UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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



For the quarterly period ended	~~September 30, 2014~~March 31, 2015



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

��



For the transition period from		to



Commission File Number:	0-26844

RADISYS CORPORATION

(Exact name of registrant as specified in its charter)



OREGON		93-0945232
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5435 N.E. Dawson Creek Drive, Hillsboro, OR		97124
(Address of principal executive offices)		(Zip Code)

(503) 615-1100
(Registrant's telephone number, including area code)


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

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



Large accelerated filer	[ ]		Accelerated filer	[x]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[ ]

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

Number of shares of common stock outstanding as of ~~November 4, 2014~~: ~~36,480,263~~April 28, 2015: 36,721,875

RADISYS CORPORATION

FORM 10-Q

TABLE OF CONTENTS



		Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations – Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~		3
Condensed Consolidated Statements of Comprehensive Loss – Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~		4
Condensed Consolidated Balance Sheets – ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014		5
Condensed Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2015 and 2014 ~~and 2013~~		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1917
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3129
Item 4. Controls and Procedures		3129

PART II. OTHER INFORMATION
Item 1A. Risk Factors		32
~~Item 5. Other Information~~		3230
Item 6. Exhibits		3330
Signatures		3431

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RADISYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014			2013			2014			2013			2015			2014
Revenues	$	50,805		$	54,109		$	144,568		$	187,725		$	48,687		$	43,799
Cost of sales:
Cost of sales	34,052			37,874			100,551			127,936			34,067			30,597
Amortization of purchased technology	2,056			2,069			6,165			6,504			1,994			2,054
Total cost of sales	36,108			39,943			106,716			134,440			36,061			32,651
Gross margin	14,697			14,166			37,852			53,285			12,626			11,148
Research and development	7,657			11,456			24,484			35,011			6,724			8,419
Selling, general and administrative	8,554			10,522			27,103			31,145			7,500			9,596
Intangible asset amortization	1,260			1,303			3,817			3,911			1,260			1,297
Restructuring and other charges, net	1,329			2,881			3,444			4,037			4,135			1,300
Loss from operations	(4,103		)	(11,996		)	(20,996		)	(20,819		)	(6,993		)	(9,464		)
Interest expense	(317		)	(300		)	(949		)	(913		)	(217		)	(287		)
Other income, net	463			200			799			573			397			179
Loss before income tax expense	(3,957		)	(12,096		)	(21,146		)	(21,159		)	(6,813		)	(9,572		)
Income tax expense	512			624			1,968			2,230			240			862
Net loss	$	(4,469	)	$	(12,720	)	$	(23,114	)	$	(23,389	)	$	(7,053	)	$	(10,434	)
Net loss per share:
Basic	$	(0.12	)	$	(0.44	)	$	(0.68	)	$	(0.82	)	$	(0.19	)	$	(0.35	)
Diluted	$	(0.12	)	$	(0.44	)	$	(0.68	)	$	(0.82	)	$	(0.19	)	$	(0.35	)
Weighted average shares outstanding:
Basic	36,332			28,931			34,097			28,692			36,649			29,864
Diluted	36,332			28,931			34,097			28,692			36,649			29,864

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014			2013			2014			2013			2015			2014
Net loss	$	(4,469	)	$	(12,720	)	$	(23,114	)	$	(23,389	)	$	(7,053	)	$	(10,434	)
Other comprehensive income (loss):
Translation adjustments loss	(269		)	(138		)	(106		)	(589		)
Translation adjustments gain (loss)													(447		)	126
Net adjustment for fair value of hedge derivatives, net of tax	(455		)	(233		)	152			(881		)	118			515
Other comprehensive income (loss)	(724		)	(371		)	46			(1,470		)	(329		)	641
Comprehensive loss	$	(5,193	)	$	(13,091	)	$	(23,068	)	$	(24,859	)	$	(7,382	)	$	(9,793	)

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	September 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	31,938		$	25,482		$	15,846		$	31,242
Accounts receivable, net	43,860			41,359			41,716			43,845
Other receivables	5,955			2,634			2,434			6,324
Inventories, net	17,046			25,409			15,727			18,475
Other current assets	3,230			4,688			2,770			3,276
Deferred tax assets, net	1,142			1,121			191			222
Total current assets	103,171			100,693			78,684			103,384
Property and equipment, net	10,597			14,854			8,791			9,786
Intangible assets, net	46,529			56,510			39,970			43,224
Long-term deferred tax assets, net	2,211			2,686			842			858
Other assets	1,330			1,442			3,103			3,468
Total assets	$	163,838		$	176,185		$	131,390		$	160,720

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,559		$	35,081		$	25,385		$	33,679
Accrued wages and bonuses	4,857			5,547			4,183			5,006
Deferred revenue	6,124			8,167			7,455			6,204
Line of credit	10,000			15,000			10,000			10,000
Convertible senior notes	18,000			—			—			18,000
Other accrued liabilities	8,187			9,978			10,486			7,255
Total current liabilities	78,727			73,773			57,509			80,144
Long-term liabilities:
Convertible senior notes	—			18,000
Other long-term liabilities	3,132			3,276			2,820			2,800
Total long-term liabilities	3,132			21,276			2,820			2,800
Total liabilities	81,859			95,049			60,329			82,944
Commitments and contingencies (Note 8)
Shareholders’ equity:
Common stock — no par value, 100,000 shares authorized; 36,419 and 29,198 shares issued and outstanding at September 30, 2014 and December 31, 2013	333,281			309,370
Common stock — no par value, 100,000 shares authorized; 36,699 and 36,532 shares issued and outstanding at March 31, 2015 and December 31, 2014							334,691			334,024
Accumulated deficit	(252,204		)	(229,090		)	(263,724		)	(256,671		)
Accumulated other comprehensive income:
Cumulative translation adjustments	1,625			1,731			728			1,175
Unrealized loss on hedge instruments	(723		)	(875		)	(634		)	(752		)
Total accumulated other comprehensive income	902			856			94			423
Total shareholders’ equity	81,979			81,136			71,061			77,776
Total liabilities and shareholders’ equity	$	163,838		$	176,185		$	131,390		$	160,720

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2014			2013			2015			2014
Cash flows from operating activities:
Net loss	$	(23,114	)	$	(23,389	)	$	(7,053	)	$	(10,434	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	15,357			16,586			4,778			5,245
Inventory valuation allowance	2,219			578			(40		)	1,162
Deferred income taxes	940			850			170			311
Stock-based compensation expense	3,359			3,761			659			1,121
Write-off of purchased computer software	—			2,868
Net gain from sale of software assets	—			(1,532		)
Other	455			(1,370		)	254			1,301
Changes in operating assets and liabilities:
Accounts receivable	(2,332		)	9,943			2,064			3,901
Other receivables	(3,312		)	395			3,883			(1,707		)
Inventories	6,179			2,027			2,769			385
Other current assets	1,516			143			428			(1,958		)
Accounts payable	(3,391		)	(4,860		)	(8,183		)	(2,713		)
Accrued restructuring	(1,646		)	1,233			2,354			(394		)
Accrued wages and other	(1,159		)	(1,655		)
Accrued wages and bonuses							(834		)	(1,209		)
Deferred revenue	(2,043		)	(1,673		)	1,251			2,791
Net cash (used in) provided by operating activities	(6,972		)	3,905
Other accrued liabilities							1,128			(1,006		)
Net cash provided by (used in) operating activities							3,628			(3,204		)
Cash flows from investing activities:
Capital expenditures	(1,861		)	(4,343		)	(640		)	(678		)
Proceeds from sale of software assets	—			1,107
Net cash used in investing activities	(1,861		)	(3,236		)	(640		)	(678		)
Cash flows from financing activities:
Borrowings (payments) on line of credit	(5,000		)	15,000
Borrowings on line of credit							7,000			—
Payments on line of credit							(7,000		)	—
Repayment of convertible subordinated notes	—			(16,919		)	(18,000		)	—
Proceeds from issuance of common stock	21,081			626			94			20,880
Other financing activities	(551		)	(783		)	(86		)	(235		)
Net cash provided by (used in) financing activities	15,530			(2,076		)	(17,992		)	20,645
Effect of exchange rate changes on cash	(241		)	(216		)	(392		)	19
Net increase (decrease) in cash and cash equivalents	6,456			(1,623		)	(15,396		)	16,782
Cash and cash equivalents, beginning of period	25,482			33,182			31,242			25,482
Cash and cash equivalents, end of period	$	31,938		$	31,559		$	15,846		$	42,264
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Cash paid during the period for:
Interest	$	917		$	1,110		$	519		$	405
Income taxes	$	415		$	673		$	93		$	217

The accompanying notes are an integral part of these financial statements.

RADISYS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Significant Accounting Policies

Radisys Corporation (the “Company” or “Radisys”) has adhered to the accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 in preparing the accompanying interim condensed consolidated financial statements. The preparation of these statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Additionally, the accompanying financial data as of ~~September 30, 2014~~March 31, 2015 and for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

Certain prior year balances have been reclassified to conform to the current year’s presentation. Such reclassifications did not affect total cash flows, total net revenues, operating loss, net loss, total assets, total liabilities or shareholders’ equity.

The financial information included herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for interim periods.

~~On May 28, 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method and has not determined the effect of the standard on its ongoing financial reporting.

Note 2 — Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company measures at fair value certain financial assets and liabilities. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1— Quoted prices for identical instruments in active markets;

Level 2— Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Foreign currency forward contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates; therefore, they are classified within Level 2 of the valuation hierarchy. The cash surrender value of life insurance contracts and deferred compensation liability are measured at fair value using quoted market prices for similar instruments; therefore, they are classified within Level 2 of the valuation hierarchy.

The Company had an obligation ("contingent consideration"), to be paid in cash, related to the acquisition of Continuous Computing Corporation ("Continuous Computing") based on the amount of product royalty revenues to be generated by a

specified set of contracts associated with certain of Continuous Computing's products over a period of 36 months after closing which ended during the quarter ended September 30, 2014. The contingent consideration liability was established at the time of acquisition and was evaluated at the end of each reporting period. As the significant inputs used in determining the fair value were unobservable, this liability was classified within Level 3 of the fair value hierarchy.

The fair value of the contingent consideration was determined by calculating the net present value of the expected payments using significant inputs that are not observable in the market, including revenue projections and discount rates consistent with the level of risk of achievement; therefore the Company developed its own assumptions for the expected product royalty revenues generated under the arrangement. The fair value of the contingent consideration was affected most significantly by changes in the amount and timing of the revenue projections. If the revenue projections increased or decreased the fair value of the contingent consideration would increase or decrease accordingly in amounts that will vary based on the timing of the projected revenues and the timing of the expected payments. The 36 month contingent consideration period ended during the quarter ended September 30, 2014 and the remaining liability of $0.3 million recorded at ~~September 30, 2014~~ ~~represents the final cash payment to be paid in the fourth quarter of 2014 and is recorded in other accrued liabilities on the Condensed Consolidated Balance Sheet at~~ ~~September 30, 2014~~.

The following table summarizes the fair value measurements for the Company's financial instruments (in thousands):

Fair Value Measurements as of September 30, 2014
Total Level 1 Level 2 Level 3
Cash surrender value of life insurance contracts ^(A)
$ 32
$ —
$ 32
$ —
Deferred compensation liability ^(A)
(23 ) —
(23 ) —
Foreign currency forward contracts (13 ) —
(13 ) —
Total $ (4 ) $ —
$ (4 ) $ —



	Fair Value Measurements as of March 31, 2015
	Total		Level 1	Level 2		Level 3
Foreign currency forward contracts	$	56	—	$	56	—

Fair Value Measurements as of December 31, 2013
Total Level 1 Level 2 Level 3
Cash surrender value of life insurance contracts ^(A)
$ 1,866
$ —
$ 1,866
$ —
Deferred compensation liability ^(A)
(1,276 ) —
(1,276 ) —
Foreign currency forward contracts (169 ) —
(169 ) —
Contingent consideration liability (390 ) —
—
(390 )
Total $ 31
$ —
$ 421
$ (390 )

(A) The company terminated its Deferred Compensation Plan in 2013. The distribution of plan assets was substantially completed during the quarter ended September 30, 2014. The remaining balance as of September 30, 2014 is payable in the first quarter of 2015 and is recorded in other accrued liabilities on the Condensed Consolidated Balance Sheet at ~~September 30, 2014~~.

~~The following table summarizes our Level 3 activity for the Company's contingent consideration liability (in thousands):~~

Level 3
Balance at December 31, 2013 $ 390
Change in estimate (156 )
Payments —
Accretion 39
Transfer out of level 3 measurement (273 )
Balance at September 30, 2014 $ —

The Company records all changes in estimates and accretion on the contingent consideration liability to restructuring and other charges, net in the Condensed Consolidated Statements of Operations. The royalty earning period for Continuous Computing's products was completed during the quarter ended September 30, 2014. The 36 month contingent consideration period ended during the third quarter 2014 and the remaining liability of $0.3 million recorded represents the final cash



	Fair Value Measurements as of December 31, 2014
	Total			Level 1	Level 2			Level 3
Foreign currency forward contracts	$	(83	)	—	$	(83	)	—

~~payment to be paid in the fourth quarter and is recorded in other accrued liabilities on the Condensed Consolidated Balance Sheet at~~ ~~September 30, 2014~~.

Note 3 — Accounts Receivable and Other Receivables

Accounts receivable consists of sales to the Company's customers which are generally based on standard terms and conditions. Accounts receivable balances consisted of the following (in thousands):


	September 30, 2014			December 31, 2013			March 31, 2015			December 31, 2014
Accounts receivable, gross	$	44,040		$	41,707		$	41,905		$	43,969
Less: allowance for doubtful accounts	(180		)	(348		)	(189		)	(124		)
Accounts receivable, net	$	43,860		$	41,359		$	41,716		$	43,845

As of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, the balance in other receivables was $~~6.0~~2.4 million and ~~$2.6~~$6.3 million. Other receivables consisted primarily of non-trade receivables including inventory transferred to the Company's contract manufacturing ~~partners~~partner on which the Company does not recognize revenue orand net receivables for value-added taxes.

