October 1, 2010, our principal sources of liquidity consisted of $107.8 million in cash
and cash equivalents plus $24.4 million of available credit under our current $40.0 million credit
facility with Silicon Valley Bank. Cash flow used in operations for the first quarter of fiscal
2011 totaled $36.8 million.
Our cash collections in the first quarter of fiscal year 2011 were substantially lower than in
the fourth quarter of fiscal year 2010 in part because we had very strong collections in the fourth
quarter of fiscal year 2010 compared with revenue in that quarter. In addition, because of
operational and manufacturing issues, we had substantial shipments to customers with a
large quantity of products shipped in the final month of the quarter. This limited our ability to
collect receivables before the quarter end. Cash use in the quarter was caused by losses in the
quarter, sequential increases in receivables of approximately $13 million and a sequential
reduction in accounts payables of $5 million. We expect that cash burn will continue in the second
quarter of fiscal year 2011 and should result in a $10 million to $20 million decrease to cash and
cash equivalents on our balance sheet.
We believe that cash on hand and the available line of credit are sufficient to meet our
working capital requirements for next 12 months and foreseeable future.
As of October 1, 2010, approximately $52.4 million or 49% of our total cash and cash
equivalents was held by entities domiciled in the United States. The remaining balance of $55.4
million or 51% was held by entities outside the United States, primarily in Singapore, and could be
subject to additional taxation if it were to be repatriated to the United States.
Available Credit Facility and Repayment of Debt
As of October 1, 2010, we had $24.4 million of credit available under our $40.0 million
revolving credit facility with Silicon Valley Bank as mentioned above. The total amount of
revolving credit available was $40.0 million less $6.0 million in outstanding short term loans
which mature by September 30, 2011, and $9.6 million in outstanding standby letters of credit
issued under the facility.
22
Table of Contents
The commitment of $40.0 million under the facility expires in September 2011 and provides for
(1) demand borrowings at the prime rate published in the
Wall Street Journal
, (2) fixed term
Eurodollar loans for up to six months at LIBOR plus a spread of between 2.00% to 2.75% based on the
company’s current leverage ratio and (3) the issuance of standby or commercial letters of credit.
The facility contains a minimum liquidity ratio covenant and a minimum profitability covenant and
is secured by the company’s assets.
Based on covenants included as part of the credit facility we must maintain, as measured at
the last day of each fiscal quarter, (1) no less than a minimum liquidity ratio of 2.50 to 1
(defined as the ratio of total domestic unrestricted cash and cash equivalents plus short-term and
long-term marketable securities to total obligations outstanding with the bank) and (2) minimum
consolidated EBITDA measured for each fiscal quarter as follows:
| Period | Minimum EBITDA | |||
|
Quarter ending October 1, 2010
|
$ | (18,000,000 | ) | |
|
Quarter ending December 31, 2010
|
$ | (10,500,000 | ) | |
|
Quarter ending April 1, 2011
|
$ | (7,000,000 | ) | |
|
Quarter ending July 1, 2011
|
(2,500,000 | ) | ||
|
Each Quarter Thereafter
|
$ | 1,000,000 | ||
As of October 1, 2010, we were in compliance with these financial covenants.
Subsequent to October 1, 2010, we negotiated an amendment to our credit facility with Silicon
Valley Bank that modifies the liquidity ratio to expand the definition of domestic unrestricted
cash to include cash held by our Singapore subsidiary in the U.S. up to a maximum amount of $20.0
million. This expanded definition will increase our available credit under the facility by up to
$8.0 million without changing the maximum credit amount of $40.0 million.
Restructuring and Payments
We have a liability for restructuring activities totaling $7.4 million as of October 1, 2010,
of which $7.2 million is classified as a current liability and expected to be paid out in cash over
the next year. Additionally, during the remainder of fiscal 2011, we expect to incur approximately
$15 million of additional charges from our restructuring activities. We expect to fund these future
payments with available cash and cash flow provided by operations.
Commercial Commitments and Contractual Obligations
The amounts disclosed in our Fiscal 2010 Form 10-K include our commercial commitments and
contractual obligations. During the quarter ended October 1, 2010, no material changes occurred in
our contractual cash obligations to repay debt, to purchase goods and services and to make payments
under operating leases or our commercial commitments and contingent liabilities on outstanding
letters of credit, guarantees and other arrangements as disclosed in our Fiscal 2010 Form 10-K.
Critical Accounting Estimates
For information about our critical accounting estimates, see the “Critical Accounting
Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended July 2, 2010.
Impact of Recently Issued Accounting Pronouncements
As described in “Note B — New Accounting Pronouncements” in the Notes to Condensed
Consolidated Financial Statements, there are accounting pronouncements that have recently been
issued but have not yet been implemented by us. Note B describes the potential impact that these
pronouncements are expected to have on our financial position, results of operations and cash
flows.
23
Table of Contents
Financial Risk Management
In the normal course of doing business, we are exposed to the risks associated with foreign
currency exchange rates and changes in interest rates. We employ established policies and
procedures governing the use of financial instruments to manage our exposure to such risks.
