What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-08-23 compared with 2020-08-24 · 601 added, 783 removed, 1153 unchanged (55% 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 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).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 27, 2020 and June 29, 2019 , and the results of its operations and its cash flows for each of the three years in the period ended June 27, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 27, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

and its subsidiaries (the “Company”) as of July 3, 2021 and June 27, 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended July 3, 2021, 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 July 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 3, 2021 and June 27, 2020, and the results of its operations and its cash flows for each of the three years in the period ended July 3, 2021 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of July 3, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

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(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.

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.

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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.

As described in Notes 1 and 19 to the consolidated financial statements, the Company had $1,198.9 million of revenue for the year ended July 3, 2021 of which $746.6 million and $91.3 million related to the Network Enablement and Service Enablement segments, respectively.

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

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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.

These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls related to the identification and evaluation of performance obligations in contracts with customers.

These procedures also included, among others, 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

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(in millions, except per share data)

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Product revenue $ 1,051.4 $ 1,005.2 $ 1,004.2

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Total cost of revenues 484.5 471.0 478.9

Gross profit 714.4 665.3 651.4

Operating expenses:

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Amortization of other intangibles 33.3 35.1 38.1

Restructuring and related charges

Restructuring and related (benefits) charges ( 1.6 ) 3.5 15.4

Total operating expenses 572.2 547.2 584.0

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Interest expense ( 36.1 ) ( 33.7 ) ( 34.3 )

Income (loss) from continuing operations before income taxes

Income from continuing operations before income taxes 109.4 94.0 39.3

Provision for income taxes 63.3 65.3 31.5

Income (loss) from continuing operations, net of taxes

Income from continuing operations, net of taxes 46.1 28.7 7.8

Loss from discontinued operations, net of taxes — — ( 2.4 )

Net income (loss)

Net income (loss) per share from - basic:

Net income $ 46.1 $ 28.7 $ 5.4

Net income per share from - basic:

Continuing operations $ 0.20 $ 0.13 $ 0.03

Discontinued operations — — ( 0.01 )

Net income (loss)

Net income (loss) per share from - diluted:

Net income $ 0.20 $ 0.13 $ 0.02

Net income per share from - diluted:

Continuing operations $ 0.20 $ 0.12 $ 0.03

Discontinued operations — — ( 0.01 )

Net income (loss)

Net income $ 0.20 $ 0.12 $ 0.02

Shares used in per-share calculations:

Basic 228.7 229.4 228.1

Diluted 235.9 233.7 231.2

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

VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

June 27, 2020

June 29, 2019

June 30, 2018

Net income (loss)

Other comprehensive loss:

July 3, 2021 June 27, 2020 June 29, 2019

Net income $ 46.1 $ 28.7 $ 5.4

Other comprehensive income (loss):

Net change in cumulative translation adjustment, net of tax 61.5 ( 28.6 ) ( 27.0 )

Net change in available-for-sale investments, net of tax:

Unrealized holding gains (losses) arising during period

Unrealized holding (losses) gains arising during period — ( 0.1 ) 0.3

reclassification adjustments included in net income — — 0.5

Net change in defined benefit obligation, net of tax:

Unrealized actuarial losses arising during period

Unrealized actuarial gains (losses) arising during period 4.1 ( 5.4 ) ( 7.3 )

Amortization of actuarial losses 3.1 2.8 1.8

Net change in accumulated other comprehensive loss

Comprehensive loss

Net change in accumulated other comprehensive income (loss) 68.7 ( 31.3 ) ( 31.7 )

Comprehensive income (loss) $ 114.8 $ ( 2.6 ) $ ( 26.3 )

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

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(in millions, except share and par value data)

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Current assets:

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Other non-current assets 59.5 55.3

Total assets $ 1,961.4 $ 1,776.3

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Accrued expenses 24.8 22.6

Short-term debt

Short-term debt (Note 11)

Other current liabilities 57.1 48.4

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Commitments and contingencies (Note 18)

Convertible senior notes (Note 11)

Stockholders’ equity:

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;

1 billion shares authorized;

228 million shares at June 27, 2020 and 229 million shares at June 29, 2019, issued and outstanding

228 million shares issued and outstanding at July 3, 2021 and June 27, 2020

Additional paid-in capital 70,265.5 70,274.3

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(in millions)

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

OPERATING ACTIVITIES:

Net income (loss)

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net income $ 46.1 $ 28.7 $ 5.4

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation expense 35.8 40.0 39.7

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Amortization of debt issuance costs and accretion of debt discount 23.7 22.2 22.7

Amortization of discount and premium on investments, net

Net change in fair value of contingent liabilities ( 5.3 ) ( 31.5 ) ( 5.9 )

Loss (Gain) on sales of investments

Loss on sales of investments — — 0.5

Loss on disposal of long-lived assets 0.1 0.1 1.4

Loss on extinguishment of debt

Other 2.8 5.7 5.1

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable ( 15.0 ) ( 5.1 ) ( 17.8 )

Inventories ( 14.3 ) 3.7 ( 15.4 )

Other current and non-currents assets 14.9 10.6 0.1

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INVESTING ACTIVITIES:

Purchases of available-for-sale investments

Maturities of available-for-sale investments — — 47.3

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FINANCING ACTIVITIES:

Proceeds from issuance of senior convertible debt

Payment of debt issuance costs ( 0.1 ) ( 1.6 ) ( 0.5 )

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Payment of acquisition related holdback — ( 6.8 ) —

Payment of acquired debt ( 2.8 ) — —

Payment of acquisition related contingent consideration ( 1.2 ) ( 0.7 ) —

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

547.4 530.4 624.3

Cash, cash equivalents and restricted cash at end of period (2)

$ 708.4 $ 547.4 $ 530.4

Supplemental disclosure of cash flow information

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Cash paid for income taxes $ 43.8 $ 50.6 $ 29.8

(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.

(1) 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.

(2) These amounts include both current and non-current balances of restricted cash totaling $ 10.6 million, $ 8.4 million and $ 8.9 million as of July 3, 2021, June 27, 2020 and June 29, 2019, respectively.

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

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(in millions)

Additional Paid-In Capital

Accumulated Deficit

Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated

Comprehensive

Income (Loss)

Balance at July 1, 2017

Other Comprehensive loss

Shares issued under employee stock plans, net of tax effects

Stock-based compensation

Repurchases of common stock

Issuance of senior convertible notes

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

Reacquisition of 2033 Notes equity component

Income (Loss) Total

Shares Amount

Balance at June 30, 2018 226.7 $ 0.2 $ 70,216.2 $ ( 69,378.6 ) $ ( 102.9 ) $ 734.9

Net income — — — 5.4 — 5.4

Other comprehensive loss — — — — ( 31.7 ) ( 31.7 )

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Cumulative adjustment for adoption of ASU 2016-02 (Topic 842) — — — 3.0 3.0

Net income — — — 28.7 — 28.7

Other comprehensive loss — — — — ( 31.3 ) ( 31.3 )

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Balance at June 27, 2020 228.3 $ 0.2 $ 70,274.3 $ ( 69,397.2 ) $ ( 165.9 ) $ 711.4

Net income — — — 46.1 — 46.1

Other comprehensive income — — — — 68.7 68.7

Shares issued under employee stock plans, net of tax effects 3.0 — ( 11.5 ) — — ( 11.5 )

Stock-based compensation — — 48.5 — — 48.5

Repurchase of common stock ( 3.0 ) — — ( 42.6 ) — ( 42.6 )

Reclassification between equity and temporary equity for senior convertible notes — — ( 45.8 ) — — ( 45.8 )

Balance at July 3, 2021 228.3 $ 0.2 $ 70,265.5 $ ( 69,393.7 ) $ ( 97.2 ) $ 774.8

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation

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Viavi Solutions, Inc.

(VIAVI, also referred to as the Company), is a global provider of network test, monitoring and assurance solutions to communications service providers, enterprises, network equipment manufacturers, civil government, military and avionics customers, supported by a worldwide channel community including VIAVI Velocity Partners.

The Company’s Velocity program (Velocity) allows the Company to optimize the use of direct or partner sales depending on application and sales volume.

Velocity expands the Company’s reach into new market segments as well as expands the Company’s capability to sell and deliver solutions.

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

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

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

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

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

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.

The Company’s 2021 fiscal year is a 53-week year ending on July 3, 2021.

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

The Company’s first quarter of fiscal year 2021 was a 14-week quarter compared to the standard 13-week quarters.

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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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.

While this may have a negative impact to our sales and our results of operations, the Company is not aware of any specific events 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 COVID-19.

Cash and Cash Equivalents

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Cash equivalents also include certain term deposits with financial institutions that the Company can liquidate with 30 days’ advance notice without incurring penalties.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restricted Cash

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, 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.

At July 3, 2021 and June 27, 2020, the Company’s short-term restricted cash balances were $ 4.3 million and $ 3.5 million, respectively.

The Company’s long-term restricted cash balances, included in other non-current assets in the Company’s Consolidated Balance Sheets, were $ 6.3 million and $ 4.9 million as of July 3, 2021 and June 27, 2020, 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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Commitments and Contingencies” for more information.

The Company’s investments are primarily investments in debt securities, which are classified as available-for-sale investments or trading securities, recorded at fair value.

The Company’s investments in debt securities are classified as available for sale investments, recorded at fair value.

The cost of securities sold is based on the specific identified method.

Unrealized gains and losses resulting from changes in fair value on available-for-sale investments, net of tax, are reported within accumulated other comprehensive loss.

The Company periodically reviews these debt investments for impairment.

The Company periodically reviews investments in debt securities 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 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 (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.

The non-credit loss portion is the residual amount of the other-than-temporary impairment.

The credit loss portion is recorded as a charge to income (loss), and the non-credit loss portion is recorded as a separate component of other comprehensive (loss) income.

The Company’s short-term investments are classified as current assets, include certain securities with stated maturities of longer than twelve months, are highly liquid and available to support its current operations.

(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 recorded as an allowance to credit loss through interest and other income, net, and the non-credit loss portion is recorded as a separate component of other comprehensive loss.

Fair Value of Financial Instruments

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The three levels of inputs that may be used to measure fair value are:

Quoted market prices for identical instruments in active markets for identical assets or liabilities.

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in less active markets or model-derived valuations.

All significant inputs used in the Company’s valuations, such as discounted cash flows, are observable or derived from or corroborated with observable market data for substantially the full term of the assets or liabilities.

Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

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.

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

Includes financial instruments for which quoted market prices for identical instruments are available in active markets.

Level 1 assets of the Company include money market funds, U.S.

Treasury securities and marketable equity securities as they are traded with sufficient volume and frequency of transactions.

Includes financial instruments for which the valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 2 instruments of the Company include asset-backed securities, foreign currency forward contracts and debt.

To estimate their fair value, the Company utilizes pricing models based on market data.

The significant inputs for the valuation model usually include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events.

VIAVI SOLUTIONS INC.

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.

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.

Includes financial instruments for which fair value is derived from valuation-based inputs, that are unobservable and significant to the overall fair value measurement.

As of July 3, 2021 and June 27, 2020, the Company did not hold any Level 3 investment securities.

The Company’s Level 3 liabilities as of July 3, 2021 and June 27, 2020 consist of contingent purchase consideration.

The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2021 and 2020.

The fair value of earn-out liabilities was 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 (SG&A) expense of the Consolidated Statements of Operations.

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

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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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Demonstration units are amortized on the straight-line method and are Company products used for demonstration purposes for existing and prospective customers.

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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.

Goodwill represents the excess of the purchase price paid over the net fair value of assets acquired and liabilities assumed.

