UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



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

For the quarterly period ended ~~December 29, 2017~~September 27, 2019



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

For the transition period from _______ to _______

Commission File Number 001-33278




AVIAT NETWORKS, INC. (Exact name of registrant as specified in its charter)



Delaware		20-5961564
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

860 N. McCarthy Blvd., Suite 200, Milpitas, California		95035
(Address of principal executive offices)		(Zip Code)

(408) 941-7100

(Registrant’s telephone number, including area code)

No changes

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

__________________________

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

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

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



Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o x
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities ~~Act .~~Act. ¨

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

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	AVNW	The Nasdaq Global Select Market

The number of shares outstanding of the registrant’s Common Stock as of ~~February 1, 2018~~October 31, 2019 was ~~5,340,851~~5,426,886 shares.

AVIAT NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended ~~December 29, 2017~~September 27, 2019

Table of Contents




	Page
Part I. Financial Information	34
Item 1. Financial Statements	34
Condensed Consolidated Balance Sheets (Unaudited)	35
Condensed Consolidated Statements of Operations (Unaudited)	46
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	57
Condensed Consolidated Statements of Cash Flows (Unaudited)	68
Condensed Consolidated Statements of Equity (Unaudited)	9
Notes to Condensed Consolidated Financial Statements (Unaudited)	710
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1822
Item 3. Quantitative and Qualitative Disclosures About Market Risk	2628
Item 4. Controls and Procedures	2730
Part II. Other Information	2931
Item 1. Legal Proceedings	2931
Item 1A. Risk Factors	2931
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2931
Item 3. Defaults upon Senior Securities	2931
Item 4. Mine Safety Disclosures	2931
Item 5. Other Information	2931
Item 6. Exhibits	2932
Signatures	3033
Exhibit Index	3133

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In thousands, except share and par value amounts)	December 29, 2017			June 30, 2017			September 27, 2019			June 28, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	40,352		$	35,658		$	34,485		$	31,946
Restricted cash	1,772			541
Short-term investments	276			264
Accounts receivable, net	43,098			45,945			43,198			51,937
Unbilled receivables	9,487			12,110			30,378			27,780
Inventories	24,556			21,794			11,111			8,573
Customer service inventories	1,637			1,871			1,077			936
Other current assets	7,065			6,402			5,718			4,825
Total current assets	128,243			124,585			125,967			125,997
Property, plant and equipment, net	16,931			16,406			17,478			17,255
Deferred income taxes	5,705			6,178			13,930			13,864
Right of use assets							6,696			—
Other assets	9,331			5,407			12,262			12,077
TOTAL ASSETS	$	160,210		$	152,576		$	176,333		$	169,193
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	9,000		$	9,000		$	9,000		$	9,000
Accounts payable	33,098			33,606			31,834			35,605
Accrued expenses	19,842			21,933			23,284			22,555
Advanced payments and unearned income	25,273			20,004
Short-term lease liabilities							4,194			—
Advance payments and unearned revenue							18,030			13,962
Restructuring liabilities	308			1,475			1,975			1,089
Total current liabilities	87,521			86,018			88,317			82,211
Unearned income	6,509			7,062
Unearned revenue							8,859			9,662
Long-term lease liabilities							2,806			—
Other long-term liabilities	1,052			1,022			610			820
Reserve for uncertain tax positions	2,473			2,453			4,957			3,606
Deferred income taxes	1,743			1,681			810			1,378
Total liabilities	99,298			98,236			106,359			97,677
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 12)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, 5,340,851 shares issued and outstanding at December 29, 2017; 5,317,766 shares issued and outstanding at June 30, 2017	53			53
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued							—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, 5,444,671 shares issued and outstanding at September 27, 2019; 5,359,695 shares issued and outstanding at June 28, 2019							54			54
Additional paid-in-capital	814,898			813,733			814,113			815,196
Accumulated deficit	(743,790		)	(748,204		)	(730,944		)	(730,998		)
Accumulated other comprehensive loss	(11,164		)	(11,785		)	(13,249		)	(12,736		)
Noncontrolling interests	915			543
Total equity	60,912			54,340			69,974			71,516
TOTAL LIABILITIES AND EQUITY	$	160,210		$	152,576		$	176,333		$	169,193

See accompanying Notes to Unaudited Condensed Consolidated Financial ~~Statements~~Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Six Months Ended						Three Months Ended
(In thousands, except per share amounts)	December 29, 2017			December 30, 2016			December 29, 2017			December 30, 2016			September 27, 2019			September 28, 2018
Revenues:
Revenue from product sales	$	37,719		$	45,958		$	72,786		$	80,682		$	36,594		$	39,125
Revenue from services	24,004			22,578			45,119			46,061			22,020			21,379
Total revenues	61,723			68,536			117,905			126,743			58,614			60,504
Cost of revenues:
Cost of product sales	23,784			31,003			47,447			55,863			20,822			26,799
Cost of services	16,049			16,417			31,272			32,399			15,236			15,780
Total cost of revenues	39,833			47,420			78,719			88,262			36,058			42,579
Gross margin	21,890			21,116			39,186			38,481			22,556			17,925
Operating expenses:
Research and development expenses	5,144			4,475			9,942			9,418			5,216			4,937
Selling and administrative expenses	14,104			14,056			27,826			29,243			14,644			13,706
Restructuring (recovery) charges	(252		)	72			(250		)	232
Restructuring charges													1,177			796
Total operating expenses	18,996			18,603			37,518			38,893			21,037			19,439
Operating income (loss)	2,894			2,513			1,668			(412		)	1,519			(1,514		)
Interest income	42			72			100			126			86			51
Interest expense	(13		)	(3		)	(19		)	(21		)	(3		)	(5		)
Other (expense) income	(136		)	5			(166		)	(177		)
Income (loss) before income taxes	2,787			2,587			1,583			(484		)	1,602			(1,468		)
(Benefit from) provision for income taxes	(2,564		)	865			(3,203		)	(1,605		)
Net income	5,351			1,722			4,786			1,121
Less: Net income attributable to noncontrolling interests, net of tax	280			44			372			72
Net income attributable to Aviat Networks’ common stockholders	$	5,071		$	1,678		$	4,414		$	1,049
Provision for (benefit from) income taxes													1,548			(718		)
Net income (loss)													$	54		$	(750	)

Net income per share of common stock outstanding:
Net income (loss) per share of common stock outstanding:
Basic	$	0.95		$	0.32		$	0.83		$	0.20		$	0.01		$	(0.14	)
Diluted	$	0.90		$	0.31		$	0.79		$	0.20		$	0.01		$	(0.14	)
Weighted average shares outstanding:
Weighted-average shares outstanding:
Basic	5,329			5,284			5,323			5,273			5,347			5,366
Diluted	5,624			5,400			5,616			5,328			5,530			5,366

See accompanying Notes to Unaudited Condensed Consolidated Financial ~~Statements~~Statements.

AVIAT NETWORKS, INC.

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

(Unaudited)

Three Months Ended Six Months Ended
(In thousands) December 29,
2017 December 30,
2016 December 29,
2017 December 30,
2016
Net income $ 5,351
$ 1,722
$ 4,786
$ 1,121
Other comprehensive income (loss):
Net change in cumulative translation adjustments 556
(778 ) 621
(1,148 )
Other comprehensive income (loss) 556
(778 ) 621
(1,148 )
Comprehensive income (loss) 5,907
944
5,407
(27 )
Less: Comprehensive income attributable to noncontrolling interests, net of tax 280
44
372
72
Comprehensive income (loss) attributable to Aviat Networks $ 5,627
$ 900
$ 5,035
$ (99 )



	Three Months Ended
(In thousands)	September 27, 2019			September 28, 2018
Net income (loss)	$	54		$	(750	)
Other comprehensive loss:
Net change in cumulative translation adjustments	(513		)	(120		)
Other comprehensive loss	(513		)	(120		)
Comprehensive loss	$	(459	)	$	(870	)

See accompanying Notes to Unaudited Condensed Consolidated Financial ~~Statements~~Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended						Three Months Ended
(In thousands)	December 29, 2017			December 30, 2016			September 27, 2019			September 28, 2018
Operating Activities
Net income	$	4,786		$	1,121
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	54		$	(750	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization of property, plant and equipment	2,590			3,136			1,038			1,288
Provision for (recovery from) uncollectible receivables	14			(643		)
Recovery from uncollectible receivables							(35		)	(102		)
Share-based compensation	1,154			946			407			436
Deferred tax assets, net	(2,737		)	336			(634		)	227
Charges for inventory and customer service inventory write-downs	205			1,097			337			177
Loss on disposition of property, plant and equipment	28			137
Loss on disposition of property, plant and equipment, net							3			8
Changes in operating assets and liabilities:
Accounts receivable	3,490			7,891			8,570			(5,693		)
Unbilled receivables	2,626			(2,419		)	(2,594		)	(5,875		)
Inventories	(2,098		)	6,602			(2,665		)	951
Customer service inventories	(83		)	(92		)	(326		)	(23		)
Accounts payable	(381		)	(120		)	(3,779		)	3,022
Accrued expenses	(1,672		)	(1,090		)	540			(447		)
Advance payments and unearned income	3,801			(6,394		)
Advance payments and unearned revenue							3,152			1,728
Income taxes payable or receivable	(232		)	968			1,803			344
Other assets and liabilities	(2,320		)	(3,154		)	(222		)	(2,101		)
Net cash provided by operating activities	9,171			8,322
Net cash provided by (used in) operating activities							5,649			(6,810		)
Investing Activities
Payments for acquisition of property, plant and equipment	(3,342		)	(2,853		)	(1,302		)	(1,802		)
Net cash used in investing activities	(3,342		)	(2,853		)	(1,302		)	(1,802		)
Financing Activities
Proceeds from borrowings	18,000			16,000			9,000			9,000
Repayments of borrowings	(18,000		)	(17,000		)	(9,000		)	(9,000		)
Payments for repurchase of Company stock							(748		)	(389		)
Payments for taxes related to net settlement of equity awards							(746		)	—
Proceeds from issuance of common stock under employee stock plans	11			5			4			10
Net cash provided by (used in) financing activities	11			(995		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	72			(493		)
Net Increase in Cash, Cash Equivalents, and Restricted Cash	5,912			3,981
Cash, Cash Equivalents and Restricted Cash, Beginning of Period	36,569			31,425
Cash, Cash Equivalents and Restricted Cash, End of Period	$	42,481		$	35,406
Net cash used in financing activities							(1,490		)	(379		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash							(318		)	(67		)
Net increase (decrease) in cash, cash equivalents, and restricted cash							2,539			(9,058		)
Cash, cash equivalents, and restricted cash, beginning of period							32,201			37,764
Cash, cash equivalents, and restricted cash, end of period							$	34,740		$	28,706

See accompanying Notes to Unaudited Condensed Consolidated Financial ~~Statements~~Statements.

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)



	Three Months Ended September 27, 2019
	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity
(In thousands, except share amounts)	Shares		$ Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity
Balance as of June 28, 2019	5,359,695		$	54		$	815,196		$	(730,998	)	$	(12,736	)	$	71,516
Net income	—		—			—			54			—			54
Other comprehensive loss, net of tax	—		—			—			—			(513		)	(513		)
Issuance of common stock under employee stock plans	192,812		2			2			—			—			4
Shares withheld for taxes related to vesting of equity awards	(52,384	)	(1		)	(745		)	—			—			(746		)
Stock repurchase	(55,452	)	(1		)	(747		)	—			—			(748		)
Share-based compensation	—		—			407			—			—			407
Balance as of September 27, 2019	5,444,671		$	54		$	814,113		$	(730,944	)	$	(13,249	)	$	69,974



	Three Months Ended September 28, 2018
	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity
(In thousands, except share amounts)	Shares		$ Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity
Balance as of June 29, 2018	5,351,155		$	54		$	816,426		$	(746,359	)	$	(12,605	)	$	57,516
Cumulative-effect adjustment for ASC Topic 606	—		—			—			5,622			—			5,622
Net loss	—		—			—			(750		)	—			(750		)
Other comprehensive loss, net of tax	—		—			—			—			(120		)	(120		)
Issuance of common stock under employee stock plans	22,202		—			10			—			—			10
Stock repurchase	(23,579	)	(1		)	(389		)	—			—			(390		)
Share-based compensation	—		—			436			—			—			436
Balance as of September 28, 2018	5,349,778		$	53		$	816,483		$	(741,487	)	$	(12,725	)	$	62,324

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

AVIAT NETWORKS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. The Company and Basis of Presentation

The Company

Aviat Networks, Inc. (the “Company,” “we,” “us,” and “our”) designs, manufactures, and sells a range of wireless networking solutions and services to mobile and fixed telephone service providers, private network operators, government agencies, transportation and utility companies, public safety agencies, and broadcast system operators across the globe. Due to the volume of our international sales, especially in developing countries, we may be susceptible to a number of political, economic, and geographic risks that could harm our business as outlined in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June ~~30, 2017.~~ 28, 2019. Our products include broadband wireless access base stations and customer premises equipment for fixed and mobile, point-to-point digital microwave radio systems for access, backhaul, trunking, and license-exempt applications, supporting new network deployments, network expansion, and capacity upgrades.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ~~(“U.S. GAAP”)~~(U.S. GAAP) and with the rules and regulations of the Securities and Exchange Commission ~~(“SEC”)~~(SEC) for interim financial information. Accordingly, the statements do not include all information and footnotes required by U.S. GAAP for annual consolidated financial statements. In the opinion of our management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods. The results for the three ~~and six~~ months ended ~~December 29, 2017~~ September 27, 2019 are not necessarily indicative of the results that may be expected for the full fiscal year or future operating periods. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended June ~~30, 2017.~~28, 2019.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated. ~~Certain amounts in the consolidated financial statements of the prior period have been reclassified to conform to the presentation for the current period.~~

We operate on a 52-week or 53-week year ending on the Friday closest to June 30. The first ~~two quarters~~quarter of fiscal ~~2018~~2020 and fiscal ~~2017~~2019 included 13 weeks in each quarter. Fiscal year ~~2018~~2020 will be comprised of 5253 weeks and will end on ~~June 29, 2018.~~July 3, 2020.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments affecting the amounts reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information, or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant items, including revenue recognition, provision for uncollectible receivables, inventory valuation, valuation allowances for deferred tax assets, uncertainties in income taxes, lease liabilities, restructuring obligations, product warranty obligations, share-based awards, contingencies, recoverability of long-lived assets and useful lives of property, plant and equipment.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies as of and for the ~~six~~three months ended ~~December 29, 2017,~~September 27, 2019, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended June ~~30, 2017.~~28, 2019, with the exception of our adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02) (“ASC 842”). See Note 4, “Leases” to the Notes to unaudited condensed consolidated financial statements for discussion of the impact of the adoption of this standard on our policies for leases.

