UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x    
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
¨    
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from          to    
Commission File Number 0-27266
 
Westell Technologies, Inc.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
36-3154957
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification Number)
 
 
750 North Commons Drive, Aurora, IL
 
60504
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (630) 898-2500
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
¨
  
Accelerated Filer
 
x
 
 
 
 
Non-Accelerated Filer
 
¨
  
Smaller Reporting Company
 
¨
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 21, 2015:
Class A Common Stock, $0.01 Par Value – 46,965,244 shares
Class B Common Stock, $0.01 Par Value – 13,937,151 shares


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.
26
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained herein that are not historical facts or that contain the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” “plan,” “should,” or derivatives thereof and other words of similar meaning are forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, product demand and market acceptance risks, 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 our Form 10-K for the fiscal year ended March 31, 2015, under Item 1A - Risk Factors. The Company undertakes no obligation to publicly update these forward-looking statements to reflect current events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.
Trademarks
The following terms used in this filing are our trademarks: ClearLink®, Kentrox®, Optima Management System®,
UDIT®, WESTELL TECHNOLOGIES®, and Westell®. All other trademarks appearing in this filing are the property of their holders.



2



WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 
(unaudited)
 
 
 
June 30,
2015
 
March 31,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
20,847

 
$
14,026

Short-term investments
16,071

 
23,906

Accounts receivable (net of allowance of $345 and $408 at June 30, 2015, and March 31, 2015, respectively)
14,452

 
11,845

Inventories
14,785

 
16,205

Prepaid expenses and other current assets
3,423

 
3,285

Deferred income taxes
958

 
973

Land held-for-sale
—

 
264

Total current assets
70,536

 
70,504

Property and equipment, gross
16,538

 
16,084

Less accumulated depreciation and amortization
(12,778
)
 
(12,481
)
Property and equipment, net
3,760

 
3,603

Intangible assets, net
24,543

 
25,942

Other non-current assets
184

 
258

Total assets
$
99,023

 
$
100,307

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
7,004

 
$
4,011

Accrued expenses
2,425

 
3,157

Accrued restructuring
1,092

 
1,161

Accrued compensation
1,589

 
974

Contingent consideration
1,265

 
1,184

Deferred revenue
1,859

 
2,415

Total current liabilities
15,234

 
12,902

Deferred revenue non-current
1,032

 
751

Deferred income tax liability
1,114

 
1,019

Accrued restructuring non-current
1,372

 
1,642

Contingent consideration non-current
169

 
400

Other non-current liabilities
376

 
409

Total liabilities
19,297

 
17,123

Commitments and contingencies (Note 9)


 

Stockholders’ equity:
 
 
 
Class A common stock, par $0.01, Authorized – 109,000,000 shares
469

 
468

Outstanding – 46,910,777 and 46,839,361 shares at June 30, 2015, and March 31, 2015,
respectively
 
 
 
Class B common stock, par $0.01, Authorized – 25,000,000 shares
139

 
139

Issued and outstanding – 13,937,151 shares at both June 30, 2015, and March 31, 2015
 
 
 
Preferred stock, par $0.01, Authorized – 1,000,000 shares
—

 
—

Issued and outstanding – none
 
 
 
Additional paid-in capital
413,482

 
413,026

Treasury stock at cost – 17,506,206 and 17,466,855 shares at June 30, 2015, and March 31, 2015, respectively
(35,115
)
 
(35,066
)
Cumulative translation adjustment
608

 
608

Accumulated deficit
(299,857
)
 
(295,991
)
Total stockholders’ equity
79,726

 
83,184

Total liabilities and stockholders’ equity
$
99,023

 
$
100,307




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

3

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
Three months ended June 30,
 
2015
 
2014
Revenue
$
21,570

 
$
27,825

Cost of revenue
13,141

 
18,141

Gross profit
8,429

 
9,684

Operating expenses:
 
 
 
Sales and marketing
3,196

 
3,421

Research and development
5,086

 
4,475

General and administrative
2,969

 
3,054

Intangible amortization
1,399

 
1,585

Restructuring
17

 
57

Total operating expenses
12,667

 
12,592

Operating income (loss)
(4,238
)
 
(2,908
)
Other income (expense), net
38

 
61

Income (loss) before income taxes and discontinued operations
(4,200
)
 
(2,847
)
Income tax benefit (expense)
62

 
29

Net income (loss) from continuing operations
(4,138
)
 
(2,818
)
Discontinued Operations:
 
 
 
Income from discontinued operations, net of income tax of $172 for the three months ended June 30, 2015
272

 
—

Net income (loss) (1)
$
(3,866
)
 
$
(2,818
)
Basic net income (loss) per share:
 
 
 
Basic net income (loss) from continuing operations
$
(0.07
)
 
$
(0.05
)
Basic net income (loss) from discontinued operations
—

 
—

Basic net income (loss)(2)
$
(0.06
)
 
$
(0.05
)
Diluted net income (loss) per share:
 
 
 
Diluted net income (loss) from continuing operations
$
(0.07
)
 
$
(0.05
)
Diluted net income (loss) from discontinued operations
—

 
—

Diluted net income (loss)(2)
$
(0.06
)
 
$
(0.05
)
Weighted-average number of common shares outstanding:
 
 
 
Basic
60,703

 
59,715

Effect of dilutive securities: restricted stock, restricted stock units, performance stock units and stock options(3)
—

 
—

Diluted
60,703

 
59,715


(1) Net income (loss) and comprehensive income (loss) are the same for the periods reported.
(2) Totals may not sum due to rounding.
(3) The Company had 3.3 million and 4.0 million shares represented by common stock equivalents for the three months ended June 30, 2015 and June 30, 2014, respectively, 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.


4

WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Three months ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(3,866
)
 
$
(2,818
)
Reconciliation of net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
1,696

 
1,806

Stock-based compensation
457

 
554

Restructuring
17

 
57

Deferred taxes
110

 
—

Exchange rate loss
(6
)
 
(27
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(2,607
)
 
(1,075
)
Inventories
1,420

 
993

Prepaid expenses and other current assets
(132
)
 
(269
)
Other assets
56

 
40

Deferred revenue
(275
)
 
(425
)
Accounts payable and accrued expenses
1,906

 
1,219

Accrued compensation
615

 
(2,574
)
Net cash provided by (used in) operating activities
(609
)
 
(2,519
)
Cash flows from investing activities:
 
 
 
Maturities of held-to-maturity short-term debt securities
7,431

 
6,440

Maturities of other short-term investments
2,134

 
—

Purchases of held-to-maturity short-term debt securities
(1,730
)
 
(3,239
)
Purchases of other short-term investments
—

 
(745
)
Proceeds from sale of land
264

 
—

Purchases of property and equipment
(455
)
 
(723
)
Acquisitions, net of cash acquired
—

 
(304
)
Net cash provided by (used in) investing activities
7,644

 
1,429

Cash flows from financing activities:
 
