What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-08-27 compared with 2019-08-27 · 589 added, 403 removed, 769 unchanged (56% of the section changed)

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Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive (Loss) Income

Consolidated Balance Sheets

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The Company and Summary of Significant Accounting Policies

Net Income (Loss) per Share of Common Stock

Net Income per Share of Common Stock

Revenue Recognition

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Quarterly Financial Data (Unaudited)

Subsequent Event

Report of Independent Registered Public Accounting Firm

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Aviat Networks, Inc.

Milpitas, California:

Austin, Texas

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Aviat Networks, Inc.

(the “Company”) as of June 28, 2019 and June 29, 2018 , the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended June 28, 2019 , the related notes and the financial statement schedule - Valuation and Qualifying Accounts (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 28, 2019 and June 29, 2018 , and the results of its operations and its cash flows for each of the three years in the period ended June 28, 2019 , in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of July 3, 2020 and June 28, 2019, the related consolidated statements of operations, comprehensive (loss) income, equity, and cash flows for each of the three fiscal years in the period ended July 3, 2020, the related notes and the financial statement schedule - Valuation and Qualifying Accounts (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at July 3, 2020 and June 28, 2019, and the results of its operations and its cash flows for each of the three fiscal years in the period ended July 3, 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company has changed its accounting method for recognizing revenue from contracts with customers during the year ended June 28, 2019, due to the adoption of Topic 606, Revenue from Contracts With Customers.

As discussed in Note 1 and Note 4 to the consolidated financial statements, the Company has changed its accounting method for accounting for leases in fiscal year 2020 due to the adoption of Topic 842:

Leases, using a modified retrospective approach, and as discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue in fiscal year 2019 due to the adoption of Topic 606:

Revenue from Contracts with Customers.

Basis for Opinion

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Fiscal Year Ended

(In thousands, except per share amounts)

(In thousands, except per share amounts) July 3,

2020 June 28,

2019 June 29,

Revenue from product sales $ 153,793 $ 156,724 $ 151,685

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Total cost of revenues 153,946 164,588 162,003

Gross margin 84,696 79,270 80,503

Operating expenses:

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Total operating expenses 81,318 77,902 79,186

Operating income (loss)

Operating income 3,378 1,368 1,317

Interest income 385 267 198

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Other income (expense), net — 17 ( 220 )

Income (loss) before income taxes

(Benefit from) provision for income taxes

Net income (loss)

Income before income taxes 3,709 1,550 1,266

Provision for (benefit from) income taxes 3,452 ( 8,188 ) ( 1,036 )

Net income 257 9,738 2,302

Net income attributable to noncontrolling interest, net of tax — — 457

Net income (loss) attributable to Aviat Networks

Net income (loss) per share attributable to Aviat Networks:

Net income attributable to Aviat Networks $ 257 $ 9,738 $ 1,845

Net income per share:

Basic $ 0.05 $ 1.81 $ 0.35

Diluted $ 0.05 $ 1.73 $ 0.33

Weighted average shares outstanding:

Basic 5,391 5,377 5,336

Diluted 5,468 5,618 5,647

See accompanying Notes to Consolidated Financial Statements

AVIAT NETWORKS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Fiscal Year Ended

(In thousands)

Net income (loss)

(In thousands) July 3,

2020 June 28,

2019 June 29,

Net income $ 257 $ 9,738 $ 2,302

Other comprehensive loss:

Foreign currency translation:

Loss arising during period

Reclassification of gain on liquidation of subsidiary to other income

Net change in cumulative translation adjustment

Net change in cumulative translation adjustments ( 2,233 ) ( 131 ) ( 820 )

Other comprehensive loss ( 2,233 ) ( 131 ) ( 820 )

Comprehensive income (loss)

Comprehensive (loss) income ( 1,976 ) 9,607 1,482

Comprehensive income attributable to noncontrolling interests, net of tax — — 457

Comprehensive income (loss) attributable to Aviat Networks

Comprehensive (loss) income attributable to Aviat Networks $ ( 1,976 ) $ 9,607 $ 1,025

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

June 28, 2019

June 29, 2018

(In thousands, except share and par value amounts) July 3, 2020 June 28, 2019

Current Assets:

Cash and cash equivalents $ 41,618 $ 31,946

Restricted cash

Accounts receivable, net 44,661 51,937

Unbilled receivables 28,085 27,780

Inventories 13,997 8,573

Customer service inventories 1,234 936

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Deferred income taxes 12,799 13,864

