##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended January 3, 2010
 OR
 o
    
    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: 001-33576
 
 Airvana, Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 
 Delaware
    
    04-3507654(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)
 19 Alpha Road
Chelmsford, Massachusetts 01824  (Address of Principal Executive Offices) (Zip Code)
 (978) 250-3000
(Registrants telephone number, including area code)
 
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value
    
    The NASDAQ Global Market
 Securities registered pursuant to Section 12(g) of the Act:
None
 
  Yes
o No
þ
 Yes
o No
þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED January 3, 2009
 Table of Contents
 PagePART I.Item 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    19Item 1B. Unresolved Staff Comments
    
    
    35Item 2. Properties
    
    
    35Item 3. Legal Proceedings
    
    
    35Item 4. Reserved
    
    
    37PART II.Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    37Item 6. Selected Financial Data
    
    
    40Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    44Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    70Item 8. Financial Statements and Supplementary Data
    
    
    72Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    107Item 9A. Controls and Procedures
    
    
    107Item 9B. Other Information
    
    
    109PART III.Item 10. Directors, Executive Officers and Corporate Governance
    
    
    109Item 11. Executive Compensation
    
    
    109Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    121Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    121Item 14. Principal Accountant Fees and Services
    
    
    121PART IV.Item 15. Exhibits and Financial Statement Schedules
    
    
    122Signatures
    
    
    123Exhibit 10.12Exhibit 10.14Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32
   2




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Forward Looking Statements
 This Annual Report on Form 10-K contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could
cause our results to differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Annual Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include expectations regarding the timing of the merger of Airvana with
an entity formed by affiliates of S.A.C. Private Capital Group, LLC, GSO Capital Partners LP,
Sankaty Advisors LLC and ZelnickMedia; statements regarding the ability to complete the merger; any
expectation of earnings, revenues, billings or other financial items; development of femtocell
alliances and shipments; any statements of the plans, strategies and objectives of management for
future operations; factors that may affect our operating results; statements concerning new
products or services; statements related to future capital expenditures; statements related to
future economic conditions or performance; statements as to industry trends and other matters that
do not relate strictly to historical facts or statements of assumptions underlying any of the
foregoing. These statements are often identified by the use of words such as, but not limited to,
anticipate, believe, continue, could, estimate, expect, intend, may, will,
plan, target, continue, and similar expressions or variations intended to identify
forward-looking statements. These statements are based on the beliefs and assumptions of our
management based on information currently available to management. Such forward-looking statements
are subject to risks, uncertainties and other important factors that could cause actual results and
the timing of certain events to differ materially from future results expressed or implied by such
forward-looking statements. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below, and those discussed in the section titled Risk
Factors included elsewhere in this Annual Report on Form 10-K and in our other filings with the
Securities and Exchange Commission or SEC. Furthermore, such forward-looking statements speak only
as of the date of this report. We undertake no obligation to update any forward-looking statements
to reflect events or circumstances after the date of such statements.
  3




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Part I
 
 Item 1.

    Business
 Overview
      4




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Proposed Merger
  Industry Background
  The Desire for Mobile Broadband Services
     5




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The Need for Fixed-Mobile Convergence
    The Market Opportunity
  Our Solution
  Enable New Service Offerings
  
    
    Mobile Broadband Internet Access.Our EV-DO network products allow operators to offer
broadband-quality Internet access anywhere in their networks. Users can access EV-DO-based
networks through their laptop computers and other mobile devices. Mobile broadband networks
offer increased convenience and mobility and wider coverage than wireless local area
technologies such as Wi-Fi. In addition, in some developing markets, EV-DO networks are
being used as a wireless alternative to DSL or cable to provide last-mile broadband Internet
access. Our products have been used to deploy these services in Eastern Europe and Latin
America.
 
    
    Multimedia Consumer Services.Our EV-DO products enable wireless operators to provide
multimedia services, such as video, music downloads, IP-TV and gaming. Broadband speed is
important to users seeking to download or transmit the large files associated with
multimedia services. Reflecting the growth of this market, media companies and wireless
operators are developing content tailored for mobile phones. In 2008,
Juniper Research estimated that global mobile entertainment services revenue, consisting of
user-generated content, gambling, adult and infotainment, would increase three-fold by 2012.
 
    
    Enhanced Voice Services.Our EV-DO products enable the delivery of interactive voice and
video services, such as IP-based push-to-talk, video telephony and VoIP. For example, Sprint
Nextel has announced its intention to deliver push-to-talk over its EV-DO network. In the
future, our technology will enable wireless operators to migrate from separate voice and
data networks to a single IP-based mobile broadband network delivering both voice and data.
  6




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Provide Scalability and Reliability
  Reduce Capital and Operating Expenses
  Leverage Existing Broadband Infrastructure
  Our Strategy
  
    
    Grow our EV-DO product sales.We plan to grow sales of our EV-DO products as operators
continue to expand both the coverage and capacity of their wireless networks and increase
their offerings of mobile broadband services. The continued growth of broadband service
revenues for the operators implies a need for capacity expansion. To date, most of our EV-DO
sales have been driven by coverage deployments. We believe that a much greater opportunity
lies in future capacity expansion. We are developing new features to facilitate this growth,
such as technologies that will improve the quality of both VoIP and push-to-talk services.
 
    
    Enter the Fixed-Mobile Convergence Market.We are currently developing femtocell access
point products for in-building deployment in CDMA and UMTS networks. We plan to sell these
FMC products directly to operators and through OEM customers. We have entered into
agreements with Nokia Siemens Networks to market an end-to-end UMTS femtocell solution, as
well as with Thomson and Pirelli Broadband Solutions to integrate our femtocell product into
their residential gateway offerings. In addition, we have entered into agreements with
Motorola and Hitachi to supply CDMA femtocell solutions. We have also been selected by two
major operators, Sprint Nextel and KDDI, to supply CDMA femtocell solutions.
  7




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
    
    Develop Products for the GSM/UMTS Markets.While CDMA is the leading mobile technology
used by operators in North America, GSM/UMTS are the leading standards used elsewhere in the
world. We are currently developing femtocell access point products to address the GSM/UMTS
markets.
 
    
    Leverage our Expertise in All-IP Mobile Networks to Develop 4G Technologies.Third
generation wireless standards enable the delivery of IP data services over mobile networks.
While EV-DO is considered a 3G standard, it is based on an architecture where all multimedia
services, including voice, are carried over a single all-IP wireless network. The fourth
generation wireless standards, known as 4G, are expected to offer faster speeds and carry
all multimedia services over an all-IP wireless network. We believe our expertise in EV-DO
and all-IP wireless network technology positions us well to develop 4G solutions.
 
    
    Expand our OEM Sales Channels.Our OEM relationships have allowed us to reach a broad
end-user market rapidly. By collaborating with our OEM customers to develop specific
functionality to be incorporated into products for their end-customers, we enable our OEM
customers to expand their product offering and achieve faster time to market for innovative
products that enable new operator services. We intend to continue to pursue new OEM
relationships to leverage their extensive operator relationships, industry networks and
global reach.
 
    
    Leverage our Operator Relationships.We have developed direct relationships with leading
wireless operators to understand their needs and create demand for our products. We
collaborate directly with these operators to develop new products and services for their
customers. While our OEM customers represent our primary sales channel, we also offer some
products for sale directly to operators.
 Available Information
   Products
  Mobile Network EV-DO Products
   8




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AIRVANA PRODUCTS IN AN EV-DO RADIO ACCESS NETWORK
 
       Fixed-Mobile Convergence Products
   9




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
    
    Improved in-building coverage.Our femtocell access points are designed to significantly
improve in-building mobile network coverage.
 
    
    Improved user experience of mobile services.Because our femtocell access points will be
shared by a small number of users, they will be able to provide a higher performance voice
and data experience compared to existing mobile network services.
 
    
    Compatibility with existing mobile phones.Our femtocell access points will allow users
to make phone calls and access Internet broadband services through their existing CDMA or
UMTS mobile phones.
 
    
    Plug and play installation.Our femtocell access points are being designed for consumer
installation with minimal user configuration. They will be connected by consumers to their
existing broadband Internet services, such as those provided by DSL, cable or fiber optics.
 AIRVANA FMC PRODUCT PLAN
 
 Technology
 Our IP RAN
  
    
    mechanisms to support subscriber mobility;
 
    
    protocols to carry traffic between the various network elements of a RAN in a secure
manner;
 
    
    methods to increase the availability of the network in case of a failure in any of its
elements;
 
    
    designs that increase the scalability of the network;
 
    
    procedures to configure, manage and maintain the RAN; and
 
    
    quality-of-service algorithms to allocate dynamically the resources of the RAN to
subscribers and the various applications they use.
  10




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IP Backhaul
  RNC Clustering
     Multi-Homing
  IP Quality-of-Service
   11




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IP Network Management
  IP RAN Flat Architecture
    Distance-Based Paging
   Femtocells
  
    
    a flat network architecture;
 
    
    a flexible hardware architecture based on programmable processing elements;
 
    
    an extensive software/firmware technology that will implement the radio, networking and
security functions of a femtocell;
    
    a suite of proprietary algorithms designed to optimize the performance and robustness of
the femtocell system; and
 
    
    a scalable service manager to facilitate the management of our femtocells by the network
operator.
  12




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
    
    managing interference between femtocells and between femtocell and macro cellular
networks;
 
    
    providing seamless handoffs as users cross between femtocell and macro cellular networks;
 
    
    limiting access to a femtocell to authorized users;
 
    
    acquiring accurate timing, frequency and location information; and
 
    
    managing the use of a wireless operators spectrum.
  Operators Deploying Our Products
  
    
    Bell Mobility (Canada)
    
    China Telecom (China)
    
    Eurotel (Czech Republic)
    
    Leap Wireless (USA)
    
    Pelephone (Israel)
    
    Sprint Nextel (USA)
    
    Telefonica (Latin America)
    
    Verizon Wireless (USA)
  13




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OEM Customers and Strategic Relationships
  Ericsson
      14




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Other OEM Relationships
           15




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Sales and Marketing
   Service and Support
     Research and Development
   16




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Manufacturing and Operations
   Competition
      Intellectual Property
    17




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Employees
  Facilities
   18




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Item 1A.
    
    Risk Factors
 Our business is subject to numerous risks. We caution you that the following important
factors, among others, could cause our actual results to differ materially from those expressed in
forward-looking statements made by us or on our behalf in filings with the SEC, press releases,
communications with investors and oral statements. Any or all of our forward-looking statements in
this Annual Report on Form 10-K and in any other public statements we make may turn out to be
wrong. They may be affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed. Actual future results
may vary materially from those anticipated in forward-looking statements. We undertake no
obligation to update any forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any further disclosure we make in our
reports filed with the SEC.
 Risks Relating to Our Business
 We depend on a single OEM customer, Ericsson, for almost all of our revenue and billings, and a
significant shortfall in sales to Ericsson would significantly harm our business and operating
results.
   If our announced merger is delayed or not completed, our business and the market price of our
common stock could be adversely affected.
   19




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Because our OEM business model requires us to defer the recognition of most of our revenue from
product and service sales until we deliver specified upgrades, and in some cases to further defer
a portion of our revenue until applicable warranty periods expire, our revenue in any period is
not likely to be indicative of the level of our sales activity in that period.
  Our revenue and billings growth may be constrained by our product concentration and lack of
revenue diversification.
  A majority of our current products are based exclusively on the CDMA2000 air interface standard
for wireless communications, and therefore any movement by existing or prospective operator
customers to a different standard could impair our business and operating results.
   The introduction of fourth generation wireless technology could reduce spending on our EV-DO
products and therefore harm our operating results.
   20




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The variable sales and deployment cycles for our EV-DO products are likely to cause our quarterly
billings to fluctuate materially.
   If demand for mobile broadband services does not grow as quickly as we anticipate, or develops in
a manner that we do not anticipate, our revenue and billings may decline or fail to grow, which
would adversely affect our operating results.
  Deployments of our EV-DO products by two large U.S. wireless operators account for a substantial
majority of our revenue and billings, and a decision by these operators to reduce their use of our
products would harm our business and operating results.
   21




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If the market for our FMC products does not develop as we expect, or our FMC products do not
achieve sufficient market acceptance, our business will suffer.
  Our future sales will depend on our success in generating sales to a limited number of OEM
customers, and any failure to do so would have a significant detrimental effect on our business.
  The unpredictability of our future results may adversely affect the trading price of our common
stock.
  
    
    the effect of our OEM business model or changes to this model on our revenue recognition;
 
    
    the timing of agreements or commitments with our OEM customers for new products or
software upgrades;
 
    
    the timing of our delivery of software upgrades;
 
    
    the timing of our delivery of maintenance and support sold with products;
 
    
    the ability of our customers to pay amounts owed to us as they become due;
 
    
    the unpredictable deployment and purchasing patterns of operators;
  22




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
    
    fluctuations in demand for products of our OEM customers that are sold together with our
products, and the timing and size of orders for such products of our OEM customers;
 
    
    new product introductions and enhancements by our competitors and us;
 
    
    the timing and acceptance of software upgrades sold by our OEM customers to their
installed base of operators;
 
    
    changes in our pricing policies or the pricing policies of our competitors;
 
    
    our ability to develop, introduce and deploy new products and product upgrades that meet
customer requirements in a timely manner;
 
    
    adjustments in the reporting of royalties and product sales by our OEM customers
resulting from reviews and audits of such reports;
 
    
    our and our OEM customers ability to obtain sufficient supplies of limited source
components or materials;
 
    
    our and our OEM customers ability to attain and maintain production volumes and quality
levels for our products; and
 
    
    general economic conditions, as well as those specific to the communications, networking,
wireless and related industries.
   We may not be able to achieve profitability for any period in the future or sustain cash flow from
operating activities.
   23




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Claims by other parties that we infringe their proprietary technology could force us to redesign
our products or to incur significant costs.
  
    
    stop selling, incorporating or using our products that use the challenged intellectual
property;
 
    
    obtain from the owner of the infringed intellectual property right a license to sell or
use the relevant technology, which license may not be available on reasonable terms, or at
all;
 
    
    redesign those products that use any allegedly infringing technology, which may be costly
and time-consuming; or
 
    
    refund deposits and other amounts received for allegedly infringing technology or
products.
   If we are not successful in obtaining from third parties licenses to intellectual property that
are required for GSM/UMTS products that we are developing, we may not be able to expand our
business as expected and our business may suffer.
   24




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If we do not timely deliver new and enhanced products that respond to customer requirements and
technological changes, operators may not buy our products and our revenue and product and service
billings may decline significantly.
    Our revenue and product and service billings growth will be limited if our OEM customers are
unable to continue to sell our products to large wireless operators or if we have to discount our
products to support the selling efforts of our OEM customers.
  We depend on sole sources for certain components of our products and our business would be harmed
if the supply from our sole sources were disrupted.
  The market for network infrastructure products is highly competitive and continually evolving, and
if we are not able to compete effectively, we may not be able to continue to expand our business
as expected and our business may suffer.
   25




