RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
1. Description of the Plan
The following brief description of the RadiSys Corporation 401(k) Savings Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan for more complete information.
General
The Plan is a defined contribution plan established by RadiSys Corporation (the “Company”) on January 1, 1989 and amended and restated effective January 1, 2007 under the provisions of Section 401(a) of the Internal Revenue Code (“IRC”), which includes a qualified cash or deferred arrangement as described in Section 401(k) of the IRC, for the benefit of eligible employees of the Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
Under the terms of a trust agreement between the Company and Mercer Trust Company (the “Trustee”), all investments of the Plan are held in trust by the Trustee. Certain accounting and other administrative services for the Plan are performed by Mercer HR Services. The Plan is administered by a committee composed of management employees of the Company.
Eligibility
All employees of the Company who are age 21 or older and who are not covered under a collective bargaining agreement are eligible to participate in the Plan. Qualifying employees are eligible and may begin to participate in the Plan on the date of employment with the Company.
Contributions
Participants may contribute up to 30% of their pre-tax compensation to the Plan, subject to the maximum allowed by the IRC guidelines. Participants who have attained the age of 50 before the close of the Plan year can make additional pretax contributions known as “catch up” contributions, subject to maximums allowed by the IRC guidelines. Participants may also contribute up to 5% of their after-tax compensation up to an annual maximum of $10,000. Participants may also rollover amounts from other qualified defined contribution plans. The employer will make matching contributions equal to a percentage of the amount of the salary deferral, as defined in the Plan. Participants direct the investment of their contributions and the Company's matching contribut ion into various investment options available within the Plan. Participants are automatically deemed to have elected to defer 3% of their eligible compensation after sixty calendar days of employment unless they have elected otherwise prior to this date.
Participant Accounts
Each participant's account is credited with the participant's contribution, the discretionary employer matching contributions and an allocation of Plan earnings or losses. Allocation of earnings is based on the proportion of the participant's account balance to the total of all participants' account balances within each investment option. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Vesting
Participants are immediately vested in their contributions and earnings (losses) thereon. Vesting in employer contributions is based upon the following schedule:
| Less than one year of service | 0% vested |
| 1 year of service, but less than 2 years of service | 33% vested |
| 2 years of service, but less than 3 years of service | 66% vested |
| 3 years of service or more | 100% vested |
Participants become fully vested in the employer contribution upon death or total and permanent disability.
RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Forfeitures
If a participant's employment terminates before the employer contribution becomes fully vested, the unvested portion of his or her account is forfeited. Forfeitures may be used when authorized by the Company to reduce the Company's matching contributions. As of December 31, 2009 and 2008 forfeited non-vested accounts available to reduce employer contributions were $9,130 and $31,755, respectively. These amounts were used to reduce the employer contribution receivable at December 31, 2009 and 2008, respectively.
Payments of Benefits
The participant's vested benefits, including his or her allocation of Plan earnings, may be paid to the participant upon resignation, discharge, death or disability. The Plan permits a withdrawal of pre-tax contributions (not including investment earnings), rollover contributions, and the vested portion of amounts attributable to the employer matching contribution to the extent approved by the Plan's administrative committee because of a qualified financial hardship. Terminated participants may keep their vested balance in the Plan subject to a minimum $1,000 threshold. Vested balances of $1,000 or less are distributed to the participant as a lump sum distribution. The Trustee distributes all such amounts.
Participant Loans
Participants may borrow from their fund accounts amounts equal to 50% of the total vested value of their account, but not more than $50,000 reduced by the highest outstanding loan balance from the previous 12 months. Loan terms range from one to five years, unless the loan qualifies as a home loan. The term for a home loan is not to exceed 15 years. The loans are secured by the balance in the participant's account and bear interest based upon the prime interest rate at the time the loan is issued, plus 2%. Principal and interest are paid ratably through biweekly payroll deductions. At December 31, 2009, interest rates on loans outstanding ranged from 5.25% to 10.25% and matured through 2023.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. The Company may elect, at its discretion, to either make a complete distribution of the assets or to continue the trust created by the Plan and distribute benefits in such a manner as though the Plan had not been terminated. In the event of Plan termination, the accounts of all participants would become fully vested. The net assets of the Plan would be distributed among the participants and beneficiaries of the Plan in proportion to their interests after proper allocation of any Plan expenses incurred upon termination.
2. Summary of Significant Accounting Policies
Basis of Accounting
The Plan's financial statements are prepared on the accrual basis of accounting.