Note 4 — Inventories

Inventories consisted of the following (in thousands):

September 30,
2014 December 31,
2013
Raw materials $ 12,833
$ 22,416
Work-in-process 609
1,194
Finished goods 10,330
9,644
23,772
33,254
Less: inventory valuation allowance (6,726 ) (7,845 )
Inventories, net $ 17,046
$ 25,409

~~The balance of consigned inventory at the Company’s contract manufacturing partner was $4.3 million and $10.3 million at~~ ~~September 30, 2014~~ ~~and~~ ~~December 31, 2013~~.



	March 31, 2015			December 31, 2014
Raw materials	$	8,458		$	9,219
Work-in-process	681			1,195
Finished goods	9,251			10,762
	18,390			21,176
Less: inventory valuation allowance	(2,663		)	(2,701		)
Inventories, net	$	15,727		$	18,475

Consigned inventory is held at third-party locations, ~~including~~which include the Company's contract manufacturing partner and customers. The Company retains title to the inventory until purchased by the third-party. The Company is contractually obligated to purchase the inventory on consignment from its contract manufacturer for the cost of excess inventory that is purchased as a result of the Company's forecasted demand when there is no alternative use. Consigned inventory, consisting of raw materials and finished goods was ~~$5.7~~$2.1 million and $~~12.0~~2.6 million at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014.

The Company recorded the following charges associated with the valuation of inventory and the adverse purchase commitment liability (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2014		2013		2014		2013		2015			2014
Inventory, net	$	875	$	280	$	2,219	$	1,454	$	(40	)	$	1,162
Adverse purchase commitments	378		271		532		403		576			(127)

Note 5 — Restructuring and Other Charges

The following table summarizes the Company's restructuring and other charges as presented in the Condensed Consolidated Statement of Operations (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014			2013			2014			2013			2015			2014
Employee-related restructuring expenses	$	258		$	2,916		$	1,514		$	4,081		$	4,033		$	853
Fair value adjustments to Continuous Computing contingent consideration liability	(29		)	(395		)	(156		)	(1,740		)
Facility reductions	—			(155		)	(6		)	(155		)
Write off of purchased computer software	—			—			—			2,868
Net gain from sale of OS-9 software assets	—			—			—			(1,532		)
Integration-related expenses	728			328			1,671			328			(7		)	410
Non-recurring legal expenses	372			187			421			187			109			37
Restructuring and other charges, net	$	1,329		$	2,881		$	3,444		$	4,037		$	4,135		$	1,300

Restructuring and other charges includes expenses incurred for employee terminations due to a reduction of personnel resources resulting from modifications of business strategy or business emphasis. Employee-related restructuring expenses include severance benefits, notice pay and outplacement services. Restructuring and other charges may also include expenses incurred associated with acquisition or divestiture activities, facility abandonments and other expenses associated with business restructuring actions.

For the three months ended ~~September 30, 2014~~March 31, 2015, the Company recorded the following restructuring charges:

$~~0.3~~4.0 million net expense relating to the severance of 130 employees primarily within Asia and North America. These actions were in connection with the restructuring of the Company's Embedded Products and Hardware Services segment's research and development and sales and general administrative functions and are presented net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs; and

$0.1 million legal expenses associated with non-operating strategic projects, which processes were concluded in the first quarter of 2015.

For the three months ended March 31, 2014, the Company recorded the following restructuring and other charges:

$0.9 million net expense relating to the severance of employees in connection with the previously reported Penang site closure, as well as severance for four additional employees, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs;

~~$0.4 million legal expenses associated with non-operating strategic projects; and~~

~~$0.7 million~~ ~~integration-related net expense principally associated with asset write-offs and personnel overlap resulting from resource consolidation primarily associated with the Penang site closure.~~

~~For the~~ ~~three~~ ~~months ended~~ ~~September 30, 2013, the Company recorded the following restructuring and other charges:~~

~~$0.2 million gain resulting from the revision of prior sublease assumptions for a previously abandoned facility;~~

~~$0.3 million integration-related net expense principally associated with asset write-offs, legal fees, and personnel overlap resulting from resource consolidation;~~

~~$2.9 million~~ net expense for the severance of 154 employees related to Shanghai and Penang site reductions, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs;

~~$0.2 million legal expenses associated with restructuring actions and non-operating strategic projects;~~ and

$0.4 million gain due to the decrease in fair value of the Continuous Computing contingent consideration liability. The Company assessed the fair value of the contingent consideration liability on a quarterly basis, adjusting the liability to fair value based on a detailed analysis of all expected contingent consideration eligible revenues.

~~For the nine months ended September 30, 2014, the Company recorded the following restructuring and acquisition-related charges:~~

$1.5 million net expense relating to the severance of employees in connection with the previously reported Penang site closure, as well as severance for 18 additional employees, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs;

~~$1.7~~ million integration-related net expense principally associated with asset write-offs and personnel overlap resulting from resource ~~consolidation~~consolidations primarily associated with the ~~Penang site closure;~~

~~$0.4 million legal expenses associated with non-operating strategic projects; and~~

~~$0.2 million gain due to the decrease in fair value of the Continuous Computing contingent consideration liability.~~

~~For the nine months ended September 30, 2013, the Company recorded the following restructuring and acquisition-related charges:~~

~~$1.5 million net gain from the sale of the Company's OS-9 software assets;~~

~~$2.9 million expense relating to the write off of the Company's SEG purchased computer software due to management's decision to abandon future development of this technology;~~

~~$1.7 million gain due to the decrease in fair value of the Continuous Computing contingent consideration liability; and~~

~~$4.1 million net expense for the severance of 182 employees primarily related to~~ Shanghai and Penang site ~~reductions, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs.~~closures.

Accrued restructuring, which is included in other accrued liabilities and other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets as of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~,2014, consisted of the following (in thousands):


	Severance, payroll taxes and other employee benefits			Facility reductions			Total			Severance, payroll taxes and other employee benefits			Facility reductions			Total
Balance accrued as of December 31, 2013	$	1,786		$	961		$	2,747
Balance accrued as of December 31, 2014										$	166		$	587		$	753
Additions	1,620			—			1,620			4,033			—			4,033
Reversals	(106		)	(6		)	(112		)	—			—			—
Expenditures	(2,815		)	(328		)	(3,143		)	(1,641		)	(38		)	(1,679		)
Balance accrued as of September 30, 2014	$	485		$	627		$	1,112
Balance accrued as of March 31, 2015										$	2,558		$	549		$	3,107

Of the $~~1.1~~3.1 million accrued restructuring at ~~September 30, 2014~~March 31, 2015, $0.5 million is included in other long-term liabilities, with the remaining balance being included in other accrued liabilities on the Condensed Consolidated Balance Sheets.

The Company evaluates the adequacy of the accrued restructuring charges on a quarterly basis. Reversals are recorded in the period in which the Company determines that expected restructuring obligations are less than the amounts accrued.

Note 6 — Short-Term Borrowings

Silicon Valley Bank

At the beginning of the first quarter of 2014, the Company had a $35.0 million secured revolving line of credit agreement (as amended, the "Agreement") with Silicon Valley Bank ("SVB") with a stated maturity date of July 28, 2016. On March 14, 2014, the Company entered into an amended and restated $25.0 million revolving line of credit agreement with ~~SVB~~Silicon Valley Bank ("SVB") (as amended, the "2014 Agreement") ~~that replaces the Agreement and~~which has a stated maturity date of July 28, 2016. On May 30, 2014, the 2014 Agreement was amended to increase the letter of credit sublimit under the secured revolving credit facility from $1,000,000 to ~~$2,000,000.~~$2,000,000 or the net borrowing availability. On April 23, 2015, the 2014 Agreement was amended to further increase the letter of credit sublimit under the secured revolving credit facility from $2,000,000 to $5,000,000 or the net borrowing availability. The secured revolving credit facility under the 2014 Agreement is available for cash borrowings and is subject to a borrowing formula based upon eligible accounts receivable less outstanding letters of credit (aggregate letters of credit are not to exceed ~~$2,000,000)~~5,000,000). Eligible accounts receivable include 80% of U.S. and 65% of foreign accounts receivable (80% in certain cases), not greater than 60 days past original invoice date. The interest rate is dependent upon the Company's Liquidity (as defined in the 2014 Agreement) when compared to a pre-determined threshold (the "Liquidity

Threshold"), which is defined in the 2014 Agreement as $15.0 million, with the exception of the last month end of each quarter, where it is defined as $20.0 million. Liquidity is calculated under the 2014 Agreement as unrestricted cash plus unused availability on the revolving line of credit; however, if the Company's 4.50% convertible senior notes due 2015 (the "2015 convertible senior notes") are not renewed or refinanced 120 days prior to their maturity date, which is February 15, 2015, Liquidity (for purposes of testing against the Liquidity Threshold) will becredit reduced by the outstanding principal amount of the 2015 convertible senior notes. The calculation of interest under the 2014 Agreement is as follows:

When Liquidity is above the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 0.75%; and

When Liquidity is below the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 2.25%.

Under the 2014 Agreement, the Company is required to make interest payments monthly. The Company was further required to pay a loan modification fee of $35,000 and a commitment fee equal to $35,000 on July 29, 2014 and will be required to pay the commitment fee annually thereafter. Under the 2014 Agreement the Company is required to pay the higher of actual monthly interest incurred or the interest equivalent of $10.0 million in average monthly borrowings. If the Company terminates the commitment under the 2014 Agreement prior to the maturity date, the Company is required to pay a cancellation fee equal to 1.5% of the commitment under the 2014 Agreement. As of September 1, 2014, and at all times thereafter, the Company is required to maintain a deposit account balance of at least $4,000,000 with SVB or its affiliates and the Company is required to have at least 50% of its cash deposited with SVB or its affiliates or in an account where SVB has a control agreement.

The 2014 Agreement requires the Company to make certain representations, warranties and other agreements that are customary in credit agreements of this type. The 2014 Agreement also includes a financial covenant that requires the Company to maintain minimum Liquidity of $10.0 million tested monthly.

As of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, the Company had an outstanding ~~balances~~balance of $10.0 million ~~and~~ ~~$15.0 million~~under the 2014 ~~Agreement and the Agreement, respectively.~~Agreement. At ~~September 30, 2014~~,March 31, 2015, the Company had ~~$14.0~~$14.4 million of total borrowing availability remaining under the 2014 Agreement. At ~~September 30, 2014~~,March 31, 2015, the Company was in compliance with all covenants under the 2014 Agreement.

Note 7 — Convertible Debt

~~2013~~2015 Convertible Senior Notes

On February ~~15, 2013,~~17, 2015, the Company repaid at maturity the entire outstanding balance of the ~~2.75%~~4.5% convertible senior notes due ~~2013~~2015 (the ~~"2013~~"2015 convertible senior notes") in accordance with the terms thereof.

~~2015 Convertible Senior Notes~~

On June 20, 2012, the Company entered into subscription agreements with certain holders of the Company's 2013 convertible senior notes. Pursuant to the subscription agreements, on June 29, 2012 the Company exchanged $18.0 million aggregate principal amount of the 2013 convertible senior notes for $18.0 million aggregate principal amount of the 2015 convertible senior notes. The 2015 convertible senior notes mature on February 15, 2015. Holders of the 2015 convertible senior notes may convert their notes into a number of shares of the Company's common stock determined as set forth in the indenture governing the notes at their option on any day to and including the business day prior to the maturity date. The 2015 convertible senior notes are initially convertible into ~~117.2333~~ ~~shares of the Company's common stock per~~ ~~$1,000~~ ~~principal amount of the notes (which is equivalent to a conversion price of approximately~~ ~~$8.53~~ per share), subject to adjustment upon the occurrence of certain events. Upon the occurrence of a fundamental change, holders of the 2015 convertible senior notes may require the Company to repurchase some or all of their notes for cash at a price equal to ~~100%~~ of the principal amount of the notes being repurchased, plus accrued and unpaid interest, if any. In addition, if certain fundamental changes occur, the Company may be required in certain circumstances to increase the conversion rate for any 2015 convertible senior notes converted in connection with such fundamental changes by a specified number of shares of the Company's common stock. The 2015 convertible senior notes are the Company's general unsecured obligations and rank equal in right of payment to all of its existing and future senior indebtedness, and senior in right of payment to the Company's future subordinated debt. The Company's obligations under the 2015 convertible senior notes are not guaranteed by, and are effectively subordinated in right of payment to all existing and future obligations of its subsidiaries and are effectively subordinated in right of payment to its future secured indebtedness to the extent of the assets securing such debt.

~~As of~~ ~~September 30, 2014~~ ~~and~~ ~~December 31, 2013, the Company had outstanding 2015 convertible senior notes with a face value of $18.0 million. As of~~ ~~September 30, 2014~~ ~~and~~ ~~December 31, 2013, the fair values of our 2015~~ No convertible senior notes were ~~$17.9 million~~ ~~and~~ ~~$17.8 million, which are based on the most recent quoted prices of the Company's publicly traded debt on each balance sheet date.~~converted to common stock.

The following table outlines the effective interest rate, contractually stated interest costs, and costs related to the amortization of issuance costs for the Company's 2013 and 2015 convertible senior notes:

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Effective interest rate of 2013 convertible senior notes N/A N/A N/A 3.73%
Effective interest rate of 2015 convertible senior notes 4.50% 4.50% 4.50% 4.50%
Contractually stated interest costs $203 $203 $608 $666
Amortization of issuance costs $11 $11 $32 $50

Note 8 — Commitments and Contingencies

Adverse Purchase Commitments

The Company is contractually obligated to reimburse its contract manufacturer for the cost of excess inventory used in the manufacture of the Company's products if there is no alternative use. This liability, referred to as adverse purchase commitments, is presented in other accrued liabilities in the accompanying Condensed Consolidated Balance Sheets. Estimates for adverse purchase commitments are derived from reports received on a quarterly basis from the Company's contract manufacturer. Increases to this liability are charged to cost of sales. If and when the Company takes possession of inventory reserved for in this liability, the liability is transferred from other accrued liabilities to the excess and obsolete inventory valuation allowance (Note 4 —Inventories).

