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Item 7. Management’s Discussion and Analysis

2020-08-27 compared with 2019-08-27 · 228 added, 152 removed, 263 unchanged (59% of the section changed)

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In the discussion below, our fiscal year ending July 2, 2021 is referred to as “fiscal 2021” or “2021”;

our fiscal year ended June 28, 2019 is referred to as “fiscal 2019 ” or “ 2019 ”;

our fiscal year ended July 3, 2020 is referred to as “fiscal 2020” or “2020”;

our fiscal year ended June 28, 2019 is referred to as “fiscal 2019” or “2019”;

and our fiscal year ended June 30, 2017 is referred to as “fiscal 2017 ” or “ 2017 .”

We anticipate our overall revenue in fiscal 2020 to be higher in North America, offset by lower revenue from our international regions.

This expectation is based on actual order volumes in fiscal 2019 and our observation of customer spending patterns going into fiscal 2020.

and our fiscal year ended June 29, 2018 is referred to as “fiscal 2018” or “2018.” Our fiscal year ends on the Friday nearest to June 30.

Fiscal 2020 presented included 53 weeks while fiscal 2019 and fiscal 2018 each included 52 weeks.

This one extra week has impacted both our fiscal 2020 revenue and expenses.

We anticipate modest growth in revenue in fiscal 2021.

We have a healthy backlog entering fiscal 2021 for North America private network projects and we anticipate continuing our strong 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.

rural broadband and wireless internet service provider areas and there is further evidence now of investment to support 5G deployments with our U.S.

service provider customers.

Internationally, we are taking 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 consequently lessening our international expectations with respect to fiscal 2020.

Internationally, we are continuing 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.

Operations Review

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Revenue by region for fiscal 2020, 2019 and 2018 and the related changes are shown in the table below:

Fiscal Year $ Change % Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

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Total Revenue $ 238,642 $ 243,858 $ 242,506 $ (5,216) $ 1,352 (2.1) % 0.6 %

During fiscal 2019, we recognized revenue based on Accounting Standard Codification (“ASC”) 606 but revenue for fiscal 2018 was recognized based on ASC 605.

During fiscal 2020 and 2019, we recognized revenue based on Accounting Standards Codification (“ASC”) 606 but revenue for fiscal 2018 was recognized based on ASC 605.

Therefore, the periods are not directly comparable.

For additional information regarding the impact of ASC 606 on our revenue, please refer to “Note 3, Revenue Recognition” of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

See “Critical Accounting Estimates—Revenue Recognition” in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on our revenue recognition.

Our revenue from North America increased by $18.8 million, or 14.2%, in fiscal 2020 compared with fiscal 2019.

The increase in North America revenue during fiscal 2020 was due to revenue growth with private network customers, as well as increased sales to mobile operators.

Revenue from North America increased $1.8 million, or 1.4%, in fiscal 2019 compared with fiscal 2018.

The increase in North America revenue during fiscal 2019 was due to stronger order flow from private network customers.

overcoming a small decrease in orders from mobile operators.

Revenue from North America decreased $1.0 million , or 0.8% , in fiscal 2018 compared with fiscal 2017 .

While our overall North America revenue was nearly flat, the decrease during fiscal 2018 was due to our private networks customers.

Our revenue from Africa and the Middle East decreased by $10.7 million, or 22.2%, in fiscal 2020 compared with fiscal 2019.

The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region and completion of a large Middle East project in fiscal 2018 that was not repeated in fiscal 2019 .

The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region.

Revenue from Africa and the Middle East decreased $10.2 million, or 17.4%, in fiscal 2019 compared with fiscal 2018.

While we saw substantial revenue from a long running Middle East project during fiscal 2018, our sales to major African customers declined.

The decrease in revenue was primarily due to decreased sales to our large mobile operator customers in the region and completion of a one-time large Middle East project in fiscal 2018.

Revenue from Europe and Russia decreased by $5.8 million, or 34.1%, in fiscal 2020 compared with fiscal 2019.

The decrease was due to lower sales to mobile and private network customers in the region.

Revenue in Europe and Russia increased $4.1 million , or 28.9% , in fiscal 2018 compared with fiscal 2017 .

The increase during fiscal 2018 was due to the addition of a mobile network operator customer in the region which boosted our revenues compared to the prior year.

Revenue from Latin America and Asia Pacific increased by $11.0 million , or 31.6% , in fiscal 2019 compared with fiscal 2018 .

The decrease was due to lower sales to mobile operator customers, offset in part by increased sales to private network customers in the region.

Revenue in Europe and Russia decreased $1.3 million, or 7.0%, in fiscal 2019 compared with fiscal 2018.

The decrease during fiscal 2019 was due to lower sales to mobile and private network customers in the region.

Revenue from Latin America and Asia Pacific decreased by $7.6 million, or 16.5%, in fiscal 2020 compared with fiscal 2019.

The decrease was primarily due to lower sales volume from certain mobile operator customers in Asia Pacific offset in part by increased revenue in Latin America.

