Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x     
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
¨     
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to    
Commission File Number 0-27266
 
Westell Technologies, Inc.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
36-3154957
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification Number)
 
 
750 North Commons Drive, Aurora, IL
 
60504
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (630) 898-2500
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
¨
  
Accelerated Filer
 
¨
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller Reporting Company
 
x
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes   ¨     No   x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 21, 2016 :
Class A Common Stock, $0.01 Par Value – 47,719,554 shares Class B Common Stock, $0.01 Par Value – 13,937,151 shares


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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q INDEX
 
Page No.
 
Item 1.
Financial Statements
 
 
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, customer spending patterns, need for financing and capital, economic weakness in the United States (“U.S.”) economy and telecommunications market, the effect of international economic conditions and trade, legal, social and economic risks (such as import, licensing and trade restrictions), the impact of competitive products or technologies, competitive pricing pressures, customer product selection decisions, product cost increases, component supply shortages, new product development, excess and obsolete inventory, commercialization and technological delays or difficulties (including delays or difficulties in developing, producing, testing and selling new products and technologies), the ability to successfully consolidate and rationalize operations, the ability to successfully identify, acquire and integrate acquisitions, effects of the Company’s accounting policies, retention of key personnel and other risks more fully described in the Company's Form 10-K for the fiscal year ended March 31, 2016 , under Item 1A - Risk Factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.
Trademarks
The following terms used in this filing are the Company's trademarks: ClearLink®, Kentrox®, Optima Management System®, UDIT®, WESTELL TECHNOLOGIES®, and Westell®. All other trademarks appearing in this filing are the property of their holders.

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
(unaudited)
 
 
 
September 30,
2016
 
March 31,
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
20,917

 
$
19,169

Short-term investments

 
10,555

Accounts receivable (net of allowance of $41 and $53 at September 30, 2016, and March 31, 2016, respectively)
13,639

 
16,361

Inventories
12,678

 
13,498

Prepaid expenses and other current assets
1,923

 
1,900

Total current assets
49,157

 
61,483

Land, property and equipment, gross
16,185

 
17,198

Less accumulated depreciation and amortization
(13,731
)
 
(13,221
)
Land, property and equipment, net
2,454

 
3,977

Intangible assets, net
17,987

 
20,388

Other non-current assets
168

 
183

Total assets
$
69,766

 
$
86,031

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,619

 
$
7,856

Accrued expenses
3,570

 
3,426

Accrued restructuring
2,951

 
1,537

Accrued compensation
1,397

 
2,506

Contingent consideration payable

 
311

Deferred revenue
1,318

 
1,601

Total current liabilities
13,855

 
17,237

Deferred revenue non-current
1,388

 
1,236

Net deferred income tax liability
24

 
10

Accrued restructuring non-current
192

 
550

Other non-current liabilities
249

 
314

Total liabilities
15,708

 
19,347

Commitments and contingencies (Note 9)


 

Stockholders’ equity:
 
 
 
Class A common stock, par $0.01, Authorized – 109,000,000 shares
Outstanding – 47,724,218 and 47,184,725 shares at September 30, 2016, and March 31, 2016,
respectively
477

 
472

Class B common stock, par $0.01, Authorized – 25,000,000 shares
Issued and outstanding – 13,937,151 shares at both September 30, 2016, and March 31, 2016
139

 
139

Preferred stock, par $0.01, Authorized – 1,000,000 shares
Issued and outstanding – none

 

Additional paid-in capital
415,460

 
414,374

Treasury stock at cost – 17,726,934 and 17,560,758 shares at September 30, 2016, and March 31, 2016, respectively
(35,313
)
 
(35,174
)
Cumulative translation adjustment
608

 
608

Accumulated deficit
(327,313
)
 
(313,735
)
Total stockholders’ equity
54,058

 
66,684

Total liabilities and stockholders’ equity
$
69,766

 
$
86,031


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

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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Three months ended September 30,
 
Six months ended
 September 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
17,780

 
$
25,514

 
$
32,596

 
$
47,084

Cost of revenue (1)
11,413

 
15,283

 
21,664

 
28,424

Gross profit
6,367

 
10,231

 
10,932

 
18,660

Operating expenses:
 
 
 
 
 
 
 
Research and development
3,327

 
4,625

 
7,604

 
9,711

Sales and marketing
2,896

 
4,113

 
6,277

 
7,309

General and administrative
2,218

 
2,493

 
4,563

 
5,462

Intangible amortization
1,201

 
1,432

 
2,401

 
2,831

Restructuring
2,601

 

 
2,565

 
17

Long-lived assets impairment

 

 
1,181

 

Total operating expenses
12,243

 
12,663

 
24,591

 
25,330

Operating profit (loss)
(5,876
)
 
(2,432
)
 
(13,659
)
 
(6,670
)
Other income (expense), net
74

 
(61
)
 
91

 
(23
)
Income (loss) before income taxes and discontinued operations
(5,802
)
 
(2,493
)
 
(13,568
)
 
(6,693
)
Income tax benefit (expense)
(8
)
 
20

 
(10
)
 
82

Net income (loss) from continuing operations
(5,810
)
 
(2,473
)
 
(13,578
)
 
(6,611
)
Discontinued Operations:
 
 
 
 
 
 
 
Income from discontinued operations, net of income tax of $172 for the six months ended September 30, 2015

 

 

 
272

Net income (loss) (2)
$
(5,810
)
 
$
(2,473
)
 
$
(13,578
)
 
$
(6,339
)
Basic net income (loss) per share:
 
 
 
 
 
 
 
Basic net income (loss) from continuing operations
$
(0.09
)
 
$
(0.04
)
 
$
(0.22
)
 
$
(0.11
)
Basic net income (loss) from discontinued operations

 

 

 

Basic net income (loss) (3)
$
(0.09
)
 
$
(0.04
)
 
$
(0.22
)
 
$
(0.10
)
Diluted net income (loss) per share:
 
 
 
 
 
 
 
Diluted net income (loss) from continuing operations
$
(0.09
)
 
$
(0.04
)
 
$
(0.22
)
 
$
(0.11
)
Diluted net income (loss) from discontinued operations

 

 

 

Diluted net income (loss) (3)
$
(0.09
)
 
$
(0.04
)
 
$
(0.22
)
 
$
(0.10
)
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
61,199

 
60,783

 
61,108

 
60,743

Effect of dilutive securities: restricted stock, restricted stock units, performance stock units and stock options (4)

 

 

 

Diluted
61,199

 
60,783

 
61,108

 
60,743


(1) The three and six months ended September 30, 2016, includes $0.2 million and $1.6 million of E&O expense for ClearLink DAS inventory and pipeline inventory. See Note 2 .
(2) Net income (loss) and comprehensive income (loss) are the same for the periods reported.
(3) Totals may not sum due to rounding.
(4) The Company had 5.3 million and 5.7 million shares represented by common stock equivalents for the three and six months ended September 30, 2016 , and 3.7 million and 3.5 million shares represented by common stock equivalents for the three and six months ended September 30, 2015 , which were not included in the computation of average dilutive shares outstanding because they were anti-dilutive. In periods with a net loss from continuing operations, the basic loss per share equals the diluted loss per share as all common stock equivalents are excluded from the per share calculation.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


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WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)  
 
Six months ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(13,578
)
 
$
(6,339
)
Reconciliation of net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
3,230

 
3,495

Long-lived assets impairment
1,181

 

Stock-based compensation
1,093

 
710

Loss on sale of fixed assets
11

 

Restructuring
2,565

 
17

Deferred taxes
14

 
57

Exchange rate loss (gain)

 
60

Changes in assets and liabilities:
 
 
 
Accounts receivable
2,722

 
(5,342
)
Inventories
820

 
4,009

Prepaid expenses and other current assets
(23
)
 
815

Other assets
15

 
118

Deferred revenue
(131
)
 
(845
)
Accounts payable and accrued expenses
(4,800
)
 
2,151

Accrued compensation
(1,109
)
 
1,325

Net cash provided by (used in) operating activities
(7,990
)
 
231

Cash flows from investing activities:
 
 
 
Maturities of held-to-maturity short-term debt securities
12,621

 
16,625

Maturities of other short-term investments

 
5,586

Purchases of held-to-maturity short-term debt securities
(2,066
)
 
(1,781
)
Proceeds from sale of land

 
264

Purchases of property and equipment
(498
)
 
(1,530
)
Net cash provided by (used in) investing activities
10,057

 
19,164

Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(141
)
 
(85
)
Payment of contingent consideration
(175
)
 
(455
)
Net cash provided by (used in) financing activities
(316
)
 
(540
)
Gain (loss) of exchange rate changes on cash
(3
)
 
(3
)
Net increase (decrease) in cash and cash equivalents
1,748

 
18,852

Cash and cash equivalents, beginning of period
19,169

 
14,026

Cash and cash equivalents, end of period
$
20,917

 
$
32,878

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

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Note 1. Basis of Presentation
Description of Business
Westell Technologies, Inc. (the Company) is a holding company. Its wholly owned subsidiary, Westell, Inc., designs and distributes telecommunications products, which are sold primarily to major telephone companies. Noran Tel, Inc. is a wholly owned subsidiary of Westell, Inc. Noran Tel's operations focus on power distribution product development.
Basis of Presentation and Reporting
The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. The Condensed Consolidated Financial Statements have been prepared using generally accepted accounting principles (GAAP) in the United States for interim financial reporting, and consistent with the instructions of Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all of the information and footnotes required in the annual consolidated financial statements and accompanying footnotes. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2016 . All intercompany accounts and transactions have been eliminated in consolidation.
In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position and the results of operations, comprehensive income (loss) and cash flows at September 30, 2016 , and for all periods presented. The results of operations for the periods presented are not necessarily indicative of the results that may be expected for fiscal year 2017 .
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and that affect revenue and expenses during the periods reported. Estimates are used when accounting for the allowance for uncollectible accounts receivable, net realizable value of inventory, product warranty accrued, relative selling prices, stock-based compensation, intangible assets fair value, depreciation, income taxes, and contingencies, among other things. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flow (Topic 230) (ASU 2016-15). This update is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The update provides new guidance regarding the classification of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies,
distributions received from equity method investments, beneficial interests in securitized transactions, and separately identifiable cash flows and application of the predominance principle. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2017. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach for each period presented. The Company is currently evaluating the potential impact ASU 2016-15 will have on the Company's Consolidated Financial Statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) . ASU 2016-13 requires entities to establish an allowance for credit losses for most financial assets. Prior GAAP was based on an incurred loss methodology for recognizing credit losses on financial assets measured at amortized cost and available-for sale debt securities. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 31, 2018. The Company does not expect that adoption will have a significant impact on the Company's Consolidated Financial Statements or related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (ASU 2016-02). ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard clarifies the definition of a lease and causes lessees to recognize leases on the