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Our agreement with our largest OEM customer, Ericsson, provides Ericsson with an option to license
some of our intellectual property to develop internally products competitive with the products it
currently purchases from us.
  Continued adverse conditions in the global economy and disruption of financial and credit markets
could negatively affect our customers, and therefore our performance.
    26




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Because our business depends on the continued strength of the communications industry, our
operating results will suffer if that industry experiences an economic downturn.
  The success of our business could be jeopardized if we are unable to protect our intellectual
property adequately.
  We may engage in future acquisitions that could disrupt our business, cause dilution to our
stockholders and harm our financial condition and operating results.
   27




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The outcome of an ongoing IRS examination of our tax returns could adversely affect our cash
balance and operating results.
  Future interpretations of existing accounting standards or the application of new standards could
adversely affect our operating results.
  Software Revenue Recognition,
     28




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The loss of key personnel or an inability to attract and retain additional personnel may impair
our ability to grow our business.
   We have incurred, and will continue to incur, significant increased costs as a result of operating
as a public company as compared with our history as a private company, and our management is
required to devote substantial time to public company compliance initiatives. If we are unable to
absorb these increased costs or maintain management focus on development and sales of our product
offerings and services, we may not be able to achieve our business plan.
  We are exposed to potential risks and will continue to incur significant costs as a result of the
internal control testing and evaluation process mandated by Section 404 of the Sarbanes-Oxley Act
of 2002.
     29




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If we are unable to manage our growth and expand our operations successfully, our business and
operating results will be harmed and our reputation may be damaged.
   We may need additional capital in the future, which may not be available to us, and if it is
available, may dilute our existing stockholders ownership of our common stock.
  
    
    fund ongoing operations;
 
    
    take advantage of opportunities, including more rapid expansion of our business or the
acquisition of complementary products, technologies or businesses;
 
    
    develop new products; or
 
    
    respond to competitive pressures.
  Our ability to sell our products depends in part on the quality of our support and services
offerings, and our failure to offer high quality support and services would have a material
adverse effect on our sales and operating results.
   30




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Our products are highly technical and may contain undetected software or hardware errors, which
could cause harm to our reputation and adversely affect our business.
  Our international operations subject us to additional risks that can adversely affect our
operating results.
  
    
    the difficulty of managing and staffing foreign offices and the increased travel,
infrastructure and legal compliance costs associated with multiple international locations;
 
    
    difficulties in enforcing contracts, collecting accounts receivable and longer payment
cycles, especially in emerging markets;
 
    
    the need to localize our products and licensing programs for international customers;
 
    
    tariffs and trade barriers and other regulatory or contractual limitations on our ability
to sell or develop our products in certain foreign markets;
 
    
    increased exposure to foreign currency exchange rate risk; and
 
    
    reduced protection for intellectual property rights in some countries.
  If wireless devices pose safety risks, we may be subject to new regulations, and demand for our
products and those of our licensees and customers may decrease.
   31




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Risks Relating to Ownership of Our Common Stock
 The market price of our common stock may be volatile.
  
    
    fluctuations in our quarterly financial results or the quarterly financial results of
companies perceived to be similar to us;
 
    
    fluctuations in our revenue as a result of our revenue recognition policy, even during
periods of significant sales activity;
 
    
    changes in estimates of our financial results or recommendations by securities analysts;
 
    
    failure of any of our products to achieve or maintain market acceptance;
 
    
    any adverse change in our relationship with Ericsson;
 
    
    any adverse resolution of the IRS examination of our U.S. federal income tax returns for
the years ended December 31, 2006 and December 30, 2007;
 
    
    changes in market valuations of similar companies;
 
    
    success of competitive products;
 
    
    changes in our capital structure, such as future issuances of securities or the
incurrence of debt;
 
    
    announcements by us or our competitors of significant products, contracts, acquisitions
or strategic alliances;
 
    
    regulatory developments in the United States, foreign countries or both;
 
    
    litigation involving our company, our general industry or both;
 
    
    additions or departures of key personnel;
 
    
    general perception of the future of CDMA technology;
 
    
    investors general perception of us; and
 
    
    changes in general economic, industry and market conditions.
  If equity research analysts do not publish research or reports about our business or if they issue
unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
   32




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A significant portion of our total outstanding shares may be sold into the public market in the
near future, which could cause the market price of our common stock to drop significantly, even if
our business is doing well.
   Our directors and management may exercise significant control over our company.
  Provisions in our certificate of incorporation, our by-laws or Delaware law might discourage,
delay or prevent a change in control of our company or changes in our management and, therefore,
depress the trading price of our common stock.
  
    
    limitations on the removal of directors;
 
    
    a classified board of directors so that not all members of our board are elected at one
time;
 
    
    advance notice requirements for stockholder proposals and nominations;
 
    
    the inability of stockholders to act by written consent or to call special meetings;
 
    
    the ability of our board of directors to make, alter or repeal our by-laws; and
 
    
    the ability of our board of directors to designate the terms of and issue new series of
preferred stock without stockholder approval, which could be used to institute a rights
plan, or a poison pill, that would work to dilute the stock ownership of a potential hostile
acquirer, likely preventing acquisitions that have not been approved by our board of
directors.
  33




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We do not currently intend to pay dividends on our common stock and, consequently, the ability to
achieve a return on an investment in our common stock will depend on appreciation in the price of
our common stock.
   34




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Item 1B.

    Unresolved Staff Comments
  
 Item 2.

    Properties
  
 Item 3.

    Legal Proceedings
 Israni v. Airvana, Inc., et al.
 Gittleson v. Airvana, Inc., et al.
 Willis v. Airvana, Inc. et al.,
  35




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In re
Airvana Shareholders Litigation
 Mountney v. Airvana, Inc., et al.
 Short v. Airvana, Inc., et al.,
 Short
   36




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Item 4.

    Reserved
 
 Item 5.

    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
   Fiscal Year Ended December 28, 2008
    
    High
    
    
    LowFirst Quarter
    
    $
    6.19
    
    
    $
    4.00Second Quarter
    
    $
    6.95
    
    
    $
    4.82Third Quarter
    
    $
    6.70
    
    
    $
    4.85Fourth Quarter
    
    $
    6.00
    
    
    $
    3.36
 Fiscal Year Ended January 3, 2010
    
    High
    
    
    LowFirst Quarter
    
    $
    6.15
    
    
    $
    4.34Second Quarter
    
    $
    6.19
    
    
    $
    4.84Third Quarter
    
    $
    7.00
    
    
    $
    5.84Fourth Quarter
    
    $
    7.65
    
    
    $
    5.80
   Dividends
  Securities Authorized for Issuance Under Equity Compensation Plans
   37




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Recent Sales of Unregistered Securities
 Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 Share Repurchase Program
    38




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Stock Performance Graph
 The following performance graph and related information shall not be deemed soliciting
material or to be filed with the Securities and Exchange Commission, nor shall such information
be incorporated by reference into any future filing under the Securities Act of 1933 or Securities
Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
  
 7/07
    
    
    9/07
    
    
    12/07
    
    
    3/08
    
    
    6/08
    
    
    9/08
    
    
    12/08
    
    
    3/09
    
    
    6/09
    
    
    9/09
    
    
    1/10Airvana Inc
    
    
    100.00
    
    
    
    84.38
    
    
    
    77.96
    
    
    
    72.94
    
    
    
    74.76
    
    
    
    82.15
    
    
    
    80.89
    
    
    
    81.59
    
    
    
    88.84
    
    
    
    94.42
    
    
    
    106.00NASDAQ Composite
    
    
    100.00
    
    
    
    102.21
    
    
    
    100.43
    
    
    
    85.91
    
    
    
    86.76
    
    
    
    77.58
    
    
    
    59.50
    
    
    
    57.60
    
    
    
    69.14
    
    
    
    80.08
    
    
    
    85.81DJ Wilshire Telecommunications
    
    
    100.00
    
    
    
    101.98
    
    
    
    94.99
    
    
    
    80.78
    
    
    
    78.26
    
    
    
    66.59
    
    
    
    63.26
    
    
    
    58.51
    
    
    
    61.30
    
    
    
    65.20
    
    
    
    69.84
 *
    
    $100 invested on 7/20/07 in stock or 6/30/2007 in index-including
reinvestment of dividends. Indexes calculated on month-end basis.  39




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##### Table of Contents



Item 6.

    Selected Financial Data
 Business Combinations
  Fiscal Year2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands, except per share amounts)Consolidated Statement of Operations Data:Revenue
    
    $
    2,347
    
    
    $
    170,270
    
    
    $
    305,785
    
    
    $
    138,173
    
    
    $
    64,594Cost of revenue
    
    
    6,533
    
    
    
    45,295
    
    
    
    41,904
    
    
    
    11,462
    
    
    
    13,569Gross (loss) profit
    
    
    (4,186
    )
    
    
    124,975
    
    
    
    263,881
    
    
    
    126,711
    
    
    
    51,025Operating expenses:Research and development
    
    
    42,922
    
    
    
    55,073
    
    
    
    76,638
    
    
    
    74,826
    
    
    
    73,676Sales and marketing
    
    
    5,237
    
    
    
    7,729
    
    
    
    12,055
    
    
    
    14,933
    
    
    
    16,307General and administrative
    
    
    3,253
    
    
    
    5,068
    
    
    
    7,453
    
    
    
    8,976
    
    
    
    12,772In-process research and development
    
    
    
    
    
    
    
    
    
    
    2,340
    
    
    
    
    
    
    
    Total operating expenses
    
    
    51,412
    
    
    
    67,870
    
    
    
    98,486
    
    
    
    98,735
    
    
    
    102,755Operating (loss) income
    
    
    (55,598
    )
    
    
    57,105
    
    
    
    165,395
    
    
    
    27,976
    
    
    
    (51,730
    )Interest income, net
    
    
    3,459
    
    
    
    6,602
    
    
    
    9,846
    
    
    
    7,240
    
    
    
    6,693(Loss) income before tax expense (benefit) and
cumulative effect of change in accounting
principle
    
    
    (52,139
    )
    
    
    63,707
    
    
    
    175,241
    
    
    
    35,216
    
    
    
    (45,037
    )Income tax expense (benefit)
    
    
    10,875
    
    
    
    (10,742
    )
    
    
    21,898
    
    
    
    13,923
    
    
    
    (20,045
    )(Loss) income before cumulative effect of change
in accounting principle
    
    
    (63,014
    )
    
    
    74,449
    
    
    
    153,343
    
    
    
    21,293
    
    
    
    (24,992
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (330
    )
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    $
    (63,014
    )
    
    $
    74,119
    
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Net (loss) income per common share:Basic
    
    $
    (5.42
    )
    
    $
    1.21
    
    
    $
    2.63
    
    
    $
    0.33
    
    
    $
    (0.40
    )Diluted
    
    $
    (5.42
    )
    
    $
    1.12
    
    
    $
    2.19
    
    
    $
    0.30
    
    
    $
    (0.40
    )Shares used in computing net (loss) income per
common share:Basic
    
    
    12,959
    
    
    
    13,542
    
    
    
    36,238
    
    
    
    64,278
    
    
    
    62,499Diluted
    
    
    12,959
    
    
    
    18,947
    
    
    
    43,496
    
    
    
    70,091
    
    
    
    62,499
  40




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##### Table of Contents



Fiscal Year2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands)Other GAAP and Non-GAAP Financial Data:Product and service billings (Billings)(1)
    
    $
    157,420
    
    
    $
    140,564
    
    
    $
    142,174
    
    
    $
    125,055
    
    
    $
    174,167Cost related to Billings(2)
    
    
    45,303
    
    
    
    12,543
    
    
    
    8,740
    
    
    
    13,625
    
    
    
    19,300Gross profit on Billings(3)
    
    
    112,117
    
    
    
    128,021
    
    
    
    133,434
    
    
    
    111,430
    
    
    
    154,867Operating income on Billings(4)
    
    
    60,705
    
    
    
    60,151
    
    
    
    34,948
    
    
    
    12,695
    
    
    
    52,112Deferred revenue, at end of period
    
    
    273,124
    
    
    
    243,418
    
    
    
    79,978
    
    
    
    66,860
    
    
    
    176,433Deferred product and service costs, at end of period
    
    
    66,966
    
    
    
    34,214
    
    
    
    1,050
    
    
    
    3,213
    
    
    
    8,944Cash flow from operating activities
    
    
    67,390
    
    
    
    25,138
    
    
    
    91,771
    
    
    
    12,569
    
    
    
    44,396
 January 1,
    
    
    December 31,
    
    
    December 30,
    
    
    December 28,
    
    
    January 3,2006
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2010(In thousands)Consolidated Balance Sheet Data:Cash, cash equivalents and
investments
    
    $
    135,470
    
    
    $
    160,123
    
    
    $
    221,963
    
    
    $
    228,366
    
    
    $
    263,167Working capital
    
    
    11,225
    
    
    
    3,253
    
    
    
    131,886
    
    
    
    156,532
    
    
    
    130,161Total assets
    
    
    219,547
    
    
    
    264,207
    
    
    
    261,566
    
    
    
    257,336
    
    
    
    338,717Redeemable convertible preferred
stock
    
    
    121,714
    
    
    
    130,042
    
    
    
    
    
    
    
    
    
    
    
    Total stockholders (deficit) equity
    
    
    (190,657
    )
    
    
    (122,790
    )
    
    
    145,175
    
    
    
    162,882
    
    
    
    140,023
 
 (1)
    
    Billings represents amounts invoiced for products and services
delivered and services to be delivered to our customers for which
payment is expected to be made in accordance with normal payment
terms. For software-only products sold to OEM customers, we invoice
only upon notification of sale by our OEM customers. We use Billings
to assess our business performance and as a critical metric for our
incentive compensation program. We believe Billings is a consistent
measure of our sales activity from period to period. Billings is not a
GAAP measure and does not purport to be an alternative to revenue or
any other performance measure derived in accordance with GAAP. In
fiscal 2008, Billings excludes $21.8 million of outstanding invoices
to Nortel Networks that were subject to Nortel Networks bankruptcy
proceedings. In 2009, Billings includes $21.8 million received from
Ericsson following its acquisition of Nortels CDMA business that we
previously did not recognize because of the uncertainty associated
with Nortels bankruptcy proceedings. The following table reconciles
revenue to Billings:  41




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##### Table of Contents



Fiscal Year2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands)Revenue
    
    $
    2,347
    
    
    $
    170,270
    
    
    $
    305,785
    
    
    $
    138,173
    
    
    $
    64,594Deferred revenue, at end of period
    
    
    273,124
    
    
    
    243,418
    
    
    
    79,978
    
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue acquired
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    
    
    
    
    Less: Deferred revenue, at
beginning of period
    
    
    (118,051
    )
    
    
    (273,124
    )
    
    
    (243,418
    )
    
    
    (79,978
    )
    
    
    (66,860
    )Billings
    
    $
    157,420
    
    
    $
    140,564
    
    
    $
    142,174
    
    
    $
    125,055
    
    
    $
    174,167
 (2)
    