Revenue from Latin America and Asia-Pacific increased $11.0 million, or 31.6%, in fiscal 2019 compared with fiscal 2018.

The increase was primarily due to higher sales volume from certain mobile operator customers in Asia Pacific.

Revenue from Latin America and Asia-Pacific decreased $0.8 million , or 2.1% , in fiscal 2018 compared with fiscal 2017 .

Increased sales in the Asia Pacific region during fiscal 2018 were offset by decreased sales in Latin America.

Fiscal Year $ Change % Change

(In thousands, except percentages)

2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

Product sales

$ 153,793 $ 156,724 $ 151,685 $ (2,931) $ 5,039 (1.9) % 3.3 %

84,849 87,134 90,821 (2,285) (3,687) (2.6) % (4.1) %

Total Revenue

Our revenue from product sales increased by $5.0 million , or 3.3% , in fiscal 2019 compared with fiscal 2018 .

$ 238,642 $ 243,858 $ 242,506 $ (5,216) $ 1,352 (2.1) % 0.6 %

Our revenue from product sales decreased by $2.9 million, or 1.9%, in fiscal 2020 compared with fiscal 2019.

Product volume decreased with customers in international markets and was offset in part by increased product sales in North America.

Our services revenue decreased by $2.3 million, or 2.6%, in fiscal 2020 compared with fiscal 2019.

Decreased sales in international markets were offset in part by increased sales in North America.

Our revenue from product sales increased $5.0 million, or 3.3%, in fiscal 2019 compared with fiscal 2018.

Product volume increased primarily with mobile operators in Asia Pacific and a small increase in North America offsetting volume reductions in the other regions compared with fiscal 2018.

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Decreased sales in Africa and the Middle East were offset in part by increased sales in other regions.

Our revenue from product sales decreased $1.8 million , or 1.2% , in fiscal 2018 compared with fiscal 2017 .

Product sales were weaker in all markets during fiscal 2018, with the exceptions of the Middle East, Europe and Asia Pacific.

We experienced a gain in Europe mainly due to the addition of a new mobile operator customer during fiscal 2018.

The increase was offset by decreases in Africa, North America and Latin America as compared to fiscal 2017 .

Our services revenue increased $2.5 million , or 2.8% , in fiscal 2018 compared with fiscal 2017 due to increased sales in the Middle East, Europe and North America.

Fiscal Year $ Change % Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

Revenue $ 238,642 $ 243,858 $ 242,506 $ (5,216) $ 1,352 (2.1) % 0.6 %

Cost of revenue 153,946 164,588 162,003 (10,642) 2,585 (6.5) % 1.6 %

Gross margin $ 84,696 $ 79,270 $ 80,503 $ 5,426 $ (1,233) 6.8 % (1.5) %

% of revenue 35.5 % 32.5 % 33.2 %

Product margin % 38.0 % 33.9 % 34.0 %

Service margin % 30.9 % 29.9 % 31.9 %

Gross margin for fiscal 2019 decreased by $1.2 million , or 1.5% , compared with fiscal 2018 .

Gross margin for fiscal 2020 increased by $5.4 million, or 6.8%, compared with fiscal 2019.

Gross margin as a percentage of revenue for fiscal 2020 increased to 35.5%, compared with 32.5% in fiscal 2019, primarily due to higher

margin rates for product sales and implementation of cost savings initiatives.

The increased volume of product sales in North America, which generally has a higher gross margin compared to international, contributed most of the overall gross margin improvement in fiscal 2020.

Gross margin for fiscal 2019 decreased $1.2 million, or 1.5%, compared with fiscal 2018.

Gross margin as a percentage of revenue for fiscal 2019 decreased to 32.5%, compared with 33.2% in fiscal 2018, primarily due to lower margin rates for services.

Service margin as a percentage of service revenue declined in fiscal 2019 compared to fiscal 2018, primarily due to decreased margins in North America, the Middle East and Africa.

Gross margin for fiscal 2018 increased $5.0 million , or 6.7% , compared with fiscal 2017 .

Gross margin as a percentage of revenue for fiscal 2018 improved to 33.2% , compared with 31.2% in fiscal 2017 .

Gross margin improvement was primarily due to improved sales margin rates from both product and service businesses due to improvements in service delivery performance and product mix.

Product margin as a percentage of product revenue and service margin as a percentage of revenue increased over the same period in fiscal 2017 largely due to improved margins in the Middle East and Africa.

Research and Development Expenses

Fiscal Year $ Change % Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

Research and development expenses

Our R&D expenses increased by $1.4 million , or 6.9% , in fiscal 2019 compared with fiscal 2018 .

The increase was primarily due to increased development activity on new product lines.

$ 19,284 $ 21,111 $ 19,750 $ (1,827) $ 1,361 (8.7) % 6.9 %

% of revenue 8.1 % 8.7 % 8.1 %

Our research and development (“R&D”) expenses decreased by $1.8 million, or 8.7%, in fiscal 2020 compared with fiscal 2019.