 
 
Purchases of treasury stock
(49
)
 
(585
)
Proceeds from stock options exercised
—

 
130

Payment of contingent consideration
(167
)
 
(575
)
Net cash provided by (used in) financing activities
(216
)
 
(1,030
)
Gain (loss) of exchange rate changes on cash
2

 
16

Net increase (decrease) in cash and cash equivalents
6,821

 
(2,104
)
Cash and cash equivalents, beginning of period
14,026

 
35,793

Cash and cash equivalents, end of period
$
20,847

 
$
33,689

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

5



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 and sales of Company products in Canada. On April 1, 2013, Westell, Inc. acquired 100% of the outstanding shares of Kentrox, Inc. (Kentrox). Kentrox designed and distributed intelligent site management solutions that provided comprehensive monitoring, management and control of any site. On March 1, 2014, Westell, Inc. acquired 100% of the outstanding shares of Cellular Specialties, Inc. (CSI). CSI designs and develops in-building wireless solutions, including distributed antenna systems (DAS) products and small cell connectivity equipment. The assets and liabilities acquired and the results of operations relating to Kentrox and CSI are included in the Company's Condensed Consolidated Financial Statements from the dates of acquisitions.
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, 2015. 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 June 30, 2015, 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 2016.
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, goodwill and intangible assets fair value, depreciation, income taxes, and contingencies, among other things. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements (ASU 2015-10), which covers a wide range of topics in the FASB Accounting Standards Codification (the "Codification"). The amendments in this update represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect of current accounting practice or create a significant administrative cost at most entities. The amendments in ASU 2015-10 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted. The Company is in the process of evaluating the impact the adoption of ASU 2015-10 will have its Consolidated Financial Statements or related disclosures.
In August 2014, the FASB issued ASU No. 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 No. 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. The ASU is based on the principle that an

6

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 was originally effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and early adoption was not permitted. On July 9, 2015, the FASB voted to defer the effective date by only year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption for the standard, but not before the original effective date of December 15, 2016. The Company is currently assessing the impact that ASU 2014-09 will have on its Consolidated Financial Statements. .

Note 2. Restructuring Charge
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 and impacted 17 employees. 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 Company recognized a restructuring expense of $17,000 in the three months ended June 30, 2015. As of June 30, 2015, $1.1 million and $1.4 million of the restructuring costs primarily related to the office space are unpaid and accrued on the Condensed Consolidated Balance Sheets presented in accrued restructuring and accrued restructuring non-current, respectively. As of March 31, 2015, $1.2 million and $1.6 million of the restructuring costs primarily related to the office space 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 by fiscal year 2018 concurrent with the termination date of the contractual lease.
In the first quarter of fiscal year 2014, the Company acquired Kentrox and identified redundant employees who exited the business after a period of time. The Company recognized a restructuring expense of $57,000 in the three months ended June 30, 2014 for severance for these transitional employees. The total cost of this action was $390,000.
Total liability for restructuring charges and their utilization for the three months ended June 30, 2015, and 2014, are summarized as follows: 
 
Three months ended June 30, 2015
 
Three months ended June 30, 2014
(in thousands)
Employee-related
 
Other costs
 
Total
 
Employee-related
Liability at beginning of period
$
15

 
$
2,789

 
$
2,804

 
$
57

Charged
17

 
—

 
17

 
57

Paid
(32
)
 
(325
)
 
(357
)
 
(74
)
Liability at end of period
$
—

 
$
2,464

 
$
2,464

 
$
40


7

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. The CODM continues to define segment profit as gross profit less research and development expenses. The accounting policies of the segments are the same as those for Westell Technologies, Inc. described in the summary of significant accounting policies.
The Company’s two 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-party hosts to fine tune radio frequency (RF) signals that helps extend coverage to areas not served well or at all by traditional cell sites.
Communication Solutions Group (CSG) Segment
The CSG segment solutions include intelligent site management (ISM), cell site optimization (CSO), and outside plant (OSP) as follows:
• ISM solutions include a suite of Remote monitoring and control devices which, when combined with the Company's Optima management system, provides comprehensive machine-to-machine (M2M) communications that enable operators to remotely monitor, manage, and control site infrastructure and support systems.
• CSO solutions consist of 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.
• OSP solutions, which are sold to wireline and wireless service providers as well as industrial network operators, consist of a broad range of offerings, including cabinets, enclosures, and mountings; synchronous optical networks/time division multiplexing (SONET/TDM) network interface units; power distribution units; copper and fiber connectivity panels; hardened Ethernet switches; and systems integration services.


8

Segment information for the three months ended June 30, 2015, and 2014 is set forth below: 


 
 
Three months ended June 30, 2015
(in thousands)
 
IBW
 
CSG
 
Total
Revenue
 
$
9,070

 
$
12,500

 
$
21,570

Cost of revenue
 
5,069

 
8,072

 
13,141

Gross profit
 
4,001

 
4,428

 
8,429

Gross margin
 
44.1
%
 
35.4
%
 
39.1
%
Research and development
 
3,162

 
1,924

 
5,086

Segment profit (loss)
 
$
839

 
$
2,504

 
3,343

Operating expenses:
 
 
 
 
 


Sales and marketing
 
 
 
 
 
3,196

General and administrative
 
 
 
 
 
2,969

Intangible amortization
 
 
 
 
 
1,399

Restructuring
 
 
 
 
 
17

Operating income (loss)
 
 
 
 
 
(4,238
)
Other income (expense), net
 
 
 
 
 
38

Income tax benefit (expense)
 
 
 
 
 
62

Net income (loss) from continuing operations
 
 
 
 
 
$
(4,138
)
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2014
(in thousands)
 
IBW
 
CSG
 
Total
Revenue
 
$
14,097

 
$
13,728

 
$
27,825

Cost of revenue
 
8,286

 
9,855

 
18,141

Gross profit
 
5,811

 
3,873

 
9,684

Gross margin
 
41.2
%

28.2
%
 
34.8
%
Research and development
 
2,195

 
2,280

 
4,475

Segment profit (loss)
 
$
3,616

 
$
1,593

 
5,209

Operating expenses:
 
 
 
 
 


Sales and marketing
 
 
 
 
 
3,421

General and administrative
 
 
 
 
 
3,054

Intangible amortization
 
 
 
 
 
1,585

Restructuring
 
 
 
 
 
57

Operating income (loss)
 
 
 


 
(2,908
)
Other income (expense), net
 
 
 
 
 
61

Income tax benefit (expense)
 
 
 
 
 
29

Net income (loss) from continuing operations
 
 
 


 
$
(2,818
)

Segment asset information is not reported to or used by the CODM.
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)
June 30, 2015
 
