2017
Proxy Statement
& Annual Report
Aviat Networks, Inc.
February 12, 2018
To Our Stockholders:
I’m very proud of what we accomplished in fiscal 2017 and would like to sincerely thank our employees for their
unwavering commitment to our customers, partners and stockholders. Our relentless focus on Operational
Excellence and driving innovation throughout the Company on behalf of our customers, enabled us to achieve
significant improvements in our financial performance and is the basis for much of our optimism in fiscal 2018 and
years to come.
Our Fiscal Year 2017 Financial Results
For fiscal year 2017, we reported total revenue of $241.9 million, compared with revenue of $268.7 million in the
prior year. Within this, international revenues declined as anticipated, while North America revenues increased by
5.3% as we continued to build on our momentum with private network customers. On a GAAP basis, gross margins
of 31.2%, representing an increase of 820 basis points, and on a Non-GAAP basis, gross margins of 31.4%
represented an increase of 650 basis points, reflecting the enhancements in our supply chain and services
operations. We took aggressive steps to align personnel and improve processes, while continuously focusing on
reducing fixed expenses. As an outcome, we reported a year-over-year reduction of 14.3% in GAAP operating
expenses and 13% in Non-GAAP operating expenses, excluding the impact of share-based compensation.
I’m most pleased that we generated significant year-over-year bottom-line improvements. We reported a GAAP
operating loss of $1.0 million, an improvement of $26.5 million. On a Non-GAAP basis, we reported positive
operating income of $1.9 million, a year-over-year improvement of $20.0 million. We also reported a GAAP loss
from continuing operations attributable to Aviat Networks of $0.8 million, which marked a year-over-year
improvement of $29.6 million and we generated Non-GAAP income from continuing operations attributable to
Aviat Networks of $0.7 million, which represented a $20.2 million improvement compared to fiscal 2016. Lastly,
fiscal 2017 Adjusted EBITDA of $7.6 million was a $19.3 million improvement compared to fiscal 2016.
We strengthened our balance sheet and finished fiscal 2017 with $35.7 million in cash and cash equivalents, a $5.2
million year-over-year increase. We generated positive cash from operations and virtually all working capital
metrics, especially our cash conversion cycles, were at historically best levels as we exited the fiscal year.
Executing Our Strategy
As I look back on the year, I can safely say that we executed on our plan. While there are still some challenges for
the industry, particularly in the international markets, we have significantly strengthened our infrastructure,
processes, R&D capabilities, customer relationships, and our overall business.
• We said we would focus and allocate more resources to capitalize on growth opportunities in North
America and we did; growing revenue by $6.6 million.
• We said we would aggressively go after new private network deals where our technology and services are
highly-differentiated and we did; winning several new state and local government contracts, extending our
reach within the financial services vertical, and continuing to build out our public utility customer base.
Private networks revenue grew in fiscal 2017 and represented more than half of our total mix.
• We talked about R&D and our focus on extending our technology leadership. In fiscal 2017, we significantly
improved our solution set, bringing to market and unveiling new products while further enhancing our
services. We launched WTM 4000, the highest capacity radio ever made which broadens our customer
reach and capabilities. We launched our RAC70 offering, which provides customers with the opportunity to
more than double the over-the-air capacity of our Eclipse radio platform. And we continued to build out
our IP/MPLS capabilities, which enabled us to win competitive private network deals in fiscal 2017, while
strengthening our solutions for our service provider customers.
• We are instilling a Process Excellence mindset throughout the Company. This has entailed a realignment of
our operating structure and processes, investments in Lean training and automation, and a more efficient
way of running our business. We are delivering significant improvements in non-GAAP gross margins, non-
GAAP operating expenses and all profitability metrics. Process Excellence also extended to our financial
controls and drove many improvements in working capital.
Fiscal 2018
We are approximately halfway through the fiscal year and as our results demonstrate, our progress continues.
Margins and expenses, both GAAP and Non-GAAP, are tracking in line or ahead of plan. GAAP operating income of
$1.7 million through the first six months of fiscal 2018, marked an improvement of $2.1 million and on a Non-GAAP
basis, operating income of $3.3 million represents an increase of $2.2 million. GAAP income from continuing
operations of $4.4 million was an improvement of $3.4 million over the first half of fiscal 2017 and Non-GAAP
income from continuing operations of $2.3 million represents an increase of $1.8 million. Additionally, for the first
half of 2018, our cash balance increased to $42.1 million, an increase of $5.9 million from the fiscal 2017 year-end.
These results reflect a tremendous amount of positive activity at Aviat and we are positioned well as we move into
the second half of the fiscal year.
Looking ahead at the full fiscal year, we expect to generate revenue growth of up to 5% with significant bottom-
line and balance sheet improvements. Our plan calls for Non-GAAP gross margin growth of up to 100 basis points
and Non-GAAP operating expenses to be roughly in line with the prior fiscal year. Non-GAAP operating income is
anticipated to be between $5.0 and $7.0 million compared to $1.9 million in fiscal 2017 and adjusted EBITDA is
expected to be between $11.0 and $13.0 million, representing an increase of approximately 45% to 70% year-over-
year. Our balance sheet should also continue to strengthen, and we expect to generate cash from operations and
end fiscal 2018 with a higher cash balance. Further, our working capital metrics should remain among the best in
our Company’s history.
Summary
In closing, we are confident that we will achieve our fiscal 2018 outlook. Our business processes and efficiencies
continue to improve, and our competitive positioning has been enhanced as a result of our continued focus on
innovation. We are succeeding with our targeted sales approach in growing our footprint throughout North
America with our traditional private network accounts as well as new verticals. We have also maintained our
position with our service provider customers, while adding some new accounts. We are building a much stronger
pipeline of business opportunities which drives our optimism, both this year and in the years ahead.
On behalf of our Board of Directors and all Aviat Networks employees, I want to thank you our shareholders for
your continued support of our Company, and I look forward to reporting on our progress throughout the year.
Michael Pangia
President and Chief Executive Officer
Aviat Networks, Inc.
This letter to Stockholders contains statements that qualify as “forward looking statements” under the Private
Securities Litigation Reform Act of 1995, including, but not limited to our plans, strategies and objectives for future
operations, expectations regarding future performance and opportunities to improve business processes. These
and other risks, uncertainties and factors may cause our actual results to be materially different from those
expressed or implied by each forward-looking statement. These other risks, uncertainties and other factors are
discussed in our fiscal year 2017 Form 10-K and in our other filings with the Securities and Exchange Commission.
You should not rely on any forward-looking statements. We undertake no obligation to update publicly any
forward-looking statement, whether written or oral, for any reason, except as required by law, even as new
information becomes available or other events occur in the future.
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AVIAT NETWORKS, INC.
Fiscal Year Ended June 30, 2017 Summaries
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES AND REGULATION G DISCLOSURE
To supplement the consolidated financial statements presented in accordance with accounting principles generally accepted in
the United States (“GAAP”), we provide additional measures of gross margin, research and development expenses, selling and
administrative expenses, operating loss, income tax provision, loss from continuing operations attributable to Aviat Networks, diluted
loss per share from continuing operations attributable to Aviat Networks' stockholders, and adjusted losses before interest, tax,
depreciation and amortization ("Adjusted EBITDA") attributable to Aviat Networks, adjusted to exclude certain costs, charges, gains
and losses, as set forth below. We believe that these non-GAAP financial measures, when considered together with the GAAP
financial measures provide information that is useful to investors in understanding period-over-period operating results separate and
apart from items that may, or could, have a disproportionate positive or negative impact on results in any particular period. We also
believe these non-GAAP measures enhance the ability of investors to analyze trends in our business and to understand our
performance. In addition, we may utilize non-GAAP financial measures as a guide in our forecasting, budgeting and long-term
planning process and to measure operating performance for some management compensation purposes. Any analysis of non-GAAP
financial measures should be used only in conjunction with results presented in accordance with GAAP. Reconciliations of these non-
GAAP financial measures with the most directly comparable financial measures calculated in accordance with GAAP follow.
AVIAT NETWORKS, INC.
Fiscal Year 2017 Summaries
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (1)
Condensed Consolidated Statements of Operations
(Unaudited)
Fiscal Year Ended
June 30,
% of
2017
Revenue
(in thousands, except percentages and per share amounts)
% of
Revenue
July 1, 2016
GAAP gross margin
WTM inventory (recovery) write-down
Performance bond expense
Share-based compensation
Non-GAAP gross margin
$
75,472
31.2 % $
61,717
23.0 %
(176)
365
208
5,057
—
154
75,869
31.4 %
66,928
24.9 %
GAAP research and development expenses
$
18,684
7.7 % $
20,806
7.7 %
Share-based compensation
(138)
(110)
Non-GAAP research and development expenses
18,546
7.7 %
20,696
7.7 %
GAAP selling and administrative expenses
$
57,184
23.6 % $
65,902
24.5 %
Share-based compensation
(1,765)
(1,572)
Non-GAAP selling and administrative expenses
55,419
22.9 %
64,330
23.9 %
GAAP operating loss
WTM inventory (recovery) write-down
Performance bond expense
Share-based compensation
Restructuring charges
Non-GAAP operating income (loss)
$
(985)
(176)
365
2,111
589
1,904
(0.4)% $
(27,446)
(10.2)%
5,057
—
1,836
2,455
0.8 %
(18,098)
(6.7)%
GAAP income tax provision
$
16
— % $
1,635
0.6 %
Tax refund from Inland Revenue Authority of Singapore
Adjustment to reflect pro forma tax rate
Non-GAAP income tax provision
3,741
(2,557)
1,200
—
(435)
1,200
0.5 %
0.4 %
Fiscal Year Ended
June 30,
% of
2017
Revenue
(in thousands, except percentages and per share amounts)
% of
Revenue
July 1, 2016
GAAP loss from continuing operations attributable to
Aviat Networks
Share-based compensation
Restructuring charges
Nigeria FX (gain) loss on dividend receivable
WTM inventory (recovery) write-down
Performance bond expense
Gain on liquidation of subsidiary
Tax refund from Inland Revenue Authority of Singapore
Adjustment to reflect pro forma tax rate
Non-GAAP (loss) income from continuing operations
attributable to Aviat Networks
$
(823)
2,111
589
213
(176)
365
(349)
(3,741)
2,557
(0.3)% $
(30,448)
(11.3)%
1,836
2,455
1,245
5,057
—
—
—
435
$
746
0.3 % $
(19,420)
(7.2)%
Diluted income (loss) per share from continuing operations attributable to Aviat Networks' stockholders:
GAAP
Non-GAAP
$
$
(0.16)
0.14
$
$
(5.81)
(3.71)
Weighted average shares outstanding, diluted:
GAAP
Non-GAAP
ADJUSTED EBITDA:
GAAP loss from continuing operations attributable to
Aviat Networks
Depreciation and amortization of property, plant and
equipment
Interest
Share-based compensation
Restructuring charges
Nigeria FX (gain) loss on dividend receivable
WTM inventory (recovery) write-down
Performance bond expense
Gain on liquidation of subsidiary
Provision for income taxes
5,292
5,450
5,238
5,238
$
(823)
(0.3)% $
(30,448)
(11.3)%
5,840
(211)
2,111
589
213
(176)
365
(349)
16
6,648
(148)
1,836
2,455
1,245
5,057
—
—
1,635
Adjusted EBITDA attributable to Aviat Networks
$
7,575
3.1 % $
(11,720)
(4.4)%
_____________________________________________________
(1) The adjustments above reconcile our GAAP financial results to the non-GAAP financial measures used by us. Our non-GAAP
(loss) income from continuing operations attributable to Aviat Networks excluded share-based compensation and other non-
recurring charges (recovery). Adjusted EBITDA attributable to Aviat Networks was determined by excluding depreciation and
amortization on property, plant and equipment, interest, provision for income taxes, and non-GAAP pre-tax adjustments, as set
forth above, from the GAAP loss from continuing operations attributable to Aviat Networks. We believe that the presentation of
these non-GAAP items provides meaningful supplemental information to investors, when viewed in conjunction with, and not
in lieu of, our GAAP results. However, the non-GAAP financial measures have not been prepared under a comprehensive set of
accounting rules or principles. Non-GAAP information should not be considered in isolation from, or as a substitute for,
information prepared in accordance with GAAP. Moreover, there are material limitations associated with the use of non-GAAP
financial measures.
AVIAT NETWORKS, INC.
860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035
Notice of Annual Meeting of Stockholders for Fiscal Year 2017
To Be Held on Tuesday, March 20, 2018
TO THE HOLDERS OF COMMON STOCK OF AVIAT NETWORKS, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders for fiscal year 2017 (the “Annual Meeting”)
of Aviat Networks, Inc. (the “Company”) will be held at our facilities, located at 860 N. McCarthy Blvd., Suite 200, Milpitas,
California 95035, on Tuesday, March 20, 2018, at 11:00 a.m., local time, for the following purposes:
1. To elect six directors to serve until the Company’s 2018 Annual Meeting of Stockholders or until their successors
have been elected and qualified.
2. To vote on the ratification of the appointment by our Audit Committee of BDO USA, LLP (“BDO”) as the
Company’s independent registered public accounting firm for fiscal year 2018.
3. To hold an advisory, non-binding vote to approve the Company’s named executive officer compensation (“Say-on-
Pay”).
4. To hold an advisory, non-binding vote on the frequency of holding votes on Say-on-Pay (once every year, every two
years or three years).
5. To approve the Aviat Networks, Inc. 2018 Incentive Plan.
6. To transact such other business as may properly come before the Annual Meeting or any adjournment or
postponement or other delay thereof.
Only holders of common stock at the close of business on February 2, 2018 are entitled to notice of and to vote at
the Annual Meeting.
Whether or not you expect to attend the Annual Meeting in person, we urge you to submit a proxy to vote your
shares. This will help ensure the presence of a quorum at the Annual Meeting.
February 12, 2018
By Order of the Board of Directors
/s/ Meena Elliott
Senior Vice President, Chief Legal &
Administrative Officer, Corporate Secretary
Important Notice Regarding the Availability of Proxy Materials
for the Stockholder Meeting to Be Held on March 20, 2018
The proxy statement and annual report to stockholders are available at
https://materials.proxyvote.com/05366Y
Your vote is important regardless of the number of shares you own. The Board of Directors urges you to sign, date
and return the enclosed proxy card by mail (using the enclosed postage-paid envelope) as promptly as possible, or vote
electronically or by telephone as described in the attached proxy statement. If you have any questions or need
assistance in voting your shares, please contact Broadridge, toll-free at 1-800-690-6903.
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TABLE OF CONTENTS
Page
ABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
What is the record date, and who is entitled to vote at the Annual Meeting?
What are the voting rights of the holders of common stock at the Annual Meeting?
Who may attend the Annual Meeting?
How do I vote?
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy
materials this year instead of a full set of proxy materials?
How can I access the proxy materials and annual report on the Internet?
Why is Aviat soliciting proxies?
How do I revoke my proxy?
What vote is required to approve each item?
How is the majority voting standard applied to the election of directors?
What constitutes a quorum, abstention, and broker “non-vote”?
Who pays for the cost of solicitation?
What is the deadline for submitting proposals and director nominations for the 2017 Annual
Meeting?
Who will count the votes?
CORPORATE GOVERNANCE
Board Members
Board and Committee Meetings and Attendance
Board Member Qualifications
Directors’ Biographies
Board Leadership
The Board’s Role in Risk Oversight
Principles of Corporate Governance, Bylaws and other Governance Documents
Board of Directors Committees
Audit Committee
Compensation Committee
Compensation Committee Interlock and Insider Participation
Governance and Nominating Committee
Stockholder Communications with the Board
Code of Conduct
TRANSACTIONS WITH RELATED PERSONS
DIRECTOR COMPENSATION AND BENEFITS
Fiscal Year 2017 Compensation of Non-Employee Directors
Indemnification
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Compensation Committee Report
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TABLE OF CONTENTS
(continued)
Risk Considerations in Our Compensation Program
Summary Compensation Table
Equity Compensation Plan Summary
Potential Payments Upon Termination or Change of Control
Section 16(a) Beneficial Ownership Reporting Compliance
PROPOSAL NO. 1: ELECTION OF DIRECTORS
Director Nominees
Agreement with Certain Stockholders
PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PROPOSAL NO. 3: ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER
COMPENSATION
PROPOSAL NO. 4: ADVISORY, NON-BINDING VOTE ON THE FREQUENCY OF HOLDING VOTES ON
SAY-ON-PAY
PROPOSAL NO. 5: APPROVAL OF THE AVIAT NETWORKS, INC. 2018 INCENTIVE PLAN
OTHER MATTERS
2017 Annual Report
Form 10-K
Other Business
APPENDIX A AVIAT NETWORKS, INC. 2018 INCENTIVE PLAN
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AVIAT NETWORKS, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MARCH 20, 2018
This proxy statement (this “Proxy Statement”) applies to the solicitation of proxies by the Board of Directors (the
“Board”) of Aviat Networks, Inc. (which we refer to as “Aviat,” the “Company,” “we,” “our,” and “ours”) for use at the
Annual Meeting of Stockholders for fiscal year 2017 and any adjournment, postponement or other delay thereof (the “Annual
Meeting”), to be held at 11:00 a.m., local time, on Tuesday, March 20, 2018. The Annual Meeting will be held at our facilities
located at 860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035. The telephone number at that location is (408)
941-7100. These proxy materials are being made available on or about February 12, 2018, to our stockholders entitled to
notice of and to vote at the Annual Meeting.
ABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
The purpose of the Annual Meeting is to obtain stockholder action on the matters outlined in the notice of meeting
included with this Proxy Statement. All holders of shares of common stock at the close of business on February 2, 2018 are
entitled to notice of and to vote at the Annual Meeting. At the Annual Meeting, our stockholders will vote (i) to elect six
directors; (ii) on the ratification of the appointment by our Audit Committee of BDO USA, LLP (“BDO”) as our independent
registered public accounting firm for fiscal year 2018; (iii) on an advisory, non-binding resolution to approve the Company’s
named executive officer compensation (“Say-on-Pay”); (iv) on an advisory, non-binding resolution to approve the frequency
of holding votes on Say-on-Pay; and (v) to approve the Company’s 2018 Incentive Plan (the “2018 Plan”).
What is the record date, and who is entitled to vote at the Annual Meeting?
The record date for the stockholders entitled to vote at the Annual Meeting is February 2, 2018 (the “Record Date”).
The Record Date was established by the Board as required by the Delaware General Corporation Law and our Bylaws.
Owners of shares of our common stock at the close of business on the Record Date are entitled to receive notice of the
Annual Meeting and to vote at the Annual Meeting. You may vote all shares that you owned as of the Record Date.
What are the voting rights of the holders of common stock at the Annual Meeting?
Each outstanding share of our common stock is entitled to one vote on each matter considered at the Annual
Meeting. As of the Record Date, there were 5,340,851 shares of our common stock outstanding.
Who may attend the Annual Meeting?
Subject to space availability, all stockholders as of the Record Date, or their duly appointed proxies, may attend the
Annual Meeting. Since seating is limited, admission to the Annual Meeting will be on a first-come, first-served basis.
If your shares are held in “street name” (that is, through a bank, broker or other holder of record) and you wish to
attend the Annual Meeting, you must bring to the Annual Meeting a copy of a bank or brokerage statement reflecting your
stock ownership as of the Record Date.
Each stockholder may be asked to present valid picture identification, such as a driver’s license or passport.
Cameras, recording devices and other electronic devices will not be permitted at the Annual Meeting. You may contact us by
calling (408) 941-7100 for directions to the Annual Meeting.
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How do I vote?
Stockholders of record can vote by proxy as follows:
• Via the Internet: Stockholders may submit voting instructions through the Internet by following the instructions
included with the proxy card.
• By Telephone: Stockholders may submit voting instructions by telephone by following the instructions included
with the proxy card.
• By Mail: Stockholders may sign, date and return their proxy card in the pre-addressed, postage-paid envelope
provided.
• At the Annual Meeting: If you attend the Annual Meeting, you may vote in person by ballot, even if you have
previously returned a proxy card.
If you hold your shares in “street name,” the bank, broker or other holder of record holding your shares will send
you separate instructions describing the procedure for voting your shares. If you hold your shares in “street name,” you will
not be able to vote in person by ballot at the Annual Meeting unless you have previously requested and obtained a “legal
proxy” from your broker, bank or other holder of record and present it at the Annual Meeting.
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials this year instead
of a full set of proxy materials?
Pursuant to Securities and Exchange Commission rules, we have provided access to our proxy materials over the
Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “Notice”) to our stockholders
of record and beneficial owners of shares held in “street name.” All stockholders will have the ability to access the proxy
materials on a website referred to in the Notice or request a printed set of the proxy materials. Instructions on how to access
the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, the Notice contains
information on how stockholders may request delivery of proxy materials in printed form by mail or electronically by email
on an ongoing basis.
How can I access the proxy materials and annual report on the Internet?
This Proxy Statement, the form of proxy card, the Notice and our annual report on Form 10-K for the fiscal year
ended June 30, 2017 are available at www.Proxyvote.com.
Why is Aviat soliciting proxies?
In lieu of personally attending and voting at the Annual Meeting, you may appoint a proxy to vote on your behalf.
The Board has designated proxy holders to whom you may submit your voting instructions. The proxy holders for the Annual
Meeting are John Mutch, Chairman of the Board, Michael Pangia, President and Chief Executive Officer (“CEO”), and
Meena Elliott, Senior Vice President, Chief Legal & Administrative Officer, Corporate Secretary.
How do I revoke my proxy?
If you are a stockholder of record, you may revoke your proxy at any time before your shares are voted at the
Annual Meeting by:
•
•
•
delivering a written notice of revocation to the Company’s Secretary, Meena Elliott, at 860 N. McCarthy Blvd.,
Suite 200, Milpitas, CA 95035;
signing, dating and returning a proxy card bearing a later date;
submitting another proxy by Internet or telephone (the latest dated proxy will control); or
2
•
attending the Annual Meeting and voting in person by ballot.
If you hold your shares in “street name,” you should follow the directions provided by the bank, broker or other
holder of record to revoke your proxy. Regardless of how you hold your shares, your attendance at the Annual Meeting after
having executed and delivered a valid proxy card will not in and of itself constitute a revocation of your proxy.
What vote is required to approve each item?
•
•
•
•
•
Proposal No. 1 (election of directors): the director nominees will be elected by a majority of the votes cast.
Stockholders may not cumulate votes in the election of directors. The Board recommends a vote “FOR” all
nominees.
Proposal No. 2 (ratification of BDO as the Company’s independent registered public accounting firm): the
affirmative vote by the holders of common stock entitled to cast a majority of the voting power of all of the
common stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the
proposal is necessary for approval of Proposal No. 2. The Board recommends a vote “FOR” Proposal No. 2.
Proposal No. 3 (advisory, non-binding vote on named executive officer compensation): the affirmative vote by
the holders of common stock entitled to cast a majority of the voting power of all of the common stock present
in person or represented by proxy at the Annual Meeting and entitled to vote on the proposal is necessary for
approval of Proposal No. 3. The Board recommends a vote “FOR” Proposal No. 3.
Proposal No. 4 (advisory, non-binding vote on the frequency of holding votes on Say-on-Pay): the affirmative
vote of a plurality of the voting power of all of the common stock present in person or represented by proxy at
the Annual Meeting and entitled to vote on the proposal will determine the frequency with which stockholders
will vote on an advisory basis on Say-on-Pay (meaning the vote frequency that receives the highest number of
shares voted for it, whether once every one, two or three years, will be selected). The Board recommends a
vote “FOR” a frequency of “ONCE A YEAR” under Proposal No. 4.
Proposal No. 5 (approval of the 2018 Plan): the affirmative vote by the holders of common stock entitled to
cast a majority of the voting power of all of the common stock present in person or represented by proxy at the
Annual Meeting and entitled to vote on the proposal is necessary for approval of Proposal No. 5. The Board
recommends a vote “FOR” Proposal No. 5.
What happens if a director does not receive a sufficient number of votes?
Aviat’s Corporate Governance Guidelines provide that a director nominee who receives a greater number of votes
“AGAINST” his or her election than votes “FOR” his or her election must promptly offer his or her resignation to the Board.
The Board will determine whether to accept the nominee’s resignation. See “Majority Vote Policy in Director Elections” for
additional information.
What constitutes a quorum, abstention and broker “non-vote”?
The presence at the Annual Meeting either in person or by proxy of the holders of common stock entitled to cast a
majority of the voting power of all of the common stock issued and outstanding and entitled to vote at the Annual Meeting
constitutes a quorum for the transaction of business at the Annual Meeting.
Abstentions and broker “non-votes” are counted as present and are, therefore, included for purposes of determining
whether a quorum is present at the Annual Meeting. An abstention occurs when a stockholder does not vote for or against a
proposal but specifically abstains from voting. A broker “non-vote” occurs when a bank, broker or other holder of record
holding shares in street name for a beneficial owner signs and submits a proxy or votes with respect to shares of common
stock held in a fiduciary capacity, but does not vote on a particular matter because the bank, broker or other holder of record
does not have discretionary voting power with respect to that matter and has not received instructions from the beneficial
owner or because the bank, broker or other holder of record elects not to vote on a matter as to which it does have
discretionary voting power. Under the rules governing banks, brokers and other holders of record who are voting with respect
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to shares held in street name, such entities have the discretion to vote such shares on routine matters but not on non-routine
matters. Only Proposal No. 2 is a routine matter.
For Proposal No. 1, abstentions and broker “non-votes”, if any, will be disregarded and have no effect on the
outcome of the vote. For Proposals No. 2, No.3, No. 4 and No. 5, abstentions will have the same effect as voting against the
proposal, and broker “non-votes”, if any, will be disregarded and have no effect on the outcome of the vote.
Who pays for the cost of solicitation?
We will bear the entire cost of solicitation, including the preparation, assembly, printing, and mailing of this Proxy
Statement, the proxy card, the Notice and any additional solicitation materials that may be furnished to our stockholders and
the maintenance and operation of the website providing Internet access to these proxy materials. We will reimburse banks,
brokers and other holders of record for reasonable expenses incurred in sending proxy materials to beneficial owners of our
common stock and maintaining Internet access for such materials and the submission of proxies. We may supplement the
original solicitation of proxies by mail through solicitation by telephone, email, over the Internet or by other means by our
directors, officers and other employees. No additional compensation will be paid to these individuals for any such services.
In addition, the Company has retained D.F. King & Co. to assist it in the solicitation of proxies. The Company has
agreed to pay D.F. King & Co. a fee of $10,500, plus reimbursement for their reasonable out-of-pocket expenses. The
Company has also agreed to indemnify D.F. King & Co. against certain liabilities and expenses, including certain liabilities
and expenses under the federal securities laws.
What is the deadline for submitting proposals and director nominations for the 2018 Annual Meeting?
In order for any stockholder to submit nominations of directors or propose business to be considered before our
2018 Annual Meeting, a stockholder of record must submit a written notice thereof, which notice must be received by our
Corporate Secretary at our principal executive offices not earlier than December 20, 2018, or later than January 19, 2019. The
full requirements for the submission of nominations of directors and proposals of business to be considered are contained in
Article II, Sections 13 and 14, respectively, of our Bylaws, which are available for review at our website,
www.aviatnetworks.com.
Stockholder proposals intended for inclusion in next year’s proxy statement pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 (the “Exchange Act”) must be directed to the Corporate Secretary, Aviat Networks, Inc., at
our principal executive offices, and must be received by November 10, 2018.
In accordance with the rules of the SEC, the proxies solicited by the Board for the 2018 Annual Meeting will confer
discretionary authority on the proxy holders to vote on any director nomination or stockholder proposal presented at the 2018
Annual Meeting if the Company fails to receive notice of such matter in accordance with the periods specified above.
Who will count the votes?
Broadridge will tabulate the votes cast by proxy. The Company has retained an independent inspector of elections in
connection with Aviat’s solicitation of proxies for the Annual Meeting. Aviat intends to notify stockholders of the results of
the Annual Meeting by filing a Form 8-K with the SEC.
CORPORATE GOVERNANCE
We believe in and are committed to sound corporate governance principles. Consistent with our commitment to and
continuing evolution of corporate governance principles, we adopted a Code of Business Ethics, corporate governance
guidelines and written charters for the Governance and Nominating Committee, Audit Committee and Compensation
Committee. Each of our Board committees is required to conduct an annual review of its charter and applicable guidelines.
4
Board Members
The authorized size of the Board is six. Directors are nominated by the Governance and Nominating Committee of
the Board.
The following are the members of the Board as of the date of this Proxy Statement. See Proposal No. 1 for
additional information regarding the nominees for director.
Name
John Mutch
Wayne Barr Jr.
Kenneth Kong
Michael A. Pangia
John J. Quicke
Dr. James C. Stoffel
Title and Positions
Director, Chairman of the Board
Director
Director
Director, President and Chief Executive Officer
Director
Director
The Board has determined that each of our current directors except Mr. Pangia has no relationship that would
interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is otherwise
independent in accordance with listing rules of the NASDAQ Stock Market (the “NASDAQ Listing Rules”).
All of our directors are requested to attend our annual meetings of stockholders. Five of our directors serving at the
time of our 2016 Annual Meeting attended either in person or via telephone.
Board and Committee Meetings and Attendance
In fiscal year 2017, the Board held ten meetings. Each of the Board members attended at least 90% of the Board
meetings and at least 83% of the total number of meetings of the committee or committees on which the member served.
Board Member Qualifications
Our Board believes that its members should encompass a range of talents, skills and expertise, which enables the
Board to provide sound guidance with respect to the Company’s operations and interest. Our Board prefers a variety of
professional experiences and backgrounds among its members. In addition to considering a candidate’s experiences and
background, candidates are reviewed in the context of the current composition of the Board and evolving needs of our
businesses. In particular, the Board has sought to include members that have experience in establishing, growing and leading
communications companies in senior management positions and serving on the board of directors of other companies. In
determining that each of the members of the Board is qualified to be a director, the Board has relied on the attributes listed
below and, where applicable, on the direct personal knowledge of each of the members’ prior service on the Board.
Our bylaws provide that a director may not be older than 75 years of age on the date of his or her election or
appointment to the Board unless otherwise specifically approved by a resolution passed by the Board.
Directors’ Biographies
The following is a brief description of the business experience and background of each nominee for director,
including the capacities in which each has served during at least the past five years:
Mr. John Mutch, age 61, currently serves as Chairman of the Board and has served on the Board since January 2015.
He served on the Board of Directors of Steel Excel Inc. (“Steel Excel”), a provider of drilling and production services to the
oil and gas industry and a provider of event-based sports services and other health-related services, from 2007 to 2016. From
December 2008 to January 2014, he served as Chairman of the Board of Directors and Chief Executive Officer of
Beyondtrust Software, a privately-held security software company. Mr. Mutch has been the founder and managing partner of
MV Advisors LLC (“MV Advisors”), a strategic block investment firm that provides focused investment and strategic
5
guidance to small and mid-cap technology companies, since December 2005. Prior to founding MV Advisors, in March 2003,
Mr. Mutch was appointed by the U.S. Bankruptcy court to the Board of Directors of Peregrine Systems, Inc. (“Peregrine
Systems”), a provider of enterprise asset and service management solutions. He assisted that company in a bankruptcy work-
out proceeding and was named President and Chief Executive Officer in July 2003. Previous to running Peregrine Systems,
Mr. Mutch served as President, Chief Executive Officer and a director of HNC Software, an enterprise analytics software
provider. Before HNC Software, Mr. Mutch spent seven years at Microsoft Corporation in a variety of executive sales and
marketing positions. Mr. Mutch previously served on the Boards of Directors of Phoenix Technologies Ltd., a leader in core
systems software products, services and embedded technologies, Edgar Online, Inc., a provider of financial data, analytics
and disclosure management solutions, Aspyra, Inc., a provider of clinical and diagnostic information systems for the
healthcare industry, Overland Storage, Inc., a provider of unified data management and data protection solutions, and Brio
Software, Inc., a provider of business intelligence software. He has served as a director at Agilysys, Inc., a provider of
information technology solutions, since March 2009. Since April 2017, Mr. Mutch has served as a director at Maxwell
Technologies, Inc., a manufacturer of energy storage and power delivery solutions for automotive, heavy transportation,
renewable energy, backup power, wireless communications and industrial and consumer electronics applications, and since
July 2017 he has served as a director at YuMe, Inc., a provider of digital video brand advertising solutions.
Mr. Mutch brings to the Board extensive experience as an executive in the technology sector. He also has experience
as a director at several public companies in the technology sector. He is or has been a member of the audit committee of
various public and private companies, and brings valuable financial expertise to the Board.
Mr. Wayne Barr, Jr., age 53, has served as a member of the Board since November 2016. Mr. Barr is currently the
chairman of the board of directors of Concurrent Computer Corporation, a global software and solutions company
(NASDAQ: CCUR), a position he has held since July 2017. He has served on the Concurrent board since August 2016 and
serves on the compensation committee and nominating committee and is chairman of the audit committee of the Concurrent
board. Mr. Barr also serves on the board of directors of HC2 Holdings, Inc. (“HC2”), a diversified holding company, a
position he has held since January 2014. From January 2014 until July 2016, Mr. Barr served on the Audit Committee
(chairman), Compensation Committee and Nominating and Governance Committee of the HC2 Board of Directors. Mr. Barr
also serves as a director of four HC2 private portfolio companies. Mr. Barr has also served as the Managing Director of
Alliance Group of NC, LLC, a full-service real estate brokerage firm in Raleigh, NC since January 2013, and as the Principal
of Oakleaf Consulting Group LLC, a management consulting firm focusing on technology and telecommunications
companies, since he founded the company in 2001. He previously served as a founder and President of Capital & Technology
Advisors, Inc. from October 2003 until 2006 and served as Senior Managing Director of Communication Technology
Advisors LLC from May 2001 to June 2005. From 1999 until 2001, Mr. Barr was a member of TechOne Capital Group, a
private investment firm. From 1995 until 1999, Mr. Barr served as an Associate General Counsel of CAI Wireless Systems
Inc., which was acquired by WorldCom Inc. in August 1999. He began his career as an attorney in private practice. Mr. Barr
is a director of IoSat Holdings Ltd., a private satellite services provider. Mr. Barr was a director of Evident Technologies Inc.
from 2005 until 2016, and has served on the Boards of Directors of Globix Corporation from 2004 to 2005, Anacomp from
2002 to 2003, Leap Wireless International Inc. from 2003 to 2004 and NEON Communications Group, Inc. in 2005.
Mr. Barr brings to the Board his extensive experience as a senior executive and a member of various boards of
directors.
Mr. Kenneth Kong, age 43, has served as a member of the Board since November 2016. He is a Senior Vice
President at Steel Services, Ltd. (“Steel Services”), a management and advisory company that provides management services
to Steel Partners Holdings, L.P. and its affiliates. As an investment professional at Steel Services, Mr. Kong sources and
analyzes investment opportunities in publicly traded securities in a diverse number of industries. He is also a member of the
Mergers and Acquisitions team at Steel Services focused on deal sourcing, due diligence and analysis. Since joining the firm
in 1997 as an investment analyst, Mr. Kong also performed in various key positions in managing investor relations,
marketing and administration for Steel Partners II, L.P., Steel Partners Japan Strategic Fund, L.P. and Steel Partners China
Access I, L.P. From 2006 to 2016, he managed Steel Partners China Access I, L.P., a private investment fund focused on
investing in publicly listed state owned enterprises in the People’s Republic of China. Mr. Kong currently serves as a Trustee
BNS Holding Liquidating Trust, Inc. since 2012 and as a Director of Ore Holdings, Inc. since October 2010. Additionally, he
has served as a Director on several private companies.
Mr. Kong’s brings to the Board an extensive knowledge of capital allocation and related matters.
6
Mr. Michael A Pangia, age 56, has been our President and CEO and a member of the Board since July 2011. From
March 2009 to July 2011, he served as our Chief Sales Officer where he was responsible for company-wide operations of the
Global Sales and Services organization. Prior to joining Aviat, Mr. Pangia served as senior vice president, Global Sales
Operations and Strategy, at Nortel, where he was responsible for all operational aspects of the Global Sales function. Prior to
that, he was president of Nortel’s Asia region, where his key responsibilities included sales and overall business management
for all countries in the region where Nortel did business.
Mr. Pangia’s current and prior service as a senior executive officer with large technology driven companies with
international operations provide him with an extensive knowledge base of complex management, financial, operational and
governance issues faced by public companies with global operations. He also brings a high level of financial literacy to the
Board through both formal education and over 15 years’ experience in multiple finance functional areas, including cost
accounting, financial planning and analysis, and mergers and acquisitions.
Mr. John J. Quicke, age 68, has served as a member of the Board since January 2015. Mr. Quicke has served as a
director of Rowan Companies, plc, an offshore contract drilling company, since January 2009. Since January 2016, he has
served as a consultant, and as Chairman of Steel Energy Services LTD, a subsidiary of Steel Partners Holdings, L.P. He
served on the Board of Directors of Steel Excel from 2007 to July 2016, and served as its Interim President and Chief
Executive Officer from January 2010 to March 2013. In March 2013, he was named President and Chief Executive Officer of
Steel Excel’s Steel Energy segment and served in that capacity until December 2015. Mr. Quicke served as Managing
Director and operating partner of Steel Partners LLC, a subsidiary of Steel Partners Holdings L.P. from September 2005 until
December 2015. Mr. Quicke has been associated with Steel Partners and its affiliates since September 2005. Previously, Mr.
Quicke served in various capacities at Sequa Corporation, a diversified manufacturer, including Vice Chairman and Executive
Officer, President, and as a director of the company. Mr. Quicke previously served as a Vice President and director of Handy
& Harman Ltd. (“H&H”), director, President and Chief Executive Officer of DGT Holdings Corp. and as a director of
Angelica Corporation, a provider of health care linen management services, Layne Christensen Company, a global solutions
provider for essential natural resources, NOVT Corporation, a vascular brachytherapy business, JPS Industries, Inc., a
manufacturer of mechanically formed glass and aramid substrate materials for specialty applications and H&H.
Mr. Quicke’s extensive experience, including board service on ten public companies over 20 years, over 25 years of
significant operating experience, which includes participation in acquisition and disposition transactions, as well as his
financial and accounting expertise, enable him to assist in the effective management of the Company.
Dr. James C. Stoffel, age 71, has served as a member of the Board since January 2007 and a lead independent
director from July 2010 to February 2015. Presently, Dr. Stoffel is on the Board of Directors of Harris Corporation, of which
he has been a member since August 2003, and is also a member of its Corporate Governance Committee. Additionally, since
2006 he has served as General Partner of Trillium International, LLC, a private equity company, and is a senior advisor to
other private equity companies. He also serves on the boards of the following privately held companies: Display Data, Omni-
ID Ltd., Quintel Ltd., and Intrinsiq Ltd. Prior to his retirement, Dr. Stoffel was Senior Vice President, Chief Technical Officer
and Director of Research and Development of Eastman Kodak Company (“Kodak”). He held this position from 2000 to April
2005. He joined Kodak in 1997 as Vice President and Director, Electronic Imaging Products Research and Development, and
became Director of Research and Engineering in 1998. Prior to joining Kodak, he was with Xerox Corporation (“Xerox”),
where he began his career in 1972. His most recent position with Xerox was Vice President, Corporate Research and
Technology. Dr. Stoffel serves on the Advisory Board for Research and Graduate Studies at the University of Notre Dame.
Dr. Stoffel’s prior service as a senior executive of large, publicly traded, technology driven companies, and his more
than 30 years’ experience focused on technology development, provide him with an extensive knowledge of the complex
technical research and development, management, financial and governance issues faced by a public company with
international operations. This experience brings our Board important knowledge and expertise related to research and
development, new product introductions, strategic planning, manufacturing, operations and corporate finance. His experience
as an advisor to private equity firms also provides him with additional knowledge related to strategic planning, capital
raising, mergers and acquisitions and economic analysis. Dr. Stoffel also has gained an understanding of public company
governance and executive compensation through his service on public company boards, including as a lead independent
director.
7
Board Leadership
The Board does not have a policy regarding the separation of the roles of CEO and Chairman of the Board as the
Board believes that it is in the best interests of the Company for the Board to make that determination based on the position
and direction of the Company and the membership of the Board. The members of the Board possess considerable experience
and unique knowledge of the challenges and opportunities that the Company faces, and are in the best position to evaluate the
needs of the Company and how to best organize the capabilities of the directors and management to meet those needs.
When the CEO also serves as Chairman of the Board, our Corporate Governance Guidelines provide for the
appointment of a lead independent director.
The Board has determined that having Mr. Mutch serve as Chairman is in the best interest of the Company at this
time. This structure ensures a greater role for the independent directors in the oversight of the Company and active
participation of the independent directors in setting agendas and establishing Board priorities and procedures, and is useful in
establishing a system of corporate checks and balances. Separating the Chairman position from the CEO position allows the
CEO to focus on setting the strategic direction of the Company and the day-to-day leadership and performance of the
Company, while the Chairman leads the Board in its role of, among other things, providing advice to, and overseeing the
performance of, the CEO. In addition, managing the Board can be a time-intensive responsibility, and this structure permits
Mr. Pangia, our CEO, to focus on the management of the Company’s day-to-day operations.
The Board’s Role in Risk Oversight
Assessing and managing risk is the responsibility of the management of the Company. The Board, through the
Governance and Nominating Committee, oversees and reviews certain aspects of the Company’s risk management efforts,
focusing on the adequacy of the Company’s risk management and risk mitigation processes. At the Board’s request,
management proposed a process for identifying, evaluating and monitoring material risks and such process has been
approved by the Board and is currently in effect. This risk management program is overseen by senior management who, in
connection with their regular review of the overall business, identify and prioritize a broad range of material risks (e.g.,
financial, strategic, compliance and operational). Senior management also discusses mitigation plans to address such material
risks. Prioritized risks and management’s plans for mitigating such risks are regularly presented to the full Board for
discussion and in order to ensure monitoring. In addition to the risk management program, the Board encourages
management to promote a corporate culture that incorporates risk management into the Company’s corporate strategy and
day-to-day business operations.
A discussion of risk factors in the Company’s compensation design can be found below under the heading “Risk
Considerations in Our Compensation Program.”
Principles of Corporate Governance, Bylaws and Other Governance Documents
The Board has adopted Corporate Governance Guidelines and other corporate governance documents that
supplement certain provisions of our Bylaws and relate to, among other things, the composition, structure, interaction and
operation of the Board. Some of the key governance features of our Corporate Governance Guidelines, Bylaws and other
governance documents are summarized below.
Majority Voting in Director Elections. In an uncontested election of directors, to be elected to the Board, each
nominee must receive the affirmative vote of shares representing a majority of the votes cast, meaning that the number of
votes “FOR” a director nominee must exceed the number of votes “AGAINST” that director nominee.
Aviat’s Corporate Governance Guidelines provide that any director nominee in an uncontested election who does not
receive a greater number of votes “FOR” his or her election than votes “AGAINST” such election must, promptly following
certification of the stockholder vote, offer his or resignation to the Board for consideration in accordance with the following
procedures. All of these procedures will be completed within 90 days following certification of the stockholder vote.
The Board, through its Qualified Independent Directors (as defined below), will evaluate the best interests of the
Company and its stockholders and decide the action to be taken with respect to such offered resignation, which can include,
without limitation: (i) accepting the resignation; (ii) accepting the resignation effective as of a future date not later than 180
8
days following certification of the stockholder vote; (iii) rejecting the resignation but addressing what the Qualified
Independent Directors believe to be the underlying cause of the withhold votes; (iv) rejecting the resignation but resolving
that the director will not be re-nominated in the future for election; or (v) rejecting the resignation.
In reaching their decision, the Qualified Independent Directors will consider all factors they deem relevant,
including but not limited to: (i) any stated reasons why stockholders did not vote for such director; (ii) the extent to which the
“AGAINST” votes exceed the votes “FOR” the election of the director and whether the “AGAINST” votes represent a
majority of the outstanding shares of common stock; (iii) any alternatives for curing the underlying cause of the “AGAINST”
votes; (iv) the director’s tenure; (v) the director’s qualifications; (vi) the director’s past and expected future contributions to
the Company; (vii) the overall composition of the Board, including whether accepting the resignation would cause the
Company to fail or potentially fail to comply with any applicable law, rule or regulation of the SEC or the NASDAQ Listing
Rules; and (viii) whether such director’s continued service on the Board for a specified period of time is appropriate in light
of current or anticipated events involving the Company.
Following the Board’s determination, the Company will, within four business days, disclose publicly in a document
furnished or filed with the Securities and Exchange Commission (the “SEC”) the Board’s decision as to whether or not to
accept the resignation offer. The disclosure will also include a description of the process by which the decision was reached,
including, if applicable, the reason or reasons for rejecting the offered resignation.
A director who is required to offer his or her resignation in accordance with this policy may not be present during
the deliberations or voting whether to accept his or her resignation or, except as otherwise provided below, a resignation
offered by any other director in accordance with this policy. Prior to voting, the Qualified Independent Directors may afford
the affected director an opportunity to provide any information or statement that he or she deems relevant.
For purposes of this policy, “Qualified Independent Directors” means all directors who (i) are independent directors
(as defined in accordance with the NASDAQ Listing Rules) and (ii) are not required to offer their resignation in connection
with an election in accordance with this policy. If there are fewer than three independent directors then serving on the Board
who are not required to offer their resignations in accordance with this policy, then the Qualified Independent Directors
means all of the independent directors, and each independent director who is required to offer his resignation in accordance
with this policy must recuse himself from the deliberations and voting only with respect to his individual offer to resign.
All nominees for election as a director in an uncontested election are deemed to have agreed to abide by this policy
and will offer to resign and will resign if requested to do so in accordance with this policy (and will if requested submit an
irrevocable resignation letter, subject to this majority voting policy, as a condition to being nominated for election).
Prohibition Against Pledging Aviat Securities and Hedging Transactions. In accordance with Aviat’s Code of
Conduct, directors and executive officers are prohibited from pledging Aviat securities and engaging in hedging transactions
with respect to Aviat securities. Aviat specifically prohibits directors and executive officers from holding Aviat securities in
any margin account for investment purposes or otherwise using Aviat securities as collateral for a loan. Such persons are also
prohibited from purchasing certain instruments (including prepaid variable forward contracts, equity swaps, and collars) and
engaging in transactions designed to hedge or offset any decrease in the value of Aviat securities.
Board Committees
The Board maintains an Audit Committee, a Compensation Committee and a Governance and Nominating
Committee, as its regular committees. Copies of the charters for the Audit Committee, the Compensation Committee and the
Governance and Nominating Committee are available on our website at www.investors.aviatnetworks.com/documents.cfm.
9
The following table shows, at the conclusion of fiscal year 2017, the Chairman and members of each committee, the
number of committee meetings held and the principal functions performed by each committee.
Committee
Audit
Number of
Meetings in
Fiscal 2017
8
Members
John Mutch*
Wayne Barr Jr.
John J. Quicke
Principal Functions
• Selects our independent registered public accounting
firm
• Reviews reports of our independent registered public
accounting firm
• Reviews and pre-approves the scope and cost of all
services, including all non-audit services, provided by
the firm selected to conduct the audit
• Monitors the effectiveness of the audit process
• Reviews management’s assessment of the adequacy of
financial reporting and operating controls
• Monitors corporate compliance program
Dr. James C. Stoffel*
John J. Quicke
Kenneth Kong
• Reviews our executive compensation policies and
strategies
• Oversees and evaluates our overall compensation
structure and programs
John J. Quicke*
Dr. James Stoffel
John Mutch
• Develops and implements policies and practices relating
to corporate governance
• Reviews and monitors implementation of our policies
and procedures
• Reviews the process by which management identifies
and mitigates key areas of risk and reviews critical risk
areas with the Board
• Assists in developing criteria for open positions on the
Board
• Reviews and recommends nominees for election of
directors to the Board
• Reviews and recommends policies, if needed for
selection of candidates for directors
Compensation
Governance and
Nominating
7
4
______________________
* Chairman of Committee
Audit Committee
The Audit Committee is primarily responsible for selecting, and approving the services performed by, our
independent registered public accounting firm, as well as reviewing our accounting practices, corporate financial reporting
and system of internal controls over financial reporting. No material amendments to the Audit Committee Charter were made
during fiscal year 2017. During fiscal year 2017, the Audit Committee was comprised of independent, non-employee
members of our Board who were “financially sophisticated” under the NASDAQ Listing Rules.
The Board has determined that Mr. Mutch qualifies as an “audit committee financial expert,” as defined under Item
407(d)(5)(i) of Regulation S-K under the Securities Act of 1933 and the Exchange Act. Such status does not impose on any
director duties, liabilities or obligations that are greater than the duties, liabilities or obligations otherwise imposed on a
director as members of our Audit Committee and the Board.
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Compensation Committee
The Compensation Committee has the authority and responsibility to approve our overall executive compensation
strategy, to administer our annual and long-term compensation plans and to review and make recommendations to the Board
regarding executive compensation. The Compensation Committee is comprised of independent, non-employee members of
the Board in accordance with NASDAQ Listing Rules. During fiscal year 2017, the Compensation Committee utilized Pearl
Meyer & Partners, LLC (“Pearl Meyer”) as an independent, third-party consulting firm.
Compensation Committee Interlock and Insider Participation
No member of the Compensation Committee was an officer or employee or former officer of the Company. None of
our executive officers currently serves or in the past year has served as a member of the board of directors or compensation
committee of any entity that has one or more executive officers serving on our Board or Compensation Committee.
Governance and Nominating Committee
Each member of the Governance and Nominating Committee met the independence requirements of the NASDAQ
Listing Rules.
The Governance and Nominating Committee develops and implements policies and practices related to corporate
governance consistent with sound corporate governance principles. The Governance and Nominating Committee also reviews
the process by which management identifies and mitigates key areas of risk and reviews critical risk areas with the Board.
The Governance and Nominating Committee also recommends candidates to the Board and periodically reviews
whether a more formal selection policy should be adopted. There is no difference in the manner in which the committee
members evaluate nominees for director based on whether the nominee is recommended by a stockholder. We currently do
not pay a third party to identify or assist in identifying or evaluating potential nominees, although we may in the future utilize
the services of such third parties.
In reviewing potential candidates for the Board, the Governance and Nominating Committee considers the
individual’s experience and background. Candidates for the position of director should exhibit proven leadership capabilities,
high integrity, exercise high level responsibilities within their chosen career, and possess an ability to quickly grasp complex
principles of business, finance, international transactions and communications technologies. In general, candidates who have
held an established executive level position in business, finance, law, education, research, government or civic activity will be
preferred.
Although the Governance and Nominating Committee has not adopted a formal diversity policy with regard to the
selection of director nominees, diversity is one of the factors that the committee considers in identifying director nominees.
When identifying and recommending director nominees, the Governance and Nominating Committee views diversity
expansively to include, without limitation, concepts such as race, gender, national origin, differences of viewpoint,
professional experience, education, skill and other qualities or attributes that contribute to board diversity. As part of this
process, the Governance and Nominating Committee evaluates how a particular candidate would strengthen and increase the
diversity of the Board in terms of how that candidate may contribute to the Board’s overall balance of perspectives,
backgrounds, knowledge, experience, skill sets and expertise in substantive matters pertaining to the Company’s business.
In making its recommendations, the Governance and Nominating Committee bears in mind that the foremost
responsibility of a director of a corporation is to represent the interests of the stockholders as a whole. The Governance and
Nominating Committee intends to continue to evaluate candidates for election to the Board on the basis of the foregoing
criteria.
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Stockholder Communications with the Board
Stockholders who wish to communicate directly with the Board may do so by submitting a comment via the
Company’s website at www.investors.aviatnetworks.com/contactBoard.cfm or by sending a letter addressed to: Aviat
Networks, Inc., c/o Corporate Secretary, 860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035. The Corporate
Secretary monitors these communications and provides a summary of all received messages to the Board at its regularly
scheduled meetings. When warranted by the nature of communications, the Corporate Secretary will request prompt attention
by the appropriate committee or independent director of the Board, independent advisors or management. The Corporate
Secretary may decide in her judgment whether a response to any stockholder communication is appropriate.
Code of Conduct
We implemented our Code of Conduct effective January 26, 2007. All of our employees, including the CEO, Chief
Financial Officer (“CFO”) and Principal Accounting Officer, are required to abide by the Code of Conduct to help ensure that
our business is conducted in a consistently ethical and legal manner. The Audit Committee has adopted a written policy, and
management has implemented a reporting system, intended to encourage our employees to bring to the attention of
management and the Audit Committee any complaints regarding the integrity of our internal system of controls over financial
reporting, or the accuracy or completeness of financial or other information related to our financial statements.
TRANSACTIONS WITH RELATED PERSONS
During fiscal year 2017, we believe there were no transactions, or series of similar transactions, to which we were or
are to be a party in which the amount exceeded $120,000, and in which any of our directors or executive officers, any holders
of more than 5% of our common stock or any members of any such person’s immediate family, had or will have a direct or
indirect material interest, other than compensation described in the sections titled “Director Compensation and Benefits” and
“Executive Compensation.”
It is the policy and practice of our Board to review and assess information concerning transactions involving related
persons. Related persons include our directors and executive officers and their immediate family members. If the
determination is made that a related person has a material interest in a transaction involving us, then the disinterested
members of our Board would review and approve or ratify it, and we would disclose the transaction in accordance with SEC
rules and regulations. If the related person is a member of our Board, or a family member of a director, then that director
would not participate in any discussion involving the transaction at issue.
Our Code of Conduct prohibits all employees, including our executive officers, from benefiting personally from any
transactions with us other than approved compensation benefits.
