AVIAT NETWORKS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q, including “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, including statements of, about, concerning or regarding: our plans, strategies and objectives for future operations, including with respect to growing our business and sustaining profitability; our restructuring efforts; our research and development efforts and new product releases and services; trends in revenue; drivers of our business and the markets in which we operate; future economic conditions, performance or outlook, and changes in our industry and the markets we serve; the outcome of contingencies; the value of our contract awards; beliefs or expectations; the sufficiency of our cash and our capital needs and expenditures; our intellectual property protection; our compliance with regulatory requirements and the associated expenses; expectations regarding litigation; our intention not to pay cash dividends; seasonality of our business; the impact of foreign exchange and inflation; taxes; and assumptions underlying any of the foregoing. Forward-looking statements may be identified by the use of forward-looking terminology, such as “anticipates,” “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “strategy,” “projects,” “targets,” “goals,” “seeing,” “delivering,” “continues,” “forecasts,” “future,” “predict,” “might,” “could,” “potential,” or the negative of these terms, and similar words or expressions. These forward-looking statements are based on estimates reflecting the current beliefs of the senior management of the Company. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various important factors, including those set forth in this document. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, but are not limited to, the following: • the impact of COVID-19 on our business, operations and cash flows; • continued price and margin erosion as a result of increased competition in the microwave transmission industry; • the impact of the volume, timing, and customer, product, and geographic mix of our product orders; • our ability to meet financial covenant requirements which could impact, among other things, our liquidity; • the timing of our receipt of payment for products or services from our customers; • our ability to meet projected new product development dates or anticipated cost reductions of new products; • our suppliers’ inability to perform and deliver on time as a result of their financial condition, component shortages, or other supply chain constraints; • customer acceptance of new products; • the ability of our subcontractors to timely perform; • continued weakness in the global economy affecting customer spending; 26 • retention of our key personnel; • our ability to manage and maintain key customer relationships; • uncertain economic conditions in the telecommunications sector combined with operator and supplier consolidation; • our failure to protect our intellectual property rights or defend against intellectual property infringement claims by others; • the results of our restructuring efforts; • the ability to preserve and use our net operating loss carryforwards; • the effects of currency and interest rate risks; • the effects of current and future government regulations, including the effects of current restrictions on various commercial and economic activities in response to the COVID-19 pandemic; • g eneral economic conditions, including uncertainty regarding the timing, pace and extent of an economic recovery in the United States and other countries where we conduct business; • the conduct of unethical business practices in developing countries; • the impact of political turmoil in countries where we have significant business; and • our ability to implement our stock repurchase program or that it will enhance long-term stockholder value. Other factors besides those listed here also could adversely affect us. See “Item 1A. Risk Factors” in our fiscal 2019 Annual Report on Form 10-K filed with the SEC on August 27, 2019 for more information regarding factors that may cause our results to differ materially from those expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. Forward-looking statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), along with provisions of the Private Securities Litigation Reform Act of 1995, and we expressly disclaim any obligation, other than as required by law, to update any forward-looking statements to reflect further developments or information obtained after the date of filing of this Quarterly Report on Form 10-Q or, in the case of any document incorporated by reference, the date of that document. Overview of Business; Operating Environment and Key Factors Impacting Fiscal 2020 and 2019 Results The following Management’s Discussion and Analysis (MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and the accompanying notes. In the discussion herein, our fiscal year ending July 3, 2020 is referred to as “fiscal 2020 ” or “ 2020 ” and our fiscal year ended June 28, 2019 is referred to as “fiscal 2019 ” or “ 2019 .” Overview We anticipate our overall revenue in fiscal 2020 