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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2011

OR

 

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

For the transition period from          to         

Commission File Number 0-27266

 

 

Westell Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

DELAWARE   36-3154957
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification Number)
750 North Commons Drive, Aurora, IL   60504
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (630) 898-2500

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 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  x    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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 13, 2011:

Class A Common Stock, $0.01 Par Value – 54,348,905 shares

Class B Common Stock, $0.01 Par Value – 13,937,151 shares

 

 

 


Table of Contents

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

 

PART I FINANCIAL INFORMATION    Page No.  

Item 1. Financial Statements

  

Condensed Consolidated Balance Sheets (Unaudited)

     3   

-As of September 30, 2011 and March 31, 2011

  

Condensed Consolidated Statements of Operations (Unaudited)

     4   

-Three and six months ended September 30, 2011 and 2010

  

Condensed Consolidated Statements of Cash Flows (Unaudited)

     5   

-Six months ended September 30, 2011 and 2010

  

Notes to the Condensed Consolidated Financial Statements (Unaudited)

     6   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     17   

Item 3. Quantitative and Qualitative Disclosures About Market Risks

     23   

Item 4. Controls and Procedures

     23   
PART II OTHER INFORMATION   

Item 1. Legal Proceedings

     24   

Item 1A. Risk Factors

     24   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     24   

Item 6. Exhibits

     24   
SIGNATURES      25   
EXHIBIT INDEX   
     26   

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained herein that are not historical facts or that contain the words “believe”, “expect”, “intend”, “anticipate”, “estimate”, “may”, “will”, “plan”, “should”, or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties (including delays or difficulties in developing, producing, testing and selling new products and technologies), the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), retention of key personnel and other risks more fully described in our Form 10-K for the fiscal year ended March 31, 2011, under Item 1A - Risk Factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events, or otherwise.

Trademarks

The following terms used in this filing are our trademarks: WESTELL BOXER®, CellPak® , CPI Conference Plus, Inc. and Design®, ConferencePlus®, Homecloud™, OS Plant Systems®, WESTELL SHADE®, VirtualEdge and Design® and Westell®. All other trademarks appearing in this filing are the property of their holders.

 

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

Assets    September 30, 2011     March 31, 2011  

Current assets:

     (unaudited)     

Cash and cash equivalents

   $ 89,026     $ 86,408  

Restricted cash

     3,350       —     

Short-term investments

     18,846       490  

Accounts receivable (net of allowance of $ 109 and $ 147, respectively)

     17,900       24,252  

Inventories

     11,691       12,955  

Prepaid expenses and other current assets

     2,274       3,156  

Deferred income tax asset

     8,000       18,700  

Assets held-for-sale

     —          4,781  
  

 

 

   

 

 

 

Total current assets

     151,087       150,742  
  

 

 

   

 

 

 

Property and equipment:

    

Machinery and equipment

     12,979       13,024  

Office, computer and research equipment

     11,860       11,769  

Leasehold improvements

     9,401       9,381  
  

 

 

   

 

 

 
     34,240       34,174  

Less accumulated depreciation and amortization

     (31,189     (30,924
  

 

 

   

 

 

 

Property and equipment, net

     3,051       3,250  
  

 

 

   

 

 

 

Goodwill

     2,144       2,197  

Intangibles, net

     3,061       3,473  

Deferred income tax asset

     40,091       41,467  

Other assets

     174       258  
  

 

 

   

 

 

 

Total assets

   $ 199,608     $ 201,387  
  

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 10,258     $ 23,664  

Accrued expenses

     5,247       4,552  

Accrued compensation

     1,942       4,883  

Liabilities held-for-sale

     —          1,288  
  

 

 

   

 

 

 

Total current liabilities

     17,447       34,387  

Other long-term liabilities

     5,264       7,719  
  

 

 

   

 

 

 

Total liabilities

     22,711       42,106  

Commitments and contingencies (Note 11)

    

Stockholders’ equity:

    

Class A common stock, par $0.01, Authorized – 109,000,000 shares

     543       541  

Outstanding – 54,341,662 and 54,174,144 shares at September 30, 2011 and March 31, 2011, respectively

    

Class B common stock, par $0.01, Authorized – 25,000,000 shares

     139       146  

Issued and outstanding – 13,937,151 and 14,555,815 shares at September 30, 2011 and March 31, 2011, respectively

    

Preferred stock, par $0.01, Authorized – 1,000,000 shares

     —          —     

Issued and outstanding – none

    

Additional paid-in capital

     404,559       402,337  

Treasury stock at cost – 7,357,062 and 4,629,373 shares at September 30, 2011 and March 31, 2011, respectively

     (12,651     (3,854

Cumulative translation adjustment

     532       965  

Accumulated deficit

     (216,225     (240,854
  

 

 

   

 

 

 

Total stockholders’ equity

     176,897       159,281  
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 199,608     $ 201,387  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

     Three months ended
September 30,
    Six months ended
September 30,
 
     2011     2010     2011     2010  

Equipment revenue

   $ 20,728     $ 40,715     $ 43,929     $ 71,461  

Services revenue

     10,505       10,353       21,660       20,865  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     31,233       51,068       65,589       92,326  

Cost of equipment revenue

     14,507       29,380       29,341       49,625  

Cost of services

     5,394       5,210       11,080       10,608  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of equipment revenue and services

     19,901       34,590       40,421       60,233  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     11,332       16,478       25,168       32,093  

Operating expenses:

        

Sales and marketing

     3,555       4,671       7,452       9,159  

Research and development

     2,669       3,464       5,410       7,002  

General and administrative

     3,107       3,249       6,624       6,598  

Restructuring

     32       —          277       —     

Intangible amortization

     151       163       318       326  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     9,514       11,547       20,081       23,085  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     1,818       4,931       5,087       9,008  

Other income (expense), net

     448       (28     32,046       25  

Interest (expense)

     (5     (2     (5     (3
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     2,261       4,901       37,128       9,030  

Income tax (expense) benefit

     1,237       (138     (12,499     335  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 3,498     $ 4,763     $ 24,629     $ 9,365  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per common share:

        

Basic net income from continuing operations

   $ 0.05     $ 0.07     $ 0.36     $ 0.14  

Effect of dilutive securities on net income per common share

     0.00       0.00       0.00       0.00  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per common share

   $ 0.05     $ 0.07     $ 0.36     $ 0.14  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of common shares outstanding:

        

Basic

     67,416       67,202       67,879       67,285  

Effect of dilutive securities: restricted stock and stock options1

     1,118       1,285       1,405       1,036  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     68,534       68,487       69,284       68,321  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

1 

The Company had 1.0 million and 4.4 million shares represented by options for the three months and 0.5 million and 4.9 million shares represented by options for the six months ended September 30, 2011 and 2010, respectively, which were not included in the computation of average diluted shares outstanding because they were anti-dilutive.

