What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-08-24 compared with 2019-08-27 · 453 added, 584 removed, 1483 unchanged (41% of the section changed)

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of Viavi Solutions Inc.

and its subsidiaries (the “Company”) as of June 29, 2019 and June 30, 2018 and the related consolidated statements of operations, of comprehensive (loss) income, of stockholders’ equity and of cash flows for each of the three years in the period ended June 29, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of June 27, 2020 and June 29, 2019, and the related consolidated statements of operations, of comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the period ended June 27, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of June 27, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue from contracts with customers as of July 1, 2018.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of June 30, 2019.

Basis for Opinions

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Identifying and Evaluating Performance Obligations in Certain Customer Contracts in the Network Enablement and Service Enablement Reportable Segments

As described in Notes 1 and 19 to the consolidated financial statements, the Company had $1,136.3 million of revenue for the year ended June 27, 2020 of which $746.7 million and $102.7 million related to the Network Enablement and Service Enablement segments, respectively.

The Company’s revenue recognition is determined by management through the following steps:

1) identification of the contract with a customer;

2) identification of the performance obligations in the contract;

3) determination of the transaction price;

4) allocation of the transaction price to the performance obligations in the contract;

and 5) recognition of revenue when (or as) the performance obligations are satisfied.

Certain of the Company’s contracts with customers include performance obligations consisting of a variety of products and services and may involve a significant level of integration and interdependency between performance obligations.

Identifying and evaluating whether products and services are considered distinct performance obligations may require significant management judgment, particularly in the Network Enablement and Service Enablement reportable segments due to the nature of the products and service offerings.

The principal considerations for our determination that performing procedures relating to revenue recognition - identifying and evaluating performance obligations in certain customer contracts in the Network Enablement and Service Enablement reportable segments is a critical audit matter are the significant judgment by management in identifying and evaluating performance obligations, which in turn led to a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence obtained related to whether such performance obligations were appropriately identified and evaluated by management.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, (i) testing the effectiveness of internal controls relating to the revenue recognition process, including internal controls related to the identification and evaluation of performance obligations in contracts with customers, and (ii) testing, on a sample basis, the completeness and accuracy of management’s identification and evaluation of performance obligations in certain customer contracts in the Network Enablement and Service Enablement reportable segments.

/s/ PricewaterhouseCoopers LLP

7 unchanged sentences

June 29, 2019

June 30, 2018

Product revenue

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Income from operations

Interest income and other income (expense), net

(Loss) gain on sale of investments

Interest and other income, net

Interest expense

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Income (loss) from continuing operations, net of taxes

(Loss) income from discontinued operations, net of taxes

Loss from discontinued operations, net of taxes

Net income (loss)

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VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

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June 29, 2019

June 30, 2018

Net income (loss)

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Unrealized holding gains (losses) arising during period

reclassification adjustments included in net income (loss)

reclassification adjustments included in net income

Net change in defined benefit obligation, net of tax:

Unrealized actuarial (losses) gains arising during period

Unrealized actuarial losses arising during period

Amortization of actuarial losses

Net change in accumulated other comprehensive (loss) income

Comprehensive (loss) income

Net change in accumulated other comprehensive loss

Comprehensive loss

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

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Stockholders’ equity:

Preferred stock, no shares authorized, issued or outstanding at June 29, 2019.

$0.001 par value;

1 million shares authorized;

1 share issued and outstanding at June 30, 2018.

Preferred stock, $0.001 par value;

1 million shares authorized, no shares issued or outstanding at June 27, 2020 and June 29, 2019.

Common stock, $0.001 par value;

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June 29, 2019

June 30, 2018

OPERATING ACTIVITIES:

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Loss on extinguishment of debt

Changes in operating assets and liabilities, net of separation distribution and acquisitions:

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable

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Proceeds from the sale of assets

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

FINANCING ACTIVITIES:

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Withholding tax payment on vesting of restricted stock awards

Net cash (used in) provided by financing activities

Payment of acquisition related holdback

Payment of acquisition related contingent consideration

Net cash used in financing activities

Effect of exchange rates on cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period (1)

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Cash paid for income taxes

(1) These amounts include both current and non-current balances of restricted cash totaling $ 12.9 million , $ 18.0 million and $ 18.2 million as of June 30, 2018 , July 1, 2017 and July 2, 2016 , respectively.

(1) These amounts include both current and non-current balances of restricted cash totaling $ 8.9 million , $ 12.9 million and $ 18.0 million as of June 29, 2019 , June 30, 2018 and July 1, 2017 , respectively.

(2) These amounts include both current and non-current balances of restricted cash totaling $ 8.4 million , $ 8.9 million and $ 12.9 million as of June 27, 2020 , June 29, 2019 and June 30, 2018 , respectively.

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

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Balance at July 1, 2017

Cumulative impact of adoption of ASC 606

Comprehensive loss

Other Comprehensive loss

Shares issued under employee stock plans, net of tax effects

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Issuance of senior convertible notes

Cumulative adjustment from adoption of ASU 2016-09 (Topic 718)

Reacquisition of 2033 Notes equity component

Balance at July 1, 2017

Balance at June 30, 2018

Other comprehensive loss

2 unchanged sentences

Repurchase of common stock

Issuance of senior convertible notes

Cumulative adjustment from adoption of ASU 2016-09 (Topic 718)

Reacquisition of 2033 Notes equity component

Balance at June 29, 2019

Cumulative adjustment for adoption of ASU 2016-02 (Topic 842)

Other comprehensive loss

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VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Basis of Presentation

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The Company utilizes a 52-53-week fiscal year ending on the Saturday closest to June 30th.

The Company’s 2019 , 2018 and 2017 fiscal years were 52-week fiscal years ending on June 29, 2019 , June 30, 2018 and July 1, 2017 , respectively.

The Company’s 2020 , 2019 and 2018 fiscal years were 52-week fiscal years ending on June 27, 2020 , June 29, 2019 and June 30, 2018 , respectively.

Principles of Consolidation

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All inter-company accounts and transactions have been eliminated.

Reclassification of Prior Period Balances

Certain reclassifications have been made to prior period amounts to conform to the current-year presentation.

These reclassifications have no effect on the reported net income (loss) for the fiscal years ending on June 27, 2020 , June 29, 2019 and June 30, 2018 .

Use of Estimates

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If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect more readily available information.

Actual results may differ from these estimates due to the uncertainty around the magnitude, duration and effects of the COVID-19 pandemic, as well as other factors.

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China by the Chinese government in December 2019, and subsequently declared an international pandemic by the World Health Organization (WHO) in March 2020.

The worldwide spread of the COVID-19 virus has resulted in a global slowdown of economic activity which is likely to decrease demand for a broad variety of goods and services, including from our customers, while also continuing to disrupt sales channels and marketing activities for an unknown period of time until the disease is contained.

While, the Company expects this to have a negative impact to our sales and our results of operations, the Company is not aware of any specific event or circumstances that would require an update to the estimates or judgments or a revision of the carrying value of assets or liabilities as of the date of issuance of this Annual Report on Form 10-K.

These estimates may change, as new events occur and additional information becomes available.

Actual results may differ materially from these estimates assumptions or conditions due to risks and uncertainties, including uncertainty in the current economic environment due to the COVID-19.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash and Cash Equivalents

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At June 27, 2020 and June 29, 2019 , the Company’s short-term restricted cash balances were $ 3.5 million and $ 3.5 million , respectively.

The Company’s long-term restricted cash balances were $ 5.4 million and $ 5.6 million as of June 29, 2019 and June 30, 2018 , respectively.

The Company’s long-term restricted cash balances, included in other non-current assets in the Company’s consolidated balance sheets, were $ 4.9 million and $ 5.4 million as of June 27, 2020 and June 29, 2019 , respectively.

These balances primarily include interest-bearing investments in bank certificates of deposit and money market funds which act as collateral supporting the issuance of letters of credit and performance bonds for the benefit of third parties.

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The Company periodically reviews these debt investments for impairment.

If a debt security’s fair value is below amortized cost and the Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to current earnings for

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the entire amount of the impairment;

if a debt security’s fair value is below amortized cost and the Company does not expect to recover the entire amortized cost of the security, the Company separates the other-than-temporary impairment into the portion of the loss related to credit factors, or the credit loss portion, and the portion of the loss that is not related to credit factors, or the non-credit loss portion.

If a debt security’s fair value is below amortized cost and the Company does not expect to recover the entire amortized cost of the security, the Company separates the other-than-temporary impairment into (i) the portion of the loss related to credit factors, or the credit loss portion, and (ii) the portion of the loss that is not related to credit factors, or the non-credit loss portion.

The credit loss portion is the difference between the amortized cost of the security and the Company’s best estimate of the present value of the cash flows expected to be collected from the debt security.

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Level 3 inputs and valuation models are monitored and reviewed by the Company to help ensure the fair value measurements are reasonable and consistent with market experience in similar asset classes.

Due to the short period of time to maturity, the Company approximates the fair values of its cash equivalents, accounts receivable, accounts payable and deferred compensation liability.

Estimates of fair value of fixed-income securities are based on third party, market-based pricing sources which the Company believes to be reliable.

These estimates represent the third parties’ good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale.

These estimates represent the third parties’ good faith opinion as to what a buyer in the marketplace would

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

pay for a security in a current sale.

For instruments that are not actively traded, estimates may be based on current treasury yields adjusted by an estimated market credit spread for the specific instrument.

The fair value of the Company’s 1.75 % Senior Convertible Notes due 2023 and 1.00 % Senior Convertible Notes due 2024 fluctuates with interest rates and with the market price of the Company’s stock, but does not affect the carrying value of the debt on the balance sheet.

Refer to “ Note 11.

Debt ” for more information.

The fair value of earn-out liabilities are determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-adjusted discount rate, gross profit volatility, and projected financial forecast of acquired business over the earn-out period.

Our other current financial assets and current financial liabilities have fair values that approximate their carrying values.

The Company’s inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable value.

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The Company’s inventory amounts include material, labor, and manufacturing overhead costs.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

If 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 right-of-use (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.

Property, Plant and Equipment

1 unchanged sentence

Depreciation is computed using a straight-line method, over the estimated useful lives of the assets:

building and improvements 10 to 50 years, machinery and equipment 2 to 20 years, furniture, fixtures, software and office equipment 2 to 5 years.

building and improvements 10 to 50 years;

machinery and equipment 2 to 20 years;

and furniture, fixtures, software and office equipment 2 to 10 years.

Leasehold improvements are amortized on the straight-line method over the lesser of the estimated useful lives of the asset or the initial lease term.

4 unchanged sentences

Costs capitalized for computer software developed or obtained for internal use are included in Property, plant and equipment, net , on the Company’s Consolidated Balance Sheets.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Goodwill represents the excess of the purchase price paid, over the net fair value of assets acquired and liabilities assumed, to purchase an enterprise or asset.

