e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
June 29, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
001-33278
HARRIS STRATEX NETWORKS,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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20-5961564
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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637 Davis Drive
Morrisville, North Carolina
(Address of principal
executive offices)
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27560
(Zip Code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Common Stock, par
value $0.01 per share
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The NASDAQ Stock Market LLC
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Class B Common Stock, par
value $0.01 per share
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None
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Warrants
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None
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (l) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and
large accelerated filer in
Rule 12b-2
of the Exchange Act (check one):
Large Accelerated Filer
o Accelerated
Filer
o Non-Accelerated
Filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
As of December 29, 2006, the last business day of our most
recently completed second fiscal quarter, our Class A
Common Stock was not listed on any exchange or over-the-counter
market. Our Class A Common Stock began trading on the
NASDAQ Global Market on January 30, 2007. As of
June 29, 2007, the aggregate market value of the
registrants Class A Common Stock held by
non-affiliates was approximately $450,097,000.
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Class of Stock
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Shares Outstanding as of August 14, 2007
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Class A Common Stock, par
value $0.01 per share
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25,455,168
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Class B Common Stock, par
value $0.01 per share
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32,913,377
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Total shares of common stock
outstanding
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58,368,545
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DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for
the Annual Meeting of Shareholders scheduled to be held
November 14, 2007, which will be filed with the Securities
and Exchange Commission within 120 days after the end of
the registrants fiscal year ended June 29, 2007, are
incorporated by reference into Part III of this Annual
Report on
Form 10-K
to the extent described therein.
HARRIS
STRATEX NETWORKS, INC.
ANNUAL REPORT ON
FORM 10-K
For the Fiscal Year Ended June 29, 2007
TABLE OF
CONTENTS
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K,
including Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they do not
materialize or prove correct, could cause our results to differ
materially from those expressed or implied by such
forward-looking statements. All statements other than statements
of historical fact are statements that could be deemed
forward-looking statements, including statements of, about,
concerning or regarding: our plans, strategies and objectives
for future operations; our research and development efforts and
new product releases and services; trends in revenue; drivers of
our business and the markets in which we operate; future
economic conditions, performance or outlook and changes in our
industry and the markets we serve; the outcome of contingencies;
the value of our contract awards; beliefs or expectations; the
sufficiency of our cash and our capital needs and expenditures;
our intellectual property protection; our compliance with
regulatory requirements and the associated expenses;
expectations regarding litigation; our intention not to pay cash
dividends; seasonality of our business; the impact of foreign
exchange and inflation; taxes; and assumptions underlying any of
the foregoing. Forward-looking statements may be identified by
the use of forward-looking terminology, such as
believes, expects, may,
should, would, will,
intends, plans, estimates,
anticipates, projects,
targets, goals, seeing,
delivering, continues,
forecasts, future, predict,
might, could, potential, or
the negative of these terms, and similar words or expressions.
You should not place undue reliance on these forward-looking
statements, which reflect our managements opinions only as
of the date of the filing of this Annual Report on
Form 10-K.
Forward-looking statements are made in reliance upon the safe
harbor provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, 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 Annual
Report on
Form 10-K
or, in the case of any document incorporated by reference, the
date of that document, and disclaim any obligation to do so.
The following are some of the factors we believe could cause our
actual results to differ materially from expected and historical
results. Other factors besides those listed here also could
adversely affect us, including those in Item 1A. Risk
Factors:
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The recent acquisition of Stratex could be difficult to
integrate and we may fail to see the expected synergies between
the combined companies.
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We participate in markets that are often subject to uncertain
economic conditions, which makes it difficult to estimate growth
in our markets and, as a result, future income and expenditures.
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We derive a substantial portion of our revenue from
international operations and are subject to the risks of doing
business in foreign countries, including fluctuations in foreign
currency exchange rates.
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Our future success will depend on our ability to develop new
products that achieve market acceptance.
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We cannot predict the consequences of future geo-political
events, but they may adversely affect the markets in which we
operate, our ability to insure against risks, our operations or
our profitability.
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We have made, and may continue to make, strategic acquisitions
that involve significant risks and uncertainties, including the
diversion of management attention, difficulties in integration
and a failure to realize expected synergies between the combined
companies.
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The inability of our subcontractors to perform, or our key
suppliers to deliver our components or products, could cause our
products to be produced in an untimely or unsatisfactory manner.
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Third parties have claimed in the past and may claim in the
future that we are infringing upon their intellectual property
rights, and third parties may infringe upon our intellectual
property rights.
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The outcome of litigation or arbitration in which we are
involved is unpredictable and an adverse decision in any such
matter could have a material adverse affect on our financial
position and results of operations.
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We are subject to customer credit risk.
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Developing new technologies entails significant risks and
uncertainties.
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We have significant operations in Florida that could be
materially and adversely impacted in the event of a hurricane,
and operations in California that could be materially and
adversely impacted in the event of an earthquake.
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Changes in our effective tax rate may have an adverse effect on
our results of operations.
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PART I.
Harris Stratex Networks, Inc., together with its subsidiaries,
is a leading global independent supplier of turnkey wireless
network solutions and comprehensive network management software,
backed by an extensive suite of professional services and
support. As the market share leader in North America and a
top-tier provider in international markets, we offer a broad
portfolio of reliable, flexible, scalable and cost-efficient
wireless network solutions, based on our innovative microwave
radio systems and network management software. We serve all
global markets, including mobile network operators, public
safety agencies, private network operators, utility and
transportation companies, government agencies and broadcasters.
Customers in more than 135 countries depend on us to build,
expand and upgrade their voice, data and video solutions and we
are recognized around the world for innovative,
best-in-class
solutions and services.
Harris Stratex Networks, Inc. was incorporated in Delaware in
2006 to combine the businesses of Harris Corporations
Microwave Communications Division (MCD) and Stratex
Networks, Inc. (Stratex). Our principal executive
offices are located at 637 Davis Drive, Morrisville, North
Carolina 27560. Our telephone number is
(919) 767-3230.
Our Internet address is www.harrisstratex.com. Our common
stock is listed on the NASDAQ Global Market under the symbol
HSTX. On August 1, 2007, we employed approximately
1,440 people. Unless the context otherwise requires, the
terms we, our, us,
Company, HSTX and Harris
Stratex as used in this Annual Report on
Form 10-K
refer to Harris Stratex Networks, Inc. and its subsidiaries.
Acquisition
of Stratex Networks, Inc. and Combination with MCD
On January 26, 2007, we completed our merger (the
Stratex acquisition) with Stratex Networks, Inc.
(Stratex) pursuant to a Formation, Contribution and
Merger Agreement among Harris Corporation, Stratex, and Stratex
Merger Corp., as amended and restated on December 18, 2006
and amended by letter agreement on January 26, 2007. In the
transaction, Stratex Merger Corp., a wholly-owned subsidiary of
the Company, merged with and into Stratex, with Stratex as the
surviving corporation (renamed as Harris Stratex Networks
Operating Corporation). Concurrently with the merger of
Stratex and Stratex Merger Corp. (the merger),
Harris Corporation contributed the Microwave Communications
Division (MCD), along with $32.1 million in
cash (comprised of $26.9 million contributed on
January 26, 2007 and $5.2 million held by the
Companys international operating subsidiaries on
January 26, 2007) to the Company (the
contribution transaction).
Pursuant to the merger, each share of Stratex common stock was
converted into one-fourth of a share of our Class A common
stock, and a total of 24,782,153 shares of our Class A
common stock were issued to the former holders of Stratex common
stock. In the contribution transaction, Harris Corporation
contributed the assets of MCD, along with $32.1 million in
cash, and in exchange, we assumed certain liabilities of Harris
Corporation related to MCD and issued 32,913,377 shares of
our Class B common stock to Harris Corporation. As a result
of these transactions, Harris Corporation owned approximately
57% and the former Stratex shareholders owned approximately 43%
of our total outstanding stock immediately following the closing.
We completed the Stratex acquisition to create a leading global
communications solutions company offering end-to-end wireless
transmission solutions for mobile and fixed-wireless service
providers and private networks.
2
The Stratex acquisition was accounted for as a purchase business
combination. Total consideration paid by us was approximately
$493.1 million as summarized in the following table (see
Note D to consolidated financial statements):
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January 26,
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Calculation of Allocable Purchase Price (In millions):
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2007
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Value of Harris Stratex Networks
shares issued to Stratex Networks stockholders
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$
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464.9
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Value of Stratex Networks vested
options assumed
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15.5
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Acquisition costs
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12.7
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Total allocable purchase price
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$
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493.1
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Overview
of Companies prior to the Business Combination
Stratex
Networks, Inc.
Stratex Networks, Inc., formerly known as Digital Microwave
Corporation and DMC Stratex Networks, Inc., was incorporated in
California in 1984 and reincorporated in Delaware in 1987. In
August 2002, Stratex changed its name from DMC Stratex Networks,
Inc. to Stratex Networks, Inc. Stratex was a leading provider of
innovative wireless transmission solutions to mobile wireless
carriers and data access providers around the world. Its
solutions also addressed the requirements of fixed wireless
carriers, enterprises and government institutions that operate
broadband wireless networks. The company designed, manufactured
and marketed a broad range of products that offered a wide range
of transmission frequencies, ranging from 0.3 to 38 gigahertz
(GHz), and a wide range of transmission capacities,
typically ranging from 64 kilobits per second to 2xOC-3 or 311
megabits per second. In addition to product offerings, the
company provided network planning, design and installation
services and worked closely with its customers to optimize
transmission networks.
Stratex had a long history of introducing innovative products
into the telecommunications industry. Its newest product
platform,
Eclipsetm,
which began shipping in January 2004, was one of the first
wireless transmission platforms to combine a broad range of
wireless transmission functions into one network processing
node. This node contains many functions that previously had to
be purchased separately from one or more equipment suppliers.
Eclipse has the flexibility to increase transmission speeds and
adjust capacity via software upgrades. It is designed to
simplify complex networks and lower the total cost of ownership
over the product life.
The sales of all of Stratex product lines were generated
primarily through its worldwide direct sales force. The company
also generated sales through base station suppliers,
distributors and agents. It marketed its products directly to
service providers directly, as well as indirectly through
relationships with original equipment manufacturer
(OEM) base station suppliers. Overall, Stratex had
sold over 300,000 microwave radios prior to its merger with the
Company, which have been installed in over 135 countries.
Harris
Corporations Microwave Communications
Division
MCD designed, manufactured and sold a broad range of microwave
radios for use in worldwide wireless communications networks.
Applications included wireless/mobile infrastructure
connectivity; secure data networks; public safety transport for
state, local and federal government users; and right-of-way
connectivity for utilities, pipelines, railroads and industrial
companies. In general, wireless networks are constructed using
microwave radios and other equipment to connect cell sites,
fixed-access facilities, switching systems, land mobile radio
systems and other wireless transmission systems. For many
applications, microwave systems offer a lower-cost, highly
reliable alternative to competing transmission technologies such
as fiber, coaxial cable or copper wire systems. MCDs
product line spanned frequencies from 2 to 38 GHz and
included:
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The
TRuepoint®
family of microwave radios. MCDs
next-generation microwave point-to-point radio platform, which
provides Synchronous Digital Hierarchy (SDH) and
Plesiochronous Digital Hierarchy (PDH) in a single
platform and is designed to meet the current and future needs of
network operators, including mobile, private network, government
and access service providers. The unique architecture of the
core platform reduces both capital expenditures and life cycle
costs, while meeting international and North American standards
and regulatory requirements. The software-based architecture
enables transition
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between traditional microwave access applications and
higher-capacity transport interconnections. The wide range of
capacities, interfaces, modulation schemes, frequency/channel
plans and power levels have been made available to meet the
requirements of networks around the world. The TRuepoint product
family delivered service from 4 to 180 megabits per second
(Mbps) capacity at frequencies ranging from 6 to
38 GHz;
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The
Constellation®
medium-to-high-capacity family of point-to-point digital radios,
operating in the 6, 7/8 and 10/11 GHz frequencies, designed
for network applications and supporting both PDH and Synchronous
Optical Network (SONET), the standard for digital
transport over optical fiber in North American applications.
Constellation radios are suited for wireless mobile carriers and
private operators, including critical public safety
networks; and
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MegaStar®
high-capacity, carrier-class digital point-to-point radios,
operating in the 5, 6, 7/8 and 11 GHz frequencies and
designed to eliminate test equipment requirements, reduce
network installation and operation costs, and conform to PDH,
SONET and SDH standards.
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MCD provided turnkey microwave systems and service capabilities,
offering complete network and systems engineering support and
services, including planning, design and systems integration,
site surveys and builds, deployment, management, training and
customer service the full range of services being a
key competitive discriminator for MCD in the microwave radio
industry.
MCD also offered a comprehensive network management system. Its
NetBoss®
integrated network management platform supports wireless,
wireline and Internet service providers. NetBoss offers fault
management, performance management, service activation, billing
mediation and Operational Support System (OSS)
integration in a modular, off-the-shelf solution designed for
rapid deployment. The modularity of NetBoss enables customers to
implement a comprehensive set of capabilities immediately or
gradually, as their needs dictate. The newest offering in this
product family is NetBoss EM, an element manager.
Principal customers for MCDs products and services
included domestic and international wireless/mobile service
providers, original equipment manufacturers, as well as private
network users such as public safety agencies, utilities,
pipelines, railroads and other industrial enterprises. In
general, MCDs North American products and services were
sold directly to customers through its sales organizations and
established distribution channels. Internationally, MCD marketed
and sold its products and services through regional sales
offices and established distribution channels.
Overview
of Integrated Company after the Business Combination
We design, manufacture and sell a range of wireless networking
products, solutions and services to mobile and fixed telephone
service providers, private network operators, government
agencies, transportation and utility companies, public safety
agencies and broadcast system operators across the globe.
Products include point-to-point digital microwave radio systems
for mobile system access, backhaul, trunking and license-exempt
applications, supporting new network deployments, network
expansion, and capacity upgrades. We offer a broad range of
products, including the products developed and sold by both
Stratex and MCD. We deliver our products and services through
three reportable business segments: North America Microwave,
International Microwave and Network Operations. Network
Operations serves all markets worldwide. Revenue and other
financial information regarding our business segments is set
forth on pages
39-41 of
this Annual Report on
Form 10-K.
North
America Microwave
The North America Microwave segment delivers microwave radio
products and services to major national carriers and other
cellular network operators, public safety operators and other
government agencies, systems integrators, transportation and
utility companies, and other private network operators within
North America. A large part of our North American business is
with the cellular backhaul and public safety segments.
Historically, and prior to the merger of Stratex and Harris MCD,
the North America Microwave segment accounted for the most
significant portion of our revenue. Because substantially all of
Stratexs revenue was in international markets, our North
America segment revenue declined to approximately 43% of our
total revenue for
4
fiscal 2007. We generally sell products and services directly to
our customers. We use distributors to sell some products and
services.
International
Microwave
The International Microwave segment delivers microwave radio
products and services to regional and national carriers and
other cellular network operators, public safety operators,
government and defense agencies, and other private network
operators in every region outside of North America. Our wireless
systems deliver regional and country-wide backbone in developing
nations, where microwave radio installations provide
21st-century
communications rapidly and economically. Rural communities,
areas with rugged terrain and regions with extreme temperatures
benefit from the ability to build an advanced, affordable
communications infrastructure despite these challenges. A
significant part of our international business is in supplying
wireless segments in small-pocket, remote, rural and
metropolitan areas. High-capacity backhaul is another major
opportunity for us. We see the increase in subscriber density
and the forecasted growth and introduction of new
bandwidth-hungry 3G services as major drivers for growth is this
market.
Our International Microwave segment represented approximately
53% of our revenue for fiscal 2007. The addition of Stratex
business contributes significantly to our International
Microwave segment, since approximately 95% of Stratexs
historical revenue was in international markets. We generally
sell products and services directly to our customers. We use
agents and distributors to sell some products and services in
international markets.
Network
Operations
The Network Operations segment offers a wide range of
software-based network management solutions for network
operators worldwide, from element management to turnkey,
end-to-end network management and service assurance solutions
for virtually any type of communications or information
network including broadband, wireline, wireless and
converged networks. The NetBoss product line develops, designs,
produces, sells and services network management systems for
these applications. Other element management product families
include
ProVision®
and
StarViewtm.
Our Network Operations segment represented approximately 4% of
our revenue for fiscal 2007. We generally sell products and
services directly to our customers. We use agents, resellers and
distributors to sell some products and services in international
markets.
Industry
Background
Wireless transmission networks are constructed using microwave
radios and other equipment to connect cell sites, switching
systems, wireline transmission systems and other fixed access
facilities. Wireless networks range in size from a single
transmission link connecting two buildings to complex networks
comprising of thousands of wireless connections. The
architecture of a network is influenced by several factors,
including the available radio frequency spectrum, coordination
of frequencies with existing infrastructure, application
requirements, environmental factors and local geography.
There has been an increase in the capital spending in the
wireless telecommunications industry in recent years. The demand
for high-speed wireless transmission products has been growing
at a slightly higher rate than the wireless industry as a whole.
We believe that this growth is directly related to a growing
global subscriber base for mobile wireless communications
services, increased demand for fixed wireless transmission
solutions and demand for new services delivered from
next-generation networks capable of delivering broadband
services. Major driving factors for such growth include the
following:
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Increase in global wireless subscribers and minutes of use.
The number of global wireless subscribers and
minutes of use per subscriber are expected to continue to
increase. The primary drivers include increased subscription,
increased voice minutes of use per subscriber and the growing
use by subscribers of data applications. Third generation, or
3G, data applications have been introduced in
developed countries and this has fueled an increase in minutes
of data use. We believe that growth as a result of new data
services will continue for the next several years.
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Increased establishment of mobile and fixed wireless
telecommunications infrastructures in developing
countries. In parts of the world,
telecommunications services are inadequate or unreliable because
of the lack of existing infrastructures. To service providers in
developing countries seeking to increase the availability and
quality of telecommunications and Internet access services,
wireless solutions are an attractive alternative to the
construction or leasing of wireline networks, given their
relatively low cost and ease of deployment. As a result, there
has been an increased establishment of mobile and fixed wireless
telecommunications infrastructures in developing countries.
Emerging telecommunications markets in Africa, Asia, the Middle
East, Latin America and Eastern Europe are characterized by a
need to build out basic telecommunications systems.
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Technological advances, particularly in the wireless
telecommunications market. The demand for
cellular telephone and other wireless services and devices
continues to increase due to technological advances and
increasing consumer demand for connectivity to data and voice
services. New mobile-based services based upon third-generation
wireless technology is also creating additional demand and
growth in mobile networks and their associated infrastructure.
The demand for fixed broadband access networks has also
increased due to data transmission requirements resulting from
Internet access demand. Similar to cellular telephone networks,
wireless broadband access is typically less expensive to install
and can be installed more rapidly than a wireline or fiber
alternative. New and emerging services such as WiMAX are
expected to expand over the next several years. Both WiMAX and
new high-speed mobile-based technology can be used for a number
of applications, including last mile broadband
connections, hotspots and cellular backhaul, and high-speed
enterprise connectivity for business.
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Global deregulation of telecommunications market and
allocation of radio frequencies for broadband wireless
access. Regulatory authorities in different
jurisdictions allocate different portions of the radio frequency
spectrum for various telecommunications services. Many countries
have privatized the state-owned telecommunications monopoly and
opened their markets to competitive network service providers.
Often these providers choose a wireless transmission service,
which causes an increase in the demand for transmission
solutions. Such global deregulation of the telecommunications
market and the related allocation of radio frequencies for
broadband wireless access transmission have led to increased
competition to supply wireless-based transmission systems.
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Other Global trends and developments in the microwave
communications markets include:
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Continuing fixed-line to mobile-line substitution;
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Private networks and public telecommunications operators
building high-reliability, high-bandwidth networks that are more
secure and better protected against natural and man-made
disasters;
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Continuing global mobile operator consolidation; and
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An FCC network initiative in the U.S. The FCC has allocated
90 megahertz (MHz) of spectrum to Advanced Wireless
Services (AWS) 45 MHz in the
1710-1755 MHz
(government) band and 45 MHz in the
2110-2155 MHz
(commercial) band. Operators and federal agencies currently
using these frequencies must move to another frequency to allow
new entrants to use these frequencies for networks that deliver
AWS services. This is a large opportunity for wireless
transmission solution providers with extensive experience with
frequency moves, as is the case with Harris Stratex Networks.
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We believe that as broadband access and telecommunications
requirements grow, wireless systems will continue to be used as
transmission systems to support a variety of existing and
expanding communications networks and applications. We believe
that wireless systems will be used to address the connection
requirements of several markets and applications, including the
broadband access market, cellular applications and private
networks.
6
Strategy
Our objective is to enhance our position as a leading provider
of innovative, high-value wireless transmission solutions for
the worldwide mobile, network interconnection and broadband
access markets. To achieve this objective, our strategy is to:
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Continue to serve our existing customer
base. As a combined company, we have sold more
than 750,000 microwave radios in over 135 countries. Today, our
sales are distributed about evenly between the United States and
international markets, with the international segment growing at
a faster rate. We intend to leverage our customer base, our
longstanding presence in many countries, our distribution
channels, our comprehensive product line and our turnkey
solution capability to continue to sell existing and new
products and services to current customers.
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Continue to grow our North America
business. The North American market has been a
traditional stronghold for MCD, and Harris Stratex Networks
continues to be a clear leader in the U.S. wireless
transmission market. We plan to continue our growth and
leadership with innovative TRuepoint solutions for cellular
backhaul, public safety, government, utilities, transportation
and other market segments. Eclipse will play a growing role in
cellular backhaul and in carrier Ethernet, a new type of
networking using data links for all types of carrier services,
including voice.
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Continue to grow our international
business. We believe we are well-positioned to
take advantage of worldwide market opportunities for wireless
infrastructure to significantly grow our international business.
We have a strong presence in Africa, as well as Europe, the
Middle East and Russia, (EMER) and a growing
presence in the Asia-Pacific region and South America. We plan
to pursue opportunities in high-growth markets in all of these
regions, leveraging our innovative products, full turnkey
solution capability and professional services. Our new
international headquarters in the Republic of Singapore
(Singapore ) is now in operation as a base for our
international business and a sales and service hub for the
Asia-Pacific region, reflecting and supporting our growing focus
on international markets.
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Continue to introduce innovative products that meet the needs
of our customers. We have a long history of
introducing innovative products into the telecommunications
industry. Both Eclipse and TRuepoint offer high-value solutions
to virtually every type of service provider or network operator.
Eclipse offers a flexible, cost-efficient nodal solution that
reduces external equipment requirements, while TRuepoint offers
flexible, high-performance, high-reliability wireless networking
for all global capacity and frequency requirements.
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Expand existing markets and explore new market
opportunities. We intend to expand our presence
in the mobile wireless market by exploiting market opportunities
created by the growing number of global wireless subscribers,
increasing global minutes of use, the continuing emergence of
new services and the commitment of developing nations around the
world to expand national infrastructure to all population areas
via cost-efficient, rapidly installed microwave radio networks.
We also intend to expand our market share in the emerging data
business. In particular, carrier-grade Ethernet market
opportunities are starting to emerge and Eclipse is ideally
suited to meet those needs.
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Offer complete turnkey solutions. We plan to
continue leveraging more than eight decades of microwave
experience in the combined companies to offer industry-leading
professional services, from network planning to site builds,
system deployment and network monitoring.
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Deliver superior customer service. We intend
to keep improving our industry-leading customer service
organization to maximize our customers satisfaction with
our solutions and loyalty to us as a solution provider.
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Solutions
Our solutions are designed to meet the various regional,
operational and licensing needs of our wireless transmission
customers. We provide turnkey microwave systems and service
capabilities, offering complete civil
7
engineering, network and systems engineering support and
services a key competitive differentiator for Harris
Stratex Networks in the microwave radio industry. Our solutions
offer the following benefits:
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Broad product and solution portfolio. We offer
a comprehensive line of wireless transmission solutions,
consisting of various combinations of microwave digital radios,
integrated ancillary equipment from Harris Stratex Networks or
other manufacturers, network management systems and professional
services. These solutions address a wide range of transmission
frequencies, ranging from 2 to 38 GHz, and a wide range of
transmission capacities, ranging from 64 kilobits per second to
311 megabits per second. Major product families include Eclipse,
TRuepoint, MegaStar, Constellation,
Auroratm,
Velox
LEtm,
NetBoss and ProVision.
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Low total cost of ownership. Compared to
prior-generation products, both Eclipse and TRuepoint offer a
relatively low total cost of ownership, based on the combined
costs of initial acquisition, installation and ongoing operation
and maintenance. Multiple factors work to reduce cost of
ownership. Both platforms reduce rack space and spare parts
requirements. Installation, operation, upgrade and maintenance
costs are also lower because of automated or simplified
procedures and the smaller number of parts required to obtain
the same functionality as previous generations. Products in both
platforms have a longer life.
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Future-proof network. Eclipse and TRuepoint
are designed to future-proof the network operators
investment, via software-configurable capacity upgrades and
plug-in modules that provide an easy migration path to emerging
technologies, such as Internet Protocol (IP)-based
networking.
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Flexible, easily configurable products. We
intend to continue using standard design platforms, flexible
architectures and chip designs and software configurable
features. This design and manufacturing strategy allows us to
offer our customers high-performance products with a high degree
of flexibility and functionality, while shortening the time
required for us to develop new configurations and capabilities.
The software features of our products give our customers a
greater degree of flexibility in installing, operating and
maintaining their networks. Both Eclipse and TRuepoint are
highly scalable and easily configurable through software, giving
operators the ability to adapt to changing conditions with
minimal cost and disruption and making it easier for them to
plan and deploy their networks.
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Comprehensive network management. We offer a
range of flexible network management solutions, from element
management to enterprise-wide network management and service
assurance all optimized to work with Harris Stratex
Networks wireless transmission systems. NetBoss is also
offered as a stand-alone solution for a wide range of
communications and information networking environments in
virtually any industry.
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Complete professional services. In addition to
our product offerings, we provide expert network planning and
design, site surveys and builds, systems integration,
installation, maintenance, network monitoring, training,
customer service and many other professional services. Our
services cover the entire evaluation, purchase, deployment and
operational cycle and enable us to be one of the few complete
turnkey solution providers in the industry.
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Product
Portfolio
We offer a comprehensive product portfolio that addresses the
needs of service providers and network operators in every region
of the world, addressing a broad range of applications,
frequencies, capacities and network topologies. Product
categories include licensed (subject to local frequency
licensing) and license-exempt (operating in license-exempt
frequencies) point-to-point microwave radios and network
management software.
Licensed
Point-to-Point Microwave Radios
In general, wireless networks are constructed using microwave
radios and other equipment to connect cell sites, fixed-access
facilities, switching systems, land mobile radio systems and
other communications systems. For many applications, microwave
systems offer a lower-cost, highly reliable and more easily
deployable alternative to competing wireline transmission media,
such as fiber, copper or coaxial cable.
8
Our principal product families of licensed point-to-point
microwave radios include Eclipse, a platform for nodal wireless
transmission systems and TRuepoint, a platform for
high-performance point-to-point wireless communications.
Constellation and MegaStar continue to be significant product
families used for high-capacity trunking applications both in
U.S. and international markets.
Eclipse
Eclipse combines wireless transmission functions with network
processing node functions, including many functions that, for
non-nodal products, would have to be purchased separately. Each
Eclipse Intelligent Node Unit (INU) is a complete
network node, able to support multiple radio paths. System
functions include voice, data and video transport, node
management, multiplexing, routing and cross-connection. Eclipse
is designed to simplify complex networks and lower the total
cost of ownership over the product life. We believe that these
are significant innovations that address the needs of a broad
range of customers.
With frequency coverage from 5 to 38 GHz, low-to-high
capacity operation and traditional TDM and Ethernet transmission
capabilities, Eclipse is designed to support a wide range of
long and short haul applications. In fiscal year 2006, Eclipse
added carrier-grade Ethernet support via Ethernet plug-in cards.
Eclipse is software-configurable, enabling easy capacity
upgrades, and gives users the ability to plan and deploy
networks and adapt to changing conditions at minimum cost and
disruption. It requires fewer parts and spares and less rack
space than previous-generation product platforms.
TRuepoint
Our TRuepoint product family offers full
plug-and-play,
software-programmable microwave radio configuration. It delivers
service from 4 to 180 megabits per second capacity at
frequencies ranging from 6 to 38 GHz. TRuepoint is designed
to meet the current and future needs of network operators,
including mobile, private network, government and access service
providers. The unique architecture of the core platform reduces
both capital expenditures and life cycle costs, while meeting
international and North American standards. The software-based
architecture enables migration from traditional microwave access
applications to higher-capacity transport interconnections.
The TRuepoint family continues our tradition of
high-performance, high-reliability wireless networking. The
TRuepoint 5000 provides full-featured access, backhaul and
mid-capacity trunking. Currently in development and due for
release in fiscal 2008, the TRuepoint 6000 provides
very-high-capacity trunking and software-programmable features
in an advanced architecture. TRuepoint reduces cost of
deployment through smaller antenna requirements, increased
transmission distance, and fewer repeater sites. It also reduces
operating costs through high reliability, efficient diagnostics
and network management, reduced real estate requirements, low
power consumption and reduced spare parts and training
requirements.
Constellation
Our Constellation family of medium-to-high-capacity
point-to-point digital radios operates in the 6, 7/8 and
10/11 GHz frequencies, which are designed for network
applications and support both PDH, the standard for high-speed
networking in North American and international markets, and
SONET, the standard for digital transport over optical fiber in
North American applications. Constellation radios are suited for
wireless mobile carriers and private operators, including
critical public safety networks.
MegaStar
Our MegaStar family of very-high-capacity, N for 1,
carrier-class digital point-to-point radios operates in the 5,
6, 7/8 and 11 GHz frequencies. MegaStar radios are designed
to eliminate test equipment requirements, reduce network
installation and operation costs, and conform to PDH, SONET and
SDH standards.
9
License-Exempt
Point-to-Point Microwave Radios
Harris Stratex Networks offers two license-exempt product
families Aurora and Velox LE. Both provide wireless
interconnection for wireless access, cellular backhaul, Internet
service, local and wide area networking and emergency response
communications systems. Both enable network operators to deploy
wireless transmission systems rapidly, reliably and
cost-efficiently, while avoiding costly, time-consuming
frequency coordination and licensing.
Velox
LE
Velox LE license-exempt radios operate in the 2.4 and
5.8 GHz license-exempt frequency bands and offer wireless
service in 1, 2, 4 or 8 T1/E1 configurations. Velox LE provides
support for high-speed data and voice.
Network
Management
Our network management product families include NetBoss,
ProVision and StarView. These product families offer a broad set
of choices for all levels of network management, from
enterprise-wide management and service assurance to element
management.
NetBoss
NetBoss is a family of network management and service assurance
solutions for managing multi-vendor, multi-technology
communications networks. It offers high performance,
availability, scalability and flexibility, and is designed to
manage complex and demanding networks, including networks built
on advanced next-generation technologies.
NetBoss supports wireless and wireline networks of many types,
offering fault management, performance management, service
activation and assurance, billing mediation and OSS integration.
As a modular, off-the-shelf product, it enables customers to
implement management systems immediately or gradually, as their
needs dictate. NetBoss XE offers advanced element management.
NetBoss products are optimized to work seamlessly with Harris
Stratex Networks digital microwave radios, such as the TRuepoint
family, but can also be customized to manage products based on
any network or computing technology.
ProVision
The ProVision element manager is a centralized network
monitoring and control system optimized for Eclipse and
TRuepoint products. Available as a Windows or UNIX-based
platform, it can support small network systems as well as large
networks of up to 1,000 radio links. The ProVision management
system is built on open standards, and seamlessly integrates
into higher-level system management products through commonly
available interfaces.
StarView
StarView provides comprehensive element management for Harris
Stratex Networks and other microwave radio products based on the
SNMP protocol. It can manage almost any network topology.
Business
Factors
A number of business factors support or affect our overall
performance, including sales, marketing and service,
manufacturing, order backlog, customer base, our competition,
research, development and engineering, patents and intellectual
property, regulatory, supply chain and environmental issues and
our employee base.
Sales,
Marketing and Service
We believe that a direct and continuing relationship with
service providers is a competitive advantage in attracting new
customers and satisfying existing ones. As a result, we offer
our products and services through our own direct sales, service
and support organization, which allows us to closely monitor the
needs of our customers. We have offices in Canada and the United
States in North America; Mexico, Argentina and Brazil in Central
and
10
South America; Croatia, France, Germany, Poland, Portugal and
the United Kingdom in Europe; Kenya, Nigeria and South Africa in
Africa; the United Arab Emirates in the Middle East; and
Bangladesh, China, India, Indonesia, Malaysia, New Zealand, the
Philippines, Singapore and Thailand in the Asia-Pacific region.
Our local offices provide us with a better understanding of our
customers needs and enable us to respond to local issues
and unique local requirements.
We also have informal, and in some cases formal, relationships
with OEM base station suppliers. Such relationships increase our
ability to pursue a limited number of major contract awards each
year. In addition, such relationships provide our customers with
easier access to financing and integrated system providers with
a variety of equipment and service capabilities. In selected
countries, we also market our products through independent
agents and distributors, as well as through system integrators.
Our sales personnel are highly trained to provide customers with
assistance in selecting and configuring a digital microwave
transmission system suitable for a customers particular
needs. We have repair and service centers in India, New Zealand,
the Philippines, the United Kingdom and the United States. In
addition, we opened our international headquarters in Singapore
on June 20, 2007, with plans to provide customer support
for the Asia-Pacific region from this facility. We have customer
service and support personnel who provide customers with
training, installation, technical support, maintenance and other
services on systems under contract. We install and maintain
customer equipment directly in some cases and contract with
third-party service providers in other cases, depending on the
equipment being installed and customer requirements. We
generally offer a conditional warranty for all customers on all
of our products.
Manufacturing
We employ a dual strategy of manufacturing our own products and
using outsourced contract manufacturers. Some products, such as
TRuepoint, Constellation and MegaStar, are manufactured at our
facilities in San Antonio, Texas and the Peoples
Republic of China. For Eclipse products, we have outsourced the
majority of our manufacturing operations to Benchmark
Electronics (Benchmark) in Thailand,
Microelectronics Technology Inc. (MTI) in Taiwan and
China and to GPC Electronics in Australia. We have retained
product design and research and development functions for all of
our products.
Although we outsource Eclipse product manufacturing, we maintain
manufacturing support facilities in San Jose, California
and Wellington, New Zealand, mainly focused on system testing
and quality management. Our manufacturing operations have been
certified to International Standards Organization
(ISO) 9001, a recognized international quality
standard. We have also been certified to the TL 9000 standard, a
telecommunication industry-specific quality system standard.
Backlog
The backlog of unfilled orders was $232 million at
July 27, 2007, compared with $164 million at
July 28, 2006. Substantially all of this backlog is
expected to be filled during fiscal 2008, but we can give no
assurance of such fulfillment. Our backlog at July 27, 2007
includes $68 million from our Stratex acquisition. Product
orders in our current backlog are subject to changes in delivery
schedules or to cancellation at the option of the purchaser
without significant penalty. Accordingly, although useful for
scheduling production, backlog as of any particular date may not
be a reliable measure of sales for any future period because of
the timing of orders, delivery intervals, customer and product
mix and the possibility of changes in delivery schedules and
additions or cancellations of orders.
Customers
Principal customers for our products and services include
domestic and international wireless/mobile service providers,
original equipment manufacturers, as well as private network
users such as public safety agencies, government institutions,
and utility, pipeline, railroad and other industrial enterprises
that operate broadband wireless networks. We had revenue from a
single external customer that exceeded 10% of our total revenue
during fiscal 2006, but not during fiscal 2007 or fiscal 2005.
During fiscal 2006, VMobile Nigeria accounted for 15.1% of total
revenue. Although we have a large customer base, during any
given quarter, a small number of customers may account for a
significant portion of our revenue. In certain circumstances, we
sell our products to service providers
11
through OEMs, which provide the service providers with access to
financing and in some instances, protection from fluctuations in
international currency exchange rates.
In general, our North American products and services are sold
directly to customers through direct sales organizations and
through established distribution channels. Internationally, we
market and sell products and services through regional sales
offices and established distribution channels. We also sell our
products to agents, distributors and base station suppliers, who
provide and install integrated systems to service providers.
Non-U.S.
Business
Our revenue in fiscal 2007 from products exported from the
U.S. or manufactured abroad was $339.2 million (67% of
our revenue), compared with $196.8 million (55% of our
revenue) in fiscal 2006 and $157.4 million (51% of our
revenue) in fiscal 2005. These sales include both direct exports
from the U.S. and sales from international subsidiaries.
Most of these sales are derived from our International Microwave
segment. Direct export sales are primarily denominated in
U.S. dollars, whereas sales from international subsidiaries
are generally denominated in the local currency of the
subsidiary. Exports from the U.S., principally to Africa,
Canada, Europe, Asia and South and Central America, totaled
$214.3 million (63% of our non-U.S. revenue) in fiscal
2007, $85.1 million (43% of our non-U.S. revenue) in fiscal
2006 and $49.8 million (32% of our non-U.S. revenue) in
fiscal 2005. Operations conducted in local international
currencies represented 19% of our revenue in fiscal 2007, 20% of
our revenue in fiscal 2006 and 34% of our revenue in fiscal
2005. Non-U.S. operations represented 61% of our long-lived
assets as of June 29, 2007 and 57% of long-lived assets as
of June 30, 2006.
Non-U.S. marketing activities are conducted through subsidiaries
operating in Europe, Central and South America, Africa and Asia.
We also have established marketing organizations and several
regional sales offices in these same geographic areas.
We use indirect sales channels, including dealers, distributors
and sales representatives, in the marketing and sale of some
lines of products and equipment, both domestically and
internationally. These independent representatives may buy for
resale or, in some cases, solicit orders from commercial or
governmental customers for direct sales by us. Prices to the
ultimate customer in many instances may be recommended or
established by the independent representative and may be above
or below our list prices. These independent representatives
generally receive a discount from our list prices and may mark
up those prices in setting the final sales prices paid by the
customer. During fiscal 2007, revenue from indirect sales
channels represented 11% of our total revenue and 16% of our
non-U.S. revenue, compared to revenue from indirect sales
channels in fiscal 2006 representing 5% of our total revenue and
6% of our non-U.S. revenue.
Fiscal 2007 revenue came from customers in a large number of
international countries. Other than Nigeria, 10.9%, and Canada,
7.8%, no single country accounted for 5% or more of our total
revenue. Most of our exports are paid for by letters of credit,
with the balance carried either on an open account or
installment note basis. Advance payments, progress payments or
other similar payments received prior to, or upon shipment often
cover most of the related costs incurred. In addition,
significant international government contracts generally require
us to provide performance guarantees. In order to stay
competitive in international markets, we also enter into
recourse and vendor financing to facilitate sales to certain
customers.
The particular economic, social and political conditions for
business conducted outside the U.S. differ from those
encountered by domestic businesses. We believe that the overall
business risk for our international business as a whole is
somewhat greater than that faced by our domestic operations as a
whole. For a discussion of the risks we are subject to as a
result of our international operations, see Item 1A.
Risk Factors of this Annual Report on
Form 10-K.
Competition
The wireless access, backhaul and interconnection business is a
specialized segment of the wireless telecommunications industry
and is extremely competitive. We operate in highly competitive
markets that are sensitive
12
to technological advances. Some of our competitors have more
extensive engineering, manufacturing and marketing capabilities
and greater financial, technical and personnel resources than we
have. Some of our competitors may have greater name recognition,
broader product lines (some including non-wireless
telecommunications equipment), a larger installed base of
products and longer-standing customer relationships. Although
successful product and systems development is not necessarily
dependent on substantial financial resources, many of our
competitors are larger than us and can maintain higher levels of
expenditures for research and development. In addition, a
portion of our overall market is addressed by large mobile
infrastructure providers, who bundle microwave radios with other
mobile network equipment, such as cellular base stations or
switching systems, and offer a full range of services. This part
of the market is generally not open to independent microwave
suppliers such as us.
We concentrate on market opportunities that we believe are
compatible with our resources, overall technological
capabilities and objectives. Principal competitive factors are
cost-effectiveness, product quality and reliability,
technological capabilities, service, ability to meet delivery
schedules and the effectiveness of dealers in international
areas. We believe that our network and systems engineering
support and service are key competitive strengths for us.
However, customers may make decisions based on factors including
price and past relationships.
Our principal existing and potential competitors include
established companies such as Alcatel-Lucent, Eltek ASA,
Ericsson, NEC and Nokia Siemens Networks, as well as a number of
other smaller public and private companies in selected markets.
Several of our competitors are original equipment manufacturers
or systems integrators through which we sometimes distribute and
sell products and services to end users. Some of our competitors
have product lines that compete with ours.
Research,
Development and Engineering
We believe that our ability to enhance our current products,
develop and introduce new products on a timely basis, maintain
technological competitiveness and meet customer requirements is
essential to our success. Accordingly, we allocate, and intend
to continue to allocate, a significant portion of our resources
to research and development efforts.
Our research, development and engineering expenditures totaled
approximately $39.4 million or 7.8% of revenue in fiscal
2007 and $28.8 million or 8.1% of revenue in fiscal 2006.
Research, development and engineering are primarily directed to
the development of new products and to building technological
capability. We are, and historically have been, an industry
innovator. Consistent with our history and strategy of
introducing innovative products, we intend to continue to focus
significant resources on product development in an effort to
maintain our competitiveness and support our entry into new
markets. We maintain new product development programs that could
result in new products and expansion of the TRuepoint, Eclipse
and NetBoss product lines.
We maintain an engineering and new product development
department, with scientific assistance provided by
advanced-technology departments. As of June 29, 2007, we
employed a total of approximately 225 people in our
research and development organizations in Morrisville, North
Carolina; San Jose, California; Wellington, New Zealand;
and Montreal, Canada.
Patents
and Other Intellectual Property
We consider our patents and other intellectual property rights,
in the aggregate, to constitute an important asset. We own a
portfolio of patents, trade secrets, know-how, confidential
information, trademarks, copyrights and other intellectual
property. We also license intellectual property to and from
third parties. As of June 29, 2007, we held 93
U.S. patents and 70 international patents, and had 35
U.S. patent applications pending and 59 international
patent applications pending. We do not consider our business to
be materially dependent upon any single patent, license or other
intellectual property right, or any group of related patents,
licenses or other intellectual property rights. From time to
time, we may engage in litigation to enforce our patents and
other intellectual property or defend against claims of alleged
infringement. Any of our patents, trade secrets, trademarks,
copyrights and other proprietary
13
rights could be challenged, invalidated or circumvented, or may
not provide competitive advantages. Numerous trademarks used on
or in connection with our products are also considered to be
valuable assets.
In addition, we enter into confidentiality and invention
assignment agreements with our employees, and enter into
non-disclosure agreements with our suppliers and appropriate
customers so as to limit access to and disclosure of our
proprietary information.
While our ability to compete may be affected by our ability to
protect our intellectual property, we believe that, because of
the rapid pace of technological change in the wireless
telecommunications industry, our innovative skills, technical
expertise and ability to introduce new products on a timely
basis will be more important in maintaining our competitive
position than protection of our intellectual property. Trade
secret, trademark, copyright and patent protections are
important but must be supported by other factors such as the
expanding knowledge, ability and experience of our personnel,
new product introductions and product enhancements. Although we
continue to implement protective measures and intend to defend
vigorously our intellectual property rights, there can be no
assurance that these measures will be successful.
Environmental
and Other Regulations
Our facilities and operations, in common with those of our
industry in general, are subject to numerous domestic and
international laws and regulations designed to protect the
environment, particularly with regard to wastes and emissions.
We believe that we have complied with these requirements and
that such compliance has not had a material adverse effect on
our results of operations, financial condition or cash flows.
Based upon currently available information, we do not expect
expenditures to protect the environment and to comply with
current environmental laws and regulations over the next several
years to have a material impact on our competitive or financial
position, but can give no assurance that such expenditures will
not exceed current expectations. From time to time, we receive
notices from the U.S. Environmental Protection Agency or
equivalent state or international environmental agencies that we
are a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act, which is
commonly known as the Superfund Act,
and/or
equivalent laws. Such notices assert potential liability for
cleanup costs at various sites, which include sites owned by us,
sites we previously owned and treatment or disposal sites not
owned by us, allegedly containing hazardous substances
attributable to us from past operations.
Electronic products are subject to environmental regulation in a
number of jurisdictions. Equipment produced by us is subject to
domestic and international requirements requiring end-of-life
management
and/or
restricting materials in products delivered to customers. We
believe that we have complied with such rules and regulations,
where applicable, with respect to our existing products sold
into such jurisdictions.
