Aviat Networks(AVNW) - 2019 Q4 - Annual Report

PART I Business Aviat Networks is a global supplier of microwave networking solutions and services for communications service providers and private network operators - Aviat Networks is a global supplier of microwave networking solutions and professional services, serving communications service providers and private network operators[10][13][14] - As of June 28, 2019, the company had 708 employees[12] - Revenue from North America and international regions represented approximately 54% and 46%, respectively, of total revenue in fiscal 2019[18] - The company's strategy focuses on building a sustainable and profitable business by investing in operational excellence, strengthening its product and services portfolio, and expanding into targeted market areas[26] - Key technology strategy elements include integrating network routing functions into wireless transport solutions, expanding data-carrying capacity (up to 20 Gbps), and investing in software applications/tools for operational simplification and automation[27][32] - Product portfolio highlights include the CTR 8000 platform (integrated modem/router), WTM 4000 series (highest capacity microwave radio, 5G ready, up to 20Gbps, multi-band), and AviatCloud (app-based platform for network automation)[32] Research and Development Expenditures (FY2017-2019) | Fiscal Year | Amount ($ millions) | % of Revenue | | :---------- | :------------------ | :----------- | | 2019 | 21.1 | 8.7% | | 2018 | 19.8 | 8.1% | | 2017 | 18.7 | 7.7% | - Backlog was approximately $160.1 million at June 28, 2019[42] - Mobile Telephone Networks Group (MTN Group) in Africa accounted for 11% of total revenue in fiscal 2019, down from 13% in fiscal 2018 and 14% in fiscal 2017[46] Risk Factors The company faces risks from long sales cycles, international operations, restructuring, intense competition, and dependence on new products and key suppliers - Sales cycles can be lengthy (12 to 24 months), especially in developing countries, making operating results difficult to predict and potentially leading to substantial costs before sales are complete[73][74] - International sales accounted for 47% of total revenue in fiscal 2019, 2018, and 2017, exposing the company to political, economic, and geographic risks, including currency fluctuations and compliance with complex foreign laws[77][78] - The company faces strong price competition and margin erosion due to increased competition in the microwave transmission industry and customer consolidations, requiring continuous cost reduction and product improvements to maintain profitability[84] - Competition is intense from large mobile and IP network infrastructure manufacturers (e.g., Ericsson, Huawei, NEC, Nokia) and smaller microwave specialists, with key competitive factors including cost-effectiveness, product quality, and technological capabilities[103][105] - Dependence on sole or limited sources for key components and outsourced manufacturing creates risks of delayed shipments, canceled orders, and lost revenue if suppliers fail to deliver on time[118][119] - The ability to use net operating loss carryforwards (NOLs) to offset future taxable income may be limited by Section 382 of the Internal Revenue Code if an 'ownership change' occurs, potentially impairing the value of these tax benefits[123][125] Unresolved Staff Comments The company reported no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments[159] Properties Aviat Networks leases and owns facilities globally, with significant locations in the United States, New Zealand, and Scotland - Leased approximately 158,000 square feet of facilities worldwide, with 39% in the U.S. (mostly California and Texas) and 96,000 square feet internationally[160] - Owns approximately 108,000 square feet of facilities in Wellington, New Zealand, and Lanarkshire, Scotland[161] Legal Proceedings The company is involved in various legal claims, including a $1.0 million claim from an Austrian customer, but does not expect a material adverse effect - Received notification of a $1.0 million claim for damages from a customer in Austria alleging defective products in May 2016[164] - Management believes that none of the current legal claims or proceedings are likely to have a material adverse effect on the company's financial position and is aggressively defending them[165] Mine Safety Disclosures This item is not applicable to the company - Not applicable[167] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under AVNW, with no plans for cash dividends and an