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Measurement of an impairment loss would be based on the excess of the carrying amount of the asset or asset group over its estimated fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Estimates of future cash flow require significant judgment based on anticipated future and operating results, which are subject to variability and change.

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Service cost represents the actuarial present value of participant benefits attributed to services rendered by employees in the current year.

Interest cost represents the time value of money cost associated with the passage of time.

Interest cost represents the time value of money cost associated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

with the passage of time.

(Gains) losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions.

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In addition, the Company records additional allowances based on certain percentages of aged receivable balances.

These percentages

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

consider a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience.

The Company classifies bad debt expenses as SG&A expense.

These percentages consider a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience.

The Company classifies bad debt expenses as selling, general and administrative (SG&A) expense.

The Company is not able to predict changes in the financial stability of its customers.

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The Company relies on a limited number of suppliers and contract manufacturers for a number of key components and sub-assemblies contained in the Company’s products.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company generally uses a rolling twelve -month forecast based on anticipated product orders, customer forecasts, product order history and backlog to determine its materials requirements for any one period.

7 unchanged sentences

The fair value of these contracts is reflected as other current assets or liabilities and the change in fair value of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of interest and other income, net.

The gain or loss from the change in fair value of these foreign currency forward contracts largely offsets the change in fair value of the foreign currency denominated monetary assets or liabilities, which is also recorded as a component of Interest income and other income (expense), net .

Foreign Currency Translation

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Income and expense accounts are translated at exchange rates from the prior month end, which are deemed to approximate the exchange rate when the income and expense is recognized.

Gains and losses from re-measurement of monetary assets and liabilities that are denominated in currencies other than the respective functional currencies are included in the Consolidated Statements of Operations as a component of Interest income and other income (expense), net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Revenue Recognition

In the first quarter of fiscal 2019, the Company adopted ASC 606 (“revenue standard”) using the retrospective transition method which requires the Company to recast each prior period presented.

The most significant impact of the revenue standard relates to the Company’s accounting for contracts containing software solutions bundled with post-contract support (“PCS”) and/or services where, due to lack of vendor-specific objective evidence (“VSOE”) of fair value, the software revenue was deferred and recognized ratably over the support or service period.

Revenue associated with the software under these types of contracts will now be recognized when control of the software is transferred, which is usually at the time of billing rather than ratably over the life of the support or service 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 from a diverse portfolio of network solutions and optical technology products and services, as follows:

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Implementation services provided in conjunction with hardware or software solution projects include sale of the products along with project management, set-up and installation.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Steps of revenue recognition

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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.

(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;

1 unchanged sentence

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.

Identifying and evaluating whether products and services are considered distinct performance obligations may require significant judgment particularly in NSE due to the nature of the product and service offerings .

The Company may enter into contracts that involve a significant level of integration and interdependency between a software license and installation services.

2 unchanged sentences

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

could cause variability in the transaction price including rebates, sales returns, market incentives and volume discounts.

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.

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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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recognize revenue when (or as) performance obligations are satisfied:

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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”).

These costs are included in SG&A expense.

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.

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If at contract inception, the expected period between the transfer of promised goods or services and payment is within one year or less, the Company forgoes 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, the Company has reflected

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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.

The Company provides reserves for the estimated costs of product warranties at the time revenue is recognized.

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Advertising costs totaled $ 3.7 million , $ 2.6 million and $ 2.6 million in fiscal 2020 , 2019 and 2018 , respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Research and Development Expense

8 unchanged sentences

The fair value of restricted stock units (RSUs) and performance-based restricted stock units (PSUs) that do not contain a market condition, is equal to the market value of the Company’s common stock on the grant date.

The fair value of PSUs that contain a market condition is estimated using the Monte Carlo simulation option-pricing model.

PSUs have vesting requirements tied to either the performance of the Company’s stock as compared to the NASDAQ telecommunications index or the performance of the Company’s operating results, and could vest at a higher or lower rate, or not at all, based on relative performance described.

The fair value of PSUs that contain a market condition (MSU) is estimated using the Monte Carlo simulation option-pricing model.

MSUs have vesting requirements tied to either the performance of the Company’s stock as compared to the Nasdaq telecommunications index or the performance of the Company’s operating results, and could vest at a higher or lower rate, or not at all, based on relative performance described.

The Company estimates the fair value of stock options and Employee Stock Purchase Plan (ESPP) purchase rights using the Black-Scholes Merton (BSM) option-pricing model.

1 unchanged sentence

The Company does not apply expected forfeiture rate and accounts for forfeitures as they occur.

The total fair value of the equity awards is recorded on a straight-line basis, over the requisite service period of the awards for each separate vesting period of the award, except for PSUs with market-based assumptions, which are amortized based upon graded vesting method.

The total fair value of the equity awards is recorded on a straight-line basis, over the requisite service period of the awards for each separate vesting period of the award, except for MSUs which are amortized based upon the graded vesting method.

In accordance with the authoritative guidance on accounting for income taxes, the Company recognizes income taxes using an asset and liability approach.

2 unchanged sentences

The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence.

With the exception of certain international jurisdictions, the Company has determined that at this time it is more likely than not

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to its ability to utilize its net operating loss carryforwards before they expire.

With the exception of certain international jurisdictions, the Company has determined that at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to its ability to utilize its net operating loss carryforwards before they expire.

Accordingly, the Company has established a valuation allowance for such deferred tax assets.

9 unchanged sentences

Changes to these estimates or a change in judgment may have a material impact on the Company’s tax provision in a future period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring Accrual

In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities, generally costs associated with restructuring activities are recognized when they are incurred.

However, in the case of operating and direct financing leases, the expense is estimated and accrued when the property is vacated.

Given the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made from the time the property was vacated, including evaluating real estate market conditions for expected vacancy periods and sub-lease income.

Additionally, a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable, and the amount is reasonably estimable.

A liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable, and the amount is reasonably estimable.

The Company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives.

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The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.

Contingent liabilities include contingent consideration in connection with the Company’s acquisitions, which represent earn-out payments and is recognized at fair value on the acquisition date and remeasured each reporting period with subsequent adjustments recognized in the Selling, general and administrative expense of the Company’s Consolidated Statements of Operations.

Contingent liabilities include contingent consideration in connection with the Company’s acquisitions, which represent earn-out payments and is recognized at fair value on the acquisition date and is remeasured each reporting period with subsequent adjustments recognized in the SG&A expense of the Company’s Consolidated Statements of Operations.

Contingent consideration is valued using significant Level 3 inputs, that are not observable in the market pursuant to fair value measurement accounting.

The Company believes the estimates and assumptions are reasonable, however, there is significant judgment and uncertainty involved.

While the Company believes the estimates and assumptions are reasonable, there is significant judgment and uncertainty involved.

Asset Retirement Obligations

4 unchanged sentences

The Company derecognizes ARO liabilities when the related obligations are settled.

As of June 29, 2019 , and June 30,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2018 , the Consolidated Balance Sheets included ARO of $ 0.4 million and $ 0.7 million , respectively, in other current liabilities and $ 3.2 million and $ 3.0 million , respectively, in other non-current liabilities.

As of June 27, 2020 , and June 29, 2019 , the Consolidated Balance Sheets included ARO of $ 0.9 million and $ 0.4 million , respectively, in other current liabilities and $ 3.1 million and $ 3.2 million , respectively, in other non-current liabilities.

Balance at Beginning of Period

8 unchanged sentences

Recent Accounting Pronouncements Adopted

In November 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (“ASU”) that requires a statement 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.

In the first quarter of fiscal 2019, the Company adopted this ASU using a retrospective transition method.

Accordingly, the Company’s consolidated statements of cash flows for the fiscal years ended June 29, 2019 , June 30, 2018 and July 1, 2017 as presented herein, have 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.

The Company adopted the new standard effective in the first quarter of fiscal 2019 using the retrospective transition method, which required the Company to recast each prior period presented consistent with the new guidance.

Refer to “ Note 1.

Basis of Presentation ” 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 the Company’s Consolidated Balance Sheet as of June 30, 2018 , ( in millions ):

June 30, 2018

Accounts receivable, net

Prepayments and other assets

Deferred income taxes

Other non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deferred revenue

Accrued payroll and related expenses

Other current liabilities

Other non-current liabilities

Total stockholders’ equity (1)

Total liabilities and stockholders’ equity

(1) Reflects the cumulative impact of $ 23.8 million on total stockholders’ equity from the revenue standard adoption as of the beginning of fiscal 2017

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts receivable, net:

Adoption of the new revenue standard resulted in an increase to accounts receivable, net, primarily due to 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 and recognized over the revenue recognition period of the original contract.

These costs are now classified as other non-current assets.

Short-term and long-term deferred revenue:

Adoption of the new revenue standard resulted in 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.

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

In 2016, the Financial Accounting Standards Board (FASB) issued 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 ROU assets and corresponding lease liabilities, measured at the present value of the lease payments.

In the first quarter of fiscal 2020 the Company adopted this standard using the modified retrospective approach.

The Company elected to apply the optional transition approach of not adjusting comparative period financial statements for the adoption impact.

The Company also elected the package of practical expedients to not reassess whether a contract contains a lease, lease classification and accounting for initial direct costs.

Adoption of the leasing standard resulted in $ 35.5 million of ROU assets and $ 37.0 million of lease liabilities on June 30, 2019.

In addition, the Company recorded an adjustment to accumulated deficit, net of taxes, of $ 3.0 million from the recognition of previously deferred profit under sale-leaseback arrangements and de-recognition of related real estate assets of $ 7.1 million and financing obligations of $ 10.1 million .

The adoption of the new standard did not have a material impact on the Company’s Consolidated Statements of Operations and Statements of Cash Flows.

For additional information refer to “ Note 12.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the impact of the revenue standard adoption to select line items of the Company’s previously reported Consolidated Statements of Operations for the twelve months ended June 30, 2018 and July 1, 2017 ( in millions, except per share data ):

Twelve Months Ended June 30, 2018

Twelve Months Ended July 1, 2017

Product revenue

Service revenue

Total net revenue

Cost of revenues:

Product cost of revenue

Service cost of revenue

Amortization of acquired technologies

Total cost of revenue

Income from operations

(Loss) income before taxes

Provision for income taxes

Net (loss) income

Net loss per common share:

Shares used in per share calculations:

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

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.

In October 2016, the FASB issued guidance that requires entities to recognize at the transaction date the income tax consequences of intra-entity transfer of an asset other than inventory.

In the first quarter of fiscal 2019, the Company adopted this ASU, which did not have a material impact to our Consolidated Financial Statements.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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 does not expect the adoption of this standard will have a material impact on its consolidated financial statements.

In June 2016, the FASB issued guidance that changes the accounting for recognizing impairments of financial assets.

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The Company does not expect the adoption of this standard will have a material impact on its Consolidated Financial Statements.

In February 2016, the FASB issued guidance regarding both operating and financing leases, including requiring lessees to recognize lease with a term greater than one year on their balance sheets as a right-of-use (“ROU”) assets and corresponding lease liabilities, measured on a discounted basis over the lease term.