 

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

     Six months ended September 30,  
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 24,629     $ 9,365  

Reconciliation of net income to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     1,191       1,427  

Exchange rate (gain) loss

     (2     (8

Deferred taxes

     12,034       —     

Restructuring

     277       —     

Gain on sale of CNS assets

     (31,654     —     

Gain on sale of non-operating assets

     (325     —     

Stock based compensation

     667       580  

Changes in operating assets and liabilities:

    

Accounts receivable

     6,226       (7,100

Inventory

     13       3,551  

Prepaid expenses and other current assets

     827       376  

Other assets

     42       48  

Deferred revenue

     229       263  

Accounts payable and accrued expenses

     (16,241     1,946  

Accrued compensation

     (2,551     (1,098
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (4,638     9,350  
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Maturities of held-to-maturity debt securities

     503       —     

Maturities of other investments

     490       —     

Purchases of held-to-maturity debt securities

     (13,868     —     

Purchases of other investments

     (5,481     —     

Purchases of property and equipment

     (697     (359

Proceeds from sale of non-operating assets

     325       —     

Restricted cash

     (3,350     —     

Proceeds from sale of CNS assets

     36,683       —     
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     14,605       (359
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Proceeds from stock options exercised

     1,578       314  

Purchases of treasury stock

     (8,825     (555
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (7,247     (241
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

     (102     10  
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     2,618       8,760  

Cash and cash equivalents, beginning of period

     86,408       61,315  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 89,026     $ 70,075  
  

 

 

   

 

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

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Note 1. Basis of Presentation

Description of Business

Westell Technologies, Inc. (the “Company”) is a holding company. Its wholly owned subsidiary, Westell, Inc., designs and distributes telecommunications products which are sold primarily to major telephone companies. Its wholly owned subsidiary, Conference Plus, Inc. (“ConferencePlus” or “CP”) provides audio, web and video conferencing services to various customers. Conference Plus Global Services, Ltd (“CGPS”) is a wholly owned subsidiary of ConferencePlus that provides services similar to ConferencePlus services. Noran Tel, Inc., a manufacturer of transmission, power distribution and remote monitoring products, is a wholly owned subsidiary of Westell, Inc.

Sale of Customer Networking Solutions (“CNS”) Assets

On March 17, 2011, the Company entered into a definitive agreement to sell certain assets and transfer certain liabilities of the CNS segment to NETGEAR Inc. (“NETGEAR”). As part of the agreement, the Company agreed to indemnify NETGEAR following the closing of the sale against specified losses in connection with the CNS business and generally retain responsibility for various legal liabilities that may accrue. An escrow of $3.4 million was established for this purpose or for other claims and is reflected as restricted cash on the Condensed Consolidated Balance Sheet. The Company retained a major CNS customer relationship and contract, and also retained the Homecloud product development program. This transaction closed on April 15, 2011 (the “CNS asset sale”). The assets and liabilities sold or transferred as part of the transaction were reported as held-for-sale in the March 31, 2011 balance sheet. During the fiscal year 2012, the Company recorded a pre-tax gain of $31.7 million on this asset disposition. This pre-tax gain is included in other income, net on the Condensed Consolidated Statement of Operations. In connection with the CNS asset sale, the Company entered into a Master Services Agreement and an Irrevocable Site License Agreement where the Company will provide transition services and sublease office space to NETGEAR.

The pre-tax gain on the sale is calculated as follows:

 

Pre-tax gain (in thousands):

  

Cash Proceeds

   $ 36,683  

Less: Net value of assets and liabilities sold or transferred as of April 15, 2011

     (5,029
  

 

 

 

Total pre-tax gain

   $ 31,654  
  

 

 

 

As of March 31, 2011, the components of assets and liabilities held-for-sale presented in the balance sheet were as follows:

 

Assets held-for-sale (in thousands):

  

Inventories

   $ 4,656   

Property and equipment, net

     125   
  

 

 

 

Total assets held-for-sale

   $ 4,781   
  

 

 

 

Liabilities held-for-sale (in thousands):

  

Accrued compensation

   $ 370   

Accrued expenses

     918   
  

 

 

 

Total liabilities held-for-sale

   $ 1,288   
  

 

 

 

Basis of Presentation and Reporting

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. The Condensed Consolidated Financial Statements have been prepared using accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting, and with the instructions of Form 10-Q and Article 10 of Regulation S-X and accordingly they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes. The Condensed Consolidated Financial Statements should be read in conjunction with the

 

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Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011. All intercompany accounts and transactions have been eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities, at the date of the financial statements, and that affect revenue and expenses during the period reported. Estimates are used when accounting for the allowance for uncollectible accounts receivable, net realizable value of inventory, product warranty accrued, relative selling prices, stock-based compensation, depreciation, income taxes, and contingencies, among other things. Actual results could differ from those estimates.

In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position and the results of operations and cash flows at September 30, 2011 and for all periods presented. The results of operations for the periods presented are not necessarily indicative of the results that may be expected for the fiscal year 2012.

Reclassification

The Condensed Consolidated Balance Sheet as of March 31, 2011 reflects an adjustment to the previously issued audited financial statements to reclassify $13.7 million of long-term deferred income tax assets to short-term deferred income tax assets. This balance sheet reclassification had no impact on the historical statements of operations or retained earnings.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less when purchased and include bank deposits, money market funds and debt instruments consisting of pre-refunded municipal bonds. The municipal bonds are classified as held-to-maturity and are carried at amortized cost. Money market funds are accounted for as available-for-sale securities under the requirements of Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities (“ASC 320”).

Short-term Investments

Certificates of deposit held for investment with an original maturity greater than 90 days are included in “short-term investments”. The certificates of deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”) and are not debt securities. The Company also invests in debt instruments consisting of pre-refunded municipal bonds. The income and principal from these pre-refunded bonds is secured by an irrevocable trust holding U.S Treasury securities. The bonds are classified as short-term have original maturities of greater than 90 days, but have remaining maturities of less than one year. The municipal bonds are classified as held-to-maturity and are carried at amortized cost.

Recently Adopted Accounting Pronouncements

In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles—Goodwill and Other (Topic 350)—Testing Goodwill for Impairment (“ASU 2011-08”), to allow entities to use a qualitative approach to test goodwill for impairment. ASU 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. The Company elected the early adoption provision of ASU 2011.

New Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments in this update generally represent clarifications of ASC 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRS. The

 

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amendments in this update are to be applied prospectively. The amendments are effective for the Company during interim and annual periods beginning after December 15, 2011. The Company is currently evaluating this pronouncement, but does not anticipate adoption to have a material impact to the Company’s condensed consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of stockholders equity and requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. The adoption of ASU 2011-05 is not expected to have a material effect on the Company’s condensed consolidated financial statements, but may require a change in the presentation of the Company’s comprehensive income from the notes of the condensed consolidated financial statements, where it is currently disclosed, to the face of the condensed consolidated financial statements.

Note 2. Revolving Credit Agreement

The Company entered into a revolving credit agreement with The Private Bank and Trust Company dated as of March 5, 2009 (the “Credit Agreement”) and subsequently entered into amendments to its Credit Agreement to extend the maturity date to March 31, 2012 and amend certain other provisions. The Credit Agreement is an asset-based revolving credit facility in an amount up to $12.0 million based on 80% of eligible accounts receivable plus the lesser of 30% of eligible inventory or $3.0 million. The obligations of the Company under the Credit Agreement are secured by a guaranty from certain direct and indirect domestic subsidiaries of the Company, and by substantially all of the assets of the Company.

The revolving loans under the Credit Agreement bear interest at the greater of the London Interbank Offered Rate (“LIBOR”) plus a spread of 2.25%, or an alternative base rate. The alternative base rate is the greater of the prime rate or the Federal Funds rate (the “Base Rate”). The Company is also required to pay a non-use fee of 0.2% per annum on the unused portion of the revolving loans. These fees are waived if the Company maintains with the lender an average monthly non-interest bearing account balance of $5.0 million and an average monthly balance of $15.0 million consisting of other investments. The Company maintained such balances since entering the Credit Agreement.