Radio communications are also subject to governmental
regulation. Equipment produced by us is subject to domestic and
international requirements to avoid interference among users of
radio frequencies and to permit interconnection of
telecommunications equipment. We believe that we have complied
with such rules and regulations with respect to our existing
products, and we intend to comply with such rules and
regulations with respect to our future products. Reallocation of
the frequency spectrum also could impact our business, financial
condition and results of operations.
Raw
Materials and Supplies
Because of the diversity of our products and services, as well
as the wide geographic dispersion of our facilities, we use
numerous sources for the wide array of raw materials needed for
our operations and for our products, such as electronic
components, printed circuit boards, metals and plastics. We are
dependent upon suppliers and subcontractors for a large number
of components and subsystems and upon the ability of our
suppliers and subcontractors to adhere to customer or regulatory
materials restrictions and meet performance and quality
specifications and delivery schedules.
In some instances, we are dependent upon one or a few sources,
either because of the specialized nature of a particular item or
because of local content preference requirements pursuant to
which we operate on a given project. Examples of sole or limited
sourcing categories include metal fabrications and castings, for
which we own the
14
tooling and therefore limit our supplier relationships, and
MMICs (a type of integrated circuit used in manufacturing
microwave radios), which we procure at volume discount from a
single source. Our supply chain plan includes mitigation plans
for alternative manufacturing sources and identified alternate
suppliers.
While we have been affected by performance issues of some of our
suppliers and subcontractors, we have not been materially
adversely affected by the inability to obtain raw materials or
products. In general, any performance issues causing short-term
material shortages are within the normal frequency and impact
range experienced by high-tech manufacturing companies. They are
due primarily to the high technical nature of many of our
purchased components.
Employees
As of June 29, 2007, we employed approximately
1,440 people, compared with approximately 1,050 people
at the end of fiscal 2006. The increase was due primarily to the
Stratex acquisition (Stratex employed 453 people as of
March 2006), partially offset by positions eliminated in our
restructuring activities. Approximately 800 of our employees are
located in the U.S. We also utilize a number of independent
contractors. None of our employees in the U.S. is
represented by a labor union. In certain international
subsidiaries, our employees are represented by workers
councils or statutory labor unions. In general, we believe that
our relations with our employees are good.
Web
site Access to Harris Stratex Networks Reports; Available
Information
General. We maintain an Internet Web site at
http://www.harrisstratex.com/.
Our annual reports on
Form 10-K,
proxy statement, quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to such reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge on our Web site as soon
as reasonably practicable after these reports are electronically
filed with, or furnished to, the Securities and Exchange
Commission (SEC).
We will also provide the reports in electronic or paper form
free of charge upon request. Our Web site and the information
posted thereon are not incorporated into this Annual Report on
Form 10-K
or any other report that we file with or furnish to the SEC. All
reports we file with or furnish to the SEC are also available
free of charge via EDGAR through the SECs website at
http://www.sec.gov.
The public may read and copy any materials filed by us with the
SEC at the SECs Public Reference Room, 100 F. Street,
N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
Additional information relating to our businesses, including our
operating segments, is set forth in Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Corporate Governance Principles and Committee
Charters. We have adopted Corporate Governance
Principles, which are available on the Corporate Governance
section of our Web site at
http://www.harrisstratex.com/cg/default.asp.
In addition, the charters of each committee of our Board of
Directors, including the Compensation Committee, Nominating
Committee, Audit Committee and Corporate Governance Committee,
are also available on the Corporate Governance section of our
Web site. Copies of these charters are also available free of
charge upon written request to our Corporate Secretary at Harris
Stratex Networks, Inc., 637 Davis Drive, Morrisville, North
Carolina 27560.
Harris Stratex Networks, Inc. was incorporated in the State of
Delaware in October, 2006.
As indicated above in this Annual Report on
Form 10-K
under Cautionary Statement Regarding 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; new products, services or developments;
trends in revenue; future economic conditions, performance or
outlook; the outcome of contingencies; the value of our contract
awards; beliefs or expectations; and assumptions underlying any
of the foregoing. These statements reflect the current beliefs,
expectations, estimates, forecasts or intent of our management
and are subject to and involve certain risks and uncertainties.
Many of these risks and uncertainties are outside of our control
and are difficult for us to forecast or
15
mitigate. In addition to the risks described elsewhere in this
Annual Report on
Form 10-K
and in certain of our other filings with the SEC, the following
risks and uncertainties, among others, could cause our actual
results to differ materially from those contemplated by us or by
any forward-looking statement contained herein. Prospective and
existing investors are strongly urged to carefully consider the
various cautionary statements and risks set forth in this Annual
Report on
Form 10-K
and our other public filings.
The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties that we are
not aware of or focused on may also impair our business
operations. If any of these risks actually occur, our financial
condition and results of operations could be materially and
adversely affected.
Risks
Related to our Merger with Stratex
Our merger with Stratex created numerous risks and
uncertainties which could adversely affect our operating
results.
Strategic transactions like our merger with Stratex create
numerous uncertainties and risks. Harris MCD has transitioned
from being a division of Harris to being a stand-alone company,
Harris Stratex. Both Stratex and Harris MCD are transitioning
from being smaller companies to being a larger company, Harris
Stratex. This merger entails many changes, including the
integration of personnel from Harris MCD and Stratex and changes
in systems and employee benefits plans. These transition
activities are complex, and we may encounter unexpected
difficulties or incur unexpected costs, including:
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the diversion of managements attention to integration
matters;
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difficulties in achieving expected cost savings associated with
the transaction;
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difficulties in the integration of operations and systems;
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difficulties in the assimilation of employees;
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difficulties in replacing the support functions currently
provided by Harris to us, including support and assistance for
financial, operational and information technology functions;
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challenges in keeping existing customers and obtaining new
customers; and
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challenges in attracting and retaining key personnel.
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As a result, we may not be able to realize the expected revenue
growth and other benefits that we seek to achieve from the
combination with Stratex. In addition, we may be required to
spend additional time or money on integration that otherwise
would be spent on the development and expansion of our business,
production and services.
Uncertainties
associated with the merger may cause us to lose significant
customers.
In response to our merger with Stratex, or due to the diversion
of our attention, current and potential customers may delay or
defer decisions concerning their use of our products and
services. We have not experienced significant contract
terminations or other loss of business due to the merger.
However, if our customers elect to terminate their contracts,
the financial condition of the combined company may be
materially and adversely affected.
Loss
of key personnel could lead to loss of customers and a decline
in revenue, or otherwise adversely affect our
operations.
The success of the merger will depend in part upon our ability
to retain key employees. Competition for qualified personnel in
the microwave communications industry is intense. In addition,
key employees may depart because of issues relating to the
difficulty of or uncertainty regarding the integration of the
businesses or because of uncertainties relating to their future
compensation and benefits. If we are unable to attract and
retain qualified individuals or if our costs to do so increase
significantly, our business could be adversely affected.
16
Risks
Related to the Relationship between Harris and Us
We are
and will continue to be controlled by Harris, whose interests
may conflict with ours.
Harris owns no shares of our Class A common stock but all
of the outstanding shares of our Class B common stock,
through which it holds an approximate 57% interest of our
outstanding equity which gives it approximately 57% of the
voting power represented by our outstanding common stock. In
addition, Harris has the right to appoint separately, as a
class, five of our nine directors as long as the shares of our
common stock held by Harris entitle Harris to cast a majority of
the votes at an election of our directors (other than those
directors appointed by Harris separately as a class). Harris
also votes, along with our Class A stockholder, in the
election of the four remaining directors, and as the holder of
approximately 57% of our outstanding common shares holds a
majority of the shares eligible to vote. In the election of the
four remaining directors, Harris has agreed to vote for the
persons nominated for such positions by our Nominating
Committee, which is composed entirely of directors not appointed
by Harris. For two years from January 26, 2007, Harris has
agreed that it will not acquire or dispose of beneficial
ownership in shares of our common stock, except under limited
circumstances, and has no obligation to dispose of its interest
in us following such two-year period. Accordingly, Harris is
likely to continue to exercise significant influence over our
business policies and affairs, including the composition of our
board of directors and any action requiring the approval of our
shareholders. The concentration of ownership also may make some
transactions, including mergers or other changes in control,
more difficult or impossible without the support of Harris.
Harris interests may conflict with your interests as a
shareholder. As a result, your ability to influence the outcome
of matters requiring shareholder approval will be limited.
As the only holder of our outstanding Class B common stock,
Harris has the unilateral right to elect, remove and replace, at
any time, a majority of our board of directors, so long as the
members elected, removed or replaced by Harris satisfy the
requirements agreed to by the Company and Harris as set forth in
an investor agreement entered into at the time of the Stratex
acquisition. More specifically, Harris has agreed that, so long
as it holds a majority of our voting common stock, it will have
the right to appoint five of our nine directors and, until
January 26, 2009, at least one of the Harris directors will
meet the NASDAQ independence standards for audit committee
members and at least one other Harris director will not be an
employee of Harris or any of its subsidiaries (other than Harris
Stratex or our subsidiaries). After January 26, 2009,
Harris will be able to elect or replace all the Harris directors
without regard to their relationship with Harris.
Harris
has rights reflecting its controlling interest in our company.
As a result, the ability of non-Harris stockholders to influence
the outcome of matters requiring stockholder approval will be
limited.
Harris right to vote a majority of our outstanding voting
stock enables it to control decisions without the consent of our
other stockholders, including among others, with respect to:
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our business direction and policies;
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mergers or other business combinations, except until
January 26, 2009;
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the acquisition or disposition of assets;
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the payment or nonpayment of dividends;
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determinations with respect to tax returns;
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our capital structure; and
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amendments to our certificate of incorporation and bylaws.
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In addition to the effects described above, Harris control
position could make it more difficult for us to raise capital or
make acquisitions by issuing our capital stock. This
concentrated ownership also might delay or prevent a change in
control and may impede or prevent transactions in which our
stockholders might otherwise receive a premium for their shares.
17
We may
have potential conflicts of interest with Harris relating to our
ongoing relationship, and because of Harris controlling
ownership in us, the resolution of these conflicts may not be
favorable to us.
Conflicts of interest may arise between us and Harris in a
number of areas relating to our ongoing relationship, including:
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indemnification and other matters arising under the Formation,
Contribution and Merger Agreement or other agreements;
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intellectual property matters;
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employee recruiting and retention;
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competition for customers in the areas where Harris is permitted
to do business under the non-competition agreement described
below;
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sales or distributions by Harris of all or any portion of its
ownership interest in us, which could be to one of our
competitors;
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business combinations involving us; and
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business opportunities that may be attractive to both Harris and
us.
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In addition, we may not be able to resolve any potential
conflicts with Harris, and, even if we do, the resolution may be
less favorable to us than if we were dealing with an
unaffiliated party.
We have an investor agreement and non-competition agreement with
Harris. The investor agreement provides that Harris and its
affiliates are only permitted to enter into a transaction with
us if the transaction is approved by a majority of our
non-Harris-appointed directors or the terms are, in all material
respects, no less favorable to us than those that could have
been obtained from an informed, unrelated third party (taking
into consideration all the then prevailing facts and
circumstances). However, if a transaction has a fair market
value of more than $5 million, it must be approved in
advance by a majority of our non-Harris-appointed directors,
regardless of the nature of the terms. There are limited
exceptions to these arrangements.
Pursuant to the terms of the non-competition agreement, Harris
has agreed in general terms that, for five years following
January 26, 2007, it cannot and will not permit any of its
subsidiaries (other than us and our subsidiaries) to, engage in
the development, manufacture, distribution and sale of microwave
radio systems that are competitive with our current products or
substantially similar to those products in form, fit and
function when used in terrestrial microwave point-to-point
communications networks that provide access and trunking of
voice and data for telecommunications networks. Notwithstanding
this restriction, Harris is permitted to purchase and resell
products produced by and branded by persons unaffiliated with
Harris and to develop, manufacture, distribute and sell
microwave radios and related components for use by government
entities.
We are
and will continue to be a controlled company within
the meaning of the NASDAQ rules and, as a result, rely on
exemptions from certain corporate governance requirements that
are designed to provide protection to shareholders of companies
that trade on NASDAQ.
Harris owns more than 50% of the total voting power of our
outstanding capital stock. Therefore, we are a controlled
company under the NASDAQ rules. As a controlled company,
we are entitled to utilize exemptions under the NASDAQ standards
that free us from the obligation to comply with some governance
requirements under the NASDAQ rules, including the following:
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a majority of our board of directors consists of independent
directors;
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our director nominees must either be selected, or recommended
for selection by the board of directors, either by:
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a majority of the independent directors; or
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a nominations committee comprised solely of independent
directors; and
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the compensation of our officers must be determined, or
recommended to the board of directors for determination, either
by:
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a majority of the independent directors; or
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a compensation committee comprised solely of independent
directors.
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Although a majority of our board of directors currently consists
of independent directors and our compensation committee, which
recommends the compensation of our officers to the board of
directors, is comprised solely of independent directors, we may
use these exemptions in the future and, as a result, may not
provide the same protection afforded to shareholders of
companies that are subject to all of the NASDAQ corporate
governance requirements.
So
long as Harris holds a majority of our securities outstanding
and is entitled to vote generally in the election of our
directors (other than those directors elected separately as a
class by Harris), it will have the right to preserve its control
position by participating in our equity offerings.
At any time that Harris holds a majority of our securities
outstanding and entitled to vote generally in the election of
our directors (other than those directors elected separately as
a class by Harris), subject to limited exceptions, Harris has
the right to participate in any offering of our capital stock
including grants of equity to employees on the same terms and
conditions as the offering and purchase up to that number of
shares of our capital stock necessary to preserve its then
voting percentage. As a result, Harris will be able to maintain
its control position as long as it is able to and elects to
participate in any offering of our capital stock.
Neither
Harris nor any of its affiliates will have any fiduciary
obligation or other obligation to offer corporate opportunities
to us, and our certificate of incorporation and investor
agreement with Harris expressly permit certain of our directors
and our employees to offer certain corporate opportunities to
Harris before us.
Our certificate of incorporation and the investor agreement with
Harris provide that:
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except (1) as otherwise provided in the non-competition
agreement with Harris or (2) opportunities offered to an
individual who is a director or officer of both Harris Stratex
and Harris in writing solely in that persons capacity as
our officer or director, Harris is free to compete with us in
any activity or line of business; invest or develop a business
relationship with any person engaged in the same or similar
activities or businesses as us; do business with any of our
customers; or employ any of our former employees;
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neither Harris nor its affiliates have any duty to communicate
its or their knowledge of or offer any potential business
opportunity, transaction or other matter to us unless the
opportunity was offered to the individual who is a director or
officer of both Harris Stratex and Harris in writing solely in
that persons capacity as our officer or director; and
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if any director or officer of Harris, who is also an officer or
director of Harris Stratex, becomes aware of a potential
business opportunity, transaction or other matter (other than
one expressly offered to that director or officer in writing
solely in his or her capacity as our director or officer), that
director or officer will have no duty to communicate or offer
that opportunity to us and will be permitted to communicate or
offer that opportunity to Harris (or its affiliates), and that
director or officer will not be deemed to have acted in bad
faith or in a manner inconsistent with our best interests or in
a manner inconsistent with his or her fiduciary or other duties
to us.
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Two members of our board of directors are also directors
and/or
officers of Harris. As a result, Harris may gain the benefit of
corporate opportunities that are presented to these directors.
In
certain circumstances, Harris is permitted to engage in the same
types of businesses that we conduct. If Harris elects to pursue
opportunities in these areas, our ability to successfully
operate and expand our business may be limited.
We have a non-competition agreement with Harris restricting its
and its subsidiaries ability to compete with us for five
years from January 26, 2007 in specified lines of business
related to our current business operations.
19
However, the non-competition agreement will not restrict Harris
from competing in a limited number of specific areas in which we
operate, such as the development, manufacture and sale of
wireless systems for use by government entities and the purchase
and resale of non-Harris-branded wireless systems. Following the
five-year term, there will be no restriction on Harris
ability to compete with us. If Harris elects to pursue
opportunities in these areas or re-enters the business from
which it is prohibited following the five-year term of the
non-competition agreement, our ability to successfully operate
and expand our business may be limited.
Sales
by Harris of its interest in us could result in offers for
shares of Class A common stock, the terms of which have
been negotiated solely by Harris, and could adversely affect the
price and liquidity of our Class A common
stock.
Harris has agreed not to buy or sell our common stock until
January 26, 2009, except with the consent of our non-Harris
directors or to enable Harris to preserve its percentage
interest in our outstanding common stock. From January 26,
2009 to January 26, 2011, Harris will be free to transfer
majority control of us to a buyer, at a price and on terms
acceptable to Harris in its sole discretion so long as the buyer
offers to acquire all our outstanding voting shares not owned by
Harris on the same terms offered to Harris or the non-Harris
directors approve the transfer by Harris in advance. However,
our non-Harris stockholders will have no role in determining the
identity of the buyer and the amount and type of consideration
to be received or any other terms of the transaction. If equity
securities of the buyer are offered or if our other shareholders
elect not to accept the buyers offer, their continuing
investment would be in a company that may be majority-controlled
by a company or an investor selected only by Harris. After
January 26, 2011, Harris will no longer be subject to any
contractual limitations on the sale of its interest in Harris
Stratex.
In addition, we have agreed to register for resale to the public
shares of common stock which are held by Harris. Sales of our
registered shares by Harris, or the perception that such sales
might occur, could depress the trading price of our Class A
common stock.
Other
Risks
We may
not be profitable.
As measured under U.S. generally accepted accounting
principles (U.S. GAAP), we have incurred a net
loss in each of the last five fiscal years. In fiscal 2007, we
incurred a net loss of $17.9 million and in fiscal 2006, we
incurred a net loss of $35.8 million. We can give no
assurance that we will be consistently profitable, if at all.
We
will face strong competition for maintaining and improving our
position in the market, which could adversely affect our revenue
growth and operating results.
The wireless interconnection and access business is a
specialized segment of the wireless telecommunications industry
and is extremely competitive. We expect competition in this
segment to increase. Some of our competitors have more extensive
engineering, manufacturing and marketing capabilities and
significantly greater financial, technical and personnel
resources than we have. In addition, some of our competitors
have greater name recognition, broader product lines, a larger
installed base of products and longer-standing customer
relationships. Our competitors include established companies,
such as Alcatel-Lucent, Eltek ASA, Ericsson, NEC and Nokia
Siemens Networks, as well as a number of smaller public
companies and private companies in selected markets. Some of our
competitors are original equipment manufacturers or systems
integrators through whom we market and sell our products, which
means our business success may depend on these competitors to
some extent. One or more of our largest customers could
internally develop the capability to manufacture products
similar to those manufactured or outsourced by us and, as a
result, the demand for our products and services may decrease.
In addition, we compete for acquisition and expansion
opportunities with many entities that have substantially greater
resources than we have. Furthermore, our competitors may enter
into business combinations in order to accelerate product
development or to engage in aggressive price reductions or other
competitive practices, resulting in even more powerful or
aggressive competitors.
20
Our ability to compete successfully will depend on a number of
factors, including price, quality, availability, customer
service and support, breadth of product line, product
performance and features, rapid time-to-market delivery
capabilities, reliability, timing of new product introductions
by us, our customers and competitors, the ability of our
customers to obtain financing and the stability of regional
sociopolitical and geopolitical circumstances. We can give no
assurances that we will have the financial resources, technical
expertise, or marketing, sales, distribution, customer service
and support capabilities to compete successfully, or that
regional sociopolitical and geographic circumstances will be
favorable for our successful operation.
If we
do not successfully market our newest products, TRuepoint and
Eclipse, our business would be harmed.
In 2004, Stratex began commercial shipments of the Eclipse
product. Eclipse is a wireless transmission platform that uses a
nodal architecture to provide multiplexing, routing and
cross-connection functions, in addition to radio transmission,
to reduce the network operators deployments costs. To a
large extent, our future profitability depends on the continued
success and price competitiveness of Eclipse. In fiscal years
2005 and 2006, Stratex recorded $39.6 million and
$134.5 million of revenue from sales of Eclipse products.
In fiscal 2007, we recorded $105.9 million in revenue
during the five month period ended June 29, 2007 and
Stratex recorded $108.1 million in revenue during the seven
month period ended January 26, 2007, for a total of
$214.0 million in revenue from sales of Eclipse products
during our fiscal year 2007.
In 2004, Harris MCD began shipping TRuepoint products. To a
large extent, our future profitability depends on the continued
success of TRuepoint, especially in the North American market
and worldwide high-capacity trunking markets. Because TRuepoint
represents a new, innovative solution for wireless carriers, we
cannot give assurances that we will be able to continue to
successfully market this product. If TRuepoint does not achieve
market acceptance to the extent expected by us, we may not be
able to recoup the significant amount of research and
development expenses associated with the development and
introduction of this product and our business could be
negatively impacted. Should the continued development and
ramp-up of
the TRuepoint platform be unsuccessful, there would be a
material adverse effect on our business, financial condition and
results of operations.
Our
average sales prices may decline in the future.
Currently, manufacturers of digital microwave telecommunications
equipment are experiencing, and are likely to continue to
experience, declining sales prices. This price pressure is
likely to result in downward pricing pressure on our products
and services. As a result, we are likely to experience declining
average sales prices for our products. Our future profitability
will depend upon our ability to improve manufacturing
efficiencies, reduce costs of materials used in our products,
and to continue to introduce new lower-cost products and product
enhancements. If we are unable to respond to increased price
competition, our business, financial condition and results of
operations will be harmed. Because customers frequently
negotiate supply arrangements far in advance of delivery dates,
we may be required to commit to price reductions for our
products before we are aware of how, or if, cost reductions can
be obtained. As a result, current or future price reduction
commitments, and any inability on our part to respond to
increased price competition, could harm our business, financial
condition and results of operations.
Because
a significant amount of our revenue may come from a limited
number of customers, the termination of any of these customer
relationships may adversely affect our business.
Sales of our products and services historically have been
concentrated in a small number of customers. Principal customers
for our products and services include domestic and international
wireless/mobile service providers, original equipment
manufacturers, as well as private network users such as public
safety agencies; government institutions; and utility, pipeline,
railroad and other industrial enterprises that operate broadband
wireless networks. We had revenue from a single external
customer that exceeded 10% of our total revenue during fiscal
2006, but not during fiscal 2007. Although we have a large
customer base, during any given quarter, a small number of
customers may account for a significant portion of our revenue.
It is possible that a significant portion of our future product
sales also could be concentrated in a limited number of
customers. In addition, product sales to major customers have
varied widely from period to period. The
21
loss of any existing customer, a significant reduction in the
level of sales to any existing customer, or our inability to
gain additional customers could result in declines in our
revenue or an inability to grow revenue. If these revenue
declines occur or if we are unable to create revenue growth, our
business, financial condition, and results of operations may be
adversely affected.
We may
be subject to litigation regarding intellectual property
associated with our wireless business; this litigation could be
costly to defend and resolve, and could prevent us from using or
selling the challenged technology.
The wireless telecommunications industry is characterized by
vigorous protection and pursuit of intellectual property rights,
which has resulted in often protracted and expensive litigation.
Any litigation regarding patents or other intellectual property
could be costly and time-consuming and could divert our
management and key personnel from our business operations. The
complexity of the technology involved and the uncertainty of
intellectual property litigation increase these risks. Such
litigation or claims could result in substantial costs and
diversion of resources. In the event of an adverse result in any
such litigation, we could be required to pay substantial
damages, cease the use and transfer of allegedly infringing
technology or the sale of allegedly infringing products and
expend significant resources to develop non-infringing
technology or obtain licenses for the infringing technology. We
can give no assurances that we would be successful in developing
such non-infringing technology or that any license for the
infringing technology would be available to us on commercially
reasonable terms, if at all. This could have a materially
adverse effect on our business, results of operation, financial
condition, competitive position and prospects.
As a subsidiary of Harris, we may have the benefit of one or
more existing cross-license agreements between Harris and
certain third parties, which may help protect us from
infringement claims. If we cease to be a subsidiary of Harris,
those benefits will be lost.
Due to
the significant volume of international sales we expect, we may
be susceptible to a number of political, economic and geographic
risks that could harm our business.
We are highly dependent on sales to customers outside the
U.S. In fiscal 2007, our sales to international customers
accounted for 67% of total revenue. During fiscal 2006 and 2005,
sales to international customers accounted for 55% and 51% of
our revenue, respectively. Our dependence on international
customers is expected to increase, due to our merger with
Stratex, since approximately 95% of its revenue has historically
been derived from international markets. Also, significant
portions of our international sales are in less developed
countries. Our international sales are likely to continue to
account for a large percentage of our products and services
revenue for the foreseeable future. As a result, the occurrence
of any international, political, economic or geographic event
that adversely affects our business could result in a
significant decline in revenue.
Some of the risks and challenges of doing business
internationally include:
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unexpected changes in regulatory requirements;
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fluctuations in international currency exchange rates;
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imposition of tariffs and other barriers and restrictions;
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management and operation of an enterprise spread over various
countries;
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the burden of complying with a variety of laws and regulations
in various countries;
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application of the income tax laws and regulations of multiple
jurisdictions, including relatively low-rate and relatively
high-rate jurisdictions, to our sales and other transactions,
which results in additional complexity and uncertainty;
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general economic and geopolitical conditions, including
inflation and trade relationships;
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war and acts of terrorism;
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natural disasters;
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currency exchange controls; and
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changes in export regulations.
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Our
industry is volatile and subject to frequent changes, and we may
not be able to respond effectively or in a timely manner to
these changes.
We participate in a highly volatile industry that is
characterized by vigorous competition for market share and rapid
technological development. These factors could result in
aggressive pricing practices and growing competition both from
start-up
companies and from well-capitalized telecommunication systems
providers, which could decrease our revenue. In response to
changes in our industry and market conditions, we may
restructure our activities to more strategically realign our
resources. This includes assessing whether we should consider
disposing of, or otherwise exiting, certain businesses, and
reviewing the recoverability of our tangible and intangible
assets. Any decision to limit investment in our tangible and
intangible assets or to dispose of or otherwise exit businesses
may result in the recording of accrued liabilities for special
charges, such as workforce reduction costs. Additionally,
accounting estimates with respect to the useful life and
ultimate recoverability of our carrying basis of assets could
change as a result of such assessments and decisions, and could
harm our results of operations.
If we
fail to develop and maintain distribution and licensing
relationships, our revenue may decrease.
Although a majority of our sales are made through our direct
sales force, we also will market our products through indirect
sales channels such as independent agents, distributors, OEMs
and systems integrators. These relationships enhance our ability
to pursue major contract awards and, in some cases, are intended
to provide our customers with easier access to financing and a
greater variety of equipment and service capabilities, which an
integrated system provider should be able to offer. We may not
be able to maintain and develop additional relationships or, if
additional relationships are developed, they may not be
successful. Our inability to establish or maintain these
distribution and licensing relationships could restrict our
ability to market our products and thereby result in significant
reductions in revenue. If these revenue reductions occur, our
business, financial condition and results of operations would be
harmed.
The
inability of our subcontractors to perform, or our key suppliers
to manufacture and deliver materials, could cause our products
to be produced in an untimely or unsatisfactory manner, or not
at all.
Our manufacturing operations, which are substantially
subcontracted, are highly dependent upon the delivery of
materials by outside suppliers in a timely manner. Also, we
depend in part upon subcontractors to assemble major components
and subsystems used in our products in a timely and satisfactory
manner. We generally do not enter into long-term or volume
purchase agreements with any of our suppliers, and we cannot
provide assurances that such materials, components and
subsystems will be available for our use at such time and in
such quantities as we require, if at all. In addition, we have
historically obtained some of our supplies from a single source.
If these suppliers are unable to provide supplies and products
to us because they are no longer in business or because they
discontinue a certain supply or product we need, we may not be
able to fill orders placed by our customers on a timely basis or
at all. Our inability to develop alternative sources of supply
quickly and on a cost-effective basis could materially impair
our ability to manufacture and timely deliver our products to
our customers. We cannot give assurances that we will not
experience material supply problems or component or subsystem
delays in the future. Also, our subcontractors may not be able
to maintain the quality of our products, which might result in a
large number of product returns by customers and could harm our
business, financial condition and results of operations.
Additional risks associated with the outsourcing of our
manufacturing operations to MTI in Taiwan and its subsidiary in
the Peoples Republic of China could include, among other
things: political risks due to political issues between Taiwan
and The Peoples Republic of China; risk of natural
disasters in Taiwan, such as earthquakes and typhoons; economic
and regulatory developments; and other events leading to the
disruption of manufacturing operations.
23
Consolidation
within the telecommunications industry could result in a
decrease in our revenue.
The telecommunications industry has experienced significant
consolidation among its participants, and we expect this trend
to continue. Some operators in this industry have experienced
financial difficulty and have filed, or may file, for bankruptcy
protection. Other operators may merge and one or more of our
competitors may supply products to the customers of the combined
company following those mergers. This consolidation could result
in purchasing decision delays and decreased opportunities for us
to supply products to companies following any consolidation.
This consolidation may also result in lost opportunities for
cost reduction and economies of scale. In addition, see the
risks discussed in the factor above titled Because a
significant amount of our revenue may come from a limited number
of customers, the termination of any of these customer
relationships may adversely affect our business.
Our
success will depend on new product introductions and
acceptance.
The market for our products is characterized by rapid
technological change, evolving industry standards and frequent
new product introductions. Our future success will depend, in
part, on continuous, timely development and introduction of new
products and enhancements that address evolving market
requirements and are attractive to customers. We believe that
successful new product introductions provide a significant
competitive advantage because of the significant resources
committed by customers in adopting new products and their
reluctance to change products after these resources have been
expended. We have spent, and expect to continue to spend,
significant resources on internal research and development to
support our effort to develop and introduce new products and
enhancements. To the extent that we fail to introduce new and
innovative products that are adopted by customers, we could fail
to obtain an adequate return on these investments and could lose
market share to our competitors, which could be difficult or
impossible to regain.
Our
customers may not pay for products and services in a timely
manner, or at all, which would decrease our income and adversely
affect our working capital.
Our business requires extensive credit risk management that may
not be adequate to protect against customer nonpayment. Risks of
non-payment by customers is a significant focus of our business.
We expect a significant amount of future revenue to come from
international customers, many of whom will be startup telecom
operators in developing countries. We do not generally expect to
obtain collateral for sales, although we require letters of
credit or credit insurance as appropriate for international
customers. For information regarding the percentage of revenue
attributable to certain key customers, see the risks discussed
in the factor above titled Because a significant amount
of our revenue come from a limited number of customers, the
termination of any of these customer relationships may adversely
affect our business. Our historical accounts
receivable balances have been concentrated in a small number of
significant customers. Unexpected adverse events impacting the
financial condition of our customers, bank failures or other
unfavorable regulatory, economic or political events in the
countries in which we do business may impact collections and
adversely impact our business, require increased bad debt
expense or receivable write-offs and adversely impact our cash
flows, financial condition and operating results.
Rapid
changes in the microwave radio industry and the frequent
introduction of lower cost components for our product offerings
may result in excess inventory that we cannot sell or may be
required to sell at distressed prices, and may result in longer
credit terms to our customers.
The rapid changes and evolving industry standards that
characterize the market for our products require frequent
modification of products for us to be successful. These rapid
changes could result in the accumulation of component inventory
parts that become obsolete as modified products are introduced
and adopted by customers. We have experienced significant
inventory write-offs in recent years, and because of the rapid
changes that characterize the market, we also may be forced to
write down excess inventory from time to time. Moreover, these
same factors may force us to significantly reduce prices for
older products or extend more and longer credit terms to
customers, which could negatively impact our cash and possibly
result in higher bad debt expense. More generally, we cannot
give assurances that we will be successful in matching our
inventory purchases with anticipated shipment volumes. As a
result, we may fail to control the amount of inventory on hand
and may be forced to write off additional
24
amounts. Such additional inventory write-offs, if required,
would adversely impact our cash flows, financial condition and
operating results.
The
unpredictability of our quarter-to-quarter results may harm the
trading price of our Class A common stock.
Our quarterly operating results may vary significantly for a
variety of reasons, many of which are outside our control. These
factors could harm our business and include, among others:
|
|
|
|
|
volume and timing of our product orders received and delivered
during the quarter;
|
|
|
|
our ability and the ability of our key suppliers to respond to
changes on demand as needed;
|
|
|
|
our suppliers inability to perform and deliver on time as
a result of their financial condition, component shortages or
other supply chain constraints;
|
|
|
|
our sales cycles can be lengthy;
|
|
|
|
continued market expansion through strategic alliances;
|
|
|
|
continued timely rollout of new product functionality and
features;
|
|
|
|
increased competition resulting in downward pressures on the
price of our products and services;
|
|
|
|
unexpected delays in the schedule for shipments of existing
products and new generations of the existing platforms;
|
|
|
|
failure to realize expected cost improvement throughout our
supply chain;
|
|
|
|
order cancellations or postponements in product deliveries
resulting in delayed revenue recognition;
|
|
|
|
seasonality in the purchasing habits of our customers;
|
|
|
|
war and acts of terrorism;
|
|
|
|
natural disasters;
|
|
|
|
the ability of our customers to obtain financing to enable their
purchase of our products;
|
|
|
|
fluctuations in international currency exchange rates;
|
|
|
|
regulatory developments including denial of export and import
licenses; and
|
|
|
|
general economic conditions worldwide.
|
Our quarterly results are expected to be difficult to predict
and delays in product delivery or closing a sale can cause
revenue and net income or loss to fluctuate significantly from
anticipated levels. In addition, we may increase spending in
response to competition or in pursuit of new market
opportunities. Accordingly, we cannot provide assurances that we
will be able to achieve profitability in the future or that if
profitability is attained, that we will be able to sustain
profitability, particularly on a quarter-to-quarter basis.
If we
are unable to adequately protect our intellectual property
rights, we may be deprived of legal recourse against those who
misappropriate our intellectual property.
Our ability to compete will depend, in part, on our ability to
obtain and enforce intellectual property protection for our
technology in the U.S. and internationally. We rely upon a
combination of trade secrets, trademarks, copyrights, patents
and contractual rights to protect our intellectual property. In
addition, we enter into confidentiality and invention assignment
agreements with our employees, and enter into non-disclosure
agreements with our suppliers and appropriate customers so as to
limit access to and disclosure of its proprietary information.
We cannot give assurances that any steps taken by us will be
adequate to deter misappropriation or impede independent
third-party development of similar technologies. In the event
that such intellectual property arrangements are insufficient,
our business, financial condition and results of operations
could be harmed. We have significant operations in the U.S.,
United Kingdom, Singapore and New Zealand, and outsourcing
arrangements in Asia. We
25
cannot provide assurances that the protection provided to our
intellectual property by the laws and courts of particular
nations will be substantially similar to the protection and
remedies available under U.S. law. Furthermore, we cannot
provide assurances that third parties will not assert
infringement claims against us based on intellectual property
rights and laws in other nations that are different from those
established in the U.S.
If
sufficient radio frequency spectrum is not allocated for use by
our products, and we fail to obtain regulatory approval for our
products, our ability to market our products may be
restricted.
Radio communications are subject to regulation by U.S. and
foreign laws and international treaties. Generally, our products
need to conform to a variety of United States and international
requirements established to avoid interference among users of
transmission frequencies and to permit interconnection of
telecommunications equipment. Any delays in compliance with
respect to our future products could delay the introduction of
such products.
In addition, we will be affected by the allocation and auction
of the radio frequency spectrum by governmental authorities both
in the U.S. and internationally. Such governmental
authorities may not allocate sufficient radio frequency spectrum
for use by our products or we may not be successful in obtaining
regulatory approval for our products from these authorities.
Historically, in many developed countries, the unavailability of
frequency spectrum has inhibited the growth of wireless
telecommunications networks. In addition, to operate in a
jurisdiction, we must obtain regulatory approval for our
products. Each jurisdiction in which we market our products has
its own regulations governing radio communications. Products
that support emerging wireless telecommunications services can
be marketed in a jurisdiction only if permitted by suitable
frequency allocations, auctions and regulations. The process of
establishing new regulations is complex and lengthy. If we are
unable to obtain sufficient allocation of radio frequency
spectrum by the appropriate governmental authority or obtain the
proper regulatory approval for our products, our business,
financial condition and results of operations may be harmed.
Negative
changes in the capital markets available for telecommunications
and mobile cellular projects may result in reduced revenue and
excess inventory that we cannot sell or may be required to sell
at distressed prices, and may result in longer credit terms to
our customers.
Many of our current and potential customers require significant
capital funding to finance their telecommunications and mobile
cellular projects, which include the purchase of our products
and services. Although in the last year we have seen some growth
in capital spending in the wireless telecommunications market,
changes in capital markets worldwide could negatively impact
available funding for these projects and may continue to be
unavailable to some customers. As a result, the purchase of our
products and services may be slowed or halted. Reduction in
demand for our products has resulted in excess inventories on
hand in the past, and could result in additional excess
inventories in the future. If funding is unavailable to our
customers or their customers, we may be forced to write down
excess inventory. In addition, we may have to extend more and
longer credit terms to our customers, which could negatively
impact our cash and possibly result in higher bad debt expense.
We cannot give assurances that we will be successful in matching
our inventory purchases with anticipated shipment volumes. As a
result, we may fail to control the amount of inventory on hand
and may be forced to write off additional amounts. Such
additional inventory write-offs, if required, would decrease our
profits.
In addition, in order to maintain competitiveness in an
environment of restrictive third-party financing, we may have to
offer customer financing that is recorded on our balance sheet.
This may result in deferred revenue recognition, additional
credit risk and substantial cash usage.
Our
stock price may be volatile, which may lead to losses by
investors.
Announcements of developments related to our business,
announcements by competitors, quarterly fluctuations in our
financial results and general conditions in the
telecommunications industry in which we compete, or the
economies of the countries in which we do business and other
factors could cause the price of our common stock to fluctuate,
perhaps substantially. In addition, in recent years the stock
market has experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected
companies. These factors
26
and fluctuations could lower the market price of our common
stock. Our stock is currently listed on the NASDAQ Global Market.
If we
are unable to favorably assess the effectiveness of our internal
controls over financial reporting, we may not be able to
accurately report our financial results. As a result, current
and potential shareholders could lose confidence in our
financial reporting, which could adversely affect our stock
price.
Effective internal controls over financial reporting are
necessary for us to provide reliable financial reports. Pursuant
to Sections 302 and 404 of the Sarbanes-Oxley Act of 2002
(also known as the SOX Act), and beginning with our Annual
Report on
Form 10-K
for the fiscal year ending June 27, 2008, our management
will be required to certify to and report on, and its
independent registered public accounting firm will be required
to attest to, the effectiveness of our internal controls over
financial reporting as of June 27, 2008. If we fail to
maintain effective internal controls over financial reporting,
our operating results could be misstated, our reputation may be
harmed and the trading price of our stock could be negatively
impacted. As described in Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in Stratexs Annual Report on
Form 10-K
for the year ended March 31, 2006, as amended, Stratex
determined there were two material weaknesses in its internal
control over financial reporting as defined in standards
established by the Public Company Accounting Oversight Board
(PCAOB). In general, a material weakness
(as defined in PCAOB Auditing Standard No. 2) is a
significant deficiency, or combination of significant
deficiencies, that results in more than a remote likelihood that
a material misstatement in the annual or interim financial
statements will not be prevented or detected. In fiscal 2006,
Stratex devoted significant resources to remediate and improve
its internal controls related to these material weaknesses.
Stratex believes that these efforts have remediated the concerns
that gave rise to the material weakness related to
revenue recognition. However, due to the assessment of
Stratexs internal controls over financial reporting as of
March 31, 2006, Stratex had identified the continuation of
a material weakness in the review of the financial statements of
international operations and the period-end financial close and
reporting process for Stratexs consolidated operations.
Historically, Harris has only been required to certify or report
on or receive an attestation from its independent registered
public accounting firm with respect to Harris, taken as a whole,
and not MCD in particular. We are currently in the process of
reviewing, documenting and testing our internal controls over
financial reporting. We will continue reviewing our internal
controls over the financial close and reporting process, and
will implement additional controls as needed. However, we cannot
be certain that our controls over our financial processes and
reporting will be adequate in the future, and we may incur
significant additional expenses in complying with these
provisions of the SOX Act. Any failure to maintain effective
internal controls over financial reporting could cause us to
prepare inaccurate financial statements, subject us to a
misappropriation of assets or cause us to fail to meet our SEC
reporting obligations on a timely basis, which could materially
and adversely affect the trading price of our Class A
common stock.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
As of June 29, 2007, we conducted operations in 39
facilities in the U.S., Canada, Europe, Central America, South
America, Africa and Asia. Additionally, in the first quarter of
fiscal 2008, we will begin operations in two additional leased
facilities. Our principal executive offices are located at
leased facilities in Morrisville, North Carolina. There are no
material encumbrances on any of our facilities. Remaining
initial lease periods extend to 2012, and one lease may be
extended to 2013.
27
As of June 29, 2007, the locations and approximate floor
space of our principal offices and facilities in productive use
(including the two additional leased facilities mentioned above)
were as follows:
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|
Owned
|
|
|
Leased
|
|
Location
|
|
Major Activities
|
|
(square feet)
|
|
|
(square feet)
|
|
|
San Antonio, Texas
|
|
Office, manufacturing
|
|
|
130,000
|
|
|
|
|
|
Wellington, New Zealand
|
|
Office, R&D center
|
|
|
58,000
|
|
|
|
|
|
Lanarkshire, Scotland
|
|
Office, repair center
|
|
|
33,000
|
|
|
|
|
|
San Jose, California (three
facilities)
|
|
Offices, R&D center,
warehouse
|
|
|
|
|
|
|
98,000
|
|
Montreal, Canada
|
|
Office, R&D center
|
|
|
|
|
|
|
79,000
|
|
Redwood Shores, California
|
|
Office
|
|
|
|
|
|
|
75,000
|
|
Morrisville, North Carolina
|
|
Headquarters, R&D center
|
|
|
|
|
|
|
60,000
|
|
Peoples Republic of China
(three facilities)
|
|
Offices, manufacturing
|
|
|
|
|
|
|
42,000
|
|
Redwood City, California
|
|
Office
|
|
|
|
|
|
|
18,000
|
|
Paris, France (two facilities)
|
|
Offices
|
|
|
|
|
|
|
15,000
|
|
Republic of Singapore
|
|
Office
|
|
|
|
|
|
|
13,000
|
|
Mexico City, Mexico (two
facilities)
|
|
Offices, warehouse
|
|
|
|
|
|
|
12,000
|
|
23 other facilities
|
|
Offices
|
|
|
|
|
|
|
67,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
221,000
|
|
|
|
479,000
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, in connection with the acquisition of Stratex, we
ceased operations at, and subsequently vacated, a leased
facility in Seattle, Washington, and two leased facilities in
San Jose and Milpitas, California. These facilities
comprise approximately 63,000 square feet. Additionally, we
ceased most of our operations at, and mostly vacated, a fourth
leased facility in San Jose. This facility comprises
approximately 60,000 square feet, of which we have retained
the use of approximately 10,000 square feet. We have
subleased the remaining 50,000 square feet of this
facility. As the lessee, we have ongoing lease commitments,
which extend into fiscal year 2011, for these four facilities.
We maintain our facilities in good operating condition, and
believe that they are suitable and adequate for our current and
projected needs. We continuously review our anticipated
requirements for facilities and may, from time to time, acquire
additional facilities, expand existing facilities, or dispose of
existing facilities or parts thereof, as we deem necessary.
For more information about our lease obligations, see
Note S Lease Commitments and
Note N Restructuring Activities of
Notes to Consolidated Financial Statements, which are included
in Part II, Item 8 of this Annual Report on
Form 10-K.
|
|
Item 3.
|
Legal
Proceedings.
|
From time to time, as a normal incident of the nature and kind
of businesses in which we are engaged, various claims or charges
are asserted and litigation commenced against us arising from or
related to: personal injury, patents, trademarks, trade secrets
or other intellectual property; labor and employee disputes;
commercial or contractual disputes; the sale or use of products
containing restricted or hazardous materials; breach of
warranty; or environmental matters. Claimed amounts may be
substantial but may not bear any reasonable relationship to the
merits of the claim or the extent of any real risk of court or
arbitral awards.
We record accruals for losses related to those matters that we
consider to be probable and that can be reasonably estimated.
Gain contingencies, if any, are recognized when they are
realized and legal costs are generally expensed when incurred.
While it is not feasible to predict the outcome of these matters
with certainty, and some lawsuits, claims or proceedings may be
disposed of or decided unfavorably to us, based upon available
information, in the opinion of management, settlements and final
judgments, if any, which are considered probable of being
28
rendered against us in litigation or arbitration in existence at
June 29, 2007 are reserved against, covered by insurance or
would not have a material adverse effect on our financial
position, results of operations or cash flows.