DIRECTOR COMPENSATION AND BENEFITS
The form and amount of director compensation is reviewed and assessed from time to time by the Compensation
Committee with changes, if any, recommended to the Board for action. Director compensation may take the form of cash,
equity, and other benefits ordinarily available to directors.
Directors who are not employees of ours received the following fees, as applicable, for their services on our Board
during fiscal year 2017:
•
•
•
•
$60,000 basic annual cash retainer, payable on a quarterly basis, which a director may elect to receive in the
form of shares of common stock;
$25,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Board;
$10,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Audit Committee;
$5,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Governance and
Nominating Committee;
12
•
$8,000 annual cash retainer, payable on a quarterly basis, for service as Chairman of the Compensation
Committee; and
• Annual grant of restricted shares of common stock valued (based on market prices on the date of grant) at
$60,000, with 100% vesting at the earlier of (1) the day before the annual stockholders’ meeting, or (2) one year
from grant date, subject to continuing service as a director.
Directors are eligible to defer payment of all or a portion of the retainer fees and restricted stock awards that are
payable to them. Directors may choose either a lump sum or installment distribution of such fees and awards. Installment
distributions are payable in annual installments over a period no longer than 10 years.
We reimburse each non-employee director for reasonable travel expenses incurred and in connection with attendance
at Board and committee meetings on our behalf, and for expenses such as supplies and continuing director education costs,
including travel for one course per year. Employee directors are not compensated for service as a director.
Fiscal Year 2017 Compensation of Non-Employee Directors
Our non-employee directors received the following aggregate amounts of compensation in respect of fiscal year
2017:
Name
Wayne Barr (1)
Kenneth Kong (1)
John Mutch
John J. Quicke
Dr. James C. Stoffel
Fees Earned and
Paid in Cash
Stock Awards (2)
($)
($)
Total
($)
30,000
30,000
95,000
65,000
68,000
61,741
61,741
61,741
61,741
61,741
91,741
91,741
156,741
126,741
129,741
__________________
1. Mr. Barr and Mr. Kong became directors in November 2016.
2. The amounts shown in this column reflect the aggregate grant date fair value of the stock awards and option awards
granted to our non-employee directors computed in accordance with FASB ASC Topic 718. The assumptions made in
determining the fair values of our stock awards and option awards are set forth in Notes 1 and 8 to our fiscal year 2017
Consolidated Financial Statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal year ended
June 30, 2017, as filed with the SEC on September 6, 2017.
As of June 30, 2017, our non-employee directors held the following numbers of unvested restricted shares of
common stock and stock options, all of which were granted under the 2007 Plan:
Name
Wayne Barr Jr.
Kenneth Kong
John Mutch
John J. Quicke
Dr. James C. Stoffel
Unvested Stock
Awards
4,474
4,474
4,474
4,474
4,474
13
Indemnification
Our Bylaws require us to indemnify each of our directors and officers with respect to their activities as a director,
officer, or employee of ours, or when serving at our request as a director, officer, or trustee of another corporation, trust, or
other enterprise, against losses and expenses (including attorney fees, judgments, fines, and amounts paid in settlement)
incurred by them in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative, to which they are, or are threatened to be made, a party(ies) as a result of their service to us. In addition, we
carry directors’ and officers’ liability insurance, which includes similar coverage for our directors and executive officers. We
will indemnify each such director or officer for any one or a combination of the following, whichever is most advantageous
to such director or officer:
• The benefits provided by our Bylaws in effect on the date of the indemnification agreement or at the time
expenses are incurred by the director or officer;
• The benefits allowable under Delaware law in effect on the date the indemnification bylaw was adopted, or as
such law may be amended;
• The benefits available under liability insurance obtained by us; and
•
Such benefits as may otherwise be available to the director or officer under our existing practices.
Under our Bylaws, each director or officer will continue to be indemnified even after ceasing to occupy a position as
an officer, director, employee or agent of ours with respect to suits or proceedings arising from his or her service with us.
In addition, the Company has entered into indemnification agreement with each director and officer.
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as noted below, the following table sets forth information with respect to the beneficial ownership of our
common stock as of February 1, 2018 by each person or entity known by us to beneficially own more than 5 percent of our
common stock, by our directors, by our nominees for director, by our named executive officers and by all our directors,
nominees for director and executive officers as a group. Except as indicated in the footnotes to this table, and subject to
applicable community property laws, the persons listed in the table below have sole voting and investment power with
respect to all shares of our common stock shown as beneficially owned by them. Unless otherwise indicated, the address of
each of the beneficial owners identified is c/o Aviat Networks, Inc., 860 N. McCarthy Blvd., Suite 200, Milpitas, California
95035. As of February 1, 2018, there were 5,340,851 shares of our common stock outstanding.
Name and Address of Beneficial Owner
Steel Partners Holdings L.P.
590 Madison Avenue, 32nd Floor
New York, NY
Schneider Capital Management Corporation
460 E. Swedesford Road, Suite 2000
Wayne, PA 19087
Royce and Associates, LLC
745 Fifth Avenue
New York, NY 10151
Shares Beneficially Owned as of February 1,
2018(1)
Number of
Shares of
Common Stock (2)
Percentage of Voting
Power of Common
Stock
670,240 (3)
12.5%
518,792 (4)
373,572 (5)
9.7%
7.0%
6.5%
Group comprised of Julian Singer, JDS1, LLC and David S. Oros
345,291 (6)
c/o Julian Singer
2200 Fletcher Avenue, Suite 501
Fort Lee, NJ 07024
Renaissance Technologies
600 Route 25A
East Setauket, New York 11733
Named Executive Officers, Nominees for Director, and Directors
Wayne Barr, Jr.
Meena Elliott
Kenneth Kong
Ralph S. Marimon
Shaun McFall
John Mutch
Michael Pangia
John J. Quicke
Dr. James C. Stoffel
Heinz H. Stumpe
All directors, nominee for director and executive officers as a group (10
persons)
__________________________
* Less than one percent
340,988 (7)
6.4%
4,474 (9)
35,889 (8)
4,474 (8)
3,188 (9)
42,154 (10)
19,245 (9)
123,841 (11)
27,579 (9)
27,551 (12)
43,281 (13)
331,676 (14)
*
*
*
*
*
*
2.3%
*
*
*
6.0%
(1)
Beneficial ownership is determined under the rules and regulations of the SEC, and generally includes voting or
dispositive power with respect to such shares.
15
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
Shares of common stock that a person has the right to acquire within 60 days are deemed to be outstanding and
beneficially owned by that person for the purpose of computing the total number of shares beneficially owned by
that person and the percentage ownership of that person, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person or group. Accordingly, the amounts in the table include
shares of common stock that such person has the right to acquire within 60 days of February 1, 2018 by the exercise
of stock options.
Based solely on a review of Amendment No. 6 to the Schedule 13D filed with the SEC on January 13, 2015 by Steel
Excel Inc., Steel Partners Holdings L.P., SPH Group LLC, SPH Group Holdings LLC and Steel Partners Holdings
GP Inc. Each of the foregoing entities reported shared voting and dispositive power with respect to all of such
shares.
Based solely on a review of the Schedule 13F filed with the SEC on November 13, 2017 by Schneider Capital
Management Corporation. Schneider Capital Management Corporation reported sole voting power with respect to
461,040 of such shares and sole dispositive power with respect to all of such shares.
Based solely on a review of the Schedule 13F filed with the SEC on January 17, 2018 by Royce & Associates, LLC.
Royce & Associates, LLC reported sole voting and dispositive power with respect to all such shares.
Based solely on a review of the Schedule 13D filed with the SEC on September 14, 2016, by Julian Singer, JDS1,
LLC and David S. Oros. Mr. Singer and JDS1, LLC reported sole voting and dispositive power with respect to
295,291 shares. Mr. Oros reported sole voting and dispositive power with respect to 50,000 shares.
Based solely on a review of the Schedule 13F filed with the SEC on November 13, 2017, by Renaissance
Technologies LLC. Renaissance Technologies LLC reported sole voting power with respect to 292,702 of such
shares, and sole dispositive power with respect to all such shares.
Includes 27,822 shares of common stock that are subject to option that may be exercised within 60 days of
February 1, 2018.
Information is as of February 1, 2018. There were no option or restricted stock units that may be exercised or that
will vest within 60 days of February 1, 2018.
Includes 31,192 shares of common stock that are subject to option that may be exercised within 60 days of
February 1, 2018.
Includes 91,293 shares of common stock that are subject to option that may be exercised within 60 days of
February 1, 2018.
Includes 6,943 shares of common stock that are subject to option that may be exercised within 60 days of
February 1, 2018.
Includes 35,737 shares of common stock that are subject to option that may be exercised within 60 days of
February 1, 2018.
Includes 192,987 shares of common stock that are subject to option that may be exercised within 60 days of
February 1, 2018.
16
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
For fiscal year 2017, the Audit Committee consisted of four members of the Board, each of whom was independent
of the Company and its management, as defined in the NASDAQ Listing Rules. The Board has adopted, and periodically
reviews, the Audit Committee charter. The charter specifies the scope of the Audit Committee’s responsibilities and how it
carries out those responsibilities.
The Audit Committee reviews management’s procedures for the design, implementation, and maintenance of a
comprehensive system of internal controls over financial reporting and disclosure controls and procedures focused on the
accuracy of our financial statements and the integrity of our financial reporting systems. The Audit Committee provides the
Board with the results of its examinations and recommendations and reports to the Board as it may deem necessary to make
the Board aware of significant financial matters requiring the attention of the Board.
The Audit Committee does not conduct auditing reviews or procedures. The Audit Committee monitors
management’s activities and discusses with management the appropriateness and sufficiency of our financial statements and
system of internal control over financial reporting. Management has primary responsibility for the Company’s financial
statements, the overall reporting process and our system of internal control over financial reporting. Our independent
registered public accounting firm audits the financial statements prepared by management, expresses an opinion as to whether
those financial statements fairly present our financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States (“U.S. GAAP”) and discusses with the Audit Committee any
issues they believe should be raised with us.
The Audit Committee reviews reports from our independent registered public accounting firm with respect to their
annual audit and approves in advance all audit and non-audit services provided by our independent auditors in accordance
with applicable regulatory requirements. The Audit Committee also considers, in advance of the provision of any non-audit
services by our independent registered public accounting firm, whether the provision of such services is compatible with
maintaining their independence.
In accordance with its responsibilities, the Audit Committee has reviewed and discussed with management the
audited financial statements for the year ended June 30, 2017 and the process designed to achieve compliance with Section
404 of the Sarbanes-Oxley Act of 2002. The Audit Committee has also discussed with our independent registered public
accounting firm, BDO, the matters required to be discussed by Auditing Standard No. 16, “Communications with Audit
Committees” issued by the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee has received
the written disclosures and letter from BDO required by applicable requirements of the PCAOB regarding the
communications of BDO with the Audit Committee concerning independence, and has discussed with BDO its independence,
including whether the provision by BDO of non-audit services, as applicable, is compatible with its independence.
Based on these reviews and discussions, the Audit Committee recommended to the Board that the Company’s
audited financial statements for the year ended June 30, 2017 be included in Company’s Annual Report on Form 10-K.
Audit Committee of the Board of Directors
John Mutch, Chairman
Wayne Barr Jr.
John J. Quicke
17
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
BDO was our independent registered public accounting firm for the fiscal years ending June 30, 2017 and July 1,
2016. Representatives of BDO will be present at the Annual Meeting, will have opportunity to make a statement should they
so desire and will be available to respond to appropriate questions.
The following table sets forth the fees billed for services rendered by our auditors, BDO, for each of our last two
fiscal years:
Audit Fees (2)
Audit-Related Fees (3)
Tax Fees (4)
All Other Fees (5)
Total Fees for Services Provided
________________________
Fiscal Year 2017(1)
1,278,000
$
Fiscal Year 2016(1)
1,408,000
$
—
52,000
—
—
9,000
—
$
1,330,000
$
1,417,000
(1)
(2)
(3)
(4)
(5)
Includes fees to be billed to us by BDO and BDO’s international affiliates for fiscal 2017 and 2016 integrated audit
and quarterly reviews.
Audit fees include fees associated with the annual audit, as well as reviews of our quarterly reports on Form 10-Q,
SEC registration statements, accounting and reporting consultations and statutory audits required internationally for
our subsidiaries.
Fees for audit-related services that are not categorized as audit fees.
Tax fees were for services related to tax compliance and tax planning services.
Other fees include fees billed for other services rendered not included within Audit Fees, Audit Related Fees or Tax
Fees.
BDO did not perform any professional services related to financial information systems design and implementation
for us in fiscal year 2017 or fiscal year 2016.
The Audit Committee has determined in its business judgment that the provision of non-audit services described
above is compatible with maintaining BDO’s independence.
Audit Committee Pre-Approval Policy
Section 10A(i)(1) of the Exchange Act and related SEC rules require that all auditing and permissible non-audit
services to be performed by a company’s principal accountants be approved in advance by the Audit Committee of the Board,
subject to a “de minimis” exception set forth in the SEC rules (the “De Minimis Exception”). Pursuant to Section 10A(i)(3)
of the Exchange Act and related SEC rules, the Audit Committee has established procedures by which the Chairperson of the
Audit Committee may pre-approve such services provided the pre-approval is detailed as to the particular service or category
of services to be rendered and the Chairperson reports the details of the services to the full Audit Committee at its next
regularly scheduled meeting. All audit-related and non-audit services in fiscal years 2017 and 2016, if any, were pre-
approved by the Audit Committee at regularly scheduled meetings of the Audit Committee, or through the process described
in this paragraph, and none of such services was performed pursuant to the De Minimis Exception.
18
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview and Summary
This Compensation Discussion and Analysis, which has been prepared by management, is intended to help our
stockholders understand our executive compensation philosophy, objectives, policies, practices, and decisions. It is also intended
to provide context for the compensation information for our CEO, CFO and the three other most highly compensated executive
officers (our “named executive officers”) detailed in the Summary Compensation Table below and in the other tables and
narrative discussion that follow.
To understand our approach to executive compensation, you should read the entire Compensation Discussion and
Analysis that follows. The following brief summary introduces the major topics covered:
• The cornerstone of our executive compensation program is pay for performance. Accordingly, while we pay
competitive base salaries and other benefits, our named executive officers’ compensation opportunity is heavily
weighted toward variable pay.
• The objectives of our executive compensation program are to reward superior performance, motivate our executives
to achieve our goals and attract and retain a strong management team.
• The Compensation Committee oversees our compensation program. The Compensation Committee makes the
majority of executive compensation decisions, but also makes recommendations on certain aspects of the program to
the full Board. The Compensation Committee is composed solely of independent directors. In its work, the
Compensation Committee is assisted by independent compensation consultants engaged by the Compensation
Committee.
•
In reviewing the elements of our executive compensation program — base salary, annual incentives, long-term
incentives and post-termination compensation — our Compensation Committee reviews market data from similar
companies.
• Our competitive positioning philosophy is to set compensation at approximately the 50th percentile of compensation
at peer group companies with allowances for internal factors such as tenure, individual performance and the nature
of the relative scope and complexity of the role.
• Our annual incentive program is based on specific Company financial performance goals for the fiscal year, and
includes provisions to “claw back” any excess amounts paid in the event of a later correction or restatement of our
financial statements.
• We believe the compensation program for the named executive officers supported our strategic priorities and aligned
compensation earned with the Company’s financial performance in fiscal year 2017. Moreover, we believe that our
emphasis on long term stockholder value creation results in an executive compensation program structure that is
beneficial to our Company and our stockholders.
Compensation Governance Best Practices
The Compensation Committee believes that a demonstrated commitment to best practices in compensation governance is
itself an essential component of our approach to executive compensation. The following practices are some examples of this
commitment:
• Pay for performance: A substantial portion of our executives’ compensation opportunity is tied to achieving specified
corporate objectives. In fiscal year 2017, 100% of the Annual Incentive Plan (“AIP”) was performance based and at-risk,
subject to achievement of certain financial objectives. Under our Long-Term Incentive Plan (“LTIP”), half the equity
awards were in the form of performance shares subject to achievement of a targeted financial measure.
19
• Mix of short-term and long-term compensation: Short term compensation for our executive officers is comprised of
base salaries and the AIP, which pays out only to the extent that the Company meets its financial targets. Our LTIP,
representing long-term compensation, is comprised of performance shares and service based restricted stock.
Performance shares are earned, if the performance criteria are met, at the end of a three-year plan cycle, while service-
based restricted stock vests over a three-year period.
•
Independent compensation consultant: The Compensation Committee directly retains the services of Pearl Meyer, an
independent compensation consultant, to advise it in determining reasonable and market-based compensation policies.
• Prohibition on hedging and pledging: Our executive officers, together with all other employees, are prohibited from
engaging in hedging, pledging or similar transactions with respect to our securities.
• No perquisites: Our executive officers are not provided with club memberships, personal use of corporate aircraft or any
other perquisite or special benefits other than our occasional provision of relocation expense reimbursement.
• No single trigger change of control acceleration: Except for a market-based stock unit award of 50,000 shares made to
Michael Pangia, our President and Chief Executive Officer, which is subject to accelerated vesting upon a change of
control, as described below under “Potential Payments Upon Termination or Change of Control”, change of control
arrangements in employment agreements with our executive officers provide for acceleration of vesting for outstanding
equity awards only in the event that we are both subject to a change in control and the executive officer’s employment
terminates thereafter for reasons specified in the employment agreements.
• Clawback: We have a clawback policy that entitles us to recover all or a portion of any performance-based
compensation, including cash and equity components, if our financial statements are restated as a result of errors,
omissions or fraud.
•
Strong compensation risk management: The Compensation Committee reviews and analyzes the risk profile of our
compensation programs and practices on an annual basis.
Compensation Philosophy and Objectives
The primary objectives of our total executive compensation program are to use compensation as a tool to recruit, retain,
and develop outstanding executives and create long term value for our shareholders. The following principles guide our overall
compensation program:
•
reward superior performance;
• motivate our executives to achieve strategic, operational, and financial goals;
•
•
enable us to attract and retain a world-class management team; and
align outcomes and rewards with stockholder expectations.
Each year, the Compensation Committee reviews the executive compensation program to ensure our executive
compensation policies and programs remain appropriately aligned with our evolving business needs and to consider best
compensation practices. Our executive compensation programs are reviewed to ensure that they achieve a balance between
providing strong retention and performance incentives to our executives while accommodating a meaningful and continuing effort
to manage both the Company’s share burn rate and the dilutive effects of equity awards to the Company’s stockholders.
Executive Compensation Process
The Compensation Committee is responsible for establishing and implementing executive compensation policies and
programs in a manner consistent with our compensation objectives and principles. The Compensation Committee, which is
comprised solely of independent directors, reviews and approves the features and design of our executive compensation program,
and approves the compensation levels, individual AIP objectives and total compensation targets for our executive officers other
than our CEO. The independent members of the Board approve the compensation level, individual AIP objectives, and financial
targets for our CEO. The Compensation Committee also monitors executive succession planning and monitors our performance as
it relates to overall compensation policies for employees, including benefit and savings plans.
20
In discharging its responsibilities, the Compensation Committee may engage outside consultants and consult with our
Human Resources Department as well as internal and external legal or accounting advisors, as the Compensation Committee
determines to be appropriate. The Compensation Committee considers recommendations from our CEO and senior management
when making decisions regarding our executive compensation program and compensation of our executive officers. Following
each fiscal year end, our CEO, assisted by our Human Resources Department, assesses the performance of all named executive
officers and other officers. Following this annual performance review process, our CEO recommends base salary and incentive
and equity awards for our named executive officers and other officers to the Compensation Committee. Based on input from our
CEO and management, as well as from independent consultants, if any are used, and, in the case of the CEO’s compensation, the
Compensation Committee’s evaluation of the CEO’s performance, the Compensation Committee determines what changes, if any,
should be made to the executive compensation program and either sets or recommends to the full Board the level of each
compensation element for all of our officers.
Independent Compensation Consultant for Compensation Committee
The Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and
others for assistance. Accordingly, the Compensation Committee has hired Pearl Meyer as an independent consultant to advise the
Compensation Committee on matters related to the compensation of the Company’s executive officers. All services that Pearl
Meyer provided Aviat in fiscal year 2017 were approved by the Compensation Committee and were related to executive or Board
compensation. Pearl Meyer provides an annual review of the Company’s compensation practices, reviews and makes
recommendations regarding Aviat’s compensation peer groups, and provides independent input to the Compensation Committee
on programs and practices.
Compensation Committee Advisor Independence
The Compensation Committee has considered the independence of Pearl Meyer pursuant to the NASDAQ Listing Rules
and related SEC rules finalized in 2012, and has found no conflict of interest in Pearl Meyer continuing to provide advice to the
Compensation Committee. The Compensation Committee is also regularly advised by the Company’s primary outside counsel,
Olshan Frome Wolosky LLP (“Olshan”). Pursuant to the NASDAQ Listing Rules and related SEC rules, the Compensation
Committee has found no conflict of interest in Olshan continuing to provide advice to the Compensation Committee. The
Compensation Committee reassesses the independence of its advisors annually.
Consideration of Say on Pay Results
Each year at our annual meeting, we conduct an advisory vote of our stockholders on our executive compensation
program. Although this vote is not binding on the Board or us, we believe that it is important for our stockholders to have an
opportunity to express their views regarding our executive compensation philosophy, program and practices as disclosed in our
proxy statement on an annual basis. The Board and our Compensation Committee value stockholders’ opinions and, to the extent
there is any significant vote against the compensation of our named executive officers, the Compensation Committee evaluates
whether any actions are warranted or appropriate.
At our 2016 Annual Meeting, 98% of the votes cast on the advisory vote on executive compensation supported our
named executive officers’ compensation as disclosed in the proxy statement. Our Compensation Committee evaluated these
results, considered investor feedback and took into account many other factors in evaluating our executive compensation
programs as discussed in the Compensation Discussion and Analysis. Although none of our Compensation Committee’s
subsequent actions or decisions with respect to the compensation of our executive officers were directly attributable to the results
of the vote, our Compensation Committee took the vote outcome into consideration in the course of its deliberations. Our
Compensation Committee believes that stockholder feedback and concerns on executive compensation matters should be
considered as part of its deliberations and intends to consider the results of future advisory votes in its compensation review
process.
Competitive Benchmarking
Our compensation program for all of our officers is addressed in the context of competitive compensation practices. Our
management and Compensation Committee consider external data to assist in benchmarking total target compensation. For fiscal
year 2017, targets for total cash and cash based compensation (base salary and short-term incentive compensation), long-term
incentives and total direct compensation (base salary and short-term and long-term incentive compensation) for Messrs. Pangia,
Marimon and Stumpe were set based on data collected from our peer group companies and from a published survey source, the
Radford Global Technology Survey for our other named executive officers. In considering data from the Radford Global
Technology Survey, we focused on results for technology companies with annual revenues of less than $500 million. The peer
21
group companies selected and used for compensation comparisons are reflective of our market for executive talent and business
line competitors. Also, the overall composition of the peer group reflects companies of similar complexity and size to us.
For fiscal year 2017, these peer group companies included:
ADTRAN Inc.
CalAmp Corp.
Cohu, Inc.
DragonWave, Inc.
Harmonic Inc.
Ixia
MRV Communications
Novatel Wireless, Inc.
Sonus Networks, Inc.
Bel Fuse, Inc.
Calix, Inc.
Comtech Telecommunications Corp.
Extreme Networks, Inc.
Infinera Corporation
KVH Industries
NeoPhotonics Corporation
ShoreTel, Inc.
Each year, the Compensation Committee reviews the appropriateness of the comparison group used for assessing the
compensation of our CEO and other named executive officers. We made significant modifications to the peer group since fiscal
year 2016 so that our peer group roster better reflects our company size and business model, and also reflects merger and
acquisition activity in our sector. We removed Aruba Networks and Emulex Corporation since they are no longer publicly traded,
and added KVH Industries and Novatel Wireless to bolster our overall sample size and position peer median revenue and market
capitalization more closely to that of our company.
Data for our peer group companies was collected directly from these companies’ proxy statements.
Total Compensation Elements
Our executive compensation program includes four major elements:
•
•
•
•
base salary
annual incentive program
long-term compensation — equity incentives
post-termination compensation
Each named executive officer’s performance is measured against factors such as long and short-term strategic goals and
financial measures of our performance, including factors such as revenue, operating income, cash flow from operations, earnings
before interest, taxes, depreciation and amortization (“EBITDA”) and earnings per share.
Our compensation policy and practice is to target total compensation levels for all officers, including our named
executive officers, nominally at the 50th percentile for similar positions as derived from the market composite data, assuming
experience in the position and competent performance. The Compensation Committee may decide to target total compensation
above or below the 50th percentile for similar positions in unique circumstances based on an individual’s background, experience,
and relative complexity and scope of the applicable role. Though compensation levels may differ among our named executive
officers based upon competitive factors and the role, responsibilities and performance of each named executive officer, there are
no material differences in our compensation policies or in the manner in which total direct compensation opportunity is
determined for any of our named executive officers. Because our CEO has significantly greater duties, responsibilities and
accountabilities than our other named executive officers, the total compensation opportunity for the CEO is higher than for our
other named executive officers. In determining CEO and other named executive officer compensation, the Board also considers
the ratio between our CEO’s compensation and the average compensation of our other named executive officers as compared with
similar ratios for peer group companies. For fiscal year 2017, that ratio was 2.58, compared to a median ratio of 2.41 in the peer
group companies.
22
Base Salary
Base salaries are provided as compensation for day-to-day responsibilities and services to us. Executive salaries are
reviewed annually. Our CEO generally makes recommendations to the Compensation Committee in August of each year
regarding the base pay of each named executive officer, other than himself. The Compensation Committee considers each
executive officer’s responsibilities, as well as the Company’s performance and recommended increases in base salary for select
named executive officers and other officers. In fiscal year 2017, the CEO recommended and the Compensation Committee
approved, that the base salaries for named executive officers be held flat at fiscal 2016 levels. Our CEO’s base salary is
unchanged since fiscal year 2011. Additional details concerning the compensation for our named executive officers for fiscal year
2017 are set forth in the Summary Compensation Table below.
Annual Incentive Plan
The short-term incentive element of our executive compensation program is currently comprised of our AIP. Our AIP is
designed to motivate our executives to focus on achievement of our short-term financial goals. The CEO reviews his
recommendations for each named executive officer with the Compensation Committee, taking into account market data obtained
from Pearl Meyer, the Compensation Committee’s independent consultant. Based on recommendations by the CEO, and as
specified in any applicable employment agreement, the Compensation Committee recommends to the Board an annual incentive
compensation target, expressed as a percentage of base salary, for each executive officer in August. Each named executive
officer’s target annual incentive percentage is benchmarked against the 50th percentile within the market composite for his or her
specific role. The Compensation Committee also recommends to the Board specific Company financial performance measures
and targets including the relative weighting and payout thresholds. The financial targets are aligned with our Board-approved
annual operating plan, and during the year periodic reports are made to the Board about our performance compared with the
targets. Under the AIP, a significant portion of the executive’s annual compensation is tied directly to our financial performance.
The target amount of annual incentive compensation under our AIP, expressed as a percentage of base salary, generally increases
with an executive’s level of management responsibility. AIP target incentive can represent up to 100% of the base salary
compensation for our named executive officers and may be paid in the form of cash, stock or a combination of the two. For fiscal
year 2017, AIP target incentives were set at 100% of base salary for Mr. Pangia, 70% of base salary for Mr. Stumpe and 65% of
base salary for our other named executive officers. If performance results meet target levels, our executives can earn up to a
maximum of 100% of their target incentive. No incentive can be earned for performance below the minimum threshold.
For fiscal year 2017, the AIP provided for an all cash payout. The performance metric was based on the achievement of
an adjusted EBITDA target with a potential payout triggered at threshold adjusted EBITDA targets. The total available cash pool
was restricted to specific percentages of adjusted EBITDA. Adjusted EBITDA was calculated by excluding charges for share-
based compensation, restructuring, and other one-time/non-recurring income or expenses from GAAP-based EBITDA. The
threshold amounts were established and approved in August 2016. The plan provided for no payout if the minimum adjusted
EBITDA threshold was not met, and a total available cash pool equal to 20% of adjusted EBITDA for achievement, between the
minimum threshold and a target threshold.
Fiscal Year 2017 Annual Incentive Plan - Minimum, Target and Maximum Thresholds
Table 1
Fiscal Year 2017 Annual Incentive Plan
Performance
Metric
Adjusted EBITDA
Tiers
Minimum Threshold
Target Threshold
Maximum Threshold
($)
$910,000
$15,250,000
$15,250,000
Payout
(As % of
Award Target)
6%
100%
100%
Results-Driven Entitlement
In fiscal year 2017, the AIP did not guarantee payout of the specified threshold and target amounts, and the
Compensation Committee considered the adjusted EBITDA thresholds to be challenging. During the 2017 fiscal year, we
achieved the minimum threshold target for AIP awards; therefore, all named executive officers received a payout as shown in the
summary compensation table below.
23
Long-Term Compensation — Equity Incentives
The Compensation Committee uses the LTIP as a means for determining awards of stock appreciation rights, restricted
shares, restricted stock units, performance shares, and other stock-based awards to our officers and other executives based on
multi-year performance. All of the LTIP awards are granted under our 2007 Stock Equity Plan (“2007 Plan”).
Our LTIP is designed to motivate our executives to focus on achievement of our long-term financial goals. Equity
awards motivate our executives to achieve our long-term goals and to the extent our results affect our stock price, link such results
with the performance of our stock over a three to four -year period. Using equity awards helps us to retain executives, encourage
share ownership and maintain a direct link between our executive compensation program and the value and appreciation in the
value of our stock.
Performance Shares. In past fiscal years, the Compensation Committee recommended performance share awards that are
earned, if the specified performance criteria are met, at the end of a three year plan cycle. The maximum possible entitlement to
performance shares will occur if 100% of the specified target is achieved. In addition, irrespective of Company performance
versus target, there is no entitlement to performance shares unless the award recipient continues to be employed throughout the
multi-year period. Performance shares are subject to repurchase by the Company at $0.01 per share if eligible employment ends
during the performance measurement period and to the extent the maximum performance is not achieved during the performance
measurement period.
Service-Based Restricted Stock. Service-based restricted stock awards are awards of stock at the start of a vesting period
which is subject to repurchase for nominal consideration if the specified vesting conditions are not satisfied. In addition to their
use as a component of the LTIP, awards of service-based restricted stock may be made on a selective basis to individual
executives primarily to facilitate retention and succession planning or to replace the value of equity awards that may have been
forfeited as a result of the executive’s leaving a former employer. For compensation planning purposes, awards of service-based
restricted stock are valued at the fair market value of the shares on the date of award, which is the closing price on the NASDAQ
Global Select Market on that date, without reduction to reflect vesting or other conditions.
In fiscal year 2017, LTIP awards were composed of 50% performance based and 50% service-based restricted stock.
The performance shares required both achievement of an adjusted EBITDA target specific to fiscal year 2017 performance and
certain service requirements. The adjusted EBITDA target for fiscal year 2017 was set at $1.00. This measure was determined by
taking into consideration that management’s primary focus was to achieve profitability by increasing operating efficiency and also
considering adjusted EBITDA for the past three fiscal years, which were negative: In fiscal Year 2014 adjusted EBITDA was -
$26.2million, in fiscal year 2015 adjusted EBITDA was -$11.0 million and in fiscal year 2016 adjusted EBITDA was -$11.7
million. During the 2017 fiscal year, we achieved the adjusted EBITDA target, therefore, the performance-based stock was
earned. Awards that are earned do not vest until the end of the three-year period which is after fiscal year 2020. Vesting of service-
based restricted stock required continued employment through the third anniversary of date of grant.
Recovery of Executive Compensation
Our executive compensation program permits us to recover or “clawback” all or a portion of any performance-based
compensation, including equity awards, if our financial statements are restated as a result of errors, omissions, or fraud. The
amount which may be recovered will be the amount by which the affected compensation exceeded the amount that would have
been payable had the financial statements been initially filed as restated, or any greater or lesser amount that the Compensation
Committee or our Board shall determine. In no case will the amount to be recovered by us be less than the amount required to be
repaid or recovered as a matter of law. Recovery of such amounts by us would be in addition to any actions imposed by law,
enforcement agencies, regulators, or other authorities.
Hedging and Pledging Prohibition
Our executive officers, as well as all other employees, are prohibited from engaging in hedging, pledging or similar
transactions with respect to our securities where the transaction is designed or intended to decrease the risks associated with
holding our securities. This prohibition includes transactions involving puts, call, collars or other derivative securities.
Perquisites
Our executive officers participate in the same group insurance and employee benefit plans as our other full-time U.S.
employees. We do not provide special benefits or other perquisites to our executive officers.
24
Stock Ownership Guidelines
While we do not have a minimum stock ownership requirement for members of the Board and our named executive
officers, the corporate governance guidelines adopted by the Board encourage the ownership of our common stock. The
Compensation Committee is satisfied that the stock and other equity holdings among our executive officers are sufficient at this
time to provide appropriate motivation to align this group’s long-term interests with those of our stockholders.
Tax and Accounting Considerations
Tax Considerations. The Compensation Committee generally considers the federal income tax and financial accounting
consequences of the various components of the executive compensation program in making decisions about executive
compensation. The Compensation Committee believes that achieving the compensation objectives discussed above is more
important than the benefit of tax deductibility and the executive compensation programs may, from time to time, limit the tax
deductibility of compensation. Nevertheless, when not inconsistent with these objectives, the Compensation Committee
endeavors to award compensation that will be deductible for income tax purposes. Internal Revenue Code Section 162(m) may
limit the tax deductions that a public company can claim for compensation to some of its named executive officers. The Company
does not guarantee that any compensation intended to qualify as deductible performance-based compensation under Section
162(m) so qualifies.
Accounting Considerations. The Compensation Committee also considers the accounting implications of various forms
of executive compensation. In its financial statements, the Company records salaries and performance-based compensation such
as bonuses as expenses in the amount paid or to be paid to the named executive officers. Accounting rules also require the
Company to record an expense in its financial statements for equity awards, even though equity awards are not paid as cash to
employees. The accounting expense of equity awards to employees is calculated in accordance with GAAP. The Compensation
Committee believes that the many advantages of equity compensation, as discussed above, more than compensate for the non-
cash accounting expense associated with them.
Benefits under the 401(k) Plan and Generally Available Benefit Programs
In fiscal year 2017, our named executive officers were eligible to participate in the health and welfare programs that are
generally available to all full-time U.S.-based employees, including medical, dental, vision, life, short-term and long-term
disability insurance, employee counseling assistance, flexible spending accounts and accidental death and dismemberment
insurance.
In addition, the named executive officers and all other eligible U.S.-based employees can participate in our tax-qualified
401(k) Plan. Under the 401(k) Plan, all eligible employees can receive matching contributions from the Company of 2.5% of
compensation contributed. Each employee under the age of 50 can contribute a maximum of $17,500 during each calendar year,
and each employee over the age of 50 can contribute a maximum of $23,000. We do not provide defined benefit pension plans or
defined contribution retirement plans to the named executive officers or other employees other than the 401(k) Plan, or as
required in certain countries other than the United States, for legal or competitive reasons.
We adopted an employee stock purchase plan effective November 19, 2009 and commencing on July 3, 2010, under
which named executive officers and all other eligible U.S.-based employees can elect, on a quarterly basis, to apply a portion of
their cash compensation to purchase shares of our common stock at a 5% discount. An employee’s total purchases in any year
cannot exceed $25,000 in value or 15% of his or her salary, whichever is less. Furthermore, an employee may not purchase more
than 48 shares of common stock annually under the employee stock purchase plan.
The 401(k) Plan, employee stock purchase plan and the other benefit programs allow us to remain competitive and
enhance employee loyalty and productivity. These benefit programs are primarily intended to provide all eligible employees with
competitive and quality healthcare, financial contributions for retirement and to enhance hiring and retention.
Post-Termination Compensation
Employment agreements have been established with each of our named executive officers. These agreements provide for
certain payments and benefits to the employee if his or her employment with us is terminated. These arrangements are discussed
in more detail below. We have determined that such payments and benefits are an integral part of a competitive compensation
package for our named executive officers. For additional information regarding our employment agreements with our named
executive officers, see the discussion under “Potential Payments Upon Termination or Change of Control.”
25
Compensation Committee Report
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and
Analysis included in this Proxy Statement. Based on this review and discussion, the Compensation Committee recommended
to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and the Compensation
Discussion and Analysis was also included in an amendment to our Annual Report on Form 10-K for the fiscal year ended
June 30, 2017, which amendment was filed on October 6, 2017.
Compensation Committee of the Board of Directors
Dr. James C. Stoffel, Chairman
Kenneth Kong
John J. Quicke
Risk Considerations in Our Compensation Program
The Compensation Committee, pursuant to its charter, is responsible for reviewing and overseeing the compensation
benefits structure applicable to our employees, generally. We do not believe that our compensation policies and practices for
our employees create risks that are reasonably likely to have a material adverse effect on our company. In reaching this
conclusion, we considered the following factors:
• Our compensation program is designed to provide a mix of both fixed and “at risk” incentive compensation.
• The incentive elements of our compensation program (annual incentives and multi-year equity LTIP awards) are
designed to reward both annual performance (under the AIP) and longer-term performance (under the LTIP). We
believe this design mitigates any incentive for short-term risk-taking that could be detrimental to our company’s
long-term best interests.
• Maximum payouts under our AIP are currently capped at 100% of the target payout amounts set by the
Compensation Committee. We believe these limits mitigate excessive risk-taking, since the maximum amount
that can be earned is limited.
•
Finally, our AIP and our LTIP both contain provisions under which awards may be recouped or forfeited if the
recipient has not complied with our policies. In addition, our performance-based plans (cash incentive and
performance shares) both contain provisions under which awards may be recouped or forfeited if the financial
results for a period affecting the calculation of an award are later restated.
26
Summary Compensation Table
The following table summarizes the total compensation for each of our fiscal years ended June 30, 2017, July 1,
2016 and July 3, 2015 of our named executive officers, who consisted of our CEO, CFO and three other most highly
compensated executive officers.
Name/Principal Position
Michael Pangia
Chief Executive Officer
Ralph Marimon
Senior Vice President and Chief Financial
Officer (2)
Heinz H. Stumpe
Senior Vice President and Chief Sales Officer
Shaun McFall
Senior Vice President, Chief Marketing and
Strategy Officer
Meena Elliott
Senior Vice President, Chief Legal and
Administrative Officer, Corporate Secretary
_______________________
Fiscal
Year
(1)
Salary
(3)
($)
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
550,000
550,000
571,154
294,231
300,000
33,462
345,000
345,000
358,269
320,000
320,000
332,308
320,000
320,000
319,616
Stock
Awards
(4)
($)
741,032
333,086
Option
Awards
(5)
($)
—
—
—
149,286
141,638
118,094
114,000
175,402
146,255
—
—
—
—
—
—
65,550
151,057
125,968
—
—
—
56,457
151,057
125,968
—
—
—
48,857
Non-Equity
Incentive Plan
Compensation
(6)
($)
324,522
—
—
115,058
—
—
142,495
—
—
All Other
Compensation
(7)
($)
4,005
3,073
2,224
2,616
2,064
238
3,707
3,707
3,204
122,728
10,666
—
—
122,728
—
—
9,270
1,792
7,785
6,421
1,227
Total
($)
1,619,559
886,159
722,664
553,543
420,158
147,700
666,604
494,962
427,023
604,451
455,238
390,557
601,570
452,389
369,700
(1)
(2)
(3)
Our fiscal year 2017 ended June 30, 2017, fiscal year 2016 ended July 1, 2016 and fiscal year 2015 ended July 3,
2015. The amounts in the Summary Compensation Table represent total compensation paid or earned for our fiscal
years as included in our annual financial statements.
Effective May 26, 2015, Mr. Marimon was appointed as our Senior Vice President and Chief Financial Officer.
The annual base salary for Mr. Pangia is $550,000. The amounts shown take into account the extra pay period in our
fiscal year 2015.
The annual base salary for Mr. Marimon is $300,000. The amounts for fiscal year 2017 represents one week of
unpaid leave. The amounts for fiscal year 2015 reflects Mr. Marimon’s salary and other income for the period from
May 26, 2015 to July 3, 2015.
The annual base salary for Mr. Stumpe is $345,000. The amounts shown take into account the extra pay period in
our fiscal year 2015.
The annual base salary for Mr. McFall is $320,000. The amounts shown take into account the extra pay period in our
fiscal year 2015.
The annual base salary for Ms. Elliott is $320,000 effective February 9, 2015. The amounts shown take into account
the additional pay period for fiscal year 2015.
(4)
The “Stock Awards” column shows the full grant date fair value of the market-based shares, performance shares, and
restricted stock granted in fiscal 2017 and fiscal 2016.
For fiscal 2015, the grant date fair value of the performance shares was reduced to zero or no value since subsequent
to the grant date we estimated that the minimum threshold performance would not be achieved. If we had estimated
that the fiscal 2015 performance shares would be earned by exceeding the target metrics, the following amounts
27
would have been included in the amount under this column and as part of the named executive officers’ total
compensation:
Mr. Pangia
Mr. Stumpe
Mr. McFall
Ms. Elliott
$
$
$
$
278,572
87,595
66,858
49,524
The grant date fair value of the market-based shares, performance shares and restricted stock was determined under
FASB ASC Topic 718 and represents the amount we would expense in our financial statements over the entire
vesting schedule for the awards. The grant date fair value of market-based shares was estimated using a Monte-Carlo
simulation model. The grant date fair value for performance awards and restricted stock was based on the closing
market price of our common stock on the respective award dates, except for the performance shares granted during
fiscal year 2015 as discussed above. The assumptions used for determining values are set forth in Notes 1 and 8 to
our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for fiscal year
2017. These amounts reflect our accounting for these grants and do not correspond to the actual values that may be
recognized by the named executive officers.
(5)
The “Option Awards” column shows the full grant date fair value of the stock options granted in fiscal year 2015.
No options were granted in fiscal 2017 or fiscal year 2016. The grant date fair value of the stock option awards was
determined under FASB ASC Topic 718 and represents the amount we would expense in our financial statements
over the entire vesting schedule for the awards. The assumptions used for determining values are set forth in Notes 1
and 8 to our audited consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for
fiscal year 2017. These amounts reflect our accounting for these grants and do not correspond to the actual values
that may be recognized by the named executive officers.
(6)
The “Non-Equity Incentive Plan Compensation” column shows the cash bonus earned under the fiscal year 2017
annual incentive plan. The following amounts were paid on February 9, 2017 with the remainder amounts paid on
October 6, 2017:
Mr. Stumpe
Mr. McFall
Ms. Elliott
$
$
$
36,225
31,200
31,200
28
(7)
The following table describes the components of the “All Other Compensation” column.
Name
Michael Pangia
Ralph Marimon
Heinz H. Stumpe
Shaun McFall
Meena Elliott
_____________________
Life Insurance (a)
Company Matching
Contributions Under
401(k) Plan (b)
($)
($)
Total All Other
Compensation
($)
4,005
3,073
2,224
2,616
2,064
238
3,707
3,707
3,204
2,224
2,224
1,792
1,190
1,190
1,227
—
—
—
—
—
—
—
—
—
8,442
7,046
—
6,595
5,231
—
4,005
3,073
2,224
2,616
2,064
238
3,707
3,707
3,204
10,666
9,270
1,792
7,785
6,421
1,227
Year
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
(a)
(b)
Represents premiums paid for life insurance that represent taxable income for the named executive officer.
Represents matching contributions made by us to the 401(k) account of the respective named executive.
Grants of Plan-Based Awards in Fiscal Year 2017
The following table lists our grants and incentives during our fiscal year ended June 30, 2017 of plan-based awards,
both equity and non-equity based and including our Annual Incentive Plan and Long-Term Incentive Plan, to the named
executive officers listed in the Summary Compensation Table. There is no assurance that the grant date fair value of stock and
option awards will ever be realized.
29
Name
Type of
Award
Estimated Possible Payouts Under
Short-Term Non-Equity Incentive
Plan Awards in Fiscal Year 2017
(1)
Estimated Future Payments Under
Equity Incentive Plan Awards in
Fiscal Year 2017
Grant Date
Threshold
Target
Maximum Threshold
Target
Maximum
All Other Stock
Awards:
Number of
Shares of Stock
or Units (4)
Fair Value of
Stock and
Option
Awards (5)
($)
($)
($)
(#)
(#)
(#)
(#)
Michael Pangia
Cash Bonus
8/23/2016
33,000
550,000
550,000
RSU
PSU
PSU
9/22/2016
9/22/2016
12/30/2016
—
—
—
—
—
—
Ralph Marimon
Cash Bonus
8/23/2016
11,700
195,000
195,000
RSU
PSU
9/22/2016
9/22/2016
—
—
—
—
—
—
Heinz H. Stumpe Cash Bonus
8/23/2016
14,490
241,500
241,500
RSU
PSU
9/22/2016
9/22/2016
—
—
—
—
—
—
Shaun McFall
Cash Bonus
8/23/2016
12,480
208,000
208,000
RSU
PSU
9/22/2016
9/22/2016
—
—
—
—
—
—
Meena Elliott
Cash Bonus
8/23/2016
12,480
208,000
208,000
RSU
PSU
9/22/2016
9/22/2016
—
—
—
—
—
—
______________________
—
—
—
—
—
—
—
20,833
22,689
50,000
22,689
50,000
22,689 (2)
50,000 (3)
—
—
—
—
—
—
8,043
8,043
8,043 (2)
—
—
—
—
—
—
9,960
9,960
9,960 (2)
—
—
—
—
—
—
8,577
8,577
8,577 (2)
—
—
—
—
—
—
8,577
8,577
8,577 (2)
—
—
7,386
—
—
9,147
—
—
7,878
—
—
7,878
—
($)
—
191,247
208,285
341,500
—
67,803
73,835
—
83,969
91,433
—
72,320
78,737
—
72,320
78,737
(1)
(2)
(3)
(4)
(5)
The amounts shown under Estimated Possible Payouts Under Short-Term Non-Equity Incentive Plan Awards reflect
possible payouts under our fiscal 2017 AIP. During fiscal 2017, we achieved 59% of the FY17 cash incentive target.
Performance-based share units (“PSU”) eligible to vest were based on the Company’s adjusted EBITDA for fiscal
year 2017. Once the shares are earned, they will vest 100% on the third anniversary of the grant date. Vesting of
these shares is dependent on continuous employment with us through the vesting date.
Market-based share units eligible to vest were based on the target closing prices of the Company’s common stock
for calendar year 2018. The shares will vest on the date that the Compensation Committee certifies achievement of
the performance measure. Vesting of these shares is dependent on continuous employment with us through the
vesting date.
Restricted stock units (“RSU”) vest 100% on the third anniversary of the grant date.
The “Grant Date Fair Value of Stock and Option Awards” column shows the full grant date fair value of the stock
options granted in fiscal year 2017. The grant date fair value of the stock options was determined under FASB ASC
Topic 718 and represents the amount we would expense in our financial statements over the entire vesting schedule
for the awards in the event the vesting provisions are achieved.
The assumptions used for determining values are set forth in Notes 1 and 8 to our audited consolidated financial
statements in Part II, Item 8 of our Annual Report on Form 10-K for the fiscal 2017. These amounts reflect our
accounting for these grants and do not correspond to the actual values that may be recognized by the named
executive officers.
Outstanding Equity Awards at Fiscal Year-End 2017
The following table provides information regarding outstanding unexercised stock options and unvested stock
awards held by each of our named executive officers as of June 30, 2017. Each grant of options or unvested stock awards is
shown separately for each named executive officer. The vesting schedule for each award of options is shown in the footnotes
following this table based on the option grant date. The material terms of the option awards, other than exercise price and
vesting are generally described in the 2007 Plan.
30
Option Awards
Stock Awards
Name
Michael Pangia
Ralph Marimon
Award Grant
Date
12/30/2016
09/22/2016
09/22/2016
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
09/22/2016
09/22/2016
11/20/2015
10/23/2015
05/26/2015
Heinz H. Stumpe
09/22/2016
Shaun McFall
Meena Elliott
09/22/2016
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
09/22/2016
09/22/2016
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
09/22/2016
09/22/2016
11/20/2015
10/23/2015
02/02/2015
09/09/2013
10/03/2012
09/08/2011
11/11/2010
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
(#)
—
—
—
15,460
34,722
11,458
25,107
4,166
—
—
—
—
—
—
—
6,788
15,246
5,031
6,676
4,583
—
—
—
5,847
13,131
4,333
6,162
4,583
—
—
—
5,059
11,363
3,750
6,162
3,333
—
—
—
6,365 (1)
— (2)
— (3)
— (3)
— (3)
—
—
—
—
—
—
—
2,795 (1)
— (2)
— (3)
— (3)
— (3)
—
—
—
2,407 (1)
— (2)
— (3)
— (3)
— (3)
—
—
—
2,083 (1)
— (2)
— (3)
— (3)
— (3)
Option
Exercise
Price
Option
Expiration
Date
($)
—
—
—
15.60
31.20
27.36
28.44
52.32
—
—
—
—
—
—
—
15.60
31.20
27.36
28.44
52.32
—
—
—
15.60
31.20
27.36
28.44
52.32
—
—
—
15.60
31.20
27.36
28.44
52.32
—
—
—
2/2/2022
9/9/2020
10/3/2019
9/8/2018
11/11/2017
—
—
—
—
—
—
—
2/2/2022
9/9/20
10/3/2019
9/8/2018
11/11/2017
—
—
—
2/2/2022
9/9/2020
10/3/2019
9/8/2018
11/11/2017
—
—
—
2/2/2022
9/9/2020
10/3/2019
9/8/2018
11/11/2017
Number of
Shares or
Units of
Stock that
have not
Vested
(#)
Market Value of
Shares or Units of
Stock that have
not Vested (9)
Equity Incentive
Plan Awards:
Number of
Unearned Shares
Units or Other
Rights that have
not Vested
($)
(#)
50,000
22,689
(6)
(7)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights that
have not Vested (9)
($)
870,000
394,789
20,833 (4)
362,494
20,833 (4)
362,494
15,126
(8)
263,192
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,386 (4)
128,516
7,386 (4)
4,166 (5)
128,516
72,488
9,147 (4)
159,158
9,147 (4)
159,158
8,043
(7)
139,948
5,362
(8)
93,299
—
9,960
(7)
—
173,304
6,640
(8)
115,536
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,878 (4)
137,077
7,878 (4)
137,077
8,577
(7)
149,240
5,718
(8)
99,493
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,878 (4)
137,077
7,878 (4)
137,077
8,577
(7)
149,240
5,718
(8)
99,493
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
______________________
(1)
(2)
(3)
Stock options vest in installments of 25% on August 1, 2015, and 1/48 each month thereafter over the remaining
three-year period based on continuous employment through those dates.
Stock options vest in installments of 33 1/3% one year from the grant date, 33 1/3% two years from the grant date
and 33 1/3% three years from the grant date based on continuous employment through those dates.
Stock options vest in installments of 50% one year from the grant date, 25% two years from the grant date and 25%
three years from the grant date based on continuous employment through those dates.
31
(4)
(5)
(6)
(7)
(8)
Restricted stock units vest 100% on the third anniversary of the grant date.
Restricted stock units vest in installments of 25% one year from the grant date, and 25% annually on each
anniversary thereafter over the remaining three-year period based on continuous employment through those dates.
Market-based share units eligible to vest were based on the target closing prices of the Company’s common stock
for calendar year 2018, subject to acceleration under a change in control prior to January 1, 2019. The shares will
vest on the date that the Compensation Committee certifies achievement of the performance measure. Vesting of
these shares is dependent on continuous employment with us through the vesting date.
Performance-based share units eligible to vest were based on the Company’s adjusted EBITDA for fiscal year 2017.
Once the shares are earned, they will vest 100% on the third anniversary of the grant date. Vesting of these shares is
dependent on continuous employment with us through the vesting date.
Market-based share units eligible to vest were based on multiple target closing prices of the Company’s common
stock for fiscal year 2016, fiscal year 2017, and fiscal year 2018, respectively. Once the shares are earned for fiscal
year 2016 and 2017, they will be vested on the last day of fiscal 2018. For the shares earned for the fiscal year
ending 2018, they will be vested on the date that the Compensation Committee certifies achievement of the
performance metrics. Vesting of these shares is dependent on continuous employment with us through the vesting
dates.
(9)
Market value is based on the $17.40 closing price of a share of our common stock on June 30, 2017, as reported on
the NASDAQ Global Select Market.
Option Exercised and Stock Vested in Fiscal Year 2017
The following table provides information for each of our named executive officers regarding the number of shares of
our common stock acquired upon the vesting of stock awards during fiscal year 2017. No options to purchase common stock
were exercised during fiscal year 2017. Stock awards vesting during fiscal year 2017 consisted of restricted stock with
service-based vesting provisions.
Name
Ralph Marimon
_________________________
Stock Awards
Number of Shares Acquired on Vesting
(#) (1)
Value Received on Vesting
($) (2)
2,083
37,536
(1)
(2)
Vested number of shares of service-based restricted stock units.
Amount shown is the aggregate market value of the vested shares of restricted stock units based on the closing price
of our stock on the vesting date.
32
Equity Compensation Plan Summary
The following table provides information as of June 30, 2017, relating to our equity compensation plan:
Plan Category
Equity Compensation plan approved by security holders(1)
Equity Compensation plans not approved by security holders
Total
_____________________
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-Average
Exercise Price of
Outstanding
Options
Number of Securities
Remaining Available
for Further Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the First
Column)
967,985 (2) $
$
—
967,985
$
28.39 (3)
—
28.39
270,947
—
270,947
(1)
(2)
(3)
Consists solely of the 2007 Plan.