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

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These events and circumstances include, macro-economic conditions, such as a significant adverse change in the Company’s operating environment, industry or market considerations;

entity-specific events such as increasing costs, declining financial performance, or loss of key personnel;

or other events, such as the sale of a reporting unit, adverse regulatory developments or a sustained decrease in the Company’s stock price.

entity-specific events such as increasing costs, declining financial performance, or loss of key personnel, or other events, such as the sale of a reporting unit, adverse regulatory developments or a sustained decrease in the Company’s stock price.

If it is determined, as a result of the qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative test is required.

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Measurement of the fair value of a reporting unit is based on one or more of the following fair value measures:

using present value techniques of estimated future cash flows or using valuation techniques based on multiples of earnings or revenue, or a similar performance measure.

(i) using present value techniques of estimated future cash flows;

(ii) using valuation techniques based on multiples of earnings or revenue;

or (iii) a similar performance measure.

Refer to “Note 9.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pension and Other Postretirement Benefits

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This liability is recorded in other current liabilities in the Consolidated Balance Sheets.

Net periodic pension cost is recorded in the Consolidated Statements of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service cost (credit), and (gains) losses previously recognized as a component of accumulated other comprehensive (loss) income.

Net periodic pension cost is recorded in the Consolidated Statements of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service cost or credit, and gains or losses previously recognized as a component of accumulated other comprehensive loss.

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

VIAVI SOLUTIONS INC.

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.

Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan amendments.

(Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost in the Consolidated Statements of Operations as they arise are recognized as a component of accumulated other comprehensive (loss) income on the Consolidated Balance Sheets, net of tax.

Those (gains) losses and prior service cost (credit) are subsequently recognized as a component of net periodic pension cost pursuant to the recognition and amortization provisions of the authoritative guidance.

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

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

Prior service cost or credit represents the cost of benefit improvements attributable to prior service granted in plan amendments.

Gains or losses and prior service cost or credit not recognized as a component of net periodic pension cost in the Consolidated Statements of Operations are recognized as a component of accumulated other comprehensive loss on the Consolidated Balance Sheets, net of tax.

Those gains or losses and prior service cost or credit are subsequently recognized as a component of net periodic pension cost pursuant to the recognition and amortization provisions of the authoritative guidance.

The measurement of the benefit obligation and net periodic pension cost is based on the Company’s estimates and actuarial valuations provided by third-party actuaries and are approved by management.

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The Company’s cash and cash equivalents and short-term investments are held in safekeeping by large, creditworthy financial institutions.

The Company invests its excess cash primarily in U.S.

government and agency bonds securities, corporate securities, money market funds, asset-backed securities, other investment-grade securities and certificates of deposit.

The Company invests its excess cash primarily in institutional money market funds, short-term deposits and similar short duration high quality, investment grade instruments.

The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain the safety and liquidity of these investments.

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Potential risk of loss with any one counterparty resulting from such risk is monitored by the Company on an ongoing basis.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.

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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 classifies bad debt expenses as SG&A expense.

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

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While the Company’s allowance for doubtful accounts balance is based on historical loss experience along with anticipated economic trends, unanticipated financial instability in the telecommunications industry could lead to higher than anticipated losses.

As of June 27, 2020 and June 29, 2019 , no customer represented 10% or more of the Company’s total accounts receivable, net.

As of July 3, 2021 two customers represented 10 % or more of the Company’s total accounts receivable, net.

As of June 27, 2020, no customer represented 10% or more of the Company’s total accounts receivable, net.

During fiscal 2021, 2020 and 2019, one customer generated 10 % or more of total net revenues.

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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.

VIAVI SOLUTIONS INC.

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.

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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 and other income, net.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Foreign Currency Translation

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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;

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support and maintenance which includes hardware support that extends beyond the Company's standard warranties, software maintenance, installation, professional and implementation services, and training.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

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

• Revenue-based taxes as assessed by governmental authorities have been excluded from the measurement of transaction price.

• Shipping and handling activities performed after the customer obtains control of the good are treated as activities to fulfill the promise (cost of fulfillment).

Therefore, the Company does not evaluate whether the shipping and handling activities are promised services.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

• Incremental costs of obtaining contracts that would have been recognized within one year or less are recognized as an expense when incurred.

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The Company provides reserves 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.

Warranty cost estimates are based on historical experience of known product failure rates, use of materials to repair or replace defective products, and service delivery costs incurred in correcting product failures.

In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

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Advertising costs totaled $ 2.7 million, $ 3.7 million and $ 2.6 million in fiscal 2021, 2020 and 2019, respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Research and Development Expense

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The authoritative guidance allows for capitalization of software development costs incurred after a product’s technological feasibility has been established until the product is available for general release to the public.

The Company believe its software development process is completed concurrent with the establishment of technological feasibility.

The Company believes its software development process is completed concurrent with the establishment of technological feasibility.

As such, software development costs have been expensed as incurred.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation

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

The Company recognizes stock-based compensation cost over the award’s requisite service period on a straight-line basis.

No compensation cost is recognized for awards forfeited by employees who do not render requisite service.

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 (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's stock-based compensation includes a combination of time-based restricted stock awards and performance-based awards.

Restricted stock awards are granted without an exercise price and are converted to shares immediately upon vesting.

When converted into shares upon vesting, shares equivalent in value to the minimum withholding taxes liability on the vested shares are withheld by the Company for the payment of such taxes.

For performance-based awards, shares attained over target upon vesting are reflected as awards granted during the period.

Time-based restricted stock awards will generally vest in annual or quarterly installments over a period of three to four years subject to the employees’ continuing service to the Company.

The Company's performance-based awards may include performance conditions, market conditions, time-based service conditions or a combination there of and are generally expected to vest over one to four years .

In addition, the actual number of shares awarded upon vesting of performance-based grants may vary from the target shares depending upon the achievement of the relevant performance or market-based conditions.

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.

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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 MSUs which are amortized based upon the 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 certain performance-based awards 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.

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If there is a change in the Company’s ability to realize its deferred tax assets for which a valuation allowance has been established, then its tax provision may decrease in the period in which it determines that realization is more likely than not.

Likewise, if the Company determines that it is not more likely than not that its deferred tax assets will be realized, then a valuation allowance may be established for such deferred tax assets and the Company’s tax provision may increase in the period in which the Company make the determination.

The authoritative guidance on accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

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If the Company ultimately determines that the payment of such a liability is not necessary, then it reverses the liability and recognizes a tax benefit during the period it is determined no longer necessary.

The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that the Company make certain estimates and judgments.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that the Company make certain estimates and judgments.

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

Restructuring Accrual

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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.

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

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

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

Liabilities Incurred

Liabilities Settled

Accretion Expense

Revisions to Estimates

Balance at End of Period

Year ended June 27, 2020

As of July 3, 2021, and June 27, 2020, the Consolidated Balance Sheets included ARO of $ 1.3 million and $ 0.9 million, respectively, in other current liabilities and $ 2.4 million and $ 3.1 million, respectively, in other non-current liabilities.

Balance at Beginning of Period Liabilities Incurred Liabilities Settled Accretion Expense Revisions to Estimates Balance at End of Period

Year ended July 3, 2021 $ 4.0 $ 0.3 $ ( 0.7 ) $ 0.1 $ — $ 3.7

Year ended June 27, 2020 3.6 0.3 — 0.1 — 4.0

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Recent Accounting Pronouncements Adopted

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.

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

Under the new guidance, credit losses for certain types of financial assets are estimated based on expected losses.

In the first quarter of fiscal 2021 the Company adopted the accounting standard using the modified retrospective approach.

The adoption of the new standard did not have a material impact on the Company’s Consolidated Financial Statements.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In the first quarter of fiscal 2020 the Company adopted ASC 842 - Leases using the modified retrospective approach.

The Company elected to apply the optional transition approach of not adjusting comparative period financial information for the adoption impact.The Company also elected the package of practical expedients to not reassess whether a contract contains a leas, lease classification and accounting for initial direct costs.

For additional information refer to “Note 12.

Recent Accounting Pronouncements Not Yet Adopted

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

Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses.

The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination.

The guidance is effective for the Company in the first quarter of fiscal 2021 and earlier adoption is permitted.

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

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 August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments with characteristics of liability and equity.

This new guidance removes separation models for certain convertible debt instruments which will now be accounted for as a single liability measured at amortized cost.

In addition, the interest expense recognized for these instruments will typically be closer to the coupon interest rate due to the removal of the separation model's non-cash discount amortization.

ASU 2020-06 is effective for the Company in the first quarter of fiscal 2023, with early adoption permitted for the first quarter of fiscal 2022.

Adoption of this new guidance can either be on a modified retrospective or full retrospective basis.

The Company will adopt the new guidance in the first quarter of fiscal 2022, on a full retrospective basis, reflecting the application of the new standard in each prior reporting period.

The elimination of the separation model for the convertible debt instruments is expected to reduce additional paid in capital by approximately $ 80 million and $ 130 million as of July 3, 2021 and June 27, 2020, respectively.

The removal of the non-cash debt discount amortization will reduce interest expense and increase net income by approximately $ 20 million for the each of the fiscal years ended 2021 and 2020.

In addition, the adoption will eliminate the temporary equity balance for the convertible senior notes as of July 3, 2021 of $ 45.8 million.

These adjustments will result in the reported balance of the convertible notes being more consistent with the par value offset only by the unamortized issuance costs.

We currently expect the adoption of ASU 2020-06 will result in the reduction of non-cash interest expense for fiscal 2022 and until the affected notes have been settled with a corresponding increase in income attributable to common stockholders for both basic and diluted earnings per share.

The adoption will have no impact on the Consolidated Statement of Cash Flows.

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.

The guidance is effective for the Company in the first quarter of fiscal year 2022.

The Company does not believe adoption of this new accounting guidance will have a material impact 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.

Some of the changes include adding a disclosure requirement for significant gains and losses related to changes in the benefit obligation for the period, and removing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.

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

The Company is evaluating the impact of adopting this new accounting guidance on its Consolidated Financial Statements.

This guidance is effective for the Company in the first quarter of fiscal 2022.

The Company does not believe adoption of this new accounting guidance will have a material impact on its Consolidated Financial Statements.

Earnings Per Share

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period.

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, 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.

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period.

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

If dilutive, the effect of outstanding Employee Stock Purchase Program (ESPP) purchase rights, restricted stock units (RSUs), performance-based stock units (PSUs), market-based stock units (MSUs), options and senior convertible notes is reflected in diluted net income per share by application of the treasury stock method and/or the if-converted method, as applicable.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

July 3, 2021 June 27, 2020 June 29, 2019

Income from continuing operations, net of taxes $ 46.1 $ 28.7 $ 7.8

Loss from discontinued operations, net of taxes — — ( 2.4 )

Net income (loss)

Net income $ 46.1 $ 28.7 $ 5.4

Weighted-average shares outstanding:

Basic 228.7 229.4 228.1

Shares issuable assuming conversion of convertible notes (1)

Effect of dilutive securities from stock-based benefit plans 2.6 3.1 3.1

Net income (loss) per share from - basic:

Diluted 235.9 233.7 231.2

Net income per share from - basic:

Continuing operations $ 0.20 $ 0.13 $ 0.03

Discontinued operations — — ( 0.01 )

Net income (loss)

Net income (loss) per share from - diluted:

Net income $ 0.20 $ 0.13 $ 0.02

Net income per share from - diluted:

Continuing operations $ 0.20 $ 0.12 $ 0.03

Discontinued operations — — ( 0.01 )

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 ):

June 27, 2020 (4)

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

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

Net income $ 0.20 $ 0.12 $ 0.02

(1) Represents the dilutive impact under the if-converted method for the Company's 1.75 % Senior Convertible Notes due 2023 and the 1.00 % Senior Convertible Notes due 2024.

As of July 3, 2021, the if-converted value in excess of outstanding principal of the 1.75 % Senior Convertible Notes due 2023 and the 1.00 % Senior Convertible Notes due 2024 was $ 13.8 million and $ 54.8 million, respectively.

Refer to “Note 11.

Debt” for more information.

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

July 3, 2021 June 27, 2020 June 29, 2019

Stock options and ESPP — — 0.1

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Total potentially dilutive securities 0.4 0.2 0.5

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.

The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $ 11.28 per share is payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election.

In October 2018 , the 2033 Notes were fully redeemed and any potential dilution effect of the Notes was realized upon the Company settling the “in-the-money” conversion benefit feature of the Notes with shares of common stock.

Refer to “ Note 11.

Debt ” for more details.

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

Accumulated Other Comprehensive Loss

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

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.

Debt ” for more details.

The Company’s 1.75 % Senior Convertible Notes due 2023 are not included in the table above.

The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $ 13.94 per share 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.

Debt ” for more details.

Accumulated Other Comprehensive Loss

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

Changes in accumulated other comprehensive (loss) income by component, net of tax, were as follows ( in millions ):

Unrealized gains (losses)

Changes in accumulated other comprehensive loss by component, net of tax, were as follows ( in millions ):

Unrealized gains

on available-for-sale

investments (1)

Foreign currency translation adjustments

Change in unrealized components of defined benefit

obligations, net of tax (2)

investments Foreign currency translation adjustments Change in unrealized components of defined benefit

obligations, net of tax (1) Total

Beginning balance as of June 27, 2020 $ ( 5.1 ) $ ( 129.6 ) $ ( 31.2 ) $ ( 165.9 )

Other comprehensive (loss) income before reclassification

Amounts reclassified from accumulated other comprehensive (loss) income

Net current period other comprehensive (loss) income

Ending balance as of June 27, 2020

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 “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 .

Activity before reclassifications to the Consolidated Statements of Operations during the fiscal year ended June 27, 2020 relates to the unrealized actuarial loss of $ 5.7 million , net of income tax benefit of $ 0.3 million .

The amount reclassified out of accumulated other comprehensive (loss) income represents the amortization of actuarial losses included as a component of SG&A in the Consolidated Statement of Operations for the year ended June 27, 2020 .

Other comprehensive income before reclassification — 61.5 4.1 65.6

Amounts reclassified from accumulated other comprehensive income — — 3.1 3.1

Net current period other comprehensive income — 61.5 7.2 68.7

Ending balance as of July 03, 2021 $ ( 5.1 ) $ ( 68.1 ) $ ( 24.0 ) $ ( 97.2 )

(1) Activity before reclassifications to the Consolidated Statements of Operations during the fiscal year ended July 3, 2021 relates to the unrealized actuarial gain of $ 6.3 million, net of income tax effect of $ 2.2 million.

The amount reclassified out of accumulated other comprehensive loss represents the amortization of actuarial losses included as a component of SG&A in the Consolidated Statement of Operations for the year ended July 3, 2021.

Refer to “Note 17.

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3Z Telecom, Inc.

On May 31, 2019 (3Z Close Date), the Company acquired all of the equity of 3Z Telecom, Inc.

(3Z) for approximately $ 23.2 million in cash and contingent consideration (earn-out) liability of up to $ 7.0 million in cash based on the achievement of certain net revenue targets over approximately a two year period, subsequent to the 3Z Close Date.

On May 31, 2019, the Company acquired all of the equity of 3Z Telecom, Inc.

The $ 23.2 million cash consideration is subject to final cash and net working capital adjustments and includes escrow payments of $ 4.3 million, which are reserved for potential breaches of representations and warranties.

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Total purchase consideration $ 28.7

The fair value of the earn-out payments on the 3Z acquisition date was determined by applying a risk-neutral framework using a Monte Carlo Simulation.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

Fair Value Measurements .”

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

The identified tangible and intangible assets acquired, on the acquisition date, were as follows (in millions) :

Tangible assets acquired $ 4.1

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Customer backlog 0.1

Goodwill 12.2

Total consideration transferred $ 28.7

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) :

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

Total other assets 3.6

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Net tangible assets acquired $ 4.1

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.

Acquired intangible assets fair value is derived from a valuation based on inputs that are unobservable and significant to the overall fair value measurement.

The fair values of acquired customer relationships and developed technology were determined based on the excess earnings method and relief from royalty method, respectively, variations of the income approach.

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RPC Photonics, Inc.

On October 30, 2018 (RPC Close Date), the Company acquired all of the equity interest of RPC Photonics, Inc.

(RPC) for approximately $ 33.4 million in cash and an additional earn-out of up to $ 53.0 million in cash based on the achievement of certain gross profit targets over approximately a four year period, subsequent to the RPC Close Date.

On October 30, 2018, the Company acquired all of the equity interest of RPC Photonics, Inc.

(RPC) for approximately $ 33.4 million in cash and an additional earn-out of up to $ 53.0 million in cash based on the achievement of certain gross profit targets over an approximate four year period.

The $ 33.4 million cash consideration includes escrow payments of $ 3.5 million, which are reserved for potential breaches of representations and warranties.

The acquisition of RPC expands the Company’s 3D Sensing offerings.

The allocation of the purchase price was completed in the fourth quarter of fiscal 2019.

The RPC acquisition met the definition of a business and the acquisition has been accounted for in accordance with the authoritative guidance on business combinations;

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Total purchase consideration $ 69.6

The fair value of the earn-out payments on the RPC acquisition date was determined by applying a risk-neutral framework using a Monte Carlo Simulation.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of the earn-out payments at the RPC Close Date was determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs that are not observable in the market, and therefore represents a Level 3 measurement.

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

Fair Value Measurements ”.

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

The identified tangible and intangible assets, on the acquisition date, were as follows (in millions) :

Tangible assets acquired:

3 unchanged sentences

Customer backlog 0.3

Goodwill 33.9

Total consideration transferred $ 69.6

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) :

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

Other current assets 1.8

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Net tangible assets acquired $ 5.7

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Proforma or historical post-acquisition results of operations have not been presented because the effect of the acquisition was not material to prior period financial statements.

AvComm and Wireless Test and Measurement Acquisition

On March 15, 2018 ( AW Close Date ), the Company completed the acquisition of the AW Business of Cobham plc.

( AW ) for $ 466.8 million in cash.

The acquired business has been integrated into the Company’s NE segment.

The Company accounted for the transaction in accordance with the authoritative guidance on business combinations;

therefore, the tangible and intangible assets acquired and liabilities assumed are recorded at fair value on the acquisition date.

The allocation of the purchase price was completed in March 2019.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The identified intangible assets acquired, were as follows (in millions) :

Tangible assets acquired:

Intangible assets acquired:

Developed technology

Customer relationships

In-process research and development

Customer backlog

Total consideration transferred

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

Accounts receivable

Property and equipment

Accounts payable

Other liabilities

Deferred revenue

Deferred tax liabilities

Net tangible assets acquired

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement.

The fair value of acquired developed technology, customer relationships, trade names, acquired IPR&D and order backlog was determined based on the income approach, discounted cash flow method.

The intangible assets, except IPR&D, are being amortized over their estimated useful lives that range from three to six years .

Order backlog was fully amortized within one year of the AW Close Date .

In accordance with authoritative guidance, the Company recognized an IPR&D asset at fair value as of March 15, 2018.

The IPR&D is accounted for as an indefinite-lived intangible asset until project completion or abandonment of the research and development projects.

During the three months ended March 30, 2019, the IPR&D activities were completed and transferred to developed technology, with an estimated useful life of 6 years.

Goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of AW .

Goodwill has been assigned to the NE segment and is partially deductible for tax purposes.

Trilithic, Inc.

On August 9, 2017 ( Trilithic Close Date ), the Company completed the acquisition of Trilithic Inc.

( Trilithic ) for $ 56.4 million in cash.

The acquisition has been integrated into the Company’s NE segment.

The Company accounted for the transaction in accordance with the authoritative guidance on business combinations;

therefore, the tangible and intangible assets acquired and liabilities assumed were recorded at fair value on the acquisition date.

The allocation of the purchase price was completed during the first quarter of fiscal 2019.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The identified intangible assets acquired, were as follows (in millions) :

Net tangible assets acquired

Intangible assets acquired:

Developed technology

Customer relationships

Total purchase price

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

Accounts receivable

Property and equipment

Accounts payable

Other liabilities, net of other assets

Net tangible assets acquired

Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement.

The fair value of acquired developed technology, customer relationships, and other intangible assets was determined based on an income approach, discounted cash flow method.

The intangible assets are being amortized over their estimated useful lives that range from three to five years for the acquired developed technology and customer relationships.

Goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Trilithic .

Goodwill has been assigned to the NE segment and is not deductible for tax purposes.

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

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.

During the twelve months ended June 27, 2020, the Company completed an asset acquisition for total consideration of approximately $ 5.2 million in cash paid at close and an earn-out liability of up to $ 5.5 million cash to be paid based on the occurrence or achievement of certain agreed upon targets.

In connection with this acquisition, the Company recorded $ 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.

Fair Value Measurements ”.

These acquisitions were accounted for as asset acquisitions, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset.

In connection with these acquisitions, the Company recorded approximately $ 7.6 million of developed technology and $ 2.4 million of deferred tax liability resulting from these acquisitions.

The acquired developed technology assets are being amortized over their estimated useful lives which range from five to ten years .

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of changes in fair value of the Company’s earn-out liabilities for the years ended July 3, 2021 and June 27, 2020, as follows ( in millions ):

RPC Other (1)

June 29, 2019 $ 30.3 $ 8.1 $ 38.4

Additions to Contingent Consideration — 3.7 3.7

Change in Fair Value measurement ( 29.6 ) ( 1.9 ) ( 31.5 )

Payments of Contingent Consideration ( 0.7 ) — ( 0.7 )

June 27, 2020 $ — $ 9.9 $ 9.9

Change in Fair Value measurement — ( 4.7 ) ( 4.7 )

Payments of Contingent Consideration — ( 1.2 ) ( 1.2 )

Balance July 3, 2021 $ — $ 4.0 $ 4.0

(1) See Note 5.

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

Balance Sheet and Other Details

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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

As of July 3, 2021 and June 27, 2020, the Company had total Unbilled Receivables/Contract Assets of $ 6.2 million and $ 3.8 million, respectively.

Deferred revenue:

3 unchanged sentences

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables summarize the activity related to deferred revenue, for the year ended July 3, 2021 ( in millions ):

Deferred revenue:

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(2) 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.

(3) The long-term portion of deferred revenue is included as a component of Other non-current liabilities.

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 represent the aggregate amount of the transaction price allocated to performance obligations not delivered or are incomplete, as of July 3, 2021.

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 aggregate amount of the transaction price allocated to remaining performance obligations does not include amounts owed under cancellable contracts where there is no substantive termination penalty.

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.

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 value of the transaction price allocated to remaining performance obligations as of July 3, 2021, was $ 283.1 million.

The Company expects to recognize 92 % of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.

1 unchanged sentence

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

Balance at Beginning of Period

Acquisitions (1)

Charged to Costs and Expenses

Deduction (2)

Balance at Beginning of Period Charged to Costs and Expenses Deduction (1) Balance at

End of Period

Year Ended June 27, 2020

Year Ended July 3, 2021 $ 3.0 $ 1.1 $ ( 2.1 ) $ 2.0

Year Ended June 27, 2020 2.0 2.0 ( 1.0 ) 3.0

Year Ended June 29, 2019 2.4 1.4 ( 1.8 ) 2.0

See “ Note 5.

