Document and Entity Information Document
3 Months Ended
Mar. 30, 2012
Apr. 30, 2012
Document And Entity Information [Abstract]
Document Type
10-Q
Amendment Flag
false
Document Period End Date
Mar. 30, 2012
Document Fiscal Year Focus
2012
Document Fiscal Period Focus
Q3
Entity Registrant Name
AVIAT NETWORKS, INC.
Entity Central Index Key
0001377789
Current Fiscal Year End Date
--06-29
Entity Filer Category
Accelerated Filer
Entity Common Stock, Shares Outstanding
61,271,511
Condensed Consolidated Statements Of Operations(USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Mar. 30, 2012
Apr. 1, 2011
Mar. 30, 2012
Apr. 1, 2011
Revenues:
Revenue from product sales
$85.5
$89.5
$248.7
$259.8
Revenue from services
26.1
26.0
79.3
71.4
Total revenues
111.6
115.5
328.0
331.2
Cost of revenues:
Cost of product sales
56.8
64.6
169.9
183.4
Cost of services
20.3
19.1
58.7
52.0
Amortization of purchased technology
0.2
0.2
0.5
0.5
Total cost of revenues
77.3
83.9
229.1
235.9
Gross margin
34.3
31.6
98.9
95.3
Operating expenses:
Research and development expenses
8.9
9.9
26.7
30.8
Selling and administrative expenses
25.1
26.7
75.0
80.2
Amortization of identifiable intangible assets
0.1
0.7
1.5
2.1
Goodwill impairment charges
0
0
5.6
0
Restructuring charges
0.4
4.4
1.4
13.4
Total operating expenses
34.5
41.7
110.2
126.5
Operating loss
(0.2)
(10.1)
(11.3)
(31.2)
Loss on sale of NetBoss assets
0
0
0
(4.4)
Other expenses
(0.3)
0
(0.6)
(0.5)
Interest income
0
0.2
0.3
0.3
Interest expense
(0.2)
(0.4)
(1.0)
(1.7)
Loss from continuing operations before income taxes
(0.7)
(10.3)
(12.6)
(37.5)
Provision for (benefit from) income taxes
0.1
15.2
1.9
15.0
Loss from continuing operations
(0.8)
(25.5)
(14.5)
(52.5)
Loss from discontinued operations, net of tax
(2.4)
(11.4)
(8.3)
(18.2)
Net loss
$(3.2)
$(36.9)
$(22.8)
$(70.7)
Per share data:
Basic and diluted loss per common share from continuing operations
$(0.01)
$(0.44)
$(0.25)
$(0.90)
Basic and diluted loss per common share from discontinued operations
$(0.04)
$(0.19)
$(0.14)
$(0.31)
Basic and diluted net loss per common share
$(0.05)
$(0.63)
$(0.39)
$(1.21)
Basic and diluted weighted average shares outstanding
59.2
58.6
59.0
58.5
Condensed Consolidated Balance Sheets(USD $)
In Millions, unless otherwise specified
Mar. 30, 2012
Jul. 1, 2011
Assets
Cash and cash equivalents
$90.5
$98.2
Receivables, net
106.7
133.0
Unbilled costs
29.1
24.8
Inventories
49.7
50.6
Customer service inventories
19.3
21.2
Deferred income taxes
0.9
0.8
Other current assets
19.1
21.7
Total Current Assets
315.3
350.3
Long-Term Assets
Property, plant and equipment, net
21.7
21.6
Goodwill
0
5.6
Identifiable intangible assets, net
2.1
4.1
Deferred income taxes
0.6
0.7
Other assets
1.1
1.6
Total Long-Term assets
25.5
33.6
Total Assets
340.8
383.9
Liabilities and Stockholders Equity
Short-term debt
6.0
6.0
Current portion of long-term debt
4.1
0
Accounts payable
55.0
70.3
Accrued compensation and benefits
10.3
11.1
Redeemable preference shares
0
8.3
Other accrued expenses
50.1
50.3
Advance payments and unearned income
42.4
45.8
Deferred income taxes
0.9
0.9
Restructuring liabilities
0.9
4.4
Total Current Liabilities
169.7
197.1
Long-Term Liabilities
Long-term debt
3.8
0
Other long-term liabilities
3.3
3.5
Reserve for uncertain tax positions
4.2
4.2
Deferred income taxes
1.4
1.4
Total Liabilities
182.4
206.2
Commitments and Contingencies
  