The number includes 372,705 shares to be issued upon exercise of options, 379,015 shares to be issued upon vesting
of restricted stock units, 72,941 shares to be issued upon vesting of performance stock units, and 143,324 shares to be
issued upon vesting of market-based stock units.
Excludes weighted average fair value of restricted stock units, performance stock units, and market-based stock units
at issuance date.
Potential Payments Upon Termination or Change of Control
We have employment agreements with each of the continuing named executive officers, which provide for such
executives to receive certain payments and benefits if their employment with us is terminated. These arrangements are set
forth in detail below and assume a termination event on June 30, 2017 and refer to our stock price on that date. The Board has
determined that such payments and benefits are an integral part of a competitive compensation package for our executive
officers.
The table below reflects the compensation and benefits due to each of the named executive officers in the event of
termination of employment by us without cause or termination by the executive for good reason (other than within 18 months
after a Change of Control, as defined below) and in the event of disability and in the event of termination of employment by
us without cause or termination by the executive for good reason within 18 months after a Change of Control. The amounts
shown in the table are estimates of the amounts that would be paid upon termination of employment. There are no
compensation and benefits due to any named executive officer in the event of death, or of termination of employment by us
for cause or voluntary termination. The actual amounts would be determined only at the time of the termination of
employment.
33
Name
Conditions for Payouts
Michael Pangia
Ralph Marimon
Heinz H. Stumpe
Shaun McFall
Meena Elliott
Termination without cause or
for good reason, or due to
disability
Within 18 months after
Change of Control
Termination without cause or
for good reason, or due to
disability
Within 18 months after
Change of Control
Termination without cause or
for good reason, or due to
disability
Within 18 months after
Change of Control
Termination without cause or
for good reason, or due to
disability
Within 18 months after
Change of Control
Termination without cause or
for good reason, or due to
disability
Within 18 months after
Change of Control
$
$
$
$
$
$
$
$
$
$
______________________
Base Salary
Component
(1)
Cash
Incentive
Component
(2)
Accelerated
Equity
Vesting (3)
Insurance
Benefit (4)
Out-
Placement
Services
(5)
Total
550,000
$
324,522
$
719,565
$
21,140
$
30,000
$ 1,645,227
1,100,000
300,000
300,000
345,000
690,000
320,000
640,000
320,000
$
$
$
$
$
$
$
$
550,000
$ 2,292,254
115,058
$
245,218
195,000
106,270
205,275
91,528
176,800
91,528
$
$
$
$
$
$
562,768
315,901
624,405
272,064
537,745
270,646
$
$
$
$
$
$
$
$
42,280
14,588
14,588
22,025
44,050
26,093
52,186
18,775
$
$
$
$
$
$
$
$
30,000
$ 4,014,534
30,000
$
704,864
30,000
$ 1,102,356
30,000
$
819,196
30,000
$ 1,593,730
30,000
$
739,685
30,000
$ 1,436,731
30,000
$
730,949
640,000
$
176,800
$
535,743
$
37,550
$
30,000
$ 1,420,093
(1)
(2)
(3)
(4)
(5)
The base salary component represents the total gross monthly payments to each named executive officer at the
current salary.
The cash incentive component represents the cash bonus due under the fiscal year 2017 AIP.
Reflects acceleration of outstanding equity awards, including pro-rata vesting under the fiscal year 2017 Long-Term
Incentive Plan as of June 30, 2017, with final determination to be made by the Compensation Committee.
The insurance benefit provided is paid directly to the insurer benefit provider and includes amounts for COBRA.
The estimated dollar amounts for outplacement services would be paid directly to an outplacement provider selected
by us.
The employment agreements with our named executive officers define a “Change of Control” as follows:
•
any merger, consolidation, share exchange or acquisition, unless immediately following such merger,
consolidation, share exchange or acquisition, at least 50% of the total voting power (in respect of the election of
directors, or similar officials in the case of an entity other than a corporation) of (i) the entity resulting from
such merger, consolidation or share exchange, or the entity which has acquired all or substantially all of our
assets (in the case of an asset sale that satisfies the criteria of an acquisition) (in either case, the “Surviving
Entity”) or (ii) if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the total voting
power (in respect of the election of directors, or similar officials in the case of an entity other than a
corporation) of the Surviving Entity is represented by our securities that were outstanding immediately prior to
such merger, consolidation, share exchange or acquisition (or, if applicable, is represented by shares into which
such Company securities were converted pursuant to such merger, consolidation, share exchange or
acquisition); or
•
any person or group of persons (within the meaning of Section 13(d)(3) of the Exchange Act) directly or
indirectly acquires beneficial ownership (determined pursuant to SEC Rule 13d-3 promulgated under the
34
Exchange Act) of securities possessing more than 30% (50% in the case of Mr. Marimon) of the total combined
voting power of our outstanding securities other than: (i) an employee benefit plan of ours or any of our
affiliates; (ii) a trustee or other fiduciary holding securities under an employee benefit plan of our or any of our
affiliates; or (iii) an underwriter temporarily holding securities pursuant to an offering of such securities; or
over a period of 36 consecutive months or less, there is a change in the composition of the Board such that a
majority of the Board members (rounded up to the next whole number, if a fraction) ceases, by reason of one or
more proxy contests for the election of Board members, to be composed of individuals each of whom meet one
of the following criteria: (i) have been a Board member continuously since the adoption of this plan or the
beginning of such 36-month period; or (ii) have been elected or nominated during such 36-month period by at
least a majority of the Board members and satisfied the criteria of this bullet when they were elected or
nominated; or
a majority of the Board determines that a Change of Control has occurred; or
the complete liquidation or dissolution of the Company.
•
•
•
Employment agreements are in effect for the named executive officers and provide that if they are terminated
without cause or should they resign for good reason or become disabled and they sign a general release they will be entitled
to receive the following severance benefits:
•
•
•
•
severance payments at their final base salary for a period of 12 months following termination;
payment of premiums necessary to continue their group health insurance under COBRA (or to purchase other
comparable health coverage on an individual basis if the employee is no longer eligible for COBRA coverage)
until the earlier of (i) 12 months; or (ii) the date on which they first became eligible to participate in another
employer’s group health insurance plan;
the prorated portion of any incentive bonus they would have earned during the incentive bonus period in which
their employment was terminated;
any equity compensation subject to service-based vesting granted to the executive officer will stop vesting as of
their termination date; however, they will be entitled to purchase any vested share(s) of stock that are subject to
the outstanding options until the earlier of: (i) 12 months; or (ii) the date on which the applicable option(s)
expire; and
•
outplacement assistance selected and paid for by us.
In addition, these agreements provide that if there is a Change of Control, and employment with us is terminated by
us without cause or by the employee for good reason within 18 months after the Change of Control and they sign a general
release of known and unknown claims in a form satisfactory to us, (i) the severance benefits described shall be increased by
an additional 12 months for Ms. Elliott and Messrs. Pangia, Stumpe and McFall; (ii) they will receive a payment equal to the
greater of (a) the average of the annual incentive bonus payments received by them, if any, for the previous three years; or (b)
their target incentive bonus for the year in which their employment terminates; and (iii) the vesting of all unvested stock
option(s) and unvested equity-compensation awards subject to service-based vesting will accelerate, such that all of such
stock option(s) and equity-compensation awards will be fully vested as of the date of their termination/resignation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of
a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes
in ownership of our common stock and other equity securities. Directors, executive officers and greater than 10% holders are
required by SEC regulation to furnish us with copies of all Section 16(a) reports they file. Based solely on our review of
Forms 3 and 4 received during fiscal year 2017, and Forms 5 (or any written representations) received with respect to fiscal
year 2017, we believe that all directors, officers, executive officers and 10% stockholders complied with all applicable
Section 16(a) filing requirements during fiscal year 2017.
35
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, directors are being nominated for election to serve until the 2018 Annual Meeting or until
their successors are elected and qualified.
In the unanticipated event that a nominee is unable or declines to serve as a director at the time of the Annual
Meeting, all proxies received by the proxy holders will be voted for any subsequent nominee named by the Board to fill the
vacancy created by the earlier nominee’s withdrawal from the election. As of the date of this Proxy Statement, the Board is
not aware of any director nominee who is unable or will decline to serve as a director. Each of the nominees has consented to
being named in this Proxy Statement and to serve as a director if elected. Ages are as of the date of this Proxy Statement.
Director Nominees
Name
John Mutch
Wayne Barr, Jr.
Kenneth Kong
Michael A. Pangia
John J. Quicke
Dr. James C. Stoffel
Title
Chairman of the Board
Director Nominee
Director Nominee
Director, President and CEO
Director
Director
Age
61
53
43
56
68
71
Agreement with Certain Stockholders
On September 13, 2016, the Company entered into an agreement (the “Settlement Agreement”) with JDS1, LLC,
Julian Singer and David S. Oros (collectively, the “JDS Group”). Pursuant to the Settlement Agreement, the Company agreed
to include Mr. Barr in its slate of director nominees for election at the Annual Meeting.
Pursuant to the Settlement Agreement, the members of JDS Group have agreed to vote for each of the proposals set
forth in this proxy statement. If the Company re-nominates Mr. Barr to stand for election as a director at the Annual Meeting,
then the members of the JDS Group have agreed to vote for the Company’s slate of director nominees at the Annual Meeting.
The members of the JDS Group have agreed, until 15 business days prior to the advance notice deadline for the
submission of director nominations and stockholder proposals in respect of the 2017 Annual Meeting, to customary standstill
provisions during that time that provide, among other things, that the members of the JDS Group will not (1) engage in or in
any way participate in a solicitation of proxies or consents with respect to the Company; or (2) initiate any shareholder
proposals. If the Company re-nominates Mr. Barr to stand for election as a director at the Annual Meeting, then the standstill
restrictions continue until 15 business days prior to the advance notice deadline for the submission of director nominations
and stockholder proposals in respect of the 2018 Annual Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ELECTION OF EACH OF THE
DIRECTOR NOMINEES AND UNANIMOUSLY RECOMMENDS A VOTE “FOR” EACH OF THE DIRECTOR
NOMINEES.
36
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed BDO as our independent registered public accounting firm to audit our
consolidated financial statements for the fiscal year ending June 29, 2018 and our Board has ratified such appointment. See
“Independent Registered Public Accounting Firm Fees.”
Notwithstanding its selection, the Audit Committee, in its discretion, may appoint another independent registered
public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best
interests of the Company and its stockholders. If the appointment is not ratified by our stockholders, the Audit Committee
may reconsider whether it should appoint another independent registered public accounting firm.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION
OF THE AUDIT COMMITTEE’S APPOINTMENT OF BDO AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR FISCAL YEAR 2018.
37
PROPOSAL NO. 3
ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
A “say-on-pay” advisory vote is required for all U.S. public companies under Section 14A of the Exchange Act. We
are asking stockholders to approve, on an advisory, non-binding basis, the compensation of the Company’s named executive
officers disclosed in the Compensation Discussion and Analysis section, and the related compensation tables, notes and
narrative, in this Proxy Statement.
The Board recommends that you vote “FOR” approval of the advisory, non-binding vote on executive compensation
because it believes that the policies and practices described in the Compensation Discussion and Analysis section are
effective in achieving the Company’s goals of rewarding sustained financial and operating performance and leadership
excellence, aligning the executives’ long-term interests with those of the stockholders and motivating the executives to
remain with the Company for long and productive careers. Named executive officer compensation of the past three years
reflects amounts of cash and long-term equity awards consistent with periods of economic stress and lower earnings, and
equity incentives aligning with our actions to stabilize the Company and to position it for a continued recovery.
We urge stockholders to read the Compensation Discussion and Analysis section of this Proxy Statement, as well as
the Summary Compensation Table and related compensation tables, notes and narrative, which provide detailed information
on the Company’s compensation policies and practices and the compensation of our named executive officers.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL OF THE
ADVISORY, NON-BINDING VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION.
38
PROPOSAL NO. 4
ADVISORY, NON-BINDING VOTE ON THE FREQUENCY OF HOLDING VOTES ON SAY-ON-PAY
We are asking our stockholders to provide an advisory (non-binding) vote on how frequently stockholders should
have an opportunity to vote on Say-on-Pay. Under the Dodd-Frank Act, stockholders may vote to have the advisory vote on
Say-on-Pay once every one, two or three years. We are required to hold an advisory vote on frequency of Say-on-Pay votes
every six years. Our stockholders were provided with the opportunity to vote on the frequency of Say-on-Pay votes in 2011.
The stockholders voted in favor of holding Say-on-Pay votes annually and the Board adopted this standard.
Although we believe we have an appropriately balanced executive compensation program, we recognize that the
widely-adopted standard is to hold Say-on-Pay votes annually. We also acknowledge current stockholder expectations and
preferences regarding having the ability to express their views on the compensation of the Company’s named executive
officers on an annual basis. In light of investor expectations and prevailing market practice, we are asking stockholders to
support the continuation of a frequency period of “ONCE A YEAR” (an annual vote) for future votes on Say-on-Pay.
Votes on the frequency for Say-on-Pay are advisory. Although your vote on this Say-on-Pay resolution does not bind
the Corporation, the Board of Directors will review the results of the vote and investor feedback and will continue to review
the advantages and disadvantages for each of the frequencies on Say-on-Pay votes regardless of the outcome of the vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” A FREQUENCY OF “ONCE A
YEAR” FOR FUTURE NON-BINDING STOCKHOLDER VOTES ON THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS.
39
PROPOSAL NO. 5
APPROVAL OF THE COMPANY’S 2018 INCENTIVE PLAN
Introduction
In February 2018, the Board approved the 2018 Plan, subject to stockholder approval at the Annual Meeting. The
2018 Plan was adopted to advance the interests of the Company by providing eligible individuals of the Company and its
affiliates with an opportunity to acquire or increase a proprietary interest in the Company, and to receive performance-based
cash and equity incentive compensation, in order to create a stronger incentive to expend maximum effort for the growth and
success of the Company and its subsidiaries, and to encourage such eligible individuals to remain in the employ of the
Company or one or more of its affiliates.
If approved by our stockholders, the 2018 Plan will replace the 2007 Plan, which will be discontinued at that time
(but the outstanding awards under the 2007 Plan will continue to remain in effect in accordance with their terms). As of
February 2, 2018, a total of 355,000 shares of common stock remained available for issuance under the 2007 Plan. If the
2018 Plan is approved by our stockholders, no additional awards will be granted under the 2007 Plan, and the remaining
shares available under the 2007 Plan will no longer be available for issuance; provided that, as shares are returned under the
2007 Plan upon cancellation, termination or otherwise of awards outstanding under the 2007 Plan, such shares will be
available for grant under the 2018 Plan.
Equity Usage, Dilution
The Company recognizes the dilutive impact of our equity plans on our stockholders and continuously strives to
balance this concern with the competition for talent. In its determination to approve the 2018 Plan, our Compensation
Committee reviewed analyses prepared by its independent compensation advisory consultant. The material features of the
2018 Plan are summarized below. This summary does not purport to be complete and is qualified in its entirety by reference
to the complete text of the 2018 Plan which is attached as Appendix A to this Proxy Statement. If our stockholders do not
approve the 2018 Plan, it will not become effective, and the 2007 Plan (as amended and restated) will remain in effect in
accordance with its terms. The Board believes that the 2018 Plan will promote the success and enhance the value of the
Company by linking the personal interests of participants to those of the Company’s stockholders and by providing
participants with an incentive for outstanding performance. The Board believes it is in the best interest of the Company and
its stockholders to approve the 2018 Plan.
Detail on Equity granted over the last three fiscal years adjusting for 12:1 stock split:
Data Element
Stock Options Granted
Restricted Stock Granted
Performance Share Award Granted
Performance Earned / Vested
Market-Based Stock Units Granted
Market-Based Stock Units Earned / Vested
Fiscal Year Ended
2015
2016
2017
114,875
89,096
66,934
3,985
—
—
—
197,549
—
—
158,766
—
5,238,000
—
237,874
72,941
—
50,000
—
5,292,000
Weighted Average Common Shares Outstanding
5,184,000
Key Features and Corporate Governance
The 2018 Plan includes important features:
•
Full value awards count against the maximum number of shares which may be issued under the 2018 Plan as 1.76
shares for every one shares granted or issued in payment of the award.
40
•
•
Shares retained by us for payment of an option or stock appreciation right (“SAR”) exercise price or withheld by us
to satisfy tax withholding obligations or repurchased by us with proceeds collected in connection with the exercise
of options will not be available again for grant under the 2018 Plan.
Stock options and SARs may not be repriced (repricing, exchange, substitution and cash buyouts) without prior
approval by our stockholders.
•
Stock options and SARs may not be granted with an exercise price below fair market value.
Summary of the 2018 Plan
Purpose. The 2018 Plan is intended to retain and reward highly qualified employees, consultants, and directors and
encourage their ownership of common stock of the Company.
Administration. The 2018 Plan may be administered by the Compensation Committee of the Board, by another
designated Compensation Committee, or by the Board directly. The designated administrator, or the Compensation
Committee, shall have the discretion, subject to the provisions of the 2018 Plan, to determine the employee, consultant or
director to receive an award, the form of award and any acceleration or extension of an award. Further, the Compensation
Committee shall have complete authority to interpret the 2018 Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective award agreements (which need not be identical), and to
make all other determinations necessary or advisable for the administration of the 2018 Plan.
Eligibility. Awards may be granted to any employee, nonemployee director, consultant or advisor of the Company,
its affiliates and/or subsidiaries. Currently, approximately 40 employees would be eligible under the 2018 Plan.
Shares Subject to the 2018 Plan. The number of shares of common stock authorized for grant under the 2018 Plan
(subject to approval of this Proposal No. 5) is 500,000; provided that as shares are returned under the 2007 Plan upon
cancellation, termination or otherwise of awards outstanding under the 2007 Plan, such shares will be available for grant
under the 2018 Plan. The shares to be issued under the 2018 Plan are authorized but unissued shares of common stock. No
more than 150,000 of the shares of common stock available under the 2018 Plan may be covered by awards issued to any one
person in any one calendar year.
Share Counting. Subject to adjustment for changes in capitalization, in the case of any awards granted under the
2018 Plan following the approval of this Proposal 5 by our stockholders, (x) each share with respect to which an option or
stock-settled SAR is granted under the 2018 Plan reduces the aggregate number of shares that may be delivered under the
2018 Plan by one share and (y) each share with respect to which any other award denominated in shares is granted under the
2018 Plan reduces the aggregate number of shares that may be delivered under the 2018 Plan by 1.76 shares. Upon exercise
of a stock-settled SAR, each share with respect to which such stock-settled SAR is exercised counts as one share against the
maximum aggregate number of shares available under the 2018 Plan, regardless of the number of shares actually delivered
upon settlement of such stock-settled SAR. Settlement of any award does not count against the number of shares available for
delivery under the 2018 Plan except to the extent settled in the form of shares. If, after the effective date of the 2018 Plan, any
award granted under the 2018 Plan is forfeited, or otherwise expired, terminated or is canceled without the delivery of all
shares subject thereto, or is settled other than by the delivery of shares (and in the case of cash settlement, for less than the
then-market value), then the number of shares subject to such award that were not issued are not treated as issued, such that
the aggregate number of shares that may be delivered pursuant the 2018 Plan is increased by the number of shares by which
the aggregate number of shares was reduced at the time the original award was granted.
Types of Awards. Awards under the 2018 Plan may include incentive stock options, nonstatutory stock options, stock
appreciation rights, restricted stock, restricted stock units and performance units, qualified performance-based awards, and
stock grants. Each award is evidenced by an instrument in such form as the Compensation Committee may prescribe, setting
forth applicable terms such as the exercise price and term of any option or applicable forfeiture conditions or performance
requirements for any restricted stock or restricted stock units. Except as noted below, all relevant terms of any award are set
by the Compensation Committee in its discretion. On February 2, 2018, the closing price of our common stock listed on the
NASDAQ Global Market was $15.77.
• Nonstatutory stock options and incentive stock options, or stock options, are rights to purchase common stock of the
Company. A stock option may be immediately exercisable or become exercisable in such installments, cumulative or
41
non-cumulative, as the Compensation Committee may determine. A stock option may be exercised by the recipient
giving written notice to the Company, specifying the number of shares with respect to which the stock option is then
being exercised, and accompanied by payment of an amount equal to the exercise price of the shares to be
purchased. The purchase price may be paid by cash, check, by delivery to the Company (or attestation of ownership)
of shares of common stock (with some restrictions), or through and under the terms and conditions of any formal
cashless exercise program authorized by the Company.
•
•
Incentive stock options may be granted only to eligible employees of the Company or any parent or subsidiary
corporation and must have an exercise price of not less than 100% of the fair market value of the Company’s
common stock on the date of grant (110% for incentive stock options granted to any 10% stockholder of the
Company). In addition, the term of an incentive stock option may not exceed seven years (five years, if granted to
any 10% stockholder). Nonstatutory stock options must have an exercise price of not less than 100% of the fair
market value of the Company’s common stock on the date of grant and the term of any nonstatutory stock option
may not exceed seven years. In the case of an incentive stock option, the amount of the aggregate fair market value
of common stock (determined at the time of grant) with respect to which incentive stock options are exercisable for
the first time by an employee during any calendar year (under all such plans of his or her employer corporation and
its parent and subsidiary corporations) may not exceed $100,000.
Stock appreciation rights, or SARs, are rights to receive (without payment to the Company) cash, property or other
forms of payment, or any combination thereof, as determined by the Compensation Committee, based on the
increase in the value of the number of shares of common stock specified in the SAR. The base price (above which
any appreciation is measured) will in no event be less than 100% of the fair market value of the common stock on
the date of grant of the SAR or, if the SAR is granted in tandem with a stock option (that is, so that the recipient has
the opportunity to exercise either the stock option or the SAR, but not both), the exercise price under the associated
stock option. The term of any SAR may not exceed seven years.
• Awards of restricted stock are grants or sales of common stock which are subject to a risk of forfeiture, such as a
requirement of the continued performance of services for a stated term or the achievement of individual or Company
performance goals. Awards of restricted stock include the right to any dividends on the shares pending vesting (or
forfeiture), although the Compensation Committee may determine, at the time of the award, that any cash dividends
will be deferred and, if cash dividends are deferred, the Compensation Committee may determine that the deferred
dividends will be reinvested in additional restricted stock.
• Awards of restricted stock units and performance units are grants of rights to receive either shares of common stock
(in the case of restricted stock units) or the appreciation over a base value (as specified by the Compensation
Committee) of a number of shares of common stock (in the case of performance units) subject to satisfaction of
service or performance requirements established by the Compensation Committee in connection with the award.
Such awards may include the right to the equivalent to any dividends on the shares covered by the award, which
amount may in the discretion of the Compensation Committee be deferred and paid if and when the award vests.
• A stock grant is a grant of shares of common stock not subject to restrictions or other forfeiture conditions. Stock
grants may be awarded only in recognition of significant contributions to the success of the Company or its
affiliates, in lieu of compensation otherwise already due, or in other limited circumstances which the Compensation
Committee deems appropriate.
Effect of Termination of Employment or Association. Unless the Compensation Committee determines otherwise in
connection with any particular award under the 2018 Plan, other than in the context of a change of control of the Company
(see “Change of Control” below), stock options and SARs will generally terminate three months following the recipient’s
termination of employment or other association with the Company. The effect of termination on other awards will depend on
the terms of those awards.
Transferability. In general, no award under the 2018 Plan may be transferred by the recipient, and during the life of
the recipient all rights under an award may be exercised only by the recipient or his or her legal representative. However, the
Compensation Committee may approve the transfer, without consideration, of an award of a nonstatutory option or restricted
stock to a family member.
42
Effect of Significant Corporate Event. In the event of any change in the outstanding shares of common stock through
merger, consolidation, sale of all or substantially all the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other distribution with respect to such shares of common
stock, an appropriate and proportionate adjustment will be made in (1) the maximum numbers and kinds of shares subject to
the 2018 Plan and the 2018 Plan limits, (2) the numbers and kinds of shares or other securities subject to the then outstanding
awards, (3) the exercise or hurdle price for each share or other unit of any other securities subject to then outstanding stock
options or SARs (without change in the aggregate purchase or hurdle price as to which stock options or SARs remain
exercisable), and (4) the repurchase price of each share of restricted stock then subject to a risk of forfeiture in the form of a
Company repurchase right. Upon dissolution or liquidation of the Company, other than as part of an acquisition or similar
transaction, each outstanding stock option or SAR shall terminate, but the participant shall have the right, immediately prior
to the dissolution or liquidation, to exercise the stock option or SAR to the extent exercisable on the date of dissolution or
liquidation.
Change of Control. Subject to certain “limited acceleration” exceptions for time-based awards and performance-
based awards described in the 2018 Plan, upon a change of control, the Compensation Committee may not accelerate the
vesting and exercisability (as applicable) of any outstanding awards, in whole or in part. A change of control is defined as the
occurrence of any of: (a) a transaction or series of transactions (i) constituting a consolidation, merger or similar transaction
of the Company after which less than 50% of the voting power of the resulting entity or ultimate parent entity is represented
by previously issued and outstanding Company securities, or securities into which the Company securities were converted or
(ii) that results in the transfer of at least 80% of the total assets of the Company; (b) the stockholders of the Company approve
any plan or proposal for the liquidation or dissolution of the Company; (c) as a result of a tender or exchange offer, open
market purchases, privately-negotiated purchases or otherwise, without the approval of the Board, a person or group of
persons obtains more than 50% of the total combined voting power of the Company ; or (d) the composition of the Board
changes, over a period of 36 months or less, such that a majority of the individuals on the Board cease for any reason to
constitute at least a majority thereof, unless the election or the nomination for each election by the Company’s stockholders
of each new director during such 36-month period was approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of such 36-month period (or were approved by a majority of directors then in
office).
If employment with the Company and its affiliates should subsequently terminate during the one year period
following a change of control, then as to any one or more outstanding awards of an employee which are not otherwise
accelerated in full in accordance with the “Limited Acceleration” provision of the 2018 Plan, the Compensation Committee
may, either in advance of a change of control or at the time thereof and upon such terms as it may deem appropriate, provide
for the acceleration of such outstanding awards as follows: (i) all outstanding awards held by a 2018 Plan participant shall
become vested and/or exercisable as of the effective date of termination, whether or not the awards were otherwise vested
and/or exercisable, and all conditions shall be waived with respect to outstanding awards, and (ii) for all outstanding awards
that are “performance awards”, (A) if the performance cycle has been completed, payment of amounts determined in
accordance with the terms of the performance award shall be made in a lump sum not later than 90 days following the
effective date of such termination, and (B) otherwise, the target level of performance shall be deemed to have been achieved
with respect to such performance award and payment of amounts determined in accordance with the terms of the
performance award, pro-rated to reflect the portion of the full performance cycle for such performance award that elapsed
prior to such effective date shall be made in a lump sum not later than 90 days following such effective date.
Amendments to the 2018 Plan. Generally the Board may amend or modify the 2018 Plan at any time subject to the
rights of holders of outstanding awards on the date of amendment or modification. However, the Board may not amend the
2018 Plan, without stockholder approval, (i) to change the description of the persons eligible for awards under the 2018 Plan,
(ii) to increase the number of shares of common stock available under the 2018 Plan, except as necessary to carry out
adjustments for changes in capitalization, (iii) to change the basis on which shares under any award are taken into account for
purposes of the limitation on the number of shares of common stock available under the 2018 Plan, or (iv) a required by law,
regulation or stock exchange rule.
Summary of Tax Consequences. The following is a brief and general discussion of the United States federal income
tax consequences to recipients of awards granted under the 2018 Plan. This summary is not comprehensive and is based upon
laws and regulations in effect at the date of this proxy statement. Such laws and regulations are subject to change. This
summary is intended for the information of shareholders considering how to vote and not as tax guidance to participants in
the 2018 Plan. Participants in the 2018 Plan should consult their own tax advisors as to the tax consequences of participation.
43
• Nonstatutory stock options. Generally, there are no federal income tax consequences to the participants upon grant
of nonstatutory stock options. Upon the exercise of such an option, the participant will recognize ordinary income in
an amount equal to the amount by which the fair market value of the common stock acquired upon the exercise of
such option exceeds the exercise price, if any. A sale of common stock so acquired will give rise to a capital gain or
loss equal to the difference between the fair market value of the common stock on the exercise and sale dates.
•
Incentive stock options. Except as noted at the end of this paragraph, there are no federal income tax consequences
to the participant upon grant or exercise of an incentive stock option. If the participant holds shares of common
stock purchased pursuant to the exercise of an incentive stock option for at least two years after the date the option
was granted and at least one year after the exercise of the option, the subsequent sale of common stock will give rise
to a long-term capital gain or loss to the participant and no deduction will be available to the Company. If the
participant sells the shares of common stock within two years after the date an incentive stock option is granted or
within one year after the exercise of an option, the participant will recognize ordinary income in an amount equal to
the difference between the fair market value at the exercise date and the option exercise price, and any additional
gain or loss will be a capital gain or loss. Some participants may have to pay alternative minimum tax in connection
with exercise of an incentive stock option, however.
• Restricted stock. A participant will generally recognize ordinary income on receipt of an award of restricted stock
when his or her rights in that award become substantially vested, in an amount equal to the amount by which the
then fair market value of the common stock acquired exceeds the price he or she has paid for it, if any. Recipients of
restricted stock may, however, within 30 days of receiving an award of restricted stock, choose to have any
applicable risk of forfeiture disregarded for tax purposes by making an “83(b) election.” If the participant makes an
83(b) election, he or she will have to report compensation income equal to the difference between the value of the
shares and the price paid for the shares, if any, at the time of the transfer of the restricted stock.
•
Stock appreciation rights. A participant will generally recognize ordinary income on receipt of cash or other
property pursuant to the exercise of an award of stock appreciation rights.
• Restricted stock units, performance units, stock grants and cash grants. A participant will generally recognize
ordinary income on receipt of any shares of common stock, cash or other property in satisfaction of any of these
awards under the 2018 Plan.
• Potential deferred compensation. For purposes of the foregoing summary of federal income tax consequences, we
assume that no award under the 2018 Plan will be considered “deferred compensation” as that term is defined for
purposes of federal tax legislation governing nonqualified deferred compensation arrangements, Section 409A of the
Code, or, if any award were considered to any extent to constitute deferred compensation, its terms would comply
with the requirements of that legislation (in general, by limiting any flexibility in the time of payment). If an award
includes deferred compensation, and its terms do not comply with the requirements of the legislation, then any
deferred compensation component of an award under the 2018 Plan will be taxable when it is earned and vested
(even if not then payable) and the recipient will be subject to a 20% additional tax.
•
Section 162(m) limitations on the Company’s tax deduction. In general, whenever a recipient is required to recognize
ordinary income in connection with an award, the Company will be entitled to a corresponding tax deduction.
However, the Company will not be entitled to deductions in connection with awards under the 2018 Plan to certain
employees to the extent that the amount of deductible income in a year to any such employee, together with his or
her other compensation from the Company exceeds the $1 million limitation of Section 162(m) of the Code.
New Plan Benefits. If the proposed 2018 Plan is approved by our stockholders, in the future, our Compensation
Committee or our full Board will have available at least 500,000 shares of our common stock for awards under the 2018 Plan
to eligible participants, including to our officers and directors. However, none of the benefits or amounts that will be received
by or allocated to any such participants under the 2018 Plan, as proposed, is determinable at this time.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” APPROVAL
OF THE 2018 PLAN.
45
2017 Annual Report
OTHER MATTERS
Our annual report for the fiscal year ended June 30, 2017 will be available over the Internet and is being mailed with
this Proxy Statement.
Form 10-K
We filed an annual report on Form 10-K for the fiscal year ended June 30, 2017 with the SEC on September 6, 2017
and filed an amendment to our annual report on Form 10-K/A on October 6, 2017. Stockholders may obtain a copy of the
annual report on Form 10-K, without charge, by writing to our Corporate Secretary, at the address of our offices located at
860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035, or through our website at www.aviatnetworks.com.
Other Business
The Board is not aware of any other matter that may be presented for consideration at the Annual Meeting. Should
any other matter properly come before the Annual Meeting, your shares of common stock will be voted in accordance with
the discretion of the proxy holders.
46
Householding of Proxy Materials
To reduce costs and the environmental impact of the Annual Meeting, a single proxy statement and annual report,
along with individual proxy cards, will be delivered in one envelope to certain stockholders having the same last name and
address, and to individuals with more than one account registered with our transfer agent with the same address, unless
contrary instructions have been received from an affected stockholder. Stockholders participating in householding will
continue to receive separate proxy cards. If you are a registered stockholder and would like to enroll in this service or receive
individual copies of this year's and/or future proxy materials, please contact Broadridge Financial Solutions, Inc. 51
Mercedes Way, Edgewood, New York 11717; or contact our Corporate Secretary at 408-941-7100 or at our headquarters at
860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035. If you are a beneficial stockholder, you may contact the
broker or bank where you hold the account.
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Appendix A
1.
Establishment and Purpose
AVIAT NETWORKS, INC.
2018 INCENTIVE PLAN
In February 2018, the Board approved the 2018 Plan, subject to stockholder approval at the Annual Meeting. The
2018 Plan was adopted to advance the interests of the Company by providing eligible individuals of the Company and its
affiliates with an opportunity to acquire or increase a proprietary interest in the Company, and to receive performance-based
cash and equity incentive compensation, in order to create a stronger incentive to expend maximum effort for the growth and
success of the Company and its subsidiaries, and to encourage such eligible individuals to remain in the employ of the
Company or one or more of its affiliates.
1.1
Establishment of the Plan. Aviat Networks, Inc., a Delaware corporation (together with any successor
thereto as provided in Section 16, hereinafter referred to as the “Company”), hereby establishes a stock equity plan to be
known as the 2018 Incentive Plan (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the
grant of Nonstatutory Options, Incentive Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units,
Performance Units and Other Stock-Based Awards (each as defined below).
The Plan is adopted and is effective as of February 12, 2018 (the “Effective Date”) and shall remain in effect as
provided in Section 1.3; provided, however, no Option (as defined below) may be exercised and no other Award (as defined
below) may be exercised or otherwise paid until the Plan has been approved by the Company’s stockholders at a meeting at
which approval of the Plan is considered.
1.2
Purpose of the Plan. The purpose of the Plan is to promote the interests of the Company and its
stockholders by aligning the interests of the Participants (as defined below), through the ownership of Shares (as defined
below) and through other incentives, with the interests of the Company’s stockholders, and by providing flexibility to the
Company to attract, motivate, and retain Employees (as defined below), Directors (as defined below), consultants and
advisors upon whose judgment, initiative, and efforts the financial success and growth of the business of the Company largely
depend. This Plan is intended to replace the prior 2007 Stock Equity Plan, as Amended and Restated Effective November 13,
2015 (the “Prior Plan”), which Prior Plan shall be automatically terminated, replaced and superseded by this Plan on the date
on which this Plan is approved by the Company’s stockholders, except that any awards granted under the Prior Plan shall
continue to be subject to the terms of the Prior Plan and applicable Award Agreements (as defined below) (including any such
terms that are intended to survive the termination of the Prior Plan or the settlement of such Award (as defined below)) and
shall remain in effect pursuant to their terms.
2.
Definitions
As used in this Plan, the following terms shall have the following meanings:
2.1
Affiliate has the meaning ascribed to such term in Rule 12b-2 promulgated under the General Rules and
Regulations of the Exchange Act.
2.2
Award means, individually or collectively, any grant or sale pursuant to the Plan of Options, Stock
Appreciation Rights, Performance Units, Restricted Stock, Restricted Stock Units or Other Stock-Based Awards, in each case
subject to the terms of the Plan.
Award Agreement means an agreement, certificate, resolution or other type or form of writing or other evidence
2.3
approved by the Committee which sets forth the terms and conditions of an Award. An Award Agreement may be in any
electronic medium, may be limited to a notation on the books and records of the Company and, with the approval of the
Committee, need not be signed by a representative of the Company or a Participant.
2.4
Beneficial Owner or Beneficial Ownership has the meaning ascribed to such term in Rule 13d-3
promulgated under the General Rules and Regulations under the Exchange Act.
2.5
Board means the Company’s Board of Directors.
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2.6
Business Combination has the meaning set forth in Section 9.1.
2.7
Change Of Control has the meaning set forth in Section 9.1.
2.8
Code means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute
thereto, and any regulations issued from time to time thereunder.
2.9
Committee means the Compensation Committee of the Board, or such other committee designated by the
Board to administer the Plan. The members of the Committee shall be appointed from time to time by and shall serve at the
discretion of the Board. The Committee shall consist solely of two or more directors who are “nonemployee directors” under
Rule 16b-3 promulgated under the Exchange Act, “outside directors” as defined under Section 162(m) of the Code, and
“independent directors” under the listing requirements of the NASDAQ Global Market, or any similar rule or listing
requirement that may be applicable to the Company from time to time. For any period during which no such committee is in
existence “Committee” shall mean the Board and all authority and responsibility assigned to the Committee under the Plan
shall be exercised, if at all, by the Board.
2.10
Company has the meaning set forth in Section 1.1.
2.11
Director means a member of the Board of Directors of the Company, its Affiliates and/or Subsidiaries.
2.12
Effective Date has the meaning set forth in Section 1.1.
2.13
Employee means any employee of the Company, its Affiliates and/or Subsidiaries.
2.14
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
2.15
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, or any successor
act thereto.
2.16
Fair Market Value or FMV means the value of a share of Stock on a particular date determined by such
methods or procedures as may be established by the Committee. Unless otherwise determined by the Committee, the Fair
Market Value of Stock as of any date is the closing price for the Stock as reported on the NASDAQ Global Market (or on any
other national securities exchange on which the Stock is then listed) for that date or, if no closing price is reported for that
date, the closing price on the next preceding date for which a closing price was reported. In addition, for purposes of
determining the Fair Market Value of Stock for any reason other than the determination of the Option Price or Stock
Appreciation Rights, fair market value will be determined by the Committee in a manner compliant with applicable laws and
applied consistently for such purpose. Note that the determination of Fair Market Value for purposes of tax withholding may
be made in the Committee’s sole discretion subject to applicable laws and is not required to be consistent with the
determination of Fair Market Value for other purposes.
2.17
Incentive Option means an Option that is intended to qualify as an “incentive stock option” within the
meaning of Section 422 of the Code.
2.18
Nonstatutory Option means any Option that is not intended to meet the requirements of Section 422 of the
Code, or that otherwise does not meet such requirements.
2.19
Option means the right to purchase Stock granted to a Participant in accordance with Section 7.1. Options
granted under the Plan may be Nonstatutory Options, Incentive Options or a combination thereof.
2.20
Option Price means the price at which a share of Stock may be purchased by a Participant pursuant to an
Option.
2.21
Other Stock-Based Award means an equity-based or equity-related Award not otherwise described by the
terms of the Plan, granted pursuant to Section 7.5.
2.22
Participant means an eligible person as set forth in Section 6.1 to whom an Award is granted under the Plan.
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2.23
Performance Criteria means the criteria that the Committee selects for purposes of establishing the
Performance Goal or Performance Goals for a Participant for a Performance Period. The Performance Criteria used to
establish Performance Goals are limited to: (i) cash flow (before or after dividends), (ii) earnings per share (including,
without limitation, earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity,
(v) stockholder return or total stockholder return, (vi) return on capital (including, without limitation, return on total capital or
return on invested capital), (vii) return on investment, (viii) return on assets or net assets, (ix) market capitalization, (x)
economic value added, (xi) debt leverage (debt to capital), (xii) revenue, (xiii) sales or net sales, (xiv) backlog, (xv) income,
pre-tax income or net income, (xvi) operating income or pre-tax profit, (xvii) operating profit, net operating profit or
economic profit, (xviii) gross margin, operating margin or profit margin, (xix) return on operating revenue or return on
operating assets, (xx) cash from operations, (xxi) operating ratio, (xxii) operating revenue, (xxiii) market share improvement,
(xxiv) general and administrative expenses or (xxv) customer service.
2.24
Performance Goals means, for a Performance Period, the written goal or goals established by the
Committee for the Performance Period based upon the Performance Criteria. The Performance Goals may be expressed in
terms of overall Company performance or the performance of a division, business unit, subsidiary, or an individual, either
individually, alternatively or in any combination, applied to either the Company as a whole or to a business unit or Affiliate,
either individually, alternatively or in any combination, and measured either quarterly, annually or cumulatively over a period
of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a designated comparison
group, in each case as specified by the Committee. The Committee will objectively define the manner of calculating the
Performance Goal or Goals it selects to use for such Performance Period for such Participant. The Committee may
appropriately adjust any evaluation of performance against a Performance Goal to exclude any of the following events that
occurs during a performance period: (i) asset write-downs, (ii) litigation, claims, judgments or settlements, (iii) the effect of
changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for
reorganization and restructuring programs and (v) any extraordinary, unusual, non-recurring or non-comparable items (A) as
described in Accounting Standard Codification 225-20, (B) as described in management’s discussion and analysis of financial
condition and results of operations appearing in the Company’s Annual Report to stockholders for the applicable year, or
(C) publicly announced by the Company in a press release or conference call relating to the Company’s results of operations
or financial condition for a completed quarterly or annual fiscal period.
2.25
Performance Period means the one or more periods of time, which may be of varying and overlapping
durations, selected by the Committee, over which the attainment of one or more Performance Goals will be measured for
purposes of determining a Participant’s right to, and the payment of, a Performance Unit.
2.26
Performance Unit means a right granted to a Participant under Section 7.5, to receive cash, Stock or other
Awards, the payment of which is contingent on achieving Performance Goals established by the Committee.
2.27
Person has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections
13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
2.28
Plan has the meaning set forth in Section 1.1.
2.29
Prior Plan has the meaning set forth in Section 1.2.
2.30
Restricted Stock means Shares granted or sold to a Participant pursuant to Section 7.3 as to which the
Restriction Period has not lapsed.
2.31
Restricted Stock Unit means a unit granted or sold to a Participant pursuant to Section 7.3 as to which
Restriction Period has not lapsed.
2.32
Restriction Period means the period when Restricted Stock or Restricted Stock Units are subject to a
“substantial risk of forfeiture” within the meaning of Section 83 of the Code (based on the passage of time, the achievement
of performance goals, or upon the occurrence of other events as determined by the Committee, in its discretion), as provided
in Section 7.3.
2.33
Share means a share of common stock of the Company, par value $0.01 per Share.
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2.34
Stock means common stock, par value $0.01 per share, of the Company, and such other securities as may
be substituted for Stock pursuant to Section 8.
2.35
Stock Appreciation Right or SAR means a right to receive any excess in the Fair Market Value of shares of
Stock (except as otherwise provided in Section 7.2(c)) over a specified exercise price.
2.36
Subsidiary means a corporation, company or other entity (i) more than 50% of whose outstanding shares or
securities (representing the right to vote for the election of directors or other managing authority) are, or (ii) which does not
have outstanding shares or securities (as may be the case in a partnership, joint venture or unincorporated association), but
more than 50% of whose ownership interest representing the right generally to make decisions for such other entity is, now or
hereafter, owned or controlled, directly or indirectly, by the Company, except that for purposes of determining whether any
person may be a Participant for purposes of any grant of Incentive Options, “Subsidiary” means any corporation in which at
the time the Company owns or controls, directly or indirectly, more than 50% of the total combined voting power represented
by all classes of stock issued by such corporation.
2.37
Ten Percent Owner means a person who owns, or is deemed within the meaning of Section 422(b)(6) of the
Code to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or
any parent or subsidiary corporations of the Company, as defined in Sections 424(e) and (f), respectively, of the Code).
Whether a person is a Ten Percent Owner shall be determined with respect to an Option based on the facts existing
immediately prior to the grant date of the Option.
3.
Term of the Plan
Unless the Plan shall have been earlier terminated by the Board, Awards may be granted under this Plan at any time
in the period commencing on the date of approval of the Plan by the Board and ending immediately prior to the 7th
anniversary of the earlier of the adoption of the Plan by the Board or approval of the Plan by the Company’s stockholders.
Awards of Incentive Options granted prior to stockholder approval of the Plan are expressly conditioned upon such approval,
but in the event of the failure of the stockholders to approve the Plan shall thereafter and for all purposes be deemed to
constitute Nonstatutory Options. After the Plan is terminated, no Awards may be granted but Awards previously granted shall
remain outstanding in accordance with their applicable terms and conditions and the Plan’s terms and conditions.
4.
Stock Subject to the Plan
Subject to adjustment as provided in this Section 4 and Section 8, the aggregate number of Shares of Stock which
may be granted, issued or delivered pursuant to Awards under the Plan (including pursuant to the exercise of Incentive
Options) shall be the sum of: (i) 500,000 Shares, plus (ii) the number of shares of common stock of the Company which
remain available for grants of options or other awards under the Prior Plan as of the Effective Date, plus (iii) the number of
Shares that, after the Effective Date, would again become available for issuance pursuant to the reserved share replenishment
provisions of the Prior Plan as a result of, stock options issued thereunder expiring or becoming unexercisable for any reason
before being exercised in full, or, as a result of restricted stock being forfeited to the Company or repurchased by the
Company pursuant to the terms of the agreements governing such shares. The share replenishment provision of the
immediately preceding clause (iii) shall be effective regardless of whether the Prior Plan has terminated or remains in effect.
For purposes of applying the foregoing limitation,
(a)
if any Option or Stock Appreciation Right expires, terminates, or is cancelled for any reason
without having been exercised in full, or if any other Award is forfeited by the recipient or repurchased at less than its then
Fair Market Value as a means of effecting its forfeiture, the shares not purchased by the Participant or which are forfeited by
the recipient or repurchased shall again be available for Awards to be granted under the Plan;
(b)
the full number of Options and Stock Appreciation Rights granted that are to be settled by the
issuance of Shares shall be counted against the number of Shares available for award under the Plan, regardless of the number
of Shares actually issued upon settlement of any such Award;
(c)
any Shares withheld to satisfy tax withholding obligations on an Award issued under the Plan with
respect to an Option, Stock Appreciation Right or full-value awards, Shares tendered to pay the exercise price of an Award
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under the Plan, and Shares repurchased on the open market with the proceeds of an Option exercise will not be eligible to be
again available for grant under the Plan;
(d)
each Share of Stock issued pursuant to or subject to outstanding Awards granted after the Effective
Date, other than pursuant to or subject to any Option or Stock Appreciation Right, shall count as 1.76 Shares of Stock (but if
forfeited, or repurchased at less than its then Fair Market Value as a means of effecting forfeiture, shall again be available for
grant under the Plan as 1.76 Shares of Stock available under the limitation); and
(e)
in the form of Stock.
settlement of any Award shall not count against the foregoing limitation except to the extent settled
Shares of Stock issued pursuant to the Plan may be either authorized but unissued Shares or Shares held by the
Company in its treasury.
5.
Administration
5.1
General. The Committee shall be responsible for administering the Plan, subject to this Section 5 and the
other provisions of the Plan. The act or determination of a majority of the Committee shall be the act or determination of the
Committee and any decision reduced to writing and signed by all of the members of the Committee shall be fully effective as
if it had been made by a majority at a meeting duly held. The Committee may employ attorneys, consultants, accountants,
agents, and other persons, any of whom may be an Employee, and the Committee, the Company, and its officers and
Directors shall be entitled to rely upon the advice, opinions, or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee shall be final and binding upon the Participants, the Company, and
all other interested persons.
5.2
Authority of the Committee. The Committee shall have full and exclusive discretionary power to interpret
the terms and the intent of the Plan and any Award Agreement or other agreement or document ancillary to or in connection
with the Plan, to determine eligibility for Awards and to adopt such rules, regulations, forms, instruments, and guidelines for
administering the Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to,
selecting Award recipients, establishing all Award terms and conditions, including the terms and conditions set forth in an
Award Agreement, and, subject to Section 17, adopting modifications and amendments to the Plan or any Award Agreement,
including without limitation, any that are necessary to comply with the laws of the countries and other jurisdictions in which
the Company, its Affiliates, and/or its Subsidiaries operate. If the Committee does not exist or is unable to act for any reason,
then the Plan shall be administered by the Board, and references herein to the Committee (except in the proviso to this
sentence) shall be deemed to be references to the Board.
Notwithstanding anything in the Plan to the contrary, equity-based Awards granted under the Plan may not become
exercisable, vest or be settled, in whole or in part, prior to the one-year anniversary of the date of grant, except that: (A) the
Board may provide that Awards become exercisable, vest or settle prior to such date in the event of the Participant’s death or
disability or in the event of a Change Of Control (as defined below); and (B) annual equity grants to non-employee Directors
that occur in connection with the Company’s annual meeting of shareholders may vest on the date of the Company’s next
annual meeting. The Committee’s determinations made in good faith on matters referred to in the Plan shall be final, binding
and conclusive on all persons having or claiming any interest under the Plan or an Award made pursuant hereto.
6.
Eligibility and Participation
6.1
Eligibility. Individuals eligible to participate in the Plan include all Employees and nonemployee
Directors, and all consultants and advisors to the Company, its Affiliates and/or Subsidiaries.
6.2
Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select
from all eligible individuals, those to whom Awards shall be granted and shall determine, in its sole discretion, the nature of,
any and all terms permissible by law, and the amount of each Award. In making this determination, the Committee may
consider any factors it deems relevant, including without limitation, the office or position held by a Participant or the
Participant’s relationship to the Company, the Participant’s degree of responsibility for and contribution to the growth and
success of the Company or any Subsidiary or Affiliate, the Participant’s length of service, promotions and potential. Further,
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in no event shall the number of Shares of Stock covered by Options or other Awards granted to any one person in any one
calendar year exceed 150,000, as adjusted from time to time under Section 8.
6.3
General Terms of Awards. Each grant of an Award shall be subject to all applicable terms and conditions of
the Plan (including but not limited to any specific terms and conditions applicable to that type of Award set out in the
following Section), and such other terms and conditions, not inconsistent with the terms of the Plan, as the Committee may
prescribe. No prospective Participant shall have any rights with respect to an Award unless and until such Participant shall
have complied with the applicable terms and conditions of such Award (including, if applicable, delivering a fully executed
copy of any agreement evidencing an Award to the Company).
6.4
Effect of Termination of Employment, Etc.
(a)
To the extent consistent with Sections 409A and 162(m) of the Code, each Award Agreement shall
set forth the extent to which the Participant shall have the right to retain or accelerate the vesting or exercisability of an
Award following termination of the Participant’s employment with or provision of services to the Company, its Affiliates,
and/or its Subsidiaries, as the case may be. Such provisions shall be determined in the sole discretion of the Committee, need
not be uniform among all Awards issued pursuant to the Plan, and may reflect distinctions based on the reasons for
termination; provided, however, any outstanding Option or SAR of the Participant shall cease to be exercisable in any respect
not later than 3 months following termination and, for the period it remains exercisable following termination, shall be
exercisable only to the extent exercisable at the date of termination. Military or sick leave or other bona fide leave shall not
be deemed a termination of employment or other association, provided that it does not exceed the longer of three (3) months
or the period during which the absent Participant’s reemployment rights, if any, are guaranteed by statute or by contract.
(b)
If the employment of a Participant with the Company and its Affiliates should subsequently
terminate during the one year period following a Change Of Control, then as to any one or more outstanding Awards which
are not otherwise accelerated in full in accordance with Section 9.2, the Committee may, either in advance of a Change Of
Control or at the time thereof and upon such terms as it may deem appropriate, provide for the acceleration of such
outstanding Awards in accordance with the following provisions:
(i)
All outstanding Awards held by such Participant shall become vested and/or exercisable
as of the effective date of such termination, whether or not the Awards were otherwise vested and/or exercisable, and all
conditions shall be waived with respect to outstanding Awards, and
(ii)
For all outstanding Awards that are Performance Awards, (A) if the performance cycle
has been completed, payment of amounts determined in accordance with the terms of the Performance Award shall be made
in a lump sum not later than 90 days following the effective date of such termination, and (B) otherwise, the target level of
performance shall be deemed to have been achieved with respect to such Performance Award and payment of amounts
determined in accordance with the terms of the Performance Award, pro-rated to reflect the portion of the full performance
cycle for such Performance Award that elapsed prior to such effective date shall be made in a lump sum not later than 90 days
following such effective date.
6.5
Non-Transferability of Awards. Except as otherwise provided in this Section 6.5, Awards shall not be
transferable, and no Award or interest therein may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution or as otherwise required by law. All of a
Participant’s rights in any Award may be exercised during the life of the Participant only by the Participant or the
Participant’s legal representative. However, the Committee may, at or after the grant of an Award of a Nonstatutory Option,
or shares of Restricted Stock, provide that such Award may be transferred by the recipient to a family member; provided,
however, that any such transfer is without payment of any consideration whatsoever and that no transfer shall be valid unless
first approved by the Committee, acting in its sole discretion. For this purpose, “family member” has the meaning set forth in
the instruction to Form S-8 under the Securities Act of 1933.
6.6
Awards to Participants Outside the United States. The Committee may modify the terms of any Award
under the Plan granted to a Participant who is, at the time of grant or during the term of the Award, resident or primarily
employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that
the Award shall conform to laws, regulations, and customs of the country in which the Participant is then resident or primarily
employed, or so that the value and other benefits of the Award to the Participant, as affected by foreign tax laws and other
restrictions applicable as a result of the Participant’s residence or employment abroad, shall be comparable to the value of
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such an Award to a Participant who is resident or primarily employed in the United States. The Committee may establish
supplements to, or amendments, restatements, or alternative versions of the Plan for the purpose of granting and
administrating any such modified Award. No such modification, supplement, amendment, restatement or alternative version
may increase the Share limit of Section 4.
7.
Specific Terms of Awards
7.1
Options.