Right of use assets 3,474 —

Other assets 6,667 12,077

TOTAL ASSETS $ 179,801 $ 169,193

LIABILITIES AND EQUITY

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Accrued expenses 26,920 22,555

Short-term lease liabilities 1,445 —

Advance payments and unearned revenue 21,872 13,962

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Unearned revenue 8,142 9,662

Long-term lease liabilities 2,303 —

Other long-term liabilities 401 820

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300,000,000 shares authorized;

5,359,695 and 5,351,155 shares issued and outstanding as of June 28, 2019 and June 29, 2018, respectively

5,400,487 and 5,359,695 shares issued and outstanding as of July 3, 2020 and June 28, 2019, respectively

Additional paid-in-capital 814,337 815,196

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Accumulated other comprehensive loss ( 14,969 ) ( 12,736 )

Total equity 68,681 71,516

TOTAL LIABILITIES AND EQUITY $ 179,801 $ 169,193

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Fiscal Year Ended

(In thousands)

(In thousands) July 3,

2020 June 28,

2019 June 29,

Operating Activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 257 $ 9,738 $ 2,302

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization of property, plant and equipment 4,387 4,468 5,199

(Recovery from) provision for uncollectible receivables

Provision for (recovery from) uncollectible receivables 23 ( 359 ) ( 17 )

Share-based compensation 1,686 1,723 2,357

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Loss on disposition of property, plant and equipment, net 56 4 75

Gain on liquidation of subsidiary

Noncash lease expense 4,416 — —

Changes in operating assets and liabilities:

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Unbilled receivables ( 304 ) ( 4,976 ) ( 2,067 )

Inventories ( 5,651 ) 1,228 615

Customer service inventories ( 1,023 ) ( 357 ) ( 445 )

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Payments for acquisition of property, plant and equipment ( 4,608 ) ( 5,246 ) ( 6,563 )

Purchase of short-term investments

Maturities of short-term investments — — 264

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Repayments of borrowings ( 41,911 ) ( 36,000 ) ( 36,000 )

Payments for repurchase of Company stock

Payments for repurchase of common stock ( 1,772 ) ( 2,316 ) ( 8 )

Payments for taxes related to net settlement of equity awards ( 802 ) ( 671 ) —

Proceeds from issuance of common stock under employee stock plans

Proceeds from issuance of common stock under employee stock plans and exercises of stock options 29 35 20

Net cash (used in) provided by financing activities ( 2,545 ) ( 2,952 ) 12

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 669 ) ( 309 ) ( 727 )

Net (decrease) increase in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash, cash equivalents, and restricted cash 9,671 ( 5,563 ) 1,195

Cash, cash equivalents, and restricted cash, beginning of year 32,201 37,764 36,569

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Fiscal Year Ended

(In thousands)

(In thousands) July 3,

2020 June 28,

2019 June 29,

Non-cash investing activities:

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Cash paid for interest $ 60 $ 70 $ 29

Cash paid (refunded) for income taxes, net

Cash paid for income taxes, net $ 1,057 $ 687 $ 1,282

See accompanying Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF EQUITY

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

Loss Total Aviat

Stockholders’

Noncontrolling

(In thousands, except share amounts)

Balance as of July 1, 2016

Net (loss) income

Other comprehensive loss, net of tax

Issuance of common stock under employee stock plans

Share-based compensation

Equity Noncontrolling

Interests Total Equity

(In thousands, except share amounts) Shares $

Balance as of June 30, 2017 5,317,766 $ 53 $ 813,733 $ ( 748,204 ) $ ( 11,785 ) $ 53,797 $ 543 $ 54,340

Net income — — — 1,845 — 1,845 457 2,302

Other comprehensive loss, net of tax — — — — ( 820 ) ( 820 ) — ( 820 )

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Cumulative-effect adjustment for ASC Topic 606 — — — 5,623 — 5,623 — 5,623

Net income — — — 9,738 — 9,738 — 9,738

Other comprehensive loss, net of tax — — — — ( 131 ) ( 131 ) — ( 131 )

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Balance as of June 28, 2019 5,359,695 54 815,196 ( 730,998 ) ( 12,736 ) 71,516 — 71,516

Net income — — — 257 — 257 — 257

Other comprehensive loss, net of tax — — — — ( 2,233 ) ( 2,233 ) — ( 2,233 )

