What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-01 compared with 2022-11-02 · 85 added, 97 removed, 132 unchanged (58% of the section changed)

35 unchanged sentences

• the ability of our subcontractors to timely perform;

• continued weakness in the global economy affecting customer spending;

• weakness in the global economy affecting customer spending;

• retention of our key personnel;

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In the discussion herein, our fiscal year ending June 30, 2023 is referred to as “fiscal 2023” or “2023” and our fiscal year ended July 1, 2022 is referred to as “fiscal 2022” or “2022.”

Aviat sells radios, routers, software and services.

Aviat sells radios, routers, software and services integral to the functioning of data transport networks.

We have more than 3,000 customers and significant relationships with global service providers and private network operators.

Our manufacturing base in North America consists of a combination of contract manufacturing and assembly and test operated in Austin, Texas by Aviat.

Additionally, we utilize a contract manufacturer based in Asia for much of our international equipment demand.

Our technology is underpinned by more than 200 patents.

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We have a global presence.

The COVID-19 pandemic related disruptions to our business, operations, customers and suppliers lessened over the course of fiscal 2022.

While supply chain lead-times remain extended and difficult to manage, the impact on our ability to fulfill orders for the year ended July 1, 2022 was minimal.

While supply chain lead-times remain extended and difficult to manage, the impact on our ability to fulfill orders for the current quarter was minimal.

Depending on the progression of pandemic-related factors such as supply constraints, potential for temporary manufacturing restrictions and our ability to perform field services during shelter in place orders, we could experience constraints and delays in fulfilling customer orders in future periods.

We are monitoring, assessing and adapting to the situation to mitigate impacts on our business, supply chain and customer demand.

We expect the potential for these challenges to continue until business and economic activities return to more normal levels.

Our first priority remains the health and safety of our employees and their families.

Employees whose tasks can be done offsite have been instructed to work from home.

Our manufacturing sites remain operational, and we are maintaining social distancing and have enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

We continually monitor, assess and adapt to the situation to mitigate impacts on our business, supply chain and customer demand.

We expect the potential for these challenges to continue until business and economic activities return to more normal levels worldwide.

We continue to be impacted by inflationary pressures incurred to overcome supply chain and logistical bottlenecks.

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Business Combination with Redline Communications

On April 13, 2022, Aviat and Redline Communications, Inc.

(“Redline”), a leading provider of mission-critical data infrastructure, signed a definitive agreement for Aviat to acquire all outstanding common stock of Redline.

The transaction closed on July 5, 2022.

Redline allows Aviat to expand its Private Networks Offering with Private LTE/5G, Unlicensed Wireless Access Solutions, by creating an integrated end-to-end offering for wireless access and transport in the Private Networks segment, leveraging Aviat's sales channel to address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.

On July 5, 2022 Aviat acquired Redline Communications, Inc.

(“Redline”), a leading provider of mission-critical data infrastructure.

segment, leveraging Aviat's sales channel to address a large dollar Private LTE/5G addressable market and increasing Aviat’s reach in mission-critical industrial Private Networks.

Operations Review

The market for mobile backhaul continued to be our primary addressable market segment globally in the first three months of fiscal 2023.

The market for mobile backhaul continued to be our primary addressable market segment globally in the first six months of fiscal 2023.

In North America, we supported 5G and long-term evolution (“LTE”) deployments of our mobile operator customers, public safety network deployments for state and local governments, and private network implementations for utilities and other customers.

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Our position continues to be to support our customers for 5G and LTE readiness and ensure that our technology roadmap is well aligned with evolving market requirements.

We continue to find that our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets.

Our strength in turnkey and after-sale support services is a differentiating factor that wins business for us and enables us to expand our business with existing customers in all markets.

Additionally, we operate an e-commerce platform that provides low cost services, a simple experience, and fast delivery to mobile operator and private network customers.

However, as disclosed above and in the “Risk Factors” section in Item 1A of our Annual Report on Form 10-K filed with the SEC on September 14, 2022, a number of factors could prevent us from achieving our objectives, including ongoing pricing pressures attributable to competition and macroeconomic conditions in the geographic markets that we serve.

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(1) Africa and the Middle East, (2) Europe, and (3) Latin America and Asia Pacific.

