HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

(Unaudited, in thousands)

Three months ended Nine months ended
October 2,
2015 September 26,
2014 October 2,
2015 September 26,
2014
Net income (loss) $ (4,811 ) $ 1,078
$ (8,462 ) $ (41,394 )
Other comprehensive income (loss) before tax:
Change in unrealized losses on cash flow hedges:
Unrealized loss arising during the period (550 ) —
(218 ) —
Gains reclassified into earnings (127 ) —
(314 ) —
(677 ) —
(532 ) —
Change in unrealized gains (loss) on available-for-sale securities: (928 ) (308 ) 17
(333 )
Change in foreign currency translation adjustments (364 ) (670 ) (766 ) (440 )
Other comprehensive loss before tax (1,969 ) (978 ) (1,281 ) (773 )
Provision for (benefit from) income taxes 12
(7 ) 6
(12 )
Other comprehensive loss, net of tax (1,981 ) (971 ) (1,287 ) (761 )
Total comprehensive income (loss) $ (6,792 ) $ 107
$ (9,749 ) $ (42,155 )



	Three months ended
	April 1, 2016			April 3, 2015
Net loss	$	(25,180	)	$	(2,657	)
Other comprehensive income (loss) before tax:
Change in unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) arising during the period	323			(184		)
Losses (gains) reclassified into earnings	78			(49		)
	401			(233		)
Change in unrealized gains on available-for-sale securities:
Unrealized gains arising during the period	79			485
Loss reclassified into earnings	1,476			—
	1,555			485
Change in foreign currency translation adjustments	1,934			(984		)
Other comprehensive income (loss) before tax	3,890			(732		)
Less: Provision for income taxes	18			4
Other comprehensive income (loss), net of tax	3,872			(736		)
Total comprehensive losses	$	(21,308	)	$	(3,393	)

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

~~Table of Contents~~

HARMONIC INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)


	Nine months ended						Three months ended
	October 2, 2015			September 26, 2014			April 1, 2016			April 3, 2015
Cash flows from operating activities:
Net loss	$	(8,462	)	$	(41,394	)	$	(25,180	)	$	(2,657	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangibles	4,971			18,378			2,783			1,907
Depreciation	10,143			12,641			3,317			3,493
Stock-based compensation	11,845			12,720			3,094			4,134
Amortization of discount on convertible debt							1,187			—
Restructuring, asset impairment and loss on retirement of fixed assets							1,675			3
Loss on impairment of long-term investment	2,505			—			1,476			2,505
Deferred income taxes, net	—			31,782
Provision for excess and obsolete inventories	1,234			2,013			418			454
Allowance for doubtful accounts, returns and discounts	576			(116		)	739			(367		)
Excess tax benefits from stock-based compensation	—			(194		)	—			(120		)
Other non-cash adjustments, net	354			1,108
Changes in operating assets and liabilities:
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable	9,440			(472		)	(10,894		)	(1,353		)
Inventories	(7,936		)	2,401			(51		)	775
Prepaid expenses and other assets	(13,817		)	(5,321		)	(6,078		)	(13,062		)
Accounts payable	1,772			(786		)	(3,890		)	3,380
Deferred revenue	5,237			7,770			24,963			10,105
Income taxes payable	(1,372		)	(8,292		)	(13		)	(501		)
Accrued and other liabilities	(7,926		)	(4,717		)	1,046			(6,819		)
Net cash provided by operating activities	8,564			27,521
Net cash (used in) provided by operating activities							(5,408		)	1,877
Cash flows from investing activities:
Purchases of investments	(20,714		)	(26,599		)
Acquisition of business, net of cash acquired							(69,532		)	—
Proceeds from maturities of investments	26,534			43,236			7,394			9,648
Proceeds from sales of investments	—			7,408
Purchases of property and equipment	(10,393		)	(8,859		)	(2,664		)	(3,651		)
Purchases of long-term investments	(85		)	(5,867		)	—			(85		)
Restricted cash	(1,091		)	—
Net cash (used in) provided by investing activities	(5,749		)	9,319			(64,802		)	5,912
Cash flows from financing activities:
Payment of convertible debt issuance costs							(582		)	—
Increase in other debts and capital leases							262			—
Repayment of other debts and capital leases							(114		)	—
Payments for repurchase of common stock	(20,007		)	(86,407		)	—			(5,182		)
Proceeds from common stock issued to employees	9,255			4,357			2,074			6,110
Payment of tax withholding obligations related to net share settlements of restricted stock units	(3,288		)	(3,116		)	(955		)	(2,078		)
Excess tax benefits from stock-based compensation	—			194			—			120
Net cash used in financing activities	(14,040		)	(84,972		)
Net cash provided by (used in) financing activities							685			(1,030		)
Effect of exchange rate changes on cash and cash equivalents	(236		)	(169		)	330			(135		)
Net decrease in cash and cash equivalents	(11,461		)	(48,301		)
Net (decrease) increase in cash and cash equivalents							(69,195		)	6,624
Cash and cash equivalents at beginning of period	73,032			90,329			126,190			73,032
Cash and cash equivalents at end of period	$	61,571		$	42,028		$	56,995		$	79,656

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

~~Table of Contents~~

HARMONIC INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) which Harmonic Inc. (“Harmonic,” or the “Company”) considers necessary for a fair statement of the results of operations for the interim periods covered and the consolidated financial condition of the Company at the date of the balance sheets. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March ~~2, 2015~~24, 2016 (the ~~“2014~~“2015 Form 10-K”). The interim results presented herein are not necessarily indicative of the results of operations that may be expected for the full fiscal year ending December 31, ~~2015,~~2016, or any other future period. The Company’s fiscal quarters are based on 13-week periods, except for the fourth quarter, which ends on December 31.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The year-end condensed balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Business Combination

The Company applies the acquisition method of accounting for business combinations to its acquisition of Thomson Video Networks (“TVN”), which closed on February 29, 2016. (See Note 3, “Business Acquisition” for additional information on TVN acquisition). Under this method of accounting, all assets acquired and liabilities assumed are recorded at their respective fair values at the date of the completion of the transaction. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, intangibles and other asset lives, among other items. Fair value is defined as the price that would be received in a sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Market participants are assumed to be buyers and sellers in the principal (most advantageous) market for the asset or liability. Additionally, fair value measurements for an asset assume the highest and best use of that asset by market participants. As a result, the Company may have been required to value the acquired assets at fair value measurements that do not reflect its intended use of those assets. Use of different estimates and judgments could yield different results. Any excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill.

The accounting for the TVN acquisition is based on currently available information and is considered preliminary. Although the Company believes that the assumptions and estimates it has made are reasonable and appropriate, they are based in part on historical experience and information that may be obtained from the management of the acquired company and are inherently uncertain. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Company's Condensed Consolidated Statements of Operations.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to its audited Consolidated Financial Statements included in the ~~2014~~2015 Form 10-K. There have been no significant changes to these policies during the ~~nine~~three months ended ~~October 2, 2015.~~April 1, 2016.

NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS

New standards to be implemented

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new authoritative guidance for revenue recognition, requiring an entity to recognize the amount of revenue that reflects the consideration to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. OnThe original effective date for this new standard would have required the Company to adopt it beginning in its first quarter of fiscal 2017. In August ~~12,~~ 2015, the FASB issued an accounting standard update for the deferral of the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and ~~permitted~~permits early adoption, ~~of the standard,~~ but not before the original effective date of December 15, 2016. ~~The Company has not yet selected a transition method and it is currently evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.~~

In August 2014, the FASB issued new authoritative guidance related to the disclosures around going concern. The new guidance specifies management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new guidance will be effective forAccordingly, the Company ~~beginning~~may adopt the standard in ~~the fourth~~either its first quarter of fiscal ~~2016 and early adoption is permitted.~~2017 or fiscal 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption and the impact of ~~adopting~~ this new ~~accounting~~revenue standard ~~but does not expect that it will have a material effect~~ on its consolidated financial statements.

In ~~November 2014,~~March 2016, the FASB issued ~~an accounting standard update for~~additional authoritative guidance clarifying its implementation guidance on principal versus agent considerations when determining ~~when separation of certain embedded derivative features in a hybrid financial instrument is required. An entity will continue~~whether to evaluate whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria. The amendments clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The accounting standard update ~~will be effective for the Company beginning in the first quarter of fiscal~~ ~~2016 and early adoption is~~

~~Table of Contents~~

~~permitted.~~report revenue gross versus net. The Company is ~~currently evaluating~~in the process of assessing the impact of this ~~accounting standard update on its consolidated financial statements.~~

~~In February 2015,~~additional guidance is expected to have upon adoption, including determining the FASB issued an accounting standard update that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2016 and early adoption ~~is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.~~

In April 2015, the FASB issued an accounting standard update on whether a cloud computing arrangement includes a software license. The guidance requires the accounting for a cloud computing arrangement that includes a software license element to be consistent with the accounting for acquisition of other software licenses. Cloud computing arrangement without software licenses are to be accounted for as a service contract. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2016 and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.method.

In July 2015, the FASB issued an accounting standard update that requires inventory to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2017 and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

In January 2016, the FASB issued an accounting standard update which requires equity investments to be measured at fair value with changes in fair value recognized in net income and simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. The accounting standard update also updates certain presentation and disclosure requirements. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2018 and early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

In February 2016, the FASB amended the existing accounting standard for lease accounting. Under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance sheet leases. This new accounting standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The new standard will be effective for the Company beginning in the first quarter of fiscal 2019 and early adoption is permitted. The Company is currently evaluating the methods and impact of adopting this new accounting standard on its consolidated financial statements.

In March 2016, the FASB issued an accounting standard update to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The standard will be effective for the Company beginning in the first quarter of fiscal 2017 and early adoption is permitted. The adoption of this accounting standard update is not expected to have any impact on the financial statements of the Company.

In March 2016, the FASB issued an accounting standard update for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2017 and early adoption is permitted. The Company is currently evaluating the methods and impact of adopting the new accounting standard on its consolidated financial statements.

Standards Implemented

In April 2015, the FASB issued an accounting standard update that requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts. Prior to this accounting update, debt issuance costs were required to be presented as deferred charge assets, separate from the related debt liability. This accounting standard update does not change the recognition and measurement requirements for debt issuance costs. The Company early-adopted this accounting standard update as of the end of its fiscal 2015 in connection with the issuance of convertible senior notes in December 2015 (see Note 11, “Convertible Notes, Other Debts and Capital Leases”),

resulting in the classification of $3.2 million of unamortized debt issuance costs as a deduction from long-term liability on its Consolidated Balance Sheet at December 31, 2015. Other than this transaction, the adoption of this accounting standard update did not have an impact on the Company’s consolidated financial statements.

In November 2015, the FASB issued an accounting standard update that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as non-current on the balance sheet. The Company prospectively early-adopted this accounting standard update as of the end of its fiscal 2015, resulting in $15.9 million of net deferred tax assets, along with its related valuation allowance, being classified as non-current on its Consolidated Balance Sheet at December 31, 2015. Other than this reclassification, the adoption of this accounting standard update did not have an impact on the Company’s consolidated financial statements.

NOTE 3: BUSINESS ACQUISITION

On February 29, 2016, the Company, through its wholly-owned subsidiary Harmonic International AG, completed its acquisition of 100% of the share capital and voting rights of TVN, a global leader in advanced video compression solutions headquartered in Rennes, France, for approximately $84.6 million in cash. The purchase price consideration is provisional as it is still pending post-closing adjustments as set forth in the Securities Purchase Agreement entered into between the Company and the other parties thereto, dated February 11, 2016, (“TVN Purchase Agreement”). The $84.6 million provisional purchase price included an estimate for the contingent consideration of approximately $8.0 million, which has not been paid to date. Pursuant to the TVN Purchase Agreement, $13.5 million of the purchase consideration may remain in escrow for a period of up to 18 months and relates to certain indemnification obligations of TVN’s former equity holders. The TVN acquisition was primarily funded with cash proceeds from the issuance of convertible senior notes by the Company in December 2015. (See Note 11, “Convertible Notes, Other Debts and Capital Leases”for additional information on the notes).

The acquisition of TVN is intended to strengthen the Company’s competitive position in the video infrastructure market as well as to enhance the depth and scale of the Company’s research and development (“R&D”) and service and support capabilities in the video arena. The Company believes that the combined product portfolios, R&D teams and global sales and service personnel will allow the Company to accelerate innovation for its customers while leveraging greater scale to drive operational efficiencies.

The TVN acquisition has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill. The accounting for this business combination is based on currently available information and is considered preliminary.

The provisional purchase price has been allocated on a preliminary basis to tangible and intangible assets acquired and liabilities assumed on the basis of their respective estimated fair values on the acquisition date. The Company will continue to evaluate certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).

The Company’s preliminary allocation of the estimated purchase consideration is as follows (in thousands):



Assets:
Cash and cash equivalents	$	7,063
Accounts receivable, net	14,581
Inventories	3,462
Prepaid expenses and other current assets	5,628
Property and equipment, net	9,988
French R&D tax credit receivables ⁽¹⁾	26,400
Other long-term assets	1,762
Total assets	$	68,884
Liabilities:
Other debts and capital leases, current	7,859
Accounts payable	14,906
Deferred revenue	2,504
Accrued liabilities	17,635
Other debts and capital leases, long-term	16,589
Income taxes payable, long-term	50
Other long-term liabilities	6,415
Deferred tax liabilities	1,216
Total liabilities	$	67,174

Goodwill	39,206
Intangibles	43,670
Total purchase consideration	$	84,586

(1) See Note 8, “Balance Sheet Components-Prepaid expenses and other current assets” for more information on French R&D tax credit receivables”.