Issuance of common stock under employee stock plans 224,224 2 15 — — 17 — 17

Shares withheld for taxes related to vesting of equity awards ( 56,241 ) ( 1 ) ( 801 ) — — ( 802 ) — ( 802 )

Stock repurchase ( 128,023 ) ( 1 ) ( 1,771 ) — — ( 1,772 ) — ( 1,772 )

Share-based compensation — — 1,686 — — 1,686 — 1,686

Exercise of options 832 — 12 — — 12 — 12

Balance as of July 3, 2020 5,400,487 $ 54 $ 814,337 $ ( 730,741 ) $ ( 14,969 ) $ 68,681 $ — $ 68,681

See accompanying Notes to Consolidated Financial Statements

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Significant intercompany transactions and accounts have been eliminated.

Certain amounts in the prior-years consolidated financial statements have been reclassified to conform to the current-year presentation.

Our fiscal year ends on the Friday nearest June 30.

This was June 28 for fiscal 2019 , June 29 for fiscal 2018 and June 30 for fiscal 2017 .

Fiscal years 2019, 2018 and 2017 presented each included 52 weeks.

This was July 3 for fiscal 2020, June 28 for fiscal 2019 and June 29 for fiscal 2018.

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

In these notes to consolidated financial statements, we refer to our fiscal years as “fiscal 2020”, “fiscal 2019” and “fiscal 2018.”

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However, a substantial portion of the cash equivalents is invested in prime money market funds which are backed by the securities in the fund.

As of June 28, 2019 and June 29, 2018 , all of our high-quality marketable debt securities were invested in prime money market funds.

As of July 3, 2020 and June 28, 2019, all of our high-quality marketable debt securities were invested in prime money market funds.

Cash and cash equivalents that are restricted as to withdrawal or usage under the terms of contractual agreements are recorded as restricted cash.

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We record the financing charges on discounting these letters of credit as interest expense.

During fiscal 2019, 2018 and 2017 , we had one customer in Africa, Mobile Telephone Networks Group (“MTN Group”) that accounted for 11% , 13% and 14% , respectively, of our total revenue.

A s of June 28, 2019 and June 29, 2018 , MTN Group accounted for approximately 11% and 13% , respectively, of our accounts receivable.

No other customers accounted for more than 10% of our revenue or accounts receivable for the years presented.

The loss of all business from MTN Group or any other significant customers, could adversely affect our results of operations, cash flows and financial position.

During fiscal 2020, there were no customers that accounted for more than 10% of our total revenue.

During fiscal 2019 and 2018, Mobile Telephone Networks Group (“MTN Group”) in Africa accounted for 11 % and 13 %, respectively, of our total revenue.

As of July 3, 2020 and June 28, 2019, MTN Group accounted for approximately 21 % and 13 %, respectively, of our accounts receivable.

Financial instruments that potentially subject us to a concentration of credit risk consist principally of cash equivalents, marketable debt securities, trade accounts receivable and financial instruments used in foreign currency hedging activities.

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We rely on third parties to manufacture our products and we purchase raw materials from third-party vendors.

We outsource our manufacturing services to two independent manufacturers.

In addition, we purchase certain strategic component inventory which is consigned to our third-party manufacturers.

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Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

Cost is determined using standard cost, which approximates actual cost on a weighted-average first-in-first-out basis.

Cost is determined using standard cost, which approximates actual cost on a weighted-average first-in-

first-out basis.

We regularly review inventory quantities on hand and record adjustments to reduce the cost of inventory for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements.

Inventory adjustments are measured as the difference between the cost of the inventory and net realizable value based upon assumptions about future demand and charged to the provision for inventory, which is a component of cost of sales.

At the point of the loss

recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

At the point of the loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Customer Service Inventories

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The useful lives of the assets are generally as follows:

Leasehold improvements

2 to 10 years

Machinery and equipment

Buildings 40 years

Leasehold improvements 2 to 10 years

Software 3 to 5 years

Machinery and equipment 2 to 5 years

Expenditures for maintenance and repairs are charged to expense as incurred.

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This amount was fully paid during fiscal 2019.

Operating Leases

We lease facilities and equipment under various operating leases.

These lease agreements generally include rent escalation clauses, and many include renewal periods at our option.

We recognize expense for scheduled rent increases on a straight-line basis over the lease term beginning with the date we take possession of the leased space.