The Credit Agreement contains financial covenants that include a minimum EBITDA, a minimum tangible net worth and a limitation on capital expenditures for any fiscal year. The Company was in compliance with these covenants on September 30, 2011. As of September 30, 2011, the Company had $12.0 million available under the Credit Agreement with no borrowings.

In addition, although the Company has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future, the Company’s credit facility restricts the Company’s ability to pay dividends without the bank’s approval.

Note 3. Restructuring Charge

In the first quarter of fiscal year 2012, as a result of the CNS asset sale, the Company initiated a cost reduction action that resulted in the termination of 12 employees in the CNS segment. The total cost of this restructuring action was approximately $277,000 of which $245,000 (net of $122,000 reimbursed by NETGEAR) and $32,000 was recorded in the first and second quarter of fiscal year 2012, respectively. As of September 30, 2011, $324,000 of these costs had been paid, leaving an unpaid balance of $75,000 which is presented on the Condensed Consolidated Balance Sheets within Accrued expenses.

 

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Total restructuring charges and their utilization are summarized as follows:

 

(in thousands)    Employee
-related
    Other
costs
     Total  

Liability at March 31, 2011

   $ —        $ —         $ —     

Charged

     399       —           399  

Utilized

     (324     —           (324
  

 

 

   

 

 

    

 

 

 

Liability at September 30, 2011

   $ 75     $ —         $ 75  
  

 

 

   

 

 

    

 

 

 

Note 4. Interim Segment Information

CNS: The Company’s CNS family of broadband products enables high-speed routing and networking of voice, data, video, and other advanced services in the home. The products allow service providers to deliver services, content, and applications over existing copper, fiber, coax, and wireless infrastructures. Westell CNS products are typically installed in consumer residences or small businesses as a key component of broadband service packages. During the first quarter of fiscal year 2012, the Company completed the CNS asset sale. The Company retained a major CNS customer relationship and contract, and the Company expects to complete the remaining $6.3 million of product shipments under this contract by December 31, 2011. The Company also retained the Homecloud product development program.

OSP: The Company’s Outside Plant Systems (“OSP”) product family consists of next generation outdoor cabinets, enclosures, power distribution products, edge connectors (fiber, Ethernet and coax), remote monitoring devices, and DS1 and DS3 transmission plugs. These solutions are optimized for cellular backhaul, service delivery to business enterprise and smart grid applications. The Company’s OSP segment also provides a value-added customized systems integration service, offering its customers a single source for complete turnkey solutions, reducing time-to-market and expenses incurred through third-party contractors and eliminating the need to design, assemble and test on the job site. Target customers include wireline service providers, wireless service providers, multi-service operators, utility providers and OEMs worldwide. The power distribution and remote monitoring products are designed and provided through the Company’s Noran Tel subsidiary located in Regina, Saskatchewan, Canada.

ConferencePlus: The Company’s subsidiary Conference Plus, Inc. provides audio, web and video conferencing services. Businesses and individuals use these services to hold audio, web and video conferences with multiple participants. ConferencePlus sells its services directly to customers, including Fortune 1000 companies, and also serves customers indirectly through its private-label reseller program.

Performance of these segments is primarily evaluated utilizing revenue and segment operating income (loss). The accounting policies of the segments are the same as those for Westell Technologies, Inc. described in the summary of significant accounting policies. The Company defines segment operating income (loss) as gross profit less direct expenses, including direct expenses from research and development expenses, sales and marketing expenses, and general and administrative (“G&A”). Certain operating expenses are allocated between the CNS and OSP segments, including rent, information technology costs, and accounting. The CNS segment received 28% and 62% of these resource costs and the OSP segment was allocated 72% and 38% of the costs in the three and six months ended September 30, 2011 and 2010, respectively. Segment operating income (loss) excludes certain unallocated Westell, Inc. G&A costs. Rent associated with resources supporting the assets sold to NETGEAR were not reallocated between the segments and are reflected in unallocated corporate costs.

 

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Segment information for the three and six months ended September 30, 2011 and 2010 is set forth below:

 

     Three Months Ended September 30, 2011  
(in thousands)    CNS     OSP     CP     Unallocated     Total  

Revenue

   $ 10,327     $ 10,401     $ 10,505     $ —        $ 31,233  

Gross profit

     2,289       3,932       5,111       —          11,332  

Gross margin

     22.2 %     37.8 %     48.7     —          36.3 %

Operating expenses:

          

Sales and marketing

     249       1,446       1,860       —          3,555  

Research and development

     649       1,342       678       —          2,669  

General and administrative

     256       604       1,342       905       3,107  

Restructuring

     32       —          —          —          32  

Intangible amortization

     1       137       13       —          151  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     1,187       3,529       3,893       905       9,514  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 1,102     $ 403     $ 1,218       (905     1,818  
  

 

 

   

 

 

   

 

 

     

Other income (expense), net

           448       448  

Interest (expense)

           (5     (5

Income taxes

           1,237       1,237  
        

 

 

   

 

 

 

Net income

         $ 775     $ 3,498  
        

 

 

   

 

 

 

 

     Three Months Ended September 30, 2010  
(in thousands)    CNS     OSP     CP     Unallocated     Total  

Revenue

   $ 24,598     $ 16,117     $ 10,353     $ —        $ 51,068  

Gross profit

     4,009       7,326       5,143       —          16,478  

Gross margin

     16.3 %     45.5 %     49.7     —          32.3 %

Operating expenses:

          

Sales and marketing

     1,267       1,509       1,895       —          4,671  

Research and development

     1,902       921       641       —          3,464  

General and administrative

     688       455       1,438       668       3,249  

Intangible amortization

     1       134       28       —          163  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     3,858       3,019       4,002       668       11,547  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 151     $ 4,307     $ 1,141       (668     4,931  
  

 

 

   

 

 

   

 

 

     

Other income (expense), net

           (28     (28

Interest (expense)

           (2     (2

Income taxes

           (138     (138
        

 

 

   

 

 

 

Net income (loss)

         $ (836   $ 4,763  
        

 

 

   

 

 

 

 

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Table of Contents
     Six Months Ended September 30, 2011  
(in thousands)    CNS     OSP     CP     Unallocated     Total  

Revenue

   $ 18,683     $ 25,246     $ 21,660     $ —        $ 65,589  

Gross profit

     4,147       10,440       10,581       —          25,168  

Gross margin

     22.2 %     41.4 %     48.9     —          38.4 %

Operating expenses:

          

Sales and marketing

     766       2,928       3,758       —          7,452  

Research and development

     1,462       2,606       1,342       —          5,410  

General and administrative

     551       1,422       2,706       1,945       6,624  

Restructuring

     277       —          —          —          277  

Intangible amortization

     2       275       41       —          318  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     3,058       7,231       7,847       1,945       20,081  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ 1,089     $ 3,209     $ 2,734       (1,945     5,087  
  

 

 

   

 

 

   

 

 

     

Other income (expense), net

           32,046       32,046  

Interest (expense)

           (5     (5

Income taxes

           (12,499     (12,499
        

 

 

   

 

 

 

Net income

         $ 17,597     $ 24,629  
        

 

 

   

 

 

 

 

     Six Months Ended September 30, 2010  
(in thousands)    CNS     OSP     CP     Unallocated     Total  

Revenue

   $ 39,620     $ 31,841     $ 20,865     $ —        $ 92,326  

Gross profit

     7,599       14,237       10,257       —          32,093  

Gross margin

     19.2 %     44.7 %     49.2     —          34.8 %

Operating expenses:

          