The following table presents details of the intangible assets acquired through this business combination (in thousands, except years):



	Estimated Useful Life (in years)	Fair Value
Backlog	6 months	$	3,600
Developed technology	4 years	20,000
Customer relationships	5 years	18,500
In-process research and development	N/A	980
Trade name	4 years	590
		$	43,670

Acquired identifiable intangible assets were valued using the income method and are amortized on a straight line basis over their respective estimated useful lives. Goodwill of $39.2 million arising from the acquisition was derived from expected benefits from the business synergies to be derived from the combined entities and the experienced workforce who joined the Company in connection with the acquisition. The goodwill will be assigned to the Company’s video reporting unit and it is not expected to be deductible for income tax purposes.

The amortization for the developed technology is recorded in “Cost of revenues” for product and the amortization for the remaining intangibles is recorded in “Amortization of intangibles”, which are part of operating expenses, on the Condensed Consolidated Statement of Operations. The intangibles assets acquired will be assigned to the Company’s video reporting unit and are not expected to be deductible for income tax purposes.

The Company also has an indefinite lived asset of $980,000 which represents the fair value of in-process research and development activities. Once the related research and development efforts are completed, the Company will determine whether the asset will continue to be an indefinite lived asset or it has become a finite lived asset and apply the appropriate accounting accordingly. The in-process R&D efforts are estimated to be completed within three to six months of the acquisition date.

The results of operations of TVN are included in the Company’s Condensed Consolidated Statements of Operations beginning February 29, 2016. For the three months ended April 1, 2016, $2.9 million of revenue and $5.5 million of net loss from TVN is included in the Company’s Condensed Consolidated Statement of Operations. For the three months ended April 1, 2016, the Company incurred $3.1 million of acquisition-and integration-related expenses. These costs, which the Company expensed as incurred, consisted primarily of professional fees payable to financial and legal advisors.

Acquisition-and integration-related expenses for the TVN acquisition is summarized in the table below (in thousands):



	Three months ended
	April 1, 2016
Product cost of revenue	$	58
Research and development	50
Selling, general and administrative	2,988
Total acquisition and integration-related expenses in operating expenses	3,038
Total acquisition and integration-related expenses	$	3,096

Pro Forma Financial Information

The following unaudited pro forma summary presents consolidated information of the Company as if the acquisition of TVN had occurred on January 1, 2015, the beginning of the comparable prior annual period. The pro forma adjustments primarily relate to acquisition- and integration-related costs, amortization of acquired intangibles and interest expense related to financing arrangements. The unaudited pro forma combined results are provided for illustrative purpose only and are not indicative of the Company’s actual consolidation results.



	Three months ended
	April 1, 2016			April 3, 2015
	(in millions, except per share amounts)
Net revenue	$	90.6		$	114.8
Net loss	(24.9		)	(19.6		)
Net loss per share-basic and diluted	$	(0.32	)	$	(0.22	)

NOTE 3:4: SHORT-TERM INVESTMENTS

The following table summarizes the Company’s short-term investments (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
As of October 2, 2015
State, municipal and local government agencies bonds	$	2,502	$	1	$	—		$	2,503
As of April 1, 2016
Corporate bonds	23,484		15		(12		)	23,487		18,141		6		(9		)	18,138
Commercial paper										1,100		—		—			1,100
Total short-term investments	$	25,986	$	16	$	(12	)	$	25,990	$	19,241	$	6	$	(9	)	$	19,238
As of December 31, 2014
State, municipal and local government agencies bonds	$	13,946	$	16	$	(1	)	$	13,961
As of December 31, 2015
Corporate bonds	17,899		3		(16		)	17,886		25,557		—		(52		)	25,505
Commercial paper										1,099		—		—			1,099
Total short-term investments	$	31,845	$	19	$	(17	)	$	31,847	$	26,656	$	—	$	(52	)	$	26,604

The following table summarizes the maturities of the Company’s short-term investments (in thousands):


	October 2, 2015		December 31, 2014		April 1, 2016		December 31, 2015
Less than one year	$	20,545	$	30,946	$	15,429	$	19,642
Due in 1 - 2 years	5,445		901		3,809		6,962
Total short-term investments	$	25,990	$	31,847	$	19,238	$	26,604

~~Table of Contents~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Based on their evaluation as of the end of the period covered by this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

~~During~~

Changes in Internal Control over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer evaluated the ~~quarterly period covered by this Form 10-Q, there were no~~ changes in our internal control over financial reporting that occurred during the quarterly period covered by this Form 10-Q. Except as described below, based on their evaluation, it is concluded that there had been no change in our internal control over financial reporting during the quarter ended April 1, 2016 that have materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting. Under guidelines established by the SEC, companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company. We acquired TVN on February 29, 2016 and are in the process of integrating the acquired business into our overall internal control over financial reporting process. TVN’s post acquisition revenue included in the quarter ended April 1, 2016 accounted for approximately 4% of our consolidated net revenue for the three months ended April 1, 2016 and TVN’s total assets as of April 1, 2016 accounted for approximately 15% of our consolidated total assets as of April 1, 2016. We expect to exclude the TVN business from the assessment of internal control over financial reporting until December 31, 2016.

~~Table of Contents~~

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights, commercial, employment, and other matters. While certain matters to which we are a party may specify the damages claimed, such claims may not represent reasonably possible losses. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated.

In October 2011, Avid Technology, Inc. (“Avid”) filed a complaint in the ~~U.S.~~United States District Court for the District of Delaware alleging that ~~our~~Harmonic’s Media Grid product infringes two patents held by Avid. A jury trial on this complaint commenced on January 23, 2014 and, on February 4, 2014, the jury returned a unanimous verdict in our favor, rejecting Avid’s infringement allegations in their entirety. On May 23, 2014, Avid filed a post-trial motion asking the court to set aside the jury’s verdict, and the judge issued an order on December 17, 2014, denying the motion. On January 5, 2015, Avid filed an appeal with respect to the jury’s verdict with the Federal Circuit, which was docketed on January 9, 2015, as Case No. 2015-1246. Avid filed its opening brief with respect to this appeal on March 24, 2015, we filed our response brief on May 7, 2015, and Avid filed its reply brief on June 16, 2015. AnOral arguments were held on December 11, 2015. On January 29, 2016, the Federal Circuit issued an order ~~has not yet been~~vacating the verdict of noninfringement and remanding the case to the trial court for a new trial on infringement. On February 26, 2016, Harmonic filed a request for rehearing and rehearing en banc at the Federal Circuit. On March 31, 2016, the Federal Circuit denied the request for rehearing and rehearing en banc and a mandate issued ~~regarding~~on April 8, 2016. A status conference was held with the ~~scheduling of oral arguments.~~District Court on April 14, 2016. A supplemental claim construction hearing is scheduled for May 27, 2016. There are currently no deadlines beyond the claim construction hearing.

In June 2012, Avid served a subsequent complaint in the ~~U.S.~~United States District Court for the District of Delaware alleging that ~~our~~Harmonic’s Spectrum product infringes one patent held by Avid. The complaint seeks injunctive relief and unspecified damages. In September 2013, the U.S. Patent Trial and Appeal Board (“PTAB”) authorized an inter partes review to be instituted as to claims 1-16 of the patent asserted in this second complaint. A hearing before the PTAB was conducted on May 20, 2014. On July 10, 2014, the PTAB issued a decision finding claims ~~1 - 10~~1-10 invalid and claims ~~11 - 16~~11-16 not invalid. We filed an appeal with respect to the PTAB’s decision on claims ~~11 - 16~~11-16 on September 11, 2014. The appeal was docketed with the Federal Circuit on October 22, 2014, as Case No. 2015-1072, and we filed our opening brief with respect to this appeal on January 29, 2015. Avid and PTAB each filed a response brief on April 27, 2015, and we filed a reply brief on May 28, 2015. Oral arguments were held on October 8, 2015. The Federal Circuit ~~has not yet~~ issued an order ~~in this matter.~~

on March 1, 2016, affirming the PTAB’s decision and a mandate issued on April 7, 2016. The litigation is currently stayed.

We are unable to predict the outcome of these lawsuits and therefore are unable to estimate an amount or range of any reasonably possible losses resulting from them. An unfavorable outcome on any litigation matter could require us to pay substantial damages, or, in connection with any intellectual property infringement claims, could require that we pay ongoing royalty payments or could prevent us from selling certain of our products. As a result, a settlement of, or an unfavorable outcome on, any of the matters referenced above or other litigation matters could have a material adverse effect on our business, operating results, financial condition and cash flows.

ITEM 1A. RISK FACTORS

We depend on cable, satellite and telco, and broadcast and media industry capital spending for our revenue and any material decrease or delay in capital spending in any of these industries would negatively impact our operating results, financial condition and cash flows.

Our revenue has been derived from worldwide sales to service providers and broadcast and media companies, as well as, more recently, emerging streaming media companies. We expect that these markets will provide our revenue for the foreseeable future. Demand for our products will depend on the magnitude and timing of capital spending by customers in each of these markets for the purpose of creating, expanding or upgrading their systems. These capital spending patterns are dependent on a variety of factors, including:

• the impact of general economic conditions, actual and projected;

• access to financing;

• annual capital spending budget cycles of each of the industries we serve;

• the impact of industry consolidation;

~~Table of Contents~~

• customers suspending or reducing capital spending in anticipation of: (i) new standards, such as HEVC and DOCSIS 3.1; (ii) industry trends and technology shifts, such as virtualization, and (iii) new products, such as products based on the VOS software platform or the CCAP architecture;

• federal, state, local and foreign government regulation of telecommunications, television broadcasting and streaming media;

• overall demand for communication services and consumer acceptance of new video and data technologies and services;

• competitive pressures, including pricing pressures;

• the impact of fluctuations in currency exchange rates; and

• discretionary end-user customer spending patterns.

In the past, specific factors contributing to reduced capital spending have included:

• weak or uncertain economic and financial conditions in the U.S. or one or more international markets;

• uncertainty related to development of digital video industry standards;

• delays in evaluations of new services, new standards and systems architectures by many operators;

• emphasis by operators on generating revenue from existing customers, rather than from new customers, through construction, expansion or upgrades;

• a reduction in the amount of capital available to finance projects of our customers and potential customers;

• proposed and completed business combinations and divestitures by our customers and the length of regulatory review of each;

• completion of a new system or significant expansion or upgrade to a system; and

• bankruptcies and financial restructuring of major customers.

In the past, adverse economic conditions in one or more of the geographies in which we offer our products have adversely affected our customers’ capital spending in those geographies and, as a result, our business. During challenging economic times, and in tight credit markets, many customers may delay or reduce capital expenditures. This could result in reductions in revenue from our products, longer sales cycles, difficulties in collection of accounts receivable, slower adoption of new technologies and increased price competition. If global economic and market conditions, or economic conditions in the U.S., Europe or other key markets, deteriorate, we could experience a material and adverse effect on our business, results of operations, financial condition and cash flows. Additionally, since most of our international revenue is denominated in U.S. dollars, global economic and market conditions may impact currency exchange rates and cause our products to become relatively more expensive to customers in a particular country or region, which could lead to delayed or reduced capital spending in those countries or regions, thereby negatively impacting our business and financial condition.

In addition, industry consolidation has in the past constrained, and may in the future constrain or delay, capital spending by our customers. Further, if our product portfolio and product development plans do not position us well to capture an increased portion of the capital spending of customers in the markets on which we focus, our revenue may decline.

As a result of these capital spending issues, we may not be able to maintain or increase our revenue in the future, and our operating results, financial condition and cash flows could be materially and adversely affected.

The markets in which we operate are intensely competitive.

The markets for our products are extremely competitive and have been characterized by rapid technological change and declining average sales prices in the past. Our competitors in our Video business segment include vertically integrated system suppliers, such as Arris Group, Cisco Systems and Ericsson, and, in certain product lines, ~~a number of~~ other companies

~~Table of Contents~~

including ATEME and Sumavision ~~Technologies and Thomson Video Networks.~~Technologies. With respect to production and playout products, competitors include Evertz Microsystems, EVS, Grass Valley (a Belden brand) and Imagine Communications. Our competitors in our Cable Edge business include Arris, Casa Systems and Cisco Systems.

Many of our competitors are substantially larger, or as a result of consolidation activity have become larger, and have greater financial, technical, marketing and other resources than we have, and have been in operation longer than we have. Consolidation in the industry has led to the acquisition of a number of our historic competitors over the last several years. For example, Motorola Home, BigBand Networks and C-Cor were acquired by Arris; NDS and Scientific Atlanta were acquired by Cisco Systems; Envivio and Tandberg Television ~~and Envivio~~ were acquired by Ericsson; Elemental Technologies was acquired by Amazon; and Miranda Technologies and Grass Valley were acquired by Belden Inc.

