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 ~~March 29, 2019~~April 3, 2020



¨	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.~~200 Parker Dr., Suite ~~200, Milpitas, California~~C100A, Austin, Texas		~~95035~~78728
(Address of principal executive offices)		(Zip Code)

(408) 941-7100

(Registrant’s telephone number, including area code)

~~No changes~~

860 N. McCarthy Blvd., Suite 200, Milpitas, California 95035

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

__________________________

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

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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



Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	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. ¨

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 Stock Market LLC~~

The number of shares outstanding of the registrant’s Common Stock as of April 30, ~~2019~~2020 was ~~5,377,630 shares.~~5,393,030.

AVIAT NETWORKS, INC.

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended ~~March 29, 2019~~April 3, 2020

Table of Contents




	Page
Part I. Financial Information	4
Item 1. Financial Statements	4
Condensed Consolidated Balance Sheets (Unaudited)	4
Condensed Consolidated Statements of Operations (Unaudited)	5
Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~ (Unaudited)	6
Condensed Consolidated Statements of Cash Flows (Unaudited)	7
Condensed Consolidated Statements of Equity (Unaudited)	8
Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2726
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3533
Item 4. Controls and Procedures	3635
Part II. Other Information	3836
Item 1. Legal Proceedings	3836
Item 1A. Risk Factors	3836
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3837
Item 3. Defaults upon Senior Securities	3837
Item 4. Mine Safety Disclosures	3837
Item 5. Other Information	3837
Item 6. Exhibits	3938
Signatures	4039
Exhibit Index	39

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



(In thousands, except share and par value amounts)	April 3, 2020			June 28, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	39,208		$	31,946
Accounts receivable, net	48,148			51,937
Unbilled receivables	23,420			27,780
Inventories	14,190			8,573
Customer service inventories	1,264			936
Other current assets	11,164			4,825
Total current assets	137,394			125,997
Property, plant and equipment, net	17,602			17,255
Deferred income taxes	13,780			13,864
Right of use assets	4,608			—
Other assets	6,377			12,077
TOTAL ASSETS	$	179,761		$	169,193
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt	$	9,000		$	9,000
Accounts payable	38,434			35,605
Accrued expenses	23,170			22,555
Short-term lease liabilities	2,396			—
Advance payments and unearned revenue	21,485			13,962
Restructuring liabilities	1,538			1,089
Total current liabilities	96,023			82,211
Unearned revenue	8,210			9,662
Long-term lease liabilities	2,493			—
Other long-term liabilities	620			820
Reserve for uncertain tax positions	4,654			3,606
Deferred income taxes	818			1,378
Total liabilities	112,818			97,677
Commitments and contingencies (Note 12)
Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued	—			—
Common stock, $0.01 par value, 300,000,000 shares authorized, 5,393,030 shares issued and outstanding at April 3, 2020; 5,359,695 shares issued and outstanding at June 28, 2019	54			54
Additional paid-in-capital	813,986			815,196
Accumulated deficit	(731,884		)	(730,998		)
Accumulated other comprehensive loss	(15,213		)	(12,736		)
Total equity	66,943			71,516
TOTAL LIABILITIES AND EQUITY	$	179,761		$	169,193

(In thousands, except share and par value amounts) March 29,
2019 June 29,
2018
ASSETS
Current Assets:
Cash and cash equivalents $ 36,053
$ 37,425
Restricted cash —
3
Accounts receivable, net 45,622
43,068
Unbilled receivables 28,474
14,167
Inventories 10,309
21,290
Customer service inventories 949
1,507
Other current assets 4,664
6,006
Total current assets 126,071
123,466
Property, plant and equipment, net 16,849
17,179
Deferred income taxes 12,185
5,600
Other assets 12,098
9,816
TOTAL ASSETS $ 167,203
$ 156,061
LIABILITIES AND EQUITY
Current Liabilities:
Short-term debt $ 9,000
$ 9,000
Accounts payable 34,165
30,878
Accrued expenses 22,234
25,864
Advance payments and unearned revenue 18,507
19,300
Restructuring liabilities 1,459
1,426
Total current liabilities 85,365
86,468
Unearned revenue 8,071
6,593
Other long-term liabilities 953
1,250
Reserve for uncertain tax positions 3,654
2,941
Deferred income taxes 1,553
1,293
Total liabilities 99,596
98,545
Commitments and contingencies (Note 11)

Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued
—
—
Common stock, $0.01 par value, 300,000,000 shares authorized, 5,375,942 shares issued and outstanding at March 29, 2019; 5,351,155 shares issued and outstanding at June 29, 2018 54
54
Additional paid-in-capital 815,421
816,426
Accumulated deficit (734,837 ) (746,359 )
Accumulated other comprehensive loss (13,031 ) (12,605 )
Total equity 67,607
57,516
TOTAL LIABILITIES AND EQUITY $ 167,203
$ 156,061

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

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
(In thousands, except per share amounts)	March 29, 2019			March 30, 2018			March 29, 2019			March 30, 2018			April 3, 2020			March 29, 2019			April 3, 2020			March 29, 2019
Revenues:
Revenue from product sales	$	34,615		$	40,686		$	115,696		$	113,472		$	40,930		$	34,615		$	111,676		$	115,696
Revenue from services	19,422			21,407			63,933			66,526			20,449			19,422			64,314			63,933
Total revenues	54,037			62,093			179,629			179,998			61,379			54,037			175,990			179,629
Cost of revenues:
Cost of product sales	23,712			28,704			76,670			76,151			24,676			23,712			68,466			76,670
Cost of services	14,070			15,257			46,289			46,529			14,742			14,070			44,688			46,289
Total cost of revenues	37,782			43,961			122,959			122,680			39,418			37,782			113,154			122,959
Gross margin	16,255			18,132			56,670			57,318			21,961			16,255			62,836			56,670
Operating expenses:
Research and development expenses	5,350			4,754			15,603			14,696			4,875			5,350			15,069			15,603
Selling and administrative expenses	13,408			14,745			41,405			42,571			15,233			13,408			44,334			41,405
Restructuring (recovery) charges	—			(2		)	796			(252		)
Restructuring charges													617			—			2,175			796
Total operating expenses	18,758			19,497			57,804			57,015			20,725			18,758			61,578			57,804
Operating (loss) income	(2,503		)	(1,365		)	(1,134		)	303
Operating income (loss)													1,236			(2,503		)	1,258			(1,134		)
Interest income	73			49			167			149			112			73			318			167
Interest expense	(7		)	(5		)	(88		)	(24		)	(19		)	(7		)	(23		)	(88		)
Other expense, net	(1		)	(54		)	(1		)	(220		)
(Loss) income before income taxes	(2,438		)	(1,375		)	(1,056		)	208
(Benefit from) provision for income taxes	(6,777		)	1,015			(6,955		)	(2,188		)
Other (expense) income, net													—			(1		)	—			(1		)
Income (loss) before income taxes													1,329			(2,438		)	1,553			(1,056		)
Provision for (benefit from) income taxes													598			(6,777		)	2,439			(6,955		)
Net income (loss)	4,339			(2,390		)	5,899			2,396			$	731		$	4,339		$	(886	)	$	5,899
Less: Net income attributable to noncontrolling interest, net of tax	—			233			—			605
Net income (loss) attributable to Aviat Networks	$	4,339		$	(2,623	)	$	5,899		$	1,791

Net income (loss) per share of common stock outstanding:
Basic	$	0.81		$	(0.49	)	$	1.10		$	0.34		$	0.14		$	0.81		$	(0.16	)	$	1.10
Diluted	$	0.78		$	(0.49	)	$	1.05		$	0.32		$	0.13		$	0.78		$	(0.16	)	$	1.05
Weighted-average shares outstanding:
Basic	5,381			5,344			5,382			5,331			5,395			5,381			5,390			5,382
Diluted	5,577			5,344			5,634			5,632			5,457			5,577			5,390			5,634

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

AVIAT NETWORKS, INC.

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

(Unaudited)

Three Months Ended Nine Months Ended
(In thousands) March 29,
2019 March 30,
2018 March 29,
2019 March 30,
2018
Net income (loss) $ 4,339
$ (2,390 ) $ 5,899
$ 2,396
Other comprehensive (loss) income:
Net change in cumulative translation adjustments (88 ) 188
(426 ) 809
Other comprehensive (loss) income
(88 ) 188
(426 ) 809
Comprehensive income (loss) 4,251
(2,202 ) 5,473
3,205
Less: Comprehensive income attributable to noncontrolling interest, net of tax —
233
—
605
Comprehensive income (loss) attributable to Aviat Networks $ 4,251
$ (2,435 ) $ 5,473
$ 2,600



	Three Months Ended						Nine Months Ended
(In thousands)	April 3, 2020			March 29, 2019			April 3, 2020			March 29, 2019
Net income (loss)	$	731		$	4,339		$	(886	)	$	5,899
Other comprehensive loss:
Net change in cumulative translation adjustments	(2,374		)	(88		)	(2,477		)	(426		)
Other comprehensive loss	(2,374		)	(88		)	(2,477		)	(426		)
Comprehensive (loss) income	$	(1,643	)	$	4,251		$	(3,363	)	$	5,473

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

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended						Nine Months Ended
(In thousands)	March 29, 2019			March 30, 2018			April 3, 2020			March 29, 2019
Operating Activities
Net income	$	5,899		$	2,396
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment and capitalized software	3,408			3,981
(Recovery from) provision for uncollectible receivables	(264		)	48
Net (loss) income							$	(886	)	$	5,899
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment							3,226			3,408
(Provision) recovery from uncollectible receivables							18			(264		)
Share-based compensation	1,396			1,689			1,315			1,396
Deferred tax assets, net	(6,870		)	(2,823		)	(475		)	(6,870		)
Charges for inventory and customer service inventory write-downs	404			376			751			404
Loss on disposition of property, plant and equipment, net	20			28			14			20
Changes in operating assets and liabilities:
Accounts receivable	(236		)	8,068			2,977			(236		)
Unbilled receivables	(5,674		)	(2,299		)	4,644			(5,674		)
Inventories	(698		)	954			(5,810		)	(698		)
Customer service inventories	(170		)	(351		)	(930		)	(170		)
Accounts payable	3,954			(1,399		)	3,170			3,954
Accrued expenses	(3,085		)	(569		)	140			(3,085		)
Advance payments and unearned revenue	7,197			(806		)	6,157			7,197
Income taxes payable or receivable	366			(72		)	1,372			366
Other assets and liabilities	(307		)	(1,942		)	(1,058		)	(307		)
Net cash provided by operating activities	5,340			7,279			14,625			5,340
Investing Activities
Payments for acquisition of property, plant and equipment	(4,083		)	(5,048		)	(3,945		)	(4,083		)
Net cash used in investing activities	(4,083		)	(5,048		)	(3,945		)	(4,083		)
Financing Activities
Proceeds from borrowings	27,000			27,000			27,000			27,000
Repayments of borrowings	(27,000		)	(27,000		)	(27,000		)	(27,000		)
Payments for repurchase of Company stock	(1,870		)	—
Payments for repurchase of common stock							(1,772		)	(1,870		)
Payments for taxes related to net settlement of equity awards	(561		)	—			(764		)	(561		)
Proceeds from issuance of common stock under employee stock plans	30			15			11			30
Net cash (used in) provided by financing activities	(2,401		)	15
Net cash used in financing activities							(2,525		)	(2,401		)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(305		)	60			(895		)	(305		)
Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,449		)	2,306
Net increase (decrease) in cash, cash equivalents, and restricted cash							7,260			(1,449		)
Cash, cash equivalents, and restricted cash, beginning of period	37,764			36,569			32,201			37,764
Cash, cash equivalents, and restricted cash, end of period	$	36,315		$	38,875		$	39,461		$	36,315

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

AVIAT NETWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Three Months Ended March 29, 2019																										Three Months Ended April 3, 2020
	Common Stock				Additional Paid-in Capital				Accumulated Deficit				Accumulated Other Comprehensive Loss				Total Aviat Networks Stockholders’ Equity				Noncontrolling Interests			Total Equity			Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity
(In thousands, except share amounts)	Shares		$ Amount									Shares					Total Aviat Networks Stockholders’ Equity			$ Amount											Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Equity
Balance as of December 28, 2018	5,399,357		$	54	Additional Paid-in Capital			$	Accumulated Deficit	815,392			Accumulated Other Comprehensive Loss	$	(739,176	)		$	(12,943	)	Noncontrolling Interests		$	Total Equity			63,327		$	—	$	63,327
Balance as of December 27, 2019																											5,414,480		$	54	$	813,867		$	(732,615	)	$	(12,839	)	$	68,467
Net income	—		—		—				4,339				—				4,339				—			4,339			—		—		—			731			—			731
Other comprehensive loss, net of tax	—		—		—				—				(88		)		(88		)		—			(88		)	—		—		—			—			(2,374		)	(2,374		)
Issuance of common stock under employee stock plans	8,168		—		11				—				—				11				—			11			6,715		—		1			—			—			1
Shares withheld for taxes related to vesting of equity awards	(622	)	—		(7		)		—				—				(7		)		—			(7		)	(1,681	)	—		(18		)	—			—			(18		)
Stock repurchase	(30,961	)	—		(433		)		—				—				(433		)		—			(433		)	(26,484	)	—		(371		)	—			—			(371		)
Share-based compensation	—		—		458				—				—				458				—			458			—		—		507			—			—			507
Balance as of March 29, 2019	5,375,942		$	54	$	815,421			$	(734,837	)		$	(13,031	)		$	67,607			$	—		$	67,607
Balance as of April 3, 2020																											5,393,030		$	54	$	813,986		$	(731,884	)	$	(15,213	)	$	66,943

Three Months Ended March 30, 2018
Common Stock
Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss
Total Aviat Networks Stockholders’ Equity
Noncontrolling
Interests
Total Equity
(In thousands, except share amounts) Shares
$
Amount

