What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-08-19 compared with 2021-08-23 · 469 added, 455 removed, 1299 unchanged (42% of the section changed)

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

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”).

and its subsidiaries (the “Company”) as of July 2, 2022 and July 3, 2021, 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 2, 2022, 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 2, 2022, 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.

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 2, 2022 and July 3, 2021, and the results of its operations and its cash flows for each of the three years in the period ended July 2, 2022 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 2, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

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

Changes in Accounting Principles

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible debt instruments as of July 3, 2021 and the manner in which it accounts for leases as of June 30, 2019.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control over Financial Reporting

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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.

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/s/ PricewaterhouseCoopers LLP

San Jose, California

Phoenix, Arizona

August 19, 2022

We have served as the Company’s auditor since 2005.

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VIAVI SOLUTIONS INC.

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(in millions, except per share data)

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

July 2, 2022 July 3, 2021 June 27, 2020

Product revenue $ 1,135.5 $ 1,051.4 $ 1,005.2

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Income from operations 185.0 142.2 118.1

Loss on convertible note settlement (Note 11)

( 101.8 ) — —

Interest and other income, net 5.2 3.3 9.6

Interest expense ( 23.3 ) ( 14.7 ) ( 13.4 )

Income from continuing operations before income taxes 109.4 94.0 39.3

Income before income taxes 65.1 130.8 114.3

Provision for income taxes 49.6 63.3 65.3

Income from continuing operations, net of taxes 46.1 28.7 7.8

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

Net income $ 15.5 $ 67.5 $ 49.0

Net income per share from - basic:

Continuing operations $ 0.20 $ 0.13 $ 0.03

Discontinued operations — — ( 0.01 )

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 $ 0.20 $ 0.12 $ 0.02

Net income per share:

Basic $ 0.07 $ 0.30 $ 0.21

Diluted $ 0.07 $ 0.29 $ 0.21

Shares used in per-share calculations:

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

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VIAVI SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

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

July 2, 2022 July 3, 2021 June 27, 2020

Net income $ 15.5 $ 67.5 $ 49.0

Other comprehensive income (loss):

Other comprehensive (loss) income:

Net change in cumulative translation adjustment, net of tax ( 76.1 ) 61.5 ( 28.6 )

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

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

reclassification adjustments included in net income — — 0.5

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

Net change in defined benefit obligation, net of tax:

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Amortization of actuarial losses 2.9 3.1 2.8

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

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

Net change in accumulated other comprehensive (loss) income ( 59.2 ) 68.7 ( 31.3 )

Comprehensive (loss) income $ ( 43.7 ) $ 136.2 $ 17.7

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

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VIAVI SOLUTIONS INC.

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(in millions, except share and par value data)

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Current assets:

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Total current liabilities 369.3 747.4

Long-term debt 209.8 600.9

Long-term debt (Note 11)

Other non-current liabilities 170.4 226.0

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 July 2, 2022 and July 3, 2021.

Common stock, $ 0.001 par value;

1 billion shares authorized;

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

226 million shares at July 2, 2022 and 228 million shares at July 3, 2021, issued and outstanding

Additional paid-in capital 70,370.2 70,183.2

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(in millions)

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

July 2, 2022 July 3, 2021 June 27, 2020

OPERATING ACTIVITIES:

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

Loss on sales of investments — — 0.5

Loss on disposal of long-lived assets 2.3 0.1 0.1

Loss on convertible note settlement 101.8 — —

Deferred taxes, net ( 10.5 ) 0.6 12.2

Other 2.0 2.8 5.7

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Deferred revenue, current and non-current 13.2 12.3 5.9

Deferred taxes, net 1.6 11.9 ( 1.9 )

Accrued payroll and related expenses 3.0 23.1 ( 7.0 )

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INVESTING ACTIVITIES:

Maturities of available-for-sale investments — — 47.3

Sales of available-for-sale investments — — 119.9

Acquisition of businesses, net of cash acquired ( 8.3 ) ( 0.7 ) ( 2.5 )

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Proceeds from the sale of assets 9.8 4.1 4.6

Net cash (used in) provided by investing activities ( 48.7 ) ( 29.8 ) 80.6

Net cash used in investing activities ( 71.0 ) ( 48.7 ) ( 29.8 )

FINANCING ACTIVITIES:

Proceeds from issuance of senior notes 400.0 — —

Payment of debt issuance costs ( 10.5 ) ( 0.1 ) ( 1.6 )

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Payment of financing obligations ( 0.1 ) ( 1.2 ) ( 2.7 )

Redemption of convertible debt — — ( 276.9 )

Cash paid to note holders in convertible note settlement ( 347.3 ) — —

Cash paid to third parties in convertible note settlement ( 4.3 ) — —

Proceeds from exercise of employee stock options and employee stock purchase plan 7.8 6.6 5.5

Withholding tax payment on vesting of restricted stock awards ( 14.1 ) ( 17.9 ) ( 21.0 )

Proceeds from revolving credit facility 150.0 — —

Repayment of revolving credit facility ( 150.0 ) — —

Payment of acquisition related holdback ( 1.1 ) — ( 6.8 )

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Effect of exchange rates on cash, cash equivalents and restricted cash ( 32.3 ) 25.2 ( 17.1 )

Net increase (decrease) in cash, cash equivalents and restricted cash 161.0 17.0 ( 93.9 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 135.6 ) 161.0 17.0

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

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Cash paid for income taxes $ 78.7 $ 43.8 $ 50.6

(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.

(1) 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.

(2) These amounts include both current and non-current balances of restricted cash totaling $ 12.9 million, $ 10.6 million and $ 8.4 million as of July 2, 2022, July 3, 2021 and June 27, 2020, respectively.

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

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(in millions)

Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated

Comprehensive

Income (Loss) Total

Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total

Shares Amount

Balance at June 29, 2019 228.8 $ 0.2 $ 70,116.5 $ ( 69,354.8 ) $ ( 134.6 ) $ 627.3

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

Net income — — — 49.0 — 49.0

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

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

Net income — — — 67.5 — 67.5

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

Other comprehensive income — — — — 68.7 68.7

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

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

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

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

Net income — — — 15.5 — 15.5

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Repurchase of common stock ( 14.8 ) — — ( 235.5 ) — ( 235.5 )

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

Convertible note settlement (Note 11)

10.6 — 141.1 — — 141.1

Balance at July 2, 2022 226.4 $ 0.2 $ 70,370.2 $ ( 69,542.3 ) $ ( 156.4 ) $ 671.7

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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, 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.

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

VIAVI is also a leader in light management solutions for the anti-counterfeiting, consumer electronics, industrial, government and automotive markets.

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

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 2022 fiscal year was a 52-week year ending on July 2, 2022.

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

fiscal year 2020 was a 52-week fiscal year ending on June 27, 2020.

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

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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.

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 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.

A novel strain of coronavirus (COVID-19) declared an international pandemic by the World Health Organization (WHO) in March 2020 continues to have a global impact more than two years since it was first identified.

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.

New and potentially more contagious variants of the virus have emerged over the course of the pandemic, along with a surge in cases in several regions across the globe, including Europe and Asia, resulting in renewed shutdown, mandatory quarantines and shelter in place orders in certain regions.

These events have led, at times, to slowdowns in shipping and commercial activities.

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

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

Governmental vaccine mandates and mandated quarantines could lead to attrition and operational challenges.

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

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

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

Actual results may differ materially from these estimates, assumptions or conditions.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 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.

At July 2, 2022 and July 3, 2021, the Company’s short-term restricted cash balances were $ 3.6 million and $ 4.3 million, respectively.

The Company’s long-term restricted cash balances, included in other non-current assets in the Company’s Consolidated Balance Sheets, were $ 9.3 million and $ 6.3 million as of July 2, 2022 and July 3, 2021, 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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Fair Value of Financial Instruments

For assets and liabilities measured at fair value, fair value is the price to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

When determining fair value, the Company considers the principle or most advantageous market in which it would transact, and the Company considers assumptions that market participants would use when pricing asset or liabilities.

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

There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available.

Observable inputs are inputs which market participants would use in valuing an asset or liability and are developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs which reflect the assumptions market participants would use in valuing an asset or liability.

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

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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 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.

As of July 2, 2022 and July 3, 2021, the Company did not hold any Level 3 investment securities.

The Company’s Level 3 liabilities as of July 2, 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 2022.

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.

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

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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.

These assets are generally not intended to be sold and have an estimated useful life of 3 to 5 years.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Costs related to software acquired, developed or modified solely to meet the Company’s internal requirements and for which there are no substantive plans to market are capitalized in accordance with the authoritative guidance on accounting for the costs of computer software developed or obtained for internal use.