Accounting Standards Adopted

In ~~October~~February 2016, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Update (“ASU”) 2016-16 (Topic 740),~~ASC 842, which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the income statement. We adopted ASC 842, effective ~~Accounting for Income Taxes: Intra-Entity Transfers of Assets Other than Inventory~~June 29, 2019, using the modified retrospective transition method with the cumulative effect recognized as an adjustment to the opening balance of our accumulated deficit. Prior-period financial statements were not retrospectively restated. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, assessment on whether a contract was or contains a lease, and initial direct costs for leases that existed prior to June 28, 2019. We also elected not to recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less. We elected not to apply the hindsight practical expedient when determining lease term and assessing impairment of ROU assets. See Note 4, “Leases” to the Notes to our unaudited condensed consolidated financial statements for more information.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation: Improvement to Nonemployees Share-Based Payment Accounting (ASU 2018-07), which ~~requires~~expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that ~~an entity recognizes~~Topic 718 applies to all share-based payment transactions in which the ~~tax expense from~~grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the ~~sale~~issuer or (2) awards granted in conjunction with selling goods or services to customers as part of ~~intra-entity sales of assets, other than inventory, in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminate in consolidation.~~ a contract accounted for under ASC 606. This ASU is effective for fiscal years beginning after December 15, 2018. We adopted this update during the first quarter of fiscal ~~2018.~~ 2020. The adoption had no material impact on our unaudited condensed consolidated financial ~~statements.~~

~~In July 2015, the FASB issued ASU 2015-11 (Topic 330),~~ statements~~Simplifying the Measurement of Inventory~~, which provides guidance to companies who account for inventory using either the first-in, first-out or average cost methods. The guidance states that companies should measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We adopted this update prospectively during the first quarter of fiscal 2018. The adoption ~~had no material impact on our unaudited condensed consolidated financial statements.~~.

Accounting Standards Not Yet Adopted

In ~~May 2014,~~August 2018, the FASB issued ASU ~~2014-09~~2018-15, ~~(ASC Topic 606), Revenue from Contracts with Customers~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ~~with amendments issued~~This guidance aligns the requirements for capitalizing implementation costs incurred in 2015 and 2016. This standard update will supersede nearly all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. Revenue recognition will depict the transfer of promised goods or services to customers in an amounta hosting arrangement that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additional disclosures will also be required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new revenue standard may be applied retrospectively to each prior period presented or retrospectivelyis a service contract with the ~~cumulative effect recognized in retained earnings as of the date of adoption.~~

~~We are on schedule in establishing new accounting policies, implementing systems and processes (including more extensive use of estimates), and internal controls necessary~~requirements for capitalizing implementation costs incurred to support the requirements of the new standard. We have completed our preliminary assessment of the financial statement impact of the new standard and will continue to update that assessment as more information becomes available. We expect the timing of revenue recognition to change in certain areas, including our services segment’s installation revenue, which upon adoption will be recognized as revenue and costs over a period of time. The performance obligations of certain arrangements are expected to be satisfied at the time of title transfer and risk of loss to the customer which is generally upon shipment, rather than at customer acceptance. Additionally, the analysis of our contracts under the new revenue recognition standard supports the recognition of revenue over time under the cost-to-cost method for some of our contracts, which is consistent with our current revenue recognition model. Revenue on these contracts will continue to be recognized over time because of the continuous transfer of control to the customer. Under the new standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs. In addition, the number of our performance obligations within our financial accounting and reporting model under the existing standard is not expected to be materially different under the new standard. This preliminary assessment is based on the types and number of revenue arrangements currently in place. The exact impact of the new standard will be dependent on facts and circumstances at adoption and could vary from quarter to quarter.

We currently expense sales commissions as incurred, and the requirement in the new standard is to capitalize certain in-scope sales commissions. This requirement is being evaluated to determine its potential impact on our financial statements in the year of adoption. We expect to adopt the new standard on a modified retrospective basis in the first quarter of fiscal 2019. We are continuing to assess all potential impacts of the guidance on our unaudited condensed ~~consolidated~~ ~~financial statements and given normal ongoing business dynamics, preliminary conclusions are subject to change.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842), which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance.~~develop or obtain internal-use software. This standard will become effective for interim and annual periods beginning after December 15, ~~2018,~~2019, with early adoption permitted. The ~~guidance is required to~~standard can be adopted ateither using the ~~earliest period presented using a modified~~prospective or retrospective transition approach. ~~We expect that most of our operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon the adoption of ASU 2016-02.~~ We are evaluating the effect the adoption of the standard will have on our unaudited condensed consolidated financial statements.

In ~~January~~August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The update eliminates, adds, and modifies certain disclosure requirements for fair value measurements. ASU 2018-13 will be effective for us in our first quarter of fiscal 2021 and early adoption is permitted of the entire standard or only the provisions that eliminate or modify disclosure requirements. We are evaluating the impact the adoption of ASU 2018-13 will have on our unaudited condensed consolidated financial statements.

In June 2016, the FASB issued ASU ~~2016-01,~~ 2016-13,Financial ~~Instruments - Overall (Subtopic 825-10)~~Instruments-Credit Losses (Topic 326): ~~Recognition and~~ Measurement of Credit Losses on Financial ~~Assets~~Instruments (ASU 2016-13) and ~~Financial Liabilities~~also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326). ~~This guidance retains the current accounting~~Topic 326 requires measurement and recognition of expected credit losses for ~~classifying and~~

~~measuring investments in debt securities and loans, but requires equity investments to~~financial assets held. Topic 326 will be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. The guidance also changes the accounting for investments without a readily determinable fair value and do not qualify for the practical expedient to estimate fair value. A policy election can be made for these investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any impairment or changes in observable prices of identical or similar investments. This ASU is effective for us in our first quarter of fiscal ~~years beginning after December 15, 2017.~~ 2021, and earlier adoption is permitted. We ~~do not expect~~are evaluating the impact the adoption of ~~this standard to~~Topic 326 will have ~~a material impact~~ on our unaudited condensed consolidated financial statements.

Note 2. Net Income (Loss) Per Share of Common Stock

Net income (loss) per share is computed using the two-class method, by dividing net income attributable to us by the weighted-average number of shares of our outstanding common stock and participating securities outstanding. Our restricted shares contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and included in the calculations of net income per basic and diluted common share. Undistributed losses are not allocated to unvested restricted shares as the unvested restricted shares are not contractually obligated to share our losses. The impact on earnings per share of the participating securities under the two-class method iswas immaterial.

The following table presents the computation of basic and diluted net income (loss) per share attributable to our common stockholders:


	Three Months Ended				Six Months Ended				Three Months Ended
(In thousands, except per share amounts)	December 29, 2017		December 30, 2016		December 29, 2017		December 30, 2016		September 27, 2019		September 28, 2018
Numerator:
Net income attributable to Aviat Networks	$	5,071	$	1,678	$	4,414	$	1,049
Net income (loss)									$	54	$	(750	)

Denominator:
Weighted average shares outstanding, basic	5,329		5,284		5,323		5,273
Weighted-average shares outstanding, basic									5,347		5,366
Effect of potentially dilutive equivalent shares	295		116		293		55		183		—
Weighted average shares outstanding, diluted	5,624		5,400		5,616		5,328
Weighted-average shares outstanding, diluted									5,530		5,366

Net income per share of common stock outstanding:
Net income (loss) per share of common stock outstanding:
Basic	$	0.95	$	0.32	$	0.83	$	0.20	$	0.01	$	(0.14	)
Diluted	$	0.90	$	0.31	$	0.79	$	0.20	$	0.01	$	(0.14	)

The following table summarizes the weighted-average equity awards that were excluded from the diluted net income (loss) per share ~~calculations:~~calculations since they were anti-dilutive:


	Three Months Ended		Six Months Ended		Three Months Ended
(In thousands)	December 29, 2017	December 30, 2016	December 29, 2017	December 30, 2016	September 27, 2019	September 28, 2018
Stock options	357	427	341	435	378	364
Restricted stock units and performance stock units	—	6	—	8	35	420
Total potential shares of common stock excluded	357	433	341	443
Total shares of common stock excluded					413	784

Note 3. Revenue Recognition

We recognize revenue by applying the following five-step approach: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation.

Revenue from product sales is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. Printed circuit assemblies, mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic business reviews of material levels and obsolescence. Product assembly, product testing, complete system integration, and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers.

Revenue from services includes certain installation, extended warranty, customer support, consulting, training, and education. Maintenance and support services are generally offered to our customers over a specified period of time and from sales and subsequent renewals of maintenance and support contracts. The services noted are recognized based on an over-time recognition model using the cost input method.

Revenues related to certain contracts for customized network solutions are recognized over time using the cost input method. In using this input method, we generally apply the cost-to-cost method of accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at completion. Recognition of profit on these contracts requires estimates of the total contract value, the total cost at completion, and the measurement of progress towards completion. Significant judgment is required when estimating total contract costs and progress to completion on the arrangements, as well as whether a loss is expected to be incurred on the contract. If circumstances arise that change the original estimates of revenues, costs, or

extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to us. We perform ongoing profitability analysis of our service contracts accounted for under this method in order to determine whether the latest estimates of revenues, costs, and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately. We establish billing terms at the time project deliverables and milestones are agreed. Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled receivables on the unaudited condensed consolidated balance sheet.

Contracts and customer purchase orders are used to determine the existence of an arrangement. In addition, shipping documents and customer acceptances, when applicable, are used to verify delivery and transfer of control. We typically satisfy our performance obligations upon shipment or delivery of product depending on the contractual terms. Payment terms to customers generally range from net 30 to 120 days from invoice, which are considered to be standard payment terms. We assess our ability to collect from our customers based primarily on the creditworthiness and past payment history of the customer.

While our customers do not have the right of return, we reserve for estimated product returns as an offset to revenue based primarily on historical trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in economic and industry condition could make actual results differ from our return estimates.

We present transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis.

Bill-and-Hold Sales

Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been met (including the passing of title and significant risk and reward of ownership to the customers). Therefore, the customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is installed at a customer site at a point in time in the future.

Termination Rights

The contract term is determined on the basis of the period over which the parties to the contract have present enforceable rights and obligations. Certain customer contracts include a termination for convenience clause that allows the customer to terminate services without penalty, upon advance notification. We concluded that the duration of support contracts does not extend beyond the non-cancellable portion of the contract.

Variable Consideration

The consideration associated with customer contracts is generally fixed. Variable consideration includes discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration that can vary is not a substantial portion of total consideration.

Variable consideration estimates will be re-assessed at each reporting period until a final outcome is determined. The changes to the original transaction price due to a change in estimated variable consideration will be applied on a retrospective

basis, with the adjustment recorded in the period in which the change occurs. Changes to variable consideration will be tracked and material changes disclosed.

Stand-alone Selling Price

Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or separate) basis at contract inception. Under the model, the observable price of a good or service sold separately provides the best evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices will not be readily observable and the entity must estimate the stand-alone selling price.

When allocating on a relative stand-alone selling price basis, any discount provided in the contract is allocated proportionately to all of the performance obligations in the contract.

The majority of products and services that we offer have readily observable selling prices. For products and services that do not, we estimate stand-alone selling price using the market assessment approach based on expected selling price and adjust those prices as necessary to reflect our costs and margins. As part of our stand-alone selling price policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling price assumptions as appropriate.

Shipping and Handling

Shipping and handling costs are included as a component of costs of product sales in our unaudited condensed consolidated statements of operations because they are also included in revenue that we bill our customers.

Costs to Obtain a Contract

We have assessed the treatment of costs to obtain or fulfill a contract with a customer. Under ASC 606, we capitalize sales commissions related to multi-year service contracts and amortize the asset over the period of benefit, which is the estimated service period. Sales commissions paid on contract renewals, including service contract renewals, is commensurate with the sales commissions paid on the initial contracts.

We elected the practical expedient to expense sales commissions as incurred when the amortization period of the related asset is one year or less. These costs are recorded as sales and marketing expense and included on our unaudited condensed consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the three months ended September 27, 2019.

Contract Balances, Performance Obligations, and Backlog

The following table provides information about receivables and liabilities from contracts with customers (in thousands):



	September 27, 2019		June 28, 2019
Contract Assets
Accounts receivable, net	$	43,198	$	51,937
Unbilled receivables	30,378		27,780
Capitalized commissions	933		955
Contract Liabilities
Advance payments and unearned revenue	18,030		13,962
Unearned revenue, long-term	8,859		9,662

Significant changes in contract balances may arise as a result of recognition over time for services, transfer of control for equipment, and periodic payments (both in arrears and in advance).

