Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
AVNW > SEC Filings for AVNW > Form 10-Q on 7-May-2013All Recent SEC Filings

Show all filings for AVIAT NETWORKS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for AVIAT NETWORKS, INC.


7-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q, including "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including statements of, about, concerning or regarding: our plans, strategies and objectives for future operations, including with respect to growing our business and sustaining profitability; 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 the Company. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this document. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to, the following:

        continued price erosion as a result of increased competition in the
         microwave transmission industry;


        the impact of the volume, timing and customer, product and geographic
         mix of our product orders;


        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;


        the timing of our receipt of payment for products or services from our
         customers;


        our failure to protect our intellectual property rights or defend
         against intellectual property infringement claims by others;

the effects of currency and interest rate risks; and

the impact of political 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 our fiscal 2012 Annual Report on Form 10-K for more information regarding factors that may cause our results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q.
You should not place undue reliance on these forward-looking statements, which reflect our management's opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Exchange Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, along with provisions of the Private Securities Litigation Reform Act of 1995, and we undertake no obligation, other than as imposed by law, to update forward-looking statements to reflect further developments or information obtained after the date of filing of this Quarterly Report on Form 10-Q or, in the case of any document incorporated by reference, the date of that document.

Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2012 and 2013 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 28, 2013 is referred to as "fiscal 2013" or "2013" and fiscal year ended June 29, 2012 as "fiscal 2012" or "2012". 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 and utility companies, public safety agencies and broadcast system operators across the globe. Our products include point-to-point (PTP) 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, and multiplexers, necessary to build and deploy a wireless transmission network, and a full suite of turnkey support services.
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.


Our strategic focus in the remainder of fiscal 2013 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 have examined 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.

While 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 the second 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 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 and other factors. Please refer to the section entitled "Risk Factors" in Item 1A in our fiscal 2012 Annual Report on Form 10-K.

Operations Review
During the first three quarters of fiscal 2013, we secured orders and continued to expand our footprint with our customers in the mobile operator market using our current technology and service capabilities. The market for mobile backhaul continues to be our primary addressable market segment and the demand for increasing the backhaul capacity in our customers' networks continues to grow in line with our expectations. In the quarter we saw sustained demand in North America as we supported the long-term evolution ("LTE") deployments of our mobile operator customers. Internationally, 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 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 our fiscal 2012 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.
During the first three quarters of fiscal 2013, we incurred restructuring expenses under the Fiscal 2011 Plan that will allow us to reduce our operational costs. We intend to complete the remaining restructuring activities under the Fiscal 2011 Plan during fiscal 2013.
In the fourth quarter of fiscal 2012, we re-evaluated our reportable segments primarily due to changes in our management, product platform and business processes, and determined that we operate in one single reportable industry segment. Accordingly, financial information for the third quarter and first three quarters of fiscal 2012 has been recast to conform with the current reportable segment disclosure.
Revenue
We manage our sales activities primarily on a geographic basis in North America and three international geographic regions: Africa and Middle East, Europe and Russia, and Latin America and Asia Pacific. Revenue by region for the third quarter and first three quarters of fiscal 2013 and 2012 and the related changes are shown in the table below:

                                                Quarter Ended                                          Three Quarters Ended
(In millions, except                                                                       March 29,     March 30,       $          %
percentages)            March 29, 2013       March 30, 2012      $ Change     % Change       2013          2012        Change     Change
North America         $           52.9     $           42.6     $    10.3       24.2  %   $   133.0     $   123.8     $  9.2       7.4  %
Africa and Middle
East                              37.7                 33.9           3.8       11.2  %       150.6         100.7       49.9      49.6  %
Europe and Russia                  9.4                 11.8          (2.4 )    (20.3 )%        31.0          39.9       (8.9 )   (22.3 )%
Latin America and
Asia Pacific                      18.3                 23.3          (5.0 )    (21.5 )%        47.7          63.6      (15.9 )   (25.0 )%
Total Revenue         $          118.3     $          111.6     $     6.7        6.0  %   $   362.3     $   328.0     $ 34.3      10.5  %