(a)
Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to
Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the
Committee, in its sole discretion; provided that Incentive Options may be granted only to eligible Employees of the Company
or of any parent or subsidiary corporation (as permitted under Sections 422 and 424 of the Code).
(b)
Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall
specify the Option Price, the maximum duration of the Option, the number of Shares to which the Option pertains, the
conditions upon which an Option shall become vested and exercisable, and such other provisions as the Committee shall
determine which are not inconsistent with the terms of the Plan. The Award Agreement also shall specify whether the Option
is intended to be an Incentive Option or a Nonstatutory Option. Only if expressly so provided in the applicable Award
Agreement shall the grant date be the date on which the Award Agreement shall have been duly executed and delivered by the
Company and the Optionee.
(c)
Option Price. The Option Price for each grant of an Option under the Plan shall not be less than
100% of the Fair Market Value of Stock on its grant date. With respect to a Participant who is a Ten Percent Owner, the
Option Price of Stock subject to an Incentive Option shall not be less than 110% of the Fair Market Value of Stock on its
grant date.
(d)
Option Period. Except as otherwise provided in Section 422 of the Code with respect to any
Incentive Option, each Option granted to a Participant shall expire at such time as the Committee shall determine at the time
of grant and specify in the Award Agreement; provided, however, that no Incentive Option may be exercisable on or after the
7th anniversary of its grant date or on or after the 5th anniversary of its grant date if the Participant is a Ten Percent Owner.
No Nonstatutory Option may be exercisable on or after the 7th anniversary of its grant date. If the Fair Market Value exceeds
the Option Price on the last day that an Option may be exercised under an Award Agreement, as long as an exercise would be
permitted under applicable laws, the affected Participant will be deemed to have exercised the vested portion of such Option
in a net exercise under Section 7.1(e) below without the requirement of any further action.
(e)
Exercisability. An Option may be immediately exercisable or become exercisable in such
installments, cumulative or non-cumulative, as the Committee may determine. In the case of an Option not otherwise
immediately exercisable in full, the Committee may, subject to Section 6.4 and Section 9, accelerate such Option in whole or
in part; provided, however, that in the case of an Incentive Option, any such acceleration of the Option would not cause the
Option to fail to comply with the provisions of Section 422 of the Code.
(f)
Method of Exercise and Payment. An Option may be exercised by the Participant giving written
notice, in the manner provided in Section 18, specifying the number of Shares with respect to which the Option is then being
exercised. The notice shall be accompanied by payment in the form of cash or check payable to the order of the Company in
an amount equal to the Option Price of the shares to be purchased or, subject in each instance to the Committee’s approval,
acting in its sole discretion, and to such conditions, if any, as the Committee may deem necessary to avoid adverse accounting
effects to the Company, by delivery to the Company Shares of Stock having a Fair Market Value equal to the Option Price of
the Shares to be purchased. An Option may also be exercised via a net exercise method whereby the Company withholds
from the delivery of Stock for which the Option was exercised that number of Shares of Stock having a Fair Market Value
equal to the aggregate Option Price of the Shares of Stock for which the Option was exercised.
If the Stock is traded on an established market, payment of any Option Price may also be made through and under
the terms and conditions of any formal cashless exercise program authorized by the Company entailing the sale of the Stock
subject to an Option in a brokered transaction (other than to the Company). Receipt by the Company of such notice and
payment in any authorized or combination of authorized means shall constitute the exercise of the Option. Within thirty (30)
days thereafter but subject to the remaining provisions of the Plan, the Company shall deliver or cause to be delivered to the
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Participant or his agent the number of Shares then being purchased. Such Shares of Stock shall be fully paid and
nonassessable.
Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid
in United States dollars.
(g)
Limit on Incentive Option Characterization. An Incentive Option shall be considered to be an
Incentive Option only to the extent that the number of Shares of Stock for which the Option first becomes exercisable in a
calendar year does not have an aggregate Fair Market Value (as of the date of the grant of the Option) in excess of the
“current limit”. The current limit for any Participant for any calendar year shall be $100,000 minus the aggregate Fair
Market Value at the date of grant of the number of Shares of Stock available for purchase for the first time in the same year
under each other Incentive Option previously granted to the Participant under the Plan, and under each other incentive option
previously granted to the Participant under any other incentive option plan of the Company and its Affiliates after
December 31, 1986, including under the Prior Plan. Any Shares of Stock which would cause the foregoing limit to be
violated shall be deemed to have been granted under a separate Nonstatutory Option, otherwise identical in its terms to those
of the Incentive Option.
(h)
Notification of Disposition. Each person exercising any Incentive Option granted under the Plan
shall be deemed to have covenanted with the Company to report to the Company any disposition of such Shares prior to the
expiration of the holding periods specified by Section 422(a)(1) of the Code and, if and to the extent that the realization of
income in such a disposition imposes upon the Company federal, state, local or other withholding tax requirements, or any
such withholding is required to secure for the Company an otherwise available tax deduction, to remit to the Company an
amount in cash sufficient to satisfy those requirements.
7.2
Stock Appreciation Rights.
(a)
Grant of SARs. Stock Appreciation Rights may be granted in tandem with an Option (at or, in the
case of a Nonstatutory Option, after, the award of the Option), or alone and unrelated to an Option. Stock Appreciation
Rights in tandem with an Option shall terminate to the extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem Stock Appreciation Rights are exercised.
(b)
Award Agreement. Each SAR shall be evidenced by an Award Agreement that shall specify the
exercise price, the term of the SAR, and such other provisions as the Committee shall determine.
(c)
Exercise Price. Stock Appreciation Rights shall have an exercise price of not less than one
hundred percent (100%) of the Fair Market Value of the Stock on the date of award, or in the case of Stock Appreciation
Rights in tandem with Options, the exercise price of the related Option.
(d)
Period. No Stock Appreciation Right may be exercised on or after the 7th anniversary of the grant
date.
(e)
Other Terms. Except as the Committee may deem inappropriate or inapplicable in the
circumstances, Stock Appreciation Rights shall be subject to terms and conditions substantially similar to those applicable to
a Nonstatutory Option.
7.3
Restricted Stock and Restricted Stock Units.
(a)
Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and Restricted Stock Units to
Participants in such amounts as the Committee shall determine. Restricted Stock Units shall represent the right of a
Participant to receive Shares of Stock upon the lapse of the Period of Restriction.
(b)
Award Agreement. Each Share of Restricted Stock and/or Restricted Stock Unit grant shall be
evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or
the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.
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(c)
Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any
Shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each
Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on
vesting following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable laws
or under the requirements of any stock exchange or market upon which such Shares are listed or traded, or holding
requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock or Restricted
Stock Units. Subject to Section 6.4 and Section 9, any such Restriction Period may be shortened by the Committee on such
basis as it deems appropriate.
In the event that the vesting date occurs on a date which is not a trading day on the principal securities exchange on
which the Shares are then traded, the Fair Market Value on the last prior trading date will be utilized for cost basis.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of
Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares
have been satisfied or lapse.
(d)
Issuance of Shares. Shares of Restricted Stock awarded pursuant to a Restricted Stock Award shall
be issued as certificates or recorded in book-entry form, subject to subsection (e) below. Such shares shall be registered in
the name of the Participant. Any certificates so issued shall be printed with an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award as determined or authorized in the sole discretion of the Committee.
Shares recorded in book-entry form shall be recorded with a notation referring to the terms, conditions, and restrictions
applicable to such Award as determined or authorized in the sole discretion of the Committee.
(e)
Escrow of Shares. The Committee may require that the stock certificates or book-entry
registrations evidencing Shares of Restricted Stock be held in custody by a designated escrow agent (which may but need not
be the Company) until the restrictions thereon shall have lapsed, and that the Participant deliver a stock power, endorsed in
blank, relating to the Stock covered by such Award.
(f)
Voting and Other Rights. Except as otherwise provided in the Plan or the applicable Award
Agreement, to the extent permitted or required by law, a Participant holding Shares of Restricted Stock granted hereunder
shall have all of the rights of a stockholder of the Company, including the right to vote. A Participant shall have no voting
rights with respect to any Restricted Stock Units granted hereunder. At the discretion of the Committee, a Participant may be
entitled to receive payments equivalent to any dividends declared with respect to Stock referenced in grants of Restricted
Stock Units but only following the close of the applicable Restriction Period and then only if the underlying Stock shall have
been earned. Unless the Committee shall provide otherwise, any such dividend equivalents shall be paid, if at all, without
interest or other earnings.
(g)
Form and Timing of Payment. If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock, any certificates for such shares shall be delivered to the Participant promptly if not
theretofore so delivered, and the restrictive legends shall be promptly removed from any book-entry registrations for such
shares. Settlement of vested Restricted Stock Units shall be made promptly following the close of the applicable Restriction
Period.
(h)
Section 83(b) Election. The Board may provide in an Award Agreement that the Award of
Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award
under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning a
Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
7.4
Performance Units.
(a)
Grant of Performance Units. Subject to the terms and provisions of the Plan, the Committee, at
any time and from time to time, may grant Performance Units to Participants in such amounts and upon such terms as the
Committee shall determine.
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(b)
Value and Character. Each Performance Unit shall entitle the recipient to the value of a specified
number of Shares of Stock, over the initial value for such number of Shares, if any, established by the Committee at the time
of grant, at the close of a specified Performance Period to the extent specified Performance Goals shall have been achieved.
(c)
Earning of Performance Units. The Committee shall set Performance Goals in its discretion
which, depending on the extent to which they are met within the applicable Performance Period, will determine the number
and value of Performance Units that will be paid out to the Participant. After the applicable Performance Period has ended,
the holder of Performance Units shall be entitled to receive payout on the number and value of Performance Units earned by
the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding
Performance Goals have been achieved.
(d)
Form and Timing of Payment. Payment of earned Performance Units shall be as determined by
the Committee and as evidenced in the Award Agreement. Payment shall be made in a single lump sum equal to the value of
the earned Performance Units at the close of the applicable Performance Period, or as soon as practicable after the end of the
Performance Period, but not later than the expiration of the deferral period for such Award under Section 409A of the Code.
At the discretion of the Committee, Participants may be entitled to receive any dividends declared with respect to Stock
which have been earned in connection with grants of Performance Units which have been earned but not yet distributed to
Participants. The Committee may permit or, if it so provides at grant require, a Participant to defer such Participant’s receipt
of the payment of cash or the delivery of Stock that would otherwise be due to such Participant by virtue of the satisfaction of
any requirements or goals with respect to Performance Units. If any such deferral election is required or permitted, the
Committee shall establish rules and procedures for such payment deferrals in accordance with Section 409A of the Code.
7.5
Other Stock-Based Awards.
(a)
Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-
related Awards not otherwise described by the terms of the Plan (including the grant or offer for sale of unrestricted Shares)
in such amounts and subject to such terms and conditions as the Committee shall determine. Such Awards may involve the
transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares and may
include, without limitation, Awards designed to comply with or take advantage of the applicable local laws of jurisdictions
other than the United States.
(b)
Value Other Stock-Based Awards. Each Other Stock-Based Award shall be expressed in terms of
Shares or units based on Shares, as determined by the Committee.
(c)
Payment of Other Stock-Based Awards. Payment, if any, with respect to an Other Stock-Based
Award shall be made in accordance with the terms of the Award, in cash, Shares or a combination thereof, as the Committee
determines.
8.
Adjustment Provisions
8.1
Adjustment for Corporate Actions. All of the share numbers set forth in the Plan reflect the capital
structure of the Company as of the Effective Date. Subject to Section 9.2, if subsequent to the Effective Date the outstanding
Shares of Stock (or any other securities covered by the Plan by reason of the prior application of this Section) are increased,
decreased, or exchanged for a different number or kind of shares or other securities, or if additional Shares or new or different
shares or other securities are distributed with respect to Shares of Stock, through merger, consolidation, sale of all or
substantially all the property of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other similar distribution with respect to such Shares of Stock, an appropriate and proportionate
adjustment will be made in (i) the maximum numbers and kinds of Shares provided in Section 4, (ii) the numbers and kinds
of Shares or other securities subject to the then outstanding Awards, (iii) the exercise price for each Share or other unit of any
other securities subject to then outstanding Options and Stock Appreciation Rights (without change in the aggregate purchase
price as to which such Options or Rights remain exercisable), and (iv) the repurchase price of each Share of Restricted Stock
then subject to a risk of forfeiture in the form of a Company repurchase right.
8.2
Cancellation and Termination of Awards. The Committee may, in connection with any merger,
consolidation, share exchange or other transaction entered into by the Company in good faith, determine that any outstanding
Awards granted under the Plan, whether or not vested, will be canceled and terminated and that in connection with such
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cancellation and termination the holder of such Award may receive for each Share of Common Stock subject to such Award a
cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities equivalent to
such cash payment) equal to the difference, if any, between the amount determined by the Committee to be the Fair Market
Value of the Common Stock and the purchase price per Share (if any) under the Award multiplied by the number of Shares
subject to such Award; provided that if such product is zero or less or to the extent that the Award is not then exercisable, the
Award will be canceled and terminated without payment therefor.
8.3
Dissolution or Liquidation. Upon dissolution or liquidation of the Company, other than as part of a Change
Of Control, each outstanding Option and SAR shall terminate, but the Participant (if, at the time, an Employee of the
Company or an Affiliate) shall have the right, immediately prior to the dissolution or liquidation, to exercise the Option or
SAR to the extent exercisable on the date of dissolution or liquidation.
8.4
Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. In the event of
any corporate action not specifically covered by the preceding Sections, including but not limited to an extraordinary cash
distribution on Stock, a corporate separation or other reorganization or liquidation, the Committee may make such adjustment
of outstanding Awards and their terms, if any, as it, in its sole discretion, may deem equitable and appropriate in the
circumstances. The Committee may make adjustments in the terms and conditions of, and the criteria included in Awards in
recognition of unusual or nonrecurring events (including, without limitation, the events described in this Section) affecting
the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available under the Plan. Adjustments under this
Section 8.4 shall be consistent with Section 409A and 162(m) of the Code and adjustments pursuant to determination of the
Committee shall be conclusive and binding on all Participants under the Plan.
8.5
Related Matters. Any adjustment in Awards made pursuant to this Section 8 shall be determined and made,
if at all, by the Committee and shall include any correlative modification of terms, including of Option exercise prices, rates
of vesting or exercisability, risks of forfeiture, applicable repurchase prices for Restricted Stock, Performance Goals and other
financial objectives which the Committee may deem necessary or appropriate so as to ensure the rights of the Participants in
their respective Awards are not substantially diminished nor enlarged as a result of the adjustment and corporate action other
than as expressly contemplated in this Section 8. No fraction of a Share shall be purchasable or deliverable upon exercise,
but in the event any adjustment hereunder of the number of Shares covered by an Award shall cause such number to include a
fraction of a Share, such number of Shares shall be adjusted to the nearest smaller whole number of Shares. No adjustment
of an Option exercise price per Share pursuant to this Section 8 shall result in an exercise price which is less than the par
value of a Share.
9.
Change Of Control
9.1
Change Of Control. For purposes of the Plan, a “Change Of Control” shall mean the occurrence during the
term of any of the following events.
(a)
the consummation of:
(i)
any consolidation, merger or similar transaction of the Company (a “Business
Combination”) (other than a consolidation, merger or similar transaction of the Company into or with a direct or indirect
wholly-owned Subsidiary) as a result of which (1) the stockholders of the Company immediately prior to the Business
Combination own (directly or indirectly), immediately after the Business Combination, less than 50% of the then outstanding
shares of common stock that are entitled to vote generally for the election of directors of the corporation resulting from such
Business Combination (including as a result of shares being converted into cash, securities or other property) or (2) the
holders of the shares immediately prior to the Business Combination do not have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the Business Combination; or
(ii)
any sale, lease, exchange or transfer (in one transaction or a series of related transactions)
of all or substantially all the assets of the Company, provided, however, that no sale, lease, exchange or other transfer of all or
substantially all the assets of the Company shall be deemed to occur unless assets constituting at least 80% of the total assets
of the Company are transferred pursuant to such sale, lease, exchange or other transfer;
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(b)
the stockholders of the Company shall approve any plan or proposal for the liquidation or
dissolution of the Company;
(c)
any Person shall become the Beneficial Owner of securities of the Company representing 50% or
more of the combined voting power of the Company’s then outstanding securities ordinarily (and apart from rights accruing
in special circumstances) having the right to vote in the election of directors, as a result of a tender or exchange offer, open
market purchases, privately-negotiated purchases or otherwise, without the approval of the Board; or
(d)
at any time during a consecutive period of 36 months, individuals who at the beginning of such
period constituted the Board shall cease for any reason to constitute at least a majority thereof, unless the election or the
nomination for election by the Company’s stockholders of each new director during such 36-month period was approved by a
vote of at least a majority of the directors then still in office who were directors at the beginning of such 36-month period (or
were approved by a majority of directors then in office).
Notwithstanding the foregoing, if a Change Of Control constitutes a payment event with respect to any Award (or
any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A of the Code, to the
extent required to avoid the imposition of additional taxes under Section 409A of the Code, the transaction or event described
in subsection (a), (b), (c) or (d) with respect to such Award (or portion thereof) shall only constitute a Change Of Control for
purposes of the payment timing of such Award if such transaction also constitutes a “change in control event,” as defined in
Treasury Regulation Section 1.409A-3(i)(5).
The Committee shall have full and final authority, which shall be exercised in its sole discretion, to determine
conclusively whether a Change Of Control has occurred pursuant to the above definition, the date of the occurrence of such
Change Of Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a
determination of whether a Change Of Control is a “change in control event” as defined in Treasury Regulation Section
1.409A-3(i)(5) shall be consistent with such regulation.
9.2
Limited Acceleration Upon Change Of Control. For the avoidance of doubt, the Committee may not
accelerate the vesting and exercisability (as applicable) of any outstanding Awards, in whole or in part, solely upon the
occurrence of a Change Of Control except as provided in this Section 9.2. In the event of termination of employment at or
following a Change Of Control, acceleration of vesting and exercisability of any outstanding Awards, if any, shall occur
subject to Section 6.4(b).
In the event of a Change of Control after the date of the adoption of the Plan, then:
(a)
to the extent an outstanding Award subject solely to time-based vesting is not assumed or replaced
by a comparable Award referencing shares of the capital stock of the successor corporation or its “parent corporation” (as
defined in Section 424(e) of the Code) or “subsidiary corporation” (as defined in Section 424(f) of the Code) which is
publicly traded on a national stock exchange or quotation system, as determined by the Committee in its sole discretion, with
appropriate adjustments as to the number and kinds of shares and the exercise prices, if applicable, then any outstanding
Award subject solely to time-based vesting then held by Participants that is unexercisable, unvested or still subject to
restrictions or forfeiture shall, in each case as specified by the Committee in the applicable Award Agreement or otherwise,
be deemed exercisable or otherwise vested, as the case may be, as of immediately prior to such Change of Control;
(b)
all Awards that vest subject to the achievement of any performance goal, target performance level,
or similar performance-related requirement shall, in each case as specified by the Committee in the applicable Award
Agreement or otherwise, either (A) be canceled and terminated without any payment or consideration therefor; or (B)
automatically vest based on: (1) actual achievement of any applicable Performance Goals through the date of the Change Of
Control, as determined by the Committee in its sole discretion; or (2) achievement of target performance levels (or the greater
of actual achievement of any applicable Performance Goals through the date of the Change of Control, as determined by the
Committee in its sole discretion, and target performance levels); provided that in the case of vesting based on target
performance levels such Awards shall also be prorated based on the portion of the Performance Period elapsed prior to the
Change Of Control; and, in the case of this clause (B), shall be paid at the earliest time permitted under the terms of the
applicable agreement, plan or arrangement that will not trigger a tax or penalty under Section 409A of the Code, as
determined by the Committee.
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Each outstanding Award that is assumed in connection with a Change Of Control, or is otherwise to continue in
effect subsequent to the Change Of Control, will be appropriately adjusted, immediately after the Change Of Control, as to
the number and class of securities and other relevant terms in accordance with Section 8.
10.
Beneficiary Designation
Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named
contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she
receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be
in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Company
during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death
shall be paid to the Participant’s estate.
11.
Deferrals
To the extent permitted by Section 409A and Section 162(m) of the Code, the Committee may permit or require a
Participant to defer the delivery of Shares that would otherwise be due to such Participant by virtue of the exercise of an
Option or the lapse or waiver of restrictions with respect to Restricted Stock or Restricted Stock Units. If any such deferral
election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment
deferrals consistent with Section 409A of the Code.
It is intended that all Awards issued under the Plan be in a form and administered in a manner that will comply with
the requirements of Section 409A of the Code, or the requirements of an exception to Section 409A of the Code, and the
Award Agreement and this Plan will be construed and administered in a manner that is consistent with and gives effect to
such intent. The Committee is authorized to adopt rules or regulations deemed necessary or appropriate to qualify for an
exception from or to comply with the requirements of Section 409A of the Code. With respect to an Award that constitutes a
deferral of compensation subject to Section 409A of the Code: (i) if any amount is payable under such Award upon a
termination of service, a termination of service will be treated as having occurred only at such time the Participant has
experienced a “separation from service” as such term is defined for purposes of Section 409A of the Code; (ii) if any amount
is payable under such Award upon a disability, a disability will be treated as having occurred only at such time the Participant
has experienced a “disability” as such term is defined for purposes of Section 409A of the Code; (iii) if any amount is payable
under such Award on account of the occurrence of a Change Of Control, a Change Of Control will be treated as having
occurred only at such time a “change in the ownership or effective control of the corporation or in the ownership of a
substantial portion of the assets of the corporation” has occurred as such terms are defined for purposes of Section 409A of
the Code, (iv) if any amount becomes payable under such Award on account of a Participant’s separation from service at such
time as the Participant is a “specified employee” within the meaning of Section 409A of the Code, then no payment shall be
made, except as permitted under Section 409A of the Code, prior to the first business day after the earlier of (y) the date that
is six months after the date of the Participant’s separation from service or (z) the Participant’s death, (v) any right to receive
any installment payments under this Plan shall be treated as a right to receive a series of separate payments and, accordingly,
each installment payment hereunder shall at all times be considered a separate and distinct payment, and (vi) no amendment
to or payment under such Award will be made except and only to the extent permitted under Section 409A of the Code.
Notwithstanding the foregoing, the tax treatment of the benefits provided under the Plan or any Award Agreement is
not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties,
interest or other expenses that may be incurred by the Participant on account of non-compliance with Section 409A of the
Code.
12.
Settlement of Awards
12.1
In General. Options and Restricted Stock shall be settled in accordance with their terms. All other Awards
may be settled in cash, Stock, or other Awards, or a combination thereof, as determined by the Committee at or after grant
and subject to any contrary Award Agreement. The Committee may not require settlement of any Award in Stock pursuant to
the immediately preceding sentence to the extent issuance of such Stock would be prohibited or unreasonably delayed by
reason of any other provision of the Plan.
A- 13
12.2
Violation of Law. Notwithstanding any other provision of the Plan or the relevant Award Agreement, if, at
any time, in the reasonable opinion of the Company, the issuance of Shares of Stock covered by an Award may constitute a
violation of law, then the Company may delay such issuance and the delivery of such Shares until (i) approval shall have
been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required
under any applicable law, rule, or regulation and (ii) in the case where such issuance would constitute a violation of a law
administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been
satisfied:
(a)
the Shares are at the time of the issue of such Shares effectively registered under the Securities Act
of 1933; or
(b)
the Company shall have determined, on such basis as it deems appropriate (including an opinion
of counsel in form and substance satisfactory to the Company) that the sale, transfer, assignment, pledge, encumbrance or
other disposition of such Shares or such beneficial interest, as the case may be, does not require registration under the
Securities Act of 1933, as amended or any applicable State securities laws.
The Company shall make all reasonable efforts to bring about the occurrence of said events.
12.3
Corporate Restrictions on Rights in Stock. Any Stock to be issued pursuant to Awards granted under the
Plan shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the charter,
certificate or articles, and by-laws, of the Company.
12.4
Investment Representations. The Company shall be under no obligation to issue any shares covered by any
Award unless the shares to be issued pursuant to Awards granted under the Plan have been effectively registered under the
Securities Act of 1933, as amended, or the Participant shall have made such written representations to the Company (upon
which the Company believes it may reasonably rely) as the Company may deem necessary or appropriate for purposes of
confirming that the issuance of such shares will be exempt from the registration requirements of that Act and any applicable
state securities laws and otherwise in compliance with all applicable laws, rules and regulations, including but not limited to
that the Participant is acquiring the shares for his or her own account for the purpose of investment and not with a view to, or
for sale in connection with, the distribution of any such shares.
12.5
Registration. If the Company shall deem it necessary or desirable to register under the Securities Act of
1933, as amended or other applicable statutes any Shares of Stock issued or to be issued pursuant to Awards granted under the
Plan, or to qualify any such Shares of Stock for exemption from the Securities Act of 1933, as amended or other applicable
statutes, then the Company shall take such action at its own expense. The Company may require from each recipient of an
Award, or each holder of Shares of Stock acquired pursuant to the Plan, such information in writing for use in any registration
statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for that purpose and may require
reasonable indemnity to the Company and its officers and directors from that holder against all losses, claims, damage and
liabilities arising from use of the information so furnished and caused by any untrue statement of any material fact therein or
caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made. In addition, the Company may require of any such
person that he or she agree that, without the prior written consent of the Company or the managing underwriter in any public
offering of Shares of Stock, he or she will not sell, make any short sale of, loan, grant any option for the purchase of, pledge
or otherwise encumber, or otherwise dispose of, any shares of Stock during the 180 day period commencing on the effective
date of the registration statement relating to the underwritten public offering of securities. Without limiting the generality of
the foregoing provisions of this Section 12.5, if in connection with any underwritten public offering of securities of the
Company the managing underwriter of such offering requires that the Company’s directors and officers enter into a lock-up
agreement containing provisions that are more restrictive than the provisions set forth in the preceding sentence, then (a) each
holder of shares of Stock acquired pursuant to the Plan (regardless of whether such person has complied or complies with the
provisions of clause (b) below) shall be bound by, and shall be deemed to have agreed to, the same lock-up terms as those to
which the Company’s directors and officers are required to adhere; and (b) at the request of the Company or such managing
underwriter, each such person shall execute and deliver a lock-up agreement in form and substance equivalent to that which is
required to be executed by the Company’s directors and officers.
12.6
Placement of Legends; Stop Orders; etc. Each share of Stock to be issued pursuant to Awards granted
under the Plan may bear a reference to the investment representation made in accordance with Section 12.4 in addition to any
other applicable restriction under the Plan, the terms of the Award and to the fact that no registration statement has been filed
A- 14
with the Securities and Exchange Commission in respect to such shares of Stock. All shares of Stock or other securities
delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of any stock exchange upon which the Stock is then listed, and
any applicable federal or state securities law, and the Committee may cause a legend or legends to be put on any certificates
or recorded in connection with book-entry accounts representing the shares to make appropriate reference to such restrictions.
12.7
Uncertificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer
of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable
law or the rules of any stock exchange.
12.8
Tax Withholding. Whenever Shares of Stock are issued or to be issued pursuant to Awards granted under
the Plan, the Company shall have the right to require the recipient to remit to the Company an amount sufficient to satisfy
federal, state, local or other withholding tax requirements if, when, and to the extent required by law (whether so required to
secure for the Company an otherwise available tax deduction or otherwise) prior to the delivery of any such Shares. The
obligations of the Company under the Plan shall be conditional on satisfaction of all such withholding obligations and the
Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind
otherwise due to the recipient of an Award. However, in such case a Participant may elect, subject to the approval of the
Committee, acting in its sole discretion, to satisfy an applicable withholding requirement, in whole or in part, by having the
Company withhold Shares to satisfy its tax obligations. The Company also may require a Participant to satisfy withholding
obligations by engaging in a cashless exercise transaction (whether through a broker or otherwise) implemented by the
Company in connection with the Plan. A Participant may only elect to have Shares withheld having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax which could be imposed on the transaction. All
elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations
that the Committee deems appropriate.
13.
Reservation of Stock
The Company shall at all times during the term of the Plan and any outstanding Awards granted hereunder reserve or
otherwise keep available such number of Shares of Stock as will be sufficient to satisfy the requirements of the Plan (if then
in effect) and the Awards and shall pay all fees and expenses necessarily incurred by the Company in connection therewith.
14.
Rights of Participants
14.1
Limitation of Rights in Stock. A Participant shall not be deemed for any purpose to be a stockholder of the
Company with respect to any of the Shares of Stock subject to an Award, unless and until Shares shall have been issued
therefor and delivered to the Participant or his agent. Any Stock to be issued pursuant to Awards granted under the Plan shall
be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the Certificate of
Incorporation and the By-laws of the Company.
14.2
Employment. Nothing contained in the Plan or in any Award Agreement shall confer upon any recipient of
an Award any right with respect to the continuation of his or her employment or other association with the Company (or any
Affiliate), or interfere in any way with the right of the Company (or any Affiliate), subject to the terms of any separate
employment or consulting agreement or provision of law or corporate articles or by-laws to the contrary, at any time to
terminate such employment or consulting agreement or to increase or decrease, or otherwise adjust, the other terms and
conditions of the recipient’s employment or other association with the Company and its Affiliates.
14.3
Participation. No Participant or other Person shall have any claim to be granted any Award, and there is no
obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of
Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to
each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated.
15.
Unfunded Status of Plan
The Plan is intended to constitute an “unfunded” plan for incentive compensation, and the Plan is not intended to
constitute a plan subject to the provisions of ERISA. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor
A- 15
of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Stock or payments with respect to Options, Stock Appreciation Rights and other
Awards hereunder, provided, however, that the existence of such trusts or other arrangements is consistent with the unfunded
status of the Plan.
16.
Successors
All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any
successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
17.
Amendment, Modification, Suspension, and Termination
Subject to Section 8, the Board may, at any time and from time to time, alter, amend, modify, suspend, or terminate
the Plan and any Award Agreement in whole or in part; provided, however, that no amendment of the Plan shall be made
without stockholder approval if stockholder approval is required by law, regulation, or stock exchange rule. Unless the Board
otherwise expressly provides, no amendment of the Plan shall affect the terms of any Award outstanding on the date of such
amendment. The Committee may amend the terms of any Award theretofore granted, prospectively or retroactively, provided
that the Award as amended is consistent with the terms of the Plan or if necessary or advisable for the purpose of conforming
the Plan or an Award Agreement to any present or future law relating to plans of this or similar nature (including, without
limitation, Section 409A and Section 162(m) of the Code), and to the administrative regulations and rulings promulgated
thereunder.
Notwithstanding the foregoing,
(a)
the Board may not amend the Plan to (i) change the description of the persons eligible for Awards
under the Plan (ii) increase the number of shares of Stock available under the Plan except as necessary to carry out the
provisions of Section 8 (concerning certain adjustments attributable to corporate actions and other events), or (iii) change the
basis on which Shares under any Award are taken into account for purposes of the limitation on the number of Shares of
Stock available under the Plan, without shareholder approval;
(b)
no Option or Stock Appreciation Right shall be repriced, replaced, or regranted through
cancellation, or by lowering the Option Price for a previously granted Option or the grant price of a previously granted SAR,
and no Award shall be canceled in exchange for a cash payment from the Company to the Award owner, except under the
limited circumstances described above in Section 8.2 relating to Cancellation and Termination of Awards; and
(c)
no amendment or modification of the Plan by the Board, or of an outstanding Award by the
Committee, shall impair the rights of the recipient of any Award outstanding on the date of such amendment or modification
or such Award, as the case may be, without the recipient’s consent; provided, however, that no such consent shall be required
if (i) the Board or Committee, as the case may be, determines in its sole discretion and prior to the date of any Change Of
Control that such amendment or alteration either is required or advisable in order for the Company, the Plan or the Award to
satisfy any present or future law or regulation, including without limitation the provisions of Section 409A of the Code or to
meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or (ii) the
Board or Committee, as the case may be, determines in its sole discretion that such amendment or alteration is not reasonably
likely to significantly diminish the benefits provided under the Award, or that any such diminution has been adequately
compensated.
18.
General Provisions
18.1
Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to
the stockholders of the Company shall be construed as creating any limitations on the power of the Board to adopt such other
incentive arrangements as it may deem desirable, including without limitation, the granting of stock options and restricted
stock other than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
18.2
Notices and Other Communications
A- 16
(a)
Any notice, demand, request or other communication hereunder to any party shall be deemed to be
sufficient if contained in a written instrument delivered in person or duly sent by first class registered, certified or overnight
mail, postage prepaid, or telecopied with a confirmation copy by regular, certified or overnight mail, addressed or telecopied,
as the case may be, (i) if to the recipient of an Award, at his or her residence address last filed with the Company and (ii) if to
the Company, at its principal place of business, addressed to the attention of its Treasurer, or to such other address or
telecopier number, as the case may be, as the addressee may have designated by notice to the addressor. All such notices,
requests, demands and other communications shall be deemed to have been received: (i) in the case of personal delivery, on
the date of such delivery; (ii) in the case of mailing, when received by the addressee; and (iii) in the case of facsimile
transmission, when confirmed by facsimile machine report.
(b)
Electronic Delivery. The Company may deliver by e-mail or other electronic means (including
posting on a website maintained by the Company or by a third party under contract with the Company all documents relating
to the Plan or any Award and all other documents that the Company is required to deliver to its security holders (including
prospectuses, annual reports and proxy statements).
18.3
Severability. If any one or more of the provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
18.4
Choice of Law; Choice of Forum. The Plan, all Awards and all determinations made and actions taken
under the Plan, to the extent not otherwise governed by the laws of the United States, will be governed by the laws of the
State of Delaware without giving effect to principles of conflicts of law. For purposes of litigating any dispute that arises
under this Plan, a Participant’s acceptance of an Award is his or her consent to the jurisdiction of the State of Delaware, and
agreement that any such litigation will be conducted in Delaware Court of Chancery, or the federal courts for the United
States for the District of Delaware, and no other courts, regardless of where a Participant’s services are performed.
18.5
Forfeiture and Clawback. Without limiting in any way the generality of the Committee’s power to specify
any terms and conditions of an Award consistent with law, and for greater clarity, the Committee may specify in an Award
Agreement that the Participant’s rights, payments and benefits with respect to an Award, including any payment of Shares
received upon exercise or in satisfaction of an Award under the Plan shall be subject to reduction, cancellation, forfeiture or
clawback upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance
conditions, without limit as to time. Such events shall include, but not be limited to, failure to accept the terms of the Award
Agreement, termination of service under certain or all circumstances, violation of material Company policies, misstatement
of financial or other material information about the Company, fraud, misconduct, breach of noncompetition, confidentiality,
nonsolicitation, noninterference, corporate property protection, or other agreements that may apply to the Participant, or other
conduct by the Participant that the Committee determines is detrimental to the business or reputation of the Company and its
Subsidiaries, including facts and circumstances discovered after termination of service. Without limiting the foregoing, the
terms of any Award shall be subject to, and shall be deemed automatically to incorporate, any “clawback”, “recovery,” or
similar policy adopted by the Company and in effect before or after the grant of such Award.
18.6
Tolling. If exercising an Option or Stock Appreciation Right prior to its expiration is not permitted because
of applicable laws, other than the rules of any stock exchange or quotation system on which the Stock is listed or quoted, the
Option or Stock Appreciation Right will remain exercisable until 30 days after the first date on which exercise would no
longer be prevented by such provisions. If this would result in the Option or Stock Appreciation Right remaining exercisable
past the end of its original Option Period, then it will remain exercisable only until the end of the later of (x) the first day on
which its exercise would not be prevented by applicable laws and (y) the last day of the Option Period.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
(Mark One)
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33278
______________________________
AVIAT NETWORKS, INC.
(Exact name of registrant as specified in its charter)
______________________________
Delaware
(State or other jurisdiction of incorporation or organization)
860 N. McCarthy Blvd., Suite 200, Milpitas, California
(Address of principal executive offices)
20-5961564
(I.R.S. Employer Identification No.)
95035
(Zip Code)
Registrant’s telephone number, including area code: (408) 941-7100
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Preferred Shares Purchase Rights
Name of Each Exchange on Which Registered
NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
_____________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
No
Act. Yes
No
Indicate by check mark whether the registrant (1) 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
No
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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
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. (Check one):
Large accelerated filer
Non-accelerated filer
Emerging growth company
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of December 30, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $46.0
No
million. For purposes of this calculation, the registrant has assumed that its directors, executive officers and holders of 5% or more of the
outstanding common stock are affiliates.
As of August 17, 2017, there was 5,317,957 shares of the registrant’s common stock outstanding.
_________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the end of the registrant’s fiscal year ended June 30, 2017, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
AVIAT NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended June 30, 2017
Table of Contents
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1.
Item 1A.
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B.
Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Item 4.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 5.
Item 6.
Item 7.
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . .
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . .
Item 9A.
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B.
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
5
13
26
26
26
27
28
28
30
31
44
45
81
81
82
83
83
83
83
83
83
84
84
85
86
87
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including “Item 7. 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, including with respect to growing our business and sustaining profitability; our restructuring
efforts; 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,” “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 Annual Report on Form 10-K. Important
factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking
statements include, but are not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
continued price and margin 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;
our ability to meet financial covenant requirements which could impact, among other things, our liquidity;
the timing of our receipt of payment for products or services from our customers;
our ability to meet projected new product development dates or anticipated cost reductions of new products;
our suppliers’ inability to perform and deliver on time as a result of their financial condition, component
shortages or other supply chain constraints;
customer acceptance of new products;
the ability of our subcontractors to timely perform;
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;
our failure to protect our intellectual property rights or defend against intellectual property infringement claims
by others;
the results of our restructuring efforts;
the ability to preserve and use our net operating loss carryforwards;
the effects of currency and interest rate risks;
the conduct of unethical business practices in developing countries; and
the impact of political turmoil in countries where we have significant business.
Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” in this 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 Annual Report on Form 10-K.
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 Annual Report on Form 10-K. 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
3
undertake no obligation, other than as imposed by law, to update any forward-looking statements to reflect further
developments or information obtained after the date of filing of this Annual Report on Form 10-K or, in the case of any
document incorporated by reference, the date of that document.
4
Item 1. Business
PART I
Aviat Networks, Inc., together with its subsidiaries, is a global supplier of microwave networking solutions,
backed by an extensive suite of professional services and support. Aviat Networks, Inc. may be referred to as “the
Company,” “AVNW,” “Aviat Networks,” “we,” “us” and “our” in this Annual Report on Form 10-K.
We were incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave
Communications Division (“MCD”) and Stratex Networks, Inc. (“Stratex”). On January 28, 2010, we changed our
corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc.
Our principal executive offices are located at 860 North McCarthy Boulevard, Suite 200, Milpitas, California
95035, and our telephone number is (408) 941-7100. Our common stock is listed on the NASDAQ Global Select Market
under the symbol AVNW. As of June 30, 2017, we employed approximately 710 people, compared with approximately
720 people as of July 1, 2016.
Overview and Description of the Business
We design, manufacture and sell a range of wireless networking products, solutions and services to mobile and
fixed public network operators, private network operators, Federal, State and Local government agencies, transportation,
energy and utility companies, public safety agencies and broadcast network operators around the world. We sell products
and services directly to our customers, and also, to a lesser extent, use agents and resellers.
Our products utilize microwave and millimeter wave technologies to create point to point wireless links for short,
medium and long distance interconnections. Our products incorporate Ethernet switching and IP routing capabilities to
form complete networking solutions. We also provide network management software tools to enable our customers to
deploy, monitor and manage our systems; third party equipment such as antennas, routers, optical transmission
equipment and other equipment necessary to build and deploy a complete telecommunications transmission network. We
provide a full suite of professional services for planning, deployment, operations and maintenance of our customers’
networks.
Our wireless systems deliver urban, suburban, regional and country-wide communications links as the primary
alternative to fiber optic connections. In dense urban and suburban areas, short range wireless solutions are faster to
deploy and lower cost per mile than new fiber deployments. In developing nations, fiber infrastructure is scarce and
wireless systems are used for both long and short distance connections. Wireless systems also have advantages over
optical fiber in areas with rugged terrain, and to provide connections over bodies of water such as between islands or
even oil and gas production platforms.
Revenue from our North America and international regions represented approximately 55% and 45%,
respectively, of our revenue in fiscal 2017, 47% and 53%, respectively, of our revenue in fiscal 2016, and 46% and 54%,
respectively, of our revenue in fiscal 2015. Information about our revenue attributable to our geographic regions is set
forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Note
9. Segment and Geographic Information” of the accompanying consolidated financial statements in this Annual Report
on Form 10-K.
Market Overview
We believe that future demand for microwave and millimeter wave transmission systems will be influenced by a
number of factors across several market segments.
Mobile Networks
As mobile networks expand, add subscribers and increase the number of wirelessly connected devices, sensors
and machines, they require investment in backhaul infrastructure. Whether mobile network operators choose to self-build
this backhaul infrastructure or lease backhaul services from other network providers, the evolution of the network drives
demand for transmission technologies such as microwave and millimeter wave wireless backhaul. Within this overall
scope there are multiple individual drivers for investment in backhaul infrastructure.
• New RAN Technologies. Mobile Radio Access Network (“RAN”) technologies are continually evolving.
With evolution from 2G to 3G (HSPA), 4G (HSPA+ and LTE), and next 5G standards, technology is
5
rapidly advancing and providing subscribers with higher speed access to the Internet, social media, and
video streaming services. The rapid increases in data to be transported through the RAN and across the
backhaul infrastructure drives requirements for higher data transport links necessitating upgrades to or
replacement of the existing backhaul infrastructure.
Subscriber Growth. Traffic on the backhaul infrastructure increases as the number of unique subscribers
grows.
•
• Connected Devices. The number of devices such as smart phones and tablets connected to the mobile
network is far greater than the number of unique subscribers and is continuing to grow as consumers adopt
multiple mobile device types. There is also rapid growth in the number and type of wireless enabled sensors
and machines being connected to the mobile network creating new revenue streams for network operators
in healthcare, agriculture, transportation and education. As a result, the data traffic crossing the backhaul
infrastructure continues to grow rapidly.
IoT. The Internet of Things (“IoT”) brings the potential of massive deployment of wireless end points for
sensing and reporting data and remotely controlling machines and devices. The increase of data volume
drives investment in network infrastructure.
•
• RAN Capacity. RAN frequency spectrum is a limited resource and shared between all of the devices and
users within the coverage area of each base station. Meeting the combined demand of increasing
subscribers and devices will require the deployment of much higher densities of base stations with smaller
and smaller range (small cells) each requiring backhaul.
• Geographic Coverage. Expanding the geographic area covered by a mobile network requires the
•
deployment of additional Cellular Base Station sites. Each additional base station site also needs to be
connected to the core of the mobile network through expansion of the backhaul system.
License Mandates. Mobile Operators are licensed telecommunications service providers. Licenses will
typically mandate a minimum geographic footprint within a specific period of time and/or a minimum
proportion of a national or regional population served. This can pace backhaul infrastructure investment
and cause periodic spikes in demand.
• Evolution to IP. Network Infrastructure capacity, efficiency and flexibility is greatly enhanced by
transitioning from legacy SDH (synchronous digital hierarchy) / SONET (synchronous optical network) /
TDM (time division multiplexing) to IP (internet protocol) infrastructure. Our products offer integrated IP
transport and routing functionality increasing the value they bring in the backhaul network.
• Expansion of Offered Services. Mobile network operators especially in emerging markets now own and
operate the most modern communications networks within their respective regions. These network assets
can be further leveraged to provide high speed broadband services to fixed locations such as small, medium
and large business enterprises, airports, hotels, hospitals, and educational institutions. Microwave and
millimeter wave backhaul is ideally suited to providing high speed broadband connections to these end
points due to the lack of fiber infrastructure.
Other Vertical Markets
In addition to mobile backhaul, we see demand for microwave technology in other vertical markets, including
utility, public safety, financial institutions and broadcast.
• Many utility companies around the world are actively investing in Smart Grid solutions and energy demand
management, which drive the need for network modernization and increased capacity of networks.
• The investments in network modernization in the public safety market can significantly enhance the
capabilities of security agencies. Improving border patrol effectiveness, enabling inter-operable emergency
communications services for local or state police, providing access to timely information from centralized
databases, or utilizing video and imaging devices at the scene of an incident requires a high bandwidth and
reliable network. The mission critical nature of Public Safety and National security networks can require
that these networks are built, operated and maintained independently of other public network infrastructure
and microwave is very well suited to this environment because it is a cost-effective alternative to fiber.
• Microwave technology can be used to engineer long distance and more direct connections than Optical
Cable. Microwave signals also travel through the air much faster than light through glass and the combined
effect of shorter distance and higher speed reduces latency, which is valued for trading applications in the
financial industry. Our products have already been used to create low latency connections between major
centers in the United States (“U.S.”), Europe and Asia and we see long-term interest in the creation of
further low latency routes in various geographies around the world.
6
• The enhancement of Border Security and Surveillance networks to counter terrorism and insurgency is
aided by the use of wireless technologies including microwave backhaul.
These factors are combining to create a range of opportunities for continued investment in backhaul and transport
networks favoring microwave and millimeter wave technologies. As we focus on our execution of the future generations
of our technology, our goal is to make wireless a viable choice for an ever-broadening range of network types.
Strategy
Over the past year, we focused on building a sustainably profitable business with future growth potential. We have
invested in our people and processes to create a platform for operational excellence across sales, services, product
development and supply chain areas while continuing to make investments in strengthening our product and services
portfolio and expanding our reach into targeted market areas.
Our technology strategy has three main elements aligned to deliver a compelling Total Cost of Ownership
(“TCO”) value proposition. The first is the integration of network routing functions into our wireless transport solution
allowing our customers increased flexibility with a much better Total Cost. Second, we are expanding the data carrying
capacity of our wireless products to address the increasing data demand in networks of all types. Third, in order to
address the operational complexity of planning, deploying, owning and operating microwave networks, we are investing
in a combination of software applications and services where our expertise can make a significant difference for our
customers and partners.
We continued to develop our professional services portfolio as a key to our long-term strategy and differentiation.
During the year, we continued to expand the number of customer networks managed from our North America Network
Operations Center. We began offering cloud based network management to our customers and we continue to offer
training and accreditation programs for microwave and IP network design, deployment and maintenance.
Our strategy includes partnering with companies with technical expertise in areas outside of our core
competencies to meet our customers’ demand for an end-to-end solution. Our partner product strategy enables us to go
beyond wireless transmission to address the vendor consolidation trend whereby customers are “buying more from fewer
vendors” and in doing so providing expanding market share opportunity. A comprehensive solutions portfolio comprised
of our wireless product and intelligent partner products can allow us to compete with vendors that offer turnkey solution
portfolios and serve to focus our research and development (“R&D”) efforts on core competency wireless innovations.
Having a broader portfolio will enable us to further differentiate our offerings from other independent microwave
equipment suppliers.
We expect to continue to serve and expand upon our existing customer base and develop business with new
customers. We intend to leverage our customer base, our longstanding presence in many countries, our distribution
channels, our comprehensive product line, our superior customer service and our turnkey solution capability to continue
to sell existing and new products and services to current and future customers.
Products and Solutions
Our strong product and solutions portfolio is key to building and maintaining our marquee base of customers. We
offer a comprehensive product and solutions portfolio that meets the needs of service providers and network operators in
every region of the world and addresses a broad range of applications, frequencies, capacities and network topologies.
• Broad product and solution portfolio. We offer a comprehensive suite of wireless transmission networking
systems for microwave and millimeter wave networking applications. Our solution consists of tailored
offerings of our own wireless products and our own integrated ancillary equipment or that of other
manufacturers and providers of element and network management systems and professional services. These
solutions address a wide range of transmission frequencies, ranging from 2.4 GHz to 90 GHz, and a wide
range of transmission capacities, ranging up to over 10 Gbps. The major product families included in these
solutions are CTR 8000, WTM 4000 and AviatCloud. Our CTR 8000 platform merges the functionality of
an indoor microwave modem unit and a cell site router into a single integrated solution, simplifying IP/
MPLS deployments and creating a better performing network. The newest addition to our product portfolio
is the WTM 4000, the highest capacity microwave radio ever produced and purpose built for SDN. To
address the issues of operational complexity in our customers’ networks, AviatCloud is an app-based
platform to automate and virtualize networks and their operations.
7
•
Low total cost of ownership. Our wireless-based solutions are focused on low total cost of ownership,
including savings on the combined costs of initial acquisition, installation and ongoing operation and
maintenance. Our latest generation system designs reduce rack space requirements, require less power, are
software-configurable to reduce spare parts requirements, and are simple to install, operate, upgrade and
maintain. Our advanced wireless features can also enable operators to save on related costs, including
spectrum fees and tower rental fees.
• Futureproof network. Our solutions are designed to protect the network operator’s investment by
incorporating software-configurable capacity upgrades and plug-in modules that provide a smooth
migration path to Carrier Ethernet and IP/MPLS (multiprotocol label switching)-based networking, without
the need for costly equipment substitutions and additions. Our products include key technologies we
believe will be needed by operators for their network evolution to support new broadband services.
• Flexible, easily configurable products. We use flexible architectures with a high level of software
configurable features. This design approach produces high-performance products with reusable components
while at the same time allowing for a manufacturing strategy with a high degree of flexibility, improved
cost and reduced time-to-market. The software features of our products offer our customers a greater degree
of flexibility in installing, operating and maintaining their networks.
• Comprehensive network management. We offer a range of flexible network management solutions, from
element management to enterprise-wide network management and service assurance that we can optimize
to work with our wireless systems.
• Complete professional services. In addition to our product offerings, we provide network planning and
design, site surveys and builds, systems integration, installation, maintenance, network monitoring,
training, customer service and many other professional services. Our services cover the entire evaluation,
purchase, deployment and operational cycle and enable us to be one of the few complete turnkey solution
providers in the industry.
Business Operations
Sales and Service
Our primary route to market is through our own direct sales, service and support organization. This provides us
with the best opportunity to leverage our role as a technology specialist and differentiate ourselves from competitors. Our
focus on key customers and geographies allows us to consistently achieve high customer satisfaction ratings leading to a
high level of customer retention and repeat business. Our highest concentrations of Sales and Service resources are in the
United States, Western and Southern Africa, the Philippines, and the European Union. We maintain a presence in a
number of other countries, some of which are based on customer locations and include, but not limited to, Canada,
Mexico, Kenya, India, Saudi Arabia, Australia, New Zealand, and Singapore.
In addition to our direct channel to market, we also have informal, and in some cases formal, relationships with
original equipment manufacturers (“OEMs”) and system integrators especially towards large and complex projects in
National Security and Government related applications. Our role in these relationships ranges from equipment supply
only to being a sub-contractor for a portion of the project scope where we will supply equipment and a variety of design,
deployment and maintenance services.
We also use indirect sales channels, including dealers, resellers and sales representatives, in the marketing and sale
of some lines of products and equipment on a global basis. These independent representatives may buy for resale or, in
some cases, solicit orders from commercial or governmental customers for direct sales by us. Prices to the ultimate
customer in many instances may be recommended or established by the independent representative and may be above or
below our list prices. These independent representatives generally receive a discount from our list prices and are free to
set the final sales prices paid by the customer.
We have repair and service centers in India, Nigeria, Ghana, Mexico, the Philippines, the United Kingdom and the
United States. We have customer service and support personnel who provide customers with training, installation,
technical support, maintenance and other services on systems under contract. We install and maintain customer
equipment directly in some cases and contract with third-party service providers in other cases, depending on the
equipment being installed and customer requirements.
8
The specific terms and conditions of our product warranties vary depending upon the product sold and country in
which we do business. On direct sales, warranty periods generally start on the delivery date and continue for one to three
years.
Manufacturing
Our global manufacturing strategy follows an outsourced manufacturing model using contract manufacturing
partners in both the United States and Asia. Our strategy is based on balancing cost and supplier performance as well as
taking into account qualification for localization requirements of certain market segments such as the Buy America
statute.
In accordance with our global logistics requirements and customer geographic distribution, we are engaged with
contract manufacturing partners in Asia and the United States. All manufacturing operations have been certified to
International Standards Organization 9001, a recognized international quality standard. We have also been certified to the
TL 9000 standard, a telecommunication industry-specific quality system standard.
Backlog
Our backlog by geographic region is as follows:
(In thousands)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total backlog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30, 2017
July 1, 2016
102,971
56,775
159,746
$
$
97,360
56,271
153,631
Our backlog consists primarily of contracts or purchase orders for both product and service deliveries and
extended service warranties. Services include management’s initial estimate of the value of a customer’s commitment
under a services contract. The calculation used by management involves estimates and judgments to gauge the extent of
a customer’s commitment, including the type and duration of the agreement, and the presence of termination charges or
wind down costs. Contract extensions and increases in scope are treated as backlog only to the extent of the incremental
new value. We regularly review our backlog to ensure that our customers continue to honor their purchase commitments
and have the financial means to purchase and deploy our products and services in accordance with the terms of their
purchase contracts. Backlog estimates are subject to change and are affected by several factors, including terminations,
changes in the scope of contracts, periodic revalidations, adjustments for revenue not materialized and adjustments for
currency.
We expect to substantially fill the backlog as of June 30, 2017 during fiscal 2018, but we cannot be assured that
this will occur. Product orders in our current backlog are subject to changes in delivery schedules or to cancellation at the
option of the purchaser without significant penalty. Accordingly, although useful for scheduling production, backlog as
of any particular date may not be a reliable measure of sales for any future period because of the timing of orders,
delivery intervals, customer and product mix and the possibility of changes in delivery schedules and additions or
cancellations of orders. The backlog figures exclude advance payments and unearned income amounts.