From time to time, we may experience unforeseen events that could result in a change to the scope or price associated with an arrangement. When such events occur, we update the transaction price and measure of progress for the performance obligation and recognize the change as a cumulative catch-up to revenue. Because of the nature and type of contracts we engage in, the timeframe to completion and satisfaction of current and future performance obligations can shift; however, this will have no impact on our future obligation to bill and collect.

As of September 27, 2019 we had $26.9 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 50% is expected to be recognized as revenue in fiscal 2020 and the remainder thereafter. During the three months ended September 27, 2019 we recognized approximately $3.2 million in maintenance service revenue which was included in advance payments and unearned revenue at the beginning of the reporting period.

Remaining Performance Obligations

The aggregate amount of transaction price allocated to our unsatisfied performance obligations (or partially unsatisfied) was approximately $76.4 million at September 27, 2019. Of this amount, we expect to recognize approximately 70% as revenue during the next 12 months, with the remaining amount to be recognized as revenue within two to five years.

Note 4. Leases

On June 29, 2019, the first day of our fiscal 2020, we adopted ASC 842 using the modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of accumulated deficit to be recognized on the date of adoption with prior periods not restated.

We lease facilities under non-cancelable operating lease agreements. These leases have varying terms that range from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses. In addition, some of these leases have renewal options for up to 3 years.

We determine if an arrangement contains a lease at inception. These operating leases are included in "Right of use assets" on our September 27, 2019 unaudited condensed consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligation to make lease payments are included in "Short-term lease liabilities" and "Long-term lease liabilities" on our September 27, 2019 unaudited condensed consolidated balance sheets. We did not enter into any finance leases during the quarter ended September 27, 2019.

Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we used the incremental borrowing rate based on the remaining lease term at commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Certain of our lease arrangements include non-lease components and we account for non-lease components together with lease components for all such lease arrangements.

Leases with an initial term of 12 months or less are not recorded on our balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Adoption of ASC 842

Upon our adoption of ASC 842, we recorded total ROU assets of $7.9 million, with corresponding liabilities of $8.3 million, on our unaudited condensed consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact our prior year condensed consolidated statements of operations and statements of cash flows. As of September 27, 2019, total ROU assets were approximately $6.7 million, and short-term lease liabilities and long-term lease liabilities were approximately $4.2 million and $2.8 million, respectively. Cash paid for lease liabilities was $1.3 million for the three months ended September 27, 2019.

The following summarizes our lease costs, lease term and discount rate for the three months ended September 27, 2019 (in thousands, except for weighted average):



	Amount
	(In thousands)
Operating lease costs	$	320
Short-term lease costs	484
Variable lease costs	63
Total lease costs	$	867



Weighted average remaining lease term	4.5 years
Weighted average discount rate	6.6	%

As of September 27, 2019, our future minimum lease payments under all non-cancelable operating leases with an initial term in excess of one year were as follows (in thousands):



	Amount
	(In thousands)
Remainder of 2020	$	3,965
2021	1,505
2022	468
2023	230
2024	231
Thereafter	2,011
Total lease payments	8,410
Less: interest	(1,410		)
Present value of lease liabilities	$	7,000

Prior to our adoption of the new lease accounting standard, as of June 28, 2019, our future minimum lease payments under all non-cancelable operating leases were as follows:



Fiscal years	Amount
	(In thousands)
2020	$	2,052
2021	1,268
2022	456
2023	243
2024	249
Thereafter	2,090
Total	$	6,358

Note 3.5. Balance Sheet Components

Cash, Cash Equivalents, and Restricted Cash

The following table provides a summary of our cash, cash equivalents, and restricted ~~cash:~~cash reported within our unaudited condensed consolidated balance sheets that reconciles to the corresponding amount in our unaudited condensed consolidated statement of cash flows:

(In thousands) December 29,
2017 June 30,
2017
Cash and cash equivalents $ 40,352
$ 35,658
Restricted cash 1,772
541
Restricted cash included in Other assets 357
370
Total cash, cash equivalents, and restricted cash $ 42,481
$ 36,569



(In thousands)	September 27, 2019		June 28, 2019
Cash and cash equivalents	$	34,485	$	31,946
Restricted cash included in other assets	255		255
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows	$	34,740	$	32,201

Accounts Receivable, net

Our net accounts receivable ~~were as follows:~~are summarized below:


(In thousands)	December 29, 2017			June 30, 2017			September 27, 2019			June 28, 2019
Accounts receivable	$	46,696		$	49,864		$	44,735		$	53,539
Less allowances for collection losses	(3,598		)	(3,919		)
	$	43,098		$	45,945
Less: Allowances for collection losses							(1,537		)	(1,602		)
Total accounts receivable, net							$	43,198		$	51,937

Inventories

Our inventories ~~were as follows:~~are summarized below:


(In thousands)	December 29, 2017		June 30, 2017		September 27, 2019		June 28, 2019
Finished products	$	19,823	$	16,619	$	7,333	$	4,894
Work in process	2,963		3,088
Raw materials and supplies	1,770		2,087		3,778		3,679
Total inventories	$	24,556	$	21,794	$	11,111	$	8,573
Deferred cost of revenue included within finished goods	$	8,354	$	7,120
Consigned inventories included within raw materials and supplies	$	948	$	1,268	$	1,324	$	1,649

We record recovery or charges to adjust our inventory and customer service inventory due to excess and obsolete inventory resulting from lower sales ~~forecasts,~~forecast, product transitioning, or discontinuance. During the three ~~and six~~ months ended ~~December 29, 2017,~~September 27, 2019 and September 28, 2018, we recorded a net charge of $146,000 and a net recovery of ~~$0.1 million and $0.1 million,~~$25,000, respectively, in each case related to previously reserved inventory due to sell through. ~~During the~~ ~~three and six months ended December 30, 2016, we recorded a net write down charge of $0.1 million and $0.6 million, respectively.~~ Such recovery or charges during the three ~~and six~~ months ended ~~December 29, 2017~~September 27, 2019 and ~~December 30, 2016~~September 28, 2018 were classified in cost of product sales as follows:


	Three Months Ended				Six Months Ended					Three Months Ended
(In thousands)	December 29, 2017		December 30, 2016		December 29, 2017			December 30, 2016		September 27, 2019		September 28, 2018
Excess and obsolete inventory (recovery) charges	$	106	$	94	$	(143	)	$	568
Excess and obsolete inventory charges (recovery)										$	146	$	(25	)
Customer service inventory write-downs	158		242		348			529		191		202
	$	264	$	336	$	205		$	1,097
Total inventory charges										$	337	$	177

Property, Plant and Equipment, net

Our property, plant and equipment, net ~~were as follows:~~are summarized below:


(In thousands)	December 29, 2017			June 30, 2017			September 27, 2019			June 28, 2019
Land	$	710		$	710		$	710		$	710
Buildings and leasehold improvements	11,391			11,442			11,663			11,668
Software	15,486			14,803			17,663			17,556
Machinery and equipment	45,924			43,174			50,699			49,733
	73,511			70,129
Less accumulated depreciation and amortization	(56,580		)	(53,723		)
	$	16,931		$	16,406
Total property, plant and equipment, gross							80,735			79,667
Less: Accumulated depreciation and amortization							(63,257		)	(62,412		)
Total property, plant and equipment, net							$	17,478		$	17,255

Included in the total plant, property and equipment above were $3.2 million and $2.8 million of assets in progress which have not been placed in service as of September 27, 2019 and June 28, 2019, respectively. Depreciation and amortization expense related to property, plant and equipment, including amortization of software developed for internal use, was as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
(In thousands)	December 29, 2017		December 30, 2016		December 29, 2017		December 30, 2016		September 27, 2019		September 28, 2018
Depreciation and amortization	$	1,308	$	1,467	$	2,590	$	3,136	$	1,038	$	1,288

Accrued Expenses

Our accrued expenses are summarized below:


(In thousands)	December 29, 2017		June 30, 2017		September 27, 2019		June 28, 2019
Accrued compensation and benefits	$	7,342	$	8,317	$	8,223	$	7,583
Accrued agent commissions					2,063		2,035
Accrued warranties	3,168		3,056		3,412		3,323
Other	9,332		10,560		9,586		9,614
	$	19,842	$	21,933
Total accrued expenses					$	23,284	$	22,555

Accrued Warranties

We accrue for the estimated cost to repair or replace products under ~~warranty at the time of sale.~~warranty. Changes in our warranty liability, which is included as a component of accrued expenses in ~~the~~our unaudited condensed consolidated balance sheets were as follows:


	Three Months Ended						Six Months Ended						Three Months Ended
(In thousands)	December 29, 2017			December 30, 2016			December 29, 2017			December 30, 2016			September 27, 2019			September 28, 2018
Balance as of the beginning of the period	$	2,964		$	3,704		$	3,056		$	3,944		$	3,323		$	3,196
Warranty provision recorded during the period	797			480			1,228			817			504			547
Consumption during the period	(593		)	(625		)	(1,116		)	(1,202		)	(415		)	(527		)
Balance as of the end of the period	$	3,168		$	3,559		$	3,168		$	3,559		$	3,412		$	3,216

~~Advanced payments~~Advance Payments and Unearned ~~Income~~Revenue

Our ~~advanced~~advance payments and unearned ~~income~~revenue are summarized below:

(In thousands) December 29,
2017 June 30,
2017
Advanced payments $ 9,870
$ 8,760
Unearned income 15,403
11,244
$ 25,273
$ 20,004



(In thousands)	September 27, 2019		June 28, 2019
Advance payments	$	4,173	$	1,534
Unearned revenue	13,857		12,428
Total advance payments and unearned revenue	$	18,030	$	13,962

Excluded from the balances above are $8.9 million and $9.7 million in long-term unearned revenue as of September 27, 2019 and June 28, 2019, respectively.

Note 4.6. Fair Value Measurements of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market in the absence of a principal market) for the asset or liability in an orderly transaction between market participants as of the measurement date. We maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:

Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data; and

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The carrying amounts, estimated fair values, and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of ~~December 29, 2017~~September 27, 2019 and June ~~30, 2017~~28, 2019 were as follows:


	December 29, 2017				June 30, 2017				Valuation Inputs	September 27, 2019				June 28, 2019				Valuation Inputs
(In thousands)	Cost		Fair Value		Cost		Fair Value		Valuation Inputs	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Valuation Inputs
Assets:
Cash equivalents:
Cash and cash equivalents:
Money market funds	$	22,423	$	22,423	$	22,059	$	22,059	Level 1	$	17,562	$	17,562	$	15,121	$	15,121	Level 1
Bank certificates of deposit	$	—	$	—	$	66	$	66	Level 2
Short term investments:
Bank certificates of deposit	$	276	$	276	$	264	$	264	Level 2	$	1,983	$	1,983	$	1,989	$	1,989	Level 2
Other current assets:
Foreign exchange forward contracts	$	124	$	124	$	—	$	—	Level 2	$	2	$	2	$	—	$	—	Level 2
Liabilities:
Other accrued expenses:
Foreign exchange forward contracts	$	—	$	—	$	5	$	5	Level 2	$	107	$	107	$	7	$	7	Level 2

We classify items within Level 1 if quoted prices are available in active markets. Our Level 1 items mainly are money market funds. As of ~~December 29, 2017~~September 27, 2019 and June ~~30, 2017,~~28, 2019, these money market funds were valued at $1.00 net asset value per share.

We classify items in Level 2 if the observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources are available with reasonable levels of price transparency. Our bank certificates of deposit and foreign exchange forward contracts are classified within Level 2. Foreign currency forward contracts are measured at fair value using observable foreign currency exchange rates. The changes in fair value related to our foreign currency forward contracts were recorded in cost of revenues on our unaudited condensed consolidated statements of operations.

As of ~~December 29, 2017~~September 27, 2019 and June ~~30, 2017,~~28, 2019, we did not have any recurring assets or liabilities that were valued using significant unobservable inputs.

Our policy is to recognize asset or liability transfers among Level 1, Level 2, and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the first ~~six~~three months of fiscal ~~2018~~2020 and ~~2017,~~2019, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.

Note 5.7. Credit Facility and Debt

On ~~March 28, 2014,~~June 10, 2019, we entered into ~~a Second~~Amendment No. 2 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “SVB Credit Facility”). The SVB Credit Facility expires on June ~~30, 2018.~~29, 2020. The SVB Credit Facility provides for a ~~committed amount of up to $30.0~~$25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by our U.S. company, with a ~~$30.0~~$25.0 million sublimit that can be borrowed by our Singapore subsidiary. ~~Borrowings~~Loans may be advanced under the SVB Credit Facility ~~at the lesser of $30.0 million or~~based on a borrowing base equal to a specified percentage of the value of eligible accounts ~~receivable and U.S. unbilled accounts~~ of the ~~Company,~~borrowers under the SVB Credit Facility. The borrowing base is subject to certain ~~reserves and~~ eligibility criteria. ~~The SVB Credit Facility~~Availability under the accounts receivable formula based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sublimit. IfWe may prepay loans under the SVB Credit Facility ~~is terminated by us~~ in ~~certain circumstances prior to its expiration, we are subject to an early termination fee equal to 1%~~whole or in part at any time without premium or penalty. As of ~~the revolving line. In~~ September 2017, the SVB Credit Facility was amended to allow up to 30% of our Singapore subsidiary’s accounts receivable to be included in the calculation of the borrowing base and the inclusion of the accounts receivable of certain high27, 2019, available credit ~~quality customers that are aged 90 to 120 days to be included in the calculation of the borrowing base.~~

~~Our outstanding debt~~ under the SVB Credit Facility was $14.7 million, reflecting the calculated borrowing base of $25.0 million less existing borrowings of $9.0 million asand outstanding letters of ~~December 29, 2017 and June 30, 2017.~~ credit of $1.3 million.