In addition, some of our larger competitors have more long-standing and established relationships with domestic and foreign customers. Many of these large enterprises are in a better position to withstand any significant reduction in capital spending by customers in our markets. They often have broader product lines and market focus, and may not be as susceptible to downturns in a particular market. These competitors may also be able to bundle their products together to meet the needs of a particular customer, and may be capable of delivering more complete solutions than we are able to provide. To the extent large enterprises that currently do not compete directly with us choose to enter our markets by acquisition or otherwise, competition would likely intensify.

Further, some of our competitors that have greater financial resources have offered, and in the future may offer, their products at lower prices than we offer for our competing products or on more attractive financing or payment terms, which has in the past caused, and may in the future cause, us to lose sales opportunities and the resulting revenue or to reduce our prices in response to that competition. Also, some competitors that are smaller than we are have engaged in, and may continue to engage in, aggressive price competition in order to gain customer traction and market share. Reductions in prices for any of our products could materially and adversely affect our operating margins and revenue.

Additionally, certain customers and potential customers have developed, and may continue to develop, their own solutions that may cause such customers or potential customers to not consider our product offerings or to displace our installed products with their own solutions. The growing availability of open source codecs and related software, as well as new server chipsets that incorporate encoding technology, has, in certain respects, lowered the barriers to entry for the video processing industry. The development of solutions by potential and existing customers and the reduction of the barriers to entry to enter the video processing industry could result in increased competition and adversely affect our results of operations and business.

If any of our competitors’ products or technologies were to become the industry standard, our business could be seriously harmed. If our competitors are successful in bringing their products to market earlier than us, or if these products are more technologically capable than ours, our revenue could be materially and adversely affected.

We need to develop and introduce new and enhanced products in a timely manner to meet the needs of our customers and to remain competitive.

All of the markets we address are characterized by continuing technological advancement, changes in customer requirements and evolving industry standards. To compete successfully, we must continually design, develop, manufacture and sell new or enhanced products that provide increasingly higher levels of performance and reliability and meet our customers changing needs. However, we may not be successful in those efforts if, among other things, our products:

• are not cost effective;

• are not brought to market in a timely manner;

• are not in accordance with evolving industry standards;

• fail to meet market acceptance or customer requirements; or

• are ahead of the needs of their markets.

We are currently developing and marketing products based on ~~established~~the latest video compression standards, such as HEVC, which provides significantly greater compression efficiency, thereby making more bandwidth available to operators. At the same time, we continue to devote development resources to enhance the existing MPEG-4 AVC/H.264 compression of our products, which

~~Table of Contents~~

many of our customers continue to require. There can be no assurance that these efforts will be successful in the near future, or at all, or that our competitors will not take significant market share in encoding or transcoding.

In order to attempt to meet fast paced, dynamic, evolving standards and customer requirements, we are intensifying our development efforts on a number of our product solutions in our Video and Cable Edge businesses. ~~In 2014, we announced our~~Our VOS solution is a software-based, fully virtualized platform that we are developing to unify the entire media processing chain, from ingest to delivery, and which is designed to operate on common server hardware in data center environments. ~~We also recently introduced the~~ Electra XVM ~~software product,~~is our first video media processing and encoding product family based on this ~~platform.~~platform, with the latest version supporting HEVC compression. We believe some of our customers have been delaying their purchase decisions ~~until~~as they consider transitioning to virtualized solutions or wait for new products based on our ~~new~~ VOS software platform, ~~and incorporating Ultra HD and HEVC technologies are deployed,~~ which has adversely affected our revenue from video products in recent periods. In our Cable Edge business, we ~~recently introduced the~~continue to develop our CCAP solutions based on a distributed access architecture and utilizing our NSG Exo ~~distributed CCAP~~ product, and we continue to develop, market and sell our NSG Pro centralized CCAP product solutions.

Many of these products and initiatives are intended to integrate existing and new features and functions in response to shifts in customer demands in the relevant market, as well as to general technology trends (such as virtualized and cloud-based computing, and integrated QAM and CMTS functionality in CCAP-based products) that we believe will significantly impact our industry. The success of these significant and costly development efforts will be predicated, for certain products and initiatives, on the timing of market adoption of the new standards on which the resulting products are based, and for other products, the timing of customer adoption of our products and solutions, as well as our ability to timely develop the features and capabilities of our products and solutions. If new standards or some of our new products are adopted later than we predict or not adopted at all, or if adoption occurs earlier than we are able to deliver the applicable products or functionality, we risk spending significant research and development time and dollars on products or features that may never achieve market acceptance or that miss the customer demand window and thus do not produce the revenue that a timely introduction would have likely produced.

If we fail to develop and market new and enhanced products on a timely basis, our operating results, financial condition and cash flows could be materially and adversely affected.

Our CCAP-based product initiatives expose us to certain technology transition risks that may adversely impact our operating results, financial condition and cash flows.

In the last few years, the cable industry has begun to develop and promulgate the CCAP architecture for next-generation cable edge solutions, which combines edge QAM and CMTS functions in a single system in order to combine resources for video and data delivery. We believe CCAP-based systems, both centralized and remote PHY solutions, will significantly reduce cable headend costs and increase operational efficiency, and are an important step in cable operators’ transition to all-IP networks. We ~~have begun to~~ market and sell ~~centralized and distributed~~ CCAP-based products, and are developing ~~the~~ CMTS capabilities ~~in our centralized CCAP products and universal edge QAM capabilities in our distributed CCAP products~~ to make our products fully-compliant with current and future CCAP architecture standards. If we are unsuccessful in developing these capabilities in a timely manner, or are otherwise delayed in making such capabilities available to our customers, our business may be adversely impacted, particularly if our competitors develop and market fully compliant products before we do.

We believe CCAP-based systems may, over time, replace and make obsolete current cable edge QAM solutions, including our cable edge QAM products, as well as current CMTS solutions, which is a market our products have previously not addressed. If demand for our CCAP-based systems is weaker than expected, or sales of our CCAP-based systems do not adequately offset the expected decline in demand for our non-CCAP cable edge products, or the decline in demand for our non-CCAP cable edge products is more rapid and precipitous than expected, our near and long-term operating results, financial condition and cash flows could be adversely impacted. Moreover, if a new or competitive architecture for next-generation cable edge solutions is promulgated that renders our CCAP-based systems obsolete, our business may be adversely impacted.

Our future growth depends on market acceptance of several broadband services, on the adoption of new broadband technologies, and on several other broadband industry trends.

Future demand for many of our products will depend significantly on the growing market acceptance of emerging broadband services, including digital video, VOD, HDTV, IP video services (particularly streaming to tablet computers, connected TVs

and mobile devices), and very high-speed data services. The market demand for such emerging services is rapidly growing, with many custom or proprietary systems in use, which increases the challenge of delivering interoperable products intended to address the requirements of such services.

~~Table of Contents~~

The effective delivery of these services will depend, in part, on a variety of new network architectures, standards and devices, such as:

• the adoption of advanced video compression standards, such as next generation H.264 compression and HEVC;

• the CCAP architecture;

• fiber to the premises, or FTTP, networks designed to facilitate the delivery of video services by telcos;

• the greater use of protocols such as IP;

• the further adoption of bandwidth-optimization techniques, such as DOCSIS 3.0 and DOCSIS 3.1; and

• the introduction of new consumer devices, such as advanced set-top boxes, DVRs and ~~NDVRs,~~network DVRs, connected TVs, tablet computers, and a variety of smart phone mobile devices.

If adoption of these emerging services and/or technologies is not as widespread or as rapid as we expect, or if we are unable to develop new products based on these technologies on a timely basis, our operating results, financial condition and cash flows could be materially and adversely affected.

Furthermore, other technological, industry and regulatory trends and requirements may affect the growth of our business.

These trends and requirements include the following:

• convergence, ~~or the need of~~whereby network operators ~~to deliver a package of~~bundle video, voice and data services to consumers, including mobile delivery options;

• the increasing availability of traditional broadcast video content and video-on-demand on the Internet;

• adoption of high-bandwidth technology, such as DOCSIS 3.x, next generation LTE and FTTP;

• the use of digital video by businesses, governments and educational institutions;

• efforts by regulators and governments in the U.S. and internationally to encourage the adoption of broadband and digital technologies, as well as to regulate broadband access and delivery;

• consumer interest in higher resolution video such as Ultra HD or retina-display technologies on mobile devices;

• the need to develop partnerships with other companies involved in video infrastructure workflow and broadband services;

• the continued adoption of the television viewing behaviors of consumers in developed economies by the growing middle class across emerging economies;

• the extent and nature of regulatory attitudes towards issues such ~~issues~~ as network neutrality, competition between operators, access by third parties to networks of other operators, local franchising requirements for telcos to offer video, and other new services, such as mobile video; and

• the outcome of disputes and negotiations between content owners and service providers regarding rights of service providers to store and distribute recorded broadcast content, which outcomes may drive adoption of one technology over another in some cases.

If we fail to recognize and respond to these trends, by timely developing products, features and services required by these trends, we are likely to lose revenue opportunities and our operating results, financial condition and cash flows could be materially and adversely affected.

We depend significantly on our international revenue and are subject to the risks associated with international operations, including those of our resellers, contract manufacturers and outsourcing partners, which may negatively affect our operating results.

~~Table of Contents~~

Revenue derived from customers outside of the U.S. in ~~each~~the three months ended of ~~the first nine months of~~April 1, 2016 and April 3, 2015 ~~and 2014~~ represented approximately ~~52%~~49% and 50% of our ~~revenue.~~revenue, respectively. Although no assurance can be given with respect to international sales growth in any one or more regions, we expect that international revenue will likely continue to represent, from year to year, a majority, and potentially increasing, percentage of our annual revenue for the foreseeable future. A significant percentage of our revenue is generated from sales to resellers, value-added resellers (“VARs”) and systems integrators, particularly in emerging market countries. Furthermore, a significant percentage of our employees are based in our international offices and locations, and most of our contract manufacturing occurs outside of the U.S. In addition, we outsource a portion of our research and development activities to certain third party partners with development centers located in different countries, particularly Ukraine and India.

Our international operations, the international operations of our resellers, contract manufacturers and outsourcing partners, and our efforts to maintain and increase revenue in international markets are subject to a number of risks, which are generally greater with respect to emerging market countries, including the following:

• growth and stability of the economy in one or more international regions;

• fluctuations in currency exchange rates;

• changes in foreign government regulations and telecommunications standards;

• import and export license requirements, tariffs, taxes and other trade barriers;

• our significant reliance on resellers and others to purchase and resell our products and solutions, particularly in emerging market countries;

• availability of credit, particularly in emerging market countries;

• difficulty in collecting accounts receivable, especially from smaller customers and resellers, particularly in emerging market countries;

• compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act ~~particularly in emerging market countries~~ and/or similar anti-corruption and anti-bribery ~~laws;~~laws, particularly in emerging market countries;

• the burden of complying with a wide variety of foreign laws, treaties and technical standards;

• fulfilling “country of origin” requirements for our products for certain customers;

• difficulty in staffing and managing foreign operations;

• business and operational disruptions or delays caused by political, social and economic instability and unrest, including risks related to terrorist activity, particularly in emerging market countries (e.g., recent significant civil, political and economic disturbances in Russia and Ukraine);

• changes in economic policies by foreign governments, including the imposition and potential continued expansion of economic sanctions by the U.S. and the European Union on the Russian Federation; and

• business and economic disruptions and delays caused by outbreaks of disease, epidemics and potential pandemics.

We have certain international customers who are billed in their local currency, primarily the Euro, British pound and Japanese yen, which subjects us to foreign currency risk. In addition, a portion of our operating expenses relating to the cost of certain international employees, are denominated in foreign currencies, primarily the Israeli shekel, British pound, Euro, Singapore dollar, Chinese yuan and Indian rupee, although we do hedge against the Israeli shekel. Gains and losses on the conversion to U.S. dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in our operating results. Furthermore, payment cycles for international customers are

typically longer than those for customers in the U.S. Unpredictable payment cycles could cause us to fail to meet or exceed the expectations of security analysts and investors for any given period.

Most of our international revenue is denominated in U.S. dollars, and fluctuations in currency exchange rates could cause our products to become relatively more expensive to customers in a particular country or region, leading to a reduction in revenue or profitability from sales in that country or region. The potential negative impact of a strong U.S. dollar on our business may

~~Table of Contents~~

be exacerbated by the significant devaluation of a number of foreign currencies. Also, if the U.S. dollar were to weaken against many foreign currencies, there can be no assurance that a weaker dollar would lead to growth in capital spending in foreign markets.

Our operations outside the U.S. also require us to comply with a number of U.S. and international regulations that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for corrupt purposes. For example, our operations in countries outside the U.S. are subject to the FCPA and similar laws, including the U.K. Bribery Act. Our activities in certain emerging countries create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or channel partners that could be in violation of various anti-corruption laws, even though these parties may not be under our control. Under the FCPA and U.K. Bribery Act, companies may be held liable for the corrupt actions taken by their directors, officers, employees, channel partners, sales agents, consultants, or other strategic or local partners or representatives. We have internal control policies and procedures with respect to FCPA compliance, have implemented FCPA training and compliance programs for our employees, and include in our agreements with resellers a requirement that those parties comply with the FCPA. However, we cannot provide assurances that our policies, procedures and programs will prevent violations of the FCPA or similar laws by our employees or agents, particularly in emerging market countries, and as we expand our international operations. Any such violation, even if prohibited by our policies, could result in criminal or civil sanctions against us.