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balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease term of more than one year. ASU 2016-02 is effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard requires a modified retrospective transition for capital or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements, but it does not require transition accounting for leases that expire prior to the date of initial application. The Company is currently evaluating the impact that ASU 2016-02 will have on the Company's Consolidated Financial Statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory (ASU 2015-11). The core principle of the guidance is that an entity should measure inventory at the "lower of cost and net realizable value" and options that currently exist for "market value" will be eliminated. The ASU defines net realizable value as the "estimated selling prices in the ordinary course of business, less reasonably predictable cost of completion, disposal, and transportation." The standard is effective for the Company's financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2015-11 to have a material impact on its Consolidated Financial Statements or related disclosures.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect the adoption of ASU 2014-15 to have a significant impact on its Consolidated Financial Statements or related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09), that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. ASU 2014-09 is based on the principle that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. ASU 2014-09 becomes effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period; early adoption is not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date (ASU 2015-14) , which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. In 2016, the FASB issued additional guidance to clarify the implementation guidance (ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations ; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients ). The Company is in the process of evaluating the available transition methods and the impact the guidance will have on the Company's Consolidated Financial Statements and related disclosures.
Other accounting standards and recent pronouncements that are not anticipated to have an impact on or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures are not discussed herein.
Reclassifications
Certain amounts in the Condensed Consolidated Statement of Operations for the three and six months ended September 30, 2015, have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported amounts for total stockholders' equity or net income (loss).
Note 2 . Restructuring Charges
In the fourth quarter of fiscal year 2015, the Company approved a plan to restructure its business, including reduction of headcount and consolidation of office space within the Aurora headquarters facility, with the intent to optimize operations. The restructuring was substantially completed during the fourth quarter of fiscal year 2015. The Company recognized a restructuring expense of $3.2 million in the three months ended March 31, 2015, inclusive of a non-cash charge of $2.7 million related to a loss on a lease, net of sublease income (the 2015 restructuring). The Company recognized a restructuring expense of $17,000 in the six months ended September 30, 2015 .

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In the fourth quarter of fiscal year 2016, the Company approved a plan to restructure its business, including reduction of headcount and lease termination costs related to closing the design center in Canada, to bring operating costs and expenses in-line with anticipated business volumes (the 2016 restructuring). The 2016 restructuring was completed during the fourth quarter of fiscal year 2016, during which the Company recognized a restructuring expense of $0.7 million . All of these costs have been paid as of September 30, 2016.
In the first quarter of fiscal year 2017, the Company approved a restructuring plan (the 2017 restructuring) , i ncluding discontinuing development of the ClearLink Distributed Antenna System (DAS), a reduction of headcount, and consolidation of facilities in Manchester, NH and Aurora, IL. The Company recognized a restructuring expense of $2.6 million in the three and six months ended September 30, 2016 , inclusive of non-cash charges of approximately $1.0 million related to losses on leased facilities, $0.9 million of employee termination costs, and $0.7 million of other associated costs. In addition to the restructuring expense, a $1.2 million impairment charge of fixed assets and $1.6 million of E&O expense for ClearLink DAS inventory and pipeline inventory which was recorded in the six months ended September 30, 2016. The Company expects to incur further restructuring costs of approximately $0.4 million for the remainder of the 2017 restructuring plan. The planned restructuring is scheduled to be substantially completed by March 31, 2017.
As of September 30, 2016 , $3.0 million and $0.2 million of the restructuring costs, primarily related to the office space from the 2015 restructuring and 2017 restructuring, are unpaid and accrued on the Condensed Consolidated Balance Sheets presented in accrued restructuring and accrued restructuring non-current, respectively. As of March 31, 2016, $1.5 million and $0.6 million of the restructuring costs, primarily related to the office space from the 2015 restructuring, are unpaid and accrued on the Condensed Consolidated Balance Sheets presented in accrued restructuring and accrued restructuring non-current, respectively. The restructuring costs are expected to be paid in full by the first quarter of fiscal year 2019 concurrent with the termination date of the contractual lease.
Total liability for restructuring charges and their utilization for the six months ended September 30, 2016 , and 2015 , are summarized as follows:  
 
Six months ended September 30, 2016
 
Six months ended September 30, 2015
(in thousands)
Employee-related
 
Other costs
 
Total
 
Employee-related
 
Other costs
 
Total
Liability at beginning of period
$
441

 
$
1,646

 
$
2,087

 
$
15

 
$
2,788

 
$
2,803

Charged
869

 
1,696

 
2,565

 
17

 

 
17

Paid
(891
)
 
(618
)
 
(1,509
)
 
(32
)
 
(597
)
 
(629
)
Liability at end of period
$
419

 
$
2,724

 
$
3,143

 
$

 
$
2,191

 
$
2,191

Note 3 . Interim Segment Information
Segment information is presented in accordance with a “management approach", which designates the internal reporting used by the chief operating decision-maker (CODM) for making decisions and assessing performance as the source of the Company's reportable segments. Westell’s Chief Executive Officer is the CODM. In the first quarter of fiscal 2017, the Company re-aligned the business and revised its segments into three reportable operating segments . The CODM continues to define segment profit as gross profit less research and development expenses. In order to provide information that is comparable year to year, fiscal year 2016 segment information has been restated to reflect the new reporting structure. The accounting policies of the segments are the same as those for Westell Technologies, Inc. described in the summary of significant accounting policies included in the Company's Annual Report on Form 10-K for year ended March 31, 2016.
The Company’s three reportable segments are as follows:
In-Building Wireless (IBW) Segment
The IBW segment solutions include distributed antenna systems (DAS) conditioners, high-performance digital repeaters and bi-directional amplifiers (BDAs), and system components and antennas, all used by wireless service providers and neutral-host operators to fine tune radio frequency (RF) signals that helps extend coverage to areas not served well or at all by traditional cell sites.
Intelligent Site Management and Services (ISMS) Segment
The ISMS segment solutions, which were formerly part of the Communications Solutions Group (CSG) segment, are as follows:

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• Intelligent Site Management (ISM) solutions include a suite of remote monitoring and control devices which, when combined with the Company's Optima management software system, provide comprehensive machine-to-machine (M2M) communications that enable operators to remotely monitor, manage, and control site infrastructure and support systems.
• Service offerings include support agreements and deployment services. While the Company currently provides technical support and deployment services primarily for the ISM solution.
Communications Network Solutions (CNS) Segment
The CNS segment solutions, which were also formerly part of the Communications Solutions Group (CSG) segment, are as follows:
• Outside Plant (OSP) solutions, which are sold to wireline and wireless service providers as well as industrial network operators, include a broad range of offerings, including integrated cabinets, power distribution products, copper and fiber network connectivity panels, and synchronous optical networks/time division multiplexing (SONET/TDM) network interface units.
• Cell Site Optimization (CSO) solutions include tower mounted amplifiers (TMAs), small outdoor-hardened units mounted next to antennas on cell towers, enabling wireless service providers to improve the overall performance of a cell site, including increasing data throughput and reducing dropped connections.

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Segment information for the six months ended September 30, 2016 , and 2015 , is set forth below:  
 
 
Three months ended September 30, 2016
 
(in thousands)
 
IBW
 
ISMS
 
CNS
 
Total
 
Revenue
 
$
6,644

 
$
5,109

 
$
6,027

 
$
17,780

 
Cost of revenue
 
4,411

(1)  
2,702

 
4,300

 
11,413

 
Gross profit
 
2,233

 
2,407

 
1,727

 
6,367

 
Gross margin
 
33.6
%
 
47.1
%
 
28.7
%
 
35.8
%
 
Research and development
 
1,594

 
1,237

 
496

 
3,327

 
Segment profit (loss)
 
$
639

 
$
1,170

 
$
1,231

 
3,040

 
Operating expenses:
 
 
 
 
 
 
 
 
 
Sales and marketing
 
 
 
 
 
 
 
2,896

 
General and administrative
 
 
 
 
 
 
 
2,218

 
Intangible amortization
 
 
 
 
 
 
 
1,201

 
Restructuring
 
 
 
 
 
 
 
2,601

 
Operating profit (loss)
 
 
 
 
 
 
 
(5,876
)
 
Other income (expense), net
 
 
 
 
 
 
 
74

 
Income tax benefit (expense)
 
 
 
 
 
 
 
(8
)
 
Net income (loss) from continuing operations
 
 
 
 
 
 
 
$
(5,810
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2015
 
(in thousands)
 
IBW
 
ISMS
 
CNS
 
Total
 
Revenue
 
$
10,819

 
$
5,886

 
$
8,809

 
$
25,514

 
Cost of revenue
 
6,272

 
2,722

 
6,289

 
15,283

 
Gross profit
 
4,547

 
3,164

 
2,520

 
10,231

 
Gross margin
 
42.0
%
 
53.8
%
 
28.6
%
 
40.1
%
 
Research and development
 
2,775

 
1,302

 
548

 
4,625

 
Segment profit (loss)
 
$
1,772

 
$
1,862

 
$
1,972

 
5,606

 
Operating expenses:
 
 
 
 
 
 
 
 
 
Sales and marketing
 
 
 
 
 
 
 
4,113

 
General and administrative
 
 
 
 
 
 
 
2,493

 
Intangible amortization
 
 
 
 
 
 
 
1,432

 
Operating profit (loss)
 
 
 
 
 
 
 
(2,432
)
 
Other income (expense), net
 
 
 
 
 
 
 
(61
)
 
Income tax benefit (expense)
 
 
 
 
 
 
 
20

 
Net income (loss) from continuing operations
 
 
 
 
 
 
 
$
(2,473
)
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
Six months ended September 30, 2016
 
(in thousands)
 
IBW
 
ISMS
 
CNS
 
Total
 
Revenue
 
$
12,765

 
$
9,248

 
$
10,583

 
$
32,596

 
Cost of revenue
 
9,538

(1)  
4,822

 
7,304

 
21,664

(1)  
Gross profit
 
3,227

 
4,426

 
3,279

 
10,932

 
Gross margin
 
25.3
%
 
47.9
%
 
31.0
%
 
33.5
%
 
Research and development
 
3,958

 
2,531

 
1,115

 
7,604

 
Segment profit (loss)
 
$
(731
)
 
$
1,895

 
$
2,164

 
3,328

 
Operating expenses:
 
 
 
 
 
 
 
 
 
Sales and marketing
 
 
 
 
 
 
 
6,277

 
General and administrative
 
 
 
 
 
 
 
4,563

 
Intangible amortization
 
 
 
 
 
 
 