active stock repurchase program - Common stock is listed and primarily traded on the NASDAQ Global Select Market under the ticker symbol AVNW[170] - As of July 31, 2019, there were 2,325 holders of record of the company's common stock[171] - The company has not paid cash dividends and does not intend to pay cash dividends in the foreseeable future, intending to retain earnings for business use[172] Stock Repurchase Program (FY2018-2019) | Fiscal Year | Aggregate Purchase Price ($ thousands) | | :---------- | :------------------------------------- | | 2019 | 2,309 | | 2018 | 8 | - As of June 28, 2019, $5.2 million remained available under the stock repurchase program approved in May 2018[174][413] Selected Financial Data This section presents a five-year overview of key financial metrics, showing a significant increase in net income in fiscal 2019 Selected Financial Data (FY2015-2019) | Metric | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | FY2016 ($ thousands) | FY2015 ($ thousands) | | :----------------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Revenue from product sales and services | 243,858 | 242,506 | 241,874 | 268,690 | 335,878 | | Cost of product sales and services | 164,588 | 162,003 | 166,402 | 206,973 | 255,188 | | Net income (loss) attributable to Aviat Networks | 9,738 | 1,845 | (823) | (29,907) | (24,625) | | Basic income (loss) per common share | 1.81 | 0.35 | (0.16) | (5.81) | (4.77) | | Diluted income (loss) per common share | 1.73 | 0.33 | (0.16) | (5.71) | (4.75) | | Total assets | 169,193 | 156,061 | 152,576 | 166,111 | 224,715 | | Long-term liabilities | 15,466 | 12,077 | 12,218 | 12,707 | 18,198 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial results for the past three fiscal years, covering revenue, margins, expenses, and liquidity, noting the impact of adopting ASC 606 - For fiscal 2020, the company anticipates higher revenue in North America, offset by lower international revenue due to capital spending decline and increased competitive intensity, especially from vendors based in China[186] - Mobile backhaul remained the primary addressable market segment in fiscal 2019, with ongoing support for LTE deployments and readiness for 5G[187] Revenue by Region (FY2017-2019) | Region | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | 2019/2018 % Change | 2018/2017 % Change | | :----------------------------- | :------------------- | :------------------- | :------------------- | :----------------- | :----------------- | | North America | 132,884 | 131,078 | 132,078 | 1.4% | (0.8)% | | Africa and the Middle East | 48,305 | 58,459 | 60,150 | (17.4)% | (2.8)% | | Europe and Russia | 16,933 | 18,205 | 14,128 | (7.0)% | 28.9% | | Latin America and Asia Pacific | 45,736 | 34,764 | 35,518 | 31.6% | (2.1)% | | Total Revenue | 243,858 | 242,506 | 241,874 | 0.6% | 0.3% | Revenue by Product and Services (FY2017-2019) | Type | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | 2019/2018 % Change | 2018/2017 % Change | | :------------ | :------------------- | :------------------- | :------------------- | :----------------- | :----------------- | | Product sales | 156,724 | 151,685 | 153,517 | 3.3% | (1.2)% | | Services | 87,134 | 90,821 | 88,357 | (4.1)% | 2.8% | | Total | 243,858 | 242,506 | 241,874 | 0.6% | 0.3% | Gross Margin Performance (FY2017-2019) | Metric | FY2019 | FY2018 | FY2017 | | :--------------- | :----- | :----- | :----- | | Gross margin (%) | 32.5% | 33.2% | 31.2% | | Product margin (%) | 33.9% | 34.0% | 31.5% | | Service margin (%) | 29.9% | 31.9% | 30.7% | - Gross margin decreased by $1.2 million (1.5%) in fiscal 2019 compared to fiscal 2018, primarily due to lower margin rates for services[196] - R&D expenses increased by $1.4 million (6.9%) in fiscal 2019 due to increased development activity on new product lines[198] - Selling and administrative expenses decreased by $2.1 million (3.6%) in fiscal 2019 compared to fiscal 2018, primarily due to lower variable compensation[200] Restructuring Charges by Plan (FY2017-2019) | Plan | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | | :------------------ | :------------------- | :------------------- | :------------------- | | Fiscal 2018-2019 | 736 | 1,532 | — | | Fiscal 2016-2017 | — | (5) | 345 | | Other prior years | — | (248) | 244 | | Total | 736 | 1,279 | 589 | - The company recorded an $8.2 million income tax benefit in fiscal 2019, primarily due to the release of $7.5 million in U.S. federal and state valuation allowances and a refundable foreign withholding tax credit of $1.6 million from