The guidance requires a modified retrospective transition approach for leases existing at, or entered after, the beginning of the earliest comparative period presented in the financial statements.

In July 2018, the FASB issued an update, 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 and the Company will elect the optional transition approach of not adjusting its comparative period financial statements for the impacts of adoption.

The Company has chosen the package of practical expedients to not reassess whether a contract contains a lease, lease classification and accounting for initial direct costs.

While the Company is currently finalizing its implementation of new policies, processes and internal controls to comply with the new rules, the Company expects the adoption of the standard will result in the recognition of ROU assets and lease liabilities for operating leases between $ 35 million and $ 40 million at the beginning of the first quarter of fiscal 2020, with the most significant impact from recognition of ROU assets and lease liabilities related to the Company’s real estate leases.

In addition, the Company expects to record an adjustment to accumulated deficit, net of taxes, of approximately $ 3 million from the recognition of previously deferred profit under sale-leaseback arrangements and de-recognition of related real estate assets of approximately $ 7 million and financing obligation of approximately $ 10 million .

The adoption of the new standard will not have a material impact on Consolidated Statements of Operations and Consolidated Statement of Cash Flows.

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 ”.

Balance Sheet and Other Details

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 .

Contract assets:

A contract asset is recognized when a conditional right to consideration exists and transfer of control has occurred.

Contract 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 included in prepayments and other current assets on the consolidated balance sheet.

There were contract assets of $ 3.9 million and $ 1.3 million as of June 29, 2019 and June 30, 2018 , respectively.

Contract asset balances will fluctuate based upon the timing of transfer of services, billings and customers’ acceptance of contractual milestones.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Deferred 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 liabilities on the 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, for the year ended June 29, 2019 ( in millions ):

June 29, 2019

Deferred revenue:

Balance at beginning of period

Revenue deferrals for new contracts (1)

Revenue recognized during the period (2)

Balance at end of period

Short-term deferred revenue

Long-term deferred revenue

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

Revenue recognized during the period represents releases from the balance at the beginning of the period as well as releases from the following period quarter-end deferrals.

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 June 29, 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 June 29, 2019 , was $ 244.1 million .

The Company expects to recognize 93 % of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.

In August 2020, the FASB issued guidance which simplifies the accounting for financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The guidance allows for either full retrospective adoption or modified retrospective adoption.

The guidance is effective for the Company in the first quarter of fiscal year 2023 and early adoption is permitted.

The Company is evaluating the impact of adoption of this guidance will have on its Consolidated Financial Statements.

In December 2019, the FASB issued guidance which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes , and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

The guidance is effective for the Company in the first quarter of fiscal year 2022 and early adoption is permitted.

The Company is evaluating the effects that the adoption of this guidance will have on its Consolidated Financial Statements.

In August 2018, the FASB issued guidance to amend the disclosure requirements related to defined benefit pension and other post-retirement plans.

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.

Earnings Per Share

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Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period.

The dilutive effect of outstanding ESPP purchase rights, RSUs, PSUs and options is reflected in diluted net income (loss) per share by application of the treasury stock method.

The dilutive effect of outstanding ESPP purchase rights, RSUs, PSUs, MSUs and options is reflected in diluted net income (loss) per share by application of the treasury stock method.

The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

June 27, 2020

June 29, 2019

June 30, 2018

Income (loss) from continuing operations, net of taxes

(Loss) income from discontinued operations, net of taxes

Loss from discontinued operations, net of taxes

Net income (loss)

Weighted-average shares outstanding:

Shares issuable assuming conversion of convertible notes (1)

Effect of dilutive securities from stock-based benefit plans

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Net income (loss)

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.

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

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June 29, 2019 (2)(3)(4)

July 1, 2017 (2)(3)

June 30, 2018 (1)(2)(3)(4)

Stock options and ESPP

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Total potentially dilutive securities

As the Company incurred a net 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.

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

The Company’s 0.625 % Senior Convertible Notes due 2033 are not included in the table above.

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The Company’s 1.00 % Senior Convertible Notes due 2024 are not included in the table above.

The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $ 13.22 per share is payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

price above $ 13.22 per share is payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election.

Refer to “ Note 11.

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Debt ” for more details.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Loss

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Activity before reclassifications to the Consolidated Statements of Operations during the fiscal year ended June 27, 2020 primarily relates to unrealized loss from available-for-sale securities.

The amount reclassified out of accumulated other comprehensive (loss) income represents the gross realized loss from available-for-sale securities included as “(loss) gain on sale of investments" in the Consolidated Statement of Operations for the year ended June 29, 2019 .

The amount reclassified out of accumulated other comprehensive (loss) income represents the gross realized loss from available-for-sale securities included as “Interest and other income, net" in the Consolidated Statement of Operations for the year ended June 27, 2020 .

There was no tax impact for fiscal year 2020 .

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Total purchase consideration

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 .”

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) :

The fair value of the Company’s earn-out liabilities is further discussed in “ Note 8.

Fair Value Measurements .”

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

Tangible assets acquired:

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Total consideration transferred

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) :

The 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) :

Total other assets

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Net tangible assets acquired

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.

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The fair value of this earn-out is discussed further in “ Note 8.

Investments, Forward Contracts and Fair Value Measurements ”.

Fair Value Measurements ”.

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

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Total consideration transferred

The 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) :

The 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, was as follows (in millions) :

Other current assets

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( 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.

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Other Acquisitions:

During the twelve months ended June 27, 2020 , the Company completed a business acquisition for total consideration of approximately $ 10.7 million , of which $ 5.2 million cash was paid at close and $ 5.5 million in payments to be made based on the occurrence of future events.

The fair value of earn-out liabilities is discussed further in “ Note 8.

Fair Value Measurements ”.

In connection with this acquisition, the Company recorded approximately $ 6.2 million of developed technology and customer relationships and $ 1.4 million of deferred tax liability resulting from the acquisitions.

The acquired developed technology and customer relationship assets are being amortized over their estimated useful lives of six years .

During the twelve months ended June 29, 2019 , the Company 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 payments to be made based on the occurrence of future events.

The fair value of earn-out liabilities is discussed further in “ Note 8.

Investments, Forward Contracts and Fair Value Measurements ”.

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.

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Balance Sheet and Other Details

Contract Balances

Unbilled Receivables:

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 .

Contract assets:

A Contract Asset is recognized when a conditional right to consideration exists and transfer of control has occurred.

Contract Assets include fixed fee professional services, where the transfer of services has occurred in advance of the Company's right to invoice.

Contract Assets, included in accounts receivable, net, on the Consolidated Balance Sheets, are not material to the Consolidated Financial Statements.

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.

As of June 27, 2020 and June 29, 2019 , the Company had total unbilled receivables (Unbilled Receivables/Contract Assets) of $ 3.8 million and $ 11.5 million , respectively

Deferred revenue:

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 liabilities on the 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, for the year ended June 27, 2020 ( in millions ):

June 27, 2020

Deferred revenue:

Balance at beginning of period

Revenue deferrals for new contracts (1)

Revenue recognized during the period (2)

Balance at end of period

Short-term deferred revenue

Long-term deferred revenue

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

Revenue recognized during the period represents releases from the balance at the beginning of the period as well as releases from the following period quarter-end deferrals.

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 June 27, 2020 .

Remaining performance obligations include deferred revenue plus unbilled amounts not yet recorded.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The value of the transaction price allocated to remaining performance obligations as of June 27, 2020 , was $ 204.6 million .

The Company expects to recognize 87 % of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.

Accounts Receivable Allowances

The table below presents the activities and balances for allowance for doubtful accounts, as follows (i n millions ):

The table below presents the activities and balances for allowance for doubtful accounts, as follows ( in millions ):

Balance at Beginning of Period

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Year Ended June 29, 2019

Year Ended July 1, 2017

Year Ended June 30, 2018

See “ Note 5.

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Warranty accrual

VAT liabilities

Transaction tax payable

Operating lease liabilities (Note 12)

Foreign exchange forward contracts liability

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Long-term deferred revenue

Operating lease liabilities (Note 12)

Uncertain tax position

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Acquisitions ” and “ Note 7.

Investments, Forward Contracts and Fair Value Measurements ” of the Notes to the Company’s Consolidated Financial Statements for more detail.

Investments and Forward Contracts ” of the Notes to the Company’s Consolidated Financial Statements for more detail.

VIAVI SOLUTIONS INC.

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June 29, 2019

June 30, 2018

Interest income

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Other income, net

Loss on sale of investments

Interest income and other income, net

In connection with the debt extinguishment, a loss of $ 5.0 million and $ 1.1 million was recognized in fiscal 2018 and 2017, respectively.

In connection with the debt extinguishment, a loss of $ 5.0 million was recognized in fiscal 2018.

Refer to “ Note 11.

Debt ” for more information.

Investments, Forward Contracts and Fair Value Measurements

Investments and Forward Contracts

Available-For-Sale Investments

The Company’s investments in marketable debt securities were primarily classified as available-for-sale investments.

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

The following table presents the Company’s available-for-sale securities as of June 27, 2020 ( in millions ):

Amortized Cost/

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Gross Unrealized

Available-for-sale securities:

Available-for-sale debt securities:

Asset-backed securities

Total available-for-sale securities

The Company generally classifies debt securities as cash equivalents, short-term investments or other non-current assets based on the stated maturities;

Total available-for-sale debt securities

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 June 29, 2019 , the estimated fair value of $ 0.6 million was classified as other non-current assets.

In addition to the amounts presented above, as of June 29, 2019 , the Company’s short-term investments classified as trading securities related to the deferred compensation plan were $ 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 $ 0.8 million was invested in equity securities.

As of June 27, 2020 , the total estimated fair value of $ 0.5 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 June 27, 2020 , were $ 1.4 million , of which $ 0.3 million was invested in debt securities, $ 0.2 million was invested in money market instruments and funds and $ 0.9 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 fiscal year ended June 29, 2019 , June 30, 2018 and July 1, 2017 , respectively, the Company recorded no other-than-temporary impairment charges in each respective period.

During the fiscal years ended June 27, 2020 , June 29, 2019 and June 30, 2018 , respectively, the Company recorded no other-than-temporary impairment charges in each respective period.

As of June 27, 2020 , the Company’s total gross unrealized losses on available-for-sale securities, aggregated by type of investment instrument, are as follows ( in millions ):

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Amortized Cost/Carrying Cost

Amounts maturing in less than 1 year

Amounts maturing in 1 - 5 years

Amounts maturing in more than 5 years

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Estimated Fair Value

Debt securities:

Municipal bonds and sovereign debt instruments

Available-for-sale securities:

Asset-backed securities

Corporate securities

Total available-for-sale securities

As of June 30, 2018 , 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 million was classified as other non-current assets.

As of June 29, 2019 , the estimated fair value of $ 0.6 million was classified as other non-current assets.

In addition to the amounts presented above, as of June 29, 2019 , the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $ 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 $ 0.8 million was invested in equity securities.