The decrease was primarily due to consolidation of product development, lower variable compensation and costs reduction initiatives associated with COVID-19, offset in part by expenses associated with one extra week in our fiscal 2020 calendar.

Our R&D expenses increased $1.4 million, or 6.9%, in fiscal 2019 compared with fiscal 2018.

The increase in R&D expenses was primarily due to a $0.9 million increase in salaries and benefits as a result of foreign exchange, and a $0.2 million increase in professional services and material spending .

We continue to invest in new product features, new functionality and lower cost platforms that we believe will enable our product lines to retain their technology leads in a cost-effective manner.

The increase was primarily due to increased development activity on new product lines.

Selling and Administrative Expenses

Fiscal Year $ Change % Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

Selling and administrative expenses

Our selling and administrative expenses decreased by $2.1 million , or 3.6% , in fiscal 2019 compared with fiscal 2018 .

$ 57,985 $ 56,055 $ 58,157 $ 1,930 $ (2,102) 3.4 % (3.6) %

% of revenue 24.3 % 23.0 % 24.0 %

Our selling and administrative expenses increased by $1.9 million, or 3.4%, in fiscal 2020 compared with fiscal 2019.

The increase was primarily due to higher variable compensation and expenses associated with one extra week in our fiscal 2020 calendar, partially offset by cost reductions initiatives associated with COVID-19.

Our selling and administrative expenses decreased $2.1 million, or 3.6%, in fiscal 2019 compared with fiscal 2018.

The decrease was primarily due to lower variable compensation.

Our selling and administrative expenses increased $1.0 million , or 1.7% , in fiscal 2018 compared with fiscal 2017 .

The increase was primarily due to a $0.6 million increase in salaries and benefits as a result of foreign exchange and an increase of $0.8 million in sales commissions.

The increase was offset by a $0.6 million reduction in professional fees primarily associated with accounting, IT, legal, and marketing consulting services.

Restructuring Charges

During the fourth quarter of fiscal 2018, our Board approved a restructuring plan (the “Fiscal 2018-2019 Plan”) to consolidate back-office support functions and align resources by geography to lower our expense structure.

We completed the restructuring activities under the Fiscal 2018-2019 Plan at the end of fiscal 2019.

During the fourth quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q4 2020 Plan”) in order to continue to reduce our operating costs and improve profitability to optimize our business model and increase efficiencies.

The Q4 2020 Plan is being implemented starting with our fourth fiscal quarter of 2020 through the second fiscal quarter of 2021.

We recorded restructuring charges of $1.9 million related to the Q4 2020 Plan in fiscal 2020.

Payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

During the third quarter of fiscal 2020, our Board of Directors approved a restructuring plan (the “Q3 2020 Plan”) in order to reduce our operating costs and improve profitability to optimize our business model and increase efficiencies.

We recorded restructuring charges of $0.6 million related to the Q3 2020 Plan in 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, 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.

During the fourth quarter of fiscal 2018, our Board of Directors approved a restructuring plan (the “Fiscal 2018-2019 Plan”) to consolidate back-office support functions and align resources by geography to lower our expense structure.

We completed the restructuring activities under the Fiscal 2018-2019 Plan at the end of fiscal 2019.

The remaining payments related to the accrued restructuring liability balance for this plan are expected to be fully paid in fiscal 2021.

Our restructuring charges by plan for fiscal 2020, 2019 and 2018 are summarized in the table below:

Fiscal Year $ Change % Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

Fiscal 2018-2019 Plan

Fiscal 2016-2017 Plan

Other prior years plans

Restructuring charges in fiscal 2019 of $0.7 million relates to employee severance and benefits to complete the Fiscal 2018-2019 Plan.

Restructuring charges for fiscal 2018 included $1.5 million of employee severance and benefits costs primarily related to the Fiscal 2018-2019 Plan and a reduction in the previously estimated accrual of $0.3 million .

Restructuring charges for fiscal 2017 included $0.4 million of employee severance and benefits costs primarily related to a fiscal 2016-2017 restructuring plan and a $0.2 million facility charge primarily consisting of headquarters moving costs.

Payments related to our accrued restructuring liability balances for the 2018-2019 Plan are expected to be fully paid in fiscal 2020.

Interest Income, Interest Expense and Other Expense

Q4 2020 Plan $ 1,879 $ — $ — $ 1,879 $ — N/A N/A

Q3 2020 Plan $ 595 $ — $ — $ 595 $ — N/A N/A

Fiscal 2020 Plan $ 1,725 $ — $ — $ 1,725 $ — N/A N/A

Fiscal 2018-2019 Plan $ (150) $ 736 $ 1,532 $ (886) $ (796) (120.4) % N/A

Fiscal 2016-2017 Plan — — (5) — 5 N/A (100.0) %

Other prior years plans — — (248) — 248 N/A (100.0) %

Total $ 4,049 $ 736 $ 1,279 $ 3,313 $ (543) 450.1 % (42.5) %

Restructuring charges in fiscal 2020 of $4.0 million relate to employee severance and benefits for the Q4 2020 Plan, Q3 2020 Plan and the Fiscal 2020 Plan.