Our revenue in North America increased $10.3 million, or 24.2%, and $9.2 million, or 7.4%, respectively, during the third quarter and first three quarters of fiscal 2013 compared with the same periods of fiscal 2012. In the fiscal 2013 periods, we saw improved sales with North American mobile operators which were attributable to their ongoing buildout of LTE networks in the region. At the same time, North America sales to power utilities and state and local government private networks were flat in the third quarter and in the first three quarters of fiscal 2013 compared with the same periods in fiscal 2012. Our revenue in Africa and Middle East was up $3.8 million, or 11.2% for the third quarter and $49.9 million, or 49.6%, for the first three quarters in fiscal 2013 over the same periods in fiscal 2012. The majority of the year-to-date increase came in the first half of fiscal 2013, was attributable to demand from mobile operator customers in Africa investing in network transmission capacity in order to accommodate their growth in network data traffic and to increase their service competitiveness. That investment trend continued in the third quarter, but at a lower rate, in line with their seasonal buying pattern, but still above the same quarter in the previous year. Revenue from mobile operators in Europe and Russia declined $2.4 million, or 20.3%, and $8.9 million, or 22.3%, respectively, for the third quarter and the first three quarters of fiscal 2013 compared with the same periods in fiscal 2012. We believe the decrease was related to economic difficulties experienced generally throughout Europe.
Revenue in Latin America and Asia Pacific declined $5.0 million, or 21.5%, and $15.9 million, or 25.0%, respectively, during the third quarter and first three quarters of fiscal 2013 compared with the same periods of fiscal 2012. The decrease was primarily due to a decline in customer purchases in Asia as some of our larger customers continue to deploy large orders that we delivered in the past year as they begin to roll out LTE service.
Our revenue from product sales was down by $0.6 million, or 0.7%, for the third quarter of fiscal 2013, but was up by $14.2 million, or 5.7%, for the first three quarters of fiscal 2013 compared with the same periods of fiscal 2012. The year-to-date increase came primarily from strong sales in Africa, offset in part by reductions in North America, Europe and Asia. Our services revenue was up by $7.3 million, or 28.0%, and $20.1 million, or 25.3%, respectively, during the third quarter and first three quarters of fiscal 2013 compared with the same periods of fiscal 2012. The increase in the fiscal 2013 periods came from additional services delivered in North America and Africa, offset in part by a decrease in Asia Pacific.
During the third quarter and first three quarters of fiscal 2013 and 2012, the MTN Group in Africa accounted for more than 10% of our total revenue. We have entered into separate and distinct contracts with MTN Group as well as separate arrangements with MTN Group subsidiaries. For the third quarter and first three quarters of fiscal 2013, revenue from Verizon Wireless was also greater than 10% of our total revenue. The loss of all MTN Group or Verizon Wireless business could adversely affect our results of operations, cash flows and financial position.

Gross Margin

                                          Quarter Ended                                                Three Quarters Ended
(In millions,
except
percentages)       March 29, 2013     March 30, 2012     $ Change     % Change     March 29, 2013     March 30, 2012      $ Change     % Change
Revenue           $       118.3      $       111.6      $     6.7        6.0  %   $       362.3      $       328.0      $     34.3        10.5 %
Cost of revenue            84.2               77.3            6.9        8.9  %           255.8              229.1            26.7        11.7 %
Gross margin      $        34.1      $        34.3      $    (0.2 )     (0.6 )%   $       106.5      $        98.9      $      7.6         7.7 %
% of revenue               28.8 %             30.7 %                                       29.4 %             30.2 %

Gross margin for the third quarter of fiscal 2013 was lower by $0.2 million, or 0.6%, compared with the same quarter of fiscal 2012. Gross margin for the first three quarters of fiscal 2013 increased $7.6 million, or 7.7%, compared with the same period of fiscal 2012, due largely to higher sales volume. Gross margin as a percentage of revenue decreased in the third quarter and first three quarters of fiscal 2013 compared with the same periods of fiscal 2012, primarily due to a $1.1 million write-down of deferred cost of sales associated with liquidity concerns of a customer in the third quarter of fiscal 2013, along with market driven price reductions and changes in the mix of products and services delivered.