March 31, 2015
Raw materials
$
7,244

 
$
5,392

Work-in-process
384

 
189

Finished goods
7,157

 
10,624

    Total inventories
$
14,785

 
$
16,205


9


Note 5. Stock-Based Compensation
The following table is a summary of total stock-based compensation resulting from stock options, restricted stock, restricted stock units (RSUs) and performance stock units (PSUs), during the three months ended June 30, 2015, and 2014: 
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
Stock-based compensation expense
 
$
457

 
$
554

Income tax benefit
 
—

 
—

Total stock-based compensation expense after taxes
 
$
457

 
$
554

The stock options, restricted stock awards, and RSUs awarded in the three months ended June 30, 2015 vest in equal annual installments over four years. PSUs earned vest over the performance period, as described below.
Stock Options
Stock option activity for the three months ended June 30, 2015, 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, 2015
1,170,515

 
$
2.20

 
2.9
 
$
—

Granted
805,000

 
1.19

 

 

Exercised
—

 
—

 

 

Forfeited
(22,500
)
 
2.43

 

 

Expired
(343,765
)
 
2.18

 

 

Outstanding on June 30, 2015
1,609,250

 
$
1.70

 
5.3
 
$
—

 
(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 reporting date.
The weighted-average fair value of stock options granted during the three months ended June 30, 2015 was $0.46 per share.
Restricted Stock
The following table sets forth restricted stock activity for the three months ended June 30, 2015: 
 
Shares
 
Weighted-Average
Grant Date Fair
Value
Non-vested as of March 31, 2015
170,000

 
$
2.98

Granted
—

 
—

Vested
(52,500
)
 
2.95

Forfeited
—

 
—

Non-vested as of June 30, 2015
117,500

 
$
2.99

RSUs
The following table sets forth the RSU activity for the three months ended June 30, 2015: 
 
Shares
 
Weighted-Average
Grant Date Fair
Value
Non-vested as of March 31, 2015
1,409,750

 
$
2.72

Granted
815,000

 
1.21

Vested
(85,000
)
 
2.74

Forfeited
(240,625
)
 
1.72

Non-vested as of June 30, 2015
1,899,125

 
$
2.19


10

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 three months ended June 30, 2015: 
 
Shares
 
Weighted-Average Grant Date Fair Value
Non-vested as of March 31, 2015
181,888

 
$
3.14

Granted, at target
—

 
—

Vested
(25,767
)
 
2.47

Forfeited
(15,157
)
 
3.12

Non-vested as of June 30, 2015
140,964

 
$
3.26

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 one to seven years for products within the CSG segment. The specific terms and conditions of those warranties vary depending upon the customer and the products sold. Factors that enter into 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 $420,000 and $383,000 as of June 30, 2015, and March 31, 2015, respectively, and are presented on the Condensed Consolidated Balance Sheets as Accrued expenses. The non-current portions of the warranty reserve are $128,000 and $122,000 as of June 30, 2015, and March 31, 2015, respectively, and are presented on the Condensed Consolidated Balance Sheets in Other non-current liabilities.
The following table presents the changes in the Company’s product warranty reserve:
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
Total product warranty reserve at the beginning of the period
 
$
505

 
$
328

Warranty expense to cost of revenue
 
97

 
122

Utilization
 
(54
)
 
(26
)
Total product warranty reserve at the end of the period
 
$
548

 
$
424

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 June 30, 2015, and March 31, 2015, 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 June 30, 2015 and 2014 was $0.5 million and $0.2 million, respectively. Accounts receivable from AKA was $0.7 million and $0.4 million as of June 30, 2015, and March 31, 2015, respectively. Deferred revenue which primarily relates to AKA maintenance contracts was $1.4 million and $1.1 million as of June 30, 2015 and March 31, 2015, 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

11

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 recorded a full valuation allowance against deferred tax assets. The Company will continue to reassess realizability going forward.
The Company recorded $62,000 of income tax benefit in the three months ended June 30, 2015, using an effective income tax rate of 1.5%. The Company recorded $29,000 of income tax expense in the three months ended June 30, 2014, using an effective rate of 0.5% 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.
Note 9. Commitments and Contingencies
Obligations
Future obligations and commitments, which are comprised of future minimum lease payments, inventory purchase obligations, and contingent consideration, decreased $0.4 million in the three months ended June 30, 2015, to $16.8 million, from $17.2 million at March 31, 2015. This decrease included a $0.2 million payment of contingent consideration.
Purchase obligations relate to inventory that arises in the normal course of business operations. Future obligations and commitments as of June 30, 2015, consisted of the following:
 
Payments due within
(in thousands)
Year 1
 
Year 2
 
Year 3
 
Year 4
 
Year 5
 
Thereafter
 
Total
Purchase obligations (1)
$
9,433

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
9,433

Future minimum operating lease
 payments
2,649

 
2,629

 
448

 
137

 
29

 
—

 
5,892

Contingent consideration
1,265

 
169

 
—

 
—

 
—

 
—

 
1,434

Future obligations and
commitments
$
13,347

 
$
2,798

 
$
448

 
$
137

 
$
29

 
$
—

 
$
16,759

(1) A reserve for a net loss on firm purchase commitments of $519,000 and $590,000 is recorded on the balance sheet as of June 30, 2015 and March 31, 2015, 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 June 30, 2015, and March 31, 2015, the Company has not recorded any contingent liability attributable to existing litigation.

12

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. The contingency reserves are classified as Accrued expenses on the Consolidated Balance Sheets. In the three months ended June 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 has a contingent cash consideration payable related to an acquisition.  The contingent consideration becomes payable based upon the profitability of the acquired products for post-closing periods through June 30, 2016, and is offset by working capital adjustments and other indemnification claims. The maximum earn-out that could be paid before offsets is $3.5 million. As of June 30, 2015, and March 31, 2015, the fair value of the contingent consideration liability after offsetting a working capital adjustment and an indemnification claim for warranty obligations was $1.4 million and $1.6 million, respectively (See Note 11).
Note 10. Short-term Investments
The following table presents short-term investments as of June 30, 2015, and March 31, 2015:
(in thousands)
June 30, 2015
 
March 31, 2015
Certificates of deposit
$
5,778

 
$
7,912

Held-to-maturity, pre-refunded municipal bonds
10,293

 
15,994

    Total short-term investments
$
16,071

 
$
23,906

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

•
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 is measured using Level 3 inputs.
The following table presents financial assets, excluding cash, and non-financial liabilities measured at fair value on a recurring basis and their related valuation inputs as of June 30, 2015:
(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
$
4,805

 
$
4,805

 
—

 
—

 
Cash and cash
equivalents
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent consideration, current
$
1,265

 
—

 
—

 
$
1,265

 
Contingent
consideration
Contingent consideration, non-
current
$
169

 
—

 
—

 
$
169

 
Contingent consideration non-current

13

The following table presents financial assets, excluding cash, and non-financial liabilities measured at fair value on a recurring basis and their related valuation inputs as of March 31, 2015:
(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
$
2,879