Restructuring charges for fiscal 2019 included $0.7 million of employee severance and benefits costs related to the Fiscal 2018-2019 Plan.

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

Fiscal Year $ Change % Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018 2020/2019 2019/2018

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Interest expense (54) (102) (29) 48 (73) (47) % 252 %

Other income (expense), net

Other income (expense), net — 17 (220) (17) 237 N/A N/A

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

Interest expense was primarily related to interest associated with borrowings under our Silicon Valley Bank (“SVB”) credit facility and discounts on customer letters of credit.

Other expense included $0.2 million and $0.3 million in fiscal 2018 and 2017, respectively, related to the foreign exchange loss on a dividend declared by our Nigeria entity (a partnership for U.S.

Other expense in fiscal 2018 included $0.2 million related to the foreign exchange loss on a dividend declared by our Nigeria entity (a partnership for U.S.

tax purposes) to our Aviat U.S.

entity which was caused by a significant devaluation of the Nigerian Naira in June 2016.

Other income in fiscal 2017 included a $0.3 million foreign currency translation gain reclassified from accumulated other comprehensive loss upon liquidation of a dormant foreign legal entity.

Fiscal Year $ Change

(In thousands, except percentages) 2020 2019 2018 2020/2019 2019/2018

Income (loss) before income taxes

(Benefit from) provision for income taxes

As % of income (loss) before income taxes

Our (benefit from) provision for income taxes was $8.2 million of benefit for fiscal 2019, $1.0 million of benefit for fiscal 2018 and $16 thousand of expense for fiscal 2017.

Income before income taxes

$ 3,709 $ 1,550 $ 1,266 $ 2,159 $ 284

Provision for (benefit from) income taxes 3,452 (8,188) (1,036) 11,640 (7,152)

As % of income before income taxes

93.1 % (528.3) % (81.8) %

Our provision for (benefit from) income taxes was $3.5 million of expense for fiscal 2020, $8.2 million of benefit for fiscal 2019 and $1.0 million of benefit for fiscal 2018.

The tax expense for fiscal 2020 was primarily due to tax expense related to profitable foreign subsidiaries and an increase in our reserve for uncertain tax positions.

Our tax benefit for fiscal 2019 was primarily due to the release of certain U.S.

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This consisted of an income tax benefit of $1.9 million for the refundable withholding tax credit, less tax expense of $0.3 million from recognizing an ASC 740-10 reserve previously recorded as a reduction to the withholding tax credits.

During fiscal 2018, we received refund of $1.3 million from the Inland Revenue Authority of Singapore (“IRAS”) related to a $13.2 million tax assessment we paid in fiscal year 2014.

The tax refund was recorded as a discrete tax benefit during the year the payment was received.

During fiscal 2018, we recorded a valuation allowance release of $3.3 million related to refundable alternative minimum tax credit under the Tax Cuts and Jobs Act (the “2017 Tax Act”).

We expect to receive the refund of this tax benefit starting in our fiscal year 2021.

The 2017 Tax Act reduced the corporate tax rate from 35% to 21%, effective January 1, 2018.

Since we have a fiscal year end during the middle of the calendar year, we are subject to rules relating to transitional tax rates.

As a result, our fiscal 2018 federal statutory rate was a blended rate of 28.1%.

We expect to receive the refundable withholding tax credit during our fiscal year 2021.

Liquidity, Capital Resources and Financial Strategies

As of June 28, 2019 , our cash and cash equivalents and short-term investments totaled $31.9 million .

As of July 3, 2020, our cash and cash equivalents and short-term investments totaled $41.6 million.

Approximately $25.2 million, or 60.5%, was held in the United States.

The remaining balance of $16.4 million, or 39.5%, was held by entities outside the United States.

Of the amount of cash and cash equivalents held by our foreign subsidiaries at June 28, 2019 , $14.9 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Of the amount of cash and cash equivalents held by our foreign subsidiaries at July 3, 2020, $16.0 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 operating activities is presented as net income (loss) adjusted for certain non-cash items and changes in assets and liabilities.

Cash provided by operating activities is presented as net income adjusted for certain non-cash items and changes in assets and liabilities.

Net cash provided by operating activities was $17.5 million for fiscal 2020, $2.9 million for fiscal 2019 and $8.2 million for fiscal 2018.

For fiscal 2019 compared to fiscal 2018 , cash provided by operating activities declined by $5.3 million .

The net contribution of non-cash items to cash provided by operating activities decreased by $7.2 million and the net contribution of changes in operating assets and liabilities to cash provided by operating activities decreased by $5.5 million in fiscal 2019 as compared to fiscal 2018 .

The $7.2 million decrease in the net contribution of non-cash items to cash provided by operating activities was primarily due to a $5.6 million net change in deferred tax assets, a $0.7 million decrease in depreciation and amortization, a $0.6 million decrease in share based compensation, and a $0.3 million decrease from the recovery of an uncollectible receivable.