Customers
Although we have a large customer base, during any given fiscal year or quarter, a small number of customers
may account for a significant portion of our revenue.
During fiscal 2017, Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 14% of our total
revenue compared with 18% in fiscal 2016 and 14% in fiscal 2015. We have entered into separate and distinct contracts
with MTN Group as well as separate arrangements with MTN Group subsidiaries. The loss of all or a substantial portion
of MTN Group’s business could adversely affect our results of operations, cash flows and financial position.
Competition
The microwave and millimeter wave wireless networking business is a specialized segment of the
telecommunications industry that is sensitive to technological advancements and is extremely competitive. Our principal
competitors include business units of large mobile and IP network infrastructure manufacturers such as Ericsson,
Huawei, NEC and Nokia, as well as a number of smaller microwave specialist companies such as Ceragon and SIAE
Microelectronica.
9
Some of our larger competitors may have greater name recognition, broader product lines (some including non-
wireless telecommunications equipment and managed services), a larger installed base of products and longer-standing
customer relationships. They may from time to time leverage their extensive overall portfolios into completely
outsourced and managed network offerings restricting opportunities for specialist suppliers. In addition, some
competitors may offer seller financing, which can be a competitive advantage under certain economic climates.
Some of our larger competitors may also act as systems integrators through which we sometimes distribute and
sell products and services to end users.
The smaller independent private and public specialist competitors typically leverage new technologies and low
products costs, but are generally less capable of offering a complete solution including professional services, especially
in the North America and Africa regions which form the majority of our addressed market.
We concentrate on market opportunities that we believe are compatible with our resources, overall technological
capabilities and objectives. Principal competitive factors are cost-effectiveness, product quality and reliability,
technological capabilities, service, ability to meet delivery schedules and the effectiveness of dealers in international
areas. We believe that the combination of our network and systems engineering support and service, global reach,
technological innovation, agility and close collaborative relationships with our customers are the key competitive
strengths for us. However, customers may still make decisions based primarily on factors such as price, financing terms
and/or past or existing relationships, where it may be difficult for us to compete effectively or profitably.
Research and Development
We believe that our ability to enhance our current products, develop and introduce new products on a timely basis,
maintain technological competitiveness and meet customer requirements is essential to our success. Accordingly, we
allocate, and intend to continue to allocate, a significant portion of our resources to research and development efforts in
key technology areas and innovation to differentiate our overall portfolio from our competition. The majority of such
research and development resources will be focused on technologies in microwave and millimeter wave RF, digital
single processing, networking protocols and software applications.
Our research and development expenditures totaled $18.7 million, or 7.7% of revenue, in fiscal 2017, $20.8
million, or 7.7% of revenue, in fiscal 2016, and $25.4 million, or 7.6% of revenue, in fiscal 2015.
Research and development are primarily directed to the development of new products and to building
technological capability. We are an industry innovator and intend to continue to focus significant resources on product
development in an effort to maintain our competitiveness and support our entry into new markets.
Our product development teams numbered 142 employees as of June 30, 2017, and were located in the United
States, New Zealand, Slovenia and Canada.
Raw Materials and Supplies
Because of the range of our products and services, as well as the wide geographic dispersion of our facilities, we
use numerous sources of raw materials needed for our operations and for our products, such as electronic components,
printed circuit boards, metals and plastics. We are dependent upon suppliers and subcontractors for a large number of
components and subsystems and upon the ability of our suppliers and subcontractors to adhere to customer or regulatory
materials restrictions and meet performance and quality specifications and delivery schedules.
Our strategy for procuring raw material and supplies includes dual sourcing on strategic assemblies and
components. In general, we believe this reduces our risk with regard to the potential financial difficulties in our supply
base. In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a
particular item or because of local content preference requirements pursuant to which we operate on a given project.
Examples of sole or limited source categories include metal fabrications and castings, for which we own the tooling and
therefore limit our supplier relationships, ASIC’s and MMICs (types of integrated circuit used in manufacturing
microwave radios), which we procure at volume discount from a single source. Our supply chain plan includes
mitigation plans for alternative manufacturing sources and identified alternate suppliers.
Although we have been affected by performance issues of some of our suppliers and subcontractors, we have not
been materially adversely affected by the inability to obtain raw materials or products. In general, any performance
issues causing short-term material shortages are within the normal frequency and impact range experienced by high-tech
manufacturing companies. They are due primarily to the highly technical nature of many of our purchased components.
10
Looking ahead, we anticipate standard lead times for our raw materials and supplies.
Patents and Other Intellectual Property
We consider our patents and other intellectual property rights, in the aggregate, to constitute an important asset.
We own a portfolio of patents, trade secrets, know-how, confidential information, trademarks, copyrights and other
intellectual property. We also license intellectual property to and from third parties. As of June 30, 2017, we held 173
U.S. patents and 82 international patents and had 20 U.S. patent applications pending and 44 international patent
applications pending. We do not consider our business to be materially dependent upon any single patent, license or other
intellectual property right, or any group of related patents, licenses or other intellectual property rights. From time to
time, we might engage in litigation to enforce our patents and other intellectual property or defend against claims of
alleged infringement. Any of our patents, trade secrets, trademarks, copyrights and other proprietary rights could be
challenged, invalidated or circumvented, or may not provide competitive advantages. Numerous trademarks used on or
in connection with our products are also considered to be valuable assets.
In addition, to protect confidential information, including our trade secrets, we require our employees and
contractors to sign confidentiality and invention assignment agreements. We also enter into non-disclosure agreements
with our suppliers and appropriate customers to limit access to and disclosure of our proprietary information.
Although our ability to compete may be affected by our ability to protect our intellectual property, we believe that,
because of the rapid pace of technological change in the wireless telecommunications industry, our innovative skills,
technical expertise and ability to introduce new products on a timely basis will be more important in maintaining our
competitive position than protection of our intellectual property. Trade secret, trademark, copyright and patent
protections are important but must be supported by other factors such as the expanding knowledge, ability and
experience of our personnel, new product introductions and product enhancements. Although we continue to implement
protective measures and intend to vigorously defend our intellectual property rights, there can be no assurance that these
measures will be successful.
Environmental and Other Regulations
Our facilities and operations, in common with those of our industry in general, are subject to numerous domestic
and international laws and regulations designed to protect the environment, particularly with regard to wastes and
emissions. We believe that we have complied with these requirements and that such compliance has not had a material
adverse effect on our results of operations, financial condition or cash flows. Based upon currently available information,
we do not expect expenditures to protect the environment and to comply with current environmental laws and regulations
over the next several years to have a material impact on our competitive or financial position, but can give no assurance
that such expenditures will not exceed current expectations. From time to time, we receive notices from the
U.S. Environmental Protection Agency or equivalent state or international environmental agencies that we are a
potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, which
is commonly known as the Superfund Act, and equivalent laws. Such notices may assert potential liability for cleanup
costs at various sites, which include sites owned by us, sites we previously owned and treatment or disposal sites not
owned by us, allegedly containing hazardous substances attributable to us from past operations. We are not presently
aware of any such liability that could be material to our business, financial condition or operating results, but due to the
nature of our business and environmental risks, we cannot provide assurance that any such material liability will not arise
in the future.
Electronic products are subject to environmental regulation in a number of jurisdictions. Equipment produced by
us is subject to domestic and international requirements requiring end-of-life management and/or restricting materials in
products delivered to customers. We believe that we have complied with such rules and regulations, where applicable,
with respect to our existing products sold into such jurisdictions.
Radio communications are also subject to governmental regulation. Equipment produced by us is subject to
domestic and international requirements to avoid interference among users of radio frequencies and to permit
interconnection of telecommunications equipment. We believe that we have complied with such rules and regulations
with respect to our existing products, and we intend to comply with such rules and regulations with respect to our future
products. Reallocation of the frequency spectrum also could impact our business, financial condition and results of
operations.
We have a comprehensive policy and procedures in effect concerning conflict minerals compliance.
11
Employees
As of June 30, 2017, we employed approximately 710 people, compared with approximately 720 as of the end of
fiscal 2016 and approximately 780 as of the end of fiscal 2015. Approximately 270 of our employees are located in the
U.S. We also utilized approximately 59 and 70 independent contractors as of June 30, 2017 and July 1, 2016,
respectively. None of our employees in the U.S. are represented by a labor union. In certain international subsidiaries,
our employees are represented by workers’ councils or statutory labor unions. In general, we believe that our employee
relations are good.
Executive Officers of the Registrant
The name, age, position held with us, and principal occupation and employment during at least the past 5 years for
each of our executive officers as of September 6, 2017, are as follows:
Position Currently Held and Past Business Experience
Name and Age
Michael A. Pangia, 56 . . . . . . Mr. Pangia has been our President and Chief Executive Officer and a member of our
board of directors (the “Board”) since July 18, 2011. From March 2009 to July 2011,
he served as our Chief Sales Officer responsible for company-wide operations of the
global sales and services organization. Prior to joining Aviat Networks, from 2008 to
2009, Mr. Pangia served as Senior Vice President, global sales operations and strategy
at Nortel, where he was responsible for all operational aspects of the global sales
function. From 2006 to 2008, he was President of Nortel’s Asia region where his key
responsibilities included sales and overall business management for all countries
where Nortel did business in the region.
Ralph Marimon, 60 . . . . . . . . Mr. Marimon joined Aviat Networks in May 2015 as our Senior Vice President,
Finance and Chief Financial Officer and is responsible for the finance and IT
organizations. Before joining Aviat, Mr. Marimon served as Vice President, Finance
and Chief Financial Officer of QuickLogic, a provider of ultra-low power,
customizable semiconductor solutions for smartphone, tablet, wearable, and mobile
enterprise OEMs, since 2008. Prior to QuickLogic, Mr. Marimon served as Chief
Financial Officer within a variety of organizations including Anchor Bay
Technologies, Inc., Tymphany Corporation, and Scientific Technologies Incorporated.
From 1999 to 2003, he served at Com21 Corporation as Chief Financial Officer. Prior
to Com21, Mr. Marimon was at KLA-Tencor Corporation for 11 years in a variety of
senior executive financial management positions.
Meena Elliott, 54 . . . . . . . . . . Ms. Elliott was appointed Senior Vice President, Chief Legal and Administrative
Officer, Corporate Secretary in February 2015 and is responsible for the global legal
and human resources organizations. From September 2011 to February 2015, she
served as Senior Vice President, General Counsel, Secretary and had responsibilities
for the global legal organization and took on responsibilities for global human
resources organizations in 2014. From July 2009 to August 2011, she served as Vice
President, General Counsel and Secretary. She joined our company as Associate
General Counsel and Assistant Secretary in January 2007 when Harris Corporation’s
MCD and Stratex Networks merged. Ms. Elliott joined MCD as Division Counsel in
March 2006. Prior to joining MCD, she was Chief Counsel at the Department of
Commerce from 2002 to 2006.
Heinz H. Stumpe, 62 . . . . . . . Mr. Stumpe was appointed Chief Sales Officer on June 25, 2012. Before his
appointment as Chief Sales Officer, Mr. Stumpe was our Senior Vice President and
Chief Operation Officer since June 30, 2008. Previously, he was Vice President,
Global Operations for Aviat Networks and Stratex Networks. He joined Stratex
Networks as Director of Marketing in 1996. He was promoted to Vice President,
Global Accounts in 1999, Vice President, Strategic Accounts in 2002 and Vice
President, Global Operations in April 2006.
Shaun McFall, 57 . . . . . . . . . . Mr. McFall was appointed Chief Strategy Officer in 2015. He was our Chief
Marketing Officer since July 2008. Previously, from 2000 to 2008, he served as Vice
President, Marketing for Aviat Networks and Stratex Networks. He has been with us
since 1989.
There is no family relationship between any of our executive officers or directors, and there are no arrangements
or understandings between any of our executive officers or directors and any other person pursuant to which any of them
was appointed or elected as an officer or director, other than arrangements or understandings with our directors.
12
Web site Access to Aviat Networks’ Reports; Available Information
We maintain an Internet Web site at http://www.aviatnetworks.com. Our annual reports on Form 10-K, proxy
statements, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) are available
free of charge on our Web site as soon as reasonably practicable after these reports are electronically filed with, or
furnished to, the Securities and Exchange Commission (“SEC”). Our website and the information posted thereon are not
incorporated into this Annual Report on Form 10-K or any current or other periodic report that we file or furnish to the
SEC.
We will also provide the reports in electronic or paper form, free of charge upon request. All reports we file with
or furnish to the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. The
public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room, 100 F. Street,
N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.
Additional information relating to our business and operations is set forth in “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Item 1A. Risk Factors
In addition to the risks described elsewhere in this Annual Report on Form 10-K and in certain of our other filings
with the SEC, the following risks and uncertainties, among others, could cause our actual results to differ materially from
those contemplated by us or by any forward-looking statement contained herein. Prospective and existing investors are
strongly urged to carefully consider the various cautionary statements and risks set forth in this Annual Report on
Form 10-K and our other public filings.
We have many business risks including those related to our financial performance, investments in our common
stock, operating our business and legal matters. The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties may also impair our business operations. If any of these risks actually occur, our
financial condition and results of operations could be materially and adversely affected.
We have not been profitable and must increase our revenues and/or reduce costs if we hope to achieve profitability.
As measured under U.S. generally accepted accounting principles (“U.S. GAAP”), we incurred net losses
attributable to our stockholders of $0.8 million in fiscal 2017, $29.9 million in fiscal 2016 and $24.6 million in fiscal 2015
and have been unprofitable since we became a public company in January 2007. We also have incurred losses from
operations in all fiscal years since we became a public company, although we generated cash from operations in fiscal
2017, 2016, 2013, 2012, 2010 and 2009.
Throughout fiscal 2017, we experienced strong price competition for new business in all regions while major
customer consolidations from prior years also put pressure on revenue and gross margin. In addition, we saw pricing
pressures in all markets, particularly in international markets. Customer consolidation may have an increasing negative
impact on our revenue if Aviat is not selected as a vendor for the products and/or services we provide. In order to counter
pricing pressures, we invested heavily in product improvements to reduce unit costs and enhance product features,
decreased overall company expenses, and worked with our vendors to attain more favorable pricing. If we are unable to
reduce product unit costs associated with enhanced product features, including payments to contract manufacturers and
other suppliers, or achieve the projected cost reductions, we may not achieve profitability.
We cannot be certain that these actions or others that we may take in the future will result in operating profitability
or net income as determined under U.S. GAAP.
13
Our sales cycle may be lengthy, and the timing of sales, along with additional services such as warehousing, inventory
management, installation and implementation of our products within our customers’ networks, may extend over more
than one period, which can make our operating results difficult to predict.
We anticipate difficulty in accurately predicting the timing of the sale of products and amounts of revenue
generated from sales of our products, primarily in developing countries. The establishment of a business relationship with
a potential customer is a lengthy process, generally taking several months and sometimes longer. Following the
establishment of the relationship, the negotiation of purchase terms can be time-consuming, and a potential customer may
require an extended evaluation and testing period. We expect that our product sales cycle, which results in our products
being designed into our customers’ networks, could take 12 to 24 months. A number of factors can contribute to the length
of the sales cycle, including technical evaluations of our products, the design process required to integrate our products
into our customers’ networks and warehousing and/or inventory management services that may be requested by certain
large customers. In anticipation of product orders, we may incur substantial costs before the sales cycle is complete and
before we receive any customer payments. Specifically, should a customer require warehousing and/or inventory
management services, such services may impact our operating results in any period due to the costs associated with
providing such services and the fact that the timing of the revenue recognition may be delayed. As a result, in the event
that a sale is not completed or is canceled or delayed, we may have incurred substantial expenses, making it more difficult
for us to become profitable or otherwise negatively impacting our financial results. Furthermore, because of our lengthy
sales cycle, our recognition of revenue from our selling efforts may be substantially delayed, our ability to forecast our
future revenue may be more limited and our revenue may fluctuate significantly from quarter to quarter.
Once a purchase agreement has been executed, the timing and amount of revenue, if applicable, may remain
difficult to predict. The completion of services such as warehousing and inventory management, installation and testing of
the customer’s networks and the completion of all other suppliers’ network elements are subject to the customer’s timing
and efforts and other factors outside our control, each of which may prevent us from making predictions of revenue with
any certainty and could cause us to experience substantial period-to-period fluctuations in our operating results.
Our average sales prices may decline in the future.
We are experiencing, and are likely to continue to experience, declining sales prices. This price pressure is likely to
result in downward pricing pressure on our products and services. As a result, we are likely to experience declining
average sales prices for our products. Our future profitability will depend upon our ability to improve manufacturing
efficiencies, reduce costs of materials used in our products and to continue to introduce new lower-cost products and
product enhancements and if we are unable to do so, we may not be able to respond to pricing pressures. If we are unable
to respond to increased price competition, our business, financial condition and results of operations will be harmed.
Because customers frequently negotiate supply arrangements far in advance of delivery dates, we may be required to
commit to price reductions for our products before we are aware of how, or if, cost reductions can be obtained. As a result,
current or future price reduction commitments and any inability on our part to respond to increased price competition
could harm our business, financial condition and results of operations.
Credit and commercial risks and exposures could increase if the financial condition of our customers declines.
A substantial portion of our sales are to customers in the telecommunications industry. These customers may
require their suppliers to provide extended payment terms, direct loans or other forms of financial support as a condition
to obtaining commercial contracts. In addition, if local currencies cannot be hedged, we have an inherent exposure in our
ability to convert monies at favorable rates from or to U.S. dollars. More generally, we expect to routinely enter into long-
term contracts involving significant amounts to be paid by our customers over time. Pursuant to these contracts, we may
deliver products and services representing an important portion of the contract price before receiving any significant
payment from the customer. As a result of the financing that may be provided to customers and our commercial risk
exposure under long-term contracts, our business could be adversely affected if the financial condition of our customers
erodes. Over the past few years, certain of our customers have filed with the courts seeking protection under the
bankruptcy or reorganization laws of the applicable jurisdiction, or have experienced financial difficulties. The financial
healthiness may be exacerbated in many emerging markets, where our customers are being affected not only by recession,
but by deteriorating local currencies and a lack of credit. Upon the financial failure of a customer, we may experience
losses on credit extended to such customer, losses relating to our commercial risk exposure and the loss of the customer’s
ongoing business. If customers fail to meet their obligations to us, we may experience reduced cash flows and losses in
excess of reserves, which could materially adversely impact our results of operations and financial position.
14
Due to the volume of our international sales, we may be susceptible to a number of political, economic and geographic
risks that could harm our business.
We are highly dependent on sales to customers outside the U.S. In each of fiscal 2017, 2016 and 2015, our sales to
international customers accounted for 47%, 55% and 55%, respectively, of total revenue. Significant portions of our
international sales are in less developed countries. Our international sales are likely to continue to account for a large
percentage of our products and services revenue for the foreseeable future. As a result, the occurrence of any
international, political, economic or geographic event could result in a significant decline in revenue. In addition,
compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our
cost of doing business in international jurisdictions. These numerous and sometimes conflicting laws and regulations
include internal control and disclosure rules, data privacy and filtering requirements, anti-corruption laws, such as the
Foreign Corrupt Practices Act, and other local laws prohibiting corrupt payments to governmental officials, and anti-
competition regulations, among others. Violations of these laws and regulations could result in fines and penalties,
criminal sanctions against us, our officers, or our employees, prohibitions on the conduct of our business and on our
ability to offer our products and services in one or more countries, and could also materially affect our brand, our
international expansion efforts, our ability to attract and retain employees, our business, and our operating results.
Although we have implemented policies and procedures designed to ensure compliance with these laws and regulations,
there can be no assurance that our employees, contractors, or agents will not violate our policies.
Some of the risks and challenges of doing business internationally include:
•
•
•
unexpected changes in regulatory requirements;
fluctuations in international currency exchange rates including its impact on unhedgeable currencies and our
forecast variations for hedgeable currencies;
imposition of tariffs and other barriers and restrictions;
• management and operation of an enterprise spread over various countries;
•
•
•
•
the burden of complying with a variety of laws and regulations in various countries;
application of the income tax laws and regulations of multiple jurisdictions, including relatively low-rate and
relatively high-rate jurisdictions, to our sales and other transactions, which results in additional complexity
and uncertainty;
the conduct of unethical business practices in developing countries;
general economic and geopolitical conditions, including inflation and trade relationships;
• war and acts of terrorism;
•
•
•
•
kidnapping and high crime rate;
natural disasters;
availability of U.S. dollars especially in countries with economies highly dependent on resource exports,
particularly oil; and
changes in export regulations.
While these factors and the impacts of these factors are difficult to predict, any one or more of them could
adversely affect our business, financial condition and results of operations in the future.
We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.
We believe that our existing cash and cash equivalents, the available line of credit under our credit facility and
future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital
and capital expenditures for the next 12 months and the foreseeable future. However, it is possible that we may not
generate sufficient cash flow from operations or otherwise have the capital resources to meet our longer-term capital
needs. If this occurs, we may need to sell assets, reduce capital expenditures, or obtain additional equity or debt financing.
We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are
not available or are not available on acceptable terms if and when needed, our business, financial condition and results of
operations could be harmed.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership
of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders.
15
We may undertake further restructuring activities, which may adversely impact our operations, and we may not realize
all of the anticipated benefits of these activities or any potential future restructurings. Any restructuring activities may
harm our business.
We continue to evaluate our business to determine the potential need to realign our resources as we continue to
transform our business in order to achieve desired cost savings in an increasingly competitive market. In prior years, we
have undertaken a series of steps to restructure our operations involving, among other things and depending on the year,
reductions of our workforce, the relocation of our corporate headquarters and the reduction and outsourcing of
manufacturing activities. We incurred restructuring charges of $0.6 million, $2.5 million and $4.9 million in fiscal 2017,
2016 and 2015, respectively.
We have based our restructuring efforts on assumptions and plans regarding the appropriate cost structure of our
business based on our product mix and projected sales, among other factors. Some of our assumptions include the
elimination of jobs and the outsourcing of certain functions to reduce our operating expenses. These assumptions may not
be accurate and we may not be able to operate in accordance with our plans. Should this occur we may determine that we
must incur additional restructuring charges in the future. Moreover, we cannot assure you that we will realize all of the
anticipated benefits of our restructuring actions or that we will not further reduce or otherwise adjust our workforce or
exit, or dispose of, certain businesses and product lines. Any decision to further limit investment, exit, or disposal of
businesses or product lines may result in the recording of additional restructuring charges. Consequently, the costs
actually incurred in connection with the restructuring efforts may be higher than originally planned and may not lead to
the anticipated cost savings and/or improved results. For example, if we consolidate additional facilities in the future, we
may incur additional restructuring and related expenses, which could have a material adverse effect on our business,
financial condition or results of operations.
Our restructuring actions could harm our relationships with our employees and impact our ability to recruit new
employees.
Employees, whether or not directly affected by any restructuring actions that we undertake, may seek employment
with our business partners, customers or competitors. We cannot assure you that the confidential nature of our proprietary
information will not be compromised by any such employees who terminate their employment with us. Further, we
believe that our future success will depend in large part upon our ability to attract, motivate and retain highly skilled
personnel. We may have difficulty attracting and retaining such personnel as a result of a perceived risk of future
workforce reductions, and we may terminate the employment of employees as part of a restructuring and later determine
that such employees were important to the success of the ongoing business.
Our business could be adversely affected if we are unable to attract and retain key personnel.
Our success and ability to invest and grow depend largely on our ability to attract and retain highly skilled
technical, professional, managerial, sales and marketing personnel. Historically, competition for these key personnel has
been intense. The loss of services of any of our key personnel, the inability to retain and attract qualified personnel in the
future, delays in hiring required personnel, particularly engineering and sales personnel, or the loss of key personnel to
competitors could make it difficult for us to meet key objectives, such as timely and effective product introductions and
financial goals.
Our success will depend on new products introduced to the marketplace in a timely manner, successfully completing
product transitioning and achieving customer acceptance.
The market for our products and services is characterized by rapid technological change, evolving industry
standards and frequent new product introductions. Our future success will depend, in part, on continuous, timely
development and introduction of new products and enhancements that address evolving market requirements and are
attractive to customers. If we fail to develop or introduce on a timely basis new products or product enhancements or
features that achieve market acceptance, our business may suffer. Additionally, we work closely with a variety of third
party partners to develop new product features and new platforms. Should our partners face delays in the development
process, then the timing of the rollout of our new products may be significantly impacted which may negatively impact
our revenue and gross margin. Another factor impacting our future success is the growth in the customer demand of our
new products. Rapidly changing technology, frequent new products introductions and enhancements, short product life
cycles and changes in customer requirements characterize the markets for our products. We believe that successful new
product introductions provide a significant competitive advantage because of the significant resources committed by
customers in adopting new products and their reluctance to change products after these resources have been expended. We
have spent, and expect to continue to spend, significant resources on internal research and development to support our
effort to develop and introduce new products and enhancements.
16
As we transition to new product platforms, we face significant risk that the development of our new products may
not be accepted by our current customers or by new customers. To the extent that we fail to introduce new and innovative
products that are adopted by customers, we could fail to obtain an adequate return on these investments and could lose
market share to our competitors, which could be difficult or impossible to regain. Similarly, we may face decreased
revenue, gross margins and profitability due to a rapid decline in sales of current products as customers hold spending to
focus purchases on new product platforms. We could incur significant costs in completing the transition, including costs
of inventory write-downs of the current product as customers transition to new product platforms. In addition, products or
technologies developed by others may render our products noncompetitive or obsolete and result in significant reduction
in orders from our customers and the loss of existing and prospective customers.
Our quarterly results may be volatile, which can adversely affect the trading price of our common stock.
Our quarterly operating results may vary significantly for a variety of reasons, many of which are outside our
control. These factors could harm our business and include, among others:
•
•
•
seasonality in the purchasing habits of our customers;
the volume and timing of product orders and the timing of completion of our product deliveries and
installations;
our ability and the ability of our key suppliers to respond to changes on demand as needed;
• margin variability based on geographic and product mix;
•
•
•
•
•
•
•
•
•
•
our suppliers’ inability to perform and deliver on time as a result of their financial condition, component
shortages or other supply chain constraints;
retention of key personnel;
the length of our sales cycle;
litigation costs and expenses;
continued timely rollout of new product functionality and features;
increased competition resulting in downward pressure on the price of our products and services;
unexpected delays in the schedule for shipments of existing products and new generations of the existing
platforms;
failure to realize expected cost improvement throughout our supply chain;
order cancellations or postponements in product deliveries resulting in delayed revenue recognition;
restructuring and streamlining of our operations;
• war and acts of terrorism;
•
•
•
•
•
•
natural disasters;
the ability of our customers to obtain financing to enable their purchase of our products;
fluctuations in international currency exchange rates;
regulatory developments including denial of export and import licenses;
general economic conditions worldwide that affect demand and financing for microwave and millimeter
wave telecommunications networks; and
the timing and size of future restructuring plans and write-offs.
Our quarterly results are expected to be difficult to predict and delays in product delivery or closing a sale can
cause revenue, margins and net income or loss to fluctuate significantly from anticipated levels. A substantial portion of
our contracts are completed in the latter part of a quarter and a significant percentage of these are large orders. Because a
significant portion of our cost structure is largely fixed in the short term, revenue shortfalls tend to have a
disproportionately negative impact on our profitability and can increase our inventory. The number of large new
transactions also increases the risk of fluctuations in our quarterly results because a delay in even a small number of these
transactions could cause our quarterly revenues and profitability to fall significantly short of our predictions. In addition,
we may increase spending in response to competitive actions or in pursuit of new market opportunities. Accordingly, we
cannot provide assurances that we will be able to achieve profitability in the future or that if profitability is attained, that
we will be able to sustain profitability, particularly on a quarter-to-quarter basis.
17
We face strong competition for maintaining and improving our position in the market, which can adversely affect our
revenue growth and operating results.
The wireless access, interconnection and backhaul business is a specialized segment of the wireless
telecommunications industry and is extremely competitive. Competition in this segment is intense, and we expect it to
increase. Some of our competitors have more extensive engineering, manufacturing and marketing capabilities and
significantly greater financial, technical and personnel resources than we have. In addition, some of our competitors have
greater name recognition, broader product lines, a larger installed base of products and longer-standing customer
relationships. Our competitors include established companies, such as Ericsson, Huawei, NEC and Nokia, as well as a
number of other public and private companies, such as Ceragon, DragonWave and SIAE. Some of our competitors are
OEMs or systems integrators through whom we market and sell our products, which means our business success may
depend on these competitors to some extent. One or more of our largest customers could internally develop the capability
to manufacture products similar to those manufactured or outsourced by us and, as a result, the demand for our products
and services may decrease.
In addition, we compete for acquisition and expansion opportunities with many entities that have substantially
greater resources than we have. Our competitors may enter into business combinations in order to accelerate product
development or to compete more aggressively and we may lack the resources to meet such enhanced competition.
Our ability to compete successfully will depend on a number of factors, including price, quality, availability,
customer service and support, breadth of product lines, product performance and features, rapid time-to-market delivery
capabilities, reliability, timing of new product introductions by us, our customers and competitors, the ability of our
customers to obtain financing and the stability of regional sociopolitical and geopolitical circumstances, and the ability of
large competitors to obtain business by providing more seller financing especially for large transactions. We can give no
assurances that we will have the financial resources, technical expertise, or marketing, sales, distribution, customer
service and support capabilities to compete successfully, or that regional sociopolitical and geographic circumstances will
be favorable for our successful operation.
If we fail to accurately forecast our manufacturing requirements or customer demand, we could incur additional costs,
which would adversely affect our business and results of operations.
If we fail to accurately predict our manufacturing requirements or forecast customer demand, we may incur
additional costs of manufacturing and our gross margins and financial results could be adversely affected. If we
overestimate our requirements, our contract manufacturers may experience an oversupply of components and assess us
charges for excess or obsolete components that could adversely affect our gross margins. If we underestimate our
requirements, our contract manufacturers may have inadequate inventory or components, which could interrupt
manufacturing and result in higher manufacturing costs, shipment delays, damage to customer relationships and/or our
payment of penalties to our customers. Our contract manufacturers also have other customers and may not have sufficient
capacity to meet all of their customer’s needs, including ours, during periods of excess demand.
Part of our inventory may be written off, which would increase our cost of revenues. In addition, we may be exposed to
inventory-related losses on inventories purchased by our contract manufacturers.
During fiscal 2017, 2016 and 2015, we recorded charges to reduce the carrying value of our inventory which
totaled $1.1 million, $9.9 million and $8.0 million, respectively. Such charges equaled 0.5%, 3.7% and 2.4% of our
revenue in fiscal 2017, 2016 and 2015, respectively. These charges were primarily due to excess and obsolete inventory
resulting from lower forecast, product transitioning or discontinuance.
Inventory of raw materials, work in-process or finished products may accumulate in the future, and we may
encounter losses due to a variety of factors, including:
•
•
rapid technological change in the wireless telecommunications industry resulting in frequent product
changes;
the need of our contract manufacturers to order raw materials that have long lead times and our inability to
estimate exact amounts and types of items thus needed, especially with regard to the frequencies in which
the final products ordered will operate; and
•
cost reduction initiatives resulting in component changes within the products.
Further, our inventory of finished products may accumulate as the result of inaccuracies in the forecasting process,
cancellation of customer orders or our customers’ refusal to confirm the acceptance of our products. Our forecasting
process is based on information discussed with customers concerning future orders. If a customer chooses to revise or
18
hold on placing the order, we may see an unfavorable impact on our inventory given the customization that is involved in
our products. Our contract manufacturers are required to purchase inventory based on manufacturing projections we
provide to them. If actual orders from our customers are lower than these manufacturing projections, our contract
manufacturers will have excess inventory of raw materials or finished products which we would be required to purchase.
In addition, we require our contract manufacturers from time to time to purchase more inventory than is immediately
required, and to partially assemble components, in order to shorten our delivery time in case of an increase in demand for
our products. In the absence of such increase in demand, we may need to compensate our contract manufacturers. If we
are required to purchase excess inventory from our contract manufacturers or otherwise compensate our contract
manufacturers for purchasing excess inventory, our business, financial condition and results of operations could be
materially adversely affected. We also may purchase components or raw materials from time to time for use by our
contract manufacturers in the manufacturing of our products. These purchases are based on our own manufacturing
projections. If our actual orders are lower than these manufacturing projections, we may accumulate excess inventory,
which we may be required to write down. If we are forced to write down inventory other than in the normal course of
business, our business, financial condition and results of operations could be materially adversely affected.
The effects of the poor global financial and economic conditions in certain markets has had, and may continue to
have, significant effects on our customers and suppliers, and has in the past, and may in the future have, a material
adverse effect on our business, operating results, financial condition and stock price.
The effects of poor global financial and economic conditions in certain markets include, among other things,
significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions
and/or fluctuations in equity and currency values worldwide.
Poor economic conditions in certain markets have adversely affected and may continue to adversely affect our
customers’ access to capital and/or willingness to spend capital on our products, and/or their levels of cash liquidity and/or
their ability and/or willingness to pay for products that they will order or have already ordered from us, or result in their
ceasing operations. Further, we have experienced an increasing number of our customers, principally in emerging
markets, requesting longer payment terms, lease or vendor financing arrangements, longer terms for the letters of credit
securing purchases of our products and services, which could potentially negatively impact our orders, revenue
conversion cycle, and cash flows.
In seeking to reduce their expenses, we have also seen significant pressure from our customers to lower prices for
our products as they try to improve their operating performance and procure additional capital equipment within their
reduced budget levels. To the extent that we lower prices on our products and services, our orders, revenues, and gross
margins may be negatively impacted. Additionally, certain emerging markets are particularly sensitive to pricing as a key
differentiator. Where price is a primary decision driver, we may not be able to effectively compete or we may choose not
to compete due to unacceptable margins.
In addition, poor economic conditions in certain markets could materially adversely affect our suppliers’ access to
capital and liquidity with which to maintain their inventories, production levels, and/or product quality, could cause them
to raise prices or lower production levels, or result in their ceasing operations. Further, with respect to our credit facility
discussed under “Liquidity, Capital Resources and Financial Strategies” in Item 7 of this Annual Report on Form 10-K, if
continued uncertain economic conditions adversely affect Silicon Valley Bank, our ability to access the funds available
under our credit facility could be materially adversely affected.
The potential effects of these economic factors are difficult to forecast and mitigate. As a consequence, our
operating results for a particular period are difficult to predict and prior results are not necessarily indicative of results to
be expected in future periods. Any of the foregoing effects could have a material adverse effect on our business, results of
operations, and financial condition and could adversely affect our stock price.
19
If we fail to effectively manage our contract manufacturer relationships, we could incur additional costs or be unable
to timely fulfill our customer commitments, which would adversely affect our business and results of operations and,
in the event of an inability to fulfill commitments, would harm our customer relationships.
We outsource all of our manufacturing and a substantial portion of our repair service operations to independent
contract manufacturers and other third parties. Our contract manufacturers typically manufacture our products based on
rolling forecasts of our product needs that we provide to them on a regular basis. The contract manufacturers are
responsible for procuring components necessary to build our products based on our rolling forecasts, building and
assembling the products, testing the products in accordance with our specifications and then shipping the products to us.
We configure the products to our customer requirements, conduct final testing and then ship the products to our
customers. Although we currently partner with multiple major contract manufacturers, there can be no assurance that we
will not encounter problems as we are dependent on contract manufacturers to provide these manufacturing services or
that we will be able to replace a contract manufacturer that is not able to meet our demand.
In addition, if we fail to effectively manage our relationships with our contract manufacturers or other service
providers, or if one or more of them should not fully comply with their contractual obligations or should experience
delays, disruptions, component procurement problems or quality control problems, then our ability to ship products to our
customers or otherwise fulfill our contractual obligations to our customers could be delayed or impaired which would
adversely affect our business, financial results and customer relationships.
We depend on sole or limited sources for some key components and failure to receive timely delivery of any of these
components could result in deferred or lost sales.
In some instances, we are dependent upon one or a few sources, either because of the specialized nature of a
particular item or because of local content preference requirements pursuant to which we operate on a given project.
Examples of sole or limited sourcing categories include metal fabrications and castings, for which we own the tooling and
therefore limit our supplier relationships, and MMICs (a type of integrated circuit used in manufacturing microwave
radios), which we procure at a volume discount from a single source. Our supply chain plan includes mitigation plans for
alternative manufacturing sources and identified alternate suppliers. However, if these alternatives cannot address our
requirements when our existing sources of these components fail to deliver them on time, we could suffer delayed
shipments, canceled orders and lost or deferred revenues, as well as material damage to our customer relationships.
Should this occur, our operating results, cash flows and financial condition could be materially adversely affected.
As a result of changes in tax laws, treaties, rulings, regulations or agreements, or their interpretation, of any country
in which we operate, the loss of a major tax dispute or a successful challenge to our operating structure, intercompany
pricing policies or the taxable presence of our key subsidiaries in certain countries, or other factors, our effective tax
rate could be highly volatile and could adversely affect our operating results.
We operate in multiple jurisdictions and our profits are taxed pursuant to the tax laws of these jurisdictions. Our
future effective tax rate may be adversely affected by a number of factors, many of which are outside of our control,
including:
•
•
•
•
•
•
•
•
•
•
•
the jurisdictions in which profits are determined to be earned and taxed;
adjustments to estimated taxes upon finalization of various tax returns;
increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and
development and impairment of goodwill in connection with acquisitions;
ability to utilize net operating loss;
changes in available tax credits;
changes in share-based compensation expense;
changes in the valuation of our deferred tax assets and liabilities;
changes in domestic or international tax laws or the interpretation of such tax laws;
the resolution of issues arising from tax audits with various tax authorities;
the tax effects of purchase accounting for acquisitions and restructuring charges that may cause fluctuations
between reporting periods; and
taxes that may be incurred upon a repatriation of cash from foreign operations.
Any significant increase in our future effective tax rates could impact our results of operations for future periods
adversely.
20
Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes
and other tax benefits may be limited.
Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the
amount of taxable income that may be offset if a corporation experiences an “ownership change” as defined in Section
382 of the Code. An ownership change occurs when a company’s “five-percent shareholders” (as defined in Section 382
of the Code) collectively increase their ownership in the company by more than 50 percentage points (by value) over a
rolling three-year period. Additionally, various states have similar limitations on the use of state net operating losses
(“NOL”) following an ownership change.
If we experience an ownership change, our ability to use our NOLs, any loss or deducting attributable to a “net
unrealized built-in loss” and other tax attributes (collectively, the “Tax Benefits”) could be substantially limited, and the
timing of the usage of the Tax Benefits could be substantially delayed, which could significantly impair the value of the
Tax Benefits. There is no assurance that we will be able to fully utilize the Tax Benefits and we could be required to
record an additional valuation allowance related to the amount of the Tax Benefits that may not be realized, which could
adversely impact our result of operations.
We believe that these Tax Benefits are a valuable asset for us. On September 6, 2016, the Board approved a Tax
Benefit Preservation Plan (the “Plan”) in an effort to protect our Tax Benefits during the effective period of the Plan.
Further, on September 6, 2016, the Board adopted certain amendments to our Amended and Restated Certificate of
Incorporation, as amended (the “Charter Amendments”), which are intended to preserve the Tax Benefits by restricting
certain transfers of our common stock. The Plan and the Charter Amendments were approved by our stockholders at our
2016 annual meeting of stockholders on November 16, 2016. Although the Plan and the Charter Amendments are
intended to reduce the likelihood of an “ownership change” that could adversely affect us, there is no assurance that the
restrictions on transferability in the Plan and the Charter Amendments will prevent all transfers that could result in such
an “ownership change.” There also can be no assurance that the transfer restrictions in the Charter Amendments will be
enforceable against all of our stockholders absent a court determination confirming such enforceability. The transfer
restrictions may be subject to challenge on legal or equitable grounds.
The Plan and the Charter Amendments could make it more difficult for a third party to acquire, or could discourage
a third party from acquiring, us or a large block of our common stock. A third party that acquires 4.9% or more of our
common stock could suffer substantial dilution of its ownership interest under the terms of the Plan through the issuance
of common stock or common stock equivalents to all stockholders other than the acquiring person. The acquisition may
also be void under the Charter Amendments.
The foregoing provisions may adversely affect the marketability of our common stock by discouraging potential
investors from acquiring our stock. In addition, these provisions could delay or frustrate the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest involving us, or impede an attempt to
acquire a significant or controlling interest in us, even if such events might be beneficial to us and our stockholders.
Our customers may not pay for products and services in a timely manner, or at all, which would decrease our cash
flows and adversely affect our working capital.
Our business requires extensive credit risk management that may not be adequate to protect against customer
nonpayment. A risk of non-payment by customers is a significant focus of our business. We expect a significant amount of
future revenue to come from international customers in developing countries. We do not generally expect to obtain
collateral for sales, although we require letters of credit or credit insurance as appropriate for international customers. For
information regarding the percentage of revenue attributable to certain key customers, see the risks discussed in the
following risk factor. Our historical accounts receivable balances have been concentrated in a small number of significant
customers. Unexpected adverse events impacting the financial condition of our customers, bank failures or other
unfavorable regulatory, economic or political events in the countries in which we do business may impact collections and
adversely impact our business, require increased bad debt expense or receivable write-offs and adversely impact our cash
flows, financial condition and operating results, which could also result in a breach of our bank covenants.
21
Because a significant amount of our revenue may come from a limited number of customers, the termination of any of
these customer relationships may adversely affect our business.
Sales of our products and services historically have been concentrated in a small number of customers. Principal
customers for our products and services include domestic and international wireless/mobile service providers, OEMs, as
well as private network users such as public safety agencies; government institutions; and utility, pipeline, railroad and
other industrial enterprises that operate broadband wireless networks. During fiscal 2017, 2016 and 2015, we had one
customer in Africa, MTN Group that accounted for 14%, 18% and 14%, respectively, of our total revenue. Although we
have a large customer base, during any given quarter a small number of customers may account for a significant portion
of our revenue.
It is possible that a significant portion of our future product sales also could become even more concentrated in a
limited number of customers. In addition, product sales to major customers have varied widely from period to period. The
loss of any existing customer, a significant reduction in the level of sales to any existing customer, or our inability to gain
additional customers could result in declines in our revenue or an inability to grow revenue. In addition, further
consolidation of our potential customer base could result in purchasing decision delays as consolidating customers
integrate their operations and could generally reduce our opportunities to win new customers to the extent that the number
of potential customers decreases. Furthermore, as our customers become larger, they may have more leverage to negotiate
better pricing which could adversely affect our revenues and gross margins.
Consolidation within the telecommunications industry could result in a decrease in our revenue.
The telecommunications industry has experienced significant consolidation among its participants, and we expect
this trend to continue. Some operators in this industry have experienced financial difficulty and have filed, or may file, for
bankruptcy protection. Other operators may merge and one or more of our competitors may supply products to the
customers of the combined company following those mergers. This consolidation could result in purchasing decision
delays and decreased opportunities for us to supply products to companies following any consolidation. This
consolidation may also result in lost opportunities for cost reduction and economies of scale.
We continually evaluate strategic transaction opportunities which could involve merger, restructuring, divestiture, sale
and/or acquisition activities that could disrupt our operations and harm our operating results.
Our growth depends upon market growth, our ability to enhance our existing products and our ability to introduce
new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing
products through acquisitions, or “tuck-ins,” product lines, technologies, and personnel. Strategic transactions involve
numerous risks, including the following:
•
•
•
•
•
•
•
difficulties in integrating the operations, systems, technologies, products, and personnel of the combined
companies, particularly companies with large and widespread operations and/or complex products;
diversion of management’s attention from normal daily operations of the business and the challenges of
managing larger and more widespread operations resulting from business combinations, sales, divestitures
and /or restructurings;
potential difficulties in completing projects associated with in-process research and development
intangibles;
difficulties in entering markets in which we have no or limited direct prior experience and where
competitors in each market have stronger market positions;
initial dependence on unfamiliar supply chains or relatively small supply partners;
insufficient revenue to offset increased expenses associated with acquisitions; and
the potential loss of key employees, customers, resellers, vendors and other business partners of our
company or the companies with which we engage in strategic transactions following and continuing after
announcement of an anticipated strategic transaction.
Strategic transactions may also cause us to:
•
•
•
•
issue common stock that would dilute our current stockholders or cause a change in control of the combined
company;
use a substantial portion of our cash resources, or incur debt;
significantly increase our interest expense, leverage and debt service requirements if we incur additional
debt to pay for an acquisition;
assume material liabilities;
22
•
•
•
•
•
record goodwill and non-amortizable intangible assets that are subject to impairment testing on a regular
basis and potential periodic impairment charges;
incur amortization expenses related to certain intangible assets;
incur tax expenses related to the effect of acquisitions on our intercompany R&D cost sharing arrangement
and legal structure;
incur large and immediate write-offs and restructuring and other related expenses; and
become subject to intellectual property or other litigation.
Mergers, restructurings, sales and acquisitions of high-technology companies are inherently risky and subject to
many factors outside of our control. No assurance can be given that any future strategic transactions will be successful
and will not materially adversely affect our business, operating results or financial condition. Failure to manage and
successfully complete a strategic transaction could materially harm our business and operating results. Even when an
acquired or acquiring company has already developed and marketed products, there can be no assurance that product
enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues
that might arise with respect to such products.
If we are unable to adequately protect our intellectual property rights, we may be deprived of legal recourse against
those who misappropriate our intellectual property.
Our ability to compete will depend, in part, on our ability to obtain and enforce intellectual property protection for
our technology in the U.S. and internationally. We rely upon a combination of trade secrets, trademarks, copyrights,
patents and contractual rights to protect our intellectual property. In addition, we enter into confidentiality and invention
assignment agreements with our employees, and enter into non-disclosure agreements with our suppliers and appropriate
customers so as to limit access to and disclosure of our proprietary information. We cannot give assurances that any steps
taken by us will be adequate to deter misappropriation or impede independent third-party development of similar
technologies. In the event that such intellectual property arrangements are insufficient, our business, financial condition
and results of operations could be harmed. We cannot provide assurances that the protection provided to our intellectual
property by the laws and courts of particular nations will be substantially similar to the protection and remedies available
under U.S. law. Furthermore, we cannot provide assurances that third parties will not assert infringement claims against
us based on intellectual property rights and laws in other nations that are different from those established in the U.S.
If we fail to develop and maintain distribution and licensing relationships, our revenue may decrease.
Although a majority of our sales are made through our direct sales force, we also market our products through
indirect sales channels such as independent agents, resellers, OEMs and systems integrators. These relationships enhance
our ability to pursue major contract awards and, in some cases, are intended to provide our customers with easier access to
financing and a greater variety of equipment and service capabilities, which an integrated system provider should be able
to offer. We may not be able to maintain our current relationships or develop new ones. If additional relationships are
developed, they may not be successful. Furthermore, as we consider increasing licensing revenue based on upgraded
technology, we may not be successful in transitioning customers to the planned software upgrades. Our inability to
establish or maintain these distribution and licensing relationships could restrict our ability to market our products and
thereby result in significant reductions in revenue. If these revenue reductions occur, our business, financial condition and
results of operations would be harmed.
If sufficient radio frequency spectrum is not allocated for use by our products, or we fail to obtain regulatory approval
for our products, our ability to market our products may be restricted.
We will be affected by the allocation and auction of the radio frequency spectrum by governmental authorities both
in the U.S. and internationally. These governmental authorities may not allocate sufficient radio frequency spectrum for
use by our products or we may not be successful in obtaining regulatory approval for our products from these authorities.
Historically, in many developed countries, the unavailability of frequency spectrum has inhibited the growth of wireless
telecommunications networks. In addition, to operate in a jurisdiction, we must obtain regulatory approval for our
products. Each jurisdiction in which we market our products has its own regulations governing radio communications.
Products that support emerging wireless telecommunications services can be marketed in a jurisdiction only if permitted
by suitable frequency allocations, auctions and regulations. The process of establishing new regulations is complex and
lengthy. If we are unable to obtain sufficient allocation of radio frequency spectrum by the appropriate governmental
authority or obtain the proper regulatory approval for our products, our business, financial condition and results of
operations may be harmed.
23
Radio communications are subject to regulation by U.S. and foreign laws and international treaties. Generally, our
products need to conform to a variety of United States and international requirements established to avoid interference
among users of transmission frequencies and to permit interconnection of telecommunications equipment. Any delays in
compliance with respect to our future products could delay the introduction of such products.
Our business is subject to changing regulation of corporate governance, public disclosure and anti-bribery measures
which have resulted in increased costs and may continue to result in additional costs in the future and/or potential
liabilities.
We are subject to rules and regulations of federal and state regulatory authorities, The NASDAQ Stock Market
LLC (“NASDAQ”) and financial market entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded, and foreign and domestic legislative bodies. During the past few years, these entities,
including the Public Company Accounting Oversight Board, the SEC, NASDAQ and several foreign governments such as
the governments of the United Kingdom and Brazil, have issued requirements, laws and regulations and continue to
develop additional requirements, laws and regulations, most notably the Sarbanes-Oxley Act of 2002 (“SOX”), and recent
laws and regulations regarding bribery and unfair competition. Our efforts to comply with these requirements and
regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a
diversion of substantial management time and attention from revenue-generating activities to compliance activities.
Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in
practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty
regarding compliance matters and additional costs potentially necessitated by ongoing revisions to our disclosure and
governance practices. Finally, if we are unable to ensure compliance with such requirements, laws, or regulations, we may
be subject to costly prosecution and liability, and resulting reputational harm, from such noncompliance.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) could adversely
affect our financial condition and results of operations, and could require a significant expenditure of time, attention
and resources, especially by senior management.
Our accounting and financial reporting policies conform to U.S. GAAP, which are periodically revised and/or
expanded. The application of accounting principles is also subject to varying interpretations over time. Accordingly, we
are required to adopt new or revised accounting standards or comply with revised interpretations that are issued from time
to time by various parties, including accounting standard setters and those who interpret the standards, such as the FASB
and the SEC and our independent registered public accounting firm. The FASB has recently proposed new financial
accounting standards that may result in significant changes that could adversely affect our financial condition and results
of operations.
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with
Customers, which supersedes nearly all existing U.S. GAAP regarding revenue recognition. In February 2016, the FASB
issued ASU 2016-02, Leases, which requires all operating leases with lease terms longer than twelve months be recorded
as lease assets and lease liabilities on our consolidated balance sheets. Implementing changes required by new standards,
requirements or laws likely will require a significant expenditure of time, attention and resources. It is impossible to
completely predict the impact, if any, on us of future changes to accounting standards and financial reporting and
corporate governance requirements.
Refer to Note 1 - The Company and Summary of Significant Accounting Policies of the Notes to the Consolidated
Financial Statements for further discussion of these new accounting standards, including the implementation status and
potential impact to our consolidated financial statements.
There are inherent limitations on the effectiveness of our controls.
We do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect
all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not
absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact
that resource constraints exist, and the benefits of controls must be considered relative to their costs. Further, because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements
due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur
because of simple errors or mistakes. Controls can also be circumvented by individual acts of some persons, by collusion
of two or more people, or by management’s override of the controls. The design of any system of controls is based in part
on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
24
achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of
controls to future periods are subject to risks. Over time, controls may become inadequate due to changes in conditions or
deterioration in the degree of compliance with policies or procedures. If our controls become inadequate, we could fail to
meet our financial reporting obligations, our reputation may be adversely affected, our business and operating results
could be harmed, and the market price of our stock could decline.
Our products are used in critical communications networks which may subject us to significant liability claims.
Because our products are used in critical communications networks, we may be subject to significant liability
claims if our products do not work properly. We warrant to our current customers that our products will operate in
accordance with our product specifications. If our products fail to conform to these specifications, our customers could
require us to remedy the failure or could assert claims for damages. The provisions in our agreements with customers that
are intended to limit our exposure to liability claims may not preclude all potential claims. In addition, any insurance
policies we have may not adequately limit our exposure with respect to such claims. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages. Any such claims, whether or not successful,
would be costly and time-consuming to defend, and could divert management’s attention and seriously damage our
reputation and our business.
We may be subject to litigation regarding our intellectual property. This litigation could be costly to defend and resolve,
and could prevent us from using or selling the challenged technology.
The wireless telecommunications industry is characterized by vigorous protection and pursuit of intellectual
property rights, which has resulted in often protracted and expensive litigation. Any litigation regarding patents or other
intellectual property could be costly and time-consuming and could divert our management and key personnel from our
business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation
increase these risks. Such litigation or claims could result in substantial costs and diversion of resources. In the event of
an adverse result in any such litigation, we could be required to pay substantial damages, cease the use and transfer of
allegedly infringing technology or the sale of allegedly infringing products and expend significant resources to develop
non-infringing technology or obtain licenses for the infringing technology. We can give no assurances that we would be
successful in developing such non-infringing technology or that any license for the infringing technology would be
available to us on commercially reasonable terms, if at all. This could have a materially adverse effect on our business,
results of operation, financial condition, competitive position and prospects.
System security risks, data protection breaches, and cyber attacks could compromise our proprietary information,
disrupt our internal operations and harm public perception of our security products, which could cause our business
and reputation to suffer and adversely affect our stock price.
In the ordinary course of business, we store sensitive data, including intellectual property, our proprietary business
information and proprietary information of our customers, suppliers and business partners, on our networks. The secure
maintenance of this information is critical to our operations and business strategy. Increasingly, companies, including
ours, are subject to a wide variety of attacks on their networks on an ongoing basis. Despite our security measures, our
information technology and infrastructure may be vulnerable to penetration or attacks by computer programmers and
hackers, or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our
networks, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products, and the
information stored on our networks could be accessed, publicly disclosed, lost or stolen, which could subject us to
liability to our customers, suppliers, business partners and others, and cause us reputational and financial harm. In
addition, sophisticated hardware and operating system software and applications that we produce or procure from third
parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly
interfere with the operation of our networks.