The SVB Credit Facility carries an interest rate computed, at our option, based on either (i) at the ~~daily~~ prime rate ~~as published~~reported in the Wall Street Journal plus a spread of 0.50% to 1.50%, with such spread determined based on our adjusted quick ~~ratio.~~ratio; or (ii) if we satisfy a minimum adjusted quick ratio, a LIBOR rate determined in accordance with the SVB Credit Facility, plus a spread of 2.75%. Any outstanding Singapore subsidiary borrowed loans shall bear interest at an additional 2.00% above the applicable prime or LIBOR rate. During the first ~~six~~three months of fiscal ~~year 2018,~~2020, the ~~weighted average~~weighted-average interest rate on our outstanding loan was ~~4.79%~~5.50%. As of ~~December 29, 2017, available credit~~September 27, 2019 and June 28, 2019, our outstanding debt balance under the SVB Credit Facility was ~~$11.7 million reflecting the calculated borrowing base of $23.3 million less existing borrowings of~~ $9.0 million, and ~~outstanding letters of credit of $2.6 million.~~the interest rate was 5.50% and 6.00%, respectively.

The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our

accounts with ~~SVB~~Silicon Valley Bank may be directly applied to reduce outstanding obligations under the SVB Credit Facility. The SVB Credit Facility also imposes certain restrictions on our ability to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments, and enter into transactions with affiliates under certain circumstances. Certain of our assets, including accounts receivable, inventory, and equipment, are pledged as collateral for the SVB Credit Facility. Upon an event of default, outstanding obligations would be immediately due and payable. Under certain circumstances, a default interest rate will apply on all obligations during the existence of an event of default at a per annum rate of interest equal to 2%5.00% above the applicable interest rate. As of ~~December 29, 2017,~~September 27, 2019, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility. The $9.0 million borrowing was classified as a current liability as of September 27, 2019 and June 28, 2019, and repaid in October 2019 and July 2019, respectively.

On September 28, 2018, we entered into Amendment No. 1 (the “Amendment”) to the Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank. Among other things, the Amendment provides for the definition of Quick Assets set forth in the Agreement to be modified to include up to the lesser of (a) 50% of unbilled accounts receivable or (b) $7.0 million.

In addition, we have ~~an uncommitted~~a short-term line of credit ~~of $0.4~~for up to $0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for ~~$0.3~~up to $0.2 million in short-term advances at various interest rates, all of which was available as of ~~December 29, 2017~~September 27, 2019 and June ~~30, 2017.~~28, 2019. The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of ~~December 29, 2017.~~September 27, 2019. This ~~facility~~line of credit may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.

Note 6.8. Restructuring Activities

The following table summarizes our ~~restructuring related~~restructuring-related activities during the ~~first six~~three months ~~of fiscal 2018:~~ended September 27, 2019:


	Severance and Benefits							Facilities and Other									Total			Severance and Benefits											Facilities and Other			Total
(In thousands)	Fiscal 2016-2017 Plan			Fiscal 2015-2016 Plan		Fiscal 2013-2014 Plan		Fiscal 2015-2016 Plan			Fiscal 2014-2015 Plan			Fiscal 2013-2014 Plan						Fiscal 2020 Plan			Fiscal 2018-2019 Plan			Fiscal 2016-2017 Plan			Fiscal 2013-2014 Plan		Fiscal 2015-2016 Plan
Accrual balance, June 30, 2017	$	315		$	99	$	64	$	563		$	168		$	505		$	1,714
Charges, net	(3		)	—		—		—			1			4			2
Cash payments	(253		)	—		—		—			(102		)	(306		)	(661		)
Foreign exchange impact	(1		)	2		—		18			—			—			19
Accrual balance, September 29, 2017	$	58		$	101	$	64	$	581		$	67		$	203		$	1,074
Accrual balance, June 28, 2019																				$	—		$	1,023		$	2		$	64	$	238		$	1,327
Charges (recovery), net	—			—		—		(252		)	—			—			(252		)	1,280			(103		)	—			—		—			1,177
Cash payments	(2		)	—		—		—			(67		)	(203		)	(272		)	(60		)	(229		)	(2		)	—		—			(291		)
Foreign exchange impact	—			1		—		7			—			—			8			—			—			—			—		(9		)	(9		)
Accrual balance, December 29, 2017	$	56		$	102	$	64	$	336		$	—		$	—		$	558
Accrual balance, September 27, 2019																				$	1,220		$	691		$	—		$	64	$	229		$	2,204

As of ~~December 29, 2017, $0.3~~September 27, 2019, $2.0 million of the accrual balance was in short-term restructuring liabilities while $0.2 million was included in other long-term liabilities on ~~the~~our unaudited condensed consolidated balance sheets. ~~In January 2018, we reached an agreement with a certain foreign government which allowed us to reduce our estimated payments relating to~~

During the ~~fiscal 2014-2015 restructuring plan by $0.3 million. We recorded this reduction in the second~~fourth quarter of fiscal ~~2018.~~2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020 Plan”) to primarily consolidate product development, right size our resources to support our international business and other support functions. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

We ~~have~~ completed the restructuring activities under ~~each~~our fiscal 2018-2019 restructuring plan (the “Fiscal 2018-2019 Plan”) by the end of fiscal 2019. Payments related to the ~~plans referenced in~~accrued restructuring liability balance for this plan are expected to be fully paid by the ~~table above. Remaining payments for these plans will be paid through~~end of fiscal ~~year~~ 2020.

For further information, see “Note 7. Restructuring Activities” in Part II, Item 8 of our 2019 Form 10-K.

Note 7.9. Equity

Stock Repurchase Program

In May 2018, our board of directors approved a repurchase program, which does not have an expiration date, for the repurchase of up to $7.5 million of our common stock.

The following table summarizes the repurchases of our common stock:



	Three Months Ended
(In thousands, except share amounts)	September 27, 2019		September 28, 2018
Number of shares repurchased	55,452		23,579
Aggregate purchase price, including commissions	$	748	$	390

All repurchased shares were retired. As of ~~December 29, 2017,~~September 27, 2019, $4.4 million remained available under our stock repurchase program.

Stock Incentive Programs

As of September 27, 2019, we had ~~one~~two stock incentive ~~plan~~plans for our employees and nonemployee directors, the 2018 Incentive Plan and the 2007 Stock Equity Plan, as amended and restated effective November 13, ~~2015 (the “2007 Stock Plan”).~~2015. During the ~~first six~~three months ~~of fiscal 2018,~~ended September 27, 2019, we ~~issued 524~~granted to our employees 63,030 restricted stock units, 51,706 performance restricted stock units and 126,118 options to purchase shares of our common ~~stock under the Employee Stock Purchase Plan (ESPP), and 191 shares of common stock for options exercised.~~stock.

Total compensation expense for share-based awards included in our unaudited condensed consolidated statements of operations was as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
(In thousands)	December 29, 2017		December 30, 2016		December 29, 2017		December 30, 2016		September 27, 2019		September 28, 2018
By Expense Category:
Cost of revenues	$	55	$	62	$	99	$	102	$	44	$	48
Research and development	39		38		78		62		27		36
Selling and administrative	486		388		977		782		336		352
Total share-based compensation expense	$	580	$	488	$	1,154	$	946	$	407	$	436
By Types of Award:
Options	$	34	$	43	$	68	$	189	$	110	$	38
Restricted and performance stock awards and units	546		445		1,086		757		297		398
Total share-based compensation expense	$	580	$	488	$	1,154	$	946	$	407	$	436

As of ~~December 29, 2017,~~September 27, 2019, there was ~~$0.1~~approximately $1.5 millionof total unrecognized compensation expense related to nonvested stock options granted ~~under our 2007 Stock Plan. This expense is~~which are expected to be recognized over a ~~weighted average~~weighted-average period of ~~0.59~~2.6 years. As of ~~December 29, 2017,~~September 27, 2019, there was ~~$2.5~~$2.1 million of total unrecognized compensation expense related to

nonvested stock awards ~~and units granted under our 2007 Stock Plan. This expense is~~which are expected to be recognized over a ~~weighted average~~weighted-average period of ~~1.21~~2.4 years.

Note 8.10. Segment and Geographic Information

We operate in one reportable business segment: the design, manufacturing, and sale of a range of wireless networking products, solutions, and services. We conduct business globally, and our sales and support activities are managed on a geographic basis. Our Chief Executive Officer is our Chief Operating Decision Maker.

We report revenue by region and country based on the location where our customers accept delivery of our products and services. Revenue by region for the three ~~and six~~ months ended ~~December 29, 2017~~ September 27, 2019 and ~~December 30, 2016~~September 28, 2018 was as follows:


	Three Months Ended				Six Months Ended				Three Months Ended
(In thousands)	December 29, 2017		December 30, 2016		December 29, 2017		December 30, 2016		September 27, 2019		September 28, 2018
North America	$	36,985	$	39,353	$	67,987	$	67,937	$	39,767	$	27,763
Africa and Middle East	12,682		16,770		26,144		31,119
Africa and the Middle East									10,593		14,147
Europe and Russia	3,814		2,810		8,260		7,317		3,407		3,712
Latin America and Asia Pacific	8,242		9,603		15,514		20,370		4,847		14,882
Total Revenue	$	61,723	$	68,536	$	117,905	$	126,743
Total revenue									$	58,614	$	60,504

During the three ~~and six~~ months ended ~~December 29, 2017,~~ September 27, 2019, Motorola Solutions, Inc. accounted for 12%of our total revenue. During the three months ended September 28, 2018, Mobile Telephone Networks Group (MTN Group) and Globe Telecom, Inc. (Globe) accounted ~~11%~~for 13% and ~~13%, respectively,~~11% of our total ~~revenue. During the three and six months ended December 30, 2016,~~revenue, respectiely. As of September 27, 2019, MTN Group accounted for 12% ~~and 11%, respectively,~~ of our ~~total revenue. Motorola Solutions, Inc. (Motorola) and~~accounts receivable. As of June 28, 2019, MTN Group and ~~T-Mobile~~Globe accounted for ~~16%, 11%~~10% and 11%~~, respectively,~~ of our accounts receivable, ~~as of December 29, 2017. MTN Group also accounted for 26% of our accounts receivable as of June 30, 2017.~~ respectively. We have entered into separate and distinct contracts with Globe and MTN Group, ~~and Motorola,~~ as well as separate arrangements with their various subsidiaries. The loss of all business from Globe and MTN Group, ~~Motorola,~~ or any other significant customers, could adversely affect our ~~results of operations, cash flows and~~unaudited condensed consolidated financial ~~position.~~statements.

Note 9.11. Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (“Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect our fiscal year ending June 29, 2018, including, but not limited to, (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight years, and (3) elimination of the corporate Alternative Minimum Tax (“AMT”). The Tax Act reduces the federal corporate tax rate to 21.0% in the fiscal year ending June 29, 2018. Section 15 of the Internal Revenue Code stipulates that our fiscal year ending June 29, 2018 will have a blended corporate tax rate of 28.1%, which is based on the applicable tax rates before and after the Tax Act and the number of days in the year.

Our effective tax rate varies from the U.S. federal statutory rate of ~~28.1%~~21% due to results of foreign operations that are subject to income taxes at different statutory rates and certain jurisdictions where we cannot recognize tax benefits on current ~~losses, tax benefit from a foreign tax refund and release of valuation allowance.~~losses. During interim periods, we accrue tax expenses for jurisdictions that are anticipated to be profitable for fiscal ~~2018.~~2020.

The determination of our ~~tax benefit~~income taxes for the ~~first six~~three months ~~of fiscal~~ended September 27, 2019 and September 28, 2018 ~~and 2017~~ was based on our estimated annual effective tax rate adjusted for losses in certain jurisdictions for which no tax benefit can be recognized. Our tax expense for the three months ended September 27, 2019 was primarily due to tax expense related to profitable subsidiaries and a $0.6 million increase in our reserves for uncertain tax positions. The tax benefit for the ~~first six~~three months ~~of fiscal~~ended September 28, 2018 was primarily ~~attributable~~due to the foreign tax refunds received from the Inland Revenue Authority of Singapore (“IRAS”) and release of valuation allowance related to the refundable AMT credit as provided under the Tax Act, offset by tax expense related to profitable ~~subsidiaries. The tax benefit for~~subsidiaries, net against the ~~first six months~~$1.6 million release of ~~fiscal 2017 was~~

~~primarily attributable~~valuation allowance due to the potential foreign tax refund to be received from the ~~IRAS, offset by~~Department of Federal Revenue of Brazil.

We continue to record a partial valuation allowance on our U.S. deferred tax assets which primarily represent future income tax benefits associated with our operating losses. Realization of our deferred tax assets is dependent on generating sufficient pre-tax book income in future periods. Although we believe it is more likely than not that future income will be sufficient to allow us to recover the value of a portion of our U.S. deferred tax assets, realization is not assured and future events could cause us to change our judgment. If future events cause us to conclude that it is not more likely than not that we will be able to recover more or less of the current anticipated portion of deferred tax assets, we would be required to either decrease or increase the valuation allowance on our deferred tax assets at that time, which would result in a charge to income tax expense ~~related to profitable subsidiaries.~~

~~During~~(benefit) and a material increase or decrease in net income in the ~~fiscal year 2014,~~period in which we received an assessment letter from IRAS related to deductions claimed in prior years and made a payment of $13.2 million related to tax years 2007 through 2010, reflecting all the taxes incrementally assessed by IRAS. Since the initial assessment, we continued to challenge this assessment.change our judgment. During the first quarter of fiscal ~~2017,~~2020, we received an initial refund of $3.7 million from IRAS. During the first quarter of fiscal 2018, we received an additional refund of $1.3 million from IRAS which represents a final settlement. These refunds were recorded as a discrete tax benefit during the quarter the respective payment was received. During the second quarter of fiscal 2018, we recorded adid not record any adjustment to valuation allowance ~~release~~on our U.S. deferred tax assets.

