What changed in this filing

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Item 1. Financial Statements

2022-02-07 compared with 2021-11-08 · 335 added, 222 removed, 593 unchanged (48% of the section changed)

3 unchanged sentences

(in millions, except per share data)

Three Months Ended

October 2, 2021 October 3, 2020

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Product revenue $ 277.4 $ 262.1 $ 566.5 $ 510.0

11 unchanged sentences

Amortization of other intangibles 2.6 8.1 5.3 16.6

Restructuring and related benefits — ( 0.6 )

Restructuring and related (benefits) charges ( 0.1 ) 0.2 ( 0.1 ) ( 0.4 )

Total operating expenses 141.2 137.8 289.3 275.9

3 unchanged sentences

Interest expense ( 7.1 ) ( 3.6 ) ( 10.7 ) ( 7.2 )

(Loss) income before taxes ( 41.2 ) 28.3

Income (loss) before income taxes 36.9 39.8 ( 4.3 ) 68.1

Provision for income taxes 2.3 12.5 15.9 21.1

Net (loss) income $ ( 54.8 ) $ 19.7

Net (loss) income per share:

Net income (loss) $ 34.6 $ 27.3 $ ( 20.2 ) $ 47.0

Net income (loss) per share:

Basic $ 0.15 $ 0.12 $ ( 0.09 ) $ 0.21

7 unchanged sentences

(in millions)

Three Months Ended

October 2, 2021 October 3, 2020

Net (loss) income $ ( 54.8 ) $ 19.7

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Net income (loss) $ 34.6 $ 27.3 $ ( 20.2 ) $ 47.0

Other comprehensive income (loss):

3 unchanged sentences

Net change in accumulated other comprehensive income (loss) ( 3.4 ) 35.1 ( 12.1 ) 63.5

Comprehensive (loss) income $ ( 63.5 ) $ 48.1

Comprehensive income (loss) $ 31.2 $ 62.4 $ ( 32.3 ) $ 110.5

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

2 unchanged sentences

(in millions, except share and par value data)

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

Current assets:

26 unchanged sentences

1 billion shares authorized;

240 million shares at October 2, 2021 and 228 million shares at July 3, 2021, issued and outstanding

233 million shares at January 1, 2022 and 228 million shares at July 3, 2021, issued and outstanding

Additional paid-in capital 70,354.3 70,183.2

7 unchanged sentences

(in millions)

Three Months Ended

October 2, 2021 October 3, 2020

Six Months Ended

January 1, 2022 January 2, 2021

OPERATING ACTIVITIES:

34 unchanged sentences

Repayment of revolving credit facility ( 150.0 ) —

Payment of acquisition related contingent consideration ( 1.2 ) —

Payment of debt — ( 2.8 )

Net cash provided by (used in) financing activities $ 182.8 $ ( 15.8 )

Net cash used in financing activities $ ( 2.9 ) $ ( 35.6 )

Effect of exchange rates on cash, cash equivalents and restricted cash $ ( 4.9 ) $ 26.3

4 unchanged sentences

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

(2) These amounts include both current and non-current balances of restricted cash totaling $ 11.1 million and $ 8.4 million as of October 2, 2021 and October 3, 2020, respectively.

(2) These amounts include both current and non-current balances of restricted cash totaling $ 11.6 million and $ 8.5 million as of January 1, 2022 and January 2, 2021, respectively.

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

2 unchanged sentences

(in millions)

Three Months Ended October 2, 2021

Three Months Ended January 1, 2022

Additional Paid-In Capital

1 unchanged sentence

Accumulated Other Comprehensive Loss

Balance at July 3, 2021 228.3 $ 0.2 $ 70,183.2 $ ( 69,322.3 ) $ ( 97.2 ) $ 763.9

Balance at October 2, 2021 239.7 $ 0.2 $ 70,349.9 $ ( 69,385.6 ) $ ( 105.9 ) $ 858.6

Net loss — — — 34.6 — 34.6

4 unchanged sentences

Convertible note settlement (Note 11) — — ( 7.4 ) — ( 7.4 )

Balance at January 1, 2022 232.5 $ 0.2 $ 70,354.3 $ ( 69,470.4 ) $ ( 109.3 ) $ 774.8

Three Months Ended January 2, 2021

Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Balance at October 3, 2020 229.3 $ 0.2 $ 70,152.5 $ ( 69,334.2 ) $ ( 137.5 ) $ 681.0

Three Months Ended October 3, 2020

Net income — — — 27.3 — 27.3

Other comprehensive income — — — — 35.1 35.1

Shares issued under employee stock plans, net of tax 0.5 — ( 2.5 ) — — ( 2.5 )

Stock-based compensation — — 9.8 — — 9.8

Repurchase of common stock ( 1.3 ) — — ( 17.1 ) — ( 17.1 )

Balance at January 2, 2021 228.5 $ 0.2 $ 70,159.8 $ ( 69,324.0 ) $ ( 102.4 ) $ 733.6

Six Months Ended January 1, 2022

Additional Paid-In Capital

1 unchanged sentence

Accumulated Other Comprehensive Loss

Balance at July 3, 2021 228.3 $ 0.2 $ 70,183.2 $ ( 69,322.3 ) $ ( 97.2 ) $ 763.9

Net loss — — — ( 20.2 ) — ( 20.2 )

Other comprehensive loss — — — — ( 12.1 ) ( 12.1 )

Shares issued under employee stock plans, net of tax 1.6 — ( 7.2 ) — — ( 7.2 )

Stock-based compensation — — 26.6 — — 26.6

Repurchase of common stock ( 8.0 ) — — ( 127.9 ) — ( 127.9 )

Convertible note settlement (Note 11) 10.6 — 151.7 — 151.7

Balance at January 1, 2022 232.5 $ 0.2 $ 70,354.3 $ ( 69,470.4 ) $ ( 109.3 ) $ 774.8

Six Months Ended January 2, 2021

Additional Paid-In Capital

Accumulated Deficit

Accumulated Other Comprehensive Loss

Balance at June 27, 2020 228.3 $ 0.2 $ 70,146.1 $ ( 69,347.2 ) $ ( 165.9 ) $ 633.2

4 unchanged sentences

Repurchase of common stock ( 1.9 ) — — ( 23.8 ) — ( 23.8 )

Balance at October 3, 2020 229.3 $ 0.2 $ 70,152.5 $ ( 69,334.2 ) $ ( 137.5 ) $ 681.0

Balance at January 2, 2021 228.5 $ 0.2 $ 70,159.8 $ ( 69,324.0 ) $ ( 102.4 ) $ 733.6

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

3 unchanged sentences

The financial information for Viavi Solutions Inc.

(VIAVI also referred to as the Company) for the three months ended October 2, 2021 and October 3, 2020 is unaudited, and includes all normal and recurring adjustments Company’s management considers necessary for a fair statement of the financial information set forth herein.

(VIAVI also referred to as the Company) for the three and six months ended January 1, 2022 and January 2, 2021 is unaudited, and includes all normal and recurring adjustments the Company’s management considers necessary for a fair statement of the financial information set forth herein.

The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (U.S.

3 unchanged sentences

For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K, for the year ended July 3, 2021.