Brazil[208][443] - As of June 28, 2019, cash and cash equivalents and short-term investments totaled $31.9 million, with $15.0 million held in the United States and $16.9 million held by foreign entities[210] Net Cash Provided by Operating Activities (FY2017-2019) | Fiscal Year | Net Cash Provided by Operating Activities ($ millions) | | :---------- | :--------------------------------------------------- | | 2019 | 2.9 | | 2018 | 8.2 | | 2017 | 9.4 | - Net cash used in investing activities was $5.2 million for fiscal 2019, primarily for capital expenditures[216] - Net cash used in financing activities was $3.0 million for fiscal 2019, primarily due to $2.3 million for stock repurchases and $0.7 million for taxes related to net settlement of equity awards[217] Contractual Cash Obligations (June 28, 2019) | Obligation Type | Total ($ thousands) | 1 year ($ thousands) | 1 - 3 years ($ thousands) | 3 - 5 years ($ thousands) | > 5 years ($ thousands) | Other ($ thousands) | | :-------------------------- | :------------------ | :------------------- | :------------------------ | :------------------------ | :---------------------- | :------------------ | | Borrowings under credit facility | 9,000 | 9,000 | — | — | — | — | | Purchase obligations | 16,272 | 15,986 | 178 | 72 | 36 | — | | Other purchase obligations | 3,101 | 3,101 | — | — | — | — | | Operating lease commitments | 6,358 | 2,052 | 1,724 | 492 | 2,090 | — | | Reserve for uncertain tax positions | 3,606 | — | — | — | — | 3,606 | | Total | 38,337 | 30,139 | 1,902 | 564 | 2,126 | 3,606 | Commercial Commitments (June 28, 2019) | Commitment Type | Total ($ thousands) | Expiration 2020 ($ thousands) | Expiration 2021 ($ thousands) | Expiration 2022 ($ thousands) | After 2022 ($ thousands) | | :-------------------------- | :------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :----------------------- | | Standby letters of credit | 880 | 827 | 53 | — | — | | Surety bonds | 59,654 | 52,366 | 7,188 | — | 100 | | Total | 60,534 | 53,193 | 7,241 | — | 100 | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to foreign currency and interest rate risks, which it manages through derivative instruments and diversified investments - The company is exposed to foreign currency exchange rate risks and changes in interest rates due to global business operations[234] - Foreign currency forward contracts are used to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates[235] - A 10% adverse change in currency exchange rates for foreign currency derivatives held as of June 28, 2019, would have an impact of approximately $0.1 million on their fair value[238] - Interest rate risk primarily relates to cash equivalents, short-term investments, and borrowings under the credit facility[241] - As of June 28, 2019, cash and cash equivalents and short-term investments totaled $31.9 million, with $17.1 million comprised of money market funds and certificates of deposit[241] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and supplementary data for the fiscal years 2017, 2018, and 2019 - Includes the Report of Independent Registered Public Accounting Firm, Consolidated Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Cash Flows, and Equity for fiscal years 2017, 2018, and 2019[272][274] - The company changed its accounting method for recognizing revenue from contracts with customers during the year ended June 28, 2019, due to the adoption of Topic 606, Revenue from Contracts With Customers[275] Report of Independent Registered Public Accounting Firm - BDO USA, LLP served as the company's auditor since 2015[279] - Issued an unqualified opinion on the consolidated financial statements for the period ended June 28, 2019, stating they present fairly the financial position and results of operations in conformity with U.S. GAAP[274] - Noted the change in accounting method for revenue recognition (ASC 606) during the year ended June 28, 2019[275] Consolidated Statements of Operations Consolidated Statements of Operations (FY2017-2019) | Metric | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | | :----------------------------------------- | :------------------- | :------------------- | :------------------- | | Revenue from product sales | 156,724 | 151,685 | 153,517 | | Revenue from services | 87,134 | 90,821 | 88,357 | | Total revenues | 243,858 | 242,506 | 241,874 | | Cost of product sales | 103,517 | 100,112 | 105,183 | | Cost of services | 61,071 | 61,891 | 61,219 | | Total cost of revenues | 164,588 | 162,003 | 166,402 | | Gross margin | 79,270 | 80,503 | 75,472 | | Research