UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR ~~15 (d)~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 30, 2017~~April 1, 2023

o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number ~~0-22874~~000-22874

Viavi Solutions Inc.

(Exact name of Registrant as specified in its charter)



Delaware						94-2579683
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

~~6001 America Center Drive, 6th Floor, San Jose, California 95002~~1445 South Spectrum Blvd, Suite 102, Chandler, Arizona 85286

(Address of principal executive offices including Zip code)

(408) 404-3600

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of the exchange on which registered

Common Stock, par value of $0.001 per share

VIAV

The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,

a smaller reporting company, or an emerging growth company. See ~~definition~~the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

x☒

Accelerated filer

o☐

Non-accelerated filer

(Do not check if a smaller reporting company)

o☐

Smaller reporting company

o☐

Emerging growth company

o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐No x☒

As of ~~January 26, 2018~~April 29, 2023, the Registrant had ~~225,924,290~~222,449,401 shares of common stock outstanding.

Table of Contents




TABLE OF CONTENTS			Page
PART I - FINANCIAL INFORMATION			2
	Item 1.	Financial Statements (Unaudited)	2
		Consolidated Statements of Operations for the Three and ~~Six~~N ine Months Ended ~~December 30, 2017~~April 1, 202 3 and ~~December 31, 2016~~April 2 , 2022	2
		Consolidated Statements of Comprehensive Income (Loss) for the Three and ~~Six~~N ine Months Ended ~~December 30, 2017~~April 1 , 202 3 and ~~December 31, 2016~~April 2 , 2022	3
		Consolidated Balance Sheets as of ~~December 30, 2017~~April 1, 202 3 and July ~~1, 2017~~2, 2022	4
		Consolidated Statements of Cash Flows for the ~~Six~~N ine Months Ended ~~December 30, 2017~~April 1, 202 3 and ~~December 31, 2016~~April 2 , 2022	5
		Consolidated Statements of Stockholders’ Equity for the Three and Ni ne Months Ended April 1, 202 3 and April 2 , 2022	6
		Notes to Consolidated Financial Statements	68
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2934
	Item 3.	Quantitative and Qualitative Disclosure About Market Risks	4248
	Item 4.	Controls and Procedures	4248

PART II - OTHER INFORMATION			4250
	Item 1.	Legal Proceedings	4250
	Item 1A.	Risk Factors	4251
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4366
	Item 3.	Defaults Upon Senior Securities	4366
	Item 4.	Mine Safety Disclosures	4366
	Item 5.	Other Information	4366
	Item 6.	Exhibits	4467

SIGNATURES			4568

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements ~~(Unaudited)~~

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Revenues:
Product revenue	$	205.2	$	275.8	$	714.4	$	842.3
Service revenue	42.6		39.7		128.1		114.8
Total net revenue	247.8		315.5		842.5		957.1
Cost of revenues:
Product cost of revenue	81.5		104.0		272.9		311.0
Service cost of revenue	19.4		17.2		58.1		51.0
Amortization of acquired technologies	5.9		7.4		18.7		22.7
Total cost of revenues	106.8		128.6		349.7		384.7
Gross profit	141.0		186.9		492.8		572.4
Operating expenses:
Research and development	50.8		54.9		155.3		159.0
Selling, general and administrative	80.0		89.0		250.2		269.0
Amortization of other intangibles	2.1		2.2		6.5		7.5
Restructuring and related charges (benefits)	10.2		—		10.2		(0.1)
Total operating expenses	143.1		146.1		422.2		435.4
(Loss) income from operations	(2.1)		40.8		70.6		137.0
Loss on convertible note settlement (Note 11)	—		(6.4)		—		(98.7)
Loss on convertible note modification (Note 11)	(2.2)		—		(2.2)		—
Interest income and other income, net	1.6		0.6		4.9		3.1
Interest expense	(6.7)		(6.4)		(19.0)		(17.1)
(Loss) income before income taxes	(9.4)		28.6		54.3		24.3
Provision for income taxes	6.0		9.4		28.7		25.3


Net (loss) income	$	(15.4)	$	19.2	$	25.6	$	(1.0)










Net (loss) income per share:
Basic	$	(0.07)	$	0.08	$	0.11	$	—
Diluted	$	(0.07)	$	0.08	$	0.11	$	—

Shares used in per share calculations:
Basic	224.1		229.2		225.5		232.1
Diluted	224.1		236.8		227.6		232.1

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Revenues:
Product revenue $ 177.5
$ 184.2
$ 349.4
$ 372.5
Service revenue 24.3
22.3
47.6
44.8
Total net revenues 201.8
206.5
397.0
417.3
Cost of revenues:
Product cost of revenue 69.6
64.7
133.1
133.3
Service cost of revenue 12.0
13.4
23.4
26.7
Amortization of acquired technologies 4.1
3.7
8.2
7.5
Total cost of revenues 85.7
81.8
164.7
167.5
Gross profit 116.1
124.7
232.3
249.8
Operating expenses:
Research and development 29.9
35.9
59.0
72.0
Selling, general and administrative 76.6
76.9
149.1
152.3
Amortization of other intangibles 3.4
3.4
6.5
6.9
Restructuring and related charges 2.5
1.8
4.0
1.8
Total operating expenses 112.4
118.0
218.6
233.0
Income from operations 3.7
6.7
13.7
16.8
Interest and other income, net 2.9
3.8
3.1
5.1
Gain on sale of investments —
53.9
—
135.4
Interest expense (11.7 ) (9.4 ) (24.2 ) (18.6 )
(Loss) income before taxes (5.1 ) 55.0
(7.4 ) 138.7
(Benefit from) provision for income taxes (1.4 ) 5.8
1.1
11.5
Net (loss) income $ (3.7 ) $ 49.2
$ (8.5 ) $ 127.2

Net (loss) income per share:

Basic $ (0.02 ) $ 0.21
$ (0.04 ) $ 0.55
Diluted $ (0.02 ) $ 0.21
$ (0.04 ) $ 0.54

Shares used in per-share calculation - basic 227.4
230.5
227.7
231.4
Shares used in per-share calculation - diluted 227.4
234.2
227.7
235.8

~~See accompanying notes to consolidated financial statements.~~

Table of Contents

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(unaudited)


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Net (loss) income	$	(15.4)	$	19.2	$	25.6	$	(1.0)
Other comprehensive income (loss):
Net change in cumulative translation adjustment, net of tax	13.4		(12.8)		14.1		(26.5)

Unrealized holding (loss) gain arising during period	(0.3)		—		(0.3)		0.1



Amortization of net actuarial losses and other pension adjustments	—		0.8		(0.3)		2.3


Net change in accumulated other comprehensive income (loss)	13.1		(12.0)		13.5		(24.1)
Comprehensive (loss) income	$	(2.3)	$	7.2	$	39.1	$	(25.1)

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Net (loss) income $ (3.7 ) $ 49.2
$ (8.5 ) $ 127.2
Other comprehensive income (loss):
Net change in cumulative translation adjustment, net of tax 7.1
(25.6 ) 17.3
(22.2 )
Net change in available-for-sale investments, net of tax:
Unrealized holding (loss) gain arising during period (0.4 ) (10.2 ) (0.4 ) 74.2
Less: reclassification adjustments included in net (loss) income —
(52.7 ) —
(134.2 )
Net change in defined benefit obligation, net of tax:
Amortization of actuarial losses 0.5
0.4
0.9
0.9
Net change in accumulated other comprehensive loss 7.2
(88.1 ) 17.8
(81.3 )
Comprehensive income (loss) $ 3.5
$ (38.9 ) $ 9.3

$ 45.9

~~See accompanying notes to consolidated financial statements.~~

Table of Contents

VIAVI SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value data)

(unaudited)


	April 1, 2023		July 2, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	580.6	$	559.9
Short-term investments	1.5		1.4
Restricted cash	4.5		3.6
Accounts receivable, net	220.1		260.9
Inventories, net	125.9		110.1
Prepayments and other current assets	70.4		69.2

Total current assets	1,003.0		1,005.1
Property, plant and equipment, net	247.2		228.9
Goodwill, net	451.9		387.6
Intangibles, net	64.0		54.2
Deferred income taxes	89.7		86.3
Other non-current assets	61.6		65.8

Total assets	$	1,917.4	$	1,827.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	43.7	$	58.3
Accrued payroll and related expenses	41.2		76.0
Deferred revenue	75.5		81.0
Accrued expenses	27.8		29.3
Short-term debt	164.2		68.4
Other current liabilities	60.2		56.3
Total current liabilities	412.6		369.3
Long-term debt	627.9		616.5
Other non-current liabilities	194.6		170.4


Stockholders’ equity:
Preferred stock, $0.001 par value; 1 million shares authorized, no shares issued or outstanding at April 1, 2023 and July 2, 2022	—		—
Common stock, $0.001 par value; 1 billion shares authorized; 222 million shares at April 1, 2023 and 226 million shares at July 2, 2022, issued and outstanding	0.2		0.2
Additional paid-in capital	70,415.6		70,370.2
Accumulated deficit	(69,590.6)		(69,542.3)
Accumulated other comprehensive loss	(142.9)		(156.4)
Total stockholders’ equity	682.3		671.7
Total liabilities and stockholders’ equity	$	1,917.4	$	1,827.9

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

December 30, 2017 July 1, 2017
ASSETS

Current assets:

Cash and cash equivalents $ 753.1
$ 1,004.4
Short-term investments 452.3
432.2
Restricted cash 7.4
11.2
Accounts receivable, net 139.9
120.4
Inventories, net 77.3
48.0
Prepayments and other current assets 49.7
50.8
Total current assets 1,479.7
1,667.0
Property, plant and equipment, net 135.5
136.9
Goodwill 170.7
151.6
Intangibles, net 43.3
31.1
Deferred income taxes 115.0
109.5
Other non-current assets 14.2
14.4
Total assets $ 1,958.4
$ 2,110.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 38.7
$ 32.6
Accrued payroll and related expenses 44.6
43.8
Deferred revenue 67.6
60.2
Accrued expenses 29.7
30.8
Current portion of long-term debt 436.8
—
Other current liabilities 62.6
61.4
Total current liabilities 680.0
228.8
Long-term debt, net of current portion 362.2
931.4
Other non-current liabilities 162.8
163.9
Commitments and contingencies (Note 16)

Stockholders’ equity:
Preferred Stock, $0.001 par value; 1 million shares authorized; 1 share at December 30, 2017 and July 1, 2017, issued and outstanding —
—
Common Stock, $0.001 par value; 1 billion shares authorized; 227 million shares at December 30, 2017 and 228 million shares at July 1, 2017, issued and outstanding 0.2
0.2
Additional paid-in capital 70,173.8
70,184.4
Accumulated deficit (69,346.0 ) (69,305.8 )
Accumulated other comprehensive loss (74.6 ) (92.4 )
Total stockholders’ equity 753.4
786.4
Total liabilities and stockholders’ equity $ 1,958.4
$ 2,110.5

Table of Contents

~~See accompanying notes to consolidated financial statements.~~

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Nine Months Ended
	April 1, 2023		April 2, 2022
OPERATING ACTIVITIES:
Net income (loss)	$	25.6	$	(1.0)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense	26.4		30.1
Amortization of acquired technologies and other intangibles	25.2		30.2
Stock-based compensation	38.8		39.7
Loss on convertible note settlement	—		98.7
Loss on convertible note modification	2.2		—
Amortization of debt issuance costs	2.3		2.2

Deferred taxes, net	4.1		(10.8)
Restructuring	10.2		—
Gain on legal settlement	(6.7)		—
Other	4.1		2.0
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	47.6		(19.2)
Inventories	(20.0)		(26.5)
Other current and non-currents assets	19.0		(2.5)
Accounts payable	(13.3)		(4.9)
Income taxes payable	(6.2)		(27.5)
Deferred revenue, current and non-current	(6.3)		9.8
Accrued payroll and related expenses	(35.1)		(16.9)
Accrued expenses and other current and non-current liabilities	(27.3)		1.1
Net cash provided by operating activities	$	90.6	$	104.5

INVESTING ACTIVITIES:




Capital expenditures	$	(43.7)	$	(53.4)
Proceeds from the sale of assets	3.5		3.4
Acquisitions, net of cash hold back	(64.4)		(1.2)
Purchase price adjustment related to business acquisition	(0.7)		—
Net cash used in investing activities	$	(105.3)	$	(51.2)

FINANCING ACTIVITIES:
Proceeds from issuance of debt (Note 11)	$	118.0	$	400.0
Payment of debt issuance costs	(3.9)		(10.2)
Repurchase and retirement of common stock	(73.9)		(207.0)
Withholding tax payment on vesting of restricted stock and performance based-awards	(11.4)		(12.5)
Cash paid to note holders in convertible note settlement	—		(320.2)
Cash paid to third parties in convertible note settlement	—		(4.1)
Payment of financing obligations	(0.1)		(0.1)
Proceeds from employee stock purchase plan	7.9		7.8
Proceeds from revolving credit facility	—		150.0
Repayment of revolving credit facility	—		(150.0)
Payment of acquisition related obligations	(0.7)		(0.9)

Payment of acquisition related contingent consideration	(6.6)		(4.1)
Net cash provided by (used in) financing activities	$	29.3	$	(151.3)

Effect of exchange rates on cash, cash equivalents and restricted cash	$	5.8	$	(8.9)
Net increase (decrease) in cash, cash equivalents and restricted cash	20.4		(106.9)
Cash, cash equivalents and restricted cash at the beginning of the period (1)	572.8		708.4
Cash, cash equivalents and restricted cash at the end of the period (2)	$	593.2	$	601.5

(1) These amounts include both current and non-current balances of restricted cash totaling $12.9 million and $10.6 million as of July 2, 2022 and July 3, 2021, respectively.

(2) These amounts include both current and non-current balances of restricted cash totaling $12.6 million and $11.7 million as of April 1, 2023 and April 2, 2022, respectively.

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

Six Months Ended
December 30, 2017 December 31, 2016
OPERATING ACTIVITIES:
Net (loss) income $ (8.5 ) $ 127.2
Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation expense 16.7
15.5
Amortization of acquired technologies and other intangibles 14.7
14.4
Stock-based compensation 15.2
17.8
Asset retirement obligations and deferred rent expenses 0.3
(0.2 )
Amortization of debt issuance costs and accretion of debt discount 18.8
15.0
Amortization of discount and premium on investments, net 0.2
0.8
Gain on sale of investments —
(135.4 )
Loss on disposal of assets 1.5
1.7
Loss on extinguishment of debt 3.8
—
Noncash accounts receivable charges 4.3
1.6
Changes in operating assets and liabilities, net of impact of acquisitions of businesses:
Accounts receivable (18.7 ) (21.2 )
Inventories (19.1 ) (0.6 )
Other current and non-currents assets 5.1
(7.1 )
Accounts payable 2.4
(9.8 )
Income taxes payable (0.6 ) 3.7
Deferred revenue, current and non-current 4.4
(16.9 )
Deferred taxes, net (2.4 ) (0.9 )
Accrued payroll and related expenses (0.8 ) (1.5 )
Accrued expenses and other current and non-current liabilities (2.4 ) 32.6
Net cash provided by operating activities 34.9
36.7

INVESTING ACTIVITIES:
Purchases of available-for-sale investments (297.6 ) (373.0 )
Maturities of available-for-sale investments 250.3
201.2
Sales of available-for-sale investments 26.6
234.3
Changes in restricted cash 4.5
0.9
Capital expenditures (14.9 ) (20.1 )
Proceeds from the sale of assets 2.3
2.8
Acquisition of business, net of cash acquired (56.2 ) —
Net cash (used in) provided by investing activities (85.0 ) 46.1

FINANCING ACTIVITIES:
Repurchase and retirement of common stock (31.0 ) (39.7 )
Withholding tax payment on vesting of restricted stock awards (8.9 ) (7.8 )
Repurchase and redemption of convertible debt (175.0 ) —
Payment of financing obligations (0.9 ) (0.4 )
Proceeds from exercise of employee stock options and employee stock purchase plan 2.5
4.0
Net cash used in financing activities (213.3 ) (43.9 )

Effect of exchange rates on cash and cash equivalents 12.1
(16.1 )
Net (decrease) increase in cash and cash equivalents (251.3 ) 22.8
Cash and cash equivalents at the beginning of the period 1,004.4
482.9
Cash and cash equivalents at the end of the period $ 753.1
$ 505.7

Table of Contents

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

~~See~~(in millions)

(unaudited)




Three Months Ended April 1, 2023
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance at December 31, 2022	224.8	$	0.2	$	70,388.8	$	(69,545.2)	$	(156.0)	$	687.8

Net loss	—	—		—		(15.4)		—		(15.4)
Other comprehensive income	—	—		—		—		13.1		13.1
Shares issued under employee stock plans, net of tax	0.4	—		4.0		—		—		4.0
Stock-based compensation	—	—		12.7		—		—		12.7
Repurchase of common stock	(2.8)	—		—		(30.0)		—		(30.0)
Convertible note modification (Note 11)	—	—		10.1				—		10.1
Balance at April 1, 2023	222.4	$	0.2	$	70,415.6	$	(69,590.6)	$	(142.9)	$	682.3




Three Months Ended April 2, 2022
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance at January 1, 2022	232.5	$	0.2	$	70,354.3	$	(69,470.4)	$	(109.3)	$	774.8

Net income	—	—		—		19.2		—		19.2
Other comprehensive loss	—	—		—		—		(12.0)		(12.0)
Shares issued under employee stock plans, net of tax	0.4	—		2.7		—		—		2.7
Stock-based compensation	—	—		12.8		—		—		12.8
Repurchase of common stock	(4.7)	—		—		(78.7)		—		(78.7)
Convertible note settlement (Note 11)	—	—		(8.9)		—		—		(8.9)
Balance at April 2, 2022	228.2	$	0.2	$	70,360.9	$	(69,529.9)	$	(121.3)	$	709.9





Nine Months Ended April 1, 2023
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance at July 2, 2022	226.4	$	0.2	$	70,370.2	$	(69,542.3)	$	(156.4)	$	671.7

Net income	—	—		—		25.6		—		25.6
Other comprehensive income	—	—		—		—		13.5		13.5
Shares issued under employee stock plans, net of tax	2.3	—		(3.5)		—		—		(3.5)
Stock-based compensation	—	—		38.8		—		—		38.8
Repurchase of common stock	(6.3)	—		—		(73.9)		—		(73.9)
Convertible note modification (Note 11)	—	—		10.1				—		10.1
Balance at April 1, 2023	222.4	$	0.2	$	70,415.6	$	(69,590.6)	$	(142.9)	$	682.3

Table of Contents





Nine Months Ended April 2, 2022
	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total
Balance at July 3, 2021	228.3	$	0.2	$	70,183.2	$	(69,322.3)	$	(97.2)	$	763.9
Net loss	—	—		—		(1.0)		—		(1.0)
Other comprehensive loss	—	—		—		—		(24.1)		(24.1)
Shares issued under employee stock plans, net of tax	2.0	—		(4.5)		—		—		(4.5)
Stock-based compensation	—	—		39.4		—		—		39.4
Repurchase of common stock	(12.7)	—		—		(206.6)		—		(206.6)
Convertible note settlement (Note 11)	10.6	—		142.8		—		—		142.8
Balance at April 2, 2022	228.2	$	0.2	$	70,360.9	$	(69,529.9)	$	(121.3)	$	709.9

The accompanying ~~notes~~Notes to ~~consolidated financial~~the Consolidated Financial Statements are an integral part of these statements.



Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The financial information for Viavi Solutions Inc. ~~(“VIAVI”~~(VIAVI also referred to as ~~“the Company”, “we”, “our” and “us”) as of December 30, 2017 and~~the Company) for the three and ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016~~April 2, 2022 is unaudited, and includes all normal and recurring adjustments ~~Company~~the Company’s management ~~(“Management”)~~ considers necessary for a fair statement of the financial information set forth ~~herein,~~herein. The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America ~~(“U.S. GAAP”)~~(U.S. GAAP) for interim financial information and rules and regulations of the Securities and Exchange Commission ~~(“SEC”)~~(SEC). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K, for the year ended July 2, 2022.

There have been no material changes to the Company’s accounting policies during the three and nine months ended April 1, ~~2017.~~2023 as compared to the significant accounting policies presented in “Note 1. Basis of Presentation” of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report for the year ended July 2, 2022 on Form 10-K, filed with the SEC on August 19, 2022.

The ~~balance sheet~~Consolidated Balance Sheet as of July ~~1, 2017~~2, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three and ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016~~April 2, 2022 may not be indicative of results for the fiscal year ending ~~June 30, 2018~~July 1, 2023 or any future periods.

Fiscal Years

The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The Company’s fiscal ~~2018~~2023 is a 52-week year ending on ~~June 30, 2018.~~July 1, 2023. The Company’s fiscal ~~2017~~2022 was a 52-week year ending on July ~~1, 2017.~~2, 2022.

Principles of Consolidation

The consolidated financial statements ~~have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and~~ include the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Use of Estimates

The preparation of the Company’s consolidated financial statements ~~in conformity with U.S. GAAP~~ requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenues and expenses and the disclosure of commitments and contingencies during the reporting periods. The Company bases estimates on historical experience and ~~on various~~ assumptions about ~~the~~ future periods that are believed to be reasonable based on available information. The Company’s reported financial positions or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect ~~more~~readily available current information.

We operate globally and sell our products in countries throughout the world. Recent escalation in regional conflicts, including the Russian invasion of Ukraine, resulting in ongoing economic sanctions, and the risk of increased tensions between China and the US, could curtail or prohibit our ability to transfer certain technologies, to sell our products and solutions, or to continue to operate in certain locations. Moreover, international conflict has resulted in increased pressure on the supply chain and could further result in increased energy costs, which could increase the cost of manufacturing, selling and delivering products and solutions; inflation, which could result in increases in the cost of manufacturing products, reduced customer purchasing power, increased price pressure, and reduced or cancelled orders; increased risk of cybersecurity attacks; and general market instability, all of which could adversely impact our financial results. As a result of the restrictions on exports to Russia, we suspended transactions in the region effective February 2022, which has negatively impacted our business. Foreign companies in China are facing increasing operational challenges and enhanced scrutiny from governmental entities in region. We are not aware of any specific event or circumstances that would require an update to the estimates or judgments or a revision of the carrying value of assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change, as new events occur and additional information becomes available. Actual results may differ materially from these estimates, assumptions or conditions due to risks and uncertainties, including the ongoing geopolitical instability as well as the potential for additional trade actions or retaliatory cyber-attacks aimed at infrastructure or supply chains. The impact on our future operations and results remains uncertain.

While the Covid pandemic has abated and normal business operations have largely resumed, events have led, at times, to slowdowns in shipping and commercial activities. Through lingering economic turbulence, there continue to be periodic shipping and logistics challenges and continued supply chain constraints, shortages and delays, along with inflationary pricing pressures. While the Company expects that all of this could have a negative impact to its sales and its results of operations, the Company is not aware of any specific event or circumstances that would require an update to the estimates or judgments or a revision of the carrying value of assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information becomes available. Actual results may differ materially from these estimates, assumptions or conditions.

Note 2. Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In ~~May 2017,~~November 2021, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~guidance~~ASU 2021-10 Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires annual disclosures about transactions with a government entity that ~~clarifies~~are accounted for by applying a grant or contribution accounting model including the disclosure of the types of ~~changes to~~assistance, an entity's accounting for the ~~terms or conditions~~assistance, and the effect of ~~share-based payment awards to which~~the assistance on an ~~entity would be required to apply modification accounting under the relevant authoritative guidance. The guidance is to be applied prospectively, and~~entity's financial statements. ASU 2021-10 is effective for annual periods beginning after December 15, 2021. The Company adopted the ~~Company~~ASU on July 3, 2022 with no material impact expected to disclosures in the ~~first quarter of fiscal 2019. Early adoption is permitted. The Company does not anticipate~~Annual Report on Form 10-K for the ~~adoption of this guidance to have a material impact on its consolidated financial statements, absent any award(s) modified on or after adoption date.~~year ended July 1, 2023.


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recent Accounting Pronouncements Not Yet Adopted

In ~~November 2016,~~March 2022, the FASB issued ASU 2022-01 Derivatives and Hedging (Topic 815), which clarifies guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets. The amendments in this update expand the current last-of-layer method of hedge accounting that ~~will require~~permits only one hedged layer to allow multiple hedged layers of a single closed portfolio. To reflect that expansion, the ~~amounts generally described as restricted cash and restricted cash equivalents would be included with cash and cash equivalents when reconciling~~last-of-layer method is renamed the ~~beginning-of-period and end-of-period amounts shown on the statement of cash flows. The new guidance also requires certain disclosures to supplement the statement of cash flows. The~~portfolio layer method. This guidance is effective for the Company in the first quarter of fiscal ~~2019. Other than changes in the presentation within the statements of cash flows and additional required disclosures, the~~2024 with early adoption ~~of this new accounting guidance will not have an impact on the consolidated financial statements.~~

In October 2016, the FASB issued guidance that requires entities to recognize at the transaction date the income tax consequences of intra-entity transfer of an asset other than inventory. The guidance is effective for the Company in the first quarter of fiscal 2019. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

In June 2016, the FASB issued guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The guidance is effective for the Company in the first quarter of fiscal 2021 and earlier adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on its ~~consolidated financial statements.~~Consolidated Financial Statements.

In ~~February 2016,~~March 2022, the FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326), which eliminates the accounting guidance ~~regarding both operating~~on troubled debt restructurings for creditors in ASC 310 and ~~financing leases, requiring lessees~~amends the guidance on vintage disclosures to ~~recognize on their balance sheets “right-of-use assets”~~require disclosure of current-period gross write-offs by year of origination. The ASU also updates the requirements related to the accounting for credit losses under ASC 326 and ~~corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject~~adds enhanced disclosures for creditors with respect to ~~this treatment except leases that meet the definition of a “short-term lease.” The guidance requires a modified retrospective transition approach~~loan refinancings and restructurings for ~~leases existing at, or entered into after, the beginning of the earliest comparative period presented in the~~borrowers experiencing financial ~~statements. The~~difficulty. This guidance is effective for the Company in the first quarter of fiscal ~~2020. While the~~2024 with early adoption permitted. The Company is ~~not yet in a position to assess~~evaluating the ~~full~~ impact of ~~the application of the~~adopting this new accounting guidance ~~the Company expects adoption of this guidance will materially increase the assets and liabilities recorded~~ on its Consolidated ~~Balance Sheets.~~Financial Statements.

In ~~May 2014,~~June 2022, the FASB issued ~~new authoritative~~ASU 2022-03 Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. This guidance ~~related~~also requires certain disclosures for equity securities subject to ~~revenue recognition from contracts with customers. This new guidance will replace current U.S. GAAP guidance on this topic and eliminate industry-specific guidance.~~contractual sale restrictions. The new guidance ~~provides a unified model~~is required to ~~determine when and how revenue is recognized. The core principle~~be applied prospectively with any adjustments from the adoption of the ~~new~~amendments recognized in earnings and disclosed on the date of adoption. This guidance is ~~that a company should recognize revenue to depict~~effective for the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This new guidance allows for either full retrospective adoption or modified retrospective adoption. The FASB deferred the effective date for this new guidance by one year to December 15, 2017 for annual reporting periods beginning after such date.The Company ~~will adopt the guidance~~ in the first quarter of fiscal ~~2019 using the full retrospective method, reflecting the application of the new standard in each prior reporting period.~~

~~In preparation for the implementation and~~2025 with early adoption of the new guidance, the Company has established a cross-functional team and implementation plan to identify processes, systems and internal controls over financial reporting impacted by the new guidance. The implementation plan includes comparison of the Company’s historical accounting policies and practices to the requirements of the new guidance, and identifying differences from applying the requirements of the new guidance to the Company’s contracts, consolidated financial statements and related disclosures.

While the Company’s assessment of the potential impacts of the new guidance is not yet complete, initially the Company believes the most significant impact on the accounting for contracts with customers will be for certain arrangements that include sales of software solutions bundled with post-contract support (PCS) and/or services, where VSOE has not been established for the PCS and/or the services. Due to lack of VSOE under the current guidance, the Company defers recognition of any revenue attributable to such arrangements until the services lacking VSOE are complete. Such revenue is then recognized ratably over the remaining support term. The requirement to have VSOE for undelivered elements to enable the separation of the revenue for delivered software is eliminated under the new guidance and the Company will be required to allocate total contract revenue to each element (referred to as a distinct performance obligation under the new standard) based on either an established or estimated standalone selling price. Accordingly, a portion of the revenue for these types of contracts with customers will be recognized when the software or software solution is transferred to the customer. Dependent on contract-specific terms, the Company expects the actual revenue recognition treatment and timing will vary under the new guidance for some of these arrangements.permitted. The Company ~~will continue to evaluate~~is evaluating the impact of adopting this new accounting guidance on its ~~consolidated financial statements~~Consolidated Financial Statements.

In September 2022, the FASB issued ASU 2022-04 Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations, which makes a number of changes meant to add certain disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and ~~related disclosures.~~associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. This guidance is effective for the Company in the first quarter of fiscal 2024 with early adoption permitted. The Company is evaluating the impact of adopting this new accounting guidance on its Consolidated Financial Statements.



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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Earnings Per Share

The following table sets forth the computation of basic and diluted net income (loss) ~~income~~ per share (in millions, except per share data):


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Numerator:


Net (loss) income	$	(15.4)	$	19.2	$	25.6	$	(1.0)
Denominator:
Weighted-average shares outstanding:

Basic	224.1		229.2		225.5		232.1
Shares issuable assuming conversion of convertible notes (1)	—		4.9		0.4		—
Effect of dilutive securities from stock-based compensation plans	—		2.7		1.7		—
Diluted	224.1		236.8		227.6		232.1

Net (loss) income per share:


Basic	$	(0.07)	$	0.08	$	0.11	$	—


Diluted	$	(0.07)	$	0.08	$	0.11	$	—

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Numerator:

Net (loss) income $ (3.7 ) $ 49.2
$ (8.5 ) $ 127.2
Denominator:
Weighted-average number of common shares outstanding
Basic 227.4
230.5
227.7
231.4
Effect of dilutive securities from stock-based benefit plans —
3.7
—
4.4
Diluted 227.4
234.2
227.7
235.8

Net (loss) income per share:
Basic $ (0.02 ) $ 0.21
$ (0.04 ) $ 0.55
Diluted $ (0.02 ) $ 0.21
$ (0.04 ) $ 0.54
(1) Represents the dilutive impact for the Company’s 1.75% Senior Convertible Notes due 2023 (2023 Notes), the 1.00% Senior Convertible Notes due 2024 (2024 Notes) and the 1.625% Senior Convertible Notes due 2026 (2026 Notes). As of April 1, 2023, the if-converted value is less than the outstanding principal of the 2023, 2024 and 2026 Notes, respectively. Refer to “Note 11. Debt” for more details.