Leasehold improvements made either at the inception of the lease or during the lease term are amortized over the current lease term, or estimated life, if shorter.

On June 29, 2019, the first day of our fiscal 2020, we adopted ASC 842 using the modified retrospective transition method, which requires a cumulative-effect adjustment, if any, to the opening balance of accumulated deficit to be recognized on the date of adoption with prior periods not restated.

We lease facilities under non-cancelable operating lease agreements.

These leases have varying terms that range from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses.

In addition, some of these leases have renewal options for up to 3 years.

We determine if an arrangement contains a lease at inception.

These operating leases are included in Right of use assets (ROU assets) on our July 3, 2020 consolidated balance sheets and represent our right to use the underlying asset for the lease term.

Our obligation to make lease payments are included in "Short-term lease liabilities" and "Long-term lease liabilities" on our July 3, 2020 consolidated balance sheets.

We did not enter into any finance leases during fiscal 2020.

Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As most of our leases do not provide an implicit rate, we used the incremental borrowing rate based on the remaining lease term at commencement date in determining the present value of future payments.

The operating lease ROU assets also include any lease payments made and exclude lease incentives and initial direct costs incurred.

Variable lease payments are expensed as incurred and are not included within the ROU asset and lease liability calculation.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Certain of our lease arrangements include non-lease components and we account for non-lease components together with lease components for all such lease arrangements.

Leases with an initial term of 12 months or less are not recorded on our balance sheet.

We recognize lease expense for these leases on a straight-line basis over the lease term.

Foreign Currency Translation

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Income and expenses are re-measured at the average exchange rate prevailing during the period.

Gains and losses resulting from the re-measurement of these subsidiaries’ financial statements are included in the consolidated statements of operations.

and losses resulting from the re-measurement of these subsidiaries’ financial statements are included in the consolidated statements of operations.

Our other international subsidiaries use their respective local currency as their functional currency.

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The resulting translation adjustments are included in accumulated other comprehensive loss.

Gains and losses resulting from foreign exchange transactions and revaluation of monetary assets and liabilities in non-functional currencies are included in either cost of product sales and services or other income (expense) in the accompanying consolidated statements of operations, based on the nature of the transactions.

Gains and losses resulting from foreign exchange transactions and revaluation of monetary assets and liabilities in non-functional currencies are included in either cost of product sales and services or other (expense) income, net in the accompanying consolidated statements of operations, based on the nature of the transactions.

Net foreign exchange gain (loss) recorded in our consolidated statements of operations during fiscal 2020, 2019 and 2018 was as follows:

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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

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

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

Retirement Benefits

As of June 28, 2019 , we provided retirement benefits to substantially all employees primarily through our defined contribution retirement plans.

As of July 3, 2020, we provided retirement benefits to substantially all employees primarily through our defined contribution retirement plans.

These plans have matching and savings elements.

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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.

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

Revenue from product sales is generated predominately from the sales of products manufactured by third-party manufacturers to whom we have outsourced our manufacturing processes.

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 installation, extended warranty, customer support, consulting, training, and education.

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

The services noted are recognized based on an over-time recognition model using the cost input method.

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.

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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.

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.

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Research and Development Costs

Our research and development costs, which include costs in connection with new product development, improvement of existing products, process improvement, and product use technologies, are charged to operations in the period in which they are incurred.

Our research and development costs, which include costs in connection with new product development, improvement of existing products, process improvement, and product use technologies, are generally charged to operations in the period in which they are incurred.

For certain of our software projects under development, we capitalize the development costs during the period between determining technological feasibility of the product and commercial release.

We amortize the capitalized development cost upon commercial release, generally over three years.

To date, the amount of development costs capitalized have not been material.

Share-Based Compensation

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The fair value of each market-based stock unit with market conditions was estimated using the Monte-Carlo simulation model.

We elected to account for forfeitures as they occur.

We generally recognize compensation cost for share-based payment awards on a straight-line basis over the requisite service period.

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For awards with a market condition vesting feature, we recognize share-based compensation costs over the period the requisite service is rendered, regardless of when, if ever, the market condition is satisfied.

During the fourth quarter of fiscal 2017, we adopted Accounting Standards Update (“ASU”) 2016-09 and elected to account for forfeitures as they occur.

Refer to accounting standards adopted below for changes to the accounting for share-based compensation expense.