Research and Development Expenses

                                          Quarter Ended                                                Three Quarters Ended
(In millions,
except
percentages)      March 29, 2013      March 30, 2012      $ Change     % Change     March 29, 2013     March 30, 2012     $ Change     % Change
Research and
development
expenses         $         9.9       $         8.9       $     1.0        11.2 %   $         29.0     $         26.7     $     2.3        8.6 %
% of revenue               8.4 %               8.0 %                                          8.0 %              8.1 %

Our research and development ("R&D") expenses increased $1.0 million, or 11.2%, and $2.3 million, or 8.6%, respectively, in the third quarter and first three quarters of fiscal 2013 compared with the same periods in fiscal 2012. The increase in R&D expenses was primarily due to increases in personnel expenses and R&D supplies reflecting our investment in our new product development projects. 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. Selling and Administrative Expenses

                                          Quarter Ended                                               Three Quarters Ended
(In millions,
except
percentages)       March 29, 2013     March 30, 2012     $ Change     % Change     March 29, 2013     March 30, 2012     $ Change     % Change
Selling and
administrative
expenses          $         24.7     $         25.4     $    (0.7 )     (2.8 )%   $         71.7     $         75.6     $    (3.9 )     (5.2 )%
% of revenue                20.9 %             22.8 %                                       19.8 %             23.0 %

Our selling and administrative expenses declined $0.7 million, or 2.8%, and $3.9 million, or 5.2%, respectively, in the third quarter and first three quarters of fiscal 2013 compared with the same periods of fiscal 2012, primarily as a result of the restructuring programs we implemented in the past years, as further described below under "Restructuring Charges". The decrease for the third quarter of fiscal 2013 was due primarily to a $0.7 million reduction in bad debt expenses, a $0.4 million reduction in telecommunication expenses and a $0.4 million lower agent commissions driven by lower fee-based revenues, partially offset by a $0.3 million increase in share-based compensation expenses and a $0.4 million increase in transactional taxes assessments. The decrease for the first three quarters of fiscal 2013 was due primarily to a $2.4 million reduction in professional services, a $0.8 million reduction in personnel expenses, a $1.2 million reduction in telecommunication and a $0.6 million reduction in bad debt expenses, partially offset by a $1.1 million increase in share-based compensation expenses and a $0.7 million increase in transactional taxes assessments related to certain international entities. Restructuring Charges
During the first quarter of fiscal 2011, we initiated the Fiscal 2011 Plan to reduce our operational costs. The Fiscal 2011 Plan was intended to bring our cost structure in line with the changing business environment of the worldwide microwave radio and telecommunication markets, primarily in North America, Europe and Asia. Activities under the Fiscal 2011 Plan included the reductions in force to reduce our operating expenses and downsizing or closures of our Morrisville, North Carolina, Santa Clara, California, Montreal, Canada and certain international field offices.
Our restructuring charges for the third quarter and first three quarters of fiscal 2013 and 2012 are summarized in the table below:

                                           Quarter Ended                                                    Three Quarters Ended
(In millions,
except
percentages)       March 29, 2013       March 30, 2012      $ Change      % Change      March 29, 2013       March 30, 2012      $ Change     % Change
Restructuring    $            0.4     $            0.4     $       -         - %      $            0.9     $            1.4     $    (0.5 )    (35.7 )%

Our restructuring expenses consisted primarily of severance and related benefit charges, and to a lesser extent, facilities costs related to obligations under non-cancelable leases for facilities that we ceased to use. Restructuring charges for the third quarter of fiscal 2013 remained approximately the same compared with the same quarter of fiscal 2012. Restructuring charges declined $0.5 million in the first three quarters of fiscal 2013 compared with the same period of fiscal 2012 primarily due to the absence of a $1.3 million facilities charge in the first three quarters of fiscal 2012 related to the sublease and


relocation of our Morrisville, North Carolina office during the period, partially offset by severance related costs incurred in the fiscal 2013 period. We intend to complete the remaining restructuring activities under the Fiscal 2011 Plan in fiscal 2013.
Interest Income and Interest Expense