  
Stockholders' Equity
Preferred stock
0
0
Common stock, 61,271,511 and 60,611,561 shares issued and outstanding at March 30, 2012 and July 1, 2011, respectively
0.6
0.6
Additional paid-in-capital
795.3
791.6
Accumulated deficit
(634.6)
(611.8)
Accumulated other comprehensive loss
(2.9)
(2.7)
Total Stockholders' Equity
158.4
177.7
Total Liabilities and Stockholders' Equity
$340.8
$383.9
Condensed Consolidated Balance Sheets (Parenthetical) (Parentheticals)
Mar. 30, 2012
Jul. 1, 2011
Condensed Consolidated Balance Sheets [Abstract]
Common stock, shares issued
61,271,511
60,611,561
Common stock, shares outstanding
61,271,511
60,611,561
Condensed Consolidated Statements Of Cash Flow(USD $)
In Millions, unless otherwise specified
9 Months Ended
Mar. 30, 2012
Apr. 1, 2011
Cash flows from operating activities:
Net loss
$(22.8)
$(70.7)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of identifiable intangible assets
2.0
2.6
Goodwill impairment charges
5.6
0
Depreciation and amortization of property, plant and equipment and capitalized software
3.5
6.8
Bad debt expenses
2.9
2.2
Share-based compensation expense
3.7
3.4
Deferred income tax expense (benefit)
0
11.2
Charges for inventory write-downs
3.0
19.0
Loss on disposition of WiMax business
1.9
0.8
Loss on sale of NetBoss assets
0
4.4
Changes in operating assets and liabilities:
Receivables
23.4
(36.8)
Unbilled costs
(4.3)
3.2
Inventories
(0.4)
(16.8)
Customer service inventories
0.2
(2.4)
Accounts payable
(15.2)
2.2
Accrued expenses
(3.0)
13.0
Advance payments and unearned income
(3.4)
12.2
Income taxes payable or receivable
1.2
1.5
Restructuring liabilities and other assets and liabilities
0.9
(1.2)
Net cash used in operating activities
(0.8)
(45.4)
Cash flows from investing activities
Cash received from sale of NetBoss assets
0
(3.8)
Cash disbursed related to sale of WiMAX business
(1.1)
0
Additions of property, plant and equipment
(4.4)
(5.2)
Additions of capitalized software
0
(0.8)
Net cash used in investing activities
(5.5)
(2.2)
Cash flows from financing activities
Proceeds from short-term debt arrangement
0
6.0
Proceeds from long-term debt
8.3
0
Payments on short-term debt arrangement
0
(5.0)
Payments on long-term debt
(0.4)
0
Proceeds from stock-based compensation awards
0
0.2
Payments for Redemption of Subsidiary Preference Shares
8.3
0
Net cash provided by financing activities
(0.4)
1.2
Effect of exchange rate changes on cash and cash equivalents
(1.0)
0.4
Net decrease in cash and cash equivalents
(7.7)
(46.0)
Cash and cash equivalents, beginning of period
98.2
141.7
Cash and cash equivalents, end of period
$90.5
$95.7
Basis Of Presentation
Basis Of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Aviat Networks, Inc. and its subsidiaries (“the Company” or “we”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the statements do not include all information and footnotes required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, such interim financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows for such periods. The results for the quarter and three quarters ended March 30, 2012 (the “third quarter and first three quarters of fiscal 2012”) are not necessarily indicative of the results that may be expected for the full fiscal year or any subsequent period. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended July 1, 2011 (“Fiscal 2011 Form 10-K”).
We operate on a 52-week or 53-week year ending on the Friday nearest June 30. The first three quarters of fiscal 2012 and 2011 were all 13-week periods.
Reclassifications
In the fourth quarter of fiscal 2011, we reclassified customer service parts, previously reported as a component of property, plant and equipment, as customer service inventories in our condensed consolidated balance sheets. Accordingly, expenses related to customer service inventories of $2.2 million for the first three quarters of fiscal 2011 have been reclassified in the condensed consolidated statements of cash flows from depreciation and amortization to inventory write-downs within the cash flows from operating activities section. In addition, the changes in customer service inventories of $2.4 million in the first three quarters of fiscal 2011 have been reclassified from changes in inventories in the condensed consolidated statements of cash flows.
Beginning in the third quarter of fiscal 2011, the results of the WiMAX business are presented as discontinued operations in our condensed consolidated financial statements. Fiscal 2011 year-to-date results have been reclassified to conform to current period presentation.
Use of estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires us to make estimates, assumptions and judgments affecting the amounts reported and related disclosures. Estimates are based upon historical factors, current circumstances and the experience and judgment of our management. We evaluate our estimates and assumptions on an ongoing basis and may employ outside experts to assist us in making these evaluations. Changes in such estimates, based on more accurate information, or different assumptions or conditions, may affect amounts reported in future periods. Such estimates affect significant items, including revenue recognition, provision for doubtful accounts, inventory valuation, fair value of goodwill and intangible assets, valuation allowances for deferred tax assets, uncertainties in income taxes, restructuring obligations, product warranty obligations, share-based awards, contingencies and useful lives of intangible assets, property, plant and equipment.
Recently Issued Accounting Standards
In June 2011, the Financial Accounting Standards Board issued an accounting standards update on the presentation of comprehensive income, which eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. The new guidance requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively and is effective for us beginning in our first quarter of fiscal 2013. The adoption of this new guidance will not impact our consolidated financial position or results of operations, as the guidance relates only to financial statement presentation.
Divestiture
Divestiture
Divestiture
In March 2011, our board of directors approved a plan for the sale of our WiMAX business. On September 2, 2011, we sold to EION Networks, Inc. (“EION”) our WiMAX business and related assets consisting of certain technology, inventory and equipment. We assigned customer contracts for WiMAX products and maintenance and agreed to license related patents to EION. We also agreed to indemnification for customary seller representations and warranties, and the provision of transitional services. As consideration for the sale of assets, EION agreed to pay us $0.4 million in cash six months from the date of closing and up to $2.8 million in additional cash payments contingent upon specific factors related to future WiMAX business performance. Currently we are not able to estimate the amount of consideration that we will receive beyond the $0.4 million nor the probability of any such payment. Accordingly, any future consideration will be recorded as a contingent gain in the period that it is received. EION is also entitled to receive cash payments up to $2.0 million upon collections of certain WiMAX accounts receivable as of the date of close.
From the third quarter of fiscal 2011, we began accounting for the WiMAX business as a discontinued operation. At July 1, 2011, the assets of the WiMAX business, including inventories of $7.0 million and equipment of $1.5 million, were adjusted to zero value which represented their estimated fair value less cost of disposition. At March 30, 2012 and July 1, 2011, our accrued liabilities related to the disposition of WiMAX business were $1.0 million and $0.3 million, respectively.
Summary results of operations for the WiMAX business were as follows:
 
 
 
Quarter Ended
 
Three Quarters Ended
(In millions)
 
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
Revenues
 
$
(0.2
)
 
$
1.0

 
$
1.1

 
$
18.6

Loss from operations of WiMAX
 
$
(2.5
)
 
$
(10.6
)
 
$
(6.2
)
 
$
(17.4
)
Loss on disposal
 
0.1

 
(0.8
)
 
(1.9
)
 
(0.8
)
Income taxes
 
—

 
—

 
(0.2
)
 
—

Total loss from discontinued operations
 
$
(2.4
)
 
$
(11.4
)
 
$
(8.3
)

$
(18.2
)
Goodwill and Long-Lived Assets
Goodwill and Long-Lived Assets Disclosure
Goodwill and Long-Lived Assets

As of July 1, 2011, we had goodwill of $5.6 million related to our International reporting unit, which resulted from the acquisition of Telsima Corporation in fiscal 2009. In the second quarter of fiscal 2012, we concluded that a potential impairment of our goodwill existed due to a significant decline in our market capitalization; therefore we performed a goodwill impairment analysis during the quarter. Goodwill is tested for impairment using a two-step process: first, we determine if the carrying amount of any of our reporting units exceeds its fair value, which would indicate a potential impairment associated with that reporting unit. If we determine that a potential impairment exists, we then compare the implied fair value of the reporting unit with its carrying value to determine if there is an impairment loss.