Restructuring Charges

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The income tax effects of the differences we identify are classified as current or long-term deferred tax assets and liabilities in our consolidated balance sheets.

Our judgments, assumptions, and estimates relative to the current provision for income taxes take into account current tax laws, our interpretation of current tax laws, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

conducted by foreign and domestic tax authorities.

Changes in tax laws or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our consolidated balance sheets and consolidated statements of operations.

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Accounting Standards Adopted

In May 2014, the FASB issued ASC 606 which supersedes nearly all current U.S.

GAAP guidance on this topic and eliminates industry-specific guidance.

Revenue recognition under ASC 606 depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Additional disclosures are required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

In addition, the FASB amended its guidance related to the capitalization and amortization of the incremental costs of obtaining a contract with a customer.

The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption.

We adopted ASC 606 using the modified retrospective method as of June 30, 2018 with the cumulative effect recognized as an adjustment to the opening balance of our accumulated deficit (net of tax).

Prior periods have not been retroactively adjusted and will continue to be reported under the accounting standards in effect for those periods.

See Note 3, “Revenue Recognition” to the Notes to consolidated financial statements for more information.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10):

Recognition and Measurement of Financial Assets and Financial Liabilities .

This guidance retains the current accounting for classifying and measuring investments in debt securities and loans but requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation.

The guidance also changes the accounting for investments without a readily determinable fair value and do not qualify for the practical expedient to estimate fair value.

A policy election can be made for these investments whereby estimated fair value may be measured at cost and adjusted in subsequent periods for any impairment or changes in observable prices of identical or similar investments.

This ASU is effective for fiscal years beginning after December 15, 2017.

We adopted this update during the first quarter of fiscal 2019.

The adoption had no material impact on our consolidated financial statements.

In August 2018, the SEC adopted the final rule under SEC Release No.

33-10532, Disclosure Update and Simplification , amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded.

In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements.

Under the amendments, an analysis of changes in each caption of stockholders’ equity presented on the balance sheet must be provided in a note or separate statement.

The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed.

We adopted this update during the third quarter of fiscal 2019.

Accounting Standards Not Yet Adopted

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance:

ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01, (collectively, Topic 842), all of which provides guidance on the recognition, measurement, presentation, and disclosure of leases.

Topic 842 requires lessees to recognize operating and financing leases with a term greater than one year as a right-of-use assets and corresponding lease liabilities.

The guidance will become effective for us beginning in the first quarter of our fiscal 2020.

We are evaluating the impact the pronouncement will have on its consolidated balance sheet and related disclosures, we expect that most of its operating lease commitments will be subject to the new standard and will result in the recognition of right-of-use assets and lease liabilities on its consolidated balance sheet as of June 29, 2019.

Additionally, we will elect the package of practical expedients as permitted by the guidance.

We are also evaluating the effect of the additional recognition and disclosure requirements under the standard on its current processes and controls.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASC 842, which amends the existing accounting standards for leases.

The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases).

For lessees, leases will continue to be classified as either operating or financing in the income statement.

We adopted ASC 842, effective June 29, 2019, using the modified retrospective transition method with the cumulative effect recognized as an adjustment to the opening balance of our accumulated deficit.

Prior-period financial statements were not retrospectively restated.

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, assessment of whether a contract was or contains a lease, and initial direct costs for leases that existed prior to June 28, 2019.

We also elected not to recognize right-of-use (“ROU”) assets and lease liabilities for leases with an initial term of 12 months or less.

We elected not to apply the hindsight practical expedient when determining lease term and assessing impairment of ROU assets.

See Note 4, “Leases” to the Notes to our consolidated financial statements for more information.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation:

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ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606.

ASU 2018-07 will be effective for fiscal years beginning after December 15, 2018, including interim periods within those years, with early adoption permitted.

We do not expect the adoption of this guidance will have a material impact on our consolidated financial statements.

This ASU is effective for fiscal years beginning after December 15, 2018.

We adopted this update during the first quarter of fiscal 2020.

The adoption had no material impact on our consolidated financial statements.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848).

This guidance provides optional guidance related to reference rate reform, which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued.

This guidance is applicable for our borrowing instruments, which use LIBOR as a reference rate, and was effective March 12, 2020 through December 31, 2022.

We are currently evaluating the potential impact of ASU 2020-04 will have on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740).

This guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles and also simplifies areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws and rate changes.

ASU 2019-12 will be effective for us in our first quarter of fiscal 2022.