The effect of one or more of these international risks could have a material and adverse effect on our business, financial condition, operating results and cash flows.

We purchase several key components, subassemblies and modules used in the manufacture or integration of our products from sole or limited sources, and we rely on contract manufacturers and other subcontractors.

Many components, subassemblies and modules necessary for the manufacture or integration of our products are obtained from a sole supplier or a limited group of suppliers. For example, we depend on one supplier for certain video encoding chips which are incorporated into several products. Our reliance on sole or limited suppliers, particularly foreign suppliers, and our reliance on contractors for manufacturing and installation of our products, involves several risks, including a potential inability to obtain an adequate supply of required components, subassemblies or modules; reduced control over costs, quality and timely delivery of components, subassemblies or modules; supplier discontinuation of components, subassemblies or modules we require; and timely installation of products.

These risks could be heightened during a substantial economic slowdown, because our suppliers and subcontractors are more likely to experience adverse changes in their financial condition and operations during such a period. Further, these risks could materially and adversely affect our business if one of our sole sources, or a sole source of one of our suppliers or contract manufacturers, is adversely affected by a natural disaster. While we expend resources to qualify additional component sources, consolidation of suppliers and the small number of viable alternatives have limited the results of these efforts. Managing our supplier and contractor relationships is particularly difficult during time periods in which we introduce new products and during time periods in which demand for our products is increasing, especially if demand increases more quickly than we expect.

Plexus Services Corp., which manufactures our products at its facilities in Malaysia, currently serves as our primary contract manufacturer, and currently provides us with a substantial majority, by dollar amount, of the products that we purchase from our contract manufacturers. Most of the products manufactured by our Israeli operations are outsourced to another third party manufacturer in Israel. From time to time we assess our relationship with our contract manufacturers, and we do not generally maintain long-term agreements with any of our suppliers or contract manufacturers. Our agreement with Plexus has automatic annual renewals, unless prior notice is given by either party, and has been automatically renewed until October 2016.

Difficulties in managing relationships with any of our current contract manufacturers, particularly Plexus, that manufacture our products off-shore, or any of our suppliers of key components, subassemblies and modules used in our products, could impede our ability to meet our customers’ requirements and adversely affect our operating results. An inability to obtain adequate and timely deliveries of our products or any materials used in our products, or the inability of any of our contract manufacturers to scale their production to meet demand, or any other circumstance that would require us to seek alternative sources of supply, could negatively affect our ability to ship our products on a timely basis, which could damage relationships with current and

prospective customers and harm our business and materially and adversely affect our revenue and other operating results. Furthermore, if we fail to meet customers’ supply expectations, our revenue would be adversely affected and we may lose sales opportunities, both short and long term, which could materially and adversely affect our business and our operating results, financial condition and cash flows. Increases, from time to time, in demand on our suppliers and subcontractors from our customers or from other parties have, on occasion, caused delays in the availability of certain components and products. In response, we may increase our inventories of certain components and products and expedite shipments of our products when necessary. These

~~Table of Contents~~

actions could increase our costs and could also increase our risk of holding obsolete or excess inventory, which, despite our use of a demand order fulfillment model, could materially and adversely affect our business, operating results, financial condition and cash flows.

The loss of one or more of our key customers, a failure to continue diversifying our customer base, or a decrease in the number of larger transactions could harm our business and our operating results.

Historically, a significant portion of our revenue has been derived from relatively few customers, due in part to the consolidation of the ownership of cable television and direct broadcast satellite system companies. Sales to our top ten customers in the ~~first nine~~three months ofended April 1, 2016 and April 3, 2015 ~~and 2014~~ accounted for approximately ~~34%~~40% and ~~37%~~44% of ~~our~~ revenue, respectively. Although we have broadened our customer base by further penetrating new markets and expanding internationally, we expect to see continuing industry consolidation and customer concentration.

In the ~~first nine~~three months ~~of 2015 and 2014,~~ended April 1, 2016, revenue from Time Warner Cable accounted for 13% of our revenue and in the three months ended April 3, 2015, Comcast accounted for approximately ~~13% and 18%~~20% of our revenue, respectively, and further consolidation in the cable industry could lead to additional revenue concentration for us. The loss of Time Warner Cable, Comcast or any other significant customer, any material reduction in orders by Comcast or any other significant customer, or our failure to qualify our new products with a significant customer could materially and adversely affect, either long term or in a particular quarter, our operating results, financial condition and cash flows. In addition, we are involved in most quarters in one or more relatively large individual transactions. A decrease in the number of the relatively larger individual transactions in which we are involved in any quarter could materially and adversely affect our operating results for that quarter.

As a result of these and other factors, we may be unable to increase our revenues from some or all of the markets we address, or to do so profitably, and any failure to increase revenues and profits from these customers could materially and adversely affect our operating results, financial condition and cash flows.

We rely on resellers, ~~value-added resellers~~VARs and systems integrators for a significant portion of our revenue, and disruptions to, or our failure to develop and manage our relationships with these customers or the processes and procedures that support them could adversely affect our business.

We generate a significant percentage of our revenue through sales to resellers, VARs and systems integrators that assist us with fulfillment or installation obligations. We expect that these sales will continue to generate a significant percentage of our revenue in the future. Accordingly, our future success is highly dependent upon establishing and maintaining successful relationships with a variety of channel partners.

We generally have no long-term contracts or minimum purchase commitments with any of our reseller, VAR or system integrator customers, and our contracts with these parties do not prohibit them from purchasing or offering products or services that compete with ours. Our competitors may provide incentives to any of our reseller, VAR or systems integrator customers to favor their products or, in effect, to prevent or reduce sales of our products. Any of our reseller, VAR or systems integrator customers may independently choose not to purchase or offer our products. Many of our resellers, and some of our VARs and system integrators are small, are based in a variety of international locations, and may have relatively unsophisticated processes and limited financial resources to conduct their business. Any significant disruption of our sales to these customers, including as a result of the inability or unwillingness of these customers to continue purchasing our products, or their failure to properly manage their business with respect to the purchase of, and payment for, our products, could materially and adversely affect our business, operating results, financial condition and cash flows. In addition, our failure to continue to establish or maintain successful relationships with reseller, VAR and systems integrator customers could likewise materially and adversely affect our business, operating results, financial condition and cash flows.

We have made, and may continue to make, acquisitions, and any acquisition could disrupt our operations, cause dilution to our stockholders and materially and adversely affect our business, operating results, cash flows and financial condition.

As part of our business strategy, from time to time we have acquired, and we may continue to acquire, businesses, technologies, assets and product lines that we believe complement or expand our existing business. For example, on February 29, 2016, we

announced the closing of our acquisition of TVN, which is headquartered in Rennes, France. Acquisitions involve numerous risks, including the following:

• unanticipated costs or delays associated with an acquisition;

• difficulties in the assimilation and integration of acquired operations, technologies and/or products;

• potential disruption of our business and the diversion of management’s attention from the regular operations of the business during the acquisition process;

• the challenges of managing a larger and more geographically widespread operation and product portfolio after the closing of the acquisition;

• potential adverse effects on new and existing business relationships with suppliers, contract manufacturers, resellers, partners and customers;

• compliance with regulatory requirements, such as local employment regulations and organized labor in France;

• risks associated with entering markets in which we may have no or limited prior experience;

• the potential loss of key employees of acquired businesses and our own business as a result of integration;

• difficulties in bringing acquired products and businesses into compliance with applicable legal requirements in jurisdictions in which we operate and sell products;

• impact of known potential liabilities or unknown liabilities, including litigation and infringement claims, associated with companies we acquire;

• substantial charges for acquisition costs or for the amortization of certain purchased intangible assets, deferred stock compensation or similar items;

• substantial impairments to goodwill or intangible assets in the event that an acquisition proves to be less valuable than the price we paid for it;

• delays in realizing, or failure to realize, the anticipated benefits of an acquisition; and

• the possibility that any acquisition may be viewed negatively by our customers or investors or the financial markets.

Competition within our industry for acquisitions of businesses, technologies, assets and product lines has been, and is likely to continue to be, intense. As such, even if we are able to identify an acquisition that we would like to consummate, we may not be able to complete the acquisition on commercially reasonable terms or because the target chooses to be acquired by another company. Furthermore, in the event that we are able to identify and consummate any future acquisitions, we may, in each of those acquisitions:

• issue equity securities which would dilute current stockholders’ percentage ownership;

• incur substantial debt to finance the acquisition or assume substantial debt in the acquisition;

• incur significant acquisition-related expenses;

• assume substantial liabilities, contingent or otherwise; or

• expend significant cash.

These financing activities or expenditures could materially and adversely affect our operating results, cash flows and financial condition or the price of our common stock. Alternatively, due to difficulties in the capital or credit markets at the time, we may be unable to secure capital necessary to complete an acquisition on reasonable terms, or at all. Moreover, even if we were to obtain benefits from acquisitions in the form of increased revenue and earnings per share, there may be a delay between the time the expenses associated with an acquisition are incurred and the time we recognize such benefits.

In addition to the risks outlined above, the success of the TVN acquisition will depend, in part, on our ability to successfully integrate TVN’s business and operations, including the successful implementation of the Harmonic 2016 Restructuring Plan to streamline our corporate organization, thereby reducing operating costs by consolidating duplicative resources in connection with the TVN acquisition, address product and customer overlaps between the two entities and fully realize the anticipated benefits and potential synergies from combining our business with TVN’s business. If we are unable to achieve these objectives, the anticipated benefits and potential synergies of the acquisition may not be realized fully or at all or may take longer to realize than expected. Any failure to timely realize these anticipated benefits would have a material adverse effect on our business, operating results and financial condition. Additionally, the integration process could result in the loss of key employees or key customers, decreases in revenues and increases in operating costs, as well as the disruption of each company’s ongoing businesses, any or all of which could limit our ability to achieve the anticipated benefits and synergies of the acquisition and could have an adverse effect on our business, operating results and financial condition. Further, if we are unable to successfully receive payment of TVN’s existing French R&D tax credit receivables from the French tax authority as expected, or are unable to successfully apply for or otherwise obtain the financial benefit of new French R&D tax credits in future years, our ability to achieve the anticipated benefits of the acquisition as well as our business, operating results and financial condition could be adversely affected.

As of April 1, 2016, we had approximately $237.9 million of goodwill recorded on our balance sheet associated with prior acquisitions. In the event we determine that our goodwill is impaired, we would be required to write down all or a portion of such goodwill, which could result in a material non-cash charge to our results of operations in the period in which such write-down occurs.

If we are unable to successfully address one or more of these risks, our business, operating results, financial condition and cash flows could be materially and adversely affected.

We may not be able to effectively manage our ~~operations or implement strategic organizational initiatives.~~operations.

We have grown significantly, ~~primarily~~principally through acquisitions, and expanded our international operations. ~~Upon~~For example, upon the closing of our acquisition of ~~Scopus in 2009,~~TVN on February 29, 2016, we added ~~221~~438 employees, most of ~~whom~~who are based in ~~Israel. Upon the closing of the acquisition of Omneon in 2010, we added 286 employees, most of whom are based in the U.S.~~France.

As of ~~October 2, 2015,~~April 1, 2016, we had ~~489~~897 employees in our international operations, representing approximately ~~48%~~63% of our worldwide workforce. Our ability to manage our business effectively in the future, including with respect to any future growth, our operation as both a hardware and increasingly software-centric business, the integration of any acquisition efforts such as our recent acquisition of TVN, and the breadth of our international operations, will require us to train, motivate and manage our employees successfully, to attract and integrate new employees into our overall operations, to retain key employees and to continue to improve and evolve our operational, financial and management systems. There can be no assurance that we will be successful in any of these efforts,

~~Table of Contents~~

and our failure to effectively manage our operations could have a material and adverse effect on our business, operating results, cash flows and financial condition.

The fact that our employees are spread out in offices around the world also may present additional challenges when we initiate certain strategic initiatives. For example, we have an ongoing program to increase the efficiency and effectiveness of our worldwide sales organization. There can be no assurance that this initiative will achieve success or improve our revenue, operating results or financial condition. We may encounter communication, coordination, management and motivational challenges as we work to align our global sales teams with the stated objectives of this program, which could cause disruptions and delays within the sales organization and in their sales activities. In addition, the investment and costs associated with this strategic initiative may be greater than anticipated, and may outweigh any benefits achieved, which could adversely affect our operating results.

We face risks associated with having outsourced engineering resources located in Ukraine.

We outsource a portion of our research and development activities to a third-party partner with engineering resources located in Ukraine. Political, social and economic instability and unrest or violence in Ukraine, including the ongoing conflict with Russian-backed separatists or conflict with the Russian Federation directly, could cause disruptions to the business and operations of our outsourcing partner, which could slow or delay the development work our partner is undertaking for us. Instability, unrest or conflict could limit or prevent our employees from traveling to, from, or within Ukraine to direct and coordinate our outsourced engineering teams, or cause us to shift all or portions of the development work occurring in Ukraine to other locations or countries. The resulting delays could negatively impact our product development efforts, operating results and our business.

We face risks associated with having facilities and employees located in Israel.