Balance as of December 29, 2017 5,340,851
$ 53
$ 814,898
$ (743,790 ) $ (11,164 ) $ 59,997
$ 915
$ 60,912
Net loss —
—
—
(2,623 ) —
(2,623 ) 233
(2,390 )
Other comprehensive income, net of tax —
—
—
—
188
188
—
188
Issuance of common stock under employee stock plans 8,458
—
4
—
—
4
—
4
Share-based compensation —
—
535
—
—
535
—
535
Balance as of March 30, 2018 5,349,309
$ 53
$ 815,437
$ (746,413 ) $ (10,976 ) $ 58,101
$ 1,148
$ 59,249



	Three Months Ended March 29, 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 December 28, 2018	5,399,357		$	54	$	815,392		$	(739,176	)	$	(12,943	)	$	63,327
Net income	—		—		—			4,339			—			4,339
Other comprehensive loss, net of tax	—		—		—			—			(88		)	(88		)
Issuance of common stock under employee stock plans	8,168		—		11			—			—			11
Shares withheld for taxes related to vesting of equity awards	(622	)	—		(7		)	—			—			(7		)
Stock repurchase	(30,961	)	—		(433		)	—			—			(433		)
Share-based compensation	—		—		458			—			—			458
Balance as of March 29, 2019	5,375,942		$	54	$	815,421		$	(734,837	)	$	(13,031	)	$	67,607



	Nine Months Ended April 3, 2020
	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
(In thousands, except share amounts)	Shares		$ Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
Balance as of June 28, 2019	5,359,695		54			815,196			(730,998		)	(12,736		)	71,516
Net loss	—		—			—			(886		)	—			(886		)
Other comprehensive loss, net of tax	—		—			—			—			(2,477		)	(2,477		)
Issuance of common stock under employee stock plans	215,423		2			9			—			—			11
Shares withheld for taxes related to vesting of equity awards	(54,065	)	(1		)	(763		)	—			—			(764		)
Stock repurchase	(128,023	)	(1		)	(1,771		)	—			—			(1,772		)
Share-based compensation	—		—			1,315			—			—			1,315
Balance as of April 3, 2020	5,393,030		$	54		$	813,986		$	(731,884	)	$	(15,213	)	$	66,943



	Nine Months Ended March 29, 2019
	Common Stock					Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
(In thousands, except share amounts)	Shares		$ Amount			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ 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	—		—			—			5,623			—			5,623
Net income	—		—			—			5,899			—			5,899
Other comprehensive loss, net of tax	—		—			—			—			(426		)	(426		)
Issuance of common stock under employee stock plans	182,421		1			29			—			—			30
Shares withheld for taxes related to vesting of equity awards	(35,088	)	—			(561		)	—			—			(561		)
Stock repurchase	(122,546	)	(1		)	(1,869		)	—			—			(1,870		)
Share-based compensation	—		—			1,396			—			—			1,396
Balance as of March 29, 2019	5,375,942		$	54		$	815,421		$	(734,837	)	$	(13,031	)	$	67,607

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

~~AVIAT NETWORKS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY~~

~~(Unaudited)~~

Nine Months Ended March 29, 2019
Common Stock
Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss
Total Aviat Networks Stockholders’ Equity
Noncontrolling
Interests
Total Equity
(In thousands, except share amounts) Shares
$
Amount

Balance as of June 29, 2018 5,351,155
$ 54
$ 816,426
$ (746,359 ) $ (12,605 ) $ 57,516
$ —
$ 57,516
Cumulative-effect adjustment for ASC Topic 606 —
—
—
5,623
—
5,623
—
5,623
Net income —
—
—
5,899
—
5,899
—
5,899
Other comprehensive loss, net of tax —
—
—
—
(426 ) (426 ) —
(426 )
Issuance of common stock under employee stock plans 182,421
1
29
—
—
30
—
30
Shares withheld for taxes related to vesting of equity awards (35,088 ) —
(561 ) —
—
(561 ) —
(561 )
Stock repurchase (122,546 ) (1 ) (1,869 ) —
—
(1,870 ) —
(1,870 )
Share-based compensation —
—
1,396
—
—
1,396
—
1,396
Balance as of March 29, 2019 5,375,942
$ 54
$ 815,421
$ (734,837 ) $ (13,031 ) $ 67,607
$ —
$ 67,607

Nine Months Ended March 30, 2018
Common Stock
Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss
Total Aviat Networks Stockholders’ Equity
Noncontrolling
Interests
Total Equity
(In thousands, except share amounts) Shares
$
Amount

Balance as of June 30, 2017 5,317,766
$ 53
$ 813,733
$ (748,204 ) $ (11,785 ) $ 53,797
$ 543
$ 54,340
Net income —
—
—
1,791
—
1,791
605
2,396
Other comprehensive income, net of tax —
—
—
—
809
809
—
809
Issuance of common stock under employee stock plans 31,543
—
15
—
—
15
—
15
Share-based compensation —
—
1,689
—
—
1,689
—
1,689
Balance as of March 30, 2018 5,349,309
$ 53
$ 815,437
$ (746,413 ) $ (10,976 ) $ 58,101
$ 1,148
$ 59,249

~~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 ~~29, 2018~~.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~~condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial ~~information.~~information, and we have made estimates, assumptions and judgments affecting the amounts reported in our unaudited condensed consolidated financial statements and the accompanying notes, as discussed in greater detail below. 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 nine months ended ~~March 29, 2019~~ April 3, 2020 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~~consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended June ~~29, 2018.~~28, 2019.

The unaudited ~~Condensed Consolidated Financial Statements~~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.

We operate on a 52-week or 53-week year ending on the Friday closest to June 30. The ~~first~~nine months ended April 3, 2020 consisted of 40 weeks while the nine months ended 2019 included 39 weeks. The three ~~quarters~~months ended April 3, 2020 and March 29, 2019 consisted of ~~fiscal 2019~~14 weeks and ~~fiscal 2018 included~~ 13 weeks, ~~in each quarter.~~respectively. Fiscal year ~~2019~~2020 will be comprised of 5253 weeks and will end on ~~June 28, 2019.~~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. The actual results that we experience may differ materially from our estimates.

Summary of Significant Accounting Policies

There have been no material changes in our significant accounting policies as of and for the nine months ended ~~March 29, 2019,~~April 3, 2020, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended June ~~29, 2018,~~28, 2019, with the exception of our ~~revenue recognition policy. Effective June 30, 2018, we adopted~~adoption of Accounting Standards Update ~~(ASU)~~(“ASU”) No. ~~2014-09 (~~2016-02, ~~Accounting Standards Codification 606 or~~ Leases (Topic 842)

(ASU 2016-02) (“ASC ~~606),~~ ~~Revenue from Contracts with Customers, as amended.~~842”). See Note ~~3, “Revenue Recognition”~~4, “Leases” to the Notes to unaudited ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements for discussion of the impact of the adoption of this standard on our policies for ~~revenue.~~

~~Comparability~~

We adopted ASC 606, effective June 30, 2018, using the modified retrospective method. Prior-period financial statements were not retrospectively restated. The Consolidated Balance Sheet as of June 29, 2018 and results of operations for the ~~three and nine months ended~~ ~~March 30, 2018 were prepared using accounting standards that were different than those in effect for the~~ ~~three and nine months ended~~ ~~March 29, 2019. As a result, the balance sheets as of March 29, 2019 and June 29, 2018 are not directly comparable, nor are the results of operations for the~~ ~~three and nine months ended~~ ~~March 29, 2019 and March 30, 2018.~~leases.

Accounting Standards Adopted

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued ASC ~~606~~842, which ~~supersedes nearly all current U.S. GAAP guidance~~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 ~~this topic and eliminates industry-specific guidance. Revenue recognition under ASC 606 depicts~~ the ~~transfer~~balance sheet (with the exception of ~~promised goods or services to customers in an amount that reflects the consideration to which the entity expects~~short-term leases). For lessees, leases will continue to be ~~entitled~~classified as either operating or financing in ~~exchange for those goods or services. Additional disclosures are required to enable users to understand~~ the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In addition, the FASB amended its guidance related to the capitalization and amortization of the incremental costs of obtaining a contract with a customer. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption.income statement. We adopted ASC ~~606~~842, effective June 29, 2019, using the modified retrospective transition method ~~as of June 30, 2018~~ with the cumulative effect recognized as an adjustment to the opening balance of our accumulated ~~deficit (net~~deficit. Prior-period financial statements were not retrospectively restated. We elected the package of ~~tax). Prior periods have not been retroactively adjusted and will continue to be reported~~practical expedients permitted under the ~~accounting standards in effect~~transition guidance, which allowed us to carryforward our historical lease classification, assessment of whether a contract was or contains a lease, and initial direct costs for ~~those periods.~~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 ~~3, “Revenue Recognition”~~4, “Leases” to the Notes to our unaudited ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements for more information.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities~~. This guidance retains the current accounting for classifying and measuring investments in debt securities and loans but requires equity investments to 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 fiscal years beginning after December 15, 2017. ~~We adopted this update during the first quarter of fiscal 2019. The adoption had no material impact on our~~ ~~unaudited Condensed Consolidated Financial Statements.~~

~~In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532,~~ ~~Disclosure Update and Simplification~~, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. ~~We adopted this update during the first quarter of fiscal 2019. For our first presentation of changes in stockholders’ equity, see our unaudited Condensed Consolidated Statements~~ ~~of Equity included in this Form 10-Q for the quarter ended March 29, 2019.~~

~~Accounting Standards Not Yet Adopted~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~and subsequent amendments to the initial guidance: ASU 2018-10,~~ ~~Codification Improvements to Topic 842, Leases,~~ ~~and ASU 2018-11,~~ ~~Leases (Topic 842) Targeted Improvements, each issued in July 2018, as well as ASU 2019-01,~~ ~~Leases (Topic 842) Codification Improvements~~ ~~issued in March 2019 (collectively, Topic 842), all of which provides guidance on the recognition, measurement, presentation, and disclosure of leases. Topic 842~~ requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. This standard will become effective for fiscal years beginning after December 15, 2018 including interim periods within those years, with early adoption permitted. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous guidance. Although we are currently evaluating the impact the pronouncement will have on our unaudited Condensed Consolidated Financial Statements and related disclosures, we expect that most of our operating lease commitments will be subject to the new standard and recognized as operating lease liabilities and right-of-use assets upon adoption.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation: Improvement to Nonemployees Share-Based Payment Accounting (ASU 2018-07), which 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 Topic 718 applies to all share-based payment transactions in which the 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 issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. This ASU ~~2018-07 will be~~is effective for fiscal years beginning after December 15, ~~2018, including interim periods within those years, with early~~2018. We adopted this update during the first quarter of fiscal 2020. The adoption ~~permitted. We do not expect the adoption of this guidance will have a~~had no material impact on our unaudited ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and was effective March 12, 2020 through December 31, 2022. We are currently evaluating the potential impact of ASU 2020-04 will have on our unaudited condensed consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740). This guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws and rate changes. ASU 2019-12 will be effective for us in our first quarter of fiscal 2022. We are currently evaluating the potential impact that adopting ASU 2019-12 will have on our unaudited condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, 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. This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ~~This standard~~ASU 2018-15 will ~~become~~be effective for ~~interim and annual periods beginning after December 15, 2019,~~us in our first quarter of fiscal 2021, with early adoption permitted. The standard can be adopted either using the prospective or retrospective transition approach. We are evaluating the ~~effect the adoption of the standard~~potential impact adopting ASU 2018-15 will have on our unaudited ~~Condensed Consolidated~~condensed consolidated financial statements.

In 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 2016-13, Financial ~~Statements.~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) and also issued subsequent amendments to the initial guidance: ASU 2018-19,

ASU 2019-04, and ASU 2019-05 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 will be effective for us in our first quarter of fiscal 2024, and earlier adoption is permitted. We are evaluating the impact adopting Topic 326 will have 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 was immaterial.

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


	Three Months Ended					Nine Months Ended				Three Months Ended				Nine Months Ended
(In thousands, except per share amounts)	March 29, 2019		March 30, 2018			March 29, 2019		March 30, 2018		April 3, 2020		March 29, 2019		April 3, 2020			March 29, 2019
Numerator:
Net income (loss) attributable to Aviat Networks	$	4,339	$	(2,623	)	$	5,899	$	1,791
Net income (loss)										$	731	$	4,339	$	(886	)	$	5,899

Denominator:
Weighted-average shares outstanding, basic	5,381		5,344			5,382		5,331		5,395		5,381		5,390			5,382
Effect of potentially dilutive equivalent shares	196		—			252		301		62		196		—			252
Weighted-average shares outstanding, diluted	5,577		5,344			5,634		5,632		5,457		5,577		5,390			5,634

Net income (loss) per share of common stock outstanding:
Basic	$	0.81	$	(0.49	)	$	1.10	$	0.34	$	0.14	$	0.81	$	(0.16	)	$	1.10
Diluted	$	0.78	$	(0.49	)	$	1.05	$	0.32	$	0.13	$	0.78	$	(0.16	)	$	1.05

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


	Three Months Ended		Nine Months Ended		Three Months Ended		Nine Months Ended
(In thousands)	March 29, 2019	March 30, 2018	March 29, 2019	March 30, 2018	April 3, 2020	March 29, 2019	April 3, 2020	March 29, 2019
Stock options	394	343	375	333	327	394	369	375
Restricted stock units and performance stock units	52	437	39	—	98	52	143	39
Total shares of common stock excluded	446	780	414	333	425	446	512	414

Note 3. Revenue Recognition

Effective June 30, 2018, we adopted ASC 606, using the modified retrospective method applied to those contracts that were not completed as of June 29, 2018. Results for the reporting periods after June 29, 2018 are presented under ASC 606, while prior‑period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

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~~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 ~~by the Company.~~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.~~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.