The following table sets forth the weighted-average potentially dilutive securities excluded from the computation of the diluted net ~~(loss)~~ income per share because their effect would have been anti-dilutive (in millions):




	Three Months Ended		Nine Months Ended
	April 1, 2023	April 2, 2022	April 1, 2023	April 2, 2022
Restricted stock units (1)	4.3	0.3	3.6	0.6

Shares issuable from Senior Convertible Notes (2)	—	—	—	5.9
Total potentially dilutive securities	4.3	0.3	3.6	6.5

Three Months Ended Six Months Ended
December 30, 2017 (1) (2) December 31, 2016 (1) December 30, 2017 (1) (2) December 31, 2016 (1)
Stock options and ESPP 1.6
1.5
1.6
1.6
Restricted Stock Units 7.7
0.2
7.8
—
Total potentially dilutive securities 9.3
1.7
9.4
1.6
(1) Represents the number of RSUs that are excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

~~(1) The Company’s 0.625%~~(2) As the Company incurred a loss from continuing operations in the period, potential securities from Senior Convertible Notes ~~due 2033 are not included in~~have been excluded from the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $11.28dilutive net loss per share ~~is payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. Refer to “Note 10. Debt” for more details.~~computations as their effects were deemed anti-dilutive.

(2) The Company’s 1.00% Senior Convertible Notes due 2024 are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $13.22 per share is payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. Refer to “Note 10. Debt” for more details.


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Accumulated Other Comprehensive Loss

The Company’s accumulated other comprehensive loss consists of the accumulated net unrealized gains or losses on available-for-sale investments, foreign currency translation adjustments and change in unrealized components of defined benefit obligations.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

For the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023, the changes in accumulated other comprehensive loss, ~~by component~~ net of tax, by component were as follows (in millions):






	Unrealized losses on available-for sale investments		Foreign currency translation adjustments, net of tax		Change in unrealized components of defined benefit obligations (1)		Total
Beginning balance as of July 2, 2022	$	(5.0)	$	(144.2)	$	(7.2)	$	(156.4)
Other comprehensive (loss) income before reclassification	(0.3)		14.1		—		13.8
Amounts reclassified out of accumulated other comprehensive loss	—		—		(0.3)		(0.3)
Net current-period other comprehensive (loss) income	(0.3)		14.1		(0.3)		13.5
Ending balance as of April 1, 2023	$	(5.3)	$	(130.1)	$	(7.5)	$	(142.9)

Unrealized gains (losses) on available-for sale investments
Foreign
currency translation adjustments
Change in unrealized components of defined benefit obligations (1) Total
Beginning balance as of July 1, 2017 $ (5.3 ) $ (65.3 ) $ (21.8 ) $ (92.4 )
Other comprehensive income (loss) before reclassification (0.4 ) 17.3
—
16.9
Amounts reclassified out of accumulated other comprehensive loss —
—
0.9
0.9
Net current-period other comprehensive (loss) income (0.4 ) 17.3
0.9
17.8
Ending balance as of December 30, 2017 $ (5.7 ) $ (48.0 ) $ (20.9 ) $ (74.6 )

(1) The amount reclassified out of accumulated other comprehensive loss represents the amortization of actuarial losses included as a component of cost of revenues, research and development ~~(“R&D”)~~(R&D) and selling, general and administrative ~~expense (“SG&A”)~~(SG&A) in the Consolidated Statement of Operations, net of reclassification adjustments, for the ~~six~~nine months ended ~~December 30, 2017.~~April 1, 2023. There was no tax impact for the ~~six~~nine months ended ~~December 30, 2017.~~April 1, 2023. Refer to “Note ~~15.~~17. Employee Pension and Other Benefit Plans” for more details on the computation of net periodic cost for pension plans.

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~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Note 5. ~~Mergers and~~ Acquisitions

On ~~August 9, 2017,~~October 5, 2022, the ~~Company completed the acquisition of Trilithic, Inc. (“Trilithic”), a privately-held provider of electronic test and measurement equipment for telecommunications service providers. The~~ Company acquired all ~~outstanding shares~~ of ~~Trilithic~~the equity of Jackson Labs Technologies, LLC (Jackson Labs), a privately held company which specializes in Position, Navigation and Timing (PNT) solutions for ~~$55.5~~critical infrastructure serving both military and civilian applications. The acquisition enables the Company to broaden its solutions offering into the rapidly developing PNT landscape.

The total purchase consideration includes approximately $49.9 million paid in cash at closing and additional contingent consideration of up to $117.0 million for which future cash payments are dependent on the achievement of certain operational and revenue targets over the course of a three-year period beginning in January 2023. The cash consideration paid at closing includes escrow payments of $5.0 million for indemnity holdback and $2.0 million subject to final cash and net working capital adjustments. The ~~Company finalized working capital adjustments in~~acquisition meets the ~~second quarter~~definition of ~~fiscal 2018~~a business and ~~made an additional $0.9 million cash payment. The Trilithic acquisition is being integrated into the Company’s Network Enablement (“NE”) segment.~~

~~The Company~~has been accounted for ~~the transaction~~ in accordance with the authoritative guidance on business ~~combinations. Therefore,~~combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition ~~date,~~date. Acquisition related costs incurred were approximately $0.8 million and ~~acquisition-related costs totaling $0.9 million were included in selling, general, and administrative expenses~~have been recorded within SG&A in the ~~Company’s~~ Consolidated ~~Statement~~Statements of ~~Operations during the six months ended December 30, 2017.~~Operations.


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The total purchase ~~price~~consideration was allocated ~~as follows~~ ~~(in millions)~~ :

Net tangible assets acquired $ 11.8
Intangible assets acquired:
Developed technology 15.5
Customer relationships 11.0
Other 0.3
Goodwill 17.8
Total purchase price $ 56.4

to tangible and intangible assets acquired and liabilities assumed based on the preliminary fair value on the acquisition date. The following table ~~summarizes~~presents the preliminary allocation of the purchase price (in millions):


	Amount


Cash and cash equivalents	$	1.1
Accounts receivable, net	2.3
Inventory, net	3.2
Goodwill (1)	48.3
Identified intangible assets acquired	30.6
Other non-current assets	0.1
Accounts payable	(0.6)
Accrued expenses	(3.4)
Deferred revenue	(2.1)
Other current liabilities	(0.5)
Total purchase consideration	$	79.0

(1) Goodwill at acquisition date of $48.8 million reduced by measurement period adjustment of $0.5 million.

The following table sets forth the components of ~~the tangible~~identifiable intangible assets acquired ~~at fair value~~ and their estimated useful lives as of the date of acquisition (in ~~millions)~~millions, except useful life):

Estimated Useful Life

Amount

Developed technology

6 years

25.0

Customer relationship

3 years

2.7

Tradename

2 years

0.5

Backlog

1 year

2.4

Total identifiable assets acquired

30.6

Cash $ 0.2
Accounts receivable 3.2
Inventory 10.1
Property and equipment 1.2
Accounts payable (1.7 )
Other liabilities, net of other assets (1.2 )
Net tangible assets acquired $ 11.8

~~Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to~~Goodwill represents the ~~overall fair value measurement. The~~excess of the preliminary estimated purchase consideration over the preliminary estimates of the fair value of the net tangible and intangible assets acquired and has been allocated to the Network Enablement segment. Goodwill is primarily attributable to expected synergies in the acquired technologies that may be leveraged by the Company in future PNT offerings. The goodwill is expected to be deductible for U.S. income tax purposes.

On July 18, 2022, the Company completed an acquisition accounted for as a business combination consisting of cash paid at closing of $17.5 million and $2.0 million of indemnity holdback. In connection with this acquisition, the Company recorded approximately $11.2 million of goodwill, $5.1 million of developed technology and $1.8 million of deferred tax liability. The acquired developed technology ~~customer relationships,~~asset is being amortized over its estimated useful life of four years.

On May 13, 2022 and May 20, 2022, the Company completed acquisitions accounted for as business combinations for cash paid at close of $9.5 million, additional earn-outs of up to $3.3 million in cash to be paid based on the occurrence or achievement of certain agreed upon targets and $2.0 million of indemnity holdback. In connection with these acquisitions, the Company recorded $10.0 million of goodwill, $7.3 million of developed technology and other ~~intangible assets was determined based on an income approach using the discounted cash flow method.~~intangibles and $1.6 million of deferred tax liability. The acquired developed technology and other intangible assets are being amortized over their estimated useful lives ~~that range~~ranging from ~~three~~one to ~~five years for the acquired developed technology and customer relationships.~~six years.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Trilithic. Goodwill has been assigned to the NE segment and is not deductible for tax purposes. Goodwill is not being amortized but is reviewed annually for impairment or more frequently if impairment indicators arise, in accordance with authoritative guidance.

Trilithic’s results of operations have been included in the Company’s consolidated financial statements subsequent to the date of acquisition. Pro forma results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.



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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On September 17, 2021, the Company acquired all of the equity of one business for approximately $1.6 million. The acquisition was accounted for as an asset purchase. The developed technology will be amortized over its estimated useful life of five years.

Acquisition-related Contingent Consideration

The following table provides a reconciliation of changes in the fair value of the Company’s earn-out liabilities associated with the Company’s acquisitions for the three and nine months ended April 1, 2023 and April 2, 2022 (in millions):


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Beginning period balance	$	33.2	$	3.1	$	2.5	$	4.0
Additions to Contingent Consideration	—		—		29.4		—
Payments of Contingent Consideration	(6.6)		(3.2)		(7.1)		(4.4)
Fair value adjustment of earn-out liabilities	(1.9)		—		(0.2)		0.3
Currency translation adjustment	(0.1)		0.1		—		0.1
Ending period balance	$	24.6	$	—	$	24.6	$	—

Note 6. Balance Sheet and Other Details

Contract Balances

Gross receivables include both billed and unbilled receivables (including Contract assets). As of April 1, 2023, and July 2, 2022, the Company had total unbilled receivables of $11.9 million and $7.3 million, respectively.

The Company also has short-term and long-term deferred revenues related to undelivered product and professional services, consisting of installations and consulting engagements, which are recognized as the Company's performance obligations under the contract are completed and accepted by the customer.

The following tables summarize the activity related to deferred revenue (in millions):


	April 1, 2023
	Three Months Ended		Nine Months Ended
Deferred revenue:
Balance at beginning of period	$	94.6	$	100.4
Revenue deferrals for new contracts (1)	32.4		95.5
Revenue recognized during the period (2)	(29.6)		(98.5)
Balance at end of period	$	97.4	$	97.4

(1) Included in these amounts is the impact from foreign currency exchange rate fluctuations.

(2) Revenue recognized during the period represents releases from the balance at the beginning of the period as well as releases from the current period deferrals.

Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, adjustments for revenue that have not materialized, and adjustments for currency.

The value of the transaction price allocated to remaining performance obligations as of April 1, 2023, was $244.2 million. The Company expects to recognize approximately91% of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts receivable ~~reserves and allowances~~allowance - Credit losses

The ~~components of accounts receivable reserves and allowances were as follows (in millions~~):

December 30, 2017 July 1, 2017
Allowance for doubtful accounts $ 1.6
$ 1.6
Sales allowance 5.2
3.4
Total accounts receivable reserves and allowances $ 6.8
$ 5.0

~~The~~following table presents the activities and balances for allowance for ~~doubtful~~credit losses (in millions):


	July 2, 2022		Charged to Costs and Expenses		Deductions (1)		April 1, 2023
Allowance for credit losses	$	1.4	$	0.4	$	(0.8)	$	1.0

(1) Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, ~~are as follows (in millions):~~

July 1, 2017 Acquisition of Trilithic (1) Charged to Costs and Expenses Deduction December 30, 2017
Allowance for doubtful accounts $ 1.6
0.1
—
(0.1 ) $ 1.6

~~(1) See “Note 5. Mergers and Acquisitions”~~net of ~~the Notes to Consolidated Financial Statements for detail of acquisition.~~

recoveries.

Inventories, net

The following table presents the components of inventories, net ~~were as follows~~ (in millions):


	December 30, 2017		July 1, 2017			April 1, 2023		July 2, 2022
Finished goods	$	43.6	$	24.9	Finished goods	$	49.6	$	41.6
Work in process	12.8		10.3		Work in process	19.0		17.7
Raw materials	20.9		12.8		Raw materials	57.3		50.8
Inventories, net	$	77.3	$	48.0	Inventories, net	$	125.9	$	110.1

Prepayments and other current assets

The following table presents the components of prepayments and other current assets ~~were as follo~~ws (in millions):


	April 1, 2023		July 2, 2022
Refundable income taxes	$	30.7	$	14.5
Prepayments	12.7		16.0
Advances to contract manufacturers	9.4		11.8
Transaction tax receivables	6.6		10.4
Asset held for sale	2.5		2.5
Other current assets	8.5		14.0
Prepayments and other current assets	$	70.4	$	69.2

Other current liabilities

The following table presents the components of other current liabilities (in millions):


	April 1, 2023		July 2, 2022



Income tax payable	$	10.2	$	9.6
Operating lease liabilities (Note 12)	10.1		10.1
Interest payable	8.4		4.6
Restructuring accrual (Note 13)	7.4		—
Acquisition related holdback and related accruals	4.5		0.1
Transaction tax payable	4.5		11.5
Warranty accrual	4.2		4.4

Fair value of forward contracts	1.5		8.4
Fair value of contingent consideration	1.1		1.8
Other	8.3		5.8
Other current liabilities	$	60.2	$	56.3

December 30, 2017 July 1, 2017
Prepayments $ 10.7
$ 8.3
Asset held for sale 3.0
—
Other current assets 36.0
42.5
Prepayments and other current assets $ 49.7
$ 50.8



Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Other current liabilities~~

~~The components of other current liabilities were as follows (in millions~~):

December 30, 2017 July 1, 2017
Customer prepayments $ 35.8
$ 35.2
Restructuring accrual 7.5
8.8
Income tax payable 5.5
3.3
Warranty accrual 3.6
2.9
VAT liabilities 2.4
2.2
Deferred compensation plan 2.2
2.0
Other 5.6
7.0
Other current liabilities $ 62.6
$ 61.4

Other non-current liabilities

The following table presents components of other non-current liabilities ~~were as follo~~ws (in millions):


	April 1, 2023		July 2, 2022
Pension and post-employment benefits	$	55.0	$	59.6
Operating lease liabilities (Note 12)	29.4		33.5
Fair value of contingent consideration	23.5		0.7
Long-term deferred revenue	21.9		19.4
Financing obligation	15.8		16.0
Deferred tax liability	15.3		9.5
Uncertain tax position	14.8		12.9
Warranty accrual	5.2		6.2
Other	13.7		12.6
Other non-current liabilities	$	194.6	$	170.4

December 30, 2017 July 1, 2017
Pension and post-employment benefits $ 102.7
$ 99.4
Financing obligation 27.5
27.8
Long-term deferred revenue 11.7
14.0
Other 20.9
22.7
Other non-current liabilities $ 162.8
$ 163.9

Note 7. Investments and Forward Contracts ~~and Fair Value Measurements~~

~~Available-For-Sale~~Short-Term Investments

~~The Company’s investments in marketable debt securities were primarily classified as available-for-sale securities.~~ As of ~~December 30, 2017, the Company’s available-for-sale securities were as follows (in millions~~):

Amortized Cost/
Carrying Cost
Gross Unrealized Losses Fair Value
Available-for-sale debt securities:

U.S. treasuries $ 94.1
$ (0.1 ) $ 94.0
U.S. agencies 23.0
(0.1 ) 22.9
Municipal bonds and sovereign debt instruments 2.9
—
2.9
Asset-backed securities 55.9
(0.4 ) 55.5
Corporate securities 336.4
(0.4 ) 336.0
Total available-for-sale debt securities $ 512.3
$ (1.0 ) $ 511.3

The Company generally classifies debt securities as cash equivalents, short-term investments or other non-current assets based on the stated maturities; however, certain securities with stated maturities of longer than twelve months which are highly liquid and available to support current operations are also classified as short-term investments. As of December 30, 2017, of the total estimated fair value, $60.6 million was classified as cash equivalents, $450.1 million was classified as short-term investments and $0.6 million was classified as other non-current assets.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~In addition to the amounts presented above, as of December 30, 2017,~~April 1, 2023, the Company’s short-term investments ~~classified as~~of $1.5 million were comprised primarily of trading securities related to the deferred compensation plan, ~~were $2.2 million,~~ of which ~~$0.5~~$1.0 million was invested in equity securities, $0.2 million was invested in debt securities and $0.3 million was invested in money market ~~instruments and funds and~~instruments.

As of July 2, 2022, the Company’s short-term investments of $1.4 million were comprised primarily of trading securities related to the deferred compensation plan, of which $1.0 million was invested in equity ~~securities.~~ securities, $0.3 million was invested in debt securities and $0.1 million was invested in money market instruments.

Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in ~~interest~~the Company’s Consolidated Statements of Operations as a component of Interest income and other income, net.

~~During the three and six months ended December 30, 2017 and December 31, 2016, the Company recorded no other-than-temporary impairment charges in each respective period.~~

~~As of December 30, 2017, contractual maturities of the Company’s debt securities classified as available-for-sale securities were as follows (in millions~~):

Amortized Cost/
Carrying Cost

Estimated
Fair Value
Amounts maturing in less than 1 year $ 413.5
$ 413.3
Amounts maturing in 1 - 5 years 97.8
97.4
Amounts maturing in more than 5 years 1.0
0.6
Total debt available-for-sale securities $ 512.3
$ 511.3

~~As of July 1, 2017, the Company’s available-for-sale securities were as follows (in millions~~):

Amortized Cost/
Carrying Cost
Gross Unrealized Gains Gross Unrealized Losses Fair Value
Available-for-sale securities:

U.S. treasuries $ 56.8
$ —
$ (0.1 ) $ 56.7
U.S. agencies 45.0
—
(0.1 ) 44.9
Municipal bonds and sovereign debt instruments 4.4
—
—
4.4
Asset-backed securities 71.5
—
(0.4 ) 71.1
Corporate securities 326.1
0.1
(0.2 ) 326.0
Certificates of deposit 6.0
—
—
6.0
Total available-for-sale securities $ 509.8
$ 0.1
$ (0.8 ) $ 509.1

As of July 1, 2017, of the total estimated fair value, $78.2 million was classified as cash equivalents, $430.2 million was classified as short-term investments and $0.7 million was classified as other non-current assets.

In addition to the amounts presented above, as of July 1, 2017, the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $2.0 million, of which $0.5 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $1.2 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in interest and other income, net.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Fair Value Measurements~~

~~Assets measured at fair value as of December 30, 2017 and July 1, 2017 are summarized below (in millions~~):

Fair value measurement as of Fair value measurement as of
December 30, 2017 July 1, 2017
Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2)
Assets:

Debt available-for-sale securities

U.S. treasuries $ 94.0
$ 94.0
$ —
$ 56.7
$ 56.7
$ —
U.S. agencies 22.9
—
22.9
44.9
—
44.9
Municipal bonds and sovereign debt instruments 2.9
—
2.9
4.4
—
4.4
Asset-backed securities 55.5
—
55.5
71.1
—
71.1
Corporate securities 336.0
—
336.0
326.0
—
326.0
Certificate of deposits —
—
—
6.0
—
6.0
Total debt available-for-sale securities 511.3
94.0
417.3
509.1
56.7
452.4
Money market funds 479.9
479.9
—
726.4
726.4
—
Trading securities 2.2
2.2
—
2.0
2.0
—
Foreign currency forward contracts 1.9
—
1.9
7.3
—
7.3
Total assets (1) $ 995.3
$ 576.1
$ 419.2
$ 1,244.8
$ 785.1
$ 459.7

Liability:
Foreign currency forward contracts 0.8
—
0.8
1.3
—
1.3
Total liabilities (2) $ 0.8
$ —
$ 0.8
$ 1.3
$ —
$ 1.3

(1) $529.0 million in cash and cash equivalents, $452.3 million in short-term investments, $7.2 million in restricted cash, $1.9 million in prepayments and other current assets, and $4.9 million in other non-current assets on the Company’s Consolidated Balance Sheets as of December 30, 2017. $789.2 million in cash and cash equivalents, $432.2 million in short-term investments, $11.0 million in restricted cash, $7.3 million in prepayments and other current assets, and $5.1 million in other non-current assets on the Company’s Consolidated Balance Sheets as of July 1, 2017.

~~(2) $0.8 million and $1.3 million in other current liabilities on the Company’s Consolidated Balance Sheets as of December 30, 2017 and July 1, 2017, respectively.~~

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions about the factors that market participants would use in valuing the asset or liability.

The Company’s cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy based on quoted prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 1 assets of the Company include money market funds, U.S. Treasury securities and marketable equity securities as they are traded with sufficient volume and frequency of transactions.

Level 2 includes financial instruments for which the valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Level 2 instruments of the Company generally include certain U.S. and foreign government and agency securities, commercial paper, corporate and municipal bonds and notes, asset-backed securities, certificates of deposit, and foreign currency forward contracts. To estimate their fair value, the Company utilizes pricing models based on market data. The significant inputs for the valuation model usually include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events.

Level 3 includes financial instruments for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. As of December 30, 2017 and July 1, 2017, the Company did not hold any Level 3 investment securities.

Non-Designated Foreign Currency Forward Contracts

The Company has foreign subsidiaries that operate and sell the Company’s products in various markets around the world. As a result, the Company is exposed to foreign exchange risks. The Company utilizes foreign exchange forward contracts to manage foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions. The Company does not use these foreign currency forward contracts for trading purposes.

As of ~~December 30, 2017,~~April 1, 2023, the Company had forward contracts that were effectively closed but not settled with the counterparties ~~by quarter end.~~as of the balance sheet date. Therefore, the fair value of these contracts of ~~$1.9~~$2.3 million and ~~$0.8~~$1.5 million is reflected as prepayments and other current assets and other current liabilities, ~~in the Consolidated Balance Sheets as of December 30, 2017,~~ respectively. As of July ~~1, 2017,~~2, 2022, the fair value of these contracts of ~~$7.3~~$3.8 million and ~~$1.3~~$8.3 million is reflected as prepayments and other current assets and other current liabilities, respectively.

The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near quarter end; therefore, the fair value of the contracts is not significant. As of ~~December 30, 2017~~April 1, 2023 and July ~~1, 2017,~~2, 2022, the notional amounts of the forward contracts the Company held to purchase foreign currencies were ~~$139.4~~$97.8 million and ~~$134.3~~$119.1 million, respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were ~~$26.0~~$20.2 million and ~~$25.4~~$80.5 million, respectively.


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The change in the fair value of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of ~~interest~~Interest income and other income, net. The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities. The ~~gains on~~ foreign exchange forward contracts ~~were $1.1~~incurred gains of $0.8 million and ~~$4.2~~no gains or losses for three and nine months ended April 1, 2023, respectively, and losses of $1.6 million and $4.1 million for the three and ~~six~~nine months ended ~~December 30, 2017,~~April 2, 2022, respectively.

Note 8. Fair Value Measurements

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are inputs which market participants would use in valuing an asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs which reflect the assumptions market participants would use in valuing an asset or liability.

The ~~losses~~three levels of inputs that may be used to measure fair value are as follows:

•Level 1: includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 1 assets of the Company include money market funds, U.S. Treasury securities and marketable equity securities as they are traded with sufficient volume and frequency of transactions.

•Level 2: includes financial instruments for which the valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Level 2 instruments of the Company generally include certain U.S. and foreign ~~exchange~~government and agency securities, commercial paper, corporate and municipal bonds and notes, asset-backed securities, certificates of deposit, foreign currency forward contracts ~~were $5.6 million~~ and ~~$5.3 million~~debt. To estimate their fair value, the Company utilizes pricing models based on market data. The significant inputs for the ~~three~~valuation model usually include benchmark yields, reported trades, broker and ~~six months ended December 31, 2016, respectively.~~dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events.

•Level 3: includes financial instruments for which fair value is derived from valuation-based inputs, that are unobservable and significant to the overall fair value measurement. The Company’s Level 3 instruments consist of contingent purchase consideration liabilities related to business acquisitions. The fair value of such earn-out liabilities are generally determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-adjusted discount rate, gross profit volatility, and projected financial forecast of acquired business over the earn-out period. The fair value of certain earn-out liabilities is derived using the estimated probability of success of achieving the earn-out milestones discounted to present value. The fair value of contingent consideration liabilities is remeasured at each reporting period at the estimated fair value based on the inputs on the date of remeasurement, with the change in fair value recognized in the Selling, general and administrative expense of the Consolidated Statements of Operations.


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

The Company’s assets and liabilities measured at fair value for the periods presented are as follows (in millions):



	April 1, 2023								July 2, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents: Money market funds (1)	$	328.8	$	328.8	$	—	$	—	$	313.2	$	313.2	$	—	$	—
Short-term investments: Trading securities	1.5		1.5		—		—		1.4		1.4		—		—
Other current assets: Foreign currency forward contracts	2.3		—		2.3		—		3.8		—		3.8		—
Other non-current assets: debt available-for-sale securities asset-backed securities	0.3		—		0.3		—		0.6		—		0.6		—
Total assets	$	332.9	$	330.3	$	2.6	$	—	$	319.0	$	314.6	$	4.4	$	—

Liability:
Current liabilities: Foreign currency forward contracts	$	1.5	$	—	$	1.5	$	—	$	8.4	$	—	$	8.4	$	—
Contingent consideration (2)	24.6		—		—		24.6		2.5		—		—		2.5
Total liabilities	$	26.1	$	—	$	1.5	$	24.6	$	10.9	$	—	$	8.4	$	2.5

(1)Includes, as of April 1, 2023, $317.0 million in cash and cash equivalents, $4.4 million in restricted cash, and $7.4 million in other non-current assets on the Company’s Consolidated Balance Sheets. Includes, as of July 2, 2022, $301.5 million in cash and cash equivalents, $3.1 million in restricted cash, and $8.6 million in other non-current assets on the Company’s Consolidated Balance Sheets.

(2) Includes certain amounts in other current liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheets.

Other Fair Value Measures

Fair Value of Debt: If measured at fair value in the Consolidated Balance Sheets, the Company’s 3.75% Senior Notes (2029 Notes), 1.625% Senior Convertible Notes (2026 Notes), 1.00% Senior Convertible Notes (2024 Notes) and 1.75% Senior Convertible Notes (2023 Notes) would be classified in Level 2 of the fair value hierarchy as they are not actively traded in the markets. The Company’s debt measured at fair value for the periods presented are as follows:


	April 1, 2023								July 2, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Debt:
3.75% Senior Notes	$	344.6	$	—	$	344.6	$	—	$	337.5	$	—	$	337.5	$	—
1.625% Senior Convertible Notes	256.9		—		256.9		—		—		—		—		—
1.00% Senior Convertible Notes	97.4		—		97.4		—		250.7		—		250.7		—
1.75% Senior Convertible Notes	67.9		—		67.9		—		73.4		—		73.4		—
Total liabilities	$	766.8	$	—	$	766.8	$	—	$	661.6	$	—	$	661.6	$	—

See “Note 11. Debt”, for further discussion of the Company’s debt.


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8.9. Goodwill

The following table presents ~~the~~ changes in goodwill allocated to the Company’s reportable segments (in millions):

Network
Enablement

Optical Security
and Performance
Products
Total
Balance as of July 1, 2017 $ 143.3
$ 8.3
$ 151.6
Goodwill - Trilithic (1) 17.8
—
17.8
Currency translation adjustments 1.3
—
1.3
Balance as of December 30, 2017 $ 162.4
$ 8.3
$ 170.7

~~(1) See “Note 5. Mergers and Acquisitions” of the Notes to Consolidated Financial Statements for detail.~~

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~





	Network Enablement		Service Enablement		Optical Security and Performance Products		Total
Balance as of July 2, 2022	$	331.6	$	13.8	$	42.2	$	387.6
Acquisition	60.0		—		—		60.0
Measurement period adjustment	(0.5)		—		—		(0.5)

Currency translation adjustments	3.6		1.2		—		4.8
Balance as of April 1, 2023	$	394.7	$	15.0	$	42.2	$	451.9

The Company ~~reviews~~tests goodwill for impairment at the reporting unit level annually during the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that ~~an impairment loss~~the asset may ~~have occurred.~~be impaired. In the fourth quarter of fiscal ~~2017,~~2022, the Company ~~completed~~reviewed goodwill under the ~~annual~~qualitative assessment of the authoritative guidance and concluded that it was more likely than not that the fair value of each reporting unit exceeded its carrying amount and that no indication of impairment ~~test of goodwill with no goodwill impairments for the NE and OSP reporting units.~~existed.

There were no events or changes in circumstances which triggered an impairment review during the three and ~~six~~nine months ended ~~December 30, 2017.~~April 1, 2023.

Note 9.10. Acquired Developed Technology and Other Intangibles

The following tables present details of the Company’s acquired developed technology, customer relationships and other intangibles (in millions):



As of April 1, 2023	Gross Carrying Amount		Accumulated Amortization		Net
Acquired developed technology (1)	$	445.8	$	(394.2)	$	51.6
Customer relationships	193.7		(183.0)		10.7
Other (2)	39.2		(37.5)		1.7
Total intangibles	$	678.7	$	(614.7)	$	64.0



As of July 2, 2022	Gross Carrying Amount		Accumulated Amortization		Net
Acquired developed technology	$	416.6	$	(375.8)	$	40.8
Customer relationships	189.7		(177.8)		11.9

Other (2)	36.0		(34.5)		1.5
Total intangibles	$	642.3	$	(588.1)	$	54.2

(1) During the third quarter of fiscal 2023, we identified impairment indicators for a developed technology monitoring intangible, resulting in a $0.6 million non-cash impairment charge. This charge has been recorded within SG&A in the Consolidated Statements of Operations.

(2) Other intangibles consist of customer backlog, non-competition agreements, patents, proprietary know-how and trade secrets, trademarks and trade names.

As of December 30, 2017 Gross Carrying Amount Accumulated Amortization Net
Acquired developed technology $ 387.2
$ (362.2 ) $ 25.0
Customer relationships 106.4
(88.2 ) 18.2
Other (1) 10.2
(10.1 ) 0.1
Total intangibles $ 503.8
$ (460.5 ) $ 43.3

As of July 1, 2017 Gross Carrying Amount Accumulated Amortization Net
Acquired developed technology $ 369.3
$ (352.0 ) $ 17.3
Customer relationships 94.9
(81.3 ) 13.6
Other (1) 9.9
(9.7 ) 0.2
Total intangibles $ 474.1
$ (443.0 ) $ 31.1


~~(1)~~			~~Other intangibles consist~~ Table of ~~customer backlog, non-competition agreements, patents, proprietary know-how and trade secrets, trademarks and trade names.~~Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the amortization recorded relating to acquired developed technology, customer relationships and other intangibles (in millions):


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Cost of revenues	$	5.9	$	7.4	$	18.7	$	22.7
Operating expenses	2.1		2.2		6.5		7.5
Total amortization of intangible assets	$	8.0	$	9.6	$	25.2	$	30.2

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Cost of revenues $ 4.1
$ 3.7
$ 8.2
$ 7.5
Operating expenses 3.4
3.4
6.5
6.9
Total amortization of intangible assets $ 7.5
$ 7.1
$ 14.7
$ 14.4

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Based on the carrying amount of acquired developed technology, customer relationships and other intangibles as of ~~December 30, 2017,~~April 1, 2023, and assuming no future impairment of the underlying assets, the estimated future amortization is as follows (in millions):

Fiscal Years
Remainder of 2018 $ 12.3
2019 16.3
2020 8.4
2021 4.1
2022 2.0
Thereafter 0.2
Total amortization $ 43.3


Fiscal Years
Remainder of 2023	$	8.0
2024	19.7
2025	15.3
2026	10.8
2027	7.0
Thereafter	3.2
Total amortization	$	64.0

The acquired developed technology, customer relationships and other ~~intangibles balance~~intangible balances are adjusted quarterly to record the effect of currency translation adjustments.