As part of step one, we determined the fair value of each of our reporting units utilizing both a discounted cash flow analysis and a market approach considering guideline company market multiples. Discount rates ranging from 23% to 26% were applied to the cash flows used in the discounted cash flow analysis. We also considered our market capitalization on the date of the analysis. Since the carrying value of the International reporting unit exceeded its fair value, we proceeded to step two of the goodwill impairment test. Step two involved assigning the estimated fair value from step one to the Company's identifiable assets, with any residual fair value assigned to goodwill. Based on the results of step two, we recorded a $5.6 million goodwill impairment charge in the second quarter of fiscal 2012.

Before performing step one of the goodwill impairment test, we first evaluated our long-lived assets for impairment as the significant decline in our market capitalization indicated that the carrying value of the assets may not be recoverable. Our long-lived assets included identifiable intangible assets of $2.3 million and property, plant and equipment of $22.0 million. We determined the recoverability of the asset's carrying value by estimating the expected undiscounted future cash flows that are directly associated with and that are expected to arise as a direct result of the use of the assets. The results of our impairment test indicated no impairment related to the long-lived assets, as the estimated undiscounted cash flows exceeded their carrying value.
Accumulated Other Comprehensive Loss And Total Comprehensive Loss
Accumulated Other Comprehensive Loss and Total Comprehensive Loss
Accumulated Other Comprehensive Loss and Total Comprehensive Loss
Accumulated other comprehensive loss (“AOCL”) as of March 30, 2012 and July 1, 2011, and the changes in the components of AOCL, consisted of the following:
(In millions)
 
Foreign
Currency
Translation
 
Hedging
Derivatives
 
Total
Accumulated
Other
Comprehensive
Loss
Balance as of July 1, 2011
 
$
(2.6
)
 
$
(0.1
)
 
$
(2.7
)
Foreign currency translation loss
 
(0.1
)
 
—

 
(0.1
)
Net unrealized gain on hedging activities
 
—

 
(0.1
)
 
(0.1
)
Balance as of March 30, 2012
 
$
(2.7
)
 
$
(0.2
)
 
$
(2.9
)
Total comprehensive loss for the third quarter and first three quarters of fiscal 2012 and fiscal 2011 was comprised of the following:
 
 
 
Quarter Ended
 
Three Quarters Ended
(In millions)
 
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
Net loss
 
$
(3.2
)

$
(36.9
)

$
(22.8
)

$
(70.7
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
 
1.2


0.3


(0.1
)
 
—

Net unrealized loss on hedging activities
 
(0.4
)

(0.3
)

(0.1
)
 
(0.4
)
Total comprehensive loss
 
$
(2.4
)
 
$
(36.9
)
 
$
(23.0
)
 
$
(71.1
)
Net Income (Loss) Per Share Of Common Stock
Net Income (Loss) per Share of Common Stock
Net Income (Loss) per Share of Common Stock
We compute net income (loss) per share of common stock using the two-class method. Basic net income (loss) per share is computed using the weighted average number of common shares and participating securities outstanding. Our unvested restricted shares (including restricted stock awards and performance share awards) contain rights to receive non-forfeitable dividends and therefore are considered to be participating securities and would be included in the calculations of net income per basic and diluted common share. However, we incurred a net loss in all periods presented. In accordance with Accounting Standard Codification ("ASC") subtopic 260-10, undistributed losses were not allocated to unvested restricted shares due to the fact that the unvested restricted shares are not contractually obligated to share in the losses of the company.
As we incurred net loss for all periods in fiscal 2012 and fiscal 2011, potential dilutive securities from stock options, restricted shares and stock units have been excluded from the diluted net loss per share computations as their effect was anti-dilutive. Because the stock options’ exercise prices were greater than the average market price of our shares, the number of options excluded from the diluted loss per share calculations determined by applying the treasury stock method were not significant during all periods in fiscal 2012 and fiscal 2011.
Balance Sheet Components
Balance Sheet Components
Balance Sheet Components
Receivables
Our receivables are summarized below:
 
(In millions)
 
March 30, 2012
 
July 1, 2011
Accounts receivable
 
$
121.7

 
$
143.2

Notes receivable due within one year
 
1.4

 
4.0

 
 
123.1

 
147.2

Less allowances for collection losses
 
(16.4
)
 
(14.2
)
 
 
$
106.7

 
$
133.0


We regularly require letters of credit from some customers who request extended payment terms of up to one year or more, which we generally discount with various financial institutions. Under these arrangements, collection risk is fully transferred to the financial institutions. We record the cost of discounting these letters of credit as interest expense. Total customer letters of credit being discounted and related interest expense are as follows:
 
 
Quarter Ended
 
Three Quarters Ended
(In millions)
 
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
Customer letters of credit being discounted
 
$
18.3

 
$
25.3

 
$
51.2

 
$
50.7

Interest expense
 
$
0.1

 
$
0.1

 
$
0.2

 
$
0.4

Inventories
Our inventories are summarized below:
 
(In millions)
 
March 30, 2012
 
July 1, 2011
Finished products
 
$
43.1

 
$
41.4

Work in process
 
5.2

 
6.5

Raw materials and supplies
 
1.4

 
2.7

 
 