As of ~~October 2, 2015,~~April 1, 2016, we maintained facilities ~~in two locations~~ in Israel with a total of ~~173~~174 employees, or approximately ~~17%~~12% of our worldwide workforce. Our employees in Israel engage in a number of activities, including research and development, product development, and supply chain management for certain product lines and sales activities.

As such, we are directly affected by the political, economic and military conditions affecting Israel. Any significant conflict involving Israel could have a direct effect on our business or that of our Israeli contract manufacturers, in the form of physical damage or injury, restrictions from traveling or reluctance to travel to from or within Israel by our Israeli and other employees

or those of our subcontractors, or the loss of Israeli employees to active military duty. Most of our employees in Israel are currently obligated to perform annual reserve duty in the Israel Defense Forces, and approximately ~~11%~~7% of those employees were called for active military duty in ~~2014.~~2015. In the event that more of our employees are called to active duty, certain of our research and development activities may be significantly delayed and adversely affected. Further, the interruption or curtailment of trade between Israel and its trading partners, as a result of terrorist attacks or hostilities, conflicts between Israel and any other Middle Eastern country or organization, or any other cause, could significantly harm our business. Additionally, current or future tensions or conflicts in the Middle East could materially and adversely affect our business, operating results, financial condition and cash flows.

Our operating results are likely to fluctuate significantly and, as a result, may fail to meet or exceed the expectations of securities analysts or investors, causing our stock price to decline.

Our operating results have fluctuated in the past and are likely to continue to fluctuate in the future, on an annual and a quarterly basis, as a result of several factors, many of which are outside of our control. Some of the factors that may cause these fluctuations include:

• the level and timing of capital spending of our customers in the U.S., Europe and in other foreign markets;

• economic and financial conditions specific to each of the cable, satellite and telco, and broadcast and media industries, as well as general economic and financial market conditions;

• changes in market acceptance of and demand for our products or our customers’ services or products;

• the timing and amount of orders, especially from large individual transactions and transactions with our significant customers;

• the mix of our products sold and the effect it has on gross margins;

~~Table of Contents~~

• the timing of revenue recognition, including revenue recognition on sales arrangements and from transactions with significant service and support components, which may span several quarters;

• the timing of completion of our customers’ projects;

• the length of each customer product upgrade cycle and the volume of purchases during the cycle;

• competitive market conditions, including pricing actions by our competitors;

• the level and mix of our domestic and international revenue;

• new product introductions by our competitors or by us;

• changes in domestic and international regulatory environments affecting our business;

• the evaluation of new services, new standards and system architectures by our customers;

• the cost and timely availability to us of components, subassemblies and modules;

• the mix of our customer base, by industry and size, and sales channels;

• changes in our operating and extraordinary expenses;

• the timing of acquisitions and dispositions by us and the financial impact of such transactions;

• impairment of our goodwill and intangibles;

• the impact of litigation, such as related litigation expenses and settlement costs;

• write-downs of inventory and investments;

~~• whether the research and development tax is renewed for 2015 and beyond;~~

• changes in our effective federal tax rate, including as a result of changes in our valuation allowance against our deferred tax assets, and changes in our effective state tax rates, including as a result of apportionment;

• changes to tax rules related to the deferral of foreign earnings and compliance with foreign tax rules;

• the impact of applicable accounting guidance on accounting for uncertainty in income taxes that requires us to establish reserves for uncertain tax positions and accrue potential tax penalties and interest; and

• the impact of applicable accounting guidance on business combinations that requires us to record charges for certain acquisition related costs and expenses and generally to expense restructuring costs associated with a business combination subsequent to the acquisition date.

The timing of deployment of our products by our customers can be subject to a number of other risks, including the availability of skilled engineering and technical personnel, the availability of third party equipment and services, our customers’ ability to negotiate and enter into rights agreements with video content owners that provide the customers with the right to deliver certain video content, and our customers’ need for local franchise and licensing approvals.

We often recognize a substantial portion of our quarterly revenue in the last month of the quarter. We establish our expenditure levels for product development and other operating expenses based on projected revenue levels for a specified period, and expenses are relatively fixed in the short term. Accordingly, even small variations in the timing of revenue, particularly from relatively large individual transactions, can cause significant fluctuations in operating results in a particular quarter.

As a result of these factors and other factors, our operating results in one or more future periods may fail to meet or exceed the expectations of securities analysts or investors. In that event, the trading price of our common stock would likely decline.

~~Table of Contents~~

Fluctuations in our future effective tax rates could affect our future operating results, financial condition and cash flows.

We are required to periodically review our deferred tax assets and determine whether, based on available evidence, a valuation allowance is necessary. The realization of our deferred tax assets, which are predominantly in the ~~United States,~~U.S., is dependent upon the generation of sufficient U.S. and foreign taxable income in the future to offset these assets. Based on our evaluation, a history of operating losses in recent years has led to uncertainty with respect to our ability to realize certain of our net deferred tax assets, and as a result we recorded a net increase in valuation allowance of $29.0 million and $3.1 million in 2014 and 2015, respectively, against U.S. net deferred tax assets.

The calculation of tax liabilities involves dealing with uncertainties in the application of complex global tax regulations. We recognize potential liabilities for anticipated tax audit issues in the ~~United States~~U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. In the event we determine that it is appropriate to create a reserve or increase an existing reserve for any such potential liabilities, the amount of the additional reserve is charged as an expense in the period in which it is determined. If payment of these amounts ultimately proves to be unnecessary, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary. If the estimate of tax liabilities proves to be less than the ultimate tax assessment for the applicable period, a further charge to expense in the period such short fall is determined would result. Either such charge to expense could have a material and adverse effect on our operating results for the applicable period. ~~In addition, recent statements from the Internal Revenue Service have indicated their intent to seek greater disclosure by companies of their reserves for uncertain tax positions.~~

In July 2015, we were notified by the U.S. Internal Revenue Service that our 2012 U.S. corporate income tax return had been selected for audit, which commenced in August 2015. We were also notified in August 2015 by the County of Santa Clara, California, of a new property tax audit for the 2012 through 2015 tax years. We are in the process of appealing a $1.6 million assessment by the Santa Clara County for underpayment of property tax and associated interest from a previous audit cycle, covering the 2007 through 2011 tax years. In addition, one of our subsidiaries is under audit for the 2012 and 2013 tax years, which commenced in the first quarter of 2015, by the Israel tax authority. If, upon the conclusion of these audits, the ultimate determination of taxes owed in the United States or Israel is for an amount in excess of the tax provision we recorded in the applicable period, our overall tax expense, effective tax rate, operating results and cash flow could be materially and adversely impacted in the period of adjustment.

We continue to be in the process of expanding our international operations and staffing to better support our expansion into international markets. This expansion involves the implementation of an international structure that includes, among other things, an international support center in Europe, a research and development cost sharing ~~arrangement,~~arrangements, and certain licenses and other contractual arrangements between us and our wholly-owned domestic and foreign subsidiaries. As a result of these changes, we anticipate that our consolidated pre-tax income will be subject to foreign tax at relatively lower tax rates when compared to the U.S. federal statutory tax rate and, as a consequence, our effective income tax rate is expected to be lower than the U.S. federal statutory rate.

Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if the relative mix of U.S. and international income changes for any reason. Accordingly, there can be no assurance that our income tax rate will be less than the U.S. federal statutory rate in future periods.

We or our customers may face intellectual property infringement claims from third parties.

Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights. In particular, leading companies in the telecommunications industry have extensive patent portfolios. Also, patent infringement claims and litigation by entities that purchase or control patents, but do not produce goods or services covered by the claims of such patents (so-called “non-practicing entities” or “NPEs”), have increased rapidly over the last decade or so. From time to time, third parties, including NPEs, have asserted, and may assert in the future, patent, copyright, trademark and other intellectual property rights against us or our customers. For example, in October 2011, Avid Technology, Inc. filed a complaint against us in the United States District Court for the District of Delaware alleging that our MediaGrid product infringes two patents held by Avid. In February 2014, a jury determined that we had not infringed on either of these patents. Avid ~~has~~ filed an appeal with respect to the jury’s verdict and in January 2016, the ~~appeal has been docketed with~~Federal Circuit issued an order vacating the verdict of noninfringement and remanding the case to the trial court for a new trial on infringement. On February 26, 2016, Harmonic filed a request for rehearing and rehearing en banc at the Federal Circuit. ~~Although we have been able to successfully defend ourselves against~~On March 31, 2016, the ~~allegations by Avid to date, we may in~~Federal Circuit denied the ~~future be subject to additional allegations of infringement.~~request for rehearing and rehearing en banc and a mandate issued on April 8, 2016. A status conference was held with the District Court on April 14, 2016. A supplemental claim construction hearing is scheduled for May 27, 2016. Our suppliers and their customers, including us, may have similar claims asserted against them. A number of third parties, including companies with greater financial and other resources than us, have asserted patent rights to technologies that are important to us.

~~Table of Contents~~

Any intellectual property litigation, regardless of its outcome, could result in substantial expense and significant diversion of the efforts of our management and technical personnel. An adverse determination in any such proceeding could subject us to significant liabilities and temporary or permanent injunctions and require us to seek licenses from third parties or pay royalties that may be substantial. Furthermore, necessary licenses may not be available on terms satisfactory to us, or at all. An unfavorable outcome on any such litigation matter could require that we pay substantial damages, could require that we pay ongoing royalty payments, or could prohibit us from selling certain of our products. Any such outcome could have a material and adverse effect on our business, operating results, financial condition and cash flows.

Our suppliers and customers may have intellectual property claims relating to our products asserted against them. We have agreed to indemnify some of our suppliers and most of our customers for patent infringement relating to our products. The scope of this indemnity varies, but, in some instances, includes indemnification for damages and expenses (including reasonable attorney’s fees) incurred by the supplier or customer in connection with such claims. If a supplier or a customer seeks to enforce a claim for indemnification against us, we could incur significant costs defending such claim, the underlying claim or both. An adverse determination in either such proceeding could subject us to significant liabilities and have a material and adverse effect on our operating results, cash flows and financial condition.

We may be the subject of litigation which, if adversely determined, could harm our business and operating results.

We may be subject to claims arising in the normal course of business. The costs of defending any litigation, whether in cash expenses or in management time, could harm our business and materially and adversely affect our ~~business,~~ operating results ~~financial condition~~ and cash flows. An unfavorable outcome on any litigation matter could require that we pay substantial damages, or, in connection with any intellectual property infringement claims, could require that we pay ongoing royalty payments or prohibit us from selling certain of our products. In addition, we may decide to settle any litigation, which could cause us to incur significant settlement costs. A settlement or an unfavorable outcome on any litigation matter could have a material and adverse effect on our business, operating results, financial condition and cash flows.

~~• unanticipated costs or delays associated with an acquisition;~~

~~• difficulties in the assimilation and integration of acquired operations, technologies and/or products;~~

~~• potential disruption of our business and the diversion of management’s attention from the regular operations of the business during the acquisition process;~~

~~• the challenges of managing a larger and more geographically widespread operation and product portfolio after the closing of the acquisition;~~

~~• potential adverse effects on new and existing business relationships with suppliers, contract manufacturers, resellers, partners and customers;~~

~~• risks associated with entering markets in which we may have no or limited prior experience;~~

~~• the potential loss of key employees of acquired businesses and our own business as a result of integration;~~

~~• difficulties in bringing acquired products and businesses into compliance with applicable legal requirements in jurisdictions in which we operate and sell products;~~

~~• impact of known potential liabilities or unknown liabilities, including litigation and infringement claims, associated with companies we acquire;~~

~~• substantial charges for acquisition costs or for the amortization of certain purchased intangible assets, deferred stock compensation or similar items;~~

~~Table of Contents~~

~~• substantial impairments to goodwill or intangible assets in the event that an acquisition proves to be less valuable than the price we paid for it;~~

~~• delays in realizing, or failure to realize, the anticipated benefits of an acquisition; and~~

~~• the possibility that any acquisition may be viewed negatively by our customers or investors or the financial markets.~~

~~• issue equity securities which would dilute current stockholders’ percentage ownership;~~

~~• incur substantial debt to finance the acquisition or assume substantial debt in the acquisition;~~

~~• incur significant acquisition-related expenses;~~

~~• assume substantial liabilities, contingent or otherwise; or~~

~~• expend significant cash.~~

As of October 2, 2015, we had approximately $198 million of goodwill recorded on our balance sheet associated with prior acquisitions. In the event we determine that our goodwill is impaired, we would be required to write down all or a portion of such goodwill, which could result in a material non-cash charge to our results of operations in the period in which such write-down occurs.

~~If we are unable to successfully address one or more of these risks, our business, operating results, financial condition and cash flows could be materially and adversely affected.~~

We may sell one or more of our product lines, from time to time, as a result of our evaluation of our products and markets, and any such divestiture could adversely affect our continuing business and our expenses, revenues, results of operation, cash flows and financial position.

We periodically evaluate our various product lines and may, as a result, consider the divestiture of one or more of those product lines. For example, in February 2013, we entered into an Asset Purchase Agreement with Aurora Networks ~~Inc.~~ pursuant to which we agreed to sell our cable access HFC Business for $46 million in cash. Any such divestiture could adversely affect our continuing business and expenses, revenues, results of operations, cash flows and financial position.