Revenue by region for the three months ended September 30, 2022 and October 1, 2021 and the related changes were as follows:

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Revenue by region for the three and six months ended December 30, 2022 and December 31, 2021 and the related changes were as follows:

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

North America $ 52,049 $ 51,046 $ 1,003 2.0 % $ 100,897 $ 101,983 $ (1,086) (1.1) %

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$ 90,683 $ 77,864 $ 12,819 16.5 % $ 171,934 $ 151,022 $ 20,912 13.8 %

Our revenue in North America decreased by $2.1 million, or 4.1%, during the first quarter of fiscal 2023 compared with the same period of fiscal 2022.

The decrease in North America revenue during the three months of fiscal 2023 was primarily due to timing of private network projects.

Our revenue in Africa and the Middle East increased by $0.3 million or 2.6% during the first quarter of fiscal 2023 compared with the same period of fiscal 2022.

This increase in revenue during the three months of fiscal 2023 was primarily due to increased sales to mobile operators in the region.

Revenue in Europe increased by $1.8 million, or 66.5%, for the first quarter of fiscal 2023 compared with the same period of fiscal 2022.

This increase during the three months of fiscal 2023 was primarily due to increased sales to mobile operators in the region.

Revenue in Latin America and Asia Pacific increased by $8.1 million, or 91.9%, during the first quarter of fiscal 2023 compared with the same period of fiscal 2022.

The increase during the three months of fiscal 2023 was primarily due to increased sales to mobile operator customers.

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Our revenue in North America increased by $1.0 million, or 2.0%, during the second quarter of fiscal 2023 compared with the same period of fiscal 2022.

Revenue in North America decreased by $(1.1) million, or (1.1)%, during the six months ended fiscal 2023 compared with the same period of fiscal 2022.

The respective changes in North America revenue during the three and six months ended fiscal 2023 were primarily due to timing of private network projects.

Our revenue in Africa and the Middle East increased by $0.6 million or 4.4% during the second quarter of fiscal 2023 compared with the same period of fiscal 2022.

Revenue in Africa and the Middle East increased by $0.9 million, or 3.6%, during the six months of fiscal 2023 compared with the same period of fiscal 2022.

This increase in revenue during the three and six months ended fiscal 2023 was primarily due to increased sales to mobile and private network operators in the region.

Revenue in Europe increased by $2.4 million, or 83.4%, for the second quarter of fiscal 2023 compared with the same period of fiscal 2022.

Revenue in Europe increased by $4.2 million, or 75.3%, during the six months of fiscal 2023 compared with the same period of fiscal 2022.

This increase during the three and six month periods was due to increased sales to mobile operators.

Revenue in Latin America and Asia Pacific increased by $8.8 million, or 84.7%, during the second quarter of fiscal 2023 compared with the same period of fiscal 2022, and increased by $16.9 million, or 88.0%, during the first six months ended fiscal 2023 compared with the same period of fiscal 2022.

This increase during the three and six month periods was due to a key customer win in Asia Pacific and increased sales to mobile operators in Latin America.

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Product sales $ 65,561 $ 53,467 $ 12,094 22.6 % $ 120,662 $ 104,314 $ 16,348 15.7 %

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$ 90,683 $ 77,864 $ 12,819 16.5 % $ 171,934 $ 151,022 $ 20,912 13.8 %

Our revenue from product sales increased by $4.3 million, or 8.4%, for the first quarter of fiscal 2023 compared with the same quarter of fiscal 2022.

This is driven by strong growth in Asia Pacific and Latin America as well as the contribution from the Redline acquisition.

Our services revenue increased by $3.8 million, or 17.2%, during the first quarter of fiscal 2023 compared with the same quarter of fiscal 2022.

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Our revenue from product sales increased by $12.1 million, or 22.6%, for the second quarter of fiscal 2023 compared with the same quarter of fiscal 2022.

Our services revenue increased by $0.7 million, or 3.0%, during the second quarter of fiscal 2023 compared with the same quarter of fiscal 2022.

Our revenue from product sales increased by $16.3 million, or 15.7%, for the six months ended fiscal 2023 compared with the same period of fiscal 2022.

Our services revenue increased by $4.6 million, or 9.8%, during the six months ended fiscal 2023 compared with the same period of fiscal 2022.