    Cost related to Billings represents the cost directly attributable to
products and services delivered and invoiced to our customers in the
period. We record product and service costs related to Billings as
deferred product and service costs until such time as the related
deferred revenue is recognized upon the delivery of specified software
upgrades. When we recognize revenue, the related deferred product and
service costs are expensed as cost of revenue. We believe that cost
related to Billings is an important measure of our operating
performance. Cost related to Billings is not a GAAP measure and does
not purport to be an alternative to cost of revenue or any other
performance measure derived in accordance with GAAP. The following
table reconciles cost of revenue to cost related to Billings: Fiscal Year2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands)Cost of revenue
    
    $
    6,533
    
    
    $
    45,295
    
    
    $
    41,904
    
    
    $
    11,462
    
    
    $
    13,569Deferred product and
service costs, at end
of period
    
    
    66,966
    
    
    
    34,214
    
    
    
    1,050
    
    
    
    3,213
    
    
    
    8,944Less: Deferred product
cost, at beginning of
period
    
    
    (28,196
    )
    
    
    (66,966
    )
    
    
    (34,214
    )
    
    
    (1,050
    )
    
    
    (3,213
    )Cost related to Billings
    
    $
    45,303
    
    
    $
    12,543
    
    
    $
    8,740
    
    
    $
    13,625
    
    
    $
    19,300
 (3)
    
    Gross profit on Billings represents Billings less cost related to
Billings. We believe that gross profit on Billings is an important
measure of our operating performance. Gross profit on Billings is not
a GAAP measure and does not purport to be an alternative to gross
profit or any other performance measure derived in accordance with
GAAP. In fiscal 2008, gross profit on Billings excludes $21.8 million
of outstanding invoices to Nortel Networks that were subject to Nortel
Networks bankruptcy proceedings. In 2009, gross profit on Billings
includes $21.8 million received from Ericsson following its
acquisition of Nortels CDMA business that we previously did not
recognize because of the uncertainty associated with Nortels
bankruptcy proceedings. The following table reconciles gross profit to
gross profit on Billings. Fiscal Year2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands)Gross (loss) profit
    
    $
    (4,186
    )
    
    $
    124,975
    
    
    $
    263,881
    
    
    $
    126,711
    
    
    $
    51,025Deferred revenue, at end of period
    
    
    273,124
    
    
    
    243,418
    
    
    
    79,978
    
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue acquired
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    
    
    
    
    Less: Deferred revenue, at beginning of
period
    
    
    (118,051
    )
    
    
    (273,124
    )
    
    
    (243,418
    )
    
    
    (79,978
    )
    
    
    (66,860
    )Deferred product and service costs, at
beginning of period
    
    
    28,196
    
    
    
    66,966
    
    
    
    34,214
    
    
    
    1,050
    
    
    
    3,213Less: Deferred product cost, at end of period
    
    
    (66,966
    )
    
    
    (34,214
    )
    
    
    (1,050
    )
    
    
    (3,213
    )
    
    
    (8,944
    )Gross profit on Billings
    
    $
    112,117
    
    
    $
    128,021
    
    
    $
    133,434
    
    
    $
    111,430
    
    
    $
    154,867
  42




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(4)
    
    Operating profit on Billings represents gross profit on Billings less
operating expenses. We believe that operating profit on Billings is an
important measure of our operating performance. Operating profit on
Billings is not a GAAP measure and does not purport to be an
alternative to operating income or any other performance measure
derived in accordance with GAAP. In fiscal 2008, operating profit on
Billings excludes $21.8 million of outstanding invoices to Nortel
Networks that were subject to Nortel Networks bankruptcy proceedings.
In 2009, operating profit on Billings includes $21.8 million received
from Ericsson following its acquisition of Nortels CDMA business that
we previously did not recognize because of the uncertainty associated
with Nortels bankruptcy proceedings. The following table reconciles
operating profit to operating profit on billings. Fiscal Year2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009(In thousands)Operating (loss) profit
    
    $
    (55,598
    )
    
    $
    57,105
    
    
    $
    165,395
    
    
    $
    27,976
    
    
    $
    (51,730
    )Deferred revenue, at end of period
    
    
    273,124
    
    
    
    243,418
    
    
    
    79,978
    
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue acquired
    
    
    
    
    
    
    
    
    
    
    (171
    )
    
    
    
    
    
    
    Less: Deferred revenue, at
beginning of period
    
    
    (118,051
    )
    
    
    (273,124
    )
    
    
    (243,418
    )
    
    
    (79,978
    )
    
    
    (66,860
    )Deferred product and service
costs, at beginning of period
    
    
    28,196
    
    
    
    66,966
    
    
    
    34,214
    
    
    
    1,050
    
    
    
    3,213Less: Deferred product and
service costs, at end of period
    
    
    (66,966
    )
    
    
    (34,214
    )
    
    
    (1,050
    )
    
    
    (3,213
    )
    
    
    (8,944
    )Operating profit on billings
    
    $
    60,705
    
    
    $
    60,151
    
    
    $
    34,948
    
    
    $
    12,695
    
    
    $
    52,112
  43




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Item 7.

    Managements Discussion and Analysis of Financial Condition and Results of Operations
 This Annual Report on Form 10-K contains forward-looking statements that involve risks and
uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could
cause our results to differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Annual Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include expectations regarding the timing of the merger of Airvana and
72 Mobile Holdings, LLC; statements regarding the ability to complete the merger; any expectation
of earnings, revenues, billings or other financial items; development of femtocell alliances and
shipments; any statements of the plans, strategies and objectives of management for future
operations; factors that may affect our operating results; statements concerning new products or
services; statements related to future capital expenditures; statements related to future economic
conditions or performance; statements as to industry trends and other matters that do not relate
strictly to historical facts or statements of assumptions underlying any of the foregoing. These
statements are often identified by the use of words such as, but not limited to, anticipate,
believe, continue, could, estimate, expect, intend, may, will, plan, target,
continue, and similar expressions or variations intended to identify forward-looking statements.
These statements are based on the beliefs and assumptions of our management based on information
currently available to management. Such forward-looking statements are subject to risks,
uncertainties and other important factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited
to, those identified below, and those discussed in the section titled Risk Factors included
elsewhere in this Annual Report on Form 10-K and in our other filings with the SEC. Furthermore,
such forward-looking statements speak only as of the date of this report. We undertake no
obligation to update any forward-looking statements to reflect events or circumstances after the
date of such statements.
 Overview
     44




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45




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46




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Our OEM Business Model
    Software Revenue Recognition .
 Impact of ASC 985-605, Software Revenue Recognition
     47




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##### Table of Contents




    
    Software release A is delivered and related product and service
billings are recognized as revenue because there are no
outstanding commitments for upgrades.
    
    Software upgrade B is committed in Period 1 and, therefore,
product and service billings for shipments of software release A
after that point cannot be recognized as revenue before software
upgrade B is delivered.
    
    Before software upgrade B is delivered, software upgrade C is
committed in Period 2 and, therefore, product and service billings
for shipments of software release A after that point cannot be
recognized before software upgrade C is delivered.  48




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##### Table of Contents




    
    When software upgrade B is delivered in Period 3, all deferred
revenue, which consists of deferred revenue from billings of
software release A, from the time of the commitment of software
upgrade B until the time of the commitment of software upgrade C
is recognized, subject to being able to establish VSOE of fair
value for maintenance and support services.When software upgrade C is delivered in Period 4, all remaining
deferred revenue from the time of the commitment of software
upgrade C, which consists of deferred revenue from billings of
software release A and software upgrade B, is recognized because
no commitments are outstanding, subject to being able to establish
VSOE of fair value for maintenance and support services.  Key Elements of Financial Performance
 Revenue
  Product Revenue.
    49




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Service Revenue.
   50




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Product and Service Billings
      Fiscal Year2007
    
    
    2008
    
    
    2009Revenue
    
    $
    305,785
    
    
    $
    138,173
    
    
    $
    64,594Deferred revenue, at end of period
    
    
    79,978
    
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue acquired
    
    
    (171
    )
    
    
    
    
    
    
    Less: Deferred revenue, at beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )
    
    
    (66,860
    )Product and service billings
    
    $
    142,174
    
    
    $
    125,055
    
    
    $
    174,167
 Deferred Revenue
   51




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Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to December 2007 specified upgrade
    
    $
    7,397
    
    
    $
    
    
    
    $
    7,397Deferred revenue related to July 2008 specified upgrade
    
    
    37,775
    
    
    
    
    
    
    
    37,775Deferred revenue related to October 2008 specified upgrade
    
    
    13,663
    
    
    
    
    
    
    
    13,663Other deferred revenue
    
    
    2,475
    
    
    
    5,550
    
    
    
    8,025Total deferred revenue
    
    $
    61,310
    
    
    $
    5,550
    
    
    $
    66,860Deferred product cost related to December 2007 specified upgrade
    
    $
    79
    
    
    $
    
    
    
    $
    79Deferred product cost related to July 2008 specified upgrade
    
    
    742
    
    
    
    
    
    
    
    742Deferred product cost related to October 2008 specified upgrade
    
    
    566
    
    
    
    
    
    
    
    566Other deferred product and service costs
    
    
    526
    
    
    
    1,300
    
    
    
    1,826Total deferred product and service costs
    
    $
    1,913
    
    
    $
    1,300
    
    
    $
    3,213
  Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to October 2008 specified upgrade
    
    $
    83,346
    
    
    $
    
    
    
    $
    83,346Deferred revenue related to May 2009 specified upgrade
    
    
    69,866
    
    
    
    
    
    
    
    69,866Deferred revenue related to December 2009 specified upgrade
    
    
    12,768
    
    
    
    
    
    
    
    12,768Other deferred revenue
    
    
    1,410
    
    
    
    9,043
    
    
    
    10,453Total deferred revenue
    
    $
    167,390
    
    
    $
    9,043
    
    
    $
    176,433Deferred product cost related to October 2008 specified upgrade
    
    $
    1,707
    
    
    $
    
    
    
    $
    1,707Deferred product cost related to May 2009 specified upgrade
    
    
    1,229
    
    
    
    
    
    
    
    1,229Deferred product cost related to December 2009 specified upgrade
    
    
    136
    
    
    
    
    
    
    
    136Other deferred product and service costs
    
    
    307
    
    
    
    5,565
    
    
    
    5,872Total deferred product and service costs
    
    $
    3,379
    
    
    $
    5,565
    
    
    $
    8,944
  52




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Cost of Revenue
  
    
    cost for channel card hardware provided by contract manufacturers;
    
    cost of hardware for our RNCs and network management systems;
    
    license fees for third-party software and other intellectual property used in our
products; and
    
    other related overhead costs.
   Cost Related to Product and Service Billings
  Deferred Product and Service Costs
 .
 Gross Profit
   53




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Gross Profit on Billings
   Operating Expenses
 Research and Development.
 
    
    salaries, benefits and stock-based compensation related to our engineers;
    
    cost of prototypes and test equipment relating to the development of new products and the
enhancement of existing products;
    
    payments to suppliers for design and consulting services; and
    
    other related overhead costs.
  Sales and Marketing.
 
    
    salaries, benefits and stock-based compensation related to our sales, marketing and
customer support personnel;
    
    commissions payable to our sales personnel;
    
    travel, lodging and other out-of-pocket expenses;
    
    marketing program expenses; and
    
    other related overhead costs.
  General and Administrative.
 
    
    salaries, benefits and stock-based compensation related to our executive, finance, legal,
human resource and administrative personnel;
    
    professional services costs; and
    
    other related overhead costs.
  54




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Stock-Based Compensation Expense
 Stock Compensation,
 Operating Income on Billings
  Interest Income, Net
  Cash Flow from Operating Activities
  Cash and Investments
    55




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Fiscal Year
  Critical Accounting Policies and Estimates
   Revenue Recognition
 .
     56




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57




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, Principal Agent Considerations
    58




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Investments and Restricted Investments
  Stock-Based Compensation
 . Equity Based Payments to Non-Employees,
  .
   59




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Income Taxes
 Income Taxes, or
   60




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Results of Operations
  AIRVANA, INC.
 CONSOLIDATED STATEMENTS OF INCOME
 Year EndedDecember 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010(In thousands)Revenue:Product
    
    $
    279,133
    
    
    $
    123,295
    
    
    $
    45,121Service
    
    
    26,652
    
    
    
    14,878
    
    
    
    19,473Total revenue
    
    
    305,785
    
    
    
    138,173
    
    
    
    64,594Cost of revenue:Product
    
    
    34,794
    
    
    
    3,267
    
    
    
    3,195Service
    
    
    7,110
    
    
    
    8,195
    
    
    
    10,374Total cost of revenue
    
    
    41,904
    
    
    
    11,462
    
    
    
    13,569Gross profit
    
    
    263,881
    
    
    
    126,711
    
    
    
    51,025Operating expenses:Research and development
    
    
    76,638
    
    
    
    74,826
    
    
    
    73,676Selling and marketing
    
    
    12,055
    
    
    
    14,933
    
    
    
    16,307General and administrative
    
    
    7,453
    
    
    
    8,976
    
    
    
    12,772In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    Total operating expenses
    
    
    98,486
    
    
    
    98,735
    
    
    
    102,755Operating income
    
    
    165,395
    
    
    
    27,976
    
    
    
    (51,730
    )Interest and other income (expense)Interest and other income
    
    
    9,881
    
    
    
    7,241
    
    
    
    6,693Interest expense
    
    
    (35
    )
    
    
    (1
    )
    
    
    Total interest and other income
    
    
    9,846
    
    
    
    7,240
    
    
    
    6,693Income (loss) before income tax expense (benefit)
    
    
    175,241
    
    
    
    35,216
    
    
    
    (45,037
    )Income tax expense (benefit)
    
    
    21,898
    
    
    
    13,923
    
    
    
    (20,045
    )Net income (loss)
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Other GAAP and Non-GAAP Financial Data(1):Product and service billings
    
    $
    142,174
    
    
    $
    125,055
    
    
    $
    174,167Cost related to product and service billings
    
    
    8,740
    
    
    
    13,625
    
    
    
    19,300Gross profit on Billings
    
    
    133,434
    
    
    
    111,430
    
    
    
    154,867Operating income on Billings
    
    
    34,948
    
    
    
    12,695
    
    
    
    52,112Deferred revenue, at end of period
    
    
    79,978
    
    
    
    66,860
    
    
    
    176,433Deferred product and service costs, at end of period
    
    
    1,050
    
    
    
    3,213
    
    
    
    8,944Cash flow from operating activities
    
    
    91,771
    
    
    
    12,569
    
    
    
    44,396
 
 (1)
    
    For a reconciliation of non-GAAP financial data to GAAP data, please see the tables on the
following pages of Managements Discussion and Analysis of Financial Condition and Results of
Operations.  61




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Comparison of Fiscal 2008 and Fiscal 2009
 Revenue and Product and Service Billings
 Fiscal Year
    
    
    Period-to-Period2008
    
    
    2009
    
    
    Change(In thousands)Revenue
    
    $
    138,173
    
    
    $
    64,594
    
    
    $
    (73,579
    )Deferred revenue, at end of period
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue, at beginning of period
    
    
    (79,978
    )
    
    
    (66,860
    )Product and service billings
    
    $
    125,055
    
    
    $
    174,167
    
    
    $
    49,112
   Cost of Revenue and Cost Related to Product and Service Billings
 Fiscal Year
    
    
    Period-to-Period2008
    
    
    2009
    
    
    Change(In thousands)Cost of revenue
    
    $
    11,462
    
    
    $
    13,569
    
    
    $
    2,107Deferred product and service costs, at end of period
    
    
    3,213
    
    
    
    8,944Less: Deferred product cost, at beginning of period
    
    
    (1,050
    )
    
    
    (3,213
    )Cost related to product and service billings
    
    $
    13,625
    
    
    $
    19,300
    
    
    $
    5,675
    62




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##### Table of Contents



Gross Profit and Gross Profit on Billings
 Fiscal Year
    
    
    Period-to-Period2008
    
    
    2009
    
    
    Change(In thousands)Gross profit
    
    $
    126,711
    
    
    $
    51,025
    
    
    $
    (75,686
    )Deferred revenue, at end of period
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue acquired
    
    
    
    
    
    
    Less: Deferred revenue, at beginning of period
    
    
    (79,978
    )
    
    
    (66,860
    )Deferred product cost, at beginning of period
    
    
    1,050
    
    
    
    3,213Less: Deferred product and service costs, at
end of period
    
    
    (3,213
    )
    
    
    (8,944
    )Gross profit on Billings
    
    $
    111,430
    
    
    $
    154,867
    
    
    $
    43,437
   Operating Expenses
 Fiscal Year
    
    
    Period-to-Period Change2008
    
    
    2009
    
    
    Amount
    
    
    Percentage(In thousands)Research and development
    
    $
    74,826
    
    
    $
    73,676
    
    
    $
    (1,150
    )
    
    
    1.5
    %Sales and marketing
    
    
    14,933
    
    
    
    16,307
    
    
    
    1,374
    
    
    
    9.2
    %General and administrative
    
    
    8,976
    
    
    
    12,772
    
    
    
    3,796
    
    
    
    42.3
    %Total operating expenses
    
    $
    98,735
    
    
    $
    102,755
    
    
    $
    4,020
    
    
    
    4.1
    %
 Research and Development.
 Sales and Marketing.
 General and Administrative.
  63




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Operating Profit (Loss) and Operating Profit on Billings
 Fiscal Year
    
    
    Period-to-Period2008
    
    
    2009
    
    
    Change(In thousands)Operating profit
    
    $
    27,976
    
    
    $
    (51,730
    )
    
    $
    (79,706
    )Deferred revenue, at end of period
    
    
    66,860
    
    
    
    176,433Less: Deferred revenue, at beginning of period
    
    
    (79,978
    )
    
    
    (66,860
    )Deferred product cost, at beginning of period
    
    
    1,050
    
    
    
    3,213Less: Deferred product and service costs, at
end of period
    
    
    (3,213
    )
    
    
    (8,944
    )Operating profit on billings
    
    $
    12,695
    
    
    $
    52,112
    
    
    $
    39,417
   Interest and Other Income, Net.
 Income Tax Expense.
   64




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Comparison of Fiscal 2007 and Fiscal 2008
 Revenue and Product and Service Billings
 Fiscal Year
    
    
    Period-to-Period2007
    
    
    2008
    
    
    Change(In thousands)Revenue
    
    $
    305,785
    
    
    $
    138,173
    
    
    $
    (167,612
    )Deferred revenue, at end of period
    
    
    79,978
    
    
    
    66,860Less: Deferred revenue acquired
    
    
    (171
    )
    
    
    Less: Deferred revenue, at beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Product and service billings
    
    $
    142,174
    
    
    $
    125,055
    
    
    $
    (17,119
    )
   Cost of Revenue and Cost Related to Product and Service Billings
 Fiscal Year
    
    
    Period-to-Period2007
    
    
    2008
    
    
    Change(In thousands)Cost of revenue
    
    $
    41,904
    
    
    $
    11,462
    
    
    $
    (30,442
    )Deferred product and service costs, at end of period
    
    
    1,050
    
    
    
    3,213Less: Deferred product cost, at beginning of period
    
    
    (34,214
    )
    
    
    (1,050
    )Cost related to product and service billings
    
    $
    8,740
    
    
    $
    13,625
    
    
    $
    4,885
    65




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##### Table of Contents



Gross Profit and Gross Profit on Billings
 Fiscal Year
    
    
    Period-to-Period2007
    
    
    2008
    
    
    Change(In thousands)Gross profit
    
    $
    263,881
    
    
    $
    126,711
    
    
    $
    (137,170
    )Deferred revenue, at end of period
    
    
    79,978
    
    
    
    66,860Less: Deferred revenue acquired
    
    
    (171
    )
    
    
    Less: Deferred revenue, at beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Deferred product cost, at beginning of period
    
    
    34,214
    
    
    
    1,050Less: Deferred product and service costs, at
end of period
    
    
    (1,050
    )
    
    
    (3,213
    )Gross profit on Billings
    
    $
    133,434
    
    
    $
    111,430
    
    
    $
    (22,004
    )
   Operating Expenses
 Fiscal Year
    
    
    Period-to-Period Change2007
    
    
    2008
    
    
    Amount
    
    
    Percentage(In thousands)Research and development
    
    $
    76,638
    
    
    $
    74,826
    
    
    $
    (1,812
    )
    
    
    2.3
    %Sales and marketing
    
    
    12,055
    
    
    
    14,933
    
    
    
    2,878
    
    
    
    23.9
    %General and administrative
    
    
    7,453
    
    
    
    8,976
    
    
    
    1,523
    
    
    
    20.4
    %In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    (2,340
    )Total operating expenses
    
    $
    98,486
    
    
    $
    98,735
    
    
    $
    249
    
    
    
    0.3
    %
 Research and Development.
 Sales and Marketing.
 General and Administrative.
  66




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##### Table of Contents



In-Process Research and Development.
 Operating Profit and Operating Profit on Billings
 Fiscal Year
    
    
    Period-to-Period2007
    
    
    2008
    
    
    Change(In thousands)Operating profit
    
    $
    165,395
    
    
    $
    27,976
    
    
    $
    (137,419
    )Deferred revenue, at end of period
    
    
    79,978
    
    
    
    66,860Less: Deferred revenue acquired
    
    
    (171
    )
    
    
    Less: Deferred revenue, at beginning of period
    
    
    (243,418
    )
    
    
    (79,978
    )Deferred product cost, at beginning of period
    
    
    34,214
    
    
    
    1,050Less: Deferred product and service costs, at
end of period
    
    
    (1,050
    )
    
    
    (3,213
    )Operating profit on billings
    
    $
    34,948
    
    
    $
    12,695
    
    
    $
    (22,253
    )
  Interest Income, Net.
 Income Tax Expense.
  Liquidity and Capital Resources
    67




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##### Table of Contents



Fiscal Year2007
    
    
    2008
    
    
    2009(In thousands)Cash and cash equivalents
    
    $
    43,547
    
    
    $
    30,425
    
    
    $
    30,318Investments, short-term
    
    
    178,416
    
    
    
    197,941
    
    
    
    232,849Accounts receivable
    
    
    14,171
    
    
    
    3,354
    
    
    
    19,030Working capital
    
    
    131,886
    
    
    
    156,532
    
    
    
    130,161Cash flow from operating activities
    
    
    91,771
    
    
    
    12,569
    
    
    
    44,396Cash flow from investing activities
    
    
    (113,670
    )
    
    
    (17,173
    )
    
    
    (40,134
    )Cash flow from financing activities
    
    
    (21,391
    )
    
    
    (8,643
    )
    
    
    (4,369
    )
     68




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69




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##### Table of Contents



Contractual Obligations and Commitments
  Payments Due by PeriodLess Than
    
    
    1-3
    
    
    3-5
    
    
    More ThanTotal
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    5 Years(In thousands)Operating leases(1)
    
    $
    3,676
    
    
    $
    1,652
    
    
    $
    2,014
    
    
    $
    10
    
    
    $
    Purchase commitments(2)
    
    $
    10,378
    
    
    
    6,495
    
    
    
    3,883
    
    
    
    
    
    
    
    Total
    
    $
    14,054
    
    
    $
    8,147
    
    
    $
    5,897
    
    
    $
    10
    
    
    $
    
 
 (1)
    
    Consists of contractual obligations for non-cancelable office space under operating leases.(2)
    
    Represents amounts associated with agreements that are enforceable, legally binding and
specify terms, including: fixed or minimum quantities to be purchased; fixed, minimum or
variable price provisions; and the approximate timing of payment. Obligations under
contracts that we can cancel without a significant penalty are not included in the table
above. Off-Balance Sheet Arrangements
  
 Item 7A.

    Quantitative and Qualitative Disclosures about Market Risk
 Foreign Currency Exchange Risk
   70




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Interest Rate Sensitivity
    71




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##### Table of Contents



Item 8.

    Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm
    
    
    73Consolidated Balance Sheets as of December 28, 2008, and January 3, 2010
    
    
    74Consolidated Statements of Operations for the years ended December 30,
2007, December 28, 2008 and January 3, 2010
    
    
    75Consolidated Statements of Cash Flows for the years ended December 30,
2007, December 28, 2008 and January 3, 2010
    
    
    76Consolidated
Statements of Redeemable Convertible Preferred Stock, Stockholders (Deficit) Equity and
Comprehensive Income (Loss) for the years ended December 30, 2007, December 28,
2008 and January 3, 2010
    
    
    77Notes to Consolidated Financial Statements
    
    
    78
  72




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
  73




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##### Table of Contents



AIRVANA, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 28,
    
    
    January 3,2008
    
    
    2010(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    30,425
    
    
    $
    30,318Investments
    
    
    197,941
    
    
    
    232,849Accounts receivable
    
    
    3,354
    
    
    
    19,030Deferred product cost
    
    
    1,913
    
    
    
    3,379Deferred tax assets, current
    
    
    2,168
    
    
    
    17,520Deferred tax charges, current
    
    
    
    
    
    
    543Prepaid taxes
    
    
    
    
    
    
    5,016Prepaid expenses and other current assets
    
    
    2,758
    
    
    
    4,372Total current assets
    
    
    238,559
    
    
    
    313,027Property and equipment, net
    
    
    4,822
    
    
    
    5,380Deferred service cost
    
    
    1,300
    
    
    
    5,565Deferred tax assets, long-term, net
    
    
    956
    
    
    
    431Deferred tax charges, long-term
    
    
    
    
    
    
    3,255Goodwill and intangible assets, net
    
    
    11,096
    
    
    
    10,027Other assets
    
    
    603
    
    
    
    1,032Total assets
    
    $
    257,336
    
    
    $
    338,717LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,455
    
    
    $
    3,430Accrued expenses and other current liabilities
    
    
    14,365
    
    
    
    11,974Accrued income taxes
    
    
    1,897
    
    
    
    72Deferred revenue, current
    
    
    61,310
    
    
    
    167,390Total current liabilities
    
    
    82,027
    
    
    
    182,866Deferred revenue, long-term
    
    
    5,550
    
    
    
    9,043Accrued income taxes
    
    
    5,703
    
    
    
    6,132Other liabilities
    
    
    1,174
    
    
    
    653Total long-term liabilities
    
    
    12,427
    
    
    
    15,828Commitments and contingencies (Note 8)
    
    
    
    
    
    
    Stockholders equity:Preferred
stock, $0.001 par value per share: 10,000,000 shares authorized, no shares
issued or outstanding
    
    
    
    
    
    
    Common
stock, $0.001 par value per share: 350,000,000 shares authorized, 62,931,171 and
62,909,609 shares issued and outstanding at
December 28, 2008 and January 3, 2010,
respectively
    
    
    63
    
    
    
    63Additional paid-in capital
    
    
    186,824
    
    
    
    188,777Accumulated other comprehensive income
    
    
    
    
    
    
    180Accumulated deficit
    
    
    (24,005
    )
    
    
    (48,997
    )Total stockholders equity
    
    
    162,882
    
    
    
    140,023Total liabilities and stockholders equity
    
    $
    257,336
    
    
    $
    338,717
   74




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AIRVANA, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year EndedDecember 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010(In thousands, except per share amounts)Revenue:Product
    
    $
    279,133
    
    
    $
    123,295
    
    
    $
    45,121Service
    
    
    26,652
    
    
    
    14,878
    
    
    
    19,473Total revenue
    
    
    305,785
    
    
    
    138,173
    
    
    
    64,594Cost of revenue:Product
    
    
    34,794
    
    
    
    3,267
    
    
    
    3,195Service
    
    
    7,110
    
    
    
    8,195
    
    
    
    10,374Total cost of revenue
    
    
    41,904
    
    
    
    11,462
    
    
    
    13,569Gross profit
    
    
    263,881
    
    
    
    126,711
    
    
    
    51,025Operating expenses:Research and development
    
    
    76,638
    
    
    
    74,826
    
    
    
    73,676Selling and marketing
    
    
    12,055
    
    
    
    14,933
    
    
    
    16,307General and administrative
    
    
    7,453
    
    
    
    8,976
    
    
    
    12,772In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    Total operating expenses
    
    
    98,486
    
    
    
    98,735
    
    
    
    102,755Operating income (loss)
    
    
    165,395
    
    
    
    27,976
    
    
    
    (51,730
    )Interest income
    
    
    9,881
    
    
    
    7,241
    
    
    
    6,693Interest expense
    
    
    (35
    )
    
    
    (1
    )
    
    
    Income (loss) before income tax expense (benefit)
    
    
    175,241
    
    
    
    35,216
    
    
    
    (45,037
    )Income tax (benefit) expense
    
    
    21,898
    
    
    
    13,923
    
    
    
    (20,045
    )Net income (loss)
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Net income (loss) per common share applicable to
common stockholders:Basic
    
    $
    2.63
    
    
    $
    0.33
    
    
    $
    (0.40
    )Diluted
    
    $
    2.19
    
    
    $
    0.30
    
    
    $
    (0.40
    )Weighted average common shares outstanding:Basic
    
    
    36,238
    
    
    
    64,278
    
    
    
    62,499Diluted
    
    
    43,496
    
    
    
    70,091
    
    
    
    62,499
   75




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##### Table of Contents



AIRVANA, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year EndedDecember 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010(In thousands)Operating activitiesNet income (loss)
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation
    
    
    3,078
    
    
    
    3,215
    
    
    
    3,249Amortization of intangible assets
    
    
    713
    
    
    
    1,069
    
    
    
    1,069In-process research and development
    
    
    2,340
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    2,996
    
    
    
    4,844
    
    
    
    6,317Deferred tax benefit
    
    
    (2,989
    )
    
    
    (951
    )
    
    
    (14,827
    )Excess tax benefit related to exercise of stock options
    
    
    
    
    
    
    (2,266
    )
    
    
    (2,442
    )Amortization of investment discounts (premiums)
    
    
    (5,661
    )
    
    
    (4,113
    )
    
    
    940Amortization of leasehold incentive
    
    
    (522
    )
    
    
    (522
    )
    
    
    (521
    )Non-cash interest income
    
    
    (103
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    31,901
    
    
    
    10,817
    
    
    