If an actual or perceived breach of network security occurs in our network or in the network of a customer of our
security products, regardless of whether the breach is attributable to our products, the market perception of the
effectiveness of our products could be harmed. Because the techniques used by computer programmers and hackers, many
of whom are highly sophisticated and well-funded, to access or sabotage networks change frequently and generally are
not recognized until after they are used, we may be unable to anticipate or immediately detect these techniques. This
could impede our sales, manufacturing, distribution or other critical functions. In addition, the economic costs to us to
eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software systems and security
vulnerabilities could be significant and may be difficult to anticipate or measure because the damage may differ based on
the identity and motive of the programmer or hacker, which are often difficult to identify.
25
Anti-takeover provisions of Delaware law, the Plan, and provisions in our Amended and Restated Certificate of
Incorporation, as amended, and Amended and Restated Bylaws could make a third-party acquisition of us difficult.
Because we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult
for a third party to acquire control of us, even if the change in control would be supported by our stockholders. We are
subject to the provisions of Section 203 of the General Corporation Law of Delaware, which prohibits us from engaging
in certain business combinations, unless the business combination is approved in a prescribed manner. In addition, our
Amended and Restated Certificate of Incorporation, as amended, and Amended and Restated Bylaws also contain certain
provisions that may make a third-party acquisition of us difficult, including the ability of the Board to issue preferred
stock and the requirement that nominations for directors and other proposals by stockholders must be made in advance of
the meeting at which directors are elected or the proposals are voted upon.
In addition, the Plan and the Charter Amendments could make an acquisition of us more difficult, and certain
acquisitions may also be void under the Charter Amendments. The risks associated with the Plan and the Charter
Amendments are described in more detail above under the heading “Our ability to use net operating loss carryforwards to
offset future taxable income for U.S. federal income tax purposes and other tax benefits may be limited.”
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of June 30, 2017, we leased approximately 178,000 square feet of facilities worldwide, with approximately 42%
in the United States, mostly in California, Texas, and North Carolina. Our corporate headquarters is located in Milpitas,
California, and consists of approximately 19,000 square feet office space. We also lease approximately 54,000 square feet
of office, assembly facilities and warehouse in certain locations in Texas. Internationally, we lease approximately 104,000
square feet of facilities throughout Europe, Canada, Central America, South America, Africa and Asia regions, including
offices in Singapore, Slovenia, Philippine Islands, India, Mexico, Brazil, Canada, South Africa, Ghana, Ivory Coast,
Kenya, Nigeria, Algeria, France, Netherlands, Poland, Russia, Australia, Dubai, Saudi Arabia, Lebanon, China, and
Thailand. In addition, we own approximately 108,000 square feet of facilities in Wellington, New Zealand and
Lanarkshire, Scotland.
We maintain our facilities in good operating condition, and believe that they are suitable and adequate for our
current and projected needs. We continuously review our anticipated requirements for facilities and may, from time to
time, acquire additional facilities, expand existing facilities, or dispose of existing facilities or parts thereof, as we deem
necessary.
For more information about our lease obligations, see “Note 12. Commitments and Contingencies” of the notes to
consolidated financial statements, which are included in Item 8 in this Annual Report on Form 10-K.
Item 3. Legal Proceedings
We are subject from time to time to disputes with customers concerning our products and services. In May 2016,
we received notification of a claim for $1.0 million in damages from a customer in Austria alleging that certain of our
products were defective. We are continuing to investigate this claim, and at this time an estimate of the reasonably
possible loss or range of loss cannot be made. In August 2016, we received a correspondence from a customer in Africa
demanding that certain inventory be repurchased under the terms of an inventory management agreement that we believed
had previously expired. We settled this matter for $0.2 million in April 2017.
From time to time, we may be involved in various other legal claims and litigation that arise in the normal course
of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and
the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings
are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes
vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims
against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial
condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may
be materially different from our estimates, if any.
26
We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a
liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis,
developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any
developments that would result in a loss contingency to become both probable and reasonably estimable. Except for the
matter above which was ultimately settled for $0.2 million, we have not recorded any accrual for loss contingencies
associated with such legal claims or litigation discussed above.
Item 4. Mine Safety Disclosures
Not applicable.
27
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information and Price Range of Common Stock
Our common stock, with a par value of $0.01 per share, is listed and primarily traded on the NASDAQ Global
Select Market, under the ticker symbol AVNW (prior to January 28, 2010 our ticker symbol was HSTX). There was no
established trading market for shares of our common stock prior to January 29, 2007.
According to the records of our transfer agent, as of August 17, 2017, there were 2,544 holders of record of our
common stock. The following table sets forth the high and low closing prices for a share of our common stock on
NASDAQ Global Select Market for the periods indicated during our fiscal years 2017 and 2016, as retroactively adjusted
for the 1-for-12 reverse stock split discussed in “Note 1. The Company and Summary of Significant Accounting
Policies” of the notes to consolidated financial statements, which are included in Item 8 in this Annual Report on Form
10-K:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
9.93
14.94
15.86
23.55
$
$
$
$
7.39
8.43
10.35
14.30
$
$
$
$
15.96
14.04
9.57
9.31
$
$
$
$
12.48
8.92
6.60
6.18
Fiscal 2017
Fiscal 2016
High
Low
High
Low
Dividend Policy
We have not paid cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable
future. We intend to retain any earnings for use in our business. In addition, the covenants of our credit facility may
restrict us from paying dividends or making other distributions to our stockholders under certain circumstances.
Sales of Unregistered Securities
During fiscal 2017, we did not issue or sell any unregistered securities.
Issuer Repurchases of Equity Securities
During fiscal 2017, we did not repurchase any equity securities.
Performance Graph
The following graph and accompanying data compares the cumulative total return on our common stock with the
cumulative total return of the Total Return Index for The NASDAQ Composite Market (U.S. Companies) and the
NASDAQ Telecommunications Index for the five-year period ended June 30, 2017. The stock price performance shown
on the graph below is not necessarily indicative of future price performance. Note that this graph and accompanying data
is “furnished,” not “filed,” with the SEC.
28
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Aviat Networks, Inc., the NASDAQ Composite Index
and the NASDAQ Telecommunications Index
Aviat Networks, Inc. . . . . . . . . . . . . . . . $
NASDAQ Composite . . . . . . . . . . . . . . $
NASDAQ Telecommunications. . . . . . . $
100.00
100.00
100.00
$
$
$
93.57
117.60
128.44
$
$
$
44.66
153.88
149.22
$
$
$
46.98
177.34
156.24
$
$
$
23.95
174.29
158.51
$
$
$
51.77
222.67
184.31
6/29/2012
6/28/2013
6/27/2014
7/3/2015
7/1/2016
6/30/2017
____________________________
*
Assumes (i) $100 invested on June 29, 2012 in Aviat Networks, Inc. common stock, the Total Return Index for
The NASDAQ Composite Market (U.S. companies) and the NASDAQ Telecommunications Index; and
(ii) immediate reinvestment of all dividends.
29
Item 6. Selected Financial Data
The following table summarizes our selected historical financial information for each of the last five fiscal years
that has been derived from our consolidated financial statements. All of the per-share data have been retroactively
adjusted for the 1-for-12 reverse stock split discussed in “Note 1. The Company and Summary of Significant Accounting
Policies” of the notes to consolidated financial statements, which are included in Item 8 of this Annual Report on Form
10-K. Data presented for fiscal years 2017, 2016 and 2015 are included elsewhere in this Annual Report on Form 10-K.
This table should be read in conjunction with our other financial information, including “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and
notes, included elsewhere in this Annual Report on Form 10-K.
(In thousands, except per share amounts)
Revenue from product sales and services . . . . . $
Cost of product sales and services. . . . . . . . . . .
Loss from continuing operations (2) (3) . . . . . . . .
Net loss (2) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests, net of tax . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to Aviat Networks (2) (3) . . .
Basic and diluted loss per common share:
June 30, 2017
July 1, 2016
July 3, 2015
Fiscal Year Ended
June 27, 2014
(1)
June 28, 2013
(1)
241,874
$
268,690
$
335,878
$
346,032
$
471,255
166,402
(621)
(621)
202
(823)
206,973
(30,178)
(29,637)
270
(29,907)
255,188
(24,648)
(24,554)
71
(24,625)
260,844
(52,018)
(51,100)
—
(51,100)
332,913
(12,647)
(16,725)
—
(16,725)
Loss from continuing operations . . . . . . . . $
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.16) $
(0.16)
(5.81) $
(5.71)
(4.77) $
(4.75)
(10.13) $
(9.95)
(2.53)
(3.34)
_______________________
(1) As revised, during the fourth quarter of fiscal 2015, these amounts have been revised as we identified and corrected
errors around our accrued liability related to cost of services revenue.
(2) Include share-based compensation expense $2.1 million, $1.8 million, $2.2 million, $3.4 million and $6.4 million for
fiscal 2017, 2016, 2015, 2014 and 2013 respectively.
(3) Include restructuring charges of $0.6 million, $2.5 million, $4.9 million, $11.2 million and $3.1 million for fiscal
2017, 2016, 2015, 2014 and 2013 respectively.
(In thousands)
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-term liabilities . . . . . . . . . . . . . . . . . . . . .
_______________________
June 30, 2017
July 1, 2016
July 3, 2015
As of
June 27, 2014
(1)
June 28, 2013
(1)
152,576
$
166,111
$
224,715
$
253,184
$
305,816
12,218
12,707
18,198
19,574
24,825
(1) As revised, during the fourth quarter of fiscal 2015, these amounts have been revised as we identified and corrected
errors around our accrued liability related to cost of services revenue.
30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2016 and 2017 Results
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand our
results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction
with, our consolidated financial statements and the accompanying notes. In the discussion below, our fiscal year ending
June 29, 2018 is referred to as “fiscal 2018” or “2018”; our fiscal year ended June 30, 2017 is referred to as “fiscal 2017”
or “2017”; our fiscal year ended July 1, 2016 is referred to as “fiscal 2016” or “2016”; and our fiscal year ended July 3,
2015 is referred to as “fiscal 2015” or “2015.”
Overview
We generate revenue by designing, developing, manufacturing and supporting a range of wireless networking
products, solutions and services for mobile and fixed communications service providers, private network operators,
government agencies, transportation, energy and utility companies, public safety agencies and broadcast network
operators across the world. Our products include point-to-point digital microwave transmission systems designed for
first/last mile access, middle mile/backhaul, and long distance trunking applications. We also provide network
management software solutions to enable operators to deploy, monitor and manage our systems, third party equipment
such as antennas, routers, optical transmission equipment and other equipment necessary to build and deploy a complete
telecommunications transmission network. We provide a full suite of professional services for planning, deployment,
operations and maintenance of our customers’ networks.
We work continuously to improve our established brands and to create new products that meet our customers’
evolving needs and preferences. Our fundamental business goal is to generate superior returns for our stockholders over
the long term. We believe that increases in revenue, operating profits and earnings per share are the key measures of
financial performance for our business. However, within the industry there continues to be strong price competition for
new business and periodic large customer consolidations that intensify competition in all regions.
Our strategic focus in fiscal 2018 will be to continue to accelerate innovation and optimize our product portfolio,
improve costs and operational efficiencies, grow our revenue and create a sustainable, profitable business model. To do
this, we continue to examine our products, markets, facilities, development programs, and operational flows to ensure we
are focused on what we do well and what will differentiate us in the future. We will continue working to streamline
management processes to attain the efficiency levels required by the markets in which we do business.
Although the general trend of increasing demand for bandwidth to support mobile networks applies in all markets,
we expect to see quarter-to-quarter fluctuations within markets and with individual customers based on customers’ past
purchasing patterns. Seasonality is also a factor that impacts our business. Our fiscal third quarter revenue and orders
have historically been lower than the revenue and orders in our second fiscal quarter because many of our customers
utilize a significant portion of their capital budgets at the end of their fiscal years, which is typically the calendar year
end and coincides with our second fiscal quarter. The majority of our customers begin a new fiscal year on January 1,
and capital expenditures tend to be lower in an organization’s first quarter than in its fourth quarter. We anticipate that
this seasonality will continue. The seasonality between the second quarter and third quarter may be affected by a variety
of additional factors, including changes in the global economy.
In line with industry trends, we expect to provide increased managed services, including network design,
inventory management, final configuration and warehousing services, to certain customers in certain geographies. Our
operating results may be impacted by providing these services to the extent that we may need to postpone the recognition
of revenue and incur upfront and ongoing expenses that are not offset with additional revenue from product sales
associated with these services until a future period.
We continue to explore strategic alternatives to improve the market position and profitability of our product
offerings in the marketplace, generate additional liquidity and enhance our valuation. We may pursue our goals during
the next twelve months through organic growth and through strategic alternatives. Some of these alternatives have
included, and could continue to include, selective acquisitions, divestitures and the sale of assets or securities. We have
also provided, and may from time to time in the future provide, information to interested parties.
31
Operations Review
The market for mobile backhaul continues to be our primary addressable market segment and, over the long term,
the demand for increasing the backhaul capacity in our customers’ networks continues to grow. In North America, we
supported long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network
deployments for state and local governments, and private network implementations for utilities and other customers. In
international markets, our business continued to rely on a combination of customers increasing their capacity to handle
subscriber growth, the ongoing build-out of some large 3G deployments, and the emergence of early stage LTE
deployments. Our international business was adversely affected in fiscal 2016 and fiscal 2017 by constrained availability
of U.S. dollars in countries with economies highly dependent on resource exports, particularly oil. This condition, along
with decline in local purchasing power because of the currency devaluation relative to U.S. dollars, limited capital
spending and slowed payments from customers in those locations. Our position continues to be to support our customers
for LTE readiness and ensure that our technology roadmap is well aligned with evolving market requirements. We
continue to find that our strength in turnkey and after-sale support services is a differentiating factor that wins business
for us and enables us to expand our business with existing customers in all markets. However, as disclosed above and in
the “Risk Factors” section in Item 1A of this Annual Report on Form 10-K, a number of factors could prevent us from
achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions
in the geographic markets that we service.
Revenue
We manage our sales activities primarily on a geographic basis in North America and three international
geographic regions: (1) Africa and Middle East, (2) Europe and Russia and (3) Latin America and Asia Pacific. Revenue
by region for fiscal 2017, 2016 and 2015 and the related changes were shown in the table below:
Fiscal Year
$ Change
% Change
2017
(In thousands, except percentages)
North America . . . . . . . . . . . . . $ 132,078
60,150
Africa and Middle East. . . . . . .
Europe and Russia . . . . . . . . . .
Latin America and Asia Pacific
35,518
Total Revenue . . . . . . . . . . . . . $ 241,874
14,128
2016
2015
$ 125,482
$ 153,239
82,742
20,539
39,927
97,112
35,990
49,537
$ 268,690
$ 335,878
$
2017/2016
2016/2015
$ (27,757)
(14,370)
(15,451)
(9,610)
$ (26,816) $ (67,188)
6,596
(22,592)
(6,411)
(4,409)
2017/2016
2016/2015
5.3 % (18.1)%
(27.3)% (14.8)%
(31.2)% (42.9)%
(11.0)% (19.4)%
(10.0)% (20.0)%
Our revenue in North America increased $6.6 million, or 5.3%, in fiscal 2017 compared with fiscal 2016. The
increase in North America was from private network customers, offset by decreased revenue from wireless operator
customers. Private network business increased in fiscal 2017 due to new customers and substantial investments by
certain customers in network upgrades. The decrease in revenue from our North America wireless operator customers
was primarily due to them reaching the end of their LTE network build cycle. Revenue in North America decreased
$27.8 million, or 18.1%, in fiscal 2016 compared with fiscal 2015. While our order volume increased in North America
compared to fiscal 2015, we experienced a shift in the mix of business away from wireless operator customers and
toward private networks operated by governments and utilities. In addition, orders from private networks generally have
a longer cycle time from order placement to completion for revenue than orders from the wireless operators because of
the larger degree of service content included with the private network projects. In fiscal 2016, we saw a decrease in
revenue both from the lower volume of business with wireless operator customers and from the longer cycle time to
revenue from the larger volume of business with private network customers.
Revenue in Africa and the Middle East decreased $22.6 million, or 27.3%, in fiscal 2017 compared with fiscal
2016 due to lower sales to mobile operator customers in Africa and a decrease in revenue from customers in the Middle
East. Our sales to major African customers have declined for several years due to a combination of factors that vary
within the region, including customer constraints on capital spending and decline in local purchasing power because of
currency devaluation relative to U.S. dollars. Revenue in Africa and the Middle East decreased $14.4 million, or 14.8%,
in fiscal 2016 compared with fiscal 2015. The fiscal 2016 decrease in revenue came from decreased sales volume to our
private network customers in the Middle East and across several customers in Africa. Revenue with our major wireless
operator customers in the region remained relatively low, and slightly down in fiscal 2016 compared to fiscal 2015.
Revenue in Europe and Russia was down $6.4 million, or 31.2%, in fiscal 2017 compared with fiscal 2016. The
decrease came from lower sales to our large customers in the region compared with fiscal 2016. In addition, sales were
negatively affected by decreased purchasing power coming from the general weakness of the Euro relative to the U.S.
32
dollar. Revenue in Europe and Russia was down $15.5 million, or 42.9% in fiscal 2016 compared with fiscal 2015 for
similar reasons.
Revenue in Latin America and Asia Pacific declined $4.4 million, or 11.0%, in fiscal 2017 compared with fiscal
2016, primarily due to decreased deliveries to our larger customers in the Asia-Pacific region. Business in Latin America
increased a small amount over the previous fiscal year. Revenue in Latin America and Asia-Pacific declined $9.6 million,
or 19.4%, in fiscal 2016 compared with fiscal 2015, mostly due to lower product sales to several mid-size customers in
Asia Pacific, partially offset by a large increase with one of our customers in the region. The decrease was also
attributable to a year-to-year reduction in sales to private network customers in Latin America.
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
Product sales . . . . . . . . . . . . . . . $ 153,517
Services. . . . . . . . . . . . . . . . . . .
88,357
Total Revenue . . . . . . . . . . . . . $ 241,874
2017
2016
2015
$ 167,827
$ 214,874
100,863
121,004
$ 268,690
$ 335,878
2016/2015
2017/2016
$ (14,310) $ (47,047)
(20,141)
$ (26,816) $ (67,188)
(12,506)
2017/2016
2016/2015
(8.5)% (21.9)%
(12.4)% (16.6)%
(10.0)% (20.0)%
Our revenue from product sales decreased $14.3 million, or 8.5%, in fiscal 2017 compared with fiscal 2016.
Product sales were weaker in all international markets, with the exception of Latin America, for the same reasons as
mentioned above in the regional comments. The $23.2 million decrease in international product sales was partially offset
by an $8.9 million increase in North America product sales during fiscal 2017. Our service revenue decreased $12.5
million, or 12.4%, in fiscal 2017 compared with fiscal 2016 mainly due to the reduction in product sales. Service sales in
North America decreased by $2.3 million, and service sales to our international customers decreased by $10.2 million.
Our revenue from product sales decreased $47.0 million, or 21.9%, in fiscal 2016 compared with fiscal 2015.
Product volumes were lower in all sectors, but the majority of the decrease was in North America and Europe. In North
America this decline reflected fewer orders from wireless operators and the extended cycle time to complete large
projects. In Europe, this decline reflected constrained capital spending mentioned above. Our services revenue decreased
$20.1 million, or 16.6%, in fiscal 2016 compared with fiscal 2015, due to reduced service activities in all sectors, but
particularly in North America, Middle East and Africa.
Gross Margin
Fiscal Year
$ Change
% Change
2017
(In thousands, except percentages)
Revenue . . . . . . . . . . . . . . . . . . $ 241,874
166,402
Cost of revenue . . . . . . . . . . . . .
Gross margin. . . . . . . . . . . . . . . $ 75,472
% of revenue . . . . . . . . . . . . . . .
Product margin % . . . . . . . . . . .
Service margin % . . . . . . . . . . .
31.2%
31.5%
30.7%
2016/2015
2017/2016
$ (26,816) $ (67,188)
(48,215)
$ (18,973)
(40,571)
$ 13,755
2017/2016
2016/2015
(10.0)% (20.0)%
(19.6)% (18.9)%
22.3 % (23.5)%
2016
2015
$ 268,690
$ 335,878
206,973
255,188
$ 61,717
$ 80,690
23.0%
23.3%
22.4%
24.0%
23.7%
24.5%
Gross margin for fiscal 2017 increased $13.8 million, or 22.3%, compared with fiscal 2016. Gross margin as a
percentage of revenue for fiscal 2017 improved to 31.2%, compared with 23.0% in fiscal 2016. Gross margin
improvement was primarily due to lower supply chain costs, a decrease in inventory write-down of $9.1 million and
improved sales margin rates from both product and service businesses. Product margin as a percentage of product
revenue increased over the same period in fiscal 2016 primarily due to reduced supply chain costs, a decrease in
inventory write-down of $9.1 million and greater concentration of sales in higher margin regions. Gross margin as a
percentage of service revenue also improved in all sectors compared with the same period in fiscal 2016. We attributed
the margin improvement in the service business and our reduced supply chain costs to process improvement programs
along with our restructuring program implemented over the past several quarters.
Gross margin for fiscal 2016 decreased $19.0 million, or 23.5%, compared with fiscal 2015. Gross margin as a
percentage of revenue for fiscal 2016 decreased to 23.0%, compared with 24.0% in fiscal 2015. The decrease was
primarily due to lower revenue volume across all business sectors during fiscal 2016 and an increase in inventory write-
down of $2.9 million, partially offset by reduced supply chain costs compared with fiscal 2015. Product margin as a
percentage of product revenue decreased from fiscal 2015 primarily due to supply chain costs being absorbed by a
33
substantially smaller volume of product sales during the year and an increase in inventory write-down of $2.9 million.
Service margin as a percentage of service revenue declined primarily due to a less profitable service business in
international markets.
Research and Development Expenses
(In thousands, except percentages)
2017
2016
2015
2017/2016
2016/2015
2017/2016
2016/2015
Research and development
expenses . . . . . . . . . . . . . . . . . $ 18,684
$ 20,806
$ 25,368
$ (2,122) $ (4,562)
(10.2)% (18.0)%
Fiscal Year
$ Change
% Change
% of revenue . . . . . . . . . . . . . . .
7.7%
7.7%
7.6%
Our R&D expenses decreased $2.1 million, or 10.2%, in fiscal 2017 compared with fiscal 2016. The decrease in
R&D expenses was primarily due to a $1.2 million reduction in professional services and material spending along with
an increase of $1.1 million related to an international economic incentive grant credit earned in fiscal 2017. We continue
to invest in new product features, new functionality and lower cost platforms that we believe will enable our product
lines to retain their technology leads in a cost-effective manner.
Our R&D expenses decreased $4.6 million, or 18.0%, in fiscal 2016 compared with fiscal 2015. The decrease in
R&D expenses was primarily due to a $4.4 million reduction in personnel and related expenses due to the restructuring
programs implemented, and $1.8 million facility expense reassigned to restructuring accounts. The decreases were
partially offset by a $1.7 million increase in professional services and material spending for new products.
Selling and Administrative Expenses
(In thousands, except percentages)
2017
2016
2015
2017/2016
2016/2015
2017/2016
2016/2015
Selling and administrative
expenses . . . . . . . . . . . . . . . . . $ 57,184
$ 65,902
$ 76,005
$ (8,718) $ (10,103)
(13.2)% (13.3)%
Fiscal Year
$ Change
% Change
% of revenue . . . . . . . . . . . . . . .
23.6%
24.5%
22.6%
Our selling and administrative expenses decreased $8.7 million, or 13.2%, in fiscal 2017 compared with fiscal
2016. The decrease was primarily due to a $7.6 million decrease in personnel and related expenses, and a $0.9 million
reduction in professional fees primarily associated with accounting, IT, legal, and marketing consulting services. We will
continue to seek ways to improve our operating efficiency in fiscal 2018.
Our selling and administrative expenses decreased $10.1 million, or 13.3%, in fiscal 2016 compared with fiscal
2015. The decrease was primarily due to a $3.8 million decrease in personnel and related expenses, a $6.5 million
reduction in professional fees primarily associated with accounting, IT, legal, and marketing consulting services, a $1.4
million decrease in sales commission and incentive compensation, and a $0.4 million decrease in share-based
compensation expenses. The decreases were partially offset by a $1.9 million increase in professional fees primarily
associated with process improvements, and a $0.6 million increase in bad debt expenses.
Restructuring Charges
During the fourth quarter of fiscal 2016, we initiated a restructuring plan (the “Fiscal 2016-2017 Plan”) to
streamline our operations and align expense with current revenue levels. Activities under the Fiscal 2016-2017 Plan
primarily include reductions in force in marketing, selling and general and administrative functions across the Company.
During the third quarter of fiscal 2015, with the intent to bring our operational cost structure in line with the
changing dynamics of the microwave radio and telecommunications markets, we initiated a restructuring plan (“the
Fiscal 2015-2016 Plan”) to lower fixed overhead costs and operating expenses and to preserve cash flow. Activities
under the Fiscal 2015-2016 Plan primarily include reductions in force across the Company, but primarily in operations
outside the United States.
During the third quarter of fiscal 2014, in line with the decrease in revenue that we experienced and our reduced
forecast for the immediate future, we initiated a restructuring plan (“the Fiscal 2014-2015 Plan”) to reduce our operating
costs, primarily in North America, Europe and Asia. Activities under the Fiscal 2014-2015 Plan primarily include
reductions in force and additional facility downsizing of our Santa Clara, California headquarters.
34
During the fourth quarter of fiscal 2013, we initiated a restructuring plan (the “Fiscal 2013-2014 Plan”) that was
intended to reduce our operating expenses primarily in North America, Europe and Asia. Activities under the Fiscal
2013-2014 Plan included reductions in force and the downsizing of our Santa Clara, California headquarters and certain
international field offices.
Our restructuring charges by plan for fiscal 2017, 2016 and 2015 are summarized in the table below:
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
Fiscal 2016-2017 Plan . . . . . . . . $
Fiscal 2015-2016 Plan . . . . . . . .
Fiscal 2014-2015 Plan . . . . . . . .
Fiscal 2013-2014 Plan . . . . . . . .
36
162
46
282
77
(114)
3,503
1,277
87
2017
2016
2015
345
$
2,210
$
2017/2016
— $ (1,865) $
2016/2015
(246)
85
2,210
(3,221)
(1,200)
(201)
$ (1,866) $ (2,412)
160
2017/2016
2016/2015
(84.4)%
N/A
(87.2)% (91.9)%
110.4 % (94.0)%
(140.4)% (231.0)%
(76.0)% (49.6)%
Total. . . . . . . . . . . . . . . . . . . . . $
589
$
2,455
$
4,867
Our restructuring expenses consisted primarily of severance and related benefit charges, facilities costs related to
obligations under non-cancelable leases for facilities that we ceased to use, and lease termination charges. During June
2016, we entered into a lease termination agreement for our previous headquarters lease in Santa Clara, California.
Restructuring charges for fiscal 2017 included $0.4 million employee severance and benefits costs primarily
related to the Fiscal 2016-2017 Plan and $0.2 million facility charges primarily consisted of headquarters moving costs.
Restructuring charges for fiscal 2016 included $2.5 million employee severance and benefits costs primarily related to
the Fiscal 2016-2017 Plan and the Fiscal 2015-2016 Plan, a $1.9 million lease termination payable, offset by a $1.2
million deferred rent liability write-off and a net decrease of $0.7 million lease impairment liabilities both resulted from
the termination of our Santa Clara headquarters building. Restructuring charges for fiscal 2015 included a $2.9 million
employee termination charge primarily related to the Fiscal 2015-2016 Plan, a $1.4 million facility charge related to
ceasing to use portion of our Santa Clara headquarters building and a $0.6 million Slovenia government fund penalty
charge related to the workforce reduction.
We have substantially completed the restructuring activities under all plans by the end of fiscal 2017.
Interest Income, Interest Expense and Other Expense
Fiscal Year
$ Change
% Change
(In thousands, except percentages)
Interest income. . . . . . . . . . . . . . $
Interest expense . . . . . . . . . . . . .
Other income (expense) . . . . . . .
2017
2016
2015
2017/2016
261
$
252
$
(50)
169
(104)
(1,245)
$
360
(388)
—
9
54
1,414
$
2016/2015
(108)
284
(1,245)
2017/2016
2016/2015
4 %
(52)%
(114)%
(30)%
(73)%
N/A
Interest income reflected interest earned on our cash equivalents which were comprised of money market funds
and certificates of deposit.
Interest expense was primarily related to interest associated with borrowings under the Silicon Valley Bank
(“SVB”) Credit Facility and discounts on customer letters of credit.
Other income in fiscal 2017 included a $0.3 million foreign currency translation gain reclassified from
accumulated other comprehensive loss upon liquidation of a dormant foreign legal entity. This income was offset
partially by a $0.2 million foreign exchange loss on a dividend declared by our Nigeria entity (a partnership for U.S. tax
purposes) to our Aviat U.S. entity. Other expense in fiscal 2016 related to the foreign exchange loss on a dividend
declared by our Nigeria entity to Aviat U.S. entity which was caused by a significant devaluation of the Nigerian Naira in
June 2016.
35
Income Taxes
(In thousands, except percentages)
Loss from continuing operations before income taxes. . . $
Provision for (benefit from) income taxes . . . . . . . . . . . .
As % of loss from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year
$ Change
2017
2016
(605)
$(28,543)
16
1,635
2015
$ (25,958)
(1,310)
2017/2016
$ 27,938
(1,619)
2016/2015
$ (2,585)
2,945
(2.6)%
(5.7)%
5.0%
Our income tax expense (benefit) from continuing operations was $16 thousand of expense for fiscal 2017
compared to $1.6 million of expense for fiscal 2016 and $1.3 million of benefit for fiscal 2015. The difference between
our income tax expense (benefit) from continuing operations and income tax expense at the statutory rate of 35% was
primarily attributable to losses in tax jurisdictions in which we cannot recognize a tax benefit and increase in foreign
withholding taxes. During fiscal 2017, we recorded a $3.7 million tax benefit from the audit assessment refund received
from the Inland Revenue Authority of Singapore. During fiscal 2015, we released approximately $4.4 million of the
deferred tax valuation allowance in jurisdictions where management believed the utilization of deferred tax assets was
more likely than not based on the weighting of positive and negative evidence.
Income from Discontinued Operations
(In thousands)
Income from discontinued operations, net of tax . . . . . . . . $
2017
2016
2015
2017/2016
2016/2015
— $
541
$
94
$
(541) $
447
Fiscal Year
$ Change
Our discontinued operations consisted of the WiMAX business, which was sold to EION Networks, Inc.
(“EION”) on September 2, 2011. We completed the business transition with EION in fiscal 2012. The income recognized
in fiscal 2016 was primarily due to recovery of certain WiMAX customer receivables that were previously written down.
The income recognized in fiscal 2015 was primarily due to a $0.1 million write-off of accrued liabilities due to EION.
Liquidity, Capital Resources and Financial Strategies
As of June 30, 2017, our total cash and cash equivalents and short-term investments totaled $35.9 million.
Approximately $22.0 million, or 61.4%, was held in the United States. The remaining balance of $13.9 million, or
38.6%, was held by entities outside the United States. Of the amount of cash and cash equivalents held by our foreign
subsidiaries at June 30, 2017, $9.7 million was held in jurisdictions where our undistributed earnings are indefinitely
reinvested, and if repatriated, would be subject to U.S. taxes which would be nominal.
Operating Activities
Cash provided by (used in) operating activities is presented as net loss adjusted for certain non-cash items and
changes in assets and liabilities. Net cash provided by (used in) operating activities was $9.4 million for fiscal 2017, $0.4
million for fiscal 2016 and $(9.6) million for fiscal 2015.
For fiscal 2017 compared to fiscal 2016, cash provided by operating activities improved by $9.0 million. Results
from operations improved by $29.0 million as we had a lower net loss of $0.6 million in fiscal 2017 compared to a net
loss of $29.6 million in fiscal 2016. Net contribution of non-cash items to cash provided by operating activities
decreased by $12.0 million and net contribution of changes in operating assets and liabilities to cash provided by
operating activities decreased by $8.0 million in fiscal 2017 as compared to fiscal 2016.
The $29.0 million decrease in net loss includes a $3.7 million tax refund from the Inland Revenue Authority of
Singapore related to a $13.2 million tax assessment we paid in fiscal 2014. This tax refund was recorded as a discrete tax
benefit when it was received during our first quarter of fiscal 2017.
The $12.0 million decrease in the net contribution of non-cash items to cash provided by operating activities was
primarily due to a $8.7 million decrease in charges for inventory write-downs, a $2.1 million decrease in bad debt
expense, a $0.8 million decrease in depreciation and amortization of property, plant and equipment, a $0.7 million
decrease in loss on disposition of property, plant and equipment and a $0.3 million gain on liquidation of a dormant
subsidiary in the third quarter of fiscal 2017.
36
Changes in operating assets and liabilities resulted in a decrease of $8.0 million for fiscal 2017 compared to fiscal
2016. The decrease in accounts receivable was primarily due to stronger collections, and unbilled receivables increased
due to timing of billings. The fluctuation in accounts payable and accrued expenses was primarily due to timing of
liabilities incurred and vendor payments. The change in inventories and in customer service inventories was primarily
due to demand and our focus on improving our inventory management. The change in advance payments and unearned
income was due to timing of payment from customers and revenue recognition. We used $3.7 million in cash during
fiscal 2017 on expenses related to restructuring liabilities.
For fiscal 2016 compared to fiscal 2015, the $10.0 million increase in cash provided by operating activities was
primarily due to a $9.0 million increase in working capital, a $4.4 million decrease in deferred income taxes benefits and
a $1.8 million higher inventory and customer service inventory write-downs, offset by a $5.1 million higher net loss.
Investing Activities
Net cash used in investing activities was $4.0 million for fiscal year 2017, $1.8 million for fiscal 2016 and $3.7
million for fiscal 2015, which consisted primarily of capital expenditures.
For fiscal 2018, we expect to spend approximately $5.3 million for capital expenditures, primarily on equipment
for development and manufacturing of new products and to support customer managed services.
Financing Activities
Financing cash flows consist primarily of proceeds and repayments of short-term debt and proceeds from sale of
share of common stock through employee equity plans. Net cash provided by financing activities was $21 thousand for
fiscal year 2017, $13 thousand for fiscal 2016 and $2.9 million for fiscal 2015.
As of June 30, 2017, our principal sources of liquidity consisted of the $35.9 million in cash, cash equivalents and
short-term investments, $5.8 million of available credit under our $30.0 million credit facility with Silicon Valley Bank
(“SVB”) which expires on June 30, 2018, and future collections of receivables from customers. We regularly require
letters of credit from some customers and, from time to time, these letters of credit are discounted without recourse
shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce our credit and sovereign
risk. Historically, our primary sources of liquidity have been cash flows from operations and credit facilities.
We believe that our existing cash and cash equivalents, the available line of credit under the SVB Credit Facility
(as defined below) and future cash collections from customers will be sufficient to provide for our anticipated
requirements for working capital and capital expenditures for at least the next 12 months. Our SVB Credit Facility
expires on June 30, 2018. While we intend and expect the SVB Credit Facility to be renewed, there can be no assurance
that the SVB Credit Facility will be renewed. In addition, there can be no assurance, however, that our business will
generate cash flow from operations, that we will be in compliance with the quarterly financial covenants contained in the
SVB Credit Facility, or that we will have a sufficient borrowing base under such facility, or that anticipated operational
improvements will be achieved. If we are not in compliance with the financial covenants or do not have sufficient
eligible accounts receivable to support our borrowing base, the availability of our credit facility is not certain or may be
diminished. Over the longer term, if we are unable to maintain cash balances or generate sufficient cash flow from
operations to service our obligations that may arise in the future, we may be required to sell assets, reduce capital
expenditures, or obtain financing. If we need to obtain additional financing, we cannot be assured that it will be available
on favorable terms, or at all. Our ability to make scheduled principal payments or pay interest on or refinance any future
indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general
conditions in or affecting the microwave communications market and to general economic, political, financial,
competitive, legislative and regulatory factors beyond our control.
Available Credit Facility, Borrowings and Repayment of Debt
On March 28, 2014, we entered into a Second Amended and Restated Loan Agreement with SVB (the “SVB
Credit Facility”). The SVB Credit Facility was amended on September 25, 2014, October 30, 2014 and December 2,
2014 to provide for extensions to the deadline for preparing and filing our fiscal 2014 financial statements with the SEC.
On February 27, 2015, the SVB Credit Facility was further amended to provide for certain amendments to the financial
covenants, borrowing base and an early termination fee if the SVB Credit Facility is terminated prior to its expiration. In
March 2016, we amended the SVB Credit Facility to amend financial covenants and to reduce the maximum borrowing
capacity from $40.0 million to $30.0 million. In June 2016, we amended the SVB Credit Facility to amend the minimum
Earnings before Interest, Tax, Depreciation and Amortization (“EBITDA”) covenant; to create a new sub-limit for letters
37
of credit issued under the revolving credit facility of $12.0 million; to reduce the advance rate applicable to Singapore
Borrower’s eligible accounts in the calculation of the borrowing base of the revolving credit facility; to increase the
interest rate margins applicable to revolving loans made to Singapore Borrower by 2.00% above the applicable margin;
and to extend the facility maturity date to June 30, 2018. In June 2017, the SVB Credit Facility was amended to exclude
certain guarantee, indemnity and similar agreements from the borrowing base calculations and to extend the effective
date to July 15, 2017 for the requirement that we obtain credit insurance on the receivables of the Singapore Borrower to
be included in the borrowing base.
The SVB Credit Facility carries an interest rate computed at the daily prime rate as published in the Wall Street
Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio. During fiscal
2017, the weighted average interest rate on our outstanding loan was 4.21%. As of June 30, 2017 and July 1, 2016, our
outstanding debt balance under the SVB Credit Facility was $9.0 million in each fiscal year, and the interest rate was
4.75% and 4.00% respectively.
The SVB Credit Facility provides for a committed amount of up to $30.0 million, with a $30.0 million sublimit
that can be borrowed by our Singapore subsidiary. Borrowings that may be advanced under the SVB Credit Facility at
the lesser of $30.0 million or a borrowing base equal to a specified percentage of the value of eligible accounts
receivable and U.S. unbilled accounts of the Company, subject to certain reserves and eligibility criteria. The SVB Credit
Facility can also be utilized to issue letters of credit with a $12.0 million sublimit. If the SVB Credit Facility is
terminated by us in certain circumstances prior to its expiration, we are subject to an early termination fee equal to 1% of
the revolving line. As of June 30, 2017, available credit under the SVB Credit Facility was $5.8 million reflecting the
calculated borrowing base of $20.0 million less existing borrowings of $9.0 million and outstanding letters of credit of
$5.2 million.
The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and
minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash
received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit
Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, permit a change in
control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain
restricted payments and enter into transactions with affiliates under certain circumstances. Certain of our assets,
including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an
event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default
interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal
to 2.00% above the applicable interest rate.
As of June 30, 2017, we were in compliance with the quarterly financial covenants, as amended, contained in the
SVB Credit Facility. However, we have historically amended the agreement to revise financial covenants and the fact
that the SVB Credit Facility contains subjective acceleration clauses that could be triggered by the lender, the $9.0
million borrowing was classified as a current liability as of June 30, 2017 and July 1, 2016. We repaid the $9.0 million in
July 2017.
Restructuring Payments
We had liabilities for restructuring activities totaling $1.7 million as of June 30, 2017, of which $1.5 million was
classified as current liability and expected to be paid in cash over the next 12 months. We expect to fund these future
payments with available cash and cash provided by operations.
38
Contractual Obligations
The following table summarizes our contractual obligations and commitments as of June 30, 2017:
—
—
—
2,453
2,453
(In thousands)
Borrowings under credit facility . . . . . . $
Purchase obligations (1)(4) . . . . . . . . . . . .
Other purchase obligations (3)(4) . . . . . . .
Operating lease commitments (4) . . . . . .
Reserve for uncertain tax positions (2) . .
Total
< 1 year
1 - 3 years
3 - 5 years
> 5 years
Other
Obligations Due by Fiscal Year
9,000
$
9,000
$
— $
— $
— $
17,846
17,529
1,364
7,555
2,453
1,364
1,997
—
137
—
2,419
—
72
—
1,116
—
108
—
2,023
—
Total contractual cash obligations . . . . $
38,218
$
29,890
$
2,556
$
1,188
$
2,131
$
___________________________
(1) From time to time in the normal course of business we may enter into purchasing agreements with our suppliers that
require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished
products that we requested be held as safety stock, and work in process started on our behalf in the event we cancel
or terminate the purchasing agreement. Because these agreements do not specify fixed or minimum quantities, do
not specify minimum or variable price provisions, and do not specify the approximate timing of the transaction, and
we have no present intention to cancel or terminate any of these agreements, we currently do not believe that we
have any future liability under these agreements.
(2) Liabilities for uncertain tax positions of $2.5 million were included in long-term liabilities in the consolidated
balance sheets. At this time, we are unable to make a reasonably reliable estimate of the timing of payments related
to this amount due to uncertainties in the timing of tax audit outcomes.
(3) Contractual obligation related to software licenses.
(4) These items are not recorded on our consolidated balance sheets.
Commercial Commitments
We have entered into commercial commitments in the normal course of business including surety bonds, standby
letters of credit and other arrangements with financial institutions and insurers primarily relating to the guarantee of
future performance on certain tenders and contracts to provide products and services to customers. As of June 30, 2017,
we had commercial commitments on outstanding surety bonds and standby letters of credit as follows:
(In thousands)
Standby letters of credit used for:
Payment guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surety bonds used for:
Bids . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of Commitments by Fiscal Year
Total
2018
2019
2020
After 2021
267
$
158
$
— $
— $
6,226
14
6,507
100
23,984
760
3,390
28,234
3,635
9
3,802
100
13,354
725
13
2,577
—
2,577
—
10,630
35
—
14,192
10,665
14
5
19
—
—
—
3,377
3,377
109
—
—
109
—
—
—
—
—
Total commercial commitments. . . . . . . . . . . . . . . $
34,741
$
17,994
$
13,242
$
3,396
$
109
Historically, we have not paid out any significant amount of our performance guarantees. As such, the outstanding
commercial commitments have not been recorded in our consolidated balance sheets.
39
Off-Balance Sheet Arrangements
In accordance with the definition under SEC rules (Item 303(a) (4) (ii) of Regulation S-K), any of the following
qualify as off-balance sheet arrangements:
•
•
•
•
any obligation under certain guarantee contracts;
a retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar
arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
any obligation, including a contingent obligation, under certain derivative instruments; and
any obligation, including a contingent obligation, under a material variable interest held by the registrant in
an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the
registrant, or engages in leasing, hedging or research and development services with the registrant.
Currently we are not participating in transactions that generate relationships with unconsolidated entities or
financial partnerships, including variable interest entities, and we do not have any material retained or contingent interest
in assets as defined above. As of June 30, 2017, we did not have material financial guarantees or other contractual
commitments that are reasonably likely to adversely affect liquidity. In addition, we are not currently a party to any
related party transactions that materially affect our results of operations, cash flows or financial condition.
Due to the downsizing of certain of our operations pursuant to restructuring plans or otherwise, some properties
leased by us have been sublet to third parties. In the event any of these third parties vacate any of these premises, we
would be legally obligated under master lease arrangements. We believe that the financial risk of default by such
sublessors is not likely to be individually or in the aggregate material to our financial position, results of operations or
cash flows.
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
We conduct business globally in numerous currencies and are therefore exposed to foreign currency risks. We use
derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency
exchange rates. We do not hold or issue derivatives for trading purposes or make speculative investments in foreign
currencies.
We use foreign exchange forward contracts to hedge forecasted foreign currency transactions relating to
forecasted sales and purchase transactions. Prior to the fourth quarter of fiscal 2015, these derivatives were designated as
cash flow hedges and are carried at fair value. The effective portion of the gain or loss was initially reported as a
component of accumulated other comprehensive loss, and upon occurrence of the forecasted transaction, was
subsequently reclassified into the income or expense line item to which the hedged transaction relates. Beginning the
fourth quarter of fiscal 2015, we no longer prepared contemporaneous documentation of hedges for the new foreign
exchange forward contracts we entered into. As a result, the foreign exchange hedges no longer qualified as cash flow
hedges. The changes in fair value related to the hedges were recorded in income or expenses line items on our statements
of operations. We also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-
functional currency assets and liabilities on the balance sheets. All balance sheet hedges are marked to market through
earnings every period. Changes in the fair value of these derivatives are largely offset by re-measurement of the
underlying assets and liabilities. The last qualifying cash flow hedges occurred in the first quarter of fiscal 2016 and we
reclassified a $41 thousand gain out of accumulated other comprehensive loss into cost of revenues during the first
quarter of fiscal 2016.
As of June 30, 2017, we had one foreign currency forward contract outstanding as follows:
Currency
South African Rand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40
Notional Contract
Amount
(Local Currency)
Notional
Contract
Amount
(USD)
(In thousands)
6,687
$
511
Net foreign exchange loss recorded in our consolidated statements of operations during fiscal 2017, 2016 and
2015 was as follows:
(In thousands)
Amount included in costs of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount included in other income (expense) . . . . . . . . . . . . . . . . . . . . .
2017
Total foreign exchange loss, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal Year
2016
(847) $
135
(712) $
(556) $
(1,245)
(1,801) $
2015
(3,308)
—
(3,308)
A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of June 30, 2017
would have an impact of approximately $0.1 million on the fair value of such instruments. Certain of our international
business are transacted in non-U.S. dollar currency. As discussed above, we utilize foreign currency hedging instruments
to minimize the currency risk of international transactions. The impact of translating the assets and liabilities of foreign
operations to U.S. dollars is included as a component of stockholders’ equity. As of June 30, 2017 and July 1, 2016, the
cumulative translation adjustment decreased our stockholders’ equity by $11.8 million and $11.2 million, respectively.
In 2017, we reclassified a $0.3 million foreign current translation gain from accumulated other comprehensive
loss to other income (expense) upon liquidation of a dormant foreign legal entity.
In June of 2016, the Nigeria Central Bank allowed the Naira to float freely after being fixed at approximately 197
Naira to one U.S. dollar. This event caused a devaluation in the Naira to approximately 280 Naira to one U.S. dollar
resulting in the year over year losses in foreign exchange and cumulative translation adjustments for our Nigeria
transactions.
During fiscal 2015 the company experienced increased volatility in foreign currency markets, resulting in the
increased year over year losses in foreign exchange and cumulative translation adjustments, particularly in countries
where there is no available market to hedge the local currency.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents, short-term
investments and borrowings under our credit facility.
Exposure on Cash Equivalents and Short-term Investments
We had $35.9 million in total cash and cash equivalents and short-term investments as of June 30, 2017. Cash
equivalents and short-term investments totaled $22.4 million as of June 30, 2017 and were comprised of money market
funds and certificates of deposit. Cash equivalents and short-term investments have been recorded at fair value on our
balance sheets.
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.
The primary objective of our short-term investment activities is to preserve principal while maximizing yields,
without significantly increasing risk. Our cash equivalents and short-term investments 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
investments held as of June 30, 2017 had a weighted average days to maturity of 285 days, and an average yield of
7.13% per annum. A 10% change in interest rates on our cash equivalents and short-term investments is not expected to
have a material impact on our financial position, results of operations or cash flows.
Exposure on Borrowings
During fiscal 2017, we had $9.0 million of demand borrowings outstanding under our credit facility that incurred
interest at the prime rate plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick
41
ratio. During fiscal 2017, our weighted average interest rate was 4.21% and we recorded total interest expense of less
than $0.1 million on these borrowings.
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 borrowings is not
material to our overall financial position.
Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with U.S. GAAP. These accounting principles
require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonable based upon information available to us.
These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date
of the consolidated financial statements as well as the reported amounts of revenues and expenses during the periods
presented. To the extent there are material differences between these estimates, judgments or assumptions and actual
results, our financial statements will be affected.
The accounting policies that reflect our more significant estimates, judgments and assumptions and which we
believe are the most critical to aid in fully understanding and evaluating our reported financial results include the
following:
•
revenue recognition and valuation of accounts receivable;
•
•
•
inventory valuation and provision for excess and obsolete inventory losses;
impairment of long-lived assets; and
income taxes valuation.
In some cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does
not require management’s judgment in its application. There are also areas in which management’s judgment in selecting
among available alternatives would not produce a materially different result. Our senior management has reviewed these
critical accounting policies and related disclosures with the Audit Committee of the Board.
The following is not intended to be a comprehensive list of all of our accounting policies or estimates. Our
significant accounting policies are more fully described in “Note 1. The Company and Summary of Significant
Accounting Policies” in the notes to consolidated financial statements. In preparing our financial statements and
accounting for the underlying transactions and balances, we apply those accounting policies. We consider the estimates
discussed below as critical to an understanding of our financial statements because their application places the most
significant demands on our judgment, with financial reporting results relying on estimates about the effect of matters that
are inherently uncertain.
Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates
in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect
reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities.
Estimates are based on experience and other information available prior to the issuance of the financial statements.
Materially different results can occur as circumstances change and additional information becomes known, including for
estimates that we do not deem “critical.”
Revenue Recognition and Valuation of Accounts Receivable
Application of the various accounting principles in GAAP related to the measurement and recognition of revenue
requires us to make judgments and estimates. Specifically, complex arrangements with nonstandard terms and conditions
may require significant contract interpretation to determine the appropriate accounting, including whether the
deliverables specified in a multiple-deliverable arrangement should be treated as separate units of accounting.
Additionally, we are required to make subjective estimates and apply judgment regarding matters that are inherently
uncertain including the allocation of revenue to various components of our multiple element arrangements which may
contain hardware, software, licenses, maintenance and service contracts.
Revenue recognition is also impacted by our ability to estimate expected returns and collectability. We consider
various factors, including a review of specific transactions, the creditworthiness of the customers’ historical experience
and market and economic conditions, when calculating these provisions and allowances. Evaluations are conducted each
42
quarter to assess the adequacy of the estimates.
Recognition of profit on long-term contracts requires estimates of the total contract value, the total cost at
completion and the measurement of progress towards completion. Significant judgment is required when estimating total
contract costs and progress to completion on the arrangements as well as whether a loss is expected to be incurred on the
contract. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward
completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated
revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to
the revision become known by the company.
Inventory Valuation and Provisions for Excess and Obsolete Losses
Our inventories have been valued at the lower of cost or market. We balance the need to maintain prudent
inventory levels to ensure competitive delivery performance with the risk of excess or obsolete inventory due to
changing technology and customer requirements, and new product introductions. The manufacturing of our products is
handled primarily by contract manufacturers. Our contract manufacturers procure components and manufacture our
products based on our forecast of product demand. We regularly review inventory quantities on hand and record a
provision for excess and obsolete inventory based primarily on our estimated forecast of product demand, the stage of
the product life cycle, anticipated end of product life and production requirements. Several factors may influence the sale
and use of our inventories, including decisions to exit a product line, technological change, new product development
and competing product offerings. These factors could result in a change in the amount of obsolete inventory quantities on
hand. Additionally, our estimates of future product demand may prove to be inaccurate, in which case the provision
required for excess and obsolete inventory may be overstated or understated. In the future, if we determine that our
inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our
consolidated statement of operations at the time of such determination. In the case of goods which have been written
down below cost at the close of a fiscal quarter, such reduced amount is considered the new lower cost basis for
subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or
increase in that newly established cost basis. We did not make any material changes in the valuation methodology during
the past three fiscal years.
Our customer service inventories are stated at the lower of cost or market. We carry service parts because we
generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty
and repair service during and beyond this warranty period. Customer service inventories consist of both component parts,
which are primarily used to repair defective units, and finished units, which are provided for customer use permanently
or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of
customer service inventories to their net realizable value. Factors influencing these adjustments include product life
cycles, end of service life plans and volume of enhanced or extended warranty service contracts. Estimates of net
realizable value involve significant estimates and judgments about the future, and revisions would be required if these
factors differ from our estimates.
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash
flows on an undiscounted basis are less than the carrying amount of the assets. If impairment exists, the impairment loss
is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are
grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from
other asset groups.
Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary
significantly from our estimates due to increased competition, changes in technology, fluctuations in demand,
consolidation of our customers, reductions in average selling prices and other factors. Assumptions underlying future
cash flow estimates are therefore subject to significant risks and uncertainties.
43
Income Taxes Valuation
We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities
of amounts reported in our consolidated balance sheets, as well as operating loss and tax credit carryforwards.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income
taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these
matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust
these reserves in light of changing facts and circumstances, such as the opening and closing of a tax audit or the
refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded,
such differences may result in an increase or decrease to our tax provision in a subsequent period in which such
determination is made.
We record deferred taxes by applying enacted statutory tax rates to the respective jurisdictions and follow specific
and detailed guidelines in each tax jurisdiction regarding the recoverability of any tax assets recorded on the balance
sheets and provide necessary valuation allowances as required. Future realization of deferred tax assets ultimately
depends on meeting certain criteria in ASC 740, Income Taxes. One of the major criteria is the existence of sufficient
taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or
carryforward periods available under the tax law. We regularly review our deferred tax assets for recoverability based on
historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary
differences and tax planning strategies. Our judgments regarding future profitability may change due to many factors,
including future market conditions and our ability to successfully execute our business plans and/or tax planning
strategies. Should there be a change in our ability to recover our deferred tax assets, our tax provision would increase or
decrease in the period in which the assessment is changed.