$
49.7

 
$
50.6

Deferred cost of sales included within finished products

 
$
16.2

 
$
13.9

We recorded charges to adjust our inventories and customer service inventories to the lower of cost or market totaling $0.4 million and $5.7 million, respectively, for the third quarter of fiscal 2012 and fiscal 2011, and $3.0 million and $13.8 million, respectively, for the first three quarters of fiscal 2012 and fiscal 2011. These charges were primarily due to excess and obsolete inventory resulting from product transitioning and discontinuance.
Prior to fiscal 2011, we capitalized most of the costs associated with our internal manufacturing operations as a component of the overall cost of product inventory. Beginning in the first quarter of fiscal 2011, the manufacturing of our products was handled primarily by contract manufacturers and the activity transfer was completed by the end of fiscal 2011. Accordingly, the costs associated with our internal operations organization are expensed as incurred. Gross margin in the first three quarters of fiscal 2011 was negatively impacted by the immediate expensing of $6.0 million of such costs that was previously capitalized.
Property, Plant and Equipment
Our property, plant and equipment are summarized below:
 
(In millions)
 
March 30, 2012
 
July 1, 2011
Land
 
$
0.7

 
$
0.7

Buildings
 
10.5

 
10.1

Software developed for internal use
 
7.2

 
6.7

Machinery and equipment
 
45.0

 
45.1

 
 
63.4

 
62.6

Less accumulated depreciation and amortization
 
(41.7
)
 
(41.0
)
 
 
$
21.7

 
$
21.6

Depreciation and amortization expense related to property, plant and equipment, including amortization of software developed for internal use, was $1.4 million and $2.8 million, respectively, during the third quarter of fiscal 2012 and fiscal 2011, and was $3.5 million and $6.8 million, respectively, during the first three quarters of fiscal 2012 and fiscal 2011.
Accrued Warranties
Changes in our warranty liability, which is included as a component of other accrued expenses on the condensed consolidated balance sheets, during the first three quarters of fiscal 2012 and fiscal 2011 were as follows:
 
 
 
Three Quarters Ended
(In millions)
 
March 30, 2012
 
April 1, 2011
Balance as of the beginning of the fiscal year
 
$
2.8

 
$
2.8

Warranty provision for revenue recorded during the period
 
3.0

 
3.7

Settlements made during the period
 
(2.6
)
 
(4.3
)
Balance as of the end of the period
 
$
3.2

 
$
2.2

Fair Value Measurements Of Assets And Liabilities
Fair Value Measurements Of Assets And Liabilities
Fair Value Measurements of Assets and Liabilities
We determine fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal market (or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between market participants as of the measurement date. We try to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value and establish a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
•
Level 1 — Observable inputs such as quoted prices in active markets for identical assets or liabilities;
•
Level 2 — Observable market-based inputs or observable inputs that are corroborated by market data;
•
Level 3 — Unobservable inputs reflecting our own assumptions.
The carrying amounts, estimated fair values and valuation input levels of our assets and liabilities that are measured at fair value on a recurring basis as of March 30, 2012 and July 1, 2011 were as follows:
 
 
 
March 30, 2012
 
July 1, 2011
 
 
(In millions)
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
Valuation
Inputs
Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
 
 
 
     Money market funds
 
$
51.3

 
$
51.3

 
$
59.3

 
$
59.3

 
Level 1
Other current assets
 
 
 
 
 
 
 
 
 
 
    Foreign exchange forward contracts
 
$
0.1

 
$
0.1

 
$
0.2

 
$
0.2

 
Level 2
Liabilities:
 

 

 

 

 

Other accrued expenses
 
 
 
 
 
 
 
 
 
 
     Foreign exchange forward contracts
 
$
0.3

 
$
0.3

 
$
0.1

 
$
0.1

 
Level 2
We classify investments within Level 1 if quoted prices are available in active markets. Our level 1 investments include shares in prime money market funds purchased from two major financial institutions. As of March 30, 2012 and July 1, 2011, these money market shares were valued at $1.00 net asset value per share by these financial institutions.
We classify items in Level 2 if the investments are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Our foreign exchange forward contracts are classified within Level 2. Foreign currency forward contracts are valued using an income approach for the remaining term of the contract based on forward market rates less the contract rate multiplied by the notional amount. The amortized cost of short-term debt approximates fair value due to the variable interest rate under the arrangement applicable to such debt.