We entered into a tax sharing agreement with Harris Corporation (Harris) effective on January 26, 2007, the acquisition date of ~~$3.3 million related~~Stratex. The tax sharing agreement addresses, among other things, the settlement process associated with pre-merger tax liabilities and tax attributes that were attributable to ~~refundable AMT credit under~~ the ~~Tax Act as~~Microwave Communication Division when it was a ~~discrete benefit and~~division of Harris. There have been no settlement payments recorded ~~as a long-term receivable in our Other Assets in~~since the unaudited condensed consolidated balance sheet. Under the Tax Act, any carryforward AMT tax credits can be refunded if not fully utilized by fiscal year 2022. We expect to receive the refund of this tax benefit starting in our fiscal year 2020.acquisition date.

We have a number of ~~years with~~ open income tax audits covering various tax years, which vary from jurisdiction to jurisdiction. Our major tax jurisdictions where audits are pending include ~~the U.S.,~~ Singapore, Nigeria, and ~~the Ivory Coast.~~Saudi Arabia. The earliest years that are open and subject to potential audits ~~for these jurisdictions~~ are as follows: U.S. —- 2003; Singapore —- 2011; Nigeria ~~— 2011,~~- 2006: Saudi Arabia - 2010, and Ivory Coast —- 2016.

We account for interest and penalties related to unrecognized tax benefits as part of our provision for federal, foreign and state income taxes. Such interest expense was not material for the three ~~and six~~ months ended ~~December 29, 2017~~ September 27, 2019 and ~~December 30, 2016.~~

The SEC staff issued Staff Accounting Bulletin (“SAB”) No. 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we have recorded a discrete net tax benefit of $3.3 million in the period ended December 29, 2017. This net benefit relates to a valuation allowance release of refundable AMT credit. For various reasons that are discussed more fully below, we have not fully completed our accounting for the income tax effects of certain elements of the Tax Act. If we were able to make reasonable estimates of the effects of elements for which our analysis is not yet complete, we recorded provisional adjustments. If we were not yet able to make reasonable estimates of the impact of certain elements, we have not recorded any adjustments related to those elements and have continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect before the Tax Act.

Our accounting for the following elements of the Tax Act is incomplete. However, we were able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows:

~~Reduction of U.S. Federal Corporate Tax Rate:~~ ~~The Tax Act reduces the corporate tax rate to 21.0%, effective January 1,~~September 28, 2018. For certain deferred tax assets and deferred tax liabilities, we have recorded a provisional decrease of $53.8 million, respectively, with a corresponding net adjustment to valuation allowance of $53.8 million for the period ended December 29, 2017. While we are able to make a reasonable estimate of the impact of the reduction in corporate rate, it may be affected by other analyses related to the Tax Act, including, but not limited to, our calculation of deemed repatriation of deferred foreign income and the state tax effect of adjustments made to federal temporary differences.

~~Deemed Repatriation Transition Tax:~~ The Deemed Repatriation Transition Tax (“Transition Tax”) is a tax on previously untaxed accumulated and current earnings and profits (“E&P”) of certain foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 E&P of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We are able to make a reasonable estimate of the Transition Tax and currently do not believe we will be charged this tax, due to preliminary calculations of net negative E&P for our foreign subsidiaries subjected to this tax. However, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax.

~~Our accounting for the following elements of the Tax Act is incomplete, and we were not yet able to make reasonable estimates of the effects. Therefore, no provisional adjustments were recorded.~~

~~Global Intangible Low Taxed Income (“GILTI”):~~ The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of, (1) 10.0% of the aggregate of the U.S. shareholder’s pro-rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder, (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either, (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or, (2) factoring such amounts into a company’s measurement of its deferred taxed (the “deferred method”). Our selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Because whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on not only our current structure and estimated future results of global operations but also our intent and ability to modify our structure and/or our business, we are not yet able to reasonably estimate the effect of this provision of the Tax Act. Therefore, we have not made any adjustments related to the potential GILTI tax in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI.

~~Valuation Allowances:~~ The company must assess whether valuation allowances assessments are affected by various aspects of the Tax Act (e.g., deemed repatriation of deferred foreign income, GILTI inclusions, new categories of FTCs, AMT repeal). During the second quarter of fiscal 2018, we recorded a valuation allowance release of $3.3 million related to refundable AMT credit under the Tax Act as a discrete benefit. Under the Tax Act, any carryforward AMT tax credits can be refunded if not fully utilized by fiscal year 2022.

Note ~~10.~~12. Commitments and Contingencies

~~Operating Lease Commitments~~

We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates through 2024. We lease approximately 19,000 square feet of office space in Milpitas, California as our corporate headquarters.

~~As of December 29, 2017, our future minimum lease payments under all non-cancelable operating leases with an initial lease term in excess of one year were as follows:~~

Fiscal Years Amounts
(In thousands)
2018 (two quarters remaining) $ 1,244
2019 1,692
2020 1,204
2021 962
2022 208
Thereafter 2,022
Total $ 7,332

These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions. We sublease a portion of our facilities to third parties and the total minimum rents to be received in the future under our non-cancelable subleases were $0.1 million as of December 29, 2017. The future minimum lease payments are not reduced by the minimum sublease rents.

~~Rental expense for operating leases, including rentals on a month-to-month basis, was as follows:~~

Three Months Ended Six Months Ended
(In thousands) December 29,
2017 December 30,
2016 December 29,
2017 December 30,
2016
Rent expense $ 959
$ 987
$ 1,898
$ 2,134

Purchase Orders and Other Commitments

From time to time in the normal course of business, we may enter into purchasing agreements with our suppliers that require us to accept delivery of, and remit full payment for, finished products that we have ordered, finished products that we requested be held as safety stock, and work in process started on our behalf, in the event we cancel or terminate the purchasing agreement. Because these agreements do not specify fixed or minimum quantities, do not specify minimum or variable price provisions, and do not specify the approximate timing of the transaction, and we have no present intention to cancel or terminate any of these agreements, we currently do not believe that we have any future liability under these agreements. As of ~~December 29, 2017,~~September 27, 2019, we had outstanding purchase obligations with our suppliers or contract manufacturers of ~~$20.4~~$21.1 million. In addition, we had contractual obligations of approximately ~~$0.7~~$2.4 million associated with software licenses as of ~~December 29, 2017.~~September 27, 2019.

Financial Guarantees and Commercial Commitments

Guarantees issued by banks, insurance companies, or other financial institutions are contingent commitments issued to guarantee our performance under borrowing arrangements, such as bank overdraft facilities, tax and customs obligations, and similar transactions, or to ensure our performance under customer or vendor contracts. The terms of the guarantees are generally equal to the remaining term of the related debt or other obligations and are generally limited to two years or less. As of ~~December 29, 2017,~~September 27, 2019, we had no guarantees applicable to our debt arrangements.

We have entered into commercial commitments in the normal course of business including surety bonds, standby letters of credit agreements, and other arrangements with financial institutions primarily relating to the guarantee of future performance on certain contracts to provide products and services to customers. As of ~~December 29, 2017,~~September 27, 2019, we had commercial commitments of ~~$51.9~~$60.3 million outstanding that were not recorded inon our unaudited condensed consolidated balance sheets. We do not believe, based on historical experience and information currently available, that it is probable that any significant amounts will be required to be paid on the performance guarantees in the future.

Indemnifications

Under the terms of substantially all of our license agreements, we have agreed to defend and pay any final judgment against our customers arising from claims against such customers that our products infringe the intellectual property rights of a third party. As of ~~December 29, 2017,~~September 27, 2019, we have not received any ~~notices~~notice that any customer is subject to an infringement claim arising from the use of our products; we have not received any ~~requests~~request to defend any customers from infringement claims arising from the use of our products; and we have not paid any final judgment on behalf of any customer related to an infringement claim arising from the use of our products. Because the outcome of infringement disputes is related to the specific facts of each case and given the lack of previous or current indemnification claims, we cannot estimate the maximum amount of potential future payments, if any, related to our indemnification provisions. As of ~~December 29, 2017,~~September 27, 2019, we had not recorded any liabilities related to these indemnifications.

Legal Proceedings

We are subject from time to time to disputes with customers concerning our products and services. In May 2016, we received notification of a claim for approximately $1.0 million in damages from a customer in Austria alleging that certain of our products were defective. We are continuing to investigate this claim, and at this time an estimate of the reasonably possible loss or range of loss cannot be made. We believe that we have numerous contractual and legal defenses to these disputes, and we intend to dispute them vigorously.

In March 2016, an enforcement action by the Indian Department of Revenue, Ministry of Finance was brought against Aviat Networks (India) Private Limited (Aviat India) relating to the non-realization of intercompany receivables and non-payment of intercompany payables, which originated from 1999 to 2012, within the time frames dictated by the Indian regulations under the Foreign Exchange Management Act ("FEMA"). In November 2017, the Indian Department of Revenue, Ministry of Finance also initiated a similar action against Telsima Communications Private Limited (Telsima India) relating to the non-realization of intercompany receivables and non-payment of intercompany payables which originated from the period prior to our acquisition of Telsima India in February 2009. In September 2019, our directors of Aviat India appeared before the Ministry of Finance Enforcement Directorate. No settlement offers were discussed at the meeting and the matter is still ongoing with no subsequent hearing date currently scheduled. We have accrued an immaterial amount representing the estimated probable loss for which we would settle the matter. We currently cannot form an estimate of the range of loss in excess of our amounts already accrued. If the outcome of this matter is greater than the current immaterial amount accrued, we intend to dispute it vigorously.

From time to time, we may be involved in various other legal claims and litigation that arise in the normal course of our operations. We are aggressively defending all current litigation matters. Although there can be no assurances and the outcome of these matters is currently not determinable, we currently believe that none of these claims or proceedings are likely to have a material adverse effect on our financial position. We expect to defend each of these disputes vigorously. There are many uncertainties associated with any ~~litigations~~litigation and these actions or other third-party claims against us may cause us to incur costly litigation and/or substantial settlement charges. As a result, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any.

We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. We have not recorded any accrual for loss contingencies associated with such legal claims or litigation discussed above.

Contingent Liabilities

We record a loss contingency as a charge to operations when (i) it is probable that an asset has been impaired or a liability has been incurred at the date of the unaudited condensed consolidated financial statements; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the ~~notes~~Notes to the unaudited condensed consolidated financial statements is required for loss contingencies that do not meet both those conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded until realized. We expense all legal costs incurred to resolve regulatory, legal, and tax matters as incurred.

Periodically, we review the status of each significant matter to assess the potential financial exposure. If a potential loss is considered probable and the amount can be reasonably estimated, we reflect the estimated loss in our ~~results~~unaudited condensed consolidated statement of operations. Significant judgment is required to determine the probability that a liability has been incurred or an asset impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in our unaudited condensed consolidated financial statements. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.

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

This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that

could be deemed to be forward-looking statements, including statements of, about, concerning or regarding: our plans, strategies and objectives for future operations, including with respect to growing our business and sustaining profitability; our restructuring efforts; our research and development efforts and new product releases and services; trends in revenue; drivers of our business and the markets in which we operate; future economic conditions, performance or outlook, and changes in our industry and the markets we serve; the outcome of contingencies; the value of our contract awards; beliefs or expectations; the sufficiency of our cash and our capital needs and expenditures; our intellectual property protection; our compliance with regulatory requirements and the associated expenses; expectations regarding litigation; our intention not to pay cash dividends; seasonality of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by the use of forward-looking terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,” “targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the negative of these terms, and similar words or expressions.

These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of the Company. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this document. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to, the following:

continued price and margin erosion as a result of increased competition in the microwave transmission industry;

the impact of the volume, timing, and customer, product, and geographic mix of our product orders;

our ability to meet financial covenant requirements which could impact, among other things, our liquidity;

the timing of our receipt of payment for products or services from our customers;

our ability to meet projected new product development dates or anticipated cost reductions of new products;

our suppliers’ inability to perform and deliver on time as a result of their financial condition, component shortages, or other supply chain constraints;

customer acceptance of new products;

the ability of our subcontractors to timely perform;

continued weakness in the global economy affecting customer spending;

retention of our key personnel;

our ability to manage and maintain key customer relationships;

uncertain economic conditions in the telecommunications sector combined with operator and supplier consolidation;

our failure to protect our intellectual property rights or defend against intellectual property infringement claims by others;

the results of our restructuring efforts;

the ability to preserve and use our net operating loss carryforwards;

the effects of currency and interest rate risks;

the conduct of unethical business practices in developing countries; ~~and~~

the impact of political turmoil in countries where we have significant ~~business.~~business; and

our ability to implement our stock repurchase program or that it will enhance long-term stockholder value.

Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” in our fiscal ~~2017~~2019 Annual Report on Form 10-K filed with the SEC on ~~September 6, 2017~~August 27, 2019 for more information regarding factors that may cause our results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q.

You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), along with provisions of the Private Securities Litigation Reform Act of 1995, and we undertake no obligation, other than as imposed by law, to update any forward-looking statements to

reflect further developments or information obtained after the date of filing of this Quarterly Report on Form 10-Q or, in the case of any document incorporated by reference, the date of that document.

Overview of Business; Operating Environment and Key Factors Impacting Fiscal ~~2018~~2020 and ~~2017~~2019 Results

The following Management’s Discussion and Analysis ~~(“MD&A”)~~(MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes. In the discussion herein, our fiscal year ending ~~June 29, 2018~~July 3, 2020 is referred to as “fiscal ~~2018”~~2020” or ~~“2018”~~“2020” and our fiscal year ended June ~~30, 2017~~28, 2019 is referred to as “fiscal ~~2017”~~2019” or ~~“2017”.~~“2019.”