Exchange Rate Risk
Descriptions of our exchange rate risk are incorporated by reference from Part I, Item 1,
Financial Statements — Notes to Condensed Consolidated Financial Statements — “Note N” in
response to this item.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash
equivalents and bank debt.
Exposure on Cash and Cash Equivalents
We do not use derivative financial instruments in our short-term investment portfolio. We
invest in high-credit quality issues and, by policy, limit the amount of credit exposure to any one
issuer and country. The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity. The portfolio is also diversified by maturity to
ensure that funds are readily available as needed to meet our liquidity needs. This policy reduces
the potential need to sell securities in order to meet liquidity needs and therefore the potential
effect of changing market rates on the value of securities sold.
We had $107.8 million in total cash and cash equivalents as of October 1, 2010. Cash
equivalents totaled $37.3 million as of October 1, 2010.
The primary objective of our short-term investment activities is to preserve principal while
maximizing yields, without significantly increasing risk. Our cash equivalents earn interest at
fixed rates; therefore, changes in interest rates will not generate a gain or loss on these
investments unless they are sold prior to maturity. Actual gains and losses due to the sale of our
investments prior to maturity have been immaterial. The weighted average days to maturity for cash
equivalents held as of October 1, 2010 was two days, and these investments had an average yield of
0.25% per annum. A 10% change in interest rates on our cash and cash equivalents is not expected to
have a material impact on our financial position, results of operations or cash flows.
Cash equivalents have been recorded at fair value on our balance sheet.
Exposure on Borrowings
During the first quarter of fiscal 2011, we had $5.0 million of short-term borrowings
outstanding under our previous $70.0 million revolving credit facility that incurred interest at
the London Interbank Offered Rate (“LIBOR”) plus 1.50%. During the quarter our weighted average
interest rate was 2.48% and we recorded total interest expense of less than $0.1 million on these
borrowings.
On October 1, 2010, we repaid the $5.0 million outstanding under our previous $70.0 million
revolving credit facility with the proceeds of a new borrowing of $6.0 million at the prime rate
under our new $40.0 million credit facility. As of October 1, 2010 our weighted average interest
rate was 3.25%. A 10% change in interest rates on the current borrowings or on future borrowings
is not expected to have a material impact on our financial position, results of operations or cash
flows since interest on our short-term debt is not material to our overall financial position.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms. Our disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management,
24
Table of Contents
including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosures. There
are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and
procedures. Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their control objectives.
Management has conducted an evaluation, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of October 1, 2010.
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting during our most
recently completed fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal controls over financial reporting.
25
Table of Contents
Descriptions of our legal proceedings are incorporated by reference from Part I, Item 1,
Financial Statements — Notes to Condensed Consolidated Financial Statements — “Note P” in
response to this item.
Investors should carefully review and consider the information regarding certain factors which
could materially affect our business, operating results, cash flows and financial condition set
forth under Item 1A, Risk Factors, in our Fiscal 2010 Form 10-K.
We do not believe that there have been any other material additions or changes to the risk
factors previously disclosed in our Fiscal 2010 Form 10-K, although we may disclose changes to such
factors or disclose additional factors from time to time in our future filings with the SEC.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations.
The following exhibits are filed herewith or incorporated by reference to exhibits previously
filed with the SEC:
| Exhibit | ||
| Number | Description | |
|
(10.1)
|
Agreement by and between Aviat Networks, Inc. and the Ramius Group dated as of Sept. 14, 2010 (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2010, File No. 001-33278) | |
|
|
||
|
(10.2)
|
Amended Employment Agreement between Aviat Networks, Inc. and Charles D. Kissner, dated August 1, 2010. | |
|
|
||
|
(10.3)
|
Loan and Security Agreement between Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks(S) Pte. Ltd. and Silicon Valley Bank signed October 1, 2010 (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on October 4, 2010, File No. 001-33278) | |
|
|
||
|
(31.1)
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
|
|
||
|
(31.2)
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
|
|
||
|
(32.1)
|
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. |
26
Table of Contents
SIGNATURE
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.
|
AVIAT NETWORKS, INC.
(Registrant) |
||||
| Date: November 10, 2010 | By: | /s/ J. Russell Mincey | ||
| J. Russell Mincey | ||||
|
Vice President, Corporate Controller and
Principal Accounting Officer (principal accounting officer and duly authorized officer) |
||||
27
Table of Contents
EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
|
(10.1)
|
Agreement by and between Aviat Networks, Inc. and the Ramius Group dated as of Sept. 14, 2010 (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2010, File No. 001-33278) | |
|
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||
|
(10.2)
|
Amended Employment Agreement between Aviat Networks, Inc. and Charles D. Kissner, dated August 1, 2010. | |
|
|
||
|
(10.3)
|
Loan and Security Agreement between Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks(S) Pte. Ltd. and Silicon Valley Bank signed October 1, 2010 (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K filed with the Securities and Exchange Commission on October 4, 2010, File No. 001-33278) | |
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||
|
(31.1)
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |
|
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||
|
(31.2)
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |
|
|
||
|
(32.1)
|
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. |
28
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits