What changed in this filing

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Item 1. Business

2020-08-24 compared with 2019-08-27 · 110 added, 141 removed, 187 unchanged (57% of the section changed)

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, enterprises, network equipment manufacturers, civil government, military and avionics customers, supported by a worldwide channel community including VIAVI Velocity Partners.

Our Velocity program (“Velocity”) allows us to optimize the use of direct or partner sales depending on application and sales volume.

Velocity expands our reach into new market segments as well as expands our capability to sell and deliver solutions.

We deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability.

We are also a leader in high performance thin film optical coatings, providing light management solutions to anti-counterfeiting, 3D sensing, electronics, automotive, defense and instrumentation markets.

To serve our markets, during fiscal 2019 we operated in the following business segments:

(VIAVI, also referred to as the Company, we, our, and us) is a global provider of network test, monitoring and assurance solutions for communications service providers, enterprises, network equipment manufacturers, government and avionics.

We help these customers harness the power of instruments, automation, intelligence and virtualization to Command the network .

VIAVI is also a leader in light management solutions for 3D sensing, anti-counterfeiting, consumer electronics, industrial, government, automotive and defense applications.

To serve our markets, we operated in the following business segments:

Network Enablement ( NE );

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NE and SE are collectively referred to as Network and Service Enablement ( NSE ).

The telecommunications (“Telecom”) and cable industries are experiencing a major evolution in technology that is likely to last for the next decade as wireless communications shift from 4G to 5G technology and its promise of greater bandwidth capacity, faster transmission speeds and lower latency response time.

5G is a disruptive technology that is expected to be deployed by late calendar 2019 using millimeter wave and sub-6 Ghz technologies versus the current and legacy radio wave technology that has been in place for more than 30 years beginning with 1G wireless technology.

Wireless communications connectivity at the edge, or the “last mile” or “last hundred yards”, will bring gigahertz speeds and capacity to the home as well as to “all devices” and to “all connected cars”.

The 5G transition is expected to be deployed globally and is expected to be disruptive to businesses, consumers and potentially create new applications and new industries.

The adoption of 5G also requires increased bandwidth and speed backhaul capability from the network edge to the network core.

The telecommunications (Telecom) and cable industries are experiencing a major evolution in technology that is likely to last for the next decade as wireless communications expand and evolve from 4G to 5G technology with its promise of greater bandwidth capacity, faster transmission speeds and lower latency response time.

5G is a disruptive technology that is being gradually deployed by service providers using millimeter wave and sub-6 GHz technologies.

Cars, Drones, Bots, etc.)”.

The 5G transition is being deployed globally and is expected to be disruptive to businesses, consumers and potentially create new applications and vertical industries.

The adoption of 5G also requires increased bandwidth, high speed, and low latency backhaul capability from the network edge to the network core.

This requires optical fiber upgrade or buildout as legacy copper line networks are decommissioned.

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In the labs, 800GbE fiber technology is being evaluated for the future next generation optical network.

These investments will extend fiber connectivity beyond the office and home and permeate “fiber-to-the-everywhere” (“FTTX”).

While new networks are expected to deploy 5G wireless and advanced optical fiber technology, existing network infrastructure that is not otherwise being upgraded is still expected to be modernized with new cable and access technologies.

These investments will extend fiber connectivity beyond the office and home and permeate “fiber-to-the-everywhere.”

While new networks are deploying 5G wireless and advanced optical fiber technology, existing network infrastructure that is not otherwise being upgraded is still expected to be modernized with new cable and access technologies.

Cable service providers are investing in DOCSIS 3.1 to enhance existing cable networks with higher speed connectivity and bandwidth capacity.

Some telecom operators with legacy copper digital subscriber line (DSL) have chosen to extend the useful life of these legacy networks by upgrading to Gfast technology.

Many operators, however, have decided to run these networks until no longer operable and then replace them with new fiber.

Many operators, however, have decided to run existing legacy networks until no longer operable and then replace them with new optical fiber.

The COVID-19 pandemic resulted in global work-office shutdown and Work-From-Home policies among network service providers, network equipment manufacturers and its related supply chain.

This in turn disrupted and delayed new network construction build out, general network maintenance and new technology development.

5G Wireless has broader applications beyond smart mobile devices.

5G’s increased bandwidth capacity and speed, as well as lower latency, this should enable numerous devices, referred to as the “Internet of Things” (“IOT”), to have greater device-to-device connectivity to enable smart homes, smart cities, smart and autonomous cars and other applications that are yet to be conceptualized.

5G’s increased bandwidth capacity and speed, as well as lower latency, should enable numerous devices, referred to as the “Internet of Things” (IOT), to have greater device-to-device connectivity to enable smart homes, smart cities, smart grid, smart and autonomous cars, factory automation and other applications that are yet to be conceptualized.

The scale and complexity of these technology shifts are also challenging service providers to rearchitect their networks, becoming more automated, virtualized and optimized based on real-time intelligence.

The convergence of network technologies requires significant investments from both the traditional carriers (telecom and cable) and cloud service providers.

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However, the new cloud service providers and virtualized networks create new NSE opportunities.

Our NE and SE products and

solutions are well positioned to meet these rapidly changing industry trends, given our technology and products, as well as customer installed base.

Our NE and SE products and solutions are well positioned to meet these rapidly changing industry trends, given our technology and products, as well as customer installed base.

NE ’s AvComm (or Avionics Communications) products from our acquisition of that business from Cobham plc in March 2018, further expand NSE ’s Test & Measurement (T&M) opportunity into the government, civil, aerospace and military markets for communications and public safety testing.

Military radio test and avionics products are a growth opportunity as defense and public safety department budgets increase significantly due to the ongoing upgrade from analog to digital communications.

The Aerospace market continues to remain robust with increased commercial airline passenger traffic expected to drive demand for aircraft and aircraft testing instruments.

Counterfeiting of banknotes and other goods is rising as counterfeiters now have increasing access to a broad range of advanced but relatively low-cost imaging technologies and printing tools.

This gives them the ability to create convincing simulations of actual documents and products for illicit purposes.

At the same time, both the availability of investigative resources and the penalties for counterfeiting can often be relatively modest when compared to other crimes.

The threat of counterfeiting of banknotes and documents of value is rising as counterfeiters have increasing access to a broad range of advanced but relatively low-cost imaging technologies and printing tools.

With this access, counterfeiters have the ability to potentially create simulations of actual documents and products for illicit purposes, creating the need for robust, technically sophisticated and easy to validate anti-counterfeiting features.

We have decades of anti-counterfeiting expertise leveraging our Optically Variable Pigment ( OVP® ), and our Optically Variable Magnetic Pigment ( OVMP® ) technologies to protect the integrity of banknotes and other high-value documents by delivering optical effects that, on one hand, consumers can easily recognize but on the other hand, counterfeiters find very difficult to reproduce.

We also provide optical technologies for government, healthcare, consumer electronics and industrial markets.

In addition to Anti-Counterfeiting solutions, we extend our optical technology expertise to solve complex problems and deliver unique solutions in other industries.

For example, we manufacture and sell optical filters for 3D sensing products that separate out ambient light from incoming data to allow devices to be controlled by a person’s movements or gestures.

Our proprietary low angle shift technology enables our customers to significantly improve the signal-to-noise ratio of their systems and deliver truly compelling system performance.

Through multiple generations of increasing performance and decreasing cost, we believe we remain the industry’s leading supplier of high-performance filters for depth-sensing systems in consumer electronics.

In October 2018, we acquired RPC Photonics (“ RPC ”), a technology leader in engineered optical diffusers which broadens the 3D Sensing product portfolio.

Engineered Diffusers TM are incorporated in 3D Sensing applications within a smartphone which diffuses the transmitted infrared laser light for critical eye safety.

This enables the safely transmitted infrared light to impinge on the target, i.e.

human facial profile, where the light is then reflected back to the 3D Sensor on the smartphone and an image process gathers the target information for facial recognition authentication.

In addition to Anti-Counterfeiting solutions, we also provide optical technologies for the 3D sensing, consumer electronics, government, automotive, and industrial markets.

For example, we manufacture and sell optical filters for 3D sensing applications that enable consumers to interact with their devices more naturally by allowing electronic devices to accurately measure depth and motion.

Our filters play an important role in those applications, separating out ambient light from the incoming data used by sensors to make precise measurements.

Notably, our patented low angle shift technology enables our customers to significantly improve the signal-to-noise ratio of their systems and deliver reliable system performance.

Through the development of multiple generations of products for 3D sensing and by delivering improved performance and competitive value with each iteration, we believe we have established ourselves as the industry’s leading supplier of high-performance filters enabling depth-sensing systems in consumer electronics.

In October 2018, we broadened our portfolio of 3D sensing technologies when we acquired RPC Photonics ( RPC ), a technology leader in engineered optical diffusers, marketed under the trademark “Engineered Diffusers TM .” Engineered Diffusers TM diffuse the infrared laser light transmitted by a smartphone in 3D sensing applications, enabling reliable system performance while guarding eye safety.

In user facing applications of 3D sensing including facial recognition, our Engineered Diffusers TM enable infrared light to safely impinge on the target, i.e.

human facial profile.

That light is then reflected back to the 3D Sensor on the smartphone and an image process gathers the target information.

Sales and Marketing

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We also market and sell products to network equipment manufacturers ( NEMs ), original equipment manufacturers ( OEMs ), enterprises, governmental organizations, distributors and strategic partners worldwide.

We have a dedicated sales force organized around the markets a given segment serves that works directly with customers’ executive, technical, manufacturing and purchasing personnel to determine design, performance, and cost requirements.

We have a dedicated sales force organized around each of the markets that we serve that works directly with customers’ executive, technical, manufacturing and purchasing personnel to determine design, performance and cost requirements.

We are also supported by a worldwide channel community, including our Velocity Solution Partners who support our NE and SE segments.

OSP sales and marketing efforts are targeted primarily toward customers in the consumer electronics, government, industrial, medical and automotive markets.

We have a dedicated direct global sales force focused on understanding customers’ requirements and building market awareness and acceptance of our products.

Our direct sales force is complemented by a highly trained team of field applications engineers who assist customers in designing, testing and qualifying our products.

We market our products and capabilities through attendance at trade shows, the production of promotional webinars, participation in technical forums, select advertising and by developing customer partnerships.

A high level of support is a critical part of our strategy to develop and maintain long-term collaborative relationships with our customers.

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Our heritage includes several significant mergers and acquisitions including, among others, the combination of Uniphase Corporation and JDS FITEL in 1999.

In 2000 we acquired Optical Coatings Lab, Inc., which is currently part of our OSP business segment, and in 2005 we acquired Acterna, Inc.

which is currently part of our NSE business segment(s).

Following these acquisitions, we operated as a company comprised of a portfolio of businesses with a focus on optical innovation, communications network and service enablement, commercial lasers and anti-counterfeiting solutions.

In August 2015, JDSU separated the portfolio of businesses into two separate publicly-traded companies to gain greater strategic flexibility to address rapidly changing market dynamics.

In 2000, we acquired Optical Coatings Laboratory, Inc., which is currently part of our OSP business segment, and in 2005 we acquired Acterna, Inc.

which is currently part of our NSE business segments.

Following these acquisitions, we operated as a company comprised of a portfolio of businesses with a focus on optical innovation, communications network

and service enablement, commercial lasers and anti-counterfeiting solutions.

In August 2015, JDSU completed the separation of our Lumentum business (the Separation) to gain greater strategic flexibility to address rapidly changing market dynamics.

At the same time, we changed our name to Viavi Solutions Inc.

Additionally, for the last several years, we have implemented multiple manufacturing, facility, organizational and product line transitions.

We expect some of these activities to continue for the foreseeable future.

Our headquarters are located at 6001 America Center Drive, San Jose, California 95002 , and our telephone number is (408) 404-3600.

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We are subject to the requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), under which we file annual, quarterly and periodic reports, proxy statements and other information with the SEC .

Such periodic reports, proxy

statements, and other information are available for inspection and copying at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549 or may be obtained by calling the SEC at 1-800-SEC-0330.

The SEC maintains a website, www.sec.gov , which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC .

We also make available free of charge, all of our SEC filings on our website at www.viavisolutions.com/investors as soon as reasonably practicable after they are electronically filed with or furnished to the SEC .

The information contained on our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider any information contained on, or that can be accessed through, our website as part of this Annual Report on Form 10-K or in deciding whether to purchase our common stock.

We have included our website address only as an inactive textual reference and do not intend it to be an active link to our website.

The information contained on any of the websites referenced in this Annual Report on Form 10-K are not part of or incorporated by reference into this or any other report we file with, or furnish to, the SEC.

Corporate Strategy

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Market leadership in physical and virtualized test and measurement instruments with opportunity to grow market share;

Market leadership in Anti-Counterfeiting pigments and 3D sensing optical filter and Engineered Diffuser TM ;

Market leadership in Anti-Counterfeiting pigments, 3D sensing optical filters and Engineered Diffusers TM ;

Market leadership in 5G wireless, public safety radio and navigation/communication transponder test instruments;

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Greater flexibility in capital structure enabling greater capital return to shareholders.