    (15,676
    )Deferred product and service costs
    
    
    33,164
    
    
    
    (2,163
    )
    
    
    (5,731
    )Deferred tax charges
    
    
    
    
    
    
    
    
    
    
    (3,798
    )Prepaid taxes
    
    
    14,512
    
    
    
    115
    
    
    
    (2,574
    )Prepaid expenses and other current assets
    
    
    (542
    )
    
    
    306
    
    
    
    (1,384
    )Accounts payable
    
    
    512
    
    
    
    649
    
    
    
    (1,025
    )Accrued expenses and other current liabilities
    
    
    2,948
    
    
    
    3,358
    
    
    
    (2,386
    )Accrued income taxes
    
    
    19,691
    
    
    
    (9,964
    )
    
    
    (1,396
    )Deferred revenue
    
    
    (163,610
    )
    
    
    (13,118
    )
    
    
    109,573Net cash provided by operating activities
    
    
    91,771
    
    
    
    12,569
    
    
    
    44,396Investing activitiesPurchases of property and equipment
    
    
    (3,190
    )
    
    
    (1,765
    )
    
    
    (3,827
    )Purchase of 3-Way Networks, net of cash acquired
    
    
    (10,907
    )
    
    
    
    
    
    
    Purchases of investments
    
    
    (367,851
    )
    
    
    (341,622
    )
    
    
    (290,902
    )Maturities of investments
    
    
    268,404
    
    
    
    309,579
    
    
    
    255,234Proceeds from sale of investments
    
    
    
    
    
    
    16,631
    
    
    
    Other assets
    
    
    (126
    )
    
    
    4
    
    
    
    (639
    )Net cash used in investing activities
    
    
    (113,670
    )
    
    
    (17,173
    )
    
    
    (40,134
    )Financing activitiesPayments on long-term debt
    
    
    (583
    )
    
    
    (121
    )
    
    
    Proceeds from initial public offering, net of offering costs
    
    
    51,353
    
    
    
    
    
    
    
    Payments of cash dividend
    
    
    (72,674
    )
    
    
    (92
    )
    
    
    (5
    )Purchase of treasury stock
    
    
    (96
    )
    
    
    (13,328
    )
    
    
    (9,291
    )Excess tax benefit related to exercise of stock options
    
    
    
    
    
    
    2,266
    
    
    
    2,442Proceeds from exercise of stock options
    
    
    609
    
    
    
    2,632
    
    
    
    2,485Net cash used in financing activities
    
    
    (21,391
    )
    
    
    (8,643
    )
    
    
    (4,369
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    22
    
    
    
    125
    
    
    
    Net decrease in cash and cash equivalents
    
    
    (43,268
    )
    
    
    (13,122
    )
    
    
    (107
    )Cash and cash equivalents at beginning of period
    
    
    86,815
    
    
    
    43,547
    
    
    
    30,425Cash and cash equivalents at end of period
    
    $
    43,547
    
    
    $
    30,425
    
    
    $
    30,318Supplemental Disclosure of Cash Flow InformationCash paid for income taxes
    
    $
    100
    
    
    $
    24,723
    
    
    $
    2,527Supplemental Disclosure of Noncash ActivitiesAccretion of dividends on redeemable convertible preferred
stock
    
    $
    4,032
    
    
    $
    
    
    
    $
    Retirement of property and equipment
    
    $
    867
    
    
    $
    4,985
    
    
    $
    60
   76




---



##### Table of Contents



AIRVANA, INC.
 
 CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK,
STOCKHOLDERS (DEFICIT) EQUITY AND COMPREHENSIVE INCOME
 Redeemable ConvertiblePreferred Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedSeries A
    
    
    Series B1
    
    
    Series B2
    
    
    Series C
    
    
    Series D
    
    
    Common Stock
    
    
    Additional
    
    
    OtherLiquidation
    
    
    
    
    
    
    Liquidation
    
    
    
    
    
    
    Liquidation
    
    
    
    
    
    
    Liquidation
    
    
    
    
    
    
    Liquidation
    
    
    
    
    
    
    Par
    
    
    Paid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Income
    
    
    Deficit
    
    
    (Deficit) Equity(In thousands, except share amounts)Balance at December 31, 2006
    
    
    10,937,500
    
    
    $
    16,749
    
    
    
    3,994,328
    
    
    $
    36,274
    
    
    
    900,414
    
    
    $
    7,362
    
    
    
    25,031,017
    
    
    $
    56,150
    
    
    
    3,288,490
    
    
    $
    13,507
    
    
    
    13,814,535
    
    
    $
    14
    
    
    $
    3,251
    
    
    $
    
    
    
    $
    (126,055
    )
    
    $
    (122,790
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    416,328
    
    
    
    
    
    
    
    609
    
    
    
    
    
    
    
    
    
    
    
    609Repurchase and retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,010
    )
    
    
    
    
    
    
    (96
    )
    
    
    
    
    
    
    
    
    
    
    (96
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,996
    
    
    
    
    
    
    
    
    
    
    
    2,996Conversion of convertible preferred stock warrants into common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    70Exercise of common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative dividends on redeemable convertible preferred stock
    
    
    
    
    
    
    480
    
    
    
    
    
    
    
    1,080
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    1,771
    
    
    
    
    
    
    
    482
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,032
    )
    
    
    (4,032
    )Exercise of convertible preferred stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,166
    
    
    
    69
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    
    
    
    
    248Issuance of common stock in connection with the Companys acquisition of 3Way Networks Limited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441,845
    
    
    
    1
    
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    2,662Conversion of redeemable convertible preferred stock in connection with the Companys initial public offering
    
    
    (10,937,500
    )
    
    
    (17,229
    )
    
    
    (3,994,328
    )
    
    
    (37,354
    )
    
    
    (900,414
    )
    
    
    (7,581
    )
    
    
    (25,074,183
    )
    
    
    (57,990
    )
    
    
    (3,288,490
    )
    
    
    (13,989
    )
    
    
    40,624,757
    
    
    
    41
    
    
    
    134,102
    
    
    
    
    
    
    
    
    
    
    
    134,143Issuance of common stock in connection with the Companys initial public offering, net of offering costs of $7,267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,300,000
    
    
    
    8
    
    
    
    50,785
    
    
    
    
    
    
    
    
    
    
    
    50,793Cash dividend
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,217
    )
    
    
    
    
    
    
    (68,554
    )
    
    
    (72,771
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153,343
    
    
    
    153,343Balance at December 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,559,983
    
    
    
    64
    
    
    
    190,409
    
    
    
    
    
    
    
    (45,298
    )
    
    
    145,175Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,076,625
    
    
    
    2
    
    
    
    2,630
    
    
    
    
    
    
    
    
    
    
    
    2,632Repurchase and retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,708,200
    )
    
    
    (3
    )
    
    
    (13,325
    )
    
    
    
    
    
    
    
    
    
    
    (13,328
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,844
    
    
    
    
    
    
    
    
    
    
    
    4,844Exercise of common stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,763
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess tax benefit related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,266
    
    
    
    
    
    
    
    
    
    
    
    2,266Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,293
    
    
    
    21,293Balance at December 28, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62,931,171
    
    
    
    63
    
    
    
    186,824
    
    
    
    
    
    
    
    (24,005
    )
    
    
    162,882Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,648,971
    
    
    
    2
    
    
    
    2,483
    
    
    
    
    
    
    
    
    
    
    
    2,485Repurchase and retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,670,533
    )
    
    
    (2
    )
    
    
    (9,289
    )
    
    
    
    
    
    
    
    
    
    
    (9,291
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,317
    
    
    
    
    
    
    
    
    
    
    
    6,317Excess tax benefit related to exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,442
    
    
    
    
    
    
    
    
    
    
    
    2,442Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,992
    )
    
    
    (24,992
    )Change in unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180
    
    
    
    
    
    
    
    180Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,812
    )Balance at January 3, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    62,909,609
    
    
    $
    63
    
    
    $
    188,777
    
    
    $
    180
    
    
    $
    (48,997
    )
    
    $
    140,023
   77




---



##### Table of Contents



AIRVANA, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (dollars in thousands, except per share amounts)
 1. Operations
 Business Description
   Proposed Merger
  2. Summary of Significant Accounting Policies
   Principles of Consolidation
 Consolidation, ,
  78




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 Use of Estimates
    Reclassification
  Fiscal Year
  Cash and Cash Equivalents
  Investments and Restricted Investments
   79




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  Prepaid and Other Current Assets
  Deferred Product and Service Cost
   Property and Equipment
  As ofDecember 28,
    
    
    January 3,Estimated Useful Life
    
    
    2008
    
    
    2010Computer equipment and
purchased software
    
    1.5 - 3 years
    
    $
    2,513
    
    
    $
    2,531Test and lab equipment
    
    3 years
    
    
    4,510
    
    
    
    8,285Leasehold improvements
    
    Shorter of original contractual life of the lease or 5 years
    
    
    6,546
    
    
    
    6,558Office furniture and equipment
    
    3 - 5 years
    
    
    856
    
    
    
    847Total property and equipment
    
    
    
    
    
    
    14,425
    
    
    
    18,221Less: Accumulated
depreciation and amortization
    
    
    
    
    
    
    (9,603
    )
    
    
    (12,841
    )$
    4,822
    
    
    $
    5,380
   80




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 Capitalized Internal-Use Software
 Internal-Use Software
 Software Development Costs
 Costs of Software to Be Sold, Leased or Marketed
 Revenue Recognition
 .
      81




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
       82




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
     Principal Agent Considerations
   Concentrations of Credit Risk and Significant Customers
   83




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
    Segment and Geographic Information
 Segment Reporting
    December 28,
    
    
    January 3,2008
    
    
    2010United States
    
    $
    5,501
    
    
    $
    24,048United Kingdom
    
    
    12,178
    
    
    
    864Other foreign locations
    
    
    1,099
    
    
    
    778$
    18,778
    
    
    $
    25,690
  84




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 Stock-Based Compensation
   Stock Compensation
 Comprehensive Income
 Comprehensive Income,
 Net Income (Loss) Per Share
 Earnings Per Share
  85




---



##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  Year EndedDecember 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010(Amounts in thousands, except per share amounts)Numerator:Net income (loss)
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Allocation of net income (loss):Basic:Accretion of redeemable preferred stock
    
    $
    4,032
    
    
    $
    
    
    
    $
    Dividend allocated to preferred stockholders
    
    
    54,153
    
    
    
    
    
    
    
    Net income applicable to preferred stockholders
    
    
    58,185
    
    
    
    
    
    
    
    Net income (loss) applicable to common stockholders
    
    
    95,158
    
    
    
    21,293
    
    
    
    (24,992
    )Net income (loss)
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Diluted:Accretion of redeemable preferred stock
    
    $
    4,032
    
    
    $
    
    
    
    $
    Dividend allocated to preferred stockholders
    
    
    54,153
    
    
    
    
    
    
    
    Net income applicable to preferred stockholders
    
    
    58,185
    
    
    
    
    
    
    
    Net income (loss) applicable to common stockholders
    
    
    95,158
    
    
    
    21,293
    
    
    
    (24,992
    )Net income (loss)
    
    $
    153,343
    
    
    $
    21,293
    
    
    $
    (24,992
    )Denominator:Basic weighted average shares
    
    
    36,238
    
    
    
    64,278
    
    
    
    62,499Dilutive effect of common stock equivalents
    
    
    7,258
    
    
    
    5,813
    
    
    
    Diluted weighted average shares
    
    
    43,496
    
    
    
    70,091
    
    
    
    62,499Calculation of net income per share:Basic:Net income (loss) applicable to common stockholders
    
    $
    95,158
    
    
    $
    21,293
    
    
    $
    (24,992
    )Weighted average shares of common stock outstanding
    
    
    36,238
    
    
    
    64,278
    
    
    
    62,499Net income (loss) per share
    
    $
    2.63
    
    
    $
    0.33
    
    
    $
    (0.40
    )Diluted:Net income (loss) applicable to common stockholders
    
    $
    95,158
    
    
    $
    21,293
    
    
    $
    (24,992
    )Weighted average shares of common stock outstanding
    
    
    43,496
    
    
    
    70,091
    
    
    
    62,499Net income (loss) per share
    
    $
    2.19
    
    
    $
    0.30
    
    
    $
    (0.40
    )
  Impairment of Long-Lived Assets
   86




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 Goodwill and Other Intangibles
 Intangibles  Goodwill and
Other
 Foreign Currency Translation
 Foreign Currency Matters
 Income Taxes
 Income Taxes
  Fair Value of Financial Instruments
  Single or Limited Source Suppliers and Contract Manufacturers
   87




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 Advertising Costs
  Recently Adopted Accounting Pronouncements
 Business Combinations
     Fair Value Measurements and Disclosures
 Noncontrolling Interests in Consolidated Financial Statements
 General Intangibles Other Than Goodwill
  88




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  
    
    The weighted-average period prior to the next renewal or extension
(whether explicit and implicit) for each major intangible asset
class;
    
    The entitys accounting policy for the treatment of costs incurred to
renew or extend the term of a recognized intangible asset; and
    
    For intangible asset renewed or extended during the period:
 
    
    For entities that capitalize
renewal or extension costs, the
costs incurred to review or
extend the asset, for each major
intangible asset class and
    
    The weighted-average period
prior to the next renewal or
extension (whether explicit and
implicit) for each major
intangible asset class.
  Derivative and Hedging,
 Financial Instruments
 Subsequent Events
  Recently Issued Accounting Pronouncements Not Yet Adopted
   89




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 3. Investments
 Investments  Debt and Equity Securities
  December 28, 2008
    
    
    January 3, 2010Amortized
    
    
    Fair Market
    
    
    Amortized
    
    
    Fair MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueCorporate debt securities
    
    $
    86,140
    
    
    $
    86,674
    
    
    $
    
    
    
    $
    Debt securities of U.S. government agencies
    
    
    111,801
    
    
    
    112,709
    
    
    
    21,830
    
    
    
    21,838$
    197,941
    
    
    $
    199,383
    
    
    $
    21,830
    
    
    $
    21,838
   January 3, 2010Amortized
    
    
    
    
    
    
    
    
    
    
    Fair MarketCost
    
    
    Unrealized Gains
    
    
    Unrealized Losses
    
    
    ValueCorporate debt securities
    
    $
    99,711
    
    
    $
    113
    
    
    $
    (10
    )
    
    $
    99,814Debt securities of U.S. government agencies
    
    
    111,128
    
    
    
    134
    
    
    
    (57
    )
    
    
    111,205$
    210,839
    
    
    $
    247
    
    
    $
    (67
    )
    
    $
    211,019
       90




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 4. Goodwill and Intangible Assets
    December 28, 2008Gross
    
    
    Accumulated
    
    
    NetIntangible
    
    
    Amortization
    
    
    IntangibleDeveloped technology
    
    $
    3,340
    
    
    $
    1,113
    
    
    $
    2,227Customer relationships
    
    
    1,350
    
    
    
    563
    
    
    
    787Non-compete agreements
    
    
    190
    
    
    
    106
    
    
    
    84Total intangible assets
    
    $
    4,880
    
    
    $
    1,782
    
    
    $
    3,098
 January 3, 2010Gross
    
    
    Accumulated
    
    
    NetIntangible
    
    
    Amortization
    
    
    IntangibleDeveloped technology
    
    $
    3,340
    
    
    $
    1,782
    
    
    $
    1,558Customer relationships
    
    
    1,350
    
    
    
    900
    
    
    
    450Non-compete agreements
    
    
    190
    
    
    
    169
    
    
    
    21Total intangible assets
    
    $
    4,880
    
    
    $
    2,851
    
    
    $
    2,029
  Fiscal year:2010
    
    
    1,0262011
    
    
    7802012
    
    
    223$
    2,029
   91




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
    5. Fair Value Measurements
 Fair Value Measurements and Disclosures,
 
    
    Level 1  Quoted prices in active markets for identical assets or liabilities
 
    
    Level 2  Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for identical or
similar assets and liabilities in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data.
 