Investment Valuation and Income Recognition
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement. See note 3 for discussion of fair value measurement. Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. The statement of net assets available for benefits presents th e fair value of the investment in the collective trust as well as the adjustment of the investment in the collective trust from fair value to contract value relating to the investment contracts. The statement of changes in net assets available for benefits is prepared on a contract value basis.
Investments in shares of registered investment companies are stated at fair value, based on the net asset value of the underlying
RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
investments and are valued daily. Investments in common and collective trusts are stated at fair value based on the value of the underlying investments and are expressed in units. The Plan's investments in common and collective trusts are valued using the audited financial statements of the collective trusts at year end.
The plan invests the Putnam Stable Value Fund which invests in investment contracts through a collective trust. The contract value of the Putnam Stable Value Fund represents contributions made under the contracts, plus earnings, less withdrawals and administrative expenses. The fair value of a fully benefit-responsive investment contract is calculated using a discounted cash flow model which considers recent fee bids as determined by recognized dealers, discount rate and the duration of the underlying portfolio securities. The average yield to maturity and crediting interest rate for that fund was approximately 2.68% and 2.8%, respectively, at December 31, 2009 and 1.55% and 4.4%, respectively, at December 31, 2008.
The self-directed brokerage account allows participants to invest in investment holdings of their choice.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. The net (depreciation) appreciation in fair value of investments included in the statement of changes in net assets available for benefits consists of the realized gains or losses and the unrealized appreciation or depreciation on those investments.
Payment of Benefits
Benefit payments to participants are recorded upon distribution.
Participant Loans
Participant loans are carried at amortized cost plus accrued interest.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions to and deductions from net assets available for benefits during the reporting period. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates under different assumptions or conditions.
Risks and Uncertainties
The Plan provides for investments that are exposed to various risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect the amounts reported in the statement of net assets available for benefits and the statement of changes in net assets available for benefits and, therefore, participants' account balances.
The Plan invests in collective trust funds which include securities with contractual cash flows which may include asset-backed securities, collateralized mortgage obligations and commercial mortgage backed securities. The value, liquidity and related income of these securities are sensitive to changes in economic conditions, including real estate value, delinquencies or defaults, or both, and may be adversely affected by shifts in the market's perception of the issuers and changes in interest rates.
Subsequent Events
The Company has evaluated subsequent events from the statement of net assets date and determined there are no other items to disclose.
3. Fair Value
RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
The Plan adopted ASC Topic 820 (FASB Statement No.157, Fair Value Measurements) on January 1, 2008 for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. On January 1, 2009, the plan adopted the provisions of ASC Topic 820 (Statement 157) for fair value measurements of nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in t he financial statements on a nonrecurring basis. ASC Topic 820 (Statement 157) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 - Inputs to the valuation methodology include:
· Quoted prices for similar assets or liabilities in active markets;
· Quoted prices for identical or similar assets or liabilities in inactive markets;
· Inputs other than quoted prices that are observable for the asset or liability;
· Inputs that are derived principally from observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value.
Money Market Funds, Self-Directed Brokerage Accounts, Registered Investment Companies (Mutual Funds) and Common Stock: Valued at the closing price reported on the active market on which the individual securities are traded.
Collective Trust Fund: Valued at the net asset value (NAV) of shares held by the plan at year end.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes it valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2009:
RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
| Level I | | Level II | | Level III | | Total |
| | | | | | | | |
| Collective trust funds | | | | | | | |