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

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

1 unchanged sentence

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

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Finished goods $ 41.0 $ 30.0

2 unchanged sentences

Inventories, net $ 94.9 $ 83.3

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Prepayments and Other Current Assets

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

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Prepayments $ 13.4 $ 10.9

Assets held for sale 6.5 2.5

4 unchanged sentences

Prepayments and other current assets $ 57.0 $ 50.8

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property, Plant and Equipment, net

The following table presents the components of property, plant and equipment, net, as follows ( in millions ):

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Land $ 19.9 $ 16.8

Buildings and improvements 34.8 22.9

5 unchanged sentences

Accumulated depreciation and amortization

( 357.9 ) ( 322.4 )

Property, plant and equipment, net $ 196.0 $ 172.5

1 unchanged sentence

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

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Customer prepayments $ 0.4 $ 0.5

4 unchanged sentences

Operating lease liabilities (Note 12)

Foreign exchange forward contracts liability

Other 12.8 11.2

Other current liabilities $ 57.1 $ 48.4

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Non-current Liabilities

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

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Pension and post-employment benefits $ 97.0 $ 102.7

5 unchanged sentences

Uncertain tax position 18.3 11.6

Warranty accrual 5.4 4.8

Other 14.3 14.5

Other non-current liabilities $ 226.0 $ 231.2

1 unchanged sentence

Acquisitions” and “Note 8.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements” of the Notes to the Company’s Consolidated Financial Statements for more detail.

Interest Income and Other Income, net

The following table presents the components of interest income and other income, net, as follows ( in millions ):

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Interest income $ 2.9 $ 7.1 $ 8.1

Foreign exchange gains (loss), net

Loss on extinguishment of debt (1)

Foreign exchange gain (loss), net — 2.1 ( 2.9 )

Other income, net 0.4 0.5 1.5

1 unchanged sentence

Interest income and other income, net $ 3.3 $ 9.6 $ 6.2

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 and Forward Contracts

Available-For-Sale Investments

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

Amortized Cost/

Carrying Cost

Gross Unrealized

Available-for-sale debt securities:

Asset-backed securities

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 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.

Short-Term Investments

As of July 3, 2021, the Company’s short-term investments of $ 1.6 million were comprised primarily of trading securities related to the deferred compensation plan, of which $ 0.3 million was invested in debt securities, $ 1.0 million was invested in equity securities and $ 0.3 million was invested in money market instruments.

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

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 ):

Less than 12 Months

Greater than 12 Months

Asset-backed securities

Total gross unrealized losses

As of June 27, 2020, the Company’s short-term investments of $ 1.5 million were comprised primarily of trading securities related to the deferred compensation plan, of which $ 0.3 million was invested in debt securities, $ 0.9 million was invested in equity securities and $ 0.3 million was invested in money market instruments and other.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of June 27, 2020 , the Company’s debt securities classified as available-for-sale securities with contractual maturities are as follows ( in millions ):

Amortized Cost/Carrying Cost

Amounts maturing in more than 5 years

Total debt available-for-sale securities

As of June 29, 2019 , the Company’s available-for-sale securities are as follows ( in millions ):

Amortized Cost/

Carrying Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

Available-for-sale securities:

Asset-backed securities

Total available-for-sale securities

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 ):

Less than 12 Months

Greater than 12 Months

Asset-backed securities

Total gross unrealized losses

Non-Designated Foreign Currency Forward Contracts

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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.

As of July 3, 2021, 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 $ 2.6 million and $ 1.4 million is reflected as prepayments and other current assets and other current liabilities, respectively.

2 unchanged sentences

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.

As of July 3, 2021 and June 27, 2020, the notional amounts of the forward contracts that Company held to purchase foreign currencies were $ 114.0 million and $ 146.4 million, respectively, and the notional amounts of forward contracts that Company held to sell foreign currencies were $ 27.8 million and $ 22.0 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The foreign exchange forward contracts incurred a gain of $ 14.5 million and a loss of $ 0.8 million for the years ended July 3, 2021 and June 27, 2020, respectively.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

Assets and liabilities are classified under a fair value hierarchy in three levels of inputs as described in “Note 1.

Basis of Presentation.” This includes:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2—Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs;

and, Level 3—Unobservable inputs for the asset or liability.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Debt available-for-sale securities:

4 unchanged sentences

Foreign currency forward contracts (1)

2.6 — 2.6 — 2.2 — 2.2 —

Total assets (2)

$ 413.5 $ 410.5 $ 3.0 $ — $ 338.7 $ 336.0 $ 2.7 $ —

Foreign currency forward contracts (3)

$ 1.4 $ — $ 1.4 $ — $ 1.5 $ — $ 1.5 $ —

Contingent consideration (4)

4.0 — — 4.0 9.9 — — 9.9

Total liabilities $ 5.4 $ — $ 1.4 $ 4.0 $ 11.4 $ — $ 1.5 $ 9.9

$ 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.

(1) $ 2.6 million and $ 2.2 million in prepayments and other current assets on the Company’s Consolidated Balance Sheets as of July 3, 2021 and June 27, 2020, respectively.

(2) Includes as of July 3, 2021, $ 401.0 million in cash and cash equivalents, $ 1.6 million in short-term investments, $ 2.7 million in restricted cash, $ 2.6 million in prepayments and other current assets, and $ 5.6 million in other non-current assets on the Company’s Consolidated Balance Sheets.

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 $ 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 $ 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 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of changes in fair value of the Company’s Level 3 liabilities for the 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 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.

(3) Includes $ 1.4 million and $ 1.5 million in other current liabilities on the Company’s Consolidated Balance Sheets as of July 3, 2021 and June 27, 2020, respectively.

(4) Includes $ 0.0 million and $ 9.4 million in other non-current liabilities and $ 4.0 million and $ 0.5 million in other current liabilities as of July 3, 2021 and June 27, 2020, respectively.

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

Optical Security

Enablement Service

Enablement Optical Security

and Performance

Balance as of June 30, 2018 (1)

Acquisitions (2)

Currency translation and other adjustments

Products Total

Balance as of June 29, 2019 (1)

$ 338.9 $ — $ 42.2 $ 381.1

Acquisitions (2)

1 unchanged sentence

Balance as of June 27, 2020 (3)

$ 334.9 $ 4.3 $ 42.2 $ 381.4

Currency translation 14.8 0.3 — 15.1

Balance as of July 03, 2021 (4)

$ 349.7 $ 4.6 $ 42.2 $ 396.5

(1) Gross goodwill balances for NE, SE and OSP were $ 640.8 million, $ 272.6 million and $ 126.7 million, respectively as of June 29, 2019.

4 unchanged sentences

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

Gross goodwill balances for NE, SE and OSP were $ 636.8 million , $ 276.9 million and $ 126.7 million , respectively as of June 27, 2020 .

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(4) Gross goodwill balances for NE, SE and OSP were $ 651.6 million, $ 277.2 million and $ 126.7 million, respectively as of July 3, 2021.

Accumulated impairment for NE, SE and OSP was $ 301.9 million, $ 272.6 million and $ 84.5 million, respectively as of July 3, 2021.

Impairment of Goodwill

1 unchanged sentence

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 2021, 2020 and 2019 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 .

No indications of impairment were identified for fiscal years ending on July 3, 2021, June 27, 2020 and June 29, 2019.

Acquired Developed Technology and Other Intangibles

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

Weighted-Average Remaining Useful Life

Gross Carrying Amount

Accumulated Amortization

Acquired developed technology

Customer relationships

The following tables present details of the Company’s acquired developed technology, customer relationships and other intangibles as of July 3, 2021, and June 27, 2020, ( in millions ):

As of July 03, 2021 Weighted-Average Remaining Useful Life Gross Carrying Amount Accumulated Amortization Net

Acquired developed technology 3.2 years $ 423.8 $ ( 356.9 ) $ 66.9

Customer relationships 3.5 years 195.4 ( 180.8 ) 14.6

1.1 years 37.9 ( 31.4 ) 6.5

Total intangibles $ 657.1 $ ( 569.1 ) $ 88.0

As of June 29, 2019

Weighted-Average Remaining Useful Life

Gross Carrying Amount

Accumulated Amortization

Acquired developed technology

Customer relationships

As of June 27, 2020 Weighted-Average Remaining Useful Life Gross Carrying Amount Accumulated Amortization Net

Acquired developed technology 3.7 years $ 437.1 $ ( 341.6 ) $ 95.5

Customer relationships 2.6 years 194.7 ( 154.1 ) 40.6

2.0 years 35.7 ( 23.7 ) 12.0

Total intangibles $ 667.5 $ ( 519.4 ) $ 148.1

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

In connection with the AW acquisition, the Company recorded an IPR&D asset, at its fair value and subsequently accounts for it as an indefinite-lived asset until completion or abandonment of the associated research and development projects.

During the third quarter of fiscal 2019 the IPR&D activities were completed and transferred to developed technology, with an estimated useful life of 6 years .

Refer to “ Note 5.

Acquisitions ” for more information related to acquisitions.

During fiscal 2020 , 2019 and 2018 , the Company recorded $ 67.8 million , $ 72.5 million and $ 47.7 million , respectively, of amortization related to acquired developed technology and other intangibles.

The following table presents details of the Company’s amortization ( in millions ):

June 27, 2020

June 29, 2019

June 30, 2018

The following table presents details of the Company’s amortization of acquired technology and other intangibles, ( in millions ):

July 3, 2021 June 27, 2020 June 29, 2019

Cost of revenues $ 33.2 $ 32.7 $ 34.4

Operating expense 33.3 35.1 38.1

Total $ 66.5 $ 67.8 $ 72.5

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Based on the carrying amount of acquired developed technology, customer relationships and other intangibles as of June 27, 2020 , and assuming no future impairment of the underlying assets, the estimated future amortization is as follows ( in millions ):

Based on the carrying amount of acquired developed technology, customer relationships and other intangibles as of July 3, 2021, and assuming no future impairment of the underlying assets, the estimated future amortization is as follows ( in millions ):

Thereafter 2.8

Total amortization $ 88.0

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 ):

June 27, 2020

June 29, 2019

Principal amount of 1.00% Senior Convertible Notes

Principal amount of 1.75% Senior Convertible Notes

Unamortized discount of Senior Convertible Notes liability component

Unamortized Senior Convertible Notes debt issuance cost

Carrying amount of Senior Convertible Notes liability component

As of July 3, 2021 and June 27, 2020, the Company’s debt on the Consolidated Balance Sheets was as follows, including the carrying amounts of the liability and equity components of the Senior Convertible Notes ( in millions ):

July 3, 2021 June 27, 2020

Principal amount of 1.00 % Senior Convertible Notes due 2024

Unamortized discount of Senior Convertible Notes liability component, short-term ( 42.9 ) —

Unamortized Senior Convertible Notes debt issuance cost, short-term ( 2.9 ) —

Other short-term debt — 2.8

Short-term debt 414.2 2.8

Principal amount of 1.00 % Senior Convertible Notes due 2024

Principal amount of 1.75 % Senior Convertible Notes due 2023

Unamortized discount of Senior Convertible Notes liability component, long-term ( 14.4 ) ( 79.1 )

Unamortized Senior Convertible Notes debt issuance cost, long-term ( 0.8 ) ( 5.0 )

Long-term debt 209.8 600.9

Temporary equity 1.00% Convertible Notes due 2024 45.8 —

Carrying amount of Senior Convertible Notes equity component (1)

$ 91.0 $ 136.8

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

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.

On May 5, 2020, the Company 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 Credit Agreement also provides that, under certain circumstances, the Company 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)

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.

The Company is required to pay a 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 July 3, 2021, the Company had no amounts outstanding under the Credit Agreement.

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.

The short-term debt balance of $ 414.2 million as of July 3, 2021 represents the current redeemable status of our 1.00 % Senior Convertible Notes.

See further discussion below under the section "1.00% Senior Convertible Notes (2024 Notes)" as it relates to reclassification of these notes from long-term debt to short-term debt at the end of fiscal 2021.

The short-term debt of $ 2.8 million as of June 27, 2020 was assumed as part of an acquisition completed in fiscal 2020 and was paid in full during fiscal 2021.