As of June 29, 2019 , the Company’s total gross unrealized losses on available-for-sale securities, aggregated by investment type, are as follows ( in millions ):

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Greater than 12 Months

treasuries and agencies

Asset-backed securities

Corporate securities

Total gross unrealized losses

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 June 27, 2020 , the Company had forward contracts that were effectively closed but not settled with the counterparties by year end.

Therefore, the fair value of these contracts of $ 2.2 million and $ 1.5 million is reflected as prepayments and other current assets and other current liabilities, respectively.

As of June 29, 2019 , the fair value of these contracts of $ 1.2 million and $ 4.0 million is reflected as prepayments and other current assets and other current liabilities, respectively.

The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near year end;

therefore, the fair value of the contracts is not significant.

As of June 27, 2020 and June 29, 2019 , the notional amounts of the forward contracts that Company held to purchase foreign currencies were $ 146.4 million and $ 117.8 million , respectively, and the notional amounts of forward contracts that Company held to sell foreign currencies were $ 22.0 million and $ 31.3 million , respectively.

The change in the fair value of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of interest 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 loss of $ 0.8 million and $ 6.9 million for the years ended June 27, 2020 and June 29, 2019 , respectively.

VIAVI SOLUTIONS INC.

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Fair Value Measurements

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

Fair Value Measurements

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

June 27, 2020

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Debt available-for-sale securities:

Municipal bonds and sovereign debt instruments

Asset-backed securities

Corporate securities

Certificate of deposits

Total debt available-for-sale securities

Marketable equity securities

Money market funds

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Total liabilities

Includes as of June 29, 2019 , $ 315.5 million in cash and cash equivalents, $ 1.5 million in short-term investments, $ 3.5 million in restricted cash, $ 1.2 million in other current assets, and $ 4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets.

Includes as of June 30, 2018 , $ 364.8 million in cash and cash equivalents, $ 169.3 million in short-term investments, $ 7.3 million in restricted cash, $ 2.7 million in other current assets and $ 4.7 million in other non-current assets on the Company’s Consolidated Balance Sheets.

$ 2.2 million and $ 1.2 million in prepayments and other current assets on the Company’s Consolidated Balance Sheets as of June 27, 2020 and June 29, 2019 , respectively.

Includes as of June 27, 2020 , $ 327.2 million in cash and cash equivalents, $ 1.4 million in short-term investments, $ 3.4 million in restricted cash, $ 2.2 million in prepayments and other current assets, and $ 4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets.

Includes as of June 29, 2019 , $ 315.5 million in cash and cash equivalents, $ 1.5 million in short-term investments, $ 3.5 million in restricted cash, $ 1.2 million in prepayments and other current assets and $ 4.5 million in other non-current assets on the Company’s Consolidated Balance Sheets.

Includes $ 1.5 million and $ 4.0 million in other current liabilities on the Company’s Consolidated Balance Sheets as of June 27, 2020 and June 29, 2019 , respectively.

Includes $ 37.7 million in other non-current liabilities and $ 0.7 million in other current liabilities as of June 29, 2019 .

Includes $ 9.4 million and $ 37.7 million in other non-current liabilities and $ 0.5 million and $ 0.7 million in other current liabilities as of June 27, 2020 and June 29, 2019 , respectively.

The Company’s Level 3 liabilities as of June 27, 2020 , consist of contingent purchase consideration.

The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2019 .

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 June 29, 2019 the aggregate fair value of contingent consideration was $ 38.4 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 acquired business over the earn-out period.

The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2020 and 2019 .

As of June 27, 2020 and June 29, 2019 , the aggregate fair value of contingent consideration was $ 9.9 million and $ 38.4 million , respectively.

The fair value of earn-out liabilities were determined using a Monte Carlo Simulation that includes significant unobservable inputs such as the risk-adjusted discount rate, gross profit volatility, and projected financial forecast of acquired business over the earn-out period.

The fair value of contingent consideration liabilities is remeasured at each reporting period at the estimated fair value based on the inputs on the date of remeasurement, with the change in fair value recognized in the Selling, General and Administrative expense of the Consolidated Statements of Operations.

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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 year ended June 29, 2019 ( in millions ):

Contingent Consideration

Balance as of June 30, 2018

To Level 3 contingent consideration liabilities

In fair value of contingent consideration liabilities

Balance as of June 29, 2019

The following table provides a reconciliation of changes in fair value of the Company’s Level 3 liabilities for the year ended June 27, 2020 and June 29, 2019 , as follows ( in millions ):

June 30, 2018

Additions to Contingent Consideration

Change in Fair Value measurement

June 29, 2019

Additions to Contingent Consideration

Change in Fair Value measurement

Payments of Contingent Consideration

Balance June 27, 2020

Acquisitions and of the Notes to the Company’s Consolidated Financial Statements for more detail.

In connection with the acquisition of RPC, the Company agreed to pay RPC’s Securityholders up to $ 53.0 million over the subsequent 4 -year period based on subsequent achievement of gross profit targets agreed upon at the time of close.

The fair value of earn-out payments at the date of acquisition was $ 36.2 million .

As of June 29, 2019 , the fair value was remeasured at $ 30.3 million .

The decrease in fair value of earn-out liability of $ 5.9 million was primarily due to revised projected forecast of RPC, primarily driven by rate of adoption assumptions.

No payments were made in connection with the Company’s contingent earn-out liabilities during fiscal 2019 .

As of July 1, 2017 , the Company had sold all of its ownership of Lumentum Holdings Inc.

(“Lumentum”) common stock.

During fiscal 2017, the Company sold 7.2 million Lumentum common shares and recognized gross gains of $ 203.0 million , included in gain on sale of investments in the Company’s Consolidated Statements of Operations.

The sale resulted in no tax effect and the realized gain is also reflected within the operating activities section of the Consolidated Statements of Cash Flows, while the cash proceeds received are included in, sales of available-for-sale investments, within the investing activities section.

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 does not use these foreign currency forward contracts for trading purposes.

As of June 29, 2019 , the Company had forward contracts that were effectively closed but not settled with the counterparties by year end.

Therefore, the fair value of these contracts of $ 1.2 million and $ 4.0 million is reflected as prepayments and other current assets and other current liabilities in the Consolidated Balance Sheets as of June 29, 2019 , respectively.

The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near year end;

therefore, the fair value of the contracts is not significant.

As of June 29, 2019 and June 30, 2018 , the notional amounts of the forward contracts that Company held to purchase foreign currencies were $ 117.8 million and $ 167.5 million , respectively, and the notional amounts of forward contracts that Company held to sell foreign currencies were $ 31.3 million and $ 28.6 million , respectively.

The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities.

The foreign exchange forward contracts incurred a loss of $ 6.9 million and a loss of $ 0.8 million for the years ended June 29, 2019 and June 30, 2018 respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 27, 2020 , the fair value of RPC related earn-out liability was remeasured to $ 0 million .

The decrease in fair value of the earn-out liability of $ 29.6 million in fiscal 2020 was primarily due to the lower-than-expected rate of adoption by Android customers, which was further compounded by the macroeconomic impact of COVID-19.

During fiscal 2020 , the Company made a earn-out payment to RPC’s Securityholders in the amount of $ 0.7 million .

As of June 29, 2019 , the fair value was remeasured to $ 30.3 million .

The decrease in fair value of the earn-out liability of $ 5.9 million in fiscal 2019 was primarily due to revised projected forecast of RPC, primarily driven by rate of adoption assumptions.

Changes in the carry value of goodwill allocated segment are as follows (in millions) :

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and Performance

Balance as of July 1, 2017 (1)

Balance as of June 30, 2018 (1)

Acquisitions (2)

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Balance as of June 27, 2020 (4)

Gross goodwill balances for NE, SE and OSP were $ 445.2 million , $ 272.6 million and $ 92.8 million , respectively as of July 1, 2017 .

Accumulated impairment for NE, SE and OSP was $ 301.9 million , $ 272.6 million and $ 84.5 million , respectively as of July 1, 2017 .

Gross goodwill balances for NE, SE and OSP were $ 629.9 million , $ 272.6 million and $ 92.8 million , respectively as of June 30, 2018 .

Accumulated impairment for NE, SE and OSP was $ 301.9 million , $ 272.6 million and $ 84.5 million , respectively as of June 30, 2018 .

See “ Note 5.

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Accumulated impairment for NE, SE and OSP was $ 301.9 million , $ 272.6 million and $ 84.5 million , respectively as of June 27, 2020 .

The following table presents gross goodwill and aggregate impairment balances for the fiscal years ended June 29, 2019 , and June 30, 2018 , ( in millions ):

June 29, 2019

June 30, 2018

Gross goodwill balance

Accumulated impairment losses

Net goodwill balance

Impairment of Goodwill

The Company tests goodwill at the reporting unit level for impairment annually, during the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that the asset may be impaired.

The Company determined that, based on its organizational structure and the financial information that is provided to and reviewed by management during fiscal 2019 and 2018 , its reporting units were NE, SE and OSP.

For fiscal 2019 , the Company reviewed goodwill under the qualitative assessment of the authoritative guidance for impairment testing and concluded that it was more likely than not that the fair value of each reporting unit exceeded its carrying amount.

Accordingly, there was no indication of impairment.

For fiscal 2018 , the Company reviewed goodwill under the qualitative assessment of the authoritative guidance for impairment testing and concluded that it was more likely than not that the fair value of each reporting unit exceeded its carrying amount.

Accordingly, there was no indication of impairment.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For fiscal 2017 the Company performed the quantitative goodwill impairment test in accordance with the authoritative guidance for impairment test of the NE reporting unit.

Based on the quantitative analysis, the Company determined that the fair value of NE is above its carrying amount.

The Company reviewed goodwill of the OSP reporting unit under the qualitative assessment of the authoritative guidance for impairment testing and concluded that it was more likely than not that the fair value of OSP exceeded its carrying amount.

Accordingly, there was no indication of impairment.

Impairment of Goodwill

The Company determined that, based on its organizational structure and the financial information that is provided to and reviewed by the Company’s Chief Operating Decision Maker (CODM) during fiscal 2020 , 2019 and 2018 and its reporting units were NE, SE and OSP.

No indications of impairment were identified for fiscal years ending on June 27, 2020 , June 29, 2019 and June 30, 2018 .

Acquired Developed Technology and Other Intangibles

The following tables present details of the Company’s acquired developed technology, customer relationships and other intangibles for the fiscal years ended June 29, 2019 , and June 30, 2018 , ( in millions ):

The following tables present details of the Company’s acquired developed technology, customer relationships and other intangibles as of June 27, 2020 , and June 29, 2019 , ( in millions ):

As of June 27, 2020

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Customer relationships

In-process research and development

Total intangibles

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June 29, 2019

June 30, 2018

Cost of revenues

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Total amortization

As of June 29, 2019 and June 30, 2018 , the Company’s debt on the Consolidated Balance Sheets represented the carrying amount of the liability component, net of unamortized debt discounts and issuance cost, of the Senior Convertible Notes as discussed below.