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note ~~10.~~11. Debt

As of ~~December 30, 2017~~April 1, 2023 and July ~~1, 2017,~~2, 2022, the Company’s ~~short-term debt and long-term~~ debt on the Consolidated Balance Sheets represented the carrying amount of the ~~liability component,~~Senior Convertible and Senior Notes, net of unamortized debt ~~discounts~~discount and issuance ~~cost, of the Senior Convertible Notes as discussed below.~~ costs.

The following table presents the carrying amounts of the ~~liability and equity components~~Company’s debt (in millions):


	April 1, 2023		July 2, 2022
Principal amount of 1.00% Senior Convertible Notes	$	96.4	$	—
Unamortized 1.00% Senior Convertible Notes debt issuance cost	(0.3)		—
Principal amount of 1.75% Senior Convertible Notes	68.1		68.1
Unamortized 1.75% Senior Convertible Notes debt issuance cost	—		(0.1)
Other short-term debt	—		0.4
Short-term debt	$	164.2	$	68.4

Principal amount of 3.75% Senior Notes	$	400.0	$	400.0
Unamortized 3.75% Senior Notes debt issuance cost	(5.7)		(6.4)
Principal amount of 1.00% Senior Convertible Notes	—		223.9
Unamortized 1.00% Senior Convertible Notes debt issuance cost	—		(1.0)
Principal amount of 1.625% Senior Convertible Notes	250.0		—
Unamortized 1.625% Senior Convertible Notes debt discount	(14.2)		—
Unamortized 1.625% Senior Convertible Notes debt issuance cost	(2.2)		—
Long-term debt	$	627.9	$	616.5

December 30, 2017 July 1, 2017
Principal amount of 0.625% Senior Convertible Notes $ 451.0
$ 610.0
Principal amount of 1.00% Senior Convertible Notes 460.0
460.0
Unamortized discount of liability component (104.7 ) (129.4 )
Unamortized debt issuance cost (7.3 ) (9.2 )
Carrying amount of liability component $ 799.0
$ 931.4
Current portion of long-term debt 436.8
—
Long-term debt, net of current portion $ 362.2
$ 931.4

Carrying amount of equity component (1) $ 209.7
$ 229.7


~~(1)~~	~~Included in additional paid-in-capital on the Consolidated Balance Sheets.~~

The Company was in compliance with all debt covenants as of ~~December 30, 2017~~April 1, 2023 and July 2, 2022.

1.625% Senior Convertible Notes (2026 Notes)

On March 6, 2023, the Company issued $250.0 million aggregate principal amount of 1.625% Senior Convertible Notes due 2026 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Company issued $132.0 million aggregate principal amount of the 2026 Notes to certain holders of the 1.00% Senior Convertible Notes due 2024 in exchange for $127.5 million principal amount of the 2024 Notes and issued and sold $118.0 million aggregate principal amount of the 2026 Notes in a private placement to accredited institutional buyers (the Subscription Transactions). Proceeds of the 2026 Notes Subscription Transactions amounted to $113.8 million after issuance costs of $4.2 million. The exchange resulted in $2.2 million of the issuance costs to be recorded as loss on convertible note modification on the Consolidated Statements of Operations. The remaining issuance costs of $2.0 million was capitalized within long-term debt (as a contra-balance) on the Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis until maturity.

The 2026 Notes are an unsecured obligation of the Company and bear annual interest of 1.625%, payable semi-annually in arrears on March 15 and September 15 of each year, beginning September 15, 2023. The 2026 Notes mature on March 15, 2026 unless earlier converted, redeemed or repurchased. As of April 1, ~~2017.~~2023, the expected remaining term of the 2026 Notes is 3.0 years.

3.75% Senior Notes (2029 Notes)

On September 29, 2021, the Company issued $400.0 million aggregate principal amount of 3.75% Senior Notes due 2029 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Proceeds of the 2029 Notes amounted to $393.0 million after issuance costs. The 2029 Notes are an unsecured obligation of the Company and bear annual interest of 3.75%, payable semi-annually in arrears on April 1 and October 1 of each year, beginning April 1, 2022. The 2029 Notes mature on October 1, 2029


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

unless earlier redeemed or repurchased. As of April 1, 2023, the expected remaining term of the 2029 Notes is 6.5 years.

1.75% Senior Convertible Notes (2023 Notes)

On May 29, 2018, the Company issued $225.0 million aggregate principal amount of 1.75% Senior Convertible Notes due 2023 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. The Company issued $155.5 million aggregate principal of the 2023 Notes to certain holders of the 2033 Notes in exchange for $151.5 million principal of the 2033 Notes and issued and sold $69.5 million aggregate principal amount of the 2023 Notes in a private placement to accredited institutional buyers (the Private Placement).

The proceeds from the 2023 Notes Private Placement amounted to $67.3 million after issuance costs. The 2023 Notes are an unsecured obligation of the Company and bear interest at an annual rate of 1.75% payable in cash semi-annually in arrears on June 1st and December 1st of each year, beginning December 1, 2018. As of April 1, 2023, the expected remaining term of the 2023 Notes is 0.2 years. The 2023 Notes mature on June 1, 2023 unless earlier converted, redeemed or repurchased. See Senior Convertible Notes Settlement below.

1.00% Senior Convertible Notes ~~(“2024 Notes”)~~(2024 Notes)

On March 3, 2017, the Company issued ~~$400~~$400.0 million aggregate principal amount of 1.00% Senior Convertible Notes due 2024 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. On March 22, 2017, the Company issued an additional ~~$60~~$60.0 million upon exercise of the over-allotment option of the initial purchasers. The total proceeds from the 2024 Notes amounted to $451.1 million after issuance costs.

The 2024 Notes are an unsecured obligation of the Company and bear interest at an annual rate of 1.00% payable in cash semi-annually in arrears on March 1 and September 1 of each year. As of April 1, 2023, the expected remaining term of the 2024 Notes is 0.9 years. The 2024 Notes mature on March 1, 2024 unless earlier converted or repurchased. See Senior Convertible Notes Settlement below.

Senior Convertible Notes Settlement

On September 2, 2021, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes. The ~~carrying value~~Company settled $93.8 million principal amount of the ~~liability component at issuance was calculated as the present value of its cash flows using a discount rate of 4.8% based on the 7-year swap rate plus credit spread as of the issuance date.~~

~~Based on quoted market prices as of December 30, 2017~~2023 Notes and ~~July 1, 2017, the fair value~~$181.2 million principal amount of the 2024 Notes ~~was approximately $453.4~~in exchange for an aggregate of 10.6 million shares of its common stock, par value $0.001 per share, and ~~$481.7~~$196.5 million ~~respectively.~~in cash. The Company recorded a loss of $85.9 million in connection with the settlement transactions which is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.

On November 17, 2021 and November 22, 2021, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes. The Company settled $20.6 million principal amount of the 2023 Notes and $25.0 million principal amount of the 2024 Notes ~~are classified within Level~~in exchange for $59.0 million in cash. The Company recorded a loss of $6.4 million in connection with the settlement transactions which is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.

On March 2, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes. The Company settled $23.2 million principal amount of the 2023 Notes and $26.8 million principal amount of the 2024 Notes in exchange for $64.7 million in cash. The Company recorded a loss of $6.4 million in connection with the settlement transactions which is presented as ~~they are not actively traded~~Loss on convertible note settlement in ~~markets.~~the Company’s Consolidated Statements of Operations.

On June 3, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes. The Company settled $19.3 million principal amount of the 2023 Notes and $3.1 million principal amount of the 2024 Notes in exchange for $27.1 million in cash. The Company recorded a loss of $3.1 million in connection with the settlement transactions which is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.



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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~0.625%~~ Senior ~~Convertible Notes (“2033 Notes”)~~Secured Asset-Based Revolving Credit Facility

On ~~August 21, 2013,~~December 30, 2021, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo) as administrative agent, and other lender related parties. The Credit Agreement provides for a senior secured asset-based revolving credit facility in a maximum aggregate amount of $300 million, which matures on December 30, 2026. The Credit Agreement also provides that, under certain circumstances, the Company ~~issued $650.0 million~~may increase the aggregate ~~principal~~ amount of ~~0.625% Senior Convertible Notes due 2033 in a private offering~~revolving commitments thereunder by an aggregate amount of up to ~~qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933,~~$100 million so long as ~~amended.~~certain conditions are met. The proceeds from the ~~2033 Notes amounted to $636.3 million after issuance costs.~~credit facility established under the Credit Agreement will be used for working capital and other general corporate purposes. The ~~2033 Notes~~obligations under the Credit Agreement are ~~an unsecured obligation~~secured by substantially all of the assets of the Company and ~~bear~~those of its subsidiaries that are borrowers and guarantors under the Credit Agreement.

Amounts outstanding under the Credit Agreement accrue interest as follows: (i) if the amounts outstanding are denominated in US Dollars, at ~~an annual~~a per annum rate equal to either, at the Company’s election, Term Secured Overnight Financing Rate (SOFR) plus a margin of ~~0.625% payable~~1.35% to 1.85% per annum, or a specified base rate plus a margin of 0.25% to 0.75%, in ~~cash semi-annually~~each case, depending on the average excess availability under the facility, (ii) if the amounts outstanding are denominated in ~~arrears~~Sterling, at a per annum rate equal to the Sterling Overnight Interbank Average Rate (SONIA) plus a margin of 1.2825% to 1.7825%, depending on ~~February 15 and August 15~~the average excess availability under the facility, (iii) if the amounts outstanding are denominated in Euros, at a per annum rate equal to the Euro Interbank Offered Rate plus a margin of 1.25% to 1.75%, depending on the average excess availability under the facility, or (iv) if the amounts outstanding are denominated in Canadian Dollars, at a per annum rate equal to either, at the Company’s election, the Canadian Dollar Offered Rate plus a margin of 1.25% to 1.75%, or a specified base rate plus a margin of 0.25% to 0.75%, in each ~~year.~~ case, depending on the average excess availability under the facility.

The ~~2033 Notes mature on August 15, 2033 unless earlier converted, redeemed or repurchased. The carrying value~~covenants of the ~~liability component at issuance was calculated as~~Credit Agreement include customary restrictive covenants that, among other things, restrict the ~~present value of its cash flows using a discount rate of 5.4% based on~~Company’s ability to incur additional indebtedness, grant liens and make certain acquisitions, investments, asset dispositions and restricted payments. In addition, the ~~5-year swap rate plus credit spread as of the issuance date.~~

~~Holders of the 2033 Notes may~~Credit Agreement contains certain financial covenants that require the Company to ~~purchase all or~~maintain a ~~portion~~fixed charge coverage ratio of at least 1.00 to 1.00 if excess availability under the facility is less than the greater of 10% of the ~~2033 Notes on each~~lesser of ~~August 15, 2018, August 15, 2023~~maximum revolver amount and ~~August 15, 2028, or upon the occurrence of a fundamental change, in each case, at a price equal to 100% of the principal amount of the 2033 Notes to be purchased, plus accrued~~borrowing base and ~~unpaid interest to, but excluding the purchase date.~~ $20 million.

As of ~~December 30, 2017, the expected remaining term of the 2033 Notes is 0.6 years~~April 1, 2023, we had no borrowings under this facility and ~~thus~~our available borrowing capacity was ~~classified as current portion of long-term debt.~~approximately $169.4 million.

~~During the three and six months ended December 30, 2017,~~Revolving Credit Facility

On May 5, 2020, the Company ~~repurchased $12.5~~entered into a credit agreement with Wells Fargo as administrative agent, and other lender related parties. The Company borrowed $150 million and ~~$159.0~~repaid $150 million ~~aggregate principal amount~~under this Credit Agreement during the first quarter of ~~the notes, respectively, for $13.0 million and $175.0 million in cash.~~fiscal 2022. In connection with the ~~repurchase, a loss on extinguishment of $0.2 million and $3.8 million was recognized in interest and other income, net in compliance with~~entry into the ~~authoritative guidance for~~Senior Secured Asset-Based Revolving Credit Facility noted above, the three and six months ended December 30, 2017, respectively. After giving effect to the repurchase, the total amount of 0.625% Senior Convertible Notes outstanding as of December 30, 2017 was $451.0 million.

Based on quoted market prices as of December 30, 2017 and July 1, 2017, the fair value of the 2033 Notes was approximately $465.7 million and $676.1 million, respectively. The 2033 Notes are classified within Level 2 as they are not actively traded in markets.Company terminated this facility.

Interest Expense

The following table presents the interest expense for contractual interest, amortization of debt issuance ~~cost~~costs and accretion of debt discount (in millions):


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022

Interest expense-contractual interest	$	4.8	$	4.8	$	14.0	$	12.0
Amortization of debt issuance cost	0.6		0.6		1.8		2.2
Accretion of debt discount	0.4		—		0.4		—
Other	0.9		1.0		2.8		2.9
Total interest expense	$	6.7	$	6.4	$	19.0	$	17.1

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Interest expense-contractual interest $ 1.8
$ 1.0
$ 3.8
$ 2.0
Amortization of debt issuance cost 0.6
0.6
1.3
1.1
Accretion of debt discount 8.4
7.0
17.5
13.9


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12. Leases

The Company is a lessee in several operating leases, primarily real estate facilities for office space. The Company's lease arrangements are comprised of operating leases with various expiration dates through March 31, 2042. The Company's leases do not contain any material residual value guarantees.

For the three months ended April 1, 2023 and April 2, 2022, the total operating lease costs were $3.2 million and $3.5 million, respectively. For the nine months ended April 1, 2023 and April 2, 2022, the total operating lease costs were $9.7 million and $10.7 million, respectively. Total variable lease costs were immaterial during the three and nine months ended April 1, 2023 and April 2, 2022. The total operating costs were included in cost of revenues, R&D and SG&A in the Company’s Consolidated Statements of Operations.

As of April 1, 2023, the weighted-average remaining lease term was 6.9 years, and the weighted-average discount rate was 4.7%.

For the three months ended April 1, 2023 and April 2, 2022, cash paid for amounts included in the measurement of operating lease liabilities were $2.9 million and $3.8 million, respectively; and operating right-of-use (ROU) assets obtained in exchange of new operating lease liabilities were $0.9 million and $3.9 million, respectively.

For the nine months ended April 1, 2023 and April 2, 2022, cash paid for amounts included in the measurement of operating lease liabilities were $11.1 million and $12.5 million, respectively; and operating ROU assets obtained in exchange of new operating lease liabilities were $3.9 million and $10.3 million, respectively.

The balance sheet information related to the Company’s operating leases is as follows (in millions):



	April 1, 2023
Other non-current assets	$	40.5
Total operating ROU assets	$	40.5

Other current liabilities	$	10.1
Other non-current liabilities	29.4
Total operating lease liabilities	$	39.5

Future minimum operating lease payments as of April 1, 2023 are as follows (in millions):


Fiscal Years	Operating Leases
Remainder of 2023	$	1.8
2024	11.0
2025	8.7
2026	6.5
2027	5.1
Thereafter	13.2
Total lease payments	46.3
Less: Interest	(6.8)
Present value of lease liabilities	$	39.5


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note ~~11.~~13. Restructuring and Related Charges

The Company ~~has initiated various strategic~~ restructuring events are primarily intended to reduce ~~its~~ costs, consolidate ~~its~~ operations, ~~rationalize the~~integrate various acquisitions, streamline product manufacturing ~~of its products~~ and ~~align its businesses in response to~~address market conditions. ~~As of December 30, 2017~~On February 1, 2023, the Company approved a restructuring and ~~July 1, 2017,~~workforce reduction plan (the FY 2023 Plan) to better align the Company’s ~~total restructuring accrual was $8.6 million~~workforce with current business needs and $11.0 million, respectively. During the three and six months ended December 30, 2017, the Company recorded restructuring and related charges of $2.5 million and $4.0 million, respectively. During the three and six months ended December 31, 2016, the Company recorded restructuring and related charges of $1.8 million and $1.8 million, respectively.strategic growth opportunities. The Company’s restructuring charges ~~can~~ include severance, benefit and ~~benefit~~outplacement costs to eliminate a specified number of ~~positions, facilities and equipment costs~~positions. The Company expects approximately 5% of its global workforce to ~~vacate facilities and consolidate operations, and lease termination costs.~~be affected. The ~~timing~~Company anticipates the Plan to be substantially complete by the end of ~~associated cash payments is dependent upon the type of restructuring charge and can extend over multiple periods.~~fiscal 2023.

~~Summary of Restructuring Plans~~

~~The adjustments to the accrued restructuring expenses related to all~~A summary of the ~~Company’s restructuring plans described~~activity in the FY 2023 Plan is outlined below ~~for the three and six months ended December 30, 2017 were as follows~~ ~~(in~~(in millions):

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~





	Network and Service Enablement		Optical Security and Performance Products		Total
Beginning of period balance, July 2, 2022	$	—	$	—	$	—
Restructuring and related charges	9.0		1.2		10.2
Cash settlements	(2.7)		—		(2.7)
Non-cash settlements and other adjustments	(0.1)		—		(0.1)
End of period balance, April 1, 2023 (1)	$	6.2	$	1.2	$	7.4

Balance
July 1, 2017 Six Months Ended December 30, 2017 Charges (Benefits)
Cash
Settlements

Non-cash Settlements
and Other Adjustments
Balance
December 30, 2017 Three Months Ended December 30, 2017 Charges (Benefits)
Fiscal 2018 Plan
Trilithic Restructuring Plan (1) $ —
$ 0.5
$ —
$ —
$ 0.5
$ 0.5
Fiscal 2017 Plan
OSP Restructuring Plan (1) 0.8
—
—
—
0.8
—
Focused NSE Restructuring Plan (1) (2) 4.9
3.1
(4.9 ) 0.4
3.5
1.9
Other Plans (2) —
0.5
(0.6 ) 0.1
—
0.1
Fiscal 2016 Plan
NE, SE and Shared Services Agile Restructuring Plan (1) (2) 0.2
(0.1 ) (0.1 ) —
—

NE and SE Agile Restructuring Plan (1) 0.4
—
—
—
0.4
—
Plans Prior to Fiscal 2016

NE Product Strategy Restructuring Plan (1) 0.9
—
(0.3 ) —
0.6
—
NE Lease Restructuring Plan (2) 2.6
—
(0.8 ) —
1.8
—
Other Plans (1)(2) 1.2
—
(0.2 ) —
1.0
—
Total $ 11.0
$ 4.0
$ (6.9 ) $ 0.5
$ 8.6
$ 2.5

(1) ~~Plan type includes workforce reduction cost.~~

~~(2) Plan type includes lease exit cost.~~

~~As of December 30, 2017 and July 1, 2017, $1.1 million and $2.2 million, respectively, of our restructuring liability was long-term~~Included in ~~nature and included as a component of other non-current liabilities, with the remaining short-term portion included as a component of~~ other current liabilities on the Consolidated Balance ~~Sheets.~~

~~Fiscal 2018 Plans~~

~~Trilithic Restructuring Plan~~

~~During the second quarter of fiscal 2018, Management approved a plan within the NE business segment to consolidate and integrate the Trilithic acquisition. As a result, a restructuring charge of~~ ~~$0.5 million~~ ~~was recorded for severance and employee benefits for approximately~~ 20 employees primarily in manufacturing, and SG&A functions located in the United States. Payments related to the severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2019.

~~Fiscal 2017 Plans~~

~~OSP Restructuring Plan~~

During the fourth quarter of fiscal 2017, Management approved a plan within the OSP business segment to realign its operations and exit from the printed security business. As a result, approximately 30 employees in manufacturing and SG&A functions located~~in the United States were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2018.~~

~~Focused NSE Restructuring Plan~~

During fiscal 2017, Management approved a plan within the NE and SE business segments as part of VIAVI’s continued strategy to improve profitability in the Company’s Network and Service Enablement (NSE) business by narrowing the scope of the Service Enablement business and reducing costs by streamlining NSE operations. During the second quarter of fiscal 2018, the headcount impact by this plan increased by approximately 20 employees and, as a result, a restructuring charge of $1.7 million was recorded for severance and employee benefits. In total, approximately 340 employees in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2018. During the third quarter of fiscal 2017, Management also approved a plan in the NE and SE segment to exit the space in Colorado Springs, Colorado. As of September 30, 2017, the Company exited the workspace in Colorado Springs under the plan. The fair value of the remaining contractual obligationsSheets as of April 1, 2023.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~December 30, 2017 was $1.1 million. Payments related to the Colorado Springs lease costs are expected to be paid by the end of the third quarter of fiscal 2021.~~

~~Fiscal 2016 Plans~~

~~NE, SE and Shared Service Agile Restructuring Plan~~

During the fourth quarter of fiscal 2016, Management approved a plan within the NE and SE business segments and Shared Services function for organizational alignment and consolidation as part of the Company’s continued commitment for a more cost effective organization. As a result approximately 170 employees primarily in manufacturing and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the remaining severance and benefits accrual were paid by the end of the first quarter of fiscal 2018.

~~NE and SE Agile Restructuring Plan~~

~~During the sec~~ond quarter of fiscal 2016, Management approved a plan primarily impacting the NE and SE business segments as part of Company’s ongoing commitment for an agile and more efficient operating structure. As a result approximately 40 employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2018.

~~Plans Prior to Fiscal 2016~~

~~NE Product Strategy Restructuring Plan~~

During the third quarter of fiscal 2014, Management approved a NE plan to realign its services, support and product resources in response to market conditions in the mobile assurance market and to increase focus on software products and next generation solutions through acquisitions and R&D. As a result, approximately 60 employees primarily in SG&A and manufacturing functions located in North America, Latin America, Asia and Europe were impacted. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2020.

~~NE Lease Restructuring Plan~~

During the second quarter of fiscal 2014, Management approved a NE plan to exit the remaining space in Germantown, Maryland. As of June 28, 2014, the Company exited the space in Germantown under the plan. The fair value of the remaining contractual obligations, net of sublease income, as of December 30, 2017 was $1.8 million. Payments related to the Germantown lease costs are expected to be paid by the end of the second quarter of fiscal 2019.

~~As of December 30, 2017, the restructuring accrual for other plans that commenced prior to fiscal year 2016 was $1.0 million, which consists of immaterial accruals from various restructuring plans.~~

Note ~~12.~~14. Income Taxes

The Company recorded an income tax ~~(benefit) expense~~provision of ~~$(1.4)~~$6.0 million and ~~$1.1~~$28.7 million for the three and ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023, respectively. The Company recorded an income tax ~~expense~~provision of ~~$5.8~~$9.4 million and ~~$11.5~~$25.3 million ~~related to the income from continuing operations~~ for the three and ~~six~~nine months ended ~~December 31, 2016,~~April 2, 2022, respectively.

The income tax ~~(benefit) expense~~provision for the three and ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016~~April 2, 2022 primarily relates to income tax in certain foreign and state jurisdictions based on the Company’s forecasted pre-tax income or loss for the respective fiscal year. For the three and six months ended December 30, 2017, this foreign and state tax is offset by a tax benefit of $0.4 million and $3.1 million, respectively, which was recorded in the Company’sloss. The income tax provision related to the income tax intraperiod allocation rules in relation to other comprehensive income. In accordance with authoritative guidance, this benefit may reverse during the fiscal year. Additionally, for the ~~three and six~~nine months ended ~~December 30, 2017, the tax provision~~April 2, 2022 includes a $8.1 million tax benefit recognized upon the statute of ~~$6.5 million resulting from the passage of the U.S. Tax Cuts and Jobs Act (“the Act”), the impacts of which are detailed below.~~

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted, and the effects are recorded aslimitations on a ~~component of the provision for income taxes from~~

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

continuing operations. The law has significantly changed the way the U.S. taxes corporations. The Act repealed the alternative minimum tax (“AMT”) for corporations and provided that the existing AMT credit carryforwards would be refunded in 2022 if not utilized. As a result, the Company recognized a benefit of $4.5 million for the three and six months ended December 30, 2017 for the release of the valuation allowance previously maintained against the AMT credit deferred tax asset. In addition, under the Act, the Company’s current year net operating losses and any future net operating losses can now be carried forward indefinitely. As a result, the Company’s deferred tax liability associated with indefinite-lived intangible assets may now offset these indefinite-lived deferred tax assets, resultingtransfer pricing reserve in a ~~benefit of $2.0 million for the three and six months ended December 30, 2017 due to release of the valuation allowance.~~

The Act imposed a deemed repatriation of the Company’s foreign subsidiaries’ post-1986 earnings and profits (“E&P”) which had previously been deferred from US income tax. The Company has made a provisional estimate of this deemed repatriation of E&P and has determined that there is no current period expense or liability due to the Company having sufficient estimated losses for the fiscal year to offset the income associated with the deemed repatriation. As previously noted, the impact of the deemed repatriation is a provisional estimate. The Company has not yet completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries. Further, this transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. In addition, further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional estimate or the accounting treatment of the provisional estimate.

The Act reduces the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. The Company has not made sufficient progress on remeasuring its deferred tax assets and liabilities to determine a reasonable estimate at this time. However, the Company expects that there will be an equal and offsetting reduction in the valuation allowance such that there should be no impact to its (benefit from) provision for income taxes for the fiscal year related to the rate reduction.

Upon adoption of the new guidance on share-based payment awards, previously unrecognized excess tax benefits were recorded as a deferred tax asset, which was fully offset by a corresponding increase in valuation allowance, resulting in no impact to opening accumulated deficit. In addition, due to the full valuation allowance on the U.S. deferred tax assets, there was no impact to the income tax provision from excess tax benefits for the three and six months ended December 30, 2017. non-US jurisdiction.

The income tax ~~expense (benefit)~~provision recorded differs from the expected tax ~~expense (benefit)~~provision that would be calculated by applying the federal statutory rate to the Company’s income from continuing operations before taxes primarily due to the changes in valuation allowance for deferred tax assets attributable to the Company’s domestic and foreign income ~~(loss)~~ from continuing ~~operations, impacts of the Act and due to the income tax benefit recorded in continuing operations under the income tax intraperiod allocation rules.~~operations.

As of ~~December 30, 2017,~~April 1, 2023 and July ~~1, 2017,~~2, 2022, the Company’s unrecognized tax benefits totaled ~~$39.1~~$51.1 million and ~~$38.9~~$49.7 million, respectively, and are included in deferred taxes and other non-current tax liabilities, net. The Company had ~~$2.1~~$2.8 million accrued for the payment of interest and penalties ~~at December 30, 2017.~~as of April 1, 2023. The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued for each year. Although the Company does not expect that our balance of gross unrecognized tax benefits ~~that may be recognized during~~will change materially in the next ~~twelve~~12 months, ~~are approximately $0.1 million.~~given the uncertainty in the development of ongoing income tax examinations, the Company is unable to estimate the full range of possible adjustments to this balance.


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note ~~13.~~15. Stockholders' Equity

Repurchase of Common Stock

In September ~~2016,~~2022 the Board of Directors ~~increased the Company’s previously~~ authorized a new stock repurchase ~~program from $100~~plan (“2022 Repurchase Plan”) of up to $300 million ~~to $150 million.~~effective October 1, 2022 which will remain in effect until the amount authorized has been fully repurchased or until suspension or termination of the program. Under the ~~revised repurchase authorization,~~2022 Repurchase Plan, the Company ~~may~~is authorized to repurchase ~~up to $150 million~~shares through a variety of methods, including open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans. The timing of repurchases under the Company’s common stock from time to time at the discretion of the Company’s management. The Board previously authorized expiration of the share repurchase to be extended to December 31, 2017. In December 2017, the Board authorized a further extension of the Company's stock repurchase program for an additional 3 months to expire on March 31, 2018.

plan will depend upon business and financial market conditions. During the three months ended ~~December 30, 2017,~~April 1, 2023, the Company repurchased ~~approximately 2.4~~2.8 million shares of its common stock for ~~$21.8 million.~~$30.0 million under the 2022 Repurchase Plan. During the nine months ended April 1, 2023, the Company repurchased 5.0 million shares of its common stock for $55.2 million under the 2022 Repurchase Plan. As of ~~December 30, 2017,~~April 1, 2023, the Company had remaining authorization of ~~$22.5~~$244.8 million for future share ~~repurchases.~~ repurchases under the 2022 Repurchase Plan.

The ~~number~~2022 Repurchase Plan replaces the $200 million stock repurchase plan that the Board previously authorized in September 2019 (“2019 Repurchase Plan”) and expired on September 30, 2022. During the three months ended October 1, 2022, the Company repurchased 1.3 million shares of ~~shares to be repurchased and~~its common stock for $18.7 million under the ~~timing of such repurchases will be based on several factors, including business and financial market conditions.~~2019 Repurchase Plan.

~~All common shares repurchased under this program have been canceled and retired.~~

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Note ~~14.~~16. Stock-Based Compensation

~~Overview~~

The ~~impact on the Company’s results of operations of recording~~Company's stock-based compensation ~~by function for the three and six months ended December 30, 2017 and December 31, 2016 was as follows (in millions):~~

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Cost of revenues $ 0.7
$ 1.0
$ 1.6
$ 2.0
Research and development 1.4
1.6
2.5
3.3
Selling, general and administrative 5.6
6.5
11.1
12.5
Stock-based compensation $ 7.7
$ 9.1
$ 15.2
$ 17.8

~~Approximately $0.9 million and $0.7 million~~includes a combination of ~~stock-based compensation were capitalized to inventory at December 30, 2017 and December 31, 2016 respectively.~~

~~Amendment and Restatement of Amended and Restated 2003 Equity Incentive Plan~~

On November 15, 2017, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 2003 Equity Incentive Plan (the 2003 Plan, as most recently amended and restated, the “ Amended and Restated 2003 Plan”), under which:

(1) the number of shares of the Company’s Common Stock reserved under the 2003 Plan increased by the sum of (i) 4,000,000 new shares, (ii) the number of shares remaining for issuance under the Company’s 2005 Acquisition Equity Incentive Plan (“Acquisition Plan”) as of November 15, 2017, the date such Acquisition Plan was terminated (the “Restatement Date”), and (iii) the number of shares subject to outstandingtime-based restricted stock awards ~~granted under the Acquisition Plan that on or after Restatement Date would have otherwise been available for reissuance under the Acquisition Plan;~~

~~(2) the 2003 Plan’s fungible share provision was eliminated;~~

~~(3) a limit on the total value of equity~~ and ~~cash compensation that may be paid to each of the Company's non-employee directors during each fiscal year was set; and~~

(4) the material terms of the 2003 Plan for purposes of Section 162(m) of the Internal Revenue Code were re-approved, including, but not limited to the performance goals and share limitations set forth in the 2003 Plan.

~~As such, an additional 5.5 million shares were authorized under the re-approved 2003 plan and the 2005 Acquisition plan was terminated effective as of November 15, 2017.~~

~~Amendment and Restatement of Amended and Restated 1998 Employee Stock Purchase Plan~~

On November 15, 2017, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 1998 Employee Stock Purchase Plan (the “ESPP”, as most recently amended and restated, the “Amended and Restated ESPP”), to extend the termination date from August 1, 2018 to November 15, 2027.

~~Full Value Awards~~

~~Full Value Awards refer to restricted~~performance-based awards. Restricted stock ~~units that~~awards are granted ~~with the~~without an exercise price ~~equal to zero~~ and are converted to shares immediately upon vesting. ~~These Full Value Awards are time-based, performance-based or a combination of both and expected to vest over three to four years.~~ When converted into shares upon vesting, shares equivalent in value to the minimum withholding taxes liability on the vested shares are withheld by the Company for the payment of such taxes.

~~During~~The Company generally estimates the ~~six months ended December 30, 2017 and December 31, 2016,~~fair value of stock-based awards based on the closing market price of the Company’s common stock. In the case of performance-based awards that include a market condition, the Company ~~granted 3.1 million and 3.9 million time-based awards, respectively. The~~will estimate the fair value of the ~~time-based Full Value Awards is based on~~award using a combination of the closing market price of the Company’s common stock on the grant date ~~of award. The majority of these time-based awards vest over three years, with 33% vesting after one year~~ and the ~~balance vesting quarterly over the remaining two years.~~

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~During the six months ended December 30, 2017 and December 31, 2016, the Company granted 0.5 million and 0.4 million,~~Monte Carlo simulation model. For performance-based awards, respectively. These performance-based shares represent the target amount of grants, and the actual number of shares awarded upon vesting may vary depending upon the achievement of the relevant performance conditions. The shares attained over target upon vesting are reflected as awards granted during the period. ~~Accordingly, during~~

Time-based restricted stock awards granted to eligible employees will generally vest in annual installments over a period of three to four years subject to the ~~six~~employees’ continuing service to the Company and do not have an expiration date. The Company's performance-based awards may include performance conditions, market conditions, time-based service conditions or a combination thereof and are generally expected to vest over one to four years. In addition, the actual number of shares awarded upon vesting of performance-based grants may vary from the target shares depending upon the achievement of the relevant performance or market-based conditions.

During the nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016,~~April 2, 2022, the Company granted ~~additional 0.2~~3.1 million and 2.4 million time-based restricted stock awards, respectively. The aggregate grant-date fair value of time-based restricted stock awards granted during the nine months ended April 1, 2023 and April 2, 2022 were estimated to be $42.1 million and $39.8 million, respectively.

During the nine months ended April 1, 2023 and April 2, 2022, the Company granted 0.7 million and 0.4 million, performance-based awards, respectively. In addition, during the nine months ended April 1, 2023, the Company granted an additional 0.1 million shares due to ~~performance-bases~~performance-based shares attained over target. There were no performance-based shares attained over target during the nine months ended April 2, 2022. The aggregate grant-date fair value of performance-based awards granted during the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016~~April 2, 2022 were estimated to be ~~$6.1~~$11.5 million and ~~$3.3~~$7.9 million, respectively. ~~The majority of performance-based~~Performance-based awards will generally vest ~~in equal annual installments~~ over three to four years based on the attainment of certain performance measures and the employee’s continued service through the vest date. ~~The performance-based awards with market condition were valued using a Monte Carlo simulation.~~


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of ~~December 30, 2017, $53.0~~April 1, 2023, $73.4 million of unrecognized stock-based compensation ~~cost related to Full Value Awards remains~~costs remain to be amortized. ~~That cost is expected to be recognized over an estimated amortization period of 2.0 years.~~

On July 2, 2017, the Company adopted the new authoritative guidance that simplified several aspects of accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under the new guidance, companies can make an accounting policy election to either continue to estimate forfeitures or account for forfeitures as they occur. Upon adoption, the Company elected to account for forfeitures when they occur, on a modified retrospective basis. The Company recognized net cumulative effect of $0.6 million as an increase to accumulated deficit as of the first day of fiscal 2018. Additionally, the new authoritative guidance required the employee tax paid by withholding shares of restricted stock units on the statements of cash flows to be classified as financing cash flows. Accordingly, upon adoption, the Company reclassified $7.8 million of tax payment withheld on vesting of restricted stock from operating cash flows to financing cash flows for the six months ended December 31, 2016. Further, the new authoritative guidance required previously unrecognized deferred tax benefits to be recorded as deferred tax assets. Upon adoption, the Company had $117.7 million of net operating loss carryforwards resulting from excess tax benefit deductions. However, there was no impact ~~to the accumulated deficit resulting from adoption, as the deferred tax assets associated with these net operating loss carryforwards were fully offset by a corresponding valuation allowance.All other aspects of the guidance did not have a material effect~~ on the Company’s ~~consolidated financial statements.~~results of operations of recording stock-based compensation by function for the three and nine months ended April 1, 2023 and April 2, 2022, is as follows (in millions):


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Cost of revenues	$	1.2	$	1.3	$	3.6	$	4.1
Research and development	2.1		2.1		6.4		6.4
Selling, general and administrative	9.4		9.4		28.8		29.2
Total stock-based compensation expense	$	12.7	$	12.8	$	38.8	$	39.7

Approximately $1.2 million of stock-based compensation was capitalized to inventory as of April 1, 2023 and April 2, 2022.

Note ~~15.~~17. Employee Pension and Other Benefit Plans

The Company sponsors significant qualified and non-qualified pension plans for certain past and present employees in the United Kingdom ~~(“U.K.”~~(U.K.) and Germany. The Company also is responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition.

Most of the plans have been closed to new participants and no additional service costs are being accrued, except for certain plans in Germany assumed in connection with an acquisition ~~during~~in fiscal 2010. Benefits are generally based upon years of service and compensation or stated amounts for each year of service.

As of ~~December 30, 2017,~~April 1, 2023, the U.K. plan was ~~partially~~fully funded while the other plans were unfunded. The Company’s policy for funded plans is to make contributions equal to or greater than the requirements prescribed by law or regulation. For unfunded plans, the Company pays the post-retirement benefits when due. During the ~~six~~nine months ended ~~December 30, 2017,~~April 1, 2023, the Company contributed ~~$1.0~~$0.9 million to the U.K. ~~plan.~~plan and $3.9 million to the other plans. The funded plan assets consist primarily of managed investments.

The following table presents the components of ~~the~~ net periodic cost for the pension and benefits plans (in millions):

Three Months Ended Six Months Ended
Pension Benefits December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Service cost $ —
$ 0.1
$ —
$ 0.2
Interest cost 0.7
0.6
1.4
1.0
Expected return on plan assets (0.4 ) (0.3 ) (0.8 ) (0.5 )
Amortization of net actuarial losses 0.5
0.4
0.9
0.9
Net periodic benefit cost $ 0.8
$ 0.8
$ 1.5
$ 1.6

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Service cost	$	—	$	—	$	—	$	0.1
Interest cost	0.7		0.4		2.1		1.2
Expected return on plan assets	(0.4)		(0.4)		(1.2)		(1.3)
Amortization of net actuarial losses	—		0.8		—		2.3
Net periodic benefit cost	$	0.3	$	0.8	$	0.9	$	2.3

Both the calculation of the projected benefit obligation and net periodic cost are based upon actuarial valuations. These valuations use participant-specific information such as salary, age, years of service, and assumptions about interest rates, compensation increases and other factors. At a minimum, the Company evaluates these assumptions annually and makes changes as necessary.

~~The~~Based on actuarial assumptions, the Company expects to incur cash outlays of approximately ~~$8.1~~$7.9 million related to its defined benefit pension plans during fiscal ~~2018~~2023 to make current benefit payments and fund future obligations. As of ~~December 30, 2017,~~April 1, 2023, approximately ~~$2.6~~$4.8 million had been incurred. These payments have been estimated based on the same assumptions used to measure the Company’s projected benefit obligation at July ~~1, 2017.~~2, 2022.


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note ~~16.~~18. Commitments and Contingencies

Legal Proceedings

In June 2016, the Company received a court decision regarding the validity of an amendment to a pension deed of trust related to one of its foreign subsidiaries which the Company contends contained an error requiring the Company to increase the pension plan’s benefit. The Company had subsequently further amended the deed to rectify the error. The court ruled that the amendment increasing the pension plan benefit was valid until the subsequent amendment. The Company estimated the liability to range from (amounts represented as £ denote GBP) £5.7 million to £8.4 million. The Company determined ~~that~~ the likelihood of loss to be probable and accrued £5.7 million as of July 2, 2016 ~~and accrued GBP 5.7 million (USD 7.7 million as of December 30, 2017),~~ in accordance with authoritative guidance on contingencies.

The Company ~~is pursuing~~pursued an appeal of the court decision. In March 2018, the appellate court affirmed the decision of the lower court. The Company pursued a motion for summary judgement on the deed of rectification claim and ~~is also pursuing~~continues to pursue a claim against the U.K. law firm responsible for the error. As of ~~December 30, 2017, there~~July 2, 2022, the related accrued pension liability of £5.4 million or $6.5 million was ~~no change~~included in pension and post-employment benefits within other non-current liabilities in the Company’s Consolidated Balance Sheets.

In September 2022, the Company received a favorable court decision which removed completely and definitively the obligation to fund the ~~accrual.~~increased pension benefit with retrospective effect to 1999. As a result of the judgment, and in accordance with authoritative guidance on contingencies, the Company reversed the liability and recorded a gain (reduction to Selling, general and administrative expense in the Company’s Consolidated Statements of Operations) of £5.7 million or $6.7 million during the three months ended October 1, 2022.

The Company is subject to a variety of claims and suits that arise from time to time in the ordinary course of ~~our~~its business. While management currently believes that resolving claims against the Company, individually or in aggregate, will not have a material adverse impact on its financial position, results of operations or statement of cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable.

Guarantees

The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company’s businesses or assets; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (iii) certain agreements with the Company’s officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship.

The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets as of December 30, 2017 and July 1, 2017.

Outstanding Letters of Credit, ~~and~~ Performance Bonds and Other Claims

As of ~~December 30, 2017,~~April 1, 2023, the Company had standby letters of credit of ~~$11.5~~$11.8 million and performance bonds and other claims of ~~$1.8~~$0.7 million collateralized by restricted cash.

Product Warranties

In general, the Company offers a three-year warranty for most of its products. The Company provides reserves for the estimated costs of product warranties at the time revenue is recognized. The Company estimates the costs of its warranty obligations based on its historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise with specific products. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

The following table presents the changes in the Company’s warranty reserve during ~~fiscal 2018~~the three and ~~fiscal 2017~~nine months ended April 1, 2023 and April 2, 2022, (in millions):


	Three Months Ended				Nine Months Ended
	April 1, 2023		April 2, 2022		April 1, 2023		April 2, 2022
Balance as of beginning of period	$	9.4	$	10.8	$	10.6	$	9.7
Provision for warranty	0.3		2.0		1.3		4.6
Utilization of reserve	(0.1)		(1.1)		(1.3)		(2.2)
Adjustments to pre-existing warranties (includes changes in estimates)	(0.2)		(1.0)		(1.2)		(1.4)

Balance as of end of period	$	9.4	$	10.7	$	9.4	$	10.7

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Balance as of beginning of period $ 6.4
$ 5.2
$ 5.8
$ 4.9
Provision for warranty 1.7
1.6
2.2
3.2
Utilization of reserve (2.6 ) (0.9 ) (3.5 ) (2.0 )
Adjustments related to pre-existing warranties (including changes in estimates) 1.3
(0.6 ) 2.0
(0.8 )
Acquisition of Trilithic (1) —
—
0.3
—
Balance as of end of period $ 6.8

$ 5.3
$ 6.8
$ 5.3

~~(1) See “Note 5. Mergers and Acquisitions” of the Notes to Consolidated Financial Statements for detail of acquisition.~~


Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note ~~17.~~19. Operating Segments and Geographic Information

The Company evaluates its reportable segments in accordance with the authoritative guidance on segment reporting. The Company’s Chief Executive Officer, isas the Company’s Chief Operating Decision Maker ~~(“CODM”) pursuant~~(CODM), uses operating segment financial information to ~~the guidance. The CODM allocates resources~~evaluate segment performance and to ~~the segments based on their business prospects, competitive factors, net revenue and operating results.~~allocate resources.

The Company’s reportable segments are:

(i) Network Enablement ~~(“NE”)~~(NE):

NE provides an integrated portfolio of testing solutions that access the network to perform build-out and maintenance tasks. These solutions include instruments, software and services to design, build, ~~activate,~~turn-up, certify, troubleshoot and optimize networks. The ~~company~~Company also offers a range of product support and professional services such as repair, calibration, software support and technical assistance for ~~our~~its products. NE’s avionics products provide test and measuring solutions for aviation, aerospace, government, defense, communications and public safety.

(ii) Service Enablement ~~(“SE”)~~(SE):

SE ~~solutions are~~provides embedded systems and enterprise performance management solutions that ~~yield~~give global communications service providers, enterprises and cloud operators visibility into network, service and application ~~performance~~ data. These solutions—including instruments, microprobes and software—monitor, collect and analyze network data to reveal the actual customer experience and to identify opportunities for new revenue streams and network optimization.

(iii) Optical Security and Performance Products ~~(“OSP”)~~(OSP):

OSP ~~provides innovative, precision, high performance~~leverages its core optical ~~products~~coating technologies and volume manufacturing capability to design, manufacture, and sell technologies for the anti-counterfeiting, consumer electronics, industrial, government ~~industrial,~~and automotive ~~and consumer electronic markets, including 3D sensing applications.~~markets.

Segment Reporting

The CODM manages the Company in two broad business categories: ~~Network~~NSE and ~~Service Enablement ("NSE") and~~ OSP. ~~NSE operates in two segments, NE and SE, whereas OSP operates as a single segment.~~ The CODM evaluates segment performance of the NSE business based on ~~NE and SE~~the combined segment gross ~~margin~~ and ~~NSE~~ operating ~~margin as a whole.~~margins. Operating expenses associated with the NSE business are not allocated to the ~~NE and SE~~individual segments within NSE, as they are managed centrally at the business unit level. The CODM evaluates segment performance of the OSP business based on ~~OSP~~ segment operating margin. The Company allocates corporate-level operating expenses to its segment results, except for certain non-core operating and non-operating activities as discussed below.

The Company does not allocate stock-based compensation, acquisition-related charges, amortization of intangibles, restructuring and related charges, impairment of goodwill, non-operating income and expenses, changes in fair value of contingent consideration liabilities, or other charges unrelated to core operating performance to its segments because ~~Management~~management does not include this information in its measurement of the performance of the operating segments. These items are presented as ~~“Reconciling~~“Other Items” in the table below. Additionally, the Company does not specifically identify and allocate all assets by operating segment.

The following tables present information on the Company’s reportable segments for the three months ended April 1, 2023 and April 2, 2022 (in millions):



Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Three Months Ended April 1, 2023
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items (1)		Consolidated GAAP Measures
Product revenue	$	121.9		$	12.8		$	134.7		$	70.5		$	—	$	205.2
Service revenue	27.7			14.9			42.6			—			—		42.6
Net revenue	$	149.6		$	27.7		$	177.3		$	70.5		$	—	$	247.8

Gross profit	$	92.8		$	19.5		$	112.3		$	35.7		$	(7.0)	$	141.0
Gross margin	62.0		%	70.4		%	63.3		%	50.6		%			56.9		%

Operating income (loss)							$	2.5		$	25.8		$	(30.4)	$	(2.1)
Operating margin							1.4		%	36.6		%			(0.8)		%


	Three Months Ended April 2, 2022
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items (1)		Consolidated GAAP Measures
Product revenue	$	176.7		$	14.5		$	191.2		$	84.6		$	—	$	275.8
Service revenue	27.6			12.0			39.6			0.1			—		39.7
Net revenue	$	204.3		$	26.5		$	230.8		$	84.7		$	—	$	315.5

Gross profit	$	130.3		$	18.3		$	148.6		$	47.0		$	(8.7)	$	186.9
Gross margin	63.8		%	69.1		%	64.4		%	55.5		%			59.2		%

Operating income							$	34.4		$	33.3		$	(26.9)	$	40.8
Operating margin							14.9		%	39.3		%			12.9		%


	Three Months Ended
	April 1, 2023		April 2, 2022
Corporate reconciling items impacting gross profit:
Total segment gross profit	$	148.0	$	195.6

Stock-based compensation	(1.2)		(1.2)
Amortization of intangibles	(5.9)		(7.4)
Other benefits (charges) unrelated to core operating performance (1)	0.1		(0.1)
GAAP gross profit	$	141.0	$	186.9

Corporate reconciling items impacting operating (loss) income:
Total segment operating income	$	28.3	$	67.7

Stock-based compensation	(12.8)		(12.8)
Amortization of intangibles	(8.0)		(9.6)
Change in fair value of contingent liability	1.9		—
Other charges unrelated to core operating performance (1)	(1.3)		(4.5)
Restructuring and related charges	(10.2)		—
GAAP operating (loss) income from continuing operations	$	(2.1)	$	40.8

~~The segment information for all periods presented has been revised to be comparable with the changes in the Company’s segment reporting measures.~~

~~Information on reportable segments is as follows~~ ~~(in millions):~~

Three Months Ended December 30, 2017
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Total Segment Measures Reconciling Items Consolidated GAAP Measures
Net revenue $ 121.5
$ 32.1
$ 153.6
$ 48.2
$ 201.8
$ —
$ 201.8

Gross profit 73.8
22.4
96.2
26.2
122.4
(6.3 ) 116.1
Gross margin 60.7 % 69.8 % 62.6 % 54.4 % 60.7 % 57.5 %

Operating income 8.0
17.4
25.4
(21.7 ) 3.7
Operating margin 5.2 % 36.1 % 12.6 % 1.8 %

Three Months Ended December 31, 2016
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Total Segment Measures Reconciling Items Consolidated GAAP Measures
Net revenue $ 117.0
$ 40.6
$ 157.6
$ 48.9
$ 206.5
$ —
$ 206.5

Gross profit 74.6
27.1
101.7
28.2
129.9
(5.2 ) 124.7
Gross margin 63.8 % 66.7 % 64.5 % 57.7 % 62.9 % 60.4 %

Operating income 6.0
20.9
26.9
(20.2 ) 6.7
Operating margin 3.8 % 42.7 % 13.0 % 3.2 %

Three Months Ended
December 30, 2017 December 31, 2016
Corporate reconciling items impacting gross profit:
Total segment gross profit $ 122.4
$ 129.9
Stock-based compensation (0.7 ) (1.0 )
Amortization of intangibles (4.1 ) (3.7 )
Other charges unrelated to core operating performance (1) (1.5 ) (0.5 )
GAAP gross profit $ 116.1
$ 124.7

Corporate reconciling items impacting operating income:
Total segment operating income $ 25.4
$ 26.9
Stock-based compensation (7.7 ) (9.1 )
Amortization of intangibles (7.5 ) (7.1 )
Other charges unrelated to core operating performance (1) (4.0 ) (2.2 )
Restructuring and related charges (2.5 ) (1.8 )
GAAP operating income $ 3.7
$ 6.7

(1) During the three months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016,~~April 2, 2022, other ~~charges~~benefits (charges) unrelated to core operating performance primarily consisted of certain acquisition and integration related ~~costs, amortization~~charges, transformational initiatives such as site consolidations, reorganization, accretion of ~~inventory step-up~~debt discount, intangible impairment and loss on disposal of long-lived assets.



Table of Contents
VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Nine Months Ended April 1, 2023
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items (1)		Consolidated GAAP Measures
Product revenue	$	438.4		$	36.9		$	475.3		$	239.1		$	—	$	714.4
Service revenue	85.8			42.2			128.0			0.1			—		128.1
Net revenue	$	524.2		$	79.1		$	603.3		$	239.2		$	—	$	842.5

Gross profit	$	333.5		$	53.8		$	387.3		$	128.0		$	(22.5)	$	492.8
Gross margin	63.6		%	68.0		%	64.2		%	53.5		%			58.5		%

Operating income							$	49.8		$	91.9		$	(71.1)	$	70.6
Operating margin							8.3		%	38.4		%			8.4		%



	Nine Months Ended April 2, 2022
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items (1)		Consolidated GAAP Measures
Product revenue	$	545.9		$	42.6		$	588.5		$	253.8		$	—	$	842.3
Service revenue	77.7			36.7			114.4			0.4			—		114.8
Net revenue	$	623.6		$	79.3		$	702.9		$	254.2		$	—	$	957.1

Gross profit	$	401.0		$	54.4		$	455.4		$	143.8		$	(26.8)	$	572.4
Gross margin	64.3		%	68.6		%	64.8		%	56.6		%			59.8		%

Operating income							$	110.7		$	104.6		$	(78.3)	$	137.0
Operating margin							15.7		%	41.1		%			14.3		%


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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Six Months Ended December 30, 2017
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Total Segment Measures Reconciling Items Consolidated GAAP Measures
Net revenue $ 233.3
$ 61.1
$ 294.4
$ 102.6
$ 397.0
$ —
$ 397.0

Gross profit 144.4
42.9
187.3
57.6
244.9
(12.6 ) 232.3
Gross margin 61.9 % 70.2 % 63.6 % 56.1 % 61.7 % 58.5 %

Operating income 15.2
39.6
54.8
(41.1 ) 13.7
Operating margin 5.2 % 38.6 % 13.8 % 3.5 %


	Nine Months Ended
	April 1, 2023		April 2, 2022
Corporate reconciling items impacting gross profit:
Total segment gross profit	$	515.3	$	599.2

Stock-based compensation	(3.6)		(4.0)
Amortization of intangibles	(18.7)		(22.7)
Other charges unrelated to core operating performance (1)	(0.2)		(0.1)
GAAP gross profit	$	492.8	$	572.4

Corporate reconciling items impacting operating income:
Total segment operating income	$	141.7	$	215.3

Stock-based compensation	(38.8)		(39.7)
Amortization of intangibles	(25.2)		(30.2)
Change in fair value of contingent liability	0.1		(0.3)
Other benefits (charges) unrelated to core operating performance (1)	3.0		(8.2)
Restructuring and related (charges) benefits	(10.2)		0.1
GAAP operating income from continuing operations	$	70.6	$	137.0

Six Months Ended December 31, 2016
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Total Segment Measures Reconciling Items Consolidated GAAP Measures
Net revenue $ 235.6
$ 77.0
$ 312.6
$ 104.7
$ 417.3
$ —
$ 417.3

Gross profit 152.0
48.4
200.4
59.8
260.2
(10.4 ) 249.8
Gross margin 64.5 % 62.9 % 64.1 % 57.1 % 62.4 % 59.9 %

Operating income 10.1
44.3
54.4
(37.6 ) 16.8
Operating margin 3.2 % 42.3 % 13.0 % 4.0 %

Six Months Ended
December 30, 2017 December 31, 2016
Corporate reconciling items impacting gross profit:
Total segment gross profit $ 244.9
$ 260.2
Stock-based compensation (1.6 ) (2.0 )
Amortization of intangibles (8.2 ) (7.5 )
Other charges unrelated to core operating performance (1) (2.8 ) (0.9 )
GAAP gross profit $ 232.3
$ 249.8

Corporate reconciling items impacting operating income:
Total segment operating income $ 54.8
$ 54.4
Stock-based compensation (15.2 ) (17.8 )
Amortization of intangibles (14.7 ) (14.4 )
Other charges unrelated to core operating performance (1) (7.2 ) (3.6 )
Restructuring and related charges (4.0 ) (1.8 )
GAAP operating income (loss) from continuing operations
$ 13.7
$ 16.8

(1) During the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016,~~April 2, 2022, other ~~charges~~benefits (charges) unrelated to core operating performance primarily consisted of certain acquisition and integration related ~~costs, amortization~~charges, transformational initiatives such as site consolidations, reorganization, accretion of ~~inventory step-up,~~debt discount, intangible impairment and loss on disposal of long-lived ~~assets~~assets.

The Company operates primarily in three geographic regions: Americas, Asia-Pacific, and ~~VIAVI specific charges related~~Europe, Middle East and Africa (EMEA). Net revenue is assigned to the ~~separation.~~geographic region and country where the Company’s product is initially shipped. For example, certain customers may request shipment of the Company’s product to a contract manufacturer in one country, which may differ from the location of their end customers. The following table presents net revenue by the three geographic regions in which the Company operates and net revenue from countries that exceeded 10% of the Company’s total net revenue for the three and nine months ended April 1, 2023 and April 2, 2022 (in millions):


	Three Months Ended
	April 1, 2023						April 2, 2022

	Product Revenue		Service Revenue		Total		Product Revenue		Service Revenue		Total
Americas:
United States	$	68.5	$	14.0	$	82.5	$	72.5	$	14.9	$	87.4
Other Americas	14.0		4.0		18.0		17.9		3.5		21.4
Total Americas	$	82.5	$	18.0	$	100.5	$	90.4	$	18.4	$	108.8

Asia-Pacific:
Greater China	$	43.5	$	1.8	$	45.3	$	63.9	$	1.9	$	65.8
Other Asia-Pacific	24.1		6.1		30.2		43.3		5.4		48.7
Total Asia-Pacific	$	67.6	$	7.9	$	75.5	$	107.2	$	7.3	$	114.5

EMEA:
Switzerland	$	13.4	$	0.1	$	13.5	$	18.7	$	0.1	$	18.8
Other EMEA	41.7		16.6		58.3		59.5		13.9		73.4
Total EMEA	$	55.1	$	16.7	$	71.8	$	78.2	$	14.0	$	92.2

Total net revenue	$	205.2	$	42.6	$	247.8	$	275.8	$	39.7	$	315.5



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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	Nine Months Ended
	April 1, 2023						April 2, 2022

	Product Revenue		Service Revenue		Total		Product Revenue		Service Revenue		Total
Americas:
United States	$	227.0	$	44.6	$	271.6	$	239.8	$	41.1	$	280.9
Other Americas	47.4		10.8		58.2		64.3		10.8		75.1
Total Americas	$	274.4	$	55.4	$	329.8	$	304.1	$	51.9	$	356.0

Asia-Pacific:
Greater China	$	165.9	$	5.7	$	171.6	$	188.1	$	6.8	$	194.9
Other Asia	100.8		19.8		120.6		122.4		14.5		136.9
Total Asia-Pacific	$	266.7	$	25.5	$	292.2	$	310.5	$	21.3	$	331.8

EMEA:
Switzerland	$	42.2	$	0.3	$	42.5	$	43.4	$	0.3	$	43.7
Other EMEA	131.1		46.9		178.0		184.3		41.3		225.6
Total EMEA	$	173.3	$	47.2	$	220.5	$	227.7	$	41.6	$	269.3

Total net revenue	$	714.4	$	128.1	$	842.5	$	842.3	$	114.8	$	957.1

~~Note 18. Subsequent Events~~

~~Repurchase of Common Stock~~

Subsequent to our fiscal quarter ended December 30, 2017, the Company repurchased approximately 1.1 million shares of common stock at an average price of $8.78 per share under the stock repurchase program authorized on February 1, 2016.

~~Repurchase of 2033 Notes~~

~~Subsequent to our fiscal quarter ended December 30, 2017, the Company repurchased $22.5 million of its 2033 Notes for $23.1 million in cash.~~

~~Definitive Agreement~~

On February 1, 2018, the Company announced its entry into a Stock Purchase Agreement (the “Purchase Agreement”) with certain subsidiaries of Cobham plc (“Cobham”) to acquire Cobham’s Test and Measurement business for $455 million cash consideration, subject to certain customary closing adjustments. The acquisition is expected to close subject to satisfaction of the closing conditions under the Purchase Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements contained in this Quarterly ~~report~~Report on Form 10-Q, which we also refer to as the Report, which are not historical facts, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as ~~“anticipates,~~“anticipate,” ~~“believes,~~“believe,” “can,” “can impact,” “could,” “continue,” ~~“estimates,~~“estimate,” ~~“expects,~~“expect,” ~~“intends,~~“intend,” “may,” “ongoing,” ~~“plans,~~“plan,” “potential,” “projects,” “should,” “will,” “will continue to be,” “would,” or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include statements, but are not limited to statements such as:

•Our expectations regarding demand for our products and services, including macroeconomic conditions, industry trends and technological advancements that may drive such demand, the role we will play in those advancements and our ability to benefit from such advancements;

•Our plans for growth and innovation opportunities;

•Financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies, including restructuring and workforce reduction plans and the anticipated cost and operational benefits associated with such plans, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition, pricing and ~~pricing~~demand pressures, the future impact of certain accounting pronouncements, and our estimation of the potential impact and materiality of litigation;

•Our plans for continued development, use and protection of our intellectual property;

•Our strategies for achieving our current business objectives, including related risks and uncertainties;

•Our plans or expectations relating to investments, execution of capital allocation and debt management strategies, acquisitions, partnerships and other strategic opportunities;

•Our expectations regarding the continuing impact of the coronavirus disease (COVID-19) pandemic on our business, financial condition, results of operations and liquidity;

•Our strategies for ~~reducing our dependence on sole suppliers or otherwise~~ mitigating the risk of supply chain ~~interruptions;~~

interruptions and inflationary impacts;

•Our research and development plans and the expected impact of such plans on our financial performance; and

•Our expectations related to our products, including costs associated with the development of new products, product yields, quality and other issues.

Management cautions that forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These forward-looking statements are only predictions and are subject to risks and uncertainties including those set forth in Part II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the U.S. Securities and Exchange Commission. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.

In addition, Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July ~~1, 2017.~~2, 2022.

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You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors” and “Forward-Looking Statements.”

~~OUR INDUSTRIES AND QUARTERLY DEVELOPMENTS~~Overview

~~Viavi Solutions Inc.~~ (“VIAVI~~” also referred to as “the Company,” “we,” “our,” and “us”),~~ is a global provider of network test, monitoring, and assurance solutions tofor communications service providers, ~~(“CSPs”),~~hyperscalers, equipment manufacturers, enterprises, government and ~~their ecosystems, supported by a worldwide channel community including VIAVI Velocity Solution Partners (“Velocity”). Our Velocity program allows us to optimize~~avionics. We help customers harness the ~~use~~power of ~~direct or partner sales depending on application~~instruments, automation, intelligence, and sales volume. Its strategy is to expand our reach into new market segments as well as expand our capability to sell and deliver solutions. Our solutions deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability.virtualization. VIAVI is also a leader in ~~high performance thin film optical coatings, providing~~ light management ~~solutions to~~technologies for 3D sensing, anti-counterfeiting, consumer ~~and~~electronics, industrial, automotive, government and ~~healthcare~~aerospace applications.Together with our customers and ~~other markets.~~partners we are United in Possibility, finding innovative ways to solve real-world problems.

To serve our markets we operate in the following business segments:

•Network Enablement ~~(“NE”)~~(NE);

•Service Enablement ~~(“SE”)~~(SE); and,

•Optical Security and Performance Products ~~(“OSP”)~~(OSP).

~~Network Enablement~~

During the third quarter, we continued to experience a constrained demand outlook and inflationary pressures. Weakness in service provider and network equipment manufacturer spending continues to create headwinds for our NE ~~provides an integrated portfolio~~segment. Demand for anti-counterfeiting is softening driven by fiscal tightening as central banks continue to normalize currency printing from elevated levels during the pandemic, creating pressure on OSP revenues.

Any prolonged disruption of ~~testing solutions that access the network to perform build-out~~manufacturing of our products, commerce and ~~maintenance tasks. These solutions include instruments, software~~related activity or significant decrease in demand for our products could materially and ~~services to design, build, activate, certify, troubleshoot~~adversely affect our results of business, operations, and ~~optimize networks. They also support more profitable, higher-performing networks and facilitate time-to-revenue.~~financial conditions.

Our ~~solutions address lab~~financial results and ~~production environments, field deployment~~long-term growth model will continue to be driven by revenue growth, non-GAAP operating profit, non-GAAP diluted earnings per share (EPS) and ~~service assurance for wireless~~cash flow from operations. We believe these key operating metrics are useful to investors because management uses these metrics to assess the growth of our business and ~~fixed communications networks, including storage networks. Our test instrument portfolio is one~~the effectiveness of our marketing and operational strategies.

Restructuring plan

On February 1, 2023, the Company approved a restructuring and workforce reduction plan (the Plan) intended to reduce costs and better align the Company’s workforce with current business needs and strategic growth opportunities. The Company expects approximately 5% of its global workforce to be affected. The Company anticipates the Plan to be substantially complete by the end of fiscal 2023.

Looking Ahead

As we look ahead to the remainder of the ~~largest~~fiscal year, we expect the macroeconomic headwinds and end market demand volatility to persist into the near future. We remain positive on our long-term growth drivers in 5G Wireless, Fiber, 3D Sensing and Resilient PNT.We will continue to focus on executing against our strategic priorities highlighted during our September 2022 Analyst Day Event such as:

•Defend and consolidate leadership in core business segments;

•Invest in secular trends to drive growth and expand Total Addressable Market (TAM);

•Extend VIAVI technologies and platforms into lucrative adjacent markets and applications; and,

•Continuous productivity improvement in Operations, Research & Development (R&D) and Selling, General and Administrative (SG&A).

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Recent Global Events

We operate globally and sell our products in countries throughout the world. Recent escalation in regional conflicts, including the Russian invasion of Ukraine, resulting in ongoing economic sanctions, and the risk of increased tensions between China and the US, could curtail or prohibit our ability to transfer certain technologies, to sell our products and solutions, or to continue to operate in certain locations. Moreover, international conflict has resulted in increased pressure on the supply chain and could further result in increased energy costs, which could increase the cost of manufacturing, selling and delivering products and solutions; inflation, which could result in increases in the ~~industry, with hundreds~~cost of ~~thousands~~manufacturing products, reduced customer purchasing power, increased price pressure, and reduced or cancelled orders; increased risk of ~~units in active use by major NEMs, operators~~cybersecurity attacks; and services providers worldwide. Designed to be mobile, these products include instruments and software that access the network to perform installation and maintenance tasks. They help service provider technicians assess the performancegeneral market instability, all of ~~network elements and segments and verify the integrity~~which could adversely impact our financial results. As a result of the ~~information being transmitted across the network. These instruments are highly intelligent and have user interfaces that are designed~~restrictions on exports to ~~simplify operations and minimize the training required to operate them. Our NE solutions are also used by network-equipment manufacturers (“NEMs”)~~Russia, we suspended transactions in the ~~design~~region effective February 2022, which has negatively impacted our business. Foreign companies with a presence in China are facing increasing operational challenges and ~~production~~enhanced scrutiny from governmental entities in region. We are not aware of ~~next-generation network equipment.~~

~~VIAVI also offers~~any specific event or circumstances that would require an update to the estimates or judgments or a ~~range~~revision of ~~product support~~the carrying value of assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. However, these estimates may change, as new events occur and ~~professional services designed~~additional information becomes available. Actual results may differ materially from these estimates, assumptions or conditions due to ~~comprehensively address our customers’ requirements. These services include repair, calibration, software support~~risks and ~~technical assistance for our products. We offer product and technology training~~uncertainties, including the ongoing geopolitical instability as well as ~~consulting services. Our professional services,~~the potential for additional trade actions or retaliatory cyber-attacks aimed at infrastructure or supply chains. The impact on our future operations and results remains uncertain.

COVID-19 Pandemic Update

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Financial Highlights

Third quarter fiscal 2023 results included the following notable items:

• Net revenue of $247.8 million, down $67.7 million or 21.5% year-over-year.

• GAAP operating margin of (0.8)%, down 1,370 bps year-over-year.

• Non-GAAP operating margin of 11.4%, down 1,010 bps year-over-year.

• GAAP EPS of $(0.07), down $0.15 or 187.5% year-over-year.

• Non-GAAP EPS of $0.08, down $0.14 or 63.6% year-over-year.

A reconciliation of Non-GAAP financial measures to GAAP financial measures is provided below (in millions, except EPS amounts):


	Three Months Ended								Nine Months Ended
	April 1, 2023				April 2, 2022				April 1, 2023				April 2, 2022
	Operating (Loss) Income		Operating Margin		Operating Income		Operating Margin		Operating Income		Operating Margin		Operating Income		Operating Margin


GAAP measures	$	(2.1)	(0.8)	%	$	40.8	12.9	%	$	70.6	8.4	%	$	137.0	14.3	%
Stock-based compensation	12.8		5.2	%	12.8		4.1	%	38.8		4.6	%	39.7		4.1	%
Change in fair value of contingent liability	(1.9)		(0.8)	%	—		—	%	(0.1)		—	%	0.3		—	%
Other charges (benefits) unrelated to core operating performance (1)	1.3		0.5	%	4.5		1.4	%	(3.0)		(0.4)	%	8.2		0.9	%
Amortization of intangibles	8.0		3.2	%	9.6		3.1	%	25.2		3.0	%	30.2		3.2	%
Restructuring and related charges (benefits)	10.2		4.1	%	—		—	%	10.2		1.2	%	(0.1)		—	%
Total related to Cost of Revenue and Operating Expenses	30.4		12.2	%	26.9		8.6	%	71.1		8.4	%	78.3		8.2	%
Non-GAAP measures	$	28.3	11.4	%	$	67.7	21.5	%	$	141.7	16.8	%	$	215.3	22.5	%


	Three Months Ended								Nine Months Ended
	April 1, 2023				April 2, 2022				April 1, 2023				April 2, 2022
	Net (loss) income		Diluted EPS		Net Income		Diluted EPS		Net Income		Diluted EPS		Net (loss) income		Diluted EPS
GAAP measures	$	(15.4)	$	(0.07)	$	19.2	$	0.08	$	25.6	$	0.11	$	(1.0)	$	0.00
Items reconciling GAAP net (loss) income and EPS to non-GAAP net income and EPS:
Stock-based compensation	12.8		0.06		12.8		0.05		38.8		0.17		39.7		0.17
Change in fair value of contingent liability	(1.9)		(0.01)		—		—		(0.1)		—		0.3		—
Other charges (benefits) unrelated to core operating performance (1)	1.3		0.01		4.5		0.02		(3.0)		(0.01)		8.2		0.03
Amortization of intangibles	8.0		0.04		9.6		0.04		25.2		0.11		30.2		0.13
Restructuring and related charges (benefits)	10.2		0.05		—		—		10.2		0.05		(0.1)		—
Non-cash interest expense and other expense (2)	2.6		0.01		6.5		0.03		2.6		0.01		99.2		0.43

Provision for (benefit from) income taxes	0.4		—		(0.6)		—		2.7		0.01		(7.0)		(0.03)
Total related to Net income and EPS	33.4		0.15		32.8		0.14		76.4		0.34		170.5		0.73
Non-GAAP measures	$	18.0	$	0.08	$	52.0	$	0.22	$	102.0	$	0.45	$	169.5	$	0.73
Shares used in per share calculation for Non-GAAP EPS			225.3				236.8				227.6				232.1

Note: Certain totals may not add due to rounding.

(1) Other items include charges (benefits) unrelated to core operating performance primarily consisted of certain acquisition and integration related charges, transformational initiatives such as site consolidations, reorganization, accretion of debt discount, intangible impairment and loss on disposal of long-lived assets.

(2) The Company incurred a loss of $2.2 million for the three and nine months ended April 1, 2023 in connection with the modification of certain 1.00% Senior Convertible Notes. The Company incurred a loss of $6.4M and $98.7M for the three and nine months ended April 2, 2022, respectively, in connection with the repurchase of certain 1.00% and 1.75% Senior Convertible Notes. The Company eliminates this in calculating non-GAAP net income and non-GAAP net income per share, because it believes that in so doing, it can provide investors a clearer and more consistent view of the Company’s core operating performance.

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Use of Non-GAAP (Adjusted) Financial Measures

The Company provides non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share financial measures as supplemental information regarding the Company’s operational performance. The Company uses the measures disclosed in this Report to evaluate the Company’s historical and prospective financial performance, as well as its performance relative to its competitors. Specifically, management uses these items to further its own understanding of the Company’s core operating performance, which the Company believes represent its performance in the ordinary, ongoing and customary course of its operations. Accordingly, management excludes from core operating performance items such as those relating to certain purchase price accounting adjustments, amortization of acquisition-related intangibles, stock-based compensation, legal settlements, restructuring, separation costs, changes in fair value of contingent consideration liabilities and certain investing expenses and other activities that management believes are not reflective of such ordinary, ongoing and core operating activities. The Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance.

The Company believes providing this additional information allows investors to see Company results through the eyes of management. The Company further believes that providing this information allows investors to better understand the Company’s financial performance and, importantly, to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

The non-GAAP adjustments described in this release are excluded by the Company from its GAAP financial measures because the Company believes excluding these items enables investors to evaluate more clearly and consistently the Company’s core operational performance. The non-GAAP adjustments are outlined below.

Cost of revenues, costs of research and development and costs of selling, general and administrative: The Company’s GAAP presentation of operating expenses may include (i) additional depreciation and amortization from changes in estimated useful life and the write-down of certain property, equipment and intangibles that have been identified for disposal but remained in use until the date of disposal, (ii) workforce related charges such as severance, retention bonuses and employee relocation costs related to formal restructuring plans, (iii) costs for facilities not required for ongoing operations, and costs related to the relocation of certain equipment from these facilities and/or contract manufacturer facilities, (iv) stock-based compensation, (v) amortization expense related to acquired intangibles, (vi) changes in fair value of contingent consideration liabilities and (vii) other charges unrelated to our core operating performance comprised mainly of acquisition related transaction costs, integration costs related to acquired entities, litigation and legal settlements and other costs and contingencies unrelated to current and future operations, including transformational initiatives such as the implementation of simplified automated processes, site consolidations, and reorganizations. The Company excludes these items in calculating non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share.

Non-cash interest expense and other expense: The Company excludes certain investing expenses and non-cash activities that management believes are not reflective of such ordinary, ongoing and core operating activities, in calculating non-GAAP net income and non-GAAP net income per share.

Income tax expense or benefit: The Company excludes certain non-cash tax expense or benefit items, such as the utilization of net operating losses where valuation allowances were released, intra-period tax allocation benefit and the tax effect for amortization of non-tax deductible intangible assets, in calculating non-GAAP net income and non-GAAP net income per share.

Non-GAAP financial measures are not in accordance with, preferable to, or an alternative for, generally accepted accounting principles in the United States. The GAAP measure most directly comparable to non-GAAP net income is net income. The GAAP measure most directly comparable to non-GAAP net income per share is net income per share. The Company believes these GAAP measures alone are not fully indicative of its core operating expenses and performance and that providing non-GAAP financial measures in conjunction with ~~system integration projects, include project management, installation and implementation.~~

NE customers include CSPs, NEMs, government organizations and large corporate customers, such as major telecom, mobility and cable operators, chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Our customers include América Móvil, AT&T Inc., Charter Communications, Inc., Cisco Systems, Inc., Comcast Corporation, Nokia Solutions and Networks and Verizon Communications, Inc..

~~We grouped our NE products and associated services to two product groupings: Field Instruments and Lab Instruments.~~

On August 9, 2017, the Company completed the acquisition of Trilithic, a privately-held provider of electronic test and measurement equipment for telecommunications service providers. Trilithic serves the cable, Ethernet and leakage test market and is being integrated intoGAAP measures provides valuable supplemental information regarding the Company’s ~~NE segment.~~overall performance.

~~Service Enablement~~

SE provides embedded systems and enterprise performance management solutions that give global CSPs, enterprises and cloud operators visibility into network, service and application data. These solutions - which primarily consist of instruments, microprobes and software - monitor, collect and analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams and network optimization.

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Our portfolio of SE solutions addresses the same lab and production environments, field deployment and service assurance for wireless and fixed communications networks, including storage networks, as our NE portfolio. Our solutions let carriers remotely monitor performance and quality of network, service and applications performance throughout the entire network. This provides our customers with enhanced network management, control, and optimization that allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, help to make necessary repairs faster and, as a result, lower costs while providing higher quality and more reliable services. Remote monitoring decreases operating expenses, while early detection helps increase uptime, preserve revenue, and helps operators better monetize their networks.

~~SE customers include similar CSPs, NEMs, government organizations, large corporate customers, and storage-segment customers that are served by our NE segment.~~

~~We grouped our SE products and associated services to two product groupings: Data Center and Assurance.~~

~~Optical Security and Performance Products~~

Our OSP segment leverages its core optical coating technologies and volume manufacturing capability to design, manufacture, and sell products targeting anti-counterfeiting, consumer and industrial, government, healthcare and other markets.

Our security offerings for the currency market include OVP®, OVMP® and banknote thread substrates. OVP® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents. Our technologies are deployed on the banknotes of more than 100 countries today. OSP also develops and delivers overt and covert anti-counterfeiting products that utilize its proprietary printing platform and are targeted primarily at the pharmaceutical and consumer-electronics markets.

Leveraging our expertise in spectral management and our unique high-precision coating capabilities, OSP provides a range of products and technologies for the consumer and industrial market, including, for example, 3D sensing optical filters.

OSP value-added solutions meet the stringent requirements of commercial and government customers. Our products are used in a variety of aerospace and defense applications, including optics for guidance systems, laser eye protection and night vision systems. These products, including coatings and optical filters, are optimized for each specific application.

~~OSP serves customers such as FLIR Systems, Lockheed Martin, SICPA and STMicroelectronics.~~

~~In October 2017, the OSP operations in Santa Rosa, California were temporarily impacted due to the Sonoma County wildfires and then resumed shortly thereafter.~~

~~RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS~~

~~Refer to “Note 2. Recently Issued Accounting Pronouncements” regarding the effect of certain recent accounting pronouncements on our consolidated financial statements.~~

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~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES~~

For a description of the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Item 7 on Management Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

RESULTS OF OPERATIONS

The results of operations for the current period are not necessarily indicative of results to be expected for future periods. The following table summarizes selected Consolidated Statements of Operations items (in millions, except for percentages):


	Three Months Ended										Nine Months Ended
	April 1, 2023			April 2, 2022			Change		Percent Change		April 1, 2023			April 2, 2022			Change		Percent Change
Segment net revenue:
NE	$	149.6		$	204.3		$	(54.7)	(26.8)	%	$	524.2		$	623.6		$	(99.4)	(15.9)	%
SE	27.7			26.5			1.2		4.5	%	79.1			79.3			(0.2)		(0.3)	%
OSP	70.5			84.7			(14.2)		(16.8)	%	239.2			254.2			(15.0)		(5.9)	%
Total net revenue	$	247.8		$	315.5		$	(67.7)	(21.5)	%	$	842.5		$	957.1		$	(114.6)	(12.0)	%

Amortization of acquired technologies	$	5.9		$	7.4		$	(1.5)	(20.3)	%	$	18.7		$	22.7		$	(4.0)	(17.6)	%
Percentage of net revenue	2.4		%	2.3		%					2.2		%	2.4		%

Gross profit	$	141.0		$	186.9		$	(45.9)	(24.6)	%	$	492.8		$	572.4		$	(79.6)	(13.9)	%
Gross margin	56.9		%	59.2		%					58.5		%	59.8		%

Research and development	$	50.8		$	54.9		$	(4.1)	(7.5)	%	$	155.3		$	159.0		$	(3.7)	(2.3)	%
Percentage of net revenue	20.5		%	17.4		%					18.4		%	16.6		%

Selling, general and administrative	$	80.0		$	89.0		$	(9.0)	(10.1)	%	$	250.2		$	269.0		$	(18.8)	(7.0)	%
Percentage of net revenue	32.3		%	28.2		%					29.7		%	28.1		%

Amortization of other intangibles	$	2.1		$	2.2		$	(0.1)	(4.5)	%	$	6.5		$	7.5		$	(1.0)	(13.3)	%
Percentage of net revenue	0.8		%	0.7		%					0.8		%	0.8		%

Restructuring and related charges (benefits)	$	10.2		$	—		$	10.2	100.0	%	$	10.2		$	(0.1)		$	10.3	NM
Percentage of net revenue	4.1		%	—		%					1.2		%	—		%

Loss on convertible note settlement	$	—		$	(6.4)		$	6.4	(100.0)	%	$	—		$	(98.7)		$	98.7	(100.0)	%
Percentage of net revenue	—		%	2.0		%					—		%	10.3		%

Loss on convertible note modification	$	(2.2)		$	—		$	(2.2)	100.0	%	$	(2.2)		$	—		$	(2.2)	100.0	%
Percentage of net revenue	0.9		%	—		%					0.3		%	—		%

Interest income and other income, net	$	1.6		$	0.6		$	1.0	166.7	%	$	4.9		$	3.1		$	1.8	58.1	%
Percentage of net revenue	0.6		%	0.2		%					0.6		%	0.3		%




Interest expense	$	(6.7)		$	(6.4)		$	(0.3)	(4.7)	%	$	(19.0)		$	(17.1)		$	(1.9)	(11.1)	%
Percentage of net revenue	2.7		%	2.0		%					2.3		%	1.8		%

Provision for income taxes	$	6.0		$	9.4		$	(3.4)	(36.2)	%	$	28.7		$	25.3		$	3.4	13.4	%
Percentage of net revenue	2.4		%	3.0		%					3.4		%	2.6		%

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 Change Percent Change December 30, 2017 December 31, 2016 Change Percent Change
Segment net revenue:
NE $ 121.5
$ 117.0
$ 4.5
3.8 % $ 233.3
$ 235.6
$ (2.3 ) (1.0 )%
SE 32.1
40.6
(8.5 ) (20.9 )% 61.1
77.0
(15.9 ) (20.6 )%
OSP 48.2
48.9
(0.7 ) (1.4 )% 102.6
104.7
(2.1 ) (2.0 )%
Total net revenue $ 201.8
$ 206.5
$ (4.7 ) (2.3 )% $ 397.0
$ 417.3
$ (20.3 ) (4.9 )%

Gross profit $ 116.1
$ 124.7
$ (8.6 ) (6.9 )% $ 232.3
$ 249.8
$ (17.5 ) (7.0 )%
Gross margin 57.5 % 60.4 % 58.5 % 59.9 %

Research and development $ 29.9
$ 35.9
$ (6.0 ) (16.7 )% $ 59.0
$ 72.0
$ (13.0 ) (18.1 )%
Percentage of net revenue 14.8 % 17.4 % 14.9 % 17.3 %

Selling, general and administrative $ 76.6
$ 76.9
$ (0.3 ) (0.4 )% $ 149.1
$ 152.3
$ (3.2 ) (2.1 )%
Percentage of net revenue 38.0 % 37.2 % 37.6 % 36.5 %

Restructuring and related charges $ 2.5
$ 1.8
$ 0.7
38.9 % $ 4.0
$ 1.8
$ 2.2
122.2 %
Percentage of net revenue 1.2 % 0.9 % 1.0 % 0.4 %

Interest and other income, net 2.9
3.8
(0.9 ) (23.7 )% 3.1
5.1
(2.0 ) (39.2 )%
Percentage of net revenue 1.4 % 1.8 % 0.8 % 1.2 %

Gain on sale of investments $ —
$ 53.9
$ (53.9 ) (100.0 )% $ —
$ 135.4
$ (135.4 ) (100.0 )%
Percentage of net revenue — % 26.1 % — % 32.4 %

Interest expense $ (11.7 ) $ (9.4 ) $ (2.3 ) 24.5 % $ (24.2 ) $ (18.6 ) $ (5.6 ) 30.1 %
Percentage of net revenue (5.8 )% (4.6 )% (6.1 )% (4.5 )%

(Benefit from) provision for income taxes $ (1.4 ) $ 5.8
$ (7.2 ) (124.1 )% $ 1.1
$ 11.5
$ (10.4 ) (90.4 )%
Percentage of net revenue (0.7 )% 2.8 % 0.3 % 2.8 %

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Net Revenue

Revenue from our service offerings exceeds 10% of our total consolidated net revenue and is presented separately in our Consolidated Statements of Operations. Service revenue primarily consists of maintenance and support, extended warranty, professional services and post-contract support in addition to other services such as calibration and repair services. When evaluating the performance of our segments, ~~Management~~management focuses on total net revenue, gross profit and operating income and not the product or service categories. Consequently, the following discussion of business segment performance focuses on total net revenue, gross profit, and operating income consistent with our approach for managing the business.

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Three months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016~~April 2, 2022

Net revenue decreased by ~~$4.7~~$67.7 million, or ~~2.3%~~21.5%, during the three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago. This decrease was ~~primarily~~ due to revenue decreases from our NE and OSP segments, partially offset by revenue increase in our SE ~~due to lower volume of sales as discussed below.~~segment.

Product revenues decreased by ~~$6.7~~$70.6 million, or ~~3.6%~~25.6%, during the three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago, ~~primarily due to continued run-off of our Mature Assurance portfolio and our planned restructuring announced~~driven by revenue decreases in ~~January 2017 to narrow the scope of SE product lines.~~ all segments.

Service revenues increased by ~~$2.0~~$2.9 million, or ~~9.0%~~7.3%, during the three months ended ~~December 30, 2017 compared to the same period a year ago primarily due to increased support activities in our SE segment.~~

~~NE net revenue increased by $4.5 million, or 3.8%, during the three months ended December 30, 2017~~April 1, 2023 compared to the same period a year ago. This increase was ~~driven by~~due to revenue increases from ~~the Trilithic business acquired in the first quarter of fiscal 2018,~~our NE and a $14.4 million net increase in Field Instruments contributed by strength in Cable, which was driven by the DOCSIS 3.1 deployment and high demand for other products in Field Instruments in North America. The increase was mostly offset by revenue declines of $13.7 million in Lab Instruments as the continued China slowdown negatively impacted our optical components customers.SE segments.

SENE net revenue decreased by ~~$8.5~~$54.7 million, or ~~20.9%~~26.8%, during the three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago. This decrease was primarily driven by ~~continued run-off of our Mature Assurance portfolio solutions, which contributed~~lower volumes in Field Instruments, Lab & Production and Wireless products compared to the prior year partially offset by PNT revenue not included in the same period a ~~decline of $5.5~~year ago.

SE net revenue increased by $1.2 million, ~~and~~or 4.5%, during the three months ended April 1, 2023 compared to the same period a ~~decline of $3.2 million from Growth Assurance offerings~~year ago, primarily due to ~~our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Data center revenue was relatively flat compared to prior period.~~higher Assurance revenue.

OSP net revenue decreased by ~~$0.7~~$14.2 million, or ~~1.4%~~16.8%, during the three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago. This decrease was primarily driven by ~~weaker demand in our~~lower Anti-Counterfeiting ~~products, partially offset by 3D Sensing~~and consumer and industrial revenue ~~increase in our Consumer and Industrial products and increase in our Government products.~~

~~Six Months Ended December 30, 2017 and December 31, 2016~~

~~Net revenue decreased by $20.3 million, or 4.9%, during the six months ended December 30, 2017~~ compared to the same period a year ~~ago due to decreases in all of our segments as discussed below.~~ago.

Product revenues decreased by $23.1 million, or 6.2%, during the six months ended December 30, 2017 compared to the same period a year ago, primarily due to continued run-off of our Mature Assurance portfolio and our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Service revenues increased by $2.8 million, or 6.3%, during the six months ended December 30, 2017 compared to the same period a year ago primarily due to increased support activities in our SE segment.

NE net revenue decreased by $2.3 million, or 1.0%, during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by a $25.8 million net revenue decrease in Lab instruments as the continued China slowdown negatively impacted our optical components customers. This decrease was partially offset by revenue from the Trilithic business acquired in the first quarter of fiscal 2018, and a $15.7 million net revenue increase in Field Instruments demand contributed by strength in Cable, which was driven by the DOCSIS 3.1 deployment and high demand for other products in Field Instruments in North America.

SE net revenue decreased by $15.9 million, or 20.6%, during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by continued run-off of our Mature Assurance portfolio solutions, which contributed a decline of $9.8 million, and a decline of $6.1 million from Growth Assurance offerings due to our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Data center revenue was relatively flat compared to prior period.

OSP net revenue decreased by $2.1 million, or 2.0%, during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by net revenue decrease from our Anti-Counterfeiting product line. The Company expects the Anti-Counterfeiting business to continue to follow its historical pattern of cyclicality as currency customers continually rebalance their inventories relative to market demand. The decrease was partially offset by revenue increase in 3D Sensing within our Consumer and Industrial product lines and increases in our Government product line.

Going forward, we expect to continue to encounter a number of industry and market risks and uncertainties that may limit our visibility, and consequently, our ability to predict future revenue, seasonality, profitability, and general financial performance, ~~and that~~which could create ~~quarter~~period over ~~quarter~~period variability in our financial ~~measures. For example, while the majority of our net revenue~~measures and ~~expenses are denominated in U.S. dollars, a portion of our international operations are denominated in~~present foreign ~~currencies. The strengthening of the U.S. dollar relative to foreign currencies could negatively impact reported revenue and expenses. Additionally,~~exchange rate risks.

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Additionally, we have seen demand for our NE and SE products affected by macroeconomic uncertainty. We cannot predict when or to what extent these uncertainties will be resolved. Our revenues, profitability, and general financial performance may also be affected by: (a) pricing pressures due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based competitors, and a general commoditization trend for certain products; (b) product mix variability in our NE and SE markets, which affects revenue and gross margin; (c) fluctuations in customer buying patterns, which cause demand, revenue and profitability volatility; ~~and~~ (d) the current trend of communication industry consolidation, which is expected to continue, that directly affects our NE and SE customer bases and adds additional risk and uncertainty to our financial and business ~~projections.~~

~~In fiscal 2018, we expect to continue to see a decline in net revenue from our mature Assurance product offerings within our SE segment. In our OSP segment, we expect~~projections; (e) chip component shortages, supply chain and shipping logistic constraints; (f) the ~~revenue to rebound in~~impact of ongoing global trade policies, tariffs and sanctions; and (g) regulatory or economic developments and/or technology challenges that slow or change the ~~second half~~rate of ~~fiscal 2018. In the first half~~adoption of ~~fiscal 2018, we commenced shipment of~~5G, 3D ~~sensing products. We expect 3D sensing products to be more meaningful to OSP segment longer term as the market adopts security authentication technology in mobile devices~~Sensing and other ~~applications.~~emerging secular technologies and platforms.

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Revenue by Region

We operate in three geographic regions: Americas, Asia-Pacific and Europe, Middle East and Africa ~~(“EMEA”)~~(EMEA). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue (~~dollars~~ in millions):


	Three Months Ended								Nine Months Ended
	April 1, 2023				April 2, 2022				April 1, 2023				April 2, 2022
Americas:
United States	$	82.5	33.3	%	$	87.4	27.7	%	$	271.6	32.2	%	$	280.9	29.4	%
Other Americas	18.0		7.2	%	21.4		6.8	%	58.2		6.9	%	75.1		7.8	%
Total Americas	$	100.5	40.5	%	$	108.8	34.5	%	$	329.8	39.1	%	$	356.0	37.2	%

Asia-Pacific:
Greater China	$	45.2	18.3	%	$	65.8	20.9	%	$	171.6	20.4	%	$	194.9	20.4	%
Other Asia-Pacific	30.3		12.2	%	48.7		15.4	%	120.6		14.3	%	136.9		14.3	%
Total Asia-Pacific	$	75.5	30.5	%	$	114.5	36.3	%	$	292.2	34.7	%	$	331.8	34.7	%

EMEA:
Switzerland	$	13.5	5.5	%	$	18.8	6.0	%	$	42.5	5.1	%	$	43.7	4.6	%
Other EMEA	58.3		23.5	%	73.4		23.2	%	178.0		21.1	%	225.6		23.5	%
Total EMEA	$	71.8	29.0	%	$	92.2	29.2	%	$	220.5	26.2	%	$	269.3	28.1	%

Total net revenue	$	247.8	100.0	%	$	315.5	100.0	%	$	842.5	100.0	%	$	957.1	100.0	%

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 December 30, 2017 December 31, 2016
Americas
     United States $ 89.1
44.2 % $ 80.0
38.7 % $ 166.8
42.0 % $ 161.4
38.7 %
     Other Americas 21.1
10.4 % 20.6
10.0 % 40.2
10.1 % 41.4
9.9 %
          Total Americas 110.2
54.6 % 100.6
48.7 % 207.0
52.1 % 202.8
48.6 %

Asia-Pacific
     Greater China $ 29.1
14.5 % $ 28.0
13.5 % $ 76.8
19.3 % $ 54.3
13.0 %
     Other Asia 16.4
8.1 % 17.7
8.6 % 6.6
1.7 % 37.8
9.1 %
          Total Asia-Pacific

45.5
22.6 % 45.7
22.1 % 83.4
21.0 % 92.1
22.1 %

EMEA
     Switzerland 12.1
6.0 % 21.5
10.4 % 40.4
10.2 % 50.5
12.1 %
     Other EMEA 34.0
16.8 % 38.7
18.8 % 66.2
16.7 % 71.9
17.2 %
          Total EMEA 46.1
22.8 % 60.2
29.2 % 106.6
26.9 % 122.4
29.3 %

Total net revenue $ 201.8
100.0 % $ 206.5
100.0 % $ 397.0
100.0 % $ 417.3
100.0 %

Net revenue from customers outside the Americas during the three and nine months ended ~~December 30, 2017~~April 1, 2023 represented 59.5% and ~~December 31, 2016 represented 45.4% and 51.3%~~60.9% of net revenue, respectively. Net revenue from customers outside the Americas during the ~~six~~three and nine months ended ~~December 30, 2017~~April 2, 2022 represented 65.5% and ~~December 31, 2016 represented~~ ~~47.9%~~ ~~and~~ ~~51.4%~~62.8% of net revenue, respectively.

We expect revenue from customers outside of the United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.

Gross Margin

Gross margin decreased by ~~2.9~~2.3 percentage points during the three months ended ~~December 30, 2017~~April 1, 2023 from ~~60.4%~~59.2% in the same period a year ago to ~~57.5%~~56.9% in the current period. ~~This~~The decrease was primarily ~~driven by~~due to gross margin reduction infrom our NE and OSP segments, ~~and higher cost related to the inventory fair value step-up amortization from Trilithic. This decrease was partially~~ offset by gross margin ~~improvement~~increase in our SE ~~segment.~~

segment, as discussed below in the Operating Segment Information section.

Gross margin decreased by ~~1.4~~1.3 percentage points during the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 from ~~59.9%~~59.8% in the same period a year ago to 58.5% in the current period. ~~This~~The decrease was primarily driven by gross margin reduction in ~~our NE and OSP~~all segments as discussed below in the Operating Segment Information section.

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~~segment and higher cost related to the inventory fair value step-up amortization from Trilithic. This decrease was partially offset by gross margin improvement in our SE segment.~~

As discussed in more detail under “Net Revenue” above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in variability of our gross margin.

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Amortization of Acquired Technologies and Other Intangibles

Amortization of acquired technologies and other intangibles decreased $1.6M or 16.7% during the three months ended April 1, 2023 compared to the same period a year ago. This decrease is primarily due to certain intangible assets becoming fully amortized in fiscal 2022.

Amortization of acquired technologies and other intangibles decreased $5.0M or 16.6% during the nine months ended April 1, 2023 compared to the same period a year ago. This decrease is primarily due to certain intangible assets becoming fully amortized in fiscal 2022.

Research and Development

R&D expense decreased by ~~$6.0~~$4.1 million, or ~~16.7%~~7.5%, during the three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago. This decrease was driven primarily ~~driven~~ by ~~net~~variable expense reductions and cost ~~savings~~efficiencies realized ~~from our strategic restructuring activities related to site consolidations and internal reorganizations to align our investment strategy.~~during the period. As a percentage of net revenue, R&D ~~decreased~~expense increased by ~~2.6~~3.1 percentage points during the three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ~~ago as the Company continued to execute targeted cost savings initiatives.~~

ago.

R&D expense decreased by ~~$13.0~~$3.7 million or ~~18.1%~~2.3%, during the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago. This decrease was driven primarily ~~driven~~ by ~~net~~variable expense reductions and cost ~~savings~~efficiencies realized ~~from our strategic restructuring activities related to site consolidations and internal reorganizations to align our investment strategy.~~during the period. As a percentage of net revenue, R&D ~~decreased~~expense increased by ~~2.4~~1.8 percentage points during the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ~~ago as the Company continued to execute targeted cost savings initiatives.~~ago.

We believe that continuing our investments in R&D is critical to attaining our strategic objectives. We plan to continue to invest in R&D and new products that will further differentiate us in the marketplace.

Selling, General and Administrative

SG&A expense ~~remained relatively flat~~decreased by $9.0 million, or 10.1%, during the three months ended December 30, 2017 compared to the same period a year ago. As a percentage of net revenue SG&A increased 0.8 percentage points during the three months ended December 30, 2017 compared to the same period a year ago, driven by decreased revenue as discussed above.

~~SG&A expense decreased by $3.2 million, or 2.1%, during the six months ended December 30, 2017~~April 1, 2023 compared to the same period a year ago. This decrease was primarily due to ~~reduction in labor~~fair value adjustment of contingent consideration related to acquisitions and ~~facilities expenses associated with our strategic restructuring activities and ongoing cost reduction efforts.~~ variable expense reductions.As a percentage of net revenue, SG&A increased ~~1.1~~4.1 percentage points during the ~~six~~three months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ~~ago, driven by decreased revenue as discussed above.~~ago.

~~We intend to continue to focus on reducing our~~ SG&A expense ~~as a percentage of net revenue. Specifically, in January 2017 we announced a restructuring and global workforce reduction plan designed to improve profitability and reduce costs~~decreased by streamlining NSE operations. However, we have in the past experienced, and may continue to experience in the future, certain non-core expenses, such as mergers and acquisitions-related expenses and litigation expenses, which could increase our SG&A expenses and potentially impact our profitability expectations in any particular quarter.

~~Restructuring and Related Charges~~

From time to time we have initiated strategic restructuring events primarily intended to reduce costs, consolidate our operations, rationalize the manufacturing of our products and align our businesses in response to market conditions. We estimate annualized gross cost savings of approximately $49 million excluding any one-time charges as a result of the restructuring activities initiated in the past year. Refer to “Note 11. Restructuring and Related Charges” for more information.

During the three and six months ended December 30, 2017, we incurred $2.5 million and $4.0 million in restructuring and related charges, respectively, due to new and previously announced restructuring plans. During the three and six months ended December 31, 2016, we incurred restructuring and related charges of $1.8 million and $1.8 million, respectively.

~~During the second quarter of fiscal 2018, we recorded $2.5 million in restructuring and related charges. These charges are primarily the result of the following:~~

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During the second quarter of fiscal 2018, Management approved a plan within the NE business segment to consolidate and integrate the Trilithic acquisition. As a result, a restructuring charge of $0.5 million was recorded for severance and employee benefits for approximately 20 employees primarily in manufacturing and SG&A functions located in the United States. Payments related to the severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2019.

During fiscal 2017, Management approved a plan in the NE and SE business segments as part of VIAVI’s continued strategy to improve profitability in the Company’s Network and Service Enablement (NSE) business by narrowing the scope of the Service Enablement business and reducing costs by streamlining NSE operations. During the second quarter of fiscal 2018, the headcount impact by this plan has increased by approximately 20 employees and as a result a restructuring charge of $1.7 million was recorded for severance and employee benefits. As a result approximately 340 employees in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2018.

~~During the second quarter of fiscal 2017, we recorded $1.8 million in restructuring and related charges. These charges were primarily the result of the following:~~

During the second quarter of fiscal 2017, as part of the strategy to narrow the scope of the SE business and reducing cost by streamlining NSE operations, VIAVI entered into a separation agreement with two key executives and as a result, a restructuring charge of $1.4 million was recorded for severance and employee benefits.

During the six months ended December 30, 2017, we incurred $4.0 million in restructuring and related charges. These charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

During the second quarter of fiscal 2018, Management approved a plan within NE business segment to related to the integration of the Trilithic business acquired in the first quarter of fiscal 2018. As a result, a restructuring charge of $0.5 million was recorded for severance and employee benefits for approximately 20 employees primarily in manufacturing and SG&A functions located in the United States who were impacted. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2019.

During the third quarter of fiscal 2017, Management approved a plan in the NE and SE segment to exit the space in Colorado Springs, Colorado. As of September 30, 2017, the Company exited the workspace in Colorado Springs under the plan and recorded a lease exit cost of $1.2 million. Payments related to the Colorado Springs lease costs are expected to be paid by the end of the third quarter of fiscal 2021.

Our restructuring and other lease exit cost obligations are net of sublease income or lease settlement estimates of approximately $2.5 million. Our ability to generate sublease income, as well as our ability to terminate lease obligations and recognize the anticipated related savings, is highly dependent upon the economic conditions, particularly commercial real estate market conditions in certain geographies, at the time we negotiate the lease termination and sublease arrangements with third parties as well as the performances by such third parties of their respective obligations. While the amount we have accrued represents the best estimate of the remaining obligations we expect to incur in connection with these plans, estimates are subject to change. Routine adjustments are required and may be required in the future as conditions and facts change through the implementation period. If adverse macroeconomic conditions continue, particularly as they pertain to the commercial real estate market, or if, for any reason, tenants under subleases fail to perform their obligations, we may be required to reduce estimated future sublease income and adjust the

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estimated amounts of future settlement agreements, and accordingly, increase estimated costs to exit certain facilities. Amounts related to the lease expense, net of anticipated sublease proceeds, will be paid over the respective lease terms through fiscal 2021.

~~Interest and Other Income, Net~~

Interest and other income, net was $2.9 million during the three months ended December 30, 2017 compared to $3.8 million the same period a year ago. This $0.9 million decrease was primarily driven by a $0.2 million loss on repurchase of debt, a $0.9 million more unfavorable foreign exchange impact and a $1.8 million decrease in other income primarily due to gain on sale of other assets from prior period, partially offset by a $2.0 million increase in interest income.

Interest and other income, net was $3.1 million during the six months ended December 30, 2017 compared to $5.1 million the same period a year ago. This $2.0 million decrease was primarily driven by a $3.8 million loss on repurchase of debt, a $0.8 million more unfavorable foreign exchange impact and a $1.3 million decrease in other income primarily due to gain on sale of other assets from prior period, partially offset by a $4.3 million increase in interest income.

~~Gain on Sale of Investments~~

We sold 1.7 million and 5.6 million shares of Lumentum common stock during three and six months ended December 31, 2016 and recognized a gross realized gain of approximately $53.8 million and $135.3 million, respectively, reflected in "Gain on sale of investments" in our Consolidated Statements of Operations. As of July 1, 2017, the Company had sold all ownership of Lumentum’s common stock.

~~Interest Expense~~

~~Interest expense increased by $2.3~~$18.8 million, or ~~24.5%~~7.0%, during the ~~three~~nine months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago. This ~~increase~~decrease was primarily due to ~~$4.5 million interest~~the reversal of the U.K. pension accrued liability, lower commission expense ~~in relation to the 2024 Notes issued in March 2017, partially offset by $2.2 million reduction in interest expense related to the 2033 Notes due to repurchase~~and outside service expenses.As a percentage of ~~debt.~~

~~Interest expense~~net revenue, SG&A increased ~~by $5.6 million, or 30.1%,~~1.6 percentage points during the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 compared to the same period a year ago.

Restructuring and related charges

The Company restructuring events are primarily intended to reduce costs, consolidate operations, integrate various acquisitions, streamline product manufacturing and address market conditions. On February 1, 2023, the Company approved a restructuring and workforce reduction plan (the FY 2023 Plan) to better align the Company’s workforce with current business needs and strategic growth opportunities. The Company expects approximately 5% of its global workforce to be affected with approximately $25.0 million of annual savings and anticipates to be substantially complete by the end of fiscal 2023.

During the three and nine months ended April 1, 2023, the Company recorded restructuring charges of $10.2 million related to the FY 2023 Plan. The restructuring charges include severance, benefit and outplacement costs to eliminate a specified number of positions. Refer to “Note 13. Restructuring and Related Charges” for more information.

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Loss on convertible note settlement

During the three months ended April 2, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024. The Company paid $64.7 million in cash in exchange for $23.2 million principal amount of the 2023 Notes and $26.8 million principal amount of the 2024 Notes. The Company recorded a loss of $6.4 million in connection with the transactions.

During the nine months ended April 2, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75% Senior Convertible Notes due 2023 and 1.00% Senior Convertible Notes due 2024. The Company paid an aggregate of 10.6 million shares of its common stock, par value $0.001 per share, and $320.2 million in cash in exchange for $137.6 million principal amount of the 2023 Notes and $233.0 million principal amount of the 2024 Notes. The Company recorded a loss of $98.7 million in connection with the settlement transactions.

Loss on convertible note modification

During the three months ended April 1, 2023, the Company exchanged $127.5 million principal value of its 1.00% Senior Convertible Notes due 2024 for $132.0 million principal value of its 1.625% Senior Convertible Notes due 2026. The Company incurred $4.2 million of issuance costs related to the modification, of which $2.2 million of the issuance costs were recorded as loss on convertible note modification on the Consolidated Statements of Operations. The remaining issuance costs of $2.0 million was capitalized within long-term debt (as a contra-balance) on the Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis until maturity.

Interest income and other income, net

Interest income and other income, net, was $1.6 million during the three months ended April 1, 2023 compared to $0.6 million during the same period a year ago. This $1.0 million increase was primarily driven by higher interest income during the current period offset by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.

Interest income and other income, net, was $4.9 million during the nine months ended April 1, 2023 compared to $3.1 million during the same period a year ago. This $1.8 million increase was primarily driven by higher interest income offset by an unfavorable foreign exchange impact as the balance sheet hedging program provided a less favorable offset to the remeasurement of underlying foreign exchange exposures during the current period.

Interest Expense

Interest expense increased by $0.3 million, or 4.7%, during the three months ended April 1, 2023 compared to the same period a year ago. This increase was primarily driven by the accretion of debt discount on the Senior Convertible Notes due 2026 as a result of the issuance in March 2023.

Interest expense increased by $1.9 million, or 11.1%, during the nine months ended April 1, 2023 compared to ~~$9.1 million~~the same period a year ago. This increase was primarily driven by full nine month interest expense on the Senior Notes due 2029 in ~~relation to~~ the ~~2024 Notes issued~~current period as a result of the issuance in ~~March 2017, partially~~September 2021 offset by ~~$3.5 million reduction in~~lower interest expense ~~related to the 2033 Notes due to repurchase~~on our convertible notes as a result of ~~debt.~~convertible notes settlement transactions during September 2021, November 2021, March 2022 and June 2022.

Provision for Income Taxes

We recorded an income tax ~~(benefit) expense~~provision of ~~$(1.4)~~$6.0 million and ~~$1.1~~$28.7 million for the three and ~~six~~nine months ended ~~December 30, 2017,~~April 1, 2023, respectively. We recorded an income tax ~~expense~~provision of ~~$5.8~~$9.4 million and ~~$11.5~~$25.3 million for the three and ~~six~~nine months ended ~~December 31, 2016,~~April 2, 2022, respectively.

The income tax ~~(benefit) expense~~provision for the three and ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 and ~~December 31, 2016~~April 2, 2022 primarily relates to income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss for the respective fiscal year. For the three and six months ended December 30, 2017, this foreign and state tax is offset by a tax benefit of $0.4 million and $3.1 million, respectively, which was recorded in ourloss. The income tax provision related to the income tax intraperiod allocation rules in relation to other comprehensive income. In accordance with authoritative guidance, this benefit may reverse during the fiscal year. Additionally, for the ~~three and six~~nine months ended ~~December 30, 2017, the tax provision~~April 2, 2022 includes a $8.1 million tax benefit recognized upon the statute of ~~$6.5 million resulting from the passage of the U.S. Tax Cuts and Jobs Act (“the Act”), the impacts of which are detailed below.~~

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. Income tax effects resulting from changes in tax laws are accounted for by us in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted, and the effects are recorded aslimitations on a component of the provision for income taxes from continuing operations. The law has significantly changed the way the U.S. taxes corporations. The Act repealed the alternative minimum tax (“AMT”) for corporations and provided that the existing AMT credit carryforwards would be refunded in 2022 if not utilized. As a result, we recognized a benefit of $4.5 million for the three and six months ended December 30, 2017 for the release of the valuation allowance previously maintained against the AMT credit deferred tax asset. In addition, under the Act, our current year net operating losses and any future net operating losses can now be carried forward indefinitely. As a result, our deferred tax liability associated with indefinite-lived intangible assets may now offset these indefinite-lived deferred tax assets, resultingtransfer pricing reserve in a ~~benefit of $2.0 million for the three and six months ended December 30, 2017 due to release of valuation allowance.~~non-US jurisdiction.

The Act imposed a deemed repatriation of our foreign subsidiaries’ post-1986 earnings and profits (“E&P”) which had previously been deferred from US income tax. We have made a provisional estimate of this deemed repatriation of E&P and has

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determined that there is no current period expense or liability due our having sufficient estimated losses for the fiscal year to offset the income associated with the deemed repatriation. As previously noted, the impact of the deemed repatriation is a provisional estimate. We have not yet completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. In addition, further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional estimate or the accounting treatment of the provisional estimate.

The Act reduces the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. We have not made sufficient progress on remeasuring our deferred tax assets and liabilities to determine a reasonable estimate at this time. However, we expect that there will be an equal and offsetting reduction in the valuation allowance such that there should be no impact to our (benefit from) provision for income taxes for the fiscal year related to the rate reduction.

The income tax ~~expense (benefit)~~provision recorded differs from the expected tax ~~expense (benefit)~~provision that would be calculated by applying the federal statutory rate to our income from continuing operations before taxes primarily due to the changes in valuation allowance for deferred tax assets attributable to our domestic and foreign income ~~(loss)~~ from continuing ~~operations, impacts~~ operations.

As of ~~the Act, and due to the income tax benefit recorded in continuing operations under the income tax intraperiod allocation rules.~~

~~As of December 30, 2017,~~April 1, 2023, and July ~~1, 2017,~~2, 2022, our unrecognized tax benefits ~~totaled $39.1~~totaling $51.1 million and ~~$38.9~~$49.7 million, respectively, ~~and~~ are included in deferred taxes and other non-current tax liabilities, net. We had ~~$2.1~~$2.8 million accrued for the payment of interest and penalties ~~at December 30, 2017.~~as of April 1, 2023. The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued for each year. Although we do not expect that our balance of gross unrecognized tax benefits ~~that may be recognized during~~will change materially in the next ~~twelve~~12 months, given the uncertainty in the development of ongoing income tax examinations, we are ~~approximately $0.1 million.~~unable to estimate the full range of possible adjustments to this balance.

Operating Segment Information (~~in millions~~):

Information related to our operating segments were as follows, (in millions):

Three Months Ended Six Months Ended
December 30, 2017 December 31, 2016 Change Percentage Change December 30, 2017 December 31, 2016 Change Percentage Change
Network Enablement
Net revenue $ 121.5
$ 117.0
$ 4.5
3.8 % $ 233.3
$ 235.6
$ (2.3 ) (1.0 )%
Gross profit 73.8
74.6
(0.8 ) (1.1 )% 144.4
152.0
(7.6 ) (5.0 )%
Gross margin 60.7 % 63.8 %
61.9 % 64.5 %

Service Enablement
Net revenue 32.1
40.6
(8.5 ) (20.9 )% 61.1
77.0
(15.9 ) (20.6 )%
Gross profit 22.4
27.1
(4.7 ) (17.3 )% 42.9
48.4
(5.5 ) (11.4 )%
Gross margin 69.8 % 66.7 %

70.2 % 62.9 %

Network and Service Enablement
Net revenue 153.6
157.6
(4.0 ) (2.5 )% 294.4
312.6
(18.2 ) (5.8 )%
Operating income 8.0
6.0
2.0
33.3 % 15.2
10.1
5.1
50.5 %
Operating margin 5.2 % 3.8 % 5.2 % 3.2 %

OSP
Net revenue $ 48.2
$ 48.9
$ (0.7 ) (1.4 )% 102.6
$ 104.7
$ (2.1 ) (2.0 )%
Gross profit 26.2
28.2
(2.0 ) (7.1 )% 57.6
59.8
(2.2 ) (3.7 )%
Gross margin 54.4 % 57.7 %

56.1 % 57.1 %
Operating income 17.4
20.9
(3.5 ) (16.7 )% 39.6
44.3
(4.7 ) (10.6 )%
Operating margin 36.1 % 42.7 %

38.6 % 42.3 %


	Three Months Ended										Nine Months Ended
	April 1, 2023			April 2, 2022			Change		Percentage Change		April 1, 2023			April 2, 2022			Change		Percentage Change
Network Enablement
Net revenue	$	149.6		$	204.3		$	(54.7)	(26.8)	%	$	524.2		$	623.6		$	(99.4)	(15.9)	%
Gross profit	92.8			130.3			(37.5)		(28.8)	%	333.5			401.0			(67.5)		(16.8)	%
Gross margin	62.0		%	63.8		%					63.6		%	64.3		%

Service Enablement
Net revenue	$	27.7		$	26.5		$	1.2	4.5	%	$	79.1		$	79.3		$	(0.2)	(0.3)	%
Gross profit	19.5			18.3			1.2		6.6	%	53.8			54.4			(0.6)		(1.1)	%
Gross margin	70.4		%	69.1		%					68.0		%	68.6		%

Network and Service Enablement
Net revenue	$	177.3		$	230.8		$	(53.5)	(23.2)	%	$	603.3		$	702.9		$	(99.6)	(14.2)	%
Operating income	2.5			34.4			(31.9)		(92.7)	%	49.8			110.7			(60.9)		(55.0)	%
Operating margin	1.4		%	14.9		%					8.3		%	15.7		%

Optical Security and Performance
Net revenue	$	70.5		$	84.7		$	(14.2)	(16.8)	%	$	239.2		$	254.2		$	(15.0)	(5.9)	%
Gross profit	35.7			47.0			(11.3)		(24.0)	%	128.0			143.8			(15.8)		(11.0)	%
Gross margin	50.6		%	55.5		%					53.5		%	56.6		%
Operating income	25.8			33.3			(7.5)		(22.5)	%	91.9			104.6			(12.7)		(12.1)	%
Operating margin	36.6		%	39.3		%					38.4		%	41.1		%

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Network Enablement

During the three months ended ~~December 30, 2017,~~April 1, 2023, NE gross margin decreased by ~~3.1~~1.8 percentage points from 63.8% in the same period a year ago to ~~60.7%~~62.0% in the current period due to lower volumes.

During the nine months ended April 1, 2023, NE gross margin decreased by 0.7 percentage points from 64.3% in the same period a year ago to 63.6% in the current period due to lower volumes.

Service Enablement

During the three months ended April 1, 2023, SE gross margin increased by 1.3 percentage points from 69.1% in the same period a year ago to 70.4% in the current period. This increase was primarily due to higher volumes and improved product mix.

During the nine months ended April 1, 2023, SE gross margin decreased by 0.6 percentage points from 68.6% in the same period a year ago to 68.0% in the current period. This decrease was primarily due to lower volumes.

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Network and Service Enablement

During the three months ended April 1, 2023, NSE operating margin decreased by 13.5 percentage points from 14.9% in the same period a year ago to 1.4% in the current period. This decrease in operating margin was primarily driven by lower volumes.

During the nine months ended April 1, 2023, NSE operating margin decreased by 7.4 percentage points from 15.7% in the same period a year ago to 8.3% in the current period. This decrease in operating margin was primarily driven by lower volumes.

Optical Security and Performance Products

During the three months ended April 1, 2023, OSP gross margin decreased by 4.9 percentage points from 55.5% in the same period a year ago to 50.6% in the current period. This decrease was primarily due to unfavorable ~~product mix as Lab Instruments revenue declined~~manufacturing variances and ~~higher product cost during the current period.~~startup costs at our Chandler facility and lower volume.

During the ~~six~~nine months ended ~~December 30, 2017, NE~~April 1, 2023, OSP gross margin decreased by ~~2.6~~3.1 percentage points from ~~64.5%~~56.6% in the same period a year ago to ~~61.9%~~53.5% in the current period. This decrease was primarily due to unfavorable ~~product mix as Lab Instruments revenue declined~~manufacturing variances and ~~higher product cost~~startup costs at our Chandler facility and lower volume.

OSP operating margin decreased by 2.7 percentage points during ~~the current period.~~

~~Service Enablement~~

~~During~~ the three months ended ~~December 30, 2017, SE gross margin increased by 3.1 percentage points~~April 1, 2023 from ~~66.7%~~39.3% in the same period a year ago to ~~69.8% in the current period. This increase was primarily due to improved quality of revenue resulting from our planned restructuring announced in January 2017 to narrow the scope of SE product lines.~~

During the six months ended December 30, 2017, SE gross margin increased by 7.3 percentage points from 62.9% in the same period a year ago to 70.2% in the current period. This increase was primarily due to improved quality of revenue resulting from our planned restructuring announced in January 2017 to narrow the scope of SE product lines and favorable product mix as a result of lower margin pass-through hardware revenue mix in our Growth Assurance offerings in the same period a year ago

~~Network and Service Enablement (“NSE”)~~

During the three months ended December 30, 2017, NSE operating margin increased by 1.4 percentage points from 3.8% in the same period a year ago to 5.2% in the current period. This increase in operating margin was primarily driven by reduction in NSE operating expense across all function lines due to net cost savings realized from our prior fiscal year’s strategic restructuring activities as we continue to drive efficiencies and streamline operations to improve profitability, partially offset by NE gross margin reduction.

During the six months ended December 30, 2017, NSE operating margin increased by 2.0 percentage points from 3.2% in the same period a year ago to 5.2% in the current period. This increase in operating margin was primarily driven by reduction in NSE operating expense across all function lines due to net cost savings realized from our prior fiscal year’s strategic restructuring activities as we continue to drive efficiencies and streamline operations to improve profitability, partially offset by NE gross margin reduction.

~~Optical Security and Performance Products~~

During the three months ended December 30, 2017, OSP gross margin decreased by 3.3 percentage points from 57.7% in the same period a year ago to 54.4% in the current period. This decrease was primarily due to unfavorable product mix driven by lower revenue from Anti-Counterfeiting products coupled with incremental revenue from 3D Sensing products.

During the six months ended December 30, 2017, OSP gross margin decreased by 1.0 percentage points from 57.1% in the same period a year ago to 56.1% in the current period. This decrease was primarily due to unfavorable product mix driven by lower revenue from Anti-Counterfeiting products coupled with incremental revenue from 3D Sensing products.

~~OSP operating margin decreased by 6.6 percentage points during the three months ended December 30, 2017 from 42.7% in the same period a year ago to 36.1%~~36.6% in the current period. The decrease in operating margin was primarily due to ~~decrease~~the aforementioned reduction in gross ~~margin as discussed above and increased operating expense associated with R&D investment in growth initiatives.~~margin.

OSP operating margin ~~decrease~~ddecreased by ~~3.7~~2.7 percentage points during the ~~six~~nine months ended ~~December 30, 2017~~April 1, 2023 from ~~42.3%~~41.1% in the same period a year ago to ~~38.6%~~38.4% in the current period. The decrease in operating margin was primarily due to ~~decrease~~the aforementioned reduction in gross ~~margin as discussed above and increased operating expense associated with R&D investment in growth initiatives and headcount growth in sales.~~margin.

Liquidity and Capital Resources

We believe our existing liquidity and sources of liquidity, namely operating cash flows, credit facility capacity, and access to capital markets, will continue to be adequate to meet our liquidity needs, including but not limited to, contractual obligations, working capital and capital expenditure requirements, financing strategic initiatives, fund debt maturities, and execute purchases under our share repurchase program over the next twelve months and beyond. However, there are a number of factors that could positively or negatively impact our liquidity position, including:

•Global economic conditions which affect demand for our products and services and impact the financial stability of our suppliers and customers;

•Impact of the COVID-19 pandemic on our financial condition;

•Changes in accounts receivable, inventory or other operating assets and liabilities which affect our working capital;

•Increase in capital expenditure to support the revenue growth opportunity of our business;

•Changes in customer payment terms and patterns, which typically results in customers delaying payments or negotiating favorable payment terms to manage their own liquidity positions;

•Timing of payments to our suppliers;

•Factoring or sale of accounts receivable;

•Volatility in fixed income and credit markets which impact the liquidity and valuation of our investment portfolios;

•Volatility in credit markets which would impact our ability to obtain additional financing on favorable terms or at all;

•Volatility in foreign exchange markets which impacts our financial results;

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•Possible investments or acquisitions of complementary businesses, products or technologies;

•While the principal payment obligations of our 1.00% Senior Convertible Notes due 2024, our 1.75% Senior Convertible Notes due 2023, 1.625% Senior Convertible Notes due 2026 and our 3.75% Senior Notes due 2029 (together the “Notes”) are substantial and there are covenants that restrict our debt level and credit facility capacity, we may be able to incur substantially more debt;

•Issuance or repurchase of debt or equity securities, which may include open market purchases of our 2023 Notes, 2024 Notes, 2026 Notes and/or 2029 Notes prior to their maturity or of our common stock;

•Potential funding of pension liabilities either voluntarily or as required by law or regulation;

•Compliance with covenants and other terms and conditions related to our financing arrangements; and

•The risks and uncertainties detailed in Item 1A “Risk Factors” section of our Quarterly Report on Form 10-Q.

Cash and Cash Equivalents and Short-Term Investments

Our cash and cash equivalents consist mainly of investments ~~are made~~ in ~~accordance with an~~institutional money market funds, short-term deposits held at major global financial institutions, and similar short duration instruments. Our strategy is focused on the preservation of capital and supporting our liquidity requirements that meet high credit quality standards, as specified in our investment policy approved by the Audit Committee of our Board of ~~Directors and has not changed from that disclosed~~Directors. Our investments in ~~our 10-K. Virtually all~~ debt securities ~~held were minimum BBB/Baa2.~~and marketable equity securities are primarily classified as available for sale or trading assets and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments are recorded as other comprehensive (loss) income and are reported as a separate component of stockholders’ equity. As of ~~December 30, 2017,~~April 1, 2023, U.S. ~~entities~~subsidiaries owned approximately ~~68.2%~~47.2% of our cash and cash equivalents, short-term investments and restricted cash.

As of ~~December 30, 2017,~~April 1, 2023, the majority of our cash investments have maturities of 90 days or less and are of high credit quality. ~~Although~~Nonetheless we ~~intend to hold these investments to maturity, in the event that we are required to sell any of these securities~~

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could realize investment losses under adverse market ~~conditions, losses could be recognized on such sales.~~conditions. During the three months ended ~~December 30, 2017,~~April 1, 2023, we have not realized material investment losses but can provide no assurance that the value or the liquidity of our investments will not be impacted by adverse conditions in the financial markets. In addition, we maintain cash balances in operating accounts that are with ~~third party~~third-party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation ~~(“FDIC”)~~(FDIC) insurance limits. While we monitor the cash balances in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail.

~~During the second quarter of fiscal 2018, the Company repurchased $12.5 million~~Senior Secured Asset-Based Revolving Credit Facility

On December 30, 2021, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo) as administrative agent, and other lender related parties. The Credit Agreement provides for a senior secured asset-based revolving credit facility in a maximum aggregate ~~principal~~ amount of $300 million, which matures on December 30, 2026. The Credit Agreement also provides that, under certain circumstances, we may increase the 2033 Notes for $13.0 million in cash. In connection with the repurchase, a loss on extinguishment of $0.2 million was recognized in interest and other income, net in compliance with the authoritative guidance. After giving effect to the repurchase, the totalaggregate amount of ~~2033 Notes outstanding~~revolving commitments thereunder by an aggregate amount of up to $100 million so long as ~~of December 30, 2017 was $451.0 million. As of December 30, 2017, the expected remaining term of the 2033 Notes is 0.6 years and thus was classified as current portion of long-term debt.~~

~~On February 1, 2018, the Company announced its entry into the Purchase Agreement with~~ certain subsidiaries of Cobham to acquire Cobham’s Test and Measurement business for $455 million cash consideration, subject to certain customary closing adjustments. Please refer to Note 18. Subsequent events for more details.

~~Six Months Ended December 30, 2017~~conditions are met.

As of ~~December 30, 2017~~April 1, 2023, we had no borrowings under this facility and our available borrowing capacity was approximately $169.4 million.

Refer to “Note 11. Debt” for more information.

Cash Flows for the Nine Months Ended April 1, 2023

As of April 1, 2023, our combined balance of cash and cash equivalents ~~short-term investments, including marketable equity securities,~~ and restricted cash ~~decreased~~increased by ~~$235.0~~$20.4 million to ~~$1,212.8~~$593.2 million from ~~$1,447.8~~$572.8 million as of July ~~1, 2017.~~2, 2022.