We are currently evaluating the potential impact that adopting ASU 2019-12 will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

ASU 2018-15 will be effective for us in our first quarter of fiscal 2021, with early adoption permitted.

The standard can be adopted either using the prospective or retrospective transition approach.

We are evaluating the potential impact adopting ASU 2018-15 will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

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We are evaluating the impact the adoption of ASU 2018-13 will have on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.

This standard will become effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.

The standard can be adopted either using the prospective or retrospective transition approach.

We are evaluating the impact the adoption of the standard will have on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

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Topic 326 requires measurement and recognition of expected credit losses for financial assets held.

Topic 326 is effective for us in our first quarter of fiscal 2021, and earlier adoption is permitted.

We are evaluating the impact the adoption of Topic 326 will have on our consolidated financial statements.

Net Income (Loss) per Share of Common Stock

Net income (loss) per share is computed using the two-class method, by dividing net income (loss) attributable to us by the weighted average number of shares of our outstanding common stock and participating securities outstanding.

Topic 326 will be effective for us in our first quarter of fiscal 2024, and earlier adoption is permitted.

We are evaluating the impact adopting Topic 326 will have on our consolidated financial statements.

Net Income per Share of Common Stock

Net income per share is computed using the two-class method, by dividing net income attributable to us by the weighted average number of shares of our outstanding common stock and participating securities outstanding.

Our restricted shares contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and included in the calculations of net income per basic and diluted common share.

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The impact on earnings per share of the participating securities under the two-class method was immaterial.

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

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

(In thousands, except per share amounts) 2020 2019 2018

Net income (loss) attributable to Aviat Networks

Net income attributable to Aviat Networks

$ 257 $ 9,738 $ 1,845

Weighted average shares outstanding, basic 5,391 5,377 5,336

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Weighted average shares outstanding, diluted 5,468 5,618 5,647

Net income (loss) per share attributable to Aviat Networks:

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

Net income per share attributable to Aviat Networks:

Basic $ 0.05 $ 1.81 $ 0.35

Diluted $ 0.05 $ 1.73 $ 0.33

The following table summarizes the weighted-average equity awards that were excluded from the diluted net income per share calculations since they were antidilutive:

(In thousands) 2020 2019 2018

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Revenue Recognition

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:

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 customer purchase orders are used to determine the existence of an arrangement.

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.

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

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

Variable consideration estimates will be re-assessed at each reporting period until a final outcome is determined.

The changes to the original transaction price due to a change in estimated variable consideration will be applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs.

Changes to variable consideration will be tracked and material changes disclosed.

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 are applied on a retrospective basis, with the adjustment recorded in the period in which the change occurs.

Changes to variable consideration are tracked and material changes disclosed.

Stand-alone Selling Price

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We have assessed the treatment of costs to obtain or fulfill a contract with a customer.

Sales commissions have historically been expensed as incurred.

Under ASC 606, we capitalize sales commissions related to multi-year service contracts, and amortize the asset over the period of benefit, which is the estimated service period.

Sales commissions paid on contract renewals, including service contract renewals, is commensurate with the sales commissions paid on the initial contracts.

We elected ASC 606’s practical expedient to expense sales commissions as incurred when the amortization period of the related asset is one year or less.

These costs are recorded as sales and marketing expense and included on the consolidated balance sheet as accrued expenses until paid.

Our amortization expense was not material for fiscal 2019 .

The capitalized sales commissions are included in Other Current Assets and Other Assets on the consolidated balance sheets.

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 years ended July 3, 2020 and June 28, 2019.

Contract Balances, Performance Obligations, and Backlog

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

June 28, 2019

At Adoption on June 30, 2018

July 3, 2020 June 28, 2019

Contract Assets

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however, this will have no impact on our future obligation to bill and collect.

As of June 28, 2019 , we had $23.6 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 60.0% is expected to be recognized as revenue in fiscal 2020 and the remainder thereafter.

During fiscal 2019 , we recognized approximately $8.0 million in maintenance service revenue which was included in advance payments and unearned revenue at June 29, 2018 .

As of July 3, 2020, we had $ 30.0 million in advance payments and unearned revenue and long-term unearned revenue, of which approximately 70 % is expected to be recognized as revenue in fiscal 2021 and the remainder thereafter.

During fiscal 2020, we recognized approximately $ 14.0 million which was included in advance payments and unearned revenue at June 28, 2019.