Overview

We ~~design, manufacture~~anticipate our overall revenue in fiscal 2020 to be higher in North America, offset by lower revenue from our international regions. This expectation is based on actual order volumes in fiscal 2019 and ~~sell~~our observation of customer spending patterns going into fiscal 2020. We have a ~~range of wireless networking products, solutions~~healthy backlog entering fiscal 2020 for our North America private network projects and services to mobile and fixed public network operators, federal, state and local government agencies, transportation, energy and utility companies, public safety agencies and broadcast network operations aroundwe anticipate continuing our strong momentum across these verticals. We have made inroads into the world. Our products utilize microwave and millimeter wave technologies to create point to point wireless links for short, medium and long distance interconnections. Our wireless systems deliver urban, suburban, regional and country-wide communication links as the primary alternative to fiber optic connections. In dense urban and suburban areas, short range wireless solutions are faster to deploy and lower cost per mile than new fiber deployments. In developing nations, fiber infrastructure is scarceU.S. rural broadband and wireless ~~systems~~internet service provider areas and there is evidence now of investment to support 5G deployments with our U.S. service provider customers. Internationally, we are used for both long and short distance connections. Wireless systems are easier to implement than optical fiber in areas with rugged terrain, and are able to provide connections over bodies of water, such as between islands or between oil and gas production platforms. We also provide network management software solutions to enable operators to deploy, monitor and manage our systems, third party equipment such as antennas, routers, optical transmission equipment and other equipment necessary to build and deploytaking a ~~complete telecommunications transmission network. We provide a full suite of professional services for planning, deployment, operations and maintenance~~more conservative view of our ~~customers’ networks.~~

We work continuously to improve our established brands and to create new products that meet our customers’ evolving needs and preferences. Our fundamental business goal is to generate superior returns for our stockholders over the long term. We believe that increases in revenue operating profits and earnings per share are the key measures of financial performance for our business. However, within the industry there continues to be strong price competition for new business and periodic large customer consolidations that intensify competition in all regions.

Our strategic focus is to continue to accelerate innovation and optimize our product portfolio, improve costs and operational efficiencies, grow our revenue and create a sustainable, profitable business model. To do this, we continue to examine our products, markets, facilities, development programs, and operational flows to ensure we are focused on what we do well and what will differentiate us in the future. We will continue working to streamline management processes to attain the efficiency levels required by the markets in which we do business.

Although the general trend of increasing demand for bandwidth to support mobile networks applies in all markets and creates demand for our solutions, we expect to see quarter-to-quarter fluctuations within markets and with individual customersopportunity based on customers’ past purchasing patterns. Seasonality is also a factor that impacts our business. Our fiscal third quarter revenue and orders have historically been lower than the revenue and orders in our second fiscal quarter because many of our customers utilize a significant portion of their capital budgets at the end of their fiscal years, which is typically the calendar year end and coincides with our second fiscal quarter. The majority of our customers begin a new fiscal year on January 1, and capital expenditures tend to be lower in an organization’s first quarter than in its fourth quarter. We anticipate that this seasonality will continue. The seasonality between the second quarter and third quarter may be affected by a variety of ~~additional~~ factors ~~including changes~~that have led to an overall capital spending decline and increased competitive intensity, especially from vendors based in ~~the global economy.~~

~~In line~~China. While there is an attractive pipeline of international revenue opportunity, it has less clarity on timing and we are consequently lowering our international expectations with ~~industry trends, we expect~~respect to provide increased managed services, including network design, inventory management, final configuration and warehousing services, to certain customers in certain geographies. Our operating results may be impacted by providing these services to the extent that we may need to postpone the recognition of revenue and incur upfront and ongoing expenses that are not offset with additional revenue from product sales associated with these services until a future period.

We continue to explore strategic alternatives to improve the market position and profitability of our product offerings in the marketplace, generate additional liquidity and enhance our valuation. We may pursue our goals during the next twelve months through organic growth and through strategic alternatives. Some of these alternatives have included, and could continue to include, selective acquisitions of business segments or entire businesses, divestitures, the sale of assets or securities, a sale or merger of our company or a restructuring of our company. We have also provided, and may from time to time in the future provide, information to interested parties.fiscal 2020.

Operations Review

The market for mobile backhaul continues to be our primary addressable market segment ~~and, over the long term, the demand for increasing the backhaul capacity~~globally in ~~our customers’ networks continues to grow.~~fiscal 2020. In North America, we supported long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers. In international markets, our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth, the ongoing build-out of some large 3G deployments, and ~~the emergence of early stage~~ LTE deployments. Our international business continues to be adversely affected by constrained availability of U.S. dollars in countries with economies highly dependent on resource exports, particularly oil. This condition, along with decline in local purchasing power because of currency devaluations relative to the U.S. dollar, limits capital spending and slows payments from customers in those locations. Our position continues to be to support our customers for 5G and LTE readiness and ensure that our technology roadmap is well aligned with evolving market requirements. We continue to find that our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets. However, as disclosed above and in the “Risk Factors” section in Item 1A of our fiscal ~~2017~~ 2019 Annual Report on Form 10-K, a number of factors could prevent us from achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we service.

Revenue

We manage our sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe and Russia, and (3) Latin America and Asia Pacific. Revenue by region for the three ~~and six~~ months ended ~~December 29, 2017~~ September 27, 2019 and ~~December 30, 2016~~September 28, 2018 and the related changes were ~~shown in the table below:~~as follows:


	Three Months Ended									Six Months Ended									Three Months Ended
(In thousands, except percentages)	December 29, 2017		December 30, 2016		$ Change			% Change		December 29, 2017		December 30, 2016		$ Change			% Change		September 27, 2019		September 28, 2018		$ Change			% Change
North America	$	36,985	$	39,353	$	(2,368	)	(6.0	)%	$	67,987	$	67,937	$	50		0.1	%	$	39,767	$	27,763	$	12,004		43.2	%
Africa and Middle East	12,682		16,770		(4,088		)	(24.4	)%	26,144		31,119		(4,975		)	(16.0	)%
Africa and the Middle East																			10,593		14,147		(3,554		)	(25.1	)%
Europe and Russia	3,814		2,810		1,004			35.7	%	8,260		7,317		943			12.9	%	3,407		3,712		(305		)	(8.2	)%
Latin America and Asia Pacific	8,242		9,603		(1,361		)	(14.2	)%	15,514		20,370		(4,856		)	(23.8	)%	4,847		14,882		(10,035		)	(67.4	)%
Total Revenue	$	61,723	$	68,536	$	(6,813	)	(9.9	)%	$	117,905	$	126,743	$	(8,838	)	(7.0	)%
Total revenue																			$	58,614	$	60,504	$	(1,890	)	(3.1	)%

Our revenue in North America ~~decreased $2.4~~increased by $12.0 million, or ~~6.0%~~43.2%, during the ~~second~~first quarter of fiscal ~~2018~~2020 compared with the same ~~period~~quarter of fiscal ~~2017.~~2019. The ~~volume~~ increase in North America revenue during the first quarter of fiscal 2020 was due to an increase in private network projects ~~coming to completion decreased year-to-year but that was partially offset by a year-to-year~~as well as an increase in ~~revenue with~~ mobile operator ~~customers in the sector. On a year-to-date basis, North America revenue increased slightly by $0.1 million, or 0.1%,~~sales compared ~~with the same period in~~to fiscal ~~2017.~~2019.

Our revenue in Africa and the Middle East decreased ~~$4.1~~by $3.6 million, or ~~24.4%~~25.1%, for the ~~second~~first quarter of fiscal ~~2018~~2020 compared with the same ~~period~~quarter of fiscal ~~2017.~~ 2019. The decrease in revenue was primarily due to ~~lower~~decreased sales ~~volume~~ to our large operator customers in Africa. On a year-to-date basis, Africa and the Middle East revenue decreased $5.0 million, or 16.0%, compared with the same period in fiscal 2017. The year-to-date decrease in the region was also from lower sales to mobile operator customers in ~~Africa.~~the region.

Revenue in Europe and Russia ~~increased $1.0~~decreased by $0.3 million, or ~~35.7%~~8.2%, for the ~~second~~first quarter of fiscal ~~2018~~2020 compared with the same quarter of fiscal ~~2017.~~2019. The ~~increase~~decrease was ~~from~~due to lower sales to ~~a new~~ mobile ~~operator customer~~and private network customers in the region. ~~On a year-to-date basis, revenue in Europe and Russia was up $0.9 million, or 12.9%, from the same period in fiscal 2017. The increase was from sales to a new mobile operator customer in the region.~~

Revenue in Latin America and Asia Pacific decreased ~~$1.4~~by $10.0 million, or ~~14.2%~~67.4%, during the ~~second~~first quarter of fiscal ~~2018~~2020 compared with the same ~~period in~~quarter of fiscal ~~2017.~~2019. The decrease was ~~primarily due to decreased deliveries to our larger customers in Latin America. On a year-to-date basis, revenue in Latin America and Asia Pacific decreased $4.9 million, or 23.8%,~~ from ~~the same period in fiscal 2017 mainly due to decreased~~lower sales to ~~large~~ mobile operator customers ~~in Asia Pacific.~~

compared to fiscal 2019.


	Three Months Ended									Six Months Ended									Three Months Ended
(In thousands, except percentages)	December 29, 2017		December 30, 2016		$ Change			% Change		December 29, 2017		December 30, 2016		$ Change			% Change		September 27, 2019		September 28, 2018		$ Change			% Change
Product sales	$	37,719	$	45,958	$	(8,239	)	(17.9	)%	$	72,786	$	80,682	$	(7,896	)	(9.8	)%	$	36,594	$	39,125	$	(2,531	)	(6.5	)%
Services	24,004		22,578		1,426			6.3	%	45,119		46,061		(942		)	(2.0	)%	22,020		21,379		641			3.0	%
Total Revenue	$	61,723	$	68,536	$	(6,813	)	(9.9	)%	$	117,905	$	126,743	$	(8,838	)	(7.0	)%
Total revenue																			$	58,614	$	60,504	$	(1,890	)	(3.1	)%

Our revenue from product sales decreased $8.2 million, or 17.9%, for the second quarter of fiscal 2018 compared with the same period in fiscal 2017. Product volumes were $2.5 million lower in North America and $5.7 million lower in other regions. Our services revenue increased by $1.4 million, or 6.3%, during the second quarter of fiscal 2018 compared with the same period of fiscal 2017, due to increased service activities in all regions except for Latin America.

Our revenue from product sales decreased by ~~$7.9~~$2.5 million, or ~~9.8%~~6.5%, for the first ~~six months~~quarter of fiscal ~~2018~~2020 compared with the same ~~period in~~quarter of fiscal ~~2017. The decrease came primarily from weaker~~2019. Increased product sales in ~~Africa,~~North America were offset by a larger volume decrease in international sectors compared to the ~~Middle East, Latin~~same quarter in fiscal 2020. Our services revenue increased by $0.6 million, or 3.0%, during the first quarter of fiscal 2020 compared with the same quarter of fiscal 2019. Increased service sales in North America ~~and Asia Pacific,~~were offset in part by ~~stronger~~lower sales in ~~North America and Europe. Our services revenue decreased by $0.9 million, or 2.0%, during the first six months of~~most international sectors relative to fiscal ~~2018 compared with the same period of fiscal 2017, due to reduced service activities in most regions, except for the Middle East Africa and Europe where we had a small increase in service sales.~~2019.

Gross Margin


	Three Months Ended											Six Months Ended											Three Months Ended
(In thousands, except percentages)	December 29, 2017			December 30, 2016			$ Change			% Change		December 29, 2017			December 30, 2016			$ Change			% Change		September 27, 2019			September 28, 2018			$ Change			% Change
Revenue	$	61,723		$	68,536		$	(6,813	)	(9.9	)%	$	117,905		$	126,743		$	(8,838	)	(7.0	)%	$	58,614		$	60,504		$	(1,890	)	(3.1	)%
Cost of revenue	39,833			47,420			(7,587		)	(16.0	)%	78,719			88,262			(9,543		)	(10.8	)%	36,058			42,579			(6,521		)	(15.3	)%
Gross margin	$	21,890		$	21,116		$	774		3.7	%	$	39,186		$	38,481		$	705		1.8	%	$	22,556		$	17,925		$	4,631		25.8	%
% of revenue	35.5		%	30.8		%						33.2		%	30.4		%						38.5		%	29.6		%
Product margin %	36.9		%	32.5		%						34.8		%	30.8		%						43.1		%	31.5		%
Service margin %	33.1		%	27.3		%						30.7		%	29.7		%						30.8		%	26.2		%

Gross margin for the ~~three and six months ended December 29, 2017~~first quarter of fiscal 2020 increased by ~~$0.8~~$4.6 million, or ~~3.7%, and $0.7 million, or 1.8%, respectively,~~25.8% compared with the ~~three and six months ended December 30, 2016. The~~same quarter of fiscal 2019. Our gross margin increased from the prior-year quarter, primarily due to the substantial increase ~~resulted from improved product margins primarily~~ in ~~Africa and improved profitability of service projects in Africa, as well as an increase share of business in the~~ North America ~~market.~~sales volume, offset in part by reduced volume in our international sectors. For the first quarter of fiscal 2020, overall gross margin increased on greater product margin and greater services margin in our North America sector.