Divestitures of product lines have inherent risks, including the expense of selling the product line, the possibility that any anticipated sale will not occur, delays in closing any sale, the risk of lower-than-expected proceeds from the sale of the divested business, unexpected costs associated with the separation of the business to be sold from the seller’s information technology and other operating systems, and potential post-closing claims for indemnification or breach of transition services obligations of the seller. Expected cost savings, which are offset by revenue losses from divested businesses, may also be difficult to achieve or maximize due to the seller’s fixed cost structure, and a seller may experience varying success in reducing fixed costs or transferring liabilities previously associated with the divested business.

Our operating results could be adversely affected by natural disasters affecting the Company or impacting our third-party manufacturers, suppliers, resellers or customers.

Our corporate headquarters is located in California, which is prone to earthquakes. We have employees, consultants and contractors located in regions and countries around the world. In the event that any of our business, sales or research and

~~Table of Contents~~

development centers or offices in the U.S. or internationally are adversely affected by an earthquake or by any other natural disaster, we may sustain damage to our operations and properties, which could cause a sustained interruption or loss of affected operations, and cause us to suffer significant financial losses.

We rely on third-party contract manufacturers for the production of our products. Any significant disruption in the business or operations of such manufacturers or of their or our suppliers could adversely impact our business. Our principal contract manufacturers and several of their and our suppliers and our resellers have operations in locations that are subject to natural disasters, such as severe weather, tsunamis, floods and earthquakes, which could disrupt their operations and, in turn, our operations.

In addition, if there is a natural disaster in any of the locations in which our significant customers are located, we face the risk that our customers may incur losses or sustained business interruption, or both, which may materially impair their ability to continue their purchase of products from us. Accordingly, natural disaster in one of the geographies in which we, or our third-party manufacturers, their or our suppliers or our customers, operate could have a material and adverse effect on our business, operating results, cash flows and financial condition.

In order to manage our growth, we must be successful in addressing management succession issues and attracting and retaining qualified personnel.

Our future success will depend, to a significant extent, on the ability of our management to operate effectively, both individually and as a group. We must successfully manage transition and replacement issues that may result from the departure or retirement of members of our executive management. Recently, we announced the resignation of our Chief Financial Officer and appointment of her successor as well as the resignation of our senior vice president, worldwide sales, and related changes to our board of directors and the transition of departed executives’ roles and responsibilities to new and existing members of the senior management team. If the new members of executive management do not successfully transition into their new positions, it could negatively impact our business and potentially prevent us from implementing a successful business plan in a timely manner.~~From time to time, there may be additional changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business.~~We cannot provide assurances that changes of management personnel in the future would not cause disruption to operations or customer relationships or a decline in our operating results.

We are also dependent on our ability to retain and motivate our existing highly qualified personnel, in addition to attracting new highly qualified personnel. Competition for qualified management, technical and other personnel is often intense, and we may not be successful in attracting and retaining such personnel. Competitors and others have in the past attempted, and are likely in the future to attempt, to recruit our employees. While our employees are required to sign standard agreements concerning confidentiality and ownership of inventions, we generally do not have employment contracts or non-competition agreements with any of our personnel. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly senior management and engineers and other technical personnel, could negatively affect our business and operating results.

We could be negatively affected as a result of a future proxy contest and the actions of activist stockholders.

If a proxy contest with respect to election of our directors is initiated in the future, or if other activist stockholder activities occur, our business could be adversely affected because:

• responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees;

• perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and

• if individuals are elected to our Board of Directors (the “Board”) with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.

Our failure to adequately protect our proprietary rights and data may adversely affect us.

At ~~October 2, 2015,~~April 1, 2016, we held 5772 issued U.S. patents and 35118 issued foreign patents, and had 26139 patent applications pending. Although we attempt to protect our intellectual property rights through patents, trademarks, copyrights, licensing arrangements, maintaining certain technology as trade secrets and other measures, we can give no assurances that any patent, trademark,

~~Table of Contents~~

copyright or other intellectual property rights owned by us will not be invalidated, circumvented or challenged, that such intellectual property rights will provide competitive advantages to us, or that any of our pending or future patent applications will be issued with the scope of the claims sought by us, if at all. We can give no assurances that others will not develop technologies that are similar or superior to our technologies, duplicate our technologies or design around the patents that we own. In addition, effective patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries in which we do business or may do business in the future.

We generally enter into confidentiality or license agreements with our employees, consultants, and vendors and our customers, as needed, and generally limit access to, and distribution of, our proprietary information. Nevertheless, we cannot provide assurances that the steps taken by us will prevent misappropriation of our technology. In addition, we have taken in the past, and may take in the future, legal action to enforce our patents and other intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of management time and other resources, and could materially and adversely affect our business, operating results, financial condition and cash flows.

Recently reported hacking attacks on government and commercial computer systems, particularly attacks sponsored by foreign governments or enterprises, raise the risks that such an attack may compromise, in a material respect, one or more of our computer systems and permit hackers access to our proprietary information and data. If such an attack does, in fact, allow access to or theft of our proprietary information or data, our business, operating results, financial condition and cash flows could be materially and adversely affected.

Our products include third-party technology and intellectual property, and our inability to acquire new technologies or use third-party technology in the future could harm our business.

In order to successfully develop and market certain of our planned products, we may be required to enter into technology development or licensing agreements with third parties. Although companies with technology useful to us are often willing to enter into technology development or licensing agreements with respect to such technology, we cannot provide assurances that such agreements may be negotiated on commercially reasonable terms, or at all. The failure to enter, or a delay in entering, into such technology development or licensing agreements, when necessary or desirable, could limit our ability to develop and market new products and could materially and adversely affect our business.

We incorporate certain third-party technologies, including software programs, into our products, and, as noted, intend to utilize additional third-party technologies in the future. In addition, the technologies that we license may not operate properly or as specified, and we may not be able to secure alternatives in a timely manner, either of which could harm our business. We could face delays in product releases until alternative technology can be identified, licensed or developed, and integrated into our products, if we are able to do so at all. These delays, or a failure to secure or develop adequate technology, could materially and adversely affect our business, operating results, financial condition and cash flows.

Our use of open source software in some of our products may expose us to certain risks.

Some of our products contain software modules licensed for use from third-party authors under open source licenses. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software to the public. This could allow our competitors to create similar products with lower development effort and in less time and ultimately could result in a loss of product sales for us.

Although we monitor our use of open source closely, it is possible our past, present or future use of open source has triggered or may trigger the foregoing requirements. Furthermore, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could materially and adversely affect our operating results, financial condition and cash flows.

~~Table of Contents~~

We cannot assure you that our stock repurchase program will result in repurchases of our common stock or enhance long term stockholder value, and repurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves.

In April 2013, our Board ~~of Directors~~ approved a modified “Dutch Auction” tender offer to repurchase up to $100 million of shares of our common stock. The tender offer expired on May 24, 2013, and resulted in our repurchasing approximately 12 million shares of our common stock, at $6.25 per share, for an aggregate purchase price of approximately $75 million.

Following the tender offer, we resumed purchases under our stock repurchase program. Under the program, we are authorized to repurchase up to $300 million of our common stock in open market transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. As of ~~October 2, 2015,~~April 1, 2016, we had purchased an aggregate of ~~$251~~$254.3 million of our common stock under this program, including under the tender offer. The timing and actual number of shares repurchased, if any, will depend on a variety of factors, including the price and availability of our shares, trading volume, general market conditions and projected cash positions. The program was suspended prior to the announcement of the tender offer, and may be suspended or discontinued at any time in the future without prior notice.

Repurchases pursuant to our tender offer and our stock repurchase program could affect our stock price and increase its volatility and will reduce the market liquidity for our stock. Additionally, these repurchases will diminish our cash reserves, which could impact our ability to pursue possible future strategic opportunities and acquisitions and would result in lower overall returns on our cash balances. There can be no assurance that any stock repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value because the market price of our common stock may decline below the levels at which we repurchased shares of stock. Although our tender offer and our stock repurchase program are intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the effectiveness of these repurchases.

We are subject to import and export controls that could subject us to liability or impair our ability to compete in international markets.

Our products are subject to U.S. export controls, and may be exported outside the U.S. only with the required level of export license or through an export license exception, in most cases because we incorporate encryption technology into our products. In addition, various countries regulate the import of certain technology and have enacted laws that could limit our ability to distribute our products, or could limit our customers’ ability to implement our products, in those countries. Changes in our products or changes in export and import regulations may delay the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential international customers.

In addition, we may be subject to customs duties that could have a significant adverse impact on our operating results or, if we are able to pass on the related costs in any particular situation, would increase the cost of the related product to our customers. As a result, the future imposition of significant increases in the level of customs duties or the creation of import quotas on our products in Europe or in other jurisdictions, or any of the limitations on international sales described above, could have a material adverse effect on our business, operating results, financial condition and cash flows. Further, some of our customers in Europe have been, or are being, audited by local governmental authorities regarding the tariff classifications used for importation of our products. Import duties and tariffs vary by country and a different tariff classification for any of our products may result in higher duties or tariffs, which could have an adverse impact on our operating results and potentially increase the cost of the related products to our customers.

We may need additional capital in the future and may not be able to secure adequate funds on terms acceptable to us.

We have been engaged in the design, manufacture and sale of a variety of video products and system solutions since inception, which has required, and will continue to require, significant research and development expenditures.

We believe that our existing cash and short-term investments of approximately ~~$88~~$76.2 million at ~~October 2, 2015,~~April 1, 2016, even as it may be reduced through possible future repurchases of our common stock under the stock repurchase program discussed above, will satisfy our cash requirements for at least the next 12 months. However, we may need to raise additional funds to take advantage of presently unanticipated strategic opportunities, satisfy our other cash requirements from time to time, or strengthen our financial position. Our ability to raise funds may be adversely affected by a number of factors, including factors beyond our control, such as weakness in the economic conditions in markets in which we sell our products and continued uncertainty in

financial, capital and c

~~Table of Contents~~

~~redit~~credit markets. There can be no assurance that equity or debt financing will be available to us on reasonable terms, if at all, when and if it is needed.

We may raise additional financing through public or private equity offerings, debt financings, or corporate partnership or licensing arrangements. To the extent we raise additional capital by issuing equity securities or convertible debt, our stockholders may experience dilution. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or products, or grant licenses on terms that are not favorable to us. To the extent we raise capital through debt financing arrangements, we may be required to pledge assets or enter into covenants that could restrict our operations or our ability to incur further indebtedness and the interest on such debt may adversely affect our operating results.

If adequate capital is not available, or is not available on reasonable terms, when needed, we may not be able to take advantage of acquisition or other market opportunities, to timely develop new products, or to otherwise respond to competitive pressures.

Our business and industry are subject to various laws and regulations that could adversely affect our business, operating results, cash flows and financial condition.

Our business and industry are regulated under various federal, state, local and international laws. For example, we are subject to environmental regulations such as the European Union’s Waste Electrical and Electronic Equipment (WEEE) and Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS) directives and similar legislation enacted in other jurisdictions worldwide. Our failure to comply with these laws could result in our being directly or indirectly liable for costs, fines or penalties and third-party claims, and could jeopardize our ability to conduct business in such regions and countries. We expect that our operations will be affected by other new environmental laws and regulations on an ongoing basis. Although we cannot predict the ultimate impact of any such new laws and regulations, they would likely result in additional costs, and could require that we redesign or change how we manufacture our products, any of which could have a material and adverse effect on our operating results, financial condition and cash flows.

We are subject to the Sarbanes-Oxley Act of 2002 which, among other things, requires an annual review and evaluation of our internal control over financial reporting. If we conclude in future periods that our internal control over financial reporting is not effective or if our independent registered public accounting firm is unable to provide an unqualified attestation as of future year-ends, we may incur substantial additional costs in an effort to correct such problems, and investors may lose confidence in our financial statements, and our stock price may decrease in the short term, until we correct such problems, and perhaps in the long term, as well.

We are subject to ~~new~~ requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that ~~will~~ require us to conduct research, disclose, and report whether or not our products contain certain conflict minerals sourced from the Democratic Republic of Congo or its surrounding countries. The implementation of these new requirements could adversely affect the sourcing, availability, and pricing of the materials used in the manufacture of components used in our products. In addition, we may incur certain additional costs to comply with the disclosure requirements, including costs related to conducting diligence procedures to determine the sources of conflict minerals that may be used or necessary to the production of our products and, if applicable, potential changes to products, processes or sources of supply as a consequence of such verification activities. It is also possible that we may face reputational harm if we determine that certain of our products contain minerals not determined to be conflict-free and/or we are unable to alter our products, processes or sources of supply to avoid such materials.

Changes in telecommunications legislation and regulations in the U.S. and other countries could affect our sales and the revenue we are able to derive from our products. In particular, “net neutrality” rules ~~proposed~~issued by the U.S. Federal Communications Commission (FCC) ~~aimed at regulating Internet service as a Title II telecommunications service,~~ or regulations dealing with access by competitors to the networks of incumbent operators could slow or stop infrastructure and services investments or expansion by service providers. Increased regulation of our customers’ pricing or service offerings could limit their investments and, consequently, revenue from our products. The impact of new or revised legislation or regulations could have a material adverse effect on our business, operating results, financial condition and cash flows.