| Stable Value | — | | | $ | 5,298,229 | | | — | | | $ | 5,298,229 | |
| S&P 500 Index | — | | | 2,813,812 | | | — | | | 2,813,812 | |
| Registered investment company | | | | | | | |
Fixed Income | 2,658,626 | | | — | | | — | | | 2,658,626 | |
| International | 4,150,176 | | | — | | | — | | | 4,150,176 | |
Large-Cap Growth Equity | 3,274,679 | | | — | | | — | | | 3,274,679 | |
| Mid-Cap Equity | 3,641,757 | | — | | | — | | | 3,641,757 |
Small-Cap Growth Equity | 760,344 | | | — | | | — | | | 760,344 | |
Large-Cap Value Equity | 610,640 | | | — | | | — | | | 610,640 | |
Mid-Cap Value Equity | 1,077,401 | | | — | | | — | | | 1,077,401 | |
Small-Cap Value Equity | 3,014,948 | | | — | | | — | | | 3,014,948 | |
Core Equity Fund | 134,208 | | | — | | | — | | | 134,208 | |
Specialty Technology | 1,779,440 | | | — | | | — | | | 1,779,440 | |
Balanced | 3,085,411 | | | — | | | — | | | 3,085,411 | |
Lifestyle - Aggressive | 4,283,481 | | | — | | | — | | | 4,283,481 | |
Lifestyle - Moderate | 2,177,702 | | | — | | | — | | | 2,177,702 | |
Lifestyle - Conservative | 1,577,735 | | | — | | | — | | | 1,577,735 | |
Common stock | 399,920 | | | — | | | — | | | 399,920 | |
Money market funds | 4,529 | | | — | | | — | | | 4,529 | |
Self-directed brokerage accounts (common stock) | 246,279 | | | — | | | — | | | 246,279 | |
Total investments | $ | 32,877,276 | | | $ | 8,112,041 | | | $ | — | | | $ | 40,989,317 | |
The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2008:
| Level I | | Level II | | Level III | | Total |
| | | | | | | | |
| Collective trust funds | — | | | $ | 7,297,341 | | | — | | | $ | 7,297,341 | |
| Registered investment company | 22,332,400 | | | — | | | — | | | 22,332,400 | |
| Common stock | 246,082 | | | — | | | — | | | 246,082 | |
| Money market funds | 97,681 | | | — | | | — | | | 97,681 | |
Self-directed brokerage accounts (common stock) | 92,698 | | | — | | | — | | | 92,698 | |
| Total investments | $ | 22,768,861 | | | $ | 7,297,341 | | | $ | — | | | $ | 30,066,202 | |
4. Investments
The following presents investments that represent 5% or more of the Plan's net assets at December 31, 2009 and 2008:
RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
| 2009 | | 2008 |
| Registered investment companies | | | |
| Artisan Mid Cap Fund | $ | 3,641,757 | | | $ | 2,214,894 | |
| Putnam Asset Allocation Growth Portfolio | 4,283,481 | | | 2,871,358 | |
| Growth Fund of America | 3,274,679 | | | 2,355,335 | |
| Putnam Asset Allocation Balanced Portfolio | 2,177,702 | | | 1,673,823 | |
| Neuberger Berman Genesis Trust | 3,014,948 | | | 2,312,950 | |
| PIMCO Total Return Fund | 2,658,626 | | | 1,899,363 | |
| Harbor International Fund | 2,501,381 | | | 1,552,040 | |
| Collective trust funds | | | |
| Putnam Stable Value Fund | 5,078,580 | | | 5,546,506 | |
| Putnam S&P 500 Index Fund | 2,813,812 | | | 2,109,860 | |
During 2009 and 2008, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated (depreciated) as follows:
| 2009 | | 2008 |
| Registered investment companies | $ | 7,282,124 | | | $ | (13,560,102 | ) |
| Collective trust funds | 602,519 | | | (1,210,610 | ) |
| RadiSys Corporation common stock | 215,572 | | | (228,843 | ) |
| Self-directed brokerage accounts (common stock) | 153,581 | | | (151,727 | ) |
| | $ | 8,253,796 | | | $ | (15,151,282 | ) |
5. Plan Tax Status
The Internal Revenue Service has determined and informed the Company by a letter dated October 10, 2008 that the Plan is designed in accordance with applicable sections of the IRC. Although the Plan has been amended since receiving the determination letter, the Plan administrator and the Plan's tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt as of December 31, 2009.
6. Party-in-Interest Transactions
The Plan invests in certain investments offered by Putnam Investments (“Putnam”). Putnam is an affiliate of the Trustee, and accordingly, these investments and investment transactions qualify as party-in-interest.
The plan offers RadiSys Corporation common stock as an investment option for participants. RadiSys Corporation is the Plan sponsor as defined by the Plan, and therefore, these transactions qualify as party-in-interest.
7. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 at December 31, 2009 and 2008:
RadiSys Corporation
401 (k) Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
| 2009 | | 2008 |
| Net assets available for benefits per the financial statements | $ | 41,356,471 | | | $ | 31,042,236 | |
| Deemed distribution of participant loans | (108,582 | ) | | (79,084 | ) |
| Net assets available for benefits per Form 5500 | $ | 41,247,889 | | | $ | 30,963,152 | |
The following is a reconciliation of the net increase in net assets available for benefits per the financial statements to the Form 5500 at December 31, 2009 and 2008:
| 2009 | | 2008 |
| Net (decrease) increase in net assets per the financial statements | $ | 10,314,235 | | | $ | (11,863,685 | ) |
| Net change in deemed distributions of participant loans | (29,498 | ) | | (21,884 | ) |
| Net (decrease) increase in net assets per Form 5500 | $ | 10,284,737 | | | $ | (11,885,569 | ) |