2,401

 
Restructuring
 
 
 
 
 
 
 
2,565

 
Long-lived assets impairment
 
 
 
 
 
 
 
1,181

 
Operating profit (loss)
 
 
 
 
 
 
 
(13,659
)
 
Other income (expense), net
 
 
 
 
 
 
 
91

 
Income tax benefit (expense)
 
 
 
 
 
 
 
(10
)
 
Net income (loss) from continuing operations
 
 
 
 
 
 
 
$
(13,578
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended September 30, 2015
 
(in thousands)
 
IBW
 
ISMS
 
CNS
 
Total
 
Revenue
 
$
19,889

 
$
10,391

 
$
16,804

 
$
47,084

 
Cost of revenue
 
11,341

 
5,016

 
12,067

 
28,424

 
Gross profit
 
8,548

 
5,375

 
4,737

 
18,660

 
Gross margin
 
43.0
%

51.7
%
 
28.2
%
 
39.6
%
 
Research and development
 
5,937

 
2,583

 
1,191

 
9,711

 
Segment profit (loss)
 
$
2,611

 
$
2,792

 
$
3,546

 
8,949

 
Operating expenses:
 
 
 
 
 
 
 
 
 
Sales and marketing
 
 
 
 
 
 
 
7,309

 
General and administrative
 
 
 
 
 
 
 
5,462

 
Intangible amortization
 
 
 
 
 
 
 
2,831

 
Restructuring
 
 
 
 
 
 
 
17

 
Operating profit (loss)
 
 
 
 
 
 
 
(6,670
)
 
Other income (expense), net
 
 
 
 
 
 
 
(23
)
 
Income tax benefit (expense)
 
 
 
 
 
 
 
82

 
Net income (loss) from continuing operations
 
 
 
 
 
 
 
$
(6,611
)
 

(1) The three and six months ended September 30, 2016, includes E&O expense for ClearLink DAS inventory and pipeline inventory. See Note 2 , Restructuring Charges .

Segment asset information is not reported to or used by the CODM.

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Note 4. Inventories
Inventories are stated at the lower of first-in, first-out cost or market value. The components of inventories are as follows:  
(in thousands)
September 30, 2016
 
March 31, 2016
Raw materials
$
3,659

 
$
6,174

Work-in-process
210

 
237

Finished goods
8,809

 
7,087

    Total inventories
$
12,678

 
$
13,498

Note 5. Stock-Based Compensation
The Westell Technologies, Inc. 2015 Omnibus Incentive Compensation Plan (the 2015 Plan) was approved at the annual meeting of stockholders on September 16, 2015. The 2015 Plan replaced the Westell Technologies, Inc. 2004 Stock Incentive Plan (the 2004 Plan). If any award granted under the 2015 Plan or the 2004 Plan is canceled, terminates, expires, or lapses for any reason, any Shares subject to such award shall again be available for the grant of an award under the 2015 Plan. Shares subject to an award shall not again be made available for issuance under the Plan if such Shares are: (a) shares delivered to or withheld by the Company to pay the grant or purchase price of an award, or (b) shares delivered to or withheld by the Company to pay the withholding taxes related to an award. Any awards or portions thereof that are settled in cash and not in Shares shall not be counted against the foregoing Share limit. The stock options, restricted stock awards, and restricted stock units (RSUs) awarded under the 2015 Plan vest in equal annual installments over 3 years for employees and 1 year for independent directors. The stock options, restricted stock awards, and RSUs awarded under the 2004 Plan vest in equal annual installments over 4 years . Performance stock units (PSUs) earned vest over the performance period, as described below. Certain awards provide for accelerated vesting if there is a change in control (as defined in the 2015 Plan), or when provided within individual employment contracts. The Company recorded incremental stock-based compensation expense of approximately $0.4 million during the three and six months ended September 30, 2016, as a result of accelerated vesting. The Company accounts for forfeitures as they occur. The Company issues new shares for stock awards under the 2015 Plan.
The following table is a summary of total stock-based compensation expense resulting from stock options, restricted stock, RSUs and PSUs, during the six months ended September 30, 2016 , and 2015 :  
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Stock-based compensation expense
$
687

 
$
253

 
$
1,093

 
$
710

Income tax benefit

 

 

 

Total stock-based compensation expense, after taxes
$
687

 
$
253

 
$
1,093

 
$
710

Stock Options
Stock option activity for the six months ended September 30, 2016 , is as follows:
 
Shares
 
Weighted-Average
Exercise Price Per
Share
 
Weighted-Average
Remaining
Contractual Term
(in years)
 
Aggregate
Intrinsic Value  (1)  (in
thousands)
Outstanding on March 31, 2016
1,847,500

 
$
1.42

 
5.6
 
$
9

Granted
1,459,750

 
1.08

 

 

Exercised

 

 

 

Forfeited
(1,136,875
)
 
1.19

 

 

Expired
(80,667
)
 
2.22

 

 

Outstanding on September 30, 2016
2,089,708

 
$
1.27

 
4.8
 
$
0

 
(1)  
The intrinsic value for the stock options is calculated based on the difference between the exercise price of the underlying awards and the Westell Technologies’ closing stock price as of the respective reporting date.
The weighted-average grant date fair value of stock options granted during the six months ended September 30, 2016 , was $0.43 per share.

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Restricted Stock
The following table sets forth restricted stock activity for the six months ended September 30, 2016 :  
 
Shares
 
Weighted-Average
Grant Date Fair
Value
Non-vested as of March 31, 2016
217,500

 
$
2.07

Granted
60,000

 
0.50

Vested
(162,500
)
 
1.71

Forfeited

 

Non-vested as of September 30, 2016
115,000

 
$
1.77

RSUs
The following table sets forth the RSU activity for the six months ended September 30, 2016 :  
 
Shares
 
Weighted-Average
Grant Date Fair
Value
Non-vested as of March 31, 2016
1,843,375

 
$
1.59

Granted
1,737,250

 
1.02

Vested
(633,956
)
 
1.64

Forfeited
(1,082,375
)
 
1.29

Non-vested as of September 30, 2016
1,864,294

 
$
1.21

PSUs
The PSUs vest in annual increments based on the achievement of pre-established Company performance goals and continued employment. The number of PSUs earned, if any, can range from 0% to 200% of the target amount, depending on actual performance for four fiscal years following the grant date. Upon vesting, the PSUs convert into shares of Class A Common Stock on a one-for-one basis.
The following table sets forth the PSU activity for the six months ended September 30, 2016 :  
 
Shares
 
Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2016 (at target)
64,075

 
$
3.29

Granted, at target

 

Vested
(11,713
)
 
2.53

Forfeited
(10,472
)
 
3.43

Non-vested as of September 30, 2016 (at target)
41,890

 
$
3.46

Note 6 . Product Warranties
The Company’s products carry a limited warranty ranging from one to five years for the products within the IBW segment, and typically one year for products within the ISMS segment, and one to seven years for products within the CNS segment. The specific terms and conditions of those warranties vary depending upon the customer and the products sold. Factors that affect the estimate of the Company’s warranty reserve include: the number of units shipped, anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary. The current portions of the warranty reserve are $228,000 and $229,000 as of September 30, 2016 , and March 31, 2016 , respectively, and are presented on the Condensed Consolidated Balance Sheets in Accrued expenses. The non-current portions of the warranty reserves are $232,000 and $207,000 as of September 30, 2016 , and March 31, 2016 , respectively, and are presented on the Condensed Consolidated Balance Sheets in Other non-current liabilities.

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The following table presents the changes in the Company’s product warranty reserve:
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
2016
 
2015
Total product warranty reserve at the beginning of the period
$
439

 
$
548

 
$
436

 
$
505

Warranty expense to cost of revenue
33

 
56

 
67

 
153

Utilization
(12
)
 
(84
)
 
(43
)
 
(138
)
Total product warranty reserve at the end of the period
$
460

 
$
520

 
$
460

 
$
520

Note 7 . Variable Interest Entity and Guarantee
The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD (AKA). AKA distributes network management solutions provided by the Company and the other 50% owner to one customer. The Company holds equal voting control with the other owner. All actions of AKA are decided at the board level by majority vote. The Company evaluated ASC 810, Consolidations , and concluded that AKA is a variable interest entity (VIE). The Company has concluded that it is not the primary beneficiary of AKA and, therefore, consolidation is not required. As of September 30, 2016 , and March 31, 2016 , the carrying amount of the Company's investment in AKA was approximately $0.1 million , which is presented on the Condensed Consolidated Balance Sheets within Other non-current assets.
The Company's revenue from sales to AKA for the three months ended September 30, 2016 , and 2015 , was $0.6 million and $0.9 million , respectively. The Company's revenue from sales to AKA for the six months ended September 30, 2016 , and 2015 , was $1.7 million and $1.4 million , respectively. Accounts receivable from AKA was $0.5 million and $0.6 million as of September 30, 2016 , and March 31, 2016 , respectively. Deferred revenue, which primarily relates to AKA maintenance contracts, was $2.0 million and $1.7 million as of September 30, 2016 , and March 31, 2016 , respectively. The Company also has provided an unlimited guarantee for the performance of the other 50% owner in AKA, which primarily provides support and engineering services to the customer. This guarantee was put in place at the request of the AKA customer. The guarantee, which is estimated to have a maximum potential future payment of $0.7 million , will stay in place as long as the contract between AKA and the customer is in place. The Company would have recourse against the other 50% owner in AKA in the event the guarantee is triggered. The Company determined that it could perform on the obligation it guaranteed at a positive rate of return and, therefore, did not assign value to the guarantee. The Company's exposure to loss as a result of its involvement with AKA, exclusive of lost profits, is limited to the items noted above.
Note 8. Income Taxes
At the end of each interim period, the Company makes its best estimate of the effective tax rate expected to be applicable for the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis before discrete items. If a reliable estimate cannot be made, the Company may make a reasonable estimate of the annual effective tax rate, including use of the actual effective rate for the year-to-date. The impact of discrete items is recorded in the quarter in which they occur. The Company utilizes the liability method of accounting for income taxes and deferred taxes, which are determined based on the differences between the financial statements and tax basis of assets and liabilities given the enacted tax laws. The Company evaluates the need for valuation allowances on the net deferred tax assets under the rules of ASC 740, Income Taxes. In assessing the realizability of the Company's deferred tax assets, the Company considered whether it is more likely than not that some or all of the deferred tax assets will be realized through the generation of future taxable income. In making this determination, the Company assessed all of the evidence available at the time, including recent earnings, forecasted income projections and historical performance. The Company determined that the negative evidence outweighed the objectively verifiable positive evidence and previously recorded a full valuation allowance against deferred tax assets. The Company will continue to reassess realizability going forward.
The Company recorded $8,000 and $10,000 of income tax expense in the three and six months ended September 30, 2016 , using an effective income tax rate of (0.10)% plus discrete items. The Company recorded $20,000 and $82,000 of income tax benefit in the three and six months ended September 30, 2015 , using an effective rate of 1.20% plus discrete items. The effective rate is impacted by the intraperiod allocation as a result of loss from continuing operations and income from discontinued operations, loss in a foreign jurisdiction with no valuation allowance, and states which base tax on gross margin and not pretax income.