to be higher in North America barring any unforeseen impacts from customers budgets and timelines and the ability to execute field services, offset by lower revenue from our international regions , compared to fiscal 2019 . This expectation is based on actual order volumes in fiscal 2019 and our observation of customer spending patterns to date during fiscal 2020. In the first nine months of fiscal 2020, we added to the backlog we had entering fiscal 2020 for our North America private network projects and we anticipate continuing momentum across these verticals. We have made inroads into the U.S. rural broadband and wireless internet service provider areas and there is evidence now of investment to support 5G deployments with our U.S. service provider customers. Internationally, we take a more conservative view of our revenue opportunity based on a variety of factors that have led to an overall capital spending decline and increased competitive intensity, especially from vendors based in China. While there is an attractive pipeline of international revenue opportunity, it has less clarity on timing and we are maintaining our lower international expectations with respect to fiscal 2020. 27 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 has had and is likely to continue to 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 offsite have been instructed to work from home. Our manufacturing sites remain operational, and we are maintaining social distancing and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate. The impact to our supply chain lead times and ability to fulfill orders was minimal for the three months ended April 3, 2020. However, depending on pandemic-related factors like the uncertain duration of temporary manufacturing restrictions as well as our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods. We are monitoring, assessing and adapting to the 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. Operations Review The market for mobile backhaul continues to be our primary addressable market segment globally in fiscal 2020. In North America, we supported long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers. In international markets, our business continued to rely on a combination of customers increasing their capacity to handle subscriber growth, the ongoing build-out of some large 3G deployments, and LTE deployments. We continue to support our customers for 5G and LTE readiness and ensure that our technology roadmap is well aligned with evolving market requirements. We continue to find that our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets. However, as disclosed above and in the “Risk Factors” section in Item 1A of our fiscal 2019 Annual Report on Form 10-K, a number of factors could prevent us from achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we service, including the ongoing effects of the COVID-19 pandemic. Revenue We manage our sales activities primarily on a geographic basis in North America and three international geographic regions: (1) Africa and the Middle East, (2) Europe and Russia, and (3) Latin America and Asia Pacific. The three and nine months ended April 3, 2020 consisted of an additional week compared to the same periods of fiscal 2019. Revenue by region for the three and nine months ended April 3, 2020 and March 29, 2019 and the related changes were as follows: Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change North America $ 37,250 $ 28,581 $ 8,669 30.3 % $ 113,489 $ 93,660 $ 19,829 21.2 % Africa and the Middle East 9,230 11,079 (1,849 ) (16.7 )% 28,679 39,058 (10,379 ) (26.6 )% Europe and Russia 1,903 3,326 (1,423 ) (42.8 )% 7,728 10,271 (2,543 ) (24.8 )% Latin America and Asia Pacific 12,996 11,051 1,945 17.6 % 26,094 36,640 (10,546 ) (28.8 )% Total revenue $ 61,379 $ 54,037 $ 7,342 13.6 % $ 175,990 $ 179,629 $ (3,639 ) (2.0 )% Our revenue in North America increased by $8.7 million , or 30.3% , during the third quarter of fiscal 2020 compared with the same period of fiscal 2019 . Revenue in North America increased by $19.8 million , or 21.2% , during the first nine months 28 of fiscal 2020 compared with the same period of fiscal 2019 . The increase in North America revenue during the three and nine months of fiscal 2020 was due to an increase in private network projects as well as an increase in mobile operator sales compared to fiscal 2019 . Our revenue in Africa and the Middle East decreased by $1.8 million , or 16.7% , for the third quarter of fiscal 2020 compared with the same period of fiscal 2019 . Revenue in Africa and the Middle East decreased by $10.4 million , or 26.6% , during the first nine months of fiscal 2020 compared with the same period of fiscal 2019 . The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region. Revenue in Europe and Russia decreased by $1.4 million , or 42.8% , for the third quarter of fiscal 2020 compared with the same period of fiscal 2019 . Revenue in Europe and Russia decreased by $2.5 million , or 24.8% , during the first nine months of fiscal 2020 compared with the same period of fiscal 2019 . The decrease was due to lower sales to mobile operator customers in the region. Revenue in Latin America and Asia Pacific increased by $1.9 million , or 17.6% , during the third quarter of fiscal 2020 compared with the same period of fiscal 2019 . The increase came from additional sales to mobile customers in fiscal 2020. Revenue in Latin America and Asia Pacific decreased by $10.5 million , or 28.8% , during the first nine months of fiscal 2020 compared with the same period of fiscal 2019 . The decrease was due to lower sales to mobile operator customers in the region. Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Product sales $ 40,930 $ 34,615 $ 6,315 18.2 % $ 111,676 $ 115,696 $ (4,020 ) (3.5 )% Services 20,449 19,422 1,027 5.3 % 64,314 63,933 381 0.6 % Total revenue $ 61,379 $ 54,037 $ 7,342 13.6 % $ 175,990 $ 179,629 $ (3,639 ) (2.0 )% Our revenue from product sales increased by $6.3 million , or 18.2% , for the third quarter of fiscal 2020 compared with the same quarter of fiscal 2019 . Product sales increased compared to the same period in fiscal 2019 in North America, offset in part by a small decrease in international sectors. Our services revenue increased by $1.0 million , or 5.3% , during the third quarter of fiscal 2020 compared with the same period of fiscal 2019 . Higher North America service sales were offset in part by lower service sales in international sectors relative to fiscal 2019. During the three months ended December 27, 2019, our product revenue was adversely impacted by a cyberattack at one of our contract manufacturing vendors, which constrained capacity by approximately three weeks and led to lower than expected results. The shortfall in product revenue related to the three months ended December 27, 2019 was recognized in the third quarter of fiscal 2020. Our revenue from product sales decreased by $4.0 million , or 3.5% , for the first nine months of fiscal 2020 compared with the same period of fiscal 2019 . Increased product sales in North America were offset by a larger volume decrease in international sectors compared to the same period in fiscal 2019 . Our services revenue increased by $0.4 million , or 0.6% , during the first nine months of fiscal 2020 compared with the same period of fiscal 2019 . Increased sales in N orth America were offset by a decrease in international sectors sales compared to the same period in fiscal 2019 . Gross Margin Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Revenue $ 61,379 $ 54,037 $ 7,342 13.6 % $ 175,990 $ 179,629 $ (3,639 ) (2.0 )% Cost of revenue 39,418 37,782 1,636 4.3 % 113,154 122,959 (9,805 ) (8.0 )% Gross margin $ 21,961 $ 16,255 $ 5,706 35.1 % $ 62,836 $ 56,670 $ 6,166 10.9 % % of revenue 35.8 % 30.1 % 35.7 % 31.5 % Product margin % 39.7 % 31.5 % 38.7 % 33.7 % Service margin % 27.9 % 27.6 % 30.5 % 27.6 % Gross margin for the third quarter of fiscal 2020 increased by $5.7 million , or 35.1% compared with the same quarter of fiscal 2019 . Our gross margin increased from the same period last year primarily due to a shift in product sales toward higher margin markets. Gross margin for the first nine months of fiscal 2020 increased by $6.2 million , or 10.9% primarily due to a 29 higher volume of business in higher margin markets and higher margin rates for certain projects, offset in part by increased supply chain costs. Product margin as a percentage of product revenue increased in the third quarter of fiscal 2020 compared with the same period of fiscal 2019 primarily due to a shift in product sales toward higher margin markets. Service margin as a percentage of service revenue increased slightly in the third quarter of fiscal 2020 compared with the same period in fiscal 2019 . Product margin as a percentage of product revenue improved in the first nine months of fiscal 2020 , compared with the same period of fiscal 2019 due to higher volume of business in higher margin markets. This increase was offset in part by increased supply chain costs. Service margin as a percentage of service revenue improved in the first nine months of fiscal 2020 compared with the same period of fiscal 2019 primarily due to higher margin rates for certain projects. Research and Development Expenses Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Research and development $ 4,875 $ 5,350 $ (475 ) (8.9 )% $ 15,069 $ 15,603 $ (534 ) (3.4 )% % of revenue 7.9 % 9.9 % 8.6 % 8.7 % Our research and development expenses decreased by $0.5 million , or 8.9% , in the third quarter of fiscal 2020 compared with the same period of fiscal 2019 . Our research and development expenses decreased by $0.5 million, or 3.4%, for the first nine months of fiscal 2020 compared to the same period of fiscal 2019 . These decreases were primarily due to timing and consolidation of product development activities, offset in part by payroll costs related to an extra calendar week in the three and nine months of fiscal 2020 calendar, compared to the same periods of fiscal 2019. Selling and Administrative Expenses Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Selling and administrative $ 15,233 $ 13,408 $ 1,825 13.6 % $ 44,334 $ 41,405 $ 2,929 7.1 % % of revenue 24.8 % 24.8 % 25.2 % 23.1 % Our