 
$
2,879

 
—

 
—

 
Cash and cash
equivalents
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent consideration, current
$
1,184

 
—

 
—

 
$
1,184

 
Contingent consideration
Contingent consideration, non-
current
$
400

 
—

 
—

 
$
400

 
Contingent
consideration
non-current
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 is contingent upon the profitability of the acquired products for post-closing periods through June 30, 2016, and may be offset by working capital adjustments and other indemnification claims. The Company estimates 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. This estimate is subject to ongoing evaluation. Inputs such as forecasted revenue for the acquired products and acquired product profitability are the most significant drivers of the fair value measurement and are based on full attainment. Significant decreases in any of those inputs would result in a significantly lower fair value measurement. The actual cash payment could range from $1.6 million to $2.7 million.
The fair value measurement of contingent consideration as of June 30, 2015, and March 31, 2015, encompasses the following significant unobservable inputs:
($ in thousands)
Unobservable Inputs
 
June 30, 2015

 
March 31, 2015

Estimated earn-out contingent consideration
$
3,500

 
$
3,500

Working capital and other adjustment
(444
)
 
(444
)
Indemnification related to warranty claims
(303
)
 
(303
)
Discount rate
6.3
%
 
6.3
%
Approximate timing of cash flows
1.1 years

 
1.4 years

The following table summarizes contingent consideration activity:
(in thousands)
 
Balance as of March 31, 2015
$
1,584

Contingent consideration – payments
(167
)
Contingent consideration – change in fair value in General and Administrative expense
17

Balance as of June 30, 2015
$
1,434

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 three months ended June 30, 2015 or June 30, 2014. There was approximately $0.1 million remaining for additional share repurchases under this program as of June 30, 2015.
Additionally, in the three months ended June 30, 2015 and June 30, 2014, the Company repurchased 39,351 and 168,094 shares of Class A Common Stock, respectively, from certain employees that were surrendered to satisfy the minimum statutory tax

14

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 $1.24 and $3.48 per share, respectively.

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.
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.
The Company's two business segments, In-Building Wireless and Communication Solutions Group, are engaged in the design, development, assembly, and marketing of a wide variety of products and solutions.
Beginning in August 2014, the Company experienced significant reductions in customer capital spending, which adversely impacted the Company’s second and third quarter revenue, margins, and earnings in both segments. In this regard, when comparing the revenue from five customers in fiscal year 2014 to the same five customers in fiscal year 2015, the decline was 42%. In fiscal year 2016, customer capital spending is beginning to improve. Going forward, we expect customer capital spending to increase because end-user bandwidth needs continue to grow.
The Company operates under two reportable segments: In-Building Wireless and Communication Solutions Group.
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 third-party hosts to fine tune radio frequency (RF) signals that helps extend coverage to areas not served well or at all by traditional cell sites. The IBW segment includes the comprehensive suite of products and solutions acquired with the addition of CSI, as well as our internally developed DAS interface panels. The CSI acquisition, which closed in March 2014, significantly expanded our product portfolio, enabling us to better compete in the growing in-building wireless market, where we expect to increase our revenue and profitability.
Communication Solutions Group (CSG) Segment
The CSG segment solutions include intelligent site management (ISM), cell site optimization (CSO), and outside plant (OSP) as follows:
• ISM solutions include a suite of Remote monitoring and control devices which, when combined with the Company's Optima management system, provides comprehensive machine-to-machine (M2M) communications that enable operators to remotely monitor, manage, and control site infrastructure and support systems.
• CSO solutions consist of 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.
• OSP solutions, which are sold to wireline and wireless service providers as well as industrial network operators, consist of a broad range of offerings, including cabinets, enclosures, and mountings; synchronous optical networks/time division multiplexing (SONET/TDM) network interface units; power distribution units; copper and fiber connectivity panels; hardened Ethernet switches; and systems integration services.
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

15

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 greatest fluctuations in the Company's third and fourth fiscal quarters, this is not always consistent and may not always correlate to financial results.
Results of Operations
Below is a table that compares revenue for the three months ended June 30, 2015, and 2014 by segment.
Revenue
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
 
Change
IBW
 
$
9,070

 
14,097

 
$
(5,027
)
CSG
 
12,500

 
13,728

 
(1,228
)
Consolidated revenue
 
$
21,570

 
$
27,825

 
$
(6,255
)
IBW revenue was $9.1 million in the three months ended June 30, 2015, compared to $14.1 million in the same period in the prior year. The decline of $5.0 million in the three months ended June 30, 2015, compared to the same period in the prior year was due primarily to a decreases in sales of passive DAS conditioners, which was strong in the first quarter of fiscal year 2015, offset in part by an increase in active DAS conditioners. Customers are using active DAS conditioning products more often on new projects and those projects have been delayed with constrained customer budgets.
CSG revenue was $12.5 million in the three months ended June 30, 2015. The $1.2 million decrease in the three months ended June 30, 2015, compared to the same period in the prior year resulted primarily from fewer custom service integration projects in the current quarter offset in part by increased revenue from ISM products, which are also project related.
Gross Margin
  
 
Three months ended June 30,
 
 
2015
 
2014
 
Change
IBW
 
44.1
%
 
41.2
%
 
2.9
%
CSG
 
35.4
%
 
28.2
%
 
7.2
%
Consolidated gross margin
 
39.1
%
 
34.8
%
 
4.3
%
Gross margin in the IBW segment was 44.1% in the three months ended June 30, 2015 compared to 41.2% in the same period in the prior year. The primary driver of the higher margins in fiscal year 2016 compared to fiscal 2015 was product mix with a $2.2 million increase in higher margin active DAS conditioners, our Universal Interface Tray (UDIT) products, and a $6.7 million decrease in lower margin passive DAS conditioning products.
Gross margin in the CSG segment was 35.4% in the three months ended June 30, 2015, compared to 28.2% in the same period in the prior year. The increase in gross margin resulted primarily from lower excess and obsolete inventory expense of $1.1 million in the first quarter of fiscal year 2016. The $1.1 million of excess and obsolete inventory expense in fiscal year 2015 resulted from the continued declining demand for legacy T1 products and ISM products.