and development expenses | 21,111 | 19,750 | 18,684 | | Selling and administrative expenses | 56,055 | 58,157 | 57,184 | | Restructuring charges | 736 | 1,279 | 589 | | Total operating expenses | 77,902 | 79,186 | 76,457 | | Operating income (loss) | 1,368 | 1,317 | (985) | | Interest income | 267 | 198 | 261 | | Interest expense | (102) | (29) | (50) | | Other income (expense), net | 17 | (220) | 169 | | Income (loss) before income taxes | 1,550 | 1,266 | (605) | | (Benefit from) provision for income taxes | (8,188) | (1,036) | 16 | | Net income (loss) | 9,738 | 2,302 | (621) | | Less: Net income attributable to noncontrolling interest, net of tax | — | 457 | 202 | | Net income (loss) attributable to Aviat Networks | 9,738 | 1,845 | (823) | | Basic net income (loss) per common share | 1.81 | 0.35 | (0.16) | | Diluted net income (loss) per common share | 1.73 | 0.33 | (0.16) | Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) (FY2017-2019) | Metric | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | | :------------------------------------------------------------------ | :------------------- | :------------------- | :------------------- | | Net income (loss) | 9,738 | 2,302 | (621) | | Foreign currency translation: Loss arising during period | (131) | (820) | (279) | | Reclassification of gain on liquidation of subsidiary to other income | — | — | (349) | | Net change in cumulative translation adjustment | (131) | (820) | (628) | | Other comprehensive loss | (131) | (820) | (628) | | Comprehensive income (loss) | 9,607 | 1,482 | (1,249) | | Less: Comprehensive income attributable to noncontrolling interests, net of tax | — | 457 | 202 | | Comprehensive income (loss) attributable to Aviat Networks | 9,607 | 1,025 | (1,451) | Consolidated Balance Sheets Consolidated Balance Sheets (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :----------------------------------------- | :-------------------------- | :-------------------------- | | ASSETS | | | | Cash and cash equivalents | 31,946 | 37,425 | | Restricted cash | — | 3 | | Accounts receivable, net | 51,937 | 43,068 | | Unbilled receivables | 27,780 | 14,167 | | Inventories | 8,573 | 21,290 | | Customer service inventories | 936 | 1,507 | | Other current assets | 4,825 | 6,006 | | Total current assets | 125,997 | 123,466 | | Property, plant and equipment, net | 17,255 | 17,179 | | Deferred income taxes | 13,864 | 5,600 | | Other assets | 12,077 | 9,816 | | TOTAL ASSETS | 169,193 | 156,061 | | LIABILITIES AND EQUITY | | | | Short-term debt | 9,000 | 9,000 | | Accounts payable | 35,605 | 30,878 | | Accrued expenses | 22,555 | 25,864 | | Advance payments and unearned revenue | 13,962 | 19,300 | | Restructuring liabilities | 1,089 | 1,426 | | Total current liabilities | 82,211 | 86,468 | | Unearned revenue | 9,662 | 6,593 | | Other long-term liabilities | 820 | 1,250 | | Reserve for uncertain tax positions | 3,606 | 2,941 | | Deferred income taxes (long-term liability)| 1,378 | 1,293 | | Total liabilities | 97,677 | 98,545 | | Total equity | 71,516 | 57,516 | | TOTAL LIABILITIES AND EQUITY | 169,193 | 156,061 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (FY2017-2019) | Metric | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | | :----------------------------------------------------------------------------------------------- | :------------------- | :------------------- | :------------------- | | Net cash provided by operating activities | 2,944 | 8,209 | 9,405 | | Net cash used in investing activities | (5,246) | (6,299) | (4,038) | | Net cash (used in) provided by financing activities | (2,952) | 12 | 21 | | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (309) | (727) | (244) | | Net (decrease) increase in cash, cash equivalents, and restricted cash | (5,563) | 1,195 | 5,144 | | Cash, cash equivalents, and restricted cash, beginning of year | 37,764 | 36,569 | 31,425 | | Cash, cash equivalents, and restricted cash, end of year | 32,201 | 37,764 | 36,569 | Supplemental Cash Flow Information (FY2017-2019) | Metric | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | | :----------------------------------- | :------------------- | :------------------- | :------------------- | | Cash paid for interest | 70 | 29 | 94 | | Cash paid (refunded) for income taxes, net | 687 | 1,282 | (313) | Consolidated Statements of Equity Consolidated Statements of Equity (FY2017-2019) | Metric | Balance as of July 1, 2016 ($ thousands) | Balance as of June 30, 2017 ($ thousands) | Balance as of June 29, 2018 ($ thousands) | Balance as of June 28, 2019 ($ thousands) | | :----------------------------------------- | :--------------------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total Aviat Networks Stockholders' Equity | 53,116 | 53,797 | 57,516 | 71,516 | | Net income (loss) | (823) | 1,845 | 9,738 | | | Other comprehensive loss, net of tax | (628) | (820) | (131) | | | Cumulative-effect adjustment for ASC Topic 606 | — | — | 5,623 | | | Stock repurchase | — | (8) | (2,316) | | Note 1. The Company and Summary of Significant Accounting Policies - Aviat Networks designs, manufactures, and sells wireless networking solutions and services to various customers globally[294] - The company's fiscal year ends on the Friday nearest June 30 (June 28, 2019; June 29, 2018; June 30, 2017)[297] - MTN Group accounted for 11% of total revenue in fiscal 2019 (13% in fiscal 2018, 14% in fiscal 2017) and approximately 11% of accounts receivable as of June 28, 2019 (13% as of June 29, 2018)[304] - The functional currency for some international subsidiaries is the U.S. dollar, while others use their respective local currency. Gains and losses from re-measurement are included in operations, and translation adjustments are included in accumulated other comprehensive loss[321][322] - Retirement plan expense amounted to $2.0 million, $1.9 million, and $1.8 million in fiscal 2019, 2018, and 2017, respectively[325] - The company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, effective June 30, 2018, using the modified retrospective method[326] Note 2. Net Income (Loss) per Share of Common Stock Net Income (Loss) per Share of Common Stock (FY2017-2019) | Metric | FY2019 | FY2018 | FY2017 | | :----------------------------------------- | :----- | :----- | :----- | | Net income (loss) attributable to Aviat Networks ($ thousands) | 9,738 | 1,845 | (823) | | Weighted average shares outstanding, basic (thousands) | 5,377 | 5,336 | 5,292 | | Weighted average shares outstanding, diluted (thousands) | 5,618 | 5,647 | 5,292 | | Basic net income (loss) per common share ($) | 1.81 | 0.35 | (0.16) | | Diluted net income (loss) per common share ($) | 1.73 | 0.33 | (0.16) | Total Antidilutive Shares Excluded from Diluted EPS (FY2017-2019) | Type | FY2019 (thousands) | FY2018 (thousands) | FY2017 (thousands) | | :--------------------------------- | :----------------- | :----------------- | :----------------- | | Stock options | 390 | 270 | 410 | | Restricted stock units and performance stock units | 32 | — | 403 | | Total shares excluded | 422 | 270 | 813 | Note 3. Revenue Recognition - The adoption of ASC 606 effective June 30, 2018, resulted in a net reduction to the opening balance of accumulated deficit of $5.6 million[360] - Revenue for fiscal 2019 was $243.9 million under ASC 606, compared to $231.4 million under ASC 605[360] - Key impacts of ASC 606 adoption included changes to bill-and-hold sales, professional services revenue recognition (from completion to over-time using cost input method), accounting for variable consideration, software revenue allocation, and capitalization/amortization of sales commissions[361][362][363][365][366] - The aggregate amount of transaction price allocated to unsatisfied performance obligations was approximately $71.7 million at June 28, 2019, with 70% expected to be recognized as revenue during fiscal 2020[379] Impacts of ASC 606 Adoption on Consolidated Statements of Operations (FY2019) | Metric | As Reported ($ thousands) | Adjustments due to ASC 606 ($ thousands) | Balances without Adoption of ASC 606 ($ thousands) | | :----------------------------------------- | :------------------------ | :--------------------------------------- | :------------------------------------------------- | | Total revenues | 243,858 | (12,485) | 231,373 | | Total cost of revenues | 164,588 | (8,322) | 156,266 | | Net income | 9,738 | (7,253) | 2,485 | Note 4. Balance Sheet Components Cash, Cash Equivalents, and Restricted Cash (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | 31,946 | 37,425 | | Restricted cash | — | 3 | | Restricted cash included in Other assets | 255 | 336 | | Total cash, cash equivalents, and restricted cash | 32,201 | 37,764 | Accounts Receivable, net (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :----------------------------------- | :-------------------------- | :-------------------------- | | Accounts receivable | 53,539 | 44,656 | | Less: allowances for collection losses | (1,602) | (1,588) | | Total accounts receivable, net | 51,937 | 43,068 | Inventories (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :------------------------- | :-------------------------- | :-------------------------- | | Finished products | 4,894 | 15,496 | | Work in process | — | 3,246 | | Raw materials and supplies | 3,679 | 2,548 | | Total inventories | 8,573 | 21,290 | Inventory and Customer Service Inventory Write-downs (FY2017-2019) | Fiscal Year | Amount ($ thousands) | % of Revenue | | :---------- | :------------------- | :----------- | | 2019 | 553 | 0.2% | | 2018 | 364 | 0.2% | | 2017 | 1,137 | 0.5% | Property, Plant and Equipment, net (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Land | 710 | 710 | | Buildings and leasehold improvements | 11,668 | 11,597 | | Software | 17,556 | 15,498 | | Machinery and equipment | 49,733 | 48,076 | | Less accumulated depreciation and amortization | (62,412) | (58,702) | | Total property, plant and equipment, net | 17,255 | 17,179 | Accrued Expenses (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :--------------------------------- | :-------------------------- | :-------------------------- | | Accrued compensation and benefits | 7,583 | 8,574 | | Accrued agent commissions | 2,035 | 1,774 | | Accrued warranties | 3,323 | 3,196 | | Other | 9,614 | 12,320 | | Total accrued expenses | 22,555 | 25,864 | Warranty Liability Changes (FY2017-2019) | Fiscal Year | Balance at Beginning of Period ($ thousands) | Warranty Provision Recorded ($ thousands) | Consumption During Period ($ thousands) | Balance at End of Period ($ thousands) | | :---------- | :----------------------------------------- | :---------------------------------------- | :-------------------------------------- | :------------------------------------- | | 2019 | 3,196 | 1,974 | (1,847) | 3,323 | | 2018 | 3,056 | 2,529 | (2,389) | 3,196 | | 2017 | 3,944 | 1,604 | (2,492) | 3,056 | Advance Payments and Unearned Income (FY2018-2019) | Metric | June 28, 2019 ($ thousands) | June 29, 2018 ($ thousands) | | :------------------ | :-------------------------- | :-------------------------- | | Advance payments | 1,534 | 7,151 | | Unearned income | 12,428 | 12,149 | | Total | 13,962 | 19,300 | Note 5. Fair Value Measurements of Assets and Liabilities - The company uses a three-level fair value hierarchy (Level 1, 2, 3) to prioritize inputs used to measure fair value, maximizing observable inputs[393] Fair Value Measurements of Assets and Liabilities (June 28, 2019) | Asset/Liability | Carrying Amount ($ thousands) | Fair Value ($ thousands) | Valuation Inputs | | :------------------------------- | :---------------------------- | :----------------------- | :--------------- | | Money market funds | 15,121 | 15,121 | Level 1 | | Bank certificates of deposit | 1,989 | 1,989 | Level 2 | | Foreign exchange forward contracts | 7 | 7 | Level 2 | - No assets or liabilities were valued using significant unobservable inputs (Level 3) as of June 28, 2019, and no transfers between levels occurred during fiscal 2019, 2018, or 2017[396][397] Note 6. Credit Facility and Debt - The SVB Credit Facility provides a $25.0 million accounts receivable formula-based revolving credit facility, expiring on June 29, 2020[398] - As of June 28, 2019, available credit under the SVB Credit Facility was $15.1 million, reflecting a calculated borrowing base of $25.0 million less existing borrowings of $9.0 million and outstanding letters of credit of $0.9 million[398] - The outstanding debt balance under the SVB Credit Facility was $9.0 million as of June 28, 2019, with an interest rate of 6.00% (weighted average 5.91% for fiscal 2019). This amount was repaid in July 2019[399][401] - The company was in compliance with all quarterly financial covenants of the SVB Credit Facility as of June 28, 2019[400] Note 7. Restructuring Activities Restructuring Liabilities by Plan (FY2017-2019) | Plan | Balance as of July 1, 2016 ($ thousands) | Charges, net ($ thousands) | Cash payments ($ thousands) | Balance as of June 28, 2019 ($ thousands) | | :------------------ | :--------------------------------------- | :------------------------- | :-------------------------- | :---------------------------------------- | | Fiscal 2018-2019 | — | 736 | (1,245) | 1,023 | | Fiscal 2016-2017 | 1,512 | — | (12) | 2 | | Fiscal 2015-2016 | 550 | — | (23) | 238 | | Fiscal 2013-2014 | 68 | — | — | 64 | | Total | 1,937 | 736 | (1,293) | 1,089 | - As of June 28, 2019, $1.1 million of the accrual balance was in short-term restructuring liabilities, while $0.2 million was included in other long-term liabilities[403] - The Fiscal 2018-2019 Plan, approved in Q4 fiscal 2018 to consolidate back-office support and align