1.75 % Senior Convertible Notes (2023 Notes)

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The carrying value of the liability component at issuance was calculated as the present value of its cash flows using a discount rate of 5.3 % based on the 5 -year swap rate plus credit spread as of the issuance date.

As of June 27, 2020 , the expected remaining term of the 2023 Notes is 2.9 years.

As of July 3, 2021, the expected remaining term of the 2023 Notes is 1.9 years.

The proceeds from the 2023 Notes Private Placement amounted to $ 67.3 million after issuance costs.

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

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.

The initial conversion price is $ 13.94 per share, representing a 37.5 % premium to the closing sale price of the Company’s common stock on the pricing date, May 22, 2018, which will be subject to customary anti-dilution adjustments.

The 2023 Notes may be converted under certain circumstances, based on an initial conversion rate of 71.7231 shares (equivalent to an initial conversion price of approximately $ 13.94 per share), 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 conversion rate, and thus the conversion price, may be adjusted under certain circumstances.

The initial conversion price represents a 37.5 % premium to the closing sale price of the Company’s common stock on the pricing date, May 22, 2018, which will be subject to customary anti-dilution adjustments.

Holders may convert the 2023 Notes at any time on or prior to the close of business on the business day immediately preceding March 1, 2023 in multiples of $1,000 principal amount, under the following circumstances:

on any date during any calendar quarter beginning after September 30, 2018 (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;

• On any date during any calendar quarter beginning after September 30, 2018 (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 (whether or not consecutive) during the 30 consecutive trading-day period ending the last trading day of the previous calendar quarter;

• 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 2023 Notes);

during the five consecutive business-day period immediately following any ten consecutive trading-day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of such ten 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 five consecutive business-day period immediately following any ten consecutive trading-day period in which the trading price per $1,000 principal amount of the 2023 Notes for each day of such ten consecutive trading-day period was less than 98 % of the product of the closing sale price of VIAVI common stock and the applicable conversion rate on such date.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the periods from, and including, March 1, 2023, until the close of business on the business day immediately preceding June 1, 2023, holders may convert the 2023 Notes at any time, regardless of the foregoing circumstances.

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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.

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

As of June 27, 2020 , the unamortized portion of the debt issuance costs related to the 2023 Notes was $ 1.1 million , which was included as a direct reduction from the carrying amount of the debt on the Consolidated Balance Sheets.

Based on quoted market prices as of June 27, 2020 and June 29, 2019 , the fair value of the 2023 Notes was approximately $ 251.4 million and $ 261.3 million , respectively.

As of July 3, 2021, the unamortized portion of the debt issuance costs related to the 2023 Notes was $ 0.8 million, which was included as a direct reduction from the carrying amount of the debt on the Consolidated Balance Sheets.

Based on quoted market prices as of July 3, 2021 and June 27, 2020, the fair value of the 2023 Notes was approximately $ 300.7 million and $ 251.4 million, respectively.

The 2023 Notes are classified within Level 2 as they are not actively traded in markets.

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The 2024 Notes mature on March 1, 2024 unless earlier converted or repurchased.

Under certain circumstances and during certain periods, the 2024 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.

The initial conversion price is $ 13.22 per share, representing a 32.5 % premium to the closing sale price of the Company’s common stock on the pricing date, February 27, 2017, which will be subject to customary anti-dilution adjustments.

The 2024 Notes may be converted under certain circumstances, based on an initial conversion rate of 75.6229 shares (equivalent to an initial conversion price of approximately $ 13.22 per share), 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 conversion rate, and thus the conversion price, may be adjusted under certain circumstances.

The initial conversion price represents a 32.5 % premium to the closing sale price of the Company’s common stock on the pricing date, February 27, 2017, which will be subject to customary anti-dilution adjustments.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The 2024 Notes may be converted at any time on or prior to the close of business on the business day immediately preceding December 1, 2023, in multiples of $1,000 principal amount, at the option of the holder only under the following circumstances:

(i) on any date during any calendar quarter beginning after June 30, 2017 (and only during such calendar quarter) if the closing price of VIAVI’s common stock was more than 130 % of the then current conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period ending on the last trading day of the previous calendar quarter, (ii)if the Company distributes to all or substantially all holders of its common stock rights or warrants (other than pursuant to a stockholder rights plan) entitling them to purchase, for a period of 45 calendar days or less, shares of VIAVI’s common stock at a price less than the average closing sale price of VIAVI’s common stock for the ten trading days preceding the declaration date for such distribution, (iii) if the Company distributes to all or substantially all holders of its common stock, cash or other assets, debt securities or rights to purchase our securities (other than pursuant to a stockholder rights plan), at a per share value exceeding 10 % of the closing sale price of VIAVI’s common stock on the trading day preceding the declaration date for such distribution, (iv) if the Company is party to a specified transaction, a fundamental change or a make-whole fundamental change (each as defined in the Indenture), or (v) 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 Notes for each day during such 10 consecutive trading-day period was less than 98 % of the product of the closing sale price of VIAVI’s common stock and the applicable conversion rate on such date.

During the periods from, and including, December 1, 2023 until the close of business on the business day immediately preceding the maturity date, holders of the Notes may convert the Notes regardless of the circumstances described in the immediately preceding sentence.

Holders of the 2024 Notes may require VIAVI to repurchase for cash all or a portion of the Notes upon the occurrence of a fundamental change (as defined in the Indenture) at a repurchase price equal to 100 % of the principal amount of the 2024 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the date of repurchase.

• On any date during any calendar quarter beginning after June 30, 2017 (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 (whether or not consecutive) during the 30 consecutive trading-day period ending on the last trading day of the previous calendar quarter;

• If the Company distributes to all or substantially all holders of its common stock rights or warrants (other than pursuant to a stockholder rights plan) entitling them to purchase, for a period of 45 calendar days or less, shares of VIAVI’s common stock at a price less than the average closing sale price of VIAVI’s common stock for the ten trading days preceding the declaration date for such distribution;

• If the Company distributes to all or substantially all holders of its common stock, cash or other assets, debt securities or rights to purchase our securities (other than pursuant to a stockholder rights plan), at a per share value exceeding 10 % of the closing sale price of the Company’s common stock on the trading day preceding the declaration date for such distribution;

• 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 2024 Notes);

• During the five consecutive business-day period immediately following any ten consecutive trading-day period in which the trading price per $1,000 principal amount of the 2024 Notes for each day of such ten consecutive trading-day period was less than 98 % of the product of the closing sale price of VIAVI’s common stock and the applicable conversion rate on such date.

During the periods from, and including December 1, 2023 until the close of business on the business day immediately preceding March 1, 2024, holders may convert the 2024 Notes at any time regardless of the foregoing circumstances.

Holders of the 2024 Notes may require the Company to purchase all or a portion of the 2024 Notes upon the occurrence of a fundamental change at a purchase price equal to 100 % of the principal amount of the 2024 Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental repurchase date.

The Indenture provides for customary events of default, including payment defaults, breaches of covenants, failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization.

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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.

The carrying value of the liability component at issuance was calculated as the present value of its cash flows using a discount rate of 4.8 % based on the 7 -year swap rate plus credit spread as of the issuance date.

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

The difference between the 2024 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 4.8 % over the period from the issuance date through March 1, 2024 as a non-cash charge to interest expense.

The carrying value of the liability component was determined to be $ 358.1 million, and the equity component, or debt discount, of the 2024 Notes was determined to be $ 101.9 million.

As of June 27, 2020 , the expected remaining term of the 2024 Notes is 3.7 years.

As of July 3, 2021, the expected remaining term of the 2024 Notes is 2.7 years.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In connection with the issuance of the 2024 Notes, the Company incurred $ 8.9 million of issuance costs, which were bifurcated into the debt issuance costs, attributable to the liability component of $ 6.9 million and the equity issuance costs, attributable to the equity component of $ 2.0 million based on their relative values.

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

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.

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.

As of July 3, 2021, the unamortized portion of the debt issuance costs related to the 2024 Notes was $ 2.9 million, which was included as a direct reduction from the carrying amount of the debt on the Consolidated Balance Sheets.

During the fourth quarter of fiscal 2021, the closing price of our common stock exceeded the 130 % of the applicable conversion price of the 2024 Notes, on at least 20 of the last 30 consecutive trading days of the calendar quarter, causing the 2024 Notes to be convertible by their holders for the period of July 1, 2021 to September 30, 2021.

As the settlement of conversion of the 2024 Notes is in cash for the principal amount and, if applicable, cash and/or shares of our common stock for any conversion premium at the Company’s election.

As a result, $ 414.2 million in book value of the Notes has been reclassified to short-term debt and the difference in the book value and the face value of the 2024 Notes, of $ 45.8 million, has been reclassified from permanent equity to temporary equity.

The Company is not aware of, nor expects, any conversion requests by holders as the market price of the 2024 Notes exceeds its conversion value.

Based on quoted market prices as of July 3, 2021 and June 27, 2020, the fair value of the 2024 Notes was approximately $ 646.9 million and $ 523.3 million, respectively.

The 2024 Notes are classified within Level 2 as they are not actively traded in markets.

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

The Company was in compliance with all debt covenants as of July 3, 2021 and June 27, 2020.

Interest Expense

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

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Interest expense-contractual interest $ 9.5 $ 8.5 $ 8.8

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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 .

During the fiscal year ending on July 3, 2021, the total operating lease costs were $ 13.9 million.

Total variable lease costs were immaterial during the fiscal year ending on July 3, 2021.

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 ;

As of July 3, 2021, the weighted-average remaining lease term was 7.7 years, and the weighted-average discount rate was 4.7 %.

During the fiscal year ending on July 3, 2021, cash paid for amounts included in the measurement of operating lease liabilities was $ 15.1 million;

and operating ROU assets obtained in exchange of new operating lease liabilities was $ 15.4 million.

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

June 27, 2020

Other non-current assets $ 45.1

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Total operating lease liabilities $ 42.4

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

Future minimum operating lease payments as of July 3, 2021 are as follows ( in millions ):

Operating Leases

Fiscal 2022 $ 11.7

Fiscal 2023 9.4

Fiscal 2024 6.8

Fiscal 2025 4.9

Fiscal 2026 3.8

Thereafter 13.7

Total lease payments 50.3

Interest ( 7.9 )

Present value of lease liabilities $ 42.4

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 ):

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

Operating Leases

sublease income

Fiscal 2021 $ 12.8

Fiscal 2022 10.2

Fiscal 2023 6.0

Fiscal 2024 4.6

Fiscal 2025 3.6

Thereafter 7.5

Total lease payments 44.7

Restructuring and Related Charges

The Company has initiated various restructuring events primarily intended to reduce its costs, consolidate operations, streamline product manufacturing and address market conditions.

The Company’s restructuring charges primarily include severance and benefit costs to eliminate a specific number of positions, facilities and equipment costs to vacate facilities and consolidate operations and lease termination costs.

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

As of 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.

Interest ( 4.9 )

Present value of lease liabilities $ 39.8

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 years ended June 27, 2020 were as follows (in millions) :

Balance as of June 29, 2019

Fiscal Year 2020 Charges

Adjustments (2)

Balance as of June 27, 2020

Fiscal 2019 Plan

NSE, including AW (1)

Plans Prior to Fiscal 2019

Other Plans (1)

Plan includes workforce reduction cost.

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

NSE, including AW Restructuring Plan

During the first quarter of fiscal 2019, Management approved restructuring and workforce reduction plans within its NSE business segment, including actions related to the recently acquired AW business.

These actions further drive the Company’s strategy for organizational alignment and consolidation as part of its continued commitment to a more cost effective and agile organization and to improve overall profitability in the Company’s NSE business.

Included in these restructuring plans are specific actions to consolidate and integrate the newly acquired AW business within the NSE business segment.

Restructuring and Related Charges

The Company's restructuring events are primarily intended to reduce costs, consolidate operations, streamline product manufacturing and address market conditions.