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Table of Contents

Note 9 . Commitments and Contingencies
Obligations
Future obligations and commitments, which are comprised of future minimum lease payments, inventory purchase obligations, and contingent consideration, were $9.9 million and $11.8 million at September 30, 2016 , and March 31, 2016 , respectively.
Purchase obligations relate to inventory that arises in the normal course of business operations. Future obligations and commitments as of September 30, 2016 , consisted of the following:
 
Payments due within
(in thousands)
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
Thereafter
 
Total
Purchase obligations (1)
$
7,306

 
$

 
$

 
$

 
$

 
$

 
$
7,306

Future minimum operating lease
 payments
2,058

 
373

 
116

 

 

 

 
2,547

Future obligations and
commitments
$
9,364

 
$
373

 
$
116

 
$

 
$

 
$

 
$
9,853

(1) A reserve for a net loss on firm purchase commitments of $452,000 and $388,000 is recorded on the balance sheet as of September 30, 2016 , and March 31, 2016 , respectively.
Litigation and Contingency Reserves
The Company and its subsidiaries are involved in various assertions, claims, proceedings and requests for indemnification concerning intellectual property, including patent infringement suits involving technologies that may be incorporated in the Company’s products, which are being handled and defended in the ordinary course of business. These matters are in various stages of investigation and litigation, and they are being vigorously defended. Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition or results of operations, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements entered, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all of its litigation and threatened litigation as to the probability of ultimately incurring a liability, and it records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable. As of September 30, 2016 , and March 31, 2016 , the Company has not recorded any contingent liability attributable to existing litigation.
As of March 31, 2015, the Company had total contingency reserves of $0.4 million related to the discontinued operations of ConferencePlus, which was sold in fiscal year 2012. In the six months ended September 30, 2015, a pre-tax gain of $0.4 million resulted from the expiration of an indemnity period and release of a contingency reserve related to the sale of ConferencePlus and was recorded in discontinued operations.
Additionally, the Company had a contingent cash consideration payable related to an acquisition. As of March 31, 2016 , the fair value of the contingent consideration liability after offsetting a working capital adjustment and an indemnification claim for warranty obligations was $311,000 . As of September 30, 2016, the contingent liability was paid in full. The contingent consideration was based upon the profitability of the acquired products for post-closing periods through June 30, 2016, and was offset by working capital adjustments and other indemnification claims. The maximum earn-out that could have been paid before offsets was $3.5 million . The final calculation performed during the quarter ended June 30, 2016, determined the actual cash payment for the contingent consideration to be $2.1 million .
Note 10. Short-term Investments
As of March 31, 2016, the Company had short-term investments of $10.6 million . There were no short-term investments as of September 30, 2016, as they were all converted to cash equivalents. The Company did not sell any of the investments held as of March 31, 2016, prior to maturity. The fair value of short-term investments approximates their carrying amounts due to the short-term nature of these financial assets and, therefore, there are no unrecognized gains or losses.
Note 11 . Fair Value Measurements
Fair value is defined by ASC 820, Fair Value Measurements and Disclosures (ASC 820) , as the price that would be received upon selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

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Table of Contents


Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The Company’s money market funds are measured using Level 1 inputs. The contingent consideration described in Note 9 was measured using Level 3 inputs.
The following table presents available-for sale securities and non-financial liabilities measured at fair value on a recurring basis as of September 30, 2016 :
(in thousands)
Total Fair Value
of Asset or
Liability
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance Sheet
Classification
Assets:
 
 
 
 
 
 
 
 
 
Money market funds
$
17,129

 
$
17,129

 

 

 
Cash and cash
equivalents
The following table presents available-for sale securities and non-financial liabilities measured at fair value on a recurring basis as of March 31, 2016 :
(in thousands)
Total Fair Value
of Asset or
Liability
 
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance Sheet
Classification
Assets:
 
 
 
 
 
 
 
 
 
Money market funds
$
10,043

 
$
10,043

 

 

 
Cash and cash
equivalents
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent consideration, current
$
311

 

 

 
$
311

 
Contingent consideration payable
The fair value of the money market funds approximates their carrying amounts due to the short-term nature of these financial assets.
In connection with an acquisition in the quarter ended June 30, 2012, payment of a portion of the purchase price was contingent upon the profitability of the acquired products for post-closing periods through June 30, 2016, and was offset by working capital adjustments and other indemnification claims. The Company estimated the fair value of contingent consideration as the present value of the expected payments over the term of the arrangement based on financial forecasts of future profitability of the acquired products, and reaching the forecast. The final calculation performed during the quarter ended June 30, 2016, determined the actual cash payment for the contingent consideration to be $2.1 million , which was paid in full as of September 30, 2016 .
The fair value measurement of contingent consideration as of March 31, 2016 , encompasses the following significant unobservable inputs:
($ in thousands)
Unobservable Inputs
 
March 31, 2016

Estimated earn-out contingent consideration
$
2,968

Working capital and other adjustment
$
(444
)
Indemnification related to warranty claims
$
(303
)
Discount rate
%
Approximate timing of cash flows
0.4 years


16

Table of Contents

The following table summarizes contingent consideration activity:
(in thousands)
 
Balance as of March 31, 2016
$
311

Contingent consideration – payments
(175
)
Contingent consideration – change in fair value in General and Administrative expense
(136
)
Balance as of September 30, 2016
$

Note 12. Share Repurchases
In August 2011, the Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an aggregate of $20.0 million of its outstanding Class A Common Stock (the authorization). There were no shares repurchased under this authorization during the six months ended September 30, 2016 , or September 30, 2015. There was approximately $0.1 million remaining for additional share repurchases under this program as of September 30, 2016 .
Additionally, in the six months ended September 30, 2016, and September 30, 2015, the Company repurchased 166,176 and 73,765 shares of Class A Common Stock, respectively, from certain employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock, RSUs and PSUs. These repurchases are not included in the authorized share repurchase program and had a weighted-average purchase price of $0.85 and $1.15 per share, respectively.
Note 13. Intangible and Long-Lived Assets
Intangible Assets

Intangible assets include customer relationships, trade names, developed technology and other intangibles. Intangible assets with determinable lives are amortized over their estimated useful lives. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for the excess of the asset’s carrying amount over its fair value.

During fiscal year 2017, the Company experienced triggering events in the first and second quarters that resulted in the Company testing its intangible assets for impairment.  As a result of the Company reorganizing its reporting structure in the first quarter of fiscal year 2017, the Company reassigned assets and liabilities to reporting units. In evaluating whether it is more likely than not that the fair value of the Company's reporting units were less than their carrying value, the Company assessed all relevant events and circumstances and determined that, due to the overall financial performance of the Company and recent change in reporting structure, indicators of impairment were present. The Company performed an evaluation to test IBW, ISMS and CNS intangible assets for recoverability and concluded there was no impairment during the six months ended September 30, 2016, in any of the reporting units.

Long-lived Assets

Long-lived assets consist of property and equipment. Long-lived assets that are held and used should be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived assets might not be recoverable. Due to a significant adverse change in the business climate connected to the ClearLink DAS development project, the Company determined indicators of impairment were present as of June 30, 2016. The Company determined that equipment related to development and manufacturing of this product were fully impaired and recorded an impairment charge of $1.2 million . Long-lived asset impairment charges are presented in long-lived asset impairment on the Condensed Consolidated Statements of Operations. See Note 2 Restructuring Charges .

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion should be read together with the Condensed Consolidated Financial Statements and the related Notes thereto and other financial information appearing elsewhere in this Form 10-Q. All references herein to the term “fiscal year” shall mean a year ended March 31 of the year specified.

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Westell Technologies, Inc., (the Company) is a leading provider of in-building wireless, intelligent site management, cell site optimization, and outside plant solutions focused on innovation and differentiation at the edge of telecommunication networks, where end users connect. The Company’s comprehensive set of products and solutions are designed to advance network performance for carriers, integrators, and other network operators, allowing them to reduce operating costs and improve network performance. With millions of products successfully deployed worldwide, the Company is a trusted partner for transforming networks into high performance, reliable systems.
In the first quarter of fiscal 2017, the Company re-aligned the business and revised its segments into three reportable operating segments , which are: In-Building Wireless, Intelligent Site Management and Services, and Communications Network Solutions.
In-Building Wireless (IBW) Segment
The IBW segment solutions include distributed antenna systems (DAS) conditioners, high-performance digital repeaters and bi-directional amplifiers (BDAs), and system components and antennas, all used by wireless service providers and neutral-host operators to fine tune radio frequency (RF) signals that helps extend coverage to areas not served well or at all by traditional cell sites.
Intelligent Site Management and Services (ISMS) Segment
The ISMS segment solutions, which were formerly part of the Communications Solutions Group (CSG) segment, are as follows:
• Intelligent Site Management (ISM) solutions include a suite of remote monitoring and control devices which, when combined with the Company's Optima management software system, provide comprehensive machine-to-machine (M2M) communications that enable operators to remotely monitor, manage, and control site infrastructure and support systems.
• Service offerings include support agreements and deployment services. While the Company currently provides technical support and deployment services primarily for the ISM solution.
Communications Network Solutions (CNS) Segment
The CNS segment solutions, which were also formerly part of the Communications Solutions Group (CSG) segment, are as follows:
• Outside Plant (OSP) solutions, which are sold to wireline and wireless service providers as well as industrial network operators, include a broad range of offerings, including integrated cabinets, power distribution products, copper and fiber network connectivity panels, and synchronous optical networks/time division multiplexing (SONET/TDM) network interface units.
• Cell Site Optimization (CSO) solutions include tower mounted amplifiers (TMAs), small outdoor-hardened units mounted next to antennas on cell towers, enabling wireless service providers to improve the overall performance of a cell site, including increasing data throughput and reducing dropped connections.
Customers
The Company’s customer base for its products is highly concentrated and includes telecommunications service providers, systems integrators, cell tower operators, and distributors. Telecommunication service providers include wireless and wireline service providers, multiple systems operators (MSOs), and Internet Service Providers (ISPs). Due to the stringent customer quality specifications and the regulated environment in which customers operate, the Company must undergo lengthy approval and procurement processes prior to selling most of its products. Accordingly, the Company must make significant up-front investments in product and market development prior to actual commencement of sales of new products. The prices for the Company's products vary based upon volume, customer specifications, and other criteria, and they are subject to change for a variety of reasons, including cost and competitive factors.
To remain competitive, the Company must continue to invest in new product development and in targeted sales and marketing efforts to launch new product lines. Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change meeting technical specifications or otherwise, could have a material adverse effect on the Company's business and results of operations. The Company expects to continue to evaluate new product opportunities and invest in product research and development activities.
In view of the Company’s reliance on the telecommunications market for revenues, the project nature of the business, the unpredictability of orders, and pricing pressures, the Company believes that period-to-period comparisons of its financial results should not be relied upon as an indication of future performance. The Company has experienced quarterly fluctuations in customer ordering and purchasing activity due primarily to the project-based nature of the business and to budgeting and procurement patterns toward the end of the calendar year or the beginning of a new year. While these factors can result in the