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|
Item 4.
|
Submissions
of Matters to a Vote of Security Holders.
|
No matters were submitted by us to a vote of our security
holders during the fourth quarter of fiscal 2007.
PART II.
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Market
Information and Price Range of Common Stock
Our common stock, with a par value of $0.01 per share, is listed
and primarily traded on the NASDAQ Global Market
(NASDAQ), under the ticker symbol HSTX. There was no
established trading market for the shares of our Class A or
Class B common stock prior to January 29, 2007. Shares
of our Class B common stock are not expected to be listed
for trading on any exchange or quotation system at any time in
the foreseeable future.
According to the records of our transfer agent, as of
August 14, 2007, there were approximately 230 holders of
record of our Class A common stock. The following table
sets forth the high and low reported sale prices for a share of
our Class A common stock on NASDAQ Global Market system for
the periods indicated during our fiscal year ended June 29,
2007:
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Common Stock
|
|
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|
High
|
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Low
|
|
|
Fiscal Year Ended June 29,
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
None
|
|
|
|
None
|
|
Second Quarter
|
|
|
None
|
|
|
|
None
|
|
Third Quarter (beginning
January 30, 2007)
|
|
$
|
21.25
|
|
|
$
|
18.23
|
|
Fourth Quarter
|
|
$
|
20.07
|
|
|
$
|
14.85
|
|
On August 14, 2007, the last sale price of our common stock
as reported in the NASDAQ Global Market system was $19.85 per
share.
Dividend
Policy
We have not paid cash dividends on our common stock and do not
intend to pay cash dividends in the foreseeable future. We
intend to retain any earnings for use in our business. In
addition, the covenants of our outstanding $50 million
credit facility restrict us from paying dividends or making
other distributions to our shareholders under certain
circumstances. We also may enter into other credit facilities or
debt financing arrangements that further limit our ability to
pay dividends or make other distributions.
Sales
of Unregistered Securities
During fiscal 2007, we did not issue or sell any unregistered
securities.
Issuer
Repurchases of Equity Securities
During fiscal 2007, we did not repurchase any equity securities.
Equity
Compensation Plans
The equity compensation plan information required to be provided
in this Annual Report on
Form 10-K
is incorporated by reference to the section of our Proxy
Statement for our Annual Meeting of Shareholders to be held on
November 14, 2007, entitled Executive
Compensation to be filed with the SEC.
29
Performance
Graph
The following graph compares the cumulative total return on the
companys common stock with the cumulative total return of
the Total Return Index for The NASDAQ Stock Market
(U.S. Companies) and the NASDAQ Telecommunications Index
for the five-month period commencing January 29, 2007. The
stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF 5 MONTH CUMULATIVE TOTAL
RETURN*
Among Harris Stratex Networks, Inc., The NASDAQ
Composite Index
And The NASDAQ Telecommunications Index
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/29/07
|
|
1/31/07
|
|
2/28/07
|
|
3/30/07
|
|
4/30/07
|
|
5/31/07
|
|
6/29/07
|
|
Harris Stratex Networks,
Inc.
|
|
|
100.00
|
|
|
|
109.90
|
|
|
|
102.00
|
|
|
|
95.95
|
|
|
|
99.70
|
|
|
|
85.50
|
|
|
|
89.90
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
101.91
|
|
|
|
100.03
|
|
|
|
100.68
|
|
|
|
104.46
|
|
|
|
108.06
|
|
|
|
108.11
|
|
NASDAQ
Telecommunications
|
|
|
100.00
|
|
|
|
99.96
|
|
|
|
99.42
|
|
|
|
99.98
|
|
|
|
103.53
|
|
|
|
106.34
|
|
|
|
110.08
|
|
|
|
|
* |
|
Assumes (i) $100 invested on January 29, 2007 in
Harris Stratex Networks, Inc. Common Stock, the Total Return
Index for The NASDAQ Composite Market (U.S. companies) and the
NASDAQ Telecommunications Index; and (ii) immediate
reinvestment of all dividends. |
|
|
Item 6.
|
Selected
Financial Data.
|
The following table summarizes our selected historical financial
information for each of the last five fiscal years. The selected
financial information as of June 29, 2007; June 30,
2006; and July 1, 2005 and for the fiscal years ended
June 29, 2007; June 30, 2006; July 1, 2005; and
July 2, 2004 has been derived from our audited consolidated
financial statements, for which data presented for fiscal years
2007, 2006 and 2005 are included elsewhere in this Annual Report
on
Form 10-K.
This table should be read in conjunction with our other
financial information, including Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial
Statements and Notes, included elsewhere in this Annual Report
on
Form 10-K.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
June 27,
|
|
|
|
2007(1)
|
|
|
2006(2)
|
|
|
2005
|
|
|
2004(3)
|
|
|
2003(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In millions)
|
|
|
Results of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from product sales and
services
|
|
$
|
507.9
|
|
|
$
|
357.5
|
|
|
$
|
310.4
|
|
|
$
|
329.8
|
|
|
$
|
297.5
|
|
Cost of product sales and services
|
|
|
(355.2
|
)
|
|
|
(272.5
|
)
|
|
|
(220.8
|
)
|
|
|
(245.9
|
)
|
|
|
(221.7
|
)
|
Net loss
|
|
|
(17.9
|
)
|
|
|
(35.8
|
)
|
|
|
(3.8
|
)
|
|
|
(20.3
|
)
|
|
|
(35.2
|
)
|
Basic and diluted net loss per
common share
|
|
|
(0.72
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
June 27,
|
|
|
|
2007(1)
|
|
|
2006(2)
|
|
|
2005
|
|
|
2004(3)
|
|
|
2003(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(In millions)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,038.1
|
|
|
$
|
352.6
|
|
|
$
|
362.0
|
|
|
$
|
344.2
|
|
|
$
|
398.3
|
|
Long-term liabilities
|
|
|
35.6
|
|
|
|
12.6
|
|
|
|
14.2
|
|
|
|
15.0
|
|
|
|
11.9
|
|
Total net assets
|
|
|
758.0
|
|
|
|
252.0
|
|
|
|
280.3
|
|
|
|
246.5
|
|
|
|
272.4
|
|
|
|
|
(1) |
|
The merger with Stratex and the contribution transaction
occurred on January 26, 2007. Results of operations for the
business acquired in the merger were included in fiscal 2007
from that date only. Thus, operating results in fiscal 2007 are
not directly comparable to operating results for the prior
fiscal years. In addition, during fiscal 2007, we recorded
$15.3 million in acquired in-process research and
development expenses, $9.1 million in amortization of
developed technology, tradenames, customer relationships,
contract backlog and non-compete agreements, $8.6 million
in amortization of fair value adjustments for inventory and
fixed assets related to the acquisition of Stratex,
$4.2 million in restructuring charges and $3.6 million
in merger-related integration charges to our International
Microwave segment. In addition, we recorded $1.4 million in
amortization of developed technology, tradenames, customer
relationships, contract backlog and non-compete agreements,
0.4 million in amortization of fair value adjustments for
inventory and fixed assets related to the acquisition of
Stratex, $5.1 million in restructuring charges and
$2.7 million in merger related integration charges to our
North America microwave segment. |
|
(2) |
|
Fiscal 2006 results include a $39.6 million after-tax
charge related to inventory write-downs and other charges
associated with product discontinuances, as well as the planned
shutdown of manufacturing activities at our plant in Montreal,
Canada. |
|
(3) |
|
Fiscal 2004 results include a $7.3 million charge related
to cost-reduction measures and fixed asset write-downs. |
|
(4) |
|
Fiscal 2003 results include an $8.6 million write-down of
inventory related to the exit from unprofitable products and the
shut-down of our manufacturing plant in Brazil, as well as an
$8.3 million charge related to cost-reduction measures. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Acquisition
of Stratex Networks, Inc. and Combination with MCD
On January 26, 2007, Harris Stratex Networks, Inc. (the
Company, HSTX, Harris
Stratex, we, us and
our) completed its merger (the Stratex
acquisition) with Stratex Networks, Inc.
(Stratex) pursuant to a Formation, Contribution and
Merger Agreement among Harris Corporation, Stratex, and Stratex
Merger Corp., as amended and restated on December 18, 2006
and amended by letter agreement on January 26, 2007. In the
transaction, Stratex Merger Corp., a wholly-owned subsidiary of
the Company, merged with and into Stratex with Stratex as the
surviving corporation (renamed as Harris Stratex Networks
Operating Corporation). Concurrently with the merger of
Stratex and Stratex Merger Corp. (the merger),
Harris Corporation contributed the Microwave Communications
Division (MCD), along with $32.1 million in
cash (comprised of $26.9 million contributed on
January 26, 2007 and $5.2 million held by the
Companys foreign operating subsidiaries on
January 26, 2007) to the Company and the Company
assumed the liabilities (with certain exceptions) of MCD (the
contribution transaction).
Pursuant to the merger, each share of Stratex common stock was
converted into one-fourth of a share of our Class A common
stock, and a total of 24,782,153 shares of our Class A
common stock were issued to the former holders of Stratex common
stock. In the contribution transaction, Harris Corporation
contributed the assets of MCD, along with $32.1 million in
cash, and in exchange, we assumed certain liabilities of Harris
Corporation related to MCD and issued 32,913,377 shares of
our Class B common stock to Harris Corporation. As a result
of these transactions, Harris Corporation owned approximately
57% and the former Stratex shareholders owned approximately 43%
of our total outstanding stock immediately following the closing.
31
We completed the Stratex acquisition to create a leading global
communications solutions company offering end-to-end wireless
transmission solutions for mobile and fixed-wireless service
providers and private networks.
The Stratex acquisition was accounted for as a purchase business
combination with MCD considered the acquiror for accounting
purposes. Thus, the historical results discussed herein for
periods prior to January 26, 2007 represent the separate
financial results of MCD on a carve-out basis. Total
consideration paid by us was approximately $493.1 million
as summarized in the following table (see Note D to
consolidated financial statements):
|
|
|
|
|
Calculation of Allocable Purchase Price
|
|
January 26, 2007
|
|
|
|
(In millions)
|
|
|
Value of Harris Stratex Networks
shares issued to Stratex Networks stockholders
|
|
$
|
464.9
|
|
Value of Stratex Networks vested
options assumed
|
|
|
15.5
|
|
Acquisition costs
|
|
|
12.7
|
|
|
|
|
|
|
Total allocable purchase price
|
|
$
|
493.1
|
|
|
|
|
|
|
Overview
The following Managements Discussion and Analysis of
Financial Condition and Results of Operations, which is
sometimes referred to in this Annual Report on
Form 10-K
as the MD&A, is provided as a supplement to, should be read
in conjunction with, and is qualified in its entirety by
reference to our consolidated financial statements and related
notes beginning on page 55 of this report.
The following is a list of the sections of the MD&A,
together with the perspective of our management on the contents
of these sections of the MD&A, which is intended to make
reading these pages more productive:
|
|
|
|
|
Business Considerations a general description of our
businesses; the drivers of these businesses and our strategy for
achieving value and key indicators that are relevant to us in
the microwave communications industry.
|
|
|
|
Operations Review an analysis of our consolidated
results of operations and of the results in each of its three
operating segments, to the extent the operating segment results
are helpful to gaining an understanding of our business as a
whole.
|
|
|
|
Liquidity, Capital Resources and Financial
Strategies an analysis of cash flows, contractual
obligations, off-balance sheet arrangements, commercial
commitments, financial risk management, impact of foreign
exchange and impact of inflation.
|
|
|
|
Critical Accounting Policies and Estimates a
discussion of accounting policies and estimates that require the
most judgment and a discussion of accounting pronouncements that
have been issued but not yet implemented by us and their
potential impact.
|
Business
Considerations
General
MCD was a leading global provider of turnkey wireless
transmission solutions and comprehensive network management
software, with an extensive services suite. With innovative
products and a broad portfolio, MCD was a market share leader in
North America and a top-tier provider in international markets,
most notably in the growing Middle East/Africa region. Stratex
Networks was a leading provider of innovative wireless
transmission solutions to mobile wireless carriers and data
access providers around the world. As a result of the
combination of the two historical businesses, Harris Stratex was
formed and has become a leading independent wireless networks
solutions provider, focused on delivering 1) microwave
digital radio and other communications products, systems and
professional services for private network operators and mobile
telecommunications providers; and 2) turnkey end-to-end
network management and service assurance solutions for broadband
and converged networks. Our three segments serve markets for
microwave products and services in North America Microwave,
International Microwave and network management software
solutions worldwide or Network Operations. All of our revenue,
income
32
and cash flow are developed from the sale of these products,
systems, software and services. We generally sell directly to
the end customer. However, to extend our global footprint and
maximize our penetration in certain markets, we sometimes sell
through agents, resellers
and/or
distributors, particularly in international markets.
Our mission statement is: Harris Stratex Networks offers
the most reliable, flexible, scalable, and easy to use wireless
network solutions in the world for mobile, government and
private networks. Every day, we build lasting customer
relationships, grow our company and build new value for our
shareholders by listening to our customers, delivering
innovative products matched to market demand and offering
superior service and quality. Were committed to helping
customers meet their competitive demands by building new
wireless networks, upgrading existing networks and providing
complete professional services.
Drivers
of Harris Stratex Businesses and Strategy for Achieving
Value
We are committed to our mission statement, and we believe that
executing the mission statement creates value. Consistent with
this commitment, we currently focus on these key drivers:
|
|
|
|
|
Continuing profitable revenue growth in all segments;
|
|
|
|
Focusing on operating efficiencies and cost reductions; and
|
|
|
|
Maintaining an efficient capital structure.
|
Continuing
Profitable Revenue Growth in All Segments
Harris Stratex Networks is a global provider of wireless
transmission networks solutions. We will focus on capitalizing
on our strength in the North American market by continuing to
win opportunities with wireless telecommunications providers as
well as federal, state and other private network operators.
Growth opportunities will come from network and capacity
expansion and the evolution to IP networking in both the public
and private segments. Other growth drivers include the emerging
triple-play services (voice, data and video) market in
the public sector, the trend towards network hardening and
interoperability for public safety and disaster response
agencies and the FCC directive to relocate frequency bands in
the 2 GHz range to open up spectrum for Advanced Wireless
Services. Wireless transmission systems are particularly
well-suited to meet the increasing demand for high-reliability,
high-bandwidth networks that are more secure and better
protected against natural and man-made disasters.
We are focused on increasing international revenue by offering
innovative new products and expanding regional sales channels to
capture greenfield network opportunities. We will also focus on
two major evolutionary trends in the global communications
market by 1) penetrating large regional mobile telecom
operators to participate in network expansion and new
third-generation (3G) network opportunities; and
2) enabling the migration to Internet Protocol (IP)
networking in both the public and private segments by providing
both
IP-enabled
and
IP-centric
wireless transmission solutions.
We offer a broad range of engineering and other professional
services for network planning, systems architecture design and
project management as a global competitive advantage. We will
expand our Network Operations offerings in microwave and
non-microwave opportunities to create a differentiator for our
total solutions offerings.
Focusing
on Operating Efficiencies and Cost Reductions
The principal focus areas for operating efficiencies and cost
management are: 1) reducing procurement costs through an
emphasis on coordinated supply chain management;
2) reducing product costs through dedicated value
engineering resources focused on product value engineering;
3) improving manufacturing efficiencies across all
segments; and 4) optimizing facility utilization.
Maintaining
an Efficient Capital Structure
Our capital structure is intended to optimize our cost of
capital. We believe a strong capital position, access to key
financial markets, ability to raise funds at a low effective
cost and overall low cost of borrowing provide a
33
competitive advantage. We had $89.6 million in cash, cash
equivalents, short-term investments and available for sale
securities as of June 29, 2007.
Key
Indicators
We believe our drivers, when fully implemented, will improve key
indicators such as: net income, revenue, gross margin, operating
cash flows, total assets as a percentage of revenue and total
equity as a percentage of revenue.
Fiscal
2007 Compared to Fiscal 2006 and Fiscal 2006 Compared to Fiscal
2005
Revenue
and Net Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
|
|
2006/2005
|
|
|
|
2007
|
|
|
2006
|
|
|
% Increase/(Decrease)
|
|
|
2005
|
|
|
% Increase/(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Revenue
|
|
$
|
507.9
|
|
|
$
|
357.5
|
|
|
|
42.1
|
%
|
|
$
|
310.4
|
|
|
|
15.2
|
%
|
Net loss
|
|
$
|
(17.9
|
)
|
|
$
|
(35.8
|
)
|
|
|
N/M
|
|
|
$
|
(3.8
|
)
|
|
|
N/M
|
|
% of revenue
|
|
|
(3.5
|
)%
|
|
|
(10.0
|
)%
|
|
|
|
|
|
|
(1.2
|
)%
|
|
|
|
|
N/M Not
meaningful
Fiscal
2007 Compared to Fiscal 2006
Our revenue for fiscal 2007 was $507.9 million, an increase
of $150.4 million or 42.1% compared to fiscal 2006, and
includes $123.7 million of revenue from the products and
services acquired in the Stratex acquisition for the five-month
period following January 26, 2007. The remainder of the
revenue increase, or $26.7 million, resulted from growth in
the North America Microwave, and Network Operations segments,
offset by a decline in international microwave revenue. The
increased demand for our products in North America during fiscal
2007 came from both wireless service providers and private
networks as mobile operators began to substitute microwave
wireless capabilities for leased lines to reduce network
operating costs, expand their geographic footprint and increase
capacity to handle high-bandwidth voice, data, and video
services. Private network demand also increased during fiscal
2007 compared to fiscal 2006, driven by the need for higher
bandwidth and by the availability of federal grant dollars to
improve interoperability of public safety networks. The decline
in international microwave revenue was driven by lower revenue
in Asia-Pac, EMER and Africa, due to the timing of project
awards.
Our fiscal 2007 net loss was $17.9 million compared to
a net loss of $35.8 million in fiscal 2006. The fiscal
2007 net loss reflected the following charges related to
the acquisition of Stratex: $15.3 million write-off of
acquired in-process research and development; $6.3 million
of charges related primarily to severance and integration
activities undertaken in connection with the merger;
$9.0 million amortization of a portion of the fair value
adjustments related to inventory and fixed assets; and
$10.5 million of amortization related to developed
technology, trade names, customer relationships, contract
backlog and non-competition agreements. These charges were
classified in cost of product sales and services or selling and
administrative expenses depending on the nature of the charge.
Additionally, we recorded $9.3 million of restructuring
charges in connection with plans to improve operating
efficiencies, and to create synergies through the consolidation
of facilities. We began implementation of a plan in February
2007 to scale down operations in Montreal, Canada and, to a
lesser extent, in the U.S. In the initial phase of this
plan, notices were sent to approximately 200 employees in
Montreal that their employment would be terminated between
March 30, 2007 and December 31, 2007. We believe that
the overall cost to implement this plan will be approximately
$6.2 million for Montreal (consisting primarily of
severance and other benefits) and approximately
$0.7 million in the U.S. (consisting primarily of
severance and other benefits). We began implementation of a plan
in June 2007 to scale down operations in Paris, France and, to a
lesser extent, Mexico City, Mexico. Notices were sent to
12 employees in Paris and 3 employees in Mexico City
that their employment would be terminated by December 31,
2007. We believe the overall cost to implement these plans will
be approximately $4.2 million in total (consisting
primarily of severance and other benefits), with the majority of
the costs relating to the reduction in force in France. These
plans are expected to be fully implemented by December 31,
2007.
34
These charges were partially offset by income generated from the
operations acquired from Stratex, and by the margin generated by
the increased revenue from our North America Microwave segment.
In fiscal 2007 we recorded a net tax benefit of
$4.0 million, compared to a tax provision of
$6.7 million in fiscal 2006. The tax benefit recorded in
fiscal 2007 resulted primarily from foreign tax credits earned
by our international operations during the fiscal year.
Our fiscal 2006 net loss was negatively impacted by
$34.9 million of inventory write-downs related to product
discontinuances, the related increase in income tax valuation
allowance of $5.7 million, $5.4 million of corporate
allocation expense related to the settlement of arbitration
proceedings in connection with our former analog base station
business and related services, and $3.8 million in
restructuring costs related to the relocation of our Canadian
manufacturing activities to our San Antonio, Texas
manufacturing facility.
Fiscal
2006 Compared to Fiscal 2005
Our revenue for fiscal 2006 was $357.5 million, an increase
of $47.1 million or 15.2% compared to fiscal 2005. Net loss
for fiscal 2006 was $35.8 million compared to fiscal
2005 net loss of $3.8 million. Fiscal 2006 revenue
increased in both the North America Microwave and International
Microwave segments by 5.2% and 35.4% from June 2005,
respectively. The increase was partially offset by a decrease in
revenue in the Network Operations segment of 26.9% from June
2005.
Our net loss of $35.8 million in fiscal 2006 included the
impact of $39.6 million in charges related to the
International microwave segment associated with product
discontinuances and the shutdown of manufacturing activities in
Montreal, Canada. Corporate allocations expense from Harris
increased from $6.2 million in fiscal 2005 to
$12.4 million in fiscal 2006. Corporate allocations expense
in fiscal 2006 included the impact of a $5.4 million
corporate allocation related to the settlement of arbitration
proceedings in connection with our former analog base station
business and related services.
Gross
Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase/(Decrease)
|
|
|
2005
|
|
|
Increase/(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Revenue
|
|
$
|
507.9
|
|
|
$
|
357.5
|
|
|
|
42.1
|
%
|
|
$
|
310.4
|
|
|
|
15.2
|
%
|
Cost of product sales and services
|
|
$
|
355.2
|
|
|
$
|
272.5
|
|
|
|
30.3
|
%
|
|
$
|
220.8
|
|
|
|
23.4
|
%
|
Gross margin
|
|
$
|
152.7
|
|
|
$
|
85.0
|
|
|
|
79.6
|
%
|
|
$
|
89.6
|
|
|
|
(5.1
|
)%
|
% of revenue
|
|
|
30.1
|
%
|
|
|
23.8
|
%
|
|
|
|
|
|
|
28.9
|
%
|
|
|
|
|
Fiscal
2007 Compared to Fiscal 2006
Our fiscal 2007 gross margin was $152.7 million, or
30.1% of revenue, compared to $85.0 million, or 23.8% of
revenue, for fiscal 2006. Our fiscal 2006 gross margin was
negatively impacted by a $34.9 million write-down of
inventory related to product discontinuances and there was no
comparable write-down in fiscal 2007. Our fiscal 2007 gross
margin was reduced by the following amounts related to the
acquisition of Stratex: $8.3 million amortization of a
portion of the fair value adjustments related to inventory and
fixed assets; and $3.0 million of amortization on developed
technology. Our fiscal 2007 gross margin was also impacted
by an increase in gross margin attributed to the gross margin
generated by the products and services acquired from Stratex and
the margin generated by the increase in revenue from our North
America Microwave segment.
Fiscal
2006 Compared to Fiscal 2005
Our fiscal 2006 gross margin of $85.0 million
represented 23.8% of revenue, compared to 28.9% in fiscal 2005.
The gross margin percentage decline reflected
$34.9 million, or 9.8% of revenue, of inventory write-downs
associated with product discontinuances in fiscal 2006. Gross
margins benefited from increased shipments of TRuepoint, a new
family of lower-cost, higher margin microwave radios. See
Discussion of Business Segments below for further
information.
35
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
2006/2005
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
2007
|
|
2006
|
|
Increase/(Decrease)
|
|
2005
|
|
Increase/(Decrease)
|
|
|
(In millions, except percentages)
|
|
Research and development expenses
|
|
$
|
39.4
|
|
|
$
|
28.8
|
|
|
|
36.8
|
%
|
|
$
|
28.0
|
|
|
|
2.9
|
%
|
% of revenue
|
|
|
7.8
|
%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
9.0
|
%
|
|
|
|
|
Fiscal
2007 Compared to Fiscal 2006
Research and development (R&D) expenses were
$39.4 million in fiscal 2007, compared to
$28.8 million in fiscal 2006. As a percent of revenue,
these expenses decreased from 8.1% in fiscal 2006 to 7.8% in
fiscal 2007. Of the total increase in the expense,
$7.2 million of the increase is attributable to the
research and development expense related to the Stratex merger.
The remainder of the increase is primarily due to higher
spending in fiscal 2007 related to our new TRuepoint family of
microwave radios.
Fiscal
2006 Compared to Fiscal 2005
R&D expenses were $28.8 million in fiscal 2006,
compared to $28.0 million in fiscal 2005. As a percent of
revenue, these expenses decreased from 9.0% in fiscal 2005 to
8.1% in fiscal 2006. The increase of $0.8 million was
primarily due to higher spending in 2006 related to our new
TRuepoint family of microwave radios.
Selling
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
2006/2005
|
|
|
|
|
|
|
%
|
|
|
|
%
|
|
|
2007
|
|
2006
|
|
Increase/(Decrease)
|
|
2005
|
|
Increase/(Decrease)
|
|
|
(In millions, except percentages)
|
|
Selling and administrative expenses
|
|
$
|
98.9
|
|
|
$
|
68.5
|
|
|
|
44.4
|
%
|
|
$
|
58.8
|
|
|
|
16.5
|
%
|
% of revenue
|
|
|
19.5
|
%
|
|
|
19.2
|
%
|
|
|
|
|
|
|
18.9
|
%
|
|
|
|
|
Fiscal
2007 Compared to Fiscal 2006
Our fiscal 2007 selling and administrative (S&A) expenses
increased to $98.9 million from $68.5 million in
fiscal 2006. As a percentage of revenue, these expenses
increased from 19.2% of revenue in fiscal 2006 to 19.5% of
revenue in fiscal 2007. Of the total increase,
$19.8 million of the increase is attributable to the
selling and administrative expenses acquired from Stratex.
S&A expenses in fiscal 2006 were favorably impacted by a
$1.8 million gain on the sale of a building in
San Antonio, Texas. The remainder of the increase is due to
higher selling expenses resulting from the increase in revenue.
Fiscal
2006 Compared to Fiscal 2005
S&A expenses increased from $58.8 million in fiscal
2005 to $68.5 million in fiscal 2006. As a percentage of
revenue, these expenses increased from 18.9% in fiscal 2005 to
19.2% in fiscal 2006. The S&A increase is primarily related
to charges associated with product discontinuances, stock-based
compensation expense, and increased selling costs related to the
15.2% increase in sales, partially offset by the
$1.8 million gain in 2006 as noted above. See
Discussion of Business Segments below for further
information.
Other
Operating Expense Charges
In order to improve operating efficiencies and to create
synergies through the consolidation of facilities, we have
implemented restructuring plans to scale down our operations in
Canada, France, the U.S., and Mexico.
In the third quarter of fiscal 2007, we implemented a
restructuring plan to close our Montreal facility and reduce our
Canadian workforce, and, to a lesser extent, our
U.S. workforce. In the fourth quarter of fiscal 2007 we
implemented plans to reduce our French and Mexican workforces.
As part of these restructuring plans, we notified approximately
215 employees in Canada, the U.S., France, and Mexico that
their employment will be terminated
36
between March 30, 2007 and December 31, 2007. These
plans are expected to be fully implemented by December 31,
2007. In fiscal 2007, we recorded restructuring charges of
approximately $9.3 million ($5.1 million in our North
America Microwave segment and $4.2 million in our
International Microwave segment), all of which pertained to
employee severance benefits. We anticipate that we will record
an additional $2.2 million in restructuring charges
associated with these plans in fiscal 2008 ($1.8 million in
our North America Microwave segment and $0.4 in our
International Microwave segment).
In fiscal 2007, as part of the Stratex purchase, we estimated
the fair value of acquired in-process research and development
to be approximately $15.3 million, which we have reflected
in Acquired in-process research and development
expense in the accompanying fiscal 2007 consolidated statements
of operations. This represents certain technologies under
development, primarily related to the next generation of the
Eclipse product line. We estimated that the technologies under
development were approximately 50% complete at the date of
acquisition. We expect to incur up to an additional
$3.4 million to complete this development, with completion
expected in late calendar 2007. We also recorded
$7.5 million amortization of acquired intangible assets. In
fiscal 2006, we recorded $3.8 million of restructuring
expenses, which were primarily related to the relocation of our
Montreal manufacturing activities to our San Antonio
facility.
Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase/(Decrease)
|
|
|
2005
|
|
|
Increase/(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Loss before income taxes
|
|
$
|
(21.9
|
)
|
|
$
|
(29.0
|
)
|
|
|
24.5
|
%
|
|
$
|
(3.5
|
)
|
|
|
N/M
|
|
Income tax benefit (expense)
|
|
$
|
4.0
|
|
|
$
|
(6.8
|
)
|
|
|
159.7
|
%
|
|
$
|
(0.3
|
)
|
|
|
N/M
|
|
% of loss before income taxes
|
|
|
18.3
|
%
|
|
|
(23.4
|
)%
|
|
|
|
|
|
|
(8.6
|
)%
|
|
|
|
|
The basis for determining our income tax benefit (expense) is
discussed in Note Q-Income Taxes of the
Consolidated Financial Statements under Part II,
Item 8 below.
Our fiscal 2007 tax benefit was the result of foreign tax
credits earned as a result of our international operations
offset somewhat by unfavorable carve-out tax adjustments
attributable to MCD.
Fiscal 2006 income tax expense relates primarily to a valuation
allowance established in the period against certain net
operating losses we have determined will not be realized
subsequent to the decision to cease manufacturing activities in
Canada.
At June 29, 2007, we had $8.8 million of federal
alternative minimum tax (AMT) credit carryforwards,
which do not expire. We also had net operating loss
carryforwards of approximately $130.0 million. The tax loss
carryforwards have expiration dates ranging between one year and
no expiration in certain instances. We recorded a full valuation
allowance on the net operating loss carryforward in the opening
balance sheet of Stratex under purchase accounting. This
adjustment resulted in an increase to goodwill. Any realization
of this net operating loss carryforward in the future will be
recorded as a reduction to goodwill. We also had foreign tax
credit carryforwards in the amount of $4.7 million, which
will begin to expire in 2017.
For periods prior to January 26, 2007, income tax expense
has been determined as if MCD had been a stand-alone entity,
although the actual tax liabilities and tax consequences applied
only to Harris. Our income tax expense relates to income taxes
paid or to be paid in foreign jurisdictions for which net
operating loss carryforwards were not available and domestic
taxable income is deemed offset by tax loss carryforwards for
which an income tax valuation allowance had been previously
provided for in the financial statements.
Related
Party Transactions
Prior to the Stratex acquisition, Harris provided information
services, human resources, financial shared services,
facilities, legal support, and supply chain management services
to us. The charges for these services were billed to us
primarily based on actual usage. We will still use services as
provided by Harris in fiscal 2008 as described below.
37
These amounts were charged directly to us and were not part of
the corporate allocations expense in the consolidated statements
of operations for the periods presented in this report. The
amount charged to us for these services was $12.2 million,
$10.9 million and $10.3 million in fiscal years 2007,
2006 and 2005. These amounts are included in the cost of product
sales and services and engineering, selling and administrative
expenses captions in the consolidated statements of operations
for the periods presented in this report.
There are other services Harris provided to us prior to the
Stratex acquisition that were not directly charged to the
Company. These functions and amounts are explained above under
the subtitle Basis of Presentation. These amounts
are included within Due to Harris Corporation on the
consolidated balance sheets. Additionally, we have other
receivables and payables in the normal course of business with
Harris. These amounts are netted within Due to Harris
Corporation on the consolidated balance sheets. Total
receivables from Harris were $0.7 million and
$7.5 million at June 29, 2007 and June 30, 2006.
Total payables to Harris were $17.9 million and
$20.1 million at June 29, 2007 and June 30, 2006.
Harris was the primary source of our financing and equity
activities for the periods presented in this report through
January 26, 2007, the date of the Stratex acquisition.
During the seven months ended January 26, 2007,
Harriss net investment in us was increased by
$24.1 million. During the fiscal 2006, Harriss
provided $2.8 million to recapitalize one of our
subsidiaries and Harriss net investment in us decreased by
$7.8 million. During the fiscal 2005, Harriss
provided $43.0 million to recapitalize some of our
subsidiaries and Harriss net investment in us decreased by
$13.3 million.
Additionally, through the date of the Stratex acquisition,
Harris loaned funds to us to fund our international entities and
we provided excess cash at various locations back to Harris.
This arrangement ended on January 26, 2007. We recognized
interest income and expense on these loans. The amount of
interest income and expense for each of the three fiscal years
in the period ended June 29, 2007 was not significant.
We have sales to, and purchases from, other Harris entities from
time to time. Prior to the merger, the entity initiating the
transaction sold to the other Harris entity at cost or transfer
price, depending on jurisdiction. The entity making the sale to
the end customer recorded the profit on the transaction above
cost or transfer price, depending on jurisdiction. Subsequent to
the merger, sales to and purchases from Harris entities are
recorded at market price. Our sales to other Harris entities
were $1.9 million, $6.5 million and $3.1 million
in fiscal 2007, 2006 and 2005. We also recognized costs
associated with related party purchases from Harris of
$6.7 million, $12.7 million and $8.0 million in
fiscal 2007, 2006 and 2005.
On January 26, 2007, we entered into a new Transition
Services Agreement with Harris to provide for certain services
during the period subsequent to the Stratex acquisition. These
services are charged to us based primarily on actual usage and
include database management, supply chain operating systems,
eBusiness services, sales and service, financial systems, back
office material resource planning support, HR systems, internal
and information systems shared services support, network
management and help desk support, and server administration and
support. During the year ended June 29, 2007, Harris
charged us $3.7 million for these services.
Prior to January 26, 2007, MCD used certain assets in
Canada owned by Harris that were not contributed to us as part
of the Combination Agreement. We continue to use these assets in
our business and we entered into a 5 year lease agreement
to accommodate this use. This agreement is a capital lease under
generally accepted accounting principles. At June 29, 2007,
our lease obligation to Harris was $5.9 million and the
related asset amount is included in our property, plant and
equipment. Quarterly lease payments are due to Harris based on
the amount of 103% of Harris annual depreciation
calculated in accordance with U.S. generally accepted
accounting principles. Our depreciation expense on this capital
lease was $0.8 million in fiscal 2007. As of June 29,
2007, the future minimum payments for this lease are
$3.1 million for fiscal 2008, $1.0 million for fiscal
2009, $0.6 million for fiscal 2010, $0.4 million for
fiscal 2011, and $0.8 million for fiscal 2012.
38
Discussion
of Business Segments
North
America Microwave Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase/(Decrease)
|
|
|
2005
|
|
|
Increase/(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Revenue
|
|
$
|
216.3
|
|
|
$
|
168.1
|
|
|
|
28.7
|
%
|
|
$
|
159.8
|
|
|
|
5.2
|
%
|
Segment operating income
|
|
$
|
8.9
|
|
|
$
|
16.9
|
|
|
|
(47.3
|
)%
|
|
|
10.3
|
|
|
|
64.1
|
%
|
% of revenue
|
|
|
4.1
|
%
|
|
|
10.1
|
%
|
|
|
|
|
|
|
6.4
|
%
|
|
|
|
|
Fiscal
2007 Compared to Fiscal 2006
North America Microwave segment revenue increased by
$48.2 million or 28.7% from fiscal 2006 to fiscal 2007.
Revenue for fiscal 2007 included $7.7 million of revenue
related to the acquisition of Stratex. The remainder of the
increase reflects increased demand for our products driven
primarily by mobile operators that are upgrading and expanding
networks for high bandwidth voice, data and video services and
by private networks upgrading for increased reliability,
survivability and interoperability.
Fiscal 2007 operating income was reduced by the following
amounts related to the acquisition of Stratex: $0.4 million
amortization of the fair value adjustments for fixed assets,
$1.4 million amortization of developed technology, trade
names, customer relationships, and non-compete agreements, and
$5.1 million of restructuring charges and $2.7 of
integration and severance charges undertaken in connection with
the merger including the reduction in force at our Montreal
facility. North America operating income increased by
$0.8 million attributable to the acquisition of Stratex.
Operating margin as a percentage of revenue also declined from
2006 to 2007 due to a higher mix of lower margin service revenue
in fiscal 2007 compared to fiscal 2006.
Fiscal
2006 Compared to Fiscal 2005
North America Microwave segment revenue increased by
$8.3 million or 5.2% from fiscal 2005 to fiscal 2006. This
segment had operating income of $16.9 million in fiscal
2006 compared to operating income of $10.3 million in
fiscal 2005. The strengthening market for microwave radios
primarily drove the increase in revenue. Demand for both private
networks and mobile service providers continued to be driven by
capacity expansion and by network upgrades to provide
high-reliability, high-bandwidth applications.
The increase in operating income was primarily due to increased
shipments in fiscal 2006 of TRuepoint, a family of lower-cost
microwave radios. This was partially offset by increased
engineering, selling and administrative expenses in fiscal 2006
when compared to fiscal 2005 as a result of increased selling
expenses and stock and cash based compensation plan expenses.
International
Microwave Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase/(Decrease)
|
|
|
2005
|
|
|
Increase/(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Revenue
|
|
$
|
272.2
|
|
|
$
|
172.3
|
|
|
|
58.0
|
%
|
|
$
|
127.2
|
|
|
|
35.5
|
%
|
Segment operating loss
|
|
$
|
(27.9
|
)
|
|
$
|
(34.1
|
)
|
|
|
N/M
|
|
|
$
|
(11.9
|
)
|
|
|
N/M
|
|
% of revenue
|
|
|
(10.2
|
)%
|
|
|
(19.8
|
)%
|
|
|
|
|
|
|
(9.4
|
)%
|
|
|
|
|
N/M Not
meaningful
Fiscal
2007 Compared to Fiscal 2006
International microwave segment revenue increased by
$99.9 million or 58.0% from fiscal 2006 to fiscal 2007.
Revenue in fiscal 2007 included $116.0 million from products and
services obtained in the Stratex acquisition.
39
Excluding the impact of the revenue from Stratex products and
services, our International Microwave revenue declined by
$16 million.
This segment had an operating loss of $27.9 million for
fiscal 2007 compared to an operating loss of $34.1 million
for fiscal 2006. The operating loss for fiscal 2007 reflected
the following charges related to the acquisition of Stratex:
$15.3 million write off of in-process research and
development, $8.6 million amortization of the fair value
adjustments for inventory and fixed assets, $9.1 million
amortization of developed technology, trade names, customer
relationships, contract backlog and non-compete agreements, and
$4.2 million of restructuring charges including the
reduction in force at our Paris facility, and $3.6 million
of integration expenses associated with the merger. The
operating loss for fiscal 2006 reflected $34.9 million of
inventory write-downs related to product discontinuances, and
$3.8 million in restructuring costs associated with
relocating our Montreal manufacturing activities to our
San Antonio, Texas manufacturing plant. International
operating income increased by $9.0 million attributable to
the acquisition of Stratex.
Operating margin as a percentage of revenue also declined from
2006 to 2007 due to a higher mix of lower margin service revenue
in fiscal 2007 compared to fiscal 2006.
Fiscal
2006 Compared to Fiscal 2005
International microwave segment revenue increased by
$45.1 million or 35.5% from fiscal 2005 to fiscal 2006.
This segment had an operating loss of $34.1 million in
fiscal 2006 compared to an operating loss of $11.9 million
in fiscal 2005. The success of this segments TRuepoint
radio products and a strengthening market for microwave radios
primarily drove the increase in revenue.
The increase in operating loss was primarily due to
$39.6 million of inventory write-downs and severance costs
associated with product discontinuances and the shut-down of our
Montreal, Canada manufacturing activities. During the second
quarter of fiscal 2005, we successfully completed the release of
the TRuepoint product family, which is our product offering for
the low- and mid-capacity microwave radio market segments. In
light of the market acceptance of this product family, as
demonstrated by TRuepoint product sales, management announced
during the second quarter of fiscal 2006 a manufacturers
discontinuance, or MD, of the
MicroStar®
M/H, MicroStar L and
Galaxytm
product families (the product families the TRuepoint product
line was developed to replace) and of the
ClearBursttm
product family, a product line that shared manufacturing
facilities with the MicroStar and the Galaxy product lines in
Montreal, Canada. In November 2005, letters were sent to
MicroStar, Galaxy and ClearBurst customers, informing them of
the MD announcement.
We estimated expected demand for these products based on
responses to the letters noted above and a percentage of the
installed base, using our previous product history as a basis
for this estimate. In addition, the customer service inventory
of these discontinued products was reviewed and quantities
required to support existing warranty obligations and
contractual obligations were quantified. These analyses
identified inventory held in multiple locations including
Montreal, Canada; Redwood Shores, California; San Antonio,
Texas; Paris, France; Mexico City, Mexico; São Paulo,
Brazil; and Shenzhen, China. As a result of these analyses,
$34.9 million of inventory was written down in the second
quarter of fiscal 2006. Also, $5.6 million of severance and
other costs were recorded in fiscal 2006 related to the shutdown
of manufacturing activities at the Montreal, Canada plant and
product discontinuances. The inventory reserved in the second
quarter of fiscal 2006 has been subsequently disposed of or
scrapped. No additional material costs or charges are expected
to be incurred in connection with these product discontinuances.
The decrease in gross margins and operating losses associated
with the product discontinuances noted above were partially
offset by improved gross margins in fiscal 2006 as a result of
increased shipments of TRuepoint. Engineering, selling and
administrative expenses increased in fiscal 2006 when compared
to fiscal 2005 as a result of increased selling expenses and
stock and cash based compensation plan expenses.
40
Network
Operations Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
|
|
|
|
|
|
2006/2005
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
2007
|
|
|
2006
|
|
|
Increase/(Decrease)
|
|
|
2005
|
|
|
Increase/(Decrease)
|
|
|
|
(In millions, except percentages)
|
|
|
Revenue
|
|
$
|
19.4
|
|
|
$
|
17.1
|
|
|
|
13.5
|
%
|
|
$
|
23.4
|
|
|
|
(26.9
|
)%
|
Segment operating income
|
|
$
|
1.3
|
|
|
$
|
1.1
|
|
|
|
18.2
|
%
|
|
$
|
4.4
|
|
|
|
(75.0
|
)%
|
% of revenue
|
|
|
6.7
|
%
|
|
|
6.4
|
%
|
|
|
|
|
|
|
18.8
|
%
|
|
|
|
|
Fiscal
2007 Compared to Fiscal 2006
Network Operations segment revenue increased by 13.5% from
fiscal 2006 to fiscal 2007. This segment had operating income of
$1.3 million in fiscal 2007, which represented an
improvement of 18.2% compared to operating income of
$1.1 million in fiscal 2006. Additionally, operating income
as a percentage of sales increased to 6.7% in fiscal 2007
compared to 6.4% in fiscal 2006. The increase in revenue
resulted primarily from an increase in maintenance and services
revenue in fiscal 2007 compared to fiscal 2006.
The increase in operating income in total and as a percentage of
sales was driven by product mix and a slight increase in higher
margin software revenue compared to fiscal 2006.
Fiscal
2006 Compared to Fiscal 2005
Network Operations segment revenue decreased 26.9% from fiscal
2005 to fiscal 2006. This segment had operating income of
$1.1 million in fiscal 2006 compared to operating income of
$4.4 million in fiscal 2005. The decrease in revenue and
operating income was due to obtaining the majority of the
revenue through customer add-ons and software maintenance as
opposed to adding major new customers.
Liquidity,
Capital Resources and Financial Strategies
Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Net cash (used in) provided by
operating activities
|
|
$
|
(13.1
|
)
|
|
$
|
19.5
|
|
|
$
|
(4.2
|
)
|
Net cash provided by (used in)
investing activities
|
|
|
14.3
|
|
|
|
(8.2
|
)
|
|
|
(19.4
|
)
|
Net cash provided by (used in)
financing activities
|
|
|
57.3
|
|
|
|
(5.8
|
)
|
|
|
24.9
|
|
Effect of foreign exchange rate
changes on cash
|
|
|
(3.1
|
)
|
|
|
0.5
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
$
|
55.4
|
|
|
$
|
6.0
|
|
|
$
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
Cash Equivalents
We consider all highly liquid debt instruments purchased with a
remaining maturity of three months or less at the time of
purchase to be cash equivalents. Our cash and cash equivalents
increased by $55.4 million to $69.2 million at the end
of fiscal 2007. We acquired $20.4 million in cash from the
Stratex acquisition net of acquisition costs of
$12.7 million. We also generated cash of $8.3 million
from the issuance of redeemable preference shares,
$26.9 million in proceeds from the sale of Class B
common stock to Harris in the contribution transaction,
$35.8 million in proceeds from the sale of short-term
investments, and net cash and other transfers of
$24.1 million from Harris prior to the Stratex acquisition.
These increases in cash were offset by $13.1 million used
in operations and purchases of $30.7 million in short-term
investments.