Our policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. During the first three quarters of fiscal 2012 and fiscal 2011, we had no transfers between levels of the fair value hierarchy of our assets or liabilities measured at fair value.
Redeemable Preference Shares
Redeemable Preference Shares
Redeemable Preference Shares
During fiscal 2007, our Singapore subsidiary issued 8,250 redeemable preference shares to the U.S. parent company which, in turn, sold the shares to two unrelated investment companies at par value for total sale proceeds of $8.25 million. Upon original issuance in fiscal 2007, our former majority stockholder, Harris Corporation, guaranteed redemption of these preference shares directly with these two unrelated investment companies through the existence of put option arrangements. During May 2009, one of these unrelated investment companies exercised a put option with Harris and sold its entire interest in 3,250 redeemable preference shares at face value to Harris.
These redeemable preference shares represented less than a 1% interest in our Singapore subsidiary. The redeemable preference shares had an automatic redemption date of January 2017, which is 10 years from the date of issue. Preference dividends were cumulative and payable quarterly in cash at the rate of 12% per annum. Preference dividends totaling $0.1 million and $0.6 million, respectively, for the third quarter and first three quarters of fiscal 2012, and $0.2 million and $0.7 million, respectively, for the third quarter and first three quarters of fiscal 2011, were recorded as interest expense in the accompanying condensed consolidated statements of operations.
In an agreement dated June 30, 2011 by and among Harris, the Company and our Singapore subsidiary, we agreed to redeem the shares on the fifth anniversary of the date of issuance, which was January 30, 2012, at the stated redemption amount of 105% of their face value. In consideration for the early redemption, Harris agreed to waive the 5% premium for the amount that would otherwise be payable to them and to reimburse us for the 5% premium that is payable to the remaining stockholder. Accordingly, the $8.25 million redemption price for these shares was classified as a current liability as of July 1, 2011. On January 30, 2012, the preference shares were redeemed in accordance with the provisions of the redemption agreement and we funded the redemption with proceeds of $8.25 million from a two-year term loan under our credit facility with Silicon Valley Bank as mentioned in Note 9 below.
Credit Facility And Debt
Credit Facility And Debt
Credit Facility and Debt
Our outstanding short-term debt was $6.0 million as of March 30, 2012 and July 1, 2011. On January 30, 2012, we drew down an $8.25 million long-term loan under our credit facility with Silicon Valley Bank ("SVB"). The long-term loan was for two years maturing on January 31, 2014 and provided for 24 equal monthly principal payments. As of March 30, 2012, $7.9 million in principal was outstanding, of which $4.1 million was classified as current and $3.8 million as a long-term liability.
During the quarter ended October 1, 2010, we terminated our previous credit facility with two commercial banks and entered into a new $40.0 million credit facility with SVB for an initial term of one year expiring on September 30, 2011. Prior to September 30, 2011, the availability of the facility was extended and on November 2, 2011 the facility was amended to expire on February 28, 2014 and provide for a two-year term loan for up to $8.25 million that we used to fund the redemption of the preference shares issued by our Singapore subsidiary on January 30, 2012 .
Our current credit facility provides for a committed amount of $40.0 million. The facility provides for (1) demand borrowings (with no stated maturity date); (2) fixed term Eurodollar loans for up to six months, (3) the two-year term loan in the initial amount of $8.25 million drawn down on January 30, 2012, and (4) the issuance of standby or commercial letters of credit. As of March 30, 2012, available credit under this credit facility was $19.0 million reflecting borrowings of $13.9 million and outstanding letters of credit of $7.1 million.
Demand borrowings carry an interest rate computed at the daily prime rate as published in the Wall Street Journal. Interest on Eurodollar loans is offered at LIBOR plus a spread of between 2.00% to 2.75% based on our current leverage ratio. The interest rate on Eurodollar loans was set initially at a spread of 2.75% for the fiscal quarter ended October 1, 2010 and is adjustable quarterly thereafter based on the computed actual leverage ratio for the most recently completed fiscal quarter. As of March 30, 2012. the weighted average interest rate on our short-term borrowings was 3.25%. The two-year term loan is at a fixed interest rate of 5% per annum and provides for equal monthly payments of principal. The facility contains a minimum liquidity ratio covenant and a minimum profitability covenant. As of March 30, 2012, we were in compliance with these financial covenants. Certain of our assets, including accounts receivable, inventory, and equipment, are pledged as collateral for the credit facility. Pursuant to the loan and security agreement, if a material adverse event occurs, as determined by SVB in its judgment, all obligations in connection with the agreement would be immediately due and payable.
We also have an uncommitted short-term line of credit of $0.4 million from a bank in New Zealand to support the operations of our subsidiary located there. This line of credit provides for short-term advances at various interest rates and the issuance of standby letters of credit and company credit cards. This facility may be terminated upon notice, is reviewed annually for renewal or modification, and is supported by a corporate guarantee.
Restructuring
Restructuring
Restructuring
Fiscal 2011 Plan
During the first quarter of fiscal 2011, we initiated a restructuring plan (the “Fiscal 2011 Plan”) to reduce our operational costs. The Fiscal 2011 Plan was intended to bring our cost structure in line with the changing dynamics of the worldwide microwave radio and telecommunication markets, primarily in North America, Europe and Asia. The following table summarizes our costs incurred during the third quarter and first three quarters of fiscal 2012 and fiscal 2011, estimated additional costs to be incurred and estimated total costs expected to be incurred as of March 30, 2012 under the Fiscal 2011 Plan:
 
 
 
Costs Incurred During
Quarter Ended
 
Costs Incurred During
Three Quarters Ended
 
Cumulative
Costs  Incurred
Through
March 30, 2012
 
Estimated
Additional
Costs to be
Incurred
 
Total
Restructuring
Costs Expected
to be Incurred
(In millions)
 
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
 
 
 
North America:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance and benefits
 
$
(0.5
)
 
$
0.9

 
$
(0.5
)
 
$
7.0

 
$
7.2

 
$
0.7

 
$
7.9

Facilities and other
 
0.6

 
2.1

 
1.3

 
2.1

 
3.5

 
0.5

 
4.0

 
 
$
0.1

 
$
3.0

 
$
0.8

 
$
9.1

 
$
10.7

 
$
1.2

 
$
11.9

International:
 

 

 

 

 

 

 

Severance and benefits
 
$
0.3

 
$
0.8

 
$
0.6

 
$
2.0

 
$
3.4

 
$
0.4

 
$
3.8

Facilities and other
 
—

 
0.2

 
—

 
0.2

 
—

 
—

 
—

 
 
$
0.3

 
$
1.0

 
$
0.6

 
$
2.2

 
$
3.4

 
$
0.4

 
$
3.8

Totals for Fiscal 2011 Plan
 
$
0.4

 
$
4.0

 
$
1.4

 
$
11.3

 
$
14.1

 
$
1.6

 
$
15.7

During the first three quarters of fiscal 2012, we continued executing restructuring activities to reduce our operating costs worldwide under the Fiscal 2011 Plan. The $1.3 million facilities charges primarily related to the sublease and relocation of our Morrisville, North Carolina office and Montreal office during the period.
During the first three quarters of fiscal 2011, our severance and benefits charges under the Fiscal 2011 Plan for North America segment related to reductions in force for the downsizing of the Morrisville, North Carolina office, reductions in force in Canada of their finance, human resources, IT and engineering functions, and the reductions in force resulting from the sale of our NetBoss assets. The severance and benefits for International segment related primarily to reductions in personnel located in our field offices during the first three quarters of fiscal 2011.
As of March 30, 2012, we have substantially completed our initiatives under the Fiscal 2011 Plan and expect to wind down certain remaining restructuring activities in fiscal 2013.
Fiscal 2009 Plan
During the first quarter of fiscal 2009, we announced a restructuring plan (the “Fiscal 2009 Plan”) to reduce our worldwide workforce in the U.S., France, Canada and other locations throughout the world. The Fiscal 2009 Plan also included the restructure and transition of our North America manufacturing operations and global supply chain operations. The Fiscal 2009 Plan has been completed as of the end of fiscal 2011. We did not incur restructuring costs related to the Fiscal 2009 Plan in fiscal 2012 and do not expect to incur future restructuring costs related to the Fiscal 2009 Plan.
The following table summarizes our costs incurred during the third quarter and first three quarters of fiscal 2011 and total costs incurred under the Fiscal 2009 Plan:
 