Other than the adoption of Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (refer to “Note 2.

Recently Issued Accounting Pronouncements” for more detail), there have been no material changes to the Company’s accounting policies during the three months ended October 2, 2021 as compared to the significant accounting policies presented in “Note 1.

Other than the adoption of Accounting Standards Update (ASU) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity and ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (refer to “Note 2.

Recently Issued Accounting Pronouncements” for more detail), there have been no material changes to the Company’s accounting policies during the three and six months ended January 1, 2022 as compared to the significant accounting policies presented in “Note 1.

Basis of Presentation” of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report for the year ended July 3, 2021 on Form 10-K, filed with the SEC on August 23, 2021.

1 unchanged sentence

GAAP for complete financial statements.

The results for the three months ended October 2, 2021 and October 3, 2020 may not be indicative of results for the fiscal year ending July 2, 2022 or any future periods.

The results for the three and six months ended January 1, 2022 and January 2, 2021 may not be indicative of results for the fiscal year ending July 2, 2022 or any future periods.

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

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

In late 2020, new and potentially more contagious variants of the virus emerged, along with a surge in cases in several regions across the globe, resulting in renewed shutdown and shelter in place orders.

While rollout of several vaccines commenced in December 2020, the pace of the rollout has been slow and the demand for vaccine far outpaces available supply.

New and potentially more contagious variants of the virus emerged in late 2020 and 2021, along with a surge in cases in several regions across the globe, resulting in renewed shutdown and shelter in place orders in certain regions.

While rollout of several vaccines commenced in December 2020, the pace of the global rollout has been slow and the demand for vaccine far outpaces available supply, particularly in developing nations.

As economies recover, there are continued supply chain constraints, shortages and delays, along with inflationary pricing pressures.

6 unchanged sentences

In August 2018, the FASB issued ASU 2018-14 Defined Benefit Plans (Topic 715-20) - Changes to the Disclosure Requirements for Defined Benefit Plans, to amend the disclosure requirements related to defined benefit pension and other post-retirement plans.

The adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.

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

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

In December 2019, the FASB issued ASU 2019-12 Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, by removing specific exceptions to the general principles in Topic 740, Income Taxes and clarifies certain aspects of the current guidance to promote consistency among reporting entities.

The Company adopted this guidance in the first quarter of fiscal 2022.

8 unchanged sentences

Consequently, the temporary equity balance for the Senior Convertible Notes as of July 3, 2021 was eliminated.

In addition, interest expense was reduced and net income was increased by $ 20.3 million and $ 21.4 million for fiscal years ending June 27, 2020 and July 3, 2021, respectively.

In addition, interest expense was reduced and net income was increased by $ 21.4 million for the fiscal year ended July 3, 2021.

The adoption had no impact on total cash provided by (used in) operating, investing or financing activities in the Consolidated Statements of Cash Flows.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the impact of the standard adoption to select line items of the Company’s Consolidated Balance Sheet as of June 27, 2020 and July 3, 2021 ( in millions ):

June 27, 2020

As Reported Adjustment As Adjusted

LIABILITIES AND STOCKHOLDERS’ EQUITY

Long-term debt $ 600.9 $ 78.2 $ 679.1

Additional paid-in capital 70,274.3 ( 128.2 ) 70,146.1

Accumulated deficit $ ( 69,397.2 ) $ 50.0 $ ( 69,347.2 )

The following table presents the impact of the standard adoption to select line items of the Company’s Consolidated Balance Sheet as of July 3, 2021 ( in millions ):

As Reported Adjustment As Adjusted

5 unchanged sentences

Accumulated deficit $ ( 69,393.7 ) $ 71.4 $ ( 69,322.3 )

The following table presents the impact of the standard adoption to select line items of the Company’s Consolidated Statement of Operations for the three months ended October 3, 2020 ( in millions, except per-share data ):

Three Months Ended October 3, 2020

The following table presents the impact of the standard adoption to select line items of the Company’s Consolidated Statement of Operations for the three and six months ended January 2, 2021 ( in millions, except per-share data ):

Three Months Ended January 2, 2021

As Reported Adjustment As Adjusted

7 unchanged sentences

Diluted 231.1 — 231.1

Recent Accounting Pronouncements Not Yet Adopted

In October 2021, the FASB issued guidance which improves accounting for acquired revenue contracts with customers in a business combination.

The guidance is effective for the Company in first quarter of fiscal year 2024 and early adoption is permitted.

The Company is evaluating the effects that the adoption of this guidance will have on its financial statements.

Six Months Ended January 2, 2021

As Reported Adjustment As Adjusted

Interest Expense $ ( 18.0 ) $ 10.8 $ ( 7.2 )

Net income $ 36.2 $ 10.8 $ 47.0

Net income per share:

Basic $ 0.16 $ 0.05 $ 0.21

Diluted $ 0.16 $ 0.04 $ 0.20

Shares used in per-share calculation:

Basic 228.8 — 228.8

Diluted 231.3 0.2 231.5

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In October 2021, the FASB issued ASU No.

2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606.

At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts.

This guidance is effective for the Company in first quarter of fiscal year 2024 and early adoption is permitted.

The Company elected to early adopt this guidance in the second quarter of fiscal 2022 on a retrospective basis to the beginning of the fiscal year.

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

Recent Accounting Pronouncements Not Yet Adopted

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance to increase the transparency of government assistance including the disclosure of the types of assistance, an entity's accounting for the assistance, and the effect of the assistance on an entity's financial statements.

This guidance is effective for the Company in the first quarter of fiscal 2023 with early adoption permitted.

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

Earnings Per Share

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

Three Months Ended

October 2, 2021 October 3, 2020

Net (loss) income $ ( 54.8 ) $ 19.7

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Net income (loss) $ 34.6 $ 27.3 $ ( 20.2 ) $ 47.0

Weighted-average shares outstanding:

Basic 236.0 228.8 233.6 228.8

Shares issuable assuming conversion of convertible notes (1)

4.3 0.3 — 0.2

Effect of dilutive securities from stock-based compensation plans 2.0 2.0 — 2.5

Diluted 242.3 231.1 233.6 231.5

Net (loss) income per share:

Net income (loss) per share:

Basic $ 0.15 $ 0.12 $ ( 0.09 ) $ 0.21

Diluted $ 0.14 $ 0.12 $ ( 0.09 ) $ 0.20

(1) Represents the number of shares that would be issued if the Company’s 1.00 % Senior Convertible Notes (2024 Notes) and 1.75 % Senior Convertible Notes (2023 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.

The “in-the money” conversion benefit feature above the conversion price of the 2023 Notes and 2024 Notes of $ 13.94 and $ 13.22 per share respectively, 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 ):

Three Months Ended

October 2, 2021 October 3, 2020

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Restricted stock units (1)

Stock options and ESPP 1.5 —

0.5 — 0.8 0.5

Shares issuable from Senior Convertible Notes (2)

Total potentially dilutive securities 0.5 — 7.1 0.5

(1) As the Company incurred a loss from continuing operations in the period, potential securities from employee stock options, Employee Stock Purchase Plan (ESPP), restricted stock units (RSUs), performance stock units (PSUs) and Senior Convertible Notes have been excluded from the dilutive net loss per share computations as their effects were deemed anti-dilutive.