~~ASC 606 Adoption~~

We recorded a net reduction to the opening balance of our accumulated deficit of $5.6 million as of June 30, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to our bill-and-hold and services revenue. Our revenue was $54.0 million and $179.6 million for the ~~three and nine months ended~~ March 29, 2019, respectively, under ASC 606, compared to $54.1 million and $167.0 million, respectively, under ASC 605. The details of the significant changes and quantitative impact of our adoption of ASC 606 are set out below:Bill-and-Hold Sales

~~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. The change under ASC 606 requires consideration of the indicators of when control has been transferred and sets forth additional criteria to be met in a bill-and-hold arrangement potentially resulting in revenue being recognized earlier than under ASC 605. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit consisting of bill-and-hold backlog of ~~$10.5 million~~ ~~that will not be recognized as revenue, less related cost of product sales and income taxes, resulting in a net decrease to accumulated deficit of $1.7 million.~~

Professional Services Revenue: We historically recognized certain professional services revenue upon completion under ASC 605 which changed to over time revenue recognition under ASC 606. We use the input method based on costs incurred, where revenue is calculated based on the percentage of total costs incurred in relation to total estimated costs at completion of the contract. The input method is reasonable because the costs incurred best reflect our efforts toward satisfying the performance obligation over time. The use of the input method requires us to make reasonably dependable estimates. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $4.7 million that will not be recognized as revenue, less related cost of services and income taxes resulting in a net decrease to accumulated deficit of $1.6 million.Termination Rights

Transfer of Control: Certain of our contracts include penalties, acceptance provisions, or other price variability that precluded revenue recognition under ASC 605 because of the requirement for amounts to be fixed or determinable. ASC 606 requires us to estimate and account for variable consideration as a reduction of the transaction price. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $0.6 million that will not be recognized as revenue, less related cost of revenues and income taxes, resulting in a net decrease to accumulated deficit of $0.4 million.

In addition, revenue allocation under ASC 606 requires an allocation of revenue between deliverables, or performance obligations, within an arrangement. Under ASC 605, the allocation of revenue was restricted to the amount which was not contingent on future deliverables; however, ASC 606 removes this restriction. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.5 million.

Under ASC 605, we deferred revenue for stand-alone software licenses where vendor-specific objective evidence (VSOE) of fair value had not been established for undelivered items, and revenue was recognized straight line over the term of the maintenance agreement. Under ASC 606, software revenue is allocated to delivered and undelivered elements based on relative fair value resulting in more software arrangement revenue being recognized earlier. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million.

Previously, we expensed the majority of our commission expense as incurred. Under the new standard, we capitalize and amortize incremental commission costs to obtain the contract over a benefit period. We elected a practical expedient to exclude contracts with a benefit period of a year or less from this deferral requirement. Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million.

~~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~~condensed consolidated statements of ~~Operations~~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. ~~Sales commissions have historically been expensed as incurred.~~ 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 ~~ASC 606’s~~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 ~~the~~our unaudited ~~Condensed Consolidated Balance Sheet~~condensed consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the three and nine months ended ~~March 29, 2019.~~ April 3, 2020.

Contract Balances, Performance Obligations, and Backlog

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


	March 29, 2019		At Adoption on June 30, 2018		April 3, 2020		June 28, 2019
Contract Assets
Accounts receivable, net	$	45,622	$	45,571	$	48,148	$	51,937
Unbilled receivables	$	28,474	$	22,794	23,420		27,780
Capitalized commissions	$	589	$	656	1,031		955
Contract Liabilities
Advance payments and unearned revenue	$	18,507	$	12,700	21,485		13,962
Unearned revenue, long-term	$	8,071	$	7,295	8,210		9,662

Significant changes in ~~the~~ 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. ~~We would~~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 ~~March 29, 2019,~~April 3, 2020, we had ~~$26.6~~$29.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately ~~25%~~30% is expected to be recognized as revenue in the ~~next~~ ~~three months~~remainder of fiscal ~~year 2019~~2020 and the ~~remainder~~balance thereafter. During the three and nine months ended ~~March 29, 2019~~, April 3, 2020 we recognized approximately ~~$1.7~~$1.8 million and ~~$7.1~~$7.4 million, respectively, in maintenance service revenue which was included in advance payments and unearned revenue at ~~June 29, 2018.~~the beginning of the reporting period.

~~Our remaining performance obligations represent the~~Remaining Performance Obligations

The aggregate amount of transaction price allocated to our unsatisfied (or partially unsatisfied) performance obligations was approximately $71.8 million at April 3, 2020. Of this amount, we expect to recognize approximately 60% 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 ~~unsatisfied or partially satisfied, consisting~~included in "Right of ~~deferred revenue~~use assets" on our April 3, 2020 unaudited condensed consolidated balance sheets and ~~backlog.~~represent our right to use the underlying asset for the lease term. Our ~~backlog represents orders received from customers for future product shipments~~obligation to make lease payments are included in "Short-term lease liabilities" and ~~services. Our backlog is subject to future events that could cause~~"Long-term lease liabilities" on our April 3, 2020 unaudited condensed consolidated balance sheets. We did not enter into any finance leases during the ~~amount or timing~~nine months ended April 3, 2020.

Operating lease ROU assets and lease liabilities are recognized based on the present value of the ~~related revenue to change, and, in certain cases, may be canceled. Orders in backlog may be fulfilled several quarters following receipt or may relate to multi-year support service obligations.~~

~~Impacts on Financial Statements~~

~~The following tables summarize~~future minimum lease payments over the ~~impacts~~lease term at commencement date. As most of ~~adopting ASC 606~~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 Statements~~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~~operations and statements of cash flows. As of April 3, 2020, total ROU assets were approximately $4.6 million, and short-term lease liabilities and long-term lease liabilities were approximately $2.4 million and $2.5 million, respectively. Cash paid for lease liabilities was $1.4 million and $4.0 million for the three and nine months ended April 3, 2020, respectively. During the three and nine months ended April 3, 2020, we obtained $0.2 million and $0.3 million, respectively, of right-of-use assets in exchange for new operating lease obligations.

The following summarizes our lease costs, lease term and discount rate for three and nine months ended April 3, 2020 (in thousands, except for weighted average):



	Three Months Ended		Nine Months Ended
	April 3, 2020		April 3, 2020
	(In thousands)
Operating lease costs	$	444	$	1,290
Short-term lease costs	393		1,164
Variable lease costs	95		251
Total lease costs	$	932	$	2,705



Weighted average remaining lease term	5.6 years
Weighted average discount rate	6.7	%

Rent expense for operating leases, including rentals on a month-to-month basis, for the three and nine months ended March 29, 2019 were $0.9 million and $2.8 million, respectively.

As of April 3, 2020, our ~~Consolidated Balance Sheet~~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	$	1,274
2021	1,618
2022	583
2023	320
2024	231
Thereafter	2,010
Total lease payments	6,036
Less: interest	(1,147		)
Present value of lease liabilities	$	4,889

Prior to our adoption of the new lease accounting standard, as of June ~~29, 2018 (in thousands):~~28, 2019, our future minimum lease payments under all non-cancelable operating leases were as follows:

Three Months Ended March 29, 2019
As Reported Adjustments Balances without Adoption of ASC 606
Income Statement
Revenues:
Revenue from product sales $ 34,615
$ 304
$ 34,919
Revenue from services 19,422
(227 ) 19,195
Total revenues $ 54,037
$ 77
$ 54,114
Cost of revenues:
Cost of product sales $ 23,712
$ 334
$ 24,046
Cost of services 14,070
(354 ) 13,716
Total cost of revenues $ 37,782
$ (20 ) $ 37,762

Selling and administrative expenses $ 13,408
$ (39 ) $ 13,369

Net income $ 4,339
$ 366
$ 4,705



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

Nine Months Ended March 29, 2019
As Reported Adjustments Balances without Adoption of ASC 606
Income Statement
Revenues:
Revenue from product sales $ 115,696
$ (10,215 ) $ 105,481
Revenue from services 63,933
(2,370 ) 61,563
Total revenues $ 179,629
$ (12,585 ) $ 167,044
Cost of revenues:
Cost of product sales $ 76,670
$ (5,394 ) $ 71,276
Cost of services 46,289
(1,884 ) 44,405
Total cost of revenues $ 122,959
$ (7,278 ) $ 115,681

Selling and administrative expenses $ 41,405
$ (74 ) $ 41,331

Net income $ 5,899
$ (4,954 ) $ 945

See Note 9, “Segment and Geographic Information” to the Notes to unaudited Condensed Consolidated Financial Statements for discussion on the impact of additional information, including disaggregated revenue disclosures.

Balances as of June 29, 2018 Adjustments due to ASC 606 As Adjusted Balances as of June 30, 2018
Balance Sheet
Assets
Accounts receivable, net $ 43,068
$ 2,503
$ 45,571
Unbilled receivables $ 14,167
$ 8,627
$ 22,794
Inventories $ 21,290
$ (11,516 ) $ 9,774
Other current assets $ 6,006
$ 476
$ 6,482
Deferred income taxes $ 5,600
$ (545 ) $ 5,055
Other assets $ 9,816
$ 180
$ 9,996

Liabilities
Advance payments and unearned revenue $ 19,300
$ (6,600 ) $ 12,700
Unearned revenue - long term $ 6,593
$ 702
$ 7,295

Equity
Accumulated deficit $ (746,359 ) $ 5,623
$ (740,736 )

~~The effects of the adoption of the new revenue recognition guidance on our~~ ~~March 29, 2019~~ ~~unaudited Condensed Consolidated Balance Sheet were as follows:~~

As of March 29, 2019
As Reported Adjustments due to ASC 606 Balances without adoption of ASC 606
Balance Sheet
Assets
Accounts receivable, net $ 45,622
$ (7,473 ) $ 38,149
Unbilled receivables $ 28,474
$ (15,943 ) $ 12,531
Inventories $ 10,309
$ 18,530
$ 28,839
Other current assets $ 4,664
$ (340 ) $ 4,324
Deferred income taxes $ 12,185
$ 545
$ 12,730
Other assets $ 12,098
$ (299 ) $ 11,799

Liabilities
Accrued expenses $ 22,234
$ (369 ) $ 21,865
Advance payments and unearned revenue $ 18,507
$ 7,023
$ 25,530
Unearned revenue - long term $ 8,071
$ (1,021 ) $ 7,050
Reserve for uncertain tax positions $ 3,654
$ (37 ) $ 3,617

Equity
Accumulated deficit $ (734,837 ) $ (10,576 ) $ (745,413 )

Note 4.5. Balance Sheet Components

Cash, Cash Equivalents, and Restricted Cash

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


(In thousands)	March 29, 2019		June 29, 2018		April 3, 2020		June 28, 2019
Cash and cash equivalents	$	36,053	$	37,425	$	39,208	$	31,946
Restricted cash	—		3
Restricted cash included in other assets	262		336		253		255
Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows	$	36,315	$	37,764	$	39,461	$	32,201

Accounts Receivable, net

Our net accounts receivable are summarized below:


(In thousands)	March 29, 2019			June 29, 2018			April 3, 2020			June 28, 2019
Accounts receivable	$	47,644		$	44,656		$	49,973		$	53,539
Less: Allowances for collection losses	(2,022		)	(1,588		)	(1,825		)	(1,602		)
Total accounts receivable, net	$	45,622		$	43,068		$	48,148		$	51,937

Inventories

Our inventories are summarized below:


(In thousands)	March 29, 2019		June 29, 2018		April 3, 2020		June 28, 2019
Finished products	$	6,649	$	15,496	$	8,489	$	4,894
Work in process	—		3,246
Raw materials and supplies	3,660		2,548		5,701		3,679
Total inventories	$	10,309	$	21,290	$	14,190	$	8,573
Deferred cost of revenue included within finished goods	$	—	$	3,667
Consigned inventories included within raw materials and supplies	$	1,641	$	1,492	$	2,620	$	1,649

We currently rely on a few vendors for substantially all of our inventory purchases.