(In millions)
 
Costs Incurred During
Quarter Ended
April 1, 2011
 
Costs Incurred During
Three Quarters Ended
April 1, 2011
 
Total
Restructuring
Costs Incurred
(Completed in
Q4 Fiscal 2011)
North America:
 
 
 

 
 
Severance and benefits
 
$
0.3

 
$
1.0

 
$
9.2

Facilities and other
 
0.1

 
0.2

 
2.8

 
 
$
0.4

 
$
1.2

 
$
12.0

International:
 

 

 

Severance and benefits
 
$
—

 
$
0.9

 
$
5.8

Facilities and other
 
—

 
—

 
0.2

 
 
$
—

 
$
0.9

 
$
6.0

Totals for Fiscal 2009 Plan
 
$
0.4

 
$
2.1

 
$
18.0


During the first three quarters of fiscal 2011, our restructuring charges related to the Fiscal 2009 Plan primarily consisted of the severance and benefits charges for reductions in force in our San Antonio manufacturing facilities and other locations throughout the world.
Restructuring Liabilities
The information in the following table summarizes our restructuring activities during the first three quarters of fiscal 2012 and restructuring liability as of March 30, 2012:
(In millions)
 
Severance
and
Benefits
 
Facilities
and
Other
 
Total
Restructuring liability as of July 1, 2011
 
$
3.2

 
$
1.8

 
$
5.0

Provision related to Fiscal 2011 Plan
 
0.1

 
1.3

 
1.4

Cash payments
 
(3.0
)
 
(1.8
)
 
(4.8
)
Restructuring liability as of March 30, 2012
 
$
0.3

 
$
1.3

 
$
1.6

Current restructuring liability
 

 

 
$
0.9

Long-term restructuring liability
 

 

 
$
0.7

Share-Based Compensation
Share-Based Compensation
Share-Based Compensation
Our compensation expense for share-based awards was included in our condensed consolidated statements of operations as follows:
 
 
 
Quarter Ended
 
Three Quarters Ended
(In millions)
 
March 30, 2012

April 1, 2011
 
March 30, 2012
 
April 1, 2011
By Expense Category:
 
 
 
 
 
 
 
 
Cost of product sales and services
 
$
0.3

 
$
0.1

 
$
0.5

 
$
0.3

Research and development
 
0.2

 
0.5

 
0.7

 
1.4

Selling and administrative
 
1.0

 
0.7

 
2.5

 
1.6

Discontinued operations
 
—

 
—

 
—

 
0.1

Total share-based compensation expense, net of zero tax
 
$
1.5

 
$
1.3

 
$
3.7

 
$
3.4

By Types of Award:
 

 

 

 

Options
 
$
0.7

 
$
0.7

 
$
1.9

 
$
1.7

Restricted stock awards
 
0.6

 
0.3

 
1.3

 
0.8

Performance shares
 
0.2

 
0.3

 
0.5

 
0.9

Total share-based compensation expense, net of zero tax
 
$
1.5

 
$
1.3

 
$
3.7

 
$
3.4

In November 2011, our shareholders approved an increase in the number of shares of common stock authorized for issuance under the Company's 2007 Stock Equity Plan from 10,400,000 to 16,400,000 shares. In February 2012, our board of directors approved the 2012 Global Equity Program ("GEP") under the 2007 Stock Equity Plan to grant share-based awards to employees who are not eligible for the Long-Term Incentive Program. In the third quarter of fiscal 2012, we granted options to purchase 800,500 shares of our common stock and 167,750 shares of performance units under the GEP. Stock options under the GEP vest one-fourth annually over a four-year period from the date of grant. Vesting of performance units under the GEP is subject to performance criteria related to the Company's fiscal 2012 revenue and operating results.
During the first three quarters of fiscal 2012, we granted options to purchase 2,937,210 shares of our common stock and awarded 1,029,686 shares of restricted stock and units and 828,826 shares of performance award and units to employees under our 2007 Stock Equity Plan. During the first three quarters of fiscal 2012, 100,763 shares of performance share awards and 21,722 shares of performance share units were vested upon achievement of a new product development milestone during the first quarter of fiscal 2012.

The fair value of each share subject to an option grant was estimated on the date of grant using the Black-Scholes-Merton option-pricing model based on the following weighted average assumptions:
 
 
 
Quarter Ended
 
Three Quarters Ended
Grant Date
 
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
Expected dividends
 
—
%
 
—
%
 
—
%
 
—
%
Expected volatility
 
66.1
%
 
64.8
%
 
65.9
%
 
63.7
%
Risk-free interest rate
 
0.78
%
 
1.58
%
 
0.74
%
 
1.32
%
Expected term (years)
 
4.61

 
4.28

 
4.46

 
4.35

Fair value per share on date of grant
 
$1.39
 
$2.96
 
$1.22
 
$2.41
As of March 30, 2012, there was $8.0 million of total unrecognized compensation expense related to nonvested stock options and restricted stock awards and units granted under our 2007 Stock Equity Plan. This expense is expected to be recognized over a weighted-average period of 1.95 years.
Major Customer And Business Segments
Major Customer And Business Segments
Major Customer and Business Segments
During the third quarter and first three quarters of fiscal 2012, one International segment customer, Mobile Telephone Networks group (“MTN Group”) in Africa, accounted for 18.1% and 15.0%, respectively, of our total revenue. MTN Group is an affiliated group of separate regional carriers and operators located in Africa. During the third quarter of fiscal 2011, MTN Group accounted for 11.3% of our total revenue. During the first three quarters of fiscal 2011, none of our customers accounted for 10% or more of revenue.
Revenue and operating income (loss) by segment were as follows:
 
 
Quarter Ended
 
Three Quarters Ended
(In millions)
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
Revenue
 
 
 
 
 
 
 
North America
$
42.6

 
$
42.5

 
$
123.8

 
$
118.1

International
69.0

 
73.0

 
204.2

 
213.1

Total Revenue
$
111.6

 
$
115.5

 
$
328.0

 
$
331.2

Operating Loss

 