The accounting estimates related to the liability for uncertain tax position require us to make judgments regarding
the sustainability of each uncertain tax position based on its technical merits. It is inherently difficult and subjective to
estimate our reserves for the uncertain tax positions. Although we believe our estimates are reasonable, no assurance can
be given that the final tax outcome of these matters will be same as these estimates. These estimates are updated
quarterly based on factors such as change in facts or circumstances, changes in tax law, new audit activity, and
effectively settled issues.
Impact of Recently Issued Accounting Pronouncements
See “Note 1. The Company and Summary of Significant Accounting Policies” in the notes to consolidated
financial statements for a full description of recently issued accounting pronouncements, including the respective
expected dates of adoption and effects on our consolidated financial position and results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
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. For a discussion of such policies and procedures and the related risks,
see “Financial Risk Management” in “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” which is incorporated by reference into this Item 7A.
44
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Report of BDO USA, LLP, Independent Registered Public Accounting Firm. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 1. The Company and Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2. Accumulated Other Comprehensive Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3. Net Loss per Share of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4. Balance Sheet Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 5. Fair Value Measurements of Assets and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 6. Credit Facility and Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 7. Restructuring Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 8. Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9. Segment and Geographic Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10. Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12. Commitments and Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13. Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14. Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
46
47
48
49
50
52
53
53
62
63
63
65
66
67
68
72
73
74
77
80
81
45
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Aviat Networks, Inc.
Milpitas, California:
We have audited the accompanying consolidated balance sheets of Aviat Networks, Inc. as of June 30, 2017 and
July 1, 2016, and the related consolidated statements of operations, comprehensive loss, equity and cash flows for the
years ended June 30, 2017, July 1, 2016 and July 3, 2015. In connection with our audits of the financial statements, we
have also audited the financial statement schedule - Valuation and Qualifying Accounts as of and for the years ended
June 30, 2017, July 1, 2016 and July 3, 2015 listed in the Index at Item 15(a)(2). These financial statements and schedule
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Aviat Networks, Inc. as of June 30, 2017 and July 1, 2016 and the results of its operations and its
cash flows for the years ended June 30, 2017, July 1, 2016 and July 3, 2015, in conformity with accounting principles
generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule - Valuation and Qualifying Accounts as of and for the years
ended June 30, 2017, July 1, 2016 and July 3, 2015, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
San Jose, California
September 6, 2017
/s/ BDO USA, LLP
46
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues:
Revenue from product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 153,517
Revenue from services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,357
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
241,874
June 30,
2017
Fiscal Year Ended
July 1,
2016
July 3,
2015
$ 167,827
$ 214,874
100,863
268,690
121,004
335,878
Cost of revenues:
Cost of product sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before income taxes . . . . . . . . . . . . . . . . . . .
Provision for (benefit from) income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests, net of tax . . . . . . . . . . .
Net loss attributable to Aviat Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
105,183
61,219
166,402
75,472
18,684
57,184
—
589
76,457
(985)
128,727
78,246
206,973
61,717
20,806
65,902
—
2,455
163,890
91,298
255,188
80,690
25,368
76,005
380
4,867
89,163
(27,446)
106,620
(25,930)
261
252
360
(50)
(104)
(388)
(1,245)
169
—
(605)
(28,543)
(25,958)
(1,310)
16
1,635
(621)
(30,178)
(24,648)
—
541
94
(621)
(29,637)
(24,554)
71
270
202
(823) $ (29,907) $ (24,625)
Amount attributable to Aviat Networks
Net loss from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . $
(823) $ (30,448) $ (24,719)
94
541
— $
$
Basic and diluted loss per share attributable to Aviat Networks’ common stockholders:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding, basic and diluted . . . . . . . . . . . . . . . . .
(0.16) $
— $
(0.16) $
5,292
(5.81) $
0.10
$
(5.71) $
5,238
(4.77)
0.02
(4.75)
5,184
See accompanying notes to consolidated financial statements
47
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss):
Cash flow hedges:
Change in unrealized loss on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments for (gain) loss included in net loss . . . . . . . . . .
Net change in unrealized (loss) gain on hedging activities . . . . . . . . . . . . . . . . .
Foreign currency translation:
Fiscal Year Ended
June 30,
2017
July 1,
2016
July 3,
2015
(621) $ (29,637) $ (24,554)
—
—
—
—
(41)
(41)
(314)
321
7
Loss arising during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification of gain on liquidation of subsidiary . . . . . . . . . . . . . . . . . . .
Net change in cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interests, net of tax . . . . . .
Comprehensive loss attributable to Aviat Networks. . . . . . . . . . . . . . . . . . . . . $
(279)
(349)
(628)
(628)
(1,249)
202
(5,672)
(2,488)
—
—
(5,672)
(2,488)
(5,665)
(2,529)
(30,219)
(32,166)
71
270
(1,451) $ (32,436) $ (30,290)
See accompanying notes to consolidated financial statements
48
AVIAT NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer service inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2017
July 1, 2016
35,658
$
30,479
541
264
45,945
12,110
21,794
1,871
6,402
124,585
16,406
6,178
5,407
27,991
558
222
63,449
5,117
27,293
3,064
10,232
140,414
18,162
6,068
1,467
25,697
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
152,576
$
166,111
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments and unearned income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,000
$
33,606
21,933
20,004
1,475
86,018
7,062
1,022
2,453
1,681
9,000
33,217
23,205
30,615
3,910
99,947
8,387
1,409
1,414
1,497
98,236
112,654
Commitments and contingencies (Note 12)
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; 5,317,766 and
5,261,041 shares issued and outstanding as of as of June 30, 2017 and July 1,
2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in-capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Aviat Networks stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL LIABILITIES AND EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
53
813,733
(748,204)
(11,785)
53,797
543
54,340
—
53
811,601
(747,381)
(11,157)
53,116
341
53,457
152,576
$
166,111
See accompanying notes to consolidated financial statements
49
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating Activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Amortization of identifiable intangible assets. . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization of property, plant and equipment. . . . . . . . . .
(Recovery) provision for uncollectible receivables. . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges for inventory and customer service inventory write-downs . . . . . . .
Gain on disposition of WiMAX business . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposition of property, plant and equipment, net . . . . . . . . . . . . . . .
Gain on liquidation of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer service inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance payments and unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable or receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . . . . .
Investing Activities
Payments for acquisition of property, plant and equipment . . . . . . . . . . . . . .
Purchase of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities of short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing Activities
Proceeds from borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under employee stock plans . . . . .
Payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash, cash equivalents and restricted cash . . .
Net increase (decrease) in cash, cash equivalents and restricted cash. . . . . . .
Cash, cash equivalents and restricted cash, beginning of year. . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, end of year . . . . . . . . . . . . . . . . . . $
Fiscal Year Ended
June 30,
2017
July 1,
2016
July 3,
2015
(621) $ (29,637) $ (24,554)
—
5,840
(580)
2,111
75
1,137
—
153
(349)
18,178
(6,986)
6,383
90
608
(1,310)
(13,099)
1,415
(3,640)
9,405
(4,021)
(139)
122
(4,038)
33,000
(33,000)
21
—
21
(244)
5,144
31,425
36,569
$
—
6,648
1,532
1,836
(334)
9,868
—
827
—
17,023
12,041
(4,995)
2,419
(13,976)
(599)
(4,425)
2
2,126
356
(1,574)
(222)
—
(1,796)
36,000
(36,000)
13
—
13
(2,347)
(3,774)
35,199
31,425
380
7,242
880
2,187
(4,711)
8,043
(85)
384
—
(8,816)
6,125
(663)
2,285
1,562
(4,140)
4,666
1,450
(1,833)
(9,598)
(3,693)
—
—
(3,693)
54,000
(51,000)
13
(140)
2,873
(4,246)
(14,664)
49,863
35,199
$
50
(In thousands)
Non-cash investing activities
Fiscal Year Ended
June 30,
2017
July 1,
2016
July 3,
2015
Reclassification of property, plant and equipment to inventory . . . . . . . . . . . . . $
Unpaid property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
1,219
$
1,094
1,261
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash (refunded) paid for income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
94
$
(313) $
111
1,964
$
$
$
$
—
319
387
2,042
See accompanying notes to consolidated financial statements
51
AVIAT NETWORKS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
Aviat Networks Stockholders’ Equity
(In thousands, except share amounts)
Shares
$
Amount
Common Stock
Additional
Paid-in
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Total Aviat
Networks
Stockholders’
Equity
Noncontrolling
Interests
Total Equity
5,184,852
$
52
$ 807,588
$
(692,849) $
(2,963) $
111,828
$
— $
111,828
Balance as of June 27, 2014 . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . .
Issuance of common stock under
employee stock plans . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . .
23,348
Balance as of July 3, 2015 . . . . . . . . . . .
5,208,200
Net (loss) income . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . .
Issuance of common stock under
employee stock plans . . . . . . . . . . . . .
Fractional shares buyback and other. . . .
Share-based compensation . . . . . . . . . . .
54,498
(1,657)
—
52
1
(24,625)
(5,665)
13
2,187
809,788
(717,474)
(8,628)
(29,907)
(2,529)
12
(35)
1,836
Balance as of July 1, 2016 . . . . . . . . . . .
5,261,041
53
811,601
(747,381)
(11,157)
Net (loss) income . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . .
Issuance of common stock under
employee stock plans . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . .
(823)
(628)
56,725
—
21
2,111
(24,625)
(5,665)
13
2,187
83,738
(29,907)
(2,529)
13
(35)
1,836
53,116
(823)
(628)
21
2,111
71
71
270
341
202
(24,554)
(5,665)
13
2,187
83,809
(29,637)
(2,529)
13
(35)
1,836
53,457
(621)
(628)
21
2,111
5,317,766
$
53
$ 813,733
$
(748,204) $
(11,785) $
53,797
$
543
$
54,340
See accompanying notes to consolidated financial statements
52
AVIAT NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
The Company
We design, manufacture and sell a range of wireless networking 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 broadband wireless access
base stations and customer premises equipment for fixed and mobile, point-to-point digital microwave radio systems for
access, backhaul, trunking and license-exempt applications, supporting new network deployments, network expansion,
and capacity upgrades.
We were incorporated in Delaware in 2006 to combine the businesses of Harris Corporation’s Microwave
Communications Division (“MCD”) and Stratex Networks, Inc. (“Stratex”). On January 28, 2010, we changed our
corporate name from Harris Stratex Networks, Inc. to Aviat Networks, Inc. (“the Company”, “Aviat Networks,” “Aviat”,
“we,” “us,” and “our”) to more effectively reflect our business and communicate our brand identity to customers.
Additionally, the change of our corporate name was to comply with the termination of the Harris Corporation (“Harris”)
trademark licensing agreement resulting from the spin-off by Harris of its interest in our stock to its stockholders in May
2009.
Basis of Presentation
The consolidated financial statements include the accounts of Aviat Networks and its wholly-owned and majority
owned subsidiaries. Significant intercompany transactions and accounts have been eliminated. Certain amounts in the
prior-years consolidated financial statements have been reclassified to conform to the current-year presentation
Our fiscal year ends on the Friday nearest June 30. This was June 30 for fiscal 2017, July 1 for fiscal 2016 and
July 3 for fiscal 2015. Fiscal years 2017 and 2016 presented each included 52 weeks, and fiscal year 2015 included 53
weeks. In these notes to consolidated financial statements, we refer to our fiscal years as “fiscal 2017”, “fiscal 2016” and
“fiscal 2015.”
Use of Estimates
The preparation of consolidated financial statements in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”) requires us to make estimates, assumptions and judgments affecting the amounts
reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience
and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ
outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information,
or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant
items, including revenue recognition, provision for uncollectible receivables, inventory valuation, valuation allowances
for deferred tax assets, uncertainties in income taxes, restructuring obligations, product warranty obligations, share-based
awards, contingencies, recoverability of long-lived assets and useful lives of property, plant and equipment.
Reverse Stock Split
On June 14, 2016, we effected a reverse stock split of all of the outstanding shares of our common stock at a ratio
of 1-for-12 (“Reverse Stock Split”). The authorized shares of 300 million and par value per share of the common stock at
$0.01 per share remain unchanged after the reverse stock split. All share and per-share data in our consolidated financial
statements and applicable disclosures have been retroactively adjusted to reflect this reverse stock split.
To reflect the reverse stock split on shareholders' equity, we reclassified an amount equal to the par value of the
reduced shares from the common stock par value account to the additional paid in capital account, resulting in no net
impact to shareholders' equity on our consolidated balance sheets.
53
Cash, Cash Equivalents, Restricted Cash and Short-Term Investments
We consider all highly liquid investments with an original maturity of three months or less at the date of purchase
to be cash equivalents. Cash equivalents are carried at amortized cost, which approximates fair value due to the short-
term nature of these investments. Investments with an original maturity of greater than three months and less than 12
months are accounted for as short-term investments and are classified as such at the time of purchase.
We hold cash, cash equivalents and short-term investments at several major financial institutions, which often
significantly exceed Federal Deposit Insurance Corporation insured limits. However, a substantial portion of the cash
equivalents is invested in prime money market funds which are backed by the securities in the fund. Our short-term
investments are comprised of time deposits and certificates of deposit. We classify our marketable securities as
“available-for-sale” because we view our entire portfolio as available for use in our current operations.
As of June 30, 2017 and July 1, 2016, all of our high-quality marketable debt securities were invested in prime
money market funds and were classified as cash equivalents except for $0.3 million and $0.2 million, respectively, in
short-term investments.
Cash and cash equivalents that are restricted as to withdrawal or usage under the terms of contractual agreements
are recorded as restricted cash. At June 30, 2017, our short-term restricted cash mainly included cash balances at one of
our international subsidiaries. At July 1, 2016, our short-term restricted cash included $0.6 million of restricted cash in
one of our Africa subsidiaries related to a severance amount paid to a former employee in the first quarter of fiscal 2017.
We accrued the severance in restructuring liabilities as of July 1, 2016. Our long-term restricted cash included cash
balance in our disability insurance voluntary plan account that cannot be used by us for any operating purposes other
than to pay benefits to the insured employees and was recorded in other assets in our consolidated balance sheets and the
corresponding liabilities were included in other long-term liabilities in our consolidated balance sheets.
Significant Concentrations
We typically invoice our customers for the sales order (or contract) value of the related products delivered at
various milestones, including order receipt, shipment, installation and acceptance and for services when rendered. Our
trade receivables are derived from sales to customers located in North America, Africa, Europe, the Middle East, Russia,
Asia-Pacific and Latin America.
Accounts receivable is presented net of allowance for estimated uncollectible accounts to reflect any loss
anticipated on the collection of accounts receivable balances. We calculate the allowance based on our history of write-
offs, level of past due accounts and the economic status of the customers. The fair value of our accounts receivable
approximates their net realizable value.
We regularly require letters of credit from some customers and, from time to time, we discount these letters of
credit issued by customers through various financial institutions. The discounting of letters of credit depends on many
factors, including the willingness of financial institutions to discount the letters of credit and the cost of such
arrangements. Under these arrangements, collection risk is fully transferred to the financial institutions. We record the
financing charges on discounting these letters of credit as interest expense.
During fiscal 2017, 2016 and 2015, we had one customer in Africa, Mobile Telephone Networks Group (“MTN
Group”) that accounted for 14%, 18% and 14%, respectively, of our total revenue. As of June 30, 2017 and July 1, 2016,
MTN Group accounted for approximately 26% and 22%, respectively, of our accounts receivable. As of July 1, 2016,
Motorola accounted for approximately 11% of our accounts receivable. No other customers accounted for more than
10% of our revenue or accounts receivable for the years presented. The loss of all business from MTN Group, Motorola,
or any other significant customers, could adversely affect our results of operations, cash flows and financial position.
Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash
equivalents, marketable debt securities, trade accounts receivable and financial instruments used in foreign currency
hedging activities. We invest our excess cash primarily in prime money market funds and certificates of deposit. We are
exposed to credit risks related to such instruments in the event of default or decrease in credit-worthiness of the issuers of
the investments.
We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts
receivable, as the majority of our customers are large, well-established companies. However, in certain circumstances,
we may require letters of credit, additional guarantees or advance payments. We maintain allowances for collection
losses, but historically have not experienced any significant losses related to any particular geographic area. Our
54
customers are primarily in the telecommunications industry, so our accounts receivable are concentrated within one
industry and exposed to concentrations of credit risk within that industry. Accounts receivable are written off when
attempts to collect outstanding amounts have been exhausted or there are other indicators that the amounts are no longer
collectible.
We rely on third parties to manufacture our products and we purchase raw materials from third-party vendors. We
outsource our manufacturing services to two independent manufacturers. In addition, we purchase certain strategic
component inventory which is consigned to our third-party manufacturers. Other components included in our products
are sourced from various suppliers and are principally industry standard parts and components that are available from
multiple vendors. The inability of a contract manufacturer or supplier to fulfill our supply requirements or changes in
their financial or business condition could disrupt our ability to supply quality products to our customers, and thereby
may have a material adverse effect on our business and operating results.
We have entered into agreements relating to our foreign currency contracts with Silicon Valley Bank, a
multinational financial institution. The amounts subject to credit risk arising from the possible inability of any such
parties to meet the terms of their contracts are generally limited to the amounts, if any, by which such party’s obligations
exceed our obligations to that party.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using standard cost, which approximates
actual cost on a weighted-average first-in-first-out basis. We regularly review inventory quantities on hand and record
adjustments to reduce the cost of inventory for excess and obsolete inventory based primarily on our estimated forecast
of product demand and production requirements. Inventory adjustments are measured as the difference between the cost
of the inventory and estimated market value based upon assumptions about future demand and charged to the provision
for inventory, which is a component of cost of sales. At the point of the loss recognition, a new, lower-cost basis for that
inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or
increase in that newly established cost basis.
Customer Service Inventories
Our customer service inventories are stated at the lower of cost or market. We carry service parts because we
generally provide product warranty for 12 to 36 months and earn revenue by providing enhanced and extended warranty
and repair service during and beyond this warranty period. Customer service inventories consist of both component parts,
which are primarily used to repair defective units, and finished units, which are provided for customer use permanently
or on a temporary basis while the defective unit is being repaired. We record adjustments to reduce the carrying value of
customer service inventories to their net realizable value. Factors influencing these adjustments include product life
cycles, end of service life plans and volume of enhanced or extended warranty service contracts. Estimates of net
realizable value involve significant estimates and judgments about the future, and revisions would be required if these
factors differ from our estimates.
Property, Plant and Equipment
Property, plant and equipment are stated on the basis of cost less accumulated depreciation and amortization. We
capitalize costs of software, consulting services, hardware and other related costs incurred to purchase or develop
internal-use software. We expense costs incurred during preliminary project assessment, re-engineering, training and
application maintenance.
Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the
respective assets. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining
lease term or the estimated useful life of the improvements. The useful lives of the assets are generally as follows:
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 years
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 10 years
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 to 5 years
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 to 5 years
Expenditures for maintenance and repairs are charged to expense as incurred. Cost and accumulated depreciation
of assets sold or retired are removed from the respective property accounts, and any gain or loss is reflected in the
consolidated statements of operations.
55
Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash
flows on an undiscounted basis are less than the carrying amount of the assets. If impairment exists, the impairment loss
is measured and recorded based on discounted estimated future cash flows. In estimating future cash flows, assets are
grouped at the lowest levels for which there are identifiable cash flows that are largely independent of cash flows from
other asset groups.
Our estimate of future cash flows is based upon, among other things, certain assumptions about expected future
operating performance, growth rates and other factors. The actual cash flows realized from these assets may vary
significantly from our estimates due to increased competition, changes in technology, fluctuations in demand,
consolidation of our customers, reductions in average selling prices and other factors. Assumptions underlying future
cash flow estimates are therefore subject to significant risks and uncertainties.
Warranties
On product sales, we provide for future warranty costs upon product delivery. The specific terms and conditions of
those warranties vary depending upon the product sold and country in which we do business. In the case of products sold
by us, our warranties generally start from the delivery date and continue for one to three years, depending on the terms.
Many of our products are manufactured to customer specifications and their acceptance is based on meeting those
specifications. Factors that affect our warranty liabilities include the number of product units subject to warranty
protection, historical experience and management’s judgment regarding anticipated rates of warranty claims and cost per
claim. We assess the adequacy of our recorded warranty liabilities every quarter and make adjustments to the liabilities
as necessary.
Noncontrolling interests
A noncontrolling interest represents the equity interest in a subsidiary that is not attributable, either directly or
indirectly, to Aviat Networks and is reported as our equity, separately from our controlling interests. The noncontrolling
interests relate to our ownership interest in a subsidiary company in South Africa with a local partner, where we are the
majority owner at 51%. Revenues, expenses, gains, losses, net loss and other comprehensive income (loss) are reported
in the consolidated financial statements at the consolidated amounts, which include the amounts attributable to both the
controlling and noncontrolling interests.
Operating Leases
We lease facilities and equipment under various operating leases. These lease agreements generally include rent
escalation clauses, and many include renewal periods at our option. We recognize expense for scheduled rent increases
on a straight-line basis over the lease term beginning with the date we take possession of the leased space. Leasehold
improvements made either at the inception of the lease or during the lease term are amortized over the current lease term,
or estimated life, if shorter.
Foreign Currency Translation
The functional currency of our subsidiaries located in the United Kingdom, Singapore, Mexico, Algeria and New
Zealand is the United States (“U.S.”) dollar. Determination of the functional currency is dependent upon the economic
environment in which an entity operates as well as the customers and suppliers the entity conducts business with.
Changes in facts and circumstances may occur which could lead to a change in the functional currency of that entity.
Accordingly, all of the monetary assets and liabilities of these subsidiaries are re-measured into U.S. dollars at the
current exchange rate as of the applicable balance sheet date, and all non-monetary assets and liabilities are re-measured
at historical rates. Income and expenses are re-measured at the average exchange rate prevailing during the period. Gains
and losses resulting from the re-measurement of these subsidiaries’ financial statements are included in the consolidated
statements of operations.
Our other international subsidiaries use their respective local currency as their functional currency. Assets and
liabilities of these subsidiaries are translated at the local current exchange rates in effect at the balance sheet date, and
income and expense accounts are translated at the average exchange rates during the period. The resulting translation
adjustments are included in accumulated other comprehensive loss.
56
Gains and losses resulting from foreign exchange transactions and revaluation of monetary assets and liabilities in
non-functional currencies are included in either cost of product sales and services or other income (expense) in the
accompanying consolidated statements of operations, based on the nature of the transactions. Net foreign exchange loss
recorded in our consolidated statements of operations during fiscal 2017, 2016 and 2015 was as follows:
(In thousands)
Amount included in costs of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount included in other income (expense) . . . . . . . . . . . . . . . . . . . . .
2017
Total foreign exchange loss, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fiscal Year
2016
(847) $
135
(712) $
(556) $
(1,245)
(1,801) $
2015
(3,308)
—
(3,308)
Retirement Benefits
As of June 30, 2017, we provided retirement benefits to substantially all employees primarily through our defined
contribution retirement plans. These plans have matching and savings elements. Contributions by us to these retirement
plans are based on profits and employees’ savings with no other funding requirements. We halted making matching
contributions to the U.S. plan from the second quarter of fiscal 2014 through the end of fiscal 2015. We resumed making
contributions to the plans in fiscal 2016.
Contributions to retirement plans are expensed as incurred. Retirement plan expense amounted to $1.8 million,
$2.0 million and $1.7 million in fiscal 2017, 2016 and 2015, respectively.
Revenue Recognition
We generate substantially all of our revenue from the sales or licensing of our microwave radio and wireless
access systems, network management software, and professional services including installation, commissioning,
maintenance and support services and training. Principal customers for our products and services include domestic and
international wireless/mobile service providers, original equipment manufacturers, resellers, system integrators, as well
as private network users such as public safety agencies, government institutions, and utility, pipeline, railroad and other
industrial enterprises that operate broadband wireless networks. Our customers generally purchase a combination of our
products and services as part of a multiple element arrangement. Our assessment of which revenue recognition guidance
is appropriate to account for each element in an arrangement can involve significant judgment.
Revenue from product sales is generated predominately from the sales of products manufactured by third-party
manufacturers to whom we have outsourced our manufacturing processes. In general, printed circuit assemblies,
mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic
business reviews of material levels and obsolescence. Product assembly, product testing, complete system integration
and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers.
Revenue from services includes certain installation, extended warranty, customer support, consulting, training and
education. It also can include certain revenue generated from the resale of equipment purchased on behalf of customers
for installation service contracts we perform for customers. Such equipment may include towers, antennas, and other
related materials. Maintenance and support services are generally offered to our customers over a specified period of
time and from sales and subsequent renewals of maintenance and support contracts.
We recognize revenue when the earnings process is complete as evidenced by persuasive evidence of an
arrangement, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured.
Revenue is recognized net of allowances for returns, discounts and any taxes collected from customers and subsequently
remitted to governmental authorities. Delivery does not occur until products have been shipped or services have been
provided to the customer, title and risk of loss has transferred to the customer, and (if applicable) either customer
acceptance has been obtained or customer acceptance provisions have lapsed. The sales price is not considered to be
fixed or determinable until all contingencies related to the sale have been resolved. Revenue from net product sales is
recognized when title and risk of loss has transferred to the customer and there are no unfulfilled company obligations
that affect the customer’s final acceptance of the arrangement. We recognize maintenance and support services revenue
ratably over the maintenance or service period. Professional services revenue consists of fees we earn related to
consulting and educational services. We recognize revenue from professional services as the services are performed or
upon written acceptance from customers, if applicable, or acceptance provisions have lapsed assuming all other
conditions for revenue recognition noted above have been met.
57
We often enter into multiple contractual agreements with the same customer. Such agreements are reviewed to
determine whether they should be evaluated as one arrangement. If an arrangement, other than a long-term contract,
requires the delivery or performance of multiple deliverables or elements, we determine whether the individual elements
represent “separate units of accounting”. Based on the terms and conditions of our typical product sales arrangement, we
believe that our products and services can be accounted for as separate units because our products and services have
value to our customers on a stand-alone basis.
When a sale involves multiple deliverables, the entire fee from the arrangement is allocated to each unit of
accounting based on the relative selling price of each deliverable. When applying the relative selling price method, the
accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables
as follows: (i) vendor-specific objective evidence (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and
(iii) best estimate of the selling price (“ESP”). Generally, we are not able to determine TPE because our go-to-market
strategy differs from that of our peers and our offerings contain a significant level of differentiation such that the
comparable pricing of products with similar functionality cannot be obtained. When we are unable to establish a selling
price using VSOE or TPE, we use ESP to allocate the arrangement fees to the deliverables. Revenue allocated to each
element is then recognized when the other revenue recognition criteria are met for each element. There is generally no
customer right of return in our sales agreements. The sequence for typical multiple element arrangements: we deliver our
products, perform installation services and then provide post-contract support services.
ESP is determined by considering a number of factors including our pricing policies, internal costs and gross
margin objectives, method of distribution, information gathered from experience in customer negotiations, market
research and information, recent technological trends, competitive landscape and geographies. The determination of ESP
is approved by our management taking into consideration our pricing strategy. We regularly review VSOE, TPE and ESP
and maintain internal controls over the establishment and updating of these estimates.
Revenues related to long-term contracts for customized network solutions are recognized using the percentage-of-
completion method. In using the percentage-of-completion method, we generally apply the cost-to-cost method of
accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at
completion. Recognition of profit on long-term contracts requires estimates of the total contract value, the total cost at
completion and the measurement of progress towards completion. Significant judgment is required when estimating total
contract costs and progress to completion on the arrangements as well as whether a loss is expected to be incurred on the
contract. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward
completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated
revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to
the revision become known by the company. We perform ongoing profitability analysis of our services contracts
accounted for under the percentage-of-completion method in order to determine whether the latest estimates of revenues,
costs and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire
estimated loss for the remainder of the contract is recorded immediately. We establish billing terms at the time project
deliverables and milestones are agreed. Revenues recognized in excess of the amounts invoiced to clients are classified
as unbilled receivables in our consolidated balance sheets.
We reserve for estimated product returns as an offset to revenue or deferred revenue based primarily on historical
trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in the
economic and industry environment could make actual results differ from our return estimates.
We also consider whether contracts should be combined when specific aggregation criteria are met including
when the contracts are in substance an arrangement to perform a single project with a customer; the contracts are
negotiated as a package in the same economic environment with an overall profit objective; and the contracts require
interrelated activities with common costs that cannot be separately identified with, or reasonably allocated to the
elements, phases or units of output and the contracts are performed concurrently or in a continuous sequence under the
same project management at the same location or at different locations in the same general vicinity.
Cost of Product Sales and Services
Cost of sales consists primarily of materials, labor and overhead costs incurred internally and amounts incurred
for contract manufacturers to produce our products, personnel and other implementation costs incurred to install our
products and train customer personnel, and customer service and third party original equipment manufacturer costs to
provide continuing support to our customers.
58
Shipping and handling costs are included as a component of costs of product sales in our consolidated statements
of operations because they are also included in revenue that we bill our customers.
Advertising Costs
We expense all advertising costs as incurred. Advertising costs were immaterial during fiscal 2017, 2016 and
2015.
Presentation of Transactional Taxes Collected from Customers and Remitted to Government Authorities
We present transactional taxes such as sales and use tax collected from customers and remitted to governmental
authorities on a net basis.
Research and Development Costs
Our research and development costs, which include costs in connection with new product development,
improvement of existing products, process improvement, and product use technologies, are charged to operations in the
period in which they are incurred.
Share-Based Compensation
We estimate the grant date fair value of our share-based awards and amortize this fair value to compensation
expense over the requisite service period or vesting term. To estimate the fair value of our stock option awards, we use
the Black-Scholes option pricing model. The determination of the fair value of stock option awards on the date of grant
using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and
subjective variables. These variables include our expected stock price volatility over the expected term of the awards,
actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. Due to the
inherent limitations of option valuation models, including consideration of future events that are unpredictable and the
estimation process utilized in determining the valuation of the share-based awards, the ultimate value realized by our
employees may vary significantly from the amounts expensed in our financial statements. For restricted stock awards
and units and performance share awards and units, we measure the grant date fair value based upon the market price of
our common stock on the date of the grant. The fair value of each market-based stock unit with market conditions was
estimated using the Monte-Carlo simulation model.
We generally recognize compensation cost for share-based payment awards on a straight-line basis over the
requisite service period. For an award that has a graded vesting schedule, compensation expense is recognized on a
straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was,
in-substance, multiple awards. The amount of compensation cost recognized at any date must at least equal the portion of
the grant-date value of the award that is vested at that date.
For awards with a performance condition vesting feature, we recognize share-based compensation costs for the
performance awards and units when achievement of the performance conditions is considered probable. Any previously
recognized compensation cost would be reversed if the performance condition is not satisfied or if it is not probable that
the performance conditions will be achieved. For awards with a market condition vesting feature, we recognize share-
based compensation costs over the period the requisite service is rendered, regardless of when, if ever, the market
condition is satisfied.
During the fourth quarter of fiscal 2017, we adopted Accounting Standards Update (“ASU”) 2016-09 and elected
to account for forfeitures as they occur. Refer to accounting standards adopted below for changes to the accounting for
share-based compensation expense.
Restructuring Charges
Our restructuring charges represent expenses incurred in connection with certain cost reduction programs that we
have implemented, and consisted of the costs of employee termination costs, lease and other contract termination charges
and other costs of exiting activities or geographies. A liability for costs associated with an exit or disposal activity is
measured at its fair value when the liability is incurred. Expenses for one-time termination benefits are recognized at the
date we notify the employee, unless the employee must provide future service, in which case the benefits are expensed
ratably over the future service period. We recognize severance benefits provided as part of an ongoing benefit
arrangement when the payment is probable and the amounts can be reasonably estimated. Liabilities related to
termination of an operating lease or contract are measured and recognized at fair value when the contract does not have
any future economic benefit to the entity and the fair value of the liability is determined based on the present value of the
59
remaining lease obligations, adjusted for the effects of deferred items recognized under the lease, and reduced by
estimated sublease rentals that could be reasonably obtained for the property. The assumptions in determining such
estimates include anticipated timing of sublease rentals and estimates of sublease rental receipts and related costs based
on market conditions. We expense all other costs related to an exit or disposal activity as incurred.
Income Taxes and Related Uncertainties
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are
determined based on the estimated future tax effects of temporary differences between the financial statement and tax
basis of assets and liabilities, as measured by tax rates at which temporary differences are expected to reverse as well as
operating loss and tax credit carry forwards. Deferred tax expense (benefit) is the result of changes in deferred tax assets
and liabilities. A valuation allowance is established to offset any deferred tax assets if, based upon the available
information, it is more likely than not that some or all of the deferred tax assets will not be realized.
We are required to compute our income taxes in each federal, state, and international jurisdiction in which we
operate. This process requires that we estimate the current tax exposure as well as assess temporary differences between
the accounting and tax treatment of assets and liabilities, including items such as accruals and allowances not currently
deductible for tax purposes as well as operating loss and tax credit carry forwards. The income tax effects of the
differences we identify are classified as current or long-term deferred tax assets and liabilities in our consolidated
balance sheets. Our judgments, assumptions, and estimates relative to the current provision for income taxes take into
account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits
conducted by foreign and domestic tax authorities. Changes in tax laws or our interpretation of tax laws and the
resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our
consolidated balance sheets and consolidated statements of operations. We must also assess the likelihood that deferred
tax assets will be realized from future taxable income and, based on this assessment, establish a valuation allowance, if
required. Our determination of our valuation allowance is based upon a number of assumptions, judgments, and
estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income
before taxes in the various domestic and international jurisdictions in which we operate. To the extent we establish a
valuation allowance or change the valuation allowance in a period, we reflect the change with a corresponding increase
or decrease to our tax provision in our consolidated statements of operations.
We use a two-step process to determine the amount of tax benefit to be recognized for uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it
is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more
than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate such
amounts, as this requires us to determine the probability of various possible outcomes. We reevaluate these uncertain tax
positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or
circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in
recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in
the period.
Accounting Standards Adopted
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-09, Compensation-Stock
Compensation (Topic 718): Scope of Modification Accounting. The amendment provides guidance on the types of
changes to the terms or conditions of share-based payment awards to which an entity would be required to apply
modification accounting under Accounting Standards Codification (“ASC”) 718.The guidance is effective for annual
periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption
permitted. The amendment in this ASU should be applied prospectively to an award modified on or after the adoption
date. We adopted this standard during the fourth quarter of fiscal 2017.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The
guidance addresses diversity in practice that exists in the classification and presentation of changes in restricted cash and
requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and
amounts generally described as restricted cash or restricted cash equivalents. We adopted this standard during the fourth
quarter of fiscal 2017 with no material impact on our consolidated financial statements and disclosures.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows, Clarification of Certain Cash Receipts
and Cash Payments, which provides guidance on the presentation and classification of eight specific cash flow issues.
60
We adopted this standard during the fourth quarter of fiscal 2017. There was no reclassification impact resulted from the
adoption on our consolidated statements of cash flows for fiscal year 2016 and fiscal year 2015, and such statements
have been presented in accordance with this new guidance.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
(Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity or liabilities, forfeiture, statutory tax withholding
requirements, and classification on the statement of cash flows. We adopted this standard during the fourth quarter of
fiscal 2017 and elected to account for forfeitures as they occur using a modified retrospective transition method. The
change from the current method of estimating forfeitures resulted in a cumulative-effect adjustment of approximately $9
thousand, which we recorded as expense in fiscal 2017. The guidance also requires companies to record excess tax
benefits and tax deficiencies as income tax benefit or expense in the statement of operations prospectively when share-
based awards vest or are settled. The adoption had no impact on our deferred tax assets and the fiscal 2017 opening
accumulated deficit balance because we had no historical excess tax benefit related tax attributes. We also elected to
apply the change in cash flow classification of excess tax benefits prospectively, resulting in no reclassification of our
consolidated statements of cash flows.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Topic 835-30), Simplifying the
Presentation of Debt Issuance Costs. To simplify the presentation of debt issuance costs, the standard requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the
carrying amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU No.
2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit
Arrangements. This ASU includes an SEC staff announcement that the SEC staff would not object to an entity deferring
and presenting the costs of securing a revolving line of credit as an asset, and amortizing the costs over the term of the
line-of-credit arrangement, regardless of there are any outstanding borrowings on the line-of-credit arrangement. The
subject of this ASU was not previously addressed by ASU No. 2015-03. We have adopted both accounting guidance
during the first quarter of fiscal 2017 and applied its provisions retrospectively. The adoption of these standards had no
material impact on our consolidated financial statements and related disclosures.
Accounting Standards Not Yet Adopted
In May 2014, the FASB issued ASU 2014-09 (ASC Topic 606), Revenue from Contracts with Customers, which
along with amendments issued in 2015 and 2016, will supersede nearly all current U.S. GAAP guidance on this topic and
eliminate industry-specific guidance. The amendments are based on the principle that revenue should be recognized to
depict the transfer of promised 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. Additional disclosures will also be required to
enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers. This accounting standard update, as amended, will be effective for us in the first quarter of fiscal year
2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the
cumulative effect recognized in retained earnings as of the date of adoption. We are in process of evaluating the impact
of the standard update. The ultimate impact on revenue resulting from the application of the new standard will be subject
to assessments that are dependent on many variables, including, but not limited to, the terms of our contractual
arrangements and our mix of business. We have established a cross-functional implementation team to implement the
standard update related to the recognition of revenue from contracts with customers. We have identified and are in the
process of evaluating changes to our systems, processes and internal controls to meet the reporting and increased
disclosure requirements associated with this standard update. We expect the timing of revenue recognition to change in
certain areas, including our services segment’s installation revenue, which upon adoption will be recognized as revenue
and costs over a period of time. Also, since we currently expense sales commissions as incurred, the requirement in the
new standard to capitalize certain in-scope sales commissions is being evaluated to determine its potential impact in the
consolidated financial statements in the year of adoption. We expect to adopt the new standard on a modified
retrospective basis in the first quarter of fiscal 2019. We are continuing to assess all potential impacts of the guidance and
given normal ongoing business dynamics, preliminary conclusions are subject to change.
In October 2016, the FASB issued ASU 2016-16 Income Taxes (Topic 740), Accounting for Income Taxes: Intra-
Entity Asset Transfers of Assets Other than Inventory, which requires that an entity recognizes the tax expense from the
sale of intra-entity sales of assets, other than inventory, in the seller’s tax jurisdiction when the transfer occurs, even
though the pre-tax effects of that transaction are eliminated in consolidation. The guidance will be effective for our fiscal
year 2019. Early adoption is permitted. The ASU must be adopted using a modified retrospective method. We do not
expect the adoption of this standard to have a material impact on our consolidated financial statements and related
disclosures.
61
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which introduces the recognition of lease
assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. This
standard will become effective for interim and annual periods beginning after December 15, 2018, with early adoption
permitted. The guidance is required to be adopted at the earliest period presented using a modified retrospective
approach. We expect that most of our operating lease commitments will be subject to the new standard and recognized as
right-of-use assets and operating lease liabilities upon the adoption of ASU 2016-02. We are evaluating the effect the
adoption of the standard will have on our consolidated financial statements and related disclosures.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities. This guidance retains the current accounting for
classifying and measuring investments in debt securities and loans, but requires equity investments to be measured at fair
value with subsequent changes recognized in net income, except for those accounted for under the equity method or
requiring consolidation. The guidance also changes the accounting for investments without a readily determinable fair
value and that do not qualify for the practical expedient to estimate fair value. A policy election can be made for these
investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any
impairment or changes in observable prices of identical or similar investments. This ASU is effective for fiscal years
beginning after December 15, 2017. We do not expect the adoption of this guidance to have a material impact on our
consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11 Inventory (Topic 330), Simplifying the Measurement of Inventory,
which provides guidance to companies who account for inventory using either the first-in, first-out (“FIFO”) or average
cost methods. The guidance states that companies should measure inventory at the lower of cost and net realizable value.
Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years beginning after
December 15, 2016. Early adoption is permitted. We do not expect the adoption of this guidance to have a material
impact on our consolidated financial statements.
Note 2. Accumulated Other Comprehensive Loss
The changes in components of our accumulated other comprehensive loss during fiscal 2017, 2016 and 2015 were
as follows:
(In thousands)
Balance as of June 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive loss before reclassification. . . . . . . . . . . . . . . . . .
Less: reclassification for amounts included in net loss. . . . . . . . . . . . . .
Balance as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassification. . . . . . . . . . . . . . . . . .
Less: reclassification for amounts included in net loss. . . . . . . . . . . . . .
Balance as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassification. . . . . . . . . . . . . . . . . .
Less: reclassification for amounts included in net loss. . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign
Currency
Translation
Adjustment
(“CTA”)
Total
Accumulated
Other
Comprehensive
Income (Loss)
Hedging
Derivatives
(2,997) $
(5,672)
—
(8,669)
(2,488)
—
(11,157)
(279)
(349)
(11,785) $
$
34
(314)
321
41
—
(41)
—
—
—
— $
(2,963)
(5,986)
321
(8,628)
(2,488)
(41)
(11,157)
(279)
(349)
(11,785)
No income tax benefits were allocated to other comprehensive loss in fiscal 2017, 2016 and 2015.
62
In fiscal 2017, 2016 and 2015, the realized gain (loss) reclassified out of accumulated other comprehensive loss
were included in the following line item locations in our consolidated statements of operations:
(In thousands)
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
Fiscal Year
2016
2015
— $
— $
—
349
349
$
41
—
41
$
(378)
57
—
(321)
Note 3. Net Loss per Share of Common Stock
Net loss per share is computed using the two-class method, by dividing net loss attributable to us by the weighted
average number of common shares and participating securities outstanding during the period. Our restricted shares
contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and included
in the calculations of net income per basic and diluted common share. Undistributed losses are not allocated to unvested
restricted shares because the unvested restricted shares are not contractually obligated to share our losses. The impact on
earnings per share of the participating securities under the two-class method was immaterial.
As we incurred net loss for all periods in fiscal 2017, 2016 and 2015, the effect of outstanding stock options,
restricted stock awards and units and performance share awards and units were anti-dilutive and therefore were excluded
from the diluted net loss per share calculations. The following table summarizes the potential shares of common stock
that were excluded from the diluted net loss per share calculations:
(In thousands)
Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Restricted stock awards and units and performance share awards and
units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total potential shares of common stock excluded . . . . . . . . . . . . . . . .
Fiscal Year
2016
2015
538
258
796
613
42
655
410
403
813
Note 4. Balance Sheet Components
Cash, Cash Equivalents, and Restricted Cash
The following table provides a summary of cash, cash equivalents, and restricted cash reported within the
Consolidated Balance Sheets that reconciles to the corresponding amount in the Consolidated Statements of Cash Flows:
(In thousands)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash included in Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2017
July 1,
2016
$
35,658
541
370
30,479
558
388
Total cash, cash equivalents, and restricted cash in the Statements of Cash Flows . . . . $
36,569
$
31,425
Accounts Receivable, net
Our net accounts receivable is summarized below:
(In thousands)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less: allowances for collection losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
June 30,
2017
July 1,
2016
49,864
(3,919)
45,945
$
$
71,416
(7,967)
63,449
63
Inventories
Our inventories are summarized below:
(In thousands)
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred cost of revenue included within finished goods . . . . . . . . . . . . . . . . . . . . . . . . . $
Consigned inventories included within raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30,
2017
July 1,
2016
16,619
$
20,044
3,088
2,087
21,794
7,120
1,268
$
$
$
5,104
2,145
27,293
5,984
2,035
During fiscal 2017, 2016 and 2015, we recorded charges to adjust our inventory and customer service inventory
due to excess and obsolete inventory resulting from lower sales forecast, product transitioning or discontinuance. Such
charges incurred during fiscal 2017, 2016 and 2015 were classified in cost of product sales as follows:
(In thousands)
Excess and obsolete inventory charges . . . . . . . . . . . . . . . . . . . . . . . . . . $
Customer service inventory write-downs . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
39
1,098
1,137
$
$
Fiscal Year
2016
9,175
693
9,868
$
$
2015
6,291
1,752
8,043
As % of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.5%
3.7%
2.4%
Property, Plant and Equipment, net
Our property, plant and equipment, net are summarized below:
(In thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
June 30,
2017
July 1,
2016
710
$
11,442
14,803
43,174
70,129
(53,723)
16,406
$
710
11,714
14,620
42,960
70,004
(51,842)
18,162
Depreciation and amortization expense related to property, plant and equipment, including amortization of internal
use software and capital lease equipment, was $5.8 million, $6.6 million and $7.2 million, respectively, in fiscal 2017,
2016 and 2015.
Accrued Expenses
Our accrued expenses are summarized below:
(In thousands)
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued agent commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2017
July 1,
2016
8,317
$
1,911
3,056
8,649
7,161
3,551
3,944
8,549
$
21,933
$
23,205
64
We accrue for the estimated cost to repair or replace products under warranty. Changes in our warranty liability,
which is included as a component of accrued expenses in the consolidated balance sheets were as follows:
(In thousands)
Balance as of the beginning of the fiscal year. . . . . . . . . . . . . . . . . . . . . $
Warranty provision recorded during the period . . . . . . . . . . . . . . . . . . .
Consumption during the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of the end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Advanced payments and Unearned Income
Our advanced payments and unearned income are summarized below:
2017
Fiscal Year
2016
3,944
$
4,221
$
1,604
(2,492)
3,056
$
3,462
(3,739)
3,944
(In thousands)
Advanced payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
June 30,
2017
8,760
11,244
20,004
2015
3,777
5,595
(5,151)
4,221
July 1,
2016
12,124
18,491
30,615
$
$
$
Note 5. Fair Value Measurements of Assets and Liabilities
Fair value is defined 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 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; and
• Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities.
The carrying amounts, estimated fair values and valuation input levels of our assets and liabilities that are
measured at fair value on a recurring basis as of June 30, 2017 and July 1, 2016 were as follows:
(In thousands)
Assets:
Cash and cash equivalents:
June 30, 2017
July 1, 2016
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Valuation
Inputs
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . . $
Bank certificates of deposit. . . . . . . . . . . . . . . . . . . . $
22,059
66
Short-term investments:
Bank certificates of deposit. . . . . . . . . . . . . . . . . . . . $
264
$
$
$
22,059
66
264
$
$
$
18,800
11
222
Other current assets:
Foreign exchange forward contracts . . . . . . . . . . . . . $
— $
— $
5
$
$
$
$
Liabilities:
Other accrued expenses:
Foreign exchange forward contracts . . . . . . . . . . . . . $
5
$
5
$
9
$
18,800
11
Level 1
Level 2
222
Level 2
5
9
Level 2
Level 2
We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items mainly are
money market funds purchased from two major financial institutions. As of June 30, 2017, these money market funds
were valued at $1.00 net asset value per share by these financial institutions.
65
We classify items in Level 2 if the observable inputs to quoted market prices, benchmark yields, reported trades,
broker/dealer quotes or alternative pricing sources are available with reasonable levels of price transparency. Our bank
certificates of deposit and foreign exchange forward contracts are classified within Level 2. Foreign currency forward
contracts are measured at fair value using observable foreign currency exchange rates. The assets and liabilities related to
our foreign currency forward contracts were not material as of June 30, 2017 and July 1, 2016. We did not have any
recurring assets or liabilities that were valued using significant unobservable inputs.
Our policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of
the events or change in circumstances that caused the transfer. During fiscal 2017, 2016 and 2015, we had no transfers
between levels of the fair value hierarchy of our assets or liabilities measured at fair value.
Note 6. Credit Facility and Debt
On March 28, 2014, we entered into a Second Amended and Restated Loan Agreement with Silicon Valley Bank
(the “SVB Credit Facility”). The SVB Credit Facility was amended on September 25, 2014, October 30, 2014 and
December 2, 2014 to provide for extensions to the deadline for preparing and filing our fiscal 2014 financial statements
with the SEC. On February 27, 2015, the SVB Credit Facility was further amended to provide for certain amendments to
the financial covenants, borrowing base and an early termination fee if the SVB Credit Facility is terminated prior to its
expiration. In March 2016, we amended the SVB Credit Facility to amend financial covenants and to reduce the
maximum borrowing capacity from $40.0 million to $30.0 million. In June 2016, we amended the SVB Credit Facility to
amend the minimum EBITDA covenant; to create a new sub-limit for letters of credit issued under the revolving credit
facility of $12.0 million; to reduce the advance rate applicable to Singapore Borrower’s eligible accounts in the
calculation of the borrowing base of the revolving credit facility; to increase the interest rate margins applicable to
revolving loans made to Singapore Borrower by 2.00% above the applicable margin; and to extend the maturity date to
June 30, 2018. In June 2017, the SVB Credit Facility was amended to exclude certain guarantee, indemnity and similar
agreements from the borrowing base calculations and to extend the effective date to July 15, 2017 for the requirement
that we obtain credit insurance on the receivables of the Singapore Borrower to be included in the borrowing base. The
SVB Credit Facility carries an interest rate computed at the daily prime rate as published in the Wall Street Journal plus a
spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ratio. During fiscal 2017, the
weighted average interest rate on our outstanding loan was 4.21%. As of June 30, 2017 and July 1, 2016, our outstanding
debt balance under the SVB Credit Facility was $9.0 million, and the interest rate was 4.75% and 4.00% respectively.
The SVB Credit Facility provides for a committed amount of up to $30.0 million, with a $30.0 million sublimit
that can be borrowed by our Singapore subsidiary. Borrowings may be advanced under the SVB Credit Facility at the
lesser of $30.0 million or a borrowing base equal to a specified percentage of the value of eligible accounts receivable
and U.S. unbilled accounts of the Company, subject to certain reserves and eligibility criteria. The SVB Credit Facility
can also be utilized to issue letters of credit with a $12.0 million sublimit. If the SVB Credit Facility is terminated by us
in certain circumstances prior to its expiration, we are subject to an early termination fee equal to 1.00% of the revolving
line. As of June 30, 2017, available credit under the SVB Credit Facility was $5.8 million reflecting the calculated
borrowing base of $20.0 million less existing borrowings of $9.0 million and outstanding letters of credit of $5.2 million.
The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and
minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash
received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit
Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, permit a change in
control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain
restricted payments and enter into transactions with affiliates under certain circumstances. Certain of our assets,
including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an
event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default
interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal
to 2.00% above the applicable interest rate. As of June 30, 2017, we were in compliance with the quarterly financial
covenants, as amended, contained in the SVB Credit Facility. However, we have historically amended the agreement to
revise financial covenants and the fact that the SVB Credit Facility contains subjective acceleration clauses that could be
triggered by the lender, the $9.0 million borrowing was classified as a current liability as of June 30, 2017 and July 1,
2016.
We also obtained an uncommitted short-term line of credit of $0.4 million from a bank in New Zealand to support
the operations of our subsidiary located there in fiscal 2015. This line of credit provides for $0.3 million in short-term
advances at various interest rates, all of which was available as of June 30, 2017. The line of credit also provides for the
66
issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of June 30,
2017. This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by
a corporate guarantee.
Note 7. Restructuring Activities
The following tables summarize our restructuring related activities during fiscal year 2017, 2016 and 2015:
(In thousands)
Balance as of June 27, 2014 . . . . . . . . . . . . . . . $
Charges, net. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of July 3, 2015. . . . . . . . . . . . . . . . .
Charges, net. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of July 1, 2016. . . . . . . . . . . . . . . . .
Charges, net. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . $
Severance and Benefits
Fiscal
2016-2017
Plan
Fiscal
2015-2016
Plan
Fiscal
2014-2015
Plan
Fiscal
2013-2014
Plan
Total
— $
— $
1,290
$
214
$
—
—
—
2,210
(698)
1,512
345
(1,542)
2,862
(2,212)
650
344
(637)
357
36
(294)
(29)
(1,261)
—
—
—
—
—
—
(43)
(65)
106
(6)
(32)
68
—
(4)
315
$
99
$
— $
64
$
1,504
2,790
(3,538)
756
2,548
(1,367)
1,937
381
(1,840)
478
(In thousands)
Balance as of June 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncash adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Facilities and Other
Fiscal
2015-2016
Plan
Fiscal
2014-2015
Plan
Fiscal
2013-2014
Plan
Total
— $
92
$
3,572
$
641
(8)
633
(62)
(21)
—
550
—
13
1,306
(608)
790
77
(584)
299
582
162
130
(1,371)
2,331
(108)
(1,373)
896
1,746
46
(576)
(1,287)
563
$
168
$
505
$
3,664
2,077
(1,987)
3,754
(93)
(1,978)
1,195
2,878
208
(1,850)
1,236
In June 2016, we entered into a lease termination agreement for our headquarters lease in Santa Clara, California
(“Termination Agreement”). The noncash adjustments in the table above represents a $1.2 million deferred rent credit
write-off to the restructuring expenses. Under the Termination Agreement, we agreed to pay a termination fee of $1.9
million payable over 14 months. The unpaid termination fee was included in the restructuring liabilities as of June 30,
2017 under the Fiscal 2014-2015 Plan and the Fiscal 2013-2014 Plan.
As of June 30, 2017, $1.5 million of the accrual balance was in short-term restructuring liabilities while $0.2
million was included in other long-term liabilities on the consolidated balance sheets.
Fiscal 2016-2017 Plan
During the fourth quarter of fiscal 2016, we initiated a restructuring plan (the “Fiscal 2016-2017 Plan”) to
streamline our operations and align expenses with current revenue levels. Activities under the Fiscal 2016-2017 Plan
primarily include reductions in workforce in marketing, selling and general and administrative functions. We have
substantially complete the remaining restructuring activities under the Fiscal 2016-2017 Plan by the end of fiscal 2017.