Guarantees and Indemnification Obligations

As permitted under Oregon law, the Company has agreements whereby it indemnifies its officers, directors and certain finance employees for certain events or occurrences while an officer, director or employee is or was serving in such capacity at the request of the Company. The term of the indemnification period is for the officer's, director's or employee's lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a Director and Officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. To date, the Company has not incurred any costs associated with these indemnification agreements and, as a result, management believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of ~~September 30, 2014~~March 31, 2015.

The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company's business partners or customers, in connection with patent, copyright or other intellectual property infringement claims by any third party with respect to the Company's current products, as well as claims relating to property damage or personal injury resulting from the performance of services by us or the Company's subcontractors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is generally limited. Historically, the Company's costs to defend lawsuits or settle claims relating to such indemnity agreements have been ~~minimal and accordingly management believes the estimated fair value of the agreements is immaterial.~~minimal.

Accrued Warranty

The Company provides for the estimated cost of product warranties at the time it recognizes revenue. Products are generally sold with warranty coverage for a period of 12 or 24 months after shipment. Parts and labor are covered under the terms of the warranty agreement. The workmanship of the Company’s products produced by the contract manufacturer is covered under warranties provided by the contract manufacturer for 12 to 24 months. The warranty provision is based on historical experience by product family. The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its components suppliers; however ongoing failure rates, material usage and service delivery costs incurred in correcting product failure, as well as specific product class failures out of the Company’s baseline experience, affect the estimated warranty obligation. If actual product failure rates, material usage or service delivery costs differ from estimates, revisions to the estimated warranty liability would be required.

1310

The following is a summary of the change in the Company's warranty accrual reserve (in thousands):


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2014			2013			2015			2014
Warranty liability balance, beginning of the period	$	3,328		$	3,954		$	2,600		$	3,328
Product warranty accruals	1,843			2,295			623			433
Utilization of accrual	(2,480		)	(2,835		)	(517		)	(683		)
Warranty liability balance, end of the period	$	2,691		$	3,414		$	2,706		$	3,078

At ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, $~~2.0~~2.1 million and $~~2.6~~2.0 million of the warranty liability balance was included in other accrued liabilities and $~~0.7~~0.6 million and $~~0.7~~0.6 million was included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.

Note 9 — Basic and Diluted Net Loss per Share

A reconciliation of the numerator and the denominator used to calculate basic and diluted net loss per share is as follows (in thousands, except per share amounts):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014			2013			2014			2013			2015			2014
Numerator — Basic
Net loss	$	(4,469	)	$	(12,720	)	$	(23,114	)	$	(23,389	)	$	(7,053	)	$	(10,434	)
Numerator — Diluted
Net loss	$	(4,469	)	$	(12,720	)	$	(23,114	)	$	(23,389	)	$	(7,053	)	$	(10,434	)
Interest on convertible notes, net of tax benefit ^(B)	—			—			—			—			—			—
Net loss, diluted	$	(4,469	)	$	(12,720	)	$	(23,114	)	$	(23,389	)	$	(7,053	)	$	(10,434	)
Denominator — Basic
Weighted average shares used to calculate net loss per share, basic	36,332			28,931			34,097			28,692			36,649			29,864
Denominator — Diluted
Weighted average shares used to calculate net loss per share, basic	36,332			28,931			34,097			28,692			36,649			29,864
Effect of escrow shares ^(A)	—			—			—			—
Effect of convertible notes ^(B)	—			—			—			—
Effect of dilutive restricted stock units ^(C)	—			—			—			—
Effect of dilutive stock options ^(C)	—			—			—			—
Effect of convertible notes ^(A)													—			—
Effect of dilutive restricted stock units ^(B)													—			—
Effect of dilutive stock options ^(B)													—			—
Weighted average shares used to calculate net loss per share, diluted	36,332			28,931			34,097			28,692			36,649			29,864
Net loss per share
Basic	$	(0.12	)	$	(0.44	)	$	(0.68	)	$	(0.82	)	$	(0.19	)	$	(0.35	)
Diluted	$	(0.12	)	$	(0.44	)	$	(0.68	)	$	(0.82	)	$	(0.19	)	$	(0.35	)


(A)	For the three months ended ~~September 30,~~March 31, 2014, ~~there were no remaining contingently issuable shares outstanding. For the nine months ended September 30,~~ ~~2013, 20,000 contingently issuable shares were excluded from the calculation as their effect would have been anti-dilutive.~~

~~(B)~~

~~For each of the~~ ~~three~~ ~~months ended~~ ~~September 30, 2014~~ ~~and~~ ~~2013~~, ~~2.1 million~~ ~~as-if converted shares associated with the Company's convertible senior notes were excluded from the calculation as their effect would have been anti-dilutive. For the nine months ended~~ ~~September 30, 2014~~ ~~and~~ ~~2013, 2.1 million and 2.3~~ $2.1 million as-if converted shares associated with the Company's convertible senior notes were excluded from the calculation as their effect would have been anti-dilutive.


~~(C)~~(B)	For the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014, the following equity awards, by type, were excluded from the calculation, as their effect would have been anti-dilutive (in thousands):


	Three Months Ended		Nine Months Ended		Three Months Ended
	September 30,		September 30,		March 31,
	2014	2013	2014	2013	2015	2014
Stock options	3,005	3,561	3,005	3,561	2,721	3,188
Restricted stock units	172	376	172	376	105	282
Performance based restricted stock units^(D)(C)	284	1,678	284	1,678	1,450	674
Total equity award shares excluded	3,461	5,615	3,461	5,615	4,276	4,144

~~(D)~~(C)

~~Shares under the Long-Term Incentive Plan ("LTIP")~~2014 performance based restricted stock units are presented based on attainment of 100% of the performance goals being met. The LTIP provides for the grants of awards payable in shares of common stock upon the achievement of performance goals set by the Company's Compensation and Development Committee. In addition to the performance conditions, the awards contain market-based multipliers based on the average price of the Company's common stock thirty days prior to the end of each semi-annual performance period. The maximum multiplier for a given semi-annual performance period iswas 2.75x the original grant and overall achievement iswas limited to a maximum of 2.5x of the target award over the entire performance ~~period.~~period (Note 11 —Stock-based Compensation). Based on this formula, the maximum number of shares that could behave been earned was ~~0.6 million and 1.5~~1.8 million for the three months ended ~~September 30, 2014~~ ~~and~~ ~~2013~~.March 31, 2014.

Note 10 — Income Taxes

The Company's effective tax rate for the three months ended ~~September 30, 2014~~March 31, 2015 differs from the statutory rate due to a full valuation allowance provided against its United States (“U.S.”) net deferred tax assets, a partial valuation allowance against Canadian deferred tax assets, and taxes on foreign income that differ from the U.S. tax rate. The Company’s effective tax rate for the three months ended September 30, 2013 differs from the statutory rate due the full valuation allowance provided against its U.S. net deferred tax assets, Canadian research and experimental development claims, and taxes on foreign income that differ from the U.S. tax rate.

The Company utilizes the asset and liability method of accounting for income taxes. The Company records deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, the Company

considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based upon the Company's review of all positive and negative evidence, including its three year U.S. cumulative pre-tax book loss and taxable loss, it concluded that a full and a partial valuation allowance should continue to be recorded against its U.S. and Canadian net deferred tax assets at ~~September 30, 2014~~March 31, 2015. In certain other foreign jurisdictions, where the Company does not have cumulative losses or other negative evidence, the Company had net deferred tax assets of ~~$3.4~~$1.0 million and ~~$3.8~~$1.1 million at ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014. In the future, if the Company determines that it is more likely than not that it will realize its U.S. and Canadian net deferred tax assets, it will reverse the applicable portion of the valuation allowance and recognize an income tax benefit in the period in which such determination is made.

The ~~Company did not provide for new uncertain tax positions during the three months ended~~ ~~September 30, 2014. The~~ ending balance for the unrecognized tax benefits was approximately ~~$3.8~~$3.6 million at ~~September 30, 2014~~March 31, 2015. The related interest and penalties were ~~$0.5~~$0.6 million and ~~$0.3 million~~.$0.3 million. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.

The Company is currently under tax examination in India. The periods covered under examination are the Company's financial years 2006 through 2008 and 2010 through 2011. The examination is in various stages of appellate proceedings and all material uncertain tax positions associated with the examination have been taken into account in the ending balance of the unrecognized tax benefits at ~~September 30, 2014~~March 31, 2015. As of ~~September 30, 2014~~March 31, 2015, the Company is not under examination by tax authorities in any other jurisdictions.

Note 11 — Stock-based Compensation

The following table summarizes awards granted under the Radisys Corporation 2007 and LTIP Stock Plans (in thousands):


	Three Months Ended		Nine Months Ended		Three Months Ended
	September 30,		September 30,		March 31,
	2014	2013	2014	2013	2015	2014
Stock options	25	1,253	94	1,746	555	49
Restricted stock units	—	75	92	82	5	2
Performance based restricted stock awards ^(A)	—	95	172	131	1,450	167
Total	25	1,423	358	1,959	2,010	218

(A)

~~The~~On March 2, 2015, the Company granted performance based restricted stock ~~awards are presented based~~units (PRSUs") with a performance period starting on ~~attainment of 100% of~~March 2, 2015 and ending on March 2, 2019, that on the performance ~~goals being met. The LTIP provides for the grants of awards payable in shares of common stock upon~~measurement date following the achievement of ~~performance goals set by~~ the ~~Company's Compensation and Development Committee. In addition to the performance conditions, the awards contain market-based multipliers based on the average~~following market condition stock price of the Company's common stock thirty days prior to the end of each semi-annual performance period. The maximum multiplier for a given semi-annual performance period is 2.75x the original grant and overall achievement is limited to a maximum of 2.5x of the target award over the entire performance period.hurdles:

50% of the awards will be earned if Radisys’ average closing stock price over a 30-trading day period is equal to or greater than $3.45 during a 3-year performance period.

50% of the awards will be earned if Radisys’ average closing stock price over a 30-trading day period is equal to or greater than $4.25 during a 4-year performance period. If either of the stock price hurdles is not met during their respective performance period, that portion of the award will be forfeited.

In 2014, the performance based restricted stock awards were presented based on attainment of 100% of the performance goals being met. These awards provided for the grants of awards payable in shares of common stock upon the achievement of performance goals set by the Company's Compensation and Development Committee. In addition to the performance conditions, the awards contained market-based multipliers based on the average price of the Company's common stock thirty days prior to the end of each semi-annual performance period. The maximum multiplier for a given semi-annual performance period was 2.75x the original grant and overall achievement was limited to a maximum of 2.5x of the target award over the entire performance period.

Stock-based compensation was recognized and allocated as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2014		2013		2014		2013		2015		2014
Cost of sales	$	44	$	167	$	326	$	408	$	53	$	131
Research and development	131		361		684		844		132		229
Selling, general and administrative	603		1,111		2,349		2,509		474		761
Total	$	778	$	1,639	$	3,359	$	3,761	$	659	$	1,121

Note 12 — Hedging

The Company’s activities expose it to a variety of market risks, including the effects of changes in foreign currency exchange rates. The Company manages these risks through the use of forward exchange contracts, designated as foreign-currency cash flow hedges, in an attempt to reduce the potentially adverse effects of foreign currency exchange rate fluctuations that occur in the normal course of business. As such, the Company’s hedging activities are employed solely for risk management purposes. All hedging transactions are conducted with, in the opinion of management, financially stable and reputable financial institutions. As of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013~~2014, the only hedge instruments executed by the Company are associated with its exposure to fluctuations in the Indian Rupee, which result from obligations such as payroll and rent paid in this currency.

These derivatives are recognized on the balance sheet at their fair value. Unrealized gain positions are recorded as other current assets and unrealized loss positions are recorded as other current liabilities. Changes in the fair values of the outstanding derivatives that are highly effective are recorded in other comprehensive income until net income is affected by the variability of the cash flows of the hedged transaction. Typically, hedge ineffectiveness could result when the amount of the Company’s hedge contracts exceed the Company’s forecasted or actual transactions for which the hedge contracts were designed to hedge. Once a hedge contract matures, the associated gain (loss) on the contract will remain in other comprehensive income (loss) until the underlying hedged transaction affects net income (loss), at which time the gain (loss) will be reclassified out of accumulated other comprehensive income (loss) and recorded to the expense line item being hedged. The Company only enters into derivative contracts in order to hedge foreign currency exposure, and these contracts do not exceed two years from inception. If the Company entered into a contract for speculative reasons or if the Company’s current hedge position becomes ineffective, changes in the fair values of the derivatives would be recognized in earnings in the current period.

The Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those

derivatives are expected to remain highly effective in future periods. For the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014 and for the year ended December 31, ~~2013~~2014, the Company had no hedge ineffectiveness.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2015 and 2014,, the Company ~~entered~~did not enter into 18any new foreign currency forward ~~contracts with a notional value of $11.6 million. During the~~ ~~three~~ ~~and nine months ended 2013, the Company entered into 21 and 33 new foreign currency forward contracts with total notional contractual values of $10.3 million and $12.8 million.~~contracts.

A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at ~~September 30, 2014~~March 31, 2015 is as follows (in thousands):


	Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value					Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value
Type of Cash Flow Hedge				Asset		(Liability)						Asset		(Liability)
Foreign currency forward exchange contracts	$	17,372	Other accrued liabilities	$	—	$	(13	)	$	11,321	Other current assets	$	56	$	—

A summary of the aggregate contractual or notional amounts, balance sheet location and estimated fair values of derivative financial instruments designated as cash flow hedges at December 31, ~~2013~~2014 is as follows (in thousands):


	Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value					Contractual/ Notional Amount		Condensed Consolidated Balance Sheet Classification	Estimated Fair Value
Type of Cash Flow Hedge				Asset		(Liability)						Asset		(Liability)
Foreign currency forward exchange contracts	$	15,328	Other accrued liabilities	$	—	$	(169	)	$	14,193	Other accrued liabilities	$	—	$	(83	)

There were no ineffective hedges for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013.~~December 31, 2014. The following table summarizes the effect of derivative instruments on the consolidated financial statements as a loss as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2014		2013		2014		2013		2015			2014
Cost of sales	$	25	$	169	$	138	$	347	$	(4	)	$	86
Research and development	41		233		228		335		(6		)	142
Selling, general and administrative	21		43		118		119		1			71
Total	$	87	$	445	$	484	$	801	$	(9	)	$	299

The following is a summary of changes to comprehensive income (loss) associated with the Company's hedging activities (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014			2013			2014			2013			2015			2014
Beginning balance of unrealized loss on forward exchange contracts	$	(268	)	$	(1,413	)	$	(875	)	$	(765	)	$	(752	)	$	(875	)
Other comprehensive loss before reclassifications	(542		)	(678		)	(332		)	(1,682		)	127			216
Amounts reclassified from other comprehensive income	87			445			484			801			(9		)	299
Other comprehensive income (loss)	(455		)	(233		)	152			(881		)
Other comprehensive income													118			515
Ending balance of unrealized loss on forward exchange contracts	$	(723	)	$	(1,646	)	$	(723	)	$	(1,646	)	$	(634	)	$	(360	)

Over the next twelve months, the Company expects to reclassify into earnings a loss of approximately ~~$0.3~~$0.4 million currently recorded as other comprehensive income, as a result of the maturity of currently held forward exchange contracts.