Our cash and cash equivalents increased by $6.0 million to
$13.8 million at the end of fiscal 2006, primarily due to
$19.5 million of cash provided by operating activities and
$4.6 million of proceeds from the sale of land and building
in San Antonio, Texas. These increases were partially
offset by $12.8 million of software and plant and equipment
additions and $5.0 million of cash and other transfers to
Harris Corporation.
41
We currently believe that existing cash, cash equivalents,
short-term investments and available for sale securities, funds
generated from operations and access to our credit facility will
be sufficient to provide for our anticipated requirements for
working capital and capital expenditures for the next
12 months and the foreseeable future. We estimate that
approximately $20 million of our cash will be used in
integration and restructuring activities during the next fiscal
year. Other significant non-operational cash payments are not
anticipated in fiscal 2008.
There can be no assurance, however, that our business will
generate cash flow, or that anticipated operational improvements
will be achieved. If we are unable to maintain cash balances or
generate sufficient cash flow from operations to service our
obligations, we may be required to sell assets, reduce capital
expenditures, or obtain financing. If we need to obtain
additional financing, we cannot be assured that it will be
available on favorable terms, or at all. Our ability to make
scheduled principal payments or pay interest on or refinance any
future indebtedness depends on our future performance and
financial results, which, to a certain extent, are subject to
general conditions in or affecting the microwave communications
market and to general economic, political, financial,
competitive, legislative and regulatory factors beyond our
control.
Net Cash
(Used in) Provided by Operating Activities
Our net cash used in operating activities was $13.1 million
in fiscal 2007 compared to $19.5 million cash provided by
operating activities in fiscal 2006. Operating cash flow was
negatively affected primarily due to increases in receivables,
inventories and unbilled costs. These negative cash flow items
were partially offset by increases in accounts payable and
accrued expenses, advance payments and unearned income and
amounts due to Harris. The increase in inventories was due to
the build-up
of several large projects scheduled to ship during the remainder
of calendar 2007.
Our net cash provided by operating activities was
$19.5 million in fiscal 2006 compared to net cash used in
operating activities of $4.2 million in fiscal 2005. The
improvement in cash flow was primarily due to an increase in
accounts payable, accrued compensation and benefits and accrued
expenses associated with higher production volumes and increased
incentive compensation and commission accruals.
Net Cash
Provided by (Used in) Investing Activities
Our net cash provided by investing activities was
$14.3 million in fiscal 2007 compared to $8.2 million
used in investing activities in fiscal 2006, primarily because
of the cash provided by the merger and the contribution
transaction. Net cash used in investing activities in fiscal
2007 was primarily for $30.7 million in purchases of
short-term investments, $2.9 million of additions of
capitalized software and $8.3 million of additions of
property, plant and equipment. Net cash used in investing
activities in fiscal 2006 was due to $9.6 million of
additions of plant and equipment and $3.2 million of
additions of capitalized software, which was partially offset by
$4.6 million proceeds from the sale of land and building in
San Antonio, Texas.
Our total additions of capitalized software and property, plant
and equipment in fiscal 2008 are expected to be in the
$8 million to $10 million range.
Our net cash used in investing activities was $8.2 million
in fiscal 2006 compared to $19.4 million used in investing
activities in fiscal 2005. Net cash used in investing activities
in fiscal 2006 was due to $9.6 million additions of
property, plant and equipment and $3.2 million additions of
capitalized software, which was partially offset by
$4.6 million proceeds from the sale of land and building in
San Antonio, Texas. Net cash used in investing activities
in fiscal 2005 was primarily due to $9.3 million of
additions of property, plant and equipment and
$10.1 million of additions of capitalized software.
The decrease in additions of capitalized software from
$10.1 million in fiscal 2005 to $3.2 million in fiscal
2006 mainly relates to next generation software that was
developed in the Network Operations segment.
Net Cash
Provided by (Used in) Financing Activities
Our net cash provided by financing activities in fiscal 2007 was
$57.3 million compared to $5.8 million used in
financing activities in fiscal 2006. The net cash provided by
financing activities in fiscal 2007 came primarily from
42
$26.9 million in proceeds from the issuance of Class B
common stock issued to Harris, $24.1 million in net cash
and other transfers from Harris prior to the Stratex
acquisition, $8.3 million in proceeds from the issuance of
redeemable preference shares and $3.1 million in proceeds
from the exercise of former Stratex options. Our short-term debt
also increased by $1.0 million during fiscal 2007. We made
$5.2 million in principal payments on our long-term debt
during fiscal 2007.
Our net cash used in financing activities in fiscal 2006 was
$5.8 million compared to net cash provided by financing
activities in fiscal 2005 of $24.9 million, and primarily
related to net cash transfers to and from Harris Corporation.
Sources
of Cash
At June 29, 2007, our principal sources of liquidity
consisted of $89.6 million in cash, cash equivalents,
short-term investments and available for sale securities and
$24.2 million of available credit under our
$50 million credit facility.
Available
Credit Facility and Repayment of Debt
We have $24.2 million of credit available against our
$50 million revolving credit facility with a commercial
bank as mentioned above. The total amount of revolving credit
available is $50 million less the outstanding balance of
the term loan portion and any usage under the revolving credit
portion. The balance of the term loan portion of our credit
facility was $19.5 million as of June 29, 2007 and
there was $6.3 million outstanding in standby letters of
credit as of that date, which are defined as usage under the
revolving credit portion of the facility. There were no
borrowings under the short-term debt portion of the facility as
of June 29, 2007. As the term loans are repaid, additional
credit will be available under the revolving credit portion of
the facility.
Depending on the results of our operations and the growth of our
business, we may require additional financing which may not be
available to us in the required time frame on commercially
reasonable terms, if at all. We are currently negotiating a new
credit facility with major financial institutions. However, we
believe that we have the financial resources needed to meet our
business requirements for at least the next 12 months.
Our debt consisted of the following at June 29, 2007 and
June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
June 29, 2007
|
|
|
June 30, 2006
|
|
|
|
(In millions)
|
|
|
Credit Facility with Bank:
|
|
|
|
|
|
|
|
|
Term Loan A
|
|
$
|
5.7
|
|
|
$
|
0.0
|
*
|
Term Loan B
|
|
|
13.8
|
|
|
|
0.0
|
*
|
Other short-term notes
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20.7
|
|
|
|
0.2
|
|
Less current portion and
short-term notes
|
|
|
(11.9
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
8.8
|
|
|
$
|
0.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The debt balances assumed as a result of the Stratex acquisition
were not our obligations as of June 30, 2006. |
Term Loan A of the Credit Facility requires monthly principal
payments of $0.5 million plus interest at a fixed rate of
6.38% through May 2008. Term Loan B requires monthly principal
payments of $0.4 million plus interest at a fixed rate of
7.25% through March 2010.
43
At June 29, 2007, our future debt principal payment
obligations were as follows:
|
|
|
|
|
|
|
Years Ending in June
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
11.9
|
|
2009
|
|
|
5.0
|
|
2010
|
|
|
3.8
|
|
|
|
|
|
|
Total
|
|
$
|
20.7
|
|
|
|
|
|
|
Based on covenants included as part of the credit facility we
have to maintain, as measured at the last day of each fiscal
quarter, tangible net worth of at least $54 million plus
(1) 25% of net income, as determined in accordance with
U.S. GAAP (exclusive of losses) and (2) 50% of any
increase to net worth due to subordinated debt or net equity
proceeds from either public or private offerings (exclusive of
issuances of stock under our employee benefit plans) for such
quarter and all preceding quarters since December 31, 2005.
We also have to maintain, as measured at the last day of each
fiscal month, a ratio of not less than 1.25 determined as
follows: (a) the sum of total unrestricted cash and cash
equivalents plus short-term and long-term marketable securities
plus 25% of all accounts receivable due to us minus certain
outstanding bank services and reserve for foreign currency
contract transactions divided by (b) the aggregate amount
of outstanding borrowings and other obligations to the bank. As
of June 29, 2007, we were in compliance with these
financial covenants.
Restructuring
and Severance Payments
We have a liability for restructuring activities totaling
$18.6 million as of June 29, 2007, of which
$10.8 million is classified as a current liability and
expected to be paid out in cash over the next year.
Additionally, we have recorded an $8.3 million liability as
of June 29, 2007 for severance payments in connection with
the Stratex acquisition, of which $4.3 million is
classified as a current liability and expected to be paid out in
cash over the next year. We anticipate recording an additional
$2.2 million associated with the Montreal, France and
Mexico City reductions in force during fiscal 2008.
Contractual
Obligations
At June 29, 2007, we had contractual cash obligations for
repayment of debt and related interest, purchase obligations to
acquire goods and services, payments for operating lease
commitments, obligations to Harris, payments on our
restructuring and severance liabilities, redemption of our
preference shares and payment of the
44
related required dividend payments and other current liabilities
on our balance sheet in the normal course of business. Cash
payments due under these contractual obligations are estimated
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations Due by Fiscal Year
|
|
|
|
Total
|
|
|
2008
|
|
|
2009 and 2010
|
|
|
2011 and 2012
|
|
|
After 2012
|
|
|
Long-term debt
|
|
$
|
19.5
|
|
|
$
|
10.7
|
|
|
$
|
8.8
|
|
|
$
|
|
|
|
$
|
|
|
Interest on long-term debt
|
|
|
1.6
|
|
|
|
1.0
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Purchase obligations(1)
|
|
|
23.6
|
|
|
|
23.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease commitments
|
|
|
17.3
|
|
|
|
6.7
|
|
|
|
8.7
|
|
|
|
1.9
|
|
|
|
|
|
Amounts due to Harris Corporation
|
|
|
17.2
|
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation to Harris
Corporation
|
|
|
5.9
|
|
|
|
3.1
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
0.0
|
|
Restructuring and severance
liabilities
|
|
|
26.9
|
|
|
|
15.1
|
|
|
|
9.0
|
|
|
|
2.8
|
|
|
|
0.0
|
|
Redeemable preference shares(2)
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
Dividend requirements on
redeemable preference shares(3)
|
|
|
9.5
|
|
|
|
1.0
|
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
4.5
|
|
Current liabilities on the balance
sheet(4)
|
|
|
141.5
|
|
|
|
141.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
271.3
|
|
|
$
|
219.9
|
|
|
$
|
30.7
|
|
|
$
|
7.9
|
|
|
$
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
From time to time in the normal course of business we may enter
into purchasing agreements with our suppliers that require us to
accept delivery of, and remit full payment for, finished
products that we have ordered, finished products that we
requested be held as safety stock, and work in process started
on our behalf in the event we cancel or terminate the purchasing
agreement. It is not our intent, nor is it reasonably likely,
that we would cancel a purchase order that we have executed.
Because these agreements do not specify fixed or minimum
quantities, do not specify minimum or variable price provisions,
and do not specify the approximate timing of the transaction, we
have no basis to estimate any future liability under these
agreements. |
|
(2) |
|
Assumes the mandatory redemption will occur more than five years
from June 29, 2007. |
|
(3) |
|
The dividend rate is 12% and assumes no redemptions for five
years from June 29, 2007. |
|
(4) |
|
Includes short-term debt, accounts payable, liabilities for
compensation, benefits and other accrued items and income taxes
payable, less the current portion of severance liabilities
included in other accrued items. |
Off-Balance
Sheet Arrangements
In accordance with the definition under SEC rules
(Item 303(a) (4) (ii) of
Regulation S-K),
any of the following qualify as off-balance sheet arrangements:
|
|
|
|
|
Any obligation under certain guarantee contracts;
|
|
|
|
A retained or contingent interest in assets transferred to an
unconsolidated entity or similar entity or similar arrangement
that serves as credit, liquidity or market risk support to that
entity for such assets;
|
|
|
|
Any obligation, including a contingent obligation, under certain
derivative instruments; and
|
|
|
|
Any obligation, including a contingent obligation, under a
material variable interest held by the registrant in an
unconsolidated entity that provides financing, liquidity, market
risk or credit risk support to the registrant, or engages in
leasing, hedging or research and development services with the
registrant.
|
Currently we are not participating in transactions that generate
relationships with unconsolidated entities or financial
partnerships, including variable interest entities, and we do
not have any material retained or contingent interest in assets
as defined above. As of June 29, 2007, we did not have
material financial guarantees or other contractual commitments
that are reasonably likely to adversely affect liquidity. In
addition, we are not currently a
45
party to any related party transactions that materially affect
our results of operations, cash flows or financial condition.
Due to our downsizing of certain operations pursuant to
acquisitions, restructuring plans or otherwise, certain
properties leased by us have been sublet to third parties. In
the event any of these third parties vacate any of these
premises, we would be legally obligated under master lease
arrangements. We believe that the financial risk of default by
such sublessors is individually and in the aggregate not
material to our financial position, results of operations or
cash flows.
Commercial
Commitments
We have entered into commercial commitments in the normal course
of business including surety bonds, standby letters of credit
and other arrangements with financial institutions and insurers
primarily relating to the guarantee of future performance on
certain tenders and contracts to provide products and services
to customers. As of June 29, 2007, we had commercial
commitments on outstanding surety bonds, standby letters of
credit, guarantees and other arrangements, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration of Commitments by Fiscal Year
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
After 2010
|
|
|
|
(In millions)
|
|
|
Standby letters of credit used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bids
|
|
$
|
3.1
|
|
|
$
|
3.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Down payments
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
10.4
|
|
|
|
8.6
|
|
|
|
1.5
|
|
|
|
0.3
|
|
|
|
|
|
Warranty
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.7
|
|
|
|
11.8
|
|
|
|
1.5
|
|
|
|
0.4
|
|
|
|
|
|
Surety bonds used for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bids
|
|
|
1.3
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
|
|
|
25.8
|
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.1
|
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees
|
|
|
0.5
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments
|
|
$
|
41.3
|
|
|
$
|
39.3
|
|
|
$
|
1.5
|
|
|
$
|
0.4
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Risk Management
In the normal course of doing business, we are exposed to the
risks associated with foreign currency exchange rates and
changes in interest rates. We employ established policies and
procedures governing the use of financial instruments to manage
our exposure to such risks.
Exchange
Rate Risk
We use foreign exchange contracts to hedge both balance sheet
and off-balance sheet future foreign currency commitments.
Generally, these foreign exchange contracts offset foreign
currency denominated inventory and purchase commitments from
suppliers; accounts receivable from, and future committed sales
to, customers; and intercompany loans. We believe the use of
foreign currency financial instruments should reduce the risks
that arise from doing business in international markets. As of
June 29, 2007, we had open foreign exchange contracts with
a notional amount of $52.5 million, of which
$15.1 million were designated as hedges under Statement of
Financial Accounting Standards No. 133 Accounting for
Derivative Instruments and Hedging Activities
(Statement 133) and $37.4 million were not
designated as Statement 133 hedges. That compares to total
foreign exchange contracts with a notional amount of
$19.4 million as of June 30, 2006, all of which were
designated as Statement 133 hedges. The June 30, 2006
amounts include only the MCD business while the June 29,
2007 amounts include amounts assumed in the Stratex acquisition
and other activity since January 26, 2007. As of
June 29, 2007, contract expiration dates ranged from less
than one month to three months with a weighted average
contract life of
46
approximately one month. More specifically, the foreign exchange
contracts designated as Statement 133 hedges have been used
primarily to hedge currency exposures from customer orders
denominated in non-functional currencies currently in backlog.
As of June 29, 2007, we estimated that a pre-tax loss of
less than $0.1 million would be reclassified into earnings
from comprehensive income within the next six months
related to these cash flow hedges. The net gain or loss included
in our earnings in fiscal 2007, 2006 and 2005 representing the
amount of fair value and cash flow hedges ineffectiveness
was not material. No amounts were recognized in our earnings in
fiscal 2007, 2006 or 2005 related to the component of the
derivative instruments gain or loss excluded from the
assessment of hedge effectiveness. All of these derivatives were
recorded at their fair value on our consolidated balance sheet
in accordance with Statement 133, Accounting for
Derivative Instruments and Hedging Activities. Factors
that could impact the effectiveness of our hedging programs for
foreign currency include accuracy of sales estimates, volatility
of currency markets and the cost and availability of hedging
instruments. A 10% adverse change in currency exchange rates
would not have a material impact on our financial condition,
cash flow or results of operations.
Interest
Rate Risk
Our exposure to market risk for changes in interest rates
relates primarily to our cash equivalents, short-term
investments, available for sale securities and bank debt.
Exposure
on Cash Equivalents, Short-term Investments and Available for
Sale Securities
We do not use derivative financial instruments in our short-term
investment portfolio. We invest in high-credit quality issues
and, by policy, limit the amount of credit exposure to any one
issuer and country. The portfolio includes only marketable
securities with active secondary or resale markets to ensure
portfolio liquidity. The portfolio is also diversified by
maturity to ensure that funds are readily available as needed to
meet our liquidity needs. This policy reduces the potential need
to sell securities in order to meet liquidity needs and
therefore the potential effect of changing market rates on the
value of securities sold.
We had $89.6 million in cash, cash equivalents, short-term
investments and available for sale securities at June 29,
2007. Short-term investments and available for sale securities
totaled $20.4 million as of June 29, 2007. As of
June 29, 2007, short-term investments and available for
sale securities had contractual maturities ranging from
1 month to 13 months.
The primary objective of our short-term investment activities is
to preserve principal while maximizing yields, without
significantly increasing risk. Our cash equivalents, short-term
investments and available for sale securities earn interest at
fixed rates; therefore, changes in interest rates will not
generate a gain or loss on these investments unless they are
sold prior to maturity. Actual gains and losses due to the sale
of our investments prior to maturity have been immaterial. The
weighted average days to maturity for cash equivalents,
short-term investments and available for sale securities held as
of June 29, 2007 was 82 days, and these investments
had an average yield of 5.2% per annum.
As of June 29, 2007, unrealized losses on our investments
were insignificant. Cash equivalents, short-term investments and
available for sale securities have been recorded at fair value
on our balance sheet.
Exposure
on Borrowings
Any borrowings under the revolving portion of our credit
facility will be at an interest rate of the banks prime
rate or the London Interbank Offered Rate (LIBOR)
plus 2%. As of June 29, 2007, we had $24.2 million of
available credit. A hypothetical 10% change in interest rates
would not have a material impact on our financial position,
results of operations or cash flows since our interest on our
long-term debt is fixed rate. Our short-term debt of
$1.2 million at June 29, 2007 bears interest at a
variable rate (14% at June 29, 2007). A hypothetical 10%
change in interest rates would not have a material impact on our
financial position, results of operations or cash flows since
interest on our short-term debt is not material to our overall
financial position.
47
Impact
of Foreign Exchange
Approximately 91% of our international business was transacted
in local currency environments in fiscal 2007. The impact of
translating the assets and liabilities of foreign operations to
U.S. dollars is included as a component of
shareholders equity. At June 29, 2007, the cumulative
translation adjustment increased shareholders equity by
less than $0.1 million compared to a reduction of
$1.5 million as of June 30, 2006. We utilize foreign
currency hedging instruments to minimize the currency risk of
international transactions. Gains and losses resulting from
currency rate fluctuations did not have a material effect on our
results in fiscal 2007, 2006 or 2005.
Impact
of Inflation
To the extent feasible, we have consistently followed the
practice of adjusting prices to reflect the impact of inflation
on salaries and fringe benefits for employees and the cost of
purchased materials and services.
Seasonality
Our fiscal third quarter revenue and orders have historically
been lower than the revenue and orders in the immediately
preceding second quarter because many of our customers utilize a
significant portion of their capital budgets at the end of their
fiscal year, the majority of our customers begin a new fiscal
year on January 1, and capital expenditures tend to be
lower in an organizations 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
impacted by a variety of factors, including changes in the
global economy and other factors. Please refer to the section
entitled Risk Factors in Item 1A.
Critical
Accounting Policies and Use of Estimates
Use of
Estimates
Our consolidated financial statements are prepared in accordance
with U.S. GAAP, and the application of U.S. GAAP
requires management to make estimates that affect our reported
amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. In many
instances, we could have reasonably used different accounting
estimates. In other instances, changes in the accounting
estimates from period to period are reasonably likely to occur.
Accordingly, actual results could differ significantly from the
estimates made by management. To the extent that there are
material differences between these estimates and actual results,
our future financial statement presentation of our financial
condition or results of operations may be affected.
On an ongoing basis, we evaluate our estimates, including those
related to revenue recognition, provision for doubtful accounts
and sales returns, provision for inventory obsolescence, fair
value of investments, fair value of acquired intangible assets
and goodwill, useful lives of intangible assets and property and
equipment, income taxes, restructuring obligations, product
warranty obligations, and contingencies and litigation, among
others. We base our estimates on historical experience and on
various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. We
refer to accounting estimates of this type as critical
accounting estimates.
Critical
Accounting Policies
The following is not intended to be a comprehensive list of all
of our accounting policies or estimates. Our significant
accounting policies are more fully described in
Note B Significant Accounting Policies in the
Notes to Consolidated Financial Statements. In preparing our
financial statements and accounting for the underlying
transactions and balances, we apply our accounting policies and
estimates as disclosed in the Notes. We consider the estimates
discussed below as critical to an understanding of our financial
statements because their application places the most significant
demands on our judgment, with financial reporting results
relying on estimates about the effect of matters that are
inherently uncertain. Specific risks for these critical
accounting estimates are described in the following paragraphs.
The impact and any associated risks related to these estimates
on our business operations are discussed throughout this
MD&A where such estimates affect our reported and expected
financial results. Senior
48
management has discussed the development and selection of the
critical accounting policies and estimates and the related
disclosure included herein with the Audit Committee of our Board
of Directors. Preparation of this Annual Report on
Form 10-K
requires us to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of
contingent assets and liabilities at the date of our financial
statements and the reported amounts of revenue and expenses
during the reporting period. Actual results may differ from
those estimates.
Besides estimates that meet the critical accounting
estimate criteria, we make many other accounting estimates in
preparing our financial statements and related disclosures. All
estimates, whether or not deemed critical, affect reported
amounts of assets, liabilities, revenue and expenses as well as
disclosures of contingent assets and liabilities. Estimates are
based on experience and other information available prior to the
issuance of the financial statements. Materially different
results can occur as circumstances change and additional
information becomes known, including for estimates that we do
not deem critical.
Revenue
Recognition
Revenue includes product, services and software sales to end
users, distributors, system integrators and OEMs.
Revenue primarily relates to product sales (other than for
long-term contracts) and service arrangements, which are
recognized in accordance with SEC Staff Accounting Bulletin
(SAB) No. 104 Revenue Recognition
(SAB 104), when persuasive evidence of an
arrangement exists, the fee is fixed or determinable,
collectibility is probable, delivery of a product has occurred
and title and risk of loss has transferred or services have been
rendered. Further, if an arrangement, other than a long-term
contract, requires the delivery or performance of multiple
deliverables or elements, we determine whether the individual
elements represent separate units of accounting
under the requirements of Emerging Issues Task Force Issue
00-21
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
We recognize the revenue associated with each element
separately. Such revenue, including products with installation
services, is recognized as the revenue when each unit of
accounting is earned based on the relative fair value of each
unit of accounting. We defer the recognition of revenue for the
fair value of installation services to the period in which the
installation occurs.
Revenue recognition from long-term contracts is recorded on a
percentage-of-completion basis, generally using the cost-to-cost
method of accounting where sales and profits are recorded based
on the ratio of costs incurred to estimated total costs at
completion. Recognition of profit on long-term contracts
requires estimates of: the total contract value; the total cost
at completion; and the measurement of progress towards
completion. Contracts are combined when specific aggregation
criteria stated in the American Institute of Certified Public
Accountants (AICPA) Statement of Position
No. 81-1
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts
(SOP 81-1),
are met. Amounts representing contract change orders, claims or
other items are included in sales only when they can be reliably
estimated and realization is probable. When adjustments in
contract value or estimated costs are determined, any changes
from prior estimates are reflected in earnings in the current
period. Anticipated losses on contracts or programs in progress
are charged to earnings when identified.
Revenue recognition for the sale of software licenses is in
accordance with the AICPAs Statement of Position
97-2
Software Revenue Recognition
(SOP 97-2).
Typically, our capitalized software sales do not have acceptance
criteria in the contracts and proper documentation of Vendor
Specific Objective Evidence (VSOE) is obtained
before revenue is allocated to the various elements of the
arrangement in accordance with
SOP 97-2.
Cost
of Product Sales and Services
Cost of sales consists primarily of materials, labor and
overhead costs incurred internally and paid to contract
manufacturers to produce our products, personnel and other
implementation costs incurred to install our products and train
customer personnel and customer service and third party original
equipment manufacturer costs to provide continuing support to
our customers. Also included in cost of sales is the
amortization of purchased technology intangible assets.
Shipping and handling costs are included as a component of costs
of product sales in our consolidated statements of operations
because we include in revenue the related costs that we bill our
customers.
49
Presentation
of Taxes Collected from Customers and Remitted to Government
Authorities
We present taxes (e.g., sales tax) collected from customers and
remitted to governmental authorities on a net basis (i.e.,
excluded from revenue).
Provisions
for Excess and Obsolete Inventory Losses
Our inventory has been valued at the lower of cost or market. We
balance the need to maintain prudent inventory levels to ensure
competitive delivery performance with the risk of excess or
obsolete inventory due to changing technology and customer
requirements. We regularly review inventory quantities on hand
and record a provision for excess and obsolete inventory based
primarily on our estimated forecast of product demand,
anticipated end of product life and production requirements. The
review of excess and obsolete inventory primarily relates to the
microwave business segments. Several factors may influence the
sale and use of our inventories, including decisions to exit a
product line, technological change and new product development.
These factors could result in a change in the amount of obsolete
inventory quantities on hand. Additionally, our estimates of
future product demand may prove to be inaccurate, in which case
the provision required for excess and obsolete inventory may be
overstated or understated. In the future, if we determine that
our inventory is overvalued, we would be required to recognize
such costs in cost of product sales and services in our
statement of operations at the time of such determination. In
the case of goods which have been written down below cost at the
close of a fiscal year, such reduced amount is considered the
cost for subsequent accounting purposes. We did not make any
material changes in the reserve methodology used to establish
our inventory loss reserves during the past three fiscal years.
As of June 29, 2007, our reserve for excess and obsolete
inventory was $14.2 million, or 9.5% of the gross inventory
balance, which compares to a reserve of $18.2 million, or
20.2% of the gross inventory balance as of June 30, 2006.
In the first two quarters of fiscal 2006, we had significant
write-downs in inventory due to the discontinuance of legacy
products in the International microwave segment. The accuracy of
our forecasts of future product demand, including the impact of
planned future product launches, any significant unanticipated
changes in demand or technological developments could have a
significant impact on the value of our inventory and our
reported operating results.
Goodwill
and Intangible Assets
Under the provision of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible
Assets (Statement 142), we are required to
perform an annual (or under certain circumstances more frequent)
impairment test of our goodwill. Goodwill impairment is
determined using a two-step process. The first step of the
goodwill impairment test is used to identify potential
impairment by comparing the fair value of a reporting unit,
which we define as one of our business segments, with its net
book value or carrying amount including goodwill. If the fair
value of a reporting unit exceeds its carrying amount, goodwill
of the reporting unit is considered not impaired and the second
step of the impairment test is unnecessary. If the carrying
amount of a reporting unit exceeds its fair value, the second
step of the goodwill impairment test compares the implied fair
value of the reporting units goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting
units goodwill exceeds the implied fair value of that
goodwill, an impairment loss is recognized in an amount equal to
that excess. The implied fair value of goodwill is determined in
the same manner as the amount of goodwill recognized in a
business combination. The fair value of the reporting unit is
allocated to all of the assets and liabilities of that unit,
including any unrecognized intangible assets, as if the
reporting unit had been acquired in a business combination and
the fair value of the reporting unit was the purchase price paid
to acquire the reporting unit. We have not made any material
changes in the methodology used to determine the valuation of
our goodwill or the assessment of whether or not goodwill is
impaired during the past three fiscal years.
There are many assumptions and estimates underlying the
determination of the fair value of a reporting unit. These
assumptions include projected cash flows, discount rates,
comparable market prices of similar businesses, recent
acquisitions of similar businesses made in the marketplace and a
review of the financial and market conditions of the underlying
business. We completed impairment tests as of June 29,
2007, with no adjustment to the carrying value of goodwill.
Goodwill on our consolidated balance sheet as of June 29,
2007 and June 30, 2006 was $323.6 million and
$28.3 million, respectively. The accuracy of our estimate
of the fair value of our reporting units
50
and future changes in the assumptions used to make these
estimates could result in the recording of an impairment loss. A
10% decrease in our estimate of the fair value of the net assets
acquired in the Stratex acquisition in our International
microwave segment would lead to further tests for impairment as
described above. A 10% decrease, however, in our estimate of our
Network Operations and North American Microwave segments fair
value would not lead to further tests for impairment as
described above.
Income
Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and
amounts reported in our consolidated balance sheet, as well as
operating loss and tax credit carryforwards. We follow very
specific and detailed guidelines in each tax jurisdiction
regarding the recoverability of any tax assets recorded on the
balance sheet and provide necessary valuation allowances as
required. Future realization of deferred tax assets ultimately
depends on the existence of sufficient taxable income of the
appropriate character (for example, ordinary income or capital
gain) within the carryback or carryforward periods available
under the tax law. We regularly review our deferred tax assets
for recoverability based on historical taxable income, projected
future taxable income, the expected timing of the reversals of
existing temporary differences and tax planning strategies. We
have not made any material changes in the methodologies used to
determine our tax valuation allowances during the past three
fiscal years.
Our consolidated balance sheet as of June 29, 2007 includes
a current deferred tax asset of $4.1 million, a non-current
deferred income tax asset of $0.5 million and a non-current
deferred tax liability of $31.5 million. This compares to
a net non-current deferred tax asset of $9.6 million as of
June 30, 2006. For all jurisdictions for which we have
deferred tax, we expect that our existing levels of pre-tax
earnings are sufficient to generate the amount of future taxable
income needed to realize these tax assets. Our valuation
allowance related to deferred income taxes, which is reflected
in our consolidated balance sheet, was $96.9 million as of
June 29, 2007 and $69.2 million as of June 29,
2006. The increase in valuation allowance from fiscal 2006 to
fiscal 2007 is primarily due to us establishing a valuation
allowance on the deferred tax assets acquired in the merger. The
accuracy of our deferred tax assets, if we continue to operate
at a loss in certain jurisdictions or are unable to generate
sufficient future taxable income, or if there is a material
change in the actual effective tax rates or time period within
which the underlying temporary differences become taxable or
deductible, we could be required to increase the valuation
allowance against all or a significant portion of our deferred
tax assets resulting in a substantial increase in our effective
tax rate and a material adverse impact on our operating results.
U.S. income taxes have not been provided on
$6.4 million of undistributed earnings of foreign
subsidiaries because of our intention to reinvest these earnings
indefinitely. The determination of unrecognized deferred
U.S. tax liability for foreign subsidiaries is not
practicable. Tax loss and credit carryforward as of
June 29, 2007 have expiration dates ranging between one
year and no expiration in certain instances. The amount of
U.S. tax loss carryforwards was $108.0 million and
credit carryforwards was $20.8 million as of June 29,
2007. The amount of foreign tax loss carryforwards was
$24.0 million. The utilization of a portion of the net
operating loss (NOL) is subject to an annual
limitation under Section 382 of the Internal Revenue Code
due to a change of ownership. Income taxes paid were
$6.6 million in fiscal 2007.
The effective tax rate in the fiscal year ended June 29,
2007 was impacted unfavorably by a valuation allowance recorded
on certain deferred tax assets where it was determined it was
not more likely than not that the assets would be realized,
certain purchase accounting adjustments and foreign tax credits.
A deferred tax liability in the amount of $40.8 million has
been recognized in accordance with Statement of Financial
Accounting Standards No. 109 Accounting for Income
Taxes for the difference between the assigned values for
purchase accounting purposes and the tax bases of the assets and
liabilities acquired as a result of the Stratex acquisition.
This resulted in a $40.8 million increase to goodwill. In
addition, we also recorded a valuation allowance under purchase
accounting on $94.0 million of acquired deferred tax assets
in the opening balance sheet of Stratex Networks under purchase
accounting. We have recorded the valuation allowance because we
have determined that it was not more likely than not that the
assets would be realized. Any realization of these deferred tax
assets in the future will be reflected as a reduction to
goodwill.
51
We have established our international headquarters in Singapore
and have received a favorable tax ruling resulting from an
application filed by us with the Singapore Economic Development
Board (EDB) effective January 26, 2007. This favorable tax
ruling calls for a 10% effective tax rate to be applied over a
five year period provided certain milestones and objectives are
met. We are certain that we will meet all requirements as
outlined by EDB.
We have entered into a tax sharing agreement with Harris
Corporation effective on January 26, 2007, the date of the
merger. The tax sharing agreement addresses, among other things,
the settlement process associated with pre-merger tax
liabilities and tax attributes that are attributable to the MCD
business when it was a division of Harris Corporation. There
were no settlement payments recorded in the fiscal year ended
June 29, 2007.
We are subject to income taxes in the U.S. and numerous
foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes and
recording the related assets and liabilities. In the ordinary
course of our business, there are many transactions and
calculations where the ultimate tax determination is uncertain.
Accruals for tax contingencies are provided for in accordance
with the requirements of Statement of Financial Accounting
Standards No. 5, Accounting for Contingencies.
For periods prior to January 26, 2007, income tax expense
has been determined as if we had been a stand-alone entity,
although the actual tax liabilities and tax consequences applied
only to Harris. Our income tax expense relates to income taxes
paid or to be paid in international jurisdictions for which net
operating loss carryforwards were not available and domestic
taxable income is deemed offset by tax loss carryforwards for
which an income tax valuation allowance had been previously
provided for in the financial statements.
Impact of
Recently Issued Accounting Pronouncements
As described in Note C Recent Accounting
Pronouncements in the Notes to Consolidated Financial
Statements, there are accounting pronouncements that have
recently been issued but have not yet been implemented by us.
Note C describes the potential impact that these
pronouncements are expected to have on our financial position,
results of operations and cash flows.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
In the normal course of doing business, we are exposed to the
risks associated with foreign currency exchange rates and
changes in interest rates. We employ established policies and
procedures governing the use of financial instruments to manage
our exposure to such risks. For a discussion of such policies
and procedures and the related risks, see Financial Risk
Management in Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations, which is incorporated by reference into this
Item 7A.
52
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
|
|
|
|
|
Index to Financial Statements
|
|
Page
|
|
|
|
|
54
|
|
|
|
|
55
|
|
|
|
|
56
|
|
|
|
|
57
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
107
|
|
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Harris Stratex
Networks, Inc.
We have audited the accompanying consolidated balance sheets of
Harris Stratex Networks, Inc. and subsidiaries as of
June 29, 2007 and June 30, 2006, and the related
consolidated statements of operations, shareholders equity
and comprehensive income (loss), and cash flows for each of the
three years in the period ended June 29, 2007. Our audits
also included the financial statement schedule listed in the
Index at Item 15(2). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Harris Stratex Networks, Inc. and
subsidiaries at June 29, 2007 and June 30, 2006, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
June 29, 2007 in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
Raleigh, North Carolina
August 16, 2007
54
HARRIS
STRATEX NETWORKS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
June 29, 2007
|
|
|
June 30, 2006
|
|
|
July 1, 2005
|
|
|
|
(In millions, except per share amounts)
|
|
|
Revenue from product sales and
services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from external product sales
|
|
$
|
409.1
|
|
|
$
|
299.1
|
|
|
$
|
260.2
|
|
Revenue from product sales with
Harris Corporation
|
|
|
1.9
|
|
|
|
6.5
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from product sales
|
|
|
411.0
|
|
|
|
305.6
|
|
|
|
263.3
|
|
Revenue from services:
|
|
|
96.9
|
|
|
|
51.9
|
|
|
|
47.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from product sales
and services
|
|
|
507.9
|
|
|
|
357.5
|
|
|
|
310.4
|
|
Cost of product sales and
services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of external product sales
|
|
|
(281.2
|
)
|
|
|
(222.7
|
)
|
|
|
(181.5
|
)
|
Cost of product sales with Harris
Corporation
|
|
|
(1.3
|
)
|
|
|
(7.4
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of product sales
|
|
|
(282.5
|
)
|
|
|
(230.1
|
)
|
|
|
(185.2
|
)
|
Cost of services
|
|
|
(64.3
|
)
|
|
|
(37.1
|
)
|
|
|
(31.3
|
)
|
Cost of sales billed from Harris
Corporation
|
|
|
(5.4
|
)
|
|
|
(5.3
|
)
|
|
|
(4.3
|
)
|
Amortization of purchased
technology
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of product sales and
services
|
|
|
(355.2
|
)
|
|
|
(272.5
|
)
|
|
|
(220.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
152.7
|
|
|
|
85.0
|
|
|
|
89.6
|
|
Research and development expenses
|
|
|
(39.4
|
)
|
|
|
(28.8
|
)
|
|
|
(28.0
|
)
|
Selling and administrative expenses
|
|
|
(92.1
|
)
|
|
|
(62.9
|
)
|
|
|
(52.8
|
)
|
Selling and administrative
expenses with Harris Corporation
|
|
|
(6.8
|
)
|
|
|
(5.6
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research, development,
selling and administrative expenses
|
|
|
(138.3
|
)
|
|
|
(97.3
|
)
|
|
|
(86.8
|
)
|
Acquired in-process research and
development
|
|
|
(15.3
|
)
|
|
|
|
|
|
|
|
|
Amortization of identifiable
intangible assets
|
|
|
(7.5
|
)
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
(9.3
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
Corporate allocations expense from
Harris Corporation
|
|
|
(3.7
|
)
|
|
|
(12.4
|
)
|
|
|
(6.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(21.4
|
)
|
|
|
(28.5
|
)
|
|
|
(3.4
|
)
|
Interest income
|
|
|
1.8
|
|
|
|
0.5
|
|
|
|
0.9
|
|
Interest expense
|
|
|
(2.3
|
)
|
|
|
(1.0
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for
income taxes
|
|
|
(21.9
|
)
|
|
|
(29.0
|
)
|
|
|
(3.5
|
)
|
Benefit (provision) for income
taxes
|
|
|
4.0
|
|
|
|
(6.8
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17.9
|
)
|
|
$
|
(35.8
|
)
|
|
$
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
common share
|
|
$
|
(0.72
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Basic and diluted weighted average
shares outstanding
|
|
|
24.7
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A |
Prior to January 26, 2007, the Company was a division of
Harris Corporation and there were no shares outstanding for
purposes of loss per share calculations. Basic and diluted
weighted average shares outstanding are calculated based on the
daily outstanding shares, reflecting the fact that no shares
were outstanding prior to January 26, 2007.
|
See accompanying Notes to Consolidated Financial Statements.
55
HARRIS
STRATEX NETWORKS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
June 29, 2007
|
|
|
June 30, 2006
|
|
|
|
(In millions, except share amounts)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
69.2
|
|
|
$
|
13.8
|
|
Short-term investments and
available for sale securities
|
|
|
20.4
|
|
|
|
|
|
Receivables
|
|
|
185.3
|
|
|
|
123.9
|
|
Unbilled costs
|
|
|
36.9
|
|
|
|
25.5
|
|
Inventories
|
|
|
135.7
|
|
|
|
71.9
|
|
Deferred income taxes
|
|
|
4.1
|
|
|
|
|
|
Other current assets
|
|
|
21.7
|
|
|
|
6.7
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
473.3
|
|
|
|
241.8
|
|
Long-Term Assets
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
80.0
|
|
|
|
52.2
|
|
Goodwill
|
|
|
323.6
|
|
|
|
28.3
|
|
Identifiable intangible assets
|
|
|
144.5
|
|
|
|
6.4
|
|
Capitalized software
|
|
|
9.7
|
|
|
|
9.1
|
|
Non-current notes receivable
|
|
|
5.3
|
|
|
|
3.8
|
|
Non-current deferred income taxes
|
|
|
0.5
|
|
|
|
9.6
|
|
Other assets
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
564.8
|
|
|
|
110.8
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,038.1
|
|
|
$
|
352.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
1.2
|
|
|
$
|
0.2
|
|
Current portion of long-term debt
|
|
|
10.7
|
|
|
|
|
|
Accounts payable
|
|
|
84.7
|
|
|
|
42.1
|
|
Compensation and benefits
|
|
|
11.5
|
|
|
|
17.4
|
|
Other accrued items
|
|
|
44.7
|
|
|
|
16.9
|
|
Advance payments and unearned income
|
|
|
22.3
|
|
|
|
9.2
|
|
Income taxes payable
|
|
|
6.8
|
|
|
|
|
|
Restructuring liabilities
|
|
|
10.8
|
|
|
|
2.2
|
|
Current portion of long-term
capital lease obligation to Harris Corporation
|
|
|
3.1
|
|
|
|
|
|
Due to Harris Corporation
|
|
|
17.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
213.0
|
|
|
|
88.0
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
8.8
|
|
|
|
|
|
Long-term portion of capital lease
obligation to Harris Corporation
|
|
|
2.8
|
|
|
|
|
|
Restructuring and other long-term
liabilities
|
|
|
11.8
|
|
|
|
|
|
Redeemable preference shares
|
|
|
8.3
|
|
|
|
|
|
Warrants
|
|
|
3.9
|
|
|
|
|
|
Deferred income taxes
|
|
|
31.5
|
|
|
|
|
|
Due to Harris Corporation
|
|
|
|
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
280.1
|
|
|
|
100.6
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Shareholders
Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value; 50,000,000 shares authorized; none issued
|
|
|
|
|
|
|
|
|
Common stock, Class A,
$0.01 par value; 300,000,000 shares authorized; issued
and outstanding 25,400,856 shares at June 29, 2007,
none issued at June 30, 2006
|
|
|
0.3
|
|
|
|
|
|
Common stock, Class B
$0.01 par value; 100,000,000 shares authorized; issued
and outstanding 32,913,377 shares at June 29, 2007,
none issued at June 30, 2006
|
|
|
0.3
|
|
|
|
|
|
Additional
paid-in-capital
|
|
|
778.3
|
|
|
|
|
|
Division equity
|
|
|
|
|
|
|
253.4
|
|
Accumulated deficit
|
|
|
(20.9
|
)
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
758.0
|
|
|
|
252.0
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
1,038.1
|
|
|
$
|
352.6
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
56
HARRIS
STRATEX NETWORKS, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(17.9
|
)
|
|
$
|
(35.8
|
)
|
|
$
|
(3.8
|
)
|
Adjustments to reconcile net loss
to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of identifiable
intangible assets acquired in the Stratex acquisition
|
|
|
25.8
|
|
|
|
|
|
|
|
|
|
Other noncash charges related to
the Stratex acquisition
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
property, plant and equipment and capitalized software
|
|
|
14.5
|
|
|
|
15.7
|
|
|
|
14.6
|
|
Noncash stock-based compensation
expense
|
|
|
3.9
|
|
|
|
|
|
|
|
|
|
Write-down of inventory
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
Increase in fair value of warrants
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of land and building
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
Deferred income tax (benefit)
expense
|
|
|
(10.9
|
)
|
|
|
5.7
|
|
|
|
|
|
Changes in operating assets and
liabilities, net of effects from acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(23.8
|
)
|
|
|
(5.1
|
)
|
|
|
0.2
|
|
Unbilled costs and inventories
|
|
|
(39.1
|
)
|
|
|
(27.3
|
)
|
|
|
(16.0
|
)
|
Accounts payable and accrued
expenses
|
|
|
10.1
|
|
|
|
18.0
|
|
|
|
(4.5
|
)
|
Advance payments and unearned income
|
|
|
12.8
|
|
|
|
2.4
|
|
|
|
(5.0
|
)
|
Due to Harris Corporation
|
|
|
4.6
|
|
|
|
(1.5
|
)
|
|
|
(0.8
|
)
|
Other
|
|
|
(0.4
|
)
|
|
|
10.7
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
|
(13.1
|
)
|
|
|
19.5
|
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of land and
building
|
|
|
|
|
|
|
4.6
|
|
|
|
|
|
Cash acquired from the Stratex
acquisition, net of acquisition costs of $12.7 million
|
|
|
20.4
|
|
|
|
|
|
|
|
|
|
Purchases of short-term investments
and available for sale securities
|
|
|
(30.7
|
)
|
|
|
|
|
|
|
|
|
Sales of short-term investments and
available for sale securities
|
|
|
35.8
|
|
|
|
|
|
|
|
|
|
Additions of property, plant and
equipment
|
|
|
(8.3
|
)
|
|
|
(9.6
|
)
|
|
|
(9.3
|
)
|
Additions of capitalized software
|
|
|
(2.9
|
)
|
|
|
(3.2
|
)
|
|
|
(10.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
14.3
|
|
|
|
(8.2
|
)
|
|
|
(19.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
short-term debt
|
|
|
10.8
|
|
|
|
9.4
|
|
|
|
4.4
|
|
Payments on short-term debt
|
|
|
(9.8
|
)
|
|
|
(10.2
|
)
|
|
|
(9.1
|
)
|
Proceeds from issuance of
redeemable preference shares
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
Proceeds from issuance of
Class B common stock to Harris Corporation
|
|
|
26.9
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of former
Stratex stock options
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
Registration costs for Class A
common stock issued in Stratex acquisition
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of former
Stratex warrants
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
Net cash and other transfers from
Harris Corporation prior to the Stratex acquisition
|
|
|
24.1
|
|
|
|
(5.0
|
)
|
|
|
29.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
57.3
|
|
|
|
(5.8
|
)
|
|
|
24.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
(3.1
|
)
|
|
|
0.5
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
55.4
|
|
|
|
6.0
|
|
|
|
2.5
|
|
Cash and cash equivalents,
beginning of year
|
|
|
13.8
|
|
|
|
7.8
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end
of year
|
|
$
|
69.2
|
|
|
$
|
13.8
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year
for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
2.0
|
|
|
$
|
1.0
|
|
|
$
|
0.9
|
|
Income taxes
|
|
|
6.6
|
|
|
|
1.1
|
|
|
|
0.2
|
|
See accompanying Notes to Consolidated Financial Statements.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common
|
|
|
Common
|
|
|
Additional
|
|
|
Division
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Stock Class A
|
|
|
Stock Class B
|
|
|
Paid-in Capital
|
|
|
Equity
|
|
|
Deficit
|
|
|
Loss
|
|
|
Equity
|
|
|
|
(In millions)
|
|
|
Balance at July 2, 2004
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
268.3
|
|
|
$
|
|
|
|
$
|
(21.8
|
)
|
|
$
|
246.5
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.8
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.7
|
|
|
|
7.7
|
|
Net unrealized gain on hedging
activities, net of $0 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Net increase in investment from
Harris Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2005
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
294.2
|
|
|
$
|
|
|
|
$
|
(13.9
|
)
|
|
$
|
280.3
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(35.8
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.7
|
|
|
|
12.7
|
|
Net unrealized loss on hedging
activities, net of $0 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23.3
|
)
|
Net decrease in investment from
Harris Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
253.4
|
|
|
$
|
|
|
|
$
|
(1.4
|
)
|
|
$
|
252.0
|
|
Net income for the period from
July 1, 2006 through January 26, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
3.0
|
|
Net loss for the period from
January 27, 2007 through June 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.9
|
)
|
|
|
|
|
|
|
(20.9
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.5
|
|
Net unrealized loss on hedging
activities, net of $0 tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.5
|
)
|
Net increase in investment from
Harris Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
8.5
|
|
Return of capital to Harris
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(14.4
|
)
|
Reclassification of
Division Equity to Additional Paid-in Capital on
January 26, 2007
|
|
|
|
|
|
|
|
|
|
|
250.5
|
|
|
|
(250.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class B Common
Stock to Harris Corporation (32,913,377 shares)
|
|
|
|
|
|
|
0.3
|
|
|
|
26.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26.9
|
|
Issuance of Class A Common
Stock to former Stratex Shareholders (24,782,153 shares)
|
|
|
0.3
|
|
|
|
|
|
|
|
477.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
477.6
|
|
Vested Stratex equity awards
|
|
|
|
|
|
|
|
|
|
|
15.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.5
|
|
Employee stock option exercises,
net of $0 tax (324,181 shares)
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Stock option tax benefits
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Compensatory stock awards
(294,522 shares)
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 29, 2007
|
|
$
|
0.3
|
|
|
$
|
0.3
|
|
|
$
|
778.3
|
|
|
$
|
|
|
|
$
|
(20.9
|
)
|
|
$
|
|
|
|
$
|
758.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
58
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
At June 29, 2007 and June 30, 2006 and
For Each of the Three Years in the Period Ended June 29,
2007
|
|
Note A
|
Significant
Business Development Activities, Basis of Presentation and
Nature of Operations
|
Significant Business Development Activities
On January 26, 2007, Harris Stratex Networks, Inc. (the
Company, HSTX, Harris
Stratex, we, us and
our) completed its acquisition (the Stratex
acquisition) of Stratex Networks, Inc.