Some anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

We have provisions in our certificate of incorporation and bylaws that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our ~~Board of Directors.~~Board. These include provisions:

~~Table of Contents~~

• authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

• limiting the liability of, and providing indemnification to, our directors and officers;

• limiting the ability of our stockholders to call, and bring business before, special meetings;

• requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our ~~Board of Directors;~~Board;

• controlling the procedures for conducting and scheduling of Board ~~of Directors~~ and stockholder meetings; and

• providing the Board ~~of Directors~~ with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.

These provisions could delay hostile takeovers, changes in control of the Company or changes in our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

The conditional conversion feature of our convertible senior notes, if triggered, may adversely affect our financial condition and operating results.

In December 2015, we issued $128.25 million aggregate principal amount of 4.00% convertible senior notes due 2020 (the “Notes”) through a private placement with a financial institution. The Notes bear interest at 4.00% per annum, which is payable semiannually in arrears on June 1 and December 1 of each year, commencing June 1, 2016. In the event the conditional conversion feature of the Notes is triggered, holders of the Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

In May 2008, FASB issued FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement)”, which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options, which we refer to as ASC 470-20. Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to record a greater amount of non-cash interest expense in current and future periods presented as a result of the amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s non-convertible interest rate, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Notes.

In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we

elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method or that circumstances would not change such that we would no longer be permitted to use the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share would be adversely affected.

Our common stock price, and therefore the price of our Notes, may be extremely volatile, and the value of an investment in our stock may decline.

Our common stock price has been highly volatile. We expect that this volatility will continue in the future due to factors such as:

• general market and economic conditions;

• actual or anticipated variations in operating results;

• increases or decreases in the general stock market or to the stock prices of technology companies;

• announcements of technological innovations, new products or new services by us or by our competitors or customers;

• changes in financial estimates or recommendations by stock market analysts regarding us or our competitors;

• announcements by us or our competitors of significant acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;

• announcements by our customers regarding end user market conditions and the status of existing and future infrastructure network deployments;

• the repurchase of over 30% of our outstanding shares since 2012 pursuant to our ongoing stock repurchase program and the tender offer we completed in 2013, as well as any future repurchases under our stock repurchase program;

• additions or departures of key personnel; and

• future equity or debt offerings or our announcements of these offerings.

In addition, in recent years, the stock market in general, and the NASDAQ Stock Market and the securities of technology companies in particular, have experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or disproportionate to the operating performance of individual companies. These broad market fluctuations have in the past, and may in the future, materially and adversely affect our stock price, regardless of our operating results. In these circumstances, investors may be unable to sell their shares of our common stock at or above their purchase price over the short term, or at all.

~~Table of Contents~~

Our stock price may decline if additional shares are sold in the market or if analysts drop coverage of or downgrade our stock.

Future sales of substantial amounts of shares of our common stock by our existing stockholders in the public market, or the perception that these sales could occur, may cause the market price of our common stock to decline. In addition, we issue additional shares upon exercise of stock options, including under our ~~Employee Stock Purchase Plan,~~ESPP, and in connection with grants of RSUs on an ongoing basis. To the extent we do not elect to pay solely cash upon conversion of our Notes, we will also be required to issue additional shares of common stock upon conversion. Increased sales of our common stock in the market after exercise of outstanding stock options or grants of ~~RSUs~~restricted stock units could exert downward pressure on our stock price. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price we deem appropriate.

The trading market for our common stock relies in part on the availability of research and reports that third-party industry or securities analysts publish about us. If one or more of the analysts who do cover us downgrade our stock, our stock price may decline. If one or more of these analysts cease coverage of us, we could lose visibility in the market, which in turn could cause the liquidity of our stock and our stock price to decline.

~~Table of Contents~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On April 24, 2012, our Board of Directors approved a stock repurchase program that provided for the repurchase of up to $25 million of our outstanding common stock during the term of the program. In 2013, our Board of Directors approved a $195 million increase in the program, including a $75 million increase on January 28, 2013, a $35 million increase to the program upon the closing of a sale of our HFC business on February 19, 2013 and an additional $85 million increase to the program on July 16, 2013. On May 14, 2014, our Board of Directors approved an additional $80 million increase to the program, resulting in an aggregate authorized purchase of $300 million under the program and the repurchase period was extended through the end of 2016.

Under the program, ~~we are~~the Company is authorized to repurchase shares of common stock in open market transactions or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Exchange Act. From time to time, the Board may approve further increases to the program and the amount approved for this program was increased to $300 million periodically through May 2014 and the repurchase period has been extended through the end of 2016. The timing and actual number of shares repurchased, if any, will depend on a variety of factors, including the price and availability of our shares, trading volume and general market conditions. The purchases are funded from available working capital. The program may be suspended or discontinued at any time without prior notice.

AsOn December 8, 2015, our Board of ~~October 2,~~Directors approved the use of part of the proceeds from the sale and issuance of our 4.00% convertible senior notes due 2020 (“the Notes” or “the offering”, as applicable), issued on December 14, 2015, to repurchase shares of our common stock from purchasers of the Notes in privately negotiated transactions effected through the initial purchaser or its affiliate as our agent. (See Note 11, “Convertible Notes, Other Debts and Capital Leases” for additional information on the Notes). Concurrent with the issuance of the Notes, we ~~had purchased 40.2~~used $49.9 million of the net proceeds from the Notes to repurchase 11.1 million shares of our common stock ~~under this program~~ at a ~~weighted average~~ price of ~~$6.25~~$4.49 per ~~share for an aggregate purchase price~~share.

There were no stock repurchases in the first quarter of ~~$252.3 million, including $1.0 million of expenses. The~~2016 and the remaining authorized amount for stock repurchases under this program was ~~$48.6~~$45.7 million as of ~~October 2, 2015.~~

~~The table below sets forth the stock repurchase activity for the quarter ended~~ ~~October 2, 2015~~ ~~(in thousands, except per share amounts):~~

Period Total Number of
Shares
Repurchased Average Price
Paid per Share Total Number of
Shares
Repurchased as
Part of Publicly
Announced Plan
or Program Approximate Dollar
Value of Shares that
May Yet be
Purchased Under
the Plan or
Program
July 4, 2015 - July 31, 2015 396
$ 6.75
396
$ 53,812
August 1, 2015 - August 28, 2015 400
$ 5.86
400
$ 51,467
August 29, 2015 - October 2, 2015 480
$ 5.88
480
$ 48,647
1,276

1,276

April 1, 2016.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

~~Table of Contents~~

ITEM 6. EXHIBITS



Exhibit Number	Exhibit Index

31.1⁽¹⁾	Section 302 Certification of Principal Executive Officer

31.2⁽¹⁾	Section 302 Certification of Principal Financial Officer

32.1	Section 906 Certification of Principal Executive Officer

32.2	Section 906 Certification of Principal Financial Officer

101	The following materials from Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~October 2, 2015,~~April 1, 2016, formatted in Extensible Business Reporting Language (XBRL) includes:

	(i) Condensed Consolidated Balance Sheets at ~~October 2, 2015~~April 1, 2016 and December 31, ~~2014,~~2015, (ii) Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~October 2,~~April 1, 2016 and April 3, 2015 ~~and September 26, 2014,~~ (iii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~October 2,~~April 1, 2016 and April 3, 2015, ~~and September 26, 2014,~~ (iv) Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~October 2,~~April 1, 2016 and April 3, 2015, ~~and September 26, 2014,~~ and (v) Notes to Condensed Consolidated Financial Statements.


~~(1)~~	~~Filed herewith~~

~~Table of Contents~~

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.



HARMONIC INC.

By:	/s/ Harold Covert
	Harold Covert
	Chief Financial Officer
	~~(Principal Financial and Accounting Officer)~~
	Date: ~~November 6, 2015~~May 11, 2016

6069



Delaware	77-0201147
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)



Large accelerated filer	¨	Accelerated filer	ý

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨



PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2635
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3645
ITEM 4. CONTROLS AND PROCEDURES	3847

PART II
ITEM 1. LEGAL PROCEEDINGS	3948
ITEM 1A. RISK FACTORS	3948
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5867
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	5867
ITEM 4. MINE SAFETY DISCLOSURES	5867
ITEM 5. OTHER INFORMATION	5867
ITEM 6. EXHIBITS	5968
SIGNATURES	6069


	October 2, 2015			December 31, 2014			April 1, 2016			December 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	61,571		$	73,032		$	56,995		$	126,190
Short-term investments	25,990			31,847			19,238			26,604
Accounts receivable, net	64,128			74,144			95,477			69,515
Inventories	39,873			32,747			42,415			38,819
Deferred income taxes, short-term	3,375			3,375
Prepaid expenses and other current assets	31,709			17,539			42,318			25,003
Total current assets	226,646			232,684			256,443			286,131
Property and equipment, net	26,619			27,221			36,781			27,012
Goodwill	197,825			197,884			237,899			197,781
Intangibles, net	5,628			10,599			46,042			4,097
Other assets	10,190			12,130
Other long-term assets							33,528			9,936
Total assets	$	466,908		$	480,518		$	610,693		$	524,957
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Other debts and capital lease obligations, current							$	8,843		$	—
Accounts payable	$	16,626		$	15,318		31,774			19,364
Income taxes payable	176			893			314			307
Deferred revenue	43,350			38,601			59,747			33,856
Accrued liabilities	29,139			35,118			61,192			31,354
Total current liabilities	89,291			89,930			161,870			84,881
Convertible notes, long-term							99,482			98,295
Other debts and capital lease obligations, long-term							16,464			—
Income taxes payable, long-term	4,296			4,969			3,933			3,886
Deferred tax liabilities, long-term	3,095			3,095			1,247			—
Other non-current liabilities	10,358			10,711			16,424			9,727
Total liabilities	107,040			108,705			299,420			196,789
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $0.001 par value, 5,000 shares authorized; no shares issued or outstanding	—			—			—			—
Common stock, $0.001 par value, 150,000 shares authorized; 87,477 and 87,700 shares issued and outstanding at October 2, 2015 and December 31, 2014, respectively	87			88
Common stock, $0.001 par value, 150,000 shares authorized; 77,311 and 76,015 shares issued and outstanding at April 1, 2016 and December 31, 2015, respectively							77			76
Additional paid-in capital	2,259,757			2,261,952			2,240,830			2,236,418
Accumulated deficit	(1,896,709		)	(1,888,247		)	(1,929,088		)	(1,903,908		)
Accumulated other comprehensive loss	(3,267		)	(1,980		)	(546		)	(4,418		)
Total stockholders’ equity	359,868			371,813			311,273			328,168
Total liabilities and stockholders’ equity	$	466,908		$	480,518		$	610,693		$	524,957


	Three months ended						Nine months ended						Three months ended
	October 2, 2015			September 26, 2014			October 2, 2015			September 26, 2014			April 1, 2016			April 3, 2015
Revenue:
Product	$	57,245		$	84,583		$	215,165		$	259,371		$	57,644		$	80,473
Services	26,060			23,478			75,259			66,311			24,188			23,543
Total net revenue	83,305			108,061			290,424			325,682			81,832			104,016
Cost of revenue:
Product	23,584			41,802			95,021			134,336			27,189			35,460
Services	13,490			12,831			39,759			35,789			13,989			13,528
Total cost of revenue	37,074			54,633			134,780			170,125			41,178			48,988
Total gross profit	46,231			53,428			155,644			155,557			40,654			55,028
Operating expenses:
Research and development	21,679			22,803			65,824			70,176			23,563			22,329
Selling, general and administrative	28,966			32,114			91,443			98,640			32,870			31,196
Amortization of intangibles	1,446			1,661			4,338			5,329			2,365			1,446
Restructuring and related charges	397			388			626			821			2,612			44
Total operating expenses	52,488			56,966			162,231			174,966			61,410			55,015
Loss from operations	(6,257		)	(3,538		)	(6,587		)	(19,409		)
Interest income, net	30			47			102			191
Other income (expense), net	148			(261		)	(299		)	(376		)
(Loss) profit from operations													(20,756		)	13
Interest (expense) income, net													(2,421		)	55
Other expense, net													(9		)	(506		)
Loss on impairment of long-term investment	—			—			(2,505		)	—			(1,476		)	(2,505		)
Loss before income taxes	(6,079		)	(3,752		)	(9,289		)	(19,594		)	(24,662		)	(2,943		)
(Benefit from) provision for income taxes	(1,268		)	(4,830		)	(827		)	21,800
Net income (loss)	$	(4,811	)	$	1,078		$	(8,462	)	$	(41,394	)
Provision for (benefit from) income taxes													518			(286		)
Net loss													$	(25,180	)	$	(2,657	)

Net income (loss) per share:
Basic	$	(0.05	)	$	0.01		$	(0.10	)	$	(0.44	)
Diluted	$	(0.05	)	$	0.01		$	(0.10	)	$	(0.44	)
Net loss per share:
Basic and diluted													$	(0.33	)	$	(0.03	)
Shares used in per share calculation:
Basic	87,991			90,618			88,359			94,113
Diluted	87,991			91,800			88,359			94,113
Basic and diluted													76,996			88,655



ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



	Carrying Value		Maximum exposure to loss⁽¹⁾
VJU	$	—	$	—
EDC⁽²⁾	3,593		3,593
Total	$	3,593	$	3,593