The bank counterparties in these contracts expose the Company to credit-related losses in the event of their nonperformance. However, to mitigate that risk, the Company only contracts with counterparties who meet its minimum requirements regarding counterparty credit worthiness. In addition, the Company monitors credit ratings, credit spreads and potential downgrades prior to entering into any new hedging contracts.

Note 13 — Segment Information

During the first quarter of 2015, the Company implemented strategic and organizational changes that resulted in two segments: Software-Systems and Embedded Products and Hardware Services. The Company's Chief ~~Operating Decision Maker, Radisys' Chief~~ Executive Officer, or chief operating decision maker, regularly reviews discrete financial information for purposes of allocating resources and assessing the ~~Company's results~~performance of operations on a consolidated level, and executive staff is structured by function rather than by product category. Additionally, key resources, decisions, and assessment of performance are also analyzed on a company-wide level. Due to these factors, the Company is one operating segment.each segment:

~~Generally,~~Software-Systems. Software-Systems products are comprised of three product families: FlowEngine, MediaEngine and CellEngine.

Embedded Products and Hardware Services. These hardware based products provide platforms to control and move data in the ~~Company's customers~~core of the telecom network.

Cost of sales, research and development and selling, general and administrative expenses are allocated to Software-Systems and Embedded Products and Hardware Services. Expenses, reversals, gains and losses not ~~the end-users~~allocated to Software-Systems or Embedded Product and Hardware Services include amortization of ~~its products.~~ acquired intangible assets, stock-based compensation, restructuring and other charges, and other one-time non-recurring events. These items are allocated to corporate and other.

The Company ~~ultimately derives revenues from~~recorded the following ~~four product groups~~revenues, gross margin and income (loss) from operations by operating segment for the three months ended March 31, 2015 and 2014 (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
ATCA Platforms $ 20,736
$ 27,744
$ 66,894
$ 94,284
Software-Solutions 11,620
9,563
29,861
33,824
COM Express and Rackmount Server 15,923
13,380
39,840
42,225
Other Products 2,526
3,422
7,973
17,392
Total revenues $ 50,805
$ 54,109
$ 144,568
$ 187,725



	Three Months Ended
	March 31,
	2015		2014
Revenue
Software-Systems	$	9,689	$	7,841
Embedded Products and Hardware Services	38,998		35,958
Total revenues	$	48,687	$	43,799



	Three Months Ended
	March 31,
	2015			2014
Gross margin
Software-Systems	$	5,328		$	5,198
Embedded Products and Hardware Services	9,344			8,135
Corporate and other	(2,046		)	(2,185		)
Total gross margin	$	12,626		$	11,148



	Three Months Ended
	March 31,
	2015			2014
Income (loss) from operations
Software-Systems	$	(2,902	)	$	(2,864	)
Embedded Products and Hardware Services	3,957			(828		)
Corporate and other	(8,048		)	(5,772		)
Total loss from operations	$	(6,993	)	$	(9,464	)

Assets are not allocated to segments for internal reporting presentations. A portion of depreciation is allocated to the respective segment. It is impracticable for the Company to separately identify the amount of depreciation by segment that is included in the measure of segment profit or loss.

Revenues by geographic area were as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2014		2013		2014		2013		2015		2014
United States	$	17,476	$	21,205	$	52,207	$	77,333	$	21,172	$	15,706
Other North America	254		770		1,957		1,856		45		1,124
China	7,172		8,890		22,152		23,681		11,693		7,027
Japan	3,339		6,751		13,221		25,207		2,383		7,208
Other Asia Pacific	10,792		3,616		19,025		16,323		3,109		3,260
Asia Pacific ("APAC")	21,303		19,257		54,398		65,211		17,185		17,495
Netherlands	7,861		5,416		19,030		14,377		4,362		5,039
Other EMEA	3,911		7,461		16,976		28,948		5,923		4,435
Europe, the Middle East and Africa (“EMEA”)	11,772		12,877		36,006		43,325		10,285		9,474
Foreign Countries	33,329		32,904		92,361		110,392		27,515		28,093
Total	$	50,805	$	54,109	$	144,568	$	187,725	$	48,687	$	43,799

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Long-lived assets by geographic area are as follows (in thousands):


	September 30, 2014		December 31, 2013		March 31, 2015		December 31, 2014
Property and equipment, net
United States	$	4,899	$	7,421	$	4,107	$	4,558
Other North America	733		942		542		672
China	2,685		3,396		2,217		2,427
Other APAC	36		185		8		11
Total APAC	2,721		3,581		2,225		2,438
India	2,241		2,893		1,915		2,115
Other EMEA	3		17		2		3
Total EMEA	2,244		2,910		1,917		2,118
Foreign Countries	5,698		7,433		4,684		5,228
Total property and equipment, net	$	10,597	$	14,854	$	8,791	$	9,786

Intangible assets, net
United States	$	46,529	$	56,474	$	39,970	$	43,224
Other North America	—		36
Total intangible assets, net	$	46,529	$	56,510	$	39,970	$	43,224

The following customers accounted for more than 10% of the Company's total revenues:

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
Nokia Solutions and Networks 13.0 % 20.7 % 16.5 % 19.5 %
Philips Medical 18.7 % 11.6 % 16.4 % N/A
An Indian Carrier 10.6 % N/A
N/A
N/A
NEC N/A
N/A
N/A
10.4 %



The following customers accounted for more than 10% of the Company's total revenues:
	Three Months Ended
	March 31,
	2015		2014
Nokia Networks	26.2	%	18.0	%
Philips Healthcare	11.9	%	14.2	%
NEC	N/A		13.7	%

The following customers accounted for more than 10% of accounts receivable:
September 30,
2014 December 31, 2013
Nokia Solutions and Networks 10.0 % 20.7 %
Philips Medical 18.8 % N/A
An Indian Carrier 14.8 % N/A



The following customers accounted for more than 10% of accounts receivable:
	March 31, 2015		December 31, 2014
Nokia Networks	28.4	%	18.5	%
Philips Healthcare	12.5	%	13.9	%

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

You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and the related notes included in this Report on Form 10-Q and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2013.~~2014. Unless required by context, or as otherwise indicated, “we,” “us,” “our” and similar terms, as well as references to the “Company” and “Radisys” refer to Radisys Corporation and include all of our consolidated subsidiaries.

Overview

Radisys Corporation (NASDAQ: RSYS) ~~is a provider~~, the services acceleration company, helps communications and content providers as well as their strategic partners create new revenue streams and drive cost out of their services delivery infrastructure. Radisys’ application aware traffic distribution platforms, real-time media processing engines and wireless ~~infrastructure solutions~~access technologies enable service providers to ~~the telecom market. Our Media Resource Function ("MRF"), T-Series platform~~maximize, virtualize and monetize their networks. These products, in addition to our Embedded Products and ~~Trillium software, coupled with an~~ expert professional services organization, ~~enable~~help accelerate our ~~customers~~customer's ability to bring high-value ~~products and services~~telecom applications to ~~the communications~~ market faster and with lower investment and risk. ~~By leveraging our communications expertise, we are also able to deliver~~Beginning in early 2015, our products and services are broken into two operating segments: Software-Systems and Embedded Products and Hardware Services.

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~~capabilities into adjacent markets such as aerospace and defense. These products are targeted throughout~~

Software-Systems is comprised of the ~~telecommunication network from the Radio Access Network ("RAN") to the Evolved Packet Core ("EPC") to the IP Multimedia Subsystem ("IMS") and include the following:~~following product families:

◦

MediaEngine products are designed into the IP Multimedia Subsystem ("IMS") core of telecom networks and provide the necessary media processing capabilities required for applications such as audio conferencing, Voice over Long-Term Evolution ("VoLTE"), Voice over WiFi (“VoWifi”), Rich Communications Services (“RCS”) and Web Real-Time Communication ("WebRTC"). We sell a complete high density system, the MediaEngine MPX-12000, as well as a virtualized software-only vMRF when our customers choose other lower-density processing platforms. As carriers consolidate network capacity from older (3G and 2G) architectures onto new LTE architectures, they will deploy VoLTE applications. Our MediaEngine provides the needed media processing capability that delivers audio, video or other multimedia modalities over LTE wireless networks.

MRF media processing products, which can be purchased either as a complete system based on our T-Series ATCA platform (MPX-12000) or as virtualized Software MRF when our customers choose to leverage other processing platforms, are designed into the IMS core of telecom networks and provide the necessary media processing capabilities required as service providers deploy applications such as audio conferencing, Voice over Long-Term Evolution ("VoLTE"), Voice over WiFi (“VoWifi”), Rich Communications Services (“RCS”) and Web Real-Time Communication ("WebRTC") based services including audio and video conferencing;

◦

FlowEngine, our recently announced product-line targeting the communication and content provider traffic management market, is a family of products designed to classify and intelligently distribute session data flows to appropriate network processing resources in new virtualized network functions ("NFV") based architectures. FlowEngine products enable communication and content providers to efficiently transition towards NFV architectures by integrating a targeted subset of edge routing, data center switching, and load balancing functionality along with software-defined networking ("SDN") control. Our purpose-built appliances include only the specific functionality from these stand-alone devices needed to meet NFV architectures which will enable our customers to reduce significantly the investment necessary to efficiently process data flows in virtualized communication environments.

◦

CellEngine software, which includes our TotalENodeB LTE and Femtotality 3G software products, is targeted at providing the communication linkage between wireless end user devices and small cell base stations that mobile carriers are deploying to optimize wireless network spectrum utilization and coverage. Our focus is providing software applications which enable small 3G and LTE operator-controlled, low-power wireless base stations (known as small cells, femtocells, enterprise femtocells and picocells) that enable improved cellular coverage and capacity for homes and enterprises as well as metropolitan and rural areas. Additionally, we leverage our CellEngine technology to enable small cell applications to capture share in adjacent markets such as aerospace and defense as well as manufacturing and test environments.


◦	Also included in this segment is our Professional Service organization which is staffed with telecommunications experts who are available to assist our customers as they develop their own unique telecommunications products and applications. Our strategy is to enable the efficient and cost effective adoption of our Software-Systems products as customers integrate them into complete systems.

~~T-Series ATCA~~Embedded Products and ~~Network Appliance~~Hardware Services are predominantly hardware based products ~~provide~~that enable the ~~platforms necessary to~~ control and ~~move~~movement of data in ~~the core of the~~both 3G and LTE telecom ~~network enabling~~networks. Our products enable network elements ~~within the EPC as well as providing a platform~~ for applications such as Deep Packet Inspection ("DPI"), policy management and ~~policy management. When these products are combined with our~~intelligent gateways (security, femto and LTE gateways). Our professional service organization of network experts ~~we believe~~accelerates our ~~technology enables our customers to bring to market solutions such as intelligent gateways (security, femto, and LTE gateways), intelligent switches and load balancers, at a cost and~~customers' time to market ~~advantage when compared to internally developed alternatives;~~on these revenue generating assets.

Trillium software is the protocol foundation for a nearly complete optimized application that enables the communication linkage between end user wireless devices and the small cell base stations mobile carriers utilize to optimize radio access spectrum utilization and coverage in both the 3G and LTE networks. Our focus is in providing the software to enable 3G and LTE operator-controlled and low-power wireless base stations that provide improved cellular coverage, capacity and applications for homes and enterprises as well as metropolitan and rural public places (known as small cells, femtocells, enterprise femtocells, picocells and metrocells). We leverage our Trillium technology to enable small cell applications in adjacent markets such as aerospace and defense as well as manufacturing and test.

~~Third~~First Quarter ~~2014~~2015 Summary

~~Revenues~~With cost reduction initiatives and personnel changes largely complete and our new strategy defined and implemented, Radisys was able to deliver revenue growth of over 10% for the three ~~and nine~~ months ended September 30, 2014 declined primarily as a result of prior business decisions to exit certain product lines, certain products reaching end of life and an overall softening in the market demand for our audio conferencing products within our Software-Solutions product line. Additionally, continued delays in the deployment of next generation wireless network elements, specifically VoLTE and small cell base stations, combined with later than expected wireless spectrum release in certain geographies, have adversely affected our ability to offset the aforementioned revenue declines. We have seen these trends stabilize as represented by our flattening ATCA product group revenue of $20.7 million, $23.0 million, $23.2 million and $22.3 million over the last four quarters sequentially. Additionally, despite these challenges, third quarter 2014 revenue increased $0.8 million sequentiallyMarch 31, 2015 from the ~~second quarter~~same period in 2014 ~~from $50.0 million to $50.8 million and net loss per share decreased sequentially from $0.23 to $0.12 per share. This was primarily a result of a $1.2 million increase~~driven by 23.6% year over year growth in our ~~Software-Solutions product group revenues that resulted~~Software-Systems segment and strong performance from our Embedded Products and Hardware Services segment. Coupled with reductions in our overall expense structure resulting from the ~~recognition of~~ previously ~~deferred MRF product shipments in support of VoLTE deployments by a large Asian carrier. Additionally, COM Express~~announced restructuring actions and Rackmount Server product group revenues increased $2.4 million as the result of increased shipments of end of life products. We expect fourth quarter revenue to be between $47 million and $53 million and net loss per share to range from $0.13 to $0.02.