(Stratex) pursuant to a Formation, Contribution and
Merger Agreement among Harris Corporation (Harris),
Stratex, and Stratex Merger Corp., as amended and restated on
December 18, 2006 and amended by letter agreement on
January 26, 2007 (the Combination Agreement).
On January 26, 2007, pursuant to the Combination Agreement,
Stratex Merger Corp., a wholly-owned subsidiary of the Company,
merged with and into Stratex with Stratex as the surviving
corporation and a wholly-owned subsidiary of the Company
(renamed as Harris Stratex Networks Operating
Corporation). Concurrently with the merger of Stratex and
Stratex Merger Corp. (the merger), Harris
contributed the Microwave Communications Division
(MCD), along with $32.1 million in cash
(comprised of $26.9 million contributed on January 26,
2007 and $5.2 million held by the Companys foreign
operating subsidiaries on January 26, 2007) to the
Company (the contribution transaction).
Pursuant to the merger with Stratex, each share of Stratex
common stock was converted into one-fourth of a share of our
Class A common stock. As a result of the transaction,
24,782,153 shares of our Class A common stock were
issued to the former holders of Stratex common stock. In the
contribution transaction, Harris contributed the assets of MCD,
along with $32.1 million in cash, and in exchange, we
assumed certain liabilities of Harris related to MCD and issued
32,913,377 shares of our Class B common stock to
Harris. This contribution by Harris resulted in the
reclassification of division equity totaling $250.5 million
to additional paid-in capital at January 26, 2007. As a
result of these transactions, Harris owned approximately 57% and
the former Stratex shareholders owned approximately 43% of the
total stock of our outstanding immediately following the
closing. The Stratex acquisition has been accounted for as a
purchase business combination.
Basis of Presentation The consolidated
financial statements include the accounts of Harris Stratex
Networks, Inc. and its wholly-owned and majority owned
subsidiaries. The results of operations and cash flows of
Stratex are included in these consolidated financial statements
since January 26, 2007, the date of acquisition.
Significant intercompany transactions and accounts have been
eliminated.
For periods prior to January 26, 2007, the accompanying
consolidated financial statements include the accounts of the
MCD and Harris subsidiaries classified as part of MCD, our
financial reporting predecessor entity. These financial
statements have been determined to be the historical financial
statements of Harris Stratex Networks, Inc. As used in these
notes, the term MCD refers to the consolidated
operations of the Microwave Communications Division of Harris.
For periods prior to January 26, 2007, our historical
financial statements are presented on a carve-out basis and
reflect the assets, liabilities, revenue and expenses that were
directly attributable to MCD as it was operated within Harris.
Our consolidated statements of operations include all of the
related costs of doing business, including an allocation of
certain general corporate expenses of Harris, which were in
support of MCD, including costs for finance, legal, treasury,
purchasing, quality, environmental, safety, human resources,
tax, audit and public relations departments and other corporate
and infrastructure costs. We were allocated $3.7 million,
$12.4 million and $6.2 million for fiscal 2007, 2006
and 2005. These costs represent approximately 6.1%, 16.7% and
10.2%, of the total cost of these allocated services in fiscal
2007, 2006 and 2005. These cost allocations were based primarily
on a ratio of our sales to total Harris sales, multiplied by the
total headquarters expense of Harris. During fiscal 2006, the
corporate expense allocation included a $5.4 million charge
for the settlement of an arbitration. The allocation of Harris
overhead expenses concluded on January 26, 2007 and,
accordingly, for the year ended June 29, 2007, seven months
allocation was included. Management believes these allocations
were made on a reasonable basis.
Nature of Operations We design, manufacture
and sell a broad range of microwave radios and scalable wireless
network solutions for use in worldwide wireless communications
networks. Applications include cellular/mobile infrastructure
connectivity; secure data networks; public safety transport for
state, local and federal
59
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
government users; and right-of-way connectivity for utilities,
pipelines, railroads and industrial companies. In general,
wireless networks are constructed using microwave radios and
other equipment and network management solutions to connect cell
sites, fixed-access facilities, switching systems, land mobile
radio systems and other similar systems.
|
|
Note B
|
Significant
Accounting Policies
|
Use of
Estimates
Our consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States (U.S. GAAP) which require us to
make estimates and assumptions. U.S. GAAP is primarily
promulgated by the Financial Accountings Standards Board
(FASB) in the form of Statements of Financial
Accounting Standards (referred to herein as
Statements) and Accounting Principles Board Opinions
(APBO) as well as guidance provided by the
Securities and Exchange Commission (SEC). The
preparation of these consolidated financial statements requires
that we make estimates and judgments that affect the reported
amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates, including those
related to revenue recognition, provision for doubtful accounts,
inventory reserves, fair value of acquired intangible assets and
goodwill, useful lives of intangible assets and property and
equipment, valuation allowances for deferred tax assets,
software development costs, restructuring obligations, product
warranty obligations, employee stock options, and contingencies
and litigation, among others. We generally base our estimates on
historical experience and on various other assumptions and
considerations that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
could differ significantly from the estimates made by us with
respect to these and other items.
Fiscal
Year
Our fiscal year ends on the Friday nearest June 30. Fiscal
years 2007, 2006 and 2005 each included 52 weeks.
Reclassifications
Certain prior-year amounts have been reclassified on the
accompanying consolidated financial statements to conform with
current-year classifications. These reclassifications included
reclassifying $0.4 million of software capitalized under
the provisions of Statement of Position
98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use
(SOP 98-1)
prepared by the American Institute of Certified Public
Accountants (AICPA) from the caption Other
assets to the caption Property, plant and
equipment on our consolidated balance sheet as of
June 30, 2006. We also reclassified $6.7 million from
the caption Other assets to the caption Other
current assets on our consolidated balance sheet at
June 29, 2007.
Cash
Equivalents
We consider all highly liquid investments with an original
maturity of three months or less at the date of purchase to be
cash equivalents. Cash and cash equivalents are carried at cost,
which approximates fair value. We hold cash and cash equivalents
at several major financial institutions, which often
significantly exceed Federal Deposit Insurance Corporation
(FDIC)-insured limits. Historically, we have not
experienced any losses due to such concentration of credit risk.
Short-Term
Investments and Available for Sale Securities
We invest our excess cash in high-quality marketable securities
to ensure that cash is readily available for use in our current
operations. Investments with original maturities greater than
three months are accounted for in accordance with Statement of
Financial Accounting Standards No. 115 Accounting for
Certain Investments in Debt and Equity Securities
(Statement 115) and are classified accordingly at
the time of purchase. Accordingly, all of our marketable
securities are classified as available-for-sale in
accordance with the provisions of
60
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Statement 115. We view our available-for-sale portfolio as
available for use in our current operations. Accordingly, we
have classified all investments in marketable securities as
short-term, even though the stated maturity date may be one year
or more beyond the current balance sheet date. All marketable
securities are reported at fair market value with the related
unrealized holding gains and losses reported as a component of
accumulated other comprehensive loss.
At June 29, 2007, our investment in marketable securities
consisted primarily of investment grade corporate notes and
bonds with maturities up to 13 months and investment grade
auction rate preferred stock with final maturities up to
30 years or more. The auction rate preferred stock have
characteristics similar to short-term investments, because at
pre-determined levels, generally ranging from 28 to
49 days, there is a new auction process at which the
interest rates for these Auction Rate Securities
(ARS) are reset to current interest rates. At the
end of such period, we choose to roll-over our holdings or
redeem the investments for cash. A market maker
facilitates the redemption of the ARS and the underlying issuers
are not required to redeem the investment within 90 days.
All of these short-term investments were classified as
available-for-sale and reported at fair value. Due to the
frequent nature of the reset feature, the investments
market price approximates its fair value; therefore, there are
no significant realized or unrealized gains or losses associated
with these investments. Any unrealized gains or losses are
reported as a component of accumulated other comprehensive loss.
When a marketable security is sold, the realized gain or loss is
determined using the specific identification method. During
fiscal 2007, realized losses from sales of marketable securities
were less than $0.1 million. See Note E Short-Term
Investments and Available for Sale Securities for additional
information.
Accounts
Receivable
We record accounts receivable at net realizable value, which
includes an allowance for estimated uncollectible accounts to
reflect any loss anticipated on the collection of accounts
receivable balances. We calculate the allowance based on our
history of write-offs, level of past due accounts and economic
status of the customers. See Note G Receivables for
additional information.
Inventories
Inventories are valued at the lower of cost (determined by
average cost and
first-in,
first-out methods) or market. We regularly review inventory
quantities on hand and record inventory reserves for excess and
obsolete inventory based primarily on our estimated forecast of
product demand and production requirements. Inventory reserves
are measured as the difference between the cost of the inventory
and market value based upon assumptions about future demand and
charged to the provision for inventory, which is a component of
cost of sales. At the point of the loss recognition, a new,
lower-cost basis for that inventory is established, and any
subsequent improvements in facts and circumstances do not result
in the restoration or increase in that newly established cost
basis. See Note H Inventories for additional
information.
Significant
Concentrations
Financial instruments that potentially subject us to a
concentration of credit risk consist principally of short-term
investments and available for sale securities, trade accounts
receivable and financial instruments used in foreign currency
hedging activities. We invest our excess cash primarily in money
market instruments, government securities, corporate bonds and
auction rate securities. We are exposed to credit risks related
to our short-term investments and available for sale securities
in the event of default or decrease in credit-worthiness of one
of the issuers of the investments. We perform ongoing credit
evaluations of our customers and generally do not require
collateral on accounts receivable, as the majority of our
customers are large, well-established companies. We maintain
reserves for potential credit losses, but historically have not
experienced any significant losses related to any particular
geographic area since our business is not concentrated within
any particular geographic region.
We had revenue from a single external customer that exceeded 10%
of total revenue during fiscal 2006. During fiscal 2006, that
customer was in Nigeria and accounted for 15.1% of total
revenue. There was no single customer in fiscal 2007 or 2005
that accounted for more than 10% of total revenue.
61
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We rely on sole providers for certain components of our products
and rely on a limited number of contract manufacturers and
suppliers to provide manufacturing services for our products.
The inability of a contract manufacturer or supplier to fulfill
our supply requirements could materially impact future operating
results.
We have entered into agreements relating to our foreign currency
contracts with large, multinational financial institutions. The
amounts subject to credit risk arising from the possible
inability of any such parties to meet the terms of their
contracts are generally limited to the amounts, if any; by which
such partys obligations exceed our obligations to that
party.
Income
Taxes
We account for income taxes under the asset and liability method
in accordance with Statement of Financial Accounting Standards
No. 109 Accounting for Income Taxes
(Statement 109). Deferred tax assets and liabilities
are determined based on the estimated future tax effects of
temporary differences between the financial statement and tax
basis of assets and liabilities, as measured by tax rates at
which temporary differences are expected to reverse. Deferred
tax expense (benefit) is the result of changes in the deferred
tax assets and liabilities. A valuation allowance is established
to offset any deferred tax assets if, based upon the available
information, it is more likely than not that some or all of the
deferred tax assets will not be realized.
For periods prior to January 26, 2007, income tax expense
was determined as if we had been a stand-alone entity, although
the actual tax liabilities and tax consequences applied only to
Harris. We have incurred income tax expense which relates to
income taxes paid or to be paid in international jurisdictions
for which net operating loss carryforwards were not available.
Domestic taxable income is offset by tax loss carryforwards for
which an income tax valuation allowance had been previously
provided for in the financial statements. See Note Q
Income Taxes for additional information regarding income
taxes.
Property,
Plant and Equipment
Property, plant and equipment are stated on the basis of cost
less accumulated depreciation and amortization. We capitalize
costs of software, consulting services, hardware and other
related costs incurred to purchase or develop internal-use
software. We expense costs incurred during preliminary project
assessment, research and development, re-engineering, training
and application maintenance.
Depreciation and amortization are calculated using the
straight-line method over the shorter of the estimated useful
lives of the respective assets or any applicable lease term. The
useful lives of the assets are generally as follows:
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
|
7 to 45 years
|
Software developed for internal use
|
|
|
|
1 to 5 years
|
Machinery and equipment
|
|
|
|
2 to 10 years
|
Expenditures for maintenance and repairs are charged to expense
as incurred. Cost and accumulated depreciation of assets sold or
retired are removed from the respective property accounts, and
the gain or loss is reflected in the consolidated statements of
operations. See Note I Property, Plant and Equipment
for additional information.
Capitalized
Software
Software to be sold, leased, or otherwise marketed is accounted
for in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise
Marketed (Statement 86). Costs incurred to
acquire or create a computer software product must be expensed
when incurred as research and development until technological
feasibility has been established for the product. Technological
feasibility is normally established upon completion of a
detailed program design or, in its absence, completion of a
working model.
62
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Total amortization expense related to capitalized software under
Statement 86 was $2.3 million in fiscal 2007,
$1.6 million in fiscal 2006 and $1.5 million in fiscal
2005.
Identifiable
Intangible Assets and Goodwill
We account for our business combinations in accordance with
Statement of Financial Accounting Standards No. 141
Business Combinations (Statement 141)
and the related acquired intangible assets and goodwill in
accordance with Statement of Financial Accounting Standards
No. 142 Goodwill and Other Intangible Assets
(Statement 142). Statement 141 specifies the
accounting for business combinations and the criteria for
recognizing and reporting intangible assets apart from goodwill.
We record the assets acquired and liabilities assumed in
business combinations at their respective fair values at the
date of acquisition, with any excess purchase price recorded as
goodwill. Valuation of intangible assets and in-process research
and development requires significant estimates and assumptions
including, but not limited to, determining the timing and
expected costs to complete development projects, estimating
future cash flows from product sales, developing appropriate
discount rates, estimating probability rates for the successful
completion of development projects, continuation of customer
relationships and renewal of customer contracts, and
approximating the useful lives of the intangible assets acquired.
Statement 142 requires that intangible assets with an indefinite
life should not be amortized until their life is determined to
be finite, and all other intangible assets must be amortized
over their useful lives. We are currently amortizing our
acquired intangible assets with definite lives over periods
ranging from less than one to ten years. Statement 142 also
requires that goodwill not be amortized but instead be tested
for impairment in accordance with the provisions of Statement
142 at least annually and more frequently upon the occurrence of
certain events (see Impairment of Long-Lived Assets
below). See Note D Business Combination
Acquisition of Stratex Networks, Goodwill and Identifiable
Intangible Assets for a further discussion of our intangible
assets and goodwill.
Impairment
of Long-Lived Assets
We test goodwill for impairment in accordance with Statement
142. Statement 142 requires that goodwill be tested for
impairment at the reporting unit level at least annually and
more frequently upon the occurrence of certain events, as
defined by Statement 142. We have determined that we have three
reporting units, consisting of: (i) our North America
Microwave segment; (ii) our International Microwave
segment; and (iii) our Network Operations segment. Goodwill
is tested for impairment annually at our fiscal year-end using a
two-step process. First, we determine if the carrying amount of
any of our reporting units exceeds its fair value (determined
using an analysis of discounted cash flows or market multiples
based on revenue), which would indicate a potential impairment
of goodwill associated with that reporting unit. If we determine
that a potential impairment of goodwill exists, we then compare
the implied fair value of the goodwill associated with the
respective reporting unit, to its carrying amount to determine
if there is an impairment loss.
In accordance with Statement of Financial Accounting Standards
No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets (Statement 144), we evaluate
long-lived assets, including intangible assets other than
goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may
not be recoverable. Impairment is considered to exist if the
total estimated future cash flows on an undiscounted basis are
less than the carrying amount of the assets. If impairment
exists, the impairment loss is measured and recorded based on
discounted estimated future cash flows. In estimating future
cash flows, assets are grouped at the lowest levels for which
there are identifiable cash flows that are largely independent
of cash flows from other asset groups. Our estimate of future
cash flows is based upon, among other things, certain
assumptions about expected future operating performance, growth
rates and other factors. The actual cash flows realized from
these assets may vary significantly from our estimates due to
increased competition, changes in technology, fluctuations in
demand, consolidation of our customers, reductions in average
selling prices and other factors. Assumptions underlying future
cash flow estimates are therefore subject to significant risks
and uncertainties.
63
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have not recorded any impairment losses on long-lived assets
in fiscal 2007, 2006 or 2005. See Note D Business
Combination Acquisition of Stratex Networks,
Goodwill and Identifiable Intangible Assets and Note I
Property, Plant and Equipment for additional information
regarding long-lived assets.
Other
Accrued Items and Other Assets
No accrued liabilities or expenses within the caption
Other accrued items on our consolidated balance
sheets exceed 5% of our total current liabilities as of
June 29, 2007 or as of June 30, 2006. Other
accrued items on our consolidated balance sheets includes
accruals for sales commissions, warranties and severance. No
current assets other than those already disclosed on the
consolidated balance sheets exceed 5% of our total current
assets as of June 29, 2007 or as of June 30, 2006. No
assets within the caption Other assets on the
consolidated balance sheets exceed 5% of total assets as of
June 29, 2007 or as of June 30, 2006.
Warranties
On product sales we provide for future warranty costs upon
product delivery. The specific terms and conditions of those
warranties vary depending upon the product sold and country in
which we do business. In the case of products sold by us, our
warranties generally start from the delivery date and continue
for two to three years, depending on the terms.
Because in many cases our products are manufactured to customer
specifications and their acceptance is based on meeting those
specifications, we historically have not experienced significant
warranty costs. Factors that affect our warranty liability
include the number of installed units, historical experience and
managements judgment regarding anticipated rates of
warranty claims and cost per claim. We assess the adequacy of
our recorded warranty liabilities every quarter and make
adjustments to the liability as necessary.
Network management software products generally carry a
30-day to
90-day
warranty from the date of acceptance. Our liability under these
warranties is either to provide a corrected copy of any portion
of the software found not to be in substantial compliance with
the
agreed-upon
specifications, or to provide a full refund.
Our software license agreements generally include certain
provisions for indemnifying customers against liabilities should
our software products infringe a third partys intellectual
property rights. As of June 29, 2007, we have not incurred
any material costs as a result of such indemnification and have
not accrued any liabilities related to such obligations in our
consolidated financial statements. See Note K Accrued
Warranties for additional information regarding warranties.
Capital
Lease Obligation and Operating Leases
Prior to January 26, 2007, MCD used certain assets in
Canada owned by Harris that were not contributed to us as part
of the Combination Agreement. We continue to use these assets in
our business and we entered into a 5-year lease agreement to
accommodate this use. That lease agreement is considered a
capital lease under generally accepted accounting principles. At
June 29, 2007, our lease obligation to Harris was
$5.9 million and the related asset amount was included in
our Property, plant and equipment. Quarterly lease payments are
due to Harris based on the amount of 103% of Harris annual
depreciation calculated in accordance with U.S. generally
accepted accounting principles. Of the $5.9 million lease
obligation, $3.1 million has been classified as current in
our consolidated balance sheet.
We lease office and manufacturing facilities under various
operating leases. These lease agreements generally include rent
escalation clauses, and many include renewal periods at our
option. We recognize expense for scheduled rent increases on a
straight-line basis over the lease term beginning with the date
we take possession of the leased space.
64
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Liability
for Warrants
We account for our warrants in accordance with Emerging Issues
Task Force (EITF) Issue
No. 00-19
Accounting for Derivative Financial Instruments Indexed to
and Potentially Settled in a Companys Own Stock
(EITF 00-19)
which requires warrants to be classified as permanent equity,
temporary equity or as assets or liabilities. In general,
warrants that either require net-cash settlement or are presumed
to require net-cash settlement are recorded as assets and
liabilities at fair value and warrants that require settlement
in shares are recorded as equity instruments. Our warrants are
classified as liabilities because they include a provision that
specifies that we must deliver freely tradable shares upon
exercise by the warrant holder. Because there are circumstances,
irrespective of likelihood, that may not be within our control
that could prevent delivery of registered shares,
EITF 00-19
requires the warrants be recorded as a liability at fair value,
with subsequent changes in fair value recorded as income or loss
in our consolidated statements of operations. The fair value of
our warrants is determined using a Black-Scholes option pricing
model, and is affected by changes in inputs to that model
including our stock price, expected stock price volatility and
contractual term.
Foreign
Currency Translation
The functional currency of our subsidiaries located in the
United Kingdom, Mexico and New Zealand is the U.S. dollar.
Accordingly, all of the monetary assets and liabilities of these
subsidiaries are re-measured into U.S. dollars at the
current exchange rate as of the applicable balance sheet date,
and all non-monetary assets and liabilities are re-measured at
historical rates. Income and expenses are re-measured at the
average exchange rate prevailing during the period. Gains and
losses resulting from the re-measurement of these
subsidiaries financial statements are included in the
consolidated statements of operations.
Our other international subsidiaries use their respective local
currency as their functional currency. Assets and liabilities of
these subsidiaries are translated at the local current exchange
rates in effect at the balance sheet date, and income and
expense accounts are translated at the average exchange rates
during the period. The resulting translation adjustments are
included in accumulated other comprehensive loss.
Determination of the functional currency is dependent upon the
economic environment in which an entity operates as well as the
customers and suppliers the entity conducts business with.
Changes in facts and circumstances may occur which could lead to
a change in the functional currency of that entity.
Gains and losses resulting from foreign exchange transactions
and the costs of foreign currency contracts are included in
Cost of product sales in the accompanying
consolidated statements of operations. Net foreign exchange
gains or losses recorded in our statements of operations in
fiscal 2007, 2006 and 2005 were not material.
Related
Party Transactions
See Note R Related Party Transactions with
Harris for a description of our related party transactions
with Harris.
Retirement
Benefits
As of June 29, 2007, we provide retirement benefits to
substantially all employees primarily through our defined
contribution retirement plan, and prior to January 27, 2007
we provided these benefits through Harris defined
contribution retirement plan. These plans have profit sharing,
matching and savings elements. Contributions by us to these
retirement plans are based on profits and employees
savings with no other funding requirements. We may make
additional contributions to our plan at our discretion.
Prior to January 27, 2007, retirement benefits also include
an unfunded limited healthcare plan for
U.S.-based
retirees and employees on long-term disability. Harris has
assumed this liability and responsibility for these benefits.
Prior to January 27, 2007, we accrued the estimated cost of
these medical benefits, which were not material, during an
employees active service life.
65
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Retirement plan expense amounted to $5.4 million,
$8.4 million and $7.1 million in fiscal 2007, 2006 and
2005.
Financial
Guarantees, Commercial Commitments and
Indemnifications
Guarantees issued by banks, insurance companies or other
financial institutions are contingent commitments issued to
guarantee our performance under borrowing arrangements, such as
commercial paper issuances, bond financings and similar
transactions or to ensure our performance under customer or
vendor contracts. The terms of the guarantees are generally
equal to the remaining term of the related debt or other
obligations and are limited to two years or less. As of
June 29, 2007, we had no guarantees applicable to our debt
arrangements. We have entered into commercial commitments in the
normal course of business including surety bonds, standby letter
of credit agreements and other arrangements with financial
institutions primarily relating to the guarantee of future
performance on certain contracts to provide products and
services to customers. As of June 29, 2007, we had
commercial commitments of $41.3 million outstanding, none
of which are accrued for in our consolidated balance sheets.
We account for guarantees in accordance with Financial
Accounting Standards Board Interpretation No. 45
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others (Interpretation No. 45).
Interpretation 45 elaborates on the disclosures required in
financial statements concerning obligations under certain
guarantees. It also clarifies the requirements related to the
recognition of liabilities by a guarantor at the inception of
certain guarantees. The provisions related to recognizing a
liability at inception of the guarantee do not apply to product
warranties or indemnification provisions in our software license
agreements.
Under the terms of substantially all of our license agreements,
we have agreed to defend and pay any final judgment against our
customers arising from claims against such customers that our
software products infringe the intellectual property rights of a
third party. To date: i) we have not received any notice
that any customer is subject to an infringement claim arising
from the use of our software products, ii) we have not
received any request to defend any customers from infringement
claims arising from the use of our software products, and
iii) we have not paid any final judgment on behalf of any
customer related to an infringement claim arising from the use
of our software products. Because the outcome of infringement
disputes are related to the specific facts in each case, and
given the lack of previous or current indemnification claims, we
cannot estimate the maximum amount of potential future payments,
if any, related to our indemnification provisions. However, we
reasonably believe these indemnification provisions will not
have a material adverse effect on our operating performance,
financial condition or cash flows. As of June 29, 2007, we
have not recorded any liabilities related to these
indemnifications.
Our standard license agreement includes a warranty provision for
software products. We generally warrant for the first ninety
days after delivery that the software shall operate
substantially as stated in the then current documentation
provided that the software is used in a supported computer
system. We provide for the estimated cost of product warranties
based on specific warranty claims, provided that it is probable
that a liability exists and provided the amount can be
reasonably estimated. To date, we have not had any material
costs associated with these warranties.
Derivative
Instruments and Risk Management
Statement of Financial Accounting Standards No. 133
Accounting for Derivative Instruments and Hedging
Activities (Statement 133) and its related
amendments, require us to recognize all derivatives on our
consolidated balance sheet at fair value. Derivatives that are
not designated as Statement 133 hedges must be adjusted to fair
value through income. If the derivative is designated as a
Statement 133 hedge, depending on the nature of the hedge,
changes in the fair value of the derivative are either offset
against the change in fair value of assets, liabilities or firm
commitments through earnings or recognized in other
comprehensive loss until the hedged item is recognized in
earnings. The ineffective portion of a derivatives change
in fair value is immediately recognized in earnings.
66
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We manufacture and sell products internationally, subjecting us
to currency risk. Derivatives are employed to eliminate, reduce,
or transfer selected foreign currency risks that can be
identified and quantified. The primary business objective of
this hedging program is to minimize the gains and losses
resulting from exchange rate changes. Our policy is to hedge
forecasted and actual foreign currency risk with forward
contracts that expire within twelve months. However, foreign
currency contracts to hedge exposures are not available in
certain currencies in which we have exposures, such as the
Nigerian naira. Specifically, we hedge foreign currency risks
relating to firmly committed backlog, open purchase orders and
non-functional currency monetary assets and liabilities. The
objective of these contracts is to reduce or eliminate, and
efficiently manage, the economic impact of currency exchange
rate movements on our operating results as effectively as
possible. These contracts require us to exchange currencies at
rates agreed upon at the contracts inception. These
contracts reduce the exposure to fluctuations in exchange rate
movements because the gains and losses associated with foreign
currency balances and transactions are generally offset with the
gains and losses of the foreign exchange contracts. Derivatives
hedging non-functional currency monetary assets and liabilities
not designated as Statement 133 hedges are recorded on the
balance sheet at fair value and changes in fair value are
recognized currently in earnings.
As stated above, we generally hedge forecasted
non-U.S. dollar
sales and
non-U.S. dollar
purchases. In accordance with Statement 133, hedges of
anticipated transactions, including our firmly committed backlog
and open purchase orders, are designated and documented at
inception as cash flow hedges and are evaluated for
effectiveness, excluding time value, at least quarterly. We
record effective changes in the fair value of these cash flow
hedges in accumulated other comprehensive income (loss) until
the revenue is recognized or the related purchases are
recognized in cost of sales, at which time the changes are
reclassified to revenue and cost of product sales. There was
less than $0.1 million in accumulated other comprehensive
loss at June 29, 2007 that will be reclassified to
operations within the next 12 months.
We are exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but we do not
expect any of the counterparties to fail to meet their
obligations. To manage credit risks, we select counterparties
based on credit ratings, limit our exposure to a single
counterparty under defined guidelines and monitor the market
position with each counterparty. In the event of the termination
of a derivative designated as a hedge, the settlement would be
charged to our consolidated statements of operations as a
component of Interest income or Interest
Expense.
Revenue
Recognition
Revenue includes product, services and software sales to end
users, distributors, system integrators and original equipment
manufacturers (OEM).
Revenue primarily relates to product sales (other than for
long-term contracts) and service arrangements, which are
recognized in accordance with SEC Staff Accounting Bulletin
(SAB) No. 104 Revenue Recognition
(SAB 104), when persuasive evidence of an
arrangement exists, the fee is fixed or determinable,
collectibility is probable, delivery of a product has occurred
and title and risk of loss has transferred or services have been
rendered. Further, if an arrangement, other than a long-term
contract, requires the delivery or performance of multiple
deliverables or elements, we determine whether the individual
elements represent separate units of accounting
under the requirements of Emerging Issues Task Force Issue
00-21
Revenue Arrangements with Multiple Deliverables
(EITF 00-21).
We recognize the revenue associated with each element
separately. Such revenue, including products with installation
services, is recognized as the revenue when each unit of
accounting is earned based on the relative fair value of each
unit of accounting. We defer the recognition of revenue for the
fair value of installation services to the period in which the
installation occurs.
Revenue recognition from long-term contracts is recorded on a
percentage-of-completion basis, generally using the cost-to-cost
method of accounting where sales and profits are recorded based
on the ratio of costs incurred to estimated total costs at
completion. Recognition of profit on long-term contracts
requires estimates of: the total contract value; the total cost
at completion; and the measurement of progress towards
completion. Contracts are combined when specific aggregation
criteria stated in the AICPAs Statement of Position
No. 81-1
Accounting for
67
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Performance of Construction-Type and Certain Production-Type
Contracts
(SOP 81-1),
are met. Amounts representing contract change orders, claims or
other items are included in sales only when they can be reliably
estimated and realization is probable. When adjustments in
contract value or estimated costs are determined, any changes
from prior estimates are reflected in earnings in the current
period. Anticipated losses on contracts or programs in progress
are charged to earnings when identified.
Revenue recognition for the sale of software licenses is in
accordance with the AICPAs Statement of Position
97-2
Software Revenue Recognition
(SOP 97-2).
Typically, our capitalized software sales do not have acceptance
criteria in the contracts and proper documentation of Vendor
Specific Objective Evidence (VSOE) is obtained
before revenue is allocated to the various elements of the
arrangement in accordance with
SOP 97-2.
Royalty income is recognized on the basis of terms specified in
the contractual agreements.
Cost
of Product Sales and Services
Cost of sales consists primarily of materials, labor and
overhead costs incurred internally and paid to contract
manufacturers to produce our products, personnel and other
implementation costs incurred to install our products and train
customer personnel, and customer service and third party
original equipment manufacturer costs to provide continuing
support to our customers. Also included in cost of sales is the
amortization of purchased technology intangible assets.
Shipping and handling costs are included as a component of costs
of product sales in our consolidated statements of operations
because we include in revenue the related costs that we bill our
customers.
Presentation
of Taxes Collected from Customers and Remitted to Government
Authorities
We present taxes (e.g., sales tax) collected from customers and
remitted to governmental authorities on a net basis (i.e.,
excluded from revenue).
Stock
Options and Share-Based Compensation
Prior to the July 2, 2005 start of our fiscal year 2006, we
accounted for share-based compensation granted under our stock
incentive plans under the recognition and measurement provisions
of APB 25 Accounting for Stock Issued to Employees,
and related interpretations (APB 25). In accordance
with APB 25, we used the intrinsic-value method of accounting
for stock option awards to employees and accordingly did not
recognize compensation expense for our stock option awards to
employees in our consolidated statements of operations prior to
the start of our fiscal year 2006, as all option exercise prices
were 100% of fair market value of the related shares on the date
the options were granted. Effective July 2, 2005, we
implemented Statement of Financial Accounting Standards
No. 123(R) Share-Based Payment (Statement
123R) for all share-based compensation, including
share-based compensation that was not vested as of the end of
our fiscal year 2005. In accordance with Statement 123R we
measure compensation cost for all share-based payments
(including employee stock options) at fair value and recognize
cost over the vesting period. See Note O Stock Options
and Share-Based Compensation, for additional information
regarding stock options, performance shares and restricted
shares.
Effective July 2, 2005, we account for our employee
share-based compensation plans using the fair value method, as
prescribed by Statement 123R. Accordingly, we estimate the grant
date fair value of our share-based awards and amortize this fair
value to compensation expense over the requisite service period
or vesting term. To estimate the fair value of our stock option
awards and employee stock purchase plan shares, we currently use
the Black-Scholes-Merton option-pricing model. The determination
of the fair value of share-based payment awards on the date of
grant using an option-pricing model is affected by our stock
price as well as assumptions regarding a number of complex and
subjective variables. These variables include our expected stock
price volatility over the term of the awards, actual and
projected employee stock option exercise behaviors, risk-free
interest rate and expected dividends. Due to the inherent
limitations of option-valuation models, including consideration
of future
68
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
events that are unpredictable and the estimation process
utilized in determining the valuation of the share-based awards,
the ultimate value realized by our employees may vary
significantly from the amounts expensed in our financial
statements. For restricted stock or restricted stock unit
awards, we measure the grant date fair value based upon the
market price of our common stock on the date of the grant and
amortize this fair value to compensation expense over the
requisite service period or vesting term.
Statement 123R requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if
actual forfeitures differ from initial estimates. Forfeitures
were estimated based on the historical experience at Stratex for
those options assumed, and on the historical experience at
Harris for our employees that were formerly at MCD. For our
fiscal 2007 awards, we estimated the forfeiture rate based on
the grantee population which is only at a director level and
above which we expect to be 5%. We expect forfeitures to be 8%
annually for the Stratex options assumed. Share-based
compensation expense was recorded net of estimated forfeitures
for fiscal 2007 such that expense was recorded only for those
share-based awards that are expected to vest.
Statement 123R also requires that cash flows resulting from the
gross benefit of tax deductions related to share-based
compensation in excess of the grant date fair value of the
related share-based awards be presented as part of cash flows
from financing activities. This amount is shown as a reduction
to cash flows from operating activities and an increase to cash
flow from financing activities. Total cash flows remain
unchanged from what would have been reported prior to the
adoption of Statement 123R.
Effect
of Adopting Statement 123R
The following table illustrates the pro forma effect on net loss
for fiscal 2005 assuming we had applied the fair value
recognition provisions of Statement 123R to all previously
granted share-based awards after giving consideration to
potential forfeitures during such periods. The fair value of
each option grant is estimated at the grant date using the
Black-Scholes-Merton option-pricing model based on the
assumptions listed below under Harris Stock Options.
The estimated fair value of options granted is amortized to
expense over their vesting period, which is generally three
years.
|
|
|
|
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Net loss, as reported
|
|
$
|
(3.8
|
)
|
Share-based employee compensation
cost included in net loss as reported, net of $0 tax benefit
|
|
|
0.8
|
|
Deduct: Total share-based employee
compensation expense determined under the fair value based
method for all awards, net of $0 related tax benefit
|
|
|
(1.2
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(4.2
|
)
|
|
|
|
|
|
The impact of applying the provisions of Statement 123R and
SAB 107 during fiscal 2006 was as follows:
|
|
|
|
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net loss, as reported
|
|
$
|
(35.8
|
)
|
Share-based employee compensation
cost included in net loss as reported, net of $0 related tax
benefit
|
|
|
1.7
|
|
Deduct: Total share-based employee
compensation cost determined under the provisions of APB 25, net
of $0 related tax benefit
|
|
|
(1.6
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(35.7
|
)
|
|
|
|
|
|
Earnings
(Loss) per Share
We determine earnings (loss) per share in accordance with
Statement of Financial Accounting Standards No. 12,
Earnings per Share. Basic earnings (loss) per share
is computed by dividing net income (loss) by the
69
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
weighted average number of shares of common stock outstanding
for the applicable period. Prior to January 26, 2007, we
were a division of Harris and there were no shares outstanding
for purposes of earnings (loss) calculations. Basic and diluted
weighted average shares outstanding are calculated based on the
daily outstanding shares, reflecting the fact that no shares
were outstanding prior to January 26, 2007. Diluted
earnings (loss) per share is determined in the same manner as
basic earnings (loss) per share except that the number of shares
is increased to assume exercise of potentially dilutive stock
options and warrants using the treasury stock method, unless the
effect of such increase would be anti-dilutive. Under the
treasury stock method, the amount the employee must pay for
exercising stock options, the amount of compensation cost for
future service that we have not yet recognized, and the amount
of tax benefits that would be recorded in additional paid-in
capital when the award becomes deductible are assumed to be used
to repurchase shares. For fiscal 2007, the diluted loss per
share amounts equal the basic loss per share amounts because we
reported a net loss and as such, the impact of the assumed
exercise of stock options and warrants would have been
anti-dilutive.
Restructuring
and Related Expenses
We account for restructuring and related expenses in accordance
with Statement of Financial Accounting Standards No. 146
Accounting for Costs Associated with Exit or Disposal
Activities (Statement 146). Statement 146
requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred,
as opposed to when management commits to an exit plan. Statement
146 also requires that (i) liabilities associated with exit
and disposal activities be measured at fair value;
(ii) one-time termination benefits be expensed at the date
the entity notifies the employee, unless the employee must
provide future service, in which case the benefits are expensed
ratably over the future service period; (iii) liabilities
related to an operating lease/contract be recorded at fair value
and measured when the contract does not have any future economic
benefit to the entity (i.e., the entity ceases to utilize the
rights conveyed by the contract); and (iv) all other costs
related to an exit or disposal activity be expensed as incurred.
We account for severance costs in accordance with Statement of
Financial Accounting Standards No. 112,
Employers Accounting for Postemployment
Benefits. The severance benefits provided as part of
restructurings are part of an ongoing benefit arrangement, and
accordingly, we have accrued a liability for expected severance
costs. Restructuring liabilities and the liability for expected
severance costs are shown as Restructuring
liabilities in current and long-term liabilities on our
consolidated balance sheets and the related costs are reflected
as operating expenses in the consolidated statements of
operations.
Research
and Development Costs
Our company-sponsored research and development costs, which
include costs in connection with new product development,
improvement of existing products, process improvement, and
product use technologies, are charged to operations in the
period in which they are incurred. In connection with business
combinations, the purchase price allocated to research and
development projects that have not yet reached technological
feasibility and for which no alternative future use exists is
charged to operations in the period of acquisition. We present
research and development expenses and acquired in-process
research and development costs as separate line items in our
consolidated statements of operations.
Customer-sponsored research and development costs are incurred
pursuant to contractual arrangements and are accounted for
principally by the percentage-of-completion method. There was no
customer-sponsored research and development in fiscal 2007, 2006
or 2005.
Segment
Information
We disclose information concerning our operating segments in
accordance with Statement of Financial Accounting Standards
No. 131 Disclosures about Segments of an Enterprise
and Related Information (Statement 131).
Statement 131 established annual and interim reporting standards
for an enterprises operating segments and related
disclosures about geographic information and major customers. We
are organized into three operating segments around the markets
we serve: North America Microwave, International Microwave and
Network Operations. The North America Microwave segment designs,
manufactures, sells and services microwave
70
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
radio products, primarily for cellular network providers and
private network users within North America (U.S., Canada and the
Caribbean). The International Microwave segment designs,
manufactures, sells and services microwave radio products,
primarily for cellular network providers and private network
users outside of North America. The Network Operations segment
develops, designs, produces, sells and services network
management software systems, primarily for cellular network
providers and private network users worldwide.
Our Chief Executive Officer is the Chief Operating
Decision-Maker (CODM) as defined by Statement 131. Resources are
allocated to each of these segments using information based
primarily on their operating income (loss). Operating income
(loss) is defined as revenue less cost of product sales and
services, engineering, selling and administrative expenses,
restructuring charges, acquired in-process research and
development, and amortization of identifiable intangible assets.
General corporate expenses are allocated to the North America
Microwave and International Microwave segments based on revenue.
Information related to assets, capital expenditures and
depreciation and amortization for the operating segments is not
part of the discrete financial information provided to and
reviewed by the CODM.
|
|
Note C
|
Recent
Accounting Pronouncements
|
Calculating
the Pool of Excess Tax Benefits Related to Share-Based
Compensation
In November 2005, the FASB issued FASB Staff Position
(FSP) FAS 123(R)-3, Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment
Awards (FSP 123R-3). FSP 123R-3
provides a simplified alternative method to calculate the
beginning pool of excess tax benefits against which excess
future deferred tax assets (that result when the compensation
cost recognized for an award exceeds the ultimate tax deduction)
could be written off under Statement 123R. The guidance in
FSP 123R-3 was effective on November 10, 2005. We
determined not to make the one-time election to adopt the
alternative transition method described in FSP 123R-3. We
have implemented the provisions of Statement 123R following the
guidance for calculating the pool of excess tax benefits
described in paragraph 81 of Statement 123R and the
guidance related to reporting cash flows described in
paragraph 68 of Statement 123R. Our determination not to
adopt the alternative transition method described in
FSP 123R-3 did not have a material impact on our
consolidated financial position, results of operations or cash
flows.
Presentation
of Taxes Collected from Customers and Remitted to Governmental
Authorities
In March 2006, the FASB ratified the EITFs Issue
06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (that is, Gross versus Net Presentation)
(Issue
06-3).
The Task Force reached a conclusion that the presentation of
taxes such as sales, use, value added, and excise taxes on
either a gross (included in revenue and costs) or a net
(excluded from revenue and costs) basis is an accounting policy
decision that should be disclosed by a company. In addition, a
company should disclose the amounts of those taxes such as
sales, use, value added, and excise taxes that are reported on a
gross basis in interim and annual financial statements for each
period for which an income statement is presented if those
amounts are significant. The provisions of Issue
06-3 were
effective for interim and annual reporting periods that began
after December 15, 2006. Our early adoption and
implementation of the provisions of Issue
06-3 did not
have a material impact on our consolidated financial position,
results of operations or cash flows.
Accounting
for Uncertain Tax Positions
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement 109
(FIN 48). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
Statement 109. FIN 48 prescribes a recognition threshold
and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected
to be taken in a tax return. FIN 48 also provides guidance
on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition.
FIN 48 is effective
71
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
for fiscal years that begin after December 15, 2006, which
for us will be our fiscal 2008. We are currently evaluating the
impact FIN 48 will have on our consolidated financial
position, results of operations and cash flows.
Fair
Value Measurements
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (Statement 157). Statement 157
defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands
disclosures about fair value measurements. Statement 157 applies
under other accounting pronouncements that require fair value
measurement in which the FASB concluded that fair value was the
relevant measurement, but does not require any new fair value
measurements. Statement 157 will be effective for us beginning
in fiscal 2009. We are currently evaluating the impact Statement
157 will have on our consolidated financial position, results of
operations and cash flows.
Accounting
for Pensions and Other Postretirement Plans
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans (Statement 158), which amends FASB
Statements No. 87, Employers Accounting for
Pensions; No. 88, Employers Accounting
for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits; No. 106,
Employers Accounting for Postretirement Benefits
Other Than Pensions; and No. 132(R),
Employers Disclosures about Pension and Other
Postretirement Benefits. Statement 158 requires an
employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan as an asset or liability in
its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur
through the comprehensive income of a business entity. Statement
158 also requires an employer to measure the funded status of a
plan as of the date of the employers year-end balance
sheet, with limited exceptions. The portion of Statement 158
that requires the recognition of overfunded or underfunded
status of a defined benefit postretirement plan as an asset or
liability is effective for us as of June 29, 2007. The
portion of Statement 158 that requires an employer to measure
the funded status of a plan as of the date of the
employers year-end balance sheet will be effective for us
as of July 3, 2009. We adopted the portion of Statement 158
that was effective for us as of June 29, 2007 and it did
not have an effect on our financial position, results of
operations or cash flows.
Materiality
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108 Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(SAB 108). SAB 108 expresses the
SECs views regarding the process of quantifying
misstatements in financial statements. The view of the SEC is
that the effects of prior year errors in the balance sheet must
be taken into account for the current year income statement
financial reporting. We implemented the provisions of
SAB 108 during the first quarter of fiscal 2007 and it did
not have a material impact on our consolidated financial
position, results of operations or cash flows.
Fair
Value Accounting for Financial Assets and Financial
Liabilities
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
(Statement 159). Statement 159 allows companies to
voluntarily choose, at specified election dates, to measure many
financial assets and financial liabilities at fair value (the
fair value option). The election is made on an
instrument-by-instrument basis and is irrevocable. If the fair
value option is elected for an instrument, all unrealized gains
or losses in fair value for that instrument shall be reported in
earnings at each subsequent reporting date. Statement 159 is
effective for fiscal years that begin after November 15,
2007, which for us will be our fiscal 2009. We are currently
evaluating the impact Statement 159 will have on our
consolidated financial position, results of operations and cash
flows.
72
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note D
|
Business
Combination Acquisition of Stratex Networks,
Goodwill and Identifiable Intangible Assets
|
On January 26, 2007, we completed our acquisition of
Stratex pursuant to the Combination Agreement. Pursuant to the
acquisition, each share of Stratex common stock was converted
into one-fourth of a share of our Class A common stock. As
a result of the transaction, 24,782,153 shares of our
Class A common stock were issued to the former holders of
Stratex common stock. In the contribution transaction, Harris
contributed the assets of MCD, along with $32.1 million in
cash (comprised of $26.9 million contributed on
January 26, 2007 and $5.2 million held by the
Companys foreign operating subsidiaries on
January 26, 2007) and, in exchange we assumed certain
liabilities of Harris related to MCD and issued
32,913,377 shares of our Class B common stock to
Harris. As a result of these transactions, Harris owned
approximately 57% of our outstanding stock and the former
Stratex shareholders owned approximately 43% of our outstanding
stock immediately following the closing.
We completed the Stratex acquisition to create a leading global
communications solutions company offering end-to-end wireless
transmission solutions for mobile and fixed-wireless service
providers and private networks.
The Stratex acquisition was accounted for as a purchase business
combination. Total consideration paid by us was approximately
$493.1 million as summarized in the following table:
|
|
|
|
|
|
|
January 26,
|
|
Calculation of Allocable Purchase Price
|
|
2007
|
|
|
|
(In millions)
|
|
|
Value of Harris Stratex Networks
shares issued to Stratex Networks stockholders
|
|
$
|
464.9
|
|
Value of Stratex Networks vested
options assumed
|
|
|
15.5
|
|
Acquisition costs
|
|
|
12.7
|
|
|
|
|
|
|
Total allocable purchase price
|
|
$
|
493.1
|
|
|
|
|
|
|
73
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below represents the preliminary allocation of the
total consideration to the purchased tangible, identifiable
intangible assets and goodwill and liabilities based on
managements assessment of their respective fair values as
of the date of acquisition.
|
|
|
|
|
Balance Sheet as of the Acquisition Date
|
|
|
|
|
|
(In millions)
|
|
|
Cash, cash equivalents, short-term
investments and available for sale securities
|
|
$
|
58.6
|
|
Accounts and notes receivable
|
|
|
39.1
|
|
Inventories
|
|
|
44.2
|
|
In-process research and development
|
|
|
15.3
|
|
Identifiable intangible assets
|
|
|
149.5
|
|
Goodwill
|
|
|
293.9
|
|
Property, plant and equipment
|
|
|
33.0
|
|
Other assets
|
|
|
11.1
|
|
|
|
|
|
|
Total assets
|
|
$
|
644.7
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
11.3
|
|
Accounts payable and accrued
expenses
|
|
|
55.0
|
|
Advance payments and unearned
income
|
|
|
0.3
|
|
Income taxes payable
|
|
|
9.2
|
|
Liability for severance payments
|
|
|
7.9
|
|
Long-term debt
|
|
|
13.4
|
|
Deferred tax liabilities
|
|
|
41.3
|
|
Long-term restructuring liabilities
|
|
|
8.7
|
|
Warrants
|
|
|
4.5
|
|
Common stock and additional
paid-in capital
|
|
|
493.1
|
|
|
|
|
|
|
Total liabilities and
shareholders equity
|
|
$
|
644.7
|
|
|
|
|
|
|
Included in the liabilities assumed as presented in the table
above were $7.9 million in severance and related costs for
certain Stratex employees.
The following table summarizes the allocation of estimated
identifiable intangible assets resulting from the acquisition.
For purposes of this allocation, we have assessed a fair value
of Stratex identifiable intangible assets related to customer
contracts, customer relationships, employee covenants not to
compete, developed technology and tradenames based on the net
present value of the projected income stream of these
identifiable intangible assets. The resulting fair value is
being amortized over the estimated useful life of each
identifiable intangible asset on a straight-line basis. We
estimated the fair value of acquired in-process research and
development to be approximately $15.3 million, which we
have reflected in Acquired in-process research and
development expense in the accompanying fiscal 2007
consolidated statements of operations. This represents certain
technologies under development, primarily related to the next
generation of the Eclipse product line. We estimated that the
technologies
74
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
under development were approximately 50% complete at the date of
acquisition. We expect to incur up to an additional
$3.4 million to complete this development, with completion
expected in late calendar 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
Expense Type
|
|
(Years)
|
|
Total
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Developed technology
|
|
Cost of product sales and services
|
|
10
|
|
$
|
70.1
|
|
Stratex trade name
|
|
Engineering, selling and
administrative
|
|
Indefinite
|
|
|
33.0
|
|
Other tradenames
|
|
Engineering, selling and
administrative
|
|
5
|
|
|
11.4
|
|
Customer relationships
|
|
Engineering, selling and
administrative
|
|
4 to 10
|
|
|
28.8
|
|
Contract backlog
|
|
Engineering, selling and
administrative
|
|
0.4
|
|
|
4.3
|
|
Non-competition agreements
|
|
Engineering, selling and
administrative
|
|
1
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible
assets
|
|
|
|
|
|
$
|
149.5
|
|
|
|
|
|
|
|
|
|
|
The Stratex acquisition has been accounted for using the
purchase method of accounting. Accordingly, the Stratex results
of operations have been included in the consolidated statements
of operations and cash flows since the acquisition date of
January 26, 2007 and are included almost entirely in our
International Microwave segment. The purchase price allocation
is preliminary and until January 25, 2008, additional
information could come to our attention that may require us to
further revise the purchase price allocation in connection with
the Stratex acquisition. The excess of the purchase price over
the fair value of the identifiable tangible and intangible net
assets acquired was assigned to goodwill. The goodwill resulting
from the acquisition was associated primarily with the Stratex
market presence and leading position, its growth opportunity in
the markets in which it operated, and its experienced work force
and established operating infrastructure.
In accordance with Statement 142, goodwill will not be amortized
but will be tested for impairment at least annually. The
goodwill resulting from the Stratex acquisition is not
deductible for tax purposes. We obtained the assistance of
independent valuation specialists to assist us in determining
the allocation of the purchase price for the Stratex acquisition.
The acquired identifiable intangible assets and their respective
book values as of June 29, 2007 are shown in the table
below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
|
|
|
Customer
|
|
|
Contract
|
|
|
Non Compete
|
|
|
|
|
|
|
Technology
|
|
|
Tradenames
|
|
|
Relationships
|
|
|
Backlog
|
|
|
Agreements
|
|
|
Total
|
|
|
Initial fair value
|
|
$
|
70.1
|
|
|
$
|
44.4
|
|
|
$
|
28.8
|
|
|
$
|
4.3
|
|
|
$
|
1.9
|
|
|
$
|
149.5
|
|
Accumulated amortization
|
|
|
(2.9
|
)
|
|
|
(1.0
|
)
|
|
|
(1.4
|
)
|
|
|
(4.3
|
)
|
|
|
(0.8
|
)
|
|
|
(10.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net identifiable intangible assets
|
|
$
|
67.2
|
|
|
$
|
43.4
|
|
|
$
|
27.4
|
|
|
$
|
0.0
|
|
|
$
|
1.1
|
|
|
$
|
139.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
Forma Results
The following summary, prepared on a pro forma basis, presents
unaudited consolidated results of operations as if Stratex
Networks had been acquired as of the beginning of each of the
periods presented, after including the impact of adjustments
such as amortization of intangibles and the related income tax
effects. This pro forma presentation does not include any impact
of acquisition synergies.
75
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions, except per share data)
|
|
|
Revenue from product sales and
services as reported
|
|
$
|
507.9
|
|
|
$
|
357.5
|
|
Revenue from product sales and
services pro forma
|
|
$
|
653.7
|
|
|
$
|
599.8
|
|
Net loss as reported
|
|
$
|
(17.9
|
)
|
|
$
|
(35.8
|
)
|
Net loss pro forma
|
|
$
|
(30.3
|
)
|
|
$
|
(76.9
|
)
|
Net loss per diluted common
share as reported
|
|
$
|
(0.72
|
)
|
|
$
|
N/A
|
|
Net loss per diluted common
share pro forma
|
|
$
|
(0.52
|
)
|
|
$
|
(1.33
|
)
|
The pro forma results are not necessarily indicative of our
results of operations had we owned Stratex Networks for the
entire periods presented.
Summary
of Goodwill
Goodwill on the consolidated balance sheets in our North America
Microwave and International Microwave segments totaled
$323.6 million and $28.3 million at the end of fiscal
2007 and 2006. There was no goodwill in our Network Operations
segment. Changes in the carrying amount of goodwill for the
fiscal years ended June 29, 2007 and June 30, 2006 by
segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
North America
|
|
|
International
|
|
|
Total
|
|
|
North America
|
|
|
International
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
1.9
|
|
|
$
|
26.4
|
|
|
$
|
28.3
|
|
|
$
|
1.9
|
|
|
$
|
24.2
|
|
|
$
|
26.1
|
|
Goodwill acquired in the Stratex
acquisition
|
|
|
|
|
|
|
293.9
|
|
|
|
293.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustments related to
acquisitions in prior years
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
2.2
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1.9
|
|
|
$
|
321.7
|
|
|
$
|
323.6
|
|
|
$
|
1.9
|
|
|
$
|
26.4
|
|
|
$
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
of Identifiable Intangible Assets
In addition to the identifiable intangible assets from the
Stratex acquisition, we have other identifiable intangible
assets related primarily to technology obtained through
acquisitions prior to fiscal 2006. Our other
76
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
identifiable intangible assets are being amortized over their
useful estimated economic lives, which range from 2 to
17 years. A summary of all of our identifiable intangible
assets is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stratex
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Stratex
|
|
|
|
|
|
Stratex
|
|
|
Stratex
|
|
|
Non
|
|
|
Stratex
|
|
|
Identifiable
|
|
|
Identifiable
|
|
|
|
Developed
|
|
|
Stratex
|
|
|
Customer
|
|
|
Contract
|
|
|
Compete
|
|
|
Acquisition
|
|
|
Intangible
|
|
|
Intangible
|
|
|
|
Technology
|
|
|
Tradenames
|
|
|
Relationships
|
|
|
Backlog
|
|
|
Agreements
|
|
|
Total
|
|
|
Assets
|
|
|
Assets
|
|
|
|
(In millions, except for weighted average useful life in
years)
|
|
|
Gross identifiable intangible
assets at June 30, 2006
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12.8
|
|
|
$
|
12.8
|
|
Less accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6.4
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net identifiable intangible assets
at June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.4
|
|
|
|
6.4
|
|
Add: acquired fair value of Stratex
identifiable intangible assets
|
|
|
70.1
|
|
|
|
44.4
|
|
|
|
28.8
|
|
|
|
4.3
|
|
|
|
1.9
|
|
|
|
149.5
|
|
|
|
|
|
|
|
149.5
|
|
Less: amortization expense
fiscal 2007
|
|
|
(2.9
|
)
|
|
|
(1.0
|
)
|
|
|
(1.4
|
)
|
|
|
(4.3
|
)
|
|
|
(0.8
|
)
|
|
|
(10.4
|
)
|
|
|
(1.2
|
)
|
|
|
(11.6
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net identifiable intangible assets
at June 29, 2007
|
|
$
|
67.2
|
|
|
$
|
43.4
|
|
|
$
|
27.4
|
|
|
$
|
|
|
|
$
|
1.1
|
|
|
$
|
139.1
|
|
|
$
|
5.4
|
|
|
$
|
144.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense 2007
|
|
|
2.9
|
|
|
|
1.0
|
|
|
|
1.4
|
|
|
|
4.3
|
|
|
|
0.8
|
|
|
|
10.4
|
|
|
|
1.2
|
|
|
|
11.6
|
|
Amortization expense 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
1.2
|
|
Amortization expense 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
0.9
|
|
Weighted Average Useful Life
(in years)
|
|
|
9.6
|
|
|
|
Indefinite*
|
|
|
|
9.6
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
14.3
|
|
|
|
|
|
* The tradename Stratex has an indefinite life.
Other tradenames identified have a weighted average useful life
of 4.6 years as of June 29, 2007.
At June 29, 2007, we estimate our future amortization of
identifiable intangible assets by year as follows:
|
|
|
|
|
|
|
Years Ending
|
|
|
|
in June
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
14.5
|
|
2009
|
|
|
13.4
|
|
2010
|
|
|
13.3
|
|
2011
|
|
|
13.0
|
|
2012
|
|
|
11.6
|
|
Thereafter
|
|
|
45.7
|
|
|
|
|
|
|
Total
|
|
$
|
111.5
|
|
|
|
|
|
|
|
|
Note E
|
Short-Term
Investments and Available for Sale Securities
|
Short-term investments and available for sale securities as of
June 29, 2007 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Market
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Corporate notes
|
|
$
|
12.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12.8
|
|
Government notes
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
4.8
|
|
Auction rate securities
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments and
available for sale securities
|
|
$
|
20.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
With the exception of the auction rate securities and one
corporate note with a market value of $0.6 million and a
maturity of 13 months, all of the Companys short-term
investments and available for sale securities have maturity
dates of less than one year, with a weighted average maturity of
140 days. Our auction rate securities have maturities in
perpetuity or extending through August 2038, with interest rate
resets generally every 28 days.
|
|
Note F
|
Accumulated
Other Comprehensive Income (Loss)
|
The changes in our components of accumulated other comprehensive
income (loss) during each of three fiscal years in the period
ended June 29, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Short-Term
|
|
|
Accumulated
|
|
|
|
Foreign
|
|
|
|
|
|
Investments and
|
|
|
Other
|
|
|
|
Currency
|
|
|
Hedging
|
|
|
Available for
|
|
|
Comprehensive
|
|
|
|
Translation
|
|
|
Derivatives
|
|
|
Sale Securities
|
|
|
Income (Loss)
|
|
|
|
(In millions)
|
|
|
Balance at July 2, 2004
|
|
$
|
(21.9
|
)
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
(21.8
|
)
|
Foreign currency translation
|
|
|
7.7
|
|
|
|
|
|
|
|
|
|
|
|
7.7
|
|
Net unrealized gain on hedging
activities, net of $0 tax
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2005
|
|
|
(14.2
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
(13.9
|
)
|
Foreign currency translation
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
|
12.7
|
|
Net unrealized loss on hedging
activities, net of $0 tax
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2006
|
|
|
(1.5
|
)
|
|
|
0.1
|
|
|
|
|
|
|
|
(1.4
|
)
|
Foreign currency translation
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
Net unrealized loss on hedging
activities, net of $0 tax
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 29, 2007
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our receivables are summarized below:
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Accounts receivable
|
|
$
|
190.5
|
|
|
$
|
122.2
|
|
Notes receivable due within one
year net
|
|
|
3.3
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193.8
|
|
|
|
132.0
|
|
Less allowances for collection
losses
|
|
|
(8.5
|
)
|
|
|
(8.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
185.3
|
|
|
$
|
123.9
|
|
|
|
|
|
|
|
|
|
|
On January 26, 2007, we acquired $39.1 million in
receivables from the Stratex acquisition at fair value.
78
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our inventories are summarized below:
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Finished products
|
|
$
|
52.9
|
|
|
$
|
17.1
|
|
Work in process
|
|
|
28.6
|
|
|
|
34.4
|
|
Raw materials and supplies
|
|
|
68.4
|
|
|
|
38.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149.9
|
|
|
|
90.1
|
|
Inventory reserves
|
|
|
(14.2
|
)
|
|
|
(18.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
135.7
|
|
|
$
|
71.9
|
|
|
|
|
|
|
|
|
|
|
On January 26, 2007, we acquired $44.2 million of
inventory from the Stratex acquisition at fair value.
During the second quarter of fiscal 2006, we had a
$34.9 million write-down of inventory related to product
discontinuance.
|
|
Note I
|
Property,
Plant and Equipment
|
Our property, plant and equipment are summarized below:
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Land
|
|
$
|
1.3
|
|
|
$
|
0.6
|
|
Buildings
|
|
|
30.8
|
|
|
|
21.9
|
|
Software developed for internal use
|
|
|
3.0
|
|
|
|
4.1
|
|
Machinery and equipment
|
|
|
123.3
|
|
|
|
91.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158.4
|
|
|
|
118.3
|
|
Less allowances for depreciation
and amortization
|
|
|
(78.4
|
)
|
|
|
(66.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80.0
|
|
|
$
|
52.2
|
|
|
|
|
|
|
|
|
|
|
At January 26, 2007, we acquired $33.0 million of
property, plant and equipment from the Stratex acquisition at
fair value.
Depreciation and amortization expense related to plant and
equipment, including software amortization, was
$14.5 million, $12.6 million and $11.8 million in
fiscal 2007, 2006 and 2005.
During fiscal 2006, we recognized a gain of $1.8 million
from the sale of land and building that is included in selling
and administrative expenses in our consolidated statements of
operations.
79
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note J
|
Credit
Facility and Debt
|
Our debt consisted of the following at June 29, 2007 and
June 30, 2006:
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Credit Facility with Bank:
|
|
|
|
|
|
|
|
|
Term Loan A
|
|
$
|
5.7
|
|
|
$
|
|
*
|
Term Loan B
|
|
|
13.8
|
|
|
|
|
*
|
Other short-term notes
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
20.7
|
|
|
|
0.2
|
|
Less other short-term notes
|
|
|
(1.2
|
)
|
|
|
(0.2
|
)
|
Less current portion
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
8.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The debt balances assumed as a result of the Stratex acquisition
were not obligations of Harris Stratex at June 30, 2006. |
As part of the Stratex acquisition, we assumed the existing
credit facility of Stratex with a commercial bank (the
Credit Facility). The Credit Facility allows for
revolving credit borrowings of up to $50 million with
available credit defined as $50 million less the
outstanding balance of the long-term portion and any usage under
the revolving credit portion. As of June 29, 2007, the
outstanding balance of the long-term portion of our Credit
Facility was $19.5 million and there were $6.3 million
in outstanding standby letters of credit as of that date which
are defined as usage under the revolving credit portion of the
facility. The Credit Facility is unsecured. The fair value of
our debt approximates book values as of June 29, 2007.
Term Loan A of the Credit Facility requires monthly principal
payments of $0.5 million plus interest at a fixed rate of
6.38% through May 2008. Term Loan B requires monthly principal
payments of $0.4 million plus interest at a fixed rate of
7.25% through March 2010.
The credit facility agreement contains a minimum tangible net
worth covenant and a liquidity ratio covenant. At June 29,
2007 we were in compliance with these financial covenants.
At June 29, 2007, our future principal payment obligations
on long-term debt under the Credit Facility were as follows:
|
|
|
|
|
|
|
Years Ending
|
|
|
|
in June
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
10.7
|
|
2009
|
|
|
5.0
|
|
2010
|
|
|
3.8
|
|
|
|
|
|
|
Total
|
|
$
|
19.5
|
|
|
|
|
|
|
Short-term debt of $1.2 million at June 29, 2007 and
$0.2 million at June 30, 2006 consisted solely of
notes payable to banks in both years. The weighted average
interest rate for these notes was 14.0% at June 29, 2007
and 6.8% at June 30, 2006.
We have uncommitted short-term lines of credit aggregating
$17.1 million from various international banks,
$15.9 million of which was available on June 29, 2007.
These lines provide for borrowings at various interest rates,
typically may be terminated upon notice, may be used on such
terms as mutually agreed to by the banks and us and are reviewed
annually for renewal or modification.
80
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note K
|
Accrued
Warranties
|
We have accrued for the estimated cost to repair or replace
products under warranty at the time of sale. Changes in warranty
liability, which is included as a component of other accrued
items on the consolidated balance sheets, during the fiscal
years ended June 29, 2007 and June 30, 2006, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Balance as of the beginning of the
period
|
|
$
|
3.9
|
|
|
$
|
3.8
|
|
Acquisition of Stratex
|
|
|
3.5
|
|
|
|
|
|
Warranty provision for sales made
during the period
|
|
|
2.8
|
|
|
|
3.5
|
|
Payments made during the period
|
|
|
(4.7
|
)
|
|
|
(3.6
|
)
|
Other adjustments to the liability
including foreign currency translation during the period
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Balance as of the end of the period
|
|
$
|
5.6
|
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Note L
|
Redeemable
Preference Shares
|
During fiscal 2007, our Singapore subsidiary issued 8,250
redeemable preference shares to the U.S. parent company
which, in turn, sold the shares to two unrelated investment
companies at par value for total sale proceeds of
$8.25 million. These redeemable preference shares represent
a 1% interest in our Singapore subsidiary. The redeemable
preference shares have an automatic redemption date of February
2017, which is 10 years from the date of issue. Preference
dividends are cumulative and payable quarterly in cash at the
rate of 12% per annum. The holders of the redeemable preference
shares have liquidation rights in priority of all classes of
capital stock of our Singapore subsidiary. The holders of the
redeemable preference shares do not have any other participation
in, or rights to, our profits, assets or capital shares, and do
not have rights to vote as a shareholder of the Singapore
subsidiary unless the preference dividend or any part thereof is
in arrears and has remained unpaid for at least 12 months
after it has been declared. During fiscal 2007, preference
dividends totaling $0.4 million were recorded as interest
expense in the accompanying consolidated statements of
operations. We have classified the redeemable preference shares
as long-term debt due to the mandatory redemption provision
10 years from issue date.
Our Singapore subsidiary has the right at any time after
5 years from the issue date to redeem, in whole or in part,
the redeemable preference shares as follows:
105% of the issue price after 5 years but before
6 years from issue date
104% of the issue price after 6 years but before
7 years from issue date
103% of the issue price after 7 years but before
8 years from issue date
102% of the issue price after 8 years but before
9 years from issue date
101% of the issue price after 9 years but before
10 years from issue date
100% of the issue price at the automatic redemption date of
10 years from issue date
As part of the Stratex acquisition, we assumed warrants to
purchase 539,195 shares of our Class A common stock.
These warrants have an exercise price of $11.80 per common share
and will expire on September 24, 2009. In connection with
the purchase accounting recorded as a result of the acquisition
of Stratex, we recorded the total fair value of these warrants
as $4.5 million in long-term liabilities on
January 26, 2007. The per share fair value of each warrant
was $7.43 and $8.32 on June 29, 2007 and January 26,
2007, determined based on the Black-Scholes-Merton model with
the assumptions listed in the table below.
81
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
January 26,
|
|
|
|
2007
|
|
|
2007
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
43.1
|
%
|
|
|
46.15
|
%
|
Risk-free interest rate
|
|
|
4.91
|
%
|
|
|
4.87
|
%
|
Expected holding period
|
|
|
1.25 years
|
|
|
|
1.33 years
|
|
As a result of recording these outstanding warrants at fair
value at June 29, 2007, we recorded the change during
fiscal 2007 as a $0.5 million credit to selling and
administrative expenses on our consolidated statements of
operations. During fiscal 2007, warrants to purchase
18,750 shares of our Class A common stock were
exercised for total proceeds of $0.2 million.
|
|
Note N
|
Restructuring
Activities
|
In order to improve operating efficiencies and to create
synergies through the consolidation of facilities, we have
implemented restructuring plans to scale down our operations in
Canada, France, the U.S. and Mexico.
In the third quarter of fiscal 2007, we implemented a
restructuring plan to close our Montreal facility and reduce our
Canadian workforce, and, to a lesser extent, our
U.S. workforce. In the fourth quarter of fiscal 2007 we
implemented plans to reduce our French and Mexican workforces.
As part of these restructuring plans, we notified approximately
200 employees in Canada, the U.S., France and Mexico that
their employment will be terminated between March 30, 2007
and December 31, 2007. These plans are expected to be fully
implemented by December 31, 2007. In fiscal 2007, we
recorded restructuring charges of approximately
$9.3 million ($5.1 million in our North America
Microwave segment and $4.2 million in our International
Microwave segment), all of which pertained to employee severance
benefits. We anticipate that we will record an additional
$2.2 million in restructuring charges associated with these
plans in fiscal 2008 ($1.8 million in our North America
Microwave segment and $0.4 in our International Microwave
segment).
In the third quarter of fiscal 2007, in connection with the
Stratex acquisition on January 26, 2007 (see Note D),
we recognized $12.0 million of restructuring liabilities
representing the fair value of Stratex restructuring liabilities
incurred prior to, and not related to, the acquisition as
summarized in the table below. These charges relate to building
lease obligations at four of Stratexs
U.S. facilities. In fiscal 2007, we made payments of
$2.0 million on these leases, which reduced the liability
by $1.6 million, net of $0.4 million in interest
expense.
In fiscal 2006, we implemented a restructuring plan to transfer
our Montreal manufacturing activities to our San Antonio,
Texas facility, and reduce our workforce by 110 employees.
In fiscal 2006, we recorded restructuring charges of
$3.7 million, $2.3 million of which related to
employee severance benefits, and $1.4 million of which
related to building lease obligation and transition costs. In
connection with this restructuring, we also recorded
$1.1 million for fixed asset write-offs. As of
June 29, 2007, substantially all of the employee severance
benefits have been paid, and $1.1 million of the building
lease obligation commitments has been paid.
We anticipate no further charges associated with this plan.
82
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The information in the following table summarizes our
restructuring activity during the last three fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Facilities
|
|
|
|
|
|
|
and
|
|
|
and
|
|
|
|
|
|
|
Benefits
|
|
|
Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Restructuring liability balance at
July 2, 2004
|
|
$
|
5.3
|
|
|
$
|
1.3
|
|
|
$
|
6.6
|
|
Provision in fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments in fiscal 2005
|
|
|
(5.0
|
)
|
|
|
(1.3
|
)
|
|
|
(6.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability balance at
July 1, 2005
|
|
|
0.3
|
|
|
|
|
|
|
|
0.3
|
|
Provision in fiscal 2006
|
|
|
2.3
|
|
|
|
1.5
|
|
|
|
3.8
|
|
Cash payments in fiscal 2006
|
|
|
(0.7
|
)
|
|
|
(1.2
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liability balance at
June 30, 2006
|
|
|
1.9
|
|
|
|
0.3
|
|
|
|
2.2
|
|
Acquisition of Stratex
restructuring liability on January 26, 2007
|
|
|
|
|
|
|
12.0
|
|
|
|
12.0
|
|
Provision in fiscal 2007
|
|
|
9.3
|
|
|
|
|
|
|
|
9.3
|
|
Cash payments in fiscal 2007
|
|
|
(3.4
|
)
|
|
|
(1.5
|
)
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring liability at
June 29, 2007
|
|
$
|
7.8
|
|
|
$
|
10.8
|
|
|
$
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of restructuring
liability at June 29, 2007
|
|
$
|
7.8
|
|
|
$
|
3.0
|
|
|
|
10.8
|
|
Long-term portion of restructuring
liability at June 29, 2007
|
|
|
|
|
|
|
7.8
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring liability at
June 29, 2007
|
|
$
|
7.8
|
|
|
$
|
10.8
|
|
|
$
|
18.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note O
|
Stock
Options and Share-Based Compensation
|
As of June 29, 2007, we had one stock incentive plan for
our employees and outside directors, the 2007 Stock Equity Plan,
which was adopted by our board of directors and approved by
Harris as our sole shareholder in January 2007. We believe that
awards under this plan more closely align the interests of our
employees with those of our shareholders. Certain share-based
awards provide for accelerated vesting if there is a change in
control (as defined under our Stock Equity Plan). Shares of
Class A common stock remaining available for future
issuance under our stock incentive plan totaled 4,393,278 as of
June 29, 2007. Our stock incentive plan provides for the
issuance of share-based awards in the form of stock options,
performance share awards and restricted stock. The initial grant
of awards under this plan was made on February 28, 2007.
Under this initial grant, we awarded 292,400 stock options,
138,752 restricted shares and 141,200 performance shares. We
also made a grant on June 12, 2007 issuing 19,800 stock
options, 4,970 restricted shares and 9,600 performance shares.
We recognized $1.7 million in compensation expense related
to our 2007 Stock Equity Plan during fiscal 2007 in our
consolidated statements of operations.
We also assumed all of the former Stratex Networks outstanding
stock options as of January 26, 2007, as part of the
Stratex acquisition. We recognized $1.5 million in
compensation expense relating to services provided from
January 26, 2007 through June 29, 2007 for the portion
of these stock options that were unvested at January 26,
2007. We also recognized $0.9 million in compensation
expense related to the acceleration of options in connection
with the employment termination of one of our executive officers
in June 2007 and $0.9 million in compensation cost related
to the acceleration of options charged to goodwill, both items
accounted for as a modifications under Statement 123R. For the
portion of these assumed stock options that were vested at the
date of the Stratex acquisition, we included their fair value of
$15.5 million as part of the purchase price of the Stratex
acquisition.
Finally, some of our employees who were formerly employed by MCD
participate in Harris four shareholder-approved stock
incentive plans (the Harris Plans) under which
options or other share-based compensation is outstanding. In
total, the compensation expense related to the Harris
Plans share-based awards was $1.6 million,
$1.7 million and $0.8 million during fiscal 2007, 2006
and 2005. These costs have been paid to Harris in cash. Harris
has not made any awards to former MCD employees since the date
of the Stratex acquisition, and does not intend to make any
further awards under its plans.
83
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Upon the exercise of stock options, vesting of restricted stock
awards, or vesting of performance share awards, we issue new
shares of our Class A common stock. Currently, we do not
anticipate repurchasing shares to provide a source of shares for
our rewards of share-based compensation.
In total, compensation expense for share-based awards was
$5.7 million, $1.7 million and $0.8 million for
fiscal 2007, 2006 and 2005. Amounts were included in our
consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Cost of product sales and services
|
|
$
|
0.3
|
|
|
$
|
|
|
|
$
|
|
|
Research and development expenses
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
3.4
|
|
|
|
1.7
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total compensation expense
|
|
$
|
5.7
|
|
|
$
|
1.7
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options Awarded Under our 2007 Stock Equity Plan
The following information relates to stock options that have
been granted under our stock incentive plan. Option exercise
prices are equal to the fair market value on the date the
options are granted using our closing stock price. Options may
be exercised for a period set at the time of grant, generally
7 years after the date of grant, and they generally vest in
installments of 50% one year from the grant date, 25% two years
from the grant date and 25% three years from the grant date.
The fair value of each option award under our stock equity plan
was estimated on the date of grant using the
Black-Scholes-Merton option-pricing model using the assumptions
set forth in the following table. Expected volatility is based
on implied volatility from a group of peer companies developed
with the assistance of an independent valuation firm using a
5 year look-back period. The expected term of the options
is based on the safe harbor provision as described in the
SECs Staff Accounting Bulletin No. 107. The
risk-free rate for the expected term of the option is based on
the U.S. Treasury yield curve in effect at the time of
grant.
A summary of the significant assumptions we used in calculating
the fair value of our fiscal 2007 stock option grants is as
follows:
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
June 12,
|
|
Grant date
|
|
2007
|
|
|
2007
|
|
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
62.64
|
%
|
|
|
61.10
|
%
|
Risk-free interest rate
|
|
|
4.52
|
%
|
|
|
5.18
|
%
|
Expected term (years)
|
|
|
5.0
|
|
|
|
5.0
|
|
Stock price on date of grant
|
|
$
|
20.40
|
|
|
$
|
16.48
|
|
Number of stock options granted
|
|
|
292,400
|
|
|
|
19,800
|
|
Fair value per option on date of
grant
|
|
$
|
11.61
|
|
|
$
|
9.35
|
|
84
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of stock option activity under our 2007 Stock
Equity Plan during fiscal 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Grant Date
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Fair Value
|
|
|
(Years)
|
|
|
Value
|
|
|
Stock options outstanding at
July 1, 2006
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or expired
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Stock options granted
|
|
|
312,200
|
|
|
$
|
20.15
|
|
|
$
|
11.47
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at
June 29, 2007
|
|
|
312,200
|
|
|
$
|
20.15
|
|
|
$
|
11.47
|
|
|
|
6.7
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at
June 29, 2007
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Stock options vested and expected
to vest at June 29, 2007(1)
|
|
|
290,267
|
|
|
$
|
20.15
|
|
|
$
|
11.47
|
|
|
|
6.7
|
|
|
$
|
|
|
|
|
|
(1) |
|
The options expected to vest are the result of applying the
pre-vesting forfeiture rate assumptions to total outstanding
options. |
The weighted average remaining contractual term for stock
options that were outstanding as of June 29, 2007 was
6.7 years. There were no stock options that were
exercisable as of June 29, 2007. The intrinsic value for
stock options that were outstanding and exercisable as of
June 29, 2007 was zero. The aggregate intrinsic value
represents the total pre-tax intrinsic value or the aggregate
difference between the closing price of our common stock on
June 29, 2007 of $17.98 and the exercise price for
in-the-money options that would have been received by the
optionees if all options had been exercised on June 29,
2007. The weighted-average grant-date fair value was $11.47 per
share for options granted during fiscal 2007. There was no
intrinsic value of options exercised during fiscal 2007 since
none were exercised.
A summary of the status of our nonvested stock options at
June 29, 2007 granted under our 2007 Stock Equity Plan
and changes during fiscal 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested stock options at
July 1, 2006
|
|
|
|
|
|
$
|
|
|
Stock options granted
|
|
|
312,200
|
|
|
$
|
11.47
|
|
Stock options vested
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options at
June 29, 2007
|
|
|
312,200
|
|
|
$
|
11.47
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2007, there was $3.0 million of total
unrecognized compensation expense related to nonvested stock
options granted under our stock incentive plan. This cost is
expected to be recognized over a weighted-average period of
1.4 years. The total fair value of stock options that
vested during fiscal 2007 was zero.
Restricted
Stock Awards Under our 2007 Stock Equity Plan
The following information relates to awards of restricted stock
that were granted on February 28, 2007 and June 12,
2007 to employees and outside directors under our stock
incentive plan. The restricted stock is not transferable until
vested and the restrictions lapse upon the achievement of
continued employment over a specified time period. Restricted
stock issued to employees cliff vests 3 years after grant
date. Restricted stock issued to directors generally vest in
quarterly increments through 1 year after grant date. We
recognized $0.5 million of expense during fiscal 2007. The
fair value of each restricted stock grant is based on the
closing price of our Class A common stock on the date of
grant and is amortized to compensation expense over its vesting
period.
85
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the status of our restricted stock at June 29,
2007 and changes during fiscal 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Restricted stock outstanding at
July 1, 2006
|
|
|
|
|
|
$
|
|
|
Restricted stock granted
|
|
|
143,722
|
|
|
$
|
20.30
|
|
Restricted stock vested and
released
|
|
|
(8,067
|
)
|
|
$
|
20.38
|
|
Restricted stock forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at
June 29, 2007
|
|
|
135,655
|
|
|
$
|
20.30
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2007, there was $2.4 million of total
unrecognized compensation expense related to restricted stock
awards under our stock incentive plan. This expense is expected
to be recognized over a weighted-average period of
2.3 years.
Performance
Share Awards
The following information relates to awards of performance
shares that have been granted to employees on February 28,
2007 and June 12, 2007 under our stock incentive plan.
Vesting of performance share awards is subject to performance
criteria including meeting revenue and operating income targets
for a
29-month
plan period ending June 30, 2009 and continued employment
at the end of that period. The final determination of the number
of shares to be issued in respect of an award is determined by
our Board of Directors, or a committee of our Board.
The fair value of each performance share is based on the closing
price of our Class A stock on the date of grant and is
amortized to compensation expense over its vesting period, if
achievement of the performance measures is considered probable.
We estimate that the performance measures will be achieved and
recognized $0.4 million of expense during fiscal 2007.
A summary of the status of our performance shares at
June 29, 2007, and changes during fiscal 2007, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Performance shares outstanding at
July 1, 2006
|
|
|
|
|
|
$
|
|
|
Performance shares granted
|
|
|
150,800
|
|
|
$
|
20.15
|
|
Performance shares vested and
released
|
|
|
|
|
|
$
|
|
|
Performance shares forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Performance shares outstanding at
June 29, 2007
|
|
|
150,800
|
|
|
$
|
20.15
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2007, there was $2.6 million of total
unrecognized compensation expense related to performance share
awards under our stock incentive plan. This expense is expected
to be recognized over a weighted-average period of
2.0 years.
86
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Options Assumed
A summary of stock option activity for stock options assumed
from the Stratex acquisition on January 26, 2007 through
June 29, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
Vested stock options assumed at
January 26, 2007
|
|
|
2,392,703
|
|
|
$
|
24.33
|
|
|
|
|
|
|
|
|
|
Unvested stock options assumed at
January 26, 2007
|
|
|
915,063
|
|
|
$
|
17.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock options assumed at
January 26, 2007
|
|
|
3,307,766
|
|
|
$
|
22.32
|
|
|
|
|
|
|
|
|
|
Stock options forfeited or expired
|
|
|
(97,819
|
)
|
|
$
|
38.53
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
(305,431
|
)
|
|
$
|
9.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at
June 29, 2007
|
|
|
2,904,516
|
|
|
$
|
23.08
|
|
|
|
3.6
|
|
|
$
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at
June 29, 2007
|
|
|
2,441,996
|
|
|
$
|
24.27
|
|
|
|
3.2
|
|
|
$
|
7.9
|
|
Stock options vested and expected
to vest at June 29, 2007(1)
|
|
|
2,872,039
|
|
|
$
|
23.15
|
|
|
|
3.6
|
|
|
$
|
8.6
|
|
|
|
|
(1) |
|
The options expected to vest are the result of applying the
pre-vesting forfeiture rate assumptions to total outstanding
options. |
The weighted average remaining contractual term for the assumed
former Stratex stock options that were outstanding and were
exercisable as of June 29, 2007 was 3.6 years and
3.2 years, respectively. The aggregate intrinsic value for
stock options that were outstanding and were exercisable as of
June 29, 2007 was $8.6 million and $7.9 million,
respectively. The aggregate intrinsic value represents the total
pre-tax intrinsic value or the aggregate difference between the
closing price of our Class A common stock on June 29,
2007 of $17.98 and the exercise price for in-the-money options
that would have been received by the optionees if all options
had been exercised on June 29, 2007.
The total intrinsic value of options exercised during fiscal
2007 (the period from January 26, 2007, date of assumption,
through June 29, 2007) was $2.5 million at the
time of exercise.
As of June 29, 2007, there was $4.9 million of total
unrecognized compensation cost related to the assumed former
Stratex options. This cost is expected to be recognized over a
weighted-average period of 0.9 years.
87
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summary
of Harris Stratex Networks, Inc. Stock Options
The following summarizes all of the Harris Stratex Networks,
Inc. stock options outstanding at June 29, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Actual Range of
|
|
Number
|
|
|
Contractual Life
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
Exercise Prices
|
|
Outstanding
|
|
|
(years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$ 0.91 - $ 9.96
|
|
|
700,568
|
|
|
|
2.8
|
|
|
$
|
7.94
|
|
|
|
689,597
|
|
|
$
|
7.94
|
|
$10.40 - $ 17.96
|
|
|
1,200,093
|
|
|
|
4.8
|
|
|
$
|
16.62
|
|
|
|
770,013
|
|
|
$
|
16.78
|
|
$18.04 - $ 27.76
|
|
|
962,015
|
|
|
|
4.2
|
|
|
$
|
21.71
|
|
|
|
628,346
|
|
|
$
|
22.24
|
|
$28.12 - $148.00
|
|
|
354,040
|
|
|
|
2.2
|
|
|
$
|
76.11
|
|
|
|
354,040
|
|
|
$
|
76.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 0.91 - $148.00
|
|
|
3,216,716
|
|
|
|
3.9
|
|
|
$
|
22.79
|
|
|
|
2,441,996
|
|
|
$
|
24.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AWARDS TO
FORMER HARRIS EMPLOYEES PRIOR TO THE STRATEX
ACQUISITION
As mentioned above, some of our employees that were formerly
employed by MCD participate in Harris four
shareholder-approved stock incentive plans under which stock
options, restricted stock awards and performance share awards
are outstanding. Harris has not made any awards to former MCD
employees since the date of the Stratex acquisition, and does
not intend to make any further awards under its plans. The
following sets forth the status of those awards as they relate
to our financial statements.
Harris
Stock Options
The following information relates to stock options that have
been granted under Harris shareholder-approved stock
incentive plans. Option exercise prices are 100% of fair market
value on the date the options are granted. Options may be
exercised for a period set at the time of grant, which generally
ranges from 710 years after the date of grant, and
they generally become exercisable in installments, which are
typically 50% one year from the grant date, 25% two years from
the grant date and 25% three years from the grant date. A
significant number of options granted by us in fiscal 2006 are
subject to a vesting schedule in which they are 50% exercisable
prior to the end of such fiscal year, a period of approximately
10 months from the grant date.
Harris management prepared the valuation of stock options based
on the method and assumptions provided herewith. The fair value
of each option award is estimated on the date of grant using the
Black-Scholes-Merton option-pricing model which uses assumptions
noted in the following table. Expected volatility is based on
implied volatility from traded options on Harris stock,
historical volatility of Harris stock price over the last
10 years and other factors. The expected term of the
options is based on historical observations of Harris stock over
the past ten years, considering average years to exercise for
all options exercised, average years to cancellation for all
options cancelled and average years remaining for outstanding
options, which is calculated based on the weighted-average
vesting period plus the weighted-average of the difference
between the vesting period and average years to exercise and
cancellation. The risk-free rate for periods within the
contractual life of the option is based on the
U.S. Treasury curve in effect at the time of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected dividends
|
|
|
1.0
|
%
|
|
|
0.9
|
%
|
|
|
0.7
|
%
|
Expected volatility
|
|
|
35.8
|
%
|
|
|
36.1
|
%
|
|
|
35.2
|
%
|
Risk-free interest rates
|
|
|
4.8
|
%
|
|
|
4.1
|
%
|
|
|
3.0
|
%
|
Expected term (years)
|
|
|
3.42
|
|
|
|
3.35
|
|
|
|
4.00
|
|
88
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of stock option activity under Harris stock
incentive plans as they relate to our consolidated financial
statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Stock options outstanding at the
beginning of the year
|
|
|
393,884
|
|
|
$
|
22.12
|
|
Stock options forfeited or expired
|
|
|
(10,900
|
)
|
|
$
|
35.64
|
|
Stock options granted
|
|
|
82,116
|
|
|
$
|
43.82
|
|
Stock options exercised
|
|
|
(102,222
|
)
|
|
$
|
18.52
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at the
end of the year
|
|
|
362,878
|
|
|
$
|
27.57
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at the
end of the year
|
|
|
229,228
|
|
|
$
|
20.80
|
|
The weighted average remaining contractual term for stock
options that were outstanding and exercisable as of
June 29, 2007 was 5.2 years and 4.9 years. The
aggregate intrinsic value for stock options that were
outstanding or exercisable as of June 29, 2007 was
$9.8 million and $7.7 million. The aggregate intrinsic
value represents the total pre-tax intrinsic value or the
aggregate difference between the closing price of Harris common
stock on June 29, 2007 of $54.55 and the exercise price for
in-the-money options that would have been received by the
optionees if all options had been exercised on June 29,
2007.
The weighted-average grant-date fair value was $11.53 per share
for options granted during fiscal 2007. The total intrinsic
value of options exercised during fiscal 2007 was
$2.9 million at the time of exercise.
A summary of the status of Harris nonvested stock options
at June 29, 2007 as they relate to our consolidated
financial statements, and changes during fiscal 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Nonvested stock options at
July 1, 2006
|
|
|
115,444
|
|
|
$
|
7.68
|
|
Stock options granted
|
|
|
82,116
|
|
|
$
|
11.53
|
|
Stock options vested
|
|
|
(63,910
|
)
|
|
$
|
6.62
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock options at
June 29, 2007
|
|
|
133,650
|
|
|
$
|
10.55
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2007, there was $1.4 million of total
unrecognized compensation cost related to nonvested stock
options granted under Harris stock incentive plans. This
cost is expected to be recognized over a weighted-average period
of 1.7 years. The total fair value of stock options that
vested during fiscal 2007 was approximately $0.4 million.
Harris
Restricted Stock Awards
The following information relates to Harris awards of restricted
stock awards that have been granted to former MCD employees
under Harris stock incentive plans. The restricted stock
shares are not transferable until vested and the restrictions
lapse upon the achievement of continued employment over a
specified time period.
The fair value of each restricted stock award grant is based on
the closing price of Harris stock on the date of grant and is
amortized to expense over its vesting period. At June 29,
2007, there were 23,000 shares of restricted stock awards
outstanding.
89
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the status of Harris restricted stock at
June 29, 2007 as it relates to our consolidated financial
statements, and changes during fiscal 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Grant Price
|
|
|
Restricted stock outstanding at
July 1, 2006
|
|
|
40,000
|
|
|
$
|
21.13
|
|
Restricted stock granted
|
|
|
18,000
|
|
|
$
|
43.82
|
|
Restricted stock vested
|
|
|
(33,000
|
)
|
|
$
|
17.54
|
|
Restricted stock forfeited
|
|
|
(2,000
|
)
|
|
$
|
43.82
|
|
|
|
|
|
|
|
|
|
|
Restricted stock outstanding at
June 29, 2007
|
|
|
23,000
|
|
|
$
|
39.51
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2007, there was $0.6 million of total
unrecognized compensation cost related to restricted stock
awards under Harris stock incentive plans. This cost is
expected to be recognized over a weighted-average period of
2.1 years. There were 33,000 shares of restricted
stock that vested during fiscal 2007. The weighted-average grant
date price of the 18,000 shares of restricted stock granted
during fiscal 2007 was $43.82.
Harris
Performance Share Awards
The following information relates to Harris awards of
performance share awards and performance share units that have
been granted to former MCD employees under Harris stock
incentive plans. Generally, performance share and performance
share unit awards are subject to Harris performance
criteria such as meeting predetermined earnings and return on
invested capital targets for a three-year plan period. These
awards also generally vest at the expiration of the same
three-year period. The final determination of the number of
shares to be issued in respect of an award is determined by
Harris Board of Directors, or a committee of their Board.
The fair value of each performance share award is based on the
closing price of Harris stock on the date of grant and is
amortized to expense over its vesting period, if achievement of
the performance measures is considered probable. At
June 29, 2007 there were 44,489 performance shares awards
outstanding.
The fair value of performance share units, which is distributed
in cash, is equal to the most probable estimate of intrinsic
value at the time of distributions and is amortized to
compensation expense over the vesting period. At June 29,
2007, we had 3,900 shares of performance share units.
A summary of the status of Harris performance shares at
June 29, 2007 as it relates to our financial statements,
and changes during fiscal 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Shares
|
|
|
Grant Price
|
|
|
Performance shares outstanding at
July 1, 2006
|
|
|
52,300
|
|
|
$
|
26.06
|
|
Performance shares granted
|
|
|
28,200
|
|
|
$
|
43.82
|
|
Performance shares vested
|
|
|
(30,100
|
)
|
|
$
|
16.28
|
|
Performance shares forfeited
|
|
|
(2,011
|
)
|
|
$
|
41.77
|
|
|
|
|
|
|
|
|
|
|
Performance shares outstanding at
June 29, 2007
|
|
|
48,389
|
|
|
$
|
36.43
|
|
|
|
|
|
|
|
|
|
|
As of June 29, 2007, there was $0.9 million of total
unrecognized compensation cost related to performance share
awards under Harris stock incentive plans. This cost is
expected to be recognized over a weighted-average period of
2.6 years. There were 30,100 performance shares that vested
during fiscal 2007. The weighted-average grant date price of the
28,200 performance shares granted during fiscal 2007 was $43.82.
Other
Harris Share-Based Compensation
Prior to January 27, 2007, under Harris domestic
retirement plans, most MCD employees had an option to invest in
Harris common stock at 70% of current market value limited
to the lesser of (a) 1% of their compensation
90
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and (b) 20% of a participants total contribution to
the plan, which was matched by us. The discount from fair market
value on Harris common stock purchased by employees under the
domestic retirement plans is charged to compensation expense in
the period of the related purchase.
|
|
Note P
|
Business
Segments
|
Our operating segment information for fiscal 2007, 2006 and 2005
is presented in accordance with Statement 131. We are organized
into three operating segments around the markets we serve: North
America Microwave, International Microwave and Network
Operations. The North America Microwave segment designs,
manufactures, sells and services microwave radio products,
primarily for cellular network providers and private network
users within North America (U.S. and Canada). The
International Microwave segment designs, manufactures, sells and
services microwave radio products, primarily for cellular
network providers and private network users outside of North
America. The Network Operations segment develops, designs,
produces, sells and services network management software
systems, primarily for cellular network providers and private
network users. Our Chief Executive Officer has been identified
as our Chief Operating Decision-Maker (CODM) as defined by
Statement 131. Resources are allocated to each of these segments
using information based primarily on their operating income
(loss). Information related to assets, capital expenditures and
depreciation and amortization for the operating segments is not
part of the discrete financial information provided to and
reviewed by our CODM and it was not practical to provide this
information.
We evaluate each segments performance based on its revenue
and operating income (loss), which is defined as revenue less
cost of product sales and services, research and development
expenses, selling and administrative expenses, acquired
in-process research and development, amortization of
identifiable intangible assets and restructuring charges.
Revenue and income (loss) before income taxes by segment are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
North America Microwave
|
|
$
|
216.3
|
|
|
$
|
168.1
|
|
|
$
|
159.8
|
|
International Microwave
|
|
|
272.2
|
|
|
|
172.3
|
|
|
|
127.2
|
|
Network Operations
|
|
|
19.4
|
|
|
|
17.1
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
507.9
|
|
|
$
|
357.5
|
|
|
$
|
310.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
2007(1)
|
|
|
2006(2)
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Microwave
|
|
$
|
8.9
|
|
|
$
|
16.9
|
|
|
$
|
10.3
|
|
International Microwave
|
|
|
(27.9
|
)
|
|
|
(34.1
|
)
|
|
|
(11.9
|
)
|
Network Operations
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
4.4
|
|
Corporate allocations expense from
Harris
|
|
|
(3.7
|
)
|
|
|
(12.4
|
)
|
|
|
(6.2
|
)
|
Net interest expense
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(21.9
|
)
|
|
$
|
(29.0
|
)
|
|
$
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
During fiscal 2007, we recorded $15.3 million in acquired
in-process research and development expenses, $9.1 million
in amortization of developed technology, tradenames, customer
relationships, contract backlog and non-compete agreements,
$8.6 million in amortization of fair value adjustments for
inventory and fixed assets related to the acquisition of
Stratex, $4.2 million in restructuring charges and
$3.6 million in merger related integration charges to our
International Microwave segment. In addition, we recorded
$1.4 million in amortization of developed technology,
tradenames, customer relationships, contract backlog and
non-compete agreements, $0.4 million in amortization of
fair value adjustments for inventory and fixed assets related to
the |
91
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
acquisition of Stratex, $5.1 million in restructuring
charges and $2.7 million in merger-related integration
charges to our North America Microwave segment. |
|
(2) |
|
The operating loss in the International Microwave segment in
fiscal 2006 included $39.6 million in inventory write-downs
and other charges associated with decisions made in fiscal 2006
regarding product discontinuances and the shutdown of
manufacturing activities at our Montreal, Canada plant. |
Revenue by country comprising more than 5% of our sales from
unaffiliated customers for fiscal 2007, 2006, and 2005 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
% of Total
|
|
|
2006
|
|
|
% of Total
|
|
|
2005
|
|
|
% of Total
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
168.7
|
|
|
|
33.2
|
%
|
|
$
|
143.9
|
|
|
|
40.2
|
%
|
|
$
|
154.5
|
|
|
|
49.8
|
%
|
Canada
|
|
|
39.9
|
|
|
|
7.8
|
%
|
|
|
29.9
|
|
|
|
8.4
|
%
|
|
|
15.5
|
|
|
|
5.0
|
%
|
Nigeria
|
|
|
55.4
|
|
|
|
10.9
|
%
|
|
|
81.3
|
|
|
|
22.8
|
%
|
|
|
36.1
|
|
|
|
11.6
|
%
|
Other
|
|
|
243.9
|
|
|
|
48.1
|
%
|
|
|
102.4
|
|
|
|
28.6
|
%
|
|
|
104.3
|
|
|
|
33.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
507.9
|
|
|
|
100.0
|
%
|
|
$
|
357.5
|
|
|
|
100.0
|
%
|
|
$
|
310.4
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets consisted primarily of identifiable intangible
assets, goodwill and property, plant and equipment. Long-lived
assets by location at June 29, 2007 and June 30, 2006
are as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
222.1
|
|
|
$
|
51.2
|
|
Singapore
|
|
|
260.1
|
|
|
|
|
|
Canada
|
|
|
38.7
|
|
|
|
48.8
|
|
United Kingdom
|
|
|
13.7
|
|
|
|
|
|
Other countries
|
|
|
30.2
|
|
|
|
10.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
564.8
|
|
|
$
|
110.8
|
|
|
|
|
|
|
|
|
|
|
We account for income taxes under the asset and liability method
in accordance with Statement 109. Deferred tax assets and
liabilities are determined based on the estimated future tax
effects of temporary differences between the financial statement
and tax basis of assets and liabilities, as measured by tax
rates at which temporary differences are expected to reverse.
Deferred tax expense (benefit) is the result of changes in the
deferred tax assets and liabilities. A valuation allowance is
established to offset any deferred tax assets if, based upon the
available information, it is more likely than not that some or
all of the deferred tax assets will not be realized.
(Loss) income from continuing operations before provision for
income taxes for fiscal 2007, 2006 and 2005 is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
United States
|
|
$
|
(27.4
|
)
|
|
$
|
(7.6
|
)
|
|
$
|
(14.9
|
)
|
Foreign
|
|
|
5.5
|
|
|
|
(21.4
|
)
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(21.9
|
)
|
|
$
|
(29.0
|
)
|
|
$
|
(3.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Provision (benefit) for income taxes for fiscal 2007, 2006 and
2005 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current provision (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
6.9
|
|
|
|
1.1
|
|
|
|
0.3
|
|
State and local
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
6.9
|
|
|
|
1.1
|
|
|
|
0.3
|
|
Deferred benefit provision
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
State and local
|
|
|
(0.4
|
)
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred benefit
|
|
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income
taxes
|
|
$
|
(4.0
|
)
|
|
$
|
6.8
|
|
|
$
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the significant differences
between the U.S. Federal statutory tax rate and our
effective tax rate for fiscal 2007, 2006 and 2005 consisted of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory U.S. Federal tax rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
U.S. valuation allowances
|
|
|
11.4
|
|
|
|
35.0
|
|
|
|
35.0
|
|
State and local taxes, net of U.S.
Federal tax benefit
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
Foreign income taxed at rates less
than the U.S. statutory rate
|
|
|
5.4
|
|
|
|
23.4
|
|
|
|
8.6
|
|
Other
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
(18.3
|
)%
|
|
|
23.4
|
%
|
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred tax assets and liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Current
|
|
|
Non-Current
|
|
|
Current
|
|
|
Non-Current
|
|
|
|
(In millions)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
13.4
|
|
|
$
|
|
|
|
$
|
6.0
|
|
|
$
|
|
|
Accruals
|
|
|
2.4
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
Unrealized impairment loss
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves and accruals
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty reserve
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred costs
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
0.7
|
|
Amortization
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Other foreign
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International research and
development expense deferrals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.7
|
|
Stock options
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
Severance and restructuring costs
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.5
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
Capital loss carryforward
|
|
|
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
Tax credit carryforwards
|
|
|
|
|
|
|
20.8
|
|
|
|
|
|
|
|
17.3
|
|
Tax loss carryforwards
|
|
|
0.5
|
|
|
|
43.7
|
|
|
|
|
|
|
|
36.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
34.7
|
|
|
|
75.9
|
|
|
|
8.6
|
|
|
|
71.9
|
|
Valuation allowance
|
|
|
(30.6
|
)
|
|
|
(66.3
|
)
|
|
|
(8.6
|
)
|
|
|
(60.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
4.1
|
|
|
|
9.6
|
|
|
|
|
|
|
|
11.3
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased identifiable intangible
assets
|
|
|
|
|
|
|
36.9
|
|
|
|
|
|
|
|
|
|
Internally developed software
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
Commissions
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
|
|
|
|
40.6
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
$
|
4.1
|
|
|
$
|
(31.0
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States income taxes have not been provided on
$6.4 million of undistributed earnings of foreign
subsidiaries because of our intention to reinvest these earnings
indefinitely. The determination of unrecognized deferred
U.S. tax liability for foreign subsidiaries is not
practicable. Tax loss and credit carryforward as of
June 29, 2007 have expiration dates ranging between one
year and no expiration in certain instances. The amount of
U.S. tax loss carryforwards was $108.0 million and
credit carryforwards was $17.7 million as of June 29,
2007. The amount of foreign tax loss carryforwards was
$24.0 million. The utilization of a portion of the NOLs is
subject to an annual limitation under Section 382 of the
Internal Revenue Code due to a change of ownership. Income taxes
paid were $6.6 million in fiscal 2007.
The effective tax rate in the fiscal year ended June 29,
2007 was impacted unfavorably by a valuation allowance recorded
on certain deferred tax assets where it was determined it was
not more likely than not that the assets would be realized,
certain purchase accounting adjustments and foreign tax credits.
A deferred tax liability in the amount of $40.8 million has
been recognized in accordance with SFAS 109 for the
difference between the assigned values for purchase accounting
purposes and the tax bases of the assets and
94
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liabilities acquired as a result of the Stratex acquisition.
This resulted in a $40.8 million increase to goodwill. In
addition, we also recorded a valuation allowance under purchase
accounting on $94.0 million of acquired deferred tax assets
in the opening balance sheet. We have recorded the valuation
allowance because the we have determined it was not more likely
than not that the assets would be realized. Any realization of
theses deferred tax assets in the future will be reflected as a
reduction to goodwill.
We established our International Headquarters in Singapore and
have received a favorable tax ruling resulting from an
application filed by us with the Singapore Economic Development
Board (EDB) effective January 26, 2007. This favorable tax
ruling calls for a 10% effective tax rate to be applied over a
five year period provided certain milestones and objectives are
met. We are certain that we will meet all requirements as
outlined by EDB.
We have entered into a tax sharing agreement with Harris
Corporation effective on January 26, 2007, the date of the
merger. The tax sharing agreement addresses, among other things,
the settlement process associated with pre merger tax
liabilities and tax attributes that are attributable to the MCD
business when it was a division of Harris Corporation. There
were no settlement payments recorded in the fiscal year ended
June 29, 2007.
We are subject to income taxes in the U.S. and numerous
foreign jurisdictions. Significant judgment is required in
determining our worldwide provision for income taxes and
recording the related assets and liabilities. In the ordinary
course of our business, there are many transactions and
calculations where the ultimate tax determination is uncertain.
Accruals for tax contingencies are provided for in accordance
with the requirements of SFAS No. 5, Accounting for
Contingencies.
|
|
Note R
|
Related
Party Transactions with Harris
|
Prior to the Stratex acquisition, Harris provided information
services, human resources, financial shared services,
facilities, legal support and supply chain management services
to us. The charges for these services were billed to us
primarily based on actual usage.
These amounts were charged directly to us and were not part of
the corporate allocations expense in the consolidated statements
of operations for the periods presented in this report. The
amount charged to us for these services was $12.2 million,
$10.9 million and $10.3 million in fiscal years 2007,
2006 and 2005. These amounts are included in the cost of product
sales and services and engineering, selling and administrative
expenses captions in the consolidated statements of operations
for the periods presented in this report.
There are other services Harris provided to us prior to the
Stratex acquisition that were not directly charged to the
Company. These functions and amounts are explained above under
the subtitle Basis of Presentation. These amounts
are included within Due to Harris Corporation on the
consolidated balance sheets. Additionally, we have other
receivables and payables in the normal course of business with
Harris. These amounts are netted within Due to Harris
Corporation on the consolidated balance sheets. Total
receivables from Harris were $0.7 million and
$7.5 million at June 29, 2007 and June 30, 2006.
Total payables to Harris were $17.9 million and
$20.1 million at June 29, 2007 and June 30, 2006.
Harris was the primary source of our financing and equity
activities for the periods presented in this report through
January 26, 2007, the date of the Stratex acquisition.
During the seven months ended January 26, 2007,
Harriss net investment in us was increased by
$24.1 million. During the fiscal 2006, Harriss
provided $2.8 million to recapitalize one of our
subsidiaries and Harris net investment in us decreased by
$7.8 million. During the fiscal 2005, Harriss
provided $43.0 million to recapitalize some of our
subsidiaries and Harriss net investment in us decreased by
$13.3 million.
Additionally, through the date of the Stratex acquisition,
Harris loaned funds to us to fund our international entities and
we provided excess cash at various locations back to Harris.
This arrangement ended on January 26, 2007. We recognized
interest income and expense on these loans. The amount of
interest income and expense for each of the three fiscal years
in the period ended June 29, 2007 was not significant.
95
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have sales to, and purchases from, other Harris entities from
time to time. The entity initiating the transaction sells to the
other Harris entity at cost or transfer price, depending on
jurisdiction. The entity making the sale to the end customer
records the profit on the transaction above cost or transfer
price, depending on jurisdiction. Our sales to other Harris
entities were $1.9 million, $6.5 million and
$3.1 million in fiscal 2007, 2006 and 2005. We also
recognized costs associated with related party purchases from
Harris of $6.7 million, $12.7 million and
$8.0 million in fiscal 2007, 2006 and 2005.
On January 26, 2007, we entered into a new Transition
Services Agreement with Harris to provide for certain services
during the period subsequent to the Stratex acquisition. These
services are charged to us based primarily on actual usage and
include database management, supply chain operating systems,
eBusiness services, sales and service, financial systems, back
office material resource planning support, HR systems, internal
and information systems shared services support, network
management and help desk support, and server administration and
support. During the year ended June 29, 2007, Harris
charged us $3.7 million for these services.
Prior to January 26, 2007, MCD used certain assets in
Canada owned by Harris that were not contributed to us as part
of the Combination Agreement. We continue to use these assets in
our business and we entered into a 5-year lease agreement to
accommodate this use. This agreement is a capital lease under
generally accepted accounting principles. At June 29, 2007,
our lease obligation to Harris was $5.9 million and the
related asset amount is included in our property, plant and
equipment. Quarterly lease payments are due to Harris based on
the amount of 103% of Harris annual depreciation
calculated in accordance with U.S. generally accepted
accounting principles. Our depreciation expense on this capital
lease was $0.8 million in fiscal 2007. As of June 29,
2007, the future minimum payments for this lease are
$3.1 million for fiscal 2008, $1.0 million for fiscal
2009, $0.6 million for fiscal 2010, $0.4 million for
fiscal 2011, and $0.8 million for fiscal 2012.
|
|
Note S
|
Operating
Lease Commitments
|
We lease sales facilities, administrative facilities and
equipment under non-cancelable operating leases. These leases
have initial lease terms that extend through 2012, and have
additional renewal options through 2013.
Rental expense for operating leases, including rentals on a
month-to-month basis was $6.1 million in fiscal 2007,
$4.0 million in fiscal 2006, and $3.9 million in
fiscal 2005. As of June 29, 2007, the future minimum rental
commitments for all non-cancelable operating facility and
equipment leases with an initial lease term in excess of one
year were $6.7 million for fiscal 2008, $5.1 million
for fiscal 2009, $3.6 million for fiscal 2010,
$1.5 million for fiscal 2011, and $0.4 million for
fiscal 2012.
|
|
Note T
|
Derivative
Instruments and Hedging Activity
|
We use foreign exchange contracts to hedge both balance sheet
and off-balance sheet future foreign currency commitments.
Generally, these foreign exchange contracts offset foreign
currency denominated inventory and purchase commitments from
suppliers; accounts receivable from, and future committed sales
to, customers; and intercompany loans. We believe the use of
foreign currency financial instruments reduces the risks that
arise from doing business in international markets. At
June 29, 2007, we had open foreign exchange contracts with
a notional amount of $52.5 million, of which
$15.1 million were designated as Statement 133 hedges and
$37.4 million were not designated as Statement 133 hedges.
This compares to total foreign exchange contracts with a
notional amount of $19.4 million as of June 30, 2006,
all of which were designated as Statement 133 hedges. At
June 29, 2007, contract expiration dates range from less
than one month to three months with a weighted average contract
life of approximately one month.
We immediately recognize in earnings any portion of a
derivatives change in fair value which is assessed as
ineffective in accordance with the provisions of Statement 133.
Amounts included in our earnings in fiscal 2007, 2006 and 2005
representing hedge ineffectiveness was not material. In
addition, an immaterial amount was recognized in our earnings in
fiscal 2007, and no amounts were recognized in our earnings in
fiscal 2006 and 2005 related to the component of the derivative
instruments gain or loss excluded from the assessment of
hedge ineffectiveness. All of these derivatives were recorded at
their fair value on the balance sheet in accordance with
Statement 133.
96
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Note U
|
Legal
Proceedings
|
From time to time, as a normal incident of the nature and kind
of businesses in which we may be engaged, various claims or
charges are asserted and litigation commenced against us arising
from or related to: personal injury; patents, trademarks or
trade secrets; labor and employee disputes; commercial or
contractual disputes; breach of warranty; or environmental
matters. Claimed amounts may be substantial but may not bear any
reasonable relationship to the merits of the claim or the extent
of any real risk of court or arbitral awards. We would record
accruals for losses related to those matters that we consider to
be probable and that can be reasonably estimated. Gain
contingencies, if any, would be recognized when they are
realized and legal costs are generally expensed when incurred.
While it is not feasible to predict the outcome of any
particular matter with certainty, and some lawsuits, claims or
proceedings may be disposed or decided unfavorably to us, based
upon available information, management is not aware of any
settlements and final judgments, if any, that would have a
material adverse effect on our financial position, results of
operations or cash flows.
On February 8, 2007, a court order was entered against
Stratex do Brasil, a subsidiary of Harris Stratex Networks
Operating Company, in Brazil, to enforce performance of an
alleged agreement between the former Stratex Networks, Inc.
entity and a supplier. We have not determined what, if any,
liability this may result in, as the court did not award any
damages. We have appealed the decision to enforce the alleged
agreement, and do not expect this litigation to have a material
adverse effect on our business, operating results or financial
condition.
|
|
Note V
|
Quarterly
Financial Data (Unaudited)
|
The following financial information reflects all normal
recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results of the interim
periods. Summarized quarterly data for fiscal 2007 and 2006 are
as follows (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
1st Quarter
|
|
|
2nd Quarter
|
|
|
3rd Quarter
|
|
|
4th Quarter
|
|
|
|
(In millions)
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
93.6
|
|
|
$
|
101.2
|
|
|
$
|
139.0
|
|
|
$
|
174.1
|
|
Gross margin(1)
|
|
|
30.8
|
|
|
|
34.8
|
|
|
|
36.0
|
|
|
|
50.9
|
|
Income (loss) from operations
|
|
|
5.3
|
|
|
|
6.2
|
|
|
|
(22.7
|
)
|
|
|
(10.1
|
)
|
Net income (loss)
|
|
|
4.8
|
|
|
|
5.8
|
|
|
|
(23.2
|
)
|
|
|
(5.3
|
)
|
Basic and diluted net loss per
common share(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
(0.58
|
)
|
|
|
(0.09
|
)
|
Market price range common stock(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
21.25
|
|
|
$
|
20.07
|
|
Low
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
18.23
|
|
|
|
14.85
|
|
Quarter-end Close
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
19.19
|
|
|
|
17.98
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
84.7
|
|
|
$
|
88.7
|
|
|
$
|
73.6
|
|
|
$
|
110.5
|
|
Gross margin (deficit)(1)
|
|
|
26.8
|
|
|
|
(6.2
|
)
|
|
|
25.1
|
|
|
|
39.2
|
|
Income (loss) from operations
|
|
|
6.1
|
|
|
|
(31.7
|
)
|
|
|
(6.1
|
)
|
|
|
3.3
|
|
Net income (loss)
|
|
|
5.7
|
|
|
|
(37.4
|
)
|
|
|
(6.9
|
)
|
|
|
2.8
|
|
Basic and diluted net income
(loss) per common share(2)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
Gross margin is calculated by subtracting cost of sales from
revenue. |
|
(2) |
|
Earnings (loss) per share are computed independently for each of
the quarters presented. There were no shares outstanding prior
to January 26, 2007 so for periods prior the third quarter
of fiscal 2007, these amounts are N/A or Not Applicable.
Therefore, the sum of the quarterly net loss per share totals
will not equal the total for the year. |
|
(3) |
|
Our Class A common stock began trading on the NASDAQ Global
Market on January 30, 2007 under the symbol HSTX. |
97
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have not paid cash dividends on our Common Stock and do not
intend to pay cash dividends in the foreseeable future. At
June 29, 2007, we had approximately 230 stockholders of
record of our Class A common stock and one shareholder of
record of our Class B common stock.
98
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation of disclosure controls and
procedures: We maintain disclosure controls and
procedures that are designed to ensure that information required
to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. Our
disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange
Act is accumulated and communicated to management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosures. Management has conducted an evaluation, under the
supervision and with the participation of the Chief Executive
Officer, Chief Financial Officer and Senior Manager, Internal
Audit, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in
Rules 13a 15(e) and 15d 15(e) of
the Securities Exchange Act of 1934) as of June 29,
2007.
Conclusion of evaluation: Based on this
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as
of June 29, 2007 were effective.
Inherent Limitations on Effectiveness of
Controls: In designing and evaluating our
disclosure controls and procedures, management recognizes that
any controls, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance of achieving
the desired control objectives. Due to the inherent limitations
in all control systems, no evaluation of controls can provide
absolute assurance that misstatements due to error or fraud will
not occur or that all control issues and instances of fraud, if
any, within the Company have been detected.
Changes in internal control over financial
reporting: There were no changes in our internal
control over financial reporting during the fourth quarter of
fiscal 2007 that have materially affected, or are reasonably
likely to materially affect our internal control over financial
reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
Certain information required by Part III is omitted from
this Annual Report on
Form 10-K
because the Company will file a Definitive Proxy Statement with
the Securities and Exchange Commission within 120 days
after the end of our fiscal year ended June 29, 2007.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
The name, age, position held with us, and principal occupation
and employment during at least the past 5 years for each of
our executive officers as of August 24, 2007, are as
follows:
|
|
|
Name and Age
|
|
Position Currently Held and Past Business Experience
|
|
Guy M. Campbell, 60
|
|
Mr. Campbell was appointed
president and chief executive officer of our company in January
2007 when Harris MCD and Stratex Networks merged. Previously, he
served as president of the Microwave Communications Division of
Harris Corporation beginning in August 2003. In 2002,
Mr. Campbell joined Sarnoff Corporation as vice president,
Commercial Systems. Beginning in 1999, he held various positions
at Andrew Corporation, where he served as chief executive
officer and president from 2000 to 2001. For 25 years prior
to 1999, Mr. Campbell served in a number of senior
management roles at Ericsson Inc., a multi-billion dollar global
telecommunications company.
|
99
|
|
|
Name and Age
|
|
Position Currently Held and Past Business Experience
|
|
Sarah A. Dudash, 53
|
|
Ms. Dudash joined our company as
vice president and chief financial officer in January 2007 when
Harris MCD and Stratex Networks merged. In 2003, Ms. Dudash
became the division controller at the Microwave Communications
Division of Harris Corporation, where she served as
vice-president and controller, from September, 2006 until Harris
MCD and Stratex Networks merged. Previously, Ms. Dudash was
business unit controller for the Integrated Information
Communication Systems Business Unit of the Government
Communications Systems Division of Harris Corporation. Ms.
Dudash began her career with Deloitte Haskins & Sells.
|
Robert W. Kamenski, 52
|
|
Mr. Kamenski joined our company as
corporate controller in January 2007, when Harris MCD and
Stratex Networks merged. He served as corporate controller at
Stratex Networks from March 2006 until January 2007, when he
assumed his current position. Prior to joining Stratex Networks
he was vice president, Finance, for GoRemote Internet
Communications, Inc. from April 2004 to February 2006. At Iridex
Corporation Mr. Kamenski served as vice president of finance
from March 1997 to October 1997 and chief financial officer from
October 1997 to August 2003. Previously, Mr. Kamenski held
various management positions at Tandem Computers (now a division
of Hewlett Packard) and was an audit supervisor for Touche Ross
& Co. (now combined with Deloitte & Touche LLP).
|
Paul A. Kennard, 56
|
|
Mr. Kennard joined our company as
chief technology officer in January 2007 when Harris MCD and
Stratex Networks merged. In 1996 he joined Stratex Networks as
vice president, Engineering. From 1993 to 1996, he served as
senior vice president, Engineering, at California Microwave, and
previously served as Manager of Radio Signal Processing for Bell
Northern Research.
|
Stephen J. Gilmore, 52
|
|
Mr. Gilmore joined our company as
vice president, Human Resources, in January 2007 when Harris MCD
and Stratex Networks merged. In June 2005 he was appointed vice
president, Human Resources of Harris Corporations
Microwave Communications Division. Since October 1979, he has
held various positions of increasing responsibility with Harris
Corporation, including director of Human Resources and director
of Organization and Management Development.
|
100
|
|
|
Name and Age
|
|
Position Currently Held and Past Business Experience
|
|
Juan Otero, 43
|
|
Mr. Otero joined our company as
general counsel and secretary in January 2007 when Harris MCD
and Stratex Networks merged. Previously, he served as director
of Legal Affairs for Stratex Networks since July 2002. He was
promoted to general counsel in July of 2004 and to general
counsel and assistant secretary in February of 2005. Prior to
joining Stratex Networks, Mr. Otero was director and senior
counsel for Compaq Computer Corporation and the Hewlett-Packard
Company from March 2000 to June 2002, and corporate counsel for
Hitachi Data Systems from March 1998 to March 2000.
|
There is no family relationship between any of our executive
officers or directors, and there are no arrangements or
understandings between any of our executive officers or
directors and any other person pursuant to which any of them was
appointed or elected as an officer or director, other than
arrangements or understandings with our directors or officers
acting solely in their capacities as such. All of our executive
officers are elected annually and serve at the pleasure of our
Board of Directors.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item will appear in our Proxy
Statement. This portion of our Proxy Statement is incorporated
by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Equity
Compensation Plans
The following table provides information as of June 29,
2007, relating to our equity compensation plan pursuant to which
grants of options, restricted stock and performance shares may
be granted from time to time:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Number of Securities
|
|
|
|
Remaining Available for
|
|
|
to be Issued Upon
|
|
Weighted-Average
|
|
Future Issuance Under
|
|
|
Exercise of Outstanding
|
|
Exercise Price of
|
|
Equity Compensation
|
|
|
Options, Restricted Stock
|
|
Outstanding
|
|
Plans (Excluding Securities
|
Plan Category
|
|
and Performance Shares
|
|
Options
|
|
Reflected in First Column)
|
|
Equity compensation plan approved
by security holders
|
|
|
606,722
|
|
|
$
|
20.15
|
|
|
|
4,393,278
|
|
The other information required by this item will appear under
the headings Shares Owned by Management and Our Largest
Shareholders in our Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will appear under the
heading Certain Relationships and Related
Transactions and Corporate Governance in our
Proxy Statement and is incorporated by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information regarding our principal auditor fees and services
will appear under Proposal 2: Ratification of
Appointment of Independent Registered Public Accountants
in our Proxy Statement and is incorporated by reference.
101
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
The following documents are filed as a part of this Annual
Report on
Form 10-K:
|
|
|
|
|
|
|
Page
|
|
(1) List of Financial
Statements Filed as Part of this Annual Report on
Form 10-K
|
|
|
|
|
The following financial statements
and reports of Harris Stratex Networks, Inc. and its
consolidated subsidiaries are included in Part II,
Item 8. of this Annual Report on
Form 10-K
at the page numbers referenced below:
|
|
|
|
|
Report of Independent
Registered Public Accounting Firm
|
|
|
54
|
|
Consolidated Statement
of Operations Fiscal Years ended June 29, 2007;
June 30, 2006; and July 1, 2005
|
|
|
55
|
|
Consolidated Balance
Sheet June 29, 2007 and June 30, 2006
|
|
|
56
|
|
Consolidated Statement
of Cash Flows Fiscal Years ended June 29, 2007;
June 30, 2006; and July 1, 2005
|
|
|
57
|
|
Consolidated Statement
of Comprehensive Income and Shareholders
Equity Fiscal Years ended June 29, 2007;
June 30, 2006; and July 1, 2005
|
|
|
58
|
|
Notes to Consolidated
Financial Statements
|
|
|
59
|
|
(2) Financial Statement
Schedules:
|
|
|
|
|
For each of the Fiscal Years ended
June 29, 2007; June 30, 2006; and July 1, 2005
|
|
|
|
|
Schedule II
Valuation and Qualifying Accounts
|
|
|
107
|
|
All other schedules are omitted because they are not applicable,
the amounts are not significant, or the required information is
shown in the Consolidated Financial Statements or the Notes
thereto.
The following exhibits are filed herewith or are incorporated
herein by reference to exhibits previously filed with the SEC:
|
|
|
|
|
Ex. #
|
|
Description
|
|
|
2
|
.1
|
|
Amended and Restated Formation,
Contribution and Merger Agreement, dated as of December 18,
2006, among Harris Corporation, Stratex Networks, Inc., Harris
Stratex Networks, Inc. and Stratex Merger Corp. (incorporated by
reference to Appendix A to the proxy statement/prospectus
forming a part of the Registration Statement on
Form S-4
of Harris Stratex Networks, Inc. filed with the Securities and
Exchange Commission on January 3, 2007, File
No. 333-137980)
|
|
2
|
.1.1
|
|
Letter Agreement, dated as of
January 26, 2007, among Harris Corporation, Stratex
Networks, Inc., Harris Stratex Networks, Inc. and Stratex Merger
Corp. (incorporated by reference to Exhibit 2.1.1 to the
Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation of Harris Stratex Networks, Inc. as filed with
the Secretary of State of the State of Delaware on
January 26, 2007 (incorporated by reference to
Exhibit 3.1 to the Registration Statement on
Form 8-A
filed with the Securities and Exchange Commission on
January 26, 2007, File
No. 001-33278)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of
Harris Stratex Networks, Inc. (incorporated by reference to
Exhibit 3.2 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
August 20, 2007, File
No. 001-33278)
|
|
4
|
.1
|
|
Specimen common stock certificates
|
|
4
|
.2
|
|
Registration Rights Agreement
between Harris Stratex Networks, Inc. and Harris Corporation
dated January 26, 2007 (incorporated by reference to
Exhibit 10.3 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
102
|
|
|
|
|
Ex. #
|
|
Description
|
|
|
10
|
.1
|
|
Investor Agreement between Harris
Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.1 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.2
|
|
Non-Competition Agreement among
Harris Stratex Networks, Inc., Harris Corporation and Stratex
Networks, Inc. dated January 26, 2007 (incorporated by
reference to Exhibit 10.2 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.4
|
|
Intellectual Property Agreement
between Harris Stratex Networks, Inc. and Harris Corporation
dated January 26, 2007 (incorporated by reference to
Exhibit 10.4 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.5
|
|
Trademark and Trade Name License
Agreement between Harris Stratex Networks, Inc. and Harris
Corporation dated January 26, 2007 (incorporated by
reference to Exhibit 10.5 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.6
|
|
Lease Agreement between Harris
Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.6 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.7
|
|
Transition Services Agreement
between Harris Stratex Networks, Inc. and Harris Corporation
dated January 26, 2007 (incorporated by reference to
Exhibit 10.7 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.8
|
|
Warrant Assumption Agreement
between Harris Stratex Networks, Inc. and Stratex Networks, Inc.
dated January 26, 2007 (incorporated by reference to
Exhibit 10.8 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.9
|
|
NetBoss Service Agreement between
Harris Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.9 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.10
|
|
Lease Agreement between Harris
Stratex Networks Canada ULC and Harris Canada, Inc. dated
January 26, 2007 (incorporated by reference to
Exhibit 10.10 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.11
|
|
Tax Sharing Agreement between
Harris Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.11 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.13
|
|
Non-Competition Agreement, dated
January 26, 2007, among Harris Stratex Networks, Inc.,
Stratex Networks, Inc. and Charles D. Kissner (incorporated by
reference to Exhibit 10.13 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.14*
|
|
Employment Agreement, effective as
of January 26, 2007, between Harris Stratex Networks, Inc.
and Guy M. Campbell (incorporated by reference to
Exhibit 10.14 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.15*
|
|
Employment Agreement, dated as of
May 18, 2006, by and between Stratex Networks, Inc. and
Thomas H. Waechter (incorporated by reference to
Exhibit 10.15 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.15.1*
|
|
First Amendment, effective as of
September 1, 2006, to Employment Agreement, dated as of
May 18, 2006, by and between Stratex Networks, Inc. and
Thomas H. Waechter (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on
Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
September 30, 2006, File
No. 000-15895)
|
|
10
|
.16*
|
|
Employment Agreement dated as of
January 26, 2007 between Harris Stratex Networks, Inc. and
Sarah A. Dudash (incorporated by reference to
Exhibit 10.15.1 to the Quarterly Report on
Form 10-Q
for the Fiscal Quarter Ended March 30, 2007, File
No. 001-33278)
|
|
10
|
.17*
|
|
Employment Agreement dated as of
April 1, 2006 between Harris Stratex Networks, Inc. and
Heinz Stumpe (incorporated by reference to
Exhibit 10.15.2 to the Quarterly Report on
Form 10-Q
for the Fiscal Quarter Ended March 30, 2007, File
No. 001-33278)
|
|
10
|
.18*
|
|
Form of Employment Agreement,
dated as of May 14, 2002, by and between the Stratex
Networks, Inc. and Paul Kennard (incorporated by reference to
Exhibit 10.11 to the Annual Report on
Form 10-K
of Stratex Networks, Inc. for the Fiscal Year Ended
March 31, 2003, File
No. 000-15895)
|
103
|
|
|
|
|
Ex. #
|
|
Description
|
|
|
10
|
.18.1*
|
|
Amendment A, effective as of
April 1, 2006, to Employment Agreement, dated May 14,
2002, by and between Stratex Networks, Inc. and Paul Kennard
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on
Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File
No. 000-15895)
|
|
10
|
.18.2*
|
|
Amendment B, effective as of
April 1, 2006, to Employment Agreement, dated May 14,
2002, by and between Stratex Networks, Inc. and Paul Kennard
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on
Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File
No. 000-15895)
|
|
10
|
.19*
|
|
Restated Employment Agreement,
dated as of May 14, 2002, by and between Stratex Networks,
Inc. and Charles D. Kissner (incorporated by reference to
Exhibit 10.7 to the Annual Report on
Form 10-K
of Stratex Networks, Inc. for the Fiscal Year Ended
March 31, 2003, File
No. 000-15895)
|
|
10
|
.19.1*
|
|
Amendment to Employment Agreement,
effective as of May 2, 2005, by and between Stratex
Networks, Inc. and Charles D. Kissner (incorporated by reference
to Exhibit 10.27 to Amendment No. 2 to the
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
December 18, 2006, File
No. 333-137980)
|
|
10
|
.19.2*
|
|
Amendment to Employment Agreement,
Amendment(B), effective as of April 1, 2006, by and between
Stratex Networks, Inc. and Charles D. Kissner (incorporated by
reference to Exhibit 10.28 to Amendment No. 2 to the
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
December 18, 2006, File
No. 333-137980)
|
|
10
|
.19.3*
|
|
Third Amendment to Employment
Agreement, dated as of December 15, 2006, by and between
Stratex Networks, Inc. and Charles D. Kissner (incorporated by
reference to Exhibit 10.29 to Amendment No. 2 to the
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
December 18, 2006, File
No. 333-137980)
|
|
10
|
.20*
|
|
Standard Form of Executive
Employment Agreement between Harris Stratex Networks, Inc. and
certain executives (incorporated by reference to
Exhibit 10.16 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.21
|
|
Form of Indemnification Agreement
between Harris Stratex Networks, Inc. and its directors and
certain officers (incorporated by reference to
Exhibit 10.16 to the Registration Statement on
Form S-1
of Stratex Networks, Inc., File
No. 33-13431)
|
|
10
|
.22
|
|
Sublicense Agreement, effective as
of January 26, 2007, between Harris Stratex Networks, Inc.
and Harris Stratex Networks Operating Corporation
|
|
10
|
.23*
|
|
Harris Stratex Networks, Inc. 2008
Annual Incentive Plan
|
|
10
|
.24
|
|
Harris Stratex Networks, Inc. 2007
Stock Equity Plan (incorporated by reference to Exhibit 4.9
to the Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
|
|
10
|
.25
|
|
Stratex Networks, Inc. 2002 Stock
Incentive Plan (incorporated by reference to Exhibit 4.8 to
the Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
|
|
10
|
.26
|
|
Stratex Networks, Inc. (formerly
DMC Stratex Networks, Inc.) 1999 Stock Incentive Plan
(incorporated by reference to Exhibit 4.7 to the
Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
|
|
10
|
.27*
|
|
Stratex Networks, Inc. (formerly
Digital Microwave Corporation) 1994 Stock Incentive Plan
(incorporated by reference to Exhibit 4.4 to the
Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
|
|
10
|
.28
|
|
Amended and Restated Loan and
Security Agreement between Stratex Networks, Inc. and Silicon
Valley Bank, dated January 21, 2004 (incorporated by
reference to Exhibit 10.1 to the Report on
Form 8-K
of Stratex Networks, Inc. on January 22, 2004, File
No. 000-15895)
|
|
10
|
.28.1
|
|
Amendment No. 1 to the
Restated Loan and Security Agreement between Stratex Networks,
Inc. and Silicon Valley Bank, dated May 04, 2005
(incorporated by reference to Exhibit 4.7 to the Annual
Report on
Form 10-K
of Stratex Networks, Inc. on June 14, 2005, File
No. 000-15895)
|
104
|
|
|
|
|
Ex. #
|
|
Description
|
|
|
10
|
.28.2
|
|
Amendment No. 2 to Amended
and Restated Loan and Security Agreement between Stratex
Networks, Inc. and Silicon Valley Bank, dated August 15,
2005 (incorporated by reference to Exhibit 4.1 to the
Quarterly Report on
Form 10-Q
of Stratex Networks, Inc. on November 9, 2005, File
No. 000-15895)
|
|
10
|
.28.3
|
|
Amendment No. 3 to Amended
and Restated Loan and Security Agreement between Stratex
Networks, Inc. and Silicon Valley Bank, dated December 28,
2005 (incorporated by reference to Exhibit 4.1 the
Quarterly Report on
Form 10-Q
of Stratex Networks, Inc. on February 9, 2006, File
No. 000-15895)
|
|
10
|
.28.4
|
|
Amendment No. 4 to Amended
and Restated Loan and Security Agreement between Stratex
Networks, Inc. and Silicon Valley Bank, dated February 27,
2006 (incorporated by reference to Exhibit 4.10 to the
Annual Report on
Form 10-K
of Stratex Networks, Inc. on June 14, 2006, File
No. 000-15895)
|
|
10
|
.28.5
|
|
Amendment No. 5 to Amended
and Restated Loan and Security Agreement between Harris Stratex
Networks Operating Corporation, a wholly owned subsidiary of
Harris Stratex Networks, Inc. and the successor to Stratex
Networks, Inc. and Silicon Valley Bank, dated February 23,
2007.