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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 July 2, 2022, one 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 2022, 2021 and 2020, one customer generated 10 % or more of total net revenues.

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The Company’s Optical Security and Performance (OSP) products include proprietary pigments used for optical security and optical filters used in commercial and government 3D Sensing applications.

The Company also offers a range of product support and professional services designed to comprehensively address customer requirements.

The Company also offers a range of product support and professional services, primarily in the NE and SE segments, designed to comprehensively address customer requirements.

These include repair, calibration, extended warranty, software support, technical assistance, training and consulting services.

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Steps of revenue recognition

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

The Company accounts for revenue in accordance with ASC 606:

Revenue from Contracts with Customers , in which the following five steps are applied to recognize revenue:

Identify the contract with a customer:

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Research and Development Expense

Costs related to Research and Development (R&D), which primarily consists of labor and benefits, supplies, facilities, consulting and outside service fees, are charged to expense as incurred.

Costs related to Research and Development (R&D) primarily consists of labor and benefits, supplies, facilities, consulting and outside service fees.

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.

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Stock-Based Compensation

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

The Company's stock-based compensation includes a combination of time-based restricted stock awards and performance-based awards, stock options, and an Employee Stock Purchase Plan (ESPP).

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.

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

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

This option-pricing model requires the input of assumptions, including the award’s expected life and the price volatility of the underlying stock.

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

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.

The Consolidated Balance Sheets included ARO of ( in millions ):

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

Year ended July 2, 2022 $ 3.7 $ 0.8 $ ( 0.4 ) $ 0.1 $ — $ 4.2

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

Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements 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 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.

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

As of July 2, 2022, and July 3, 2021, $ 0.5 million and $ 1.3 million, respectively, in other current liabilities and $ 3.7 million and $ 2.4 million, respectively, in other non-current liabilities.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Recently Issued Accounting Pronouncements

Recent Accounting Pronouncements Adopted

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.

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 lease, lease classification and accounting for initial direct costs.

For additional information refer to “Note 12.

Recent Accounting Pronouncements Not Yet Adopted

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

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.

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

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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.

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.

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

The Company adopted ASU 2020-06 effective the first quarter of fiscal 2022, on a full retrospective basis.

The elimination of the separation model for the convertible debt instruments reclassified the equity components of the Company’s Senior Convertible Notes previously in Additional paid-in capital to Long-term debt.

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 $ 21.4 million and $ 20.3 million for fiscal 2021 and 2020, respectively.

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

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

LIABILITIES AND STOCKHOLDERS’ EQUITY

Short-term debt $ 414.2 $ 42.4 $ 456.6

Long-term debt 209.8 14.3 224.1

Mezzanine equity - Senior Convertible Notes 45.8 ( 45.8 ) —

Additional paid-in capital 70,265.5 ( 82.3 ) 70,183.2

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

VIAVI SOLUTIONS INC.

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 Statement of Operations for the years ended July 3, 2021 and June 27, 2020 ( in millions, except per-share data ):

Year Ended July 3, 2021

As Reported Adjustment As Adjusted

Interest Expense $ ( 36.1 ) $ 21.4 $ ( 14.7 )

Net income $ 46.1 $ 21.4 $ 67.5

Net income per share:

Basic $ 0.20 $ 0.10 $ 0.30

Diluted $ 0.20 $ 0.09 $ 0.29

Shares used in per-share calculation:

Basic 228.7 — 228.7

Diluted 235.9 0.4 236.3

Year Ended June 27, 2020

As Reported Adjustment As Adjusted

Interest Expense $ ( 33.7 ) $ 20.3 $ ( 13.4 )

Net income $ 28.7 $ 20.3 $ 49.0

Net income per share:

Basic $ 0.13 $ 0.08 $ 0.21

Diluted $ 0.12 $ 0.09 $ 0.21

Shares used in per-share calculation:

Basic 229.4 — 229.4

Diluted 233.7 1.1 234.8

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 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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’s fiscal 2023 annual disclosures with early adoption permitted.

The Company is evaluating the impact of adopting this new accounting guidance on its Consolidated Financial Statements but does not expect any material impact.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) , which clarifies guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets.

The amendments in this update expand the current last-of-layer method of hedge accounting that permits only one hedged layer to allow multiple hedged layers of a single closed portfolio.