Changes in operating assets and liabilities resulted in a decrease of $5.5 million for fiscal 2019 compared to fiscal 2018 .

Accounts receivable and unbilled costs fluctuate from period to period, depending on the amount, timing of sales and billing activities and cash collections.

For fiscal 2020 compared to fiscal 2019, cash provided by operating activities increased by $14.5 million.

The net contribution of non-cash items to cash provided by operating activities increased by $9.3 million and the net contribution of changes in operating assets and liabilities to cash provided by operating activities increased by $10.3 million in fiscal 2020 as compared to fiscal 2019.

The $9.3 million increase in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $8.6 million net change in deferred tax assets.

Changes in operating assets and liabilities resulted in an increase of $10.3 million to cash provided by operating activities for fiscal 2020 compared to fiscal 2019.

Accounts receivable and unbilled costs fluctuate from period to period, depending on the amount and timing of sales and billing activities and cash collections.

The fluctuations in accounts payable and accrued expenses during fiscal 2020 were primarily due to the timing of liabilities incurred and vendor payments.

The change in inventories and in customer service inventories during fiscal 2019 were primarily due to demand, our focus on improving our inventory management, and the impact from the adoption of ASC 606.

The decrease in customer advance payments and unearned revenue during fiscal 2019 was due to the timing of payment from customers and revenue recognition.

The change in inventories and in customer service inventories during fiscal 2020 were primarily driven by forecasted demand and to secure component parts in shortage.

The increase in customer advance payments and unearned revenue during fiscal 2020 was due to the timing of payment from customers and revenue recognition.

We used $2.6 million in cash during fiscal 2020 on expenses related to restructuring liabilities.

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The $7.2 million decrease in the net contribution of non-cash items to cash provided by operating activities was primarily attributable to a $5.6 million net change in deferred tax assets, a $0.7 million decrease in depreciation and amortization and a $0.6 million decrease in share based compensation.

Investing Activities

Net cash used in investing activities was $4.6 million for fiscal year 2020, $5.2 million for fiscal 2019 and $6.3 million for fiscal 2018, which consisted primarily of capital expenditures.

For fiscal 2020 , we expect to spend approximately $5.0 million for capital expenditures, primarily on equipment for development and manufacturing of new products and to support customer managed services.

For fiscal 2021, we expect to spend between $5.0 million to $6.0 million for capital expenditures, primarily on equipment for development and manufacturing of new products and IT infrastructure.

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 $3.0 million for fiscal year 2019 primarily due to $2.3 million for the repurchases of our common stock and a $0.7 million payment for taxes related to the net settlement of equity awards.

Net cash provided by financing activities was $12,000 for fiscal 2018 and $21,000 for fiscal 2017 .

As of June 28, 2019 , our principal sources of liquidity consisted of the $31.9 million in cash, cash equivalents and short-term investments, $15.1 million of available credit under our $25.0 million credit facility with Silicon Valley Bank (“SVB Credit Facility”) which expires on June 29, 2020, and future collections of receivables from customers.

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.

Financing cash flows consist primarily of proceeds and repayments of short-term debt, repurchase of stock and proceeds from the sale of shares of common stock through employee equity plans.

Net cash used in financing activities was $2.5 million for fiscal year 2020, which was primarily attributable to $1.8 million for the repurchases of our common stock and a $0.8 million payment for taxes related to the net settlement of equity awards.

Net cash used by financing activities was $3.0 million for fiscal 2019 and net cash provided by financing activities was $12,000 for fiscal 2018.

As of July 3, 2020, our principal sources of liquidity consisted of the $41.6 million in cash and cash equivalents, $13.3 million of available credit under our $23.8 million credit facility with Silicon Valley Bank (“SVB Credit Facility”) which matures on June 28, 2021, and future collections of receivables from customers.

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.

Our SVB Credit Facility expires on June 29, 2020 .

While we intend and expect the SVB Credit Facility to be renewed, there can be no assurance that the SVB Credit Facility will be renewed.

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.

While we intend to continue to renew the SVB Credit Facility annually, there can be no assurance that the SVB Credit Facility will be renewed.

In addition, there can be no assurance that our business will generate cash flow from operations, that we will be in compliance with the quarterly financial covenants contained in the SVB Credit Facility, or that we will have a sufficient borrowing base under such facility.

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Available Credit Facility, Borrowings and Repayment of Debt

On June 10, 2019, we entered into Amendment No.

On May 4, 2020, we entered into Amendment No.

3 to Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank.

The SVB Credit Facility provides for a $23.8 million accounts receivable formula-based revolving credit facility that can be borrowed by the U.S.

company, with a $25.0 million sublimit that can be borrowed by our Singapore subsidiary.

company, with a $25.0 million sub-limit that can be borrowed by our U.S.

and Singapore entities.

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 all 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.

Availability under the accounts receivable formula-based revolving credit facility can also be utilized to issue letters of credit with a $12.0 million sub-limit.