Sales and marketing

     2,579       2,950       3,630       —          9,159  

Research and development

     3,876       1,902       1,224       —          7,002  

General and administrative

     1,428       1,093       2,797       1,280       6,598  

Intangible amortization

     2       268        56       —          326  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     7,885       6,213       7,707       1,280       23,085  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

   $ (286   $ 8,024     $ 2,550       (1,280     9,008  
  

 

 

   

 

 

   

 

 

     

Other income (expense), net

           25       25  

Interest (expense)

           (3     (3

Income taxes

           335       335  
        

 

 

   

 

 

 

Net income (loss)

         $ (923   $ 9,365  
        

 

 

   

 

 

 

 

Depreciation and amortization

(in thousands)

   Three months ended
September 30,
     Six months ended
September 30,
 
   2011      2010      2011      2010  

CNS depreciation and amortization

   $ 34       $ 99       $ 56       $ 298   

OSP depreciation and amortization

     240         193         457         427   

CP depreciation and amortization

     323         353         678         702   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total depreciation and amortization

   $ 597       $ 645       $ 1,191       $ 1,427   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The CNS and OSP segments use many of the same assets. For internal reporting purposes, the Company does not allocate assets between the CNS and OSP segments and therefore no asset or capital expenditure information by each of these segments is available. Combined CNS and OSP segment information is provided below.

 

Assets, excluding cash and cash equivalents,

restricted cash, and short-term investments (in

thousands)

   September 30,
2011
     March 31,
2011
 

Combined CNS and OSP segments assets

   $ 78,596      $ 104,268  

ConferencePlus services assets

     9,790        10,221  
  

 

 

    

 

 

 

Total assets, excluding cash and cash equivalents, restricted cash, and short-term investments

   $ 88,386      $ 114,489  
  

 

 

    

 

 

 

Note 5. Comprehensive Income

The disclosure of comprehensive income, which encompasses net income and foreign currency translation adjustments, is as follows:

 

     Three months ended
September 30,
     Six months ended
September 30,
 
(in thousands)    2011     2010      2011     2010  

Net income

   $ 3,498     $ 4,763       $ 24,629     $ 9,365  

Other comprehensive income (loss):

         

Foreign currency translation adjustment

     (508     306         (433     (38
  

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income

   $ 2,990     $ 5,069       $ 24,196     $ 9,327  
  

 

 

   

 

 

    

 

 

   

 

 

 

Note 6. Inventories

Inventories are stated at the lower of first-in, first-out (“FIFO”) cost or market value. The components of inventories are as follows:

 

(in thousands)    September 30,
2011
    March 31,
2011
 

Raw material

   $ 5,758     $ 9,035  

Finished goods

     7,477       10,127  

Reserve for excess and obsolete inventory and net realizable value

     (1,544     (1,551
  

 

 

   

 

 

 

Total inventory

     11,691       17,611  

Inventories held-for-sale (see Note 1)

     —          (4,656
  

 

 

   

 

 

 

Inventories, net of amounts held-for-sale

   $ 11,691     $ 12,955  
  

 

 

   

 

 

 

Note 7. Stock-Based Compensation

The following table is a summary of total stock-based compensation resulting from stock options, restricted stock, and restricted stock units (“RSUs”) during the three and six months ended September 30, 2011 and 2010:

 

     Three months ended
September 30,
     Six months ended
September 30,
 
(in thousands)    2011      2010      2011      2010  

Stock-based compensation expense

   $ 332      $ 312      $ 667      $ 580  

Income tax expense

     131        —           261        —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense after taxes

   $ 201      $ 312      $ 406      $ 580  
  

 

 

    

 

 

    

 

 

    

 

 

 

In April 2010, executives were granted 620,000 RSUs with time-based vesting conditions, which converted into shares of Class A Common Stock during the first quarter of fiscal year 2012. Of these units, 25% vested on April 1, 2011 and the remaining shares vest 25% annually each April 1 thereafter. In addition, executives received 620,000 performance-based RSUs which converted to shares of restricted Class A Common Stock at

 

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the maximum rate of 140% during the first quarter of fiscal year 2012. The conversion rate was based upon fiscal year 2011 achievement against a return on assets (“ROA”) metric. On May 18, 2011, the first 25% of the performance awards vested and the remaining awards are scheduled to vest 25% annually on each subsequent April 1.

In April 2011, the Company’s Chief Executive Officer was awarded 300,000 RSUs and the Company’s Chief Financial Officer was awarded 100,000 RSUs. These awards convert into shares of Class A Common Stock on a one-for-one basis upon vesting and vest in equal annual installments over four years.

Note 8. Product Warranties

Most of the Company’s products carry a limited warranty ranging from one to three years for CNS products and seven years for OSP products. The specific terms and conditions of those warranties vary depending upon the customer and the product sold. Factors that enter into the estimate of the Company’s warranty reserve include: the number of units shipped historically, anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary. The current portions of the warranty reserve were $276,000 and $239,000 as of September 30, 2011 and March 31, 2011, respectively, and are presented on the Condensed Consolidated Balance Sheets as Accrued expenses. The long-term portions of the warranty reserve were $244,000 and $325,000 as of September 30, 2011 and March 31, 2011, respectively, and are presented on the Condensed Consolidated Balance Sheets in Other long-term liabilities. In addition, as of March 31, 2011 $194,000 of the warranty reserve was classified as held-for-sale. As a result of the CNS asset sale, this portion of the warranty liability was transferred to NETGEAR on April 15, 2011.

The following table presents the changes in the Company’s product warranty reserve:

 

     Three months ended
September 30,
    Six months ended
September 30,
 
(in thousands)    2011     2010     2011     2010  

Total product warranty reserve at the beginning of the period

   $ 560     $ 1,300     $ 758     $ 1,263  

Warranty expense

     15       (40     83       93  

Utilization

     (55     (66     (127     (162

Warranty liability transferred to NETGEAR

     —          —          (194     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total product warranty reserve at the end of the period

   $ 520     $ 1,194     $ 520     $ 1,194  
  

 

 

   

 

 

   

 

 

   

 

 

 

Note 9. Note Payable Guarantee

In fiscal year 2005, the Company sold its Data Station Termination product lines and specified fixed assets to Enginuity Communications Corporation (“Enginuity”). The Company provided an unconditional guarantee relating to a 10-year term note payable by Enginuity to the third-party lender that financed the transaction (the “Enginuity Note”). The Enginuity Note had an unpaid balance of $0.6 million and $0.7 million as of September 30, 2011 and March 31, 2011, respectively. Certain owners of Enginuity personally guaranteed the note and pledged assets as collateral. These personal guarantees will stay in place until the note is paid in full, as will the Company’s guarantee. Under the Company’s guarantee, the Company must pay all amounts due under the note payable upon demand from the lender; however, the Company would have recourse against the assets of Enginuity, and against the personal guarantees and pledged assets.

The Company evaluated ASC 810 and concluded that Enginuity is a VIE as a result of the debt guarantee. The Company is not considered the primary beneficiary of the VIE and consolidation therefore is not required.

At the time of the product sale, the Company assessed its obligation under this guarantee pursuant to the provisions of FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, as codified in ASC topic 460, Guarantees (“ASC 460”), and recorded a $0.3 million liability for the value of the guarantee. The Company evaluates the fair value of the liability based on Enginuity’s operating performance and the current status of the guaranteed debt obligation. The balance of the liability is $0.1 million as of September 30, 2011 and March 31, 2011. The liability is classified as a current liability in the Accrued expenses line on the Condensed Consolidated Balance Sheets.