16

Sales and Marketing
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
 
Change
Consolidated sales and
marketing expense
 
$
3,196

 
$
3,421

 
$
(225
)
Sales and marketing expense decreased $0.2 million in the three months ended June 30, 2015, compared to the same period in the prior year primarily due to reductions in salaries and wages and stock compensation, partly offset by increased incentive compensation expense from increased accruals.
Research and Development
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
 
Change
IBW
 
$
3,162

 
$
2,195

 
$
967

CSG
 
1,924

 
2,280

 
(356
)
Consolidated research and
development expense
 
$
5,086

 
$
4,475

 
$
611

Research and development expense in the IBW segment increased by $1.0 million in the three months ended June 30, 2015, compared to the same period in the prior year due to $0.5 million of increased manpower related expenses and $0.5 million of prototype expense primarily associated with our new Clearlink DAS product.
Research and development expense in the CSG segment decreased by $0.4 million in the three months ended June 30, 2015, compared to the same period in the prior fiscal year primarily due to decreased consulting expenses related to ISM products.
General and Administrative
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
 
Change
Consolidated general and
administrative expense
 
$
2,969

 
$
3,054

 
$
(85
)
General and administrative expenses decreased $0.1 million in the three months ended June 30, 2015, compared to the same period in the prior fiscal year. The decrease was due primarily to $0.2 million of reduced expense resulting from the lease restructuring done in the fourth quarter of fiscal year 2015 offset in part by an increase in incentive compensation expense from increases in accruals related to the fiscal year 2016 bonus incentive plan.
Intangible amortization and impairment
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
 
Change
Consolidated intangible
amortization
 
$
1,399

 
$
1,585

 
$
(186
)
The intangibles assets consist of product technology, customer relationships, trade names, and backlog derived from acquisitions. The decrease in the three months ended June 30, 2015, compared to June 30, 2014 resulted primarily from product related intangibles from the acquisition of NoranTel becoming fully amortized.
Restructuring The Company recorded restructuring expense of $17,000 in the three months ended June 30, 2015 and $57,000 in the three ended June 30, 2014, related to severance for transitional employees associated with the CSI and Kentrox acquisitions, respectively.

Other income (expense)
 
 
Three months ended June 30,
(in thousands)
 
2015
 
2014
 
Change
Consolidated other
income (expense)
 
$
38

 
$
61

 
$
(23
)

17

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 currency.
Income tax benefit (expense) The Company recorded $62,000 of income tax benefit in the three months ended June 30, 2015 using an effective income tax rate of 1.5%. The Company recorded $29,000 of income tax expense in the three months ended June 30, 2014, using an effective rate of 0.5% 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.
Discontinued operations 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 $3.9 million and $2.8 million in the three months ended June 30, 2015 and June 30, 2014, respectively. The changes were a result of the cumulative effects of the variances identified above.
Liquidity and Capital Resources
Overview
At June 30, 2015, the Company had $20.8 million in cash and cash equivalents and $16.1 million in short-term investments, consisting of bank deposits, money market funds, certificates of deposits, and pre-refunded municipal bonds.
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, decreased $0.4 million in the three months ended June 30, 2015, to $16.8 million, down from $17.2 million at March 31, 2015. This decrease included a $0.2 million payment of contingent consideration.
Purchase obligations consist of inventory that arises in the normal course of business operations. Future obligations and commitments as of June 30, 2015, consisted of the following:
 
Payments due within
(in thousands)
1 year
 
2 years
 
3 years
 
4 years
 
5 years
 
Thereafter
 
Total
Purchase obligations
$
9,433

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
9,433

Future minimum operating lease
payments
2,649

 
2,629

 
448

 
137

 
29

 
—

 
5,892

Contingent consideration
1,265

 
169

 
—

 
—

 
—

 
—

 
1,434

Future obligations and
commitments
$
13,347

 
$
2,798

 
$
448

 
$
137

 
$
29

 
$
—

 
$
16,759

Cash Flows
The Company’s operating activities used cash of $0.6 million in the three months ended June 30, 2015, which resulted primarily from a $3.9 million net loss, adjusted for non-cash charges of $2.2 million of amortization, depreciation and stock-based compensation expense, and a $1.0 million decrease in net working capital. The Company’s investing activities provided cash of $7.6 million, which resulted primarily from the net maturities of short-term investments of $7.8 million offset in part by $0.5 million of capital equipment purchases. In the three months ended June 30, 2015, the Company’s financing activities used $0.2 million of cash resulting primarily from payment of contingent consideration.
As of June 30, 2015, the Company had deferred tax assets of approximately $38.7 million before a valuation allowance of $38.9 million and a net deferred tax liability of $0.2 million. Also, as of June 30, 2015, the Company had a $3.0 million tax contingency reserve related to uncertain tax positions. 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.

18

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, 2015. There have been no material changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended March 31, 2014.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
As of June 30, 2015, 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, 2015.

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 June 30, 2015, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



19

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 our business, we are 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 our consolidated operations or financial condition.
ITEM 1A. RISK FACTORS
See “Risk Factors” in Part 1 – Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2015, for information about risk factors. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended March 31, 2015.

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 June 30, 2015.
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)
April 1 - 30, 2015
 
31,426

 
$
1.2500

 
—

 
$
112,741

May 1 - 31, 2015
 
7,925

 
$
1.2100

 
—

 
$
112,741

June 1 - 30, 2015
 
—

 
$
—

 
—

 
$
112,741

Total
 
39,351

 
$
1.2400

 
—

 
$
112,741

 
(a)
In the three months ended June 30, 2015, the Company repurchased 39,351 shares from employees that were surrendered to satisfy the minimum statutory tax withholding obligations on the vesting of restricted stock units and performance-based restricted stock units. These repurchases were not included in the authorized share repurchase program and had a weighted-average purchase price of $1.24 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 June 30, 2015.
Items 3, 4 and 5 are not applicable and have been omitted.

20

ITEM 6. EXHIBITS 
Exhibit 3.1
 
Amended and Restated Bylaws, as amended (incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed on June 18, 2015).
 
 
Exhibit 10.1
 
Form of Stock Option Award Agreement for award granted to Charles S. Bernstein on May 11, 2015.
 
 
 
Exhibit 10.2
 
Form of Restricted Stock Unit Award Agreement for award granted to Charles S. Bernstein on May 11, 2015.
 
 
 
Exhibit 10.3
 
Separation Agreement and Release for Mark Skurla.
 
 
 
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 June 30, 2015, 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.

21

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:
July 31, 2015
 
By:
/s/ J. Thomas Gruenwald
 
 
 
 
J. Thomas Gruenwald
 
 
 
 
Chief Executive Officer
 
 
 
 
 
 
By:
/s/ Thomas P. Minichiello
 
 
 
 
Thomas P. Minichiello
 
 
 
 
Chief Financial Officer


22

WESTELL TECHNOLOGIES, INC.
EXHIBIT INDEX
 
Exhibit Number
 
Description
 
 
 
Exhibit 3.1
 
Amended and Restated Bylaws, as amended (incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed on June 18, 2015).
 
 
 
Exhibit 10.1
 
Form of Stock Option Award Agreement for award granted to Charles S. Bernstein on May 11, 2015.
 
 
 
Exhibit 10.2
 
Form of Restricted Stock Unit Award Agreement for award granted to Charles S. Bernstein on May 11, 2015.
 
 
 
Exhibit 10.3
 
Separation Agreement and Release for Mark Skurla.
 
 
 
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 June 30, 2015, 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.