                       Quarter Ended             Three Quarters Ended
                  March 29,     March 30,      March 29,       March 30,
(In millions)       2013          2012           2013             2012
Interest income  $     0.2     $       -     $      0.7       $      0.3
Interest expense $    (0.2 )   $    (0.2 )   $     (0.7 )     $     (1.0 )

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, term loan and letters of credit under our credit facilities and, in the first three quarters of fiscal 2012, also included preference dividends on our $8.25 million redeemable preference shares. The $8.25 million preference shares were redeemed at their carrying value on January 30, 2012, funded by a two-year term loan of $8.25 million under our credit facility at a fixed interest rate of 5% per annum.

Income Taxes

                                                  Quarter Ended                                    Three Quarters Ended
(In millions, except
percentages)                     March 29, 2013     March 30, 2012     $ Change      March 29, 2013     March 30, 2012       $ Change
Income (loss) from continuing
operations before income taxes  $      (1.0 )      $      (0.7 )      $    (0.3 )   $          4.6     $      (12.6 )      $     17.2
Provision for income taxes      $       0.6        $       0.1        $     0.5     $         12.0     $        1.9        $     10.1
% of income (loss) from
continuing operations before
income taxes                          (60.0 )%           (14.3 )%                            260.9 %          (15.1 )%

We estimate our annual effective rate at the end of each quarterly period, and we record the tax effect of certain discrete items, which are unusual or occur infrequently, in the interim period in which they occur, including changes in judgment about deferred tax valuation allowances. The determination of the effective tax rate reflects tax expense and benefit generated in certain foreign jurisdictions. However, jurisdictions with a year-to-date loss where no tax benefit can be recognized are excluded from the annual effective tax rate. The tax expense for the third quarter was primarily attributable to withholding tax in foreign jurisdictions of $0.4 million, while tax expense for the first three quarters of fiscal 2013 was primarily attributable to an increase in our reserve for uncertain tax positions of $11.1 million. The increase in unrecognized tax benefits was the result of additional information obtained during recent tax examinations in certain countries. The tax expense for the third quarter and first three quarters of fiscal 2012 was primarily attributable to profitable foreign entities for which we have accrued income taxes.
Our effective tax rate varies from the U.S. federal statutory rate of 35% due to results of foreign operations that are subject to income taxes at different statutory rates and certain jurisdictions where we cannot recognize tax benefits on current losses.
Loss from Discontinued Operations

                                               Quarter Ended                                   Three Quarters Ended
(In millions)                 March 29, 2013     March 30, 2012     $ Change      March 29, 2013     March 30, 2012     $ Change
Loss from discontinued
operations, net of tax       $         (0.1 )   $         (2.4 )   $     2.3     $         (1.8 )   $         (8.3 )   $     6.5

Our discontinued operations consist of the WiMAX business, which was sold to EION on September 2, 2011. We completed the business transition with EION in fiscal 2012. The loss from discontinued operations decreased $2.3 million and $6.5 million, respectively, in the third quarter and first three quarters of fiscal 2013 compared with the same periods in


fiscal 2012. The loss incurred in the first three quarters of fiscal 2013 was primarily due to write-down of certain WiMAX deferred cost of sales that were not transferred to EION and certain expenses we incurred to support a remaining customer obligation. The loss in the first three quarters of fiscal 2012 included operating expenses we incurred to transition the business and a $1.9 million loss on disposition of the WiMAX business.

Liquidity, Capital Resources and Financial Strategies Sources of Cash
As of March 29, 2013, our total cash and cash equivalents were $92.9 million. Approximately $26.1 million, or 28.1% of our total cash and cash equivalents, was held by entities domiciled in the United States. The remaining balance of . . .

  Add AVNW to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for AVNW - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.