Our near-term strategy, our next transformation phase, will be a greater focus on growth, both organic and inorganic.

Our near-term strategy, and next transformation phase, will be a greater focus on growth, both organic and inorganic.

We expect to leverage major secular growth trends in 5G Wireless, Fiber and 3D Sensing to achieve higher levels of revenue and profitability.

Our long-term capital allocation strategy, which supports our corporate strategy, is as follows:

Maintenance and run-rate investments to support operational and capital spending;

Maintenance and run-rate investments to support operations;

Organic investments in initiatives to support revenue growth and productivity;

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Business Segments

During fiscal 2019 we operated in two broad business categories:

We operate in two broad business categories:

NSE operates in two reportable segments, NE and SE , whereas OSP operates as a single segment.

Our NSE and OSP businesses each are organized with its own engineering, manufacturing and dedicated sales and marketing groups focused on each of the markets we serve to better support our customers and respond quickly to market needs.

Our NSE and OSP businesses are each organized with its own engineering, manufacturing and dedicated sales and marketing groups focused on each of the markets we serve to better support our customers and respond quickly to market needs.

In addition, our segments share common corporate services that provide capital, infrastructure, resources and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets.

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June 29, 2019

June 30, 2018

Network Enablement

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Network Enablement

On May 31, 2019, we completed the acquisition of 3Z Telecom, Inc.

(“3Z”) a provider of antenna alignment installation and monitoring solutions.

Refer to “ Note 6.

Acquisitions ” for more information.

On March 15, 2018, we completed the acquisition of the AvComm and Wireless businesses (“ AW ”) of Cobham plc.

AW has been integrated into the NE segment.

Refer to “ Note 6.

Acquisitions ” for more information.

On August 9, 2017, we completed the acquisition of Trilithic, Inc.

(“Trilithic”).

Trilithic has been integrated into the NE segment.

Refer to “ Note 6.

Acquisitions ” for more information.

Our NE segment provides an integrated portfolio of testing solutions that access the network to perform build-out and maintenance tasks.

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Our Radio Access Network (RAN to Core) test and validation product addresses the various communications infrastructure market segments.

Wireless’ IP, product and customer portfolio facilitates strategic growth synergy across NSE, strengthening its position in 4G and providing a compelling overall 5G value proposition benefiting our customers.

Building scale and presence allows key customers to combine Wireless lab with incumbent and future NSE fiber metro and field test products to optimize evolving network configurations.

We also offer a range of product support and professional services designed to comprehensively address our customers’ requirements.

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Our professional services, provided in conjunction with system integration projects, include project management, installation and implementation.

Our Avionics products acquired through prior acquisition is a global leader in the T&M Instrumentation for communication and safety in the government, civil, aerospace and military markets.

Our Avionics products group is a global leader in T&M instrumentation for communication and safety in the government, civil, aerospace and military markets.

Avionic product solutions encompass a full spectrum of instrumentation from turnkey systems, stand-alone instruments or modular components that provide customers with highly reliable, customized, innovative and cost-effective testing tools.

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NE customers include CSP s, NEM s, 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, radio and avionics commercial companies, OEMs, civil, state and federal agencies, utilities, law enforcement, military contractors and the armed forces and deployed private enterprise customers.

Our customers include América Móvil, AT&T Inc., CenturyLink, Inc., Cisco Systems, Inc., Comcast Corporation, Nokia Solutions and Networks and Verizon Communications Inc.

Our customers include América Móvil, AT&T Inc., Inc., CenturyLink, Inc., Cisco Systems, Inc., Nokia Solutions and Networks and Verizon Communications Inc.

No single NE customer accounted for more than 10% of our net revenue during fiscal 2020 , 2019 or 2018 .

Several network technology trends are taking place to support the growing bandwidth demand and are impacting the way NEM s and CSP s design, build and deploy new network systems.

These trends are driving shifts in capital spending with the deployment of 100G Metro optical fiber, cable upgrades to DOCSIS 3.1, DSL copper line upgrades to Gfast as well as increased wireless deployment of 4G/LTE and emergence of advanced LTE and 5G.

These trends are driving shifts in capital spending with the transition to advanced LTE and 5G, cable upgrades to DOCSIS 3.1, DSL copper line upgrades to Gfast, deployment of 100G Metro optical fiber, 400G in optical transport, and adoption of advanced network management technologies such as virtualization, assurance and automation.

As service providers face pricing pressure on their average revenue per user (ARPU) metrics, they are turning to our NE products solutions to both reduce the need for physical customer service visits through faster installation and repair completion and improve user satisfaction.

For our avionics products, many governments across the globe are increasing their military and public safety budgets to upgrade communication infrastructure.

In Aerospace, continued increase in commercial airline passenger traffic is expected to drive increased aircraft and aircraft testing instruments demand.

We plan to maintain market leadership in NE reinforced by:

Scaling NE through share gain, consolidation, and expansion into adjacent markets

“Go deep” corporate development model to drive operating leverage

Our NE segment competes against various companies, including Anritsu Corporation, EXFO Inc., Keysight Technologies Inc., Rohde & Schwarz, VeEX Inc., Spirent Communications plc.

and Artiza Networks, Inc.

While we face multiple competitors for each of our product families, we continue to have one of the broadest portfolios of wireline and wireless products available in the network enablement industry.

While we face multiple competitors

for each of our product families, we continue to have one of the broadest portfolios of wireline and wireless products available in the network enablement industry.

In Aerospace and Tactical Communications, AvComm competes against Anritsu, Astronics DME Corp., General Dynamics and Tel Instruments.

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Our professional services, provided in conjunction with system integration projects, include project management, installation and implementation.

Our NE products and associated services including acquired Trilithic and AW business are, as follows:

Our NE products and associated services including the acquired Trilithic and AW businesses are, as follows:

Field Instruments :

Primarily consisting of (a) Access and Cable products;

(b) Fiber Instrument products;

(d) RF Test products;

(e) Radio Test products;

and (f) Avionics products;

(b) Avionics products;

(d) Metro products;

(e) RF Test products;

and (f) Radio Test products.

Lab Instruments :

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and (d) Wireless products.

For the purposes of providing year-over-year variance analysis in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K, we have reflected these changes for all prior periods presented so that they are comparable with our current groupings.

Service Enablement

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These solutions - which primarily consist of instruments, microprobes and software - monitor, collect and analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams and network optimization.

Our portfolio of SE solutions addresses the same lab and production environments, field deployment and service assurance for wireless and fixed communications networks, including storage networks, as our NE portfolio.

Our solutions let carriers remotely monitor performance and quality of network, service and applications performance throughout the entire network.

This provides our customers with enhanced network management, control, and optimization that allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, help to make necessary repairs

faster and, as a result, lower costs while providing higher quality and more reliable services.

Our assurance solutions let carriers remotely monitor performance and quality of network, service and applications performance throughout the entire network.

Remote monitoring decreases operating expenses, while early detection helps increase uptime, preserve revenue, and helps operators better monetize their networks.

Our network performance management products help enterprise IT and security teams monitor and optimize connectivity for their employees across on-premise and cloud domains and conduct preventative and forensic analysis to address rising security challenges.

This functionality has become more critical as organizations have been forced to adopt remote working procedures, increasing network challenges and security risks.

Our SE segment provides solutions and services primarily for communication service providers and enterprises that deliver and/or operate broadband/IP networks (fixed and mobile) supporting voice, video and data services as well as a wide range of applications.

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Our Data Center product and solutions offerings address customers’ needs to support data center network traffic through application and performance monitoring.

In late 2016, we implemented the “Big NE, Focused SE” strategy to emphasize Virtualized Instruments and Assurance.

We invested in areas of tight integration and synergies with NE to align with industry macro trends focused the SE portfolio on products and solutions to provide meaningful return on investment (“ROI”) and drive profitability.

Competitors of SE include NetScout Systems, Inc., Riverbed Technology and Spirent Communications plc.

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Data Center :

Consisting of our Network Performance Monitoring and Security tools.

Primarily consisting of our (a) Mature Products (Legacy Assurance, Legacy Wireline, Protocol Test, Video Assurance products and RAN) and (b) Growth Products (xSight, Packet Portal products, Location Intelligence).

For the purposes of providing year-over-year variance analysis in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K, we have reflected these changes for all prior periods presented so that they are comparable with our current groupings.

In the second half fiscal 2017, we implemented our Focused NSE restructuring plan as part of its strategy to improve profitability in our NSE business by narrowing the scope and focus of the SE business.

The smaller, more focused SE segment includes Data Center products, mobile assurance products like xSight and Location Intelligence and invest in development of automation and virtualized network.

The SE segment also retains the more mature Assurance product portfolio that is largely maintenance and service contract.

Consisting of our Network Performance Monitoring and Security tools (Apex, GigaStor, Observer).

Primarily consisting of our (a) Growth Products (Location Intelligence and Nitro Mobile products) and (b) Mature Products (Legacy Assurance and Legacy Wireline).

Optical Security and Performance Products

On October 30, 2018, we completed the acquisition of RPC Photonics, Inc.

(“RPC”) which expands our 3D Sensing offerings.

Refer to “ Note 6.

Acquisitions ” for more information.

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

Our security offerings for the currency market include OVP® , OVMP® and banknote thread substrates.

OVP® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents.

Our security offerings for the anti-counterfeiting market include OVP® and OVMP® .

OVP® enables color-shifting effects and OVMP® enables depth and motion effects in addition to color-shifting effects.

Both OVP® and OVMP® are formulated into inks used by banknote issuers and security printers worldwide for anti-counterfeiting applications on banknotes and other high-value documents.

Our technologies are deployed on the banknotes of more than 100 countries today.

OSP also develops and delivers overt and covert Anti-Counterfeiting products that utilize its proprietary printing platform and are targeted primarily at the pharmaceutical and consumer-electronics markets.

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

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These products, including coatings, optical filters and Engineered Diffusers TM , are optimized for each specific application.

Our OSP segment delivers overt and covert features to protect governments and brand owners against counterfeiting, with a primary foc us on the currency market.

OSP also produces precise, high-performance, optical thin-film coatings for a variety of applications i n consumer electronics, government, healthcare and other markets.

For example, optical filters are used in 3D sensing products and other applications.

In addition, we offer custom color solutions that include innovative optically-based color-shifting and other features that provide product enhancement for brands in the automotive and other industries.

OSP serves customers such as 3M Company, FLIR Systems, Inc., IDT Corporation, Lockheed Martin Corporation, Seiko Epson Corporation, SICPA Holding SA Company (SICPA) and STMicroelectronics Holding N.V.

One OSP customer generated more than 10% of our net revenue.

Our OSP segment delivers overt and covert features to protect banknotes and documents of value against counterfeiting, with a primary foc us on the currency market.

OSP also produces precise, high-performance, optical thin-film coatings for a variety of applications i n consumer electronics, government, automotive, industrial, and other markets.

For example, we design and produce optical filters which are used in 3D sensing products and other applications.

In addition, we offer custom color solutions that include innovative special effects pigments that provide product enhancement for brands in the automotive and other industries.

OSP serves customers such as SICPA Holding SA Company (SICPA), STMicroelectronics Holding N.V., Lockheed Martin Corporation and Seiko Epson Corporation.

During fiscal 2020 , 2019 and 2018 , net revenue from SICPA represen ted 12.3%, 14 .3%, 14.8%, respectively, of our net revenue.

Counterfeiting of banknotes and other goods has risen as counterfeiters have increased access to a broad range of advanced but relatively low-cost imaging technologies and printing tools, giving them the ability to create convincing simulations of actual documents and products for illicit purposes.

At the same time, the available investigative resources and the penalties for counterfeiting can often be relatively modest when compared to other crimes.

As a result, demand is increasing for sophisticated overt anti-counterfeiting features, such as our OVP® and OVMP® technologies, which consumers can easily validate without the use of special tools but are difficult to create or simulate using conventional printing technology.

The aerospace, defense, consumer electronics and medical/environmental instrumentation markets require customized, high-precision coated products and optical components that selectively absorb, transmit or reflect light to meet the performance requirements of sophisticated systems.

Our custom optics products offer an array of advanced technologies and precision optics-from the UV to the far IR portion of the light spectrum to meet the specific requirements of our customers.

3D sensing is an emerging technology, where OSP’s optical filters and Engineered Diffusers TM plan to be deployed in smartphones for facial recognition biometric authentication.

3D sensing optical filters separate out ambient light from incoming data to allow devices to be controlled by a person’s movements, gestures or features.

Other potential technology markets for OSP’s optical filters include augmented/virtual reality, sensors deployed in autonomous vehicles and Internet of Things (IoT).

Engineered Diffusers TM optimize transmitted infrared laser light in a 3D sensing module to ensure visual eye safety.

Counterfeiting of banknotes and other documents of value is rising as counterfeiters have access to a broad range of advanced but relatively low-cost imaging technologies and printing tools, giving them the potential ability to create simulations of banknotes and other documents of value for illicit purposes.

As a result, demand is increasing for sophisticated overt anti-counterfeiting features, such as our OVP® and OVMP® technologies.

These technologies enable consumers, merchants, and law enforcement to easily validate banknotes and documents of value without the use of special tools.

At the same time, the effects created by these technologies are difficult to create or simulate using conventional printing technology.

The consumer electronics, government, automotive and instrumentation markets require customized, high-precision coated products and optical components that selectively absorb, transmit or reflect light to meet the performance requirements of sophisticated systems.

Our unique and proprietary deposition platforms and decades of know-how enable us to offer an array of advanced technologies and precision optics-from the UV to the far IR portion of the light spectrum to meet the specific requirements of our customers.

OSP’s optical filters and Engineered Diffusers TM are deployed in smartphones to enable 3D sensing applications including facial recognition biometric authentication.

3D sensing optical filters separate out ambient light from incoming data for more natural interactions between consumers and devices, allowing devices to be controlled by a person’s movements, gestures or features.

Other potential applications for OSP’s optical filters include augmented/virtual reality, sensors deployed in autonomous vehicles and IoT.

Engineered Diffusers TM optimize transmitted infrared laser light in a 3D sensing module while ensuring visual eye safety.

The diffuser redirects the laser light to avoid direct eye contact, a critical safety feature for 3D sensing applications.

Our strategy is to leverage proprietary pigments and optical coating technologies to build market leadership in large, high value applications .

Defend and expand our core Anti-Counterfeiting product offering;

Expand into high value existing and emerging automotive, military and industrial applications;

Selectively target high volume consumer 3D sensing applications

OSP’s competitors include providers of anti-counterfeiting features such as Giesecke & Devrient, De La Rue plc;

special-effect pigments like Merck KGA;

coating companies such as Nidek, Toppan, and Toray and optics companies such as Materion and Deposition Sciences;

coating companies such as Nidek, Toppan, and Toray and optics companies such as Materion;

and optical filter companies such as II-VI Inc.

Our OSP business provides innovative optical security and performance products which serve a variety of applications for customers in the anti-counterfeiting, consumer and industrial, government, healthcare and other markets.

Our OSP business provides innovative optical security and performance products which serve a variety of applications for customers in the anti-counterfeiting, consumer electronics, government, automotive, industrial, and other markets.

Anti-Counterfeiting:

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This technology provides a color-shifting effect that enables intuitive visual verification of banknotes.

We also provide other technologies to the banknote market including OVMP®, a technology that delivers depth and other visual effects for intuitive overt verification.

In addition, our proprietary printing processes deliver Anti-Counterfeiting solutions for security labels, used by the pharmaceutical and consumer electronics industries for brand protection.

We also provide OVMP®, a technology that delivers depth and motion effects for authenticating banknotes.

For product differentiation and brand enhancement, we provide custom color solutions for a variety of applications using our ChromaFlair® and SpectraFlair® pigments to create color effects that emphasize body contours, create dynamic environments, or enhance products in motion.

These pigments are added to paints, plastics or textiles for products and packaging.

These pigments are added to paints, plastics or textiles for automotive, packaging, and other applications.

Consumer and Industrial:

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These products, including coatings and optical filters, are optimized for each specific application.

Healthcare and Other Markets:

Industrial and Other Markets:

We provide multicavity and linear variable optical filters on a variety of substrates for applications including, thermal imaging, and spectroscopy and pollution monitoring.

We also develop and manufacture miniature spectrometers that leverage our linear variable optical filters for use in applications for agriculture, pharmaceuticals, government and other markets.

We also develop and manufacture miniature near infrared spectrometers that leverage our linear variable optical filters for use in applications for agriculture, pharmaceuticals and other markets.

As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or strengthen, our existing products.

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On March 15, 2018, we completed the acquisition of AW, which further strengthens our competitive position in 5G deployment and diversifies our product offerings into military, public safety and avionics test markets.

On August 9, 2017, we completed the acquisition of Trilithic Inc.

(“Trilithic”) a provider of electronic test and measurement equipment for telecommunications service providers.

On August 9, 2017, we completed the acquisition of Trilithic, a provider of electronic test and measurement equipment for telecommunications service providers.

The acquisitions of 3Z, AW and Trilithic have been integrated into our NE business segment.