    
    Level 3  Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes certain
pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
  92




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  December 28,
    
    
    January 3,2008
    
    
    2010Corporate debt securities
    
    $
    86,674
    
    
    $
    99,814Government sponsored entities
    
    
    112,709
    
    
    
    133,043$
    199,383
    
    
    $
    232,857
  Level 2 Inputs
    
    
    Level 1 Inputs
    
    
    TotalsCorporate debt securities
    
    $
    3,099
    
    
    $
    
    
    
    $
    3,099Government sponsored entities
    
    
    1,500
    
    
    
    
    
    
    
    1,500Money market mutual funds
    
    
    
    
    
    
    20,665
    
    
    
    20,665$
    4,599
    
    
    $
    20,665
    
    
    $
    25,264
   6. Derivative Instruments and Hedging Activities
     93




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
   7. Income Taxes
  December 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010Domestic
    
    $
    183,068
    
    
    $
    44,531
    
    
    $
    (48,298
    )Foreign
    
    
    (7,827
    )
    
    
    (9,315
    )
    
    
    3,261Total
    
    $
    175,241
    
    
    $
    35,216
    
    
    $
    (45,037
    )
  December 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010Current:Federal
    
    $
    24,618
    
    
    $
    14,572
    
    
    $
    (1,772
    )State
    
    
    117
    
    
    
    89
    
    
    
    34Foreign
    
    
    119
    
    
    
    213
    
    
    
    (3,480
    )24,854
    
    
    
    14,874
    
    
    
    (5,218
    )Deferred:Federal
    
    
    40,879
    
    
    
    (796
    )
    
    
    (15,193
    )State
    
    
    (1,216
    )
    
    
    (1,322
    )
    
    
    (1,811
    )Foreign
    
    
    (2,213
    )
    
    
    (2,405
    )
    
    
    2,80337,450
    
    
    
    (4,523
    )
    
    
    (14,201
    )Change in valuation allowanceFederal
    
    
    (42,646
    )
    
    
    
    
    
    
    State
    
    
    1,197
    
    
    
    1,316
    
    
    
    1,824Foreign
    
    
    1,043
    
    
    
    2,256
    
    
    
    (2,450
    )(40,406
    )
    
    
    3,572
    
    
    
    (626
    )Total tax (benefit) expense
    
    $
    21,898
    
    
    $
    13,923
    
    
    $
    (20,045
    )
  December 30,
    
    
    December 28,
    
    
    January 3,2007
    
    
    2008
    
    
    2010Expected provision at federal statutory rate, 35%
    
    $
    61,345
    
    
    $
    12,326
    
    
    $
    (15,763
    )State taxes, net of federal benefit
    
    
    76
    
    
    
    151
    
    
    
    (377
    )Foreign taxes
    
    
    141
    
    
    
    1,078
    
    
    
    (1,593
    )Federal research and development credit
    
    
    (2,524
    )
    
    
    (3,090
    )
    
    
    (1,826
    )State research and investment credits
    
    
    (1,216
    )
    
    
    (1,333
    )
    
    
    (1,374
    )Domestic manufacturing deduction
    
    
    (1,930
    )
    
    
    (817
    )
    
    
    204Change in valuation allowance
    
    
    (40,406
    )
    
    
    3,572
    
    
    
    (626
    )Change in unrecognized tax benefits
    
    
    4,675
    
    
    
    1,142
    
    
    
    501In process research and development
    
    
    702
    
    
    
    
    
    
    
    Stock compensation
    
    
    890
    
    
    
    895
    
    
    
    839Other items
    
    
    145
    
    
    
    (1
    )
    
    
    (30
    )(Benefit from) provision for income taxes
    
    $
    21,898
    
    
    $
    13,923
    
    
    $
    (20,045
    )
  94




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  December 28,
    
    
    January 3,2008
    
    
    2010Foreign net operating loss carryforwards
    
    $
    4,166
    
    
    $
    534State research and investment credit carryforwards
    
    
    6,372
    
    
    
    7,344Depreciation and amortization
    
    
    140
    
    
    
    333Stock compensation
    
    
    877
    
    
    
    2,089Deferred revenue and deferred cost
    
    
    106
    
    
    
    13,296Accrued expenses and other temporary differences
    
    
    1,134
    
    
    
    3,00312,795
    
    
    
    26,599Less valuation allowance
    
    
    (9,671
    )
    
    
    (8,648
    )Net deferred tax assets
    
    $
    3,124
    
    
    $
    17,951
      95




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  December 28,
    
    
    January 3,2008
    
    
    2010Balance at beginning of year
    
    $
    4,675
    
    
    $
    5,518Increases (decreases) for prior years
    
    
    96
    
    
    
    (93
    )Increases for the current year
    
    
    861
    
    
    
    369Reductions related to settlements with tax authorities
    
    
    (114
    )
    
    
    Reductions related to expiration of statute of limitations
    
    
    
    
    
    
    Balance at end of year
    
    $
    5,518
    
    
    $
    5,794
         96




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 8. Commitments and Contingencies
       Fiscal year:2010
    
    
    1,6522011
    
    
    1,5292012
    
    
    4852013
    
    
    10$
    3,676
   Fiscal year:2010
    
    $
    6,4952011
    
    
    3,883$
    10,378
  97




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 Indemnification
  9. Common Stock
  December 28,
    
    
    January 3,2008
    
    
    20102000 Stock Incentive Plan
    
    
    9,836,508
    
    
    
    8,076,5642007 Stock Incentive Plan
    
    
    25,542,512
    
    
    
    19,918,549Total number of common shares reserved
    
    
    35,379,020
    
    
    
    27,995,113
 10. Preferred Stock
  11. Stock Incentive Plans
 Stock Options and Restricted Common Stock
     98




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 . Stock Compensation,
  Weighted
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    
    AverageAverage
    
    
    Remaining
    
    
    
    
    
    
    FairNumber of
    
    
    Range of
    
    
    Exercise Price
    
    
    Contractual
    
    
    Aggregate
    
    
    ValueShares
    
    
    Exercise Prices
    
    
    per Share
    
    
    Term in Years
    
    
    Intrinsic Value
    
    
    Per ShareOutstanding at December 28, 2008
    
    
    12,729,531
    
    
    $
    0.001-7.89
    
    
    $
    2.94
    
    
    
    6.68
    
    
    $
    37,866Granted
    
    
    3,182,822
    
    
    
    5.22-7.49
    
    
    
    5.56
    
    
    
    
    
    
    
    
    
    
    $
    5.56Exercised
    
    
    (1,648,971
    )
    
    
    0.07-6.44
    
    
    
    1.51
    
    
    
    
    
    
    $
    7,236Cancelled
    
    
    (665,817
    )
    
    
    1.08-7.44
    
    
    
    5.32Outstanding at January 3, 2010
    
    
    13,597,565
    
    
    $
    0.001-7.89
    
    
    $
    3.61
    
    
    
    6.36
    
    
    $
    54,315Exercisable at December 28, 2008
    
    
    7,093,242
    
    
    $
    0.001-7.89
    
    
    $
    1.78
    
    
    
    5.41
    
    
    $
    28,925Exercisable at January 3, 2010
    
    
    7,710,333
    
    
    $
    0.001-7.89
    
    
    $
    2.45
    
    
    
    4.90
    
    
    $
    39,704Options vested or expected to vest at
January 3, 2010(1)
    
    
    13,251,803
    
    
    $
    0.001-7.89
    
    
    $
    3.56
    
    
    
    6.30
    
    
    $
    53,587Available for grant at January 3, 2010
    
    
    14,397,548
 
 1.
    
    This represents the number of vested stock options as of January 3,
2010 plus the unvested outstanding options at January 3, 2010 expected
to vest in the future, adjusted for estimated forfeitures.    99




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  Years EndedDecember 28,
    
    
    January 3,2008
    
    
    2010Cost of service revenue
    
    $
    250
    
    
    $
    405Research and development
    
    
    2,893
    
    
    
    3,666Selling and marketing
    
    
    1,038
    
    
    
    1,258General and administrative
    
    
    663
    
    
    
    988Total stock-based compensation
    
    $
    4,844
    
    
    $
    6,317
 Common Stock Repurchase Plan
    ApproximateTotal Number of
    
    
    Dollar Value ofShares Purchased
    
    
    Shares That Mayas Part of
    
    
    Yet Be PurchasedTotal Number
    
    
    Average Price
    
    
    Publicly
    
    
    Under theof Shares
    
    
    Paid per
    
    
    Announced
    
    
    AnnouncedPeriod
    
    Purchased
    
    
    Share
    
    
    Program
    
    
    ProgramThrough December 28, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,673December 29, 2008  January 25, 2009
    
    
    318,400
    
    
    $
    5.43
    
    
    
    318,400
    
    
    $
    4,944January 26, 2009  February 22, 2009
    
    
    329,400
    
    
    $
    5.34
    
    
    
    329,400
    
    
    $
    3,185February 23, 2009  March 29, 2009
    
    
    299,730
    
    
    $
    5.65
    
    
    
    299,730
    
    
    $
    1,492March 30, 2009  April 26, 2009
    
    
    206,918
    
    
    $
    5.80
    
    
    
    206,918
    
    
    $
    292April 27, 2009  May 24, 2009
    
    
    51,061
    
    
    $
    5.69
    
    
    
    51,061
    
    
    $
    Total
    
    
    1,205,509
    
    
    $
    5.54
    
    
    
    1,205,509
    
    
    $
    
  ApproximateTotal Number of
    
    
    Dollar Value ofShares Purchased
    
    
    Shares That Mayas Part of
    
    
    Yet Be PurchasedTotal Number
    
    
    Average Price
    
    
    Publicly
    
    
    Under theof Shares
    
    
    Paid per
    
    
    Announced
    
    
    AnnouncedPeriod
    
    Purchased
    
    
    Share
    
    
    Program
    
    
    ProgramThrough December 28, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,000December 29, 2008  January 25, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    20,000January 26, 2009  February 22, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    20,000February 23, 2009  March 29, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    20,000March 30, 2009  April 26, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    20,000April 27, 2009  May 24, 2009
    
    
    188,482
    
    
    $
    5.33
    
    
    
    188,482
    
    
    $
    18,995May 25, 2009  June 28, 2009
    
    
    215,266
    
    
    $
    5.77
    
    
    
    215,266
    
    
    $
    17,753June 29, 2009  July 26, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    17,753July 27, 2009  August 23, 2009
    
    
    61,276
    
    
    $
    6.03
    
    
    
    61,276
    
    
    $
    17,384August 24, 2009  September 27, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    17,384September 28, 2009  October 25, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    17,384October 26, 2009  November 22, 2009
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    17,384November 23, 2009  January 3, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    17,384Total
    
    
    465,024
    
    
    $
    5.63
    
    
    
    465,024
    
    
    $
    17,384
  100




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 12. Deferred Revenue and Deferred Product and Service Costs
     101




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to December 2007 specified upgrade
    
    $
    7,397
    
    
    $
    
    
    
    $
    7,397Deferred revenue related to July 2008 specified upgrade
    
    
    37,775
    
    
    
    
    
    
    
    37,775Deferred revenue related to October 2008 specified upgrade
    
    
    13,663
    
    
    
    
    
    
    
    13,663Other deferred revenue
    
    
    2,475
    
    
    
    5,550
    
    
    
    8,025Total deferred revenue
    
    $
    61,310
    
    
    $
    5,550
    
    
    $
    66,860Deferred product cost related to December 2007 specified upgrade
    
    $
    79
    
    
    $
    
    
    
    $
    79Deferred product cost related to July 2008 specified upgrade
    
    
    742
    
    
    
    
    
    
    
    742Deferred product cost related to October 2008 specified upgrade
    
    
    566
    
    
    
    
    
    
    
    566Other deferred product and service costs
    
    
    526
    
    
    
    1,300
    
    
    
    1,826Total deferred product and service costs
    
    $
    1,913
    
    
    $
    1,300
    
    
    $
    3,213
  Current
    
    
    Long-Term
    
    
    TotalDeferred revenue related to October 2008 specified upgrade
    
    $
    83,346
    
    
    $
    
    
    
    $
    83,346Deferred revenue related to May 2009 specified upgrade
    
    
    69,866
    
    
    
    
    
    
    
    69,866Deferred revenue related to December 2009 specified upgrade
    
    
    12,768
    
    
    
    
    
    
    
    12,768Other deferred revenue
    
    
    1,410
    
    
    
    9,043
    
    
    
    10,453Total deferred revenue
    
    $
    167,390
    
    
    $
    9,043
    
    
    $
    176,433Deferred product cost related to October 2008 specified upgrade
    
    $
    1,707
    
    
    $
    
    
    
    $
    1,707Deferred product cost related to May 2009 specified upgrade
    
    
    1,229
    
    
    
    
    
    
    
    1,229Deferred product cost related to December 2009 specified upgrade
    
    
    136
    
    
    
    
    
    
    
    136Other deferred product and service costs
    
    
    307
    
    
    
    5,565
    
    
    
    5,872Total deferred product and service costs
    
    $
    3,379
    
    
    $
    5,565
    
    
    $
    8,944
 13. Accrued Expenses and Other Current Liabilities
  December 28,
    
    
    January 3,2008
    
    
    2010Payroll and payroll-related accruals
    
    $
    9,497
    
    
    $
    6,472Other accruals
    
    
    4,868
    
    
    
    5,502$
    14,365
    
    
    $
    11,974
  102




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
 14. Acquisition
   EstimatedUseful Life
    
    
    Fair ValueDeveloped Technology
    
    60 months
    
    $
    3,340Customer Relationships
    
    48 months
    
    
    1,350Non-Compete Agreements
    
    36 months
    
    
    190Total Intangible Assets
    
    
    
    
    
    $
    4,880
    103




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  Fair ValueApril 30, 2007Assets Acquired:Current assets
    
    $
    462Fixed assets
    
    
    504Deferred tax asset
    
    
    509In-process research and development
    
    
    2,340Intangible assets
    
    
    4,880Goodwill
    
    
    7,99816,693Liabilities Assumed:Current liabilities
    
    
    689Deferred tax liability
    
    
    1,464Non-current liabilities
    
    
    7042,857Net assets acquired
    
    $
    13,836
  15. Employee Benefit Plan
  16. Related Party Transactions
     104