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Revenue $ 90,683 $ 77,864 $ 12,819 16.5 % $ 171,934 $ 151,022 $ 20,912 13.8 %

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28.8 % 35.7 % 32.8 % 34.0 %

Gross margin for the first quarter of fiscal 2023 increased by $3.4 million, or 12.9% compared with the same quarter of fiscal 2022.

For the first three months of fiscal 2023, gross margin improved over the same period in fiscal 2022 primarily due to higher volume of Private Network business and increased sales through the Aviat Store which serves primarily the Rural Broadband space.

Gross margins continue to be pressured by expedite fees and inflation as we work to overcome supply chain issues.

However, our pricing actions to offset higher costs continue to gain momentum, as well as the accretive contribution of the Redline business.

Product margin as a percentage of product revenue decreased in the first quarter of fiscal 2023 compared with the same period of fiscal 2022 primarily due to increased supply chain costs.

Service margin as a percentage of service revenue increased in the first quarter of fiscal 2023 compared to the same period in fiscal 2022.

Gross margin for the second quarter of fiscal 2023 increased by $4.1 million, or 14.4% compared with the same quarter of fiscal 2022.

Gross margin for the first six months of fiscal 2023 increased by $7.4 million, or 13.7%.

The gross margin improvement was primarily due to higher volume of Private Network and mobile operator business as well as the contribution from the Redline acquisition.

Gross margin as a percentage of product revenue increased in the second quarter and in the first six months of fiscal 2023 compared with the prior year periods primarily due to pricing actions effectively offsetting cost inflation and the accretive contribution of the Redline acquisition.

Service margin as a percentage of service revenue in the second quarter and in first six months of fiscal 2023 declined compared to the same periods in fiscal 2022 due to changes in the stand-alone prices for products and services and the resulting impact on the allocation of the overall transaction price to services.

Research and Development Expenses

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Research and development $ 6,047 $ 6,169 $ (122) (2.0) % $ 12,134 $ 12,079 $ 55 0.5 %

Our research and development expenses increased by $0.2 million, or 3.0%, in the three months of fiscal 2023 compared with the same period of fiscal 2022 primarily due to the increased product development activities.

6.7 % 7.9 % 7.1 % 8.0 %

Our research and development expenses in the second quarter and first six months of fiscal 2023 were relatively flat compared with the same periods of fiscal 2022.

Much of our research and development costs are incurred in EUR or NZD currencies.

The strength of the USD yielded savings compared to the prior year, which were substantially offset by the addition of the Redline research and development costs.

Selling and Administrative Expenses

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Selling and administrative $ 16,567 $ 13,739 $ 2,828 20.6 % $ 34,071 $ 26,437 $ 7,634 28.9 %

18.3 % 17.6 % 19.8 % 17.5 %

Our selling and administrative expenses increased by $4.8 million, or 37.8%, in the first quarter of fiscal 2023 compared with the same period in fiscal 2022.

The increase for the three months of fiscal 2023 compared to comparable period of fiscal 2022 was primarily due to variable compensation and Redline related integration costs.

Restructuring charges

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

The $2.8 million selling and administrative expense increase in the second quarter of fiscal 2023 was driven by the addition of Redline and variable compensation expenses.

The $7.6 million selling and administrative expense increase for the first six months of fiscal 2023 was also driven by Redline and variable compensation, as well as merger and acquisition related expenses.

Restructuring Charges

In the first quarter of fiscal 2023, we recorded restructuring charges of $2.0 million primarily related to the restructuring plan (the “Fiscal 2023 Plan”).

As of September 30, 2022, the accrual balance of $1.5 million was in short-term restructuring liabilities on our unaudited condensed consolidated balance sheets.

Included in the plans for which we were carrying a provision were positions identified for termination that have not been executed from a restructuring perspective.

Other Expense/Income, net

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Restructuring charges (recovery) $ 928 $ (960) $ 1,888 * $ 2,878 $ (301) $ 3,179 *

• Percentage not meaningful

In the second quarter of fiscal 2023, we recorded restructuring charges of $0.9 million primarily related to the Q2 2023 Plan.

For the six months ended fiscal 2023 we recorded restructuring charges related to the Q1 2023 Plan and Q2 2023 Plan.