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

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

The Company’s average stock price for the period presented did not exceed the conversion price of $ 13.22 .

In addition, 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.

The Company’s average stock price for the period presented did not exceed the conversion price of $ 13.94 .

Refer to “Note 11.

Debt” for more details.

(1) Represents the number of restricted stock units (RSUs) that are excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

(2) As the Company incurred a loss from continuing operations in the period, potential securities from employee stock options, Employee Stock Purchase Plan (ESPP), RSUs, performance stock units (PSUs) and Senior Convertible Notes have been excluded from the dilutive net loss per share computations as their effects were deemed anti-dilutive.

Accumulated Other Comprehensive Loss

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three months ended October 2, 2021, the changes in accumulated other comprehensive loss, net of tax, by component were as follows ( in millions ):

For the six months ended January 1, 2022, the changes in accumulated other comprehensive loss, net of tax, by component were as follows ( in millions ):

Unrealized losses on available-for sale investments Foreign

4 unchanged sentences

Net current-period other comprehensive loss 0.1 ( 13.7 ) 1.5 ( 12.1 )

Ending balance as of October 2, 2021 $ ( 5.0 ) $ ( 77.7 ) $ ( 23.2 ) $ ( 105.9 )

(1) The amount reclassified out of accumulated other comprehensive loss represents the amortization of actuarial losses included as a component of cost of revenues, research and development (R&D) and selling, general and administrative (SG&A) in the Consolidated Statement of Operations for the three months ended October 2, 2021.

There was no tax impact for the three months ended October 2, 2021.

Ending balance as of January 1, 2022 $ ( 5.0 ) $ ( 81.8 ) $ ( 22.5 ) $ ( 109.3 )

There was no tax impact for the six months ended January 1, 2022.

Refer to “Note 17.

Employee Pension and Other Benefit Plans” for more details on the computation of net periodic cost for pension plans.

During the three months ended October 2, 2021, the Company acquired all of the equity of one business for approximately $ 1.6 million cash consideration, of which $ 1.2 million was paid with cash on hand and $ 0.4 M remains in current liabilities.

The acquisition was accounted for as an asset purchase under the authoritative guidance.

The developed technology will be amortized over its estimated useful life of 5 years.

Prior Year Acquisitions

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.

The acquisition of 3Z expands the Company’s Field Instrument offerings.

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 to be paid based on the achievement of certain gross profit targets over approximately a four year period, subsequent to the RPC Close Date.

During the second quarter of fiscal year 2019, the Company acquired all of the equity interest of RPC Photonics, Inc.

The consideration paid for RPC was approximately $ 33.4 million in cash and an additional earn-out of up to $ 53.0 million in cash to be paid based on the achievement of certain gross profit targets over approximately a four year period.

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

Other Acquisition

During the twelve months ended June 27, 2020, the Company completed a business 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 in cash to be paid based on the occurrence or achievement of certain agreed upon targets.

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

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides a reconciliation of changes in the fair value of the Company’s earn-out liabilities associated with Company’s acquisitions for the three months ended October 2, 2021 and October 3, 2020 ( in millions ):

Three Months Ended

October 2, 2021 October 3, 2020

Other Acquisitions

During the first quarter of fiscal year 2022, the Company acquired all of the equity of one business for approximately $ 1.6 million cash consideration, of which $ 1.2 million was paid with cash on hand and $ 0.4 million remains in current liabilities.

The acquisition was accounted for as an asset purchase under the authoritative guidance.

The developed technology will be amortized over its estimated useful life of 5 years.

During the fourth quarter of fiscal year 2020, the Company completed a business 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 in cash to be paid based on the occurrence or achievement of certain agreed upon targets.

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

Acquisition-related Contingent Consideration

The following table provides a reconciliation of changes in the fair value of the Company’s earn-out liabilities associated with the Company’s acquisitions for the three and six months ended January 1, 2022 and January 2, 2021 ( in millions ):

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Beginning period balance $ 4.3 $ 9.9 $ 4.0 $ 9.9

Payments of Contingent Consideration ( 1.2 ) — ( 1.2 ) —

Fair value adjustment of earn-out liabilities — ( 1.5 ) 0.3 ( 1.5 )

Currency translation adjustment — 0.5 — 0.5

Ending period balance $ 3.1 $ 8.9 $ 3.1 $ 8.9

No payments were made in connection with the Company’s earn-out liabilities during the three months ended October 2, 2021 and October 3, 2020.

Balance Sheet and Other Details

Contract Balances

Gross receivables include both billed and unbilled receivables (Unbilled Receivables and Contract Assets).

As of October 2, 2021, and July 3, 2021, the Company had total unbilled receivables of $ 6.5 million and $ 6.2 million, respectively.

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.

Gross receivables include both billed and unbilled receivables (including Contract Assets).

As of January 1, 2022, and July 3, 2021, the Company had total unbilled receivables of $ 7.7 million and $ 6.2 million, respectively.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

October 2, 2021

Three months ended

January 1, 2022

Three Months Ended Six Months Ended

Deferred revenue:

2 unchanged sentences

Revenue recognized during the period (2)

( 33.6 ) ( 65.0 )

Balance at end of period (3)

Short-term deferred revenue $ 66.6

Long-term deferred revenue $ 18.5

$ 81.2 $ 81.2

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

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

(3) The long-term portion of deferred revenue is included as a component of other non-current liabilities, on the Consolidated Balance Sheets.

(3) The long-term portion of deferred revenue is included as a component of other non-current liabilities on the Consolidated Balance Sheets and included below.

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

The value of the transaction price allocated to remaining performance obligations as of October 2, 2021, was $ 250.3 million.

The value of the transaction price allocated to remaining performance obligations as of January 1, 2022, was $ 271.8 million.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accounts receivable allowance - Credit losses

1 unchanged sentence

July 3, 2021 Charged to Costs and Expenses Deductions (1)

October 2, 2021

January 1, 2022

Allowance for credit losses $ 2.0 $ 0.4 $ ( 0.9 ) $ 1.5

2 unchanged sentences

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

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

Finished goods $ 44.9 $ 41.0

2 unchanged sentences

Inventories, net $ 114.4 $ 94.9

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 ( in millions ):

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

Prepayments $ 13.4 $ 13.4

7 unchanged sentences

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

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

Customer prepayments $ 1.5 $ 0.4

6 unchanged sentences

Other current liabilities $ 46.8 $ 57.1

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other non-current liabilities

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

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

Pension and post-employment benefits $ 91.9 $ 97.0

9 unchanged sentences

Short-Term Investments

As of October 2, 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, $ 0.3 million was invested in money market instruments and $ 1.0 million was invested in equity securities.

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

As of January 1, 2022 the Company’s short-term investments of $ 1.7 million were comprised primarily of trading securities related to the deferred compensation plan, of which $ 0.4 million was invested in debt securities, $ 0.2 million was invested in money market instruments and $ 1.1 million was invested in equity securities.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, $ 0.3 million was invested in money market instruments and $ 1.0 million was invested in equity securities.