As of June 27, 2020 and June 29, 2019 , the Company’s long-term debt on the Consolidated Balance Sheets represented the carrying amount of the liability component, net of unamortized debt discounts and issuance cost, of the Senior Convertible Notes as discussed below.

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

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Principal amount of 1.75% Senior Convertible Notes

Unamortized discount of liability component

Unamortized debt issuance cost

Carrying amount of liability component

Current portion of long-term debt

Long-term debt, net of current portion

Carrying amount of equity component (1)

Unamortized discount of Senior Convertible Notes liability component

Unamortized Senior Convertible Notes debt issuance cost

Carrying amount of Senior Convertible Notes liability component

Carrying amount of Senior Convertible Notes equity component (1)

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

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

Revolving Credit Facility

On May 5, 2020 , we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo) as administrative agent, and other lender related parties.

The Credit Agreement provides for a $ 300 million senior secured revolving credit facility, which matures on March 1, 2023 .

The Credit Agreement also provides that, under certain circumstances, we may incur term loans or increase the aggregate principal amount of revolving commitments by an aggregate amount of up to $ 200 million plus additional amounts so long as our secured net leverage ratio, determined on a pro forma basis does not exceed 1.50 :1.00.

The proceeds from the credit facility established under the Credit Agreement will be used for working capital and other general corporate purposes.

The obligations under the Credit Agreement are secured by substantially all of our assets.

Amounts outstanding under the Credit Agreement accrue interest at a rate equal to either, at our election, LIBOR plus a margin of 1.75 % to 2.50 % per annum, or a specified base rate plus a margin of 0.75 % to 1.50 % , in each case, depending on our consolidated secured leverage ratio.

We are required to pay commitment fee on the unutilized portion of the facility which ranges between 0.30 % and 0.40 % per annum depending on our consolidated secured leverage ratio.

As of June 27, 2020 , we had no amounts outstanding under the Credit Agreement.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Short-term Debt

As of June 27, 2020 , the Company had short-term debt in the amount of $ 2.8 million , assumed as part of an acquisition completed during the period.

1.75 % Senior Convertible Notes (2023 Notes)

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Under certain circumstances and during certain periods, the 2023 Notes may be converted at the option of the holders into cash up to the principal amount, with the remaining amount converted into cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock at the Company’s election.

12 unchanged sentences

The carrying value of the liability component was determined to be $ 190.1 million , and the equity component, or debt discount, of the 2023 Notes was determined to be $ 34.9 million .

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In connection with the issuance of the 2023 Notes, the Company incurred $ 2.2 million of issuance costs, which were bifurcated into the debt issuance costs, attributable to the liability component of $ 1.9 million and the equity issuance costs, attributable to the equity component of $ 0.3 million based on their relative values.

8 unchanged sentences

The total proceeds from the 2024 Notes amounted to $ 451.1 million after issuance costs.

The 2024 Notes are an unsecured obligation

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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.

8 unchanged sentences

These amounts automatically become due and payable if an event of default relating to certain events of bankruptcy, insolvency or reorganization occurs.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In accordance with the authoritative accounting guidance, the Company separated the 2024 Notes into liability and equity components.

8 unchanged sentences

As of June 27, 2020 , the unamortized portion of the debt issuance costs related to the 2024 Notes was $ 3.9 million , which was included as a direct reduction from the carrying amount of the debt on the Consolidated Balance Sheets.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Based on quoted market prices as of June 27, 2020 and June 29, 2019 , the fair value of the 2024 Notes was approximately $ 523.3 million and $ 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 21, 2013, the Company issued $ 650.0 million aggregate principal amount of 0.625 % Senior Convertible Notes due 2033 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The proceeds from the 2033 Notes amounted to $ 636.3 million after issuance costs.

The 2033 Notes were an unsecured obligation of the Company and bear interest at an annual rate of 0.625 % payable in cash semi-annually in arrears on February 15 and August 15 of each year.

The 2033 Notes would mature on August 15, 2033 unless earlier converted, redeemed or repurchased.

Under certain circumstances and during certain periods, the 2033 Notes could be converted at the option of the holders into cash up to the principal amount, with the remaining amount converted into cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock at the Company’s election.

The initial conversion price was $ 18.83 per share, representing a 40.0 % premium to the closing sale price of the Company’s common stock on the pricing date, August 15, 2013, which will be subject to customary anti-dilution adjustments.

Holders could convert the 2033 Notes at any time on or prior to the close of business on the business day immediately preceding February 15, 2033, and other than during the period from, and including, February 15, 2018 until the close of business on the business day immediately preceding August 20, 2018, in multiples of $1,000 principal amount, under the following circumstances:

on any date during any calendar quarter beginning after December 31, 2013 (and only during such calendar quarter) if the closing price of the Company’s common stock was more than 130 % of the then current conversion price for at least 20 trading days during the 30 consecutive trading-day period ending the last trading day of the previous calendar quarter;

if the 2033 Notes are called for redemption;

upon the occurrence of specified corporate events;

if the Company is party to a specified transaction, a fundamental change or a make-whole fundamental change (each as defined in the indenture of the 2033 Notes);

during the five consecutive business-day period immediately following any 10 consecutive trading-day period in which the trading price per $1,000 principal amount of the 2033 Notes for each day of such 10 consecutive trading-day period was less than 98 % of the product of the closing sale price of the Company’s common stock and the applicable conversion rate on such date.

During the periods from, and including, February 15, 2018 until the close of business on the business day immediately preceding August 20, 2018 and from, and including, February 15, 2033 until the close of business on the business day immediately preceding the maturity date, holders could convert the 2033 Notes at any time, regardless of the foregoing circumstances.

In the fourth quarter of fiscal 2015, holders of the 2033 Notes were given notice of the planned separation of the Lumentum business and the right to convert any debentures they own from the date of notice through the end of the business day preceding the ex-dividend date.

No holders of the 2033 Notes exercised the conversion right before it expired.

Following the separation of the Lumentum business on August 1, 2015, the conversion price per share was adjusted pursuant to the terms of the 2033 Notes relating to the occurrence of a spin-off event.

Effective as of the end of the business day on August 17, 2015, the initial conversion price per share was adjusted to $ 11.28 per share of the Company’s common stock traded on NASDAQ under the ticker symbol “VIAV.”

Holders of the 2033 Notes could require the Company to purchase all or a portion of the 2033 Notes on each of August 15, 2018, August 15, 2023 and August 15, 2028, or upon the occurrence of a fundamental change, in each case, at a price equal to 100 % of the principal amount of the 2033 Notes to be purchased, plus accrued and unpaid interest to, but excluding the purchase date.

The Company could redeem all or a portion of the 2033 Notes for cash at any time on or after August 20, 2018, at a redemption price equal to 100 % of the principal amount of the 2033 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

In accordance with the authoritative accounting guidance, the Company separated the 2033 Notes into liability and equity components.

The carrying value of the liability component at issuance was calculated as the present value of its cash flows using

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

a discount rate of 5.4 % based on the 5 -year swap rate plus credit spread as of the issuance date.

The credit spread for the Company is based on the historical average “yield to worst” rate for BB rated issuers.

The difference between the 2033 Notes principal and the carrying value of the liability component, representing the value of conversion premium assigned to the equity component, was recorded as a debt discount on the issuance date and is being accreted using the effective interest rate of 5.4 % over the period from the issuance date through August 15, 2018 as a non-cash charge to interest expense.

The carrying value of the liability component was determined to be $ 515.6 million , and the equity component, or debt discount, of the 2033 Notes was determined to be $ 134.4 million .

As of June 30, 2018, the expected remaining term of the 2033 Notes is 0.1 years and thus were classified as short term debt on the Consolidated Balance Sheets.

In connection with the issuance of the 2033 Notes, the Company incurred $ 13.7 million of issuance costs, which were bifurcated into the debt issuance costs, attributable to the liability component of $ 10.9 million and the equity issuance costs, attributable to the equity component of $ 2.8 million based on their relative values.

The debt issuance costs were capitalized and are being amortized to interest expense using the effective interest rate method from issuance date through August 15, 2018.

The equity issuance costs were netted against the equity component in additional paid-in capital at the issuance date.

During fiscal 2018, the Company repurchased $ 181.5 million aggregate principal amount of the 2033 Notes for $ 198.0 million in cash and the repurchase was accounted for as debt extinguishment.

In addition, the Company exchanged $ 151.5 million aggregate principal amount of the 2033 Notes for $ 155.5 million aggregate principal amount of the 2023 Notes.

The Exchange Transaction was accounted for as debt extinguishment.

In connection with debt extinguishment arising from exchange and repurchase, a loss on extinguishment of $ 5.0 million was recognized in interest and other income, net in compliance with the authoritative guidance.

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 June 29, 2019 , no ne 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 .

The Company was in compliance with all debt covenants as of June 27, 2020 and June 29, 2019 .

Interest Expense

2 unchanged sentences

June 29, 2019

June 30, 2018

Interest expense-contractual interest

1 unchanged sentence

Accretion of debt discount

The Company is a lessee in several operating leases, primarily real estate facilities for office space.

The Company's lease arrangements are composed of operating leases with various expiration dates through March 31, 2030 .

The Company's leases do not contain any material residual value guarantees.

During the fiscal year ending on June 27, 2020 , the total operating lease costs was $ 13.5 million .

Total variable lease costs were immaterial During the fiscal year ending on June 27, 2020 .

The total operating costs were included in cost of revenues, research and development, and selling, general and administrative in the Company’s Consolidated Statements of Operations.

As of June 27, 2020 , the weighted-average remaining lease term was 5.2 years, and the weighted-average discount rate was 4.7 % .

During the fiscal year ending on June 27, 2020 , cash paid for amounts included in the measurement of operating lease liabilities was $ 15.7 million ;

and operating ROU assets obtained in exchange of new operating lease liabilities was $ 17.3 million .

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

June 27, 2020

Other non-current assets

Total operating ROU assets

Other current liabilities

Other non-current liabilities

Total operating lease liabilities

Future minimum operating lease payments as of June 27, 2020 are as follows ( in millions ):

Operating Leases

Total lease payments

Present value of lease liabilities

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

Operating Leases

sublease income

Total lease payments

Restructuring and Related Charges

2 unchanged sentences

The timing of associated cash payments is dependent upon the type of restructuring charge and can extend over multiple periods.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 27, 2020 and June 29, 2019 , the Company’s total restructuring accrual was $ 6.5 million and $ 8.8 million , respectively.