 

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Note 10. Income Taxes

The Company uses an estimated annual effective tax rate based on expected annual income to determine the quarterly provision for income taxes. The impact of discrete items is recorded in the quarter in which they occur. In assessing the realizability of the deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. In the fourth quarter of fiscal year 2011, after considering both the positive and negative evidence including improved financial performance, expected future taxable income, the exit of a three-year cumulative loss, and the then anticipated CNS asset sale, the Company concluded that it was more likely than not that it would be able to utilize the majority of its deferred tax assets. The Company therefore released substantially all of the valuation allowance recorded against tax assets in the fourth quarter of fiscal year 2011. During the first three quarters of fiscal year 2011, a full valuation allowance on deferred tax assets has been recorded and was released against earnings quarterly. The Company will continue to reassess realizability of the deferred tax assets going forward.

In the three and six months ended September 30, 2011, the Company recorded a tax benefit of $1.2 million and tax expense of $12.5 million. These tax provisions resulted from an effective tax rate of 39.1% for the fiscal year with a separate addition of discrete items. For the three and six months ended September 30, 2011, the Company recorded a discrete tax benefit of $2.1 million for a reduction in an uncertain tax position that became effectively settled during the period. For the six months ended September 30, 2011, the gain on the CNS asset sale was treated as a discrete item and the provision related specifically to that that item was $12.5 million.

In the three and six months ended September 30, 2010, the Company was under a full valuation allowance and recorded an expense of $138,000 for the three months ended September 30, 2010, and recorded a net tax benefit of $335,000 in the six month period ended September 30, 2010. The net tax benefit included a $345,000 benefit related to the reversal of a reserve against an uncertain tax position because the statute of limitations related to the position had expired. The net tax benefit also included a $178,000 benefit related to the Company’s ability to fully offset alternative minimum taxable income with alternative minimum tax net operating loss carryforwards that were generated in prior years. The net tax benefit was offset, in part, by $188,000 of tax expense that was recorded using an effective tax rate of 2.1% for the fiscal year. Tax expense resulted from foreign and state tax. The Company was able to utilize its net operating loss carryforwards to offset federal taxable income and federal alternative minimum taxable income generated for the three and six months ended September 30, 2010.

Note 11. Commitments and Contingencies

Obligations

Future obligations and commitments decreased $19.5 million in the six months ended September 30, 2011 to $34.0 million, down from $53.5 million at March 31, 2011. As a result of the CNS asset sale, $12.3 million of purchase obligations were assigned to NETGEAR on April 15, 2011. The remaining change was primarily due to a decrease in inventory purchase obligations in the CNS equipment segment as the Company continued to fulfill remaining non-cancellable customer orders.

Litigation

The Company and its subsidiaries are involved in various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that are incorporated in the Company’s products, which are being handled and defended in the ordinary course of business. These matters are in various stages of investigation and litigation, and are being vigorously defended. Although the Company does not expect the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. The Company has not recorded any contingent liability attributable to existing litigation.

 

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As a result of a vendor dispute in the ConferencePlus segment, a $700,000 loss contingency reserve was recorded in cost of services in the fourth quarter of fiscal year 2010. The Company applies ASC 450 in assessing the need for a reserve and concluded that this loss was both probable and estimable. A settlement agreement was reached with the vendor and the Company paid the entire $700,000 as part of the settlement in the first quarter of fiscal year 2011.

Note 12. Short-term Investments

The following table presents short-term investments as of September 30, 2011 and March 31, 2011:

 

(in thousands)    September 30,
2011
     March 31,
2011
 

Certificates of deposits

   $ 5,716      $ 490  

Held-to-maturity, pre-refunded municipal bonds

     13,130        —     
  

 

 

    

 

 

 

Total investments

   $ 18,846      $ 490  
  

 

 

    

 

 

 

The fair value of investments approximates their carrying amounts due to the short-term nature of these financial assets.

Note 13. Fair Value Measurements

Fair value is defined by ASC 820 as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

   

Level 1 – Quoted prices in active markets for identical assets and liabilities.

 

   

Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

   

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The Company’s money market funds are measured using Level 1 inputs. The note payable guarantee described in Note 9 is measured using Level 3 inputs.

The following table presents financial assets and liabilities measured at fair value on a recurring basis and their related valuation inputs as of September 30, 2011:

 

(in thousands)    Total
Fair
Value of
Asset or
Liability
     Quoted Prices
in Active
Markets for
Identical Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
    

Balance Sheet
Classification

Assets:

              

Money market funds

   $ 30,439       $ 30,439         —           —         Cash and cash equivalents

Liabilities:

              

Guarantee

   $ 66         —           —         $ 66       Accrued expenses

 

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The following table presents financial assets and liabilities measured at fair value on a recurring basis and their related valuation inputs as of March 31, 2011:

 

(in thousands)    Total
Fair
Value of
Asset or
Liability
     Quoted Prices
in Active
Markets for
Identical Assets

(Level 1)
     Significant
Other
Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
    

Balance Sheet
Classification

Assets:

              

Money market funds

   $ 30,487       $ 30,487         —           —         Cash and cash equivalents

Liabilities:

              

Guarantee

   $ 66         —           —         $ 66       Accrued expenses

The fair value of investments approximates their carrying amounts due to the short-term nature of these financial assets.

Note 14. Share Repurchases

In February 2010, the Board of Directors authorized a share repurchase program (the “February 2010 authorization”) whereby the Company may repurchase up to an aggregate of $10.0 million of its outstanding Class A Common Stock. In August 2011, the Board of Directors authorized an additional share repurchase program whereby the Company may repurchase up to an aggregate of $20.0 million of its outstanding Class A Common Stock. During the three and six months ended September 30, 2011, 0.9 million shares and 2.6 million shares were repurchased under the February 2010 authorization with a weighted-average per share purchase price of $2.71 and $3.21, respectively. Repurchases in the six months ended September 30, 2011 include the May 31, 2011 purchase of 1,000,000 shares of its Class A Common Stock, including 618,664 shares that were converted from the Company’s Class B Common Stock. These shares were purchased from a voting trust, dated February 23, 1994 (the “Voting Trust”), of which Robert C. Penny III and Robert W. Foskett currently serve as co-trustees, as well as from beneficiaries of the Voting Trust and beneficiaries of other trusts associated with certain members of Mr. Penny’s family. The Company paid a total of $3.4 million or approximately $3.43 per share, which represented the volume weighted-average price of the Company’s Class A Common Stock for the three daily trading sessions on May 23, 24 and 25, 2011, as reported on the NASDAQ Global Select Market. Messrs. Penny and Foskett currently serve as directors of the Company. During the three and six months ended September 30, 2010, approximately 110,000 shares and 356,000 shares were repurchased under the February 2010 authorization with a weighted-average per share purchase price of $1.69 and $1.56, respectively. There was approximately $21.0 million remaining for additional share repurchases under the two authorized programs as of September 30, 2011.

Additionally, in the first quarter of fiscal year 2012, the Company repurchased 113,734 shares from certain executives that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock units and performance-based restricted stock units. These repurchases are not included in the authorized share repurchase programs and had a weighted-average purchase price of $3.52.

 

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

Overview

The following discussion should be read together with the Condensed Consolidated Financial Statements and the related Notes thereto and other financial information appearing elsewhere in this Form 10-Q. All references herein to the term “fiscal year” shall mean a year ended March 31 of the year specified.