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greatest fluctuations in the Company's third and fourth fiscal quarters, this is not always consistent and may not always correlate to financial results.
On September 27, 2016, the Company announced that the Board of Directors has appointed Kirk R. Brannock as Interim President and Chief Executive Officer. The Company also announced that Dennis O. Harris, a Director of the Company since January 2010, has been appointed interim Chairman of the Board. Along with these management changes, the Company is executing a plan to reduce its operating cost structure to more quickly return to profitability and generate stockholder value, while focusing on sales and product development initiatives.
Results of Operations
Below is a table that compares revenue for the three and six months ended September 30, 2016 , and 2015 , by segment.
Revenue
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
IBW
$
6,644

 
$
10,819

 
$
(4,175
)
 
$
12,765

 
$
19,889

 
$
(7,124
)
ISMS
5,109

 
5,886

 
(777
)
 
9,248

 
10,391

 
(1,143
)
CNS
6,027

 
8,809

 
(2,782
)
 
10,583

 
16,804

 
(6,221
)
Consolidated revenue
$
17,780

 
$
25,514

 
$
(7,734
)
 
$
32,596

 
$
47,084

 
$
(14,488
)
IBW revenue was $6.6 million and $12.8 million in the three and six months ended September 30, 2016 , compared to $10.8 million and $19.9 million in the same periods in the prior year. The decrease in revenue in both the three and six month periods was due primarily to decreases in sales of DAS conditioners offset in part by increased sales of repeater products.
ISMS revenue was $5.1 million and $9.2 million in the three and six months ended September 30, 2016 , compared to $5.9 million and $10.4 million in the same periods in the prior year. The decrease in revenue in both the three and six month periods was due primarily to lower deployment services revenue for ISM remotes and tower mounted amplifiers.
CNS revenue was $6.0 million and $10.6 million in the three and six months ended September 30, 2016 , compared to $8.8 million and $16.8 million , in the same periods in the prior year. The decrease in the three months ended September 30, 2016 , compared to the same period in the prior year was primarily due to lower carrier spend in TMAs and Sonet/TDM. The decrease in the six months ended September 30, 2016 , compared to the same period in the prior year was primarily due to significantly lower carrier spending in TMAs and lower spending overall in OSP.
Gross Margin
   
Three months ended September 30,
 
Six months ended September 30,
 
2016
 
2015
 
Change
 
2016
 
2015
 
Change
IBW
33.6
%
 
42.0
%
 
(8.4
)%
 
25.3
%
 
43.0
%
 
(17.7
)%
ISMS
47.1
%
 
53.8
%
 
(6.7
)%
 
47.9
%
 
51.7
%
 
(3.8
)%
CNS
28.7
%
 
28.6
%
 
0.1
 %
 
31.0
%
 
28.2
%
 
2.8
 %
Consolidated gross margin
35.8
%
 
40.1
%
 
(4.3
)%
 
33.5
%
 
39.6
%
 
(6.1
)%
Gross margin in the IBW segment was 33.6% and 25.3% in the three and six months ended September 30, 2016 , compared to 42.0% and 43.0% in the same periods in the prior year. The lower gross margins in the six months ended September 30, 2016, is primarily due to higher excess and obsolete inventory expense of $1.2 million in fiscal year 2017. In addition, overall revenue levels contributed to the lower gross margin due to the under absorption of fixed costs.
Gross margin in the ISMS segment was 47.1% and 47.9% in the three and six months ended September 30, 2016 , compared to 53.8% and 51.7% in the same periods in the prior year. The decrease in gross margin is primarily due to higher costs in deployment services.
Gross margin in the CNS segment was 28.7% and 31.0% in the three and six months ended September 30, 2016 , compared to 28.6% and 28.2% in the same periods in the prior year. The increase in gross margin in both the three and six month periods was primarily due to a more favorable product mix.

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Research and Development
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
IBW
$
1,594

 
$
2,775

 
$
(1,181
)
 
$
3,958

 
$
5,937

 
$
(1,979
)
ISMS
1,237

 
1,302

 
(65
)
 
2,531

 
2,583

 
(52
)
CNS
496

 
548

 
(52
)
 
1,115

 
1,191

 
(76
)
Consolidated research and
development expense
$
3,327

 
$
4,625

 
$
(1,298
)
 
$
7,604

 
$
9,711

 
$
(2,107
)
Consolidated research and development costs decreased by $1.3 million and $2.1 million in the three and six months ended September 30, 2016 , compared to the same periods in the prior year. Research and development expense in the IBW segment decreased by $1.2 million and $2.0 million in the three and six months ended September 30, 2016 , compared to the same periods in the prior year due to $1.1 million and $1.6 million of decreased manpower related expenses in the three and six months ended September 30, 2016 , respectively, and $0.4 million of prototype expense in the six months ended September 30, 2016 . The decrease in expenses were primarily associated with the ClearLink DAS development project.
Sales and Marketing
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Consolidated sales and
marketing expense
$
2,896

 
$
4,113

 
$
(1,217
)
 
$
6,277

 
$
7,309

 
$
(1,032
)
Sales and marketing expense was $2.9 million and $6.3 million in the three and six months ended September 30, 2016 , compared to $4.1 million and $7.3 million in same periods in the prior year. The decrease was due primarily to lower payroll and headcount related expenses in our sales organization.
General and Administrative
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Consolidated general and
administrative expense
$
2,218

 
$
2,493

 
$
(275
)
 
$
4,563

 
$
5,462

 
$
(899
)
Consolidated general and administrative expense decreased $0.3 million and $0.9 million in the three and six months ended September 30, 2016 , compared to the same periods in the prior fiscal year primarily to lower payroll and headcount related expenses.
Intangible amortization
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Consolidated intangible
amortization
$
1,201

 
$
1,432

 
$
(231
)
 
$
2,401

 
$
2,831

 
$
(430
)
The intangible assets consist of product technology, customer relationships, trade names, and backlog derived from acquisitions. The decrease in the three and six months ended September 30, 2016 , compared to the same periods in the prior fiscal year resulted primarily from product and customer related intangibles from the acquisition of HyperEdge and the non-compete from the Kentrox acquisition becoming fully amortized.
Restructuring
In the first quarter of fiscal year 2017, the Company approved a restructuring plan (the 2017 restructuring) , i ncluding discontinuing development of the ClearLink Distributed Antenna System (DAS), a reduction of headcount, and consolidation of facilities in Manchester, NH and Aurora, IL. The Company recognized a restructuring expense of $2.6 million in the six months ended September 30, 2016 , inclusive of non-cash charges of approximately $1.0 million related to losses on leased facilities, $0.9 million of employee termination costs, and $0.7 million of other associated costs. The Company expects to incur further restructuring costs of approximately $0.4 million for the remainder of the 2017 restructuring plan. The planned restructuring is scheduled to be substantially completed by March 31, 2017.

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The Company recorded restructuring expense of $17,000 in the six months ended September 30, 2015 , related to severance for terminated employees associated with the CSI acquisition.

Long-lived assets impairment

Due to a significant adverse change in the business climate connected to the ClearLink DAS development project, the Company determined indicators of impairment were present as of June 30, 2016. The Company determined that equipment related to development and manufacturing of this product were fully impaired and recorded an impairment charge of $1.2 million during the three months ended June 30, 2016. There were no long-lived assets impaired during the three months ended September 30, 2016, or the six months ended June 30, 2015.

Other income (expense)
 
Three months ended September 30,
 
Six months ended September 30,
(in thousands)
2016
 
2015
 
Change
 
2016
 
2015
 
Change
Consolidated other
income (expense)
$
74

 
$
(61
)
 
$
135

 
$
91

 
$
(23
)
 
$
114

Other income (expense) contains interest income earned on short-term investments and foreign currency gains and losses. The foreign currency impacts related primarily to the receivables and cash denominated in Australian and Canadian currencies.
Income tax benefit (expense)
The Company recorded $8,000 and $10,000 of income tax expense in the three and six months ended September 30, 2016 , using an effective income tax rate of (0.10)% plus discrete items. The Company recorded $20,000 and $82,000 of income tax benefit in the three and six months ended September 30, 2015 , using an effective rate of 1.20% plus discrete items. The September 30, 2015, effective rate is impacted by the intraperiod allocation as a result of loss from continuing operations and income from discontinued operations, loss in a foreign jurisdiction with no valuation allowance, and states which base tax on gross margin and not pretax income.
Discontinued operations
The fiscal year 2016 income from discontinued operations resulted from the expiration of an indemnity period and release of a contingency reserve related to the sale of ConferencePlus.
Net income (loss)
Net loss was $5.8 million and $13.6 million in the three and six months ended September 30, 2016 , respectively, and $2.5 million and $6.3 million in the three and six months ended September 30, 2015 , respectively. The changes were a result of the cumulative effects of the variances identified above.
Liquidity and Capital Resources
Overview
At September 30, 2016 , the Company had $20.9 million in cash and cash equivalents consisting of bank deposits and government money market funds.
The Company believes that the existing sources of liquidity and cash from operations will satisfy cash flow requirements for the foreseeable future.
Future obligations and commitments, which are principally comprised of future minimum lease payments and inventory purchase obligations, were $9.9 million and $11.8 million at September 30, 2016 , and March 31, 2016 , respectively.