3 unchanged sentences

As a result, the Company is exposed to foreign exchange risks.

The Company utilizes foreign exchange forward contracts to manage foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions.

The Company utilizes foreign exchange forward contracts to manage foreign currency risk associated with foreign currency denominated

monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions.

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

As of October 2, 2021, the Company had forward contracts that were effectively closed but not settled with the counterparties by quarter end.

As of January 1, 2022, the Company had forward contracts that were effectively closed but not settled with the counterparties by quarter end.

Therefore, the fair value of these contracts of $ 1.8 million and $ 2.2 million is reflected as prepayments and other current assets and other current liabilities, respectively.

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

As of October 2, 2021 and July 3, 2021, the notional amounts of the forward contracts the Company held to purchase foreign currencies were $ 158.5 million and $ 114.0 million, respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were $ 20.8 million and $ 27.8 million, respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of January 1, 2022 and July 3, 2021, the notional amounts of the forward contracts the Company held to purchase foreign currencies were $ 123.4 million and $ 114.0 million, respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were $ 25.5 million and $ 27.8 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 income and other income, net.

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

The foreign exchange forward contracts incurred a loss of $ 1.8 million for the three months ended October 2, 2021 and a gain of $ 6.5 million for the three months ended October 3, 2020.

The foreign exchange forward contracts incurred a loss of $ 0.7 million and $ 2.5 million for the three and six months ended January 1, 2022 and gains of $ 6.9 million and $ 13.3 million for the three and six months ended January 2, 2021 , respectively.

Fair Value Measurements

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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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 October 2, 2021 and July 3, 2021, the Company did not hold any Level 3 investment securities.

The Company’s Level 3 liabilities as of October 2, 2021 and July 3, 2021, consist of contingent purchase consideration.

As of January 1, 2022 and July 3, 2021, the Company did not hold any Level 3 investment securities.

The Company’s Level 3 liabilities as of January 1, 2022 and July 3, 2021, consist of contingent purchase consideration.

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

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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)

Fair Value Measurements

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

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

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

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Asset-backed securities (1)

$ 0.6 $ — $ 0.6 $ — $ 0.4 $ — $ 0.4 $ —

Total debt available-for-sale securities 0.6 — 0.6 — 0.4 — 0.4 —

Money market funds (2)

428.8 428.8 — — 408.9 408.9 — —

Trading securities (3)

1.7 1.7 — — 1.6 1.6 — —

Foreign currency forward contracts (4)

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Total assets $ 432.9 $ 430.5 $ 2.4 $ — $ 413.5 $ 410.5 $ 3.0 $ —

$ 638.4 $ 636.8 $ 1.6 $ — $ 413.5 $ 410.5 $ 3.0 $ —

Foreign currency forward contracts (5)

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Total liabilities $ 5.3 $ — $ 2.2 $ 3.1 $ 5.4 $ — $ 1.4 $ 4.0

(1) $ 1.1 million and $ 2.6 million in prepayments and other current assets on the Company’s Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021, respectively.

(2) Includes as of October 2, 2021, $ 626.7 million in cash and cash equivalents, $ 1.6 million in short-term investments, $ 3.0 million in restricted cash, $ 1.1 million in prepayments and other current assets and $ 6.0 million in other non-current assets on the Company’s Consolidated Balance Sheets.

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.

(3) $ 2.9 million and $ 1.4 million in other current liabilities on the Company’s Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021, respectively.

(4) Includes $ 4.3 million and $ 4.0 million in other current liabilities as of October 2, 2021 and July 3, 2021, respectively.

(1) Included in other non-current assets on the Company’s Consolidated Balance Sheets.

(2) Includes, as of January 1, 2022, $ 419.6 million in cash and cash equivalents, $ 3.1 million in restricted cash, and $ 6.1 million in other non-current assets on the Company’s Consolidated Balance Sheets.

Includes, as of July 3, 2021, $ 401.0 million in cash and cash equivalents, $ 2.7 million in restricted cash, and $ 5.2 million in other non-current assets on the Company’s Consolidated Balance Sheets.

(3) Included in short-term investments on the Company’s Consolidated Balance Sheets.

(4) Included in other current assets on the Company’s Consolidated Balance Sheets.

(5) Included in other current liabilities on the Company’s Consolidated Balance Sheets.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Fair Value Measures

Fair Value of Long-term Debt:

If measured at fair value in the Consolidated Balance Sheets, the Company’s 1.75 % Senior Convertible Notes (2023 Notes) and 1.00 % Senior Convertible Notes (2024 Notes) would be classified in Level 2 of the fair value hierarchy as they are not actively traded in the markets.

As of October 2, 2021 and July 3, 2021, the fair value of the 2023 Notes was approximately $ 165.3 million and $ 300.7 million, respectively and the fair value of the 2024 Notes was approximately $ 368.4 million and $ 646.9 million, respectively.

If measured at fair value in the Consolidated Balance Sheets, the Company’s 1.75 % Senior Convertible Notes (2023 Notes), 1.00 % Senior Convertible Notes (2024 Notes) and 3.75 % Senior Notes (2029 Notes) would be classified in Level 2 of the fair value hierarchy as they are not actively traded in the markets.

As of January 1, 2022, the fair value of the 2023 Notes, 2024 Notes, and 2029 Notes was approximately $ 148.4 million, $ 359.5 million and $ 400.6 million, respectively.

As of July 3, 2021, the fair value of the 2023 Notes and 2024 Notes was approximately $ 300.7 million and $ 646.9 million, respectively.

See “Note 11.

Debt”, for further discussion of the Company’s long-term debt.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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Currency translation adjustments ( 3.3 ) ( 0.2 ) — ( 3.5 )

Balance as of October 2, 2021 $ 347.2 $ 4.5 $ 42.2 $ 393.9

Balance as of January 1, 2022 $ 346.4 $ 4.4 $ 42.2 $ 393.0

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

In the fourth quarter of fiscal 2021, the Company reviewed goodwill under the qualitative assessment of the authoritative guidance and concluded that it was more likely than not that the fair value of each reporting unit exceeded its carrying amount and that no indication of impairment existed.

There were no events or changes in circumstances which triggered an impairment review during the three months ended October 2, 2021.

There were no events or changes in circumstances which triggered an impairment review during the three and six months ended January 1, 2022.

Acquired Developed Technology and Other Intangibles

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

As of October 2, 2021 Gross Carrying Amount Accumulated Amortization Net

As of January 1, 2022 Gross Carrying Amount Accumulated Amortization Net

Acquired developed technology $ 422.9 $ ( 370.4 ) $ 52.5

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

Three Months Ended

October 2, 2021 October 3, 2020

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Cost of revenues $ 7.4 $ 8.4 $ 15.3 $ 16.6

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Total amortization of intangible assets $ 10.0 $ 16.5 $ 20.6 $ 33.2

Based on the carrying amount of acquired developed technology, customer relationships and other intangibles as of October 2, 2021, 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 January 1, 2022, and assuming no future impairment of the underlying assets, the estimated future amortization is as follows ( in millions ):

Remainder of 2022 $ 18.9

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

In the first quarter of fiscal 2022 the Company adopted ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, on a full retrospective basis.