The Company commenced operations in 1980 as a provider of telecommunications network transmission products that enable advanced telecommunications services over copper telephone wires. Until fiscal 1994, the Company derived substantially all of its revenues from its Outside Plant Systems (“OSPlant Systems” or “OSP”) products, particularly the sale of Network Interface Unit (“NIU”) products and related products. The Company introduced its first Customer Networking Solutions (“CNS”) products in fiscal 1993. The Company has also provided audio teleconferencing services since fiscal 1989 through its Conference Plus, Inc. subsidiary. The Company realizes the majority of its revenues from the North American market.

On March 17, 2011, the Company entered into a definitive agreement to sell certain assets and transfer certain liabilities of the CNS segment to NETGEAR, Inc. (“NETGEAR”). This transaction closed on April 15, 2011 (the “CNS asset sale”). As part of the CNS asset sale, most of the CNS segment’s customer relationships, contracts and employees were transferred to NETGEAR. The Company retained one major CNS customer relationship and contract. The Company expects to complete the remaining $6.3 million of product shipments under this contract by December 31, 2011. The Company also retained within its CNS division the Homecloud product development program. The Homecloud product family which is under development consists of ultra-high-speed applications-capable gateways and other applications-capable devices for the home network, plus associated software for home networking devices, plus Web-based services, to enable the delivery of new services into the home networking environment.

In the OSP segment, the Company designs, distributes, markets and services a broad range of carrier-class digital transmission, remote monitoring, power distribution, next-generation outdoor equipment cabinets and service provider demarcation products. The Company’s OSP products offer next-generation outdoor cabinets, enclosures, power distribution panels, flexible edge connectors (with respect to fiber, Ethernet and coax), remote monitoring solutions, DS1 and DS3 transmission plugs, and carrier grade Ethernet solutions. These solutions are optimized for wireline backhaul of cellular traffic, service delivery to business enterprise and smart grid applications. The Company’s OSP segment also provides a value-added Customized Systems Integration (“CSI”) service, offering its customers a single source for complete turnkey solutions, reducing the time-to-market and expenses incurred through third-party contractors and eliminating the need to design, assemble and test on the job site. Target OSP customers include wireline service providers, wireless service providers, multiple systems operators (“MSOs”), integrated carriers, utility providers and original equipment manufacturers (“OEMs”) worldwide (all known as “service providers”). The power distribution and remote monitoring products are designed and provided through the Company’s Noran Tel subsidiary located in Regina, Saskatchewan, Canada.

Conference Plus, Inc. (“ConferencePlus” or “CP”), founded in 1988, is a full-service audio, web and video conferencing company that manages and hosts specific software and applications supporting its conferencing and meeting services. ConferencePlus is a 100% owned subsidiary of the Company and manages its conferencing and meeting services through its main operations center in Schaumburg, Illinois, and a facility in Dublin, Ireland.

ConferencePlus allows multiple individuals, organizations and/or businesses to conduct conference calls using a combination of audio, web and video collaboration and presentations. ConferencePlus offers conference call services that can include a blend of audio, graphics, spreadsheets and other documents that can be carried over and archived on the Internet to enhance the traditional audio conference call. By enabling the sharing of this blend of information, ConferencePlus can help organizations increase productivity and save money by reducing travel time and costs, and making it easier for people in remote locations to work together. Conferencing and meeting service technologies also allow organizations and individuals to collect and disseminate information faster, more accurately and without the associated costs of face-to-face meetings. These technologies also help companies communicate and collaborate effectively in the face of health and safety threats and other impediments to travel and formal gatherings.

 

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The prices for the products within each market group vary based upon volume, customer specifications and other criteria, and are subject to change due to competition among telecommunications manufacturers and service providers.

The Company’s customer base for its products is highly concentrated and comprised primarily of major U.S. telecommunications service providers (“telephone companies”), independent domestic local exchange carriers and public telephone administrations located outside the U.S. Due to the stringent quality specifications of its customers and the regulated environment in which its customers operate, the Company must undergo lengthy approval and procurement processes prior to selling its products. Accordingly, the Company must make significant up front investments in product and market development prior to actual commencement of sales of new products.

To remain competitive, the Company must continue to invest in new product development and invest in targeted sales and marketing efforts to launch new product lines. Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change or otherwise, could have a material adverse effect on the Company’s business and results of operations. The Company expects to continue to evaluate new product opportunities and engage in extensive research and development activities.

In view of the Company’s current reliance on the telecommunications market for revenues and the unpredictability of orders and pricing pressures, the Company believes that period-to-period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

In the CNS segment, the Company is focusing on the Homecloud product development program as well as fulfilling its contractual obligations in the retained CNS customer relationship and contract. The Homecloud product family, which is currently under development, aims to provide a new suite of services into the home for a variety of applications, including enhanced security; media and information management, sharing and delivery; home control; and network management. The Company is considering the sale of Homecloud products to its traditional service provider customer base as well as through new partnerships with online cloud-based internet service providers, and to consumers via various retail and online retail channel partners.

The OSP segment has introduced products and services that aim to allow greater customer diversification and has changed from being a provider centered on service to Regional Bell Operating Companies into a provider with broader products for sales channels that include independent operating companies (“IOCs”), wireless service providers, MSOs, utility providers and OEMs worldwide. The Company continues to invest in new product areas to expand and complement opportunities in applications such as cellular backhaul and smart grid.

Results of Operations

Below is a table that compares revenue for the three and six months ended September 30, 2011 and 2010 by segment.

Revenue

 

      Three months ended
September 30,
    Six months ended
September 30,
 
(in thousands)    2011      2010      Change     2011      2010      Change  

CNS

   $ 10,327       $ 24,598       $ (14,271   $ 18,683       $ 39,620       $ (20,937

OSP

     10,401         16,117         (5,716     25,246         31,841         (6,595

ConferencePlus

     10,505         10,353         152       21,660         20,865         795  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Consolidated revenue

   $ 31,233       $ 51,068       $ (19,835   $ 65,589       $ 92,326       $ (26,737
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

CNS revenue in the three and six months ended September 30, 2011 decreased 58% and 53%, respectively compared to the same periods in the prior fiscal year due primarily to the CNS asset sale. Revenue for the six months ended September 30, 2011 contained pre-closing revenue of $1.0 million related to customers that transferred with the sale. The remaining revenue is from a single customer that did not transfer with the sale and represents revenue from modem, gateway, ancillary products and product screening. Revenue in the prior-year also included the sales of modem, gateway and ancillary products but also included revenue from Ultraline Series3 products and software.

 

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OSP revenue decreased 35% and 21% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year due primarily to lower demand resulting from a technology shift from T1 to Ethernet for the backhaul of cellular traffic, customer inventory management and reuse programs, as well as effects of the Verizon strike which occurred in the quarter ended September 30, 2011.

ConferencePlus revenue increased 1% and 4% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year due primarily to increased call minutes offset in part by decreased revenue per minute.

Gross Margin

 

      Three months ended
September 30,
    Six months ended
September 30,
 
     2011     2010     Change     2011     2010     Change  

CNS

     22.2     16.3     5.9      22.2     19.2     3.0 

OSP

     37.8     45.5     (7.7 )%      41.4     44.7     (3.3 )% 

ConferencePlus

     48.7     49.7     (1.0 )%      48.9     49.2     (0.3 )% 

Consolidated gross margin

     36.3     32.3     4.0      38.4     34.8     3.6 

CNS gross margin increased in the three and six months ended September 30, 2011 compared to the same period in the prior year primarily due product mix.

Gross margin in OSP decreased in both the three and six month periods ended September 30, 2011 compared to the same periods in the prior year because of disproportionately reduced sales of higher margin products and lower absorption of overhead costs.

ConferencePlus margins decreased slightly in the three and six months ended September 30, 2011 compared to the same periods in the prior fiscal year. The decline resulted from lower revenue per minute billed which was not offset by lower telecommunication costs.