We record recovery or charges to adjust our inventory and customer service inventory due to excess and obsolete inventory resulting from lower sales forecast, product transitioning, or discontinuance. ~~During the~~ ~~three and nine months ended March 29, 2019, we recorded a net recovery of $64,000 and $311,000, respectively, in each case related to previously reserved inventory due to sell through. Such~~The recovery or charges during the three and nine months ended ~~March 29, 2019~~April 3, 2020 and March ~~30, 2018~~29, 2019 were classified in cost of product sales as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
(In thousands)	March 29, 2019			March 30, 2018			March 29, 2019			March 30, 2018			April 3, 2020			March 29, 2019			April 3, 2020		March 29, 2019
Excess and obsolete inventory (recovery) charges	$	(64	)	$	(138	)	$	(311	)	$	(280	)	$	(13	)	$	(64	)	$	156	$	(311	)
Customer service inventory write-downs	313			309			715			656			250			313			595		715
Total inventory (recovery) charges	$	249		$	171		$	404		$	376
Total inventory charges													$	237		$	249		$	751	$	404

Property, Plant and Equipment, net

Our property, plant and equipment, net are summarized below:


(In thousands)	March 29, 2019			June 29, 2018			April 3, 2020			June 28, 2019
Land	$	710		$	710		$	710		$	710
Buildings and leasehold improvements	11,663			11,597			11,723			11,668
Software	17,439			15,498			17,603			17,556
Machinery and equipment	48,339			48,076			52,288			49,733
Total property, plant and equipment, gross	78,151			75,881			82,324			79,667
Less: Accumulated depreciation and amortization	(61,302		)	(58,702		)	(64,722		)	(62,412		)
Total property, plant and equipment, net	$	16,849		$	17,179		$	17,602		$	17,255

Included in the total plant, property and equipment above were $3.9 million and $2.8 million of assets in progress which have not been placed in service as of April 3, 2020 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				Nine Months Ended				Three Months Ended				Nine Months Ended
(In thousands)	March 29, 2019		March 30, 2018		March 29, 2019		March 30, 2018		April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
Depreciation and amortization	$	1,024	$	1,391	$	3,408	$	3,981	$	1,111	$	1,024	$	3,226	$	3,408

Accrued Expenses

Our accrued expenses are summarized below:


(In thousands)	March 29, 2019		June 29, 2018		April 3, 2020		June 28, 2019
Accrued compensation and benefits	$	7,319	$	8,574	$	8,501	$	7,583
Accrued agent commissions	2,288		1,774		2,160		2,035
Accrued warranties	3,434		3,196		3,250		3,323
Other	9,193		12,320		9,259		9,614
Total accrued expenses	$	22,234	$	25,864	$	23,170	$	22,555

Accrued Warranties

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


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
(In thousands)	March 29, 2019			March 30, 2018			March 29, 2019			March 30, 2018			April 3, 2020			March 29, 2019			April 3, 2020			March 29, 2019
Balance as of the beginning of the period	$	3,416		$	3,168		$	3,196		$	3,056		$	3,197		$	3,416		$	3,323		$	3,196
Warranty provision recorded during the period	466			589			1,632			1,817			492			466			1,249			1,632
Consumption during the period	(448		)	(585		)	(1,394		)	(1,701		)	(439		)	(448		)	(1,322		)	(1,394		)
Balance as of the end of the period	$	3,434		$	3,172		$	3,434		$	3,172		$	3,250		$	3,434		$	3,250		$	3,434

Advance Payments and Unearned Revenue

Our advance payments and unearned revenue are summarized below:


(In thousands)	March 29, 2019		June 29, 2018		April 3, 2020		June 28, 2019
Advance payments	$	1,836	$	7,151	$	3,313	$	1,534
Unearned revenue	16,671		12,149		18,172		12,428
Total advance payments and unearned revenue	$	18,507	$	19,300	$	21,485	$	13,962

Excluded from the balances above are ~~$8.1~~$8.2 million and ~~$6.6~~$9.7 million in long-term unearned revenue as of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018,~~28, 2019, respectively.

Note 5.6. 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 ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018~~28, 2019 were as follows:


	March 29, 2019				June 29, 2018				Valuation Inputs	April 3, 2020				June 28, 2019				Valuation Inputs
(In thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Valuation Inputs	Carrying Amount		Fair Value		Carrying Amount		Fair Value		Valuation Inputs
Assets:
Cash and cash equivalents:
Money market funds	$	17,443	$	17,443	$	13,871	$	13,871	Level 1	$	21,393	$	21,393	$	15,121	$	15,121	Level 1
Bank certificates of deposit	$	2,063	$	2,063	$	1,645	$	1,645	Level 2	$	3,282	$	3,282	$	1,989	$	1,989	Level 2
Other current assets:
Foreign exchange forward contracts	$	—	$	—	$	—	$	—	Level 2	$	41	$	41	$	—	$	—	Level 2
Liabilities:
Other accrued expenses:
Foreign exchange forward contracts	$	15	$	15	$	158	$	158	Level 2	$	296	$	296	$	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 ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018,~~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~~condensed consolidated statements of ~~Operations.~~operations.

As of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018,~~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 nine months of fiscal ~~2019~~2020 and ~~2018,~~2019, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.

Note 6.7. Credit Facility and Debt

On June ~~29, 2018,~~10, 2019, we entered into aAmendment No. 2 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the ~~SVB~~“SVB Credit ~~Facility)~~Facility”). ~~The SVB Credit Facility expires on~~On May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June ~~29, 2019.~~28, 2021. The SVB Credit Facility provides for a ~~$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. Loans may be advanced under the SVB Credit Facility based on a borrowing base equal to a specified percentage of the value of eligible accounts of the borrowers under the SVB Credit Facility. The borrowing base is subject to certain eligibility criteria. Availability under the ~~SVB Credit Facility~~accounts receivable formula based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sublimit. We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty. As of ~~March 29, 2019,~~April 3, 2020, available credit under the SVB Credit Facility was ~~$9.8~~$14.5 million, reflecting the calculated borrowing base of ~~$19.7~~$25.0 million less existing borrowings of $9.0 million and outstanding letters of credit of ~~$0.9~~$1.5 million.

The SVB Credit Facility carries an interest rate computed, at our option, based on either (i) at the prime rate 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; 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 nine months of fiscal ~~2019,~~2020, the weighted-average interest rate on our outstanding loan was ~~5.90%~~4.24%. As of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018,~~28, 2019, our outstanding debt balance under the SVB Credit Facility was $9.0 million, and the interest rate was ~~6.00%~~3.75% and ~~5.50%~~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 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 5%5.00% above the applicable interest rate. As of ~~March 29, 2019,~~April 3, 2020, we were in compliance with the quarterly financial covenants ~~as amended,~~ contained in the SVB Credit ~~Facility.~~Facility, as amended. The $9.0 million borrowing was classified as a current liability as of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018, and repaid in April 2019 and July 2018, respectively.~~28, 2019.

On September 28, 2018, we entered into Amendment No. 1 (the ~~Amendment)~~“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 a short-term line of credit for up to ~~$0.4~~$0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for up to ~~$0.3~~$0.2 million in short-term advances at various interest rates, all of which was available as of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018.~~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 ~~March 29, 2019.~~April 3, 2020. This line of credit may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.

Note 7.8. Restructuring Activities

The following table summarizes our restructuring-related activities during the nine months ended ~~March 29, 2019:~~April 3, 2020:


	Severance and Benefits											Facilities and Other			Total			Severance and Benefits														Facilities and Other			Total
(In thousands)	Fiscal 2018-2019 Plan			Fiscal 2016-2017 Plan			Fiscal 2015-2016 Plan			Fiscal 2013-2014 Plan		Fiscal 2015-2016 Plan						Q3 2020 Plan			Fiscal 2020 Plan			Fiscal 2018-2019 Plan			Fiscal 2016-2017 Plan			Fiscal 2013-2014 Plan		Fiscal 2015-2016 Plan
Accrual balance, June 29, 2018	$	1,532		$	14		$	36		$	64	$	266		$	1,912
Accrual balance, June 28, 2019																		$	—		$	—		$	1,023		$	2		$	64	$	238		$	1,327
Charges (recovery), net																		—			1,280			(103		)	—			—		—			1,177
Cash payments																		—			(60		)	(229		)	(2		)	—		—			(291		)
Foreign exchange impact																		—			—			—			—			—		(9		)	(9		)
Accrual balance, September 27, 2019																		—			1,220			691			—			64		229			2,204
Charges, net	796			—			—			—		—			796			—			381			—			—			—		—			381
Cash payments	(227		)	(12		)	(36		)	—		(23		)	(298		)	—			(385		)	(280		)	—			—		—			(665		)
Foreign exchange impact	—			—			—			—		2			2
Accrual balance, September 28, 2018	2,101			2			—			64		245			2,412
Accrual balance, December 27, 2019																					1,216			411			—			64		229			1,920
Charges, net																		595			22			—			—			—		—			617
Cash payments	(242		)	—			—			—		—			(242		)	(15		)	(598		)	(157		)	—			—		—			(770		)
Foreign exchange impact	—			—			—			—		(6		)	(6		)
Accrual balance, December 28, 2018	1,859			2			—			64		239			2,164
Cash payments	(360		)	—			—			—		—			(360		)
Foreign exchange impact	—			—			—			—		(3		)	(3		)
Accrual balance, March 30, 2019	$	1,499		$	2		$	—		$	64	$	236		$	1,801
Accrual balance, April 3, 2020																		$	580		$	640		$	254		$	—		$	64	$	229		$	1,767

As of ~~March 29, 2019,~~April 3, 2020, $1.5 million of the accrual balance was in short-term restructuring liabilities while $0.3 million was included in other long-term liabilities on our unaudited condensed consolidated balance sheets.

During the ~~unaudited Condensed Consolidated Balance Sheets.~~third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) in order to continue to reduce its operating costs and improve profitability to optimize its business model and increase efficiencies. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

During the fourth quarter of fiscal 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 ~~expect to substantially complete~~completed the restructuring activities under our fiscal 2018-2019 restructuring plan ~~(Fiscal~~(the “Fiscal 2018-2019 ~~Plan)~~Plan”) by the end of fiscal 2019. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid by the end of fiscal 2020.

For further information, see “Note 7. Restructuring Activities” in Part II, Item 8 of our ~~2018~~2019 Form 10-K.

Note 8.9. Equity

Stock Repurchase Program

In May 2018, our board of directors approved a stock 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		Nine Months Ended		Three Months Ended				Nine Months Ended
(In thousands, except share amounts)	March 29, 2019		March 29, 2019		April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
Number of shares repurchased	30,961		122,546		26,484		30,961		128,023		122,546
Aggregate purchase price, including commissions	$	434	$	1,873	$	373	$	434	$	1,773	$	1,873

All repurchased shares were retired. As of ~~March 29, 2019, $5.6~~April 3, 2020, $3.4 million remained available under our stock repurchase program. In February 2020, we suspended the stock repurchase program.

Stock Incentive Programs

As of ~~March 29, 2019,~~April 3, 2020, we had two stock incentive plans ~~(both 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 2018 Incentive Plan was approved by the stockholders during the fiscal year 2017 Annual Stockholders’ Meeting and it added 500,000 shares to the equity pool of shares available to grant to employees. During the three months ended ~~December 28, 2018,~~April 3, 2020, we granted ~~15,584~~46,500 ~~restricted~~market-based stock units. During the ~~three~~nine months ended ~~September 28, 2018,~~ April 3, 2020, we granted ~~78,236~~84,202 restricted stock units, 51,706 performance restricted stock units, 46,500 market-based stock units and ~~156,466~~126,118 stock options to purchase shares of our common stock.

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


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
(In thousands)	March 29, 2019		March 30, 2018		March 29, 2019		March 30, 2018		April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
By Expense Category:
Cost of revenues	$	44	$	53	$	144	$	152	$	53	$	44	$	149	$	144
Research and development	42		36		123		114		33		42		92		123
Selling and administrative	372		446		1,129		1,423		421		372		1,074		1,129
Total share-based compensation expense	$	458	$	535	$	1,396	$	1,689	$	507	$	458	$	1,315	$	1,396
By Types of Award:
Options	$	116	$	36	$	271	$	104	$	197	$	116	$	460	$	271
Restricted and performance stock awards and units	342		499		1,125		1,585		310		342		855		1,125
Total share-based compensation expense	$	458	$	535	$	1,396	$	1,689	$	507	$	458	$	1,315	$	1,396

As of ~~March 29, 2019,~~April 3, 2020, there was approximately $1.1 million of total unrecognized compensation expense related to ~~nonvested~~non-vested stock options granted ~~under both Plans. This expense is~~which are expected to be recognized over a weighted-average period of ~~2.44~~2.1 years. As of ~~March 29, 2019,~~April 3, 2020, there was ~~$1.3~~$1.7 million of total unrecognized compensation expense related to ~~nonvested~~non-vested stock awards ~~and units granted under both Plans. This expense is~~which are expected to be recognized over a weighted-average period of ~~0.99 year.~~2.1 years.

Note 9.10. 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 financial performance is regularly reviewed by our ~~sales and support activities are managed on a geographic basis. Our Chief Executive Officer~~chief operating decision maker who is our ~~Chief Operating Decision Maker.~~

chief executive officer.

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 nine months ended April 3, 2020 and March 29, 2019 ~~and March 30, 2018~~ was as follows:

Three Months Ended Nine Months Ended
(In thousands) March 29,
2019 March 30, 2018 March 29,
2019 March 30,
2018
North America⁽¹⁾
$ 28,581
$ 31,756
$ 93,660
$ 99,743
Africa and the Middle East ⁽¹⁾
11,079
17,623
39,058
43,767
Europe and Russia ⁽¹⁾
3,326
3,638
10,271
11,898
Latin America and Asia Pacific⁽¹⁾
11,051
9,076
36,640
24,590
Total revenue $ 54,037
$ 62,093
$ 179,629
$ 179,998

⁽¹⁾~~Prior-period amounts have not been adjusted under the modified retrospective method for the adoption of ASC 606.~~



	Three Months Ended				Nine Months Ended
(In thousands)	April 3, 2020		March 29, 2019		April 3, 2020		March 29, 2019
North America	$	37,250	$	28,581	$	113,489	$	93,660
Africa and the Middle East	9,230		11,079		28,679		39,058
Europe and Russia	1,903		3,326		7,728		10,271
Latin America and Asia Pacific	12,996		11,051		26,094		36,640
Total revenue	$	61,379	$	54,037	$	175,990	$	179,629

During the nine months ended April 3, 2020, Motorola Solutions, Inc. accounted for 10%of our total revenue. No customer accounted for 10% of our total revenue during the three months ended April 3, 2020. During the three months endedMarch 29, 2019, Mobile Telephone Networks Group (MTN Group) and Globe Telecom, Inc. (Globe) accounted for 13% and 12%, respectively, of our total revenue. During the nine months endedMarch 29, 2019, MTN Group accounted for 12%of our

total revenue. ~~During the~~ As of April 3, 2020~~three and nine months ended~~ ~~March 30, 2018,~~, MTN Group and Digitec accounted for ~~17%~~16% and ~~14%, respectively,~~11% of our ~~total revenue.~~ accounts receivable, respectively. As of June 28, 2019~~March 29, 2019,~~, MTN Group and Globe ~~also~~ accounted for ~~27%~~10% and ~~10%, respectively,~~11% of our accounts ~~receivable.~~ ~~As of~~ ~~June 29, 2018, MTN Group accounted for 13% of our accounts receivable. No other customers accounted for more than 10% of our revenue or accounts~~ receivable, ~~for the periods presented.~~respectively. We have entered into separate and distinct contracts with Globe and MTN Group, as well as separate arrangements with their various subsidiaries. The loss of ~~all~~a significant portion of business from ~~Globe and MTN Group, or~~ any ~~other~~ significant customers could adversely affect our unaudited ~~Condensed Consolidated Financial Statements.~~condensed consolidated financial statements.

