AVIAT NETWORKS, INC. 10-Q

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 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended (In thousands, except per share amounts) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Revenues: Revenue from product sales $ 40,930 $ 34,615 $ 111,676 $ 115,696 Revenue from services 20,449 19,422 64,314 63,933 Total revenues 61,379 54,037 175,990 179,629 Cost of revenues: Cost of product sales 24,676 23,712 68,466 76,670 Cost of services 14,742 14,070 44,688 46,289 Total cost of revenues 39,418 37,782 113,154 122,959 Gross margin 21,961 16,255 62,836 56,670 Operating expenses: Research and development expenses 4,875 5,350 15,069 15,603 Selling and administrative expenses 15,233 13,408 44,334 41,405 Restructuring charges 617 — 2,175 796 Total operating expenses 20,725 18,758 61,578 57,804 Operating income (loss) 1,236 (2,503 ) 1,258 (1,134 ) Interest income 112 73 318 167 Interest expense (19 ) (7 ) (23 ) (88 ) 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) $ 731 $ 4,339 $ (886 ) $ 5,899 Net income (loss) per share of common stock outstanding: Basic $ 0.14 $ 0.81 $ (0.16 ) $ 1.10 Diluted $ 0.13 $ 0.78 $ (0.16 ) $ 1.05 Weighted-average shares outstanding: Basic 5,395 5,381 5,390 5,382 Diluted 5,457 5,577 5,390 5,634 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 5 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited) 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 Condensed Consolidated Financial Statements. 6 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended (In thousands) April 3, 2020 March 29, 2019 Operating Activities 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 1,315 1,396 Deferred tax assets, net (475 ) (6,870 ) Charges for inventory and customer service inventory write-downs 751 404 Loss on disposition of property, plant and equipment, net 14 20 Changes in operating assets and liabilities: Accounts receivable 2,977 (236 ) Unbilled receivables 4,644 (5,674 ) Inventories (5,810 ) (698 ) Customer service inventories (930 ) (170 ) Accounts payable 3,170 3,954 Accrued expenses 140 (3,085 ) Advance payments and unearned revenue 6,157 7,197 Income taxes payable or receivable 1,372 366 Other assets and liabilities (1,058 ) (307 ) Net cash provided by operating activities 14,625 5,340 Investing Activities Payments for acquisition of property, plant and equipment (3,945 ) (4,083 ) Net cash used in investing activities (3,945 ) (4,083 ) Financing Activities Proceeds from borrowings 27,000 27,000 Repayments of borrowings (27,000 ) (27,000 ) Payments for repurchase of common stock (1,772 ) (1,870 ) Payments for taxes related to net settlement of equity awards (764 ) (561 ) Proceeds from issuance of common stock under employee stock plans 11 30 Net cash used in financing activities (2,525 ) (2,401 ) Effect of exchange rate changes on cash, cash equivalents, and restricted cash (895 ) (305 ) Net increase (decrease) in cash, cash equivalents, and rest ricted cash 7,260 (1,449 ) Cash, cash equivalents, and restricted cash, beginning of period 32,201 37,764 Cash, cash equivalents, and restricted cash, end of period $ 39,461 $ 36,315 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 7 AVIAT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Three Months Ended April 3, 2020 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Equity (In thousands, except share amounts) Shares $ Amount Balance as of December 27, 2019 5,414,480 $ 54 $ 813,867 $ (732,615 ) $ (12,839 ) $ 68,467 Net income — — — 731 — 731 Other comprehensive loss, net of tax — — — — (2,374 ) (2,374 ) Issuance of common stock under employee stock plans 6,715 — 1 — — 1 Shares withheld for taxes related to vesting of equity awards (1,681 ) — (18 ) — — (18 ) Stock repurchase (26,484 ) — (371 ) — — (371 ) Share-based compensation — — 507 — — 507 Balance as of April 3, 2020 5,393,030 $ 54 $ 813,986 $ (731,884 ) $ (15,213 ) $ 66,943 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 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 8 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 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 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 Condensed Consolidated Financial Statements. 9 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 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, license-exempt applications, supporting new network deployments, network expansion, and capacity upgrades. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial 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 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 and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 28, 2019 . The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated. We operate on a 52 -week or 53 -week year ending on the Friday closest to June 30. The nine months ended April 3, 2020 consisted of 40 weeks while the nine months ended 2019 included 39 weeks. The three months ended April 3, 2020 and March 29, 2019 consisted of 14 weeks and 13 weeks, respectively. Fiscal year 2020 will be comprised of 53 weeks and will end on 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 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 28, 2019 , with the exception of our adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) 10 (ASU 2016-02) (“ASC 842”). See Note 4, “Leases” to the Notes to unaudited condensed consolidated financial statements for discussion of the impact of the adoption of this standard on our policies for leases. Accounting Standards Adopted In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842, which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). For lessees, leases will continue to be classified as either operating or financing in the income statement. We adopted ASC 842, effective June 29, 2019 , using the modified retrospective transition method with the cumulative effect recognized as an adjustment to the opening balance of our accumulated deficit. Prior-period financial statements were not retrospectively restated. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, assessment of whether a contract was or contains a lease, and initial direct costs for leases that existed prior to June 28, 2019 . We also elected not to recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less. We elected not to apply the hindsight practical expedient when determining lease term and assessing impairment of ROU assets. See Note 4, “Leases” to the Notes to our unaudited condensed consolidated financial statements for more information. In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation: Improvement to Nonemployees Share-Based Payment Accounting (ASU 2018-07), which 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 is effective for fiscal years beginning after December 15, 2018. We adopted this update during the first quarter of fiscal 2020. The adoption had no material impact on our unaudited 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. ASU 2018-15 will be effective for 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 potential impact adopting ASU 2018-15 will have on our unaudited 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 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, 11 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 (In thousands, except per share amounts) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Numerator: Net income (loss) $ 731 $ 4,339 $ (886 ) $ 5,899 Denominator: Weighted-average shares outstanding, basic 5,395 5,381 5,390 5,382 Effect of potentially dilutive equivalent shares 62 196 — 252 Weighted-average shares outstanding, diluted 5,457 5,577 5,390 5,634 Net income (loss) per share of common stock outstanding: Basic $ 0.14 $ 0.81 $ (0.16 ) $ 1.10 Diluted $ 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 (In thousands) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Stock options 327 394 369 375 Restricted stock units and performance stock units 98 52 143 39 Total shares of common stock excluded 425 446 512 414 Note 3. Revenue Recognition We recognize revenue by applying the following five-step approach: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. Revenue from product sales is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes. Printed circuit assemblies, mechanical housings, and 12 packaged modules are manufactured by contract manufacturing partners, with periodic business reviews of material levels and obsolescence. Product assembly, product testing, complete system integration, and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers. Revenue from services includes certain installation, extended warranty, customer support, consulting, training, and education. Maintenance and support services are generally offered to our customers over a specified period of time and from sales and subsequent renewals of maintenance and support contracts. The services noted are recognized based on an over-time recognition model using the cost-input method. Revenues related to certain contracts for customized network solutions are recognized over time using the cost input method. In using this input method, we generally apply the cost-to-cost method of accounting where sales and profits are recorded based on the ratio of costs incurred to estimated total costs at completion. Recognition of profit on these contracts requires estimates of the total contract value, the total cost at completion, and the measurement of progress towards completion. Significant judgment is required when estimating total contract costs and progress to completion on the arrangements, as well as whether a loss is expected to be incurred on the contract. If circumstances arise that change the original estimates of revenues, costs, or extent of progress toward completion, revisions to the estimates are made. These revisions may result in increases or decreases in estimated revenues or costs, and such revisions are reflected in income in the period in which the circumstances that gave rise to the revision become known to us. We perform ongoing profitability analysis of our service contracts accounted for under this method in order to determine whether the latest estimates of revenues, costs, and profits require updating. If at any time these estimates indicate that the contract will be unprofitable, the entire estimated loss for the remainder of the contract is recorded immediately. We establish billing terms at the time project deliverables and milestones are agreed. Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled receivables on the unaudited condensed consolidated balance sheet. Contracts and customer purchase orders are used to determine the existence of an arrangement. In addition, shipping documents and customer acceptances, when applicable, are used to verify delivery and transfer of control. We typically satisfy our performance obligations upon shipment or delivery of product depending on the contractual terms. Payment terms to customers generally range from net 30 to 120 days from invoice, which are considered to be standard payment terms. We assess our ability to collect from our customers based primarily on the creditworthiness and past payment history of the customer. While our customers do not have the right of return, we reserve for estimated product returns as an offset to revenue based primarily on historical trends. Actual product returns may be different than what was estimated. These factors and unanticipated changes in economic and industry condition could make actual results differ from our return estimates. We present transactional taxes such as sales and use tax collected from customers and remitted to government authorities on a net basis. Bill-and-Hold