The impact of the newly adopted guidance eliminates the equity component of the Company’s Senior Convertible Notes.

Refer to “Note 2.

Recently Issued Accounting Pronouncements” for more details.

As of October 2, 2021 and July 3, 2021, the Company’s debt on the Consolidated Balance Sheets represented the carrying amount of the Senior Convertible and Senior Notes, net of unamortized issuance costs.

As of January 1, 2022 and July 3, 2021, the Company’s debt on the Consolidated Balance Sheets represented the carrying amount of the Senior Convertible and Senior Notes, net of unamortized issuance costs.

The following table presents the carrying amounts of the Company’s debt ( in millions ):

October 2, 2021 July 3, 2021

January 1, 2022 July 3, 2021

Principal amount of 1.00 % Senior Convertible Notes due 2024, short-term

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Long-term debt $ 755.8 $ 224.1

The Company was in compliance with all debt covenants as of October 2, 2021 and July 3, 2021.

The Company was in compliance with all debt covenants as of January 1, 2022 and July 3, 2021.

VIAVI SOLUTIONS INC.

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The 2029 Notes mature on October 1, 2029 unless earlier redeemed or repurchased.

Senior Secured Asset-Based Revolving Credit Facility

On December 30, 2021, we entered into a credit agreement (the Credit Agreement) with Wells Fargo Bank, National Association (Wells Fargo) as administrative agent, and other lender related parties.

The Credit Agreement provides for a senior secured asset-based revolving credit facility in a maximum aggregate amount of $ 300 million, which matures on December 30, 2026.

The Credit Agreement also provides that, under certain circumstances, the Company may increase the aggregate amount of revolving commitments thereunder by an aggregate amount of up to $ 100 million so long as certain conditions are met.

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 the assets of the Company and those of its subsidiaries that are borrowers and guarantors under the Credit Agreement.

Amounts outstanding under the Credit Agreement accrue interest as follows:

(i) if the amounts outstanding are denominated in US Dollars, at a per annum rate equal to either, at the Company’s election, Term Secured Overnight Financing Rate (SOFR) plus a margin of 1.35 % to 1.85 % per annum, or a specified base rate plus a margin of 0.25 % to 0.75 %, in each case, depending on the average excess availability under the facility, (ii) if the amounts outstanding are denominated in Sterling, at a per annum rate equal to the Sterling Overnight Interbank Average Rate (SONIA) plus a margin of 1.2825 % to 1.7825 %, depending on the average excess availability under the facility, (iii) if the amounts outstanding are denominated in Euros, at a per annum rate equal to the Euro Interbank Offered Rate plus a margin of 1.25 % to 1.75 %, depending on the average excess availability under the facility, or (iv) if the amounts outstanding are denominated in Canadian Dollars, at a per annum rate equal to either, at the Company’s election, the Canadian Dollar Offered Rate plus a margin of 1.25 % to 1.75 %, or a specified base rate plus a margin of 0.25 % to 0.75 %, in each case, depending on the average excess availability under the facility.

The covenants of the Credit Agreement include customary restrictive covenants that, among other things, restrict the Company’s ability to incur additional indebtedness, grant liens and make certain acquisitions, investments, asset dispositions and restricted payments.

In addition, the Credit Agreement contains certain financial covenants that require the Company to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 if excess availability under the facility is less than the greater of 10 % of the lesser of maximum revolver amount and borrowing base and $ 20 million.

As of January 1, 2022, we had no borrowings under this facility.

Revolving Credit Facility

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, 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 the Company’s 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 have been used for working capital and other general corporate purposes.

The obligations under the Credit Agreement are secured by substantially all of the Company’s assets.

Amounts outstanding under the Credit Agreement accrue interest at a rate equal to either, at the Company’s 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 the Company’s 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 the Company’s consolidated secured leverage ratio.

The Company borrowed $ 150 million and repaid $ 150 million under the Credit Agreement during the three months ended October 2, 2021.

As of October 2, 2021 and July 3, 2021, the Company had no amounts outstanding under the Credit Agreement.

On May 5, 2020, the Company entered into a credit agreement with Wells Fargo as administrative agent, and other lender related parties.

The Company borrowed $ 150 million and repaid $ 150 million under this Credit Agreement during the six months ended January 1, 2022.

In connection with the entry into the Senior Secured Asset-Based Revolving Credit Facility noted above, the Company terminated this facility.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.75 % Senior Convertible Notes (2023 Notes)

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The Company issued $ 155.5 million aggregate principal of the 2023 Notes to certain holders of the 2033 Notes in exchange for $ 151.5 million principal of the 2033 Notes (the Exchange Transaction) and issued and sold $ 69.5 million aggregate principal amount of the 2023 Notes in a private placement to accredited institutional buyers (the Private Placement).

As of October 2, 2021, the expected remaining term of the 2023 Notes is 1.7 years.

As of January 1, 2022, the expected remaining term of the 2023 Notes is 1.4 years.

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

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

As of October 2, 2021, the expected remaining term of the 2024 Notes is 2.4 years.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of January 1, 2022, the expected remaining term of the 2024 Notes is 2.2 years.

During the fourth quarter of fiscal 2021, the closing price of the Company’s common stock exceeded 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 the holders for the period of July 1, 2021 to September 30, 2021.

As a result, $ 456.6 million carrying value of the notes was reclassified to short-term debt as of July 3, 2021.

In the first quarter of fiscal 2022 the closing price of the Company’s stock did not exceed 130 % of the applicable conversion price of the 2024 Notes for at least 20 of the last 30 consecutive trading days of the calendar quarter.

As such, the conversion window was closed as of October 1, 2021.

The carrying value of the 2024 Notes was reclassified to long-term debt as of October 2, 2021.

The Company received four requests for conversion when the conversion was opened during the first quarter of fiscal 2022.

The amount requested for conversion is trivial and is not presented as short-term debt in our Consolidated Balance Sheet as of October 2, 2021.

The requests were for trivial amounts.

In the first and second quarter of fiscal 2022 the closing price of the Company’s stock did not exceed 130 % of the applicable conversion price of the 2024 Notes for at least 20 of the last 30 consecutive trading days of the calendar quarter.

The carrying value of the 2024 Notes was reclassified to long-term debt as of October 2, 2021.

Senior Convertible Notes Settlement

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The Company settled $ 93.8 million principal amount of the 2023 Notes and $ 181.2 million principal amount of the 2024 Notes in exchange for an aggregate of 10.6 million shares of its common stock, par value $ 0.001 per share, and $ 196.5 million in cash.

The Company recorded a loss of $ 85.9 million in connection with the settlement transaction, which included a loss on induced conversion of $ 9.5 million, a loss on debt extinguishment of $ 72.7 million and third-party fees of $ 3.7 million.

The $ 85.9 million loss is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.

The Company recorded a loss of $ 85.9 million in connection with the settlement transactions which is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.

On November 17, 2021 and November 22, 2021, the Company entered into separate privately-negotiated agreements with certain holders of its 1.75 % Senior Convertible Notes due 2023 and 1.00 % Senior Convertible Notes due 2024.