Remaining Performance Obligations

The aggregate amount of transaction price allocated to the unsatisfied performance obligations (or partially unsatisfied) was approximately $71.7 million at June 28, 2019.

The aggregate amount of transaction price allocated to the unsatisfied performance obligations (or partially unsatisfied) was approximately $ 83.4 million at July 3, 2020.

Of this amount, we expect to recognize approximately 60 % as revenue during fiscal 2021, with the remaining amount to be recognized as revenue within two to five years.

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:

• Bill-and-Hold Sales:

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:

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 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.

Impacts on Financial Statements

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Revenue from product sales

$ 156,724 $ ( 7,387 ) $ 149,337

Revenue from services

87,134 ( 5,098 ) 82,036

Total revenues

$ 243,858 $ ( 12,485 ) $ 231,373

Cost of revenues:

Cost of product sales

$ 103,517 $ ( 4,967 ) $ 98,550

Cost of services

61,071 ( 3,355 ) 57,716

Total cost of revenues

$ 164,588 $ ( 8,322 ) $ 156,266

Selling and administrative expenses

$ 56,055 $ 295 $ 56,350

$ 9,738 $ ( 7,253 ) $ 2,485

See Note 10, “Segment and Geographic Information” to the Notes to Consolidated Financial Statements for discussion on the impact of additional information, including disaggregated revenue disclosures.

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Adjustments due to ASC 606

As Adjusted Balances as of June 30, 2018

As Adjusted as of June 30, 2018

Balance Sheet

Accounts receivable, net

$ 43,068 $ 2,503 $ 45,571

Unbilled receivables

$ 14,167 $ 8,627 $ 22,794

$ 21,290 $ ( 11,516 ) $ 9,774

Other current assets

$ 6,006 $ 476 $ 6,482

Deferred income taxes

$ 5,600 $ ( 545 ) $ 5,055

$ 9,816 $ 180 $ 9,996

Advance payments and unearned revenue

$ 19,300 $ ( 6,600 ) $ 12,700

Unearned revenue - long term

$ 6,593 $ 702 $ 7,295

Accumulated deficit

$ ( 746,359 ) $ 5,623 $ ( 740,736 )

The effects of the adoption of the new revenue recognition guidance on our June 28, 2019 consolidated balance sheet were as follows:

As of June 28, 2019

Adoption of ASC 606

(In thousands)

Adjustments due to ASC 606

Balances without Adoption of ASC 606

Adjustments due to ASC 606 Balances without Adoption of ASC 606

Balance Sheet

Accounts receivable, net

$ 51,937 $ ( 6,079 ) $ 45,858

Unbilled receivables

$ 27,780 $ ( 16,567 ) $ 11,213

$ 8,573 $ 19,289 $ 27,862

Other current assets

$ 4,825 $ ( 587 ) $ 4,238

Deferred income taxes

$ 13,864 $ ( 2,274 ) $ 11,590

$ 12,077 $ ( 368 ) $ 11,709

Accrued expenses

$ 22,555 $ ( 45 ) $ 22,510

Advance payments and unearned revenue

$ 13,962 $ 8,414 $ 22,376

Unearned revenue - long term

$ 9,662 $ ( 2,022 ) $ 7,640

Reserve for uncertain tax positions

$ 3,606 $ ( 55 ) $ 3,551

Accumulated deficit

$ ( 730,998 ) $ ( 12,877 ) $ ( 743,875 )

On June 29, 2019, the first day of our fiscal 2020, we adopted ASC 842 using the modified retrospective transition method as of the effective date, which requires a cumulative-effect adjustment, if any, to the opening balance of accumulated deficit to be recognized on the date of adoption with prior periods not restated.

We lease facilities under non-cancelable operating lease agreements.

These leases have varying terms that range from one to 20 years and contain leasehold improvement incentives, rent holidays and escalation clauses.

In addition, some of these leases have renewal options for up to 3 years.

We lease approximately 18,000 square feet of office space in Austin, Texas as our corporate headquarters with an original term of 36 months.

We determine if an arrangement contains a lease at inception.

These operating leases are included in "Right of use assets" (ROU assets) on our July 3, 2020 consolidated balance sheet and represent our right to use the underlying asset for the lease term.

Our obligation to make lease payments are included in "Short-term lease liabilities" and "Long-term lease liabilities" on our July 3, 2020 consolidated balance sheet.