Sales Certain customer arrangements consist of bill-and-hold characteristics under which transfer of control has been met (including the passing of title and significant risk and reward of ownership to the customers). Therefore, the customers can direct the use of the bill-and-hold inventory while we retain physical possession of the product until it is installed at a customer site at a point in time in the future. Termination Rights The contract term is determined on the basis of the period over which the parties to the contract have present enforceable rights and obligations. Certain customer contracts include a termination for convenience clause that allows the customer to terminate services without penalty, upon advance notification. We concluded that the duration of support contracts does not extend beyond the non-cancellable portion of the contract. Variable Consideration The consideration associated with customer contracts is generally fixed. Variable consideration includes discounts, rebates, refunds, credits, incentives, penalties, or other similar items. The amount of consideration that can vary is not a substantial portion of total consideration. 13 Variable consideration estimates will be re-assessed at each reporting period until a final outcome is determined. The changes to the original transaction price due to a change in estimated variable consideration will be applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs. Changes to variable consideration will be tracked and material changes disclosed. Stand-alone Selling Price Stand-alone selling price is the price at which an entity would sell a good or service on a stand-alone (or separate) basis at contract inception. Under the model, the observable price of a good or service sold separately provides the best evidence of stand-alone selling price. However, in certain situations, stand-alone selling prices will not be readily observable and the entity must estimate the stand-alone selling price. When allocating on a relative stand-alone selling price basis, any discount provided in the contract is allocated proportionately to all of the performance obligations in the contract. The majority of products and services that we offer have readily observable selling prices. For products and services that do not, we estimate stand-alone selling price using the market assessment approach based on expected selling price and adjust those prices as necessary to reflect our costs and margins. As part of our stand-alone selling price policy, we review product pricing on a periodic basis to identify any significant changes and revise our expected selling price assumptions as appropriate. Shipping and Handling Shipping and handling costs are included as a component of costs of product sales in our unaudited condensed consolidated statements of operations because they are also included in revenue that we bill our customers. Costs to Obtain a Contract We have assessed the treatment of costs to obtain or fulfill a contract with a customer. Under ASC 606, we capitalize sales commissions related to multi-year service contracts and amortize the asset over the period of benefit, which is the estimated service period. Sales commissions paid on contract renewals, including service contract renewals, is commensurate with the sales commissions paid on the initial contracts. We elected the practical expedient to expense sales commissions as incurred when the amortization period of the related asset is one year or less. These costs are recorded as sales and marketing expense and included on our unaudited condensed consolidated balance sheet as accrued expenses until paid. Our amortization expense was not material for the three and nine months ended April 3, 2020 . Contract Balances, Performance Obligations, and Backlog The following table provides information about receivables and liabilities from contracts with customers (in thousands): April 3, 2020 June 28, 2019 Contract Assets Accounts receivable, net $ 48,148 $ 51,937 Unbilled receivables 23,420 27,780 Capitalized commissions 1,031 955 Contract Liabilities Advance payments and unearned revenue 21,485 13,962 Unearned revenue, long-term 8,210 9,662 Significant changes in contract balances may arise as a result of recognition over time for services, transfer of control for equipment, and periodic payments (both in arrears and in advance). From time to time, we may experience unforeseen events that could result in a change to the scope or price associated with an arrangement. When such events occur, we update the transaction price and measure of progress for the performance 14 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 April 3, 2020 , we had $29.7 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 30% is expected to be recognized as revenue in the remainder of fiscal 2020 and the balance thereafter. During the three and nine months ended April 3, 2020 we recognized approximately $1.8 million and $7.4 million , respectively, in maintenance service revenue which was included in advance payments and unearned revenue at the beginning of the reporting period. Remaining Performance Obligations The aggregate amount of transaction price allocated to our unsatisfied (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 included in "Right of use assets" on our April 3, 2020 unaudited condensed consolidated balance sheets and represent our right to use the underlying asset for the lease term. Our obligation to make lease payments are included in " Short-term lease liabilities " and "Long-term lease liabilities" on our April 3, 2020 unaudited condensed consolidated balance sheets. We did not enter into any finance leases during the nine months ended April 3, 2020 . Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we used the incremental borrowing rate based on the remaining lease term at commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred. Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Certain of our lease arrangements include non-lease components and we account for non-lease components together with lease components for all such lease arrangements. Leases with an initial term of 12 months or less are not recorded on our balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term. Adoption of ASC 842 Upon our adoption of ASC 842, we recorded total ROU assets of $7.9 million , with corresponding liabilities of $8.3 million , on our unaudited condensed consolidated balance sheets. The ROU assets include adjustments for prepayments and accrued lease payments. The adoption did not impact our prior year condensed consolidated statements of operations and statements of cash flows. As of 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. 15 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 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 28, 2019 , our future minimum lease payments under all non-cancelable operating leases were as follows: Fiscal years Amount (In thousands) 2020 $ 2,052 2021 1,268 2022 456 2023 243 2024 249 Thereafter 2,090 Total $ 6,358 16 Note 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 our unaudited condensed consolidated balance sheets that reconciles to the corresponding amount in our unaudited condensed consolidated statement of cash flows: (In thousands) April 3, 2020 June 28, 2019 Cash and cash equivalents $ 39,208 $ 31,946 Restricted cash included in other assets 253 255 Total cash, cash equivalents, and restricted cash in the Statement of Cash Flows $ 39,461 $ 32,201 Accounts Receivable, net Our net accounts receivable are summarized below: (In thousands) April 3, 2020 June 28, 2019 Accounts receivable $ 49,973 $ 53,539 Less: Allowances for collection losses (1,825 ) (1,602 ) Total accounts receivable, net $ 48,148 $ 51,937 Inventories Our inventories are summarized below: (In thousands) April 3, 2020 June 28, 2019 Finished products $ 8,489 $ 4,894 Raw materials and supplies 5,701 3,679 Total inventories $ 14,190 $ 8,573 Consigned inventories included within raw materials and supplies $ 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. The recovery or charges during the three and nine months ended April 3, 2020 and March 29, 2019 were classified in cost of product sales as follows: Three Months Ended Nine Months Ended (In thousands) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Excess and obsolete inventory (recovery) charges $ (13 ) $ (64 ) $ 156 $ (311 ) Customer service inventory write-downs 250 313 595 715 Total inventory charges $ 237 $ 249 $ 751 $ 404 17 Property, Plant and Equipment, net Our property, plant and equipment, net are summarized below: (In thousands) April 3, 2020 June 28, 2019 Land $ 710 $ 710 Buildings and leasehold improvements 11,723 11,668 Software 17,603 17,556 Machinery and equipment 52,288 49,733 Total property, plant and equipment, gross 82,324 79,667 Less: Accumulated depreciation and amortization (64,722 ) (62,412 ) Total property, plant and equipment, net $ 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 (In thousands) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Depreciation and amortization $ 1,111 $ 1,024 $ 3,226 $ 3,408 Accrued Expenses Our accrued expenses are summarized below: (In thousands) April 3, 2020 June 28, 2019 Accrued compensation and benefits $ 8,501 $ 7,583 Accrued agent commissions 2,160 2,035 Accrued warranties 3,250 3,323 Other 9,259 9,614 Total accrued expenses $ 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 our unaudited condensed consolidated balance sheets were as follows: Three Months Ended Nine Months Ended (In thousands) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Balance as of the beginning of the period $ 3,197 $ 3,416 $ 3,323 $ 3,196 Warranty provision recorded during the period 492 466 1,249 1,632 Consumption during the period (439 ) (448 ) (1,322 ) (1,394 ) Balance as of the end of the period $ 3,250 $ 3,434 $ 3,250 $ 3,434 18 Advance Payments and Unearned Revenue Our advance payments and unearned revenue are summarized below: (In thousands) April 3, 2020 June 28, 2019 Advance payments $ 3,313 $ 1,534 Unearned revenue 18,172 12,428 Total advance payments and unearned revenue $ 21,485 $ 13,962 Excluded from the balances above are $8.2 million and $9.7 million in long-term unearned revenue as of April 3, 2020 and June 28, 2019 , respectively. Note 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 April 3, 2020 and June 28, 2019 were as follows: April 3, 2020 June 28, 2019 Valuation Inputs (In thousands) Carrying Amount Fair Value Carrying Amount Fair Value Assets: Cash and cash equivalents: Money market funds $ 21,393 $ 21,393 $ 15,121 $ 15,121 Level 1 Bank certificates of deposit $ 3,282 $ 3,282 $ 1,989 $ 1,989 Level 2 Other current assets: Foreign exchange forward contracts $ 41 $ 41 $ — $ — Level 2 Liabilities: Other accrued expenses: Foreign exchange forward contracts $ 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 April 3, 2020 and June 28, 2019 , these money market funds were valued at $ 1.00 net asset value per share. We classify items in Level 2 if the observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes, or alternative pricing sources are available with reasonable levels of price transparency. Our bank certificates of deposit and foreign exchange forward contracts are classified within Level 2. Foreign currency forward contracts are measured at fair value using observable foreign currency exchange rates. The changes in fair value related to our foreign currency forward contracts were recorded in cost of revenues on our unaudited condensed consolidated statements of operations. As of April 3, 2020 and June 28, 2019 , we did not have any recurring assets or liabilities that were valued using significant unobservable inputs. 