~~Management's~~management's continued focus on driving efficiencies ~~has resulted~~throughout the organization. We experienced a meaningful increase in ~~meaningful~~our operating ~~expense reductions, with~~results. Specifically, combined R&D and SG&A expense reductions ~~of $5.8~~were $3.8 million, or ~~26.2%~~21.0%, ~~and $14.6 million, or 22.0%, for~~in the ~~three and nine months ended September 30, 2014 when~~current quarter compared to the same ~~periods~~period in ~~2013. We expect R&D~~2014. Additionally, during the quarter, we retired $18.0 million of convertible debt and ~~SG&A expense to approximate $16.0~~generated $3.6 million in ~~the fourth quarter 2014. In addition, during the third quarter~~cash from operations, net of ~~2014 we substantially completed the transition to our new contract manufacturing partner~~$1.6 million in ~~Shenzhen. This transition has eliminated site redundancies and, when combined~~payments associated with reduced product cost, is expected to result in approximately $6 million of annualized gross profit savings as we exit 2014. Additionally, this transition has enabled us to reduce our inventory levels on September 30, 2014 to $17.0 million from $25.4 million on December 31, 2013.employee severances.

The following is a summary-level comparison of the three months ended ~~September 30, 2014~~March 31, 2015 and ~~2013:~~2014:

Revenues ~~decreased $3.3~~increased $4.9 million to ~~$50.8~~$48.7 million for the three months ended ~~September 30, 2014~~March 31, 2015 from ~~$54.1~~$43.8 million for the three months ended ~~September 30, 2013. Software-Solutions products~~March 31, 2014. Software-Systems revenue increased ~~$2.1~~$1.8 million ~~primarily~~ due to the recognition of previously deferred MRF shipments in support of a customer's VoLTE application. Specifically, we experienced revenue growth of $5.5 million in our targeted VoLTE MRF products primarily as a result of shipments to a large Asian carrier. This increase was offset by an ~~$2.3 million decrease due primarily to~~ audio

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conferencing deployment and ~~other non-VoLTE application market softness within the Software-Solutions products group. COM Express~~recognition of previously deferred lab systems revenues in our new FlowEngine product family as we achieved customer acceptance of these initial units. Embedded Products and ~~Rackmount Server product group~~Hardware Services revenue increased ~~$2.5~~$3.0 million, ~~and~~which was primarily ~~resulted from last time buy activity as certain products in this product group reached end~~the result of ~~life. Our ATCA product group revenue declined $7.0 million primarily due to 2013~~a top five customer deploying legacy network ~~deployments that were not repeated in the current year.~~equipment for required field replacements.

Our gross margin increased ~~270~~40 basis points ("bps") in the three months ended ~~September 30, 2014~~March 31, 2015 to ~~28.9%~~25.9% from ~~26.2% of revenue~~25.5% in the three months ended ~~September 30, 2013. Increased revenues~~March 31, 2014. The increase is primarily the result of higher Software-Systems revenue due to favorable sales conditions, which contributed to an increase in gross margin of approximately 120 basis points. Additionally, the application of a credit from our ~~higher margin Software-Solutions products accounted for approximately 210 bps~~contract manufacturer contributed an additional 120 basis points to an increase in gross margin. These gains were offset by 280 basis point reduction that was the result of ~~the increase. Additionally,~~ a $1.4 million claim against a vendor on faulty components ~~reduced third quarter 2014 cost of sales, resulting~~ in ~~a 110 bps increase. Finally,~~ the ~~overall decline~~prior year that was not repeated in ~~revenue and its negative impact on fixed cost absorption resulted in a 150 bps decrease.~~2015.

R&D expense decreased $~~3.8~~1.7 million to $~~7.7~~6.7 million for the three months ended ~~September 30, 2014~~March 31, 2015 from $~~11.5~~8.4 million for the three months ended ~~September 30, 2013~~March 31, 2014. The expense decrease is attributable to our ~~second half 2013~~ restructuring efforts including the ~~consolidation~~closure of our ~~Shanghai~~Penang site in the second half of 2014 and ~~Penang development sites~~headcount reduction in our ~~Shenzhen development that enabled~~Embedded Products and Hardware Services segment, which took place in the ~~reduction of redundant salary and temporary help.~~first quarter 2015.

SG&A expense decreased $~~2.0~~2.1 million to $~~8.6~~7.5 million for the three months ended ~~September 30, 2014~~March 31, 2015 from $~~10.5~~9.6 million for the three months ended ~~September 30, 2013~~March 31, 2014. This decrease was primarily the result of payroll, commissions, and facility expense reductions that resulted from our restructuring activities and closures of our ~~Shanghai,~~ Penang development site tied to reductions in our Embedded Products and ~~Dublin sites.~~Hardware Services segment.

Cash and cash equivalents on ~~September 30, 2014~~March 31, 2015 ~~increased~~decreased $~~6.4~~15.4 million to $~~31.9~~15.8 million from $~~25.5~~31.2 million on December 31, ~~2013. We raised $20.6 million in cash as a~~2014. The decrease was the result of ~~a follow-on public offering~~repaying $18.0 of ~~our common stock during the first quarter~~convertible notes and capital expenditures of ~~2014. This increase~~$0.6 million. The decrease was offset by ~~the consumption~~cash generation of ~~$7.0~~$3.6 million ~~of cash used in~~ from operations, ~~(including $3.1~~which included $1.6 million in cash restructuring ~~payments) and~~ ~~$1.9 million~~ ~~of capital expenditures. Further, during the second quarter of 2014 we repaid $5.0 million in debt that was previously outstanding under our Silicon Valley Bank line of credit.~~payments.

Comparison of the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, ~~2014~~2015 and ~~2013~~2014

Results of Operations

The following table sets forth certain operating data as a percentage of revenues for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2014~~2015 and ~~2013~~2014:


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2014		2013		2014		2013		2015		2014
Revenues	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales:
Cost of sales	67.0		70.0		69.6		68.2		70.0		69.9
Amortization of purchased technology	4.0		3.8		4.2		3.4		4.1		4.7
Total cost of sales	71.0		73.8		73.8		71.6		74.1		74.5
Gross margin	29.0		26.2		26.2		28.4		25.9		25.5
Research and development	15.1		21.2		16.9		18.7		13.8		19.2
Selling, general, and administrative	16.8		19.4		18.7		16.6		15.4		21.9
Intangible asset amortization	2.5		2.5		2.5		2.0		2.6		3.0
Restructuring and other charges, net	2.6		5.3		2.4		2.2		8.5		3.0
Loss from operations	(8.0	)	(22.2	)	(14.3	)	(11.1	)	(14.4	)	(21.6	)
Interest expense	(0.6	)	(0.6	)	(0.7	)	(0.5	)	(0.4	)	(0.7	)
Other income, net	0.9		0.4		0.5		0.3		0.8		0.4
Loss before income tax expense	(7.7	)	(22.4	)	(14.5	)	(11.3	)	(14.0	)	(21.9	)
Income tax expense	1.0		1.1		1.4		1.2		0.5		1.9
Net loss	(8.7	)%	(23.5	)%	(15.9	)%	(12.5	)%	(14.5	)%	(23.8	)%

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Revenues

The following table sets forth ~~our~~operating segment revenues ~~by product group for the~~ ~~three~~ ~~and nine months ended~~ ~~September 30~~, ~~2014~~ ~~and~~ ~~2013~~ ~~(in thousands):~~

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 Change 2014 2013 Change
ATCA Platforms $ 20,736
$ 27,744
(25.3 )% $ 66,894
$ 94,284
(29.1 )%
Software-Solutions 11,620
9,563
21.5
29,861
33,824
(11.7 )
COM Express and Rackmount Server 15,923
13,380
19.0
39,840
42,225
(5.6 )
Other Products 2,526
3,422
(26.2 ) 7,973
17,392
(54.2 )
Total revenues $ 50,805
$ 54,109
(6.1 )% $ 144,568
$ 187,725
(23.0 )%

~~Revenues in the ATCA product group decreased~~ ~~$7.0 million~~ for the three months ended ~~September 30,~~ March 31, 2015 and 2014 ~~from the comparable period in~~ ~~2013~~. This was the result of a $3.3 million decrease in revenues from a North American customer due to a network deployment that was completed in 2013. Additionally, we experienced a $3.2 million decrease in revenues from Japanese customers as a result of LTE deployments that were substantially completed in the second half of 2013.(in thousands):



	Three Months Ended
	March 31,
	2015		2014		Change
Revenue
Software-Systems	$	9,689	$	7,841	23.6	%
Embedded Products and Hardware Services	38,998		35,958		8.5	%
Total revenues	$	48,687	$	43,799	11.2	%

Software-Systems. Revenues in the ~~ATCA product group decreased $27.4~~Software-Systems segment increased $1.8 million ~~for the nine months ended~~ ~~September 30, 2014~~ ~~from the comparable period in~~ ~~2013~~. This was the result of a $13.7 million decrease in revenues from North American customers due to fewer current year network deployments that were substantially completed in the first half of 2013. Additionally, Asia Pacific revenues decreased $12.6 million due to LTE deployments in Japan that were substantially completed in the second half of 2013.

~~Revenues in the Software-Solutions product group increased~~ ~~$2.1 million~~ for the three months ended ~~September 30, 2014~~March 31, 2015 from the comparable period in ~~2013~~2014 ~~due to~~, which was the ~~recognition~~result of an audio conferencing deployment by a top 5 customer. Additionally, we recognized $0.3 million in previously deferred ~~MRF product shipments~~revenue associated with ~~VoLTE deployments by a large Asian carrier.~~lab systems within our FlowEngine product line upon customer acceptance.

~~Revenues in the Software-Solutions product group decreased $4.0 million for the nine months ended~~Embedded Products and Hardware Services. ~~September 30, 2014~~ ~~from the comparable period in~~ ~~2013~~. We experienced revenue growth of $7.2 million in our targeted VoLTE MRF products primarily as a result of shipments to a large Asian carrier. This increase was offset by an $8.8 million decrease due primarily to audio conferencing and other non-VoLTE application market softness during the first three quarters of 2014 when compared to the same time period in 2013. Additionally, Trillium revenues decreased by $1.7 million primarily due to decreases in license revenue as 4G customers are now in network deployment phases, which, when complete, is expected to drive future Trillium royalty revenue.

Revenues in the ~~COM Express~~Embedded Products and ~~Rackmount Server~~Hardware Services product group increased ~~$2.5~~$3.0 million for the three months ended ~~September 30, 2014~~March 31, 2015 from the comparable period in ~~2013~~2014 ~~as the result~~. An increase of ~~a $3.2~~$3.7 million ~~increase~~ in sales to a top five customer ~~due primarily to last time buy activity. This increase~~deploying legacy network equipment for required field replacements was partially offset by a net decrease of ~~$0.7~~$1.1 million ~~from other customers as a result of~~in sales in our ~~strategic decision to manage for cash the value-line of our COM Express modules.~~

~~Revenues in the~~ COM Express and Rackmount Server product ~~group decreased $2.4 million for the nine months ended~~ ~~September 30, 2014~~family resulting from ~~the comparable period in~~ ~~2013~~ as the result of our strategic decision to manage for cash the value-line of our COM Express modules. The decline was offset by a $7.4 million increase in sales to a top five customer primarily as a result of last time buy activities.

~~Revenues in the Other Products product group decreased~~ ~~$0.9 million~~ ~~and $9.4 million for the~~ ~~three~~ ~~and nine months ended~~ ~~September 30, 2014~~ ~~from the comparable periods in~~ ~~2013. The decline in revenues was expected by management as these hardware-centric products trend towards~~ end of life ~~and our largest customer continues to transition to next-generation network elements.~~product sales.

Revenue by Geography

The following tables outline overall revenue dollars and the percentage of revenues, by geographic region, for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014 (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014		2013		Change		2014		2013		Change		2015		2014		Change
North America	$	17,730	$	21,975	(19.3	)%	$	54,164	$	79,189	(31.6	)%	$	21,217	$	16,830	26.1	%
Asia Pacific	21,303		19,257		10.6		54,398		65,211		(16.6	)	17,185		17,495		(1.8	)
Europe, the Middle East and Africa ("EMEA")	11,772		12,877		(8.6	)	36,006		43,325		(16.9	)	10,285		9,474		8.6
Total	$	50,805	$	54,109	(6.1	)%	$	144,568	$	187,725	(23.0	)%	$	48,687	$	43,799	11.2	%


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2014		2013		2014		2013		2015		2014
North America	34.9	%	40.6	%	37.5	%	42.2	%	43.6	%	38.5	%
Asia Pacific	41.9		35.6		37.6		34.7		35.3		39.9
EMEA	23.2		23.8		24.9		23.1		21.1		21.6
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

North America. Revenues from the North America region ~~decreased~~increased $~~4.2~~4.4 million ~~and $25.0 million~~ for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013~~2014. ~~Revenues from our~~This was driven by a $2.6 million last-time buy of legacy ATCA products to one customer and a $1.0 million increase in ATCA product ~~group decreased $2.1 million and $13.7 due to inconsistent order patterns of~~revenue associated with a ~~top North American customer who was acquiring hardware in 2013 to support a project to be deployed in 2014. COM Express and Rackmount Server~~customer's VoLTE deployments. Additionally, revenue associated with our FlowEngine product ~~group sales decreased $0.6 million and $5.8~~line grew $0.7 million as the result of ~~our strategic decision~~sales to manage for cash the value-line of our COM Express modules. In addition, our Software-Solutions product group sales decreased $2.1 million and $5.4 million due primarily to audio conferencing and other non-VoLTE application market softness during the first three quarters of 2014 when compared to the same time period in 2013.two North American customers.