 

 

North America
$
1.6

 
$
(8.1
)
 
$
(2.3
)
 
$
(18.5
)
International
(1.8
)
 
(2.0
)
 
(9.0
)
 
(12.7
)
Total operating loss
$
(0.2
)
 
$
(10.1
)
 
$
(11.3
)
 
$
(31.2
)
Income Taxes
Income Taxes
Income Taxes
The determination of our provision for income taxes for the third quarter and first three quarters of fiscal 2012 and fiscal 2011 was primarily based on our estimated annual effective tax rate adjusted for losses in separate jurisdictions for which no tax benefit can be recognized.
Our effective tax rate varies from the U.S. federal statutory rate of 35% due to results of foreign operations that are subject to income taxes at different statutory rates and certain jurisdictions where we cannot recognize tax benefits on current losses. We accrued tax expenses for foreign jurisdictions that are anticipated to be profitable for fiscal 2012.
We account for interest and penalties related to unrecognized tax benefits as part of our provision for federal, foreign, and state income taxes. We accrued no additional amount for such interest during the third quarter and first three quarters of fiscal 2012 and fiscal 2011. No penalties have been accrued on any of the unrecognized tax benefits.
We expect that the amount of unrecognized tax benefit may change in the next year; however, it is not expected to have a significant impact on our results of operations, financial position or cash flows due to the full valuation allowance in various jurisdictions.
We have a number of years with open tax audits which vary from jurisdiction to jurisdiction. Our major tax jurisdictions include the U.S., Singapore, Poland, Nigeria, France, U.K. and Australia. The earliest years still open and subject to potential audits for these jurisdictions are as follows: US — 2003; Singapore — 2005; Poland — 2006; Nigeria — 2004; France — 2008; U.K. — 2010; and Australia — 2007. For other foreign jurisdictions, the earliest years still open and subject to potential audits vary from year 2006 to year 2011. In the current quarter, the Inland Revenue Authority of Singapore started a compliance review of our Singapore subsidiary for fiscal years of 2007 through 2009.
Operating Lease Commitments
Operating Lease Commitments
Operating Lease Commitments
We lease office and manufacturing facilities under non-cancelable operating leases expiring at various dates through April 2020. We lease approximately 129,000 square feet of office space in Santa Clara, California as our corporate headquarters. As of March 30, 2012, future minimum lease payments for our headquarters total $20.5 million through April 2020.
As of March 30, 2012, our future minimum commitments, net of $1.7 million non-cancelable subleases, for all non-cancelable operating leases with an initial lease term in excess of one year are as follows:
 
 
Amounts
Fiscal Years Ending in June
(In millions)
2012
$
1.7

2013
4.8

2014
4.0

2015
3.2

2016
3.1

Thereafter
11.1

 
 
           Total
$
27.9

 
 
These commitments do not contain any material rent escalations, rent holidays, contingent rent, rent concessions, leasehold improvement incentives or unusual provisions or conditions.
Rental expense for operating leases, including rentals on a month-to-month basis was $2.3 million and $3.0 million in the third quarter of fiscal 2012 and 2011, respectively, and $7.0 million and $8.9 million in the first three quarters of fiscal 2012 and 2011, respectively.
Derivative Financial Instruments And Hedging Activities
Derivative Financial Instruments and Hedging Activities
Derivative Financial Instruments and Hedging Activities
We use derivative instruments to manage our market exposures to foreign currency risk. Our objectives for using derivatives are to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. We do not hold or issue derivatives for trading purposes or make speculative investments in foreign currencies. All derivative instruments are carried on the balance sheet at fair value.
Our major foreign currency hedging activities are described below:
Cash Flow Hedges. We use currency forward contracts to hedge exposures related to certain forecasted foreign currency transactions relating to revenue, product costs, operating expenses and intercompany transactions. As of March 30, 2012, hedged transactions included our customer and intercompany backlog and outstanding purchase commitments denominated primarily in the Australian dollar, Euro and Polish zloty. These derivatives are designated as cash flow hedges and typically have maturities from one to three months with a maximum of six months, which in general closely match the underlying forecasted transaction in duration.
We measure the effectiveness of the hedges of forecasted transactions on a monthly basis by comparing the fair values of the designated currency forward contracts with the fair values of the forecasted transactions. The effective portion of the contract’s gain and loss is initially recognized in other comprehensive income or loss (“OCI”) and, upon occurrence of the forecasted transaction, is reclassified into the income or expense line item to which the hedged transaction relates. Any ineffective portion of the derivative hedging gain or loss as well as changes in the fair value of the derivative’s time value (which are excluded from the assessment of hedge effectiveness) is recorded in current period earnings, specifically, in cost of product sales as these gains and losses are considered by us to be operational in nature. If the forecasted transaction does not occur, or it becomes probable that it will not occur, the gain or loss on the related cash flow hedge is recognized immediately in cost of product sales.
As of March 30, 2012, it is expected that $0.2 million of derivative net gain on both outstanding and matured derivatives recorded in AOCI will be reclassified to net income or loss during the next twelve months as a result of underlying hedged transactions also being recorded in net income or loss. Actual amounts ultimately to be reclassified to net income or loss depend on the exchange rates in effect when currently outstanding derivative contracts mature.
Balance Sheet Hedges. We also use foreign exchange forward contracts to mitigate the gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in a foreign currency, including primarily cash balances, third party accounts receivable and accounts payable, and intercompany transactions recorded on the balance sheet. These derivatives are not designated and do not qualify as hedge instruments and accordingly are carried at fair value with changes recorded in the cost of product sales in current period. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. These derivatives have maturities of approximately one month.
The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of March 30, 2012 and July 1, 2011:
 
 
 
March 30, 2012
 
July 1, 2011
(In millions)
 
Local
Currency
Amount
 
Notional
Contract
Amount
(USD)
 
Local
Currency
Amount
 
Notional
Contract
Amount
(USD)
Cash flow hedges:
 

 

 

 