During fiscal years 2020 , 2019 and 2018 , the Company recorded restructuring and related charges of $ 3.5 million , $ 15.4 million and $ 8.3 million , respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Summary of Restructuring Plans

The adjustments to the accrued restructuring expenses related to all of the Company’s restructuring plans described below for the fiscal year ended June 29, 2019 were as follows (in millions) :

The adjustments to the accrued restructuring expenses related to all of the Company’s restructuring plans described below for the fiscal years ended June 27, 2020 were as follows (in millions) :

Balance as of June 29, 2019

Fiscal Year 2019 Charges (Releases)

Fiscal Year 2020 Charges

Adjustments (2)

Balance as of June 27, 2020

1 unchanged sentence

NSE, including AW (1)

Fiscal 2018 Plan

Trilithic (1) (2)

Fiscal 2017 Plan

Focused NSE (1) (2)

Plans Prior to Fiscal 2019

NE Lease Restructuring Plan (2)

Other Plans (1)

Plan includes workforce reduction cost.

Plan includes lease exit cost.

The long-term portion of the Company’s total restructuring liability for the June 29, 2019 and June 30, 2018 periods is $ 0.2 million and $ 0.1 million , respectively.

The remaining portion has been included as a component of Other current liabilities on the Consolidated Balance Sheets.

Other adjustments including $ 0.2 million lease liability reclassification to Operating lease liability upon ASC 842 adoption.

$ 6.5 million and $ 8.6 million in other current liabilities on the Consolidated Balance Sheets as of June 27, 2020 and June 29, 2019 , respectively.

$ 0.2 million in other non-current liabilities on the Consolidated Balance Sheets as of June 29, 2019 .

Fiscal 2019 Plans

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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 restructuring charge of $ 16.1 million was recorded in the year ended June 29, 2019 for severance and employee benefits for approximately 240 employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia.

The plan was re-approved in the third quarter of fiscal 2019 and the fourth quarter of fiscal 2020 to include additional headcount.

During the fourth quarter of fiscal 2020, we updated the plan to include additional headcount to further drive operational improvement.

As a result, a net restructuring charge of $ 3.5 million , for approximately 60 employees primarily in R&D and SG&A functions located in North America, Europe and Asia was recorded in the year ended June 27, 2020 .

Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2021 .

Fiscal 2018 Plans

Trilithic Restructuring Plan Q2FY18

During the second quarter of fiscal 2018, Management approved a plan within the NE business segment to consolidate and integrate Trilithic.

As a result, approximately 40 employees primarily in manufacturing and SG&A functions located in the United States.

Payments related to the lease exit costs and severance and benefits accrual were paid by the end of the first quarter of fiscal 2019.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal 2017 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 reducing costs by streamlining NSE operations.

During the second and fourth quarters of fiscal 2018, the headcount impacted by this plan increased by approximately 60 employees.

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 .

During the third quarter of fiscal 2017, Management approved a plan in the NE and SE segment to exit the space in Colorado Springs, Colorado.

As of September 30, 2017, the Company exited the workspace in Colorado Springs under the plan.

Payments related to the Colorado lease costs were paid by the end of the third quarter of fiscal 2018.

Plans Prior to Fiscal 2017

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 lease costs are expected to be paid by the end of the second quarter of fiscal 2021.

As of June 29, 2019 , the restructuring accrual for other plans that commenced prior to fiscal year 2017 was $ 0.1 million , which consists of immaterial accruals from various restructuring plans.

The Company’s income (loss) before income taxes consisted of the following ( in millions ):

1 unchanged sentence

June 29, 2019

(Loss) income before income taxes

June 30, 2018

Income (loss) before income taxes

VIAVI SOLUTIONS INC.

3 unchanged sentences

June 29, 2019

Total federal income tax (benefit) expense

June 30, 2018

Total federal income tax (benefit)

Total state income tax (benefit) expense

Total foreign income tax expense

Total foreign income tax (benefit) expense

Total income tax expense

The foreign current expense primarily relates to the Company’s profitable operations in certain foreign jurisdictions.

The foreign deferred tax benefit primarily relates to the amortization of foreign purchased intangible assets.

A reconciliation of the Company’s income tax expense (benefit) at the federal statutory rate to the income tax expense at the effective tax rate is as follows ( in millions ):

The foreign current expense primarily relates to the Company’s profitable operations in certain foreign jurisdictions and withholding tax paid on the repatriation of foreign earnings during the year.

The foreign deferred tax benefit expense relates to the accrual of withholding tax on unrepatriated foreign earnings.

A reconciliation of the Company’s income tax expense at the federal statutory rate to the income tax expense at the effective tax rate is as follows ( in millions ):

June 27, 2020

June 29, 2019

June 30, 2018

Income tax (benefit) expense computed at federal statutory rate

Withholding Taxes

US Inclusion of foreign earnings

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Permanent items

Fair value change of the earn-out liability

Reversal of previously accrued taxes

Withholding Taxes

Research and experimentation benefits and other tax credits

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June 29, 2019

June 30, 2018

Gross deferred tax assets:

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Acquisition-related items

Capitalized research costs

Gross deferred tax assets

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Acquisition-related items

Undistributed foreign earnings

Tax on unrepatriated earnings

Foreign branch taxes

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The tax net operating loss, tax credit and capital loss carryforwards will start to expire in calendar 2021 and at various other dates through 2038 if not utilized.

In addition, a portion of the tax net operating loss, tax credit and capital loss carryforwards have an indefinite carryforward period.

In addition, a portion of the foreign tax net operating loss, tax credit and capital loss carryforwards have an indefinite carryforward period.

Utilization of the tax net operating losses may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions.

Loss carryforward limitations may result in the expiration or reduced utilization of a portion of the Company’s net operating losses.

During the preparation of the fiscal 2019 US tax return, the Company elected to capitalize research and development costs as a result there is true-up adjustment to our estimated beginning of year capitalized research costs deferred tax asset of $ 37.5 million with an offsetting decrease in the beginning net operating loss carryforward deferred tax asset.

Foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries have not been provided on $ 9.3 million of undistributed earnings for certain foreign subsidiaries.

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The Company estimates that an additional $ 1.2 million of foreign withholding taxes would have to be provided if these earnings were repatriated back to the U.S.

During fiscal year 2020, in light of the economic uncertainty caused by COVID-19, the Company reevaluated its historic assertion on foreign earnings and no longer considers a majority of its earnings to be permanently reinvested resulting in a $ 32.5 million charge for withholding taxes expected to be paid on the repatriation of $ 324.0 million of foreign earnings that the Company does not consider to be permanently reinvested.

During the third quarter of fiscal 2020, which included changing the Company’s intent with regard to the indefinite reinvestment of such foreign earnings, the Company initially accrued $ 31.6 million for withholding taxes expected to be paid on the repatriation of $ 316.4 million of accumulated foreign earnings that it no longer considers to be permanently reinvested as of the third quarter.

During the Fiscal year 2020, the Company paid $ 19.5 million withholding income tax on the repatriation of foreign earnings.

The repatriation of these earnings increases available cash in the U.S.

and provides greater U.S.

financial flexibility to assist the Company in navigating the expected downturn in the economy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The foreign earnings are being repatriated to the U.S.

without incurring any significant additional U.S current or deferred tax expense.

On March 27, 2020, the House passed the Coronavirus Aid, Relief, and Economic Security Act (The CARES Act), also known as the Third COVID-19 Supplemental Relief bill, and the president signed the legislation into law.

Tax provisions of the Act include the deferral of certain payroll taxes, relief for retaining employees, and other provisions.

The provisions of the legislation did not have a significant impact on the effective tax rate or the income tax payable and deferred income tax positions of the Company.

The Company continues to monitor additional guidance issued by the U.S.

Treasury Department, the Internal Revenue Service and others.

During fiscal year 2018, the U.S.

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As a result, the Company recognized a benefit of $ 4.5 million for the year ended June 30, 2018 for the release of the valuation allowance previously maintained against the AMT credit deferred tax asset.

In addition, under the Act, the Company’s fiscal 2018 net operating losses and any future net operating losses can now be carried forward indefinitely.

As a result, the Company’s deferred tax liability associated with indefinite-lived intangible assets offset these indefinite-lived deferred tax assets, resulting in a benefit of $ 2.0 million for the year ended June 30, 2018 due to release of valuation allowance.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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deferred tax assets, there was no impact to the income tax provision from excess tax benefits for the year ended June 30, 2018.

The valuation allowance increased by $ 23.2 million in fiscal 2019 , decreased by $ 712.9 million in fiscal 2018 , and decreased by $ 77.5 million in fiscal 2017 .

The increase during fiscal 2019 was primarily due to the net increase of deferred tax assets resulting from the inclusion of the Company’s foreign subsidiaries in the US tax return as a consequence of the the U.S.

The valuation allowance increased by $ 0.2 million in fiscal 2020 , increased by $ 23.2 million in fiscal 2019 , and decreased by $ 712.9 million in fiscal 2018 .

The increase during fiscal 2020 was primarily due to the business acquired during the year.

The increase during fiscal 2019 was primarily due to the net increase of deferred tax assets resulting from the inclusion of the Company’s foreign subsidiaries in the U.S.

tax return as a consequence of the U.S.

Tax Cuts and Jobs Act.

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deferred tax assets as a result of the Act.

The decrease during fiscal 2017 was primarily due to the utilization of deferred tax assets and the increase in deferred tax liabilities as result of the issuance of convertible debt.

The following table provides information about the activity of our deferred tax valuation allowance (in millions) :

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Year Ended June 29, 2019

Year Ended July 1, 2017

Year Ended June 30, 2018

Additions include current year additions charged to expenses and current year build due to increases in net deferred tax assets, return to provision true-ups, other adjustments.

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Additions based on tax positions related to prior year

Reduction based on tax positions related to prior year

Reductions for lapse of statute of limitations

Balance at July 1, 2017

Balance at June 30, 2018

Additions based on tax positions related to current year

Additions based on tax positions related to prior year

Reduction based on tax positions related to prior year

Reductions for lapse of statute of limitations

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Reduction based on tax positions related to prior year

Reduction related to settlement

Reductions for lapse of statute of limitations

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The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits within th e income tax provision.

The amount of interest and penalties accrued as of June 29, 2019 , June 30, 2018 and July 1, 2017 was approximately $ 3.7 million , $ 1.9 million , and $ 1.8 million respectively.

During fiscal 2019 , the Company’s accrued interest and penalties increased by $ 1.8 million .

The amount of interest and penalties accrued as of June 27, 2020 , June 29, 2019 and June 30, 2018 was approximately $ 2.7 million , $ 3.7 million , and $ 1.9 million , respectively.

During fiscal 2020 , the Company’s accrued interest and penalties decreased by $ 0.9 million .

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.

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* Although the Company is generally subject to a three-year statute of limitations in the U.S., tax authorities maintain the ability to adjust tax attribute carryforwards generated in earlier years.

Stockholders' Equity

Repurchase of Common Stock

In September 2016, the Board increased the Company’s previously authorized stock repurchase program from $ 100 million to $ 150 million .

Under the revised repurchase authorization, the Company may repurchase up to $ 150 million of the Company’s common stock from time to time at the discretion of the Company’s management.

This stock repurchase authorization was to expire on December 31, 2017.