Note ~~10.~~11. Income Taxes

Our effective tax rate varies from the U.S. federal statutory rate of 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, and tax benefit from release of valuation allowance.~~losses. During interim periods, we accrue tax expenses for jurisdictions that are anticipated to be profitable for fiscal ~~2019.~~2020.

The determination of our income taxes for the nine months ended April 3, 2020 and March 29, 2019 ~~and March 30, 2018~~ 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 nine months ended April 3, 2020 was primarily due to tax expense related to profitable subsidiaries and a $0.4 million increase in our reserves for uncertain tax positions. The tax benefit for the ~~three and~~ nine months ended March 29, 2019 was primarily due to ~~the release of certain U.S. federal, state, and foreign valuation allowances. The tax benefit for the~~ ~~nine months ended~~ March 30, 2018 was primarily attributable to the foreign tax refunds received from the Inland Revenue Authority of Singapore (IRAS) of $1.3 million and the release of a valuation allowance related to the refundable AMT credit of $3.3 million, as provided under the U.S. Tax Cuts and Jobs Act of 2017 (Tax Act), offset by tax expense related to profitable ~~subsidiaries.~~

~~Realization~~subsidiaries, net against the $1.6 million release of ~~deferred tax assets is dependent upon future earnings in applicable tax jurisdictions. In the past,~~valuation allowance due to ~~our U.S. operating losses in previous years and continuing U.S. earnings volatility which did not allow sustainable profitability, we had established and maintained~~the potential foreign tax refund to be received from the Department of Federal Revenue of Brazil.

We continue to record a ~~full~~partial valuation allowance for our U.S. deferred tax assets. While there has been a trend of positive evidence that has been strengthening in recent years, it was not sufficiently persuasive to outweigh the negative evidence in future periods. During the third quarter of fiscal 2019, we are anticipating our third consecutive profitable year from a U.S. pre-tax book income perspective. Accordingly, during the period, we determined that it is more likely than not that we will realize a portion ofon our U.S. deferred tax assets which primarily ~~relating to certain net~~represent future income tax benefits associated with our operating loss carryforwards and current temporary differences. The positive evidence as of March 29, 2019, which outweighed the negative evidence to release a portion of the valuation allowance, included our fiscal 2019 and three-year cumulative U.S. profitability driven by continued demand for our products in North America that have historically resulted in higher margins than international sales, reductions in operating expenses resulting from our previous restructurings, and our forecasted U.S. operating profits in future periods. The negative evidence primarily relates to certain net operating loss carryforwards and credits that are expected to expire prior to utilization. We believe that our positive evidence is strong. The improved financial performance as it relates to U.S. profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a number of factors which have been present to a greater or lesser extent in prior years but have only recently gathered sufficient weight to deliver objectively verifiable, consistent U.S. pre-tax book profits. In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the utilization of our deferred tax assets. Accordingly, during the third quarter

of fiscal 2019, we released $7.1 million of valuation allowance as a discrete item on certain deferred tax assets. The remaining valuation allowance relates to deferred tax assets, for which we believe it is not more likely than not to be realized in future periods. Our valuation allowance decreased from the prior year by approximately $7.1 million.

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 (benefit) and a material increase or decrease in net income in the period in which we change our judgment. During the third quarter of fiscal 2020, we did not record any adjustment to valuation allowance 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 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 the Microwave Communication Division when it was a division of Harris. There have been no settlement payments recorded since the acquisition date.

During the first quarter of fiscal 2019, we received notification from the Department of Federal Revenue of Brazil that our withholding tax refund request had been approved. We recorded a net discrete income tax benefit of $1.6 million for the release of valuation allowance previously recorded as a deferred tax asset for the withholding tax credits. This consisted of an income tax benefit of $1.9 million for the refundable withholding tax credit, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction to the withholding tax credits. During the three months ended December 28, 2018, we reduced the refundable withholding tax credit to $1.8 million, primarily due to foreign exchange differences, and recorded a discrete income tax expense of $0.1 million.

We have a number of open income tax audits covering various tax years, which vary from jurisdiction to jurisdiction. Our major tax jurisdictions where audits are pending include Singapore, Nigeria, and Saudi Arabia. The earliest years that are open and subject to potential audits are as follows: U.S. - 2003; Singapore - 2011; Nigeria - 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 nine months ended April 3, 2020 and March 29, ~~2019 and March 30, 2018.~~2019.

On ~~December 22, 2017,~~March 27, 2020, the ~~SEC staff issued Staff Accounting Bulletin (SAB) No. 118,~~US enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act which ~~provides guidance on accounting~~provided certain tax relief measures including, but not limited to, (1) a five-year net operating loss carryback, (2) changes in the deduction of interest, (3) acceleration of alternative minimum tax credit (AMT) refunds, and (4) a technical correction to allow accelerated deductions for qualified improvement property. The Tax Cuts and Jobs Act repealed the corporate AMT credit and allowed taxpayers to claim any unused AMT credit over four tax ~~effects~~years beginning in tax year 2018. The CARES Act allows for acceleration 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~~refundable AMT credit up to ~~complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects~~100% 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 its financial statements. If a company cannot determine a provisional estimateAMT credit to be ~~included~~refunded in ~~its 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.~~

year 2018. In connection with our ~~initial~~ analysis of the impact of the ~~Tax~~CARES Act, we have reclassified the refundable AMT credit of $3.4 million from long-term to short-term receivable and recorded ~~provisional estimates related~~no income tax effects on the other tax relief measures of the CARES Act. We continue to examine the ~~remeasurement~~elements of ~~deferred taxes~~CARES Act and the ~~Deemed Repatriation Transition Tax in~~impact they may have on our financial statements for our fiscal year ended June 29, 2018. The measurement period ended in the second quarter of fiscal 2019. As of December 28, 2018, we have completed the accounting for the impact of the Tax Act based on the guidance, interpretations, and data available. No adjustments to these provisional estimates have been recorded. Although the measurement period has closed, the accounting for the impact of the Tax Act may change to account for additional factors such as the issuance of further regulatory guidance, changes in interpretations, the collection and analysis of additional information, and any deferred adjustments related to the filing of our 2017 federal and state income tax returns. In accordance with ASC 740, we will recognize any additional effects of the guidance in income tax expense (benefit) in the period that such guidance is issued.future business.

For tax years beginning after December 31, 2017, the Tax Act introduced new provisions of U.S. taxation of certain Global Intangible Low-Taxed Income (GILTI). As of March 29, 2019, we have not yet determined our policy election with respect to whether to record deferred taxes for temporary basis differences expected to reverse as GILTI in future periods, or account for taxes on GILTI using the period cost method. However, we do not expect to generate a GILTI inclusion due to a forecasted overall net loss for our foreign subsidiaries.

Note ~~11.~~12. Commitments and Contingencies

~~Operating Lease Commitments~~

We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates through 2028. We lease approximately 19,000 square feet of office space in Milpitas, California, as our corporate headquarters.

~~As of March 29, 2019, 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)
2019 (one quarter remaining) $ 533
2020 1,742
2021 1,205
2022 451
2023 242
Thereafter 2,334
Total $ 6,507

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 March 29, 2019. The future minimum lease payments are not reduced by the minimum sublease rents.

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

Three Months Ended Nine Months Ended
(In thousands) March 29,
2019 March 30,
2018 March 29,
2019 March 30,
2018
Rent expense $ 901
$ 906
$ 2,822
$ 2,804

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 ~~March 29, 2019,~~April 3, 2020, we had outstanding purchase obligations with our suppliers or contract manufacturers of ~~$18.5~~$22.7 million. In addition, we had contractual obligations of approximately ~~$1.4~~$2.1 million associated with software licenses as of ~~March 29, 2019.~~April 3, 2020.

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 ~~March 29, 2019,~~April 3, 2020, 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 ~~March 29, 2019,~~April 3, 2020, we had commercial commitments of ~~$59.0~~$57.7 million outstanding that were not recorded on our unaudited ~~Condensed Consolidated Balance Sheets.~~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 ~~March 29, 2019,~~April 3, 2020, we have not received any notice that any customer is subject to an infringement claim arising from the use of our products; we have not received any 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 ~~March 29, 2019,~~April 3, 2020, 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 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;~~condensed consolidated financial statements; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the Notes to the unaudited ~~Condensed Consolidated Financial Statements~~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 unaudited ~~Condensed Consolidated Statement~~condensed consolidated statement of ~~Operations.~~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.~~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.

COVID-19

In March 2020, the World Health Organization characterized a recent pandemic of respiratory illness caused by novel coronavirus disease, known as COVID-19, as a pandemic. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 virus. The COVID-19 virus may have an impact on our operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking or requiring. The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with certainty, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating activities can resume. Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.

Our first priority remains the health and safety of our employees and their families. Employees whose tasks can be done off-site have been instructed to work from home. Our manufacturing sites support essential businesses and remain operational. We are maintaining social distancing for workers on-site and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

Note 13. Subsequent Event

The United States and other countries are experiencing a major global health pandemic related to the outbreak of a novel strain of coronavirus, COVID-19. Due to the current economic uncertainty stemming from the impact of the COVID-19 pandemic, on April 21, 2020, we entered into a Paycheck Protection Program Note (the “Note”) effective April 21, 2020 with Silicon Valley Bank as the lender (“Lender”) in an aggregate principal amount of $5.9 million pursuant to the Paycheck Protection Program under the CARES Act (the “PPP Loan”). Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent (1%) per annum, with the first six months of interest deferred. Commencing seven months after the effective date of the PPP Loan, we are required to pay the Lender equal monthly payments of principal and interest as required to fully amortize the PPP Loan by April 21, 2022. The PPP Loan is unsecured and guaranteed by the Small Business Administration (the “SBA”).

On April 22, 2020, we received proceeds of $5.9 million from the PPP Loan. At the time when we applied for the PPP Loan, we had qualified to receive the funds pursuant to the then published qualification requirements. On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance regarding qualification requirements for public companies. Based on our assessment of the new guidance, we repaid the principal and interest on the PPP Loan.

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:

the impact of COVID-19 on our business, operations and cash flows;

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 effects of current and future government regulations, including the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic;

general economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States and other countries where we conduct business;

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 ~~2018~~2019 Annual Report on Form 10-K filed with the SEC on August ~~28, 2018~~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)~~“Exchange Act”), along with provisions of the Private Securities Litigation Reform Act of 1995, and we ~~undertake no~~expressly disclaim any obligation, other than as ~~imposed~~required 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 ~~2019~~2020 and ~~2018~~2019 Results

The following Management’s Discussion and Analysis (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~~condensed consolidated financial statements and the accompanying notes. In the discussion herein, our fiscal year ending July 3, 2020 is referred to as “fiscal 2020” or “2020” and our fiscal year ended June 28, 2019 is referred to as “fiscal 2019” or ~~“2019”~~“2019.”

Overview

We anticipate our overall revenue in fiscal 2020 to be higher in North America barring any unforeseen impacts from customers budgets and timelines and the ability to execute field services, offset by lower revenue from our international regions, compared to fiscal 2019. This expectation is based on actual order volumes in fiscal 2019 and our observation of customer spending patterns to date during fiscal ~~year ended June 29, 2018 is referred~~2020. In the first nine months of fiscal 2020, we added to ~~as “fiscal 2018” or “2018.”~~

~~We generate revenue by designing, developing, manufacturing, and supporting a range of wireless networking products, solutions, and services~~the backlog we had entering fiscal 2020 for ~~mobile and fixed communications service providers,~~our North America private network ~~operators, government agencies, transportation, energy~~projects and ~~utility companies, public safety agencies, and broadcast network operators~~we anticipate continuing momentum across the world. Our products include point-to-point microwave and millimeter-wave radio transmission systems designed for first/last mile access, middle mile/backhaul, and long-distance trunking applications. We have a portfolio of our own internet protocol routers optimized for both wireless transport and mixed optical fiber and wireless transport applications. We provide network management software tools and applications to enable the deployment, monitoring, and management of our systems. Beyond the portfolio of solutions developed in-house we source, qualify, supply, and support third-party equipment such as antennas, routers, optical transmission equipment, and other technology and equipment necessary to build and deploy a complete telecommunications transmission network. We also provide a full suite of professional services for planning, deployment, operations, and maintenance of our customers’ networks.

these verticals. We have made ~~significant progress~~inroads into the U.S. rural broadband and wireless internet service provider areas and there is evidence now of investment to support 5G deployments with our U.S. service provider customers. Internationally, we take a more conservative view of our revenue opportunity based on a variety of factors that have led to an overall capital spending decline and increased competitive intensity, especially from vendors based in ~~expanding~~China. While there is an attractive pipeline of international revenue opportunity, it has less clarity on timing and we are maintaining our ~~solutions portfolio, increasing addressable markets~~lower international expectations with respect to fiscal 2020.

In March 2020, the World Health Organization characterized a recent pandemic of respiratory illness caused by novel coronavirus disease, known as COVID-19, as a pandemic. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and ~~applications, along~~restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the ~~gains we have already made in expanding our customer footprint. As we~~COVID-19 virus. The COVID-19 virus has had and is likely to continue to ~~execute~~have an impact on our ~~technology roadmap,~~operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are ~~engaging more deeply~~taking or requiring. The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted with customers on the evolution of use cases and applications as 5th Generation mobile and broadband networks edge closer to implementation and begin to factor more strongly in the vendor selection process. We are confident in our ability to address future 5G market needs. We will 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.