The Company settled $ 20.6 million principal amount of the 2023 Notes and $ 25.0 million principal amount of the 2024 Notes in exchange for $ 59.0 million in cash.

The Company recorded a loss of $ 6.4 million in connection with the settlement transactions which is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.

After the transaction the outstanding aggregate principal amount of the 2023 Notes and 2024 Notes was $ 110.7 million and $ 253.7 million, respectively, in each case, with terms unchanged.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Interest Expense

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

Three Months Ended

October 2, 2021 October 3, 2020

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Interest expense-contractual interest $ 5.3 $ 2.4 $ 7.6 $ 4.7

Amortization of debt issuance cost 1.1 0.5 1.6 1.0

Other 0.7 0.7 1.5 1.5

Total interest expense $ 7.1 $ 3.6 $ 10.7 $ 7.2

As discussed in “Note 2.

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

The Company's lease arrangements are composed of operating leases with various expiration dates through March 31, 2042.

The Company's lease arrangements are comprised of operating leases with various expiration dates through March 31, 2042.

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

For the three months ended October 2, 2021 and October 3, 2020, the total operating lease costs were $ 3.5 million and $ 3.4 million, respectively.

Total variable lease costs were immaterial during the three months ended October 2, 2021 and October 3, 2020.

For the three months ended January 1, 2022 and January 2, 2021, the total operating lease costs were $ 3.7 million and $ 3.4 million, respectively.

For the six months ended January 1, 2022 and January 2, 2021, the total operating lease costs were $ 7.2 million and $ 6.8 million, respectively.

Total variable lease costs were immaterial during the three and six months ended January 1, 2022 and January 2, 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 October 2, 2021, the weighted-average remaining lease term was 7.7 years, and the weighted-average discount rate was 4.7 %.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the three months ended October 2, 2021 and October 3, 2020, cash paid for amounts included in the measurement of operating lease liabilities were $ 5.2 million and $ 4.4 million, respectively;

As of January 1, 2022, the weighted-average remaining lease term was 6.6 years, and the weighted-average discount rate was 4.7 %.

For the three months ended January 1, 2022 and January 2, 2021, cash paid for amounts included in the measurement of operating lease liabilities were $ 3.5 million and $ 3.7 million, respectively;

and operating ROU assets obtained in exchange of new operating lease liabilities were $ 6.4 million and $ 1.9 million, respectively.

For the six months ended January 1, 2022 and January 2, 2021, cash paid for amounts included in the measurement of operating lease liabilities were $ 8.7 million and $ 8.1 million, respectively;

and operating ROU assets obtained in exchange of new operating lease liabilities were $ 6.5 million and $ 3.5 million, respectively

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

October 2, 2021

January 1, 2022

Other non-current assets $ 44.9

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Total operating lease liabilities $ 41.8

Future minimum operating lease payments as of October 2, 2021 are as follows ( in millions ):

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Future minimum operating lease payments as of January 1, 2022 are as follows ( in millions ):

Fiscal Years Operating Leases

10 unchanged sentences

Present value of lease liabilities $ 42.4

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Restructuring and Related Charges

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

During the three months ended October 2, 2021, the Company recorded no restructuring related charges or benefits.

During the three months ended October 3, 2020, the Company recorded restructuring related benefits of $ 0.6 million.

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

During the three and six months ended January 1, 2022, the Company recorded restructuring related benefits of $ 0.1 million.

During the three and six months ended January 2, 2021, the Company recorded restructuring related charges of $ 0.2 million and benefits of $ 0.4 million, respectively.

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

Fiscal 2019 NSE,

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Cash settlements ( 0.4 )

End of period balance, October 2, 2021 (1)

(1) Included in other current liabilities on the Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021, respectively.

The Company recorded an income tax expense of $ 13.6 million and $ 8.6 million for the three months ended October 2, 2021 and October 3, 2020, respectively.

The income tax provision for the three months ended October 2, 2021 and October 3, 2020 primarily relates to income tax in certain foreign and state jurisdictions based on the Company’s forecasted pre-tax income or loss for the respective fiscal year.

Restructuring and related benefits ( 0.1 )

End of period balance, January 1, 2022

(1) Included in other current liabilities on the Consolidated Balance Sheets as of July 3, 2021, respectively.

The Company recorded an income tax expense of $ 2.3 million and $ 15.9 million for the three and six months ended January 1, 2022, respectively.

The Company recorded an income tax expense of $ 12.5 million and $ 21.1 million for the three and six months ended January 2, 2021, respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The income tax provision for the three and six months ended January 1, 2022 primarily relates to income tax in certain foreign and state jurisdictions based on the Company’s forecasted pre-tax income or loss and offset by a $ 8.1 million tax benefit recognized upon the statute of limitations on a transfer pricing reserve in a non-US jurisdiction.

The income tax provision for the three and six months ended January 2, 2021 primarily relates to income tax in certain foreign and state jurisdictions based on the Company’s forecasted pre-tax income or loss.

The income tax provision recorded differs from the expected tax provision that would be calculated by applying the federal statutory rate to the Company’s income from continuing operations before taxes primarily due to the changes in valuation allowance for deferred tax assets attributable to the Company’s domestic and foreign income from continuing operations.

As of October 2, 2021, and July 3, 2021, the Company’s unrecognized tax benefits totaled $ 59.2 million and $ 59.1 million, respectively, and are included in deferred taxes and other non-current tax liabilities, net.

The Company had $ 4.1 million accrued for the payment of interest and penalties as of October 2, 2021.

As of January 1, 2022, and July 3, 2021, the Company’s unrecognized tax benefits totaled $ 50.0 million and $ 55.5 million, respectively, and are included in deferred taxes and other non-current tax liabilities, net.

The Company had $ 1.7 million accrued for the payment of interest and penalties as of January 1, 2022.

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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Repurchase of Common Stock

In September 2021 the Board of Directors authorized a new stock repurchase plan (“2021 Repurchase Plan”) of up to $ 190 million.

The 2021 Repurchase plan is separate from the 2019 Repurchase Plan noted below and is anticipated to result in the repurchase of the Company’s common stock issued in connection with the exchange transaction with certain holders of its Senior Convertible Notes (refer to “Note 11.

Debt” for more details).

During the three months ended January 1, 2022, the Company repurchased 7.5 million shares of its common stock for $ 119.4 million under the 2021 Repurchase Plan.

As of January 1, 2022, the Company had remaining authorization of $ 70.6 million for future share repurchases under the 2021 Repurchase Plan.

In September 2019, the Board of Directors authorized a stock repurchase program (“2019 Repurchase Plan”) of up to $ 200 million of the Company’s common stock through open market or private transactions before September 30, 2021.

On August 18, 2021, the Board of Directors approved to extend the 2019 Repurchase Plan until September 30, 2022.Under the 2019 Repurchase Plan, the Company may repurchase its common stock from time to time at the discretion of the Company’s management.

During the three months ended October 2, 2021, the Company repurchased 0.5 million shares of its common stock for $ 8.5 million.

As of October 2, 2021, the Company had remaining authorization of $ 104.5 million for future share repurchases under the 2019 Repurchase Plan.