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During the ~~six~~nine months ended ~~December 30, 2017, cash~~April 1, 2023, Cash provided by operating activities was ~~$34.9~~$90.6 million, ~~consisted~~consisting of net ~~loss~~income of ~~$8.5~~$25.6 million adjusted for non-cash charges (e.g., depreciation, amortization, stock-based compensation and ~~stock-based compensation)~~other non-cash items) which totaled ~~$73.1~~$106.6 million, including changes in deferred tax ~~balance, offset by net decrease~~balances, and changes in operating assets and liabilities ~~of $29.7~~that used $41.6 million. ~~Net decreases~~Changes in our operating assets and liabilities related primarily to ~~an increase~~a decrease in ~~inventories~~accrued payroll and related expenses of ~~$19.1~~$35.1 million, ~~due to inventory build-up primarily for our 3D sensing products, an increase in accounts receivables of $18.7 million due to the higher billings in the current quarter, and~~ a decrease in accrued expenses and other current and non-current liabilities of ~~$2.4~~$27.3 million, ~~due to payment for severance related liabilities. This was~~an increase in inventory of $20.0 million, a decrease in accounts payable of $13.3 million, a decrease in deferred revenue of $6.3 million and a decrease in income taxes payable of $6.2 million. These were partially offset by a decrease in accounts receivable of $47.6 million and a decrease in other current and non-current assets of $5.1 million primarily driven by change in forward contract and prepaid inventory, an increase in deferred revenue of $4.4 million primarily from our 3D sensing products offset by amortization of support agreements and the release of revenue upon customer acceptance, and an increase in accounts payable of $2.4 million driven by the timing of payments.$19.0 million.

During the ~~six~~nine months ended ~~December 30, 2017, cash~~April 1, 2023, Cash used in investing activities was ~~$85.0~~$105.3 million, primarily related to ~~$56.2~~$64.4 million ~~of cash~~ used for ~~the acquisition of Trilithic, $14.9~~acquisitions, $43.7 million ~~of cash~~ used for capital expenditures and ~~$20.7~~$0.7 million ~~of net~~for a purchase ~~sales and maturities of available-for-sale debt securities~~price adjustment related to business acquisition, offset by ~~$4.5 million decrease in restricted cash and $2.3~~$3.5 million proceeds from sales of assets.

During the ~~six~~nine months ended ~~December 30, 2017, cash used in~~April 1, 2023, Cash provided by financing activities was ~~$213.3~~$29.3 million, primarily resulting from ~~$175.0~~$118.0 million ~~used for repurchase~~proceeds from the issuance of ~~our 2033~~2026 Senior Convertible Notes ~~$31.0 million of cash used to repurchase common stock under our share repurchase program, $8.9 million in withholding tax payment on vesting of restricted stock awards~~ and ~~$0.9 million in payment of financing obligations offset by $2.5~~$7.9 million in proceeds from ~~the exercise of stock options and~~ the issuance of common stock under our employee stock purchase plan.

~~Six Months Ended December 31, 2016~~

As of December 31, 2016, our combined balance of cash and cash equivalents, short-term investments, including marketable equity securities, and restricted cash increased by $35.1 million to $1,014.9 million from $979.8 million as of July 2, 2016.

During the six months ended December 31, 2016, cash provided by operating activities was $36.7 million, consisted of net income of $127.2 million adjusted for non-cash charges (e.g., depreciation, amortization and stock-based compensation) which totaled $65.7 million, including changes in deferred tax balance less gain on sale of investment of $135.4 million, These were offset by ~~net decrease in operating assets and liabilities of $20.8 million. Net decreases in our operating assets and liabilities related primarily~~$73.9 million cash paid to an increase in accounts receivable of $21.2 million primarily driven by timing of collections, a decrease in deferred revenue of $16.9 million due to amortization of support agreements and the release of revenue upon customer acceptance, a decrease in accounts payable of $9.8 million driven by the timing of payments, an increase in other current and non-current assets of $7.1 million due to prepaid inventory, and a decrease in accrued payroll and related expenses of $1.5 million due to the timing of salary payments. This was offset by an increase in accrued expenses and other current and non-current liabilities of $32.6 million due to a customer prepayment offset by restructuring payments and an increase in income taxes payable of $3.7 million.

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During the six months ended December 31, 2016, cash provided by investing activities was $46.1 million, primarily from the sale of 5.6 million shares of marketable equity securities relating to Lumentum stock which generated $183.2 million of cash proceeds offset by $120.7 million of net purchase, sales and maturities of available-for-sale debt securities and $20.1 million of cash used for capital expenditures.

~~During the six months ended December 31, 2016, cash used in financing activities was $43.9 million, primarily resulting from $39.7 million in~~ repurchase ~~of our~~ common stock ~~$7.8~~under our share repurchase program, $11.4 million in withholding tax ~~payment~~payments on the vesting of restricted stock awards, ~~offset by $4.0~~$7.4 million in ~~proceeds from the exercise of stock options~~other payments, primarily acquisition related and ~~the issuance of common stock under our employee stock purchase plan.~~

We believe that our existing cash balances and investments will be sufficient to meet our liquidity and capital spending requirements over the next twelve months. However, there are a number of factors that could positively or negatively impact our liquidity position, including:

~~global economic conditions which affect demand~~$3.9 million for ~~our products and services and impact the financial stability of our suppliers and customers;~~

~~changes in accounts receivable, inventory or other operating assets and liabilities which affect our working capital;~~

~~increase in capital expenditure to support the revenue growth opportunity of our business;~~

~~changes in customer payment terms and patterns, which typically results in customers delaying~~ payments ~~or negotiating favorable payment terms to manage their own liquidity positions;~~

~~timing of payments to our suppliers;~~

~~factoring or sale of accounts receivable;~~

~~volatility in fixed income and credit market which impact the liquidity and valuation of our investment portfolios;~~

~~volatility in foreign exchange market which impacts our financial results;~~

~~possible investments or acquisitions of complementary businesses, products or technologies;~~

~~issuance or repurchase~~ of debt issuance costs.

Share Repurchase Program

In September 2022 the Board of Directors authorized a new stock repurchase plan (“2022 Repurchase Plan”) of up to $300 million effective October 1, 2022 which will remain in effect until the amount authorized has been fully repurchased or ~~equity securities, which may include~~until suspension or termination of the program. Under the 2022 Repurchase Plan, the Company is authorized to repurchase shares through a variety of methods, including open market purchases, privately-negotiated transactions or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans. The timing of ~~our 2033 Notes prior~~repurchases under the plan will depend upon business and financial market conditions. During the three months ended April 1, 2023, the Company repurchased 2.8 million shares of its common stock for $30.0 million under the 2022 Repurchase Plan. During the nine months ended April 1, 2023, the Company repurchased 5.0 million shares of its common stock for $55.2 million under the 2022 Repurchase Plan. As of April 1, 2023, the Company had remaining authorization of $244.8 million for future share repurchases under the 2022 Repurchase Plan.

The 2022 Repurchase Plan replaces the $200 million stock repurchase plan that the Board previously authorized in September 2019 (“2019 Repurchase Plan”) and expired on September 30, 2022. During the three months ended October 1, 2022, the Company repurchased 1.3 million shares of its common stock for $18.7 million under the 2019 Repurchase Plan.

Refer to ~~their maturity or of our common stock;~~“Note 15. Stockholders Equity” for more information.

~~potential funding of pension liabilities either voluntarily or as required by law or regulation; and~~

~~compliance with covenants and other terms and conditions related to our financing arrangements.~~

Contractual Obligations

There were no material changes to our existing contractual commitments during the ~~second~~third quarter of fiscal ~~2018.~~2023.

Off-Balance Sheet Arrangements

We do not have noany off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors, other than the guarantees discussed in “~~Note 16.~~“Note 18. Commitments and ~~Contingencies~~.Contingencies.”

Employee Equity Incentive Plan

Our stock-based benefit plans are a broad-based, long-term retention program that is intended to attract and retain employees and align stockholder and employee interests. Refer to “~~Note 14.~~“Note 16. Stock-Based ~~Compensation~~”Compensation” for more details.

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Pension and Other ~~Post-retirement~~Post-Retirement Benefits

We sponsor significant pension plans for certain past and present employees in the United Kingdom ~~(“U.K.”~~(U.K.) and Germany. We are also responsible for the non-pension post-retirement benefit obligation ~~or PBO~~(PBO) assumed from a past acquisition. All of these plans have been closed to new participants and no additional service costs are being accrued, except for certain plans in Germany assumed in connection with ~~acquisitions during~~an acquisition in fiscal 2010. The U.K. plan is ~~partially~~fully funded, and the other Germany plans, which were initially established as “pay-as-you-go” plans, are unfunded. As of ~~December 30, 2017,~~April 1, 2023, our pension plans were ~~under funded~~under-funded by ~~$107.9~~$57.4 million since the PBO exceeded the fair value of ~~its~~ plan assets. Similarly, we had a liability of ~~$1.1~~$0.4 million related to our non-pension post-retirement benefit plan. Pension plan assets are managed by external third parties and we monitor

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the performance of our investment managers. As of ~~December 30, 2017~~,April 1, 2023, the fair value of plan assets had increased approximately ~~4.8%~~2.1% since July ~~1, 2017,~~2, 2022, our most recent fiscal year end.

In estimating the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of active management of the plan’s invested assets. While it is not possible to accurately predict future rate movements, we believe our current assumptions are appropriate. Refer to “Note 17. Employee Pension and Other Benefit Plans” for more details.

Recently Issued Accounting Pronouncements

Refer to “Note 2. Recently Issued Accounting Pronouncements” regarding the effect of certain recent accounting pronouncements on our consolidated financial statements.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, (U.S. GAAP),which require management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, net revenue and expenses, and the disclosure of contingent assets and liabilities. Our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. We believe that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates and such differences may be material.

A key actuarial assumption in calculating the net periodic cost and the PBO is the discount rate. Changes in the discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact that the PBO is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a ~~50 basis~~50-basis point ~~(“BPS”)~~ decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately ~~$9.5~~$5.0 million based upon data as of July ~~1, 2017.~~2, 2022.

In estimating the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of active management of the plan’s invested assets. While it is not possible to accurately predict future rate movements, we believe our current assumptions are appropriate. Refer to “~~Note 15. Employee Pension and Other Benefit Plans” for more details.~~

Item 3. Quantitative and Qualitative Disclosure About Market Risks

The Company’s market risk has not changed materially from the foreign exchange and interest rate risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended July ~~1, 2017.~~2, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of ~~December 30, 2017.~~April 1, 2023.

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Changes in Internal Control Over Financial Reporting

There have ~~not~~ been ~~any~~no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Limitations on Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures of our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems will be achieved. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company, have been detected. Accordingly, our disclosure controls and procedures provide reasonable assurance of achieving their objective.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on our financial position, results of operations or statement of cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. If an unfavorable final outcome were to occur, it may have a material adverse impact on our financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable.

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~~Item~~ITEM 1A. ~~Risk Factors~~RISK FACTORS

Global Risks

Geopolitical conditions, including political turmoil and volatility, regional conflicts, terrorism and war could result in market instability, which could negatively impact our business results.

We operate globally and sell our products in countries throughout the world. Recent escalation in regional conflicts, including the Russian invasion of Ukraine, resulting in ongoing economic sanctions, and the risk of increased tensions between the U.S. and China, could curtail or prohibit our ability to transfer certain technologies, to sell our products and solutions, or to continue to operate in certain locations. Foreign companies with a presence in China are facing increasing operational challenges and enhanced scrutiny from governmental entities in region. International conflict has resulted in (i) increased pressure on the supply chain and could further result in increased energy costs, which could increase the cost of manufacturing, selling and delivering products and solutions (ii) inflation, which could result in increases in the cost of manufacturing products, reduced customer purchasing power, increased price pressure, and reduced or cancelled orders (iii) increased risk of cybersecurity attacks and (iv) general market instability, all of which could adversely impact our financial results. Moreover, domestically, U.S. political dissension on raising the debt ceiling may increase the possibility of a government shutdown, default by the U.S. government on its debt obligations, or related credit-rating downgrades, all of which could also have adverse effects on the broader global economy and contribute to, or worsen, an economic recession.

The COVID-19 pandemic has and may continue to adversely affect how we and our customers are operating our businesses.

The worldwide spread of the COVID-19 virus resulted in a global slowdown of economic activity which could continue to impact demand for a broad variety of goods and services, including from the Company’s customers, while also continuing to disrupt sales channels and marketing activities for an unknown period of time. New and potentially more contagious variants of the virus have emerged over the course of the pandemic, along with a surge in cases in several regions across the globe, including Europe and Asia, resulting in renewed shutdown, mandatory quarantines and shelter in place orders in certain regions. These events have led, at times, to slowdowns in shipping and commercial activities. Through continued economic challenges, there continue to be periodic shipping and logistics challenges and continued supply chain constraints, shortages and delays, along with inflationary pricing pressures.

As normal business operations resume and we transition to a hybrid work model, we continue to practice enhanced sanitation procedures, health checks and social distancing protocols, however, none of these measures can completely eliminate the risk of exposure or spread of COVID-19. There could be additional waves or spikes in infection, again causing widespread social, economic and operational impacts. The reopening of China and ending of its “zero-Covid” policy could have unforeseen impacts on our operations, facilities and supply chain.

Further, the lingering impacts of the COVID-19 pandemic may continue to adversely affect the economies and financial markets in many countries. In December 2021, we entered into a $300 million asset-based secured credit facility. If there is a long-term economic downturn or a prolonged recession, we could face additional liquidity needs and challenges. There can be no assurance that we will be able to obtain financing on favorable terms or at all.

Any prolonged disruption of manufacturing or shipment of our products caused by the pandemic or significant decrease in demand for our products could materially and adversely affect our results of operations and financial conditions. Surges in infection rate, new shutdowns or quarantines, emergence of new and potentially more contagious variants of the virus and staffing and labor supply challenges may impact our suppliers and our ability to source materials in a timely manner. Further, ongoing supply chain constraints and inflationary pressure could have a negative impact on our results.

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Risks Related to Our Business Strategy and Industry

Our future profitability is not assured.

Our profitability in a particular period will be impacted by revenue, product mix and operational costs that vary significantly across our product portfolio and business segments.

Specific factors that may undermine our profit and financial objectives include, among others:

•Uncertain future telecom carrier and cable operator capital and R&D spending levels, which particularly affects our NE and SE segments;

•Adverse changes to our product mix, both fundamentally (resulting from new product transitions, the declining profitability of certain legacy products and the termination of certain products with declining margins, among other things) and due to quarterly demand fluctuations;

•Pricing pressure across our NSE product lines due to competitive forces, advanced chip component shortages, and a highly concentrated customer base for many of our product lines, which may offset some of the cost improvements;

•Our OSP operating margin may experience some downward pressure as a result of a higher mix of 3D sensing products and increased operating expenses;

•Limited availability of components and resources for our products which leads to higher component prices;

•Resource rationing, including rationing of utilities like electricity by governments and/or service providers;

•Increasing commoditization of previously differentiated products, and the attendant negative effect on average selling prices and profit margins;

•Execution challenges, which limit revenue opportunities and harm profitability, market opportunities and customer relations;

•Decreased revenue associated with terminated or divested product lines;

•Redundant costs related to periodic transitioning of manufacturing and other functions to lower-cost locations;

•Ongoing costs associated with organizational transitions, consolidations and restructurings, which are expected to continue in the nearer term;

•Cyclical demand for our currency products;

•Changing market and economic conditions, including the impacts due to tariffs, the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, tensions between the U.S. and China, supply chain constraints, pricing and inflationary pressures;

•Ability of our customers, partners, manufacturers and suppliers to purchase, market, sell, manufacture and/or supply our products and services, including as a result of disruptions arising from the COVID-19 pandemic;

•Financial stability of our customers, including the solvency of private sector customers and statutory authority for government customers to purchase goods and services; and

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•Factors beyond our control resulting from pandemics and similar outbreaks such as the COVID-19 pandemic, manufacturing restrictions, travel restrictions and shelter-in-place orders to control the spread of a disease regionally and globally, and limitations on the ability of our employees and our suppliers’ and customers’ employees to work and travel.

Taken together, these factors limit our ability to predict future profitability levels and to achieve our long-term profitability objectives. If we fail to achieve profitability expectations, the price of our debt and equity securities, as well as our business and financial condition, may be materially adversely impacted.

Rapid technological change in our industry presents us with significant risks and challenges, and if we are unable to keep up with the rapid changes, our customers may purchase less of our products.

The manufacture, quality and distribution of our products, as well as our customer relations, may be affected by several factors, including the rapidly changing market for our products, supply chain issues and internal restructuring efforts. We expect the impact of these issues will become more pronounced as we continue to introduce new product offerings and when overall demand increases.

Our success depends upon our ability to deliver both our current product offerings and new products and technologies on time and at an acceptable cost to our customers. The markets for our products are characterized by rapid technological change, frequent new product introductions, substantial capital investment, changes in customer requirements and a constantly evolving industry. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these issues and provide solutions that meet our customers’ current and future needs. As a technology company, we also constantly encounter quality, volume and cost concerns such as:

•Our continuing cost reduction programs which include site and organization consolidations, asset divestitures, outsourcing the manufacture of certain products to contract manufacturers, other outsourcing initiatives, and reductions in employee headcount, requirements related to re-establishment and re-qualification by our customers of complex manufacturing lines, and modifications to systems, planning and operational infrastructure. During this process, we have experienced, and may continue to experience, additional costs, delays in re-establishing volume production levels, planning difficulties, inventory issues, factory absorption concerns and systems integration problems.

•We have experienced variability of manufacturing yields caused by difficulties in the manufacturing process, the effects from a shift in product mix, changes in product specifications and the introduction of new product lines. These difficulties can reduce yields or disrupt production and thereby increase our manufacturing costs and adversely affect our margin.

•We may incur significant costs to correct defective products (despite rigorous testing for quality both by our customers and by us), which could include lost future sales of the affected product and other products, and potentially severe customer relations problems, litigation and damage to our reputation.

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•We are dependent on a limited number of vendors, who are often small and specialized, for raw materials, packages and standard components. We also rely on contract manufacturers around the world to manufacture certain products. Our business could continue to be adversely affected by this dependency. Specific concerns we periodically encounter with our suppliers include stoppages or delays of supply, insufficient vendor resources to supply our requirements, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of supplies and an inability to obtain reduced pricing from our suppliers in response to competitive pressures. Additionally, the ability of our contract manufacturers to fulfill their obligations may be affected by economic, political or other forces that are beyond our control, including the COVID-19 pandemic. Any such failure could have a material impact on our ability to meet customers’ expectations and may materially impact our operating results.

•New product programs and introductions involve changing product specifications and customer requirements, unanticipated engineering complexities, difficulties in reallocating resources and overcoming resource limitations and increased complexity, which expose us to yield and product risk internally and with our suppliers.

These factors have caused considerable strain on our execution capabilities and customer relations. We have and could continue to see periodic difficulty responding to customer delivery expectations for some of our products, and yield and quality problems, particularly with some of our new products and higher volume products which could require additional funds and other resources required to respond to these execution challenges. From time to time, we have had to divert resources from new product R&D and other functions to assist with resolving these matters. If we do not improve our performance in all of these areas, our operating results will be harmed, the commercial viability of new products may be challenged, and our customers may choose to reduce or terminate their purchases of our products and purchase additional products from our competitors.

Unfavorable, uncertain or unexpected conditions in the transition to new technologies may cause our growth forecasts to be inaccurate and/or cause fluctuations in our financial results.

Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate.Our estimates of the market opportunities related to 5G infrastructure, 3D sensing and other developing technologies are subject to significant uncertainty and are based on assumptions and estimates, including our internal analysis, industry experience and third-party data.Accordingly, these markets may not develop in the manner or in the time periods we anticipate and our estimated market opportunities may prove to be materially inaccurate.

If domestic and global economic conditions worsen, including as a result of the COVID-19 pandemic, pricing and inflationary pressures, overall spending on 5G infrastructure, 3D sensing and other developing technologies may be reduced, which would adversely impact demand for our products in these markets. In addition, unfavorable developments with evolving laws and regulations worldwide related to such technologies may limit or slow the rate of global adoption, impede our strategy, and negatively impact our long-term expectations in these markets.

Our growth and ability to serve a significant portion of these markets is subject to many factors, including our success in implementing our business strategy and market adoption and expansion of 5G infrastructure, 3D sensing and other applications for consumer electronics. We cannot assure you that we will be able to serve a significant portion of these markets and the growth forecasts should not be taken as indicative of our future growth. Even if the markets and rates of adoption develop in the manner or in the time periods we anticipate, if we do not have timely, competitively priced, market-accepted products available to meet our customers’ planned roll-out of 5G platforms and systems, 3D sensing products and other technologies, we may miss a significant opportunity and our business, financial condition, results of operations and cash flows could be materially and adversely affected.

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We may experience increased pressure on our pricing and contract terms due to our reliance on a limited number of customers for a significant portion of our sales.

We believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues for the foreseeable future. Any failure by us to continue capturing a significant share of key customer sales could materially harm our business. Dependence on a limited number of customers exposes us to the risk that order reductions from any one customer can have a material adverse effect on periodic revenue. Further, to the extent that there is consolidation among communications equipment manufacturers and service providers, we will have increased dependence on fewer customers who may be able to exert increased pressure on our prices and other contract terms. Customer consolidation activity and periodic manufacturing and inventory initiatives could also create the potential for disruptions in demand for our products as a consequence of such customers streamlining, reducing or delaying purchasing decisions.

We have a strategic alliance with SICPA to market and sell our OVP and OVMP product lines for banknote anti-counterfeiting applications worldwide. A material reduction in sales, or loss of the relationship with SICPA, may harm our business and operating results as we may be unable to find a substitute marketing and sales partner or develop these capabilities ourselves in a timely manner.

Movement towards virtualized networks and software solutions may result in lower demand for our hardware products and increased competition.

The markets for our NE and SE segments are increasingly looking towards virtualized networks and software solutions. While we are devoting substantial resources to meet these needs, this trend may result in lower demand for our legacy hardware products. Additionally, barriers to entry are generally lower for software solutions, which may lead to increased competition for our products and services.

We face a number of risks related to our strategic transactions.

Our strategy continues to include periodic acquisitions and divestitures of businesses and technologies. Strategic transactions of this nature involve numerous risks, including the following:

•Diversion of management’s attention from normal daily operations of the business;

•Potential difficulties in completing projects associated with in-process R&D;

•Difficulties in entering markets in which we have no or limited prior experience and where competitors have stronger market positions;

•Difficulties in obtaining or providing sufficient transition services and accurately projecting the time and cost associated with providing these services;

•Inability of an acquisition to further our business strategy as expected or overpay for, or otherwise not realize the expected return on our investments;

•Expected earn-outs may not be achieved in the time frame or at the level expected or at all;

•Lack of ability to recognize or capitalize on expected growth, synergies or cost savings;

•Insufficient net revenue to offset increased expenses associated with acquisitions;

•Potential loss of key employees of the acquired companies;

•Difficulty in forecasting revenues and margins;

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•The impact of the COVID-19 pandemic, and any other adverse public health developments, epidemic disease or other pandemic in the countries in which we operate or our customers are located, including regional quarantines restricting the movement of people or goods, reductions in labor supply or staffing, the closure of facilities to protect employees, including those of our customers, disruptions to global supply chains and both our and our suppliers’ ability to deliver materials and products on a timely or cost-effective basis, shipment, acceptance or verification delays, the resulting overall significant volatility and disruption of financial markets, and economic instability affecting customer spending patterns; and

•Inadequate internal control procedures and disclosure controls to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or poor integration of a target company’s or business’s procedures and controls.

Acquisitions may also cause us to:

•Issue common stock that would dilute our current stockholders’ percentage ownership and may decrease earnings per share;

•Assume liabilities, some of which may be unknown at the time of the acquisitions;

•Record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;

•Incur additional debt to finance such acquisitions;

•Incur amortization expenses related to certain intangible assets; or

•Acquire, assume, or become subject to litigation related to the acquired businesses or assets.

We may not generate positive returns on our research and development strategy.

Developing our products is expensive, and the investment in product development may involve a long payback cycle. We expect to continue to invest heavily in R&D in order to expand the capabilities of 3D sensing and smart phone sensors, handheld spectrometer solution and portable test instruments, introduce new products and features and build upon our technology. We expect that our results of operations may be impacted by the timing and size of these investments. In addition, these investments may take several years to generate positive returns, if ever.

Operational Risks

Restructuring

We have from time to time engaged in restructuring activities to realign our cost base with current and anticipated future market conditions, including one recently announced for fiscal 2023. Significant risks associated with these types of actions that may impair our ability to achieve the anticipated cost reductions or disrupt our business include delays in the implementation of anticipated workforce reductions in highly regulated locations outside of the U.S. and the failure to meet operational targets due to the loss of key employees. In addition, our ability to achieve the anticipated cost savings and other benefits from these actions within the expected timeframe is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business and results of operations could be adversely affected.

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We face risks related to our international operations and revenue.

Our customers are located throughout the world. In addition, we have significant operations outside North America, including product development, manufacturing, sales and customer support operations.

Our international presence exposes us to certain risks, including the following:

•Fluctuations in exchange rates between the U.S. dollar and among the currencies of the countries in which we do business may adversely affect our operating resultsby negatively impacting our revenues or increasing our expenses;

•Our ability to comply with a wide variety of laws and regulations of the countries in which we do business, including, among other things, customs, import/export, anti-bribery, anti-competition, tax and data privacy laws, which may be subject to sudden and unexpected changes;

•Difficulties in establishing and enforcing our intellectual property rights;

•Tariffs and other trade barriers;

•Political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and product development facilities;

•Strained or worsening relations between the United States, Russia and China and related impacts on other countries;

•Difficulties in staffing and management;

•Language and cultural barriers;

•Seasonal reductions in business activities in the countries where our international customers are located;

•Integration of foreign operations;

•Longer payment cycles;

•Difficulties in management of foreign distributors; and

•Potential adverse tax consequences.

The spread of COVID-19 has affected the manufacturing and shipment of goods globally. Any delay in production or delivery of our products due to an extended closure of our suppliers’ plants could adversely impact our business, along with delays in shipment of our products as well as increased logistics costs.

We expect that net revenue from customers outside North America will continue to account for a significant portion of our total net revenue. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may materially and adversely affect our business. In addition, the revenues we derive from many of our customers depend on international sales and further expose us to the risks associated with such international sales.

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Legal, Regulatory and Compliance Risks

Certain of our products are subject to governmental and industry regulations, certifications and approvals.

The commercialization of certain of the products we design, manufacture and distribute through our OSP segment may be more costly due to required government approval and industry acceptance processes. Development of applications for our anti-counterfeiting and special effects pigments may require significant testing that could delay our sales. For example, durability testing by the automobile industry of our special effects pigments used with automotive paints can take up to three years. If we change a product for any reason, including technological changes or changes in the manufacturing process, prior approvals or certifications may be invalid and we may need to go through the approval process again. If we are unable to obtain these or other government or industry certifications in a timely manner, or at all, our operating results could be adversely affected.

U.S. Government trade actions could have an adverse impact on our business, financial position, and results of operation.

The United States and China have been noengaged in protracted negotiations over the Chinese government’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. For example, the United States has increased tariffs on certain categories of high-tech and consumer goods imported from China pursuant to Section 301 of the Trade Act of 1974, including a current 25% tariff on List 1, List 2 and List 3 goods, which lists cover certain materials and/or products that we import from China.

On May 16, 2019, Huawei Technologies Co. Ltd. and 68 designated non-U.S. affiliates (collectively, Huawei) were added to the Entity List of the Bureau of Industry and Security of the U.S. Department of Commerce (BIS), which imposes limitations on the supply of certain U.S. items and product support to Huawei. On August 17, 2020, BIS issued final rules that further restrict access by Huawei to items produced domestically and abroad from U.S. technology and software. Products that VIAVI sells to Huawei have been affected by the restrictions, however the impact is not expected to be material to our overall operations.

These measures, along with any additional tariffs or other trade actions that may be implemented, may increase the cost of certain materials and/or products that we import from China, thereby adversely affecting our profitability. These actions could require us to raise our prices, which could decrease demand for our products. As a result, these actions, including potential retaliatory measures by China and further escalation into a potential “trade war”, may adversely impact our business. While recent US export controls on China’s semiconductor and artificial intelligence industries may have an indirect impact on VIAVI, the implications of such controls are still being evaluated and are not expected to have a material impact on our consolidated annual revenues.

Furthermore, the geopolitical and economic uncertainty and/or instability that may result from changes ~~from~~in the ~~risk factors previously disclosed in Part I, Item 1A~~relationship among the United States, Taiwan and China, may, directly or indirectly, materially harm our business, financial condition and results of operations. For example, certain of our ~~Annual Report~~suppliers are dependent on products sourced from Taiwan which has been distinguished in its prevalence in certain global markets, most specifically semiconductor manufacturing. Hence, greater restrictions and/or disruptions of our suppliers’ ability to operate facilities and/or do business in these jurisdictions may increase the cost of certain materials and/or limit the supply of products and may result in deterioration of our profit margins, a potential need to increase our pricing and, in so doing, may decrease demand for our products and thereby adversely impact our revenue or profitability.

Due to the ~~fiscal year ended July 1, 2017 except as noted below.~~

~~In October 2017, we temporarily closed our Santa Rosa, California facility, which resulted in production stoppage due~~ongoing conflict between Russia and Ukraine, the U.S., E.U. and U.K. have broadened restrictions on exports to ~~wildfires~~Russia, thereby blocking shipments of technology, telecommunications and consumer electronics products to Russia. This caused us to suspend transactions in the region effective February 2022 and has negatively impacted our business in the region. Sales in the region are not material to our total consolidated revenues or net income and we are not aware of any specific event or circumstances that would require an update to the estimates or judgments or a revision of the carrying value of assets or liabilities at this time. However, these estimates may change, as new events occur and additional information becomes available. Actual results may differ materially from these estimates assumptions or conditions due to risks and uncertainties, including the ongoing situation in Ukraine as well as the potential for additional trade actions or retaliatory cyber-attacks aimed at infrastructure or supply chains, and the ~~facility’s close proximity~~impact on our future operations and results in the region remains uncertain.

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Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may harm our business.

Complex local, state, national, foreign, and international laws and regulations apply to the ~~wildfire evacuation zone.~~collection, use, retention, protection, disclosure, transfer, and other processing of personal data. These privacy laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations. In addition, our legal and regulatory obligations in jurisdictions outside of the U.S. are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations, or to increase penalties significantly. Complying with these laws and regulations can be costly and can impede the development and offering of new products and services. For example, the E.U. General Data Protection Regulation (GDPR), which became effective in May 2018, imposes stringent data protection requirements and provides for significant penalties for noncompliance. Additionally, California enacted legislation, the California Consumer Privacy Act (CCPA), which became effective January 1, 2020. The ~~location~~CCPA requires, among other things, covered companies to provide new disclosures to California consumers, and allow such consumers new abilities to opt-out of certain sales of personal data. The CCPA also provides for civil penalties for violations, as well as a private right of action for data breaches that may increase data breach litigation. Further, there are five new state privacy laws that go into effect in 2023, the California Privacy Rights Act, expanding the CCPA to provide for certain obligations with respect to California employee’s sensitive personal data and an expansion of rights, including the right to limit, correct and request deletion of certain sensitive personal data, the Virginia Consumer Data Protection Act, the Utah Consumer Privacy Act, the Colorado Privacy Act and the Connecticut Data Privacy Act, and a number of other states are considering similar laws. In addition, a federal privacy bill, called the American Data Privacy and Protection Act was recently published. The new state privacy laws and proposed federal law will impose additional data protection obligations on covered businesses, including additional consumer rights, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. The new and proposed privacy laws may result in further uncertainty and would require us to incur additional expenditures to comply. These regulations and legislative developments have potentially far-reaching consequences and may require us to modify our data management practices and incur substantial compliance expense.