During fiscal year 2021, the Company recorded a benefit related to restructuring actions of $ 1.6 million, and in fiscal years 2020 and 2019, restructuring and related charges of $ 3.5 million and $ 15.4 million, respectively.

A summary of the activity in the remaining restructuring plan is outlined below ( in millions ):

Balance as of June 27, 2020 Fiscal Year 2021 Charges Cash

Settlements Non-cash

Adjustments Balance as of July 3, 2021

Fiscal 2019 NSE, including AW $ 6.5 $ ( 1.6 ) $ ( 4.3 ) $ ( 0.1 ) $ 0.5

The NSE, including AW Restructuring Plan was approved by Management during the first quarter of fiscal 2019.

The plan is part of a strategy to improve overall profitability in the NSE business segment and included actions related to consolidation, integration and workforce reduction.

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 .

The balances of $ 0.5 million and $ 6.5 million as of July 3, 2021 and June 27, 2020, respectively, are included in other current liabilities on the Consolidated Balance Sheets.

Payments related to the remaining severance and benefits accrual will be paid in fiscal 2022.

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

June 27, 2020

June 29, 2019

June 30, 2018

Income (loss) before income taxes

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

July 3, 2021 June 27, 2020 June 29, 2019

Domestic $ ( 43.1 ) $ ( 35.1 ) $ ( 66.9 )

Foreign 152.5 129.2 106.2

Income before income taxes $ 109.4 $ 94.1 $ 39.3

The Company’s income tax expense (benefit) consisted of the following ( in millions ):

June 27, 2020

June 29, 2019

June 30, 2018

Total federal income tax (benefit)

Total state income tax (benefit) expense

July 3, 2021 June 27, 2020 June 29, 2019

Current $ — $ — $ —

Deferred — — —

Total federal income tax expense — — —

Current 20.1 2.7 0.1

Deferred — — —

Total state income tax expense 20.1 2.7 0.1

Current 44.8 50.1 33.3

Deferred ( 1.6 ) 12.5 ( 1.9 )

Total foreign income tax (benefit) expense 43.2 62.6 31.4

Total income tax expense $ 63.3 $ 65.3 $ 31.5

The state current expense primarily relates to state taxes incurred as a result of the internal intellectual property restructuring which, was undertaken in the fourth quarter of the fiscal year 2021.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

The foreign deferred tax (benefit) expense relates to the release of valuation allowance in a foreign jurisdiction and the amortization of purchased intangible assets.

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

July 3, 2021 June 27, 2020 June 29, 2019

Income tax expense computed at federal statutory rate $ 23.0 $ 19.8 $ 8.3

Withholding Taxes 8.7 34.2 1.5

US Inclusion of foreign earnings 3.6 12.8 16.0

Tax Reform E&P Inclusion

Valuation allowance 5.5 0.7 1.0

Foreign rate differential 3.9 4.5 4.8

AMT Tax Repeal

Reserves 8.6 2.3 3.5

Permanent items 0.8 ( 0.3 ) ( 1.4 )

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Research and experimentation benefits and other tax credits ( 0.5 ) ( 0.2 ) —

State taxes 12.9 2.1 0.1

Other 0.4 ( 0.3 ) 0.2

Income tax expense $ 63.3 $ 65.3 $ 31.5

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Balance as of

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Gross deferred tax assets:

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Capital loss carryforwards 1.1 63.9 63.9

Inventories 28.9 20.3 9.6

Accruals and reserves 66.5 61.6 55.6

Acquisition-related items

Intangibles including acquisition-related items 632.4 45.1 42.1

Capitalized research costs 15.7 72.0 —

Other 66.1 44.6 43.1

Gross deferred tax assets 1,482.5 1,585.6 1,585.5

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Foreign branch taxes ( 22.3 ) ( 21.4 ) ( 22.0 )

Other ( 31.9 ) ( 29.8 ) ( 29.1 )

Deferred tax liabilities ( 101.7 ) ( 98.6 ) ( 86.4 )

Total net deferred tax assets $ 84.9 $ 81.5 $ 93.8

As of June 27, 2020 , the Company had federal, state and foreign tax net operating loss carryforwards of $ 4,752.2 million , $ 575.8 million and $ 590.2 million , respectively, and federal, state and foreign research and other tax credit carryforwards of $ 105.8 million , $ 52.6 million and $ 0.9 million , respectively.

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.

As of July 3, 2021, the Company had federal, state and foreign tax net operating loss carryforwards of $ 2,078.8 million, $ 521.7 million and $ 532.9 million, respectively, and federal, state and foreign research and other tax credit carryforwards of $ 85.9 million, $ 49.0 million and $ 0.1 million, respectively.

The federal tax net operating loss carryforwards start to expire in fiscal year 2023 and at various dates through 2038 if not utilized.

The federal credit carryforwards start to expire fiscal year 2022 and at various dates through fiscal year 2042 if not utilized.

The state tax net operating loss carryforwards start to expire in fiscal year 2022 and at various dates through 2041 if not utilized.

The state research credit start to expire in fiscal year 2023 but a majority of the state credits 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.

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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.

On July 2, 2021, the Company completed a planned series of internal transactions restructuring certain of VIAVI’s intellectual properties.

The result of which aligns the properties in a single entity which owns, manages, directs, and protects the properties, including but not limited to patents, product designs, processes, manufacturing technologies, know-how, and trade secrets.

In conjunction with the internal restructuring, $ 2.3 billion ($ 482 million tax effected) of US federal net operating loss carryforwards were utilized, the Company recognized a new deferred tax asset relating to the book and tax basis difference of certain intangible assets of $ 589 million.

Given the full valuation allowance that is carried on the Company’s US deferred tax assets, the change in the deferred taxes as a result of the transaction does not have material impact on the financial statements.

The Company recorded state tax expense including reserves for uncertain tax positions of $ 19.1 million related to this transaction .

Foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries have not been provided on $ 11.2 million of undistributed earnings for certain foreign subsidiaries.

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The Company estimates that an additional $ 2.1 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 considered 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.

During 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.

1 unchanged sentence

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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Treasury Department, the Internal Revenue Service and others.

During fiscal year 2018, the U.S.

Tax Cuts and Jobs Act was enacted.

Income tax effects resulting from changes in tax laws were accounted for by the Company in accordance with the authoritative guidance, which required that these tax effects be recognized in the period in which the law was enacted, and the effects were recorded as a component of the provision for income taxes from continuing operations.

The law had significantly changed the way the U.S.

taxes corporations.

The Act repealed the alternative minimum tax (AMT) for corporations and provided that the existing AMT credit carryforwards would be fully refunded in 2022 if not utilized.

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.

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.

The Act imposed a deemed repatriation of the Company’s foreign subsidiaries’ post-1986 earnings and profits (E&P) which had previously been deferred from US income tax.

This deemed repatriation was reported in the Company’s fiscal 2018 U.S.

The Company completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries during the quarter ended December 29, 2018.

The change in estimate did not materially impact the Company’s financial statements.

The Act reduced the U.S.

federal corporate tax rate from 35% to 21% as of January 1, 2018.

The Company remeasured its US deferred tax assets and liabilities which resulted in a net reduction of $ 734.9 million of our net deferred tax assets and an equal and offsetting reduction to the valuation allowance against these deferred tax assets.

Upon adoption of the new guidance on share-based payment awards in fiscal 2018, the Company had $ 117.7 million of net operating loss carryforwards resulting from excess tax benefit deductions.

The deferred tax asset recorded for these net operating loss carryforwards was fully offset by a corresponding increase in valuation allowance, resulting in no impact to opening accumulated deficit.

In addition, due to the full valuation allowance on the U.S.

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

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 valuation allowance decreased by $ 109.6 million in fiscal 2021, increased by $ 0.2 million in fiscal 2020, and increased by $ 23.2 million in fiscal 2019.

The decrease during fiscal 2021 was primarily due to the expiration of federal net operating losses, federal capital losses, and federal research credits.

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

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Tax Cuts and Jobs Act.

The decrease during fiscal 2018 was primarily due to the revaluation of the U.S.

deferred tax assets as a result of the Act.

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

Deferred Tax Valuation Allowance

Additions Charged

Deferred Tax Valuation Allowance Balance at

of Period Additions Charged

to Expenses or

Other Accounts (1)

Deductions Credited to Expenses or Other Accounts (2)

Year Ended June 27, 2020

Other Accounts (1) Deductions Credited to Expenses or Other Accounts (2) Balance at

Year Ended July 3, 2021 $ 1,405.5 $ 622.0 $ ( 731.6 ) $ 1,295.9

Year Ended June 27, 2020 $ 1,405.3 $ 95.1 $ ( 94.9 ) $ 1,405.5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A reconciliation of unrecognized tax benefits between July 1, 2017 and June 27, 2020 is as follows ( in millions ):

Balance at July 1, 2017

A reconciliation of unrecognized tax benefits between June 30, 2018 and July 3, 2021 is as follows ( in millions ):

Balance at June 30, 2018 $ 48.6

Additions based on tax positions related to current year 1.7

Additions based on tax positions related to prior year 7.3

Reduction based on tax positions related to prior year ( 2.8 )

Reductions for lapse of statute of limitations ( 0.6 )

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Reduction based on tax positions related to prior year ( 3.8 )

Reduction related to settlement ( 0.4 )

Reductions for lapse of statute of limitations ( 0.5 )

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Additions based on tax positions related to current year 14.8

Additions based on tax positions related to prior year

Reduction based on tax positions related to prior year ( 6.8 )

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Reductions for lapse of statute of limitations ( 0.4 )

Balance at June 27, 2020

Balance at July 3, 2021 $ 59.1

The unrecognized tax benefits relate primarily to the allocations of revenue and costs among the Company’s global operations and the validity of some U.S.

Included in the balance of unrecognized tax benefits at June 27, 2020 are $ 8.5 million of tax benefits that, if recognized, would impact the effective tax rate.

Also included in the balance of unrecognized tax benefits at June 27, 2020 are $ 39.9 million of tax benefits that, if recognized, would result in adjustments to the valuation allowance.

Included in the balance of unrecognized tax benefits at July 3, 2021 are $ 14.2 million of tax benefits that, if recognized, would impact the effective tax rate.

Also included in the balance of unrecognized tax benefits at July 3, 2021 are $ 41.3 million of tax benefits that, if recognized, would result in adjustments to the valuation allowance.

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 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 amount of interest and penalties accrued as of July 3, 2021, June 27, 2020 and June 29, 2019 was approximately $ 4.0 million, $ 2.7 million, and $ 3.7 million, respectively.

During fiscal 2021, the Company’s accrued interest and penalties increased by $ 1.3 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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The Company believes that adequate amounts have been provided for any adjustments that may result from these examinations.

The following table summarizes the Company’s major tax jurisdictions and the tax years that remain subject to examination by such jurisdictions as of June 27, 2020 :

Tax Jurisdictions

United States*

2001 and onward

2019 and onward

2015 and onward

2017 and onward

2015 and onward

United Kingdom

2019 and onward

* 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table summarizes the Company’s major tax jurisdictions and the tax years that remain subject to examination by such jurisdictions as of July 3, 2021:

Tax Jurisdictions Tax Years

United States* 2002 and onward

Canada 2020 and onward

China 2016 and onward

France 2018 and onward

Germany 2016 and onward

Korea 2016 and onward

United Kingdom 2019 and onward

* 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

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.

In September 2019, 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.

As of July 3, 2021, the Company had approximately $ 112.9 million remaining under the program.

On August 18, 2021, the Board of Directors approved to extend the program until September 30, 2022.

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

July 3, 2021 June 27, 2020 June 29, 2019

Total number of shares repurchased 3.0 3.7 1.1

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Subsequent issuance of any preferred stock by the Company’s Board of Directors, under some circumstances, could have the effect of delaying, deferring or preventing a change in control.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation

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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.