selling and administrative expenses increased by $1.8 million , or 13.6% , in the third quarter of fiscal 2020 compared with the same period in fiscal 2019 . Our selling and administrative expenses increased by $2.9 million , or 7.1% , in the first nine months of fiscal 2020 compared with the same period in fiscal 2019 . These increases were primarily related to payroll costs related to an extra calendar week in the three and nine months of fiscal 2020 calendar, higher variable compensation and other legal-related costs, compared to the same periods of fiscal 2019. Restructuring Charges Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Restructuring charges $ 617 $ — $ 617 — % $ 2,175 $ 796 $ 1,379 173.2 % During the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) in order to continue to reduce its operating costs and improve profitability to optimize its business model and increase efficiencies. We recorded restructuring charges of $0.6 million related to the Q3 2020 Plan in the third quarter of fiscal 2020. 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 and, right size our resources to support our international business and other support functions. We recorded restructuring charges of $1.7 million related to the Fiscal 2020 Plan in the nine months ended April 3, 2020. Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021. 30 Interest Income, Interest Expense and Other (Expense) Income, Net Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Interest income $ 112 $ 73 $ 39 53.4 % $ 318 $ 167 $ 151 90.4 % Interest expense $ (19 ) $ (7 ) $ (12 ) 171.4 % $ (23 ) $ (88 ) $ 65 (73.9 )% Other (expense) income, net $ — $ (1 ) $ 1 — % $ — $ (1 ) $ 1 — % Interest income reflected interest earned on our cash equivalents which were comprised of money market funds and bank certificates of deposit. Interest expense was primarily related to interest associated with borrowings under the SVB Credit Facility. Income Taxes Three Months Ended Nine Months Ended (In thousands, except percentages) April 3, 2020 March 29, 2019 $ Change % Change April 3, 2020 March 29, 2019 $ Change % Change Income (loss) before income taxes $ 1,329 $ (2,438 ) $ 3,767 (154.5 )% $ 1,553 $ (1,056 ) $ 2,609 (247.1 )% Provision for (benefit from) income taxes $ 598 $ (6,777 ) $ 7,375 (108.8 )% $ 2,439 $ (6,955 ) $ 9,394 (135.1 )% We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances. The tax expense for the first nine months of fiscal 2020 was primarily due to tax expense related to profitable subsidiaries and a $0.4 million increase in our reserves for uncertain tax positions. During the first quarter of fiscal 2019, we recorded a net discrete tax benefit of $1.6 million for the release of valuation allowance on a deferred tax asset recorded for $1.9 million of refundable withholding tax credit to be received from the Department of Federal Revenue of Brazil, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction against the deferred tax for the withholding tax credit. 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. Liquidity, Capital Resources, and Financial Strategies Sources of Cash As of April 3, 2020 , our total cash and cash equivalents were $39.2 million . Approximately $21.4 million , or 54.6% , was held in the United States. The remaining balance of $17.8 million , or 45.4% , was held by entities outside the United States. Of the amount of cash and cash equivalents held by our foreign subsidiaries at April 3, 2020 , $17.4 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes. Operating Activities Cash provided by or used in operating activities is presented as net (loss) income adjusted for non-cash items and changes in operating assets and liabilities. Net cash provided by operating activities was $14.6 million for the first nine months of fiscal 2020 , compared to cash used in operating activities of $5.3 million for the first nine months of fiscal 2019 ; this difference was primarily related to a net change in deferred tax expense. The net contribution of non-cash items decreased cash by $6.8 million 31 and net changes in operating assets and liabilities increased cash by $9.3 million for the first nine months of fiscal 2020 as compared to the same period in fiscal 2019 . Changes in operating assets and liabilities resulted in a net increase of $9.3 million to cash for the first nine months of fiscal 2020 , compared to the same period in 2019 . Accounts receivable and unbilled costs fluctuate from period to period, depending on the amount, timing of sales and billing activities and cash collections. The fluctuations in accounts payable and accrued expenses were primarily due to the timing of liabilities incurred and managing timing of vendor payments. The change in inventories and in customer service inventories were primarily due to demand and our focus on inventory management. The increase in customer advance payments and unearned revenue was due to the timing of payment from customers and revenue recognition. We used $1.7 million in cash during the first nine months of fiscal 2020 on expenses related to restructuring liabilities. Investing Activities Net cash used in investing