Sales and Marketing

 

      Three months ended
September 30,
    Six months ended
September 30,
 
(in thousands)    2011      2010      Change     2011      2010      Change  

CNS

   $ 249       $ 1,267       $ (1,018   $ 766       $ 2,579       $ (1,813

OSP

     1,446         1,509         (63     2,928         2,950         (22

ConferencePlus

     1,860         1,895         (35     3,758         3,630         128  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Consolidated sales and marketing expense

   $ 3,555       $ 4,671       $ (1,116   $ 7,452       $ 9,159       $ (1,707
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Sales and marketing expense in the CNS segment decreased 80% and 70% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year due to the CNS asset sale. Expenses in fiscal year 2012 are primarily for management, shipping and warranty costs for the one remaining customer and limited marketing costs related to the Homecloud product.

Sales and marketing expense in the OSP segment decreased 4% and 1% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year due primarily to lower sales commission expense.

Sales and marketing expense in the ConferencePlus segment decreased 2% and increased 4% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year. The fiscal year to date increase was due primarily to higher employee sales compensation costs.

 

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Research and Development

 

      Three months ended
September 30,
    Six months ended
September 30,
 
(in thousands)    2011      2010      Change     2011      2010      Change  

CNS

   $ 649       $ 1,902       $ (1,253   $ 1,462       $ 3,876       $ (2,414

OSP

     1,342         921         421       2,606         1,902         704  

ConferencePlus

     678         641         37       1,342         1,224         118  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Consolidated research and development expense

   $ 2,669       $ 3,464       $ (795   $ 5,410       $ 7,002       $ (1,592
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Research and development expenses in the CNS segment decreased by 66% and 62% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year due to the CNS asset sale. The Company continues to invest in Homecloud product development.

Research and development expenses in the OSP segment increased by 46% and 37% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year. The increase was due primarily to increased investment in Ethernet product development.

Research and development expense in the Conference Plus segment increased by 6% and 10% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior year, as a result of increased allocation of employee time to this area.

General and Administrative

 

      Three months ended
September 30,
    Six months ended
September 30,
 
(in thousands)    2011      2010      Change     2011      2010      Change  

CNS

   $ 256       $ 688       $ (432   $ 551       $ 1,428       $ (877

OSP

     604         455         149       1,422         1,093         329  

ConferencePlus

     1,342         1,438         (96     2,706         2,797         (91

Unallocated corporate costs

     905         668         237       1,945         1,280         665  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Consolidated general and administrative expense

   $ 3,107       $ 3,249       $ (142   $ 6,624       $ 6,598       $ 26  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

CNS general and administrative expense decreased 63% and 61% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year. OSP general and administrative expense increased 33% and 30% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year. CNS and OSP share general and administrative resources. The CNS segment received 28% and 62% of these resource costs and the OSP segment has been allocated 72% and 38% of the costs in fiscal years 2012 and 2011, respectively. General and administrative costs in the combined CNS and OSP segments were down in the three and six months ended September 30, 2011, compared to the same periods in the prior fiscal year due primarily to lower bonus expense and a decreased allocation of building rent expense. Rent associated with resources supporting the assets sold to NETGEAR were not reallocated between the divisions and is reflected in unallocated corporate costs.

ConferencePlus general and administrative expense was down 7% and 3% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year primarily due to lower bonus expense.

Unallocated corporate general and administrative expense increased by 35% and 52% in the three and six months ended September 30, 2011, respectively, compared to the same periods in the prior fiscal year. The increase resulted primarily from increased stock-based compensation and an increased allocation of building rent expense, as referenced above.

Restructuring The Company had a reduction in force in the CNS business segment in the first quarter of fiscal year 2012 that resulted in a restructuring charge totaling $32,000 and $277,000 in the three and six months ended September 30, 2011, respectively. There were no restructuring charges in the first six months of fiscal year 2011.

 

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Intangible amortization

 

      Three months ended
September 30,
    Six months ended
September 30,
 
(in thousands)    2011      2010      Change     2011      2010      Change  

CNS

   $ 1       $ 1       $ 0     $ 2       $ 2       $ 0  

OSP

     137         134         3       275         268         7  

ConferencePlus

     13         28         (15     41         56         (15
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Consolidated intangible amortization

   $ 151       $ 163       $ (12   $ 318       $ 326       $ (8
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

The intangible assets consist primarily of product technology and customer relationships from previous acquisitions.

Other income, net Other income (expense), net, was income of $448,000 and expense of $28,000 in the three months ended September 30, 2011 and 2010, respectively, and $32.0 million and $25,000 of income in the six months ended September 30, 2011 and 2010, respectively. During the fiscal year 2012, the Company recorded a pre-tax gain of $31.7 million on the CNS asset sale. In the second quarter of fiscal year 2012, the Company recorded a gain of $325,000 on the sale of a non-operating asset. Other income also contains interest income and foreign currency gains and losses.

Income taxes The Company uses an estimated annual effective tax rate based on expected annual income to determine the quarterly provision for income taxes. The impact of discrete items is recorded in the quarter in which they occur. In assessing the realizability of the deferred tax assets, the Company considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized through the generation of future taxable income. In the fourth quarter of fiscal year 2011, after considering both the positive and negative evidence including improved financial performance, expected future taxable income, the exit of a three-year cumulative loss, and the then anticipated CNS asset sale, the Company concluded that it was more likely than not that it would be able to utilize the majority of its deferred tax assets and released the majority of its valuation allowance. The Company continues to reassess realizability of the deferred tax assets going forward.

In the three and six months ended September 30, 2011, the Company recorded a tax benefit of $1.2 million and tax expense of $12.5 million. These tax provisions resulted from an effective tax rate of 39.1% for the fiscal year with the separate addition of discrete items. For the three and six months ended September 30, 2011, the Company recorded a discrete tax benefit of $2.1 million for a reduction in an uncertain tax position that became effectively settled during the period. For the six months ended September 30, 2011, the gain on the CNS asset sale was treated as a discrete item and the provision related specifically to that item was $12.5 million.

In the three and six months ended September 30, 2010, the Company had a full valuation allowance against net deferred tax assets and recorded $138,000 of tax expense and $335,000 of tax benefit, respectively. The Company recorded tax expense using an effective rate of 2.1% for the fiscal year. Tax expense results from foreign and state tax. The Company was able to utilize its reserved net operating loss carryforwards to offset federal taxable income and federal alternative minimum taxable income. The Company had two discrete tax items which impacted the tax provision in the six months ended September 30, 2010. A $345,000 tax benefit was recorded in the first quarter of fiscal year 2011 related to the reversal of a reserve against an uncertain tax position because the statue of limitations related to the position expired. The Company also recorded a $178,000 benefit in the first quarter of fiscal year 2011 that related to the Company’s ability to fully offset alternative minimum taxable income with alternative minimum tax net operating loss carryforwards that were generated in fiscal year 2008.

Net income Net income was $3.5 million in the three months ended September 30, 2011 compared to net income of $4.8 million in the three months ended September 30, 2010. Net income was $24.6 million in the six months ended September 30, 2011 compared to net income of $9.4 million in the six months ended September 30, 2010. The changes were due to the cumulative effects of the variances identified above.

 

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Liquidity and Capital Resources

At September 30, 2011, the Company had $107.9 million in cash and cash equivalents and short-term investments, consisting of bank deposits, money market funds, certificates of deposits, and municipal bonds. The Company also had $3.4 million of restricted cash relating to the CNS asset sale at September 30, 2011. At September 30, 2011, the Company had no amounts outstanding and $12.0 million available under its secured revolving credit facility.