As of July 3, 2021, the Company had 7.5 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 27, 2020 , 17.8 million shares of common stock, primarily under Amended and Restated 2003 Plan, were available for grant.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of July 3, 2021, 13.8 million shares of common stock, primarily under Amended and Restated 2003 Plan, were available for grant.

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.

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

The ESPP as adopted provided for a 5 % discount and a six months look-back period.

As of July 3, 2021, 2.3 million shares remained available for issuance.

The ESPP as adopted provided for a 5 % discount with a look-back period of six months .

In May 2019, the ESPP was amended to provide for a 15 % discount.

Full Value Awards

Full Value Awards refer to RSUs, MSUs and PSUs that are granted without an exercise price and are converted to shares immediately upon vesting.

Full Value Awards are time-based, performance-based with market conditions or other performance conditions and are expected to vest over one to four years .

The fair value of the time-based RSUs is based on the closing market price of the Company’s common stock on the date the award is granted.

The Company's stock-based compensation includes a combination of time-based RSUs and performance based MSUs and PSUs.

RSUs are granted without an exercise price and are converted to shares immediately upon vesting.

When converted into shares upon vesting, shares equivalent in value to the minimum withholding taxes liability on the vested shares are withheld by the Company for the payment of such taxes.

For performance-based awards, shares attained over target upon vesting are reflected as awards granted during the period.

Time-based RSU awards will generally vest in annual or quarterly installments over a period of three to four years subject to the employees’ continuing service to the Company.

The Company's performance-based MSU and PSU awards may include performance conditions, market conditions, time-based service conditions or a combination thereof and are generally expected to vest over one to four years .

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Stock-Based Compensation

The impact on the Company’s results of operations of recording stock-based compensation expense by function for fiscal 2021, 2020 and 2019 was as follows ( in millions ):

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Cost of revenue $ 4.8 $ 4.3 $ 3.8

2 unchanged sentences

Total stock-based compensation expense $ 48.3 $ 44.6 $ 38.2

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

Approximately $ 1.5 million of stock-based compensation expense was capitalized to inventory at July 3, 2021.

Stock Option Activity

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Options Outstanding

Number of Shares

Weighted-Average

Number of Shares Weighted-Average

Exercise Price

Balance as of July 1, 2017

Balance as of June 30, 2018 1.3 $ 6.42

Exercised ( 0.1 ) 10.54

Balance as of June 29, 2019 1.2 5.95

Exercised — —

Balance as of June 27, 2020 1.2 5.95

Exercised — —

Balance as of July 03, 2021 1.2 $ 5.95

Expected to vest 1.2 $ 5.95

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

As of July 3, 2021, stock-based compensation expense related to stock options have been fully amortized and recognized.

The following table summarizes outstanding and exercisable options as of July 3, 2021.

Options Outstanding Options Exercisable

Exercise Price Number of Shares Weighted Average Remaining Contractual Term

(years) Weighted Average Exercise Price Aggregate Intrinsic Value

(millions) Number of Shares Weighted Average Remaining Contractual Term

(years) Weighted Average Exercise Price Aggregate Intrinsic Value

$5.95 1,180,257 2.62 $ 5.95 $ 13.6 1,180,257 2.62 $ 5.95 $ 13.6

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $ 17.47 as of July 3, 2021, which would have been received by the option holders had all option holders exercised their options as of that date.

The total number of in-the-money options exercisable as of July 3, 2021 was 1.2 million.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Options Outstanding

Options Exercisable

Exercise Price

Number of Shares

Weighted Average Remaining Contractual Term

Weighted Average Exercise Price

Aggregate Intrinsic Value

Number of Shares

Weighted Average Remaining Contractual Term

Weighted Average Exercise Price

Aggregate Intrinsic Value

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $ 12.50 as of June 27, 2020 , which would have been received by the option holders had all option holders exercised their options as of that date.

The total number of in-the-money options exercisable as of June 27, 2020 was 1.2 million .

Employee Stock Purchase Plan Activity

The expense related to the ESPP is recorded on a straight-line basis over the relevant subscription period.

The following summarizes the shares purchased and issued, pursuant to the Company’s ESPP during the year ended June 27, 2020 and the fair value market value of the shares at the purchase date:

Purchase date

July 31, 2019

January 31, 2020

Shares issued

Fair market value at purchase date

As of June 27, 2020 , there was $ 0.2 million of unrecognized stock-based compensation cost related to the ESPP that remains to be amortized.

During fiscal 2021, the Company issued shares of 261,683 and 296,121 on January 31, 2021 and July 31, 2020, respectively, as part of the ESPP.

As of July 3, 2021, there was $ 0.2 million of unrecognized stock-based compensation cost related to the ESPP that remains to be amortized.

The cost will be recognized in the first quarter of fiscal 2022.

Full Value Awards Activity

A summary of the status of the Company’s non-vested Full Value Awards as of June 27, 2020 and changes during the same period is presented below ( amount in millions, except per share amounts ):

A summary of the status of the Company’s non-vested Full Value Awards as of July 3, 2021 and changes during the same period is presented below ( amount in millions, except per share amounts ):

Full Value Awards

Performance Shares (1)

Non-Performance Shares

Total Number of Shares

Weighted-average Grant-dated Fair Value

Non-vested at July 1, 2017

Performance Shares (1) Non-Performance Shares Total Number of Shares Weighted-average Grant-dated Fair Value

Non-vested at June 30, 2018 1.1 5.3 6.4 $ 8.93

Awards granted 0.5 3.9 4.4 $ 11.52

1 unchanged sentence

Awards forfeited — ( 0.3 ) ( 0.3 ) $ 9.63

Non-vested at June 30, 2018

Non-vested June 29, 2019 1.0 5.7 6.7 $ 10.81

Awards granted 0.7 3.2 3.9 $ 13.76

5 unchanged sentences

Awards forfeited ( 0.2 ) ( 0.5 ) ( 0.7 ) $ 13.83

Non-vested June 27, 2020

Non-vested July 3, 2021 1.5 4.8 6.3 $ 13.98

(1) 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

VIAVI SOLUTIONS INC.

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 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 aggregate grant-date fair value of MSUs granted during fiscal 2021, 2020 and 2019 was estimated to be $ 15.6 million, $ 7.7 million and $ 6.2 million, respectively, and was calculated using a Monte Carlo simulation.

The fair value of PSU awards granted in fiscal 2021 was $ 2.0 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.

As of June 27, 2020 , $ 54.5 million of unrecognized stock-based compensation cost related to Full Value Awards remains to be amortized.

As of July 3, 2021, $ 63.7 million of unrecognized stock-based compensation cost related to Full Value Awards remains to be amortized.

That cost is expected to be recognized over an estimated amortization period of 2.0 years.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Valuation Assumptions

The Company estimates the fair value of the MSUs on the date of grant using a Monte Carlo simulation with the following assumptions:

June 27, 2020

June 29, 2019

June 30, 2018

The Company generally estimates the fair value of time-based RSU awards based on the closing market price of the Company’s common stock on the date of grant.

In the case of, PSUs that are performance-based awards without a market condition, the Company will estimate the fair value of the awards using a probability weighted model.

In the case of MSUs or PSUs, that are performance based awards and include a market condition, the Company will estimate the fair value of the award using a combination of the closing market price of the Company’s common stock on the grant date and the Monte Carlo simulation model.

The weighted-average assumptions used to measure fair value were as follows:

July 3, 2021 June 27, 2020 June 29, 2019

Volatility of common stock 38.5 % 30.4 % 28.9 %

2 unchanged sentences

Risk-free interest rate 0.3 % 1.5 % 2.6 %

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 did no t issue stock option grants during the fiscal years ended July 3, 2021, June 27, 2020 and June 29, 2019.

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

1 unchanged sentence

Employee Stock Purchase Plans

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Expected term (in years) 0.5 0.5 0.5

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The Company's expected term for stock options was calculated utilizing the simplified method in accordance with the authoritative guidance.

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 purchase rights is in line with the six months offerings periods provided for under the ESPP.

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 from Lumentum, rendering existing historical experience less reliable in formulating expectations for current grants.

The Company’s purchase right period is six months under the ESPP.

Expected Volatility:

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Benefits are generally based upon years of service and compensation or stated amounts for each year of service.

As of June 27, 2020 , the U.K.

As of July 3, 2021, the U.K.

plan was partially funded while the other plans were unfunded.

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For unfunded plans, the Company pays the postretirement benefits when due.

Future estimated benefit payments are summarized below.

Future estimated benefit payments are summarized under the Future Benefit Payments’ section below.

No other required contributions are expected in fiscal 2022, but the Company, at its discretion, can make contributions to one or more of the defined benefit plans.

3 unchanged sentences

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

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Service cost $ 0.2 $ 0.3 $ 0.2

Interest cost 1.5 1.9 2.5

2 unchanged sentences

Net periodic cost $ 3.1 $ 3.5 $ 2.9

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s accumulated other comprehensive income includes unrealized net actuarial (gains)/losses.

3 unchanged sentences

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Pension Benefit Plans

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Change in benefit obligation

Benefit obligation at beginning of year $ 138.9 $ 140.0

Service cost 0.2 0.3

Interest cost 1.5 1.9

1 unchanged sentence

Benefits paid ( 6.1 ) ( 5.1 )

Assumed benefit obligation from acquisition

Foreign exchange impact 10.8 ( 2.8 )

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Pension Benefit Plans

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Amount recognized in the Consolidated Balance Sheets at end of year:

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Amortization of accumulated net actuarial losses 3.1 2.8

Total recognized in other comprehensive (loss) income

As of June 27, 2020 and June 29, 2019 , the liability balances related to the post retirement benefit plan were $ 0.4 million and $ 0.4 million , respectively.

Total recognized in other comprehensive income (loss) $ 7.2 $ ( 2.6 )

As of July 3, 2021 and June 27, 2020, the liability balances related to the post retirement benefit plan were $ 0.4 million.

The liability balances were included in other non-current liabilities on the Consolidated Balance Sheets.

13 unchanged sentences

Pension Benefit Plans

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Used to determine net period cost at end of year:

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Fair Value Measurement of Plan Assets

The following table sets forth the plan assets at fair value and the percentage of assets allocations as of June 27, 2020 ( in millions, except percentage data ):

Fair value measurement as of

June 27, 2020

Target Allocation

Percentage of Plan Assets

The following table sets forth the plan assets at fair value and the percentage of assets allocations as of July 3, 2021 ( in millions, except percentage data ):

Fair value as of

Target Allocation Total Percentage of Plan Assets Level 1 Level 2

Global equity 40 % $ 14.0 38.7 % $ — $ 14.0

Fixed income 40 % 12.8 35.4 % — 12.8

Other 20 % 7.9 21.8 % — 7.9

Cash 1.5 4.1 % 1.5 —

Total assets $ 36.2 100.0 % $ 1.5 $ 34.7

The following table sets forth the plan’s assets at fair value and the percentage of assets allocations as of June 27, 2020 ( in millions, except percentage data ).

Fair value measurement as of

Fair value as of

June 27, 2020

Target Allocation

Percentage of Plan Assets

Target Allocation Total Percentage of Plan Assets Level 1 Level 2

Global equity 40 % $ 11.6 40.0 % $ — $ 11.6

Fixed income 40 % 10.9 37.6 % — 10.9

Other 20 % 6.4 22.1 % — 6.4

Cash 0.1 0.3 % 0.1 —

Total assets $ 29.0 100.0 % $ 0.1 $ 28.9

The Company’s pension assets consist of multiple institutional funds (pension funds) of which the fair values are based on the quoted prices of the underlying funds.

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Pension Benefit Plans

Timing of the payment relating to the legal proceeding, which is included in the above table under “Thereafter,” is not yet determined.