We may prepay loans under the SVB Credit Facility in whole or in part at any time without premium or penalty.

As of June 28, 2019 , available credit under the SVB Credit Facility was $15.1 million reflecting the calculated borrowing base of $25.0 million less existing borrowings of $9.0 million and outstanding letters of credit of $0.9 million .

As of July 3, 2020, available credit under the SVB Credit Facility was $13.3 million reflecting the calculated borrowing base of $23.8 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, at our option, computed (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;

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During fiscal 2020, the weighted-average interest rate on our outstanding loan was 3.97%.

As of June 28, 2019 and June 29, 2018 , our outstanding debt balance under the SVB Credit Facility was $9.0 million , and the interest rate was 6.00% and 5.50% , respectively.

The SVB Credit Facility contains quarterly financial covenants including minimum adjusted quick ratio and minimum profitability (EBITDA) requirements.

In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with SVB may be directly applied to reduce outstanding obligations under the SVB Credit Facility.

As of July 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 monthly and quarterly financial covenants for minimum adjusted quick ratio and minimum profitability (EBITDA) requirements, respectively.

In the event our adjusted quick ratio falls below a certain level, cash received in our accounts with SVB 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, enter into a transaction resulting in 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.

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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 June 28, 2019 , we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility.

The $9.0 million borrowing was classified as a current liability as of June 28, 2019 and June 29, 2018 .

As of July 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 July 3, 2020 and June 28, 2019.

We repaid the $9.0 million in July 2020.

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”) 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”).

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, on May 5, 2020, we repaid the principal and interest on the PPP Loan.

We also obtained 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 in fiscal 2015.

This line of credit provides for $0.3 million in short-term advances at various interest rates, all of which was available as of 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 June 28, 2019 .

This line of credit provides for $0.2 million in short-term advances at various interest rates, all of which was available as of July 3, 2020.

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 July 3, 2020.

This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.

Restructuring Payments

We had liabilities for restructuring activities totaling $1.3 million as of June 28, 2019 , of which $1.1 million was classified as current liability and expected to be paid in cash over the next 12 months.

We had liabilities for restructuring activities totaling $2.7 million as of July 3, 2020, which was classified as current liability and expected to be paid 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 following table summarizes our contractual obligations and commitments as of June 28, 2019 :

The following table summarizes our contractual obligations and commitments as of July 3, 2020:

Obligations Due by Fiscal Year

(In thousands)

(In thousands) Total < 1 year 1 - 3 years 3 - 5 years > 5 years Other

Borrowings under credit facility $ 9,000 $ 9,000 $ — $ — $ — $ —

Purchase obligations (1)(4)

22,088 21,851 165 72 — —

Other purchase obligations (3)(4)

1,626 1,626 — — — —

Operating lease commitments 4,933 1,711 970 472 1,780 —

Reserve for uncertain tax positions (2)

5,759 — — — — 5,759

Total contractual cash obligations $ 43,406 $ 34,188 $ 1,135 $ 544 $ 1,780 $ 5,759

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We have entered into commercial commitments in the normal course of business including surety bonds, standby letters of credit and other arrangements with financial institutions and insurers primarily relating to the guarantee of future performance on certain tenders and contracts to provide products and services to customers.

As of June 28, 2019 , we had commercial commitments on outstanding surety bonds and standby letters of credit as follows:

As of July 3, 2020, we had commercial commitments on outstanding surety bonds and standby letters of credit as follows:

Expiration of Commitments by Fiscal Year

(In thousands)

(In thousands) Total 2021 2022 2023 After 2023

Standby letters of credit used for:

Bids $ 35 $ 35 $ — $ — $ —

Payment guarantees 781 781 — — —

Performance 686 555 131 — —

1,502 1,371 131 — —

Surety bonds used for:

Performance 53,389 51,907 1,482 — —

Payment guarantees 98 — — — 98

Tax bonds 2,247 8 2,239 — —

55,734 51,915 3,721 — 98

Total commercial commitments $ 57,236 $ 53,286 $ 3,852 $ — $ 98

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• any obligation, including a contingent obligation, under certain derivative instruments;

any obligation, including a contingent obligation, under a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

• any obligation, including a contingent obligation, arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

Currently we are not participating in transactions that generate relationships with unconsolidated entities or financial partnerships, including variable interest entities, and we do not have any material retained or contingent interest in assets as defined above.

As of June 28, 2019 , we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity.

As of July 3, 2020, we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect liquidity.

In addition, we are not currently a party to any related party transactions that materially affect our results of operations, cash flows or financial condition.

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We also enter into foreign exchange forward contracts to mitigate the change in fair value of specific non-functional currency assets and liabilities on the balance sheet.

All balance sheet hedges are marked to market through earnings every

All balance sheet hedges are marked to market through earnings every period.

Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities.