The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including business and financial market conditions.

On August 18, 2021, the Board of Directors approved to extend the 2019 Repurchase Plan until September 30, 2022.

Under the 2019 Repurchase Plan, the Company may repurchase its common stock from time to time at the discretion of the Company’s management.

During the three months ended January 1, 2022 the Company did not repurchase any shares of its common stock under the 2019 Repurchase Plan.

The Company repurchased 0.5 million shares of its common stock for $ 8.5 million during the six months ended January 1, 2022 under the 2019 Repurchase Plan.

As of January 1, 2022, the Company had remaining authorization of $ 104.5 million for future share repurchases under the 2019 Repurchase Plan.

Under the 2021 Repurchase Plan and the 2019 Repurchase Plan the number of shares to be repurchased and the timing of such repurchases will be based on several factors, including business and financial market conditions.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In September 2021 the Board of Directors authorized a new stock repurchase plan (“2021 Repurchase Plan”) of up to $ 190 million.

The 2021 Repurchase plan is separate from the 2019 Repurchase Plan and is anticipated to result in the repurchase of the Company’s common stock issued in connection with the exchange transaction with certain holders of its Senior Convertible Notes (Refer to “Note 11.

Debt” for more details).

The Company did not repurchase any shares of its common stock under the 2021 Repurchase Plan during the three months ended October 2, 2021.

Stock-Based Compensation

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

During the three months ended October 2, 2021 and October 3, 2020, the Company granted $ 2.0 million and $ 2.5 million time-based restricted stock awards, respectively.

The aggregate grant-date fair value of time-based restricted stock awards granted during the three months ended October 2, 2021 and October 3, 2020 were estimated to be $ 33.1 million and $ 33.5 million, respectively.

During the six months ended January 1, 2022 and January 2, 2021, the Company granted $ 2.1 million and $ 2.7 million time-based restricted stock awards, respectively.

The aggregate grant-date fair value of time-based restricted stock awards granted during the six months ended January 1, 2022 and January 2, 2021 were estimated to be $ 35.0 million and $ 35.7 million, respectively.

Time-based restricted stock awards granted to eligible employees generally vest in annual or quarterly installments over a period of four years , are subject to the employees’ continuing service to the Company and do not have an expiration date.

During the three months ended October 2, 2021 and October 3, 2020, the Company granted $ 0.4 million and $ 0.6 million, performance-based awards, respectively.

In addition, during the three months ended October 3, 2020, the Company granted an additional 0.1 million shares due to performance-based shares attained over target.

There were no performance-based shares attained over target during the three months ended October 2, 2021.

The aggregate grant-date fair value of performance-based awards granted during the three months ended October 2, 2021 and October 3, 2020 were estimated to be $ 7.9 million and $ 8.9 million, respectively.

During the six months ended January 1, 2022 and January 2, 2021, the Company granted $ 0.4 million and $ 0.6 million, performance-based awards, respectively.

In addition, during the six months ended January 2, 2021, the Company granted an additional 0.1 million shares due to performance-based shares attained over target.

There were no performance-based shares attained over target during the six months ended January 1, 2022.

The aggregate grant-date fair value of performance-based awards granted during the six months ended January 1, 2022 and January 2, 2021 were estimated to be $ 7.9 million and $ 8.9 million, respectively.

The majority of performance-based awards vest in equal annual installments over four years based on the attainment of certain performance measures and the employee’s continued service through the vest date.

Performance-based awards with market conditions were valued using a Monte Carlo simulation.

As of October 2, 2021, $ 90.9 million of unrecognized stock-based compensation costs, remain to be amortized.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The impact on the Company’s results of operations of recording stock-based compensation by function for the three months ended October 2, 2021 and October 3, 2020, as follows (in millions):

Three Months Ended

October 2, 2021 October 3, 2020

As of January 1, 2022, $ 79.4 million of unrecognized stock-based compensation costs remain to be amortized.

The impact on the Company’s results of operations of recording stock-based compensation by function for the three and six months ended January 1, 2022 and January 2, 2021, is as follows (in millions):

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Cost of revenues $ 1.2 $ 1.2 $ 2.8 $ 2.4

2 unchanged sentences

Total stock-based compensation expense $ 13.3 $ 9.9 $ 26.9 $ 22.4

Approximately $ 1.3 million and $ 1.2 million of stock-based compensation was capitalized to inventory as of October 2, 2021 and October 3, 2020, respectively.

Approximately $ 1.2 million and $ 1.1 million of stock-based compensation was capitalized to inventory as of January 1, 2022 and January 2, 2021, respectively.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Employee Pension and Other Benefit Plans

3 unchanged sentences

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

As of October 2, 2021, the U.K.

As of January 1, 2022, the U.K.

plan was partially funded while the other plans were unfunded.

1 unchanged sentence

For unfunded plans, the Company pays the post-retirement benefits when due.

During the three months ended October 2, 2021, the Company contributed $ 0.3 million to the U.K.

During the six months ended January 1, 2022, the Company contributed $ 0.6 million to the U.K.

plan and $ 1.8 million to the other plans.

1 unchanged sentence

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

Three Months Ended

October 2, 2021 October 3, 2020

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Service cost $ — $ 0.1 $ 0.1 $ 0.2

7 unchanged sentences

The Company expects to incur cash outlays of approximately $ 9.0 million related to its defined benefit pension plans during fiscal 2022 to make current benefit payments and fund future obligations.

As of October 2, 2021, approximately $ 1.3 million had been incurred.

As of January 1, 2022, approximately $ 2.4 million had been incurred.

These payments have been estimated based on the same assumptions used to measure the Company’s projected benefit obligation at July 3, 2021.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Commitments and Contingencies

8 unchanged sentences

In March 2018, the appellate court affirmed the decision of the lower court.

The Company is pursuing a deed of rectification claim and continues to pursue a claim against the U.K.

The Company is pursuing a motion for summary judgement on the deed of rectification claim and continues to pursue a claim against the U.K.

law firm responsible for the error.

As of October 2, 2021, the related accrued pension liability was £ 7.0 million or $ 9.5 million.

As of January 1, 2022, the related accrued pension liability was £ 7.0 million or $ 9.5 million.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

2 unchanged sentences

Outstanding Letters of Credit, Performance Bonds and Other Claims

As of October 2, 2021, the Company had standby letters of credit of $ 8.5 million, performance bonds and other claims of $ 2.6 million collateralized by restricted cash.

As of January 1, 2022, the Company had standby letters of credit of $ 9.2 million, performance bonds and other claims of $ 2.4 million collateralized by restricted cash.