Asia Pacific. Revenues from the Asia Pacific region ~~increased~~decreased $~~2.0~~0.3 million for the three months ended ~~September 30, 2014~~March 31, 2015 from the comparable period in ~~2013~~ ~~and decreased $10.8 million for the nine months ended~~ ~~September 30,~~ 2014 ~~from the comparable period in~~ ~~2013~~. ~~Revenues relating~~Shipments to ~~a Japanese LTE~~major customers in this region have been consistent quarter over quarter given the state of deployment ~~decreased $3.2 million and $11.0 million for the~~ ~~three~~ ~~and nine months ended~~ ~~September 30, 2014~~ ~~as these projects were substantially completed by the end of 2013.~~activity.

EMEA. Revenues from the EMEA region ~~decreased~~increased $~~1.1~~0.8 million ~~and $7.3 million~~ for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013~~2014 ~~due to $0.6 million~~. The increase was the result of a legacy audio conferencing deployment by a top 5 customer and ~~$8.4 million decreases~~offset by decreased sales of our Embedded Products and Hardware Services products resulting from ~~our Other Products product group as these hardware-centric products trend towards~~2014 end of life ~~and our largest customer continues to transition to next-generation network elements. This decline was partially offset by a $4.9 million increase~~product announcements which resulted in ~~sales~~final demand for ~~the~~ ~~three~~ ~~and nine months ended~~ ~~September 30, 2014~~ ~~from the comparable periods in~~ ~~2013~~ ~~to a top five customer primarily as a result of last time buys.~~those products.

We currently expect continued fluctuations in the revenue contribution from each geographic region. Additionally, we expect non-U.S. revenues to remain a significant portion of our revenues.

Gross Margin

The following table ~~summarizes our cost of sales and~~sets forth operating segment gross ~~margin for the~~ ~~three~~ ~~and nine months ended~~ ~~September 30, 2014~~ ~~and~~ ~~2013~~ ~~(in thousands):~~

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 Change 2014 2013 Change
Cost of Sales $ 34,052
$ 37,874
(10.1 )% $ 100,551
$ 127,936
(21.4 )%
Amortization of Purchased Technology 2,056
2,069
(0.6 ) 6,165
6,504
(5.2 )
Total Cost of Sales $ 36,108
$ 39,943
(9.6 ) $ 106,716
$ 134,440
(20.6 )
Gross Margin 28.9 % 26.2 % 10.3 % 26.2 % 28.4 % (7.7 )%

~~Gross margin as a percentage of revenues increased~~ ~~270~~ ~~bps~~margins for the three months ended ~~September 30,~~ March 31, 2015 and 2014 (in thousands):



	Three Months Ended
	March 31,
	2015			2014			Change
Gross margin
Software-Systems	$	5,328		$	5,198		2.5	%
Embedded Products and Hardware Services	9,344			8,135			14.9
Corporate and other	(2,046		)	(2,185		)	(6.4	)
Total gross margin	$	12,626		$	11,148		13.3	%



	Three Months Ended
	March 31,
	2015		2014		Change
Gross margin
Software-Systems	55.0	%	66.3	%	(17.0	)%
Embedded Products and Hardware Services	24.0		22.6		6.2
Corporate and other	—		—		—
Total gross margin	25.9	%	25.5	%	1.6	%

Software-Systems. Gross margin decreased 1,130 basis points to 55.0% for the three months ended March 31, 2015 from 66.3% in the comparable period of 2014. We experienced an increase of approximately 500 basis points due to product mix and improvement in ~~2013. Increased revenues of higher margin Software-Solutions products accounted for approximately 210 bps of the increase. Additionally,~~margins in our professional service organization which was offset by a decrease attributed to a $1.4 million credit from a vendor claim on faulty components ~~reduced third~~that was realized in the first quarter 2014 and not repeated in 2015.

Embedded Products and Hardware Services. Gross margin increased 134 basis points to 24.0% for the three months ended March 31, 2015 from 22.6% in the comparable period of 2014. A decrease of 15 basis points due to product mix resulting from an increase of $3.8 million from our legacy product revenues and offset by an increase of approximately 150 basis points resulting from the utilization of a credit from our contract manufacturer that was applied to repair and service work that otherwise would be a component of cost of sales.

Corporate and other. Gross margin increased $0.1 million to a deficit of $2.0 million from a deficit of $2.2 million for the three months ended March 31, 2015 from the comparable period in 2014. Items in Corporate and other cost of sales ~~resulting in a 110 bps increase. Finally, the overall decline in revenue~~include amortization of intangible assets, stock compensation and ~~its negative impact on fixed cost absorption resulted in a 150 bps decrease.~~restructuring and other expenses which are not allocated to our operating segments.

~~Gross margin as a percentage of revenues decreased 220 bps for the nine months ended~~ ~~September 30, 2014~~ ~~from the comparable periods in~~ ~~2013~~. Decreased revenues of higher margin Software-Solutions products accounted for approximately 150 bps of the change. Additionally, the overall decline in revenue and its negative impact on fixed cost absorption accounted for 190 bps of the decrease. These decreases were offset by a $2.0 million vendor claim on faulty components, reducing cost of sales and resulting in a 90 bps increase.

Operating Expenses

The following table summarizes our operating expenses for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014 (in thousands):


	Three Months Ended			Nine Months Ended			Three Months Ended
	September 30,			September 30,			March 31,
	2014	2013	Change	2014	2013	Change	2015		2014		Change
Research and development	$7,657	$11,456	(33.2)%	$24,484	$35,011	(30.1)%	$	6,724	$	8,419	(20.1)%
Selling, general and administrative	8,554	10,522	(18.7)	27,103	31,145	(13.0)	7,500		9,596		(21.8)
Intangible asset amortization	1,260	1,303	(3.3)	3,817	3,911	(2.4)	1,260		1,297		(2.9)
Restructuring and other charges, net	1,329	2,881	(53.9)	3,444	4,037	(14.7)	4,135		1,300		218.1
Total	$18,800	$26,162		$58,848	$74,104		$	19,619	$	20,612	(4.8)%

Research and Development

R&D expenses consist primarily of personnel costs, product development costs, and related equipment expenses. R&D expenses decreased $~~3.8~~1.7 million ~~and $10.5 million~~ for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013~~2014. The expense ~~decrease~~reduction is attributable to our restructuring efforts tied to our Embedded Products and Hardware Services segment, which included the closure of our Penang development site in the second half of ~~2013, which included~~2014 and further personnel reductions in the ~~consolidation~~first quarter of ~~our Shanghai and Penang development sites in our Shenzhen development that~~2015. This enabled the reduction of ~~redundant~~ salary and temporary help expense ~~of $2.1~~by $1.4 million and ~~$6.1~~facility related costs by $0.3 million for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013.~~2014. R&D headcount decreased year over year from 408 at ~~September 30,~~March 31, 2014 ~~from 439~~ to ~~417. Additionally facility rent and overhead expenses decreased $0.2 million and $0.4 million from the comparable periods in 2013.~~360 at March 31, 2015.

Selling, General, and Administrative

SG&A expenses consist primarily of salary, commissions, bonuses and benefits for sales, marketing and administrative personnel, as well as professional service providers and the costs of other general corporate activities. SG&A expenses decreased $~~2.0~~2.1 million ~~and $4.0 million~~ for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013~~2014. Restructuring efforts in 2014 and the ~~second half~~first quarter of ~~2013~~2015 associated with our Embedded Products and Hardware Service segment drove headcount reductions and contributed to a decrease in employee salary related expenses of $1.2 million, commission expense of ~~$1.0~~$0.3 million and ~~$2.7 million for the three and nine months ended September 30, 2014 when compared to the same periods in 2013. SG&A headcount on September 30, 2014~~facility related costs of $0.2 million. Further, depreciation of fixed assets decreased year over year from to 191 to 168. Additionally, commission expense decreased $0.1 million and $0.9 million for the three and nine months ended September 30, 2014 from the comparable periods in 2013 as a result of lower attainment of our revenue-based commission plan. Further, stock compensation decreased $0.5 million and $0.2 million for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013 primarily~~2014 as a result of ~~a decrease~~more disciplined capital spending in ~~our stock price~~2014 and ~~changes in objective attainment estimates, both~~the first quarter of ~~which resulted in lower long term incentive plan (“LTIP”) equity award expense in the current year as compared~~2015. SG&A headcount decreased from 170 at March 31, 2014 to ~~the prior year.~~124 at March 31, 2015.

Intangible Asset Amortization

Intangible asset amortization for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 was comparable with the same periods in ~~2013~~2014 due to routine amortization of acquired intangible assets. During the quarter ended ~~September 30, 2014~~March 31, 2015, we analyzed our long-lived assets for impairment and concluded there that there was ~~none.~~no indication of triggering events that may lead to an impairment evaluation.

Restructuring and Other Charges, Net

Restructuring and other charges, net includes expenses associated with restructuring activities and other non-recurring gains and losses which are not indicative of our ongoing business operations. We evaluate the adequacy of the accrued restructuring charges on a quarterly basis. As a result, we record reversals to the accrued restructuring in the period in which we determine that expected restructuring and other obligations are less than the amounts accrued.

The increase in restructuring and other charges, net for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013~~2014 is primarily due to restructuring actions associated with our ~~Shanghai and~~ Penang development site ~~closures.~~closures and our Embedded Products and Hardware Services segment.

Restructuring and other charges, net for the three months ended ~~September 30,~~March 31, 2015 include the following:

$4.0 million net expense relating to the severance of 130 employees primarily within Asia and North America. These actions were in connection with the restructuring of our Embedded Products and Hardware Services

segment's research and development and sales and general administrative functions and are presented net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs; and

$0.1 million legal expenses associated with non-operating strategic projects, which processes were concluded in the first quarter of 2015.

Restructuring and other charges for the three months ended March 31, 2014 include the following:

$~~0.3~~0.9 million net expense relating to the severance of employees in connection with the previously reported Penang development site closure, as well as severance for four additional employees, net of reductions resulting from changes in previously estimated amounts for employee severance and associated payroll costs; and

$0.4 million ~~legal expenses associated with non-operating strategic projects; and~~

~~$0.7 million integration-related~~ net expense principally associated with asset write-offs and personnel overlap resulting from resource ~~consolidation~~consolidations primarily associated with ~~our~~the Shanghai and Penang development site ~~closure.~~closures.

~~Restructuring and other charges for the~~ ~~three~~ ~~months ended~~ ~~September 30, 2013~~ ~~include the following:~~

~~$0.3 million integration-related net expense principally associated with asset write-offs and personnel overlap resulting from resource consolidation primarily associated with our Penang site closure;~~

~~$0.2 million gain resulting from the revision of prior sublease assumptions for a previously abandoned facility;~~

~~$0.2 million legal expenses associated with a non-operating strategic project;~~

$0.4 million gain due to the decrease in fair value of the Continuous Computing contingent consideration liability. We assessed the fair value of the contingent consideration liability on a quarterly basis, adjusting the liability to fair value based on a detailed analysis of all expected contingent consideration eligible revenues; and

~~$2.9 million net expense for severance and benefits associated with employee restructuring actions.~~

~~Restructuring and other charges, net for the nine months ended~~ ~~September 30, 2014~~ ~~include the following:~~

~~$1.7 million integrated-related net expense principally associated with asset write-offs and personnel overlap resulting from resource consolidation primarily associated with our Penang site closure;~~

~~$0.4 million legal expenses associated with non-operating strategic projects; and~~

~~$0.2 million gain due to the decrease in fair value of the Continuous Computing contingent consideration liability.~~

~~Restructuring and other charges, net for the nine months ended~~ ~~September 30, 2013~~ ~~include the following:~~

~~$2.9 million write off of our SEG purchased technology asset due to management's decision to abandon future development of this technology;~~

~~$1.5 million net gain from the sale of our OS-9 software assets;~~

~~$1.7 million gain due to the decrease in fair value of the Continuous Computing contingent consideration liability; and~~

~~$4.1 million net expense for the severance and benefits associated with employee restructuring actions.~~

Stock-based Compensation Expense

Included within cost of sales, R&D and SG&A are stock-based compensation expenses that consists of the amortization of unvested stock options, restricted stock units and employee stock purchase plan ("ESPP") expense. We incurred and recognized stock-based compensation expense as follows (in thousands):


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2014		2013		Change		2014		2013		Change		2015		2014		Change
Cost of sales	$	44	$	167	(73.7	)%	$	326	$	408	(20.1	)%	$	53	$	131	(59.5	)%
Research and development	131		361		(63.7	)	684		844		(19.0	)	132		229		(42.4	)
Selling, general and administrative	603		1,111		(45.7	)	2,349		2,509		(6.4	)	474		761		(37.7	)
Total	$	778	$	1,639	(52.5	)%	$	3,359	$	3,761	(10.7	)%	$	659	$	1,121	(41.2	)%

Stock-based compensation expense decreased ~~$0.9 million and $0.4~~$0.5 million for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015 from the comparable ~~periods~~period in ~~2013~~2014. Expense associated with LTIP performance stock awards decreased ~~$0.4 million and~~ $0.3 million primarily as a result of ~~a decrease~~the 2015 LTIP grant occurring in ~~the Company's stock price and changes~~March 2015 resulting in ~~objective attainment estimates both of which resulted in lower~~two months less LTIP ~~equity awards~~ expense ~~in the current year as~~recognition compared to the ~~prior year. Expense associated with restricted stock awards also decreased $0.2~~first quarter of 2014.

Income (Loss) from Operations

The following table summarizes our income (loss) from operations (in thousands):



	Three Months Ended
	March 31,
	2015			2014			Change
Income (loss) from operations
Software-Systems	$	(2,902	)	$	(2,864	)	(1.3	)%
Embedded Products and Hardware Services	3,957			(828		)	577.9	%
Corporate and other	(8,048		)	(5,772		)	(39.4	)%
Total income (loss) from operations	$	(6,993	)	$	(9,464	)	26.1	%

Software-Systems. Loss from operations was flat at $2.9 million for the three months ended March 31, 2015 and ~~$0.4~~March 31, 2014. The net impact of revenue growth of $1.8 million ~~due~~in the first quarter 2015 was offset by impact of a $1.4 million credit from a vendor claim on faulty components that was realized in the first quarter 2014 and not repeated in 2015 and further offset by increased investment in our FlowEngine product line.