resources, was completed at the end of fiscal 2019, with payments expected to be fully made in fiscal 2020[404] Note 8. Stockholders' Equity - In May 2018, the Board approved a stock repurchase program for up to $7.5 million of common stock; $5.2 million remained available as of June 28, 2019[410][413] - The company operates the 2018 Incentive Plan (replacing the 2007 Plan) and an Employee Stock Purchase Plan (ESPP) for equity awards[414][422] - As of June 28, 2019, 880,614 shares were available for future issuance under the 2018 Plan, and 58,846 shares under the ESPP[418][422] Total Share-Based Compensation Expense (FY2017-2019) | Fiscal Year | Total ($ thousands) | | :---------- | :------------------ | | 2019 | 1,723 | | 2018 | 2,357 | | 2017 | 2,111 | Unamortized Compensation Expense by Award Type (June 28, 2019) | Award Type | Unamortized Expense ($ thousands) | | :------------------------- | :-------------------------------- | | Options | 1,022 | | Restricted stock awards and units | 258 | | Performance share awards and units | 373 | - As of June 28, 2019, 369,004 stock options were outstanding with a weighted average exercise price of $21.85[426] - As of June 28, 2019, 171,567 restricted stock awards and units were outstanding with a weighted average grant date value of $9.90[430] - As of June 28, 2019, 124,597 performance share awards and units were outstanding with a weighted average grant date fair value of $14.59[434] Note 9. Segment and Geographic Information - The company operates in one reportable business segment: the design, manufacturing, and sale of wireless networking products, solutions, and services[435] Revenue by Geographic Region (FY2017-2019) | Region | FY2019 ($ thousands) | FY2018 ($ thousands) | FY2017 ($ thousands) | | :----------------------------- | :------------------- | :------------------- | :------------------- | | North America | 132,884 | 131,078 | 132,078 | | Africa and Middle East | 48,305 | 58,459 | 60,150 | | Europe and Russia | 16,933 | 18,205 | 14,128 | | Latin America and Asia Pacific | 45,736 | 34,764 | 35,518 | | Total Revenue | 243,858 | 242,506 | 241,874 | Revenue by Country (Top >5% of Total Revenue, FY2017-2019) | Country | FY2019 Revenue ($ thousands) | FY2019 % of Total Revenue | FY2018 Revenue ($ thousands) | FY2018 % of Total Revenue | FY2017 Revenue ($ thousands) | FY2017 % of Total Revenue | | :------------ | :--------------------------- | :------------------------ | :--------------------------- | :------------------------ | :--------------------------- | :------------------------ | | United States | 129,929 | 53.3% | 128,269 | 52.9% | 127,889 | 52.9% | | Philippines | 24,368 | 10.0% | 13,838 | 5.7% | 13,733 | 5.7% | | South Africa | — | — | 13,929 | 5.7% | — | — | | Nigeria | — | — | — | — | 18,147 | 7.5% | Long-Lived Assets by Geographic Area (June 28, 2019) | Country | Amount ($ thousands) | | :------------ | :------------------- | | United States | 4,984 | | United Kingdom| 2,654 | | New Zealand | 8,368 | | Other countries | 1,249 | | Total | 17,255 | Note 10. Income Taxes Income (Loss) Before Provision for Income Taxes by Geography (FY2017-2019) | Fiscal Year | United States ($ thousands) | Foreign ($ thousands) | Total ($ thousands) | | :---------- | :-------------------------- | :-------------------- | :------------------ | | 2019 | 5,827 | (4,277) | 1,550 | | 2018 | 7,718 | (6,452) | 1,266 | | 2017 | 10,979 | (11,584) | (605) | Total (Benefit from) Provision for Income Taxes (FY2017-2019) | Fiscal Year | Amount ($ thousands) | | :---------- | :------------------- | | 2019 | (8,188) | | 2018 | (1,036) | | 2017 | 16 | - The tax benefit for fiscal 2019 was primarily due to the release of $7.5 million in U.S. federal and state valuation allowances and a refundable foreign withholding tax credit of $1.6 million from Brazil[208][443] - The valuation allowance related to deferred income taxes decreased by $13.7 million in fiscal 2019 to $143.6 million[446] - As of June 28, 2019, U.S. federal tax loss carryforwards were $408.2 million (expiring fiscal 2023), and foreign tax loss carryforwards were $212.8 million (certain losses expiring fiscal 2020)[451] - Unrecognized tax benefits totaled $16.5 million as of June 28, 2019, with $3.6 million affecting the effective tax rate[453] Note 11. Commitments and Contingencies Future Minimum Operating Lease Payments (June 28, 2019) | Fiscal Years | Amount ($ thousands) | | :----------- | :------------------- | | 2020 | 2,052 | | 2021 | 1,268 | | 2022 | 456 | | 2023 | 243 | | 2024 | 249 | | Thereafter | 2,090 | | Total | 6,358 | - As of June 28, 2019, outstanding purchase obligations with suppliers or contract manufacturers were $16.3 million, and contractual obligations for software as a service and maintenance support were approximately $3.1 million[463] - Commercial commitments, including surety bonds and standby letters of credit, totaled $60.5 million outstanding as of June 28, 2019[465] - The company is investigating a $1.0 million claim from an Austrian customer alleging defective products but believes it has numerous contractual and legal defenses and that the claim is not likely to have a material adverse effect on its financial position[468][469] Note 12. Quarterly Financial Data (Unaudited) Summarized Quarterly Financial Data (FY2019) | Metric ($ thousands) | Q1 Ended 9/28/2018 | Q2 Ended 12/28/2018 | Q3 Ended 3/29/2019 | Q4 Ended 6/28/2019 | | :------------------- | :----------------- | :------------------ | :----------------- | :----------------- | | Revenue | 60,504 | 65,088 | 54,037 | 64,229 | | Gross margin | 17,925 | 22,490 | 16,255 | 22,600 | | Operating (loss) income | (1,514) | 2,883 | (2,503) | 2,502 | | Net (loss) income attributable to Aviat Networks | (750) | 2,310 | 4,339 | 3,839 | | Basic net (loss) income per common share | (0.14) | 0.43 | 0.81 | 0.71 | | Diluted net (loss) income per common share | (0.14) | 0.41 | 0.78 | 0.69 | Summarized Quarterly Financial Data (FY2018) | Metric ($ thousands) | Q1 Ended 9/29/2017 | Q2 Ended 12/29/2017 | Q3 Ended 3/30/2018 | Q4 Ended 6/29/2018 | | :------------------- | :----------------- | :------------------ | :----------------- | :----------------- | | Revenue | 56,182 | 61,723 | 62,093 | 62,508 | | Gross margin | 17,296 | 21,890 | 18,132 | 23,185 | | Operating (loss) income | (1,226) | 2,894 | (1,365) | 1,014 | | Net (loss) income attributable to Aviat Networks | (657) | 5,071 | (2,623) | 54 | | Basic net (loss) income per common share | (0.12) | 0.95 | (0.49) | 0.01 | | Diluted net (loss) income per common share | (0.12) | 0.90 | (0.49) | 0.01 | Note 13. Subsequent Event - On August 21, 2019, the Board approved the '2020 Plan,' a restructuring plan to consolidate product development and right-size resources for international business and support functions[478] - The 2020 Plan is anticipated to involve a reduction of approximately 48 employees[478] - Estimated restructuring charges are approximately $1.7 million, mostly in the first half of fiscal 2020, with anticipated annualized savings of $1.7 million in fiscal 2021, primarily allocated to growth initiatives[478] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants - Not applicable[479] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year - Management, with participation of the CEO and PFO, concluded that disclosure controls and procedures were effective as of June 28, 2019[480] - Management concluded that internal control over financial reporting was effective as of June 28, 2019, providing reasonable assurance regarding the reliability of financial reporting[485] - The company acknowledges the inherent limitations of control systems, which can provide only reasonable, not absolute, assurance[487] Other Information The company reported no other information required for disclosure - None[488] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement[490][492] - The company adopted a Code of Conduct, available on its website[491] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement - Information regarding executive compensation is incorporated by reference from the definitive Proxy Statement[493] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's Proxy Statement - Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the definitive Proxy Statement[493] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's Proxy Statement - Information regarding certain relationships and related transactions, and director independence is incorporated by reference from the definitive Proxy Statement[494] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the definitive Proxy Statement[495] PART IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with or incorporated by reference into the report - The financial statements of Aviat Networks, Inc. are set forth in Item 8 of this Annual Report on Form 10-K[497] - Financial Statement Schedules include Schedule II — Valuation and Qualifying Accounts for the three fiscal years ended June 28, 2019[497][505] - The section includes an Exhibit Index listing various exhibits filed herewith or incorporated by reference to previously filed SEC exhibits[498][508][510]