Payments related to the accrued restructuring liability balance for this plan will be paid through fiscal 2018.
67
Fiscal 2015-2016 Plan
During the third quarter of fiscal 2015, with the intent to bring our operational cost structure in line with the
changing dynamics of the microwave radio and telecommunications markets, we initiated a restructuring plan (the
“Fiscal 2015-2016 Plan”) to lower fixed overhead costs and operating expenses and to preserve cash flow. Activities
under the Fiscal 2015-2016 Plan primarily include reductions in workforce across the Company, but primarily in
operations outside the United States. We have substantially completed the restructuring activities under the Fiscal
2015-2016 Plan as of July 1, 2016. Payments related to the accrued restructuring liability balance for this plan is
expected to be paid through fiscal 2020.
Fiscal 2014-2015 Plan
During the third quarter of fiscal 2014, in line with the decrease in revenue that we experienced and our reduced
forecast for the immediate future, we initiated a restructuring plan (the “Fiscal 2014-2015 Plan”) to reduce our operating
costs, primarily in North America, Europe and Asia. Activities under the Fiscal 2014-2015 Plan primarily include
reductions in workforce and additional facility downsizing of our Santa Clara, California headquarters. We have
substantially completed the restructuring activities under the Fiscal 2014-2015 Plan as of July 1, 2016. Payments related
to the accrued restructuring liability balance for this plan will be paid through fiscal 2018.
Fiscal 2013-2014 Plan
During the fourth quarter of fiscal 2013, we initiated a restructuring plan (the “Fiscal 2013-2014 Plan”) that was
intended to reduce our operating expenses primarily in North America, Europe and Asia. Activities under the Fiscal
2013-2014 Plan included reductions in workforce and facility downsizing of our Santa Clara, California headquarters
and certain international field offices. We substantially completed the restructuring activities under the Fiscal 2013-2014
Plan as of June 27, 2014. Payments related to the accrued restructuring liability balance for this plan will be paid
through fiscal 2018.
Note 8. Stockholders’ Equity
As discussed in Note 1, on June 14, 2016, we effected a 1-for-12 reverse stock split of our common stock. All
share and per share data in this note have been retroactively adjusted to reflect this reverse stock split.
Stock Incentive Programs
2007 Stock Equity Plan
As of June 30, 2017, we had one stock incentive plan for our employees and nonemployee directors, the 2007
Stock Equity Plan, as amended and restated effective November 13, 2015 (the “2007 Stock Plan”). The 2007 Stock Plan
provides for accelerated vesting of certain share-based awards if there is a change in control of the Company. The 2007
Stock Plan also provides for the issuance of share-based awards in the form of stock options, stock appreciation rights,
restricted stock awards and units, and performance share awards and units. We have various incentive programs under
the 2007 Stock Plan, including annual and long-term incentive programs (“AIP” or “LTIP”).
Under the 2007 Stock Plan, option exercise prices are equal to the fair market value on the date the options are
granted using our closing stock price. Options granted in fiscal 2015 would be fully vested after 3.5 years from the grant
date. We did not grant any options in fiscal 2017 and 2016. After vesting, options generally may be exercised within
seven years after the date of grant.
Restricted stock unit is not transferable until vested and the restrictions lapse upon the achievement of continued
employment or service over a specified time period. Restricted stock unit issued to employees generally vests between
three to four years from the date of grant. Restricted stock unit issued to non-executive board members annually
generally vests on the day before the annual stockholders’ meeting.
Vesting of performance share awards and unit is subject to the achievement of pre-determined financial
performance criteria and continued employment through the end of the applicable period. Market-based stock units vest
upon meeting certain pre-determined share price performance criteria and continued employment through the end of the
applicable period. The performance criteria of the performance share awards and units and the market-based stock units
can be achieved before the end of the vesting period.
68
We issue new shares of our common stock to our employees upon the exercise of stock options, vesting of
restricted stock awards and units or vesting of performance share awards and units. All awards that are canceled prior to
vesting or expire unexercised are returned to the approved pool of reserved shares under the 2007 Stock Plan and made
available for future grants. Shares of our common stock remaining available for future issuance under the 2007 Stock
Plan totaled 270,947 as of June 30, 2017.
On September 6, 2016, the Board authorized and declared a dividend distribution of one right (a “Right”) for each
outstanding share of our common stock, par value $0.01 per share (the “Common Shares”), to our stockholders of record
as of the close of business on September 16, 2016. Each Right entitles the registered holder to purchase from the
Company one one-thousandth of a share of Series A Participating Preferred Stock, par value $0.01 per share (the
“Preferred Shares”), of the Company at an exercise price of $35.00 (the “Exercise Price”) per one one-thousandth of a
Preferred Share, subject to adjustment. Until the rights become exercisable, they will not be evidenced by separate
certificates and will trade automatically with shares of the Company’s common stock. The Rights have a de minimis fair
value. The complete terms of the Rights are set forth in a Tax Benefit Preservation Plan (the “Plan”), dated as of
September 6, 2016, between the Company and Computershare Inc., as rights agent. By adopting the Plan, we are helping
to preserve the value of certain deferred tax benefits, including those generated by net operating losses (collectively, the
“Tax Benefits”), which could be lost in the event of an “ownership change” as defined under Section 382 of the Internal
Revenue Code of 1986, as amended. The Plan reduces the likelihood that changes in our investor base have the
unintended effect of limiting our use of the Tax Benefits.
Also, on September 6, 2016, our Board of Directors adopted certain amendments to our Amended and Restated
Certificate of Incorporation, as amended (the “Charter Amendments”). The Charter Amendments are designed to
preserve the Tax Benefits by restricting certain transfers of our common stock.
Both the Plan and the Charter Amendments were approved at our 2016 annual meeting of stockholders on
November 16, 2016. No actions were taken under the Plan as of June 30, 2017.
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), employees are entitled to purchase shares of our common
stock at a 5% discount from the fair market value at the end of a three-month purchase period. As of June 30, 2017,
61,065 shares were reserved for future issuances under the ESPP. We issued 974 shares under the ESPP during fiscal
2017.
Share-Based Compensation
Total following table presents the compensation expense for share-based awards included in our consolidated
statements of operations for fiscal 2017, 2016 and 2015:
(In thousands)
By Expense Category:
Cost of product sales and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total share-based compensation expense . . . . . . . . . . . . . . . . . . . . $
By Types of Award:
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Restricted stock awards and units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance share awards and units and market-based stock units . . . .
2017
Fiscal Year
2016
2015
$
$
$
208
138
1,765
2,111
260
1,473
378
$
$
$
154
110
1,572
1,836
837
933
66
151
108
1,928
2,187
1,459
688
40
Total share-based compensation expense . . . . . . . . . . . . . . . . . . . . $
2,111
$
1,836
$
2,187
69
The following table summarizes the unamortized compensation expense and the remaining years over which such
expense would be expected to be recognized, on a weighted-average basis, by type of award:
Unamortized
Expense
(In thousands)
Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock awards and units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance share awards and units and market-based stock units . . . .
$
$
$
152
2,485
900
Stock Options
June 30, 2017
Weighted Average Remaining
Recognition Period
(Years)
1.09
1.79
1.50
A summary of the combined stock option activity under our equity plans during fiscal 2017 is as follows:
Options outstanding as of July 1, 2016 . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding as of June 30, 2017 . . . . . . . . . . . . .
Options vested and expected to vest as of June 30, 2017 .
Options exercisable as of June 30, 2017 . . . . . . . . . . . . . .
Shares
Weighted
Average
Exercise Price
448,359
$
—
(573) $
(34,282) $
(40,799) $
$
372,705
372,705
348,506
$
$
32.95
N/A
14.88
33.50
74.40
28.39
28.39
29.30
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(Years)
(In thousands)
3.37
2.72
2.72
2.59
$
$
$
167
167
118
The aggregate intrinsic value represents the total pre-tax intrinsic value or the aggregate difference between the
closing price of our common stock on June 30, 2017 of $17.40 and the exercise price for in-the-money options that
would have been received by the optionees if all options had been exercised on June 30, 2017. The options expected to
vest are the result of applying the pre-vesting forfeiture rate assumptions to total outstanding options.
The fair value of each option grant under our 2007 Stock Plan was estimated using the Black-Scholes option
pricing model on the date of grant. No options were granted during fiscal 2017 and 2016. A summary of the significant
weighted average assumptions we used in the Black-Scholes valuation model is as follows:
Expected dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—%
53.9%
1.13%
4.25
6.60
Fiscal Year
2015
70
The following summarizes all of our stock options outstanding and exercisable as of June 30, 2017:
Options Outstanding
Options Exercisable
Actual Range of Exercise Prices
Number
Outstanding
$14.88 — $15.60 . . . . . . . . . . . . . . .
$20.64 — $27.36 . . . . . . . . . . . . . . .
$27.72 — $30.72 . . . . . . . . . . . . . . .
$31.20 — $31.20 . . . . . . . . . . . . . . .
$32.52 — $62.16 . . . . . . . . . . . . . . .
$71.04 — $71.04 . . . . . . . . . . . . . . .
$14.88 — $71.04 . . . . . . . . . . . . . . .
82,615
83,863
70,725
74,462
56,222
4,818
372,705
Weighted
Average
Remaining
Contractual
Life
(Years)
Weighted
Average
Exercise Price
Number
Exercisable
Weighted
Average
Exercise Price
4.59
2.56
1.64
3.19
1.10
0.69
2.72
$
$
$
$
$
$
$
15.38
26.17
29.28
31.20
42.33
71.04
28.39
58,416
83,863
70,725
74,462
56,222
4,818
348,506
$
$
$
$
$
$
$
15.38
26.17
29.28
31.20
42.33
71.04
29.30
Additional information related to our stock options is summarized below:
(In thousands)
Intrinsic value of options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of options vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
Fiscal Year
2016
3
654
$
$
— $
1,395
$
2015
—
1,990
Restricted Stock Awards and Units
A summary of the status of our restricted stock as of June 30, 2017 and changes during fiscal 2017 is as follows:
Shares
Weighted Average
Grant Date
Fair Value
Restricted stock outstanding as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested and released. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock outstanding as of June 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
210,596
$
237,874
$
(55,178) $
(14,277) $
$
379,015
12.01
9.66
9.40
12.29
10.91
The fair value of each restricted stock grant is based on the closing price of our common stock on the date of
grant. The total fair value of restricted stock that vested during fiscal 2017, 2016 and 2015 was $0.5 million, $0.7
million and $0.6 million, respectively.
71
Market -Based Stock Units
A summary of the status of our market-based stock units as of June 30, 2017 and changes during fiscal 2017 is as
follows:
Shares
Weighted Average
Grant Date
Fair Value
Market-based stock units outstanding as of July 1, 2016. . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market-based stock units outstanding as of June 30, 2017 . . . . . . . . . . . . . . . . . . . . .
149,169
$
50,000
$
(55,845) $
$
143,324
2.56
6.83
2.56
4.05
The fair value of each market-based stock unit with market condition was estimated using the Monte-Carlo
simulation model. A summary of the significant weighted average assumptions we used in the Monte Carlo simulation
model is as follows:
2017
Fiscal Year
2016
2015
Expected Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value per share granted . . . . . . . . . . . $
—%
58.1%
1.20%
6.83
$
—%
52.4%
1.21%
2.56
N/A
N/A
N/A
N/A
The fair value of the market-based stock units with market condition criteria is expensed over the derived service
period for each separate vesting tranche. If the derived service period is rendered, the total fair value of the award at the
date of the grant is recognized as compensation expense even if the market condition is not achieved.
Performance Share Awards and Units
A summary of the status of our performance shares awards and units as of June 30, 2017 and changes during fiscal
2017 is as follows:
Performance share awards and units outstanding as of July 1, 2016 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance share awards and units outstanding as of June 30, 2017 . . . . . . . . . . . .
Weighted
Average
Grant Date
Fair Value
N/A
9.18
N/A
9.18
Shares
—
72,941
—
72,941
$
$
No performance shares award or unit vested during fiscal 2017 and 2016. The total fair value of performance
share awards and units that vested during fiscal 2015 was $0.1 million.
Note 9. Segment and Geographic Information
We operate in one reportable business segment: the design, manufacturing and sale of a range of wireless
networking products, solutions and services. We conduct business globally and our sales and support activities are
managed on a geographic basis. Our Chief Executive Officer is the Chief Operating Decision Maker (the “CODM”). Our
CODM manages our business primarily by function globally and reviews financial information on a consolidated basis,
accompanied by disaggregated information about revenues by geographic region, for purposes of allocating resources
and evaluating financial performance. The profitability of our geographic region is not a determining factor in allocating
resources and the CODM does not evaluate profitability below the level of the consolidated company.
72
We report revenue by region and country based on the location where our customers accept delivery of our
products and services. Revenue by region for 2017, 2016 and 2015 were as follows:
(In thousands)
North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Africa and Middle East . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe and Russia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Latin America and Asia Pacific. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Fiscal Year
2016
2015
132,078
$
125,482
$
153,239
60,150
14,128
35,518
82,742
20,539
39,927
97,112
35,990
49,537
Total Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
241,874
$
268,690
$
335,878
Revenue by country comprising more than 5% of our total revenue for fiscal 2017, 2016 and 2015 were as
follows:
(In thousands, except percentages)
Fiscal 2017:
Revenue
% of
Total Revenue
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
127,889
18,147
13,733
Fiscal 2016:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
121,283
28,862
Fiscal 2015:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
151,066
36,459
52.9%
7.5%
5.7%
45.1%
10.7%
45.0%
10.9%
Our long-lived assets, consisting primarily of property, plant and equipment, by geographic areas based on the
physical location of the assets as of June 30, 2017 and July 1, 2016 were as follows:
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
United Kingdom. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30,
2017
July 1,
2016
5,854
$
11,353
2,727
6,310
1,515
2,946
2,618
1,245
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16,406
$
18,162
Note 10. Divestiture
In March 2011, our board of directors approved a plan for the sale of our WiMAX business. On September 2,
2011, we sold to EION Networks, Inc. (“EION”) our WiMAX business and related assets consisting of certain
technology, inventory and equipment. As consideration for the sale of assets, EION agreed to pay us $0.4 million in cash
and up to $2.8 million in additional cash payments contingent upon specific factors related to future WiMAX business
performance. We had received $0.1 million in total of such contingent payments through June 27, 2014 and do not
expect any further payments from EION. In addition, EION is entitled to receive cash payments up to $2.0 million upon
collection of certain WiMAX accounts receivable. As of September 26, 2014, we made $1.6 million in total of such
payments to EION and wrote-off the remaining $0.4 million balance resulting from the write-downs of the
corresponding WiMAX accounts receivable. As of June 30, 2017 and July 1, 2016, we had no liabilities related to the
disposition of WiMAX business.
In the third quarter of fiscal 2011, we began accounting for the WiMAX business as a discontinued operation and,
therefore, the operating results of our WiMAX business were included in discontinued operations in our consolidated
financial statements for all years presented. The income recognized in fiscal 2016 was primarily due to the recovery of
73
certain WiMAX customer receivables that was previously written down. The income recognized in fiscal 2015 was
primarily due to a $0.1 million write-off of accrued liabilities due to EION.
Summary results of operations for the WiMAX business were as follows:
(In thousands)
Income from operations of WiMAX. . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gain on disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . $
— $
Fiscal Year
2016
2015
— $
652
$
—
(111)
541
$
30
85
(21)
94
Note 11. Income Taxes
Income (loss) from continuing operations before provision for income taxes during fiscal year 2017, 2016 and
2015 consisted of the following:
(In thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total loss from continuing operations before income taxes. . . . . . . . . $
2017
$
10,979
(11,584)
(605) $
Fiscal Year
2016
(4,248) $
(24,295)
(28,543) $
2015
(18,603)
(7,355)
(25,958)
Provision for (benefit from) income taxes from continuing operations for fiscal year 2017, 2016 and 2015 were
summarized as follows:
(In thousands)
Current provision (benefit):
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred provision (benefit):
Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
Fiscal Year
2016
2015
(14) $
(52)
7
(59)
168
(93)
75
131
$
1,814
24
1,969
(468)
134
(334)
—
3,378
23
3,401
(216)
(4,495)
(4,711)
Total provision for (benefit from) income taxes from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
16
$
1,635
$
(1,310)
74
The provision for (benefit from) income taxes from continuing operations differed from the amount computed by
applying the federal statutory rate of 35% to our income before provision for income taxes as follows:
(In thousands)
Tax benefit at statutory rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Valuation allowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local taxes, net of U.S. federal tax benefit. . . . . . . . . . . . . . . .
Foreign income taxed at rates less than the U.S. statutory rate. . . . . . . .
Dividend from foreign subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign branch income/withholding taxes . . . . . . . . . . . . . . . . . . . . . . .
Singapore refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total provision for (benefit from) income taxes from continuing
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
(196) $
(1,346)
628
358
2,062
—
1,116
(3,778)
1,173
(1)
Fiscal Year
2016
2015
(9,990) $
6,609
103
(134)
6,019
(1,781)
292
—
437
80
(9,065)
(3,900)
(80)
(500)
9,970
—
1,350
—
610
305
16
$
1,635
$
(1,310)
The income tax expense (benefit) from continuing operations was $16 thousand of expense for fiscal 2017, $1.6
million of expense for fiscal 2016 and $1.3 million of benefit for fiscal 2015. The difference between our income tax
expense (benefit) from continuing operations and income tax expense at the statutory rate of 35% was primarily
attributable to losses in tax jurisdictions in which we cannot recognize a tax benefit and increase in foreign withholding
taxes. During fiscal 2017, we recorded a $3.7 million tax benefit from the audit assessment refund received from the
Inland Revenue Authority of Singapore. During fiscal 2015, we released approximately $4.4 million of the deferred tax
valuation allowance in jurisdictions where management believed the utilization of deferred tax assets was more likely
than not based on the weighting of positive and negative evidence.
75
The components of deferred tax assets and liabilities were as follows:
(In thousands)
Deferred tax assets:
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accruals and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized exchange gain/loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets before valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Branch undistributed earnings reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
As Reported on the Consolidated Balance Sheets
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred income tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
June 30, 2017
July 1, 2016
4,390
$
2,611
669
1,870
2,266
3,127
3,295
3,715
6,652
2,497
1,091
3,148
2,599
1,759
3,422
6,623
15,337
168,115
205,395
(197,951)
7,444
18,016
167,468
213,275
(202,824)
10,451
990
1,501
456
2,947
4,497
$
6,178
1,681
4,497
$
$
822
4,596
462
5,880
4,571
6,068
1,497
4,571
Our valuation allowance related to deferred income taxes, as reflected in our consolidated balance sheets, was
$198.0 million as of June 30, 2017 and $202.8 million as of July 1, 2016. The decrease in valuation allowance in fiscal
2017 was primarily due to the release of valuation allowance in certain foreign jurisdictions, partially offset by losses in
tax jurisdictions in which we cannot recognize tax benefits.
Tax loss and credit carryforwards as of June 30, 2017 have expiration dates ranging between one year and no
expiration in certain instances. The amount of U.S. federal tax loss carryforwards as of June 30, 2017 and July 1, 2016
were $339.8 million and $345.3 million, respectively, and begin to expire in fiscal 2023. The amount of U.S. federal and
state tax credit carryforwards as of June 30, 2017 were $16.4 million, and certain credits will begin to expire in fiscal
2018. The amount of foreign tax loss carryforwards as of June 30, 2017 was $232.1 million and certain losses begin to
expire in fiscal 2018. The amount of foreign tax credit carryforwards as of June 30, 2017 were $4.4 million, and certain
credits will begin to expire in fiscal 2023.
United States income taxes have not been provided on basis differences in foreign subsidiaries of $5.0 million and
$5.6 million, respectively, as of June 30, 2017 and July 1, 2016, because of our intention to reinvest these earnings
indefinitely. The residual U.S. tax liability, if such amounts were remitted, would be nominal.
We entered into a tax sharing agreement with Harris effective on January 26, 2007, the date of the acquisition of
Stratex. The tax sharing agreement addresses, among other things, the settlement process associated with pre-merger tax
liabilities and tax attributes that are attributable to the Microwave Communication Division when it was a division of
Harris. There were no settlement payments recorded in fiscal year 2017, 2016 or 2015.
As of June 30, 2017 and July 1, 2016, we had unrecognized tax benefits of $18.7 million and $27.0 million,
respectively, for various federal, foreign, and state income tax matters. Unrecognized tax benefits decreased by $8.3
76
million. Our total unrecognized tax benefits that, if recognized, would affect our effective tax rate were $2.5 million and
$1.4 million, respectively, as of June 30, 2017 and July 1, 2016. These unrecognized tax benefits are presented on the
accompanying consolidated balance sheets net of the tax effects of net operating loss carryforwards.
We account for interest and penalties related to unrecognized tax benefits as part of our provision for income
taxes. The interest accrued was $0.2 million as of June 30, 2017 and immaterial as of July 1, 2016. No penalties have
been accrued.
Our unrecognized tax benefit activity for fiscal 2017, 2016 and 2015 was as follows:
(In thousands)
Unrecognized tax benefit as of June 27, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to change of foreign exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit as of July 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in current periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to change of foreign exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit as of July 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions in current periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases for tax positions in prior periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to change of foreign exchange rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized tax benefit as of June 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Amount
28,209
673
(227)
(1,745)
26,910
397
246
(515)
27,038
626
831
(9,279)
(477)
18,739
During the fiscal year 2014, we received an assessment letter from the Inland Revenue Authority of Singapore
(“IRAS”) related to deductions claimed in prior years and made a payment of $13.2 million related to tax years 2007
through 2010, reflecting all of the taxes incrementally assessed by IRAS. While we disagreed with the IRAS assessment,
the payment was a required step in order to continue our appeal. Since the initial assessment, we have continued to
challenge this assessment. During the first quarter of fiscal year 2017, we received an initial refund of $3.7 million from
IRAS and recognized a discrete benefit in the first quarter of fiscal year 2017. During the first quarter of fiscal 2018, we
received an additional refund of $1.3 million from IRAS which represents a final settlement. We will recognize the
refund as a discrete tax benefit in the first quarter of fiscal 2018. During the next twelve months, it is reasonably possible
that our unrecognized tax benefits will be impacted by up to $3.0 million.
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, Nigeria and the Ivory Coast. The earliest years still open and subject to
potential audits for these jurisdictions are as follows: U.S. —2003; Singapore — 2006; Nigeria — 2011, and Ivory Coast
— 2016.
Note 12. Commitments and Contingencies
Operating Lease Commitments
We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates
through 2024. We lease approximately 19,000 square feet of office space in Milpitas, California as our corporate
headquarters with a term of 60 months. As of June 30, 2017, future minimum lease payments for our Milpitas
headquarters total $1.4 million.
77
As of June 30, 2017, our future minimum lease payments under all non-cancelable operating leases with an initial
lease term in excess of one year were as follows:
Fiscal Years
Amount
(In thousands)
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,997
1,431
988
908
208
2,023
7,555
These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions,
leasehold improvement incentives or unusual provisions or conditions. We sublease a portion of our facilities to third
parties and the total minimum rents to be received in the future under our non-cancelable subleases were $0.1 million as
of June 30, 2017. The future minimum lease payments are not reduced by the minimum sublease rents.
Rental expense for operating leases, including rentals on a month-to-month basis was $4.0 million, $5.1 million
and $6.5 million in fiscal 2017, 2016 and 2015, respectively.
Purchase Orders and Other Commitments
From time to time in the normal course of business, we may enter into purchasing agreements with our suppliers
that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished
products that we requested be held as safety stock, and work in process started on our behalf in the event we cancel or
terminate the purchasing agreement. Because these agreements do not specify fixed or minimum quantities, do not
specify minimum or variable price provisions, and do not specify the approximate timing of the transaction, and we have
no present intention to cancel or terminate any of these agreements, we currently do not believe that we have any future
liability under these agreements. As of June 30, 2017, we had outstanding purchase obligations with our suppliers or
contract manufacturers of $17.8 million. In addition, we had contractual obligations of approximately $1.4
million associated with software licenses as of June 30, 2017.
Financial Guarantees and Commercial Commitments
Guarantees issued by banks, insurance companies or other financial institutions are contingent commitments
issued to guarantee our performance under borrowing arrangements, such as bank overdraft facilities, tax and customs
obligations and similar transactions or to ensure our performance under customer or vendor contracts. The terms of the
guarantees are generally equal to the remaining term of the related debt or other obligations and are generally limited to
two years or less. As of June 30, 2017, we had no guarantees applicable to our debt arrangements.
We have entered into commercial commitments in the normal course of business including surety bonds, standby
letters of credit agreements and other arrangements with financial institutions primarily relating to the guarantee of future
performance on certain contracts to provide products and services to customers. As of June 30, 2017, we had commercial
commitments of $34.7 million outstanding that were not recorded in our consolidated balance sheets. During the second
fiscal quarter, we recorded a payout in cost of revenues of $0.4 million on the performance guarantees to a contractor in
the Middle East region. We believe the customer improperly drew down on the performance bond and intend to pursue
all remedies available to recover the payment. We do not believe, based on historical experience and information
currently available, that it is probable that any significant amounts will be required to be paid on the performance
guarantees in the future.
Indemnifications
Under the terms of substantially all of our license agreements, we have agreed to defend and pay any final
judgment against our customers arising from claims against such customers that our products infringe the intellectual
property rights of a third party. As of June 30, 2017, we have not received any notice that any customer is subject to an
infringement claim arising from the use of our products; we have not received any request to defend any customers from
infringement claims arising from the use of our products; and we have not paid any final judgment on behalf of any
78
customer related to an infringement claim arising from the use of our products. Because the outcome of infringement
disputes is related to the specific facts of each case, and given the lack of previous or current indemnification claims, we
cannot estimate the maximum amount of potential future payments, if any, related to our indemnification provisions. As
of June 30, 2017, we had not recorded any liabilities related to these indemnifications.
Legal Proceedings
We are subject from time to time to disputes with customers concerning our products and services. In May 2016,
we received notification of a claim for $1.0 million in damages from a customer in Austria alleging that certain of our
products were defective. We are continuing to investigate this claim, and at this time an estimate of the reasonably
possible loss or range of loss cannot be made. We believe that we have numerous contractual and legal defenses to these
disputes, and we intend to dispute them vigorously.
In August 2016, we received correspondence from a customer in Africa demanding that certain inventory be
repurchased under the terms of an inventory management agreement that we believed had previously expired. We settled
this matter for $0.2 million in April 2017.
From time to time, we may be involved in various other legal claims and litigation that arise in the normal course
of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and
the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings
are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes
vigorously. There are many uncertainties associated with any litigation and these actions or other third-party claims
against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial
condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may
be materially different from our estimates, if any.
We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a
liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis,
developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any
developments that would result in a loss contingency to become both probable and reasonably estimable. Except for the
matter above which was ultimately settled for $0.2 million, we have not recorded any accrual for loss contingencies
associated with such legal claims or litigation discussed above.
Contingent Liabilities
We record a loss contingency as a charge to operations when (i) it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial statements; and (ii) the amount of the loss can be reasonably
estimated. Disclosure in the notes to the financial statements is required for loss contingencies that do not meet both
those conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not
recorded until realized. We expense all legal costs incurred to resolve regulatory, legal and tax matters as incurred.
Periodically, we review the status of each significant matter to assess the potential financial exposure. If a
potential loss is considered probable and the amount can be reasonably estimated, we reflect the estimated loss in our
results of operations. Significant judgment is required to determine the probability that a liability has been incurred or an
asset impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and
the final outcome of these matters could vary significantly from the amounts that have been included in our consolidated
financial statements. As additional information becomes available, we reassess the potential liability related to our
pending claims and litigation and may revise estimates accordingly. Such revisions in the estimates of the potential
liabilities could have a material impact on our results of operations and financial position.
79
Note 13. Quarterly Financial Data (Unaudited)
The following financial information reflects all normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of the results of the interim periods. Our fiscal quarters end on the Friday
nearest the end of the calendar quarter. Summarized quarterly data for fiscal 2017 and 2016 were as follows:
(In thousands, except per share amounts)
Fiscal 2017
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income attributable to Aviat Networks. . . . . . . . . . . .
Per share data:
Q1
Ended
9/30/2016
Q2
Ended
12/30/2016
Q3
Ended
3/31/2017
Q4
Ended
6/30/2017
58,207
$
68,536
$
58,700
$
56,431
17,365
(2,925)
(601)
(629)
21,116
17,732
2,513
1,722
1,678
73
(330)
(399)
19,259
(646)
(1,412)
(1,473)
Basic net (loss) income per common share . . . . . . . . . . . . . $
Diluted net (loss) income per common share . . . . . . . . . . .
(0.12) $
(0.12)
$
0.32
0.31
(0.08) $
(0.08)
(0.28)
(0.28)
(In thousands, except per share amounts)
Fiscal 2016
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to Aviat Networks . . . . . . . . . . . . . . . . . . .
Per share data:
Q1
Ended
10/2/2015
Q2
Ended
1/1/2016
Q3
Ended
4/1/2016
Q4
Ended
7/1/2016
79,555
$
70,416
$
60,467
$
58,252
21,011
(1,598)
(1,154)
(1,203)
16,424
(4,998)
(5,534)
(5,679)
14,413
(7,594)
(7,808)
(7,874)
9,869
(13,256)
(15,141)
(15,151)
Basic and diluted net loss per common share (1) . . . . . . . . . $
(0.23) $
(1.09) $
(1.50) $
(2.88)
_______________________
(1) All per share data in this note have been retroactively adjusted for the Reverse Stock Split discussed in Note 1.
The following tables summarize notable items included in our results of operations for each of the fiscal quarters
presented:
(In thousands)
Fiscal 2017
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria foreign exchange loss (gain) on dividend receivable. . .
WTM inventory recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance bond expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on liquidation of subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
Tax refund from Inland Revenue Authority of Singapore . . . . .
(In thousands)
Fiscal 2016
Restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Nigeria foreign exchange loss on dividend receivable . . . . . . . .
WTM inventory write-down . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80
Q1
Ended
9/30/2016
Q2
Ended
12/30/2016
Q3
Ended
3/31/2017
Q4
Ended
6/30/2017
$
160
210
—
—
—
(3,741)
72
(2)
(83)
365
—
—
$
111
$
10
(48)
—
(349)
—
246
(5)
(45)
—
—
—
Q1
Ended
10/2/2015
Q2
Ended
1/1/2016
Q3
Ended
4/1/2016
Q4
Ended
7/1/2016
$
21
—
—
34
—
—
$
804
$
—
—
1,596
1,245
5,057
Note 14. Subsequent Events
In August 2017, we received an insurance recovery of $0.3 million which will be recorded as a reduction of
operating expenses in the first quarter of 2018.
During the first quarter of fiscal 2018, we received a refund of $1.3 million from IRAS which represents a final
settlement. We will recognize the tax refund as a discrete tax benefit in the first quarter of fiscal 2018. For more
information about the tax refund, see “Note 11. Income Taxes”.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation, with participation of our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), as of the end of the period covered by this report, our CEO and CFO have concluded that 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”), are effective to provide reasonable assurance that the information required to be
disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission rules and forms, and is accumulated and
communicated to management, including our principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosures.
Changes in Internal Controls Over Financial Reporting
There were no changes to our internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f)
that occurred during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with U.S. GAAP.
Management assessed our internal control over financial reporting as of June 30, 2017, the end of our fiscal year.
Management based its assessment on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Management’s assessment
included evaluation of elements such as the design and operating effectiveness of key financial reporting controls,
process documentation, accounting policies, and our overall control environment.
Based on this assessment, management has concluded that our internal control over financial reporting was
effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP.
We reviewed the results of management’s assessment with the Audit Committee of our Board of Directors.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public
accounting firm regarding internal controls over financial reporting because Aviat is a non-accelerated filer and is not
subject to auditor attestation requirements under the applicable rules of the Securities Exchange Commission.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how
well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will
be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
81
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on
certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of
controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B. Other Information
None.
82
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a
definitive Proxy Statement with the SEC within 120 days after the end of our fiscal year ended June 30, 2017.
Item 10. Directors, Executive Officers and Corporate Governance
We adopted a Code of Conduct that is available at www.aviatnetworks.com. No amendments to our Code of
Business Ethics or waivers from our Code of Conduct with respect to any of our executive officers or directors have been
made. If, in the future, we amend our Code of Conduct or grant waivers from our Code of Conduct with respect to any of
our executive officers or directors, we will make information regarding such amendments or waivers available on our
corporate website (www.aviatnetworks.com) for a period of at least 12 months.
For information with respect to Executive Officers, see Part I, Item 1 of this Annual Report on Form 10-K, under
“Executive Officers of the Registrant.”
Information regarding our directors and compliance with Section 16(a) of the Exchange Act by our directors and
executive officers will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding our executive compensation will appear in our definitive Proxy Statement and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management and related stockholder
matters will appear in our definitive Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding certain relationships and related transactions, and director independence will appear in our
definitive Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information regarding our principal accountant fees and services will appear in our definitive Proxy Statement and
is incorporated herein by reference.
83
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report.
1. Financial Statements
The financial statements of Aviat Networks, Inc. are set forth in Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
Schedule
Page
Schedule II — Valuation and Qualifying Accounts for the three fiscal years ended July 1, 2016. . . . . . . . . . . . . . .
86
All other schedules have been omitted because the required information is not present or is not present in amounts
sufficient to require submission of the schedules or because the information required is included in the consolidated
financial statements or notes thereto.
(b) Exhibits.
The information required by this Item is set forth on the Exhibit Index (following the Signatures section of this
report) and is included, or incorporated by reference, in this Form 10-K.
84
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.
SIGNATURES
Date: September 6, 2017
AVIAT NETWORKS, INC.
(Registrant)
By:
/s/ Ralph S. Marimon
Ralph S. Marimon
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Michael A. Pangia
Michael A. Pangia
/s/ Ralph S. Marimon
Ralph S. Marimon
/s/ Eric Chang
Eric Chang
/s/ John Mutch
John Mutch
/s/ Wayne Barr, Jr.
Wayne Barr, Jr.
/s/ Kenneth Kong
Kenneth Kong
/s/ John Quicke
John Quicke
/s/ James C. Stoffel
James C. Stoffel
President and Chief Executive Officer
(Principal Executive Officer)
September 6, 2017
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
September 6, 2017
Vice President, Corporate Controller and
Principal Accounting Officer
(Principal Accounting Officer)
September 6, 2017
Chairman of the Board
September 6, 2017
Director
September 6, 2017
Director
September 6, 2017
Director
September 6, 2017
Director
September 6, 2017
85
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
AVIAT NETWORKS, INC.
Years Ended June 30, 2017, July 1, 2016 and July 3, 2015
(In thousands)
Allowances for collection losses:
Year ended June 30, 2017 . . . . . . . . . . . . . . . . . . . $
Year ended July 1, 2016. . . . . . . . . . . . . . . . . . . . . $
Year ended July 3, 2015. . . . . . . . . . . . . . . . . . . . . $
____________________________
Balance at
Beginning of
Period
Charged to
(Credit from)
Costs and
Expenses
Deductions
Balance
at End
of Period
7,967
6,641
7,442
$
$
$
(484)
2,431
1,302
$
$
$
3,564 (A) $
1,105 (B) $
2,103 (C) $
3,919
7,967
6,641
Note A - Consisted of changes to allowance for collection losses of $607 thousand for foreign currency translation gain
and $4,172 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged
off.
Note B - Consisted of changes to allowance for collection losses of $308 thousand for foreign currency translation losses
and $797 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged off.
Note C - Consisted of changes to allowance for collection losses of $250 thousand for foreign currency translation losses
and $1,853 thousand for uncollectible accounts charged off, net of recoveries on accounts previously charged
off.
86
The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with
EXHIBIT INDEX
the SEC:
Ex. #
2.1
3.1
3.2
3.3
3.4
3.5
4.1
4.1.1
10.1
10.2
10.3
10.4*
10.5
10.6
10.6.1
10.6.2
Description
Asset Purchase Agreement by and among Aviat U.S., Inc. and EION Networks, Inc., dated as of September
2, 2011 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on
September 9, 2011, File No. 001-33278)
Amended and Restated Certificate of Incorporation of Aviat Networks, Inc., as amended (incorporated by
reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed with the SEC on February 10, 2017,
File No. 001-33278)
Certificate of Designation of Rights, Preferences and Privileges of Series A Participating Preferred Stock
(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on
September 7, 2016. File No. 001-33278)
Amended and Restated Bylaws of Aviat Networks, Inc. (incorporated by reference to Exhibit 3.2 to the
Current Report on Form 8-K filed with the SEC on October 2, 2015, File No. 001-33278)
Certificate of Ownership and Merger Merging Aviat Networks, Inc. into Harris Stratex Networks, Inc.,
effective January 27, 2010, as filed with the Secretary of State of the State of Delaware on January 27,
2010 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on
January 28, 2010, File No. 001-33278)
Certificate of Elimination of Series A Participating Preferred Stock (incorporated by reference to Exhibit
3.1 to the Current Report on Form 8-K filed with the SEC on September 7, 2016, File No. 001-33278)
Tax Benefit Preservation Plan, dated as of September 6, 2016, by and between Aviat Networks, Inc. and
Computershare Inc., as Rights Agent (incorporated by reference to exhibit 4.1 to the Current Report on
Form 8-K filed with the SEC on September 7, 2016, File No. 001-33278)
Specimen common stock certificate, adopted as of January 29, 2010 (incorporated by reference to Exhibit
4.1.1 to the Annual Report on Form 10-K for fiscal year end July 2, 2010 filed with the SEC on September
9, 2010, File No. 001-33278)
Letter Agreement, dated September 13, 2016, among Aviat Networks, Inc., JDS 1, LLC, Julian Singer and
David S. Oros (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on September 15, 2016 and to Exhibit 10.1 to the Current Report Form 8-K/A filed with the SEC on
September 16, 2016, File No. 001-33278)
Intellectual Property Agreement between Harris Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed with
the SEC on February 1, 2007, File No. 001-33278)
Tax Sharing Agreement between Harris Stratex Networks, Inc. and Harris Corporation dated January 26,
2007 (incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K filed with the SEC on
February 1, 2007, File No. 001-33278)
Standard Form of Executive Employment Agreement between Harris Stratex Networks, Inc. and certain
executives (incorporated by reference to Exhibit 10.16 to the Current Report on Form 8-K filed with the
SEC on February 1, 2007, File No. 001-33278)
Aviat Networks, Inc. 2007 Stock Equity Plan (as Amended and Restated Effective November 13, 2015)
(incorporated by reference to Appendix A to Schedule 14A filed with the SEC on October 1, 2015, File No.
001-33278)
Second Amended and Restated Loan and Security Agreement, dated as of March 28, 2014, by and among
Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 31, 2014,
File No. 001-33278)
Amendment #1 to Second Amended and Restated Loan and Security Agreement, dated as of September 25,
2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley
Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
September 29, 2014, File No. 001-33278)
Amendment #2 to Second Amended and Restated Loan and Security Agreement, dated as of October
30,2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon
Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on October 30, 2014, File No. 001-33278)
87
Ex. #
10.6.3
10.6.4
10.6.5
10.6.6
10.6.7
10.7*
10.8*
10.8.1*
10.9*
10.10*
10.11
10.12*
10.13
10.14
21
23.1
31.1
31.2
32.1
32.2
101.INS
Description
Amendment #3 to Second Amended and Restated Loan and Security Agreement, dated as of December 2,
2014, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon
Valley Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the
SEC on December 5, 2014, File No. 001-33278)
Amendment #4 to Second Amended and Restated Loan and Security Agreement, dated February 27, 2015,
by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd., and Silicon Valley Bank
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March
3, 2015, File No. 001-33278)
Amendment #5 to Second Amended and Restated Loan and Security Agreement, dated as of March 30,
2016, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley
Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
April 1, 2016, File No. 001-33278)
Amendment #6 to Second Amended and Restated Loan and Security Agreement, dated as of June 30,
2016, by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley
Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
July 1, 2016, File No. 001-33278)
Amendment#7 to Second Amended and Restated Loan and Security Agreement, dated as of June 28, 2017,
by and among Aviat Networks, Inc., Aviat U.S., Inc., Aviat Networks (S) Pte. Ltd. and Silicon Valley Bank
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on June
29, 2017, File No. 001-33278)
Employment Agreement, dated as of April 1, 2006, between Harris Stratex Networks, Inc. and Heinz
Stumpe (incorporated by reference to Exhibit 10.15.2 to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 30, 2007 filed with the SEC on May 8, 2007, File No. 001-33278)
Employment Agreement, dated as of May 14, 2002, between Stratex Networks, Inc. and Shaun McFall
(incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the fiscal year ended
July 3, 2009 filed with the SEC on September 4, 2009, File No. 001-33278)
Amendment, effective April 1, 2006, to Employment Agreement, dated May 14, 2002, between Stratex
Networks, Inc. and Shaun McFall (incorporated by reference to Exhibit 10.25.1 to the Annual Report on
Form 10-K for the fiscal year ended July 3, 2009 filed with the SEC on September 4, 2009, File No.
001-33278)
Employment Agreement, dated July 18, 2011, between Aviat Networks, Inc. and Michael Pangia
(incorporated by reference to the Current Report on Form 8-K filed with the SEC on July 20, 2011, File
No. 001-33278)
Employment Agreement, dated April 29, 2015, between Aviat Networks, Inc. and Ralph S. Marimon
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on May
14, 2015, File No. 001-33278)
Letter Agreement, dated as of January 11, 2015, among Aviat Networks, Inc., Steel Partners Holdings L.P.,
Lone Star Value Management, LLC and certain other parties (incorporated by reference to Exhibit 10.1 to
the Current Report on Form 8-K filed with the SEC on January 12, 2015, File No. 001-33278)
Employment Agreement, dated January 20, 2016, between Aviat Networks, Inc. and Eric Chang
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
January 21, 2016, File No. 001-33278)
Lease Agreement, dated June 8, 2016, between Aviat Networks, Inc., through its wholly owned subsidiary
Aviat U.S., Inc., and The Irvine Company LLC (incorporated by reference to Exhibit 10.34 to the Annual
Report on Form 10-K for fiscal year end July 1, 2016 filed with the SEC on September 9, 2016, File No.
001-33278)
Lease Termination Agreement, dated June 1, 2016, between Aviat Networks, Inc., through its wholly
owned subsidiary Aviat U.S., Inc., and Aslan Newcastle Great America Owner, L.L.C. (incorporated by
reference to Exhibit 10.35 to the Annual Report on Form 10-K for fiscal year end July 1, 2016 filed with
the SEC on September 9, 2016, File No. 001-33278)
List of Subsidiaries of Aviat Networks, Inc.
Consent of BDO USA, LLP
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer
Section 1350 Certification of Chief Financial Officer
XBRL Instance Document
88
Ex. #
Description
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
______________________________
* Management compensatory contract, arrangement or plan required to be filed as an exhibit pursuant to Item 15(b)
of this report.
89
AVIAT NETWORKS, INC.
SUBSIDIARIES AS OF JUNE 30, 2017
(100% direct or indirect ownership by Aviat Networks, Inc.)
Exhibit 21
Name of Subsidiary
Aviat Networks Algeria S.A.R.L.
Aviat Networks (Australia) Pty. Ltd. .
Aviat Networks (Bangladesh) Limited
Aviat Networks Brasil Servicos em Communicacoes Ltda.
Aviat Networks Canada ULC
Aviat Communications Technology (Shenzhen) Company Ltd.
State or Other Jurisdiction of Incorporation
Algeria
Australia
Bangladesh
Brazil
Canada
The People’s Republic of China
Aviat Networks Congo
Aviat Networks France S.A.S.
Aviat Networks Ghana Limited
Aviat Networks Holland B.V.
Aviat Networks HK Limited
Aviat Networks (India) Private Limited
Telsima Communications Private Limited
Pt. Aviat Networks Indonesia
Aviat Networks Côte d’Ivoire
Aviat Networks (Kenya) Limited
Aviat Networks Malaysia Sdn. Bhd.
Digital Microwave (Mauritius) Private Limited
Aviat Networks México S.A. de C.V.
Aviat Networks (NZ) Limited
Aviat Networks Communication Solutions Limited
Stratex Networks Nigeria Limited
Aviat Networks (Clark) Corporation
Aviat Networks Philippines, Inc.
Aviat Networks Polska Sp. z.o.o.
Aviat Networks Communications Solutions LLC
Aviat Networks (S) Pte. Ltd.
Aviat storitveno podjetje, d.o.o.
Aviat Networks (South Africa) (Proprietary) Limited
MAS Technology Holdings (Proprietary) Limited
DMC Stratex Networks (South Africa) (Proprietary) Limited
Aviat Ubuntu Telecommunication (Pty) Limited
Aviat Networks Tanzania Limited
Aviat Networks (Thailand) Ltd.
Aviat Networks (UK) Limited
Aviat International Holdings, Inc.
Aviat U.S., Inc.
Telsima Corporation
Aviat Networks Telecommunications Zambia Limited
Congo - Brazzaville
France
Ghana
The Netherlands
Hong Kong
India
India
Indonesia
Ivory Coast
Kenya
Malaysia
Mauritius
Mexico
New Zealand
Nigeria
Nigeria
The Philippines
The Philippines
Poland
Russia
Republic of Singapore
Slovenia
Republic of South Africa
Republic of South Africa
Republic of South Africa
Republic of South Africa
Tanzania
Thailand
Delaware
Delaware
Delaware
Delaware
Zambia
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
Aviat Networks, Inc.
Milpitas, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No.
333-209462, 333-178467, 333-163542 and 333-140442) of Aviat Networks, Inc. of our report dated
September 6, 2017, relating to the consolidated financial statements and financial statement schedule, which
appear in this Form 10-K.
/s/ BDO USA, LLP
San Jose, California
September 6, 2017
Exhibit 31.1
I, Michael A. Pangia, certify that:
CERTIFICATION
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2017, of Aviat Networks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: September 6, 2017
/s/ Michael A. Pangia
Name:
Title:
Michael A. Pangia
President and Chief Executive Officer
I, Ralph S. Marimon, certify that:
CERTIFICATION
Exhibit 31.2
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2017, of Aviat Networks, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: September 6, 2017
/s/ Ralph S. Marimon
Name:
Title:
Ralph S. Marimon
Senior Vice President and Chief
Financial Officer, Principal Financial
Officer
Certification
Exhibit 32.1
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K of Aviat Networks, Inc. (“Aviat Networks”) for the
fiscal year ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Michael A. Pangia, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350,
that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Aviat Networks as of the dates and for the periods expressed in the Report
Date: September 6, 2017
/s/ Michael A. Pangia
Name:
Title:
Michael A. Pangia
President and Chief Executive Officer
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 32.2
In connection with the filing of the Annual Report on Form 10-K of Aviat Networks, Inc. (“Aviat Networks”) for the
fiscal year ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the
undersigned, Ralph S. Marimon, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350,
that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange
Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Aviat Networks as of the dates and for the periods expressed in the Report
Date: September 6, 2017
/s/ Ralph S. Marimon
Name:
Title:
Ralph S. Marimon
Senior Vice President and Chief
Financial Officer, Principal Financial
Officer
[This page intentionally left blank]
Appendix
A-1
Stockholder Information
Executive Offices
Aviat Networks, Inc.
860 N. McCarthy Blvd., Suite 200
Milpitas, CA 95035
(408) 941-7100
Transfer Agent and Registrar
Computershare
PO Box 30170
College Station, TX 77842
Independent Public Accountants
BDO USA LLP
Investor Relations Contact
Investor Relations
InvestorInfo@aviatnet.com
Overnight Correspondence to:
Computershare
211 Quality Circle
Suite 210
College Station, TX 77845
Tel: (800) 522-6645
TDD for hearing Impaired: 800-231-5469
Foreign Shareowners: 201-680-6578
TDD Foreign Shareowners: 201-680-6610
Shareholder website: www.computershare.com/investor
Shareholder online inquiries: https://www-us.computershare.com/investor/contact
Stockholder Inquiries
Questions relating to stockholder records, change of ownership or change of address should be sent to
our transfer agent, Computershare, whose address appears above.
Financial Information
Securities analysts, investment managers and stockholders should direct financial information inquiries to
the Investor Relations contact listed above.
SEC Form 10-K
A copy of the Company’s Form 10-K filed with the Securities and Exchange
Commission is available by downloading from our website, Aviatnetworks.com or by writing to:
Aviat Networks, Inc.
Attn: Investor Relations
860 N. McCarthy Blvd., Suite 200
Milpitas, California 95035
2017 Annual Report
We have published this 2017 Annual Report to Stockholders, including the Consolidated Financial
Statements and Management’s Discussion and Analysis, as an appendix to our Proxy Statement. Further
information regarding various aspects of our business can be found on our website
www.Aviatnetworks.com.
Electronic Delivery
In an effort to reduce paper mailed to your home, we offer stockholders the convenience of viewing the
Proxy Statement, Annual Report to Stockholders and related materials online. With your consent, we can
stop sending future paper copies of these documents to you by mail. To participate, follow the instructions
at www.icsdelivery.com.
A-2
To Ourareholders
Online Voting at www.Proxyvote.com
If you are a registered stockholder, you may now use the Internet to transmit your voting instructions
any time before 11:59 p.m. ET on March 19, 2018. Have your proxy card in hand when you access the
Web site. You will be prompted to enter your Control Number to obtain your records and create an
electronic voting instruction form.
www.Aviatnetworks.com
The Aviat Networks Web site provides access to a wide variety of information, including
products, new releases and financial information. A principal feature of the Web site is the Investor
Relations section, which contains general financial information and access to the current Proxy Statement
and Annual Report to Stockholders. The site also provides archived information (for example, historical
financial releases and stock prices) and access to conference calls and analyst group presentations.
Other interesting features are the press release alerts and SEC filings email alerts, which allow users to
receive automatic updates informing them when new items such as news releases, financial event
announcements and SEC documents are added to the site.
www.computershare.com/investor
The Computershare Web site provides access to an Internet self-service product, Investor
Centre. Through Investor Centre, registered stockholders can view their account profiles, stock
certificate histories, Form 1099 tax information, current stock price quote (20-minute delay) and historical
stock prices. Stockholders may also request the issuance of stock certificates, duplicate Form 1099s,
safekeeping of stock certificates or an address change.
A-3
Corporate Directory
Officers
Michael Pangia
President and Chief Executive Officer
Ralph Marimon
Sr. Vice President and Chief Financial Officer
Shaun McFall
Sr. Vice President, Chief Marketing and
Strategy Officer
Heinz H. Stumpe
Sr. Vice President and Chief Sales Officer
Directors
John Mutch
Director & Chairman of the Board
Managing Partner
MV Advisors LLC
Director
Maxwell Technologies, Inc.
YuMe, Inc.
Agilysis, Inc.
Wayne Barr, Jr.
Director & Chairman of the Board
Concurrent Computer Corporation
Director
HC2 Holdings, Inc.
Meena Elliott
Sr. Vice President, Chief Legal and Administrative Alliance Group of NC, LLC
Officer, Corporate Secretary
Eric Chang
Vice President, Corporate Controller, Principal
Accounting Officer
Kenneth Kong
Sr. Vice President
Steel Services, Ltd.
Director
Ore Holdings, Inc.
John J. Quicke
Chairman of Board
Steel Energy Services LTD
Director
Rowan Companies, plc
Dr. James C. Stoffel
Director
Harris Corporation
Outside Legal Counsel
Olshan Frome Wolosky LLP
New York, NY
A-4
Headquarters and Operations
Corporate Headquarters
Aviat Networks, Inc.
860 N. McCarthy Blvd., Suite 200
Milpitas, CA 95035
United States
International Headquarters, Singapore
Aviat Networks (S) Pte. Ltd.
51 Changi Business Park Central 2
#04-10 The Signature
Singapore 486066
Asia & Pacific Rim
Bangkok, Thailand
Colombo, Sri Lanka
Gurgaon, India
Jakarta, Indonesia
Kuala Lumpur, Malaysia
Manila, Philippines
Pampanga, Philippines
Shenzhen, China
Singapore
Sydney, Australia
Wellington, New Zealand
Offices
North America
Montréal, Canada
Durham, NC
San Antonio, TX
Mexico
Mexico D.F.
Europe
Meudon, France
Glasgow, Scotland
Schiphol, The Netherlands
London, United Kingdom
Moscow, Russia
Trzin-Ljubljana, Slovenia
Warsaw, Poland
Africa
Abidjan, Côte d’Ivoire
Accra, Ghana
Alger, Algeria
Lagos, Nigeria
Midrand, South Africa
Nairobi, Kenya
Middle East
Dubai, United Arab Emirates
Riyadh, Saudi Arabia
Forward-looking Statements
This Annual Report, including the letter to
shareholders, contains forward-looking
statements that are based on the views of
management regarding future events at the
time of publication of this report. These
forward-looking statements, which include,
but are not limited to: our plans, strategies
and objectives for future operations; new
products, services or developments; future
economic conditions; outlook; impact on
operating results due to the volume, timing,
customer, product and geographic mix of
our product orders; our growth potential
and the potential of industries and the
markets we serve, are subject to the known
and unknown risks, uncertainties and other
factors that may cause our actual results to
be materially different from those
expressed or implied by each forward-
looking statement. These risks,
uncertainties and other factors are
discussed in the 2017 Form 10-K.
A-5
WWW.AVIATNETWORKS.COM
860 N. McCarthy Blvd., Suite 200, Milpitas, CA 95035
Tel: 408-941-7100
BR05366Y-0218-COMBO