As of June 28, 2019 , we had two foreign currency forward contracts outstanding as follows:

Notional Contract Amount

(Local Currency)

As of July 3, 2020, we had three foreign currency forward contracts outstanding as follows:

Currency Notional Contract Amount

(Local Currency) Notional

(In thousands)

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British pound 600 742

Singapore dollar 300 216

Total of all currency forward contracts $ 1,601

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Amount included in costs of revenues $ 419 $ (664) $ 402

Amount included in other (expense) income

Total foreign exchange (loss) gain, net

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of June 28, 2019 would have an impact of approximately $0.1 million on the fair value of such instruments.

Amount included in other (expense) income, net — — (188)

Total foreign exchange gain (loss), net $ 419 $ (664) $ 214

A 10% adverse change in currency exchange rates for our foreign currency derivatives held as of July 3, 2020 would have an impact of approximately $0.2 million on the fair value of such instruments.

Certain of our international business are transacted in non-U.S.

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dollars is included as a component of stockholders’ equity.

As of June 28, 2019 and June 29, 2018 , the cumulative translation adjustment decreased our stockholders’ equity by $12.7 million and $12.6 million , respectively.

In 2017, we reclassified a $0.3 million foreign current translation gain from accumulated other comprehensive loss to other income (expense) upon liquidation of a dormant foreign legal entity.

As of July 3, 2020 and June 28, 2019, the cumulative translation adjustment decreased our stockholders’ equity by $15.2 million and $12.7 million, respectively.

Interest Rate Risk

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Exposure on Cash Equivalents and Short-term Investments

We had $31.9 million in total cash and cash equivalents and short-term investments as of June 28, 2019 .

Cash equivalents and short-term investments totaled $17.1 million as of June 28, 2019 and were comprised of money market funds and certificates of deposit.

We had $41.6 million in total cash and cash equivalents and short-term investments as of July 3, 2020.

Cash equivalents and short-term investments totaled $21.4 million as of July 3, 2020 and were comprised of money market funds and certificates of deposit.

Cash equivalents and short-term investments have been recorded at fair value on our balance sheets.

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Actual gains and losses due to the sale of our investments prior to maturity have been immaterial.

The investments held as of June 28, 2019 ,

had weighted-average days to maturity of 41 days, and an average yield of 7.63% per annum.

The investments held as of July 3, 2020, had weighted-average days to maturity of 40 days, and an average yield of 5.72% per annum.

A 10% change in interest rates on our cash equivalents and short-term investments is not expected to have a material impact on our financial position, results of operations or cash flows.

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Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.”

Revenue Recognition and Valuation of Accounts Receivable

ASC 606 Adoption

We recorded a net reduction to the opening balance of our accumulated deficit of $5.6 million as of June 30, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to our bill-and-hold and services revenue.

Our revenue was $243.9 million for fiscal 2019 under ASC 606, compared to $231.4 million under ASC 605.

The details of the significant changes and quantitative impact of our adoption of ASC 606 are set out below:

Revenue Recognition

Effective June 30, 2018, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, using the modified retrospective method applied to those contracts that were not completed as of June 29, 2018.

Results for the reporting periods after June 29, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605.

We recognize revenue by applying the following five-step approach:

(1) identification of the contract with a customer;

(2) identification of the performance obligations in the contract;

(3) determination of the transaction price;

(4) allocation of the transaction price to the performance obligations in the contract;

and (5) recognition of revenue when, or as, we satisfy a performance obligation.

Contracts and customers purchase orders are used to determine the existence of an arrangement.

Revenue from product sales, recognized at a point-in-time, is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes.

Printed circuit assemblies, mechanical housings, and packaged modules are manufactured by contract manufacturing partners, with periodic business reviews of material levels and obsolescence.

Product assembly, product testing, complete system integration, and system testing may either be performed within our own facilities or at the locations of our third-party manufacturers.

Revenue from services includes certain network planning and design, engineering, installation and commissioning, extended warranty, customer support, consulting, training, and education.

Maintenance and support services are generally offered to our customers and recognized over a specified period of time and from sales and subsequent renewals of maintenance and support contracts.

The network planning and design, engineering and installation related 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.

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

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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.

ASC 606 requires consideration of the indicators of when control has been transferred and sets forth additional criteria to be met in a bill-and-hold arrangement potentially resulting in revenue being recognized earlier than under ASC 605.

Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit consisting of bill-and-hold backlog of $10.5 million that will not be recognized as revenue under ASC 606, less related cost of product sales and income taxes, resulting in a net decrease to accumulated deficit of $1.7 million .

Professional Services Revenue:

We historically recognized certain professional services revenue upon completion under ASC 605 which changed to over time revenue recognition under ASC 606.

We use the input method based on costs incurred, where revenue is calculated based on the percentage of total costs incurred in relation to total estimated costs at completion of the contract.

The input method is reasonable because the costs incurred best reflect our efforts toward satisfying the performance obligation over time.

The use of the input method requires us to make reasonably dependable estimates.

Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $4.7 million that will not be recognized as revenue under ASC 606, less related cost of services and income taxes, resulting in a net decrease to accumulated deficit of $1.6 million .