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##### Table of Contents



AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  17. Special Cash Dividend
  18. Reverse Stock Split
  19. Quarterly Financial Data (unaudited)
  March 30,
    
    
    June 29,
    
    
    September 28,
    
    
    December 28,
    
    
    March 29,
    
    
    June 28,
    
    
    September 27,
    
    
    January 3,2008
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2010Revenue
    
    $
    7,638
    
    
    $
    59,019
    
    
    $
    8,247
    
    
    $
    63,269
    
    
    $
    9,263
    
    
    $
    4,880
    
    
    $
    2,726
    
    
    $
    47,725Cost of revenue
    
    
    1,913
    
    
    
    3,327
    
    
    
    2,652
    
    
    
    3,570
    
    
    
    2,547
    
    
    
    3,402
    
    
    
    2,900
    
    
    
    4,720Gross (loss) profit
    
    
    5,725
    
    
    
    55,692
    
    
    
    5,595
    
    
    
    59,699
    
    
    
    6,716
    
    
    
    1,478
    
    
    
    (174
    )
    
    
    43,005Total operating expenses
    
    
    24,910
    
    
    
    24,237
    
    
    
    24,949
    
    
    
    24,639
    
    
    
    23,946
    
    
    
    24,786
    
    
    
    26,126
    
    
    
    27,897(Loss) income from
operations
    
    
    (19,185
    )
    
    
    31,455
    
    
    
    (19,354
    )
    
    
    35,060
    
    
    
    (17,230
    )
    
    
    (23,308
    )
    
    
    (26,300
    )
    
    
    15,108Net (loss) income
    
    
    (11,674
    )
    
    
    20,563
    
    
    
    (12,445
    )
    
    
    24,849
    
    
    
    (7,203
    )
    
    
    (14,033
    )
    
    
    (16,855
    )
    
    
    13,099Basic net (loss) income
per share
    
    $
    (0.18
    )
    
    $
    0.32
    
    
    $
    (0.19
    )
    
    $
    0.39
    
    
    $
    (0.11
    )
    
    $
    (0.23
    )
    
    $
    (0.27
    )
    
    $
    0.21Diluted net (loss)
income per share
    
    $
    (0.18
    )
    
    $
    0.29
    
    
    $
    (0.19
    )
    
    $
    0.36
    
    
    $
    (0.11
    )
    
    $
    (0.23
    )
    
    $
    (0.27
    )
    
    $
    0.19
 20. Nortel Bankruptcy
    105




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AIRVANA, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)  (Continued)
  21. Proposed Merger
   106




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Report of Management on Internal Control over Financial Reporting
  
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and disposition of our assets;
 
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorization of our management and directors; and
 
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
      107




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
        /s/  Ernst & Young LLP 
  108




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##### Table of Contents



Item 9B. Other Information
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant
  www.airvana.com.
 
 Item 11. Executive Compensation
 Compensation Discussion and Analysis
  Compensation Objectives and Philosophy
   Elements of Compensation
  
    
    base salary;
 
    
    cash bonuses;
 
    
    equity incentive awards; and
 
    
    benefits and other compensation.
  109




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Determining and Setting Executive Compensation
     110




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##### Table of Contents



Base Salary
   Incentive Cash Bonuses
     111




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##### Table of Contents



1H 2009 Cash Bonus AwardsTarget
    
    
    Target
    
    
    Actual
    
    
    ActualBase
    
    
    Bonus
    
    
    Bonus
    
    
    Bonus
    
    
    Bonus (%)Name
    
    Salary
    
    
    (%)
    
    
    ($)
    
    
    ($)
    
    
    of TargetRandall S. Battat
    
    $
    360,000
    
    
    
    35
    %
    
    $
    63,000
    
    
    $
    70,000
    
    
    
    111
    %Jeffrey D. Glidden
    
    $
    250,000
    
    
    
    30
    %
    
    $
    37,500
    
    
    $
    40,000
    
    
    
    107
    %Vedat Eyuboglu
    
    $
    265,000
    
    
    
    30
    %
    
    $
    39,750
    
    
    $
    43,000
    
    
    
    108
    %Sanjeev Verma
    
    $
    255,000
    
    
    
    30
    %
    
    $
    38,250
    
    
    $
    43,000
    
    
    
    112
    %
 2H 2009 Cash Bonus AwardsTarget
    
    
    Target
    
    
    Actual
    
    
    ActualBase
    
    
    Bonus
    
    
    Bonus
    
    
    Bonus
    
    
    Bonus (%)Name
    
    Salary
    
    
    (%)
    
    
    ($)
    
    
    ($)
    
    
    of TargetRandall S. Battat
    
    $
    360,000
    
    
    
    35
    %
    
    $
    63,000
    
    
    $
    70,000
    
    
    
    111
    %Jeffrey D. Glidden
    
    $
    250,000
    
    
    
    30
    %
    
    $
    37,500
    
    
    $
    65,000
    
    
    
    173
    %Vedat Eyuboglu
    
    $
    265,000
    
    
    
    30
    %
    
    $
    39,750
    
    
    $
    45,000
    
    
    
    113
    %Sanjeev Verma
    
    $
    255,000
    
    
    
    30
    %
    
    $
    38,250
    
    
    $
    45,000
    
    
    
    118
    %
   112




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##### Table of Contents



Equity Incentive Awards
      Benefits and Other Compensation
  Tax Considerations
   113




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##### Table of Contents



Summary Compensation Table
  Option
    
    
    All OtherFiscal
    
    
    Salary
    
    
    Bonus(1)
    
    
    Awards(2)
    
    
    Compensation(3)
    
    
    TotalName and Principal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Randall S. Battat
    
    
    2009
    
    
    
    356,250
    
    
    
    140,000
    
    
    
    327,492
    
    
    
    1,713
    
    
    
    825,455President and Chief
    
    
    2008
    
    
    
    338,750
    
    
    
    114,000
    
    
    
    270,612
    
    
    
    1,270
    
    
    
    724,632Executive Officer
    
    
    2007
    
    
    
    300,500
    
    
    
    140,000
    
    
    
    
    
    
    
    1,598
    
    
    
    442,098Jeffrey D. Glidden
    
    
    2009
    
    
    
    248,750
    
    
    
    105,000
    
    
    
    136,455
    
    
    
    7,228
    
    
    
    497,433Vice President, Chief
    
    
    2008
    
    
    
    241,250
    
    
    
    63,000
    
    
    
    120,272
    
    
    
    6,862
    
    
    
    431,384Financial Officer
    
    
    2007
    
    
    
    223,750
    
    
    
    80,000
    
    
    
    
    
    
    
    7,129
    
    
    
    310,879Michael Clark
    
    
    2009
    
    
    
    126,865
    
    
    
    60,000
    (4)
    
    
    633,240
    (5)
    
    
    52,421
    
    
    
    872,526Vice President Worldwide
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sales and Services
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vedat M. Eyuboglu
    
    
    2009
    
    
    
    263,750
    
    
    
    88,000
    
    
    
    177,392
    
    
    
    6,419
    
    
    
    535,561Vice President, Chief
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Technical Officer
    
    
    2007
    
    
    
    241,250
    
    
    
    90,000
    
    
    
    
    
    
    
    8,536
    
    
    
    339,786Sanjeev Verma
    
    
    2009
    
    
    
    253,750
    
    
    
    88,000
    
    
    
    177,392
    
    
    
    6,062
    
    
    
    525,204Vice President, Femto
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Business and
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Development
 
 (1)
    
    The amounts shown as paid to Mr. Battat, Mr. Glidden, Dr. Eyuboglu and Mr. Verma were for
achievement during the year for which the amounts are shown of specified corporate
performance and product line objectives pursuant to our management bonus plan, but in each
case were paid in August 2009 and February 2010.(2)
    
    The amounts reported in the Option Awards column represent the compensation expense, without
any reduction for risk of forfeiture, for financial reporting purposes, of grants of options
to each of the named executive officers, calculated in accordance with the provisions of
Accounting Standards Codification 718-10, Stock Compensation. The assumptions we used in
calculating these amounts are included in Note 11 of this Form 10-K.(3)
    
    The amounts reported in the All Other Compensation column reflect, for each named executive
officer, the sum of (i) the incremental cost to us of all perquisites and other personal
benefits; (ii) the amount we contributed to our 401(k) plan in respect of such executive
officer; (iii) other discretionary cash awards; and (iv) with respect to Mr. Clark, a
$50,000 sign-on bonus upon his commencement of employment with us.(4)
    
    Consists of commissions earned for sales performance and achievement of strategic objectives.(5)
    
    Consists of options granted upon commencement of employment in fiscal 2009.  114




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##### Table of Contents



Grants of Plan-Based Awards in Fiscal 2009
  All OtherOptionAwards:Estimated Future Payouts
    
    
    Number of
    
    
    Exercise or
    
    
    Grant DateUnder Non-Equity Incentive
    
    
    Securities
    
    
    Base Price
    
    
    Fair ValuePlan Awards
    
    
    Underlying
    
    
    of Option
    
    
    of OptionGrant
    
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    Options
    
    
    Awards
    
    
    AwardsName
    
    Date
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    (#)
    
    
    ($/Sh)(2)
    
    
    ($)(3)Randall S. Battat
    
    
    2/10/2009
    
    
    
    
    
    
    
    63,000
    (1)
    
    
    144,900
    (1)
    
    
    
    
    
    
    
    
    
    
    President and Chief
    
    
    2/10/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    5.33
    
    
    
    327,492Executive Officer
    
    
    7/28/2009
    
    
    
    
    
    
    
    63,000
    (1)
    
    
    144,900
    (1)
    
    
    
    
    
    
    
    
    
    
    Jeffrey D. Glidden
    
    
    2/10/2009
    
    
    
    
    
    
    
    37,500
    (1)
    
    
    86,250
    (1)
    
    
    
    
    
    
    
    
    
    
    Vice President,Chief
    
    
    2/10/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    5.33
    
    
    
    136,455Financial Officer
    
    
    7/28/2009
    
    
    
    
    
    
    
    37,500
    (1)
    
    
    86,250
    (1)
    
    
    
    
    
    
    
    
    
    
    Michael Clark
    
    
    7/28/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    (5)
    
    
    5.99
    
    
    
    633,240Vice President,
Worldwide
    
    
    7/28/2009
    
    
    
    
    
    
    
    75,000
    (4)
    
    
    
    (4)
    
    
    
    
    
    
    
    
    
    
    Sales and ServicesVedat M. Eyuboglu
    
    
    2/10/2009
    
    
    
    
    
    
    
    39,750
    (1)
    
    
    91,425
    (1)
    
    
    
    
    
    
    
    
    
    
    Vice President,
    
    
    2/10/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    5.33
    
    
    
    177,392Chief Technical
Officer
    
    
    7/28/2009
    
    
    
    
    
    
    
    39,750
    (1)
    
    
    91,425
    (1)
    
    
    
    
    
    
    
    
    
    
    Sanjeev Verma
    
    
    2/10/2009
    
    
    
    
    
    
    
    38,250
    (1)
    
    
    87,975
    (1)
    
    
    
    
    
    
    
    
    
    
    Vice President,
    
    
    2/10/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    
    5.33
    
    
    
    177,392Femto Business and
    
    
    7/28/2009
    
    
    
    
    
    
    
    38,250
    (1)
    
    
    87,975
    (1)
    
    
    
    
    
    
    
    
    
    
    Corporate Development
 
 (1)
    
    For fiscal 2009, our company performance goals consist of: financial
metrics including billings, operating income on billings and cash flow,
and EV-DO and FMC product line metrics including billings, operating
profit on billings, and product development and cost milestones. Each
named executive officers bonus was based on performance against these
goals and each named executive officers relative contribution towards
achievement of these goals.(2)
    
    In determining the exercise price for the options granted, we used the
closing price of our stock on the Nasdaq Global Market.(3)
    
    Amounts represent the total grant date fair value of stock options granted
in fiscal 2009 under Accounting Standards Codification 718-10, Stock
Compensation. The assumptions used by us with respect to the valuation of
option grants are set forth in Note 11 to our Annual Report on From 10-K,
filed with the SEC on March 10, 2010.(4)
    
    The estimated future payout is based on sales commissions and the
achievement of predetermined strategic objectives. There is no maximum
payout.(5)
    
    Consists of options granted upon commencement of employment in fiscal 2009.  115




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##### Table of Contents



Information Relating to Equity Awards and Holdings
  Outstanding Equity Awards At 2009 Fiscal Year End
 Option AwardsNumber of
    
    
    Number ofSecurities
    
    
    SecuritiesUnderlying
    
    
    UnderlyingUnexercised
    
    
    Unexercisable
    
    
    OptionOptions
    
    
    Options
    
    
    Exercise
    
    
    OptionExercisable
    
    
    Unexercisable
    
    
    Price
    
    
    ExpirationName
    
    (#)
    
    
    (#)
    
    
    ($)
    
    
    DateRandall S. Battat
    
    
    462,340
    (1)
    
    
    
    
    
    
    1.081
    (1)
    
    
    3/1/2014President and Chief
    
    
    60,103
    (1)
    
    
    32,364
    (1)(2)
    
    
    2.433
    (1)
    
    
    8/20/2016Executive Officer
    
    
    39,375
    
    
    
    50,625
    (3)
    
    
    5.210
    
    
    
    2/3/2018
    
    
    
    120,000
    (4)
    
    
    5.330
    
    
    
    2/9/2019Jeffrey D. Glidden
    
    
    475,820
    (1)
    
    
    129,456
    (1)(5)
    
    
    2.163
    (1)
    
    
    12/12/2015Vice President, Chief
    
    
    17,500
    
    
    
    22,500
    (3)
    
    
    5.210
    
    
    
    2/3/2018Financial Officer
    
    
    
    
    
    
    50,000
    (4)
    
    
    5.330
    
    
    
    2/9/2019Michael Clark
    
    
    
    
    
    
    200,000
    (6)
    
    
    5.990
    
    
    
    7/27/2019Vice President, Worldwide Salesand ServicesVedat M. Eyuboglu
    
    
    231,170
    (1)
    
    
    
    
    
    
    1.081
    (1)
    
    
    3/1/2014Vice President, Chief
    
    
    30,052
    (1)
    
    
    16,182
    (1)(2)
    
    
    2.433
    (1)
    
    
    8/20/2016Technical Officer
    
    
    19,687
    
    
    
    25,313
    (3)
    
    
    5.210
    
    
    
    2/3/2018
    
    
    
    65,000
    (4)
    
    
    5.330
    
    
    
    2/9/2019Sanjeev Verma
    
    
    161,819
    (1)
    
    
    
    
    
    
    1.081
    (1)
    
    
    3/1/2014Vice President, Femto Business
    
    
    30,052
    (1)
    
    
    16,182
    (1)(2)
    
    
    2.433
    (1)
    
    
    8/20/2016and Corporate Development
    
    
    19,687
    
    
    
    25,313
    (3)
    
    
    5.210
    
    
    
    2/3/2018
    
    
    
    65,000
    (4)
    
    
    5.330
    
    
    
    2/9/2019
 
 (1)
    