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Purchase obligations consist of inventory that arises in the normal course of business operations. Future obligations and commitments as of September 30, 2016 , consisted of the following:
 
Payments due within
(in thousands)
1 year
 
2 years
 
3 years
 
4 years
 
5 years
 
Thereafter
 
Total
Purchase obligations (1)
$
7,306

 
$

 
$

 
$

 
$

 
$

 
$
7,306

Future minimum operating lease
payments
2,058

 
373

 
116

 

 

 

 
2,547

Contingent consideration

 

 

 

 

 

 

Future obligations and
commitments
$
9,364

 
$
373

 
$
116

 
$

 
$

 
$

 
$
9,853

(1) A reserve for a net loss on firm purchase commitments of $452,000 and $388,000 is recorded on the balance sheet as of September 30, 2016 , and March 31, 2016 , respectively. The increase as of September 30, 2016 , is primarily due to ClearLink DAS purchase commitments. See Note 2 , Restructuring Charges .
Cash Flows
The Company’s operating activities used cash of $8.0 million in the six months ended September 30, 2016 , which resulted primarily from a $13.6 million net loss, adjusted for non-cash charges of $8.1 million of amortization, depreciation, long-lived asset impairments,restructuring, and stock-based compensation expense, and a $2.5 million increase in net working capital. The Company’s investing activities provided cash of $10.1 million , which resulted primarily from the net maturities of short-term investments of $10.6 million offset in part by $0.5 million of capital equipment purchases. In the six months ended September 30, 2016 , the Company’s financing activities used $0.3 million of cash resulting primarily from payment of contingent consideration.
As of September 30, 2016 , the Company had net deferred tax assets of approximately $46.3 million before a valuation allowance of $46.4 million, resulting in a net deferred tax liability of $24,000. Also, as of September 30, 2016 , the Company had a $3.0 million tax contingency reserve related to uncertain tax positions which is offset against deferred tax assets. The federal net operating loss carryforward begins to expire in fiscal year 2023.  Realization of deferred tax assets associated with the Company’s future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration, among other factors. The Company weighed positive and negative evidence to assess the need for a valuation allowance against deferred tax assets and whether a tax benefit should be recorded when taxable losses are incurred. The existence of a valuation allowance does not limit the availability of tax assets to reduce taxes payable when taxable income arises. Management periodically evaluates the recoverability of the deferred tax assets and may adjust the valuation allowance against deferred tax assets accordingly.
Off-Balance Sheet Arrangements
The Company has a 50% equity ownership in AccessTel Kentrox Australia PTY LTD (AKA). AKA distributes network management solutions provided by the Company and the other 50% owner to one customer. The Company holds equal voting control with the other owner. All actions of AKA are decided at the board level by majority vote. The Company also has provided an unlimited guarantee for the performance of the other 50% owner in AKA, which primarily provides support and engineering services to the customer. This guarantee was put in place at the request of the AKA customer. The guarantee, which is estimated to have a maximum potential future payment of $0.7 million , will stay in place as long as the contract between AKA and the customer is in place. The Company would have recourse against the other 50% owner in AKA in the event the guarantee is triggered. The Company determined that it could perform on the obligation it guaranteed at a positive rate of return and, therefore, did not assign value to the guarantee.
Critical Accounting Policies
A complete description of the Company’s significant accounting policies is discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 . There have been no material changes in the Company's critical accounting policies from those disclosed in the Annual Report on Form 10-K for the year ended March 31, 2016 .
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
As of September 30, 2016 , there were no material changes to the information provided in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2016 .


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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s senior management, including the Company’s chief executive officer and chief financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period covered by this quarterly report (the Evaluation Date). Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded as of the Evaluation Date that the Company’s disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in the Company’s Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2016 , that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the Company’s business and its previously owned operations. In the ordinary course of business, the Company is routinely audited and subject to inquiries by governmental and regulatory agencies. Although it is not possible to predict with certainty the outcome of these or other unresolved legal actions or the range of possible loss, management believes that the outcome of such proceedings will not have a material adverse effect on the Company's consolidated operations or financial condition.
ITEM 1A. RISK FACTORS
See “Risk Factors” in Part 1 – Item 1A of the Company's Annual Report on Form 10-K for the year ended March 31, 2016 , for information about risk factors. There have been no material changes in the Company's risk factors from those disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2016 , except as follows:

Risks Related to Our Business

We may experience significant delays or other complications in the design, manufacture, launch, and production ramp of new products, which could harm our business, prospects, financial condition, and operating results.

Many of our past sales have resulted from our ability to anticipate changes in technology, industry standards and service provider service offerings, and to develop and introduce new and enhanced products and services. Our continued ability to adapt to such changes will be a significant factor in maintaining or improving our competitive position and our prospects for growth. Additionally, other companies may succeed in developing and marketing products that are more effective and/or less costly than any product we may develop, or that are commercially accepted before any of our products. There can be no assurance that we will successfully introduce new products on a timely basis or achieve sales of new products in the future, particularly as customer demand shifts to new technology or the next generation of products. In addition, there can be no assurance that we will have the financial and product design resources necessary to continue to successfully develop new products or to otherwise successfully respond to changing technology standards and service provider service offerings. If we fail to deploy new products on a timely basis, our product sales will decrease and our competitive position, financial condition and results of operations would be materially and adversely affected. We have experience development delays in the past and may experience significant delays or other complications in bringing to market and ramping production of new products. Recently, we suspended future development of our ClearLink DAS product due to competitive products to ClearLink DAS in the market that have already launched and considerable gross margin depression on the product. The decision to suspend ClearLink DAS or other complications in the development, manufacture, launch, and production ramp of any other future product, could materially damage our business, prospects, financial condition, and operating results.

Risks Related to our Common Stock

Our Class A Common Stock could be delisted from the NASDAQ Global Select Market .

NASDAQ has established certain standards for the continued listing of a security on the NASDAQ Global Select Market. The standards for continued listing include, among other things, that the minimum bid price for the listed securities be at least $1.00 per share. Under these rules, a security is considered deficient if it fails to achieve at least a $1.00 closing bid price for a period of 30 consecutive business days. On July 1, 2016, we received a notification (the "Notice") from the Listing Qualifications Department of The NASDAQ Stock Market that the bid price for the Company’s Class A Common Stock has closed below the minimum $1.00 per share for 30 consecutive trading days in conflict with the NASDAQ rules for continued listing.

The Notice indicates we will be provided 180 calendar days, or until December 28, 2016, to regain compliance with the minimum $1.00 per share bid requirement. The Notice further indicates that the Company may regain compliance with the Rule if at any time before December 28, 2016, the bid price of the Company’s common stock closes at $1.00 per share or above for a minimum of 10 consecutive business days. In the event the Company does not regain compliance with the Rule by December 28, 2016, the Company may be eligible for an additional 180 calendar day compliance period if it elects to transfer to The NASDAQ Capital Market to take advantage of the additional compliance period offered on that market. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The NASDAQ Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period.


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If the closing bid price of our Class A Common Stock continues to fail to meet NASDAQ's minimum closing bid price requirement, or if we otherwise fail to meet all other applicable NASDAQ requirements, NASDAQ may make a determination to delist our Class A common stock. Any such delisting could adversely affect the market liquidity of our Class A Common Stock and the market price of our Class A Common Stock could decrease. A delisting could adversely affect our ability to obtain financing for our operations and/or result in a loss of confidence by investors, customers, suppliers or employees.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information about the Company’s repurchase activity for its Class A Common Stock during the three months ended September 30, 2016 .
Period
 
Total Number
of Shares
Purchased (a)
 
Average Price
Paid per Share
 
Total Number of Shares  Purchased as Part of Publicly Announced Programs (b)
 
Maximum Number (or Approximate Dollar Value) that May Yet Be Purchased Under the Programs (b)
July 1 - 31, 2016
 
24,311

 
$
0.7040

 

 
$
112,741

August 1 - 31, 2016
 

 

 

 
112,741

September 1 - 30, 2016
 
69,347

 
0.5767

 

 
112,741

Total
 
93,658

 
$
0.6097

 

 
$
112,741

 
(a)
In the three months ended September 30, 2016 , the Company repurchased 93,658 shares from employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock, restricted stock units and performance-based restricted stock units. These repurchases were not included in the authorized share repurchase program and had a weighted-average purchase price of $0.61 per share.
(b)
In August 2011, the Board of Directors authorized a share repurchase program whereby the Company may repurchase up to an additional aggregate of $20.0 million of its outstanding Class A Common Stock. There was approximately $0.1 million remaining under this program as of September 30, 2016 .
Items 3, 4 and 5 are not applicable and have been omitted.
ITEM 6. EXHIBITS  
 
Exhibit Number
 
Description
 
 
 
 
 
Exhibit 10.1
 
Offer Letter for Kirk R. Brannock, dated September 26, 2016 (incorporated by reference to Exhibit 10.1 to the Westell Technologies, Inc. Form 8-K filed on September 28, 2016).
 
 
 
 
 
Exhibit 10.2
 
Termination Letter for J. Thomas Gruenwald, dated September 26, 2016 (incorporated by reference to Exhibit 10.2 to the Westell Technologies, Inc. Form 8-K filed on September 28, 2016).
 
 
 
 
 
Exhibit 10.3
 
Form of Restricted Stock Unit Award Agreement for award granted to Kirk R. Brannock on October 17, 2016.
 
 
 
 
 
Exhibit 10.4
 
Form of Restricted Stock Unit Award Agreement for award granted to the leadership team on November 1, 2016.
 
 
 
 
 
Exhibit 31.1
 
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
Exhibit 31.2
 
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
Exhibit 32.1
 
Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
Exhibit 101
 
The following financial information from the Quarterly Report on Form 10-Q for the period ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to the Condensed Consolidated Financial Statements.


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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
WESTELL TECHNOLOGIES, INC.
 
 
 
(Registrant)
 
 
 
DATE:
November 4, 2016
 
By:
/s/ Kirk R. Brannock
 
 
 
 
Kirk R. Brannock
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
By:
/s/ Thomas P. Minichiello
 
 
 
 
Thomas P. Minichiello
 
 
 
 
Chief Financial Officer


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Table of Contents

WESTELL TECHNOLOGIES, INC.
EXHIBIT INDEX
 
 
Exhibit Number
 
Description
 
 
 
 
 
Exhibit 10.1
 
Offer Letter for Kirk R. Brannock, dated September 26, 2016 (incorporated by reference to Exhibit 10.1 to the Westell Technologies, Inc. Form 8-K filed on September 28, 2016).
 
 
 
 
 
Exhibit 10.2
 
Termination Letter for J. Thomas Gruenwald, dated September 26, 2016 (incorporated by reference to Exhibit 10.2 to the Westell Technologies, Inc. Form 8-K filed on September 28, 2016).
 
 
 
 
 
Exhibit 10.3
 
Form of Restricted Stock Unit Award Agreement for award granted to Kirk R. Brannock on October 17, 2016.
 
 
 
 
 
Exhibit 10.4
 
Form of Restricted Stock Unit Award Agreement for award granted to the leadership team on November 1, 2016.
 
 
 
 
 
Exhibit 31.1
 
Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
Exhibit 31.2
 
Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
Exhibit 32.1
 
Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
Exhibit 101
 
The following financial information from the Quarterly Report on Form 10-Q for the period ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Notes to the Condensed Consolidated Financial Statements.