Transfer of Control:

Certain of our contracts include penalties, acceptance provisions, or other price variability that precluded revenue recognition under ASC 605 because of the requirement for amounts to be fixed or determinable.

ASC 606 requires us to estimate and account for variable consideration as a reduction of the transaction price.

Upon adoption of ASC 606, we recorded a cumulative effect adjustment to June 30, 2018 opening accumulated deficit of $0.6 million that will not be recognized as revenue under ASC 606, less related cost of revenues and income taxes, resulting in a net decrease to accumulated deficit of $0.4 million .

In addition, revenue allocation under ASC 606 requires an allocation of revenue between deliverables, or performance obligations, within an arrangement.

Under ASC 605, the allocation of revenue was restricted to the amount which was not contingent on future deliverables;

however, ASC 606 removes this restriction.

Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.5 million .

Under ASC 605, we deferred revenue for stand-alone software licenses where vendor-specific objective evidence (VSOE) of fair value had not been established for undelivered items, and revenue was recognized straight line over the term of the maintenance agreement.

Under ASC 606, software revenue is allocated to delivered and undelivered elements based on relative fair value resulting in more software arrangement revenue being recognized earlier.

Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million .

Previously, we expensed the majority of our commission expense as incurred.

Under ASC 606, we capitalize and amortize incremental commission costs to obtain the contract over a benefit period.

We elected a practical expedient to exclude contracts with a benefit period of a year or less from this deferral requirement.

Upon adoption of ASC 606, we recorded a cumulative effect adjustment to decrease June 30, 2018 opening accumulated deficit by $0.7 million .

Termination Rights

The contract term is determined on the basis of the period over which the parties to the contract have present enforceable rights and obligations.

Certain customer contracts include a termination for convenience clause that allows the customer to terminate services without penalty, upon advance notification.

We concluded that the duration of support contracts does not extend beyond the non-cancellable portion of the contract.

Variable Consideration

The consideration associated with customer contracts is generally fixed.

Variable consideration includes discounts, rebates, refunds, credits, incentives, penalties, or other similar items.

The amount of consideration that can vary is not a substantial portion of total consideration.

Variable consideration estimates are 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 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 in our consolidated balance sheet as accrued expenses until paid.

Our amortization expense was not material for the fiscal year ended July 3, 2020.

Inventory Valuation and Provisions for Excess and Obsolete Losses

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Additionally, our estimates of future product demand may prove to be inaccurate, in which case the provision required for excess and obsolete inventory may be overstated or understated.

In the future, if we determine

that our inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our consolidated statement of operations at the time of such determination.

In the future, if we determine that our inventory is overvalued, we would be required to recognize such costs in cost of product sales and services in our consolidated statement of operations at the time of such determination.

In the case of goods which have been written down below cost at the close of a fiscal quarter, such reduced amount is considered the new lower cost basis for subsequent accounting purposes, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

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Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.

In the past, due to our U.S.

Prior to fiscal 2019, due to our U.S.

operating losses in previous years and continuing U.S.

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deferred tax assets.

While there has been a trend of positive evidence that has been strengthening in recent years, it was not sufficiently persuasive to outweigh the negative evidence in future periods.

While there had been a trend of positive evidence that had been strengthening in prior to fiscal 2019, it was not sufficiently persuasive to outweigh the negative evidence in future periods.

During the third quarter of fiscal 2019, we generated our third consecutive profitable year from a U.S.

pre-tax book income perspective.

Accordingly, we determined that it was more likely than not that we will

realize a portion of our U.S.

Accordingly, we determined that it was more likely than not that we would realize a portion of our U.S.

deferred tax assets, primarily relating to certain net operating loss carryforwards and current temporary differences.

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The negative evidence primarily relates to certain net operating loss carryforwards and credits that are expected to expire prior to utilization.

We believed that our positive evidence was strong.

We believed that our positive evidence was strong and continues to be strong in fiscal 2020.

The improved financial performance as it relates to U.S.

profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a number of factors which have been present to a greater or lesser extent in prior years but have only recently gathered sufficient weight to deliver objectively verifiable, consistent U.S.

pre-tax book profits.

profitability in recent years is an objectively verifiable piece of positive evidence and is the result of a number of factors which have been present to a greater or lesser extent in prior years but had only gathered sufficient weight to deliver objectively verifiable, consistent U.S.

pre-tax book profits in fiscal 2019.

In performing our analysis, we used the most updated plans and estimates that we currently use to manage the underlying business and calculated the utilization of our deferred tax assets.

Accordingly, during fiscal 2019, we released $7.5 million of valuation allowance as a discrete item on certain deferred tax assets.

Accordingly, during fiscal 2019, we released $7.5 million of U.S.

allowance as a discrete item on certain deferred tax assets.

The remaining valuation allowance relates to deferred tax assets, for which we believe it is not more likely than not to be realized in future periods.

We performed this analysis in fiscal 2020, which resulted in no additional U.S.

valuation allowance release.

The accounting estimates related to the liability for uncertain tax position require us to make judgments regarding the sustainability of each uncertain tax position based on its technical merits.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis