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 ~~March 30,~~September 28, 2019

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



For the transition period from				to

Commission File Number 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, San Jose, California95002

(Address of principal executive offices including Zip code)

~~(408)~~ (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~~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. Yesx☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yesx☒ 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 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 ~~April~~October 26, 2019, the Registrant had ~~228,685,770~~229,790,489 shares of common stock outstanding.




TABLE OF CONTENTS			Page
PART I - FINANCIAL INFORMATION			2
	Item 1.	Financial Statements (Unaudited)	2
		Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018	2
		Consolidated Statements of Comprehensive Income (Loss) for the Three ~~and Nine~~ Months Ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018	3
		Consolidated Balance Sheets as of ~~March 30,~~September 28, 2019 and June ~~30, 2018~~29, 2019	4
		Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018	5
		Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3529
	Item 3.	Quantitative and Qualitative Disclosure About Market Risks	4639
	Item 4.	Controls and Procedures	4639

PART II - OTHER INFORMATION			4840
	Item 1.	Legal Proceedings	4840
	Item 1A.	Risk Factors	4840
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4840
	Item 3.	Defaults Upon Senior Securities	4840
	Item 4.	Mine Safety Disclosures	4840
	Item 5.	Other Information	4840
	Item 6.	Exhibits	4840

SIGNATURES			4941

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						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			September 28, 2019			September 29, 2018
Revenues:
Product revenue	$	232.1		$	193.2		$	746.0		$	539.6		$	264.8		$	241.1
Service revenue	33.1			25.5			94.6			75.4			35.0			27.4
Total net revenue	265.2			218.7			840.6			615.0			299.8			268.5
Cost of revenues:
Product cost of revenue	91.6			77.3			295.5			209.4			104.3			97.9
Service cost of revenue	12.2			11.9			37.4			35.8			12.7			10.8
Amortization of acquired technologies	7.9			6.2			25.8			14.4			8.4			9.4
Total cost of revenues	111.7			95.4			358.7			259.6			125.4			118.1
Gross profit	153.5			123.3			481.9			355.4			174.4			150.4
Operating expenses:
Research and development	48.7			32.1			137.2			91.1			51.5			42.6
Selling, general and administrative	86.8			86.0			259.7			235.0			93.2			84.4
Amortization of other intangibles	9.2			4.5			29.4			11.0			8.7			9.8
Restructuring and related charges	0.9			0.3			16.0			4.3			0.3			14.8
Total operating expenses	145.6			122.9			442.3			341.4			153.7			151.6
Income from operations	7.9			0.4			39.6			14.0
Interest and other income, net	0.9			3.5			4.5			6.6
Loss on sale of investments	—			(0.1		)	(0.4		)	(0.1		)
Income (loss) from operations													20.7			(1.2		)
Interest income and other income, net													2.7			1.7
Interest expense	(8.0		)	(11.4		)	(26.2		)	(35.6		)	(8.3		)	(10.1		)
Income (loss) before taxes	0.8			(7.6		)	17.5			(15.1		)	15.1			(9.6		)
Provision for income taxes	5.6			3.1			22.2			4.3			8.3			5.7
Loss from continuing operations, net of taxes	(4.8		)	(10.7		)	(4.7		)	(19.4		)
Loss from discontinued operations, net of taxes	—			—			(2.4		)	—
Net loss	$	(4.8	)	$	(10.7	)	$	(7.1	)	$	(19.4	)
Net income (loss)													$	6.8		$	(15.3	)

Net loss per share - basic and diluted:
Continuing operations	$	(0.02	)	$	(0.05	)	$	(0.02	)	$	(0.09	)
Discontinued operations	—			—			(0.01		)	—
Net loss per share - basic and diluted	$	(0.02	)	$	(0.05	)	$	(0.03	)	$	(0.09	)
Net income (loss) per share:
Basic													$	0.03		$	(0.07	)
Diluted													0.03			(0.07		)

Shares used in per-share calculations:
Basic and diluted	228.3			226.3			227.9			227.3
Basic													229.4			227.2
Diluted													236.4			227.2

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

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	March 30, 2019			March 31, 2018			March 30, 2019			March 31, 2018			September 28, 2019			September 29, 2018
Net loss	$	(4.8	)	$	(10.7	)	$	(7.1	)	$	(19.4	)
Other comprehensive income:
Net income (loss)													$	6.8		$	(15.3	)
Other comprehensive loss:
Net change in cumulative translation adjustment, net of tax	11.6			19.5			(14.5		)	36.7			(27.4		)	(13.1		)
Net change in available-for-sale investments, net of tax:
Unrealized holding gain (loss) arising during period	0.1			(0.2		)	0.3			(0.6		)
Unrealized holding gain arising during period													—			0.1
Plus: reclassification adjustments included in net loss	—			0.1			0.4			0.1			—			0.2
Net change in defined benefit obligation, net of tax:
Amortization of actuarial losses	0.5			0.3			1.5			1.2			0.7			0.6
Net change in accumulated other comprehensive income (loss)	12.2			19.7			(12.3		)	37.4			(26.7		)	(12.2		)
Comprehensive income (loss)	$	7.4		$	9.0		$	(19.4	)	$	18.0
Comprehensive loss													$	(19.9	)	$	(27.5	)

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

VIAVI SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value data)

(unaudited)



	September 28, 2019			June 29, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	525.3		$	521.5
Short-term investments	1.5			1.5
Restricted cash	3.5			3.5
Accounts receivable, net	232.7			237.7
Inventories, net	99.4			102.7
Prepayments and other current assets	51.8			49.9
Total current assets	914.2			916.8
Property, plant and equipment, net	170.5			179.9
Goodwill, net	376.7			381.1
Intangibles, net	191.8			211.6
Deferred income taxes	104.4			108.4
Other non-current assets	50.1			17.3
Total assets	$	1,807.7		$	1,815.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	60.9		$	63.4
Accrued payroll and related expenses	66.0			58.7
Deferred revenue	51.2			55.3
Accrued expenses	31.3			34.2
Other current liabilities	73.1			72.4
Total current liabilities	282.5			284.0
Long-term debt	584.3			578.8
Other non-current liabilities	232.8			226.5
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common stock, $0.001 par value; 1 billion shares authorized; 230 million shares at September 28, 2019 and 229 million shares at June 29, 2019, issued and outstanding	0.2			0.2
Additional paid-in capital	70,245.4			70,244.7
Accumulated deficit	(69,376.2		)	(69,384.5		)
Accumulated other comprehensive loss	(161.3		)	(134.6		)
Total stockholders’ equity	708.1			725.8
Total liabilities and stockholders’ equity	$	1,807.7		$	1,815.1

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

VIAVI SOLUTIONS INC.

CONSOLIDATED ~~BALANCE SHEETS~~STATEMENTS OF CASH FLOWS

(in ~~millions, except share and par value data)~~millions)

(unaudited)

March 30, 2019 June 30, 2018
ASSETS

Current assets:

Cash and cash equivalents $ 502.7
$ 611.4
Short-term investments 27.1
169.3
Restricted cash 7.7
7.3
Accounts receivable, net 223.1
218.6
Inventories, net 95.1
92.3
Prepayments and other current assets 53.9
56.3
Total current assets 909.6
1,155.2
Property, plant and equipment, net 181.6
170.5
Goodwill 371.9
336.3
Intangibles, net 218.5
235.1
Deferred income taxes 110.1
114.3
Other non-current assets 17.8
15.4
Total assets $ 1,809.5
$ 2,026.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 57.5
$ 55.5
Accrued payroll and related expenses 52.9
52.8
Deferred revenue 61.3
60.6
Accrued expenses 33.5
30.1
Current portion of long-term debt —
275.3
Other current liabilities 79.5
78.9
Total current liabilities 284.7
553.2
Long-term debt, net of current portion 573.5
557.9
Other non-current liabilities 223.0
180.8
Commitments and contingencies (Note 17)

Stockholders’ equity:
Preferred stock, no shares authorized, issued or outstanding at March 30, 2019. $0.001 par value; 1 million shares authorized; 1 share issued and outstanding at June 30, 2018. —
—
Common stock, $0.001 par value; 1 billion shares authorized; 229 million shares at March 30, 2019 and 227 million shares at June 30, 2018, issued and outstanding 0.2
0.2
Additional paid-in capital 70,238.0
70,216.2
Accumulated deficit (69,394.7 ) (69,378.6 )
Accumulated other comprehensive loss (115.2 ) (102.9 )
Total stockholders’ equity 728.3
734.9
Total liabilities and stockholders’ equity $ 1,809.5
$ 2,026.8



	Three Months Ended
	September 28, 2019			September 29, 2018
OPERATING ACTIVITIES:
Net income (loss)	$	6.8		$	(15.3	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense	9.8			9.9
Amortization of acquired technologies and other intangibles	17.1			19.2
Stock-based compensation	10.3			8.1
Amortization of debt issuance costs and accretion of debt discount	5.5			6.9
Net change in fair value of contingent liabilities	1.7			—
Other	0.6			0.1
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	0.5			(6.7		)
Inventories	(3.4		)	1.4
Other current and non-currents assets	(1.7		)	(2.9		)
Accounts payable	(1.6		)	3.7
Income taxes payable	2.0			1.3
Deferred revenue, current and non-current	(4.1		)	1.1
Deferred taxes, net	(1.3		)	(1.9		)
Accrued payroll and related expenses	3.8			2.6
Accrued expenses and other current and non-current liabilities	(14.7		)	0.1
Net cash provided by operating activities	31.3			27.6

INVESTING ACTIVITIES:
Maturities of available-for-sale investments	—			36.5
Sales of available-for-sale investments	—			81.0
Capital expenditures	(7.1		)	(12.1		)
Proceeds from the sale of assets	1.2			1.6
Net cash (used in) provided by investing activities	(5.9		)	107.0

FINANCING ACTIVITIES:
Payment of debt issuance costs	—			(0.5		)
Repurchase and retirement of common stock	(1.5		)	—
Withholding tax payment on vesting of restricted stock awards	(7.6		)	(5.5		)
Repurchase and redemption of convertible debt	—			(134.3		)
Payment of financing obligations	(1.0		)	(0.2		)
Proceeds from exercise of employee stock options and employee stock purchase plan	2.3			2.1
Net cash used in financing activities	(7.8		)	(138.4		)

Effect of exchange rates on cash, cash equivalents and restricted cash	(14.4		)	(7.2		)
Net increase (decrease) in cash, cash equivalents and restricted cash	3.2			(11.0		)
Cash, cash equivalents and restricted cash at the beginning of the period	530.4			624.3
Cash, cash equivalents and restricted cash at the end of the period	$	533.6		$	613.3

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

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~STOCKHOLDERS’ EQUITY

(in millions)

(unaudited)

Nine Months Ended
March 30, 2019 March 31, 2018
OPERATING ACTIVITIES:
Net loss $ (7.1 ) $ (19.4 )
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation expense 29.7
25.5
Amortization of acquired technologies and other intangibles 55.2
25.4
Stock-based compensation 28.5
22.8
Amortization of debt issuance costs and accretion of debt discount 17.2
27.6
Amortization of discount and premium on investments, net (0.3 ) 0.4
Loss on disposal of assets 1.0
1.7
Loss on extinguishment of debt —
4.1
Other 4.1
0.7
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (5.3 ) (20.0 )
Inventories (5.1 ) (13.8 )
Other current and non-currents assets (3.0 ) 10.3
Accounts payable (0.4 ) 10.5
Income taxes payable 4.4
(7.5 )
Deferred revenue, current and non-current 2.4
(4.3 )
Deferred taxes, net (6.0 ) (7.0 )
Accrued payroll and related expenses 0.2
(6.9 )
Accrued expenses and other current and non-current liabilities (5.2 ) (1.6 )
Net cash provided by operating activities 110.3
48.5

INVESTING ACTIVITIES:
Purchases of available-for-sale investments —
(370.5 )
Maturities of available-for-sale investments 45.1
407.8
Sales of available-for-sale investments 97.1
195.9
Capital expenditures (34.7 ) (29.8 )
Proceeds from the sale of assets 4.2
3.7
Acquisitions, net of cash acquired (29.7 ) (509.9 )
Net cash provided by (used in) investing activities 82.0
(302.8 )

FINANCING ACTIVITIES:
Payment of debt issuance costs (0.5 ) —
Repurchase and retirement of common stock (9.0 ) (40.8 )
Withholding tax payment on vesting of restricted stock awards (11.9 ) (11.3 )
Repurchase and redemption of convertible debt (276.9 ) (198.0 )
Payment of financing obligations (0.7 ) (1.1 )
Proceeds from exercise of employee stock options and employee stock purchase plan 5.4
4.9
Net cash used in financing activities (293.6 ) (246.3 )

Effect of exchange rates on cash, cash equivalents and restricted cash (7.2 ) 25.6
Net decrease in cash, cash equivalents and restricted cash (108.5 ) (475.0 )
Cash, cash equivalents and restricted cash at the beginning of the period ⁽¹⁾
624.3
1,022.4
Cash, cash equivalents and restricted cash at the end of the period ⁽²⁾
$ 515.8
$ 547.4



	Common Stock
Three Months Ended September 28, 2019	Shares		Amount		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at June 29, 2019	228.8		$	0.2	$	70,244.7		$	(69,384.5	)	$	(134.6	)	$	725.8
Cumulative adjustment for adoption of ASC 842	—		—		—			3.0						3.0
Net income	—		—		—			6.8			—			6.8
Other comprehensive loss	—		—		—			—			(26.7		)	(26.7		)
Shares issued under employee stock plans, net of tax	1.7		—		(9.7		)	—			—			(9.7		)
Stock-based compensation	—		—		10.4			—			—			10.4
Repurchase of common stock	(0.1	)	—		—			(1.5		)	—			(1.5		)
Balance at September 28, 2019	230.4		$	0.2	$	70,245.4		$	(69,376.2	)	$	(161.3	)	$	708.1

⁽¹⁾~~These amounts include both current and non-current balances of restricted cash totaling $12.9 million and $18.0 million as of June 30, 2018 and July 1, 2017, respectively.~~

⁽²⁾ ~~These amounts include both current and non-current balances of restricted cash totaling $13.1 million and $13.1 million as of March 30, 2019 and March 31, 2018, respectively.~~



	Common Stock
Three Months Ended September 29, 2018	Shares	Amount		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at June 30, 2018	226.7	$	0.2	$	70,216.2		$	(69,378.6	)	$	(102.9	)	$	734.9
Net loss	—	—		—			(15.3		)	—			(15.3		)
Other comprehensive loss	—	—		—			—			(12.2		)	(12.2		)
Shares issued under employee stock plans, net of tax	1.5	—		(5.8		)	—			—			(5.8		)
Stock-based compensation	—	—		8.2			—			—			8.2
Other	—	—		—			(0.2		)	—			(0.2		)
Balance at September 29, 2018	228.2	$	0.2	$	70,218.6		$	(69,394.1	)	$	(115.1	)	$	709.6

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

~~VIAVI SOLUTIONS INC.~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(in millions)~~

~~(unaudited)~~

Three Months Ended March 30, 2019 Common Stock and Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total
Balance at December 29, 2018 $ 70,227.0
$ (69,389.5 ) $ (127.4 ) $ 710.1
Net loss —
(4.8 ) —
(4.8 )
Other comprehensive income —
—
12.2
12.2
Shares issued under employee stock plans, net of tax 0.4
—
—
0.4
Stock-based compensation 10.8
—
—
10.8
Repurchase of common stock —
(0.4 ) —
(0.4 )
Balance at March 30, 2019 $ 70,238.2
$ (69,394.7 ) $ (115.2 ) $ 728.3

Three Months Ended March 31, 2018 Common Stock and Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total
Balance at December 30, 2017 $ 70,174.0
$ (69,328.9 ) $ (74.8 ) $ 770.3
Net loss —
(10.7 ) —
(10.7 )
Other comprehensive income —
—
19.7
19.7
Shares issued under employee stock plans, net of tax (0.1 ) —
—
(0.1 )
Stock-based compensation 7.6
—
—
7.6
Repurchase of common stock —
(9.9 ) —
(9.9 )
Reacquisition of 2033 notes equity component (0.8 ) —
—
(0.8 )
Balance at March 31, 2018 $ 70,180.7
$ (69,349.5 ) $ (55.1 ) $ 776.1

Nine Months Ended March 30, 2019 Common Stock and Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total
Balance at June 30, 2018 $ 70,216.4
$ (69,378.6 ) $ (102.9 ) $ 734.9
Net loss —
(7.1 ) —
(7.1 )
Other comprehensive loss —
—
(12.3 ) (12.3 )
Shares issued under employee stock plans, net of tax (7.1 ) —
—
(7.1 )
Stock-based compensation 28.7
—
—
28.7
Repurchase of common stock —
(9.0 ) —
(9.0 )
Reacquisition of 2033 notes equity component 0.2
—
—
0.2
Balance at March 30, 2019 $ 70,238.2
$ (69,394.7 ) $ (115.2 ) $ 728.3

Nine Months Ended March 31, 2018 Common Stock and Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total
Balance at July 1, 2017 $ 70,184.6
$ (69,288.6 ) $ (92.5 ) $ 803.5
Cumulative adjustment, adoption of ASU 2016-09 0.6
(0.6 ) —
—
Net loss —
(19.4 ) —
(19.4 )
Other comprehensive income —
—
37.4
37.4
Shares issued under employee stock plans, net of tax (6.4 ) —
—
(6.4 )
Stock-based compensation 22.8
—
—
22.8
Repurchase of common stock —
(40.9 ) —
(40.9 )
Reacquisition of 2033 notes equity component (20.9 ) —
—
(20.9 )
Balance at March 31, 2018 $ 70,180.7
$ (69,349.5 ) $ (55.1 ) $ 776.1

~~The accompanying Notes to 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” also referred to as “the Company”~~, “we”, “our” and “us”~~) for the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 is unaudited, and includes all normal and recurring adjustments Company management considers necessary for a fair statement of the financial information set forth herein. The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission (“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 June ~~30, 2018.~~29, 2019.

Other than updates to the Company’s ~~revenue recognition~~lease accounting policy under Accounting Standards Codification (“ASC”) ~~606~~842 - ~~Revenue from Contracts with Customers~~Leases, as disclosed in “Note 2. Recently Issued Accounting Pronouncements” and “Note ~~3. Revenue”~~12. Leases”, there have been no material changes to the Company’s accounting policies during the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019, 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 June ~~30, 2018~~29, 2019 on Form 10-K filed with the SEC on August ~~28, 2018.~~27, 2019.

The balance sheet as of June ~~30, 2018~~29, 2019 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 nine~~ months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 may not be indicative of results for the fiscal year ending June ~~29, 2019~~27, 2020 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 ~~2019~~2020 is a 52-week year ending on June ~~29, 2019.~~27, 2020. The Company’s fiscal ~~2018~~2019 was a 52-week year ending on June ~~30, 2018.~~29, 2019.

Principles of Consolidation

The consolidated financial statements include the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Use of Estimates

The preparation of the Company’s consolidated financial statements 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 assumptions about 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 readily available current information.

Note 2. Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements Adopted

In ~~November~~ 2016, the Financial Accounting Standards Board (“FASB”) issued ~~an accounting standard update~~guidance on the financial reporting requirements for leasing arrangements, ASC 842 - Leases. ASC 842 requires lessees to recognize operating leases with a term greater than one year on their balance sheets as Right-of-Use (“~~ASU”~~ROU”) ~~that requires a statement~~assets and corresponding lease liabilities, measured at the present value of ~~cash flows to present~~ the ~~change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.~~lease payments. In the first quarter of fiscal ~~2019, we~~2020 the Company adopted this ~~ASU~~standard using athe modified retrospective approach. The Company elected to apply the optional transition ~~method. Accordingly, our consolidated statement~~approach of ~~cash flows~~not adjusting comparative period financial statements for the ~~nine months ended March 31, 2018, as presented herein, has been restated to comply with the new requirements.~~

~~In May 2014, the FASB issued new authoritative guidance related to revenue recognition from contracts with customers, ASC 606~~ ~~- Revenue from Contracts with Customers~~ (the “revenue standard”). The new guidance provides a unified model to determine when and how revenue is recognized. The core principle of the new guidance is that a company should recognize revenue to depict 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.adoption impact. The Company ~~adopted~~also elected the ~~new standard effective in the first quarter~~package of ~~fiscal 2019 using the retrospective transition method, which required the Company~~practical expedients to ~~recast each prior period~~not reassess whether a contract contains a lease, lease classification and accounting for

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

presented consistent with the new guidance. Refer to “Note 3. Revenue” of the Consolidated Financial Statements for a summary of significant policies related to the new accounting standards. As part of the adoption, certain prior period amounts have been adjusted or reclassified within the consolidated financial statements.

~~The following table presents the impact of the revenue standard adoption, to select line items of our Consolidated Balance Sheet as of June 30, 2018, (in millions~~):

June 30, 2018
As Reported Adjustment As Adjusted
ASSETS
Accounts receivable, net $ 217.5
$ 1.1
$ 218.6
Prepayments and other assets 54.8
1.5
56.3
Deferred income taxes 114.5
(0.2 ) 114.3
Other non-current assets 13.6
1.8
15.4
Total assets $ 2,022.6
$ 4.2
$ 2,026.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deferred revenue $ 71.9
$ (11.3 ) $ 60.6
Accrued payroll and related expenses 51.4
1.4
52.8
Other current liabilities 77.0
1.9
78.9
Other non-current liabilities 182.8
(2.0 ) 180.8
Total stockholders’ equity 720.7
14.2
734.9
Total liabilities and stockholders’ equity $ 2,022.6
$ 4.2
$ 2,026.8

~~The primary impacts to the previously issued amounts are as follows:~~

~~Accounts receivable, net:~~ initial direct costs. Adoption of the ~~new revenue~~leasing standard resulted in $35.5 million of ROU assets and $37.0 million of lease liabilities. In addition, the Company recorded an ~~increase~~adjustment to ~~accounts receivable,~~accumulative deficit, net ~~primarily due to~~of taxes, of $3.0 million from the following two items: 1) The return rights provision, which represents a liability for expected customer returns, was previously presented as a reduction to accounts receivable and is now presented in other current liabilities; and, 2) Contract assets which are recorded when a conditional right to consideration exists and transfer of control has occurred in advance of the Company’s right to invoice. Upon adoption of ASC 606, contract assets, which were previously presented as a component of accounts receivable, net, are now presented as a component of prepayments and other current assets.

~~Prepayments and other current assets:~~ As noted above, contract assets, which are recognized when a conditional right to consideration exists and transfer of control has occurred in advance of the Company’s right to invoice. Upon adoption of ASC 606, contract assets are presented as a component of prepayments and other current assets.

~~Other non-current assets:~~ ~~The costs of obtaining contracts where the amortization period for~~ recognition of ~~the expense is beyond a year, are capitalized~~previously deferred profit under sale-leaseback arrangements and ~~recognized over the revenue recognition period~~de-recognition of ~~the original contract. These costs are now classified as other non-current assets.~~

~~Short-term~~related real estate assets of $7.1 million and ~~long-term deferred revenue:~~ ~~Adoption~~financing obligations of $10.1 million. The adoption of the new ~~revenue~~ standard ~~resulted in~~did not have a decrease of deferred revenue primarily due to the net change in timing of software related revenue. Under the previous standard revenue for software license sales bundled with post-contract support and/or services where vendor-specific objective evidence of fair value had not been established was recognized ratably over the support period. Upon adoption of ASC 606 the revenue related to such software license sales will now be recognized when control transfers, which is usually at the time of billing. The actual revenue recognition treatment required under the standard will depend on contract-specific terms and in some instances, transfer of control and revenue recognition may differ from the time of billing. Long-term deferred revenue is presented under other non-current liabilities.

~~Other current liabilities:~~ ~~The returns provision, which represents a liability for expected customer returns, was previously presented as a reduction of accounts receivable and is now presented as other current liabilities.~~

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~~VIAVI SOLUTIONS INC.~~

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

~~Adoption of the revenue standard had no~~material impact on ~~net cash provided by or used in operating, investing or financing activities as presented on our~~the Company’s Consolidated Statements of Operations and Statements of Cash Flows.

~~The following table presents the impact of the revenue standard adoption~~ For additional information refer to ~~select line items of our previously reported Consolidated Statement of Operations for the three and nine months ended March 31, 2018 (in millions, except per share data~~):

Three Months Ended March 31, 2018 Nine Months Ended March 31, 2018
As Reported Adjustment As Adjusted As Reported Adjustment As Adjusted
Revenues:
Product revenue $ 197.2
$ (4.0 ) $ 193.2
$ 546.6
$ (7.0 ) $ 539.6
Service revenue 22.2
3.3
25.5
69.8
5.6
75.4
Total net revenue 219.4
(0.7 ) 218.7
616.4
(1.4 ) 615.0
Cost of revenues:
Product cost of revenue 79.2
(1.9 ) 77.3
212.3
(2.9 ) 209.4
Service cost of revenue 10.3
1.6
11.9
33.7
2.1
35.8
Amortization of acquired technologies 6.2
—
6.2
14.4
—
14.4
Total cost of revenue 95.7
(0.3 ) 95.4
260.4
(0.8 ) 259.6
Gross profit 123.7
(0.4 ) 123.3
356.0
(0.6 ) 355.4
Income from operations 0.4
—
0.4
14.1
(0.1 ) 14.0
Loss before taxes (7.6 ) —
(7.6 ) (15.0 ) (0.1 ) (15.1 )
Provision for income taxes 1.1
2.0
3.1
2.2
2.1
4.3
Net loss $ (8.7 ) $ (2.0 ) $ (10.7 ) $ (17.2 ) $ (2.2 ) $ (19.4 )

Net loss per common share:
Basic and dilutive $ (0.04 ) $ (0.01 ) $ (0.05 ) $ (0.08 ) $ (0.01 ) $ (0.09 )

Shares used in per share calculations:
Basic and dilutive 226.3

226.3
227.3

227.3

~~The impacts to the previously reported amounts are summarized, as follows:~~

~~Net revenue:~~ Adoption of the revenue standard resulted in a change in the timing of revenue recognized primarily due to the treatment of software license revenue. Under the prior standard, if vendor-specific objective evidence had not been established for the post contract support and/or the services, software license revenue would have been recognized ratably over the support period. Upon adoption of ASC 606, revenue related to such software license sales will now be recognized when control transfers which is usually at the time of billing. The decrease in revenue for the period presented above is primarily the result of the elimination of ratable software license revenue. Such license revenue was previously amortized; however it is now recognized at a point in time under the new standard.“Note 12. Leases.”

Recent Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued guidance to amend the disclosure requirements related to defined benefit pension and other post-retirement plans. Some of the changes include adding a disclosure requirement for significant gains and losses related to changes in the benefit obligation for the period and removing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. This guidance is effective for the Company in the first quarter of fiscal 2022 and early adoption is permitted. 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 August 2018, the FASB issued guidance which changes the fair value measurement disclosure requirements of FASB ASC -~~ ~~Fair Value Measurement (Topic 820)~~. The update includes new, eliminated and modified disclosure requirements. The guidance is effective for the Company in the first quarter of fiscal 2020 and early adoption is permitted for any eliminated or modified disclosures. The Company is evaluating the impact of adopting this new accounting guidance on its Consolidated Financial Statements.

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.

In February 2016, the FASB issued guidance regarding both operating and financing leases, requiring lessees to recognize on their balance sheets “right-of-use assets” and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a “short-term lease.” The guidance requires a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, ~~Leases (Topic 842)~~: Targeted Improvements, which provides entities another option for transition, allowing entities to not apply the new standard in the comparative periods they present in their financial statements in the year of adoption. The guidance is effective for the Company in the first quarter of fiscal 2020. While the Company is not yet in a position to assess the full impact of the application of the new guidance, the Company expects adoption of this guidance will materially increase the assets and liabilities recorded on its Consolidated Balance Sheets.

Note 3. Revenue

~~In the first quarter of~~The Company accounts for revenue in accordance with ASC 606, which was adopted in fiscal 2019 ~~the Company adopted the revenue standard~~ using the retrospective transition ~~method which requires the Company to recast each prior period presented.~~method. The ~~most significant impact of the~~Company’s revenue standard relates to our accounting for contracts containing software. As a result, for software solutions bundled with post-contract support (“PCS”) and/or services where vendor-specific objective evidence (“VSOE”) has not been established for the PCS and/or services. Revenue will now be recognized when control transfers which is usually at time of billing rather than ratably over the life of the support term. The actual revenue recognition treatment required under the standard will depend on contract-specific terms and in some instances transfer of control and revenue recognition may differ from the time of billing. Revenue recognition under the revenue standard for the remainder of the Company’s products and services remains substantially unchanged.

~~The Company derives revenue~~derived from a diverse portfolio of network solutions and optical technology products and services, as follows:

•

Products: Network Enablement (“NE”) and Service Enablement (“SE”) products include instruments, microprobes and perpetual software licenses that support the development, production, maintenance and optimization of network systems. The Company’s Optical Security and Performance (“OSP”) products include proprietary pigments used for optical security and optical filters used in commercial and government 3D Sensing applications.

•

Services: The Company also offers a range of product support and professional services designed to comprehensively address customer requirements. These include repair, calibration, extended warranty, software support, technical assistance, training and consulting services. Implementation services provided in conjunction with hardware or software solution projects include sale of the products along with project management, set-up and installation.

~~Products:~~ Network Enablement (“NE”) and Service Enablement (“SE”) products include instruments, microprobes and perpetual software licenses that support the development, production, maintenance and optimization of network systems. The Company’s Optical Security and Performance (“OSP”) products include proprietary pigments used for optical security and optical filters used in commercial and government 3D Sensing applications.

~~Services:~~ The Company also offers a range of product support and professional services designed to comprehensively address customer requirements. These include repair, calibration, extended warranty, software support, technical assistance, training and consulting services. Implementation services provided in conjunction with hardware or software solution projects include sale of the products along with project management, set-up and installation.

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Steps of revenue recognition~~

~~The Company accounts for revenue in accordance with the revenue standard, in which the following five steps are applied to recognize revenue:~~

~~Identify the contract with a customer:~~ Generally, the Company considers customer purchase orders which, in some cases are governed by master sales or other purchase agreements, to be the customer contract. All of the following criteria must be met before the Company considers an agreement to qualify as a contract with a customer under the revenue standard: (i) it must be approved by all parties; (ii) each party’s rights regarding the goods and services to be transferred can be identified; (iii) the payment terms for the goods and services can be identified; (iv) the customer has the ability and intent to pay and collection of substantially all of the consideration is probable; and, (v) the agreement has commercial substance. The Company utilizes judgment to determine the customer’s ability and intent to pay, which is based upon various factors including the customer’s historical payment experience or credit and financial information and credit risk management measures implemented by the Company.

~~Identify the performance obligations in the contract:~~ The Company assesses whether each promised good or service is distinct for the purpose of identifying the various performance obligations in each contract. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and, (ii) the Company's promise to transfer the good or service to the customer is separately identifiable or distinct from other promises in the contract. The Company's performance obligations consist of a variety of products and services offerings which include networking equipment; proprietary pigment, optical filters, proprietary software licenses; support and maintenance which includes hardware support that extends beyond the Company's standard warranties, software maintenance, installation, professional and implementation services, and training.

Determining whether products and services are considered distinct performance obligations may require significant judgment. We may enter into contracts that involve a significant level of integration and interdependency between a software license and installation services. Judgment may be required to determine whether the software license is considered distinct in the context of the contract and accounted for separately, or not distinct in the context of the contract and accounted for together with the installation service.

~~Determine the transaction price:~~ Transaction price reflects the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to the customer. The Company’s contracts may include terms that could cause variability in the transaction price including rebates, sales returns, market incentives and volume discounts. Variable consideration is generally accounted for at the portfolio level and estimated based on historical information. If a contract includes a variable amount, the price adjustments are estimated at contract inception. In both cases, estimates are updated at the end of each reporting period as additional information becomes available.

~~Allocate the transaction price to performance obligations in the contract:~~ If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Many of the Company’s contracts include multiple performance obligations with a combination of distinct products and services, maintenance and support, professional services and/or training. Contracts may also include rights or options to acquire future products and/or services, which are accounted for as separate performance obligations by the Company, only if the right or option provides the customer with a material right that it would not receive without entering into the contract. For contracts with multiple performance obligations, the Company allocates the total transaction value to each distinct performance obligation based on relative standalone selling price (“SSP”). Judgment is required to determine the SSP for each distinct performance obligation. The best evidence of SSP is the observable price of a good or service when the Company sells that good or service separately under similar circumstances to similar customers. If a directly observable price is not available, the SSP must be estimated based on multiple factors including, but not limited to, historical pricing practices, internal costs, and profit objectives as well as overall market conditions.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

~~Recognize revenue when (or as) performance obligations are satisfied:~~ Revenue is recognized at the point in time control is transferred to the customer. For hardware sales, transfer of control to the customer typically occurs at the point the product is shipped or delivered to the customer’s designated location. For software license sales transfer of control to the customer typically occurs upon shipment, electronic delivery, or when the software is available for download by the customer. For sales of implementation service and solution contracts or in instances where software is sold along with essential installation services, transfer of control occurs and revenue is typically recognized upon customer acceptance. In certain instances, acceptance is deemed to have occurred if all acceptance provisions lapse, or if the Company has evidence that all acceptance provisions will be, or have been, satisfied. For fixed-price support and extended warranty contracts, or certain software arrangements which provide customers with a right to access over a discrete period, control is deemed to transfer over time and revenue is recognized on a straight-line basis over the contract term due to the stand-ready nature of the performance obligation. Revenue from hardware repairs and calibration services is recognized at the time of completion of the related service. For other professional services or time-based labor contracts, revenue is recognized as the Company performs the services and the customers receive and/or consume the benefits.

~~Revenue policy and practical expedients~~

~~The following policy and practical expedient elections have been made by the Company under the revenue standard:~~

~~Revenue-based taxes as assessed by governmental authorities have been excluded from the measurement of transaction price(s).~~

Shipping and handling activities performed after customer obtains control of the good are treated as activities to fulfill the promise (cost of fulfillment). Therefore, the Company does not evaluate whether the shipping and handling activities are promised services.

Incremental costs of obtaining contracts that would have been recognized within one year or less are recognized as an expense when incurred. These costs are included in selling, general, and administrative expenses (“SG&A”). The costs of obtaining contracts where the amortization period for recognition of the expense is beyond a year are capitalized and recognized over the revenue recognition period of the original contract.

The portfolio approach is used for certain types of variable consideration for contracts with similar characteristics. The methodology is used when the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts within that portfolio.

Where at contract inception, the expected period between the transfer of promised goods or services and payment is within one year or less, we forgo adjustment for the impact of significant financing component for the contract.

For contracts that were modified before the beginning of the earliest reporting period presented, the Company has applied a transition practical expedient and will not recast the contracts for those modifications. Instead we have reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price.

For the reporting periods presented before the date of initial application, the amount of the transaction price allocated to the remaining performance obligations and the explanation of when it expects to recognize that amount as revenue is not disclosed.

~~Disaggregation of revenue~~

The Company's revenue is presented on a disaggregated basis on the Consolidated Statements of Operations and in “Note 18. Operating Segments and Geographic Information”. This information includes revenue from reportable segments and a break-out of products and services for which the nature and timing of the revenue as characterized above is generally at a point in time and over time, respectively.

Balance sheet and other details

Unbilled Receivables: The Company records a receivable when an unconditional right to consideration exists and transfer of control has occurred, such that only the passage of time is required before payment of consideration is due. Timing of revenue recognition may differ from the timing of customer invoicing. Payment terms vary based on product or service offerings and payment is generally required within 30 to 90 days from date of invoicing. Certain performance obligations may require payment before delivery of the service to the customer.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

Contract Assets: A ~~contract asset~~Contract Asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract ~~assets~~Assets include fixed fee professional services, where the transfer of services has occurred in advance of the Company's right to invoice. Contract ~~assets are~~Assets, included in ~~other current assets~~accounts receivable, net, on the ~~consolidated balance sheet. There were contract assets~~Consolidated Balance Sheets, are not material to the Consolidated Financial Statements. The prior year’s Consolidated Balance Sheets and Statements of ~~$3.9 million and $1.3 million as of March 30, 2019 and June 30, 2018, respectively.~~Cash Flows have been updated to conform to the current period’s presentation. Contract asset balances will fluctuate based upon the timing of transfer of services, billings and customers’ acceptance of contractual milestones.

Gross receivables include both billed and Unbilled Receivables/Contract Assets. For the three months ended September 28, 2019 and June 29, 2019 the Company had total non-billed receivables (Unbilled Receivables/Contract Assets) of $5.5 million and $11.5 million, respectively.

Deferred ~~revenue:~~ Revenue: Deferred revenue consists of contract liabilities primarily related to support, solution deployment services, software maintenance, product, professional services, and training when the Company has a right to invoice or payments have been received and transfer of control has not occurred. Revenue is recognized on these items when the revenue recognition criteria are met, generally resulting in ratable recognition over the contract term. Contract liabilities are included in ~~other current~~deferred revenue and non-current liabilities on the ~~consolidated balance sheets.~~Consolidated Balance Sheets.

The Company also has short term and long term deferred revenues related to undelivered hardware 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):


	March 30, 2019						September 28, 2019
	Three Months Ended			Nine Months Ended			Three Months Ended
Deferred revenue:
Balance at beginning of period	$	71.0		$	71.9		$	68.5
Revenue deferrals for new contracts ⁽¹⁾	27.8			83.8			18.9
Revenue recognized during the period	(24.9		)	(81.8		)	(23.0		)
Balance at end of period	$	73.9		$	73.9		$	64.4

Short-term deferred revenue	$	61.3		$	61.3		$	51.2
Long-term deferred revenue	$	12.6		$	12.6		$	13.2

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

Remaining Performance Obligations: Remaining performance obligations represent the aggregate amount of the transaction price allocated to performance obligations not delivered or are incomplete, as of ~~March 30,~~September 28, 2019. Remaining performance obligations include deferred revenue plus unbilled amounts not yet recorded. The aggregate amount of the transaction price allocated to remaining performance obligations does not include amounts owed under cancelable contracts where there is no substantive termination penalty.

The Company also applied the practical expedient to not disclose the amount of transaction price allocated to remaining performance obligations for the periods prior to adoption of the new revenue standard.

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

The value of the transaction price allocated to remaining performance obligations as of March 30, 2019, was $232.4 million. The Company expects to recognize 93% 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)

The value of the transaction price allocated to remaining performance obligations as of September 28, 2019, was $228.9 million. The Company expects to recognize 92% of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.

Disaggregation of revenue

The Company's revenue is presented on a disaggregated basis on the Consolidated Statements of Operations and in “Note 19. Operating Segments and Geographic Information”. This information includes revenue from reportable segments and a break-out of products and services for which the nature and timing of the revenue as characterized above is generally at a point in time and over time, respectively.

Note 4. Earnings Per Share

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



	Three Months Ended
	September 28, 2019		September 29, 2018
Numerator:
Net income (loss)	$	6.8	$	(15.3	)
Denominator:
Weighted-average shares outstanding:
Basic	229.4		227.2
Shares issuable assuming conversion of convertible notes⁽¹⁾	2.8		—
Effect of dilutive securities from stock-based benefit plans	4.2		—
Diluted	236.4		227.2

Net income (loss) per share:
Basic	$	0.03	$	(0.07	)
Diluted	$	0.03	$	(0.07	)

⁽¹⁾

Represents the number of shares that would be issued if the Company’s Senior Convertible Notes had been converted. The par amount of the Company’s convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and the “in-the money” conversion benefit feature above the conversion price is payable in cash, shares of the Company’s common stock or a combination of both, at the Company’s election.

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended Nine Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Numerator:

Loss from continuing operations, net of taxes $ (4.8 ) $ (10.7 ) $ (4.7 ) $ (19.4 )
Loss from discontinued operations, net of taxes —
—
(2.4 ) —
Net loss $ (4.8 ) $ (10.7 ) $ (7.1 ) $ (19.4 )
Denominator:
Weighted-average shares outstanding:
Basic and diluted 228.3
226.3
227.9
227.3

Net loss per share - basic and dilutive:
Continuing operations $ (0.02 ) $ (0.05 ) $ (0.02 ) $ (0.09 )
Discontinued operations —
—
(0.01 ) —
Net loss per share - basic and dilutive $ (0.02 ) $ (0.05 ) $ (0.03 ) $ (0.09 )

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


	Three Months Ended		Nine Months Ended		Three Months Ended
	March 30, 2019	March 31, 2018	March 30, 2019	March 31, 2018	September 28, 2019	September 29, 2018
	^{(1) (3) (4)}	^{(1) (2) (3)}	^{(1) (2) (3) (4)}	^{(1) (2) (3)}		^{(2) (3) (4) (5)}
Stock options and ESPP	1.5	1.6	1.5	1.6	—	1.6
Restricted stock units	7.9	6.8	7.7	7.5	0.1	7.0
Total potentially dilutive securities	9.4	8.4	9.2	9.1	0.1	8.6


⁽¹⁾⁽²⁾	As the Company incurred a loss from continuing operations in the period, potential dilutive securities from employee stock options, ESPP, RSUs and PSUs have been excluded from the diluted net loss per share computations as their effects were deemed anti-dilutive.

⁽²⁾⁽³⁾

The Company’s 0.625% Senior Convertible Notes due 2033 are not included in the table above. In October 2018, the 2033 Notes were fully converted and redeemed by the Company and any potential EPS dilution effect of the Notes was realized upon the Company settling the “in-the-money” conversion benefit feature of the Notes with shares of common stock. Refer to “Note 11. Debt” for more details.

⁽³⁾⁽⁴⁾

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 payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. The Company’s average quarterly stock price for the ~~periods~~period presented did not exceed the conversion price of $13.22. Refer to “Note 11. Debt” for more details.

⁽⁴⁾⁽⁵⁾

The Company’s 1.75% Senior Convertible Notes due 2023 are not included in the table above. The par amount of convertible notes is payable in cash equal to the ~~principle~~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 $13.94 per share payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. The Company’s average quarterly stock price for the ~~periods~~period presented did not exceed the conversion price of $13.94. Refer to “Note 11. Debt” for more details.

Note 5. 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 ~~nine~~three months ended ~~March 30,~~September 28, 2019, the changes in accumulated other comprehensive loss, net of tax, by component were as follows (in millions):


	Unrealized losses on available-for sale investments			Foreign currency translation adjustments			Change in unrealized components of defined benefit obligations ⁽¹⁾			Total			Unrealized losses on available-for sale investments			Foreign currency translation adjustments			Change in unrealized components of defined benefit obligations ⁽¹⁾			Total
Beginning balance as of June 30, 2018	$	(5.8	)	$	(74.0	)	$	(23.1	)	$	(102.9	)
Beginning balance as of June 29, 2019													$	(5.0	)	$	(101.0	)	$	(28.6	)	$	(134.6	)
Other comprehensive income (loss) before reclassification	0.3			(14.5		)	—			(14.2		)	—			(27.4		)	—			(27.4		)
Amounts reclassified to accumulated other comprehensive loss	0.4			—			1.5			1.9			—			—			0.7			0.7
Net current-period other comprehensive income (loss)	0.7			(14.5		)	1.5			(12.3		)	—			(27.4		)	0.7			(26.7		)
Ending balance as of March 30, 2019	$	(5.1	)	$	(88.5	)	$	(21.6	)	$	(115.2	)
Ending balance as of September 28, 2019													$	(5.0	)	$	(128.4	)	$	(27.9	)	$	(161.3	)

(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”) and SG&A in the Consolidated Statement of Operations for the ~~nine~~three months ended ~~March 30,~~September 28, 2019. There was no0 tax impact for the ~~nine~~three months ended ~~March 30,~~September 28, 2019. Refer to “Note ~~16.~~17. Employee Pension and Other Benefit Plans” for more details on the computation of net periodic cost for pension plans.

Note 6. Acquisitions

3Z Telecom, Inc. Acquisition

On May 31, 2019 (“3Z Close Date”), the Company acquired all of the equity of 3Z Telecom, Inc. (“3Z”) for approximately $23.2 million in cash and contingent consideration (“earn-out”) liability of up to $7.0 million in cash based on the achievement of certain net revenue targets over approximately a two year period, subsequent to the 3Z Close Date. The $23.2 million cash consideration is subject to final cash and net working capital adjustments and includes escrow payments of $4.3 million, which are reserved for potential breaches of representations and warranties. The acquisition of 3Z expands the Company’s Field Instrument offerings.

The 3Z acquisition meets the definition of a business and has been accounted for in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. Acquisition related costs incurred were not material.

The fair value of consideration transferred for the 3Z acquisition consists of the following (in millions):



Cash consideration paid at closing	$	18.9
Escrow payments	4.3
Fair value of contingent consideration	5.5
Total purchase consideration	$	28.7

The fair value of the earn-out payments at the 3Z Close Date was determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs not observable in the market, and therefore represents a Level 3 measurement. The fair value of the Company’s earn-out liabilities is further discussed in “Note 8. Investments, Forward Contracts and Fair Value Measurements.”

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The preliminary identified tangible and intangible assets acquired, as of the 3Z Close Date, were as follows (in millions):



Tangible assets acquired:	$	4.1
Intangible assets acquired:
Developed technology	4.4
Customer relationships	7.9
Customer backlog	0.1
Goodwill	12.2
Total consideration transferred	$	28.7

The preliminary allocation of the purchase price to tangible assets, based on the estimated fair values of assets acquired and liabilities assumed on the 3Z Close Date, was as follows (in millions):



Cash	$	2.2
Total other assets	3.6
Total liabilities	(1.7		)
Net tangible assets acquired	$	4.1

The allocation of the purchase price was based upon a preliminary valuation, and our estimates and assumptions are subject to refinement and final cash and net working capital adjustments within the measurement period (up to one year from the 3Z Close Date). The purchase price allocation may require prospective adjustments to goodwill.

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from a valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair values of acquired customer relationships and developed technology were determined based on the excess earnings method and relief from royalty method, respectively, variations of the income approach. The intangible assets are being amortized over their estimated useful lives, which range from five to six years. Customer backlog will be fully amortized within one year.

Goodwill arising from this acquisition is primarily attributed to sales of future products and services of 3Z. Goodwill has been assigned to the NE segment and is not deductible for tax purposes.

Results of operations of 3Z have been included in the Company’s Consolidated Financial Statements subsequent to the date of acquisition. Proforma or historical post-acquisition results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.

RPC Photonics, Inc. Acquisition

On October 30, 2018 (“RPC Close Date”), the Company acquired all of the equity interest of RPC Photonics, Inc. (“RPC”) for approximately $33.4 million in cash and an additional earn-out of up to $53.0 million in cash based on the achievement of certain gross profit targets over approximately a four ~~year~~years period, subsequent to the RPC Close Date. The ~~$33.4~~achievement or distributions of earn-out payments are not limited in any one period. The estimated fair value of the contingent consideration portion of the earn-out is $31.7 million ~~cash consideration is subject to final cash and net working capital adjustments and includes Escrow payments~~as of ~~$3.5 million, which are reserved for potential breaches of representations and warranties.~~September 28, 2019. The acquisition of RPC expands the Company’s 3D Sensing offerings.

The ~~RPC acquisition met~~Company accounted for the ~~definition of a business and the acquisition has been accounted for~~transaction in accordance with the authoritative guidance on business combination; therefore, the tangible and intangible assets acquired and liabilities assumed ~~were~~are recorded at fair value on the acquisition date. ~~Acquisition related costs incurred were not material.~~

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of consideration transferred for the RPC ~~acquisition consists of the following~~Close Date, were as follows (in millions):



Cash consideration paid at closing	$	29.9
Escrow payments	3.5
Fair value of contingent consideration	36.2
Total purchase consideration	$	69.6

Cash consideration paid at closing $ 29.9
Escrow payments 3.5
Fair value of contingent consideration 36.2
Total purchase consideration $ 69.6

The fair value of the earn-out payments at the RPC Close Date ~~was~~were determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs that are not observable in the market, and therefore represents a Level 3 measurement. The fair value of this earn-out is discussed further in “Note 8. Investments, Forward Contracts and Fair Value Measurements”.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

The ~~preliminary~~ identified tangible and intangible assets acquired, as of the RPC Close Date, were as follows (in millions):



Tangible assets acquired:	$	5.7
Intangible assets acquired:
Developed technology	15.7
Customer relationships	14.0
Customer backlog	0.3
Goodwill	33.9
Total consideration transferred	$	69.6

Tangible assets acquired: $ 5.7
Intangible assets acquired:
Developed technology 15.7
Customer relationships 14.0
Customer backlog 0.3
Goodwill 33.9
Total consideration transferred $ 69.6

The ~~preliminary~~ allocation of the purchase price to tangible assets, based on the estimated fair values of assets acquired and liabilities assumed on the RPC Close Date, were as follows (in millions):



Cash	$	1.8
Other current assets	1.8
Property and equipment	2.6
Total liabilities	(0.5		)
Net tangible assets acquired	$	5.7

Cash $ 1.8
Other current assets 1.8
Property and equipment 2.6
Total liabilities (0.5 )
Net tangible assets acquired $ 5.7

The allocation of the purchase price was based upon a ~~preliminary~~ valuation and our estimates and assumptions are subject to refinement, and final cash and net working capital adjustments within the measurement period (up to one year from the RPC Close Date). The purchase price allocation may require prospective adjustments to goodwill.

performed. Acquired intangible assets are classified as Level 3 assets for which fair value is derived from a valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair values of acquired customer relationships and developed technology were determined based on the excess earnings method and relief from royalty method, respectively, variations of the income approach. The intangible assets are being amortized over their estimated useful lives that range from six to seven years. Customer backlog will be fully amortized within one year.

Goodwill arising from this acquisition is primarily attributed to sales of future products and services of RPC. Goodwill has been assigned to the OSP segment and is not deductible for tax purposes.

Results of operations of RPC have been included in the Company’s Consolidated Financial Statements subsequent to the date of acquisition. Proforma or historical post-acquisition results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.

~~AvComm and Wireless Test and Measurement Acquisition~~

On March 15, 2018 (“AW Close Date”), the Company completed the acquisition of the AW Business of Cobham plc. (“AW”) for $466.8 million in cash. The acquisition further strengthens the Company’s competitive position in 5G deployment and diversifies the Company into military, public safety and avionics test markets. The acquired business has been integrated into the Company's NE segment.

The Company accounted for the transaction in accordance with the authoritative guidance on business combinations; therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date. The allocation of the purchase price was completed in March 2019.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

~~Total identified tangible and intangible assets acquired, were as follows~~ ~~(in millions)~~:

Tangible assets acquired: $ 59.0
Intangible assets acquired:
Developed technology 113.5
Customer relationships 75.0
Trade names 28.0
In-process research and development 9.0
Customer Backlog 6.5
Goodwill 175.8
Total consideration transferred $ 466.8

~~The allocation of the purchase price was as follows~~ ~~(in millions)~~:

Cash $ 16.1
Accounts receivable 43.0
Inventory 33.5
Property and equipment 33.5
Other assets 6.1
Accounts payable (10.9 )
Other liabilities (28.4 )
Deferred revenue (10.2 )
Deferred tax liabilities (23.7 )
Net tangible assets acquired $ 59.0

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from a valuation based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of acquired developed technology, customer relationships, trade names, acquired in-process research and development (“IPR&D”) and backlog was determined based on an income approach using the discounted cash flow method. The intangible assets, except IPR&D, are being amortized over their estimated useful lives that range from three to six years. Order backlog will be fully amortized within one year.

In accordance with authoritative guidance, the Company recognized an IPR&D asset at fair value as of March 15, 2018. The IPR&D has been accounted for as an indefinite-lived intangible asset, until the completion or abandonment of the associated research and development projects. During the three months ended March 30, 2019, the IPR&D activities were completed and transferred to developed technology, with an estimated useful life of 6 years. See “Note 10. Acquired Developed Technology and Other Intangibles” of the Notes to our Consolidated Financial Statements for more detail.

Goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of AW. Goodwill has been assigned to the NE segment and is partially deductible for tax purposes.

~~AW results of operations have been included in the Company’s Consolidated Financial Statements subsequent to the date of acquisition.~~

~~Other Acquisitions:~~

During the nine months ended March 30, 2019, we completed various asset acquisitions for total consideration of approximately $7.7 million, of which $5.1 million cash was paid at close and $2.6 million in earn-out liabilities assumed. The fair value of earn-out liabilities assumed is discussed further in “Note 8. Investments, Forward Contracts and Fair Value Measurements”.

These acquisitions were accounted for as asset acquisitions, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset. In connection with these acquisitions, we recorded approximately $7.6 million of developed technology and $2.4 million of deferred tax liability resulting from these acquisitions. The acquired developed technology assets are being amortized over their estimated useful lives which range from five to ten years.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

Note 7. Balance Sheet and Other Details

Accounts receivable allowance

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

June 30, 2018 Charged to Costs and Expenses
Deductions ⁽¹⁾
March 30, 2019
Allowance for doubtful accounts $ 2.4
$ 0.8
$ (0.3 ) $ 2.9

⁽¹⁾~~Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, net of recoveries.~~

~~Inventories, net~~

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

March 30, 2019 June 30, 2018
Finished goods $ 32.1
$ 31.7
Work in process 26.9
24.4
Raw materials 36.1
36.2
Inventories, net $ 95.1
$ 92.3

~~Prepayments and other current assets~~

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

March 30, 2019 June 30, 2018
Prepayments $ 11.6
$ 11.0
Asset held for sale 2.5
3.0
Advances to contract manufacturers 6.6
5.9
Refundable income taxes 7.4
10.8
Transaction tax receivables 11.3
10.3
Other current assets 14.5
15.3
Prepayments and other current assets $ 53.9
$ 56.3

~~Other current liabilities~~

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

March 30, 2019 June 30, 2018
Customer prepayments $ 35.9
$ 37.9
Restructuring accrual 10.7
7.4
Income tax payable 8.8
5.9
Warranty accrual 4.8
4.7
VAT liabilities 3.2
1.7
Foreign exchange forward contracts liability 2.4
11.7
Other 13.7
9.6
Other current liabilities $ 79.5
$ 78.9

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	June 29, 2019		Charged to Costs and Expenses		Deductions ⁽¹⁾			September 28, 2019
Allowance for doubtful accounts	$	2.0	$	0.4	$	(0.2	)	$	2.2

⁽¹⁾Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, net of recoveries.

Inventories, net

The following table presents the components of inventories, net (in millions):



	September 28, 2019		June 29, 2019
Finished goods	$	35.8	$	36.7
Work in process	22.9		26.5
Raw materials	40.7		39.5
Inventories, net	$	99.4	$	102.7

Prepayments and other current assets

The following table presents the components of prepayments and other current assets (in millions):



	September 28, 2019		June 29, 2019
Prepayments	$	14.0	$	14.2
Asset held for sale	2.5		2.5
Advances to contract manufacturers	6.1		5.1
Refundable income taxes	8.1		8.9
Transaction tax receivables	11.1		11.8
Other current assets	10.0		7.4
Prepayments and other current assets	$	51.8	$	49.9

Other current liabilities

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



	September 28, 2019		June 29, 2019
Customer prepayments	$	17.7	$	30.2
Restructuring accrual	7.4		8.6
Income tax payable	11.0		8.5
Warranty accrual	4.8		4.7
Transaction tax payable	2.7		3.8
Operating lease liabilities (Note 12)	11.8		—
Foreign exchange forward contracts liability	4.6		4.0
Other	13.1		12.6
Other current liabilities	$	73.1	$	72.4

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other non-current liabilities

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



	September 28, 2019		June 29, 2019
Pension and post-employment benefits	$	98.9	$	103.2
Financing obligation	16.3		25.5
Deferred tax liability	12.9		14.6
Long-term deferred revenue	13.2		13.2
Fair value of contingent consideration ⁽¹⁾	38.4		37.7
Operating lease liabilities (Note 12)	24.2		—
Uncertain tax position	12.9		13.6
Other	16.0		18.7
Other non-current liabilities	$	232.8	$	226.5

March 30, 2019 June 30, 2018
Pension and post-employment benefits $ 94.8
$ 100.0
Financing obligation 25.9
26.8
Deferred tax liability 16.7
20.5
Long-term deferred revenue 12.6
11.3
Fair value of contingent consideration ⁽¹⁾
38.8
—
Uncertain tax position 12.7
5.1
Other 21.5
17.1
Other non-current liabilities $ 223.0
$ 180.8

⁽¹⁾ See “Note 6. Acquisitions” of the Notes to our Consolidated Financial Statements for more detail.

Note 8. Investments, Forward Contracts and Fair Value Measurements

Available-For-Sale Investments

The following table presents the Company’s available-for-sale securities as of ~~March 30,~~September 28, 2019 (in millions):



	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale debt securities:
Asset-backed securities	$	0.9	$	—	$	(0.3	)	$	0.6
Total available-for-sale debt securities	$	0.9	$	—	$	(0.3	)	$	0.6

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

U.S. treasuries $ 1.5
$ —
$ —
$ 1.5
U.S. agencies 3.5
—
—
3.5
Municipal bonds and sovereign debt instruments 1.7
—
—
1.7
Asset-backed securities 3.9
—
(0.4 ) 3.5
Corporate securities 16.1
—
(0.1 ) 16.0
Total available-for-sale debt securities $ 26.7
$ —
$ (0.5 ) $ 26.2

The Company generally classifies debt securities as available-for-sale and 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 ~~March 30,~~September 28, 2019, of the total estimated fair value ~~$25.6 million was classified as short-term investments and~~of $0.6 million was classified as other non-current assets.

In addition to the amounts presented above, the Company’s short-term investments classified as trading securities related to the deferred compensation plan as of ~~March 30,~~September 28, 2019, were $1.5 million, of which $0.4 million was invested in debt securities, ~~$0.4~~$0.3 million was invested in money market instruments and funds and ~~$0.7~~$0.8 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 the Company’s Consolidated Statements of Operations as a component of interest and other income, net.

During the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, the Company recorded no0 other-than-temporary impairment charges in each respective period.

The following table presents contractual maturities of the Company’s debt securities classified as available-for-sale as of September 28, 2019, (in millions):



	Amortized Cost/ Carrying Cost		Estimated Fair Value
Amounts maturing in more than 5 years	$	0.9	$	0.6
Total debt available-for-sale securities	$	0.9	$	0.6

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~The following table presents contractual maturities of the Company’s debt securities classified as available-for-sale as of March 30, 2019, (in millions~~):

Amortized Cost/
Carrying Cost

Estimated
Fair Value
Amounts maturing in less than 1 year $ 20.2
$ 20.1
Amounts maturing in 1 - 5 years 5.6
5.5
Amounts maturing in more than 5 years 0.9
0.6
Total debt available-for-sale securities $ 26.7
$ 26.2

The following table presents the Company’s available-for-sale securities as of June ~~30, 2018,~~29, 2019, (in millions):



	Amortized Cost/ Carrying Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
Asset-backed securities	$	0.9	$	—	$	(0.3	)	$	0.6
Total available-for-sale securities	$	0.9	$	—	$	(0.3	)	$	0.6

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

U.S. treasuries $ 36.0
$ —
$ (0.1 ) $ 35.9
U.S. agencies 13.3
—
(0.1 ) 13.2
Municipal bonds and sovereign debt instruments 2.7
—
—
2.7
Asset-backed securities 23.9
—
(0.4 ) 23.5
Corporate securities 114.9
—
(0.6 ) 114.3
Total available-for-sale securities $ 190.8
$ —
$ (1.2 ) $ 189.6

As of June ~~30, 2018,~~29, 2019, of the ~~total~~ estimated fair value ~~$21.2 million was classified as cash equivalents, $167.7 million was classified as short-term investments and $0.7~~of $0.6 million was classified as other non-current assets.

In addition to the amounts presented above, as of June ~~30, 2018,~~29, 2019, the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were ~~$1.6~~$1.5 million, of which $0.4 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and ~~$0.9~~$0.8 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 the Company’s Consolidated Statements of Operations as a component of interest and other income, net.

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 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.

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.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

Level 3: includes financial instruments for which fair value is derived from ~~valuation based~~valuation-based inputs, that are unobservable and significant to the overall fair value measurement. As of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, the Company did not hold any Level 3 investment securities. As of ~~March 30,~~September 28, 2019, the fair value of the Company’s contingent liability was determined using Level 3 inputs, as discussed below.

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements

The following table presents assets and liabilities measured at fair value as of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, (in millions):


	March 30, 2019								June 30, 2018								September 28, 2019								June 29, 2019
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Debt available-for-sale securities
U.S. treasuries	$	1.5	$	1.5	$	—	$	—	$	35.9	$	35.9	$	—	$	—
U.S. agencies	3.5		—		3.5		—		13.2		—		13.2		—
Municipal bonds and sovereign debt instruments	1.7		—		1.7		—		2.7		—		2.7		—
Asset-backed securities	3.5		—		3.5		—		23.5		—		23.5		—		$	0.6	$	—	$	0.6	$	—	$	0.6	$	—	$	0.6	$	—
Corporate securities	16.0		—		16.0		—		114.3		—		114.3		—
Total debt available-for-sale securities	26.2		1.5		24.7		—		189.6		35.9		153.7		—		0.6		—		0.6		—		0.6		—		0.6		—
Money market funds	247.2		247.2		—		—		354.9		354.9		—		—		336.1		336.1		—		—		322.9		322.9		—		—
Trading securities	1.5		1.5		—		—		1.6		1.6		—		—		1.5		1.5		—		—		1.5		1.5		—		—
Foreign currency forward contract ⁽¹⁾⁽³⁾	4.1		—		4.1		—		2.7		—		2.7		—
Foreign currency forward contract ⁽¹⁾																	2.0		—		2.0		—		1.2		—		1.2		—
Total assets ⁽²⁾	$	279.0	$	250.2	$	28.8	$	—	$	548.8	$	392.4	$	156.4	$	—	$	340.2	$	337.6	$	2.6	$	—	$	326.2	$	324.4	$	1.8	$	—

Liability:
Foreign currency forward contract ⁽³⁾	$	2.4	$	—	$	2.4	$	—	$	11.7	$	—	$	11.7	$	—
Foreign currency forward contract ⁽¹⁾⁽³⁾																	$	4.6	$	—	$	4.6	$	—	$	4.0	$	—	$	4.0	$	—
Contingent consideration ⁽⁴⁾	38.8		—		—		38.8		—		—		—		—		40.1		—		—		40.1		38.4		—		—		38.4
Total liabilities	$	41.2	$	—	$	2.4	$	38.8	$	11.7	$	—	$	11.7	$	—	$	44.7	$	—	$	4.6	$	40.1	$	42.4	$	—	$	4.0	$	38.4


⁽¹⁾	$~~4.1~~2.0 million and ~~$2.7~~$1.2 million in prepayments and other current assets on the Company’s Consolidated Balance Sheets as of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, respectively.

⁽²⁾

$~~235.6~~328.7 million in cash and cash equivalents, ~~$27.1~~$1.5 million in short-term investments, ~~$7.7~~$3.5 million in restricted cash, ~~$4.1~~$2.0 million in prepayments and other current assets, and $4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets as of ~~March 30,~~September 28, 2019. ~~$364.8~~$315.5 million in cash and cash equivalents, ~~$169.3~~$1.5 million in short-term investments, ~~$7.3~~$3.5 million in restricted cash, ~~$2.7~~$1.2 million in other current assets, and ~~$4.7~~$4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets as of June ~~30, 2018.~~29, 2019.


⁽³⁾	$~~2.4~~4.6 million and ~~$11.7~~$4.0 million in other current liabilities on the Company’s Consolidated Balance Sheets as of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, respectively.

⁽⁴⁾

$1.7 million and $0.7 million in Other current liabilities on the Company’s Consolidated Balance Sheets as of September 28, 2019 and June 29, 2019, respectively. $38.4 million and $37.7 million in Other non-current liabilities on the Company’s Consolidated Balance Sheets as of September 28, 2019 and June 29, 2019, respectively. Refer to “Note 6. Acquisitions” of the Notes to Consolidated Financial Statements for more detail.

The Company’s Level 3 liabilities as of September 28, 2019, consist of contingent purchase consideration. The Company has aggregate contingent liabilities related to its acquisitions. The earn-out liabilities represent future payments by the Company of up to $63.0 million over four years, that are contingent on the achievement of certain revenue and gross profit targets. As of September 28, 2019, the aggregate fair value of our contingent consideration was $40.1 million. The fair value of earn-out liabilities were determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected financial forecast of the acquired business over the earn-out period. The fair value of contingent consideration liabilities is remeasured at each reporting period at the estimated fair value based on the input on the date of remeasurement, with the change in fair value recognized in Selling, General and Administrative expense of the Consolidated Statements of Operations.

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of changes in fair value of the Company’s Level 3 liabilities for the three months ended September 28, 2019 (in millions):



	Contingent Consideration
Balance as of June 29, 2019	$	38.4
Change in fair value of contingent consideration liabilities	1.7
Balance as of September 28, 2019	$	40.1

NaN payments were made in connection with the Company’s contingent earn-out liabilities during the three months ended September 28, 2019.

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 ~~March 30,~~September 28, 2019, the Company had forward contracts that were effectively closed but not settled with the counterparties by quarter end. Therefore, the fair value of these contracts of ~~$4.1~~$2.0 million and ~~$2.4~~$4.6 million is reflected as prepayments and other current assets and other current liabilities, respectively. As of June ~~30, 2018,~~29, 2019, the fair value of these contracts of ~~$2.7~~$1.2 million and ~~$11.7~~$4.0 million is reflected as prepayments and other current assets and other current liabilities, respectively.

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~~VIAVI SOLUTIONS INC.~~

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

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 ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, the notional amounts of the forward contracts the Company held to purchase foreign currencies were ~~$130.8~~$116.0 million and ~~$167.5~~$117.8 million, respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were ~~$31.7~~$33.7 million and ~~$28.6~~$31.3 million, respectively.

The change in the fair value of foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of interest and other income, net. The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities. The foreign exchange forward contracts incurred a ~~gain~~loss of ~~$1.7~~$2.6 million and ~~a loss of $4.1~~$1.3 million for the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 ~~respectively. The foreign exchange forward contracts incurred a gain of $3.9 million~~ and ~~$8.1 million~~ ~~for the three and nine months ended March 31,~~September 29, 2018, respectively.

~~Contingent consideration~~

In connection with the RPC acquisition, the Company assumed contingent liability which represents potential future earn-out payments, of up to $53.0 million in cash. See “Note 6. Acquisitions” of the Notes to Consolidated Financial Statements for additional information related to our acquisitions. The earn-out payments are based on the achievement of certain gross profit targets over approximately a four-year period. The achievement or distributions of earn-out payments are not limited in any one period. The estimated fair value of the contingent consideration portion of the earn-out is $36.2 million as of March 30, 2019, which was determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-free rate, risk-adjusted discount rate, the volatility of the underlying financial metrics and projected gross profits of RPC over the earn-out period. The fair value 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 to be recognized within the operating section of our Consolidated Statements of Operations. Projected gross profits are based on our internal projections, although these estimates are based on management’s best knowledge of current events, the estimates could change significantly from period to period. Any changes to the significant unobservable inputs used, including the change in the forecast of gross profit for the earn out periods, may result in a change in fair value of contingent consideration and could have a material impact on future results of operations. Actual payment of contingent consideration in the future could be different from the current estimated fair value of the contingent consideration.

In connection with its asset acquisitions, the Company assumed an earn-out liability for future cash payments with a fair value of $2.6 million. See “Note 6. Acquisitions” of the Notes to Consolidated Financial Statements for additional information related to our acquisitions. The earn-out payments are based on the achievement of revenue and certain operating targets over approximately a three-year period.

~~There was no change in fair value of contingent liability during the three and nine months ended March 30, 2019.~~

Note 9. Goodwill

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



	Network Enablement			Service Enablement		Optical Security and Performance Products		Total
Balance as of June 29, 2019	$	338.9		$	—	$	42.2	$	381.1
Currency translation adjustments	(4.4		)	—		—		(4.4		)
Balance as of September 28, 2019	$	334.5		$	—	$	42.2	$	376.7

Network Enablement Service Enablement
Optical Security
and Performance
Products
Total
Balance as of June 30, 2018 $ 328.0
$ —
$ 8.3
$ 336.3
Acquisitions ⁽¹⁾
—
—
33.9
33.9
Other 3.6
—
—
3.6
Currency translation adjustments (1.9 ) —
—
(1.9 )
Balance as of March 30, 2019 $ 329.7
$ —
$ 42.2
$ 371.9

⁽¹⁾ ~~See “Note 6. Acquisitions” of the Notes to Consolidated Financial Statements for more detail.~~

The Company 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 the asset may be impaired. In the fourth quarter of fiscal ~~2018,~~2019, the Company reviewed goodwill under the 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 existed.

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

There were no events or changes in circumstances which triggered an impairment review during the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019.

Note 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 March 30, 2019	Gross Carrying Amount		Accumulated Amortization			Net
As of September 28, 2019								Gross Carrying Amount		Accumulated Amortization			Net
Acquired developed technology	$	487.0	$	(356.0	)	$	131.0	$	433.9	$	(317.8	)	$	116.1
Customer relationships	188.7		(121.3		)	67.4		192.0		(132.6		)	59.4
Other ⁽¹⁾	37.2		(17.1		)	20.1		35.5		(19.2		)	16.3
Total intangibles	$	712.9	$	(494.4	)	$	218.5	$	661.4	$	(469.6	)	$	191.8



As of June 29, 2019	Gross Carrying Amount		Accumulated Amortization			Net
Acquired developed technology	$	437.0	$	(311.1	)	$	125.9
Customer relationships	193.7		(126.3		)	67.4
Other ⁽¹⁾	36.1		(17.8		)	18.3
Total intangibles	$	666.8	$	(455.2	)	$	211.6

As of June 30, 2018 Gross Carrying Amount Accumulated Amortization Net
Acquired developed technology $ 447.8
$ (326.4 ) $ 121.4
Customer relationships 175.4
(97.1 ) 78.3
In-process research and development 9.0
—
9.0
Other ⁽¹⁾
42.8
(16.4 ) 26.4
Total intangibles $ 675.0
$ (439.9 ) $ 235.1


⁽¹⁾	Other intangibles consist of customer backlog, non-competition agreements, patents, proprietary know-how and trade secrets, trademarks and trade names.

In connection with the AW acquisition, the Company recorded an IPR&D asset, at its fair value and subsequently accounts for it as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development projects. During the three months ended March 30, 2019, the IPR&D activities were completed and transferred to developed technology, with an estimated useful life of 6 years.

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



	Three Months Ended
	September 28, 2019		September 29, 2018
Cost of revenues	$	8.4	$	9.4
Operating expenses	8.7		9.8
Total amortization of intangible assets	$	17.1	$	19.2

Three Months Ended Nine Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Cost of revenues $ 7.9
$ 6.2
$ 25.8
$ 14.4
Operating expenses 9.2
4.5
29.4
11.0
Total amortization of intangible assets $ 17.1
$ 10.7
$ 55.2
$ 25.4

Based on the carrying amount of acquired developed technology, customer relationships and other intangibles as of ~~March 30,~~September 28, 2019, and assuming no future impairment of the underlying assets, the estimated future amortization is as follows (in millions):

Fiscal Years
Remainder of 2019 $ 17.1
2020 66.2
2021 61.9
2022 35.2
2023 21.3
Thereafter 16.8
Total amortization $ 218.5

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~~VIAVI SOLUTIONS INC.~~

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



Fiscal Years
Remainder of 2020	$	50.0
2021	62.7
2022	36.8
2023	23.0
2024	9.2
Thereafter	10.1
Total amortization	$	191.8

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

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11. Debt

As of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, the Company’s ~~short and~~ long-term debt on the Consolidated Balance Sheets represented the carrying amount of the liability component of the Senior Convertible Notes, net of unamortized debt discounts and issuance ~~cost, of the Senior Convertible Notes.~~costs.

The following table presents the carrying amounts of the liability and equity components of our debt (in millions):



	September 28, 2019			June 29, 2019
Principal amount of 1.00% Senior Convertible Notes	$	460.0		$	460.0
Principal amount of 1.75% Senior Convertible Notes	225.0			225.0
Unamortized discount of liability component	(94.7		)	(99.8		)
Unamortized debt issuance cost	(6.0		)	(6.4		)
Carrying amount of liability component	$	584.3		$	578.8

Carrying amount of equity component ⁽¹⁾	$	136.8		$	136.8

March 30, 2019 June 30, 2018
Principal amount of 0.625% Senior Convertible Notes $ —
$ 277.0
Principal amount of 1.00% Senior Convertible Notes 460.0
460.0
Principal amount of 1.75% Senior Convertible Notes 225.0
225.0
Unamortized discount of liability component (104.8 ) (121.1 )
Unamortized debt issuance cost (6.7 ) (7.7 )
Carrying amount of liability component $ 573.5
$ 833.2
Current portion of long-term debt $ —
$ 275.3
Long-term debt, net of current portion $ 573.5
$ 557.9

Carrying amount of equity component ⁽¹⁾
$ 136.7
$ 239.1


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

The Company was in compliance with all debt covenants as of ~~March 30,~~September 28, 2019 and June ~~30, 2018.~~29, 2019.

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 (the “Exchange Transaction”) 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 carrying value of the liability component at issuance was calculated as the present value of its cash flows using a discount rate of 5.3% based on the 5-year swap rate plus credit spread as of the issuance date. As of ~~March 30,~~September 28, 2019, the expected remaining term of the 2023 Notes is ~~4.2~~3.7 years.

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. The 2023 Notes mature on June 1, 2023 unless earlier converted, redeemed or repurchased.

Based on quoted market prices as of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, the fair value of the 2023 Notes was approximately ~~$249.0~~$271.8 million and ~~$232.4~~$261.3 million, respectively. The 2023 Notes are classified within Level 2 as they are not actively traded in markets.

1.00% Senior Convertible Notes (“2024 Notes”)

On March 3, 2017, the Company issued $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 $60.0 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. The 2024 Notes mature on March 1, 2024 unless earlier converted or repurchased. The carrying value of the liability

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

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. As of ~~March 30,~~September 28, 2019, the expected remaining term of the 2024 Notes is ~~4.9~~4.4 years.

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Based on quoted market prices as of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, the fair value of the 2024 Notes was approximately ~~$518.0~~$567.0 million and ~~$465.3~~$540.8 million, respectively. The 2024 Notes are classified within Level 2 as they are not actively traded in markets.

0.625% Senior Convertible Notes (“2033 Notes”)

On August 15, 2018, certain holders of the 2033 Notes issued in August 2013 exercised the put option and an aggregate principal amount of $134.3 million of the 2033 Notes was validly surrendered for repurchase. The Company accepted all such notes for payment with available cash. On September 5, 2018, the Company elected to exercise its optional redemption right to redeem all $142.7 million aggregate principal amount of its outstanding 2033 Notes. The date fixed for the redemption of the Notes was October 10, 2018 (Redemption Date). In connection with the redemption, holders of $112.0 million aggregate principal amount of Notes converted their Notes in accordance with the terms and conditions of the Notes. Note holders who converted their notes received an aggregate payout of $111.8 million in cash and were issued 231,795 shares of the Company’s common stock. The Company redeemed the remaining $30.7 million aggregate principal amount of outstanding Notes in accordance with its notice of redemption dated September 5, 2018. The Company paid to the registered holders of the Notes that were redeemed an aggregate amount of approximately $30.8 million, including accrued and unpaid interest up to, but excluding, the Redemption Date. As of ~~March 30,~~September 28, 2019 and June 29, 2019, none of the 2033 Notes remain outstanding.

~~Based on quoted market prices as of June 30, 2018, the fair value of the 2033 Notes was approximately $281.0 million.~~

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
	September 28, 2019		September 29, 2018
Interest expense-contractual interest	$	2.1	$	2.5
Amortization of debt issuance cost	0.3		0.4
Accretion of debt discount	5.1		6.5

Three Months Ended Nine Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Interest expense-contractual interest $ 2.1
$ 1.8
$ 6.6
$ 5.7
Amortization of debt issuance cost 0.3
0.6
1.1
1.9
Accretion of debt discount 4.8
8.2
16.3
25.6

Note 12. Leases

The Company is a lessee in several operating leases, primarily real estate facilities for office space. The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for our operating leases, the Company uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. The lease term is the non-cancelable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. Operating ROU assets are recognized at commencement based on the amount of the initial measurement of the lease liability. Operating ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives. Lease expense is recognized on a straight-line basis over the lease term.

Operating ROU assets are included in other non-current assets and lease liabilities are included in other current liabilities and other non-current liabilities in the Company’s consolidated balance sheets. Lease and non-lease components for all leases are accounted for separately. The Company does not recognize ROU assets and lease liabilities for leases with a lease term of twelve months or less.

The Company's lease arrangements are composed of operating leases with various expiration dates through December 31, 2029. The Company's leases do not contain any material residual value guarantees.

For the three months ended September 28, 2019, the total operating lease cost was $3.3 million. Total variable lease costs were immaterial during the three months ended September 28, 2019. The total operating costs were included in cost of revenues, research and development, selling, general and administrative in the Company’s Consolidated Statements of Operations.

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of September 28, 2019, the weighted-average remaining lease term was 4.4 years, and the weighted-average discount rate was 4.8%.

For the three months ended September 28, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $3.4 million, and operating ROU assets obtained in exchange of new operating lease liabilities was $1.9 million.

The balance sheet information related to our operating leases is as follows (in millions):



	September 28, 2019
Other non-current assets	$	34.6
Total operating ROU assets	$	34.6

Other current liabilities	$	11.8
Other non-current liabilities	24.2
Total operating lease liabilities	$	36.0

Future minimum operating lease payments as of September 28, 2019 are as follows (in millions):



	Operating Leases
Remainder of 2020	$	9.1
2021	11.8
2022	7.9
2023	3.7
2024	2.3
Thereafter	5.1
Total lease payments	$	39.9
Less: Interest	(3.9		)
Present value of lease liabilities	$	36.0

Prior to the adoption of the new lease standard, future minimum undiscounted operating lease payments as of June 29, 2019, excluding non-lease components, we as follows (in millions):



	Operating Leases
Fiscal 2020	$	11.7
Fiscal 2021	10.8
Fiscal 2022	7.4
Fiscal 2023	3.9
Fiscal 2024	2.5
Thereafter	5.3
Less: sublease income	(0.1		)
Total lease payments	$	41.5

Table of Contents

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note ~~12.~~13. Restructuring and Related Charges

The Company has initiated restructuring events primarily intended to reduce its costs, consolidate its operations, integrate various acquisitions, streamline product manufacturing and align its business to address market conditions. The Company’s restructuring charges primarily include severance and benefit costs to eliminate a specific number of positions, facilities and equipment costs to vacate facilities and consolidate operations, and lease termination costs. The timing of associated cash payments is dependent upon the type of restructuring charge and can extend over multiple periods.

As of ~~March 30,~~September 28, 2019 and June ~~30, 2018,~~29, 2019, the Company’s total restructuring accrual was ~~$11.4~~$7.5 million and ~~$7.5~~$8.8 million, respectively. During the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 ~~the Company recorded restructuring~~ and ~~related charges of $0.9 million and $16.0 million, respectively. During the three and nine months ended March 31,~~September 29, 2018, the Company recorded restructuring and related charges of $0.3 million and ~~$4.3~~$14.8 million, respectively.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

Summary of Restructuring Plans

The following table presents the adjustments to the accrued restructuring expenses related to all of the Company’s restructuring plans described below for the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 (in millions):



	Balance June 29, 2019		Three Months Ended September 28, 2019 Charges		Cash Settlements			Non-cash Settlements and Other Adjustments⁽²⁾			Balance September 28, 2019
Fiscal 2019 Plan
NSE, including AW ⁽¹⁾	$	8.7	$	0.3	$	(1.0	)	$	(0.5	)	$	7.5
Plans Prior to Fiscal 2017
Other Plans ⁽¹⁾	0.1		—		—			(0.1		)	—
Total	$	8.8	$	0.3	$	(1.0	)	$	(0.6	)	$	7.5

Balance
June 30, 2018 Nine Months Ended March 30, 2019 Charges (Benefits)
Cash
Settlements

Non-cash Settlements
and Other Adjustments
Balance
March 30, 2019 Three Months Ended March 30, 2019 Charges (Benefits)
Fiscal 2019 Plan
NSE, including AW Restructuring Plan ⁽¹⁾
$ —
$ 16.7
$ (5.3 ) $ (0.3 ) $ 11.1
$ 1.6
Fiscal 2018 Plan
Trilithic Restructuring Plan ^{(1) (2)}
2.9
—
(2.9 ) —
—
—
Fiscal 2017 Plan
Focused NSE Restructuring Plan ^{(1) (2)}
1.9
0.1
(2.1 ) 0.1
—
—
Plans Prior to Fiscal 2017

NE Lease Restructuring Plan ⁽²⁾
1.2
(0.5 ) (0.7 ) —
—
(0.5 )
Other Plans ^{(1) (2)}
1.5
(0.3 ) (0.9 ) —
0.3
(0.2 )
Total $ 7.5
$ 16.0
$ (11.9 ) $ (0.2 ) $ 11.4
$ 0.9


⁽¹⁾	Plan type includes workforce reduction cost.


⁽²⁾	~~Plan type includes~~Other adjustments including $0.2 million lease ~~exit cost.~~liability reclassification to Operating lease liability upon ASC 842 adoption.

The long-term portion of our total restructuring liability for the ~~March 30,~~September 28, 2019 and June ~~30, 2018~~29, 2019 periods is ~~$0.7~~$0.1 million and ~~$0.1~~$0.2 million, respectively. The remaining portion has been included as a component of Other current liabilities on the Consolidated Balance Sheets.

Upon adoption of the new lease accounting standard in the first quarter of fiscal 2020, the remaining lease-related liabilities of $0.2 million associated with the NSE, Including AW Restructuring Plan and Other Plans were recognized as a reduction to the operating lease ROU assets.

Fiscal 2019 Plans

NSE, including AW Restructuring Plan

During the first quarter of fiscal 2019, Management approved restructuring and workforce reduction plans within its Network Service and Enablement (“NSE”) business, including actions related to the recently acquired AW business. These actions further drive the Company’s strategy for organizational alignment and consolidation as part of its continued commitment to a more cost effective and agile organization and to improve overall profitability in the Company’s NSE business. Included in these restructuring plans are specific actions to consolidate and integrate the newly acquired AW business within the NSE business segment. During the third quarter of fiscal 2019, the Company has updated the plan to include additional headcount primarily to transfer a portion of the manufacturing operations related to the recently acquired AW business to a contract manufacturer. ~~As a result, a total~~A restructuring charge of ~~$16.7~~$0.3 million was recorded in the ~~nine~~three months ended ~~March 30,~~September 28, 2019 for adjustments to severance and employee ~~benefits for approximately 253 employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia.~~benefits. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2020.

~~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, approximately 40 employees primarily in manufacturing, and SG&A functions located in the United States were impacted. Payments related to the severance and benefits accrual were paid by the end of the first quarter of fiscal 2019.

~~Plans Prior to Fiscal 2018 Plans~~

~~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 NSE business by narrowing the scope of the Service Enablement business and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reducing costs by streamlining NSE operations. In total, approximately 360 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 were paid by the end of the first quarter of fiscal 2019. In the first quarter of fiscal 2019, the Company exited the workspace in Vancouver, Canada under the plan. Payments related to the Vancouver lease costs were paid by the end of the second quarter of fiscal 2019.

~~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. Payments related to the Germantown lease costs were paid by the end of the third quarter of fiscal 2019.

~~As of March 30, 2019, the restructuring accrual for other plans that commenced prior to fiscal year 2017 was $0.3 million, which consists of immaterial accruals from various restructuring plans.~~

Note ~~13.~~14. Income Taxes

The Company recorded an income tax expense of ~~$5.6~~$8.3 million and ~~$22.2~~$5.7 million for the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 ~~respectively. The Company recorded income tax expense of $3.1 million~~ and ~~$4.3 million for the three and nine months ended March 31,~~September 29, 2018, respectively.

The income tax expense for the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 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 nine months ended March 31, 2018, this foreign and state tax is offset by a tax benefit of $2.0 million and $5.1 million, respectively, which was recorded in the Company’s income tax provision related to the income tax intraperiod allocation rules in relation to other comprehensive income.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. 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. This deemed repatriation was reported in the Company’s fiscal 2018 U.S. tax return. The Company completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries during the quarter ended December 29, 2018. The change in estimate did not materially impact the Company’s financial statements.

The income tax expense recorded differs from the expected tax benefit that would be calculated by applying the federal statutory rate to the Company’s loss 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, and due to the income tax benefit recorded in continuing operations under the income tax intraperiod allocation rules.~~operations.

As of ~~March 30,~~September 28, 2019, and June ~~30, 2018,~~29, 2019, the Company’s unrecognized tax benefits totaled ~~$53.3~~$50.4 million and ~~$48.6~~$50.9 million, respectively, and are included in deferred taxes and other non-current tax liabilities, net. The Company had ~~$2.0~~$3.4 million accrued for the payment of interest and penalties at ~~March 30,~~September 28, 2019. 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 $0.8 million.~~unable to estimate the full range of possible adjustments to this balance.

Note ~~14.~~15. Stockholders' Equity

Repurchase of Common Stock

In ~~February 2018,~~September 2019, the Board of Directors ~~increased the previously~~ authorized a stock repurchase program ~~from $150 million~~up to $200 ~~million.~~million of the Company’s common stock through open market or private transactions before September 30, 2021. The ~~Board also extended~~new stock repurchase replaces the ~~period during which repurchases could be made~~previous $200 million stock repurchase program that was set to expire on September 30, 2019. Under the ~~revised~~new repurchase ~~authorization,~~program, the Company may repurchase its common stock from time to time at the discretion of the Company’s management.

During the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019, the Company repurchased 42104 thousand ~~and 0.9 million~~ shares of its common stock for ~~$0.4 million and $9.0 million, respectively.~~$1.5 million. As of ~~March 30,~~September 28, 2019, the Company had remaining authorization of ~~$53.7~~$198.5 million for future share repurchases. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including business and financial market conditions.

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~~VIAVI SOLUTIONS INC.~~

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

Note ~~15.~~16. Stock-Based Compensation

Overview

The impact on the Company’s results of operations of recording stock-based compensation by function for the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, as follows (in millions):



	Three Months Ended
	September 28, 2019		September 29, 2018
Cost of revenues	$	1.0	$	0.8
Research and development	1.7		1.2
Selling, general and administrative	7.6		6.1
Total stock-based compensation expense	$	10.3	$	8.1

Three Months Ended Nine Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Cost of revenues $ 1.1
$ 0.8
$ 2.8
$ 2.4
Research and development 1.6
1.2
4.4
3.7
Selling, general and administrative 8.1
5.6
21.3
16.7
Total stock-based compensation expense $ 10.8
$ 7.6
$ 28.5
$ 22.8

Approximately $1.0 million and ~~$0.8~~$0.9 million of stock-based compensation expense was capitalized to inventory as of ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, respectively.

Full Value Awards

Full Value Awards refer to restricted stock units that are granted without an exercise price and are converted to shares immediately upon vesting. Performance-based awards are performance-based with market conditions, performance conditions, time-based or a combination, and are expected to vest over one 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 ~~nine~~three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, the Company granted ~~3.8~~2.9 million and ~~3.1~~3.4 million time-based awards, respectively. The fair value of the time-based Full Value Awards is based on the closing market price of the Company’s common stock on the 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.

During the ~~nine~~three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, the Company granted 0.5 million and ~~0.6~~0.5 million, 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of the relevant performance conditions. The shares attained over target upon vesting are reflected as awards granted during the period. Accordingly, during the ~~nine~~three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, the Company granted additional ~~0.1~~0.2 million and ~~0.2~~0.1 million shares due to performance-based shares attained over target. The aggregate grant-date fair value of performance-based awards granted during the ~~nine~~three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 were estimated to be ~~$6.2~~$7.7 million and ~~$6.1~~$6.2 million, respectively. The majority of performance-based awards vest in equal annual installments over three 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.

As of ~~March 30,~~September 28, 2019, ~~$58.5~~$78.1 million of unrecognized stock-based compensation cost related to Full Value Awards remains to be amortized. That cost is expected to be recognized over an estimated amortization period of ~~1.8~~2.1 years.

Note ~~16.~~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.”) 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 in fiscal 2010. Benefits are generally based upon years of service and compensation or stated amounts for each year of service.

As of ~~March 30,~~September 28, 2019, the U.K. ~~and AW plans were~~plan was partially 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

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~~VIAVI SOLUTIONS INC.~~

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

unfunded plans, the Company pays the post-retirement benefits when due. During the ~~nine~~three months ended ~~March 30,~~September 28, 2019, the Company contributed ~~$0.7~~$0.6 million to the U.K. ~~plan.~~plan and $0.9 million to the other plans. The funded plan assets consist primarily of managed investments.

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



	Three Months Ended
	September 28, 2019			September 29, 2018
Service cost	$	0.1		$	—
Interest cost	0.4			0.6
Expected return on plan assets	(0.4		)	(0.4		)
Amortization of net actuarial losses	0.7			0.6
Net periodic benefit cost	$	0.8		$	0.8

Three Months Ended Nine Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Service cost $ —
$ —
$ 0.1
$ —
Interest cost 0.6
0.7
1.8
2.1
Expected return on plan assets (0.4 ) (0.4 ) (1.2 ) (1.2 )
Amortization of net actuarial losses 0.5
0.3
1.5
1.2
Net periodic benefit cost $ 0.7
$ 0.6
$ 2.2
$ 2.1

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 Company expects to incur cash outlays of approximately ~~$7.6~~$7.8 million related to its defined benefit pension plans during fiscal ~~2019~~2020 to make current benefit payments and fund future obligations. As of ~~March 30,~~September 28, 2019, approximately ~~$4.2~~$1.5 million had been incurred. These payments have been estimated based on the same assumptions used to measure the Company’s projected benefit obligation at June ~~30, 2018.~~29, 2019.

Note ~~17.~~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 the likelihood of loss to be probable and accrued £5.7 million as of July 2, 2016 in accordance with authoritative guidance on contingencies. The accrual is included in pension and post-employment benefits, which is a component of other non-current liabilities in the Company’s Consolidated Balance Sheets.

The Company pursued an appeal of the court decision. In March 2018, the appellate court affirmed the decision of the lower court. The Company is pursuing a deed of rectification claim and continues to pursue a claim against the U.K. law firm responsible for the error. As of ~~March 30,~~September 28, 2019, the related accrued pension liability was ~~£5.9~~£6.5 million or ~~$7.7~~$8.0 million.

The Company is 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 the Company, individually or in aggregate,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 follows authoritative guidance which requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. In addition, disclosures about the guarantees that an entity has issued, including a tabular reconciliation of the changes of the entity’s product warranty liabilities, are required.

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

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~~VIAVI SOLUTIONS INC.~~

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

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 no0 liabilities have been recorded for these obligations on the Consolidated Balance Sheets as of ~~March 30,~~September 28, 2019 and June ~~30, 2018.~~

Pursuant to the Separation and Distribution Agreement dated as of July 31, 2015 between the Company and Lumentum Holdings Inc. (“Lumentum”), the Company is required to indemnify Lumentum and its subsidiaries for certain specified tax liabilities. During the second quarter of fiscal 2019, the Ontario Ministry of Finance denied the Company’s appeal of an assessment of the applicable tax liabilities at which time the Company recorded a charge of $2.4 million to its discontinued operations.29, 2019.

Outstanding Letters of Credit and Performance Bonds

As of ~~March 30,~~September 28, 2019, the Company had standby letters of credit of ~~$11.6~~$7.4 million and performance bonds of ~~$1.5~~$0.9 million collateralized by restricted cash.

Product Warranties

The Company provides reserves for the estimated costs of product warranties at the time revenue is recognized. In general, the Company offers its customers warranties up to ~~three-years~~three years and has accrued a reserve for the estimated costs of product warranties at the time revenue is recognized. It 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. From time to time, specific warranty accruals may be made if unforeseen technical problems arise. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

The following table presents the changes in the Company’s warranty reserve during the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, (in millions):



	Three Months Ended
	September 28, 2019			September 29, 2018
Balance as of beginning of period	$	8.7		$	8.2
Provision for warranty	0.4			0.4
Utilization of reserve	(1.0		)	(1.2		)
Adjustments related to pre-existing warranties (including changes in estimates)	0.7			1.6
Balance as of end of period	$	8.8		$	9.0

Three Months Ended Nine Months Ended
March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018
Balance as of beginning of period $ 9.2
$ 6.8
$ 8.2
$ 5.8
Provision for warranty 1.7
0.8
3.1
3.0
Utilization of reserve (1.7 ) (0.6 ) (4.4 ) (4.1 )
Adjustments related to pre-existing warranties (including changes in estimates) (0.6 ) 0.2
1.7
2.2
Acquisition related ⁽¹⁾
—
1.0
—
1.3
Balance as of end of period $ 8.6

$ 8.2
$ 8.6
$ 8.2

⁽¹⁾~~See “Note 6. Acquisitions” of the Notes to Consolidated Financial Statements for details related to our acquisitions.~~

Note ~~18.~~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 is the Company’s Chief Operating Decision Maker (“CODM”), use operating segment financial information to evaluate segment performance and to allocate resources.

The Company’s reportable segments are:

(i) Network Enablement:

NE provides testing solutions that access the network to perform build-out and maintenance tasks. These solutions include instruments, software and services to design, build, activate, certify, troubleshoot and optimize networks. The Company also offers a range of product support and professional services such as repair, calibration, software support and technical assistance for our products.

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

(ii) Service Enablement:

SE solutions are embedded systems that yield 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 provides innovative, precision, high performance optical products for anti-counterfeiting, government, industrial, automotive and consumer electronic markets, including 3D Sensing applications.

The CODM manages the Company in ~~two~~2 broad business categories: NSE and OSP. The CODM evaluates segment performance of the NSE business based on the combined segment gross and operating margins. Operating expenses associated with the NSE business are not allocated to the 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 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, or other charges unrelated to core operating performance to its segments because management does not include this information in its measurement of the performance of the operating segments. These items are presented as “Other Items” in the table below. Additionally, the Company does not specifically identify and allocate all assets by operating segment.

~~The following tables presents information on the Company’s reportable segments~~ ~~(in millions):~~

Three Months Ended March 30, 2019
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Other Items Consolidated GAAP Measures
Product revenue $ 160.8
$ 11.6
$ 172.4
$ 59.7
$ —
$ 232.1
Service revenue 19.7
13.3
33.0
0.1
—
33.1
Net revenue $ 180.5
$ 24.9
$ 205.4
$ 59.8
$ —
$ 265.2

Gross profit $ 115.8
$ 15.9
$ 131.7
$ 30.8
$ (9.0 ) $ 153.5
Gross margin 64.2 % 63.9 % 64.1 % 51.5 % 57.9 %

Operating income $ 20.7
$ 18.3
$ (31.1 ) $ 7.9
Operating margin 10.1 % 30.6 % 3.0 %

Three Months Ended March 31, 2018
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Other Items Consolidated GAAP Measures
Product revenue $ 116.0
$ 15.4
$ 131.4
$ 61.8
$ —
$ 193.2
Service revenue 10.5
14.5
25.0
0.5
—
25.5
Net revenue $ 126.5
$ 29.9
$ 156.4
$ 62.3
$ —
$ 218.7

Gross profit $ 80.4
$ 20.8
$ 101.2
$ 32.8
$ (10.7 ) $ 123.3
Gross margin 63.6 % 69.6 % 64.7 % 52.6 % 56.4 %

Operating income $ 9.5
$ 23.7
$ (32.8 ) $ 0.4
Operating margin 6.1 % 38.0 % 0.2 %

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables presents information on the Company’s reportable segments (in millions):

Three Months Ended
March 30, 2019 March 31, 2018
Corporate reconciling items impacting gross profit:
Total segment gross profit $ 162.5
$ 134.0
Stock-based compensation (1.1 ) (0.8 )
Amortization of intangibles (7.9 ) (6.2 )
Other charges unrelated to core operating performance ⁽¹⁾
—
(3.7 )
GAAP gross profit $ 153.5
$ 123.3

Corporate reconciling items impacting operating income:
Total segment operating income $ 39.0
$ 33.2
Stock-based compensation (10.8 ) (7.6 )
Amortization of intangibles (17.1 ) (10.7 )
Other charges unrelated to core operating performance ⁽²⁾
(2.3 ) (14.2 )
Restructuring and related charges (0.9 ) (0.3 )
GAAP operating income $ 7.9
$ 0.4



	Three Months Ended September 28, 2019
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items			Consolidated GAAP Measures
Product revenue	$	177.2		$	7.7		$	184.9		$	79.8		$	—		$	264.8
Service revenue	21.7			13.2			34.9			0.2			—			35.0
Net revenue	$	198.9		$	20.9		$	219.8		$	80.0		$	—		$	299.8

Gross profit	$	128.0		$	12.6		$	140.6		$	43.3		$	(9.5	)	$	174.4
Gross margin	64.4		%	60.3		%	64.0		%	54.1		%				58.2		%

Operating income							$	22.3		$	30.4		$	(32.0	)	$	20.7
Operating margin							10.1		%	38.0		%				6.9		%


⁽¹⁾	During the three months ended March 31, 2018, other charges unrelated to core operating performance primarily consisted of acquisition and integration related expenses such as amortization of acquisition related inventory step-up, site consolidations and reorganizations.

⁽²⁾

During the three months ended March 30, 2019 and March 31, 2018, other charges unrelated to core operating performance primarily consisted of acquisition and integration related transformational initiatives such as the implementation of simplified automated processes, site consolidation and reorganizations, amortization of acquisition related inventory step-up, and loss on disposal of long-lived assets.


	Nine Months Ended March 30, 2019																		Three Months Ended September 29, 2018
	Network and Service Enablement																		Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items			Consolidated GAAP Measures			Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items			Consolidated GAAP Measures
Product revenue	$	486.7		$	39.0		$	525.7		$	220.3		$	—		$	746.0		$	149.9		$	13.6		$	163.5		$	77.6		$	—		$	241.1
Service revenue	53.8			40.3			94.1			0.5			—			94.6			14.6			12.6			27.2			0.2			—			27.4
Net revenue	$	540.5		$	79.3		$	619.8		$	220.8		$	—		$	840.6		$	164.5		$	26.2		$	190.7		$	77.8		$	—		$	268.5

Gross profit	$	344.4		$	54.5		$	398.9		$	112.0		$	(29.0	)	$	481.9		$	102.9		$	18.3		$	121.2		$	39.4		$	(10.2	)	$	150.4
Gross margin	63.7		%	68.7		%	64.4		%	50.7		%				57.3		%	62.6		%	69.8		%	63.6		%	50.6		%				56.0		%

Operating income							$	69.9		$	76.8		$	(107.1	)	$	39.6								$	16.4		$	27.4		$	(45.0	)	$	(1.2	)
Operating margin							11.3		%	34.8		%				4.7		%							8.6		%	35.2		%				(0.4		)%



	Three Months Ended
	September 28, 2019			September 29, 2018
Corporate reconciling items impacting gross profit:
Total segment gross profit	$	183.9		$	160.6
Stock-based compensation	(1.0		)	(0.8		)
Amortization of intangibles	(8.4		)	(9.4		)
Other charges unrelated to core operating performance	(0.1		)	—
GAAP gross profit	$	174.4		$	150.4

Corporate reconciling items impacting operating income:
Total segment operating income	$	52.7		$	43.8
Stock-based compensation	(10.3		)	(8.1		)
Amortization of intangibles	(17.1		)	(19.2		)
Other charges unrelated to core operating performance ⁽¹⁾	(4.3		)	(2.9		)
Restructuring and related charges	(0.3		)	(14.8		)
GAAP operating income	$	20.7		$	(1.2	)

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Nine Months Ended March 31, 2018
Network and Service Enablement
Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Other Items Consolidated GAAP Measures
Product revenue $ 333.3
$ 43.1
$ 376.4
$ 163.2
$ —
$ 539.6
Service revenue 26.8
46.9
73.7
1.7
—
75.4
Net revenue $ 360.1
$ 90.0
$ 450.1
$ 164.9
$ —
$ 615.0

Gross profit $ 225.1
$ 63.2
$ 288.3
$ 90.4
$ (23.3 ) $ 355.4
Gross margin 62.5 % 70.2 % 64.1 % 54.8 % 57.8 %

Operating income $ 24.6
$ 63.3
$ (73.9 ) $ 14.0
Operating margin 5.5 % 38.4 % 2.3 %

Nine Months Ended
March 30, 2019 March 31, 2018
Corporate reconciling items impacting gross profit:
Total segment gross profit $ 510.9
$ 378.7
Stock-based compensation (2.8 ) (2.4 )
Amortization of intangibles (25.8 ) (14.4 )
Other charges unrelated to core operating performance ⁽¹⁾
(0.4 ) (6.5 )
GAAP gross profit $ 481.9
$ 355.4

Corporate reconciling items impacting operating income:
Total segment operating income $ 146.7
$ 87.9
Stock-based compensation (28.5 ) (22.8 )
Amortization of intangibles (55.2 ) (25.4 )
Other charges unrelated to core operating performance ⁽²⁾
(7.4 ) (21.4 )
Restructuring and related charges (16.0 ) (4.3 )
GAAP operating income (loss) from continuing operations
$ 39.6
$ 14.0


⁽¹⁾	During the ~~nine~~three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018, other charges unrelated to core operating performance primarily consisted of certain acquisition and integration related ~~expenses such as amortization of acquisition related inventory step-up, site consolidations and reorganizations.~~

⁽²⁾

~~During the nine months ended March 30, 2019 and March 31, 2018, other charges unrelated to core operating performance primarily consisted of acquisition and integration related~~changes, transformational initiatives such as, ~~the implementation~~site consolidations, and reorganization, loss on sale of ~~simplified automated processes, site consolidation and reorganizations, amortization of acquisition related inventory step-up,~~investments and loss on disposal of long-lived assets.

~~Table of Contents~~

~~VIAVI SOLUTIONS INC.~~

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

The Company operates primarily in ~~three~~3 geographic regions: Americas, Asia-Pacific, and Europe, Middle East and Africa (“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~~3 geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue, (in millions):



	Three Months Ended
	September 28, 2019						September 29, 2018
	Product Revenue		Service Revenue		Total		Product Revenue		Service Revenue		Total
Americas:
United States	$	71.4	$	13.6	$	85.0	$	60.1	$	12.7	$	72.8
Other Americas	16.6		4.1		20.7		17.9		3.1		21.0
Total Americas	$	88.0	$	17.7	$	105.7	$	78.0	$	15.8	$	93.8

Asia-Pacific:
Greater China	$	70.5	$	1.4	$	71.9	$	58.7	$	0.2	$	58.9
Other Asia	31.3		4.0		35.3		36.0		3.5		39.5
Total Asia-Pacific	$	101.8	$	5.4	$	107.2	$	94.7	$	3.7	$	98.4

EMEA:
Switzerland	$	12.2	$	—	$	12.2	$	25.7	$	—	$	25.7
Other EMEA	62.8		11.9		74.7		42.7		7.9		50.6
Total EMEA	$	75.0	$	11.9	$	86.9	$	68.4	$	7.9	$	76.3

Total net revenue	$	264.8	$	35.0	$	299.8	$	241.1	$	27.4	$	268.5

Three Months Ended
March 30, 2019 March 31, 2018
Product Revenue Service Revenue Total Product Revenue Service Revenue Total
Americas:
United States $ 63.4
$ 13.7
$ 77.1
$ 66.8
$ 12.1
$ 78.9
Other Americas 14.4
3.7
18.1
13.9
3.0
16.9
Total Americas $ 77.8
$ 17.4
$ 95.2
$ 80.7
$ 15.1
$ 95.8

Asia-Pacific:

Greater China $ 36.5
$ 2.9
$ 39.4
$ 37.7
$ 0.5
$ 38.2
Other Asia 41.0
2.9
43.9
22.6
2.7
25.3
Total Asia-Pacific $ 77.5
$ 5.8
$ 83.3
$ 60.3
$ 3.2
$ 63.5

EMEA:

Switzerland $ 23.9
$ —
$ 23.9
$ 15.9
$ —
$ 15.9
Other EMEA 52.9
9.9
62.8
36.3
7.2
43.5
Total EMEA $ 76.8
$ 9.9
$ 86.7
$ 52.2
$ 7.2
$ 59.4

Total net revenue $ 232.1
$ 33.1
$ 265.2
$ 193.2
$ 25.5
$ 218.7

Nine Months Ended
March 30, 2019 March 31, 2018
Product Revenue Service Revenue Total Product Revenue Service Revenue Total
Americas:
United States $ 213.3
$ 40.7
$ 254.0
$ 207.9
$ 38.9
$ 246.8
Other Americas 49.6
10.8
60.4
46.0
11.6
57.6
Total Americas $ 262.9
$ 51.5
$ 314.4
$ 253.9
$ 50.5
$ 304.4

Asia-Pacific:
Greater China $ 160.0
$ 5.2
$ 165.2
$ 88.8
$ 1.5
$ 90.3
Other Asia 107.4
�� 10.0
117.4
51.6
4.7
56.3
Total Asia-Pacific $ 267.4
$ 15.2
$ 282.6
$ 140.4
$ 6.2
$ 146.6

EMEA:
Switzerland $ 72.6
$ —
$ 72.6
$ 56.4
$ —
$ 56.4
Other EMEA 143.1
27.9
171.0
88.9
18.7
107.6
Total EMEA $ 215.7
$ 27.9
$ 243.6
$ 145.3
$ 18.7
$ 164.0

Total net revenue $ 746.0
$ 94.6
$ 840.6
$ 539.6
$ 75.4
$ 615.0

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

Forward-Looking Statements

Statements contained in this Quarterly 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,” “believes,” “can,” “can impact,” “could,” “continue,” “estimates,” “expects,” “intends,” “may,” “ongoing,” “plans,” “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 such as:

Our expectations regarding demand for our products, including 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, 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 and pricing 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 ~~including expectations regarding synergies, savings or benefits~~ relating to investments, acquisitions, partnerships and other strategic opportunities;

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


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

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 June ~~30, 2018.~~29, 2019.

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

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 to communications service providers (“CSPs”), enterprises, network equipment manufacturers, ~~civil governments, military~~government and ~~avionics~~avionics. We help these customers ~~supported by a worldwide channel community including VIAVI Velocity Solution Partners (“Velocity”). Our Velocity program allows us~~harness the power of instruments, automation, intelligence and virtualization to ~~optimize~~command the use of direct or partner sales, depending on application 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.network. VIAVI is also a leader in ~~high performance thin film optical coatings, providing~~ light management solutions tofor 3D sensing, anti-counterfeiting, ~~3D Sensing,~~consumer electronics, industrial, automotive, ~~consumer~~ and ~~industrial, government,~~ defense ~~healthcare and other markets.~~applications.

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

Network Enablement (“NE”);

Service Enablement (“SE”), and;

Optical Security and Performance Products (“OSP”).

Network Enablement

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, certify, troubleshoot and optimize networks. They also support more profitable, higher-performing networks and facilitate time-to-revenue.

Our solutions address lab and production environments, field deployment and service assurance for wireless and fixed communications networks, including storage networks. Our test instrument portfolio is one of the largest in the industry, with hundreds of thousands of units in active use by major network equipment manufacturers (“NEMs”), operators 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 performance of network elements and segments and verify the integrity of the information being transmitted across the network. These instruments are highly intelligent and have user interfaces that are designed to simplify operations and minimize the training required to operate them. Our NE solutions are also used by NEMs in the design and production of next-generation network equipment. Other Test & Measurement communications products also serve the public safety, government, and, aerospace and defense markets.

~~VIAVI~~We also ~~offers~~offer a range of product support and professional services designed to comprehensively address our customers’ requirements. These services include repair, calibration, software support and technical assistance for our products. We offer product and technology training as well as consulting services. Our professional services, provided 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 ~~Alcatel-Lucent International,~~ América Móvil, AT&T Inc., CenturyLink Inc., Cisco Systems, Inc., Comcast Corporation, Nokia ~~Solutions and~~ Networks and Verizon Communications, Inc.

Our NE products and associated services including acquired business are described below:

Field Instruments: Primarily consisting of (a) ~~Access~~Cable and ~~Cable~~Access products; (b) Fiber Instrument products; (c) Metro products; (d) RF Test products; (e) Radio Test products; and (f) Avionics ~~products;~~products.

Lab Instruments: Primarily consisting of (a) Fiber Optic Production Lab Test; (b) Optical Transport products; (c) Storage Network Test products; and (d) Wireless products.

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, deliver insights to optimize performance, detect security threats, and identify opportunities for new revenue ~~streams and network optimization.~~streams.

Our ~~portfolio of~~ SE solutions ~~addresses the same lab and production environments, field deployment and~~portfolio delivers service assurance for operational wireless and fixed communications networks ~~including storage networks, as~~also addressed by our NE ~~portfolio. Our solutions let carriers remotely monitor~~portfolio, primarily supporting CSPs. Additionally, our SE portfolio supports network performance monitoring for enterprises and ~~quality of network,~~cloud operators. As service providers and ~~applications performance throughout~~enterprises shift their networks to a hybrid physical-cloud state, the ~~entire network. This~~SE portfolio provides our customers with ~~enhanced~~dynamic and remote network management, control, and ~~optimization that allow network operators to~~optimization. They can initiate service to new customers faster, decrease the need for technicians to make on-site service calls, ~~help~~reduce mean time to ~~make necessary repairs faster~~repair 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.

Our SE products and associated services are described below:

Data Center: Consisting of our Network ~~Instrument~~Performance Monitoring and Security products.

Assurance: Primarily consisting of our (a) Mature Products (Legacy Assurance and Legacy ~~Wireline, Protocol Test, Video Assurance products~~Wireline) and ~~RAN)~~ (b) Growth Products ~~(xSight~~(Core and ~~Location Intelligence~~Edge assurance products).

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, Optically Variable Pigment (“OVP®”) and Optically Variable Magnetic Pigment (“OVMP®”). 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. OVMP is an advanced product version of OVP with the added magnetic property feature.

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 and Engineered Diffusers^TM.

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, L-3 Communications, Lockheed Martin, Seiko Epson, SICPA and STMicroelectronics.

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.

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 POLICIES AND ESTIMATES

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net revenues 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.

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 ~~2018~~2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission

(“SEC”). There have been no material changes to our critical accounting policies and estimates, except with respect to ~~revenue recognition resulting~~financial reporting of leasing arrangements from the adoption of ASC ~~606 and accounting estimates of fair value of earn-outs arising from the acquisitions of businesses and other assets.~~842 - Leases. Refer to “Note ~~3. Revenue” and “Note 6. Acquisitions”~~12. Leases” for more details.

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											Three Months Ended
	March 30, 2019			March 31, 2018			Change			Percent Change		March 30, 2019			March 31, 2018			Change			Percent Change		September 28, 2019			September 29, 2018			Change			Percent Change
Segment net revenue:
NE	$	180.5		$	126.5		$	54.0		42.7	%	$	540.5		$	360.1		$	180.4		50.1	%	$	198.9		$	164.5		$	34.4		20.9	%
SE	24.9			29.9			(5.0		)	(16.7	)%	79.3			90.0			(10.7		)	(11.9	)%	20.9			26.2			(5.3		)	(20.2	)%
OSP	59.8			62.3			(2.5		)	(4.0	)%	220.8			164.9			55.9			33.9	%	80.0			77.8			2.2			2.8	%
Total net revenue	$	265.2		$	218.7		$	46.5		21.3	%	$	840.6		$	615.0		$	225.6		36.7	%	$	299.8		$	268.5		$	31.3		11.7	%

Gross profit	$	153.5		$	123.3		$	30.2		24.5	%	$	481.9		$	355.4		$	126.5		35.6	%	$	174.4		$	150.4		$	24.0		16.0	%
Gross margin	57.9		%	56.4		%						57.3		%	57.8		%						58.2		%	56.0		%

Research and development	$	48.7		$	32.1		$	16.6		51.7	%	$	137.2		$	91.1		$	46.1		50.6	%	$	51.5		$	42.6		$	8.9		20.9	%
Percentage of net revenue	18.4		%	14.7		%						16.3		%	14.8		%						17.2		%	15.9		%

Selling, general and administrative	$	86.8		$	86.0		$	0.8		0.9	%	$	259.7		$	235.0		$	24.7		10.5	%	$	93.2		$	84.4		$	8.8		10.4	%
Percentage of net revenue	32.7		%	39.3		%						30.9		%	38.2		%						31.1		%	31.4		%

Restructuring and related charges	$	0.9		$	0.3		$	0.6		200.0	%	$	16.0		$	4.3		$	11.7		272.1	%	$	0.3		$	14.8		$	(14.5	)	(98.0	)%
Percentage of net revenue	0.3		%	0.1		%						1.9		%	0.7		%						0.1		%	5.5		%

Interest and other income, net	$	0.9		$	3.5		$	(2.6	)	(74.3	)%	$	4.5		$	6.6		$	(2.1	)	(31.8	)%	$	2.7		$	1.7		$	1.0		58.8	%
Percentage of net revenue	0.3		%	1.6		%						0.5		%	1.1		%						0.9		%	0.6		%

Interest expense	$	(8.0	)	$	(11.4	)	$	(3.4	)	(29.8	)%	$	(26.2	)	$	(35.6	)	$	(9.4	)	(26.4	)%	$	(8.3	)	$	(10.1	)	$	(1.8	)	(17.8	)%
Percentage of net revenue	3.0		%	5.2		%						3.1		%	5.8		%						2.8		%	3.8		%

Provision for income taxes	$	5.6		$	3.1		$	2.5		80.6	%	$	22.2		$	4.3		$	17.9		416.3	%	$	8.3		$	5.7		$	2.6		45.6	%
Percentage of net revenue	2.1		%	1.4		%						2.6		%	0.7		%						2.8		%	2.1		%

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, training, 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 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.

Three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018

Net revenue increased by ~~$46.5~~$31.3 million, or ~~21.3%~~11.7%, during the three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago. This increase was ~~primarily~~ due to revenue increase from our NE ~~segment.~~and OSP segments.

Product revenues increased by ~~$38.9~~$23.7 million, or ~~20.1%~~9.8%, during the three months ended ~~March 30, 2019 compared to the same period a year ago, due to revenue increase from our NE segment as discussed below.~~

Service revenues increased by $7.6 million, or 29.8%, during the three months ended March 30, 2019 compared to the same period a year ago primarily due to increased support revenue from the NE segment, partially offset by a decline in support contract renewals for the SE segment as discussed below.

NE net revenue increased by $54.0 million, or 42.7%, during the three months ended March 30, 2019 compared to the same period a year ago. This increase was driven by revenues from the AW Business of Cobham plc. (“AW”) acquired in the third quarter of fiscal 2018 and organic growth in our Fiber business across Lab and Field Instruments. This was partially offset by revenue declines primarily in Cable products from a year ago peak levels driven by DOCSIS 3.1 upgrade cycle.

SE net revenue decreased by $5.0 million, or 16.7%, during the three months ended March 30, 2019 compared to the same period a year ago. This decrease was primarily driven by a decline in our Data Center demand and from the expected run-off in our Mature Assurance products. This decrease was partially offset by an increase in our Growth Assurance product portfolio.

OSP net revenue decreased by $2.5 million, or 4.0%, during the three months ended March 30, 2019 compared to the same period a year ago. This decrease was primarily driven by a decline in demand for our Consumer and Industrial products primarily from 3D sensing optical filter which benefited from a one-time impact of revenue recognition during the same period a year ago, partially offset by strength in our Anti-Counterfeiting products.

~~Nine Months Ended March 30, 2019 and March 31, 2018~~

~~Net revenue increased by $225.6 million, or 36.7%, during the nine months ended March 30,~~September 28, 2019 compared to the same period a year ago, due to revenue increase from our NE and OSP ~~segment,~~segments, partially offset by revenue ~~decrease from~~declines in our SE ~~segment.~~

~~Product revenues increased by $206.4 million, or 38.3% during the nine months ended March 30, 2019 compared to the same period a year ago, primarily from our NE and OSP~~ segment as discussed below.

Service revenues increased by ~~$19.2~~$7.6 million, or ~~25.5%~~27.7%, during the ~~nine~~three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago primarily due to increased support revenue from ~~the~~our NE ~~segment, partially offset by a decline in support contract renewals for the SE segment as discussed below.~~segment.

NE net revenue increased by ~~$180.4~~$34.4 million, or ~~50.1%~~20.9%, during the ~~nine~~three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago. This increase was driven by ~~revenues~~5G wireless secular growth trends and fiber demand from ~~the AW business acquired in the third quarter of fiscal 2018 and organic growth in our Fiber business across~~both Lab and Field ~~Instruments. This was partially offset by revenue declines primarily in Cable products from a year ago peak levels driven by~~Instruments due to the 400Gb upgrade cycle. Access and DOCSIS 3.1 ~~upgrade cycle.~~related cable demand driven primarily by a recovery in spend in North American cable service providers.

SE net revenue decreased by ~~$10.7~~$5.3 million, or ~~11.9%~~20.2%, during the ~~nine~~three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago. Due to continued runoff of Mature Assurance products and lower demand in our Growth Assurance products. The Data Center and Assurance markets have been challenging in calendar year 2019, with many deals delayed as customers reevaluate IT spend.

OSP net revenue increased by $2.2 million, or 2.8%, during the three months ended September 28, 2019 compared to the same period a year ago. This ~~decrease~~increase was ~~primarily~~ driven by ~~a decline in our Data Center~~3D Sensing demand ~~and from~~by the ~~expected run-off in our Mature Assurance products. This decrease was partially offset by an increase in our Growth Assurance product portfolio.~~

OSP net revenue increased by $55.9 million, or 33.9%, during the nine months ended March 30, 2019 compared to the same period a year ago. This growth was primarily driven by increase in demand from our Anti-Counterfeiting products due to bank not redesign and higher revenue from our Consumer and Industrial products, due to higher demandbroadening of customer base for ~~our 3D Sensing~~ optical filters and ~~the newly acquired~~continued adoption of Engineered Diffusers^TM ~~products.~~by Android based smart phone customers. Anti-Counterfeiting revenue declined as the business relied mostly on banknote reprint volume. This reflects a change from a year ago levels where OSP benefited from higher banknote redesign demand in the fiscal first half of 2019 along with reoccurring reprint volume.

Going forward, we ~~anticipate~~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, profitability and general financial performance, and that could create quarter over quarter variability in our financial measures. For example, while the majority of our net revenue and expenses are denominated in U.S. dollars, a portion of our international operations are denominated in foreign currencies. The strengthening of the U.S. dollar relative to foreign currencies could negatively impact reported revenue.

WeAdditionally, 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.~~projections; (e) the impact of ongoing global trade policies, tariffs and sanctions; and (f) regulatory or economic developments that slow or change the rate of adoption of 5G, 3D Sensing and other emerging secular technologies and platforms.

~~While the majority of our~~In fiscal 2020, we expect to see an increase in net revenue from our NSE segment driven by macro industry technology trends from 5G wireless testing and ~~expenses are denominated~~deployment, and “fiber-to-the-everywhere” (“FTTX”) deployment. In our OSP segment, while the Anti-Counterfeiting product pipeline remains robust, visibility remains limited for banknote redesign in ~~U.S. dollars, a portion of our international operations are denominated in foreign currencies. The strengthening of~~ the ~~U.S. dollar relative to foreign currencies could negatively impact reported revenue and expenses.~~

~~For the remainder of calendar 2019, we~~next several quarters. We also expect ~~continued strength in 5G Wireless and Fiber in support of the 5G infrastructure build out to benefit NSE. We expect the~~ 3D Sensing ~~products to follow typical seasonal demand strength in consumer electronics to benefit OSP in the second half~~revenue increase, driven by adoption of ~~calendar 2019.~~this technology on multiple mobile devices.

Revenue by Region

We operate in three geographic regions: Americas, Asia-Pacific and Europe Middle East and Africa (“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 (in millions):


	Three Months Ended								Nine Months Ended								Three Months Ended
	March 30, 2019				March 31, 2018				March 30, 2019				March 31, 2018				September 28, 2019				September 29, 2018
Americas:
United States	$	77.1	29.1	%	$	78.9	36.1	%	$	254.0	30.2	%	$	246.8	40.1	%	$	85.0	28.4	%	$	72.8	27.1	%
Other Americas	18.1		6.8	%	16.9		7.7	%	60.4		7.2	%	57.6		9.4	%	20.7		6.9	%	21.0		7.9	%
Total Americas	$	95.2	35.9	%	$	95.8	43.8	%	$	314.4	37.4	%	$	304.4	49.5	%	$	105.7	35.3	%	$	93.8	35.0	%

Asia-Pacific:
Greater China	$	39.4	14.8	%	$	38.2	17.4	%	$	165.2	19.7	%	$	90.3	14.7	%	$	71.9	24.0	%	$	58.9	21.9	%
Other Asia	43.9		16.6	%	25.3		11.6	%	117.4		13.9	%	56.3		9.1	%	35.3		11.7	%	39.5		14.7	%
Total Asia-Pacific	$	83.3	31.4	%	$	63.5	29.0	%	$	282.6	33.6	%	$	146.6	23.8	%	$	107.2	35.7	%	$	98.4	36.6	%

EMEA:
Switzerland	$	23.9	9.0	%	$	15.9	7.3	%	$	72.6	8.6	%	$	56.4	9.2	%	$	12.2	4.1	%	$	25.7	9.6	%
Other EMEA	62.8		23.7	%	43.5		19.9	%	171.0		20.4	%	107.6		17.5	%	74.7		24.9	%	50.6		18.8	%
Total EMEA	$	86.7	32.7	%	$	59.4	27.2	%	$	243.6	29.0	%	$	164.0	26.7	%	$	86.9	29.0	%	$	76.3	28.4	%

Total net revenue	$	265.2	100.0	%	$	218.7	100.0	%	$	840.6	100.0	%	$	615.0	100.0	%	$	299.8	100.0	%	$	268.5	100.0	%

Net revenue from customers outside the Americas during the three months ended ~~March 30,~~September 28, 2019 and ~~March 31,~~September 29, 2018 represented ~~64.1%~~64.7% and ~~56.2%~~65.0% of net revenue, respectively.

~~Net revenue from customers outside the Americas during the nine months ended March 30, 2019 and March 31, 2018 represented~~ ~~62.6%~~ ~~and~~ ~~50.5%~~ ~~of net revenue, respectively.~~

We expect revenue from customers outside of 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 increased by ~~1.5~~2.2 percentage points during the three months ended ~~March 30,~~September 28, 2019 from ~~56.4%~~56.0% in the same period a year ago to ~~57.9%~~58.2% in the current period. This increase was primarily driven by ~~a decrease in costs incurred from our acquisitions~~higher revenue volume and ~~gross margin improvement in~~favorable product mix within our NE ~~segment.~~and OSP segments. The increase was partially offset by gross margin reduction in our SE ~~and OSP segments~~segment as discussed below.

Gross margin decreased by 0.5 percentage points during the nine months ended March 30, 2019 from 57.8% in the same period a year ago to 57.3% in the current period. This decrease was primarily driven by gross margin reduction in our OSP and SE segments and increase in amortization of acquired developed technology. This decrease was partially offset by gross margin improvement in our NE segment and decrease in amortization of acquisition related inventory step-up in connection with the AW acquisition.

As discussed in more detail under ~~“Net Revenue”~~“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.

Research and Development

R&D expense increased by ~~$16.6~~$8.9 million, or ~~51.7%~~20.9%, during the three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago. This increase was primarily driven by ~~full period R&D expenses~~targeted investments to support increased demand for our Wireless products and additional costs from ~~the AW business acquired~~our acquisitions in the ~~third quarter of fiscal 2018 and higher bonus accrual compared to the same period a year ago.~~prior year. As a percentage of net revenue, R&D increased by ~~3.7~~1.3 percentage points during the three months ended ~~March 30, 2019 compared to the same period a year ago.~~

R&D expense increased by $46.1 million, or 50.6%, during the nine months ended March 30, 2019 compared to the same period a year ago. This increase was primarily driven by full period R&D expenses from the AW business acquired in the third quarter of fiscal 2018 and higher bonus accrual compared to the same period a year ago. As a percentage of net revenue R&D increased by 1.5 percentage points during the nine months ended March 30,September 28, 2019 compared to the same period a year 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 increased by ~~$0.8~~$8.8 million or ~~0.9%~~10.4%, during the three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago. This increase was primarily due to ~~incremental SG&A expense~~on going investments including upgrading our ERP and related systems, targeted investments to support increased demand for our Wireless and Fiber products, additional costs from ~~the AW business, acquired~~our acquisitions in the ~~third quarter~~prior year and an increase to the fair value of ~~fiscal 2018, partially offset by~~our earn-out liabilities in the ~~decrease of acquisition and integration related costs, the reduction in net expenses driven by our recent restructuring activities and on-going cost reduction efforts.~~current period. As a percentage of net revenue, SG&A decreased ~~6.6~~0.3 percentage points during the three months ended ~~March 30, 2019 compared to the same period a year ago.~~

SG&A expense increased by $24.7 million, or 10.5%, during the nine months ended March 30, 2019 compared to the same period a year ago. This increase was primarily due to incremental SG&A expense from the AW business acquired in the third quarter of fiscal 2018, partially offset by the decrease of acquisition related costs, the reduction in net expenses driven by our recent restructuring activities and on-going cost reduction efforts. As a percentage of net revenue, SG&A decreased 7.3 percentage points during the nine months ended March 30,September 28, 2019 compared to the same period a year ago.

We intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. However, we may experience in the future, certain charges unrelated to our core operating performance, such as mergers and acquisitions-related expenses, ~~and~~ litigation expenses and charges from changes in the fair value measurement of our contingent consideration liabilities, 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, integrate various acquisitions, rationalize the manufacturing of our products and align our businesses to address market conditions. We estimate annualized gross cost savings of approximately ~~$28.8~~$24.3 million excluding any one-time charges as a result of recent restructuring activities initiated in the last twelve months. Refer to “Note ~~12.~~13. Restructuring and Related Charges” for more information.

As of ~~March 30,~~September 28, 2019, our total restructuring accrual was $11.4 million.

During the three ~~and nine~~ months ended ~~March 30,~~September 28, 2019 and September 29, 2018, we recorded ~~$0.9~~$0.3 million and ~~$16.0~~$14.8 million respectively, in restructuring and related charges. ~~These charges are primarily the result of the following:~~

During the first quarter of fiscal 2019, Management approved restructuring and workforce reduction plans within its NSE business, including actions related to the recently acquired AW business. These actions further drive the Company’s strategy for organizational alignment and consolidation as part of its continued commitment to a more cost effective and agile organization and to improve overall profitability in the Company’s NSE business. Included in these restructuring plans are specific actions to consolidate and integrate the newly acquired AW business within the NSE business segment. During the third quarter of fiscal 2019, the Company has updated the plan to include additional headcount primarily to transfer a portion of the manufacturing operations related to the recently acquired AW business to a contract manufacturer. As a result, a restructuring charge of $16.7 million was recorded in the nine months ended March 30, 2019 for severance and employee benefits for approximately 253 employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2020.

~~During the three and nine months ended March 31, 2018, we recorded $0.3 million and $4.3 million respectively, in restructuring and related charges.~~

Interest and Other Income, Net

Interest and other income, net, was ~~$0.9~~$2.7 million during the three months ended ~~March 30,~~September 28, 2019 compared to ~~$3.5~~$1.7 million the same period a year ago. This ~~$2.6~~$1.0 million ~~decrease~~increase was primarily driven by the $1.8 million favorable foreign exchange impact as the balance sheet hedging program provided a ~~decrease in interest income~~favorable offset to the remeasurement of underlying foreign exchange exposures during the current period, ~~due to decrease in investment balance in the US and much lower yield on money market fund in China.~~

~~Interest and other income, net,~~which was ~~$4.5 million during the nine months ended March 30, 2019 compared to $6.6 million the same period a year ago. This $2.1 million decrease was primarily driven~~partially offset by a decrease inof $0.8 million interest income, due to lower investments balance during the current ~~period due to decrease in investment balance in the US and much lower yield on money market fund in China, offset by loss on repurchase of our 2033 Notes during the same period a year ago.~~period.

Interest Expense

Interest expense decreased by ~~$3.4~~$1.8 million, or ~~29.8%~~17.8%, during the three months ended ~~March 30,~~September 28, 2019 compared to the same period a year ago. This decrease was primarily due to the decrease in debt discount accretion as the 2033 Notes were fully redeemed or converted in the second quarter of fiscal ~~2019, offset by a full-quarter accretion of debt discount from the issuance of 2023 Notes in the fourth quarter of fiscal 2018.~~

~~Interest expense decreased by $9.4 million, or 26.4%, during the nine months ended March 30, 2019 compared to the same period a year ago.~~ This decrease was primarily due to a decrease in debt discount accretion of the 2033 Notes during the current period as the notes were fully redeemed or converted in the second quarter of fiscal 2019, offset by accretion of debt discount from the issuance of 2023 Notes in the fourth quarter of fiscal 2018.2019.

Provision for Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. 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. This deemed repatriation was reported in our fiscal 2018 U.S. tax return. The Company completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries during the quarter ended December 29. 2018. The change in estimate did not materially impact the Company’s financial statements.

The income tax expense recorded differs from the expected tax benefit that would be calculated by applying the federal statutory rate to our loss 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 of the Act, and due to the income tax benefit recorded in continuing operations under the income tax intraperiod allocation rules.~~operations.

As of ~~March 30,~~September 28, 2019, and June ~~30, 2018,~~29, 2019, our unrecognized tax benefits totaled ~~$53.3~~$50.4 million and ~~$48.6~~$50.9 million, respectively, and are included in deferred taxes and other non-current tax liabilities, net. We had ~~$2.0~~$3.4 million accrued for the payment of interest and penalties at ~~March 30,~~September 28, 2019. 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 $0.8 million.~~unable to estimate the full range of possible adjustments to this balance.

Operating Segment Information

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


	Three Months Ended											Nine Months Ended											Three Months Ended
	March 30, 2019			March 31, 2018			Change			Percentage Change		March 30, 2019			March 31, 2018			Change			Percentage Change		September 28, 2019			September 29, 2018			Change			Percentage Change
Network Enablement
Net revenue	$	180.5		$	126.5		$	54.0		42.7	%	$	540.5		$	360.1		$	180.4		50.1	%	$	198.9		$	164.5		$	34.4		20.9	%
Gross profit	115.8			80.4			35.4			44.0	%	344.4			225.1			119.3			53.0	%	128.0			102.9			25.1			24.4	%
Gross margin	64.2		%	63.6		%						63.7		%	62.5		%						64.4		%	62.6		%

Service Enablement
Net revenue	$	24.9		$	29.9		$	(5.0	)	(16.7	)%	$	79.3		$	90.0		$	(10.7	)	(11.9	)%	$	20.9		$	26.2		$	(5.3	)	(20.2	)%
Gross profit	15.9			20.8			(4.9		)	(23.6	)%	54.5			63.2			(8.7		)	(13.8	)%	12.6			18.3			(5.7		)	(31.1	)%
Gross margin	63.9		%	69.6		%						68.7		%	70.2		%						60.3		%	69.8		%

Network and Service Enablement
Net revenue	$	205.4		$	156.4		$	49.0		31.3	%	$	619.8		$	450.1		$	169.7		37.7	%	$	219.8		$	190.7		$	29.1		15.3	%
Operating income	20.7			9.5			11.2			117.9	%	69.9			24.6			45.3			184.1	%	22.3			16.4			5.9			36.0	%
Operating margin	10.1		%	6.1		%						11.3		%	5.5		%						10.1		%	8.6		%

Optical Security and Performance
Net revenue	$	59.8		$	62.3		$	(2.5	)	(4.0	)%	$	220.8		$	164.9		$	55.9		33.9	%	$	80.0		$	77.8		$	2.2		2.8	%
Gross profit	30.8			32.8			(2.0		)	(6.1	)%	112.0			90.4			21.6			23.9	%	43.3			39.4			3.9			9.9	%
Gross margin	51.5		%	52.6		%						50.7		%	54.8		%						54.1		%	50.6		%
Operating income	18.3			23.7			(5.4		)	(22.8	)%	76.8			63.3			13.5			21.3	%	30.4			27.4			3.0			10.9	%
Operating margin	30.6		%	38.0		%						34.8		%	38.4		%						38.0		%	35.2		%

Network Enablement

During the three months ended ~~March 30,~~September 28, 2019, NE gross margin increased by ~~0.6~~1.8 percentage points from ~~63.6%~~62.6% in the same period a year ago to ~~64.2%~~64.4% in the current period. This increase was primarily due to higher revenue volume and gross margin improvement from favorable product mix ~~driven by organic growth~~ in our Lab Instrument ~~products and our recently acquired AW business.~~products.