23




Exhibit 10.1

WESTELL TECHNOLOGIES, INC.

NON-QUALIFIED STOCK OPTION


THIS NON-QUALIFIED STOCK OPTION, dated as set forth in the attached
Memorandum is granted by WESTELL TECHNOLOGIES, INC. (the "Company"), to the
Employee as set forth in the attached Memorandum (the “Employee”) pursuant to the
Company's 2004 Stock Incentive Plan (the "Plan").


1.    OPTION GRANT

The Company hereby grants to the Employee an option to purchase total
shares as set forth in the attached Memorandum of Class A Common Stock of the Company at
an option price per share as set forth in the attached Memorandum. This option is not intended
to qualify as an “incentive stock option” within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.


2.     TIME OF EXERCISE

This option may be exercised (in the manner described in paragraph 3 hereof) in
whole or in part, at any time and from time to time, subject to the following limitations:


(a) This option may not be exercised to any extent until the first
anniversary of the Date of Grant. This option may be exercised to a maximum
cumulative extent of 25% of the total shares covered hereby on and after the first
anniversary of the Date of Grant; 50% of the total shares commencing on and
after the second anniversary of the Date of Grant; 75% of the total shares
commencing on and after the third anniversary of the Date of Grant; 100% of the
total shares commencing on and after the fourth anniversary of the Date of
Grant. In the event that the Employee's employment with the Company or a
subsidiary terminates by reason of total disability or death prior to the fourth
anniversary of the Date of Grant, then the portion of the option which may be




exercised shall be determined as if the Employee remained an employee of the
Company until the next anniversary of the Date of Grant.

(b) For these purposes, employment shall be deemed to continue after
termination of full-time employment for any period during which the Employee remains a
part-time employee of the Company or a consultant to the Company as determined by
the sole discretion of the Stock Incentive Committee.

    
(c) This option may not be exercised:

(i)    more than three months after the termination of the Employee's
employment with the Company or a subsidiary for any reason
other than retirement, total disability or death; or

(ii)    more than twelve months after termination of employment by
reason of retirement, total disability or death; or

(iii)    more than seven years from the Date of Grant.

For these purposes retirement and total disability shall be determined in
accordance with the established policies of the Company. This option may be
exercised during the indicated periods following termination of employment only
to the extent permitted pursuant to paragraphs 2(a) and (b) hereof.


3.    METHOD OF EXERCISE

This option may be exercised only by appropriate notice in writing delivered to
the Secretary of the Company and accompanied by:

(a)
a check payable to the order of the Company for the full
purchase price of the shares purchased and any required tax
withholding, and




    
(b)
such other documents or representations as the Company may
reasonably request in order to comply with securities, tax or
other laws then applicable to the exercise of the option.

Payment of the purchase price may be made in whole or in part by the delivery of shares of
Common Stock owned by the Employee for at least six months (or by certification of the
Employee's ownership of such shares), valued at fair market value on the date of exercise.
The Employee may satisfy any tax withholding obligation in whole or in part by electing to
have the Company retain option shares, having a fair market value on the date of exercise
equal to the amount required to be withheld.

4.
CONDITIONS

I agree that I shall not within three months following my resignation of
employment with the Company engage in any Competitive Activity. Competitive Activity
means any service to a competitor related to the work I have done at Westell or with
knowledge of confidential information gained at Westell. By accepting this option, I agree to
pay Westell as liquidated damages, any profit (spread between grant price and closing price
on the date of exercise) realized on my exercise of this option from three months preceding
and ending three months following my date of resignation.



5.    NON‑TRANSFERABILITY; DEATH

This option is not transferable by the Employee otherwise than by will or the
laws of descent and distribution and is exercisable during the Employee's lifetime only by the
Employee. If the Employee dies during the option period, this option may be exercised in
whole or in part and from time to time, in the manner described in paragraph 3 hereof, by the
Employee's estate or the person to whom the option passes by will or the laws of descent and
distribution, but only within a period of (a) twelve months after the Employee's death or
(b) seven years from the Date of Grant, whichever period is shorter. At the discretion of the
Committee, this option may be transferred to members of the Employee's immediate family or
trusts or family partnerships for the benefit of such persons, subject to terms and conditions
established by the Committee.






6. Accelerated Vesting

Notwithstanding the foregoing, any unvested options shall vest and become
immediately exercisable upon termination of employment by the Company without Cause (as
defined in the Offer Letter, dated April 20, 2015 (the “Offer Letter”)) or upon termination of
employment by the Company without Cause within six (6) months following a Change in
Control (as defined in the Offer Letter). In exchange for the compensation and benefits noted
in this paragraph, Employee will be required to sign (and not revoke) at the time of separation,
a Separation Agreement and Release.

* * *

        






IN WITNESS WHEREOF, the Company has caused the execution hereof by its duly
authorized officer and Employee has agreed to the terms and conditions of this option, all
as of the date first above written.

WESTELL TECHNOLOGIES, INC.


By /s/ Tom Minichiello
                                            

Charles S. Bernstein    
Employee Name
                        
/s/ Charles S. Bernstein
____________________
Employee Signature     







NOTICE OF GRANT OF STOCK OPTION FOR THE PURCHASE OF
CLASS A COMMON STOCK



Dear Charles Bernstein,


You have received a grant with the following parameters:

Plan Name:         Westell Technologies, Inc. 2004 Stock Incentive Plan
Award Number:    10035
Shares Granted:    120,000
Award Type:        NQSO
Award Date:        5/11/2015
Strike Price:         $1.30
Vesting Schedule:
Vesting Date        Shares Vesting
5/11/2016        30,000    
5/11/2017        30,000    
5/11/2018        30,000    
5/11/2019        30,000    

Expiration Date:    5/11/2022

If you have any questions, contact Mary Lou Meyers at 630-375-4201.

By affixing your signature to this Notice, you acknowledge receipt of a copy of the Agreement
and the Plan to which the Agreement and this Stock Option Grant is subject and agree that the
Options Granted hereunder shall be subject to such Plan and Agreement and shall be governed
by their terms and provisions.

Westell Technologies, Inc.

By: /s/ Tom Minichiello
Tom Minichiello


/s/ Charles Bernstein                            5/18/2015
Charles Bernstein (Employee)                    Date









Exhibit 10.2

WESTELL TECHNOLOGIES, INC.

FORM of RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT is granted by
WESTELL TECHNOLOGIES, INC. (the “Company”) to Charles Bernstein (the “Participant”)
this 11th day of May, 2015 (the “Grant Date”) pursuant to the Company’s 2004 Stock Incentive
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 its officers and other Participants to have an incentive tied to the price of
the Company's Class A Common Stock (the "Common Stock") in order that they 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
180,000 “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 will vest according to the
following schedule, with respect to each installment shown in the
schedule, on and after the vesting date applicable to such installment:
Installment
Vesting Date Applicable
to Installment
25% of the Award
First anniversary of grant
Next 25% of the Award
Second anniversary of grant
Next 25% of the Award
Third anniversary of grant
Final 25% of the Award
Fourth anniversary of grant

(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.