Product Warranties

The following table presents the changes in the Company’s warranty reserve during the three months ended October 2, 2021 and October 3, 2020, ( in millions ):

Three Months Ended

October 2, 2021 October 3, 2020

The following table presents the changes in the Company’s warranty reserve during the three and six months ended January 1, 2022 and January 2, 2021, ( in millions ):

Three Months Ended Six Months Ended

January 1, 2022 January 2, 2021 January 1, 2022 January 2, 2021

Balance as of beginning of period $ 10.3 $ 9.6 $ 9.7 $ 9.4

7 unchanged sentences

The Company's reportable segments reflect the way the Company's CODM reviews and assesses performance of the business.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company’s reportable segments are:

9 unchanged sentences

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Segment Reporting

7 unchanged sentences

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

The following tables present information on the Company’s reportable segments for the three months ended October 2, 2021 and October 3, 2020 ( in millions ):

Three Months Ended October 2, 2021

The following tables present information on the Company’s reportable segments for the three months ended January 1, 2022 and January 2, 2021 ( in millions ):

Three Months Ended January 1, 2022

Network and Service Enablement

7 unchanged sentences

Operating margin 18.7 % 39.2 % 15.7 %

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended October 3, 2020

Three Months Ended January 2, 2021

Network and Service Enablement

7 unchanged sentences

Operating margin 10.7 % 47.9 % 14.1 %

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Three Months Ended

October 2, 2021 October 3, 2020

January 1, 2022 January 2, 2021

Corporate reconciling items impacting gross profit:

2 unchanged sentences

Amortization of intangibles ( 7.4 ) ( 8.4 )

Other benefits unrelated to core operating performance (1)

GAAP gross profit $ 190.5 $ 180.1

4 unchanged sentences

Change in fair value of contingent liability — 1.5

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

Restructuring and related benefits (charges) 0.1 ( 0.2 )

GAAP operating income from continuing operations $ 49.3 $ 42.3

(1) During the three months ended January 1, 2022 and January 2, 2021, other charges unrelated to core operating performance primarily consisted of certain acquisition and integration related changes, transformational initiatives such as site consolidations, reorganization, and loss on disposal of long-lived assets.

Six Months Ended January 1, 2022

Network and Service Enablement

Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Other Items (1)

Consolidated GAAP Measures

Product revenue $ 369.2 $ 28.1 $ 397.3 $ 169.2 $ — $ 566.5

Service revenue 50.1 24.7 74.8 0.3 — 75.1

Net revenue $ 419.3 $ 52.8 $ 472.1 $ 169.5 $ — $ 641.6

Gross profit $ 270.7 $ 36.1 $ 306.8 $ 96.8 $ ( 18.1 ) $ 385.5

Gross margin 64.6 % 68.4 % 65.0 % 57.1 % 60.1 %

Operating income $ 76.3 $ 71.3 $ ( 51.4 ) $ 96.2

Operating margin 16.2 % 42.1 % 15.0 %

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Six Months Ended January 2, 2021

Network and Service Enablement

Network Enablement Service Enablement Network and Service Enablement Optical Security and Performance Products Other Items (1)

Consolidated GAAP Measures

Product revenue $ 295.6 $ 20.6 $ 316.2 $ 193.8 $ — $ 510.0

Service revenue 47.4 26.6 74.0 0.6 — 74.6

Net revenue $ 343.0 $ 47.2 $ 390.2 $ 194.4 $ — $ 584.6

Gross profit $ 216.8 $ 31.9 $ 248.7 $ 119.4 $ ( 18.6 ) $ 349.5

Gross margin 63.2 % 67.6 % 63.7 % 61.4 % 59.8 %

Operating income $ 35.5 $ 91.9 $ ( 53.8 ) $ 73.6

Operating margin 9.1 % 47.3 % 12.6 %

Six Months Ended

January 1, 2022 January 2, 2021

Corporate reconciling items impacting gross profit:

Total segment gross profit $ 403.6 $ 368.1

Stock-based compensation ( 2.8 ) ( 2.4 )

Amortization of intangibles ( 15.3 ) ( 16.6 )

Other benefits unrelated to core operating performance (1)

GAAP gross profit $ 385.5 $ 349.5

Corporate reconciling items impacting operating income:

Total segment operating income $ 147.6 $ 127.4

Stock-based compensation ( 26.9 ) ( 22.4 )

Amortization of intangibles ( 20.6 ) ( 33.2 )

Change in fair value of contingent liability ( 0.3 ) 1.5

Other charges unrelated to core operating performance (1)

2 unchanged sentences

GAAP operating income from continuing operations $ 96.2 $ 73.6

(1) During the three months ended October 2, 2021 and October 3, 2020, other charges unrelated to core operating performance primarily consisted of certain acquisition and integration related changes, transformational initiatives such as, site consolidations, and reorganization, and loss on disposal of long-lived assets.

(1) During the six months ended January 1, 2022 and January 2, 2021, other charges unrelated to core operating performance primarily consisted of certain acquisition and integration related changes, transformational initiatives such as site consolidations, reorganization, and loss on disposal of long-lived assets.

VIAVI SOLUTIONS INC.

4 unchanged sentences

For example, certain customers may request shipment of the Company’s product to a contract manufacturer in one country, which may differ from the location of their end customers.

The following table presents net revenue by the three geographic regions in which the Company operates and net revenue from countries that exceeded 10% of the Company’s total net revenue for the three months ended October 2, 2021 and October 3, 2020 (in millions):

The following table presents net revenue by the three geographic regions in which the Company operates and net revenue from countries that exceeded 10% of the Company’s total net revenue for the three and six months ended January 1, 2022 and January 2, 2021 (in millions):

Three Months Ended

October 2, 2021 October 3, 2020

January 1, 2022 January 2, 2021

Product Revenue Service Revenue Total Product Revenue Service Revenue Total

10 unchanged sentences

Total net revenue $ 277.4 $ 37.4 $ 314.8 $ 262.1 $ 37.8 $ 299.9

Six Months Ended

January 1, 2022 January 2, 2021

Product Revenue Service Revenue Total Product Revenue Service Revenue Total

United States $ 167.3 $ 26.2 $ 193.5 $ 138.1 $ 28.3 $ 166.4

Other Americas 46.4 7.3 53.7 30.3 7.1 37.4

Total Americas $ 213.7 $ 33.5 $ 247.2 $ 168.4 $ 35.4 $ 203.8

Asia-Pacific:

Greater China $ 124.2 $ 4.9 $ 129.1 $ 147.2 $ 5.0 $ 152.2

Other Asia 79.1 9.1 88.2 45.4 7.0 52.4

Total Asia-Pacific $ 203.3 $ 14.0 $ 217.3 $ 192.6 $ 12.0 $ 204.6

Switzerland $ 24.7 $ 0.2 $ 24.9 $ 37.7 $ 0.2 $ 37.9

Other EMEA 124.8 27.4 152.2 111.3 27.0 138.3

Total EMEA $ 149.5 $ 27.6 $ 177.1 $ 149.0 $ 27.2 $ 176.2

Total net revenue $ 566.5 $ 75.1 $ 641.6 $ 510.0 $ 74.6 $ 584.6

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Subsequent Events

The Company repurchased approximately 2.8 million shares of its common stock, under the 2021 Repurchase Plan approved by the Board in September 2021, for approximately $ 45 million.

During the period between January 1, 2022 and February 4, 2022, the Company repurchased approximately 3.9 million shares of its common stock, under the 2021 Repurchase Plan approved by the Board in September 2021, for approximately $ 64.4 million.

The Company has approximately $ 6.2 million remaining available for future repurchase of the $ 190 million authorized under the 2021 Repurchase Plan.

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-Q

Item 1. Financial Statements