Our failure to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use, or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, damage to our reputation, and loss of goodwill, any of which could have a material adverse effect on our operations, financial performance, and business.

Certain provisions in our charter and under Delaware laws could hinder a takeover attempt.

We are subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our ~~production facility~~outstanding voting stock. Such provisions could ~~subject~~delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions providing for the limitations of liability and indemnification of our directors and officers, allowing vacancies on our Board of Directors to be filled by the vote of a majority of the remaining directors, granting our Board of Directors the authority to establish additional series of preferred stock and to designate the rights, preferences and privileges of such shares (commonly known as “blank check preferred”) and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders, which may only be called by the Chairman of the Board, the Chief Executive Officer or the Board of Directors. These provisions may also have the effect of deterring hostile takeovers or delaying changes in control or change in our management.

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Information Security, Technology and Intellectual Property Risks

Our business and operations could be adversely impacted in the event of a failure of our information technology infrastructure.

We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to our changing needs. In some cases, we rely upon third-party hosting and support services to meet these needs. The internet has experienced an increase in cyber threats in the form of phishing emails, malware attachments and malicious websites. The growing and evolving cyber-risk environment means that individuals, companies, and organizations of all sizes, including ourselves and our hosting and support partners, are increasingly vulnerable to attacks and disruptions on their networks and systems by a wide range of actors on an ongoing and regular basis.

We maintain information security tools and technologies, staff, policies and procedures for managing risk to our networks and information systems, and conduct employee training on cyber-security to mitigate persistent and continuously evolving cyber-security threats. Our network security controls are comprised of administrative, physical and technical controls, which include, but are not limited to, the implementation of firewalls, anti-virus protection, patches, log monitors, routine backups, off-site storage, network audits and other routine updates and modifications.We also routinely monitor and develop our internal information technology systems to address risks to our information systems. Despite our implementation of these and other security measures and those of our third-party vendors, our systems are vulnerable to damages from computer viruses, natural disasters, unauthorized access and other similar disruptions and attacks that continue to emerge and evolve. Any system failure, accident or security breach could result in disruptions to our business processes, network degradation, and system down time, along with the potential that a third-party will gain unauthorized access to, or acquire intellectual property, proprietary business information, and data related to our employees, customers, suppliers, and business partners, including personal data. To the extent that any disruption, degradation, downtime or other security event results in a loss or damage to our data or systems, or in inappropriate disclosure of confidential or personal information, it could adversely impact us and our clients, potentially resulting in, among other things, financial losses, loss of customers or business, our inability to transact business on behalf of our clients, adverse impact on our brand and reputation, violations of applicable privacy and other laws, regulatory fines, penalties, litigation, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. We may also incur additional costs related to cyber-security risk management and remediation. There can be no assurance that we or our service providers, if applicable, will not suffer losses relating to cyber-attacks or other information security breaches in the future or that our insurance coverage will be adequate to cover all the costs resulting from such events. No assurances can be given that our efforts to reduce the risk of such attacks will be successful.

If we have insufficient proprietary rights or if we fail to protect those we have, our business would be materially harmed.

We seek to protect our products and our product roadmaps in part by developing and/or securing proprietary rights relating to those products, including patents, trade secrets, know-how and continuing technological innovation. The steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that are similar to our own. It is possible that patents may not be issued from any of our pending applications or those we may file in the future and, if patents are issued, the claims allowed may not be sufficiently broad to deter or prohibit others from making, using or selling products that are similar to ours. We do not own patents in every country in which we sell or distribute our products, and thus others may be able to offer identical products in countries where we do not have intellectual property protection. In addition, the laws of some territories in which our products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States.

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Any patents issued to us may be challenged, invalidated or circumvented. Additionally, we are currently a licensee in all of our operating segments for a number of third-party technologies, software and intellectual property rights from academic institutions, our competitors and others, and are required to pay royalties to these licensors for the use thereof. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products, impede the sale of some of our current products, substantially increase the cost to provide these products to our customers, and could have a significant adverse impact on our operating results. In the past, licenses generally have been available to us where third-party technology was necessary or useful for the development or production ~~delays~~of our products. In the future licenses to third-party technology may not be available on commercially reasonable terms, if at all.

Our products may be subject to claims that they infringe the intellectual property rights of others.

Lawsuits and allegations of patent infringement and violation of other intellectual property rights occur in our industry on a regular basis. We have received in the past, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe their proprietary rights. Over the past several years there has been a marked increase in the number and potential severity of third-party patent infringement claims, primarily from two distinct sources. First, large technology companies, including some of our customers and competitors, are seeking to monetize their patent portfolios and have developed large internal organizations that have approached us with demands to enter into license agreements. Second, patent-holding companies, entities that do not make or sell products (often referred to as “patent trolls”), have claimed that our products infringe upon their proprietary rights. We will continue to respond to these claims in the course of our business operations. In the past, the resolution of these disputes has not had a material adverse impact on our business or financial condition; however, this may not be the case in the future. Further, the litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful. If we are unsuccessful, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be successful in such development, or such licenses may not be available on terms acceptable to us, if at all. Without such a license, we could be enjoined from future sales of the infringing product or products, which could adversely affect our revenues and operating results.

The use of open-source software in our products, as well as those of our suppliers, manufacturers and customers, may expose us to additional risks and harm our intellectual property position.

Certain of the software and/or ~~equipment~~firmware that we use and ~~property damage.~~distribute (as well as that of our suppliers, manufacturers and customers) may be, be derived from, or contain, “open source” software, which is software that is generally made available to the public by its authors and/or other third parties. Such open-source software is often made available under licenses which impose obligations in the event the software or derivative works thereof are distributed or re-distributed. These obligations may require us to make source code for the derivative works available to the public, and/or license such derivative works under a particular type of license, rather than the forms of license customarily used to protect our own software products. While we believe we have complied with our obligations under the various applicable licenses for open-source software, in the event that a court rules that these licenses are unenforceable, or in the event the copyright holder of any open source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public and/or stop distribution of that work. Additionally, open-source licenses are subject to occasional revision. In the event future iterations of open-source software are made available under a revised license, such license revisions may adversely affect our ability to use such future iterations.

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Environmental, Social and Governance Risks

We may be subject to environmental liabilities which could increase our expenses and harm our operating results.

We are subject to various federal, state and foreign laws and regulations governing the environment, including those governing pollution and protection of human health and the environment and, recently, those restricting the presence of certain substances in electronic products and holding producers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, are often complex and are subject to frequent changes. We will need to ensure that we comply with such laws and regulations as they are enacted, as well as all environmental laws and regulations, and as appropriate or required, that our component suppliers also comply with such laws and regulations. If we fail to comply with such laws, we could face sanctions for such noncompliance, and our customers may refuse to purchase our products, which would have a materially adverse effect on our business, financial condition and results of operations.

With respect to compliance with environmental laws and regulations in general, we have incurred, and in the future could incur, substantial costs for the cleanup of contaminated properties, either those we own or operate or to which we have sent wastes in the past, or to comply with such environmental laws and regulations. Additionally, we could be subject to disruptions to our operations and logistics as a result of such clean-up or compliance obligations. If we were found to be in violation of these laws, we could be subject to governmental fines and liability for damages resulting from such violations. If we have to make significant capital expenditures to comply with environmental laws, or if we are subject to significant expenditures in connection with a violation of these laws, our financial condition or operating results could be materially adversely impacted.

Our disclosures, initiatives and goals related to ESG matters expose us to numerous risks.

There is an increasing focus from U.S. and foreign government agencies, certain investors, customers, consumers, employees, and other stakeholders concerning environmental, social and governance (“ESG”) matters. We may communicate certain initiatives and goals, regarding environmental matters, diversity, responsible sourcing and social investments and other ESG matters, in our ESG Report, on our website, in our SEC filings, and elsewhere. These initiatives and goals could be difficult and expensive to implement, and we could be criticized for the accuracy, adequacy, or completeness of the disclosure of our ESG initiatives. Further, statements about our ESG initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. It is anticipated that the SEC will finalize rules in 2023 related to climate disclosures, human capital management and cybersecurity disclosures. Compliance with these complex regulations could be costly, burdensome and will require significant internal and external resources to achieve. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected and we could be subject to additional regulatory scrutiny.

We may be subject to risks related to climate change, natural disasters and catastrophic events.

We operate in geographic regions which face a number of climate and environmental challenges. Our new corporate headquarters are located in Chandler, Arizona, a desert climate, subject to extreme heat and drought. The geographic location of our Northern California ~~headquarters~~offices and production facilities subject them to drought, earthquake and wildfire risks. It is impossible to predict the timing, magnitude or location of such natural disasters or their impacts on the local economy and on our operations. If a major earthquake, wildfire or other natural disaster were to damage or destroy our facilities

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or manufacturing equipment, we may experience potential impacts ranging from production and shipping delays to lost profits and revenues. In October 2017 and again in October 2019, we temporarily closed our Santa Rosa, California facility resulting in production stoppage, due to wildfires in the region and the facility’s close proximity to the wildfire evacuation zone. The location of our production facility could subject us to production delays and/or equipment and property damage. Moreover, Pacific Gas and Electric (PG&E), the public electric utility in our Northern California region, has previously implemented and may continue to implement widespread blackouts during the peak wildfire season to avoid and contain wildfires sparked during strong wind events by downed power lines or equipment failure. While we have not experienced damage to our facilities or a

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material disruption to operations as a result of these power outages, ongoing blackouts, particularly if prolonged or frequent, could impact our operations going forward.

Management transitions and talent retention create uncertainties and could harm our business.

Management changes could adversely impact our results of operations and our customer relationships and may make recruiting for future management positions more difficult. Our executives and other key personnel are at-will employees and we generally do not have employment or non-compete agreements with our other employees, and we cannot assure you that we will be able to retain them. We have recently and could continue to experience changes in our leadership team. Competition for people with the specific technical and other skills we require is significant. Moreover, we may face new and unanticipated difficulties in attracting, retaining and motivating employees in connection with the change of our headquarters to Chandler, Arizona. As remote work has become more available the competition for highly qualified talent has intensified. If we are unable to attract and retain qualified executives and employees, or to successfully integrate any newly hired personnel within our organization, we may be unable to achieve our operating objectives, which could negatively impact our financial performance and results of operations.

Risks Related to our Liquidity and Indebtedness

Any deterioration or disruption of the capital and credit markets may adversely affect our access to sources of funding.

Global economic conditions have caused and may cause volatility and disruptions in the capital and credit markets. When the capital or credit markets deteriorate or are disrupted, our ability to incur additional indebtedness to fund a portion of our working capital needs and other general corporate purposes, or to refinance maturing obligations as they become due, may be constrained. In the event that we were to seek to access the capital markets or other sources of financing, there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time, if at all. We may seek to access the capital or credit markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. For example, in December 2021, we entered into a $300 million asset-based secured credit facility which has certain limitations based on our borrowing capacity. Our access to the financial markets and the pricing and terms we receive in the financial markets could be adversely impacted by various factors, including changes in financial markets and interest rates. In addition, if we do access the capital or credit markets, agreements governing any borrowing arrangement could contain covenants restricting our operations.

Our notes increased our overall leverage and our convertible notes could dilute our existing stockholders and lower our reported earnings per share.

The issuance of our 1.00% Senior Convertible Notes due 2024, our 1.75% Senior Convertible Notes due 2023, our 1.625% Senior Convertible Notes due 2026 and our 3.75% Senior Notes due 2029 (together the “Notes”) substantially increased our principal payment obligations. The degree to which we are leveraged could materially and adversely affect our ability to successfully obtain financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. In addition, the holders of the 2023, 2024 and 2026 Notes are entitled to convert the Notes into shares of our common stock or a combination of cash and shares of common stock under certain circumstances which would dilute our existing stockholders and lower our reported per share earnings.

Our ability to make payments on our indebtedness when due, to make payments upon conversion with respect to our convertible senior notes or to refinance our indebtedness as we may need or desire, depends on our future performance and our ability to generate cash flow from operations, which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that may be onerous or highly dilutive. We may not be able to engage in these activities on desirable terms or at all, which may result in a default on our existing or future indebtedness and harm our financial condition and operating results.

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Our outstanding indebtedness may limit our operational and financial flexibility.

Our level of indebtedness could have important consequences, including:

•Impairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes;

•Requiring us to dedicate a substantial portion of our operating cash flow to paying principal and interest on our indebtedness, thereby reducing the funds available for operations;

•Limiting our ability to grow and make capital expenditures due to the financial covenants contained in our debt arrangements;

•Impairing our ability to adjust rapidly to changing market conditions, invest in new or developing technologies, or take advantage of significant business opportunities that may arise;

•Making us more vulnerable if a general economic downturn occurs or if our business experiences difficulties; and

•Resulting in an event of default if we fail to satisfy our obligations under the Notes or our other debt or fail to comply with the financial and other restrictive covenants contained in the indentures governing the Notes, or any other debt instruments, which event of default could result in all of our debt becoming immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.

We may not generate sufficient cash flow to meet our debt service and working capital requirements, which may expose us to the risk of default under our debt obligations.

We may not successfully implement our business strategy, and even if we do, we may not realize the anticipated results of our strategy and generate sufficient operating cash flow to meet our debt service obligations and working capital needs. In addition, our ability to make scheduled payments on our indebtedness, including the notes, is affected by general and regional economic, financial, competitive, business and other factors beyond our control.

In the event our cash flow is inadequate to meet our debt service and working capital requirements, we may be required, to the extent permitted under the indentures covering the Notes and any other debt agreements, to seek additional financing in the debt or equity markets, refinance or restructure all or a portion of our indebtedness, sell selected assets or reduce or delay planned capital or operating expenditures. Any insufficient cash flow may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all.

Despite our current level of indebtedness, we and our subsidiaries may still be able to incur substantially more debt.

We and our subsidiaries may be able to incur significant additional indebtedness in the future. Although the indentures that govern the Notes and the agreement that governs our secured credit facility contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness under the agreements governing our existing debt.

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The terms of the indentures that govern the Notes and the agreement that governs our secured credit facility restrict our current and future operations.

The indentures governing the Notes and the agreement governing the secured credit facility contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

•Incur or guarantee additional indebtedness;

•Incur or suffer to exist liens securing indebtedness;

•Make investments;

•Consolidate, merge or transfer all or substantially all of our assets;

•Sell assets;

•Pay dividends or other distributions on, redeem or repurchase capital stock;

•Enter into transactions with affiliates;

•Amend, modify, prepay or redeem subordinated indebtedness;

•Enter into certain restrictive agreements;

•Engage in a new line of business;

•Amend certain material agreements, including material leases and debt agreements; and

•Enter into sale leaseback transactions.

Tax Risks

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations and/or changes in regulations.

Changes in U.S. federal income or other tax laws or the interpretation of tax laws, including the Inflation Reduction Act of 2022, as recently passed by Congress, may impact our tax liabilities. Utilization of our NOLs and tax credit carryforwards may be subject to a substantial annual limitation if the ownership change limitations under Sections 382 and 383 of the Internal Revenue Code and similar state provisions are triggered by changes in the ownership of our capital stock. In general, an ownership change occurs if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Accordingly, purchases of our capital stock by others could limit our ability to utilize our NOLs and tax credit carryforwards in the future.

Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs and tax credit carryforwards before they expire. Due to uncertainty regarding the timing and extent of our future profitability, we continue to record a valuation allowance to offset our U.S. and certain of our foreign deferred tax assets because of uncertainty related to our ability to utilize our NOLs and tax credit carryforwards before they expire.

If any of these events occur, we may not derive some or all of the expected benefits from our NOLs and tax credit carryforwards.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Share~~Our common stock is traded on the Nasdaq Global Select Market under the symbol “VIAV”. As of April 29, 2023, we had 1,784 holders of record of our common stock. We have not paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.

The following table provides stock repurchase activity during the three months ended ~~December 30, 2017 was as follows:~~April 1, 2023 (in millions, except per share amounts):

Period Total Number of Shares Purchased Average Price Paid per share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(in millions)
October 1, 2017 to October 28, 2017 986,419
$9.49 986,419
$ 35
October 29, 2017 to November 25, 2017 515,870
$9.08 515,870
30
November 26, 2017 to December 30, 2017 869,898
$8.90 869,898
23

2,372,187
$9.19 2,372,187
$ 23

~~In September 2016,~~



	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	Maximum Dollar Value of Shares that May Still Be Purchased Under the Plans or Programs(1)
Period
January 1 - January 28, 2023	—	—	—	274.8
January 29 - February 25, 2023	—	—	—	274.8
February 26 - April 1, 2023	2.8	$10.79	2.8	244.8
Total	2.8		2.8

(1) Share repurchases for the ~~Board of Directors increased the Company’s previously authorized stock repurchase program from $100 million to $150 million. Under the revised repurchase~~three months ended April 1, 2023 were made under our 2022 Repurchase Plan with authorization ~~the Company may repurchase~~ up to ~~$150 million of the Company’s common stock from time~~$300 million. Refer to time at the discretion of the Company’s management. The Board previously authorized expiration of the share repurchase to be extended to December 31, 2017. In December 2017, the Board authorized a further extension of the Company's stock repurchase program“Note 15. Stockholders' Equity” for ~~an additional 3 months to expire on March 31, 2018.~~more details.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

~~None.~~ On May 1, 2023, the Compensation Committee (the "Committee") of our Board of Directors (the “Board”) approved the Viavi Solutions Inc. Section 16 Officer Incentive Compensation Plan (the "Section 16 Incentive Plan"). All Section 16 officers including our named executive officers are eligible to participate in the Section 16 Incentive Plan. Participants in the Section 16 Incentive Plan will be eligible to earn cash incentive awards through the achievement of performance targets to be established by the Committee each year. The degree of performance achievement will determine the amount of each award earned relative to the participant's target amount, which generally will be a percentage of base salary. Participants in the Section 16 Incentive Plan generally must be employed on the date the cash incentive awards are actually paid in order to receive payment. We expect to adopt an annual cash incentive program under the Section 16 Incentive Plan for each fiscal year following adoption of the Section 16 Incentive Plan consistent with the terms as described above.

A copy of the Section 16 Incentive Plan is attached as Exhibit 10.1 hereto and is incorporated herein by reference. The foregoing description of the Section 16 Incentive Plan does not purport to be complete and is qualified in its entirety by reference to such exhibit.

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Item 6. Exhibits

The exhibits required to be filed herewith by Item 601 of Regulation S-K, as described in the following ~~documents~~index of exhibits, are ~~filed~~attached hereto unless otherwise indicated as ~~Exhibits to this report:~~

being incorporated by reference, as follows:

Incorporated by Reference

Filed

Furnished

Exhibit No.

Exhibit Description

Form

Exhibit

Filing Date

Herewith

Not Filed

~~3.1~~10.1

~~Amended and Restated Bylaws of~~

Viavi Solutions Inc. Section 16 Officer Incentive Compensation Plan

~~10.1~~31.1

~~Restated 1998 Employee Stock Purchase Plan~~

~~10.2~~

~~Restated 2003 Equity Incentive Plan~~

~~31.1~~

Certification of the Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~101.INS~~101.SCH

~~XBRL Instance~~

~~101.SCH~~

Inline XBRL Taxonomy Extension Schema

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date: ~~February 7, 2018~~May 3, 2023	VIAVI SOLUTIONS INC.
	(Registrant)
	By:	/s/ ~~AMAR MALETIRA~~HENK DERKSEN
	Name:	~~Amar Maletira~~HENK DERKSEN
	Title:	Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)



	Three Months Ended						Six Months Ended
	December 30, 2017			December 31, 2016			December 30, 2017			December 31, 2016
Revenues:
Product revenue	$	177.5		$	184.2		$	349.4		$	372.5
Service revenue	24.3			22.3			47.6			44.8
Total net revenues	201.8			206.5			397.0			417.3
Cost of revenues:
Product cost of revenue	69.6			64.7			133.1			133.3
Service cost of revenue	12.0			13.4			23.4			26.7
Amortization of acquired technologies	4.1			3.7			8.2			7.5
Total cost of revenues	85.7			81.8			164.7			167.5
Gross profit	116.1			124.7			232.3			249.8
Operating expenses:
Research and development	29.9			35.9			59.0			72.0
Selling, general and administrative	76.6			76.9			149.1			152.3
Amortization of other intangibles	3.4			3.4			6.5			6.9
Restructuring and related charges	2.5			1.8			4.0			1.8
Total operating expenses	112.4			118.0			218.6			233.0
Income from operations	3.7			6.7			13.7			16.8
Interest and other income, net	2.9			3.8			3.1			5.1
Gain on sale of investments	—			53.9			—			135.4
Interest expense	(11.7		)	(9.4		)	(24.2		)	(18.6		)
(Loss) income before taxes	(5.1		)	55.0			(7.4		)	138.7
(Benefit from) provision for income taxes	(1.4		)	5.8			1.1			11.5
Net (loss) income	$	(3.7	)	$	49.2		$	(8.5	)	$	127.2

Net (loss) income per share:
Basic	$	(0.02	)	$	0.21		$	(0.04	)	$	0.55
Diluted	$	(0.02	)	$	0.21		$	(0.04	)	$	0.54

Shares used in per-share calculation - basic	227.4			230.5			227.7			231.4
Shares used in per-share calculation - diluted	227.4			234.2			227.7			235.8



	Three Months Ended		Six Months Ended
	December 30, 2017 (1) (2)	December 31, 2016 (1)	December 30, 2017 (1) (2)	December 31, 2016 (1)
Stock options and ESPP	1.6	1.5	1.6	1.6
Restricted Stock Units	7.7	0.2	7.8	—
Total potentially dilutive securities	9.3	1.7	9.4	1.6



Net tangible assets acquired	$	11.8
Intangible assets acquired:
Developed technology	15.5
Customer relationships	11.0
Other	0.3
Goodwill	17.8
Total purchase price	$	56.4



Cash	$	0.2
Accounts receivable	3.2
Inventory	10.1
Property and equipment	1.2
Accounts payable	(1.7		)
Other liabilities, net of other assets	(1.2		)
Net tangible assets acquired	$	11.8



	December 30, 2017		July 1, 2017
Allowance for doubtful accounts	$	1.6	$	1.6
Sales allowance	5.2		3.4
Total accounts receivable reserves and allowances	$	6.8	$	5.0



	July 1, 2017		Acquisition of Trilithic (1)	Charged to Costs and Expenses	Deduction		December 30, 2017
Allowance for doubtful accounts	$	1.6	0.1	—	(0.1	)	$	1.6



	December 30, 2017		July 1, 2017
Customer prepayments	$	35.8	$	35.2
Restructuring accrual	7.5		8.8
Income tax payable	5.5		3.3
Warranty accrual	3.6		2.9
VAT liabilities	2.4		2.2
Deferred compensation plan	2.2		2.0
Other	5.6		7.0
Other current liabilities	$	62.6	$	61.4



	Amortized Cost/ Carrying Cost		Gross Unrealized Losses			Fair Value
Available-for-sale debt securities:
U.S. treasuries	$	94.1	$	(0.1	)	$	94.0
U.S. agencies	23.0		(0.1		)	22.9
Municipal bonds and sovereign debt instruments	2.9		—			2.9
Asset-backed securities	55.9		(0.4		)	55.5
Corporate securities	336.4		(0.4		)	336.0
Total available-for-sale debt securities	$	512.3	$	(1.0	)	$	511.3



	Amortized Cost/ Carrying Cost		Estimated Fair Value
Amounts maturing in less than 1 year	$	413.5	$	413.3
Amounts maturing in 1 - 5 years	97.8		97.4
Amounts maturing in more than 5 years	1.0		0.6
Total debt available-for-sale securities	$	512.3	$	511.3



	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. treasuries	$	56.8	$	—	$	(0.1	)	$	56.7
U.S. agencies	45.0		—		(0.1		)	44.9
Municipal bonds and sovereign debt instruments	4.4		—		—			4.4
Asset-backed securities	71.5		—		(0.4		)	71.1
Corporate securities	326.1		0.1		(0.2		)	326.0
Certificates of deposit	6.0		—		—			6.0
Total available-for-sale securities	$	509.8	$	0.1	$	(0.8	)	$	509.1



	Fair value measurement as of						Fair value measurement as of
	December 30, 2017						July 1, 2017
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:
Debt available-for-sale securities
U.S. treasuries	$	94.0	$	94.0	$	—	$	56.7	$	56.7	$	—
U.S. agencies	22.9		—		22.9		44.9		—		44.9
Municipal bonds and sovereign debt instruments	2.9		—		2.9		4.4		—		4.4
Asset-backed securities	55.5		—		55.5		71.1		—		71.1
Corporate securities	336.0		—		336.0		326.0		—		326.0
Certificate of deposits	—		—		—		6.0		—		6.0
Total debt available-for-sale securities	511.3		94.0		417.3		509.1		56.7		452.4
Money market funds	479.9		479.9		—		726.4		726.4		—
Trading securities	2.2		2.2		—		2.0		2.0		—
Foreign currency forward contracts	1.9		—		1.9		7.3		—		7.3
Total assets (1)	$	995.3	$	576.1	$	419.2	$	1,244.8	$	785.1	$	459.7

Liability:
Foreign currency forward contracts	0.8		—		0.8		1.3		—		1.3
Total liabilities (2)	$	0.8	$	—	$	0.8	$	1.3	$	—	$	1.3



	Network Enablement		Optical Security and Performance Products		Total
Balance as of July 1, 2017	$	143.3	$	8.3	$	151.6
Goodwill - Trilithic (1)	17.8		—		17.8
Currency translation adjustments	1.3		—		1.3
Balance as of December 30, 2017	$	162.4	$	8.3	$	170.7



As of December 30, 2017	Gross Carrying Amount		Accumulated Amortization			Net
Acquired developed technology	$	387.2	$	(362.2	)	$	25.0
Customer relationships	106.4		(88.2		)	18.2
Other (1)	10.2		(10.1		)	0.1
Total intangibles	$	503.8	$	(460.5	)	$	43.3



As of July 1, 2017	Gross Carrying Amount		Accumulated Amortization			Net
Acquired developed technology	$	369.3	$	(352.0	)	$	17.3
Customer relationships	94.9		(81.3		)	13.6
Other (1)	9.9		(9.7		)	0.2
Total intangibles	$	474.1	$	(443.0	)	$	31.1



Fiscal Years
Remainder of 2018	$	12.3
2019	16.3
2020	8.4
2021	4.1
2022	2.0
Thereafter	0.2
Total amortization	$	43.3



	December 30, 2017			July 1, 2017
Principal amount of 0.625% Senior Convertible Notes	$	451.0		$	610.0
Principal amount of 1.00% Senior Convertible Notes	460.0			460.0
Unamortized discount of liability component	(104.7		)	(129.4		)
Unamortized debt issuance cost	(7.3		)	(9.2		)
Carrying amount of liability component	$	799.0		$	931.4
Current portion of long-term debt	436.8			—
Long-term debt, net of current portion	$	362.2		$	931.4

Carrying amount of equity component (1)	$	209.7		$	229.7



	Balance July 1, 2017		Six Months Ended December 30, 2017 Charges (Benefits)			Cash Settlements			Non-cash Settlements and Other Adjustments		Balance December 30, 2017		Three Months Ended December 30, 2017 Charges (Benefits)
Fiscal 2018 Plan
Trilithic Restructuring Plan (1)	$	—	$	0.5		$	—		$	—	$	0.5	$	0.5
Fiscal 2017 Plan
OSP Restructuring Plan (1)	0.8		—			—			—		0.8		—
Focused NSE Restructuring Plan (1) (2)	4.9		3.1			(4.9		)	0.4		3.5		1.9
Other Plans (2)	—		0.5			(0.6		)	0.1		—		0.1
Fiscal 2016 Plan
NE, SE and Shared Services Agile Restructuring Plan (1) (2)	0.2		(0.1		)	(0.1		)	—		—
NE and SE Agile Restructuring Plan (1)	0.4		—			—			—		0.4		—
Plans Prior to Fiscal 2016
NE Product Strategy Restructuring Plan (1)	0.9		—			(0.3		)	—		0.6		—
NE Lease Restructuring Plan (2)	2.6		—			(0.8		)	—		1.8		—
Other Plans (1)(2)	1.2		—			(0.2		)	—		1.0		—
Total	$	11.0	$	4.0		$	(6.9	)	$	0.5	$	8.6	$	2.5



	Three Months Ended						Six Months Ended
Pension Benefits	December 30, 2017			December 31, 2016			December 30, 2017			December 31, 2016
Service cost	$	—		$	0.1		$	—		$	0.2
Interest cost	0.7			0.6			1.4			1.0
Expected return on plan assets	(0.4		)	(0.3		)	(0.8		)	(0.5		)
Amortization of net actuarial losses	0.5			0.4			0.9			0.9
Net periodic benefit cost	$	0.8		$	0.8		$	1.5		$	1.6



	Three Months Ended December 30, 2017
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Total Segment Measures			Reconciling Items			Consolidated GAAP Measures
Net revenue	$	121.5		$	32.1		$	153.6		$	48.2		$	201.8		$	—		$	201.8

Gross profit	73.8			22.4			96.2			26.2			122.4			(6.3		)	116.1
Gross margin	60.7		%	69.8		%	62.6		%	54.4		%	60.7		%				57.5		%

Operating income							8.0			17.4			25.4			(21.7		)	3.7
Operating margin							5.2		%	36.1		%	12.6		%				1.8		%



	Three Months Ended December 31, 2016
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Total Segment Measures			Reconciling Items			Consolidated GAAP Measures
Net revenue	$	117.0		$	40.6		$	157.6		$	48.9		$	206.5		$	—		$	206.5

Gross profit	74.6			27.1			101.7			28.2			129.9			(5.2		)	124.7
Gross margin	63.8		%	66.7		%	64.5		%	57.7		%	62.9		%				60.4		%

Operating income							6.0			20.9			26.9			(20.2		)	6.7
Operating margin							3.8		%	42.7		%	13.0		%				3.2		%



	Six Months Ended December 30, 2017
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Total Segment Measures			Reconciling Items			Consolidated GAAP Measures
Net revenue	$	233.3		$	61.1		$	294.4		$	102.6		$	397.0		$	—		$	397.0

Gross profit	144.4			42.9			187.3			57.6			244.9			(12.6		)	232.3
Gross margin	61.9		%	70.2		%	63.6		%	56.1		%	61.7		%				58.5		%

Operating income							15.2			39.6			54.8			(41.1		)	13.7
Operating margin							5.2		%	38.6		%	13.8		%				3.5		%



	Six Months Ended December 31, 2016
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Total Segment Measures			Reconciling Items			Consolidated GAAP Measures
Net revenue	$	235.6		$	77.0		$	312.6		$	104.7		$	417.3		$	—		$	417.3

Gross profit	152.0			48.4			200.4			59.8			260.2			(10.4		)	249.8
Gross margin	64.5		%	62.9		%	64.1		%	57.1		%	62.4		%				59.9		%

Operating income							10.1			44.3			54.4			(37.6		)	16.8
Operating margin							3.2		%	42.3		%	13.0		%				4.0		%