19 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 2020 and 2019 , we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value. Note 7. Credit Facility and Debt On June 10, 2019, we entered into Amendment No. 2 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the “SVB Credit Facility”). 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. The SVB Credit Facility provides for a $25.0 million accounts receivable formula-based revolving credit facility that can be borrowed by our U.S. company, with a $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 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 April 3, 2020 , available credit under the SVB Credit Facility was $14.5 million , reflecting the calculated borrowing base of $25.0 million less existing borrowings of $9.0 million and outstanding letters of credit of $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 2020 , the weighted-average interest rate on our outstanding loan was 4.24% . As of April 3, 2020 and June 28, 2019 , our outstanding debt balance under the SVB Credit Facility was $9.0 million , and the interest rate was 3.75% and 6.00% , respectively. The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and minimum profitability (EBITDA) requirements. In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with 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 5.00% above the applicable interest rate. As of April 3, 2020 , we were in compliance with the quarterly financial covenants contained in the SVB Credit Facility, as amended. The $9.0 million borrowing was classified as a current liability as of April 3, 2020 and June 28, 2019 . On September 28, 2018, we entered into Amendment No. 1 (the “Amendment”) to the Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank. Among other things, the Amendment provides for the definition of Quick Assets set forth in the Agreement to be modified to include up to the lesser of (a) 50% of unbilled accounts receivable or (b) $7.0 million . In addition, we have a short-term line of credit for up to $0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for up to $0.2 million in short-term advances at various interest rates, all of which was available as of April 3, 2020 and June 28, 2019 . The line of credit also provides for the issuance of standby letters of credit and company credit cards, of which $0.1 million was outstanding as of 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. 20 Note 8. Restructuring Activities The following table summarizes our restructuring-related activities during the nine months ended April 3, 2020 : Severance and Benefits Facilities and Other Total (In thousands) 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 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 — 381 — — — — 381 Cash payments — (385 ) (280 ) — — — (665 ) Accrual balance, December 27, 2019 1,216 411 — 64 229 1,920 Charges, net 595 22 — — — — 617 Cash payments (15 ) (598 ) (157 ) — — — (770 ) Accrual balance, April 3, 2020 $ 580 $ 640 $ 254 $ — $ 64 $ 229 $ 1,767 As of 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 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 completed the restructuring activities under our fiscal 2018-2019 restructuring plan (the “Fiscal 2018-2019 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 2019 Form 10-K. Note 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 (In thousands, except share amounts) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 Number of shares repurchased 26,484 30,961 128,023 122,546 Aggregate purchase price, including commissions $ 373 $ 434 $ 1,773 $ 1,873 21 All repurchased shares were retired. As of 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 April 3, 2020 , we had two stock incentive 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. During the three months ended April 3, 2020 , we granted 46,500 market-based stock units. During the nine months ended April 3, 2020 , we granted 84,202 restricted stock units, 51,706 performance restricted stock units, 46,500 market-based stock units and 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 of operations was as follows: Three Months Ended Nine Months Ended (In thousands) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019 By Expense Category: Cost of revenues $ 53 $ 44 $ 149 $ 144 Research and development 33 42 92 123 Selling and administrative 421 372 1,074 1,129 Total share-based compensation expense $ 507 $ 458 $ 1,315 $ 1,396 By Types of Award: Options $ 197 $ 116 $ 460 $ 271 Restricted and performance stock awards and units 310 342 855 1,125 Total share-based compensation expense $ 507 $ 458 $ 1,315 $ 1,396 As of April 3, 2020 , there was approximately $1.1 million of total unrecognized compensation expense related to non-vested stock options granted which are expected to be recognized over a weighted-average period of 2.1 years. As of April 3, 2020 , there was $1.7 million of total unrecognized compensation expense related to non-vested stock awards which are expected to be recognized over a weighted-average period of 2.1 years. Note 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. O ur financial performance is regularly reviewed by our chief operating decision maker who is our 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 was as follows: 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 ended March 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 ended March 29, 2019 , MTN Group accounted for 12% of our 22 total revenue . As of April 3, 2020 , MTN Group and Digitec accounted for 16% and 11% of our accounts receivable, respectively. As of June 28, 2019 , MTN Group and Globe accounted for 10% and 11% of our accounts receivable, 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 a significant portion of business from any significant customers