27


Exhibit 10.3
WESTELL TECHNOLOGIES, INC.

RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT is granted by WESTELL TECHNOLOGIES, INC. (the Company ”) to Kirk R. Brannock (the “ Participant ”) this 17th day of October 2016 (the “ Grant Date ”) pursuant to the Company’s 2015 Omnibus Incentive Compensation Plan (the Plan ”). The applicable terms of the Plan are incorporated herein by reference, including the definitions of terms contained therein.

WHEREAS, the Company believes it to be in the best interests of the Company and its stockholders for the Participant to have an incentive tied to the performance of the Company and the Company’s Class A Common Stock (the “ Common Stock ”) in order that the Participant will have a greater incentive to work for and manage the Company’s affairs in such a way that its shares may become more valuable; and

WHEREAS, the Company has determined to grant the Participant restricted stock units which assuming certain conditions and other requirements specified below are satisfied convert into shares of Common Stock pursuant to the terms of the Plan and this Agreement;

NOW, THEREFORE, in consideration of the premises and of the services to be performed by the Participant and other conditions required hereunder, the Company and the Participant intending to be legally bound hereby agree as follows:

1.      Restricted Stock Units Award . The Company hereby grants to the Participant 225,000 “ Restricted Stock Units .” The Restricted Stock Units granted under this Agreement are units that will be reflected in a book account maintained by the Company until the shares of Common Stock have been issued pursuant to Section 3 or have been forfeited. This Award is subject to the terms and conditions of this Agreement and the Plan.

2.      Vesting of Award .

(a)      Vesting Schedule . The Restricted Stock Units shall become 100% vested if the Company achieves the performance objectives set forth in Exhibit 1 , provided that the Participant has not incurred a Termination of Employment prior to the achievement of the performance objectives. The Committee shall make such determination on or prior to the first anniversary of the Grant Date (and prior to any Termination of Employment). The Committee’s determination shall be final, conclusive and binding on the Company and the Participant.

(b)      Vesting Conditions and Provisions Applicable to Award . The period of time during which the Restricted Stock Units are forfeitable is referred to as the “ Restricted Period .” Except as provided in Section 5 if the Participant’s employment with the Company or one of its subsidiaries terminates during the Restricted Period for any reason, then the unvested Restricted Stock Units shall be forfeited to the Company on the date of such termination, without any further obligation of the Company to the Participant and all of the Participant’s rights with respect to unvested Restricted Stock Units shall terminate.

Any portion of the Restricted Stock Units that have not become fully vested on the date immediately following the first anniversary of the Grant Date shall be cancelled and forfeited for no consideration.






3.      Conversion of the Restricted Stock Units to Common Stock . Immediately following the vesting of Restricted Stock Units under Section 2, the Company shall issue to the Participant a certificate representing one share of Common Stock for each Restricted Stock Unit becoming vested. The Company shall not be required to issue fractional shares of Common Stock upon the settlement of the Restricted Stock Units.

4.      Rights During the Restricted Period . Prior to vesting as described in Section 2, the Participant will not receive any certificates with respect to the Restricted Stock Units and will not have any right to vote the Restricted Stock Units. The Participant will not be deemed a stockholder of the Company with respect to any of the Restricted Stock Units. The Restricted Stock Units may not be sold, assigned, transferred, pledged, encumbered or otherwise disposed of prior to vesting. After Restricted Stock Units are converted to shares of Common Stock, the Participant shall receive a cash payment or payments from the Company equal to any cash dividends paid with respect to the number of shares of Restricted Stock relating to Restricted Stock Units that are earned hereunder during the period beginning with the date of Award through the date the shares of Common Stock become issued and outstanding.

5.      Change in Control .
(a) Notwithstanding the provisions of Section 2, in the event of a Triggering Event or a termination of Participant’s employment by the Company or one of its subsidiaries without Cause no more than three months prior to and in anticipation of a Change in Control, the Participant will become immediately vested in all Restricted Stock Units.
(b) For purposes of this Agreement, “Change in Control”, “Triggering Event” and “Cause” have the following meaning:
(i) A “ Change in Control ” of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:
(A) the consummation of the purchase by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, except the Voting Trust (together with its affiliates) formed pursuant to the Voting Trust Agreement dated February 23, 1994, as amended, among Robert C. Penny III and Melvin J. Simon, as co-trustees, and certain members of the Penny family and the Simon family, of ownership of shares representing more than 50% of the combined voting power of the Company’s voting securities entitled to vote generally (determined after giving effect to the purchase);
(B) a reorganization, merger or consolidation of the Company, in each case, with respect to which persons who were shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own 50% or more of the combined voting power entitled to vote generally of the Company or the surviving or resulting entity (as the case may be); or
(C) a sale of all or substantially all of the Company’s assets, except that a Change in Control shall not exist under this clause (C) if the Company or persons who were shareholders of the Company immediately prior to such sale continue to collectively own 50% or more of the combined voting power entitled to vote generally of the acquirer; or
(D) any other transaction the Administrator, in its sole discretion specifies in writing.
(ii) A Triggering Event shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:





(A) the Participant resigns from and terminates his employment with the Company for Good Reason following a Change in Control by notifying the Company or its successor within ninety (90) days after the initial occurrence of the event constituting Good Reason specifying in reasonable detail the basis for the Good Reason.
(B) the Company or its successor terminates the Participant’s employment with the Company without Cause within two years of the date on which a Change in Control occurred.
(iii) Good Reason means that concurrent with or within twelve months following a Change in Control, the Participant’s base salary is reduced or the Participant’s total compensation and benefits package is materially reduced without the Participant’s written approval, or the Participant’s primary duties and responsibilities prior to the Change in Control are materially reduced or modified in such a way as to be qualitatively beneath the duties and responsibilities befitting of a person holding a similar position with a company of comparable size in the Company’s business in the United States, without the Participant’s written approval (other than may arise as a result of the Company ceasing to be a reporting company under the Exchange Act or ceasing to be listed on NASDAQ), or the Participant is required, without his consent, to relocate his principal office to a location, or commence principally working out of another office located, more than 30 miles from the Company’s office which represented the Participant’s principal work location.
(iv) Cause means (A) the failure by the Participant to comply with a particular directive or request from the Board of the Company regarding a matter material to the Company, and the failure thereafter by the Participant to reasonably address and remedy such noncompliance within thirty (30) days (or such shorter period as shall be reasonable or necessary under the circumstances) following the Participant’s receipt of written notice from the Board confirming the Participant’s noncompliance; (B) the taking of an action by the Participant regarding a matter material to the Company, which action the Participant knew at the time the action was taken to be specifically contrary to a particular directive or request from the Board, (C) the failure by the Participant to comply with the written policies of the Company regarding a matter material to the Company, including expenditure authority, and the failure thereafter by the Participant to reasonably address and remedy such noncompliance within thirty (30) days (or such shorter period as shall be reasonable or necessary under the circumstances) following the Participant’s receipt of written notice from the Board confirming the Participant’s noncompliance, but such opportunity to cure shall not apply if the failure is not curable; (D) the Participant’s engaging in willful, reckless or grossly negligent conduct or misconduct which, in the good faith determination of the Company’s Board, is materially injurious to the Company monetarily or otherwise; (E) the aiding or abetting a competitor or other breach by the Participant of his fiduciary duties to the Company; (F) a material breach by the Participant of his obligations of confidentiality or nondisclosure or (if applicable) any breach of the Participant’s obligations of noncompetition or nonsolicitation under any agreement between the Participant and the Company; (G) the use or knowing possession by the Participant of illegal drugs on the premises of the Company; or (H) the Participant is convicted of, or pleads guilty or no contest to, a felony or a crime involving moral turpitude.
(c) Solely for purposes of the definitions of “Triggering Event”, “Good Reason” and “Cause” under this Section 5 (and not for purposes of the definition of “Change in Control” hereunder), the Company shall be deemed to include any of Westell Technologies, Inc.’s direct and indirect subsidiary companies and the term Board shall be deemed to include the Board of Directors of any such subsidiary.





6.      Interpretation by Administrator . The Participant agrees that any dispute or disagreement that may arise in connection with this Agreement shall be resolved by the Administrator, in its sole discretion, and that any interpretation by the Administrator of the terms of this Agreement, the Award or the Plan and any determination made by the Administrator under this Agreement or such plan may be made in the sole discretion of the Administrator.
7.      Miscellaneous .
a) This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein between residents thereof.
b) This Agreement may not be amended or modified except by the written consent of the parties hereto.
c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.
d) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the benefit of the Participant, the Beneficiary and the personal representative(s) and heirs of the Participant, except that the Participant may not transfer any interest in any Restricted Stock Units prior to the release of the restrictions imposed by Sections 2 and 4.

[ The remainder of this page intentionally left blank. Signature page follows. ]







IN WITNESS WHEREOF, the parties hereto have, personally or by a duly authorized representative, executed this Agreement as of the Grant Date first above written.
Westell Technologies, Inc.

By:      /s/ Thomas P. Minichiello                     
Name:      Thomas P. Minichiello
Title:      Chief Financial Officer



/s/ Kirk R. Brannock
_______________________________________

Kirk R. Brannock






Exhibit 1

Performance Goals


Reduce annual non-GAAP 1 operating expenses by the end of the third quarter of fiscal 2017 so that 4Q17 is at or below $6.5 million (equivalent to an annual run rate at or below $26 million), inclusive of targeted incentive compensation expense. Non-GAAP operating expenses will be the result of adjustments from audited GAAP results, consistent with Westell’s practice (see below) and reflected in the final Board approved FY18 operating plan.

OR
Report a positive non-GAAP 1 Operating Profit for either the 3Q17 or 4Q17 (not a non-GAAP 1 Operating Loss).

1 Non-GAAP operating expenses exclude stock-based compensation; acquisition-related items such as amortization of intangible assets, adjustments to fair-value, impairments of goodwill or any other acquired asset, and any other purchase accounting adjustments; charges related to restructurings, separations, and transitions; and any other unusual item or items that are unrelated to and/or are not expected to recur in the ongoing operation or ordinary course of the business.






Exhibit 10.4
WESTELL TECHNOLOGIES, INC.