Embedded Products and Hardware Services. Income (loss) from operations improved by $4.8 million to income of $4.0 million for the three months ended March 31, 2015 from a loss of $0.8 million in the comparable period in 2014. The increase

is attributable to a ~~reduction~~$2.6 million decrease in ~~restricted~~operating expenses primarily the result of previously disclosed restructuring actions and a $1.2 million improvement in gross margin resulting from our contract manufacturing transition and increased revenues.

Corporate and other. Items in Corporate and other loss from operations are amortization of intangible assets, stock ~~awards granted since~~compensation, restructuring and other, and impairment expenses. Loss from operations increased $2.3 million to $8.0 million for the ~~third quarter of 2012.~~three months ended March 31, 2015 from $5.8 million in the comparable period in 2014. The increase is attributable to a $2.8 million increase in restructuring and other expenses, which was offset by and a $0.5 million decrease in stock compensation expense.

Non-Operating Expenses

The following table summarizes our non-operating expenses (in thousands):


	Three Months Ended								Nine Months Ended								Three Months Ended
	September 30,								September 30,								March 31,
	2014			2013			Change		2014			2013			Change		2015			2014			Change
Interest expense	$	(317	)	$	(300	)	5.7	%	$	(949	)	$	(913	)	3.9	%	$	(217	)	$	(287	)	(24.4	)%
Interest income	15			1			1,400.0		25			24			4.2		47			9			422.2
Other income, net	448			199			125.1		774			549			41.0		350			170			105.9
Total	$	146		$	(100	)	(246.0	)%	$	(150	)	$	(340	)	(55.9	)%	$	180		$	(108	)	(266.7	)%

Interest Expense

Interest expense includes interest incurred on our convertible senior notes and our revolving line of credit. ~~The balance and~~We repaid the $18 million 2015 Convertible Notes on February 17, 2015 which resulted in lower interest ~~rate on~~expense in the ~~line of credit was $10.0 million and 4.0% at~~ ~~September 30, 2014~~three months ended March 31, 2015 compared to ~~$15 million and 2.18% at September 30, 2013.~~the same period in the prior year.

Other Income, Net

For the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015, other income increased $0.2 million from the comparable ~~periods~~period in ~~2013~~2014 primarily due to ~~a life insurance benefit of $0.4 million that was realized in~~favorable cash flow hedge exchange rates between the ~~third quarter of 2014. This income was offset primarily by unfavorable~~ Indian Rupee ~~exchange rates against~~and the US Dollar and favorable currency movements due to strengthening of the US Dollar.

Income Tax Provision

The following table summarizes our income tax provision (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 Change 2014 2013 Change
Income tax expense $ 512
$ 624
(17.9 )% $ 1,968
$ 2,230
(11.7 )%



	Three Months Ended
	March 31,
	2015		2014		Change
Income tax expense	$	240	$	862	(72.2	)%

We recorded tax expense of ~~$0.5 million~~ ~~and 2.0~~$0.2 million for the three ~~and nine~~ months ended ~~September 30, 2014~~March 31, 2015. Our effective tax rates for the three months ended ~~September 30, 2014~~March 31, 2015 and ~~2013~~2014 were ~~12.9%~~3.5% and ~~5.2%.~~9.0%, respectively. The effective tax rate fluctuation is mainly due to income tax rate differences among the jurisdictions in which pretax income (loss) is generated as well as the impact of the full valuation ~~allowances~~allowance against our U.S. ~~and Canadian~~ net deferred tax assets.

Liquidity and Capital Resources

The following table summarizes selected financial information as of the dates indicated (in thousands):


	September 30, 2014			December 31, 2013		September 30, 2013		March 31, 2015		December 31, 2014		March 31, 2014
Cash and cash equivalents	$	31,938		$	25,482	$	31,559	$	15,846	$	31,242	$	42,264
Working capital	24,444			26,920		36,199		21,175		23,240		25,958
Accounts receivable, net	43,860			41,359		42,496		41,716		43,845		37,547
Inventories, net	17,046		��	25,409		26,221		15,727		18,475		23,891
Accounts payable	31,559			35,081		36,619		25,385		33,679		32,245
Line of credit	10,000			15,000		15,000		10,000		10,000		15,000
2015 convertible senior notes	18,000			18,000		18,000		—		18,000		18,000

Cash Flows

As of ~~September 30, 2014~~March 31, 2015, the amount of cash held by our foreign subsidiaries was ~~$7.9~~$4.8 million. It is not our intent to permanently reinvest funds in certain of our foreign entities, and we expect to repatriate cash from these foreign entities on an ongoing basis in future periods. Repatriation of funds from these foreign entities is not expected to result in actual cash tax payments due to the utilization of previously generated operating losses ~~and credits~~ of our U.S. entity.

Cash and cash equivalents ~~increased~~decreased by $~~6.4~~15.4 million to $~~31.9~~15.8 million as of ~~September 30, 2014~~March 31, 2015 from $~~25.5~~31.2 million as of December 31, ~~2013~~2014. Activities impacting cash and cash equivalents were as follows (in thousands):


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2014			2013			2015			2014
Operating Activities
Net loss	$	(23,114	)	$	(23,389	)	(7,053		)	$	(10,434	)
Non-cash adjustments	22,330			21,741			5,821			9,140
Changes in operating assets and liabilities	(6,188		)	5,553			4,860			(1,910		)
Cash provided by (used in) operating activities	(6,972		)	3,905			3,628			(3,204		)
Cash used in investing activities	(1,861		)	(3,236		)	(640		)	(678		)
Cash provided by (used in) financing activities	15,530			(2,076		)	(17,992		)	20,645
Effects of exchange rate changes	(241		)	(216		)	(392		)	19
Net increase in cash and cash equivalents	$	6,456		$	(1,623	)
Net increase (decrease) in cash and cash equivalents							$	(15,396	)	$	16,782

Cash ~~used in~~generated by operating activities during the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 was ~~$7.0~~$3.6 million. For the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015, primary impacts to changes in our working capital consisted of the following:

27Accounts receivable decreased $2.1 million due to the collection of receivables that were outstanding at the beginning of the year that had extended payment terms;

Other receivables ~~increased $3.3~~decreased $3.9 million as the result of the collection of receivables from the sale of inventory to our new contract ~~manufacturer for which we expect to be reimbursed during the fourth quarter of 2014;~~manufacturer;

~~Inventory~~Inventories decreased by ~~$6.2~~$2.8 million due to ~~the sale of~~continued discipline to build to order inventory ~~to our new contract manufacturer; and~~forecasting;

Accounts payable decreased ~~$3.4~~$8.2 million due to ~~increased~~ payments made to our contract manufacturing ~~partners;~~partners and improvement of our days payable outstanding from 93.5 to 68.1 as our past due payables decreased $4.2 million from the prior year;

Deferred revenue increased $1.3 million due to annual customer maintenance renewals; and

Accrued restructuring ~~decreased $1.6~~expense increased $2.4 million due primarily to ~~payments~~severance accruals made for employee-related restructuring ~~activities; and~~

~~Deferred revenue decreased $2.0 million due primarily to MRF product shipments that have met revenue recognition criteria.~~activities.

Cash used in investing activities during the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 of ~~$1.9~~$0.6 million was associated with ongoing capital ~~expenditures.~~expenditures across both of our segments.

Cash ~~generated by~~used in financing activities during the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015 of $~~15.5~~18.0 million is attributable to ~~$20.6~~the repayment of the $18.0 million outstanding balance of ~~cash generated from~~ the ~~issuance of 6.6~~2015 convertible senior notes. During the quarter we borrowed an additional $7.0 million ~~newly issued shares of~~on our ~~common stock which was partially offset by paying down the~~ Silicon Valley Bank line of credit ~~by $5.0 million.~~to meet intra-quarter cash requirements and repaid the borrowing within a period of four weeks. We may continue to borrow additional funds against our line of credit to meet short term intra-quarter needs on an ongoing basis; however, we expect to repay any such borrowings within the quarter as we navigate the timing of payables to our contract manufacturer and customer payments.

Line of Credit

Silicon Valley Bank

At the beginning of the first quarter of 2014, we had a $35.0 million secured revolving line of credit agreement (as amended, the "Agreement") with Silicon Valley Bank ("SVB") with a stated maturity date of July 28, 2016. On March 14, 2014, we entered into an amended and restated $25.0 million secured revolving line of credit agreement with Silicon Valley Bank ("SVB") (as amended, the "2014 Agreement") ~~with SVB that replaces the Agreement and~~, which has a stated maturity date of July 28, 2016. On May 30, 2014 the 2014 Agreement was amended to increase the letter of credit sublimit under the secured revolving credit facility from $1,000,000 to ~~$2,000,000.~~$2,000,000 or the net borrowing availability. On April 23, 2015, the 2014 Agreement was amended to further increase the letter of credit sublimit under the secured revolving credit facility from $2,000,000 to $5,000,000 or the net borrowing availability. The secured revolving credit facility under the 2014 Agreement is available for cash borrowings and is subject to a borrowing formula based upon eligible accounts receivable less outstanding letters of credit (aggregate letters of credit are not to exceed ~~$2,000,000)~~$5,000,000). Eligible accounts receivable include 80% of U.S and 65% of foreign accounts receivable (80% in certain cases), not greater than 60 days past original invoice date. The interest rate is dependent upon ~~the Company's~~our Liquidity (as defined in the 2014 Agreement) when compared to a pre-determined threshold (the "Liquidity Threshold"), which is defined in the 2014 Agreement as $15.0 million, with the exception of the last month end of each quarter, where it is defined as $20.0 million. Liquidity is calculated under the 2014 Agreement as unrestricted cash plus unused availability on the revolving line of credit; however if the 2015 convertible senior notes are not renewed or refinanced 120 days prior to their maturity date, which is February 15, 2015, Liquidity (for purposes of testing against the Liquidity Threshold) will becredit reduced by the outstanding principal amount of the 2015 convertible senior notes. The calculation of interest under the 2014 Agreement is as follows:

When Liquidity is above the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 0.75%; and

When Liquidity is below the Liquidity Threshold, the interest rate is the prime rate (as published in Wall Street Journal) plus 2.25%.

Under the 2014 Agreement, we are required to make interest payments monthly. We were further required to pay a loan modification fee of $35,000 and a commitment fee equal to $35,000 on July 29, 2014 and will be required to pay the commitment fee annually thereafter. Under the 2014 Agreement we are required to pay the higher of actual monthly interest incurred or the interest equivalent of $10.0 million in average monthly borrowings. If we terminate the commitment under the 2014 Agreement prior to the maturity date, we are required to pay a cancellation fee equal to 1.5% of the commitment under the 2014 Agreement. As of September 1, 2014, and at all times thereafter, we are required to maintain a balance of at least $4,000,000 with SVB or its affiliates and we are required to have at least 50% of our cash with SVB or its affiliates or in an account where SVB has a control agreement.

The 2014 Agreement requires us to make certain representations, warranties and other agreements that are customary in credit agreements of this type. The 2014 Agreement also includes a financial covenant that requires us to maintain minimum Liquidity of $10.0 million tested monthly.

As of ~~September 30, 2014~~March 31, 2015 and December 31, ~~2013, we had outstanding balances of $10.0 million and $15.0 million under the 2014 Agreement and the Agreement. At~~ ~~September 30,~~ 2014, we had an outstanding balance of $10.0 million under the 2014 Agreement. At ~~$14.0~~March 31, 2015, we had $14.4 million of total borrowing availability remaining under the Agreement. At ~~September 30, 2014~~March 31, 2015, we were in compliance with all covenants under the 2014 Agreement.

~~2013~~2015 Convertible Senior Notes

On February ~~15, 2013,~~17, 2015, we repaid at maturity the entire ~~$16.9~~$18.0 million outstanding balance of the ~~2.75%~~4.50% convertible senior notes due ~~2013~~2015 (the ~~"2013~~"2015 convertible senior notes") in accordance with the terms thereof.

~~2015 Convertible Senior Notes~~

On June 20, 2012, we entered into subscription agreements with certain holders of the 2013 convertible senior notes. Pursuant to the subscription agreements, on June 29, 2012 we exchanged $18.0 million aggregate principal amount of the 2013 convertible senior notes for $18.0 million aggregate principal amount of the new 2015 convertible senior notes. The 2015 convertible senior notes mature on February 15, 2015 and have a coupon rate of 4.5%. Holders of the 2015 convertible senior notes may convert their notes into a number of shares of our common stock determined as set forth in the indenture governing the notes at their option on any day to and including the business day prior to the maturity date. The 2015 convertible senior notes are initially convertible into 117.2333 shares of our common stock per $1,000 principal amount of the notes (which is equivalent to a conversion price of approximately $8.53 per share), subject to adjustment upon the occurrence of certain events. Upon the occurrence of a fundamental change, holders of the 2015 convertible senior notes may require us to repurchase some or all of their notes for cash at a price equal to 100% of the principal amount of the notes being repurchased, plus accrued and unpaid interest, if any. In addition, if certain fundamental changes occur, we may be required in certain circumstances to increase the conversion rate for any 2015 convertible senior notes converted in connection with such fundamental changes by a specified number of shares of our common stock. The 2015 convertible senior notes are general unsecured obligations and rank equal in right of payment to all of our existing and future senior indebtedness, and senior in right of payment to any future subordinated debt. Our obligations under the 2015 convertible senior notes are not guaranteed by, and are effectively subordinated in right of payment to all existing and future obligations of its subsidiaries and are effectively subordinated in right of payment to its future secured indebtedness to the extent of the assets securing such debt.

~~As of~~ ~~September 30, 2014~~ ~~and~~ ~~December 31, 2013, we had outstanding 2015 convertible senior notes with a face value of~~ ~~$18.0 million. As of~~ ~~September 30, 2014~~ ~~and~~ ~~December 31, 2013, the fair values of our 2015~~ No convertible senior notes were ~~$17.9 million~~ ~~and~~ ~~$17.8 million, which are based on the most recent quoted prices of our publicly traded debt on each balance sheet date.~~converted to common stock.

Contractual Obligations

Our contractual obligations as of December 31, ~~2013~~2014 are summarized in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Contractual Obligations,"of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014. For the ~~nine~~three months ended ~~September 30, 2014~~March 31, 2015, there have been no material changes in our contractual obligations outside the ordinary course of business. As of ~~September 30, 2014~~March 31, 2015, we have agreements regarding foreign currency forward contracts with total contractual values of ~~$17.4~~$11.3 million that mature through ~~2015.~~2016.