Refer to “ Note 18.

Commitments and Contingencies ” for further information.

2027-2030 28.1

Thereafter 40.6

Total $ 104.3

Commitments and Contingencies

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 fourth quarter of fiscal 2026.

Royalty payments

The Company is obligated to make future minimum royalty payments of $ 2.8 million measured as of July 3, 2021 for the use of certain licensed technologies.

Future minimum payments are expected to be paid through the third quarter of fiscal 2026, as follows ( in millions):

Royalty Payments

Purchase Obligations

Purchase obligations of $ 99.8 million as of June 27, 2020 , represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements.

Purchase obligations of $ 187.6 million as of July 3, 2021, represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements.

Although open purchase orders are considered enforceable and legally binding, the terms generally allow the option to cancel, reschedule and adjust the requirements based on the Company’s business needs prior to the delivery of goods or performance of services.

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While the Company seeks to maintain a sufficient safety stock of such products and maintains on-going communications with its suppliers to guard against interruptions or cessation of supply, the Company’s business and results of operations could be adversely affected by a stoppage or delay of supply, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of such supplies, or the Company’s inability to obtain reduced pricing from its suppliers in response to competitive pressures.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financing Obligations

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

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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 ten-year renewal option.

In the first quarter of fiscal 2020, the Company reassessed whether a sale would have occurred 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 July 3, 2021, $ 0.1 million was included in Other current liabilities , and $ 16.1 million was included in Other non-current liabilities .

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

As of July 3, 2021, future minimum annual lease payments of Santa Rosa’s non-cancelable leaseback agreements were as follows (in millions) :

Thereafter 16.2

Total minimum leaseback payments $ 28.8

In accordance with authoritative guidance which requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee.

Authoritative guidance requires upon issuance of a guarantee the guarantor must recognize a liability for the fair value of the obligation that it assumes under the guarantee.

In addition, disclosures about the guarantees that an entity has issued, including a tabular reconciliation of the changes of the entity’s product warranty liabilities, are required.

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Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated.

Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets as of June 27, 2020 and June 29, 2019 .

Pursuant to the Separation and Distribution Agreement dated as of July 31, 2015 between the Company and Lumentum Holdings Inc.

(Lumentum) and the Tax Matter Agreement dated as of July 31, 2015 between the Company and Lumentum, the Company is required to indemnify Lumentum and its subsidiaries for certain specified tax liabilities.

Pursuant to the Separation and Distribution Agreement and Tax Matter Agreement, dated as of July 31, 2015 between the Company and Lumentum Holdings Inc.

(Lumentum), the Company is required to indemnify Lumentum and its subsidiaries for certain specified tax liabilities.

During the second quarter of fiscal 2019, the Ontario Ministry of Finance denied the Company’s appeal of an assessment of the applicable tax liabilities at which time the Company recorded a charge of $ 2.4 million to its discontinued operations.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Outstanding Letters of Credit and Performance Bonds

As of June 27, 2020 , the Company had standby letters of credit of $ 7.4 million and performance bonds of $ 1.0 million collateralized by restricted cash.

As of July 3, 2021, the Company had standby letters of credit of $ 7.8 million, and and other claims of $ 2.8 million collateralized by restricted cash.

Product Warranties

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the changes in the Company’s warranty reserve during fiscal years 2021 and 2020 ( in millions ):

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

Balance as of beginning of period $ 9.4 $ 8.7

3 unchanged sentences

Balance as of end of period $ 9.7 $ 9.4

Contingent Purchase Consideration

See “ Note 5.

Acquisitions ” for additional information related to the Company’s acquisitions.

The Company discounts the contingent purchase consideration to present value using a risk adjusted interest rate at each reporting period.

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

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

4 unchanged sentences

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

The Company pursued an appeal of the court decision.

2 unchanged sentences

law firm responsible for the error.

As of June 27, 2020, the related accrued pension liability was £ 7.5 million or $ 9.2 million .

As of July 3, 2021, the related accrued pension liability was £ 7.0 million or $ 9.6 million.

The Company is subject to a variety of claims and suits that arise from time to time in the ordinary course of its business.

3 unchanged sentences

The Company evaluates its reportable segments in accordance with the authoritative guidance on segment reporting.

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

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

VIAVI SOLUTIONS INC.

23 unchanged sentences

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

Year Ended June 27, 2020

Year Ended July 3, 2021

Network and Service Enablement

Network Enablement

Service Enablement

Optical Security and Performance Products

Consolidated GAAP Measures

Network Enablement Service Enablement Network and

Enablement Optical Security and Performance Products Other Items Consolidated GAAP Measures

Product revenue $ 650.5 $ 40.6 $ 691.1 $ 360.3 $ — $ 1,051.4

Service revenue 96.1 50.7 146.8 0.7 — 147.5

Net revenue $ 746.6 $ 91.3 $ 837.9 $ 361.0 $ — $ 1,198.9

Gross profit 474.2 59.9 534.1 218.1 ( 37.8 ) 714.4

Gross margin 63.5 % 65.6 % 63.7 % 60.4 % 59.6 %

Operating income 92.2 161.3 ( 111.3 ) 142.2

2 unchanged sentences

Network and Service Enablement

Network Enablement

Service Enablement

Optical Security and Performance Products

Consolidated GAAP Measures

Network Enablement Service Enablement Network and

Enablement Optical Security and Performance Products Other Items Consolidated GAAP Measures

Product revenue $ 669.1 $ 49.9 $ 719.0 $ 286.2 $ — $ 1,005.2

Service revenue 77.6 52.8 130.4 0.7 — 131.1

Net revenue $ 746.7 $ 102.7 $ 849.4 $ 286.9 $ — $ 1,136.3

Gross profit 482.4 68.8 551.2 153.0 ( 38.9 ) 665.3

Gross margin 64.6 % 67.0 % 64.9 % 53.3 % 58.5 %

Operating income 108.8 102.1 ( 92.8 ) 118.1

2 unchanged sentences

Network and Service Enablement

Network Enablement

Service Enablement

Optical Security and Performance Products

Consolidated GAAP Measures

Network Enablement Service Enablement Network and

Enablement Optical Security and Performance Products Other Items Consolidated GAAP Measures

Product revenue $ 666.2 $ 49.7 $ 715.9 $ 288.3 $ — $ 1,004.2

Service revenue 71.6 53.7 125.3 0.8 — 126.1

Net revenue $ 737.8 $ 103.4 $ 841.2 $ 289.1 $ — $ 1,130.3

Gross profit 473.3 71.0 544.3 145.8 ( 38.7 ) 651.4

Gross margin 64.2 % 68.7 % 64.7 % 50.4 % 57.6 %

Operating income 99.6 98.0 ( 130.2 ) 67.4

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

Corporate reconciling items impacting gross profit:

10 unchanged sentences

Other charges unrelated to core operating performance (1)(2)

( 3.4 ) ( 8.4 ) ( 10.0 )

Restructuring and related charges 1.6 ( 3.5 ) ( 15.4 )

1 unchanged sentence

(1) 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.

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

(3) Refer to “Note 8.

5 unchanged sentences

The following table presents net revenue by the three geographic regions the Company operates in and net revenue from countries that exceeded 10% of the Company’s total net revenue (in millions):

June 27, 2020

June 29, 2019

June 30, 2018

Product Revenue

Service Revenue

Product Revenue

Service Revenue

Product Revenue

Service Revenue

July 3, 2021 June 27, 2020 June 29, 2019

Product Revenue Service Revenue Total Product Revenue Service Revenue Total Product Revenue Service Revenue Total

United States $ 275.8 $ 54.2 $ 330.0 $ 288.3 $ 53.3 $ 341.6 $ 287.1 $ 55.0 $ 342.1

3 unchanged sentences

Greater China $ 265.8 $ 11.2 $ 277.0 $ 238.2 $ 7.5 $ 245.7 $ 209.4 $ 7.2 $ 216.6

Other Asia 118.5 15.0 133.5 108.0 14.5 122.5 142.3 13.3 155.6

Total Asia-Pacific $ 384.3 $ 26.2 $ 410.5 $ 346.2 $ 22.0 $ 368.2 $ 351.7 $ 20.5 $ 372.2

Switzerland $ 76.2 $ 0.4 $ 76.6 $ 64.5 $ 0.1 $ 64.6 $ 97.0 $ — $ 97.0

Other EMEA 242.4 53.8 296.2 248.4 40.3 288.7 199.0 35.8 234.8

Total EMEA $ 318.6 $ 54.2 $ 372.8 $ 312.9 $ 40.4 $ 353.3 $ 296.0 $ 35.8 $ 331.8

Total net revenue $ 1,051.4 $ 147.5 $ 1,198.9 $ 1,005.2 $ 131.1 $ 1,136.3 $ 1,004.2 $ 126.1 $ 1,130.3

2 unchanged sentences

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 2021, 2020 and 2019 as summarized below ( in millions ):

June 27, 2020

June 29, 2019

June 30, 2018

July 3, 2021 June 27, 2020 June 29, 2019

SICPA - OSP customer $ 193.9 $ 139.9 $ 161.1

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

June 27, 2020

June 29, 2019

July 3, 2021 June 27, 2020

United States $ 109.4 $ 85.0

Other Americas 2.0 1.6

China 45.4 43.8

Other Asia-Pacific 5.4 5.8

United Kingdom 27.3 30.1

Other EMEA 6.5 6.2

Total property, plant and equipment, net $ 196.0 $ 172.5

3 unchanged sentences

The following table presents the Company’s selected quarterly financial information from the Consolidated Statements of Operations for fiscal 2021 and 2020 ( in millions, except per share data ):

June 27, 2020

March 28, 2020

December 28, 2019

September 28, 2019

June 29, 2019

March 30, 2019

December 29, 2018

September 29, 2018

Net income (loss) from continuing operations, net of tax

Net income (loss) from discontinued operations, net of tax

Net income (loss)

Net income (loss) per share from - basic:

Continuing operations (1)

Discontinued operations (1)

Net income (loss) (1)

Net income (loss) per share from - diluted:

Continuing operations (1)

Discontinued operations (1)

Net income (loss) (1)

July 3, 2021 April 3, 2021 January 2, 2021 October 3, 2020 June 27, 2020 March 28, 2020 December 28, 2019 September 28, 2019

Net revenue $ 310.9 $ 303.4 $ 299.9 $ 284.7 $ 266.6 $ 256.2 $ 313.7 $ 299.8

Gross profit 182.9 182.0 180.1 169.4 154.6 146.8 189.5 174.4

Net (loss) income $ ( 1.9 ) $ 11.8 $ 21.9 $ 14.3 $ 26.7 $ ( 32.8 ) $ 28.0 $ 6.8

Net (loss) income per share - basic:

Net/ (loss) income (1)

$ ( 0.01 ) $ 0.05 $ 0.10 $ 0.06 $ 0.12 $ ( 0.14 ) $ 0.12 $ 0.03

Net (loss) income per share - diluted:

Net (loss) income (1)

$ ( 0.01 ) $ 0.05 $ 0.09 $ 0.06 $ 0.12 $ ( 0.14 ) $ 0.12 $ 0.03

Shares used in per-share calculation:

Net income (loss) per share is computed independently for each of the fiscal quarters presented.

Therefore, the sum of the quarterly basic and diluted net income (loss) per share amounts may not equal the annual basic and diluted net in come (loss) per share amount for the full fiscal years.

Basic 228.4 228.7 228.8 228.8 228.1 230.0 230.0 229.4

Diluted 228.4 240.2 231.1 231.8 230.3 230.0 238.3 236.4

(1) Net (loss) income per share is computed independently for each of the fiscal quarters presented.

Therefore, the sum of the quarterly basic and diluted Net (loss) income per share amounts may not equal the annual basic and diluted Net (loss) income per share amount for the full fiscal years.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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