activities was $3.9 million and $4.1 million for the first nine months of fiscal 2020 and 2019 , respectively, which consisted of capital expenditures. During the remainder of fiscal year 2020 , we expect to spend approximately $1.4 million for capital expenditures, primarily on equipment for development and manufacturing of new products and to support customer managed services. Financing Activities Financing cash flows consist primarily of proceeds and repayments of short-term debt, repurchase of stock and proceeds from sale of share of common stock through employee equity plans. Net cash used in financing activities was $2.5 million for the first nine months of fiscal 2020 , primarily due to $1.8 million for repurchases of our common stock and a $0.8 million payment for taxes related to the net settlement of equity awards. As of April 3, 2020 , our principal sources of liquidity consisted of $39.2 million in cash and cash equivalents; $14.5 million of available credit under our $25.0 million SVB Credit Facility and future collections of receivables from customers. On May 4, 2020, we entered into Amendment No. 3 to Third Amended and Restated Loan and Security Agreement which extended the expiration date to June 28, 2021. We regularly require letters of credit from certain customers, and, from time to time, these letters of credit are discounted without recourse shortly after shipment occurs in order to meet immediate liquidity requirements and to reduce our credit and sovereign risk. Historically, our primary sources of liquidity have been cash flows from operations and credit facilities. We believe that our existing cash and cash equivalents, the available line of credit under the SVB Credit Facility, and future cash collections from customers will be sufficient to provide for our anticipated requirements for working capital and capital expenditures for at least the next 12 months. 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. In addition, there can be no assurance that our business will generate cash flow from operations, that we will be in compliance with the quarterly financial covenants contained in the SVB Credit Facility, that we will have a sufficient borrowing base under such facility, or that anticipated operational improvements will be achieved. If we are not in compliance with the financial covenants or do not have sufficient eligible accounts receivable to support our borrowing base, our borrowing base under the SVB Credit Facility may be diminished. Over the longer term, if we are unable to maintain cash balances or generate sufficient cash flow from operations to service our obligations that may arise in the future, we may be required to sell assets, reduce capital expenditures, or obtain financing. If we need to obtain additional financing, we cannot be assured that it will be available on favorable terms, or at all. Our ability to make scheduled principal payments or pay interest on or refinance any future indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the microwave communications market and to general economic, political, financial, competitive, legislative, and regulatory factors beyond our control such as COVID-19. As of April 3, 2020 , we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility. The $9.0 million borrowing was classified as a current liability as of April 3, 2020 and June 28, 2019 . In addition, we have an uncommitted short-term line of credit of $0.3 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for $0.2 million in short-term advances at various interest rates, all of which was available as of 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 facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee. 32 Restructuring Payments We had liabilities for restructuring activities totaling $1.8 million as of April 3, 2020 , $1.5 million of which was classified as current liabilities and expected to be paid out in cash over the next 12 months. We expect to fund these future payments with available cash and cash provided by operations. Contractual Obligations The amounts disclosed in our fiscal 2019 Annual Report on Form 10-K filed with the SEC on August 27, 2019 include our commercial commitments and contractual obligations. During the first nine months of fiscal 2020 , no material changes occurred in our contractual obligations to purchase goods and services or to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal 2019 Annual Report on Form 10-K. Off-Balance Sheet Arrangements As of April 3, 2020 , we had commercial commitments of $57.7 million . Please refer to “Note 12 Commitments and Contingencies” of the Notes to unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q for Contractual Obligations and Off-Balance Sheet Arrangements. Critical Accounting Estimates For information about our critical accounting estimates, see the “Critical Accounting Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our fiscal 2019 Annual Report on Form 10-K other than for the impact of adopting new lease accounting standards. Please refer to “Note 4 Leases” of the Notes to unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.