The trend of increasing demand for bandwidth is well established and set to continue across all geographic and vertical markets creating opportunities for network enhancements, expansions, and modernizations.

~~We expect to provide increased managed services to our customers,~~certainty, including, but not limited to, ~~network design, network monitoring, optimization, asset tracking, inventory management, final configuration,~~the duration and ~~warehousing services.~~

~~We work continuously~~spread of the pandemic, its severity, the actions to ~~improve our established brands~~contain the virus or treat its impact, and how quickly and to ~~create new products that meet our customers’ evolving needs~~what extent normal economic and ~~preferences.~~ operating activities can resume. Management is actively monitoring the impact of COVID-19 on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.

Our ~~fundamental business goal is to generate superior returns for our stockholders over~~first priority remains the ~~long term. We believe that increases in revenue, operating profits,~~health and ~~earnings per share are the key measures of financial performance for our business.~~

Within the industry there continues to be strong price competition for new business. Periodic large service provider customer consolidations can increase opportunity or intensify competition from time to time or may increase the uncertainty in the timing of purchases and vendor selections.

~~We continue to explore strategic alternatives to improve the market position and profitability~~safety of our ~~product offerings~~employees and their families. Employees whose tasks can be done offsite have been instructed to work from home. Our manufacturing sites remain operational, and we are maintaining social distancing and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

The impact to our supply chain lead times and ability to fulfill orders was minimal for the three months ended April 3, 2020. However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods. We are monitoring, assessing and adapting to the ~~marketplace, generate additional liquidity,~~situation and ~~enhance our valuation. We may pursue our goals through organic growth and through strategic alternatives. Some of these alternatives have included, and could continue~~preparing for implications to ~~include, selective acquisitions, divestitures, and the sale of assets or securities. We have provided, and may from time to time in the future provide, information to interested parties regarding~~ our business, supply chain and ~~operations~~customer demand. We expect these challenges to continue until business and economic activities return to more normal levels. The financial results for the three and nine months ended April 3, 2020 reflect some of the reduced activity experienced during the period in ~~connection with~~ various ~~potential transactions.~~locations around the world and are not necessary indicative of the results for the full year.

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)~~(“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 affected by fluctuations in currency valuation relative to the U.S. dollar, which may limit local purchasing power and capital~~

~~spending, slow the payments from customers in those affected locations, and cause variations in our overall operating costs. Our position continues to be~~We continue 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 ~~2018~~ 2019Annual 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.~~service, including the ongoing effects of the COVID-19 pandemic.

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. The three and nine months ended April 3, 2020 consisted of an additional week compared to the same periods of fiscal 2019. Revenue by region for thethree and nine months ended April 3, 2020 and March 29, 2019 ~~and March 30, 2018~~ and the related changes were as follows:

Three Months Ended Nine Months Ended
(In thousands, except percentages) March 29, 2019 March 30, 2018 $ Change % Change March 29, 2019 March 30, 2018 $ Change % Change
North America $ 28,581
$ 31,756
$ (3,175 ) (10.0 )% $ 93,660
$ 99,743
$ (6,083 ) (6.1 )%
Africa and the Middle East 11,079
17,623
(6,544 ) (37.1 )% 39,058
43,767
(4,709 ) (10.8 )%
Europe and Russia 3,326
3,638
(312 ) (8.6 )% 10,271
11,898
(1,627 ) (13.7 )%
Latin America and Asia Pacific 11,051
9,076
1,975
21.8 % 36,640
24,590
12,050
49.0 %
Total revenue $ 54,037
$ 62,093
$ (8,056 ) (13.0 )% $ 179,629
$ 179,998
$ (369 ) (0.2 )%

~~During the~~ ~~third quarter~~ ~~and~~ ~~first nine months~~ ~~of fiscal 2019, we recognized revenue based on ASC 606 but revenue for the~~ ~~third quarter~~ ~~and~~ ~~first nine months~~ of fiscal 2018 was recognized based on ASC 605. Therefore, the periods are not directly comparable. For additional information regarding the impact of the new accounting standard on our revenue, please refer to “Note 3, Revenue Recognition” of the Notes to unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.



	Three Months Ended									Nine Months Ended
(In thousands, except percentages)	April 3, 2020		March 29, 2019		$ Change			% Change		April 3, 2020		March 29, 2019		$ Change			% Change
North America	$	37,250	$	28,581	$	8,669		30.3	%	$	113,489	$	93,660	$	19,829		21.2	%
Africa and the Middle East	9,230		11,079		(1,849		)	(16.7	)%	28,679		39,058		(10,379		)	(26.6	)%
Europe and Russia	1,903		3,326		(1,423		)	(42.8	)%	7,728		10,271		(2,543		)	(24.8	)%
Latin America and Asia Pacific	12,996		11,051		1,945			17.6	%	26,094		36,640		(10,546		)	(28.8	)%
Total revenue	$	61,379	$	54,037	$	7,342		13.6	%	$	175,990	$	179,629	$	(3,639	)	(2.0	)%

Our revenue in North America ~~decreased~~increased by ~~$3.2~~$8.7 million, or ~~10.0%~~30.3%, during the third quarter of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018.~~ 2019. Revenue in North America ~~decreased~~increased by ~~$6.1~~$19.8 million, or ~~6.1%~~21.2%, during the first nine months

of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018.~~ 2019. The ~~decrease~~increase in North America revenue during the three and~~third quarter and first~~ nine months of fiscal ~~of fiscal 2019~~2020 was due to ~~the timing of customer~~an increase in private network projects ~~and fewer orders from~~as well as an increase in mobile ~~operators.~~operator sales compared to fiscal 2019.

Our revenue in Africa and the Middle East decreased by ~~$6.5~~$1.8 million, or ~~37.1%~~16.7%, for the third quarter of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018.~~2019. Revenue in Africa and the Middle East decreased by ~~$4.7~~$10.4 million, or ~~10.8%~~26.6%, during the first nine months of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018.~~2019. The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the ~~region and completion of a large Middle East project in fiscal~~ ~~2018~~ ~~that was not repeated in fiscal~~ ~~2019~~.region.

Revenue in Europe and Russia decreased by ~~$0.3~~$1.4 million, or ~~8.6%~~42.8%, for the third quarter of fiscal ~~2019~~2020 compared with the same ~~quarter~~period of fiscal ~~2018.~~2019. Revenue in Europe and Russia decreased by ~~$1.6~~$2.5 million, or ~~13.7%~~24.8%, during the first nine months of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018.~~2019. The decrease was due to lower sales to mobile ~~and private network~~operator customers in the region.

Revenue in Latin America and Asia Pacific increased by ~~$2.0~~$1.9 million, or ~~21.8%~~17.6%, during the third quarter of fiscal ~~2019~~2020 compared with the same period of fiscal 2019. The increase came from additional sales to mobile customers in fiscal ~~2018.~~ 2020. Revenue in Latin America and Asia Pacific ~~increased~~decreased by ~~$12.1~~$10.5 million, or ~~49.0%~~28.8%, during the first nine months of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018.~~2019. The ~~increase~~decrease was ~~primarily~~ due to ~~higher~~ lower sales ~~volume~~ to ~~several~~ mobile operator customers in ~~Asia Pacific.~~the region.


	Three Months Ended									Nine Months Ended									Three Months Ended								Nine Months Ended
(In thousands, except percentages)	March 29, 2019		March 30, 2018		$ Change			% Change		March 29, 2019		March 30, 2018		$ Change			% Change		April 3, 2020		March 29, 2019		$ Change		% Change		April 3, 2020		March 29, 2019		$ Change			% Change
Product sales	$	34,615	$	40,686	$	(6,071	)	(14.9	)%	$	115,696	$	113,472	$	2,224		2.0	%	$	40,930	$	34,615	$	6,315	18.2	%	$	111,676	$	115,696	$	(4,020	)	(3.5	)%
Services	19,422		21,407		(1,985		)	(9.3	)%	63,933		66,526		(2,593		)	(3.9	)%	20,449		19,422		1,027		5.3	%	64,314		63,933		381			0.6	%
Total revenue	$	54,037	$	62,093	$	(8,056	)	(13.0	)%	$	179,629	$	179,998	$	(369	)	(0.2	)%	$	61,379	$	54,037	$	7,342	13.6	%	$	175,990	$	179,629	$	(3,639	)	(2.0	)%

Our revenue from product sales ~~decreased~~increased by ~~$6.1~~$6.3 million, or ~~14.9%~~18.2%, for the third quarter of fiscal ~~2019~~2020 compared with the same quarter of fiscal 2019. Product sales increased compared to the same period in fiscal ~~2018.~~ ~~Product volume decreased over the same quarter~~2019 in ~~fiscal 2018~~North America, offset in ~~all sectors, except for Asia Pacific.~~part by a small decrease in international sectors. Our services revenue ~~decreased~~increased by ~~$2.0~~$1.0 million, or ~~9.3%~~5.3%, during the third quarter of fiscal ~~2019~~2020 compared with the same period of fiscal ~~2018. We experienced d~~2019. ~~ecreased~~Higher North America service sales were offset in part by lower service sales in ~~all~~international sectors ~~except for Asia Pacific.~~relative to fiscal 2019.

During the three months ended December 27, 2019, our product revenue was adversely impacted by a cyberattack at one of our contract manufacturing vendors, which constrained capacity by approximately three weeks and led to lower than expected results. The shortfall in product revenue related to the three months ended December 27, 2019 was recognized in the third quarter of fiscal 2020.

Our revenue from product sales ~~increased~~decreased by ~~$2.2~~$4.0 million, or ~~2.0%~~3.5%, for the first nine months of fiscal ~~2019 compared with the same period in fiscal 2018.~~ ~~Product volume increased primarily with mobile operators in Asia Pacific by $12.5 million offsetting volume reductions of $10.3 million in the other sectors compared with fiscal~~ ~~2018~~. ~~Our services revenue decreased by $2.6 million, or 3.9%, during the~~ ~~first nine months~~ ~~of fiscal 2019~~2020 compared with the same period of fiscal ~~2018.~~2019. ~~Decreased~~Increased product sales in North America ~~and Africa and the Middle East~~ were offset by a larger volume decrease in ~~part~~international sectors compared to the same period in fiscal 2019. Our services revenue increased by ~~increased~~$0.4 million, or 0.6%, during the first nine months of fiscal 2020 compared with the same period of fiscal 2019. Increased sales in ~~other sectors.~~North America were offset by a decrease in international sectors sales compared to the same period in fiscal 2019.

Gross Margin


	Three Months Ended											Nine Months Ended											Three Months Ended										Nine Months Ended
(In thousands, except percentages)	March 29, 2019			March 30, 2018			$ Change			% Change		March 29, 2019			March 30, 2018			$ Change			% Change		April 3, 2020			March 29, 2019			$ Change		% Change		April 3, 2020			March 29, 2019			$ Change			% Change
Revenue	$	54,037		$	62,093		$	(8,056	)	(13.0	)%	$	179,629		$	179,998		$	(369	)	(0.2	)%	$	61,379		$	54,037		$	7,342	13.6	%	$	175,990		$	179,629		$	(3,639	)	(2.0	)%
Cost of revenue	37,782			43,961			(6,179		)	(14.1	)%	122,959			122,680			279			0.2	%	39,418			37,782			1,636		4.3	%	113,154			122,959			(9,805		)	(8.0	)%
Gross margin	$	16,255		$	18,132		$	(1,877	)	(10.4	)%	$	56,670		$	57,318		$	(648	)	(1.1	)%	$	21,961		$	16,255		$	5,706	35.1	%	$	62,836		$	56,670		$	6,166		10.9	%
% of revenue	30.1		%	29.2		%						31.5		%	31.8		%						35.8		%	30.1		%					35.7		%	31.5		%
Product margin %	31.5		%	29.4		%						33.7		%	32.9		%						39.7		%	31.5		%					38.7		%	33.7		%
Service margin %	27.6		%	28.7		%						27.6		%	30.1		%						27.9		%	27.6		%					30.5		%	27.6		%

Gross margin for the third quarter ~~and first nine months~~ of fiscal ~~2019~~ ~~decreased~~2020 increased by ~~$1.9~~$5.7 million,, or ~~10.4%, and~~ ~~$0.6 million, or~~ ~~1.1%, respectively,~~35.1% compared with the same ~~periods in~~quarter of fiscal ~~2018~~.2019. Our gross margin ~~decreased~~increased from the ~~prior-year quarter,~~same period last year primarily due to ~~reduced product and service sales volume offset in part by improvement~~a shift in product ~~margins and reduced supply chain costs. For~~sales toward higher margin markets. Gross margin for the first nine months of fiscal 2020 increased by $6.2 million, or 10.9% primarily due to a~~2019, gross margins decreased on less profitable services,~~

higher volume of business in higher margin markets and higher margin rates for certain projects, offset in part by increased ~~margin from product sales and decreased~~ supply chain costs.

~~Gross~~

Product margin as a percentage of product revenue increased in the third quarter of fiscal ~~2019~~ 2020 compared with the same period inof fiscal ~~2018,~~2019 primarily due to ~~improved profitability of~~a shift in product sales ~~in the quarter and lower supply chain costs. Product~~toward higher margin ~~as a percentage of product revenue improved in the third quarter of fiscal~~ ~~2019~~ ~~compared with the same period in fiscal~~ ~~2018, primarily due to reduced supply chain costs and better margins on product sales.~~markets. Service margin as a percentage of service revenue ~~decreased~~increased slightly in the third quarter of fiscal ~~2019~~ 2020 compared with the same period in fiscal ~~2018, primarily due to lower absorption of fixed costs and lower project margins.~~2019.