Other Expense/Income, net

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Other (income)/expense, net $ (460) $ 240 $ (700) * $ 2,322 $ 212 $ 2,110 *

• Percentage not meaningful

Our other expenses (income), net increased by $2.8 million in the three months of fiscal 2023, compared with the same period of fiscal 2022 primarily due to loss of value related to the marketable securities and the movement in foreign exchange .

Three Months Ended

(In thousands, except percentages) September 30, 2022 October 1, 2021 $ Change % Change

Our other (income)/expense, net decreased by $(0.7) million and $2.1 million, in the three and six months ended fiscal 2023, respectively, compared with the same periods of fiscal 2022 primarily due to the movement in foreign exchange rates.

Three Months Ended Six Months Ended

(In thousands, except percentages) December 30, 2022 December 31, 2021 $ Change % Change December 30, 2022 December 31, 2021 $ Change % Change

Income before income taxes $ 9,138 $ 8,968 $ 170 1.9 % $ 10,269 $ 15,810 $ (5,541) (35.0) %

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We estimate our annual effective tax rate at the end of each quarterly period, and we record the tax effect of certain discrete items in the interim period in which they occur, including changes in judgment about uncertain tax positions and deferred tax valuation allowances.

The tax expense for the first three months of fiscal 2023 was primarily due to the tax expense related to U.S.

The tax expense for the second quarter of fiscal 2023 was primarily due to the tax expense related to U.S.

and profitable foreign subsidiaries.

The tax expense for the first six months of fiscal 2023 was primarily due to the tax expense related to U.S.

and profitable foreign subsidiaries, including deferred tax expense associated with our acquisition of Redline in July 2022 and subsequent restructuring impact.

The tax expense for the first quarter of fiscal 2022 was primarily due to tax expense related to U.S.

and profitable subsidiaries.

Liquidity, Capital Resources, and Financial Strategies

Sources of Cash

As of September 30, 2022, our total cash and cash equivalents were $21.6 million.

As of December 30, 2022, our total cash and cash equivalents were $21.4 million.

Approximately $7.1 million, or 33.4%, was held in the United States.

The remaining balance of $14.3 million, or 66.6%, was held by entities outside the United States.

Of the amount of cash and cash equivalents held by our foreign subsidiaries on September 30, 2022, $12.1 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 on December 30, 2022, $13.3 million was held in jurisdictions where our undistributed earnings are indefinitely reinvested, and if repatriated, would be subject to foreign withholding taxes.

Operating Activities

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

Net cash used in operating activities was $6.3 million for the first three months of fiscal 2023, compared to $0.7 million cash provided from operations for the first three months of fiscal 2022;

this difference was primarily related to a net change in Accounts receivable and partially offset by the net change in Accounts payable.

Net cash provided by noncash items was $9.2 million for the first three months of 2023.

The net changes in operating assets and liabilities resulted in a net use of cash of $12.7 million for the first three months of fiscal 2023, compared to net use of cash of $7.9 million for the same period in fiscal 2022.

Changes in operating assets and liabilities resulted in a net use of cash for the first three months of fiscal 2023 primarily related to Accounts receivable that fluctuate from period to period, depending on the amount, timing of sales and billing activities and cash collections;

and an increase in certain levels of inventories primarily to mitigate supply chain constraints.

Net cash used in operating activities was $8.4 million for the first six months of fiscal 2023, compared to $2.2 million cash used in operations for the first six months of fiscal 2022;

this difference was primarily related to a net change in Other Assets and Liabilities, Accrued Expenses, Inventories, Advance Payments and Unearned Revenue, partially offset by the net change in Accounts Receivable.

Net cash provided by noncash items was $15.5 million for the first six months of 2023.

The net changes in operating assets and liabilities resulted in a net use of cash of $27.1 million for the first six months of fiscal 2023, compared to net use of cash of $21.1 million for the same period in fiscal 2022.

Changes in operating assets and liabilities resulted in a net use of cash for the first six months of fiscal 2023 primarily related to Accounts Receivable that fluctuate from period to period, depending on the amount and timing of sales, billing activities and cash collections;

and an increase in certain levels of inventories and prepaid deposits to mitigate supply chain constraints.

The use of cash from assets and liabilities was partially offset by the timing of payments from Accounts Payable and by customer Advance Payments and Unearned Revenue.