LEADERSHIP TEAM FORM of RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT is granted by WESTELL TECHNOLOGIES, INC. (the “ Company ”) to _______________________ (the “ Participant ”) this first day of November 2016 (the “ Grant Date ”) pursuant to the Company’s 2015 Omnibus Incentive Compensation Plan (the “ Plan ”). The applicable terms of the Plan are incorporated herein by reference, including the definitions of terms contained therein.
WHEREAS, the Company believes it to be in the best interests of the Company and its stockholders for the Participant to have an incentive tied to the performance of the Company and the Company’s Class A Common Stock (the “ Common Stock ”) in order that the Participant will have a greater incentive to work for and manage the Company’s affairs in such a way that its shares may become more valuable; and
WHEREAS, the Company has determined to grant the Participant restricted stock units which assuming certain conditions and other requirements specified below are satisfied convert into shares of Common Stock pursuant to the terms of the Plan and this Agreement;
NOW, THEREFORE, in consideration of the premises and of the services to be performed by the Participant and other conditions required hereunder, the Company and the Participant intending to be legally bound hereby agree as follows:
1.      Restricted Stock Units Award . The Company hereby grants to the Participant __________________ “ Restricted Stock Units .” The Restricted Stock Units granted under this Agreement are units that will be reflected in a book account maintained by the Company until the shares of Common Stock have been issued pursuant to Section 3 or have been forfeited. This Award is subject to the terms and conditions of this Agreement and the Plan.
2.      Vesting of Award.
(a)      Vesting Schedule. The Restricted Stock Units shall become 100% vested and nonforfeitable on the first anniversary of the Grant Date, only if the Company achieves the performance objectives set forth in Exhibit 1, provided that the Participant has not incurred a Termination of Employment prior to prior to the first anniversary of the Grant Date. The Committee shall make such determination as to whether the performance objective was achieved on or prior to the first anniversary of the Grant Date. The Committee’s determination shall be final, conclusive and binding on the Company and the Participant.
(b)      Vesting Conditions and Provisions Applicable to Award. The period of time during which the Restricted Stock Units are forfeitable is referred to as the “ Restricted Period .” Except as provided in Section 5 if the Participant’s employment with the Company or one of its subsidiaries terminates during the Restricted Period for any reason, then the unvested Restricted Stock Units shall be forfeited to the Company on the date of such termination, without any further obligation of the Company to the Participant and all of the Participant’s rights with respect to unvested Restricted Stock Units shall terminate.
Any portion of the Restricted Stock Units that have not become fully vested on the date immediately following the first anniversary of the Grant Date shall be cancelled and forfeited for no consideration.
3.      Conversion of the Restricted Stock Units to Common Stock. Immediately following the vesting of Restricted Stock Units under Section 2, the Company shall issue to the Participant a certificate representing one share of Common Stock for each Restricted Stock Unit becoming vested. The Company shall not be required to issue fractional shares of Common Stock upon the settlement of the Restricted Stock Units.






4.      Rights During the Restricted Period. Prior to vesting as described in Section 2, the Participant will not receive any certificates with respect to the Restricted Stock Units and will not have any right to vote the Restricted Stock Units. The Participant will not be deemed a stockholder of the Company with respect to any of the Restricted Stock Units. The Restricted Stock Units may not be sold, assigned, transferred, pledged, encumbered or otherwise disposed of prior to vesting. After Restricted Stock Units are converted to shares of Common Stock, the Participant shall receive a cash payment or payments from the Company equal to any cash dividends paid with respect to the number of shares of Restricted Stock relating to Restricted Stock Units that are earned hereunder during the period beginning with the date of Award through the date the shares of Common Stock become issued and outstanding.
5.      Change in Control.
(a) Notwithstanding the provisions of Section 2, in the event of a Triggering Event or a termination of Participant’s employment by the Company or one of its subsidiaries without Cause no more than three months prior to and in anticipation of a Change in Control, the Participant will become immediately vested in all Restricted Stock Units.
(b) For purposes of this Agreement, “ Change in Control ”, “ Triggering Event ” and “ Cause ” have the following meaning:
(i) A “ Change in Control ” of the Company shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:
(A) the consummation of the purchase by any person, entity or group of persons, within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, except the Voting Trust (together with its affiliates) formed pursuant to the Voting Trust Agreement dated February 23, 1994, as amended, among Robert C. Penny III and Melvin J. Simon, as co-trustees, and certain members of the Penny family and the Simon family, of ownership of shares representing more than 50% of the combined voting power of the Company’s voting securities entitled to vote generally (determined after giving effect to the purchase);
(B) a reorganization, merger or consolidation of the Company, in each case, with respect to which persons who were shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own 50% or more of the combined voting power entitled to vote generally of the Company or the surviving or resulting entity (as the case may be); or
(C) a sale of all or substantially all of the Company’s assets, except that a Change in Control shall not exist under this clause (C) if the Company or persons who were shareholders of the Company immediately prior to such sale continue to collectively own 50% or more of the combined voting power entitled to vote generally of the acquirer; or
(D) any other transaction the Administrator, in its sole discretion specifies in writing.
(ii) A “ Triggering Event ” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied:
(A)
the Participant resigns from and terminates his employment with the Company for Good Reason following a Change in Control by notifying the Company or its successor within ninety (90) days after the initial occurrence of the event constituting Good Reason specifying in reasonable detail the basis for the Good Reason.
(B)
the Company or its successor terminates the Participant’s employment with the Company without Cause within two years of the date on which a Change in Control occurred.
(iii) “ Good Reason ” means that concurrent with or within twelve months following a Change in Control, the Participant’s base salary is reduced or the Participant’s total compensation and benefits package is materially reduced without the Participant’s written approval, or the Participant’s





primary duties and responsibilities prior to the Change in Control are materially reduced or modified in such a way as to be qualitatively beneath the duties and responsibilities befitting of a person holding a similar position with a company of comparable size in the Company’s business in the United States, without the Participant’s written approval (other than may arise as a result of the Company ceasing to be a reporting company under the Exchange Act or ceasing to be listed on NASDAQ), or the Participant is required, without his consent, to relocate his principal office to a location, or commence principally working out of another office located, more than 30 miles from the Company’s office which represented the Participant’s principal work location.
(iv) “ Cause ” means (A) the failure by the Participant to comply with a particular directive or request from the Board of the Company regarding a matter material to the Company, and the failure thereafter by the Participant to reasonably address and remedy such noncompliance within thirty (30) days (or such shorter period as shall be reasonable or necessary under the circumstances) following the Participant’s receipt of written notice from the Board confirming the Participant’s noncompliance; (B) the taking of an action by the Participant regarding a matter material to the Company, which action the Participant knew at the time the action was taken to be specifically contrary to a particular directive or request from the Board, (C) the failure by the Participant to comply with the written policies of the Company regarding a matter material to the Company, including expenditure authority, and the failure thereafter by the Participant to reasonably address and remedy such noncompliance within thirty (30) days (or such shorter period as shall be reasonable or necessary under the circumstances) following the Participant’s receipt of written notice from the Board confirming the Participant’s noncompliance, but such opportunity to cure shall not apply if the failure is not curable; (D) the Participant’s engaging in willful, reckless or grossly negligent conduct or misconduct which, in the good faith determination of the Company’s Board, is materially injurious to the Company monetarily or otherwise; (E) the aiding or abetting a competitor or other breach by the Participant of his fiduciary duties to the Company; (F) a material breach by the Participant of his obligations of confidentiality or nondisclosure or (if applicable) any breach of the Participant’s obligations of noncompetition or nonsolicitation under any agreement between the Participant and the Company; (G) the use or knowing possession by the Participant of illegal drugs on the premises of the Company; or (H) the Participant is convicted of, or pleads guilty or no contest to, a felony or a crime involving moral turpitude.
(c) Solely for purposes of the definitions of “ Triggering Event ”, “ Good Reason ” and “ Cause ” under this Section 5 (and not for purposes of the definition of “ Change in Control ” hereunder), the Company shall be deemed to include any of Westell Technologies, Inc.’s direct and indirect subsidiary companies and the term Board shall be deemed to include the Board of Directors of any such subsidiary.
6.      Interpretation by Administrator. The Participant agrees that any dispute or disagreement that may arise in connection with this Agreement shall be resolved by the Administrator, in its sole discretion, and that any interpretation by the Administrator of the terms of this Agreement, the Award or the Plan and any determination made by the Administrator under this Agreement or such plan may be made in the sole discretion of the Administrator.
7.      Miscellaneous.
(a) This Agreement shall be governed and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein between residents thereof.
(b) This Agreement may not be amended or modified except by the written consent of the parties hereto.
(c) The captions of this Agreement are inserted for convenience of reference only and shall not be taken into account in construing this Agreement.
(d) This Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns and shall be binding upon and inure to the benefit of the Participant, the Beneficiary and the





personal representative(s) and heirs of the Participant, except that the Participant may not transfer any interest in any Restricted Stock Units prior to the release of the restrictions imposed by Sections 2 and 4.

[The remainder of this page intentionally left blank. Signature page follows.]








IN WITNESS WHEREOF, the parties hereto have, personally or by a duly authorized representative, executed this Agreement as of the Grant Date first above written.
Westell Technologies, Inc.

By:                         
Name:      Thomas P. Minichiello
Title:      Chief Financial Officer



_______________________________________

Name (Printed):      ____________________     






Exhibit 1

Performance Goals


Reduce annual non-GAAP 1 operating expenses by the end of the third quarter of fiscal 2017 so that 4Q17 is at or below $6.5 million (equivalent to an annual run rate at or below $26 million), inclusive of targeted incentive compensation expense. Non-GAAP operating expenses will be the result of adjustments from audited GAAP results, consistent with Westell’s practice (see below) and reflected in the final Board approved FY18 operating plan.

OR
Report a positive non-GAAP 1 Operating Profit for both the 3Q17 and 4Q17 (not a non-GAAP 1 Operating Loss).

1 Non-GAAP operating expenses exclude stock-based compensation; acquisition-related items such as amortization of intangible assets, adjustments to fair-value, impairments of goodwill or any other acquired asset, and any other purchase accounting adjustments; charges related to restructurings, separations, and transitions; and any other unusual item or items that are unrelated to and/or are not expected to recur in the ongoing operation or ordinary course of the business.





Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Kirk R. Brannock, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2016 of the Company;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
(5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: November 4, 2016
 
/s/ Kirk R. Brannock
 
Kirk R. Brannock
Chief Executive Officer




Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Thomas P. Minichiello, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the period ended September 30, 2016 of the Company;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
(4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
(5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: November 4, 2016
 
 
/s/ Thomas P. Minichiello
Thomas P. Minichiello
Chief Financial Officer




Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Westell Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that based on their knowledge:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company as of and for the periods covered in the Report.
 
/s/ Kirk R. Brannock
Kirk R. Brannock
Chief Executive Officer

November 4, 2016
 
/s/ Thomas P. Minichiello
Thomas P. Minichiello
Chief Financial Officer

November 4, 2016
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Westell Technologies, Inc. and will be retained by Westell Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-Q and shall not be considered filed as part of the Form 10-Q.