~~Gross~~ ~~margin as a percentage of revenue decreased in the first nine months of fiscal~~ ~~2019~~ ~~compared with the same period in fiscal~~ ~~2018, primarily due to lower margin rates for services.~~

Product margin as a percentage of product revenue improved in the first nine months of fiscal ~~2019~~2020, compared with the same period inof fiscal ~~2018, primarily~~2019 due to ~~lower~~higher volume of business in higher margin markets. This increase was offset in part by increased supply chain costs. Service margin as a percentage of service revenue ~~decreased~~improved in the first nine months of fiscal ~~2019~~2020 compared with the same period inof fiscal ~~2018~~,2019 primarily due to ~~decreased margins in North America and Africa and the Middle East.~~

higher margin rates for certain projects.

Research and Development Expenses


	Three Months Ended										Nine Months Ended										Three Months Ended											Nine Months Ended
(In thousands, except percentages)	March 29, 2019			March 30, 2018			$ Change		% Change		March 29, 2019			March 30, 2018			$ Change		% Change		April 3, 2020			March 29, 2019			$ Change			% Change		April 3, 2020			March 29, 2019			$ Change			% Change
Research and development	$	5,350		$	4,754		$	596	12.5	%	$	15,603		$	14,696		$	907	6.2	%	$	4,875		$	5,350		$	(475	)	(8.9	)%	$	15,069		$	15,603		$	(534	)	(3.4	)%
% of revenue	9.9		%	7.7		%					8.7		%	8.2		%					7.9		%	9.9		%						8.6		%	8.7		%

Our research and development expenses ~~increased~~decreased by ~~$0.6~~$0.5 million, or ~~12.5%~~8.9%, in the third quarter of fiscal ~~2019~~2020 compared with the same period inof fiscal ~~2018. The increase was primarily due to~~2019. ~~increased product development activities.~~

Our research and development expenses ~~increased~~decreased by ~~$0.9~~$0.5 million, or ~~6.2%~~3.4%, in for the first nine months of fiscal2020 ~~of fiscal 2019~~ compared ~~with~~to the same period inof fiscal ~~2018. The increase was~~2019. These decreases were primarily due to ~~the increased level~~timing and consolidation of product development ~~activity.~~activities, offset in part by payroll costs related to an extra calendar week in the three and nine months of fiscal 2020 calendar, compared to the same periods of fiscal 2019.

Selling and Administrative Expenses


	Three Months Ended											Nine Months Ended											Three Months Ended										Nine Months Ended
(In thousands, except percentages)	March 29, 2019			March 30, 2018			$ Change			% Change		March 29, 2019			March 30, 2018			$ Change			% Change		April 3, 2020			March 29, 2019			$ Change		% Change		April 3, 2020			March 29, 2019			$ Change		% Change
Selling and administrative	$	13,408		$	14,745		$	(1,337	)	(9.1	)%	$	41,405		$	42,571		$	(1,166	)	(2.7	)%	$	15,233		$	13,408		$	1,825	13.6	%	$	44,334		$	41,405		$	2,929	7.1	%
% of revenue	24.8		%	23.7		%						23.1		%	23.7		%						24.8		%	24.8		%					25.2		%	23.1		%

Our selling and administrative expenses ~~decreased~~increased by ~~$1.3~~$1.8 million, or ~~9.1%~~13.6%, in the third quarter of fiscal ~~2019~~2020 compared with the same period in fiscal ~~2018.~~ ~~The~~ ~~decrease~~ ~~was primarily due to lower variable compensation.~~

2019. Our selling and administrative expenses ~~decreased~~increased by ~~$1.2~~$2.9 million,, or ~~2.7%~~7.1%, in the first nine months of fiscal ~~2019~~2020 compared with the same period in fiscal 2019. ~~2018. The decrease was~~These increases were primarily ~~due~~related to ~~lower~~payroll costs related to an extra calendar week in the three and nine months of fiscal 2020 calendar, higher variable ~~compensation.~~compensation and other legal-related costs, compared to the same periods of fiscal 2019.

Restructuring Charges


	Three Months Ended									Nine Months Ended									Three Months Ended								Nine Months Ended
(In thousands, except percentages)	March 29, 2019		March 30, 2018			$ Change		% Change		March 29, 2019		March 30, 2018			$ Change		% Change		April 3, 2020		March 29, 2019		$ Change		% Change		April 3, 2020		March 29, 2019		$ Change		% Change
Restructuring (recovery) charges	$	—	$	(2	)	$	2	—	%	$	796	$	(252	)	$	1,048	(415.9	)%
Restructuring charges																			$	617	$	—	$	617	—	%	$	2,175	$	796	$	1,379	173.2	%

~~Expenses incurred~~During the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) in order to continue to reduce its operating costs and improve profitability to optimize its business model and increase efficiencies. We recorded restructuring charges of $0.6 million related to the Q3 2020 Plan in the ~~first nine months~~third quarter of fiscal ~~2019 were due to the implementation of the Fiscal 2018-2019 Plan. We expect to substantially complete the restructuring activities under the Fiscal 2018-2019 Plan by the end of fiscal 2019.~~2020. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid byin fiscal 2021.

During the ~~end~~fourth quarter of fiscal 2019, our Board of Directors approved a restructuring plan (the “Fiscal 2020 Plan”) to primarily consolidate product development and, right size our resources to support our international business and other support functions. We recorded restructuring charges of $1.7 million related to the Fiscal 2020 Plan in the nine months ended April 3, 2020. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

Interest Income, Interest Expense and Other (Expense) Income, Net


	Three Months Ended											Nine Months Ended											Three Months Ended											Nine Months Ended
(In thousands, except percentages)	March 29, 2019			March 30, 2018			$ Change			% Change		March 29, 2019			March 30, 2018			$ Change			% Change		April 3, 2020			March 29, 2019			$ Change			% Change		April 3, 2020			March 29, 2019			$ Change		% Change
Interest income	$	73		$	49		$	24		49.0	%	$	167		$	149		$	18		12.1	%	$	112		$	73		$	39		53.4	%	$	318		$	167		$	151	90.4	%
Interest expense	$	(7	)	$	(5	)	$	(2	)	40.0	%	$	(88	)	$	(24	)	$	(64	)	266.7	%	$	(19	)	$	(7	)	$	(12	)	171.4	%	$	(23	)	$	(88	)	$	65	(73.9	)%
Other expense, net	$	(1	)	$	(54	)	$	53		(98.1	)%	$	(1	)	$	(220	)	$	219		(99.5	)%
Other (expense) income, net																							$	—		$	(1	)	$	1		—	%	$	—		$	(1	)	$	1	—	%

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, net during fiscal 2018 was 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.Facility.

Income Taxes

Three Months Ended Nine Months Ended
(In thousands, except percentages) March 29, 2019 March 30, 2018 $ Change % Change March 29, 2019 March 30, 2018 $ Change % Change
(Loss) income before income taxes $ (2,438 ) $ (1,375 ) $ (1,063 ) 77.3 % $ (1,056 ) $ 208
$ (1,264 ) (607.7 )%
(Benefit from) provision for income taxes $ (6,777 ) $ 1,015
$ (7,792 ) (767.7 )% $ (6,955 ) $ (2,188 ) $ (4,767 ) 217.9 %



	Three Months Ended									Nine Months Ended
(In thousands, except percentages)	April 3, 2020		March 29, 2019			$ Change		% Change		April 3, 2020		March 29, 2019			$ Change		% Change
Income (loss) before income taxes	$	1,329	$	(2,438	)	$	3,767	(154.5	)%	$	1,553	$	(1,056	)	$	2,609	(247.1	)%
Provision for (benefit from) income taxes	$	598	$	(6,777	)	$	7,375	(108.8	)%	$	2,439	$	(6,955	)	$	9,394	(135.1	)%

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 ~~benefit~~expense for the first nine months ~~ended March 29, 2019~~of fiscal 2020 was primarily due to tax expense related to profitable subsidiaries ~~net against the release of valuation allowance due to the potential foreign tax refund to be received from the Department of Federal Revenue of Brazil~~ and a ~~partial release of valuation allowance related to U.S. deferred~~$0.4 million increase in our reserves for uncertain tax ~~assets.~~positions. During the first quarter of fiscal 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 from the Department of Federal Revenue of Brazil, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction against the deferred tax for the withholding tax credit. ~~During the second quarter of fiscal 2019, we reduced the refundable withholding tax credit~~

We continue to ~~$1.8 million, primarily due to foreign exchange differences, and recorded a discrete income tax expense of $0.1 million.~~

~~During the third quarter of fiscal 2019, we recorded~~record a partial ~~release of~~ valuation allowance ~~related to~~on our U.S. deferred tax assets ~~based on sufficient positive objective evidence that we would generate sufficient~~which primarily represent future income ~~in the U.S. to realize a portion of the deferred~~ tax ~~assets. The positive evidence as of March 29, 2019 included~~benefits associated with our fiscal 2019 and three-year cumulative U.S. profitability driven by continued demand for our products in North America that have historically resulted in higher margins than international sales, reductions in operating ~~expenses resulting from our previous restructurings, and our forecasted U.S. operating profits in future periods.~~losses. Realization of our deferred tax assets is ~~primarily~~ dependent ~~upon~~on generating sufficient pre-tax book income in future periods. Although we believe it is more likely than not that future income ~~in applicable~~will be sufficient to allow us to recover the value of a portion of our U.S. deferred tax ~~jurisdictions.~~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 ~~assumptions and consequently our estimates change in the future, our valuation allowances may be increased or decreased, resulting~~deferred tax assets at that time, which would result in a ~~respective~~charge to income tax expense (benefit) and a material increase or decrease in net income ~~tax expense.~~

in the period in which we change our judgment. During the ~~first~~third quarter of fiscal ~~2018,~~2020, we received a refund of $1.3 million from IRAS which represented a final settlement. 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. ~~During the second quarter of fiscal 2018, we recorded the release of a~~did not record any adjustment to valuation allowance ~~related to the refundable AMT credit of~~ ~~$3.3 million, as provided under the Tax Act, as a discrete benefit, and included in other assets as a long-term receivable~~ on ~~the unaudited Condensed Consolidated Balance Sheet~~ ~~in this Quarterly Report on Form 10-Q. Under the Tax Act, any carryforward AMT~~our U.S. deferred 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.~~

assets.

Liquidity, Capital Resources, and Financial Strategies

Sources of Cash

As of ~~March 29, 2019,~~April 3, 2020, our total cash and cash equivalents ~~and restricted cash~~ were ~~$36.1~~$39.2 million. Approximately ~~$17.5~~$21.4 million, or ~~48.5%~~54.6%, was held in the United States. The remaining balance of ~~$18.6~~$17.8 million, or ~~51.5%~~45.4%, was held by entities outside the United States. Of the amount of cash and cash equivalents held by our foreign subsidiaries at ~~March 29, 2019, $17.3~~April 3, 2020, $17.4 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to ~~U.S. taxes which would be nominal.~~foreign withholding taxes.

Operating Activities

Cash provided by ~~operating activities was $5.3 million for the first nine months of fiscal 2019, compared to cash provided by operating activities of $7.3 million for the first nine months of fiscal 2018. Cash~~or used in ~~or provided by~~ operating activities is presented as net (loss) income adjusted for non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was $14.6 million for the first nine months of fiscal 2020, compared to cash used in operating activities of $5.3 million for the first nine months of fiscal 2019; this difference was primarily related to a net change in deferred tax expense. The net contribution of non-cash items decreased cash by ~~$5.2~~$6.8 million

and net changes in operating assets and liabilities ~~decreased~~increased cash by ~~$0.2~~$9.3 million for the first nine months of fiscal ~~2019~~2020 as compared to the same period in fiscal ~~2018.~~2019.

The $5.2 million decrease in the net contribution of non-cash items was primarily due to a $4.0 million net decrease in deferred tax expense, a $0.6 million decrease in depreciation and amortization, a $0.3 million recovery for uncollectible receivables, and a $0.3 million decrease in share-based compensation expense.

Changes in operating assets and liabilities resulted in a net ~~decrease~~increase of ~~$0.2~~$9.3 million to cash for the first nine months of fiscal ~~2019,~~2020, compared to the same period in ~~2018.~~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 and the impact from the adoption of ASC 606.~~collections. The fluctuations in accounts payable and accrued expenses were primarily due to the timing of liabilities incurred and managing timing of vendor payments. The change in inventories and in customer service inventories were primarily due to demand and our focus on ~~improving our~~ inventory ~~management, and the impact from the adoption of ASC 606.~~management. The increase in customer advance payments and unearned revenue was due to the timing of payment from customers and revenue recognition. We used ~~$0.9~~$1.7 million in cash during the first nine months of fiscal ~~2019~~2020 on expenses related to restructuring liabilities.

Investing Activities

~~Cash~~Net cash used in investing activities was ~~$4.1~~$3.9 million and ~~$5.0~~$4.1 million for the first nine months of fiscal 2020 and 2019, ~~and 2018,~~ respectively, ~~related to the acquisition~~which consisted of ~~property, plant and equipment.~~capital expenditures. During the remainder of fiscal year ~~2019,~~2020, we expect to spend approximately ~~$1.0~~$1.4 million for capital expenditures, primarily on equipment for development and manufacturing of new products and to support customer managed services.

~~Cash~~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 ~~$2.4~~$2.5 million for the first nine months of fiscal ~~2019,~~2020, primarily due to $1.8 million for repurchases of our common stock and a $0.8 million payment for taxes related to the ~~repurchase~~net settlement of ~~common stock.~~equity awards.

As of ~~March 29, 2019,~~April 3, 2020, our principal sources of liquidity consisted of ~~$36.1~~$39.2 million in cash and cash ~~equivalents, and short-term investments; $9.8~~equivalents; $14.5 million of available credit under our ~~$30.0~~$25.0 million SVB Credit Facility ~~which expires on June 29, 2019;~~ and future collections of receivables from customers. On May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June 28, 2021. 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~~On May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June ~~29, 2019.~~28, 2021. In addition, there can be no assurance that our business will generate cash flow from operations, that 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, our borrowing base under the ~~availability of our credit facility is not certain or~~ SVB Credit Facility 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.~~control such as COVID-19.