In addition to the above, we have approximately ~~$3.4~~$3.6 million associated with unrecognized tax benefits. We are not able to reasonably estimate when we would make any cash payments required to settle these liabilities, but do not believe the ultimate settlement of our obligations will materially affect our liquidity.

Off-Balance Sheet Arrangements

We do not engage in any activity involving special purpose entities or off-balance sheet financing.

Liquidity Outlook

At ~~September 30, 2014~~March 31, 2015, our cash and cash equivalents amounted to $~~31.9~~15.8 million. On February 17, 2015, we repaid at maturity the $18.0 million balance of the 2015 convertible senior notes. We believe ~~that~~ our current cash and cash equivalents, ~~combined with the remaining credit available~~cash expected to be generated from operations and borrowings under our Silicon Valley Bank line of credit ~~facility~~ will satisfy our ~~expected~~ short and long-term expected working capital needs, capital expenditures, acquisitions, stock repurchases, and other liquidity requirements associated with our ~~existing~~present business ~~operations and the repayment of the 2015 convertible senior notes.~~operations. We ~~anticipate maintaining covenant compliance throughout the duration of our anticipated borrowing, ensuring~~believe our current ~~borrowing level and~~working capital, plus availability under the SVB line of credit, provides sufficient liquidity to operate the business at normal levels; however, if available ~~borrowing capacity remains~~liquidity is not sufficient to meet our operating requirements, we may, among other available options, pursue alternative financing arrangements or reduce expenditures as necessary to ~~us.~~meet our cash requirements throughout 2015.

Critical Accounting Policies and Estimates

We reaffirm our critical accounting policies and use of estimates as reported in our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014. There have been no significant changes during the three months ended ~~September 30, 2014~~March 31, 2015 to the items that we disclosed as our critical accounting policies and estimates in Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

This report contains forward-looking statements including:

the Company's business strategy;

changes in reporting segments;

expectations and goals for revenues, gross margin, research and development ("R&D") expenses, selling, general and administrative ("SG&A") expenses and profits;

the impact of our restructuring events on future operating ~~results;~~results, including statements related to future growth, expense savings or reduction or operational and administrative efficiencies;

timing of revenue recognition;

expected customer orders;

our projected liquidity;

future operations and market conditions;

industry trends or conditions and the business environment;

future levels of inventory and backlog and new product introductions;

financial performance, revenue growth, management changes or other attributes of Radisys following acquisition or divestiture activities; and

other statements that are not historical facts.

All statements that relate to future events or to our future performance are forward-looking statements. In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “expect,” “plans,” “seeks,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “seek to continue,” “consider,” “intends,” or other comparable terminology. These forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or our industries’ actual results, levels of activity, performance or achievements to be materially

different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

These factors include, among others, the Company's high degree of customer concentration, the use of a single contract manufacturer for a significant portion of the production of our products, as well as the success of transitioning contract manufacturing partners, customer implementation of traffic management solutions, the outcome of product trends, the market success of customers' products and solutions, the development and transition of new products and solutions, the enhancement of existing products and solutions to meet customer needs and respond to emerging technological trends, key employee attrition, the anticipated amount and timing of revenues from design wins and product orders due to the Company's customers' product development schedule, cancellations or delays, market conditions, matters affecting the embedded system industry, including changes in industry standards, changes in customer requirements and new product introductions, currency exchange rate fluctuations, changes in tariff and trade policies and other risks associated with foreign operations, actions by regulatory authorities or other third parties, ~~the Company's ability to successfully manage the transition from 10G to 40G ATCA product technologies,~~ cash generation, the Company's ability to successfully complete any restructuring, acquisition or divestiture activities and other factors described in "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended December 31, ~~2013,~~2014, as updated in the subsequent quarterly reports on Form 10-Q. Although forward-looking statements help provide additional information about us, investors should keep in mind that forward-looking statements are only predictions, at a point in time, and are inherently less reliable than historical information.

We do not guarantee future results, levels of activity, performance or achievements, and we do not assume responsibility for the accuracy and completeness of these statements. The forward-looking statements contained in this report are made and based on information as of the date of this report. We assume no obligation to update any of these statements based on information after the date of this report.

3028

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, foreign currency exchange rates, and equity trading prices, which could affect our financial position and results of operations.

Foreign Currency Risk. We pay the expenses of our international operations in local currencies, namely, the Canadian Dollar, Euro, Chinese Yuan, Indian Rupee, Japanese Yen, Malaysian Ringgit, and British Pound Sterling. Our international operations are subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, foreign exchange rate volatility and other regulations and restrictions. Accordingly, future results could be materially and adversely affected by changes in these or other factors. We are also exposed to foreign exchange rate fluctuations as the balance sheets and income statements of our foreign subsidiaries are translated into U.S. Dollars during the consolidation process. Because exchange rates vary, these results, when translated, may vary from expectations and adversely affect overall expected profitability.

Based on our policy, we have established a foreign currency exposure management program which uses derivative foreign exchange contracts to address nonfunctional currency exposures. In order to reduce the potentially adverse effects of foreign currency exchange rate fluctuations, we have entered into forward exchange contracts. These hedging transactions limit our exposure to changes in the U.S. Dollar to the Indian Rupee exchange rate, and as of ~~September 30, 2014~~March 31, 2015 the total notional or contractual value of the contracts we held was ~~$17.4 million~~.$11.3 million. These contracts will mature over the next 2014 months.

Holding other variables constant, a 10% adverse fluctuation, in relation to our hedge positions, of the U.S. Dollar relative to the Indian Rupee would require an adjustment of ~~$1.8~~$1.1 million, ~~increasing~~decreasing our Indian Rupee hedge asset as of ~~September 30, 2014~~March 31, 2015, to a liability of ~~$1.8~~$1.0 million. A 10% favorable fluctuation, in relation to our hedge positions, of the U.S. Dollar relative to the Indian Rupee would result in an adjustment of ~~$1.7~~$1.1 million, ~~reversing~~increasing our hedge ~~liability~~asset as of ~~September 30, 2014~~March 31, 2015 to ~~a $1.7 million asset.~~$1.2 million. We do not expect a 10% fluctuation to have any material impact on our operating results as the underlying hedged transactions will move in an equal and opposite direction. If there is an unfavorable movement in the Indian Rupee relative to our hedged positions this would be offset by reduced expenses, after conversion to the U.S. Dollar, associated with obligations paid for in the Indian Rupee.

~~Convertible Notes.~~ The fair value of the 2015 convertible senior notes is sensitive to interest rate changes as well as changes in our stock price. Interest rate changes would result in an increase or decrease in the fair value of the 2015 convertible senior notes due to differences between market interest rates and rates in effect at the inception of the obligation. Fluctuations in our stock price would result in an increase or decrease in the fair values of the 2015 convertible senior notes due to the value of the notes derived from the conversion feature. Unless we elect to repurchase our 2015 convertible senior notes in the open market, changes in the fair value of the 2015 convertible senior notes have no impact on our cash flows or consolidated financial statements. The estimated fair value of the 2015 convertible senior notes were ~~$17.9 million~~ ~~and~~ ~~$17.8 million~~ at ~~September 30, 2014~~ ~~and~~ ~~December 31, 2013~~.

Item 4. Controls and Procedures

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

During our most recent fiscal quarter ended ~~September 30, 2014~~March 31, 2015, no change occurred in the Company's "internal control over financial reporting" (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

3129

PART II. OTHER INFORMATION

Item 1A. Risk Factors

There are many factors that affect our business and the results of our operations, many of which are beyond our control. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014, which could materially affect our business, financial condition or future results. The risks described in this report and our Annual Report on Form 10-K for the year ended December 31, ~~2013~~2014 are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

~~Item 5. Other Information~~

In October 2014, the Nominating and Governance Committee conducted a review of the Company’s bylaws and recommended several changes to the Company’s bylaws to enhance governance, promote transparency, and provide for a more efficient use of the resources of the Company. On November 7, 2014, the Board of Directors of the Company adopted the Second Amended and Restated Bylaws (the “Restated Bylaws”), which amend and restate the Company’s existing Amended and Restated Bylaws. The Restated Bylaws:

~~Clarify that notices and proxies may be given or delivered by electronic transmission.~~

•

Require that, for shareholder nominations of individuals for election as directors and other shareholder proposals to be brought before an annual meeting of shareholders, other than pursuant to Rules 14a-8 and 14a-11 under the Exchange Act, notice of such nominations or proposals generally must be submitted not later than 90 days and not earlier than 120 days prior to the one-year anniversary of the preceding year's annual meeting, except that for shareholder nominations of individuals for election as directors and other shareholder proposals to be brought before an annual meeting of shareholders that is convened more than 30 days prior to or delayed by more than 60 days after the anniversary of the preceding year’s annual meeting, or if no annual meeting was held in the preceding year, and for shareholder nominations of individuals for election as directors to be brought before a special meeting of shareholders, notice of such nominations or proposals must be submitted not earlier than the 120^th ~~day prior to the date of such meeting and not later than the later of the 90~~^th ~~day before such meeting or, if the first public announcement of the date of such meeting is less than 100 days prior to the date of such meeting, the 10~~^th day following the day on which public announcement of the date of such meeting is first made, unless given by a shareholder who made a demand for meeting, in which case notice of such nomination must be submitted concurrently with delivery of a shareholder’s demand for a meeting. Under the Bylaws in effect prior to the Restated Bylaws, for shareholder nominations and other shareholder proposals to be brought before an annual meeting, notice of nominations or other proposals would have been required to be submitted not less than 50 days nor more than 75 days prior to the date of the annual meeting, unless the notice of such meeting or public disclosure of the date of the meeting had been given to shareholders less than 65 days prior to the meeting, in which case notice of shareholder nominations or other proposals would have been required to be submitted not later than the 10^th day following the earlier of the date on which notice of the meeting was mailed or public disclosure was made and, for shareholder nominations of individuals for election as directors to be brought before a special meeting, notice of such nomination would have been required to be submitted not later than the 10^th day following the date on which the notice of the special meeting was mailed, unless given by a shareholder who made a demand for meeting, in which case notice of such nomination would have been required to be submitted concurrently with delivery of a shareholder’s demand for a meeting.

Expand upon the information that a shareholder must submit in connection with giving advance notice of nomination of an individual for election as a director and other shareholder proposals, including additional information about the nominee(s) and, in relation to the shareholder giving notice and each beneficial owner of shares of the Company on whose behalf the nomination or proposal is made, the shareholder or beneficial owner’s direct or indirect ownership interests in the Company, including ownership of derivative securities.

~~In addition to the amendments described above, the Restated Bylaws made various clarifications, technical corrections, and non-substantive changes.~~

~~The forgoing description is a summary and is qualified in its entirety by reference to the full text of the Restated Bylaws attached hereto as Exhibit 3.1 and incorporated herein.~~

Item 6. Exhibits

(a) Exhibits



Exhibit 3.1*10.1	~~Second~~ Transition Agreement dated January 28, 2015 between the Company and Keate Despain. Incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 3, 2015 (SEC File No. 000-26844).
Exhibit 10.2	Amended and Restated ~~Bylaws.~~Executive Severance Agreement, dated October 10, 2012, between the Company and Keate Despain. Incorporated by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 3, 2015 (SEC File No. 000-26844).
Exhibit 10.1*10.3	~~Employment~~Amended and Restated Executive Severance Agreement, dated ~~March 9, 2010, by and~~February 17, 2015, between Radisys Corporation and ~~Grant Henderson.~~ Jonathan Wilson. Incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 17, 2015 (SEC File No. 000-26844).
Exhibit 10.4	Executive Change of Control Agreement, dated February 17, 2015, between Radisys Corporation and Jonathan Wilson. Incorporated by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 17, 2015 (SEC File No. 000-26844).
Exhibit 31.1*	Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2*	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Presentation Linkbase
101.DEF*	XBRL Taxonomy Definition Linkbase



*	Filed herewith
**	Furnished herewith

3330

SIGNATURES

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



		RADISYS CORPORATION
Dated:	~~November 7, 2014~~May 1, 2015	By:	/s/ Brian Bronson
			Brian Bronson
			President and Chief Executive Officer

Dated:	~~November 7, 2014~~May 1, 2015	By:	/s/ ~~Allen Muhich~~Jon Wilson
			~~Allen Muhich~~Jon Wilson
			Chief Financial Officer and Vice President of Finance (Principal Financial and Accounting Officer)

3431

EXHIBIT INDEX



Exhibit 3.1*10.1	~~Second~~ Transition Agreement dated January 28, 2015 between the Company and Keate Despain. Incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 3, 2015 (SEC File No. 000-26844).
Exhibit 10.2	Amended and Restated ~~Bylaws.~~Executive Severance Agreement, dated October 10, 2012, between the Company and Keate Despain. Incorporated by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 3, 2015 (SEC File No. 000-26844).
Exhibit 10.1*10.3	~~Employment~~Amended and Restated Executive Severance Agreement, dated ~~March 9, 2010, by and~~February 17, 2015, between Radisys Corporation and ~~Grant Henderson.~~Jonathan Wilson. Incorporated by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 17, 2015 (SEC File No. 000-26844).
Exhibit 10.4	Executive Change of Control Agreement, dated February 17, 2015, between Radisys Corporation and Jonathan Wilson. Incorporated by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 17, 2015 (SEC File No. 000-26844).
Exhibit 31.1*	Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2*	Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Presentation Linkbase
101.DEF*	XBRL Taxonomy Definition Linkbase



*	Filed herewith
**	Furnished herewith

3532



	Level 3
Balance at December 31, 2013	$	390
Change in estimate	(156		)
Payments	—
Accretion	39
Transfer out of level 3 measurement	(273		)
Balance at September 30, 2014	$	—



The following customers accounted for more than 10% of accounts receivable:
	September 30, 2014		December 31, 2013
Nokia Solutions and Networks	10.0	%	20.7	%
Philips Medical	18.8	%	N/A
An Indian Carrier	14.8	%	N/A