The Company does not have any significant debt, nor does it have material capital expenditure requirements, or other payments due on long-term obligations. The Company does not have any off-balance sheet arrangements other than the guarantee on the Enginuity note described in Note 9 of the Condensed Consolidated Financial Statements or standard operating leases. Total future obligations and commitments as of September 30, 2011 were $34.0 million. The Company believes that the existing sources of liquidity and cash from operations will satisfy cash flow requirements for the foreseeable future.

The Company entered into a revolving credit agreement with The Private Bank and Trust Company dated as of March 5, 2009 (the “Credit Agreement”) and subsequently entered into amendments to its Credit Agreement to extend the maturity date to March 31, 2012 and amend certain other provisions. The Credit Agreement is an asset-based revolving credit facility in an amount up to $12.0 million based on 80% of eligible accounts receivable plus the lesser of 30% of eligible inventory or $3.0 million. The obligations of the Company under the Credit Agreement are secured by a guaranty from certain direct and indirect domestic subsidiaries of the Company, and by substantially all of the assets of the Company.

The revolving loans under the Credit Agreement bear interest at the greater of the London Interbank Offered Rate (“LIBOR”) plus a spread of 2.25%, or an alternative base rate. The alternative base rate is the greater of the prime rate or the Federal Funds rate (the “Base Rate”). The Company is also required to pay a non-use fee of 0.2% per annum on the unused portion of the revolving loans. These charges are waived if the Company maintains with the lender an average monthly non-interest bearing account balance of $5.0 million and an average monthly balance of $15.0 million consisting of other investments. The Company maintained such balances since entering the Credit Agreement.

The Credit Agreement contains financial covenants that include a minimum EBITDA, a minimum tangible net worth and a limitation on capital expenditures for any fiscal year. The Company was in compliance with these covenants on September 30, 2011.

The Company’s operating activities used cash of $4.6 million in the six months ended September 30, 2011. Cash was generated from earnings but was more than offset by a reduction of accounts payable. The Company retained certain pre-CNS asset sale accounts receivable and accounts payable related to the CNS business that was sold to NETGEAR. The majority of those assets converted to cash and liabilities were paid after the transaction closed and are reflected in the current fiscal year operating activities on the Condensed Consolidated Statements of Cash Flows. The Company’s investing activities for the six month ended September 30, 2011 provided $14.6 million of cash which resulted primarily from $36.7 million received from the CNS asset sale, offset in part by net purchases of short-term investments, net of maturities, of $18.4 million. The Company’s financing activities used $7.2 million of cash, represented by $8.8 million of treasury stock repurchases offset by $1.6 million of proceeds from the exercise of stock options in the six months ended September 30, 2011.

Future obligations and commitments decreased $19.5 million in the six-month period ended September 30, 2011 to $34.0 million, down from $53.5 million at March 31, 2011. On April 15, 2011, $12.3 million of purchase obligations were assigned to NETGEAR upon completion of the transaction. The remaining change was primarily due to a decrease in inventory purchase obligations in the CNS equipment segment as the Company fulfills the remaining non-cancellable customer orders.

As of September 30, 2011, the Company had net deferred tax assets of approximately $47.9 million. The federal net operating loss carryforward begins to expire in fiscal year 2020. Realization of deferred tax assets associated with the Company’s future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration, among other factors. The Company uses estimates of future taxable income to access the valuation allowance required against the deferred tax assets. Management periodically evaluates the recoverability of the deferred tax assets and will adjust the valuation allowance against deferred tax assets accordingly.

 

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Critical Accounting Policies

A complete description of the Company’s significant accounting policies is discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2011. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended March 31, 2011, except as set forth below.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with maturities of three months or less when purchased and include bank deposits, money market funds and debt instruments consisting of pre-refunded municipal bonds. The municipal bonds are classified as held-to-maturity and are carried at amortized cost. Money market funds are accounted for as available-for-sale securities under the requirements of Accounting Standards Codification topic 320, Investments – Debt and Equity Securities (“ASC 320”).

Short-term Investments

Certificates of deposit held for investment with an original maturity greater than 90 days are included in “short-term investments”. The certificates of deposit are insured by the Federal Deposit Insurance Corporation (“FDIC”) and are not debt securities. The Company also invests in debt instruments consisting of pre-refunded municipal bonds. The income and principal from these pre-refunded bonds is secured by an irrevocable trust holding U.S Treasury securities. The bonds are classified as short-term have original maturities of greater than 90 days, but have remaining maturities of less than one year. The municipal bonds are classified as held-to-maturity and are carried at amortized cost.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

As of September 30, 2011, there were no material changes to the information provided in Item 7A of the Company’s Annual Report on Form 10-K for fiscal year ended March 31, 2011.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s senior management, including the Company’s chief executive officer and chief financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s 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”), as of the end of the period covered by this quarterly report (the “Evaluation Date”). Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded as of the Evaluation Date that the Company’s disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in the Company’s Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2011 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in various legal proceedings incidental to the Company’s business. In the ordinary course of our business, we are routinely audited and subject to inquiries by governmental and regulatory agencies. Management believes that the outcome of such proceedings will not have a material adverse effect on our consolidated operations or financial condition.

ITEM 1A. RISK FACTORS

See “Risk Factors” in Part 1 – Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2011 for information about risk factors. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended March 31, 2011.

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

Issuer Purchases of Equity Securities

The following table provides information about the Company’s repurchase activity for its Class A Common Stock during the three months ended September 30, 2011.

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid per Share
(a)
     Total Number of
Shares Purchased

as Part of Publicly
Announced
Programs (b)
     Maximum Number (or
Approximate Dollar
Value) that May Yet Be
Purchased Under the
Programs (b) (c)
 

July 1 - 31, 2011

     141,241       $ 3.4798         141,241       $ 3,037,353   

August 1 - 31, 2011

     775,940       $ 2.5679         775,940       $ 21,044,831   

September 1 - 30, 2011

     —         $ —           —         $ 21,044,831   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     917,181       $ 2.7083         917,181       $ 21,044,831   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) Average price paid per share excludes commissions.
(b) In February 2010, the Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an aggregate of $10.0 million of its outstanding Class A Common Stock.
(c) In August 2011, the Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an additional aggregate of $20.0 million of its outstanding Class A Common Stock.

ITEM 6. EXHIBITS

 

Exhibit 31.1    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2    Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
Exhibit 32.1    Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101    The following financial information from the Quarterly Report on Form 10-Q for the period ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to the Condensed Consolidated Financial Statements tagged as blocks of text

Items 3, 4 and 5 are not applicable and have been omitted.

 

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SIGNATURES

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

 

      WESTELL TECHNOLOGIES, INC.
     

(Registrant)

DATE: October 28, 2011     By:  

/s/ Richard S. Gilbert

      Richard S. Gilbert
      Chief Executive Officer
    By:  

/s/ Brian S. Cooper

      Brian S. Cooper
      Chief Financial Officer
    By:  

/s/ Amy T. Forster

      Amy T. Forster
      Chief Accounting Officer

 

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WESTELL TECHNOLOGIES, INC.

EXHIBIT INDEX

 

Exhibit Number

  

Description

Exhibit 31.1    Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2    Certification by the Chief Financial Officer Pursuant to Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
Exhibit 32.1    Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 101    The following financial information from the Quarterly Report on Form 10-Q for the period ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to the Condensed Consolidated Financial Statements tagged as blocks of text

 

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