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Research and Development

During fiscal 2019 , 2018 and 2017 , we incurred R&D expenses of $187.0 million , $133.3 million and $136.3 million , respectively.

During fiscal 2020 and 2019 , we incurred R&D expenses of $193.6 million and $187.0 million , respectively.

As of June 27, 2020 , we had approximately 1,000 employees engaged in R&D.

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In our NE and SE segments, we develop portable test instruments for field service technicians, systems and software used in Network Operations Centers, and instruments used in the development, testing and production of communications network components, modules and equipment.

We are increasing our focus on IP-based service assurance and customer experience management, and test instruments for wireless networks and services, while continuing to develop tools for fiber optic, optical transport, Ethernet, broadband access, video test and storage network testing.

We have centers of excellence for product marketing and development in Asia, Europe and North America.

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As of June 27, 2020 , we owned approximately 793 U.S.

patents and 1,295 foreign patents and have 767 patent applications pending throughout the world.

patents and 1,478 foreign patents and have 913 patent

applications pending throughout the world.

The average age of the patents we hold is 11.6 years , which is slightly older than the midpoint of the average 20-year life of a patent.

We consider our backlog balance to be an estimate of future revenue to be earned from contractually committed product and service arrangements.

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Due to possible changes in product delivery schedules and cancellation of product orders, and because our sales often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period.

We employed approximately 3,600 employees as of June 29, 2019 , which included approximately 1,200 employees in manufacturing, 1,000 employees in research and development, 850 employees in sales and marketing, and 550 employees in

general and administration.

This compared to a workforce of approximately 3,500 as of June 30, 2018 , and 2,700 as of July 1, 2017 .

Stock-based Compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award.

We recognize stock-based compensation cost over the award’s requisite service period on a straight-line basis.

Similar to other technology companies, we rely upon our ability to use “Full Value Awards” (as defined below) and other forms of stock-based compensation as key components of our executive and employee compensation structure.

Full Value Awards refer to restricted stock units (“RSUs”), market-based RSUs (“MSUs”) and performance-based RSUs (“PSUs”) that are granted without an exercise or purchase price and are converted to shares immediately upon vesting.

The MSUs have vesting requirements tied to the performance of our stock as compared to the Nasdaq telecommunications index, and could vest at a higher or lower rate or not at all, based on this relative performance.

The PSUs have vesting requirements tied to our performance.

Historically, these components have been critical to our ability to retain important personnel and offer competitive compensation packages.

Without these components, we would be required to significantly increase cash compensation levels or develop alternative compensation structures to retain our key employees.

Outside of the United States, our businesses are subject to labor laws that differ from those in the United States.

We follow statutory requirements, and in certain European countries it is common for a works council, consisting of elected employees, to represent the sites when discussing matters such as compensation, benefits or terminations of employment.

We consider our employee relations to be good.

We employed approximately 3,600 employees as of June 27, 2020 , which included approximately 1,200 employees in manufacturing, 1,000 employees in research and development, 900 employees in sales and marketing, and 500 employees in general and administration.

This compared to a workforce of approximately 3,600 as of June 29, 2019 , and 3,500 as of June 30, 2018 .

None of our employees in the U.S.

is represented by a labor union;

however, in certain foreign subsidiaries, labor unions or workers’ councils represent some of our employees.

At VIAVI, the health, safety and wellbeing of our employees, customers, partners, suppliers, communities are of the utmost importance.

We have suspended international business travel and are conducting meetings with customers and partners remotely.

We have established an internal COVID-19 task force with management representation from human resources, legal, facilities and business units and are closely monitoring developments.

We have updated our business continuity plans and our IT team continues to enhance remote work capabilities and cybersecurity tools.

Our employees have access to a centralized resource portal for COVID-19 where they can find health and safety information and support tools.

While we, along with the rest of the world continue to navigate the risks and uncertainties associated with the COVID-19 pandemic, we are committed to continuing to provide a safe and supportive work environment for our employees and are following all recommended protocols from state and local regulators and health authorities.

Environmental, Social and Governance

All of our stakeholders are essential to our business-stockholders, customers, suppliers, employees, communities as well as the environment and society.

We are working to making our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong environmental, social and governance (ESG) practices.

We detail our overall ESG strategy and our ESG progress on our ESG web page and in our annual Corporate Social Responsibility Report, which can both be found at www.viavisolutions.com/csr .

Our business is seasonal, as is typical for our competitors and many large companies.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business