Service Enablement

During the ~~nine~~three months ended ~~March 30,~~September 28, 2019, NESE gross margin ~~increased~~decreased by ~~1.2~~9.5 percentage points from ~~62.5%~~69.8% in the same period a year ago to ~~63.7% in the current period. This increase was primarily due to favorable product mix driven by organic growth in our Lab Instrument products and our recently acquired AW business.~~

~~Service Enablement~~

~~During the three months ended March 30, 2019, SE gross margin decreased by 5.7 percentage points from 69.6% in the same period a year ago to 63.9%~~60.3% in the current period. This decrease was primarily due to lower revenue ~~and~~volumes in our Assurance products resulting in under absorption of fixed costs as well as impacts from unfavorable ~~product~~ mix ~~from the continued run-off of higher margin Mature Assurance solutions and~~due to declines in ~~Data Center products.~~

~~During the nine months ended March 30, 2019, SE gross margin decreased by 1.5 percentage points~~revenue from 70.2% in the same period a year ago to 68.7% in the current period. This decrease was primarily due to lower revenue and unfavorable product mix from the continued run-off of higher margin Mature Assurance solutions and declines inour Data Center products.

Network and Service Enablement (“NSE”)

During the three months ended ~~March 30,~~September 28, 2019, NSE operating margin increased by ~~4.0~~1.5 percentage points from ~~6.1%~~8.6% in the same period a year ago to 10.1% in the current period. This increase in operating margin was primarily driven by higher gross margins as discussed above, the higher operating leverage from increased revenue ~~due to the addition of the acquired AW business~~ and ~~continued~~continuing efficient cost management including ~~restructuring.~~

~~During~~restructuring, cost synergies realized from the nine months ended March 30, 2019, NSE operating margin increased by 5.8 percentage points from 5.5% in the same period a year ago to 11.3% in the current period. This increase in operating margin was primarily driven by the operating leverage from increased revenue due to the addition of the acquired AW business and continued cost management including restructuring.acquisition.

Optical Security and Performance Products

During the three months ended ~~March 30,~~September 28, 2019 OSP gross margin ~~decreased~~increased by ~~1.1~~3.5 percentage points from ~~52.6%~~50.6% in the same period a year ago to ~~51.5%~~54.1% in the current period. This ~~decrease~~increase was primarily due to ~~lower revenue volume and under~~higher absorption of manufacturing ~~costs~~overhead from ~~the planned idling of~~increased 3D Sensing ~~filter capacity.~~product volume and operating efficiency.

~~During~~

OSP operating margin increased by 2.8 percentage points during the ~~nine~~three months ended ~~March 30,~~September 28, 2019 ~~OSP gross margin decreased by 4.1 percentage points~~ from ~~54.8%~~35.2% in the same period a year ago to ~~50.7%~~38.0% in the current period. The ~~decline was primarily due to unfavorable product mix and under absorption of manufacturing costs from the planned idling of 3D Sensing filter capacity.~~

~~OSP operating margin decreased by 7.4 percentage points during the three months ended March 30, 2019 from 38.0% in the same period a year ago to 30.6% in the current period. The decrease~~increase in operating margin was primarily due to ~~lower~~higher gross margins ~~and targeted investments in our operating expenses~~ as ~~the business expands.~~

OSP operating margin decreased by 3.6 percentage points during the nine months ended March 30, 2019 from 38.4% in the same period a year ago to 34.8% in the current period. The decrease in operating margin was primarily due to lower gross margins and targeted investments in our operating expenses as the business expands.discussed above.

Liquidity and Capital Resources

Our cash investments are made in accordance with an investment policy approved by the Audit Committee of our Board of Directors and has not changed from that disclosed in our 10-K. ~~Virtually all debt securities held were minimum BBB/Baa2.~~ As of ~~March 30,~~September 28, 2019, U.S. entities owned approximately ~~16.4%~~27.4% of our cash and cash equivalents, short-term investments and restricted cash.

As of ~~March 30,~~September 28, 2019, the majority of our cash investments have maturities of 90 days or less and are of high credit quality. Although we intend to hold these investments to maturity, in the event that we are required to sell any of these securities under adverse market conditions, losses could be recognized on such sales. During the three months ended ~~March 30,~~September 28, 2019, 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 financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (“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.

On August 15, 2018, certain holders of the 2033 Notes issued in August 2013 exercised the put option and an aggregate principal amount of $134.3 million of the 2033 Notes was validly surrendered for repurchase. The Company accepted all such notes for payment with available cash. On September 5, 2018, the Company elected to exercise its optional redemption right to redeem all $142.7 million aggregate principal amount of its outstanding 2033 Notes. The date fixed for the redemption of the Notes was October 10, 2018 (Redemption Date). In connection with the redemption, holders of $112.0 million aggregate principal amount of Notes converted their Notes in accordance with the terms and conditions of the Notes. Note holders who converted their notes received an aggregate payout of $111.8 million in cash and were issued 231,795 shares of the Company’s common stock. The Company redeemed the remaining $30.7 million aggregate principal amount of outstanding Notes in accordance with its notice of redemption dated September 5, 2018. The Company paid to the registered holders of the Notes that were redeemed an aggregate amount of approximately $30.8 million, including accrued and unpaid interest up to, but excluding, the Redemption Date. As of ~~March 30,~~September 28, 2019, none of the 2033 Notes remain outstanding. For additional information related to our debt refer to “Note 11. Debt.”

~~Nine~~Three Months Ended ~~March 30,~~September 28, 2019

As of ~~March 30,~~September 28, 2019, our combined balance of cash and cash equivalents, short-term investments, and restricted cash ~~decreased~~increased by ~~$250.7~~$3.8 million to ~~$542.9~~$530.3 million from ~~$793.6~~$526.5 million as of June ~~30, 2018.~~29, 2019.

During the ~~nine~~three months ended ~~March 30,~~September 28, 2019, ~~cash~~Cash provided by operating activities was ~~$110.3~~$31.3 million, consisting of net ~~loss~~income of ~~$7.1~~$6.8 million adjusted for non-cash charges (e.g., depreciation, amortization and stock-based compensation) which totaled ~~$129.4~~$43.7 million, including changes in deferred tax balances, and changes in operating assets and liabilities that used ~~$12.0~~$19.2 million. Changes in our operating assets and liabilities related primarily to an increase in ~~accounts receivable of $5.3 million primarily driven by higher volume of billing, an increase in~~ inventories of ~~$5.1~~$3.4 million, a decrease in deferred revenue of $4.1 million, an increase in other current and non-current assets

of ~~$3.0~~$1.7 million, a decrease in accounts payable of $1.6 million and ana decrease in accrued expenses and other current and non-current liabilities of ~~$5.2~~$14.7 million. These changes were partially offset by an increase in accrued payroll and related expenses of $3.8 million, an increase in income taxes payable of ~~$4.4~~$2.0 million and ~~an increase~~a decrease in ~~deferred revenue~~accounts receivable of ~~$2.4 million, .~~$0.5 million.

During the ~~nine~~three months ended ~~March 30,~~September 28, 2019, ~~cash provided by~~Cash used in investing activities was ~~$82.0~~$5.9 million, primarily related to ~~$142.2 million in sales and maturities of available-for-sale debt securities and $4.2 million proceeds from sales of assets offset by $34.7~~$7.1 million of cash used for capital expenditures, ~~and $29.7~~offset by $1.2 million ~~used for acquisitions, net~~proceeds from sales of ~~cash acquired.~~assets.

During the ~~nine~~three months ended ~~March 30,~~September 28, 2019, ~~cash~~Cash used in financing activities was ~~$293.6~~$7.8 million, primarily resulting from ~~$276.9 million used for redemption and conversion of our 2033 Notes, $11.9~~$7.6 million in withholding tax payments on the vesting of restricted stock awards, $1.5 million in cash paid to repurchase common stock under our share repurchase program and $1.0 million payments on financing obligations; offset by ~~$5.4~~$2.3 million in proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.

~~Nine~~

Three Months Ended ~~March 31,~~September 29, 2018

As of ~~March 31,~~September 29, 2018, our combined balance of cash and cash equivalents, short-term investments, and restricted cash decreased by ~~$711.0~~$128.6 million to ~~$743.6~~$665.0 million from ~~$1,454.6~~$793.6 million as of ~~July 1, 2017.~~June 30, 2018.

During the ~~nine~~three months ended ~~March 31,~~September 29, 2018, ~~cash~~Cash provided by operating activities was ~~$48.5~~$27.6 million, consisting of net loss of ~~$19.4~~$15.3 million adjusted for non-cash charges (e.g., depreciation, amortization and stock-based compensation) which totaled ~~$101.2~~$42.3 million, including changes in deferred tax balance, ~~offset by a net decrease~~and changes in operating assets and liabilities ~~of $33.3~~that provided $0.6 million. ~~Net decreases~~Changes in our operating assets and liabilities related primarily to an increase in accounts ~~receivable of $20.0 million due to higher billings, an increase in inventories of $13.8 million due to inventory build-up primarily for our 3D Sensing products, an decrease in income taxes~~ payable of ~~$7.5~~$3.7 million ~~a decrease~~driven by timing of payments, an increase in accrued payroll and related expenses of ~~$6.9~~$2.6 million due to ~~the timing~~bonus accruals, an increase in inventories of ~~salary and bonus payment,~~$1.4 million due to increased shipments of 3D Sensing products, an ~~decrease~~increase in income taxes payable of $1.3 million, an increase in deferred revenue of ~~$4.3~~$1.1 million and an increase in accrued and other current and non-current liabilities of $0.1 million. These changes were partially offset by an increase in accounts receivable of $6.7 million due to ~~amortization of support agreements~~higher billings and ~~the release of revenue upon customer acceptance.This was offset by a decrease~~an increase in other current and non-current assets of ~~$10.3 million, and an increase in accounts payable of $10.5 million driven by the timing of payment and higher M&A transaction costs.~~$2.9 million.

During the ~~nine~~three months ended ~~March 31,~~September 29, 2018, ~~cash used in~~Cash provided by investing activities was ~~$302.8~~$107.0 million, primarily related to ~~cash used for the acquisition of AW business and Trilithic and of $509.9~~$117.5 million ~~and $29.8 million of cash used for capital expenditures offset by $236.9 million of net purchase,~~in sales and maturities of available-for-sale debt securities and $1.6 million proceeds from sales of ~~assets.~~assets; offset by $12.1 million of cash used for capital expenditures.

During the ~~nine~~three months ended ~~March 31,~~September 29, 2018, ~~cash~~Cash used in financing activities was ~~$246.3~~$138.4 million, primarily resulting from ~~$198.0~~$134.3 million used for repurchase of our 2033 Notes, ~~$40.8 million of cash used to repurchase common stock under our share repurchase program, $11.3~~$5.5 million in withholding tax payments on vesting of restricted stock awards and ~~$1.1~~$0.7 million in payment of financing ~~obligations~~obligations; offset by ~~$4.9~~$2.1 million in proceeds from the exercise of stock options 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 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 or equity securities, which may include open market purchases of our 2023 Notes and/or 2024 Notes prior to their maturity or of our common stock;

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 ~~third~~first quarter of fiscal ~~2019.~~2020.

Off-Balance Sheet Arrangements

We do not have any 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 ~~17.~~18. Commitments and 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 ~~15.~~16. Stock-Based Compensation” for more details.

Pension and Other Post-retirement Benefits

We sponsor significant pension plans for certain past and present employees in the United Kingdom (“U.K.”) and Germany. We are also responsible for the non-pension post-retirement benefit obligation (“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 an acquisition in fiscal 2010. The U.K. ~~and AW plans are~~plan is partially funded, and the other Germany plans, which were initially established as “pay-as-you-go” plans, are unfunded. As of ~~March 30,~~September 28, 2019, our pension plans were under funded by ~~$99.7~~$104.8 million since the PBO exceeded the fair value of plan assets. Similarly, we had a liability of $0.4 million related to our non-pension post-retirement benefit plan. Pension plan assets are managed by external third parties and we monitor the performance of our investment managers. As of ~~March 30,~~September 28, 2019, the fair value of plan assets had increased approximately ~~0.9%~~4.7% since June ~~30, 2018,~~29, 2019, our most recent fiscal year end.

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 point decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately ~~$9.5~~$9.2 million based upon data as of June ~~30, 2018.~~29, 2019.

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 ~~16.~~17. 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 June ~~30, 2018.~~29, 2019.

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 ~~March 30,~~September 28, 2019.

Changes in Internal Control Over Financial Reporting

There have been 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.

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.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report for the fiscal year ended June ~~30, 2018.~~29, 2019, except as noted below.

The geographic location of our Northern California headquarters and production facilities subject them to 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 or manufacturing equipment, we may experience potential impacts ranging from production and shipping delays to lost profits and revenues. Moreover, in October 2019, Pacific Gas and Electric (“PG&E”), the public electric utility in our Northern California region commenced planned 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 disruption to operations as a result of these power outages, ongoing blackouts, particularly if prolonged or frequent, could impact our operations going forward.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

The following documents are filed as Exhibits to this report:

Incorporated by Reference

Filed

Furnished

Exhibit No.

Exhibit Description

Form

Exhibit

Filing Date

Herewith

Not Filed

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~~

~~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

The cover page from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2019, formatted in Inline XBRL.

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: ~~May 8,~~November 5, 2019	VIAVI SOLUTIONS INC.
	(Registrant)
	By:	/s/ AMAR MALETIRA
	Name:	Amar Maletira
	Title:	Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

4941



Three Months Ended March 30, 2019	Common Stock and Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 29, 2018	$	70,227.0	$	(69,389.5	)	$	(127.4	)	$	710.1
Net loss	—		(4.8		)	—			(4.8		)
Other comprehensive income	—		—			12.2			12.2
Shares issued under employee stock plans, net of tax	0.4		—			—			0.4
Stock-based compensation	10.8		—			—			10.8
Repurchase of common stock	—		(0.4		)	—			(0.4		)
Balance at March 30, 2019	$	70,238.2	$	(69,394.7	)	$	(115.2	)	$	728.3



Three Months Ended March 31, 2018	Common Stock and Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at December 30, 2017	$	70,174.0		$	(69,328.9	)	$	(74.8	)	$	770.3
Net loss	—			(10.7		)	—			(10.7		)
Other comprehensive income	—			—			19.7			19.7
Shares issued under employee stock plans, net of tax	(0.1		)	—			—			(0.1		)
Stock-based compensation	7.6			—			—			7.6
Repurchase of common stock	—			(9.9		)	—			(9.9		)
Reacquisition of 2033 notes equity component	(0.8		)	—			—			(0.8		)
Balance at March 31, 2018	$	70,180.7		$	(69,349.5	)	$	(55.1	)	$	776.1



Nine Months Ended March 31, 2018	Common Stock and Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Total
Balance at July 1, 2017	$	70,184.6		$	(69,288.6	)	$	(92.5	)	$	803.5
Cumulative adjustment, adoption of ASU 2016-09	0.6			(0.6		)	—			—
Net loss	—			(19.4		)	—			(19.4		)
Other comprehensive income	—			—			37.4			37.4
Shares issued under employee stock plans, net of tax	(6.4		)	—			—			(6.4		)
Stock-based compensation	22.8			—			—			22.8
Repurchase of common stock	—			(40.9		)	—			(40.9		)
Reacquisition of 2033 notes equity component	(20.9		)	—			—			(20.9		)
Balance at March 31, 2018	$	70,180.7		$	(69,349.5	)	$	(55.1	)	$	776.1



	June 30, 2018
	As Reported		Adjustment			As Adjusted
ASSETS
Accounts receivable, net	$	217.5	$	1.1		$	218.6
Prepayments and other assets	54.8		1.5			56.3
Deferred income taxes	114.5		(0.2		)	114.3
Other non-current assets	13.6		1.8			15.4
Total assets	$	2,022.6	$	4.2		$	2,026.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deferred revenue	$	71.9	$	(11.3	)	$	60.6
Accrued payroll and related expenses	51.4		1.4			52.8
Other current liabilities	77.0		1.9			78.9
Other non-current liabilities	182.8		(2.0		)	180.8
Total stockholders’ equity	720.7		14.2			734.9
Total liabilities and stockholders’ equity	$	2,022.6	$	4.2		$	2,026.8



Tangible assets acquired:	$	59.0
Intangible assets acquired:
Developed technology	113.5
Customer relationships	75.0
Trade names	28.0
In-process research and development	9.0
Customer Backlog	6.5
Goodwill	175.8
Total consideration transferred	$	466.8



Cash	$	16.1
Accounts receivable	43.0
Inventory	33.5
Property and equipment	33.5
Other assets	6.1
Accounts payable	(10.9		)
Other liabilities	(28.4		)
Deferred revenue	(10.2		)
Deferred tax liabilities	(23.7		)
Net tangible assets acquired	$	59.0



	Amortized Cost/ Carrying Cost		Estimated Fair Value
Amounts maturing in less than 1 year	$	20.2	$	20.1
Amounts maturing in 1 - 5 years	5.6		5.5
Amounts maturing in more than 5 years	0.9		0.6
Total debt available-for-sale securities	$	26.7	$	26.2



As of June 30, 2018	Gross Carrying Amount		Accumulated Amortization			Net
Acquired developed technology	$	447.8	$	(326.4	)	$	121.4
Customer relationships	175.4		(97.1		)	78.3
In-process research and development	9.0		—			9.0
Other ⁽¹⁾	42.8		(16.4		)	26.4
Total intangibles	$	675.0	$	(439.9	)	$	235.1



Fiscal Years
Remainder of 2019	$	17.1
2020	66.2
2021	61.9
2022	35.2
2023	21.3
Thereafter	16.8
Total amortization	$	218.5



	March 30, 2019			June 30, 2018
Principal amount of 0.625% Senior Convertible Notes	$	—		$	277.0
Principal amount of 1.00% Senior Convertible Notes	460.0			460.0
Principal amount of 1.75% Senior Convertible Notes	225.0			225.0
Unamortized discount of liability component	(104.8		)	(121.1		)
Unamortized debt issuance cost	(6.7		)	(7.7		)
Carrying amount of liability component	$	573.5		$	833.2
Current portion of long-term debt	$	—		$	275.3
Long-term debt, net of current portion	$	573.5		$	557.9

Carrying amount of equity component ⁽¹⁾	$	136.7		$	239.1



	Balance June 30, 2018		Nine Months Ended March 30, 2019 Charges (Benefits)			Cash Settlements			Non-cash Settlements and Other Adjustments			Balance March 30, 2019		Three Months Ended March 30, 2019 Charges (Benefits)
Fiscal 2019 Plan
NSE, including AW Restructuring Plan ⁽¹⁾	$	—	$	16.7		$	(5.3	)	$	(0.3	)	$	11.1	$	1.6
Fiscal 2018 Plan
Trilithic Restructuring Plan ^{(1) (2)}	2.9		—			(2.9		)	—			—		—
Fiscal 2017 Plan
Focused NSE Restructuring Plan ^{(1) (2)}	1.9		0.1			(2.1		)	0.1			—		—
Plans Prior to Fiscal 2017
NE Lease Restructuring Plan ⁽²⁾	1.2		(0.5		)	(0.7		)	—			—		(0.5		)
Other Plans ^{(1) (2)}	1.5		(0.3		)	(0.9		)	—			0.3		(0.2		)
Total	$	7.5	$	16.0		$	(11.9	)	$	(0.2	)	$	11.4	$	0.9