Investing Activities

Net cash used in investing activities was $8.3 million for the first three months of fiscal 2023, consisting of payment for acquisition net of cash and cash equivalent, and investment in property, plant, and equipment, less consideration received from sale of marketable securities.

Net cash used in investing activities was $0.5 million for the first three months of fiscal 2022, driven by investments in property, plant, and equipment.

Net cash used in investing activities was $7.3 million and $0.8 million for the first six months of fiscal 2023 and 2022, respectively, which consisted of the Redline acquisition and capital expenditures offset by proceeds from the sale of marketable securities.

Financing Activities

Financing cash flows consist primarily from 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 $0.3 million for the first three months of fiscal 2023, due to payments for taxes related to settlement of equity awards of $0.7 million partially offset by the issuance of common stock under employee stock plans of $0.4 million.

Net cash used in financing activities was $0.8 million for the first three months of fiscal 2022, primarily due to the purchase of treasury stock of $0.7 million.

As of September 30, 2022, our principal sources of liquidity consisted of $21.6 million in cash and cash equivalents;

Financing cash flows consist primarily of borrowings 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 provided by financing activities was $0.1 million for the first six months of fiscal 2023, primarily from cash proceeds from the issuance of common stock under employee stock plans of $0.7 million partially offset by payments for taxes related to settlement of equity awards of $0.7 million.

Net cash used in financing activities was $2.4 million for the first six months of fiscal 2022, primarily due to the repurchase of common stock of $(2.6) million partially offset by cash proceeds from the issuance of common stock under employee stock plans of $0.6.

As of December 30, 2022, our principal sources of liquidity consisted of $21.4 million in cash and cash equivalents;

$22.0 million of available credit under our $25.0 million SVB Credit Facility, which matures on June 28, 2024, and future collections of receivables from customers.

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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.

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 sub-limit.

As of September 30, 2022, available credit under the SVB Credit Facility was $22.0 million, reflecting the lower available limit of $25.0 million less outstanding letters of credit of $3.0 million.

We borrowed and repaid $15.0 million against the SVB Credit Facility during the fiscal quarter and the interest rate was 5.83%..

As of September 30, 2022 there was no borrowing outstanding.

As of September 30, 2022, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility and there was no amount outstanding under the SVB Credit Facility.

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.

As of December 30, 2022, available credit under the SVB Credit Facility was $22.0 million, reflecting the available limit of $25.0 million less outstanding letters of credit of $3.0 million.

We borrowed and repaid $24.0 million against the SVB Credit Facility during the six months ended December 30, 2022 and there was no borrowing outstanding as of December 30, 2022.

As of December 30, 2022, we were in compliance with the quarterly financial covenants, as amended, contained in the SVB Credit Facility and there was no amount outstanding under the SVB Credit Facility.

Restructuring Payments

We had liabilities for restructuring activities totaling $1.5 million as of September 30, 2022, which were classified as current liabilities and expected to be paid out in cash over the next 12 months.

We had liabilities for restructuring activities totaling $1.5 million as of December 30, 2022, which were classified as current liabilities and expected to be paid out in cash over the next 12 months.

We expect to fund these future payments with available cash and cash provided by operations.

Contractual Obligations

The amounts disclosed in our fiscal 2022 Annual Report on Form 10-K filed with the SEC on September 14, 2022 include our commercial commitments and contractual obligations.

During the first three months of fiscal 2023, no material changes occurred in our contractual obligations to purchase goods and services or to make payments under operating leases or our contingent liabilities on outstanding letters of credit, guarantees, and other arrangements as disclosed in our fiscal 2022 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We consider the following items to qualify as off-balance sheet arrangements:

• any obligation under certain guarantee contracts;

• a retained or contingent interest in assets transferred to an unconsolidated entity or similar entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;

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

• 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 September 30, 2022, we did not have material financial guarantees or other contractual commitments that are reasonably likely to adversely affect our current or future financial condition.

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.

As of September 30, 2022, we had commercial commitments of $64.3 million.

Please refer to “Note 13 Commitments and Contingencies” of the Notes to unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q for Contractual Obligations and Off-Balance Sheet Arrangements.

Critical Accounting Estimates

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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-Q

Item 2. Management’s Discussion and Analysis