Gross margin as a percentage of revenue increased in the ~~second~~first quarter of fiscal ~~2018~~ 2020compared with the same ~~period in~~quarter of fiscal ~~2017~~2019, primarily due to improved profitability of both product sales and ~~service margins, as well as an increase~~services sales in the ~~share of business in North America.~~quarter. Product margin as a percentage of product revenue ~~increased~~improved in the first quarter of fiscal 2020 compared with the same quarter of fiscal 2019 from ~~the prior year quarter primarily due to improvements of product margins in Africa facilitated by relative stability in exchange~~improved margin rates ~~as well as the increased share of business~~ in North ~~America.~~America and international sectors. Service margin as a percentage of service revenue increased ~~due to continued efforts to improve execution~~in the first quarter of ~~our field services projects, primarily in Africa.~~

On a year-to-date basis, gross margin as a percentage of revenue increased due to lower supply chain costs and higher margin on both product and service. Gross margin rates in our services businesses in most international sectors improved fiscal 2020compared with the same period in fiscal ~~2017. Product margin as a percentage of product revenue increased in the first six months of fiscal 2018 over the same period in fiscal 2017 primarily~~2019 due to ~~reduced supply chain costs as well as the above-mentioned shift~~improved margin rates in ~~the portion of~~ our ~~business coming from~~ North America ~~relative to~~and international ~~markets, and from improved product margins in Africa and Asia-Pacific.~~

sectors.

Research and Development Expenses


	Three Months Ended										Six Months Ended										Three Months Ended
(In thousands, except percentages)	December 29, 2017			December 30, 2016			$ Change		% Change		December 29, 2017			December 30, 2016			$ Change		% Change		September 27, 2019			September 28, 2018			$ Change		% Change
Research and development	$	5,144		$	4,475		$	669	14.9	%	$	9,942		$	9,418		$	524	5.6	%	$	5,216		$	4,937		$	279	5.7	%
% of revenue	8.3		%	6.5		%					8.4		%	7.4		%					8.9		%	8.2		%

Our research and development expenses increased ~~$0.7~~by $0.3 million, or ~~14.9%~~5.7%, in the ~~second~~first quarter of fiscal 2020 compared with the same quarter of fiscal ~~2018~~2019. The increase was primarily due to increased product development activities.

Selling and Administrative Expenses



	Three Months Ended
(In thousands, except percentages)	September 27, 2019			September 28, 2018			$ Change		% Change
Selling and administrative	$	14,644		$	13,706		$	938	6.8	%
% of revenue	25.0		%	22.7		%

Our selling and administrative expenses increased by $0.9 million, or 6.8%, in the first quarter of fiscal 2020 compared with the same period in fiscal ~~2017.~~ 2019. The ~~increase was due to a $0.5 million increase~~ in ~~professional service expense and a $0.2 million increase in compensation and related employee expenses.~~

~~Our research and development expenses increased $0.5 million, or 5.6%, in the first six months of fiscal 2018 compared with the same period in fiscal 2017. The increase~~crease was primarily due to ~~a $0.5 million increase in~~higher variable compensation and other legal related employee expenses and $0.2 million additional spending in professional service expense. The increase was offset by $0.1 million due to a higher economic incentive grant credit in the first six months of fiscal 2018.

~~Selling and Administrative Expenses~~

Three Months Ended Six Months Ended
(In thousands, except percentages) December 29, 2017 December 30, 2016 $ Change % Change December 29, 2017 December 30, 2016 $ Change % Change
Selling and administrative $ 14,104
$ 14,056
$ 48
0.3 % $ 27,826
$ 29,243
$ (1,417 ) (4.8 )%
% of revenue 22.9 % 20.5 % 23.6 % 23.1 %

Our selling and administrative expenses increased $48.0 thousand, or 0.3%, in the second quarter of fiscal 2018 compared with the same periods in fiscal 2017. The increase for the second quarter of fiscal 2018 compared with the same quarter in fiscal 2017 was primarily due to a $0.8 million bad debt recovery in the second quarter of fiscal 2017 that was not repeated in the current quarter and was offset by $0.2 million in savings in professional services expense and a $0.6 million savings in facilities costs due to our relocation to a new facility in fiscal 2017.

The decrease for the first six months of fiscal 2018 compared with the same period in fiscal 2017 was primarily due to a $1.0 million decrease in facility costs, a $0.4 million decrease in professional fees, a $0.3 million decrease in personnel costs and a $0.3 million decrease in depreciation expenses. The decrease was offset by a $0.7 million bad debt recovery in the first six months of fiscal 2017 that was not repeated in the first six months of fiscal 2018.costs.

Restructuring Charges


	Three Months Ended										Six Months Ended										Three Months Ended
(In thousands, except percentages)	December 29, 2017			December 30, 2016		$ Change			% Change		December 29, 2017			December 30, 2016		$ Change			% Change		September 27, 2019		September 28, 2018		$ Change		% Change
Restructuring (recovery) charges	$	(252	)	$	72	$	(324	)	(450.0	)%	$	(250	)	$	232	$	(482	)	(207.8	)%
Restructuring charges																					$	1,177	$	796	$	381	47.9	%

~~Our restructuring expenses in the three and six months ended December 30, 2016 consisted primarily of the facility costs related to our previous headquarters in Santa Clara.~~ During the ~~second~~fourth quarter of fiscal ~~2018, based on communications with certain foreign government, we reduced~~2019, our ~~estimated payments relating~~Board of Directors approved a restructuring plan (the “Fiscal 2020 Plan”) to primarily consolidate product development, right size our resources to support our International business and other support functions. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal ~~2014-2015 restructuring plan by $0.3 million.~~2021.

Interest Income and Interest Expense ~~and Other (Expense) Income~~


	Three Months Ended											Six Months Ended											Three Months Ended
(In thousands, except percentages)	December 29, 2017			December 30, 2016			$ Change			% Change		December 29, 2017			December 30, 2016			$ Change			% Change		September 27, 2019			September 28, 2018			$ Change		% Change
Interest income	$	42		$	72		$	(30	)	(41.7	)%	$	100		$	126		$	(26	)	(20.6	)%	$	86		$	51		$	35	68.6	%
Interest expense	$	(13	)	$	(3	)	$	(10	)	333.3	%	$	(19	)	$	(21	)	$	2		(9.5	)%	$	(3	)	$	(5	)	$	2	(40.0	)%
Other (expense) income	$	(136	)	$	5		$	(141	)	N/A		$	(166	)	$	(177	)	$	11		N/A

Interest income reflected interest earned on our cash equivalents which were comprised of money market funds and bank certificates of deposit.

Interest expense was primarily related to interest associated with borrowings under the SVB Credit Facility and discounts on customer letters of credit.

~~Other (expense) income were primarily comprised of a foreign exchange loss related to a dividend declared by our Nigeria entity (a partnership for U.S. tax purposes) to our Aviat U.S. entity.~~

Income Taxes


	Three Months Ended										Six Months Ended											Three Months Ended
(In thousands, except percentages)	December 29, 2017			December 30, 2016		$ Change			% Change		December 29, 2017			December 30, 2016			$ Change			% Change		September 27, 2019		September 28, 2018			$ Change		% Change
Income (loss) before income taxes	$	2,787		$	2,587	$	200		7.7	%	$	1,583		$	(484	)	$	2,067		(427.1	)%	$	1,602	$	(1,468	)	$	3,070	(209.1	)%
(Benefit from) provision for income taxes	$	(2,564	)	$	865	$	(3,429	)	N/A		$	(3,203	)	$	(1,605	)	$	(1,598	)	99.6	%
Provision for (benefit from) income taxes																						$	1,548	$	(718	)	$	2,266	(315.6	)%

We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.

The tax expense for the first quarter of fiscal 2020 was primarily due to tax expense related to profitable subsidiaries and a $0.6 million increase in our reserves for uncertain tax positions. During the first quarter of fiscal ~~2017,~~2019, we recorded a net discrete tax benefit of $1.6 million for the release of valuation allowance on a deferred tax asset recorded for $1.9 million of refundable withholding tax credit to be received afrom the Department of Federal Revenue of Brazil, less tax ~~refund~~expense of ~~$3.7~~$0.3 million from ~~the IRAS related to~~recognizing an assessment we paid in fiscal year 2014 related to deductions claimed in tax years 2007 through 2010. During the first quarter of fiscal 2018, we received an additional refund of $1.3 million from IRAS which represents a final settlement. Both tax refunds wereASC 740-10 reserve previously recorded as a ~~discrete~~reduction against the deferred tax ~~benefit during~~for the quarter the respective payment was received. During the second quarter of fiscal 2018, we recorded a valuation allowance release of $3.3 million related to refundable AMT credit under the Tax Act as a discrete benefit. We expect to receive the refund of thiswithholding tax benefit starting in our fiscal year 2020. The determination of the effective tax rate reflects tax expense and benefit generated in certain jurisdictions. However, jurisdictions with a year-to-date loss where no tax benefit can be recognized are excluded from the annual effective tax rate.credit.

~~Due to the uncertainty regarding the timing and extent of our future profitability, we~~We continue to record a ~~full~~partial valuation allowance ~~to offset~~on our U.S. deferred tax assets which primarily represent future income tax benefits associated with our operating ~~losses because~~losses. Realization of our deferred tax assets is dependent on generating sufficient pre-tax book income in future periods. Although we ~~do not currently~~ believe ~~that~~ it is more likely than not that ~~these assets~~future income will be ~~realized. In~~sufficient to allow us to recover the ~~future, if we conclude that sufficient positive evidence (including our estimate~~value of ~~future taxable income) exists to support a reversal of all or~~ a portion of our U.S. deferred tax assets, realization is not assured and future events could cause us to change our judgment. If future events cause us to conclude that it is not more likely than not that we will be able to recover more or less of the current anticipated portion of deferred tax assets, we would be required to either decrease or increase the valuation allowance on our deferred tax assets at that time, which would result in a charge to income tax expense (benefit) and a material increase or decrease in net income in the period in which we ~~expect that a significant portion~~change our judgment. During the first quarter of fiscal 2020, we did not record any ~~release of the~~adjustment to valuation allowance ~~will be recorded as an income~~on our U.S. deferred tax ~~benefit at the time of release.~~assets.

Liquidity, Capital Resources, and Financial Strategies

Sources of Cash

As of ~~December 29, 2017,~~September 27, 2019, our total cash and cash equivalents ~~restricted cash, and short-term investments~~ were ~~$42.8~~$34.5 million. Approximately ~~$19.2~~$16.5 million, or ~~44.9%~~47.8%, was held in the United States. The remaining balance of ~~$23.5~~$18.0 million, or ~~55.1%~~52.2%, was held by entities outside the United States. AsOf the amount of ~~December 29, 2017, $1.0~~cash and cash equivalents held by our foreign subsidiaries at September 27, 2019, $17.1 million was ~~classified as restricted cash as it was being~~ held ~~by the bank under forward contracts specifically for the repayment of a dividend declared by~~in jurisdictions where our ~~Nigeria entity (a partnership for U.S. tax purposes)~~undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to ~~our Aviat U.S. entity. These forward contracts were settled in January 2018.~~foreign withholding taxes.

Operating Activities

Cash provided by ~~operating activities was $9.2 million~~or used in ~~the first six months of fiscal 2018 as compared to cash provided by operating activities of $8.3 million in the first six months of fiscal 2017. Cash provided by~~ operating activities is presented as net income (loss) adjusted for non-cash items and changes in operating assets and liabilities. Net ~~contribution of non-cash items to~~ cash provided by operating activities was $5.6 million for the first three months of fiscal 2020, compared to cash used in operating activities of $6.8 million for the first three months of fiscal 2019. The net contribution

of non-cash items decreased cash by ~~$3.8~~$0.9 million and net ~~contribution of~~ changes in operating assets and liabilities toincreased cash ~~provided~~ by ~~operating activities increased by $0.9~~$12.6 million for the first ~~six~~three months of fiscal ~~2018~~2020 as compared to the same period in fiscal ~~2017.~~2019.

The ~~$3.8~~$0.9 million decrease in the net contribution of non-cash items ~~to cash provided by operating activities~~ was primarily due to a ~~$3.1~~$0.9 million net ~~decrease~~change in deferred tax expense, ~~of which $3.3 million was related to the release of~~ a ~~valuation allowance for Alternative Minimum Tax, a $0.9 million decrease in charges for inventory write-downs, a $0.5~~$0.3 million decrease in depreciation and amortization, ~~of property, plant and equipment, offset by~~ a ~~$0.7~~$0.1 million ~~decrease in bad debt~~ recovery for uncollectible receivables, and a $0.2 million ~~increase in share-based compensation expense.~~

charge for inventory write-downs.

Changes in operating assets and liabilities resulted in a net increase of ~~$0.9~~$12.6 million to cash ~~provided by operating activities~~ for the first ~~six~~three months of fiscal ~~2018 as~~2020, compared to the same period in ~~2017.~~2019. Accounts receivable and unbilled costs fluctuate from period to period, depending on the amount, timing of sales and billing activities ~~as well as~~and cash collections. The fluctuations in accounts payable and accrued expenses were primarily due to the timing of liabilities incurred and vendor payments. The change in inventories and in customer service inventories were primarily due to demand and our focus on improving our inventory management. The ~~decrease~~increase in customer advance payments and unearned ~~income~~revenue was due to the timing of payment from customers and revenue recognition. We used ~~$0.9~~$0.3 million in cash during the first ~~six~~three months of fiscal ~~2018~~2020 on expenses related to restructuring liabilities.

Investing Activities

Net cash used in investing activities was $1.3 million and $1.8 million for the first three months of fiscal 2020 and 2019, respectively, which consisted of capital expenditures. During the remainder of fiscal year ~~2018,~~2020, we expect to spend approximately ~~$2.3~~$4.8 million for capital expenditures, primarily on equipment for development and manufacturing of new products and to support customer managed services.

Financing Activities

Financing cash flows consist primarily of proceeds and repayments of short-term debt, repurchase of stock and proceeds from sale of share of common stock through employee equity plans. Net cash used in financing activities was $1.5 million for the first three months of fiscal 2020, primarily due to $0.7 million for repurchases of our common stock and a $0.7 million payment for taxes related to the net settlement of equity awards.

As of ~~December 29, 2017,~~September 27, 2019, our principal sources of liquidity consisted of ~~the $40.6~~$34.5 million in cash, cash equivalents, and short-term ~~investments, $11.7~~investments; $14.7 million of available credit under our ~~$30.0~~$25.0 million SVB Credit Facility, which expires on June ~~30, 2018~~29, 2020; and future collections of receivables from customers. We regularly require letters of credit from ~~some~~certain customers, and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce our credit and sovereign risk. Historically, our primary sources of liquidity have been cash flows from operations and credit facilities.

We believe that our existing cash and cash equivalents, the available line of credit under the SVB Credit Facility, and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for at least the next 12 months. Our SVB Credit Facility expires on June ~~30, 2018. While we intend to renew the SVB Credit Facility and expect the SVB Credit Facility to be renewed, there can be no assurance that the SVB Credit Facility will be renewed.~~29, 2020. In addition, there can be no assurance that our business will generate cash flow from operations, we will be in compliance with the quarterly financial covenants contained in the SVB Credit Facility, or that we will have a sufficient borrowing base under such facility, or that anticipated operational improvements will be achieved. If we are not in compliance with the financial covenants or do not have sufficient eligible accounts receivable to support our borrowing base, the availability of our credit facility is not certain or may be diminished. Over the longer term, if we are unable to maintain cash balances or generate sufficient cash flow from operations to service our obligations that may arise in the future, we may be required to sell assets, reduce capital expenditures, or obtain financing. If we need to obtain additional financing, we cannot be assured that it will be available on favorable terms, or at all. Our ability to make scheduled principal payments or pay interest on or refinance any future indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the microwave communications market and to general economic, political, financial, competitive, legislative, and regulatory factors beyond our control.

As of September 27, 2019, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility. The $9.0 million borrowing was classified as a current liability as of September 27, 2019 and June 28, 2019 and repaid in October 2019 and July 2019, respectively.

In addition, we have an uncommitted short-term line of credit of $0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for $0.2 million in short-term advances at various interest rates, all of which was available as of September 27, 2019 and June 28, 2019. The line of credit also provides for the issuance

of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of September 27, 2019. This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.

Restructuring Payments

We had liabilities for restructuring activities totaling ~~$0.6~~$2.2 million as of ~~December 29, 2017, $0.3~~September 27, 2019, $2.0 million of which was classified as current liabilities and expected to be paid out in cash over the next 12 months. We expect to fund these future payments with available cash and cash provided by operations.

Contractual Obligations and Commercial Commitments

The amounts disclosed in our fiscal ~~2017~~2019 Annual Report on Form 10-K filed with the SEC on ~~September 6, 2017~~August 27, 2019 include our commercial commitments and contractual obligations. During the first ~~six~~three months of fiscal ~~2018,~~2020, no material changes occurred in our contractual obligations to purchase goods and services and to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal ~~2017~~2019 Annual Report on Form 10-K. As of ~~December 29, 2017,~~September 27, 2019, we had commercial commitments of ~~$51.9~~$60.3 million outstanding that were not recorded inon our unaudited condensed consolidated balance sheets. This is ~~an increase~~a decrease of ~~$17.1~~$0.3 million from the amount disclosed in our fiscal ~~2017~~2019 Annual Report on Form 10-K. Please refer to ~~Note 10~~“Note 12 Commitments and ~~Contingencies~~Contingencies” of the Notes to ~~Condensed Consolidated Financial Statements (Unaudited)~~unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Critical Accounting Estimates

For information about our critical accounting estimates, see the “Critical Accounting Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal ~~2017~~2019 Annual Report on Form ~~10-K.~~10-K other than for the impact of adopting new lease accounting standards.

Item 3. Quantitative and Qualitative Disclosures about Market ~~Risk.~~Risk

In the normal course of doing business, we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. We employ established policies and procedures governing the use of financial instruments to manage our exposure to such risks.

Exchange Rate Risk

We conduct business globally in numerous currencies and are therefore exposed to foreign currency risks. We use derivative instruments to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. We do not hold or issue derivatives for trading purposes or make speculative investments in foreign currencies.

We use foreign exchange forward contracts to hedge forecasted foreign currency transactions relating to forecasted sales and purchase transactions. Beginning the fourth quarter of fiscal 2015, we no longer prepared contemporaneous documentation of hedges for the new foreign exchange forward contracts we ~~entered into.~~entered. As a result, the foreign exchange hedges no longer qualified as cash flow hedges. The changes in fair value related to the hedges were recorded in income or expenses line items on our statements of operations.

We also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the balance sheet. All balance sheet hedges are marked to market through earnings every period. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities.

As of ~~December 29, 2017,~~September 27, 2019, we had foreign currency forward contracts outstanding with a total notional amount of ~~$4.7~~$5.3 million consisting of ~~two~~five currencies as follows:


Currency	Notional Contract Amount (Local Currency)	Notional Contract Amount (USD)		Notional Contract Amount (Local Currency)	Notional Contract Amount (USD)
	(In thousands)			(In thousands)
Canadian dollar				250	$	188
Euro				400	446
New Zealand dollar	5,400	$	3,702	5,400	3,488
Nigeria Naira	331,200	1,000
Singapore dollar				750	542
Great Britain pound				500	631
Total of all currency forward contracts		$	4,702		$	5,295

Net foreign exchange income (loss), net recorded in our unaudited condensed consolidated statements of operations during the ~~first six~~three months ended ~~of fiscal~~September 27, 2019 and September 28, 2018 ~~and 2017~~ was as follows:


	Three Months Ended						Six Months Ended						Three Months Ended
(In thousands)	December 29, 2017			December 30, 2016			December 29, 2017			December 30, 2016			September 27, 2019		September 28, 2018
Amount included in costs of revenues	$	(107	)	$	(64	)	$	(98	)	$	(280	)	$	216	$	(219	)
Amount included in other expense	(136		)	2			(137		)	(208		)
Total foreign exchange loss, net	$	(243	)	$	(62	)	$	(235	)	$	(488	)

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of ~~December 29, 2017~~September 27, 2019 would have an impact of approximately ~~$0.4~~$0.5 million on the fair value of such instruments.

Certain of our international business are transacted in non-U.S. dollar currency. As discussed above, we utilize foreign currency hedging instruments to minimize the currency risk of international transactions. The impact of translating the assets and liabilities of foreign operations to U.S. dollars for the first ~~six~~three months of fiscal ~~2018~~2020 was ~~$0.6~~$0.5 million and was included as a component of stockholders’ equity. As of ~~December 29, 2017~~September 27, 2019 and June ~~30, 2017,~~28, 2019, the cumulative translation adjustment decreased our equity by ~~$11.2~~$13.2 million and ~~$11.8~~$12.7 million, respectively.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents and borrowings under our credit facility.

Exposure on Cash Equivalents ~~and Short-term Investments~~

We had ~~$42.8~~$34.5 million in total cash and cash equivalents ~~and short-term investments~~ as of ~~December 29, 2017.~~September 27, 2019. Cash equivalents ~~and short-term investments~~ totaled ~~$22.7~~$19.5 million as of ~~December 29, 2017~~September 27, 2019 and were comprised of money market funds and bank certificates of deposit. Cash equivalents ~~and short-term~~ investments have been recorded at fair value on our balance sheet.

Our cash equivalents ~~and short-term investments~~ earn interest at fixed rates; therefore, changes in interest rates will not generate a gain or loss on these investments unless they are sold prior to maturity. ~~Actual gains and losses due to the sale of our investments prior to maturity have been immaterial.~~ The ~~weighted average~~weighted-average days to maturity for cash equivalents ~~and short-term investments~~ held as of ~~December 29, 2017~~September 27, 2019 was ~~156~~42 days, and these investments had an average yield of ~~7.18%~~approximately 7% per annum. A 10% change in interest rates on our cash equivalents ~~and short-term investments~~ is not expected to have a material impact on our financial position, results of operations, or cash flows.

Exposure on Borrowings

~~During the first six months of fiscal 2018, we had $9.0 million of~~Our borrowings outstanding under the SVB Credit Facility ~~that~~ incurred interest at the prime rate plus a spread of 0.50% to 1.50% with such spread determined based on our adjusted quick ratio. During the first ~~six~~three months of fiscal ~~2018,~~2019, our ~~weighted average~~weighted-average interest rate was ~~4.79%~~5.50%, and the interest expense on these borrowings was insignificant.

A 10% change in interest rates on the current borrowings or on future borrowings is not expected to have a material impact on our financial position, results of operations, or cash flows since interest on our borrowings is not material to our overall financial position.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on management’s evaluation, with participation of our Interim Chief Executive Officer ~~(CEO)~~ and President, Chief Operating Officer and Principal Financial Officer ~~(CFO)~~(our “CEO and PFO”), as of the end of the period covered by this report, our CEO and ~~CFO have~~PFO has concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange Act, ~~of 1934, as amended (the “Exchange Act”),~~ as of ~~December 29, 2017,~~September 27, 2019, are effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and is accumulated and communicated to management, including our ~~principal executive officer~~CEO and ~~principal financial officer,~~PFO, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls ~~Over~~over Financial Reporting

There were no changes to our internal ~~control~~controls over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) that occurred during ~~our~~the first ~~six~~three months ~~of fiscal 2018~~ended September 27, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including ~~the~~our CEO and ~~CFO,~~PFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on 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. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks.

Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Please refer to Legal Proceedings under ~~Note 10~~“Note 12 Commitments and ~~Contingencies~~Contingencies” of the Notes to ~~Condensed Consolidated Financial Statements (Unaudited)~~unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

Investors should carefully review and consider the information regarding certain factors which could materially affect our business, operating results, cash flows, and financial condition set forth under Item 1A, Risk Factors, in our fiscal ~~2017~~2019 Annual Report on Form 10-K filed with the SEC on ~~September 6, 2017.~~August 27, 2019.

We do not believe that there have been any other material additions or changes to the risk factors previously disclosed in our fiscal ~~2017~~2019 Annual Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Not applicable.~~Following is a summary of stock repurchases for the three months ended September 27, 2019:



Period	Total Number of Shares Repurchased	Average Price Paid per Share		Total Number of Shares Repurchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet be Repurchased Under the Program ⁽¹⁾ (in thousands)
June 29, 2019 through July 26, 2019	18,792	$	13.30	18,792	$	4,934
July 27, 2019 through August 23, 2019	17,830	$	13.08	17,830	$	4,701
August 24, 2019 through September 27, 2019	18,830	$	14.09	18,830	$	4,436
Total	55,452

⁽¹⁾Stock Repurchase Programs

In May 2018, our board of directors approved a repurchase program, which does not have an expiration date, for the repurchase of up to $7.5 million of our common stock. During the three months ended September 27, 2019, we repurchased $0.7 million of our common stock in the open market. As of September 27, 2019, $4.4 million remained available under our stock repurchase program.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

~~The information required by this Item is set forth on the Exhibit Index (following the Signature section of this report) and is included, or incorporated by reference, in this Form 10-Q.~~

~~SIGNATURE~~

~~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.~~

~~AVIAT NETWORKS, INC.~~

~~(Registrant)~~

~~Date: February 8, 2018~~




~~By:~~	~~/s/ Eric Chang~~
	~~Eric Chang~~ ~~Vice President, Corporate Controller and Principal Accounting Officer~~ ~~(Principal accounting officer and duly authorized officer)~~

~~EXHIBIT INDEX~~

The following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC:



Exhibit Number		Descriptions
3.1		Amended and Restated Certificate of Incorporation of Aviat Networks, Inc., as amended ~~(incorporate~~(incorporated by reference to Exhibit 3.1 to the Current Report on Form 10-Q filed with the SEC on February 10, 2017, File No. 001-33278)
3.2		Amended and Restated Bylaws of Aviat Networks, Inc. ~~(incorporate~~(incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on October 2, 2015, File No. 001-33278)
3.3		Amendment of the Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 20, 2019, File No. 001-33278)
4.1		Tax Benefit Preservation Plan, dated as of September 6, 2016, by and between Aviat Networks, Inc. and Computershare Inc., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on September 7, 2016, File No. 011-33278)
4.2		Aviat Networks, Inc. 2018 Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Proxy Statement on Schedule 14A filed with the SEC on February 12, 2018, File No. 001-33278)
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
~~31.2~~		~~Rule 13a-14(a)/15d-14(a) Certification of Chief~~ and Principal Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer and ~~Chief~~Principal Financial Officer
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

AVIAT NETWORKS, INC.

(Registrant)

Date: November 7, 2019




By:	/s/ Walter Stanley Gallagher, Jr.
	Walter Stanley Gallagher, Jr. Interim Chief Executive Officer and President, Chief Operating Officer and Principal Financial Officer




By:	/s/ Eric Chang
	Eric Chang Senior Vice President, Corporate Controller and Principal Accounting Officer

EXHIBIT INDEX



Exhibit Number		Descriptions
3.1		Amended and Restated Certificate of Incorporation of Aviat Networks, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Current Report on Form 10-Q filed with the SEC on February 10, 2017, File No. 001-33278)
3.2		Amended and Restated Bylaws of Aviat Networks, Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the SEC on October 2, 2015, File No. 001-33278)
3.3		Amendment of the Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on September 20, 2019, File No. 001-33278)
4.1		Tax Benefit Preservation Plan, dated as of September 6, 2016, by and between Aviat Networks, Inc. and Computershare Inc., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed with the SEC on September 7, 2016, File No. 011-33278)
4.2		Aviat Networks, Inc. 2018 Incentive Plan (incorporated by reference to Appendix A to the Registrant’s Proxy Statement on Schedule 14A filed with the SEC on February 12, 2018, File No. 001-33278)
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Principal Financial Officer
32.1		Section 1350 Certification of Chief Executive Officer and Principal Financial Officer
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



Fiscal Years	Amounts
	(In thousands)
2018 (two quarters remaining)	$	1,244
2019	1,692
2020	1,204
2021	962
2022	208
Thereafter	2,022
Total	$	7,332