As of ~~March 29, 2019,~~April 3, 2020, 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 ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018 and repaid in April 2019 and July 2018, respectively.~~28, 2019.

In addition, we have an uncommitted short-term line of credit of ~~$0.4~~$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~~$0.2 million in short-term advances at various interest rates, all of which was available as of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018.~~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 ~~March 29, 2019.~~April 3, 2020. 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 $1.8 million as of ~~March 29, 2019,~~April 3, 2020, $1.5 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 ~~2018~~2019 Annual Report on Form 10-K filed with the SEC on August ~~28, 2018~~27, 2019 include our commercial commitments and contractual obligations. During the first nine months of fiscal ~~2019,~~2020, no material changes occurred in our contractual obligations to purchase goods and services ~~and~~or to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal ~~2018~~2019 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of ~~March 29, 2019,~~April 3, 2020, we had commercial commitments of $59.0 million outstanding that were not recorded on our unaudited Condensed Consolidated Balance Sheets. This is an increase of $7.5 million from the amount disclosed in our fiscal 2018 Annual Report on Form 10-K. $57.7 million.

Please refer to “Note 1112 Commitments and Contingencies” of the Notes to unaudited ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements in this Quarterly Report on Form ~~10-Q.~~10-Q for Contractual Obligations and Off-Balance Sheet Arrangements.

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 ~~2018~~2019 Annual Report on Form 10-K other than for the impact of adopting new ~~revenue~~lease accounting standards. ~~Effective June 30, 2018, we adopted ASC 606. See~~Please refer to “Note ~~3, Revenue Recognition”~~4 Leases” of the Notes to unaudited ~~Condensed Consolidated Financial Statements for discussion of the impact of the adoption of ASC 606~~condensed consolidated financial statements in this Quarterly Report on ~~our policies for revenue.~~Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market 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. 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 ~~March 29, 2019,~~April 3, 2020, we had four foreign currency forward contracts outstanding ~~with a total notional amount of $3.5 million consisting of three 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	500	$	373	600	$	440
Euro	1,584	1,792		3,028	3,358
Great Britain pound	1,000	1,315
New Zealand dollar				5,000	3,206
Singapore dollar				1,200	860
Total of all currency forward contracts		$	3,480		$	7,864

Net foreign exchange ~~income (loss),~~(income) loss, net recorded in our unaudited ~~Condensed Consolidated Statements~~condensed consolidated statements of ~~Operations~~operations during the three and nine months ended ~~of fiscal 2019~~April 3, 2020 and ~~2018~~March 29, 2019 was as follows:


	Three Months Ended					Nine Months Ended					Three Months Ended					Nine Months Ended
(In thousands)	March 29, 2019		March 30, 2018			March 29, 2019		March 30, 2018			April 3, 2020			March 29, 2019		April 3, 2020			March 29, 2019
Amount included in costs of revenues	$	22	$	58		$	193	$	(40	)	$	(534	)	$	22	$	(478	)	$	193
Amount included in other expense	—		(51		)	—		(188		)
Total foreign exchange income (loss), net	$	22	$	7		$	193	$	(228	)

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of March 29, 2019 would have an impact of approximately $0.3 million on the fair value of such instruments.

Certain of our international business ~~are~~is 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 nine months of fiscal 2020 and 2019 ~~was~~were $2.5 million and $0.4 million, ~~and~~respectively, was included as a component of stockholders’ equity. As of ~~March 29, 2019~~April 3, 2020 and June ~~29, 2018,~~28, 2019, the cumulative translation adjustment decreased our equity by ~~$13.0~~$15.2 million and ~~$12.6~~$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

We had ~~$36.1~~$39.2 million in total cash and cash equivalents as of ~~March 29, 2019.~~April 3, 2020. Cash equivalents totaled ~~$19.5~~$24.7 million as of ~~March 29, 2019~~April 3, 2020 and were comprised of money market funds and bank certificates of deposit. Cash equivalents investments have been recorded at fair value on our balance sheet.

Our cash equivalents 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. The weighted-average days to maturity for cash equivalents held as of ~~March 29, 2019~~April 3, 2020 was 3737.7 days, and these investments had an average yield of approximately 8%5.98% per annum. A 10% change in interest rates on our cash equivalents is not expected to have a material impact on our financial position, results of operations, or cash flows.

Exposure on Borrowings

Our borrowings outstanding under the SVB Credit Facility 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 nine months of fiscal ~~2019,~~2020, our weighted-average interest rate was ~~5.90%~~4.24%, 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 President and Chief Executive Officer ~~(CEO)~~(“CEO”), and ~~Principal~~Chief Financial ~~Officer (PFO)~~officer (“CFO”), as of the end of the period covered by this report, our CEO and ~~PFO have~~CFO has concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of ~~March 29, 2019,~~April 3, 2020, 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 CEO and ~~PFO,~~CFO, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls over Financial Reporting

~~In the first quarter of fiscal 2019, we implemented certain~~There were no changes to our internal controls over financial reporting as defined in ~~connection with our adoption of ASC 606. There were no other changes in our internal control over financial reporting~~Rules 13a-15(f) or 15d-15(f) that occurred during the ~~first nine months~~quarter ended ~~March 29, 2019~~April 3, 2020 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 ~~PFO,~~CFO, 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 1112 Commitments and Contingencies” of the Notes to unaudited ~~Condensed Consolidated Financial Statements~~condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

The recent COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in all industries around the world. These events have directly affected our business and have exacerbated the potential negative impact from many of the risks described in our Form 10-K for the year ended June 28, 2019, including those relating to the global economy, our sales cycle, our global supply chain, and our employees. For example, we are facing logistical challenges including border closures, travel restrictions and an inability to commute to certain facilities and job sites, as we provide services and products to our customers. We are also experiencing inefficiencies surrounding stay-at-home orders and remote work arrangements.

Given the nature and significance of the events described above, we are not able to enumerate all potential risks to our business; however, we believe that in addition to the impacts described above, other current and potential impacts of these recent events include, but are not limited to:

disruption to our supply chain for certain components essential to our business, including restrictions on importing and exporting products;

liquidity challenges, including impacts related to delayed customer payments;

cybersecurity issues, as digital technologies may become more vulnerable and experience a higher rate of cyberattacks in the current environment of remote connectivity;

litigation risk and possible loss contingencies related to COVID-19 and its impact, including with respect to commercial contracts, employee matters and insurance arrangements;

reduction of our global workforce to adjust to market conditions, including severance payments, retention issues, and an inability to hire employees when market conditions improve;

infections and quarantining of our employees and the personnel of our customers, suppliers and other third parties in areas in which we operate;

actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects; and

a structural shift in the global economy and changes in the way people work, travel and interact, or in connection with a global recession or depression.

The combination of events described above have had, and are expected to continue to have, a significant impact on our business, and depending on the duration of the pandemic could have a material adverse effect on our business, liquidity, consolidated results of operations and consolidated financial condition. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2020 and 2019 Results.”

Investors should also 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 ~~2018~~2019 Annual Report on Form 10-K filed with the SEC on August ~~28, 2018.~~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 ~~2018~~2019 Annual Report on Form 10-K, except as disclosed as above, 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

Following is a summary of stock repurchases for the three months ended ~~March 29, 2019:~~April 3, 2020:

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)
December 29, 2018 through January 25, 2019 24,875
$ 13.98
24,875
$ 5,705
January 26, 2019 through February 22, 2019 6,086
$ 14.14
6,086
$ 5,619
February 23, 2019 through March 29, 2019 —
$ —
—
$ 5,619
Total 30,961



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)
December 28, 2019 through January 24, 2020	17,197	$	14.20	17,197	$	3,541
January 25, 2020 through February 28, 2020	9,287	$	13.72	9,287	$	3,414
February 29, 2020 through April 3, 2020	—	$	—	—	$	3,414
Total	26,484

⁽¹⁾Stock Repurchase Programs

In May 2018, our board of directors approved a stock 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 ~~March 29, 2019,~~April 3, 2020, we repurchased $0.4 million of our common stock in the open market. As of ~~March 29, 2019, $5.6~~April 3, 2020, $3.4 million remained available under our stock repurchase program. In February 2020, we suspended the 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 following exhibits are filed herewith or incorporated by reference to exhibits previously filed with the SEC:



Exhibit Number		Descriptions
2.1		Restructuring Plan (Current Report on Form 8-K filed with the SEC on March 23, 2020, File No. 001-33278)
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~~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~~10.1+		Employment Agreement, dated January 2, 2020, between Aviat Networks, Inc. and Peter Smith (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 2, 2020, File No. 001-33278)
31.1*		Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief ~~Executive Officer~~
~~31.2~~		~~Rule 13a-14(a)/15d-14(a) Certification of Principal~~ Financial Officer
~~32.1~~32.1**		Section 1350 Certification of Chief Executive Officer and ~~Principal~~Chief 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

*		Filed herewith.
**		Furnished herewith.
+		Constitutes management contracts or compensatory plans or arrangements.

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: May ~~13, 2019~~12, 2020




~~By:~~	~~/s/ Walter Stanley Gallagher, Jr.~~
	~~Walter Stanley Gallagher, Jr.~~ ~~Senior Vice President, Chief Operating Officer~~ ~~(Principal financial officer and duly authorized officer)~~




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

4039



	Three Months Ended March 30, 2018
	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Aviat Networks Stockholders’ Equity			Noncontrolling Interests		Total Equity
(In thousands, except share amounts)	Shares	$ Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Aviat Networks Stockholders’ Equity			Noncontrolling Interests		Total Equity
Balance as of December 29, 2017	5,340,851	$	53	$	814,898	$	(743,790	)	$	(11,164	)	$	59,997		$	915	$	60,912
Net loss	—	—		—		(2,623		)	—			(2,623		)	233		(2,390		)
Other comprehensive income, net of tax	—	—		—		—			188			188			—		188
Issuance of common stock under employee stock plans	8,458	—		4		—			—			4			—		4
Share-based compensation	—	—		535		—			—			535			—		535
Balance as of March 30, 2018	5,349,309	$	53	$	815,437	$	(746,413	)	$	(10,976	)	$	58,101		$	1,148	$	59,249



	Nine Months Ended March 30, 2018
	Common Stock			Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Aviat Networks Stockholders’ Equity		Noncontrolling Interests		Total Equity
(In thousands, except share amounts)	Shares	$ Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total Aviat Networks Stockholders’ Equity		Noncontrolling Interests		Total Equity
Balance as of June 30, 2017	5,317,766	$	53	$	813,733	$	(748,204	)	$	(11,785	)	$	53,797	$	543	$	54,340
Net income	—	—		—		1,791			—			1,791		605		2,396
Other comprehensive income, net of tax	—	—		—		—			809			809		—		809
Issuance of common stock under employee stock plans	31,543	—		15		—			—			15		—		15
Share-based compensation	—	—		1,689		—			—			1,689		—		1,689
Balance as of March 30, 2018	5,349,309	$	53	$	815,437	$	(746,413	)	$	(10,976	)	$	58,101	$	1,148	$	59,249



	Three Months Ended March 29, 2019
	As Reported		Adjustments			Balances without Adoption of ASC 606
Income Statement
Revenues:
Revenue from product sales	$	34,615	$	304		$	34,919
Revenue from services	19,422		(227		)	19,195
Total revenues	$	54,037	$	77		$	54,114
Cost of revenues:
Cost of product sales	$	23,712	$	334		$	24,046
Cost of services	14,070		(354		)	13,716
Total cost of revenues	$	37,782	$	(20	)	$	37,762

Selling and administrative expenses	$	13,408	$	(39	)	$	13,369

Net income	$	4,339	$	366		$	4,705



	Balances as of June 29, 2018			Adjustments due to ASC 606			As Adjusted Balances as of June 30, 2018
Balance Sheet
Assets
Accounts receivable, net	$	43,068		$	2,503		$	45,571
Unbilled receivables	$	14,167		$	8,627		$	22,794
Inventories	$	21,290		$	(11,516	)	$	9,774
Other current assets	$	6,006		$	476		$	6,482
Deferred income taxes	$	5,600		$	(545	)	$	5,055
Other assets	$	9,816		$	180		$	9,996

Liabilities
Advance payments and unearned revenue	$	19,300		$	(6,600	)	$	12,700
Unearned revenue - long term	$	6,593		$	702		$	7,295

Equity
Accumulated deficit	$	(746,359	)	$	5,623		$	(740,736	)



	As of March 29, 2019
	As Reported			Adjustments due to ASC 606			Balances without adoption of ASC 606
Balance Sheet
Assets
Accounts receivable, net	$	45,622		$	(7,473	)	$	38,149
Unbilled receivables	$	28,474		$	(15,943	)	$	12,531
Inventories	$	10,309		$	18,530		$	28,839
Other current assets	$	4,664		$	(340	)	$	4,324
Deferred income taxes	$	12,185		$	545		$	12,730
Other assets	$	12,098		$	(299	)	$	11,799

Liabilities
Accrued expenses	$	22,234		$	(369	)	$	21,865
Advance payments and unearned revenue	$	18,507		$	7,023		$	25,530
Unearned revenue - long term	$	8,071		$	(1,021	)	$	7,050
Reserve for uncertain tax positions	$	3,654		$	(37	)	$	3,617

Equity
Accumulated deficit	$	(734,837	)	$	(10,576	)	$	(745,413	)



Fiscal Years	Amounts
	(In thousands)
2019 (one quarter remaining)	$	533
2020	1,742
2021	1,205
2022	451
2023	242
Thereafter	2,334
Total	$	6,507