    The number of shares underlying options and exercise prices reflect
adjustments to the number of shares of common stock subject to stock
options and related exercise prices resulting from the cash dividend
on our capital stock that we paid in April 2007.(2)
    
    20% of the shares underlying this option vested as of August 21, 2007
and the remaining 80% of the shares underlying this option vest in 16
equal quarterly installments beginning on November 21, 2007.(3)
    
    20% of the shares underlying this option vested as of February 4, 2008
and the remaining 80% of the shares underlying this option vest in 16
equal quarterly installments beginning on May 4, 2008.(4)
    
    25% of the shares underlying this option vested as of February
10, 2010 and the remaining 75% of the shares underlying this option
vest in 12 equal quarterly installments beginning on May 10, 2010.(5)
    
    20% of the shares underlying this option vested as of December 12,
2006 and the remaining 80% of the shares underlying this option vest
in 16 equal quarterly installments beginning on March 12, 2007.(6)
    
    25% of the shares underlying this option will vest on July 28, 2010
and the remaining 75% of the shares underlying this option vest in 12
equal quarterly installments beginning on October 28, 2010.  116




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##### Table of Contents



Option Exercises and Stock Vested in Fiscal 2009
  Option AwardsNumber of Shares
    
    
    Value RealizedAcquired on
    
    
    onName
    
    Exercise (#)
    
    
    Exercise ($)Randall S. Battat
    
    
    
    
    
    
    Jeffrey D. Glidden
    
    
    42,000
    
    
    
    192,688Michael Clark
    
    
    
    
    
    
    Vedat Eyuboglu
    
    
    
    
    
    
    Sanjeev Verma
    
    
    
    
    
    
    
 Equity Compensation Plan Information
  Number ofSecuritiesRemaining AvailableNumber of Securities
    
    
    Weighted
    
    
    forto be
    
    
    Average
    
    
    Future IssuanceIssued Upon Exercise
    
    
    Exercise Price of
    
    
    Under Equityof
    
    
    Outstanding
    
    
    CompensationOutstanding Options
    
    
    Options
    
    
    Plans(1)Plan Category:Equity Compensation
Plans Approved by
Security Holders
    
    
    13,597,565
    
    
    $
    3.61
    
    
    
    14,397,548Equity Compensation
Plans Not Approved
by Security Holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    13,597,565
    
    
    $
    3.61
    
    
    
    14,397,548
 
 (1)
    
    Consists of shares of our common stock available for future issuance
under our 2007 Stock Incentive Plan. No awards of our common stock are
available for issuance under our 2000 Stock Incentive Plan. Potential Payments Upon Termination or Change-in-Control
   117




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##### Table of Contents



Compensation of Directors
    Cash Compensation.
 
    
    chair of our audit committee  $10,000; other members  $5,000;
 
    
    chair of our compensation committee  $5,000; other members  $2,500; and
 
    
    chair of our nominating and corporate governance committee  $5,000; other members 
$2,500;
  Equity Compensation.
 
    
    Each new non-employee director receives an option to purchase 37,509 shares of our common
stock upon his or her initial appointment or election to our board of directors. Subject to
the non-employee directors continued service as a director, this option vests over a
four-year period, with 25% of the shares of common stock subject to the option vesting on
the first anniversary of the date of grant and the remaining 75% vesting in equal quarterly
installments over the succeeding three years. In the event of a change of control of us, the
vesting schedule of the option accelerates in full. The exercise price of this option will
be equal to the fair market value of our common stock on the date of grant; and
 
    
    Each non-employee director who has served on our board for at least six months annually
receives an option to purchase 18,754 shares of our common stock on the date of the first
meeting of our board of directors held after each annual meeting of stockholders; provided
that, Mr. Badavas did not receive an annual option grant until the first meeting of our
board held after our 2009 annual meeting of stockholders. This option vests with respect to
50% of the shares of common stock subject to the option on the first anniversary of the date
of grant and the remaining 50% vesting in equal quarterly installments over the succeeding
two years, and, in
the event of a change in control of us, the vesting schedule of the option accelerates in
full. The exercise price of this option is equal to the fair market value of our common stock
on the date of grant.
  118




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##### Table of Contents




    
    chair of our Special Committee  $15,000 per month between July 9, 2009 and December
17, 2009, and $7,500 per month from December 18, 2009 to the effective date of the
proposed merger; and
    
    other members of our Special Committee  $10,000 per month between July 9, 2009 and
December 17, 2009, and $5,000 per month from December 18, 2009 to the effective date of
the proposed merger.
  Non-Employee Director Compensation For Fiscal 2009
 Fees Earned
    
    
    
    
    
    
    Optionor
    
    
    Stock
    
    
    AwardsPaid in Cash
    
    
    Awards
    
    
    (1)(2)(3)
    
    
    TotalName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Hassan Ahmed, Ph.D.
    
    
    25,000
    
    
    
    
    
    
    
    50,885
    
    
    
    75,885Robert P. Badavas
    
    
    30,000
    
    
    
    
    
    
    
    50,885
    
    
    
    80,885Gururaj Deshpande, Ph.D.
    
    
    30,000
    
    
    
    
    
    
    
    50,885
    
    
    
    80,885Paul J. Ferri
    
    
    22,500
    
    
    
    
    
    
    
    50,885
    
    
    
    73,385Anthony S. Thornley
    
    
    42,500
    
    
    
    
    
    
    
    50,885
    
    
    
    93,385
 
 (1)
    
    Amounts represent the total grant date fair value of stock options
granted in fiscal 2009 under Accounting Standards Codification 718-10,
Stock Compensation. The assumptions used by us with respect to the
valuation of option grants are set forth in Note 11 of this Form 10-K.(2)
    
    As of January 3, 2010, our non-employee directors held the following
aggregate numbers of shares under outstanding equity awards: Aggregate Number ofSharesAggregate
    
    
    Underlying OptionName
    
    Stock Awards
    
    
    AwardsHassan Ahmed, Ph.D.
    
    
    75,018
    
    
    
    37,508Robert P. Badavas
    
    
    
    
    
    
    186,240Gururaj Deshpande, Ph.D.
    
    
    
    
    
    
    75,017Paul J. Ferri
    
    
    
    
    
    
    75,017Anthony S. Thornley
    
    
    
    
    
    
    75,017
  119




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##### Table of Contents



(3)
    
    The number of shares underlying stock options granted to our
non-employee directors for their service on our board during fiscal
year 2009 and the grant date fair value of such stock options are as
follows: Number of
    
    
    Grant DateShares
    
    
    FairUnderlying
    
    
    Value of StockStock
    
    
    Option GrantsOption Grants
    
    
    inDate of
    
    
    in
    
    
    2009 (b)(c)Name
    
    Grant
    
    

2009(a)
    
    
    ($)Hassan Ahmed, Ph.D.
    
    
    5/19/09
    
    
    
    18,754
    
    
    
    50,885Robert P. Badavas
    
    
    5/19/09
    
    
    
    18,754
    
    
    
    50,885Gururaj Deshpande, Ph.D.
    
    
    5/19/09
    
    
    
    18,754
    
    
    
    50,885Paul J. Ferri
    
    
    5/19/09
    
    
    
    18,754
    
    
    
    50,885Anthony S. Thornley
    
    
    5/19/09
    
    
    
    18,754
    
    
    
    50,885
 
 (a)
    
    Vests with respect to 50% of the shares of common stock subject to the
option on the first anniversary of the date of grant and the remaining
50% vesting in equal quarterly installments over the succeeding two
years, and, in the event of a change in control of us, immediately
vests in full.(b)
    
    The Grant Date Fair Value computed in accordance with Accounting
Standards Codification 718, Stock Compensationrepresents the value
of options granted during 2009. The weighted-average grant date fair
value per option was $2.7133. The Grant Date Fair Value may never be
realized.(c)
    
    The exercise price of this option is equal to the fair market value of
our common stock on the date of grant as determined by the closing
price as listed on the Nasdaq Global Market.  120




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##### Table of Contents



Compensation Committee Interlocks and Insider Participation
  Report of the Compensation Committee
  
 
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 13. Certain Relationships and Related Transactions and Director Independence
  
 Item 14. Principal Accountant Fees and Services
   121




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
   PageReport of Independent Registered Public Accounting Firm
    
    
    73Consolidated Balance Sheets as of December 28, 2008 and January 3, 2010
    
    
    74Consolidated Statements of Operations for the years ended December 30,
2007, December 28, 2008 and January 3, 2010
    
    
    75Consolidated Statements of Cash Flows for the years ended December 30,
2007, December 28, 2008 and January 3, 2010
    
    
    76Consolidated Statements of Redeemable Convertible Preferred Stock,
Stockholders (Deficit) Equity and Comprehensive Income (Loss) for the
for the years ended December 30, 2007, December 28, 2008 and January
3, 2010
    
    
    77Notes to Consolidated Financial Statements
    
    
    78
      122




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##### Table of Contents



SIGNATURES
  AIRVANA, INC.By:
    /s/  Randall S. BattatRandall S. BattatPresident and Chief Executive Officer  Name
    
    Title/s/ Randall S. Battat

Randall S. Battat
    
    President, Chief Executive Officer and Director
(Principal Executive Officer)/s/ Jeffrey D. Glidden

Jeffrey D. Glidden
    
    Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)/s/ Hassan Ahmed

Hassan Ahmed
    
    Director/s/ Robert P. Badavas

Robert P. Badavas
    
    Director/s/ Gururaj Deshpande

Gururaj Deshpande
    
    Director/s/ Paul J. Ferri

Paul J. Ferri
    
    Director/s/ Anthony S. Thornley

Anthony S. Thornley
    
    Director/s/ Sanjeev Verma

Sanjeev Verma
    
    Director
  123




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Exhibit3.1
    
    
    Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1
to the Registrants Report on Form 8-K filed on July 25, 2007 (File
No. 001-33576) and incorporated herein by reference)3.2
    
    
    Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.4 to the
Registrants Registration Statement on Form S-1 (File No. 333-142210) and
incorporated herein by reference)4.1
    
    
    Specimen certificate evidencing shares of common stock (filed as Exhibit 4.1
to the Registrants Registration Statement on Form S-1 (File No. 333-142210)
and incorporated herein by reference)4.2
    
    
    Third Amended and Restated Investor Rights Agreement dated as of June 6, 2007
between the Registrant and the Preferred Investors, Other Investors, Founders
and Warrant Holders (filed as Exhibit 10.5 to the Registrants Registration
Statement on Form S-1 (File No. 333-142210) and incorporated herein by
reference)10.1
    *
    
    2000 Stock Incentive Plan, as amended (filed as Exhibit 10.1 to the
Registrants Registration Statement on Form S-1 (File No. 333-142210) and
incorporated herein by reference)10.2
    *
    
    2007 Stock Incentive Plan (filed as Exhibit 10.2 to the Registrants
Registration Statement on Form S-1 (File No. 333-142210) and incorporated
herein by reference)10.3
    *
    
    Forms of Incentive Stock Option Agreements under 2007 Stock Incentive Plan
(filed as Exhibit 10.3 to the Registrants Registration Statement on Form S-1
(File No. 333-142210) and incorporated herein by reference)10.4
    *
    
    Forms of Nonstatutory Stock Option Agreements under 2007 Stock Incentive Plan
(filed as Exhibit 10.4 to the Registrants Registration Statement on Form S-1
(File No. 333-142210) and incorporated herein by reference)10.5
    
    
    Development and Purchase and Sale Agreement for CDMA High Data Rate (1xEV-DO)
Products dated October 1, 2001 between the Registrant and Nortel Networks,
Inc., as amended (filed as Exhibit 10.6 to the Registrants Registration
Statement on Form S-1 (File No. 333-142210) and incorporated herein by
reference)10.6
    
    
    HDR Infrastructure Equipment License Agreement, entered into on September 18,
2000, by and between Qualcomm Incorporated and the Registrant, as amended
(filed as Exhibit 10.7 to the Registrants Registration Statement on Form S-1
(File No. 333-142210) and incorporated herein by reference)10.7
    
    
    CSM 6800 Software Agreement, entered into as of April 28, 2004, by and between
Qualcomm Incorporated and the Registrant (filed as Exhibit 10.8 to the
Registrants Registration Statement on Form S-1 (File No. 333-142210) and
incorporated herein by reference)10.8
    
    
    Lease Agreement, dated as of October 4, 2004, between the Registrant and
W9/TIB Realty, L.L.C. (filed as Exhibit 10.9 to the Registrants Registration
Statement on Form S-1 (File No. 333-142210) and incorporated herein by
reference)10.9
    
    
    Lease Agreement, dated as of August 4, 2005, between the Registrant and W9/TIB
III Realty, L.L.C. (filed as Exhibit 10.10 to the Registrants Registration
Statement on Form S-1 (File No. 333-142210) and incorporated herein by
reference)10.10
    
    
    Amendment No. 10 to Development and Purchase And Sale Agreement For CDMA High
Data Rate (1xEV-DO) Products between the Registrant and Nortel Networks, Inc.,
entered into as of September 28, 2007 (filed as Exhibit 10.1 to the
Registrants Quarterly Report on Form 10-Q filed on November 8, 2007 (File
No. 001-33576) for the quarterly period ended September 30, 2007 and
incorporated herein by reference)10.11
    
    
    Amendment No. 11 to Development and Purchase And Sale Agreement For CDMA High
Data Rate (1xEV-DO) Products between the Registrant and Nortel Networks, Inc.,
entered into as of November 6, 2008 (filed as Exhibit 10.11 to the
Registrants Annual Report on Form 10-K filed on February 24, 2009 (File
No. 001-33576) for the annual period ended December 28, 2008 and incorporated
herein by reference)




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##### Table of Contents



Exhibit No.
    
    Exhibit10.12
    #
    
    Amendment No. 12 to Development and Purchase And Sale Agreement For CDMA High
Data Rate (1xEV-DO) Products between the Registrant and Ericsson AB, entered
into as of November 23, 200910.13
    
    
    Agreement and Plan of Merger, by and among the Registrant, 72 Mobile Investors
and 72 Mobile Acquisition Corp., dated as of December 17, 2009 (filed as
Exhibit 2.1 to the Registrants Current Report on Form 8-K, as filed on
December 18, 2009 (File No. 001-33576) and incorporated herein by reference)10.14
    #
    
    Separation Agreement, dated November 4, 2009,
between the Registrant and Luis Pajares21.1
    #
    
    Subsidiaries of the Registrant23.1
    #
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm31.1
    #
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Rule 13(a)- 14(a)/15d-14(a), by President and Chief Executive Officer31.2
    #
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
Rule 13(a)- 14(a)/15d-14(a), by Vice President, Chief Financial Officer32
    #
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, by President and Chief
Executive Officer and Vice President, Chief Financial Officer
 
 *
    
    Management contracts or compensatory plans or arrangements required to
be filed as an exhibit hereto pursuant to Item 15(a) of Form 10-K.
    
    Indicates confidential treatment requested as to certain portions,
which portions were omitted and filed separately with the Securities
and Exchange Commission pursuant to a Confidential Treatment Request.#
    
    Filed herewith.