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21
|
|
|
List of Subsidiaries of Harris
Stratex Networks, Inc.
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23
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|
|
Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm
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31
|
.1
|
|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer.
|
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31
|
.2
|
|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer.
|
|
32
|
.1
|
|
Section 1350 Certification of
Chief Executive Officer.
|
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32
|
.2
|
|
Section 1350 Certification of
Chief Financial Officer.
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* |
|
Management compensatory plan |
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|
Confidential Treatment Requested |
105
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
HARRIS STRATEX NETWORKS, INC.
(Registrant)
Guy M. Campbell
President and Chief Executive Officer
Date: August 24, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
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Signature
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Title
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Date
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|
/s/ Guy
M. Campbell
Guy
M. Campbell
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President, Chief Executive Officer
and Director (Principal Executive Officer)
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August 24, 2007
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/s/ Sarah
A. Dudash
Sarah
A. Dudash
|
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Vice President and Chief Financial
Officer (Principal Financial Officer)
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August 24, 2007
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/s/ Robert
W. Kamenski
Robert
W. Kamenski
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Corporate Controller
(Principal Accounting Officer)
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August 24, 2007
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/s/ Charles
D. Kissner
Charles
D. Kissner
|
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Chairman of the Board
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August 24, 2007
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/s/ Eric
C. Evans
Eric
C. Evans
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Director
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August 24, 2007
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/s/ William
A. Hasler
William
A. Hasler
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Director
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August 24, 2007
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/s/ Clifford
H. Higgerson
Clifford
H. Higgerson
|
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Director
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|
August 24, 2007
|
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/s/ Howard
L. Lance
Howard
L. Lance
|
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Director
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|
August 24, 2007
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|
/s/ Dr. Mohsen
Sohi
Dr. Mohsen
Sohi
|
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Director
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|
August 24, 2007
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|
/s/ James
C. Stoffel
James
C. Stoffel
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|
Director
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|
August 24, 2007
|
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/s/ Edward
F. Thompson
Edward
F. Thompson
|
|
Director
|
|
August 24, 2007
|
106
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
HARRIS STRATEX NETWORKS, INC. AND SUBSIDIARIES
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Col. A
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Col. B
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Col. C
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Col. D
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Col. E
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Additions
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(1)
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(2)
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Balance at
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Charged to
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Charged to
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(Additions)
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Balance at
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Beginning
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Costs and
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Other Accounts
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Deductions
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End of
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Description
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of Period
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Expenses
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Describe
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Describe
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Period
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(In millions)
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Year ended June 29, 2007:
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$
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(0.2
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)(A)
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Amounts Deducted From
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(0.8
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)(D)
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Respective Asset Accounts:
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2.1
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(B)
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Allowances for collection losses
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$
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8.1
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$
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1.5
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$
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$
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1.1
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$
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8.5
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Allowances for inventory valuation
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$
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18.2
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$
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3.2
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$
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$
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7.2
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(C)
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$
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14.2
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|
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Allowances for deferred tax assets
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$
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69.2
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$
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2.6
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$
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25.1
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|
$
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$
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96.9
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Year ended June 30, 2006:
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|
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Amounts Deducted From Respective
Asset Accounts:
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|
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$
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(0.3
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)(A)
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3.7
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(B)
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|
|
|
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|
|
|
|
|
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|
|
Allowances for collection losses
|
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$
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7.3
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|
|
$
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4.2
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|
|
$
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|
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$
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3.4
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|
|
$
|
8.1
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$
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(0.5
|
)(A)
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53.7
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(C)
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|
|
Allowances for inventory valuation
|
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$
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32.9
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|
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$
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38.5
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$
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$
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53.2
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|
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$
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18.2
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|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$
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50.4
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|
|
$
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18.8
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|
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$
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|
$
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|
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$
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69.2
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|
|
|
|
|
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|
|
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|
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Year ended July 1, 2005:
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Amounts Deducted From Respective
Asset Accounts:
|
|
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|
|
|
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$
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(0.5
|
)(A)
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0.5
|
(B)
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|
|
|
|
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|
|
Allowances for collection losses
|
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$
|
6.3
|
|
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$
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1.0
|
|
|
$
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|
|
$
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$
|
7.3
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|
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$
|
1.9
|
(A)
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(2.1
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)(C)
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|
|
|
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|
|
Allowances for inventory valuation
|
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$
|
33.8
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|
|
$
|
(1.1
|
)
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
32.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances for deferred tax assets
|
|
$
|
35.9
|
|
|
$
|
14.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
50.4
|
|
|
|
|
|
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|
|
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|
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|
Note A Foreign currency translation gains and
losses.
Note B Uncollectible accounts charged off, less
recoveries on accounts previously charged off.
Note C Obsolescence and excess inventory
charged off.
Note D Acquisition from Stratex Networks, Inc.
Note E Deferred tax asset recorded as an
adjustment to goodwill under purchase accounting.
107
EXHIBIT
INDEX
The following exhibits are filed herewith or are incorporated
herein by reference to exhibits previously filed with the SEC:
|
|
|
|
|
Ex. #
|
|
Description
|
|
|
2
|
.1
|
|
Amended and Restated Formation,
Contribution and Merger Agreement, dated as of December 18,
2006, among Harris Corporation, Stratex Networks, Inc., Harris
Stratex Networks, Inc. and Stratex Merger Corp. (incorporated by
reference to Appendix A to the proxy statement/prospectus
forming a part of the Registration Statement on
Form S-4
of Harris Stratex Networks, Inc. filed with the Securities and
Exchange Commission on January 3, 2007, File
No. 333-137980)
|
|
2
|
.1.1
|
|
Letter Agreement, dated as of
January 26, 2007, among Harris Corporation, Stratex
Networks, Inc., Harris Stratex Networks, Inc. and Stratex Merger
Corp. (incorporated by reference to Exhibit 2.1.1 to the
Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
3
|
.1
|
|
Amended and Restated Certificate
of Incorporation of Harris Stratex Networks, Inc. as filed with
the Secretary of State of the State of Delaware on
January 26, 2007 (incorporated by reference to
Exhibit 3.1 to the Registration Statement on
Form 8-A
filed with the Securities and Exchange Commission on
January 26, 2007, File
No. 001-33278)
|
|
3
|
.2
|
|
Amended and Restated Bylaws of
Harris Stratex Networks, Inc. (incorporated by reference to
Exhibit 3.2 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
August 20, 2007, File
No. 001-33278)
|
|
4
|
.1
|
|
Specimen common stock certificates
|
|
4
|
.2
|
|
Registration Rights Agreement
between Harris Stratex Networks, Inc. and Harris Corporation
dated January 26, 2007 (incorporated by reference to
Exhibit 10.3 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.1
|
|
Investor Agreement between Harris
Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.1 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.2
|
|
Non-Competition Agreement among
Harris Stratex Networks, Inc., Harris Corporation and
Stratex Networks, Inc. dated January 26, 2007
(incorporated by reference to Exhibit 10.2 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.4
|
|
Intellectual Property Agreement
between Harris Stratex Networks, Inc. and Harris Corporation
dated January 26, 2007 (incorporated by reference to
Exhibit 10.4 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.5
|
|
Trademark and Trade Name License
Agreement between Harris Stratex Networks, Inc. and
Harris Corporation dated January 26, 2007
(incorporated by reference to Exhibit 10.5 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.6
|
|
Lease Agreement between Harris
Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.6 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.7
|
|
Transition Services Agreement
between Harris Stratex Networks, Inc. and Harris Corporation
dated January 26, 2007 (incorporated by reference to
Exhibit 10.7 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.8
|
|
Warrant Assumption Agreement
between Harris Stratex Networks, Inc. and Stratex Networks, Inc.
dated January 26, 2007 (incorporated by reference to
Exhibit 10.8 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.9
|
|
NetBoss Service Agreement between
Harris Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.9 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.10
|
|
Lease Agreement between Harris
Stratex Networks Canada ULC and Harris Canada, Inc. dated
January 26, 2007 (incorporated by reference to
Exhibit 10.10 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
|
|
|
|
Ex. #
|
|
Description
|
|
|
10
|
.11
|
|
Tax Sharing Agreement between
Harris Stratex Networks, Inc. and Harris Corporation dated
January 26, 2007 (incorporated by reference to
Exhibit 10.11 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.13
|
|
Non-Competition Agreement, dated
January 26, 2007, among Harris Stratex Networks, Inc.,
Stratex Networks, Inc. and Charles D. Kissner (incorporated
by reference to Exhibit 10.13 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.14*
|
|
Employment Agreement, effective as
of January 26, 2007, between Harris Stratex Networks, Inc.
and Guy M. Campbell (incorporated by reference to
Exhibit 10.14 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.15*
|
|
Employment Agreement, dated as of
May 18, 2006, by and between Stratex Networks, Inc. and
Thomas H. Waechter (incorporated by reference to
Exhibit 10.15 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
|
|
10
|
.15.1*
|
|
First Amendment, effective as of
September 1, 2006, to Employment Agreement, dated as of
May 18, 2006, by and between Stratex Networks, Inc. and
Thomas H. Waechter (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on
Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
September 30, 2006, File
No. 000-15895)
|
|
10
|
.16*
|
|
Employment Agreement dated as of
January 26, 2007 between Harris Stratex Networks, Inc. and
Sarah A. Dudash (incorporated by reference to
Exhibit 10.15.1 to the Quarterly Report on
Form 10-Q
for the Fiscal Quarter Ended March 30, 2007, File
No. 001-33278)
|
|
10
|
.17*
|
|
Employment Agreement dated as of
April 1, 2006 between Harris Stratex Networks, Inc. and
Heinz Stumpe (incorporated by reference to
Exhibit 10.15.2 to the Quarterly Report on
Form 10-Q
for the Fiscal Quarter Ended March 30, 2007, File
No. 001-33278)
|
|
10
|
.18*
|
|
Form of Employment Agreement,
dated as of May 14, 2002, by and between the Stratex
Networks, Inc. and Paul Kennard (incorporated by reference to
Exhibit 10.11 to the Annual Report on
Form 10-K
of Stratex Networks, Inc. for the Fiscal Year Ended
March 31, 2003, File
No. 000-15895)
|
|
10
|
.18.1*
|
|
Amendment A, effective as of
April 1, 2006, to Employment Agreement, dated May 14,
2002, by and between Stratex Networks, Inc. and Paul Kennard
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on
Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File
No. 000-15895)
|
|
10
|
.18.2*
|
|
Amendment B, effective as of
April 1, 2006, to Employment Agreement, dated May 14,
2002, by and between Stratex Networks, Inc. and Paul Kennard
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on
Form 10-Q
of Stratex Networks, Inc. for the Fiscal Quarter Ended
June 30, 2006, File
No. 000-15895)
|
|
10
|
.19*
|
|
Restated Employment Agreement,
dated as of May 14, 2002, by and between Stratex Networks,
Inc. and Charles D. Kissner (incorporated by reference to
Exhibit 10.7 to the Annual Report on
Form 10-K
of Stratex Networks, Inc. for the Fiscal Year Ended
March 31, 2003, File
No. 000-15895)
|
|
10
|
.19.1*
|
|
Amendment to Employment Agreement,
effective as of May 2, 2005, by and between Stratex
Networks, Inc. and Charles D. Kissner (incorporated by
reference to Exhibit 10.27 to Amendment No. 2 to the
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
December 18, 2006, File
No. 333-137980)
|
|
10
|
.19.2*
|
|
Amendment to Employment Agreement,
Amendment(B), effective as of April 1, 2006, by and between
Stratex Networks, Inc. and Charles D. Kissner (incorporated by
reference to Exhibit 10.28 to Amendment No. 2 to the
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
December 18, 2006, File
No. 333-137980)
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10
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.19.3*
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Third Amendment to Employment
Agreement, dated as of December 15, 2006, by and between
Stratex Networks, Inc. and Charles D. Kissner (incorporated by
reference to Exhibit 10.29 to Amendment No. 2 to the
Registration Statement on
Form S-4
filed with the Securities and Exchange Commission on
December 18, 2006, File
No. 333-137980)
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10
|
.20*
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Standard Form of Executive
Employment Agreement between Harris Stratex Networks, Inc. and
certain executives (incorporated by reference to
Exhibit 10.16 to the Report on
Form 8-K
filed with the Securities and Exchange Commission on
February 1, 2007, File
No. 001-33278)
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Ex. #
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Description
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10
|
.21
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Form of Indemnification Agreement
between Harris Stratex Networks, Inc. and its directors and
certain officers (incorporated by reference to
Exhibit 10.16 to the Registration Statement on
Form S-1
of Stratex Networks, Inc., File
No. 33-13431)
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10
|
.22
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Sublicense Agreement, effective as
of January 26, 2007, between Harris Stratex Networks, Inc.
and Harris Stratex Networks Operating Corporation
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10
|
.23*
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Harris Stratex Networks, Inc. 2008
Annual Incentive Plan
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10
|
.24
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|
Harris Stratex Networks, Inc. 2007
Stock Equity Plan (incorporated by reference to Exhibit 4.9
to the Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
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10
|
.25
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|
Stratex Networks, Inc. 2002 Stock
Incentive Plan (incorporated by reference to Exhibit 4.8 to
the Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
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10
|
.26
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|
Stratex Networks, Inc. (formerly
DMC Stratex Networks, Inc.) 1999 Stock Incentive Plan
(incorporated by reference to Exhibit 4.7 to the
Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
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|
10
|
.27*
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|
Stratex Networks, Inc. (formerly
Digital Microwave Corporation) 1994 Stock Incentive Plan
(incorporated by reference to Exhibit 4.4 to the
Registration Statement on
Form S-8
filed with the Securities and Exchange Commission on
February 5, 2007, File
No. 333-140442)
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|
10
|
.28
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|
Amended and Restated Loan and
Security Agreement between Stratex Networks, Inc. and Silicon
Valley Bank, dated January 21, 2004 (incorporated by
reference to Exhibit 10.1 to the Report on
Form 8-K
of Stratex Networks, Inc. on January 22, 2004, File
No. 000-15895)
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10
|
.28.1
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|
Amendment No. 1 to the
Restated Loan and Security Agreement between Stratex Networks,
Inc. and Silicon Valley Bank, dated May 04, 2005
(incorporated by reference to Exhibit 4.7 to the Annual
Report on
Form 10-K
of Stratex Networks, Inc. on June 14, 2005, File
No. 000-15895)
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|
10
|
.28.2
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|
Amendment No. 2 to Amended
and Restated Loan and Security Agreement between Stratex
Networks, Inc. and Silicon Valley Bank, dated August 15,
2005 (incorporated by reference to Exhibit 4.1 to the
Quarterly Report on
Form 10-Q
of Stratex Networks, Inc. on November 9, 2005, File
No. 000-15895)
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10
|
.28.3
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Amendment No. 3 to Amended
and Restated Loan and Security Agreement between Stratex
Networks, Inc. and Silicon Valley Bank, dated December 28,
2005 (incorporated by reference to Exhibit 4.1 the
Quarterly Report on
Form 10-Q
of Stratex Networks, Inc. on February 9, 2006, File
No. 000-15895)
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10
|
.28.4
|
|
Amendment No. 4 to Amended
and Restated Loan and Security Agreement between Stratex
Networks, Inc. and Silicon Valley Bank, dated February 27,
2006 (incorporated by reference to Exhibit 4.10 to the
Annual Report on
Form 10-K
of Stratex Networks, Inc. on June 14, 2006, File
No. 000-15895)
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10
|
.28.5
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Amendment No. 5 to Amended
and Restated Loan and Security Agreement between Harris Stratex
Networks Operating Corporation, a wholly owned subsidiary of
Harris Stratex Networks, Inc. and the successor to Stratex
Networks, Inc. and Silicon Valley Bank, dated February 23,
2007.
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21
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List of Subsidiaries of Harris
Stratex Networks, Inc.
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23
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Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm
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31
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.1
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Rule 13a-14(a)/15d-14(a)
Certification of Chief Executive Officer.
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31
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.2
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|
Rule 13a-14(a)/15d-14(a)
Certification of Chief Financial Officer.
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32
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.1
|
|
Section 1350 Certification of
Chief Executive Officer.
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32
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.2
|
|
Section 1350 Certification of
Chief Financial Officer.
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* |
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Management compensatory plan |
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Confidential Treatment Requested |
exv4w1
exv10w22
Exhibit 10.22
SUBLICENSE AGREEMENT
This Sublicense Agreement (this Agreement) is made by and between Harris Stratex
Networks, Inc., a Delaware corporation (Sublicensor or Harris Stratex), and Harris Stratex
Networks Operating Corporation, a Delaware corporation (Sublicensee or the Company). This
Agreement is intended to have economic effect as of January 26, 2007 as set forth in Section 4.11
of this Agreement.
RECITALS
WHEREAS, in connection with the combination of the Microwave Communications Division of Harris
Corporation, a Delaware corporation (Harris), with the Company, Harris, Harris Stratex, the
Company, and Stratex Merger Corp., a Delaware corporation and wholly owned subsidiary of Harris
Stratex, entered into an Amended and Restated Formation, Contribution and Merger Agreement, dated
as of December 18, 2006, as amended by that certain letter agreement, dated January 26, 2007 (as so
amended, the Formation Agreement), among the parties thereto, pursuant to which Harris Stratex
was formed to acquire the Company pursuant to the Merger (as defined in the Formation Agreement)
and Harris Stratex received the Contributed Assets (as defined in the Formation Agreement) from
Harris in the Contribution Transaction (as defined in the Formation Agreement), in each case on the
terms and subject to the conditions set forth in the Formation Agreement; and
WHEREAS, pursuant to the Formation Agreement, Harris and Harris Stratex entered into an
Intellectual Property Agreement (the Harris IP Agreement) effective simultaneously with the
filing of the merger certificate provided for in the Formation Agreement with the Delaware
Secretary of State (the Effective Time), under which Harris licensed certain intellectual
property and intellectual property rights to Harris Stratex (the Harris-Licensed IP Rights); and
WHEREAS, Sublicensor is a non-exclusive licensee of the Harris-Licensed IP Rights and has the
right to grant certain non-exclusive sublicenses thereunder; and
WHEREAS, Sublicensee desires to obtain from Sublicensor, and Sublicensor desires to grant to
Sublicensee, certain non-exclusive sublicense rights under the Harris-Licensed IP Rights as
provided in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants in this Agreement
the parties agree as follows:
ARTICLE 1
GENERAL DEFINITIONS
1.1 Affiliate. The term Affiliate shall have the meaning assigned to such term by
Rule 405 under the Securities Act; provided, however, that neither the Company nor any of its
Subsidiaries shall be deemed to be an Affiliate of Harris Stratex or any of its other Subsidiaries,
nor shall Harris Stratex or any of its Subsidiaries be deemed to be an Affiliate of Harris.
1.2 Subsidiary. The term Subsidiary shall have the meaning assigned to such term
by Section 1.1 of the Formation Agreement.
ARTICLE 2
GRANT, ETC.
2.1 Sublicense Grant. Subject to the terms and conditions of this Agreement,
Sublicensor hereby grants to Sublicensee and its Affiliates a non-exclusive sublicense to use the
Harris-Licensed IP Rights subject to the terms and conditions set forth in the Harris IP Agreement
which are applicable to the Harris-Licensed IP Rights which arise under the laws of the United
States or any political subdivision thereof (the Harris Stratex-Licensed IP Rights).
2.2. Subject to Harris IP Agreement. This Agreement is subject to each and every
term, condition and covenant contained in the Harris IP Agreement. Except as to provisions which
are specifically superseded or modified by this Agreement, each and every definition, term,
condition and covenant contained in the Harris IP Agreement is incorporated by reference into this
Agreement as if fully set forth herein. Sublicensee hereby assumes and agrees to perform each and
every term, condition and covenant relating to the Harris Stratex-Licensed IP Rights which is an
obligation of the licensee under the Harris IP Agreement and Sublicensor shall have each of the
rights and remedies of the licensor under the Harris IP Agreement except as otherwise expressly
provided herein. To the extent there is any conflict between the terms and provisions of the
Harris IP Agreement and this Agreement, the terms and provisions of this Agreement shall control.
ARTICLE 3
TERMINATION
This Agreement including the sublicense grant contained in Article 2 herein shall continue
until the earlier of (i) the expiration of the Harris IP Agreement or (ii) the Company is no longer
a Subsidiary of Harris Stratex.
ARTICLE 4
GENERAL PROVISIONS
4.1 Assignment; Binding Effect, Etc. This Agreement shall be binding upon and inure
to the benefit of Sublicensor and Sublicensee and their respective permitted successors
and permitted assigns. Subject to the following, the rights and sublicense of Sublicensee
under this Agreement are personal to Sublicensee. Any assignment or transfer by Sublicensee of any
of its rights or the sublicense granted under this Agreement shall require the prior written
consent of Sublicensor. Any permitted assignment of this Agreement by either party shall not
relieve or release such party from any of its duties or obligations under this Agreement. Each and
every permitted successor and permitted assign to the interests of either party to this Agreement
shall hold such interests subject to the terms, conditions and provisions of this Agreement.
4.2 Entire Agreement. This Agreement constitutes the entire agreement between the
parties relating to the subject matter hereof and thereof and any and all prior arrangements,
representations, promises, understandings and conditions in connection with said matters and any
representations, promises or conditions not expressly incorporated herein or therein or expressly
made a part hereof or thereof, except for those terms and conditions contained in the Harris IP
Agreement which are hereby incorporated by reference, shall not be binding upon any party.
4.3 Governing Law and Venue. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. The parties hereby
irrevocably submit to the jurisdiction of the courts of the State of Delaware and the Federal
courts of the United States of America located in the State of Delaware solely in respect of the
interpretation and enforcement of the provisions of this Agreement and of the documents referred to
in this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and
agree not to assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or that such action,
suit or proceeding may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Agreement or any such document may not be enforced in
or by such courts, and the parties hereto irrevocably agree that all claims with respect to such
action or proceeding shall be heard and determined in such a Delaware State or Federal court;
provided, however, that notwithstanding the foregoing each party agrees that any claim which
primarily seeks injunctive relief and related monetary claims that cannot be brought in any such
Delaware State or Federal court for jurisdiction reasons may be commenced, heard and determined in
any other court having proper jurisdiction over such claim. The parties hereby consent to and
grant any such court jurisdiction over the person of such parties and, to the extent permitted by
law, over the subject matter of such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner provided in the Formation Agreement or
in such other manner as may be permitted by law shall be valid and sufficient service thereof.
4.4 Severability. If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, that provision will be enforced to the maximum extent permissible so as
to effect the intent of the parties, and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. If necessary to effect the intent
of the parties, the parties will negotiate in good faith to amend this Agreement to replace the
unenforceable language with enforceable language which as closely as possible reflects such intent.
4.5 Headings. The headings in this Agreement are included for convenience of
reference only and shall not in any way limit or otherwise affect the meaning or interpretation of
this Agreement.
4.6 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which, taken together, shall constitute one
and the same instrument.
4.7 License Notice Matters. Sublicensee may, from time to time, prepare, file and/or
record at its expense such notices and other documents (such as memoranda of non-exclusive
sublicense) with such state, federal and/or foreign governmental offices and agencies as
Sublicensee reasonably deems necessary or appropriate to place third persons on actual or
constructive notice of this Agreement and the sublicense, transactions and matters contemplated
herein and, upon the request of Sublicensee, Sublicensor agrees to (i) promptly subscribe to,
acknowledge, execute and deliver to Sublicensee such notices and other documents for such filings
and recordations, and (ii) take such other actions as Sublicensee may reasonably request in order
to permit, accommodate and facilitate such filings and recordations. Accordingly, Sublicensor
hereby appoints Sublicensee as its irrevocable attorney in fact, with an interest, to subscribe to,
execute, acknowledge, file and record such notices and other documents in Sublicensors name and as
its act and deed in all such state, federal and/or foreign governmental offices and agencies. With
respect to all parts of the Sublicensed Trade Secrets (as defined in the Harris IP Agreement) and
any other confidential information that the Sublicensees personnel may unavoidably receive or have
access to during the performance of this Agreement, this Section remains subject to the terms,
conditions and covenants contained in Section 9.02 of the Harris IP Agreement.
4.8 Force Majeure. Neither party hereto shall be liable in any matter for failure or
delay of performance of all or part of this Agreement (other than payment obligations), directly or
indirectly, owing to any acts of God; acts, orders, restrictions or interventions of any civil,
military or government authority; wars (declared or undeclared); hostilities; invasions;
revolutions; rebellions; insurrections; terrorist acts; sabotages; embargoes; epidemics; strikes or
other labor disturbances; civil disturbances; riots; fires; floods; storms; explosions;
earthquakes; nuclear accidents; power or other utility failures; disruptions or other failures in
internet and/or other telecommunication lines, networks and backbones; delay in transportation;
loss or destruction of property; changes in Laws, or any other causes or circumstances, in each
case to the extent beyond the reasonable control of such party (each, a Force Majeure
Event). Upon the occurrence of a Force Majeure Event, the party whose performance is
prevented or delayed shall provide written notice to the other party, and the parties shall
promptly confer, in good faith, on what action may be taken to minimize the impact, on both
parties, of such Force Majeure Event.
4.9 Further Actions. Each party hereto agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts, as may be necessary or appropriate in
order to carry out the purposes and intent of this Agreement.
4.10 Performance by Affiliates. To the extent that any term or provision of this
Agreement contemplates, permits or requires performance by any Affiliate of a party, such party
shall cause such Affiliate to perform each and every obligation of such party under this
Agreement in accordance with the terms and conditions hereof.
4.11 Economic Effect. Notwithstanding any other provision in this Agreement, the
parties agree that their respective rights and obligations under this Agreement shall have economic
effect immediately after the Effective Time.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
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SUBLICENSOR: |
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HARRIS STRATEX NETWORKS, INC. |
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By:
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/s/ Guy M. Campbell |
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Title:
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Guy M. Campbell
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Date:
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June 13, 2007 |
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SUBLICENSEE: |
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HARRIS STRATEX NETWORKS OPERATING CORPORATION |
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By:
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/s/ Sarah A. Dudash |
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Title:
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Sarah A. Dudash |
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Date:
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June 11, 2007 |
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exv10w23
Exhibit 10.23
***Confidential Treatment Requested
Harris Stratex Networks, Inc. 2008 Annual Incentive Plan
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Provision
|
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Details |
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Performance Targets
|
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Performance measures include revenue and operating income (non-GAAP)
with measures weighted 60% and 40%, respectively. Threshold targets and
payout slopes are shown in the table below. |
|
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Payout Range
|
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Threshold targets and payout slopes are shown in the table below: |
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Bonus |
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Plan |
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Performance |
|
(as % of Target |
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Target |
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|
(as % of Target) |
|
Bonus) |
|
($Millions) |
Revenue
(60%)
|
|
Threshold
Target
Maximum
|
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90%
100%
120%
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50%
100%
200%
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[***]
[***]
[***] |
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Operating Income
(non-GAAP)
(40%)
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Threshold
Target
Maximum
|
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80%
100%
125%
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50%
100%
200%
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[***]
[***]
[***] |
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CEO to have +/- 20% discretion based on individual performance
against objectives |
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Operating Income (non-GAAP) payout subject to achieving minimum cash
flow of $[***] Million |
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Award
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Award to be made in cash |
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Payout
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At 100%, total payout under the plan would be $4.4 Million |
exv10w28w5
Exhibit 10.28.5
AMENDMENT NO. 5
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amendment No. 5 to Amended and Restated Loan and Security Agreement (this
Amendment) is entered into this 23 day of February, 2007, by and between Harris Stratex
Networks Operating Corporation, a Delaware corporation fka Stratex Networks, Inc., a Delaware
corporation (Borrower), and Silicon Valley Bank (Bank). Capitalized terms used herein
without definition shall have the same meanings given them in the Loan Agreement (as defined
below).
Recitals
A. Borrower and Bank have entered into that certain Amended and Restated Loan and Security
Agreement dated as of January 21, 2004 (as amended, restated, modified and/or supplemented from
time to time, the Loan Agreement), pursuant to which Bank agreed to extend and make available to
Borrower certain advances of money.
B. On January 26, 2007, Stratex Networks, Inc. issued additional shares to Harris Corporation
(Harris) in exchange for the assets of Harris Microwave Communications Division, creating a
newly formed public company, Harris Stratex Networks, Inc. (HSTX), now a majority owned
Subsidiary of Harris. Stratex Networks, Inc. merged with Stratex Merger Corp., changed its name to
Harris Stratex Networks Operating Company, and is now a wholly-owned Subsidiary of HSTX.
C. Borrower has been advised by Harris that the security interest granted to Bank under the
Loan Agreement contravenes certain negative covenants under Harris bank credit facility which
restrict liens, and desires that Bank terminate such security interest and amend the Loan Agreement
upon the terms and conditions more fully set forth herein.
D. Subject to the representations and warranties of Borrower herein and upon the terms and
conditions set forth in this Amendment, Bank is willing to amend the Loan Agreement as set forth
herein.
Agreement
NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound,
the parties hereto agree as follows:
1. Amendments to Loan Agreement.
1.1 References to Borrower. All references in the Loan Agreement to Borrower or to
Stratex Networks, Inc. shall hereafter mean and refer to Harris Stratex Networks Operating
Corporation.
1.2 Security Interest. Bank hereby terminates and releases its security interest in the
Collateral, and will take such actions as necessary to terminate financing statements, account
control agreements and other evidences of its lien. To evidence the unsecured nature of the Credit
Extensions, conforming changes shall be made throughout the Loan Agreement. Specifically,
Sections 4 (Creation of Security Interest) and 5.2 (Collateral) and Exhibit A are hereby
deleted in their entirety and, in each case, replaced by the section heading Intentionally
Omitted.)
1.3 Section 6.2 (Financial Statements, Reports, Certificates). Section 6.2 is hereby amended
to read in its entirety as follows:
(a) Borrower will deliver to Bank: (i) within five (5) Business Days of filing, but in no
event later than fifty (50) days after the end of each fiscal quarter in the case of the Form 10-Q
and ninety-five (95) days after the end of each fiscal year in the case of the Form 10-K, copies of
all reports on Forms 10-K and 10-Q filed by HSTX with the Securities and Exchange Commission; (ii)
as soon as available, but no later than thirty (30) days after the end of each month, a cash
holding report in form and substance satisfactory to Bank, and agings of accounts payable and
accounts receivable, international and domestic, sorted by due date; (iii) as soon as available,
but no later than forty-five (45) days after the end of each fiscal year, a one (1) year (prepared
on a quarterly basis) financial projections of Borrower on a Consolidated basis, including a pro
forma balance sheet and statements of income and cash flows and showing projected operating
revenues, expenses and debt service of Borrower on a Consolidated basis; (iv) a prompt report of
any material infringements to its Intellectual Property (collectively, IP Infringements); (v) a
prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that
could result in damages or costs to Borrower or any Subsidiary of $2,000,000 or more, or in which
an adverse decision could reasonably be expected to cause a Material Adverse Change (collectively,
Material Litigation); and (vi) other financial information Bank reasonably requests.
(b) Borrower will deliver to Bank with its financial statements delivered pursuant to
subsection (a)(i) above, a Compliance Certificate signed by a Responsible Officer in the form of
Exhibit D.
1.4 Section 6.7 (Financial Covenants). The financial covenants contained in Section 6.7 shall
be measured using the Consolidated financial information of HSTX commencing with the fiscal quarter
ending March 31, 2007.
1.5 Section 6.8 (Further Assurances). Section 6.8 is hereby amended to read in its entirety
as follows:
Borrower will execute any further instruments and take further action as Bank reasonably
requests to effect the purposes of this Agreement.
1.6 Section 7.5 (Encumbrance). Section 7.5 is hereby amended to read in its entirety as
follows:
Create, incur, or allow any Lien on any of its assets or property, or assign or convey any
right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to
do so, except for (a) Permitted Liens, or (b) Transfers of Accounts in the ordinary course of
Borrowers business in exchange for cash or other unencumbered Property to an entity or entities
regularly engaged in the purchase of such Accounts.
1.7 Section 13 (Definitions). The definition of Material Adverse Change is amended and
restated in its entirety as follows:
2
Material Adverse Change is any of the following: (a) a material adverse change in the
business, operations, or condition (financial or otherwise) of the Borrower, or (b) a material
impairment of the prospect of repayment of any portion of the Obligations.
1.8 Section 13 (Definitions). A new definition of HSTX is added as follows:
HSTX means Harris Stratex Networks, Inc., a Delaware corporation.
1.9 Compliance Certificate. A new form of Compliance Certificate, attached hereto as
Exhibit A, hereby replaces the existing form attached as Exhibit D to the Loan Agreement.
2. Borrowers Representations And Warranties. Borrower represents and warrants that:
(a) immediately upon giving effect to this Amendment (i) the representations and warranties
contained in the Loan Documents are true, accurate and complete in all material respects as of the
date hereof (except to the extent such representations and warranties relate to an earlier date, in
which case they are true and correct as of such date), and (ii) no Event of Default has occurred
and is continuing;
(b) Borrower has the corporate power and authority to execute and deliver this Amendment and
to perform its obligations under the Loan Agreement, as amended by this Amendment;
(c) the certificate of incorporation, bylaws and other organizational documents of Borrower
delivered to Bank on the Closing Date remain true, accurate and complete and have not been amended,
supplemented or restated and are and continue to be in full force and effect;
(d) the execution and delivery by Borrower of this Amendment and the performance by Borrower
of its obligations under the Loan Agreement, as amended by this Amendment, have been duly
authorized by all necessary corporate action on the part of Borrower; and
(e) this Amendment has been duly executed and delivered by the Borrower and is the binding
obligation of Borrower, enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to or affecting
creditors rights.
3. Limitation. The amendments set forth in this Amendment shall be limited precisely
as written and shall not be deemed (a) to be a waiver or modification of any other term or
condition of the Loan Agreement or of any other instrument or agreement referred to therein or to
prejudice any right or remedy which Bank may now have or may have in the future under or in
connection with the Loan Agreement or any instrument or agreement referred to therein; or (b) to be
a consent to any future amendment or modification or waiver to any instrument or agreement the
execution and delivery of which is consented to hereby, or to any waiver of any of the provisions
3
thereof. Except as expressly amended hereby, the Loan Agreement shall continue in full force
and effect.
4. Effectiveness. This Amendment shall become effective upon the satisfaction of all
the following conditions precedent:
4.1 Amendment. Borrower and Bank shall have duly executed and delivered this Amendment to
Bank.
4.2 Payment of Bank Expenses. Borrower shall have paid all Bank Expenses (including all
reasonable attorneys fees and reasonable expenses) incurred and invoiced through the date of this
Amendment.
5. Counterparts. This Amendment may be signed in any number of counterparts, and by
different parties hereto in separate counterparts, with the same effect as if the signatures to
each such counterpart were upon a single instrument. All counterparts shall be deemed an original
of this Amendment.
6. Integration. This Amendment and any documents executed in connection herewith or
pursuant hereto contain the entire agreement between the parties with respect to the subject matter
hereof and supersede all prior agreements, understandings, offers and negotiations, oral or
written, with respect thereto and no extrinsic evidence whatsoever may be introduced in any
judicial or arbitration proceeding, if any, involving this Amendment; except that any financing
statements or other agreements or instruments filed by Bank with respect to Borrower shall remain
in full force and effect.
7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO PRINCIPLES
OF CONFLICT OF LAW.
[Signature page follows.]
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the
date first written above.
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Borrower: |
Harris Stratex Networks Operating Corporation,
a Delaware corporation
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By: |
/s/ Sarah A. Dudash
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Printed Name: Sarah A. Dudash |
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Title: |
Chief Financial Officer |
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By: |
/s/ Carol A. Goudey
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Printed Name: Carol A. Goudey |
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Title: |
Treasurer |
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Bank: |
Silicon Valley Bank
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By: |
/s/ Ray Aguilar
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Printed Name: Ray Aguilar |
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Title: |
Relationship Manager |
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5
Exhibit A
COMPLIANCE CERTIFICATE
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TO:
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SILICON VALLEY BANK
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Date: |
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3003 Tasman Drive
Santa Clara, CA 95054 |
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FROM:
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HARRIS STRATEX NETWORKS OPERATING CORPORATION |
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The undersigned Responsible Officer of Harris Stratex Networks Operating Corporation (Borrower)
certifies that under the terms and conditions of the Amended and Restated Loan and Security
Agreement dated January 21, 2004, between Borrower and Bank (as amended, the Agreement), (i)
Borrower is in complete compliance for the period ending _________ with all required
covenants except as noted below and (ii) all representations and warranties in the Agreement are
true and correct in all material respects on this date. In addition, the undersigned Responsible
Officer certifies that Borrower (x) has complied with Section 6.4 of the Agreement with respect to
payment of taxes of Borrower and its Subsidiaries and (y) does not have any legal actions pending
or threatened against Borrower or any of its Subsidiaries which Borrower has not previously
notified in writing to Bank pursuant to Section 6.2 of the Agreement. Attached are the required
financial reports and calculation of financial covenants supporting the certification. The
undersigned acknowledges that no borrowings may be requested at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under Complies or Occurrences columns.
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Reporting Covenant |
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Required |
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Complies |
A/R and A/P agings
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Monthly within 30 days
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Yes
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No |
Quarterly financial statements + CC
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Quarterly within 50 days
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Yes
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No |
Annual audited financial statements
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Annually within 95 days
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Yes
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No |
With compliance certificate |
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Occurrences* |
IP Infringements
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Prompt
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Yes
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No |
Material Litigation
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Prompt
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Yes
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No |
1
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Financial Covenant |
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Required |
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Actual |
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Complies |
Minimum Tangible
Net Worth
(Quarterly)
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54,000,000 plus (i)
twenty-five percent
(25%) of net
income, as
determined in
accordance with
GAAP, and (ii)
fifty percent (50%)
of any increases to
net worth due to
Subordinated Debt
or net equity
proceeds from
either public or
public offerings
for such quarter
and all preceding
quarters since
December 31, 2005
(exclusive of
losses).
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$______
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Yes
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No |
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Minimum Liquidity
Ratio (Monthly)
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1.25:1.00
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___:1.00
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Yes
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No |
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*If yes, attached is a summary of the Material Litigation or IP Infringements not previously
disclosed by Borrower. |
Sincerely,
Harris Stratex Networks Operating Corporation
BANK USE ONLY
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Received by:
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AUTHORIZED SIGNER |
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Verified:
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AUTHORIZED SIGNER |
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Compliance Status:
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Yes No |
2
exv21
Exhibit 21
HARRIS STRATEX NETWORKS, INC.
SUBSIDIARIES AS OF AUGUST 1, 2007
(100% direct or indirect ownership by Harris Stratex Networks, Inc. unless otherwise noted)
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State or Other |
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Jurisdiction |
Name of Subsidiary |
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of Incorporation |
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Harris Communication Argentina SA
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Argentina |
Harris Communication France SAS
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France |
Harris Communications International, Inc.
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Delaware |
Harris Communications International (Kenya) Ltd.
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Kenya |
Harris Communications (Shenzhen) Ltd.
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The Peoples Republic of China |
Harris Communications Systems Nigeria Limited
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Nigeria |
Harris do Brasil Limitada
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Brazil |
Harris Stratex Networks (Australia) Pty. Ltd.
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Australia |
Harris Stratex Networks Canada ULC
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Canada |
Harris Stratex Networks (NZ) Limited
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New Zealand |
Harris Stratex Networks, Inc.
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Delaware |
Harris Stratex Networks Operating Corporation
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Delaware |
Harris Stratex Networks (S) Pte. Ltd.
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Republic of Singapore |
Harris Stratex Networks (UK) Limited
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Delaware |
Stratex Networks do Brasil Ltda.
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Brazil |
Harris Stratex Networks (India) Private Limited
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India |
Harris Stratex Networks Mexico, S.A. de C.V.
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Mexico |
Stratex Networks Nigeria Limited
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Nigeria |
Harris Stratex Networks (Clark) Corporation
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The Philippines |
Stratex Networks Polska Spolka Sp. z.o.o.
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Poland |
Stratex Networks S.A.R.L.
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France |
Harris Stratex Networks (Thailand) Ltd.
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Thailand |
BWA Technology, Inc.
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Delaware |
Digital Microwave (Mauritius) Private Limited
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Mauritius |
Harris Stratex Networks (South Africa)(Proprietary) Ltd.
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Republic of South Africa |
DMC Stratex Networks Asia Pacific Service Center Corporation
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The Philippines |
MAS Technology Holdings (Proprietary) Limited
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Republic of South Africa |
Harris Stratex Networks Malaysia Sdn. Bhd.
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Malaysia |
exv23
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No.
333-140442) of Harris Stratex Networks, Inc. dated February 5, 2007 of our report dated August 16,
2007, with respect to the consolidated financial statements and schedule of Harris Stratex
Networks, Inc. included in the Annual Report on Form 10-K for the year ended June 29, 2007.
/s/ Ernst & Young LLP
Raleigh, North Carolina
August 21, 2007
exv31w1
Exhibit 31.1
CERTIFICATION
I, Guy M. Campbell, certify that:
1. |
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I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 29,
2007, of Harris Stratex Networks, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and have: |
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(a) |
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Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
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(b) |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
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(c) |
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Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and |
5. |
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The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
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(a) |
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All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrants ability to record, process, summarize and
report financial information; and |
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(b) |
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Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
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August 24, 2007 |
/s/ Guy M. Campbell
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Name: |
Guy M. Campbell |
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Title: |
President and Chief Executive Officer |
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exv31w2
Exhibit 31.2
CERTIFICATION
I, Sarah A. Dudash, certify that:
1. |
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I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 29,
2007, of Harris Stratex Networks, Inc.; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not misleading with respect to the
period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) for the registrant and have: |
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(a) |
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Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; |
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(b) |
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Evaluated the effectiveness of the registrants disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and |
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(c) |
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Disclosed in this report any change in the registrants internal control
over financial reporting that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrants internal control over financial reporting; and |
5. |
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The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
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(a) |
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All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably likely
to adversely affect the registrants ability to record, process, summarize and
report financial information; and |
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(b) |
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Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal control over
financial reporting. |
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August 24, 2007 |
/s/ Sarah A. Dudash
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Name: |
Sarah A. Dudash |
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Title: |
Vice President and Chief Financial Officer |
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exv32w1
Exhibit 32.1
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K of Harris Stratex Networks,
Inc. (Harris Stratex) for the fiscal year ended June 29, 2007, as filed with the Securities and
Exchange Commission on the date hereof (the Report), the undersigned, Guy M. Campbell, hereby
certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350, that:
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1. |
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The Report fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and |
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2. |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Harris Stratex as of the dates and for the
periods expressed in the Report. |
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Dated: August 24, 2007 |
/s/ Guy M. Campbell
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Name: |
Guy M. Campbell |
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Title: |
President and Chief Executive Officer |
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exv32w2
Exhibit 32.2
Certification
Pursuant to Section 1350 of Chapter 63 of Title 18 of the
United States Code as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the filing of the Annual Report on Form 10-K of Harris Stratex Networks,
Inc. (Harris Stratex) for the fiscal year ended June 29, 2007, as filed with the Securities and
Exchange Commission on the date hereof (the Report), the undersigned, Sarah A. Dudash hereby
certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. §1350, that:
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1. |
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The Report fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and |
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2. |
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The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Harris Stratex as of the dates and for the
periods expressed in the Report. |
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Dated: August 24, 2007 |
/s/ Sarah A. Dudash
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Name: |
Sarah A. Dudash |
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Title: |
Vice President and Chief Financial Officer |
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