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.Accelerated Vesting; 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.
  
Additionally, any unvested Restricted Stock Units shall vest and become
immediately exercisable upon termination of employment by the
Company without Cause (as defined in the Offer Letter, dated April 20,
2015 (the “Offer Letter”)) or upon termination of employment by the
Company without Cause within six (6) months following a Change in
Control (as defined in the Offer Letter). In exchange for the compensation
and benefits noted in this paragraph, Participant will be required to sign
(and not revoke) at the time of separation, a Separation Agreement and
Release.

(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.

(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 Committee. The Participant agrees that any dispute or
disagreement that may arise in connection with this Agreement shall be resolved by the
Committee, in its sole discretion, and that any interpretation by the Committee of the terms of
this Agreement, the Award or the Plan and any determination made by the Committee under this
Agreement or such plan may be made in the sole discretion of the Committee.

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.

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 (printed): Thomas P. Minichiello
Title: Chief Financial Officer

/s/ Charles S. Bernstein
Charles S. Bernstein









 







`                                            Exhibit 10.3

SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release (“Agreement”) is entered into between Westell,
Inc. and its affiliates (“Employer”) and Mark Skurla (“Employee”). In consideration for the
mutual promises set forth below, Employer and Employee agree as follows.

1.Employee’s employment with Employer will terminate April 23, 2015
("Separation Date"). All employee benefits, plans, programs and fringe benefits cease as of the
Separation Date unless otherwise noted herein.

2.Employer agrees to:
a.
Pay Employee a bonus for FY 2015 to which Employee is not otherwise
entitled, in the amount of $78,000 less required withholdings. This
payment will be paid in a lump sum on the next regularly scheduled pay
day following the Effective Date of this Agreement, provided that
Employee signs the Agreement and does not revoke it.

b.
Pay Employee severance pay in the amount of $65,000 less required
withholdings. The severance will be paid in a lump sum on the next
regularly scheduled pay day following the Effective Date of this
Agreement, provided that Employee signs this Agreement and does not
revoke it.

c.
Pay earned but unused PTO pay in the amount of $0. All PTO earned as
of 4/23/2015 has been used.

d.
Continue current levels of medical, dental and vision coverage at the
employee rate for the lesser of three months after the separation of
employment or until you become eligible for coverage by a health plan of
any subsequent employer. Employee will be receiving under separate
cover information regarding their rights under COBRA.


3.     In exchange for the promises and agreements contained herein and the payments
described in Paragraph 2a, 2b and 2d above, Employee on behalf of himself, his heirs, executors,
administrators, and assigns, hereby irrevocably and unconditionally releases, holds harmless and
discharges, to the fullest extent permitted by law, Employer and all of its affiliated or related
entities (including but not limited to Westell Technologies, Inc.) (“Employer Group”), their
successors, assigns, officers, directors, agents, and employees (together with Employer Group,
“Released Parties”) from all claims, charges, complaints, grievances, liabilities, obligations,
promises, damages, actions, causes of action, suits, rights, demands, costs, losses and expenses
of any nature whatsoever, whether known or unknown, suspected or unsuspected, vested or
contingent, concealed or hidden, which Employee ever had, may have or ever will have relating
to Released Parties, by reason of any and all acts, omissions, events, transactions, circumstances
or facts existing or occurring up to the date hereof. This release includes but is not limited to: 1)
all liabilities for the payment of earnings; commissions; bonuses; severance pay; salary; accruals
under any vacation, sick leave, holiday, or employee benefit plans; 2) any charges, lawsuits or
claims of retaliation or discrimination on account of age, race, color, sex, sexual orientation,







marital status, disability, national origin, citizenship and religion, brought under any federal,
state, or local law, including but not limited to Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Civil Rights Act of 1866, the Age Discrimination in Employment Act, as
amended by the Older Workers’ Benefit Protection Act, the Americans with Disabilities Act, the
Worker Adjustment Retraining and Notification Act, the Family and Medical Leave Act of 1993,
the National Labor Relations Act, the Equal Pay Act, the Employee Retirement Income Security
Act, the Fair Labor Standards Act, the Illinois Wage Payment and Collection Act, or any similar
state wage and hour law, the Illinois Human Right Act, or any other state anti-discrimination
law; and 3) any tort, contract, and quasi-contract or other common law claims. This general
release shall not apply to Employee’s rights under this Agreement, nor shall it in any way affect
his right to enforce the terms of the Agreement or to obtain appropriate relief in the event of any
breach of this Agreement. Also excluded from this release are any claims which cannot be
waived by law, including but not limited to the right to participate in an investigation conducted
by certain government agencies. Employee does, however, waive Employee’s right to
reinstatement or any monetary recovery should any agency (such as the Equal Employment
Opportunity Commission) pursue any claims on Employee’s behalf.

4.     Employee represents that he has not filed any charges, suits, claims or complaints
against Released Parties referred to above, and Employee agrees, to the fullest extent permitted
by law, that he will not do so at any time in the future with respect to any claim which arose prior
to the date of this Agreement. This release forever bars all suits which arose or might arise in the
future from any occurrences arising prior to the date of this Agreement and authorizes any court
to dismiss any claim filed by the Employee with prejudice. Employee understands that if he
takes any legal action against Released Parties, Employee must, as a condition precedent to such
action, repay the severance pay provided for in this Agreement. However, Employee shall not be
required to repay the severance pay if the action is to challenge the waiver of his claims under
the Age Discrimination in Employment Act.

5.    The following provisions apply to and are made a part of this Separation
Agreement and Release:
a.
Employee does not release or waive any right or claim which he may have
which arises after the date of this Agreement.

b.
In exchange for this release, Employee acknowledges that he has received
separate consideration beyond that which Employee is otherwise entitled
to under Employer policy or applicable law, including without limitation
the severance pay.

c.
Employer expressly advises Employee to consult with an attorney of
Employee’s choosing prior to executing this Agreement which contains a
general release of all claims.

d.
Employee has twenty-one (21) days from the date of receipt to sign this
Agreement and return it to Sharon Hintz at the address below. In the
event Employee signs this Agreement, Employee has a further period of
seven (7) days in which to revoke this Agreement. This Agreement is not
effective until the end of the revocation period (“Effective Date”). Any






revocation must be communicated in writing, by personal delivery or first
class mail to:

Sharon Hintz
Westell, Inc.
750 N. Commons Drive
Aurora, Illinois 60504

Any revocation must be received by Sharon Hintz, in writing, on or before
the 7th day after Employee signs this Agreement.

e.
Within seven days of executing this agreement, Employee agrees to return
to Employer all Employer property, including but not limited to files,
records, computer hardware and software, credit cards, keys, card key
passes, all other property or information provided by Employer Group to
Employee. Employee agrees to retain no copies of Employer Group
documents.