		Asset Derivatives					Derivative Liabilities					Asset Derivatives					Derivative Liabilities
	Balance Sheet Location	October 2, 2015		December 31, 2014		Balance Sheet Location	October 2, 2015		December 31, 2014		Balance Sheet Location	April 1, 2016		December 31, 2015		Balance Sheet Location	April 1, 2016		December 31, 2015
Derivatives designated as hedging instruments:
Foreign currency contracts	Prepaid expenses and other current assets	$	60	$	329	Accrued Liabilities	$	291	$	—	Prepaid expenses and other current assets	$	123	$	13	Accrued Liabilities	$	1	$	281
		$	60	$	329		$	291	$	—		$	123	$	13		$	1	$	281

Derivatives not designated as hedging instruments:
Foreign currency contracts	Prepaid expenses and other current assets	$	117	$	12	Accrued Liabilities	$	35	$	7	Prepaid expenses and other current assets	$	41	$	100	Accrued Liabilities	$	21	$	90
		$	117	$	12		$	35	$	7		$	41	$	100		$	21	$	90
Total derivatives		$	177	$	341		$	326	$	7		$	164	$	113		$	22	$	371


						Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets											Gross Amounts of Derivatives Not Offset in the Condensed Consolidated Balance Sheets
	Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets	Net Amounts of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instrument			Cash Collateral Pledged	Net Amount		Gross Amounts of Derivatives		Gross Amounts of Derivatives Offset in the Condensed Consolidated Balance Sheets	Net Amounts of Derivatives Presented in the Condensed Consolidated Balance Sheets		Financial Instrument			Cash Collateral Pledged	Net Amount
Derivative Assets	$	177	—	$	177	$	(169	)	—	$	8	$	164	—	$	164	$	(9	)	—	$	155
Derivative Liabilities	$	326	—	$	326	$	(169	)	—	$	157	$	22	—	$	22	$	(9	)	—	$	13


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
As of October 2, 2015
As of April 1, 2016
Cash equivalents
Money market funds	$	14,062	$	—	$	—	$	14,062	$	10,906	$	—	$	—	$	10,906
Short-term investments
State, municipal and local government agencies bonds	—		2,503		—		2,503
Corporate bonds	—		23,487		—		23,487		—		18,138		—		18,138
Commercial paper									—		1,100		—		1,100
Prepaids and other current assets
Time deposit pledged for credit card facility	—		580		—		580		—		580		—		580
Derivative assets	—		177		—		177		—		164		—		164
Other assets
Long-term investment	2,587		—		—		2,587		1,870		—		—		1,870
Total assets measured and recorded at fair value	$	16,649	$	26,747	$	—	$	43,396	$	12,776	$	19,982	$	—	$	32,758
Accrued liabilities
Derivative liabilities	$	—	$	326	$	—	$	326	—		22		—		22
Total liabilities measured and recorded at fair value	$	—	$	326	$	—	$	326	$	—	$	22	$	—	$	22
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
As of December 31, 2014
As of December 31, 2015
Cash equivalents
Money market funds	$	23,121	$	—	$	—	$	23,121	$	53,434	$	—	$	—	$	53,434
U.S. Treasury bills									24,998		—		—		24,998
Short-term investments
State, municipal and local government agencies bonds	—		13,961		—		13,961
Corporate bonds	—		17,886		—		17,886		—		25,505		—		25,505
Commercial paper									—		1,099		—		1,099
Prepaids and other current assets
Time deposit pledged for credit card facility									—		580		—		580
Derivative assets	—		341		—		341		—		113		—		113
Other assets
Long-term investment	2,606		—		—		2,606		1,840		—		—		1,840
Total assets measured and recorded at fair value	$	25,727	$	32,188	$	—	$	57,915	$	80,272	$	27,297	$	—	$	107,569
Accrued liabilities
Derivative liabilities	$	—	$	7	$	—	$	7	$	—	$	371	$	—	$	371
Total liabilities measured and recorded at fair value	$	—	$	7	$	—	$	7	$	—	$	371	$	—	$	371


					April 1, 2016		December 31, 2015
Inventories:
Raw materials	$	2,400	$	1,422	$	8,150	$	5,421
Work-in-process	1,526		1,255		1,844		1,950
Finished goods	35,947		30,070		32,421		31,448
Total	$	39,873	$	32,747	$	42,415	$	38,819


							April 1, 2016			December 31, 2015
Property and equipment, net:
Furniture and fixtures	$	7,820		$	7,691		$	8,674		$	7,808
Machinery and equipment	120,067			116,031			95,825			93,010
Capitalized software							34,050			29,391
Leasehold improvements	10,307			8,140			11,724			10,000
Property and equipment, gross	138,194			131,862			150,273			140,209
Less: accumulated depreciation and amortization	(111,575		)	(104,641		)	(113,492		)	(113,197		)
Total	$	26,619		$	27,221		$	36,781		$	27,012



	April 1, 2016		December 31, 2015
Accrued Liabilities:
Accrued compensation related expenses and payroll taxes	$	19,991	$	10,281
Accrued employee stock plans	3,349		2,680
Accrued TVN contingent consideration ⁽¹⁾	7,991		—
Accrued warranty	4,966		3,913
Customer deposit	4,076		953
Others	20,819		13,527
Total	$	61,192	$	31,354



	Video			Cable Edge			Total
As of December 31, 2014	$	136,975		$	60,909		$	197,884
Foreign currency translation adjustment	(41		)	(18		)	(59		)
As of October 2, 2015	$	136,934		$	60,891		$	197,825


	Cost of Revenue		Operating Expenses		Total		Cost of Revenue		Operating Expenses		Total
Year ended December 31,
2015 (remaining three months)	$	86	$	1,446	$	1,532
2016	—		4,096		4,096
2016 (remaining nine months)							$	3,844	$	8,747	$	12,591
2017							5,125		4,195		9,320
2018							5,125		4,195		9,320
2019							5,125		4,195		9,320
2020							854		4,006		4,860
Thereafter							—		631		631
Total future amortization expense	$	86	$	5,542	$	5,628	$	20,073	$	25,969	$	46,042



	Excess facilities			Severance and benefits (1)			Other charges			Total
Charges for 2016 Harmonic Restructuring Plan	$	1,390		$	1,012		$	246		$	2,648
Non-cash adjustments	1,087			—			—			1,087
Cash payments	(234		)	(311		)	—			(545		)
Non-cash write-offs	—			—			(246		)	(246		)
Balance at April 1, 2016	$	2,243		$	701		$	—		$	2,944



	Severance and benefits			Other charges			Total
Balance at December 31, 2014	$	305		$	17		$	322
Restructuring charges	759			—			759
Adjustments to restructuring provisions	(14		)	(6		)	(20		)
Cash payments	(543		)	(11		)	(554		)
Balance at October 2, 2015	$	507		$	—		$	507



	Severance and benefits (2)
Balance at December 31, 2015	$	264
Adjustments to restructuring provisions	(65		)
Cash payments	(139		)
Balance at April 1, 2016	$	60



	April 1, 2016			December 31, 2015
Liability:
Principal amount	$	128,250		$	128,250
Less: Debt discount, net of amortization	(25,673		)	(26,732		)
Less: Debt issuance costs, net of amortization	(3,095		)	(3,223		)
Carrying amount	$	99,482		$	98,295
Remaining amortization period (years)	4.7			4.9
Effective interest rate on liability component	9.94		%	9.94		%

Equity:
Value of conversion option	$	26,925		$	26,925
Less: Equity issuance costs	(863		)	(863		)
Carrying amount	$	26,062		$	26,062



	April 1, 2016
Financing from French government agencies related to various government incentive programs ⁽¹⁾	$	18,980
Term loans ⁽²⁾	1,721
Secured borrowings ⁽³⁾	1,837
Obligations under capital leases	2,769
Total debt obligations	25,307
Less: current portion	(8,843		)
Long-term portion	$	16,464



Years ending December 31,	Capital lease obligations		Debt obligations
2016 (remaining nine months)	$	903	$	7,562
2017	1,234		5,735
2018	538		5,895
2019	68		1,023
2020	26		678
Thereafter	—		1,645
Total	$	2,769	$	22,538


			Stock Options Outstanding				Restricted Stock Units Outstanding						Stock Options Outstanding				Restricted Stock Units Outstanding
	Shares Available for Grant		Number of Shares		Weighted Average Exercise Price		Number of Units		Weighted Average Grant Date Fair Value		Shares Available for Grant		Number of Shares		Weighted Average Exercise Price		Number of Units		Weighted Average Grant Date Fair Value
Balance at December 31, 2014	7,480		7,255		$	6.65	2,241		$	6.40
Balance at December 31, 2015											6,150		5,674		$	6.56	2,182		$	6.99
Authorized	—		—		—		—		—		—		—		—		—		—
Granted	(4,000	)	1,156		7.58		1,895		7.17		(2,802	)	876		3.14		1,284		3.15
Options exercised	—		(748	)	5.32		—		—		—		(1	)	2.25		—		—
Shares released	—		—		—		(1,526	)	6.47		—		—		—		(977	)	6.72
Forfeited or cancelled	1,887		(1,606	)	8.05		(189	)	6.79		980		(679	)	6.38		(201	)	5.89
Balance at October 2, 2015	5,367		6,057		$	6.62	2,421		$	6.99
Balance at April 1, 2016											4,328		5,870		$	6.08	2,288		$	4.88


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Vested and expected to vest	5,777	$	6.60	4.1	$	994	5,491	$	6.13	4.0	$	240
Exercisable	3,634	6.44		3.2	968		3,479	6.51		2.8	133



	Number of Shares Underlying Restricted Stock Units	Weighted Average Remaining Vesting Period (Years)	Aggregate Fair Value
Vested and expected to vest	1,859	0.8	$	10,856



Projected benefit obligation:
Acquired from TVN acquisition	$	5,907
Service cost	23
Interest cost	10
Foreign currency translation adjustment	149
As of April 1, 2016	6,089
Presented on the Condensed Consolidated Balance Sheets under:
Current portion (presented under “Accrued liabilities”)	187
Long-term portion (presented under “Other non-current liabilities”)	$	5,902



	April 1, 2016
Discount rate	2.0	%
Mobility rate	2.2	%
Salary progression rate	2.0	%



	Employee Stock Options
	Three months ended
	April 1, 2016		April 3, 2015
Expected term (years)	4.30		4.70
Volatility	36	%	38	%
Risk-free interest rate	1.4	%	1.6	%
Expected dividends	0.0	%	0.0	%



	ESPP Purchase Period Ending
	June 30, 2016		June 30, 2015
Expected term (years)	0.50		0.49
Volatility	52	%	35	%
Risk-free interest rate	0.5	%	0.1	%
Expected dividends	0.0	%	0.0	%
Estimated weighted average fair value per share at purchase date	$1.17		$1.74



	Purchase Period Ending
	December 31, 2015		June 30, 2015		December 31, 2014		June 30, 2014
Expected term (years)	0.50		0.50		0.50		0.50
Volatility	32	%	35	%	33	%	28	%
Risk-free interest rate	0.1	%	0.1	%	0.1	%	0.1	%
Expected dividends	0.0	%	0.0	%	0.0	%	0.0	%
Estimated weighted average fair value per share at purchase date	$1.64		$1.75		$1.84		$1.70


Years ending December 31,
2015 (remaining three months)	$	1,809
2016	9,346
2016 (remaining nine months)			$	9,804
2017	8,739		13,000
2018	8,435		11,725
2019	8,245		10,212
2020			7,585
Thereafter	6,402		10,610
Total	$	42,976	$	62,936



	Foreign Currency Translation Adjustments			Unrealized Gains (Losses) on Cash Flow Hedges			Unrealized Gains (Losses) on Available-for-Sale Investments			Total
Balance as of December 31, 2014	$	(1,523	)	$	311		$	(768	)	$	(1,980	)
Other comprehensive income (loss) before reclassifications	(766		)	(218		)	17			(967		)
Amounts reclassified from AOCI	—			(314		)	—			(314		)
Provision for income taxes	—			—			(6		)	(6		)
Balance as of October 2, 2015	$	(2,289	)	$	(221	)	$	(757	)	$	(3,267	)



	Payments Due by Period
	Total Amounts Committed		1 Year or Less		2 -3 Years		4-5 Years		Over 5 Years
Convertible debt	$	128,250	$	—	$	—	$	128,250	$	—
Interest on convertible debt	25,462		4,942		10,260		10,260		—
Other debts	22,538		7,562		11,630		1,701		1,645
Capital Lease	2,769		903		1,772		94		—
Operating leases	62,936		9,804		24,725		17,797		10,610
Purchase commitments	19,815		19,815		—		—		—
Total contractual obligations	$	261,770	$	43,026	$	48,387	$	158,102	$	12,255
Other commercial commitments:
Standby letters of credit	$	704	$	704	$	—	$	—	$	—
Total commercial commitments	$	704	$	704	$	—	$	—	$	—



Period	Total Number of Shares Repurchased	Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plan or Program	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan or Program
July 4, 2015 - July 31, 2015	396	$	6.75	396	$	53,812
August 1, 2015 - August 28, 2015	400	$	5.86	400	$	51,467
August 29, 2015 - October 2, 2015	480	$	5.88	480	$	48,647
	1,276			1,276