During fiscal 2017, the Company repurchased approximately 10.5 million shares of common stock in open market purchases at an average price of $ 8.75 per share under the stock repurchase program authorized on February 1, 2016.

The total purchase price of these repurchases under the stock repurchase program of $ 92.0 million was reflected as a decrease to common stock based on the stated par value per share with the remainder charged to accumulated deficit.

In December 2017, the Board of Directors of the Company (the “Board”) authorized a further extension of the Company's stock repurchase program for an additional three months to expire on March 31, 2018.

In February 2018, the Board authorized the Company to increase its common stock repurchase program from $ 150 million to $ 200 million through open market or private transactions.

The $ 50 million increase in authorized repurchases is in addition to the $ 150 million repurchase program announced in September 2016.

The Board also extended the period during which repurchases could be made to September 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During fiscal 2018, the Company repurchased approximately 4.4 million shares of its common stock in open market purchases at an average price of $ 9.25 per share under the stock repurchase program authorized by the Board.

The total purchase price of these repurchases under the stock repurchase program of $ 40.9 million was reflected as a decrease to common stock based on the stated par value per share with the remainder charged to accumulated deficit.

During fiscal 2019, the Company repurchased approximately 1.1 million shares of its common stock in open market purchases at an average price of $ 10.14 per share under the stock repurchase program authorized by the Board.

The total purchase price of these repurchases under the stock repurchase program of $ 11.3 million was reflected as a decrease to common stock based on the stated par value per share with the remainder charged to accumulated deficit.

As of June 29, 2019, the Company had remaining authorization of $ 51.4 million for repurchase.

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.

All common shares repurchased during fiscal 2019 , 2018 and 2017 under this program have been canceled and retired.

Stockholders' Equity

Repurchase of Common Stock

As of June 27, 2020 , the Board of Directors authorized a stock repurchase program of up to $ 200 million of the Company’s common stock through open market or private transactions before September 30, 2021.

The following table summarizes share repurchase activity related to the Company’s stock repurchase program (in millions, except per share amounts) :

June 27, 2020

June 29, 2019

June 30, 2018

Total number of shares repurchased

Average price per share

Total purchase price

Remaining authorization at end of period

The total purchase price of these repurchases was reflected as a decrease to common stock based on the stated par value per share with the remainder charged to accumulated deficit.

All common shares repurchased during fiscal 2020 , 2019 and 2018 have been canceled and retired.

Preferred Stock

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Stock-Based Benefit Plans

Amendment and Restatement of Amended and Restated 2003 Equity Incentive Plan

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

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

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

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

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

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

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

Stock Option Plans

As of June 29, 2019 , the Company had 7.9 million shares subject to (i) stock options and Full Value Awards (defined below) issued and outstanding under the Amended and Restated 2003 Plan, (ii) inducement grants made in connection with the appointment

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of new CEO in fiscal 2016 and (iii) stock options and Full Value Awards issued and outstanding under various other plans the Company assumed through acquisitions.

On November 13, 2019, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 2003 Equity Incentive Plan (the 2003 Plan, as most recently amended and restated, the Amended and Restated 2003 Plan).

An additional 10.5 million shares were authorized under the re-approved 2003 plan effective as of November 13, 2019.

The Amended and Restated 2003 Plan provides for the granting of stock options, stock appreciation rights (SARs), dividend equivalent rights, restricted stocks, restricted stock units, performance units and performance shares, the vesting of which may be time-based or upon satisfaction of performance criteria or other conditions.

As of June 27, 2020 , the Company had 7.2 million shares subject to (i) stock options and Full Value Awards (defined below) issued and outstanding under the Amended and Restated 2003 Plan, (ii) inducement grants made in connection with the appointment of new CEO in fiscal 2016 and (iii) stock options and Full Value Awards issued and outstanding under various other plans the Company assumed through acquisitions.

The exercise price for stock options is equal to the fair value of the underlying stock at the date of grant.

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Options generally become exercisable over a three - or four -year period and, if not exercised, expire from five to ten years after the date of grant.

As of June 29, 2019 , 10.9 million shares of common stock, primarily under the re-approved 2003 Plan, were available for grant.

As of June 27, 2020 , 17.8 million shares of common stock, primarily under Amended and Restated 2003 Plan, were available for grant.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Employee Stock Purchase Plans

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The ESPP will terminate upon the earlier of November 15, 2027 or the date on which all shares available for issuance have been sold.

On August 1, 2015, the number of shares available for issuance was automatically adjusted pursuant to the terms of the ESPP.

As of June 27, 2020 , 2.9 million shares remained available for issuance.

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June 29, 2019

June 30, 2018

Cost of revenue

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Approximately $ 1.2 million of stock-based compensation expense was capitalized to inventory at June 27, 2020 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock Option Activity

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Balance as of July 1, 2017

Balance as of June 30, 2018

Balance as of June 29, 2019

Balance as of June 27, 2020

Expected to vest

The total intrinsic value of options exercised during the fiscal year ended June 29, 2019 was $ 0.2 million .

In connection with these exercises, the tax benefit realized by the Company was immaterial due to the fact that the Company has no material benefit in foreign jurisdictions and a full valuation allowance on its domestic deferred tax assets.

As of June 29, 2019 , $ 0.4 million of unrecognized stock-based compensation expense related to stock options remains to be amortized.

That cost is expected to be recognized over an estimated amortization period of 0.6 years.

As of June 27, 2020 , stock-based compensation expense related to stock options have been fully amortized and recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes outstanding and exercisable options as of June 27, 2020 .

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The cost will be recognized in the first quarter of fiscal 2021 .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Full Value Awards Activity

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Awards forfeited

Non-vested at July 1, 2017

Non-vested at June 30, 2018

Awards granted

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Awards forfeited

Non-vested at June 30, 2018

Non-vested June 29, 2019

Awards granted

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Performance Shares refer to the Company’s MSU and PSU awards, where the actual number of shares awarded upon vesting may be higher or lower than the target amount depending on the achievement of the relevant market conditions and performance goal achievement.

The majority of MSUs vest in equal annual installments over three to four years based on the attainment of certain total shareholder performance measures and the employee’s continued service through the vest date.

The majority of MSUs vest

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in equal annual installments over three to four years based on the attainment of certain total shareholder performance measures and the employee’s continued service through the vest date.

The aggregate grant-date fair value of MSUs granted during fiscal 2020 , 2019 and 2018 was estimated to be $ 7.7 million , $ 6.2 million and $ 4.7 million , respectively, and was calculated using a Monte Carlo simulation.

The Company did no t grant any PSU awards in fiscal 2019 and the fair value of the PSUs granted in fiscal 2018 was $ 1.4 million .

The Company did no t grant any PSU awards in fiscal 2020 and 2019.

The fair value of the PSUs granted in fiscal 2018 was $ 1.4 million .

PSU awards vest based on the attainment of certain performance measures and the employee’s continued service through the vest date.

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That cost is expected to be recognized over an estimated amortization period of 1.7 years .

The Company adopted the new authoritative guidance that simplified several aspects of accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows.

Under the new guidance, companies can make an accounting policy election to either continue to estimate forfeitures or account for forfeitures as they occur.

Upon adoption, the Company elected to account for forfeitures when they occur, on a modified retrospective basis.

The Company recognized net cumulative effect of $ 0.6 million as an increase to accumulated deficit as of the first day of fiscal 2018.

Further, the new authoritative guidance required previously unrecognized deferred tax benefits to be recorded as deferred tax assets.

Upon adoption, the Company had $ 117.7 million of net operating loss carryforwards resulting from excess tax benefit deductions.

In accordance with the new authoritative guidance, there was no impact to retained earnings resulting from adoption, as the deferred tax assets associated with these net operating loss carryforwards were fully offset by a corresponding valuation allowance.

All other aspects of the guidance did not have a material effect on the Company’s consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Valuation Assumptions

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June 29, 2019

June 30, 2018

Volatility of common stock

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Risk-free interest rate

The Company did no t issue stock option grants during the fiscal years ended June 29, 2019 , June 30, 2018 and July 1, 2017 .

The Company did no t issue stock option grants during the fiscal years ended June 27, 2020 , June 29, 2019 and June 30, 2018 .

The Company estimates the fair value ESPP purchase rights using a BSM valuation model.

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June 29, 2019

June 30, 2018

Expected term (in years)

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The Company used the simplified method as the Company does not have sufficient historical share option exercise data due to the limited number of shares granted as well as changes in the Company's business following the Separation, rendering existing historical experience less reliable in formulating expectations for current grants.

The Company’s expected term for ESPP is in line with the six months look-back period of its ESPP.

The Company’s expected term for ESPP purchase rights is in line with the six months offerings periods provided for under the ESPP.

Expected Volatility:

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The 401(k) Plan allows employees to contribute up to 50 % of their annual compensation, with contributions limited to $ 19,500 in calendar year 2020 as set by the Internal Revenue Service.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For all eligible employees, the Company offers a 401(k) Plan that provides a 100 % match of employees’ contributions up to the first 3 % of annual compensation and 50 % match on the next 2 % of compensation.

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The Company’s matching contributions to the 401(k) Plan were $ 4.9 million , $ 4.9 million and $ 4.2 million in fiscal 2020 , 2019 and 2018 , respectively.

Deferred Compensation Plan

The Company also provides for the benefit of certain eligible employees in the U.S.

a non-qualified retirement plan.

This plan is designed to permit employee deferral of a portion of salaries in excess of certain tax limits and deferral of bonuses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

plan’s assets are designated as trading securities on the Company’s Consolidated Balance Sheets.

Refer to “ Note 8.

Investments, Forward Contracts and Fair Value Measurements ” for more information.

Effective January 1, 2011, the Company suspended all employee contributions into the plan.

Employee Defined Benefit Plans

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June 29, 2019

June 30, 2018

Interest cost

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Commitments and Contingencies ” for further information on the provision for legal proceeding.

The changes in the benefit obligations and plan assets of the pension and benefits plans were ( in millions ):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The changes in the benefit obligations and plan assets of the pension and benefits plans were ( in millions ):

Pension Benefit Plans

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Benefits paid

Assumed plan asset from acquisition

Foreign exchange impact

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June 29, 2019

June 30, 2018

Used to determine net period cost at end of year:

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Commitments and Contingencies

Operating Leases

The Company leases certain real and personal property from unrelated third parties, under non-cancelable operating leases that expire at various dates through fiscal 2029 .

Certain leases may require the Company to pay property taxes, insurance and routine maintenance, and include escalation clauses.

As of June 29, 2019 , future minimum annual lease payments under non-cancelable operating leases were as follows ( in millions ):

Total minimum operating lease payments

Included in the future minimum lease payments table above is $ 0.3 million related to lease commitments in connection with the Company’s restructuring and related activities.

Refer to “ Note 12.

Restructuring and Related Charges ” for more information.

The aggregate future minimum rentals to be received under non-cancelable subleases totaled $ 0.1 million as of June 29, 2019 .