6.The parties recognize that disclosure of the terms of this Agreement to non-parties
would cause the Employer serious damage. Employee agrees not to disclose the terms of this
Agreement to anyone other than his spouse, his attorneys and his financial advisors, except when
required by law or valid subpoena. Aside from the noted exceptions, Employee further agrees to
advise his spouse, his attorneys and his financial advisors as to the terms of this paragraph, to
instruct his spouse, his attorneys and his financial advisors not to disclose the terms and
existence of this Agreement to anyone else and to be responsible for any violation by any person
to whom he has disclosed any portion of the Agreement.

7.Employee agrees that any and all information obtained by or disclosed to him at
any time during his employment with the Employer which is not generally known to the public is
strictly confidential and/or proprietary to the Employer Group and Employee shall not make use
of this information for his own purposes or for the benefit of anyone other than the Employer
Group and he shall not disclose this information to any person or organization.

8.Employee agrees not to disparage the Released Parties utilizing any medium to
include printed materials, internet services, verbal comments or any action that is construed by
the Employer as demeaning, mischievous, or capable of negative impact on its reputation and
goodwill value. Employee understands that engagement in such activity will require that the
Employee must repay the severance provided in this Agreement. Moreover, any actions of this
nature may subject Employee to appropriate legal remedy and recovery of damages.

9.In exchange for the promises and agreements contained herein and the payments
described in Paragraph 2a, 2b and 2d above, for a period of twelve months following the
separation of employment, Employee agrees that he will not, directly or indirectly, on his own
behalf or on behalf of any other party, employ, solicit for employment, attempt to solicit for
employment, or encourage or otherwise cause to leave their employment at Employer Group,
any person who is or was during the six-month period prior to such employment, solicitation or
encouragement an employee of the Employer Group.







10.In exchange for the promises and agreements contained herein and the payments
described in Paragraph 2a, 2b and 2d above, for a period of twelve months following the
separation of employment, Employee agrees that he will not, directly or indirectly, influence,
solicit or attempt to influence or solicit any customer of the Employer Group with whom he had
contact during his last two years of employment with Employer, to cease doing business with the
Employer Group or to divert their business away from Employer Group or to a business
competitive with the business of Employer Group.

11.In exchange for the promises and agreements contained herein and the payments
described in Paragraph 2a, 2b and 2d above, for a period of twelve months following the
separation of employment, Employee shall not, anywhere in North America, Europe, or any
other market the Employer Group serves, directly or indirectly engage, control, advise, manage,
or become interested in (as owner, stockholder, partner, co-venturer, director, officer, employee,
agent, consultant or otherwise) any business competitive with the business of Employer Group.

12.In the event Employee breaches the provisions of paragraphs 5e, 6, 7, 8, 9, 10 or
11 of this Agreement, the Employer preserves all remedies which it may have at law or in equity,
including without limitation injunctive relief, and reserves the right to demand repayment of all
financial and other benefits to be provided pursuant to this Agreement, along with attorneys’ fees
where permitted by law.

13.Employee agrees to reasonably cooperate with the Employer in any internal
investigation or administrative, regulatory, or judicial proceeding. Employee understands and
agrees that his cooperation may include, but not be limited to, making himself available to the
Employer upon reasonable notice for interviews and factual investigations; appearing at
Employer's request to give testimony without requiring service of a subpoena or other legal
process; volunteering to the Employer pertinent information; and turning over to the Employer
all relevant documents which are or may come into his possession all at times and on schedules
that are reasonably consistent with his other permitted activities and commitments. Employee
understands that in the event the Employer asks for his cooperation in accordance with this
provision, the Employer will reimburse him solely for reasonable travel expenses, including
lodging and meals, upon his submission of receipts.

14.It is understood that this Agreement does not constitute an admission by the
Employer of any violation of any federal, state or municipal statutory or common law. Neither
this Agreement nor anything in this Agreement shall be construed to be or shall be admissible in
any proceeding as evidence of wrongdoing by the Employer. Further, the Employer specifically
denies any wrongdoing and disclaims any liability to or wrongful acts against Employee or any
other person, on the part of the Employer, its affiliates, parents and subsidiaries, and their
respective past, present and future employees, owners, directors, trustees, shareholders,
distributees, agents, partners, attorneys and/or representatives.
  
15.This Agreement shall be interpreted, construed and enforced under the laws of the
State of Illinois and any disputes hereunder litigated in an Illinois court of competent
jurisdiction.

16.In the event that any term or provision of this Agreement shall be finally
determined to be superseded, invalid, illegal or otherwise unenforceable pursuant to applicable





law by a governmental authority having jurisdiction and venue, that determination shall not
impair or otherwise affect the validity, legality or enforceability, to the maximum extent
permissible by law, by or before that authority, of the remaining terms and provisions of this
Agreement, which shall be enforced as if the unenforceable term or provision were deleted;
provided, however, that in the event that paragraphs 9, 10, or 11 of this Agreement are
determined by such authority to be unenforceable because of unreasonable geographic scope,
duration or otherwise, such authority may nevertheless enforce those paragraphs as to a reduced
geographic scope, duration, or other limitation deemed reasonable by such authority.

17.Employee acknowledges that he has carefully read and fully understands all of the
provisions of this Agreement, and he is knowingly, voluntarily, and willfully entering into this
Agreement.

18.Employee acknowledges that in executing this Agreement, he has not relied upon
any representation by Employer or its agents not set forth in this Agreement and that he has not
been subjected to any duress, coercion, fraud, overreaching or exploitation.

19.Employee acknowledges that he received this Agreement on or before May 20,
2015.

20.This Agreement sets forth the entire agreement between the parties and
supersedes any prior agreements and understandings, written or oral.

PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE
OF ALL KNOWN AND UNKNOWN CLAIMS.

Westell, Inc.

                                
/s/ Mark Skurla                                By:     /s/ Tom Minichiello
Mark Skurla                                 Tom Minichiello

            
Date            5/26/2015                        Date 5/20/2015

/s/ Ashley Skurla        
Witness Signature

Ashley Skurla
Witness Name (please print)

    
(Street Address)

    
(City, State, Zip Code)







Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, J. Thomas Gruenwald, certify that:
(1) I have reviewed this quarterly report on Form 10-Q for the period ended June 30, 2015 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: July 31, 2015
 
/s/ J. Thomas Gruenwald
 
J. Thomas Gruenwald
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 June 30, 2015 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: July 31, 2015
 
 
/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 June 30, 2015 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/ J. Thomas Gruenwald
J. Thomas Gruenwald
Chief Executive Officer

July 31, 2015
 
/s/ Thomas P. Minichiello
Thomas P. Minichiello
Chief Financial Officer

July 31, 2015
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.


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