Australian dollar
 
2.4

 
$
2.5

 
0.6

 
$
0.6

Euro
 
2.7

 
3.5

 
2.7

 
3.9

Polish zloty
 
11.8

 
3.5

 
8.7

 
3.1

Other
 
N/A

 
2.1

 
N/A

 
1.8

Total cash flow hedges
 

 
11.6

 

 
9.4

Balance sheet hedges:
 

 

 

 

Canadian dollar
 
5.5

 
5.6

 
4.2

 
4.3

Euro
 
7.9

 
10.3

 
15.1

 
21.3

Philippine peso
 
222.0

 
5.2

 
181.1

 
4.2

Polish zloty
 
4.6

 
1.5

 
23.8

 
8.4

Singapore dollar
 
1.2

 
0.9

 
2.6

 
2.1

Thailand baht
 
54.4

 
1.8

 
63.9

 
2.1

Republic of South Africa rand
 
22.6

 
2.9

 
39.1

 
5.7

Other
 
N/A

 
3.3

 
N/A

 
4.0

Total non-designated hedges
 

 
31.5

 

 
52.1

Total
 

 
$
43.1

 

 
$
61.5

The following table presents the fair value of derivative instruments included within our condensed consolidated balance sheets as of March 30, 2012 and July 1, 2011.
 
 
Asset Derivatives
 
Liability Derivatives
(In millions)
 
Balance Sheet
Location
 
March 30, 2012
 
July 1,
2011
 
Balance Sheet
Location
 
March 30, 2012
 
July 1,
2011
Derivatives designated as hedging instruments:
 
 
 

 

 

 

Foreign exchange forward contracts
 
Other current
assets
 
$
0.1

 
$
0.1

 
Other accrued expenses
 
$
0.3

 
$
0.1

Derivatives not designated as hedging instruments:
 
 
 

 

 

 

Foreign exchange forward contracts
 
Other current
assets
 
—

 
0.1

 
Other accrued expenses
 
—

 
—

Total derivatives
 

 
$
0.1

 
$
0.2

 

 
$
0.3

 
$
0.1


The following table summarizes the location and amount of the gains and losses on derivative instruments reported in our financial statements during the third quarter and first three quarters of fiscal 2012 and fiscal 2011:
 
 
 
Quarter Ended
 
Three Quarters Ended
Locations of Gain (Losses) on Derivative Instruments
 
March 30, 2012
 
April 1, 2011
 
March 30, 2012
 
April 1, 2011
 
 
(In millions)
Designated as cash flow hedges (foreign exchange forward contracts):
 

 

 

Effective portion of gain (loss) recognized in OCI
 
$
(0.4
)
 
$
(0.3
)
 
$
0.3

 
$
(0.5
)
Effective portion of gain (loss) reclassified from AOCI into:
 

 

 

 

Revenue
 
$
(0.1
)
 
$
0.0

 
$
(0.6
)
 
$
0.2

Cost of product sales
 
$
0.0

 
$
0.0

 
$
0.1

 
$
(0.1
)
Loss associated with excluded time value recognized
     in cost of product sales
 
$
(0.1
)
 
$
0.0

 
$
(0.2
)
 
$
(0.1
)
Gain (loss) due to hedge ineffectiveness recognized in
     cost of product sales
 
$
0.0

 
$
0.0

 
$
0.0

 
$
0.0

Not designated as cash flow hedges (foreign exchange forward contracts):
 

 

Gain (loss) recognized in cost of product sales
 
$
(0.7
)
 
$
(0.8
)
 
$
0.8

 
$
(2.0
)
Credit Risk
We are exposed to credit-related losses in the event of non-performance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate our exposure to credit risk with these institutions. Should any of these counterparties fail to perform as contracted, we could incur interest charges and unanticipated gains or losses on the settlement of the derivatives in addition to the recorded fair value of the derivative due to non-delivery of the currency. To manage this risk, we have established strict counterparty credit guidelines for financial institutions providing foreign currency exchange services in accordance with corporate policy. As a result of the above considerations, we consider the risk of counterparty default to be immaterial.
The credit facilities we have with financial institutions under which we transact foreign exchange transactions are generally restricted to a total notional amount outstanding, a maximum settlement amount in any one day and a maximum term. There are no formal written agreements supporting these facilities other than the financial institutions’ general terms and conditions for trading. None of the facilities are collateralized and none require compliance with financial covenants or contain cross default or other provisions which could affect other credit arrangements we have with the same or other banks. If we fail to deliver currencies as required upon settlement of a trade, the bank may require early settlement on a net basis of all derivatives outstanding and if any amounts are still owing to the bank, they may charge any cash account we have with the bank for that amount.
Legal Proceedings
Legal Proceedings
Legal Proceedings
Certain of our former executive officers and directors were named in a complaint filed on July 18, 2011 in the United States District Court for the District of Delaware by plaintiff Howard Taylor. Plaintiff purports to bring this action derivatively on behalf of Aviat Networks, which is named as a nominal defendant. Plaintiff brings a claim for breach of fiduciary duty against the officer and director defendants based on the allegations of securities law violations alleged in the class action described above and also alleges that the defendants caused us to acquire MCD at an inflated price. Plaintiff seeks to recover unspecified damages and other relief on behalf of Aviat Networks, as well as payment of costs and attorneys fees. We filed a motion to dismiss on October 3, 2011 with oral arguments scheduled for May 29, 2012. We intend to defend our interests in the litigation vigorously. Currently we are not able to determine whether a loss is probable or to reasonably estimate the loss amount related to this matter.

On February 8, 2007, a court order was entered against Stratex do Brasil, a subsidiary of Aviat U.S., Inc. (formerly Harris Stratex Networks Operating Corporation), in Brazil, to enforce performance of an alleged agreement between the former Stratex Networks, Inc. entity and a supplier. The parties entered into a settlement agreement on February 27, 2012 whereby we agreed to pay $0.2 million to the supplier.

From time to time, we may be involved in various legal claims and litigation that arise in the normal course of our operations. While the results of such claims and litigation cannot be predicted with certainty, we currently believe that we are not a party to any litigation the final outcome of which is likely to have a material adverse effect on our financial position, results of operations or cash flows. However, should we not prevail in any such litigation; it could have a material adverse impact on our operating results, cash flows or financial position.