could adversely affect our unaudited condensed consolidated financial statements. Note 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. During interim periods, we accrue tax expenses for jurisdictions that are anticipated to be profitable for fiscal 2020. The determination of our income taxes for the nine months ended April 3, 2020 and March 29, 2019 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 nine months ended March 29, 2019 was primarily due to tax expense related to profitable subsidiaries, net against the $1.6 million release of valuation allowance due to the potential foreign tax refund to be received from the Department of Federal Revenue of Brazil. We continue to record a partial valuation allowance on our U.S. deferred tax assets which primarily represent future income tax benefits associated with our operating losses. Realization of our deferred tax assets is dependent on generating sufficient pre-tax book income in future periods. Although we believe it is more likely than not that future income will be sufficient to allow us to recover the value of a portion of our U.S. deferred tax assets, realization is not assured and future events could cause us to change our judgment. If future events cause us to conclude that it is not more likely than not that we will be able to recover more or less of the current anticipated portion of deferred tax assets, we would be required to either decrease or increase the valuation allowance on our deferred tax assets at that time, which would result in a charge to income tax expense (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. 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 . On March 27, 2020, the US enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act which 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 years beginning in tax year 2018. The CARES Act allows for acceleration of the refundable AMT credit up to 100% of the AMT credit to be refunded in tax year 2018. In connection with our analysis of the impact of the CARES Act, we have reclassified the refundable AMT credit of $3.4 million from long-term to short-term receivable and recorded no income tax effects on the other tax relief measures of the CARES Act. We continue to examine the elements of CARES Act and the impact they may have on our future business. Note 12 . Commitments and Contingencies 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 23 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 April 3, 2020 , we had outstanding purchase obligations with our suppliers or contract manufacturers of $22.7 million . In addition, we had contractual obligations of approximately $2.1 million associated with software licenses as of 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 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 April 3, 2020 , we had commercial commitments of $57.7 million outstanding that were not recorded on our unaudited condensed consolidated balance sheets. We do not believe, based on historical experience and information currently available, that it is probable that any significant amounts will be required to be paid on the performance guarantees in the future. Indemnifications Under the terms of substantially all of our license agreements, we have agreed to defend and pay any final judgment against our customers arising from claims against such customers that our products infringe the intellectual property rights of a third party. As of 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 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 24 litigation and/or substantial settlement charges. As a result, our business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from our estimates, if any. We record accruals for our outstanding legal proceedings, investigations or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. We have not recorded any accrual for loss contingencies associated with such legal claims or litigation discussed above. Contingent Liabilities We record a loss contingency as a charge to operations when (i) it is probable that an asset has been impaired or a liability has been incurred at the date of the unaudited condensed consolidated financial statements; and (ii) the amount of the loss can be reasonably estimated. Disclosure in the Notes to the unaudited condensed consolidated financial statements is required for loss contingencies that do not meet both those conditions if there is a reasonable possibility that a loss may have been incurred. Gain contingencies are not recorded until realized. We expense all legal costs incurred to resolve regulatory, legal, and tax matters as incurred. Periodically, we review the status of each significant matter to assess the potential financial exposure. If a potential loss is considered probable and the amount can be reasonably estimated, we reflect the estimated loss in our unaudited condensed consolidated statement of operations. Significant judgment is required to determine the probability that a liability has been incurred or an asset impaired and whether such loss is reasonably estimable. Further, estimates of this nature are highly subjective, and the final outcome of these matters could vary significantly from the amounts that have been included in our unaudited condensed consolidated financial statements. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise estimates accordingly. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position. 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. 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 situation and preparing for implications to our business, supply chain and 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 various locations around the world and are not necessary indicative of the results for the full year. 25 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.