Rental expense relating to building and equipment was $ 13.0 million , $ 13.7 million and $ 12.1 million in fiscal 2019 , 2018 and 2017 , respectively.

Royalty payment

In connection with the AW acquisition, the Company is obligated to make future minimum royalty payments of $ 2.3 million measured as of June 27, 2020 for the use of certain licensed technologies.

Future minimum quarterly payments are scheduled at approximately $ 0.2 million through the second quarter of fiscal 2023 and $ 0.1 million thereafter until approximately the second quarter of fiscal 2028.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future minimum quarterly payments are scheduled at approximately $ 0.2 million through the second quarter of fiscal 2023 and $ 0.1 million thereafter until approximately the fourth quarter of fiscal 2026.

Purchase Obligations

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Financing Obligations

On December 16, 2011, the Company executed and closed the sale and leaseback transaction of certain buildings and land in Eningen, Germany (the “Eningen Transactions”).

The Company sold approximately 394,217 square feet of land, nine buildings with approximately 386,132 rentable square feet, and parking areas.

The Company leased back approximately 158,154 rentable square feet comprised of two buildings and a portion of a basement of another building (the “Leased Premises”).

The lease term is 10 years with the right to cancel a certain portion of the lease after 5 years .

Concurrent with the sale and lease back, the Company has provided collateral in case of a default by the Company relative to future lease payments for the Leased Premises.

Due to this continuing involvement, the related portion of the cash proceeds and transaction costs, associated with the Leased Premises and other buildings which the Company continues to occupy, was recorded under the financing method in accordance with the authoritative guidance on leases and sales of real estate.

Accordingly, the carrying value of these buildings and associated land will remain on the Company’s books and the buildings will continue to be depreciated over their remaining useful lives.

The portion of the proceeds received have been recorded as a financing obligation, a portion of the lease payments are recorded as a decrease to the financing obligation and a portion is recognized as interest expense.

Imputed rental income from the buildings sold but not leased back and currently being occupied is recorded as a reduction in the financing obligation.

As of June 29, 2019 , of the total financing obligation related to the Eningen Transactions, $ 0.2 million was included in Other current liabilities, and $ 3.6 million was included in Other non-current liabilities.

As of June 30, 2018 , of the total financing obligation related to the Eningen Transactions, $ 0.2 million was included in Other current liabilities, and $ 3.9 million was included in Other non-current liabilities.

On August 21, 2007, the Company entered into a sale and lease back of certain buildings and land in Santa Rosa, California (the “Santa Rosa Transactions”).

The Company sold approximately 45 acres of land, 13 buildings with approximately 492,000 rentable square feet, a building pad, and parking areas.

The Company leased back 7 buildings with approximately 286,000 rentable square feet.

On August 21, 2007, the Company entered into a sale and lease-back of certain buildings and land in Santa Rosa, California (the Santa Rosa Transactions), under which we leased back certain buildings.

The net cash proceeds received from the transaction were $ 32.2 million .

The lease terms range from a one year lease with multiple renewal options to a ten years lease with two five years renewal options.

The Company has an ongoing obligation to remediate environmental matters, impacting the entire site, as required by the North Coast Regional Water Quality Control Board which existed at the time of sale.

Concurrent with the sale and lease back, the Company has issued an irrevocable letter of credit for $ 3.8 million as security for the remediation of the environmental matters that remain in effect until the issuance of a notice of no further action letter from the North Coast Regional Water Quality Control Board.

In addition, the lease agreement for one building included an option to purchase at fair market value, at the end of the lease term.

Due to these various forms of continuing involvement the transaction was recorded under the financing method in accordance with the authoritative guidance on leases and sales of real estate.

These buildings did not qualify for sale and lease back accounting due to various forms of continuing involvement and as a result, they were accounted for as financing transactions.

In August 2012 and May 2019, the Company entered into two lease amendments to extend the term of the lease to August 31, 2032 with a 10 years renewal option.

In the first quarter of fiscal 2020, the Company reassessed whether a sale would have occurred

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accordingly, the value of the buildings and land will remain on the Company’s books and the buildings will continue to be depreciated over their remaining useful lives.

The proceeds received have been recorded as a financing obligation, a portion of the lease payments are recorded as a decrease to the financing obligation and a portion is recognized as interest expense.

Imputed rental income from the buildings sold but not leased back is recorded as a reduction in the financing obligation.

on the date of adoption of ASC 842 and at which time, concluded that the buildings did not qualify for sale and lease back accounting in accordance with ASC 842.

As a result, they were continuously accounted for as financing transactions.

As of June 27, 2020 , $ 0.1 million was included in Other current liabilities, and $ 16.2 million was included in Other non-current liabilities.

As of June 29, 2019 , $ 1.1 million was included in Other current liabilities, and $ 21.8 million was included in Other non-current liabilities.

The lease payments due under the agreement reset to fair market rental rates upon the Company’s execution of the renewal options.

As of June 29, 2019 , future minimum annual lease payments of Eningen and Santa Rosa non-cancelable leaseback agreements were as follows (in millions) :

As of June 27, 2020 , future minimum annual lease payments of Santa Rosa’s non-cancelable leaseback agreements were as follows (in millions) :

Total minimum leaseback payments

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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 and has accrued a reserve for the estimated costs of product warranties

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

at the time revenue is recognized.

In general, the Company offers its customers warranties up to 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.

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The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the changes in the Company’s warranty reserve during fiscal years 2020 and 2019 ( in millions ):

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Adjustments related to pre-existing warranties (including changes in estimates)

Acquisitions (1)

Balance as of end of period

(1) See “ Note 6.

Acquisitions ” of the Notes to Consolidated Financial Statements for detail of acquisition.

Contingent Purchase Consideration

Contingent liabilities include contingent consideration in connection with the Company’s acquisitions, which represent earn-out payments and is recognized at fair value on the acquisition date and is remeasured each reporting period with subsequent adjustments recognized in the consolidated statements of income.

See “ Note 5.

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Contingent consideration is valued using significant Level 3 inputs, that are not observable in the market pursuant to fair value measurement accounting.

The Company believes the estimates and assumptions are reasonable, however, there is significant judgment and uncertainty involved.

The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2019 .

The earn-out liabilities represent future payments by the Company of up to $ 63.0 million over up to four years .

Payments are contingent on the achievement of certain revenue and gross profit targets.

As of June 29, 2019 the aggregate fair value of the Company’s contingent liabilities were $ 38.4 million , measured using Level 3 inputs, see “ Note 8.

Investments, Forward Contracts and Fair Value Measurements ” for additional information.

Related to the Company’s acquisitions escrow account(s) have been established to cover damages the Company may suffer related to any liabilities assumed that it did not agree to, or as a result of breach of representations and warranties of the seller as described in the merger agreement.

While the Company believes the estimates and assumptions are reasonable, there is significant judgment and uncertainty involved.

The Company’s Level 3 liabilities as of June 27, 2020 , consist of contingent purchase consideration.

The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2020 and 2019 .

As June 27, 2020 and June 29, 2019 , the aggregate fair value of contingent consideration was $ 9.9 million and $ 38.4 million , respectively.

See “ Note 8.

Fair Value Measurements ” for additional information related to the Company’s earn-outs.

Legal Proceedings

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The court ruled that the amendment increasing the pension plan benefit was valid until the subsequent amendment.

The Company estimated the increase in liability to range from (amounts represented as £ and $ denote GBP and USD, respectively), £ 5.7 million or $ 7.4 million to £ 8.4 million or $ 10.9 million .

The Company determined that the likelihood of loss to be probable and accrued GBP 5.7 million as of July 2, 2016 in accordance with authoritative guidance on contingencies.

The accrual is included as a component of SG&A expense and included in pension and post-employment benefits, which is a component of other non-current liabilities, in the Company’s Consolidated Statement of Operations and Consolidated Balance Sheets, respectively.

The Company estimated the liability to range from (amounts represented as £ denote GBP) £ 5.7 million to £ 8.4 million .

The Company determined that the likelihood of loss to be probable and accrued £ 5.7 million as of July 2, 2016 in accordance with authoritative guidance on contingencies.

The accrual is included as a component of other non-current liabilities, in the Company’s Consolidated Statement of Operations and Consolidated Balance Sheets, respectively.

The Company pursued an appeal of the court decision.

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While management currently believes that resolving claims against the Company, individually or in aggregate, will not have a material adverse impact on its financial position, results of operations or statement of cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

Were an unfavorable final outcome to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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.

Operating Segments and Geographic Information

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The Company’s Chief Executive Officer is the Company’s Chief Operating Decision Maker (CODM), uses operating segment financial information to evaluate segment performance and to allocate resources.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s reportable segments are:

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(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.

OSP provides innovative, precision, high performance optical products for anti-counterfeiting, consumer and industrial, government, automotive, industrial and other markets.

Segment Reporting

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Additionally, the Company does not specifically identify and allocate all assets by operating segment.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Information on the Company’s reportable segments is as follows ( in millions ):

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Operating margin

Year Ended July 1, 2017

Year Ended June 30, 2018

Network and Service Enablement

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June 29, 2019

June 30, 2018

Corporate reconciling items impacting gross profit:

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Restructuring and related charges

GAAP operating income

During the year ended June 29, 2019 , other charges unrelated to core operating performance primarily consisted of $ 5.0 million in acquisition related costs.

During the year ended June 30, 2018 , other charges unrelated to core operating performance primarily consisted of $ 12.7 million in acquisition related costs and $ 12.4 million in amortization of inventory step-up.

During the year ended July 1, 2017 , other charges unrelated to core operating performance primarily consisted of a $ 5.7 million loss on disposal of long-lived assets.

GAAP operating income from continuing operations

During the years ended June 27, 2020 , other charges unrelated to core operating performance primarily consisted of $ 1.4 million in acquisition related costs.

During the years ended June 29, 2019 , other charges unrelated to core operating performance primarily consisted of $ 5.0 million in acquisition related costs.

During the years ended June 30, 2018 , other charges unrelated to core operating performance primarily consisted of a $ 12.7 million in acquisition related costs and $ 12.4 million in amortization of inventory step-up.

Refer to “ Note 8.

Investments, Forward Contracts and Fair Value Measurements ” for further detail.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements ” for further detail.

The Company operates primarily in three geographic regions:

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June 29, 2019

June 30, 2018

Product Revenue

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Total net revenue

One customer served by the Company’s OSP segment generated more than 10% of VIAVI net revenue from continuing operations during fiscal 2019 , 2018 and 2017 as summarized below ( in millions ):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SICPA Holding SA Company (SICPA), served by the Company’s OSP segment, generated more than 10% of VIAVI net revenue from continuing operations during fiscal 2020 , 2019 and 2018 as summarized below ( in millions ):

June 27, 2020

June 29, 2019

Customer A - OSP customer

June 30, 2018

SICPA - OSP customer

Property, plant and equipment, net was identified based on the operations in the corresponding geographic areas ( in millions ):

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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 8. Financial Statements and Supplementary Data