To reflect that expansion, the last-of-layer method is renamed the portfolio layer method.

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

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

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) , which eliminates the accounting guidance on troubled debt restructurings for creditors in ASC 310 and amends the guidance on vintage disclosures to require disclosure of current-period gross write-offs by year of origination.

The ASU also updates the requirements related to the accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancing and restructurings for borrowers experiencing financial difficulty.

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

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

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.

This guidance also requires certain disclosures for equity securities subject to contractual sale restrictions.

The new guidance is required to be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.

This guidance is effective for the Company in the first quarter of fiscal 2025 with early adoption permitted.

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Earnings Per Share

1 unchanged sentence

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.

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), stock 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 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 )

July 2, 2022 July 3, 2021 June 27, 2020

Net income $ 15.5 $ 67.5 $ 49.0

2 unchanged sentences

Shares issuable assuming conversion of convertible notes (1)

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

Effect of dilutive securities from stock-based compensation plans 2.5 2.6 3.1

Diluted 238.2 236.3 234.8

Net income per share from - basic:

Continuing operations $ 0.20 $ 0.13 $ 0.03

Discontinued operations — — ( 0.01 )

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 $ 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.

Net income per share:

Basic $ 0.07 $ 0.30 $ 0.21

Diluted $ 0.07 $ 0.29 $ 0.21

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

As of July 2, 2022, 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 $ 2.1 million and $ 19.4 million, respectively.

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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

July 2, 2022 July 3, 2021 June 27, 2020

Full Value Awards (1)

Total potentially dilutive securities 0.6 0.4 0.2

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.

(1) See Note 16.

Stock-Based Compensation for definition of Full Value Awards.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Loss

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

Unrealized gains

Unrealized (losses) gains

on available-for-sale

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 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

obligations, net of tax (1)

Beginning balance as of July 3, 2021 $ ( 5.1 ) $ ( 68.1 ) $ ( 24.0 ) $ ( 97.2 )

Other comprehensive (loss) income before reclassification 0.1 ( 76.1 ) 13.9 ( 62.1 )

Amounts reclassified from accumulated other comprehensive (loss) income — — 2.9 2.9

Net current period other comprehensive (loss) income 0.1 ( 76.1 ) 16.8 ( 59.2 )

Ending balance as of July 2, 2022 $ ( 5.0 ) $ ( 144.2 ) $ ( 7.2 ) $ ( 156.4 )

(1) Activity before reclassifications to the Consolidated Statements of Operations during the fiscal year ended July 2, 2022 relates to the unrealized actuarial gain of $ 20.1 million, net of income tax effect of $ 6.2 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.

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 July 2, 2022.

Refer to “Note 17.

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

3Z Telecom, Inc.

On May 31, 2019, 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.

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

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

The 3Z acquisition meets the definition of a business and has been accounted for in accordance with the authoritative guidance on business combinations;

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

Acquisition related costs incurred were not material.

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

Cash consideration paid at closing $ 18.9

Escrow payments 4.3

Fair value of contingent consideration 5.5

Total purchase consideration $ 28.7

The fair value of the earn-out payments 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 identified tangible and intangible assets acquired, on the acquisition date, were as follows (in millions) :

Tangible assets acquired $ 4.1

Intangible assets acquired:

Developed technology 4.4

Customer relationships 7.9

Customer backlog 0.1

Goodwill 12.2

Total consideration transferred $ 28.7

The 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

Total liabilities ( 1.7 )

Net tangible assets acquired $ 4.1

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.

The intangible assets are being amortized over their estimated useful lives, which range from five to six years .

Customer backlog will be fully amortized within one year .

Goodwill arising from this acquisition is primarily attributed to sales of future products and services of 3Z.

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

Results of operations of 3Z have been included in the Company’s Consolidated Financial Statements subsequent to the date of acquisition.

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

RPC Photonics, Inc.

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 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.

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;

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

Acquisition related costs incurred were not material.

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

Cash consideration paid at closing $ 29.9

Escrow payments 3.5

Fair value of contingent consideration 36.2

Total purchase consideration $ 69.6

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

Tangible assets acquired:

Intangible assets acquired:

Developed technology 15.7

Customer relationships 14.0

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, was as follows (in millions) :

Other current assets 1.8

Property and equipment 2.6

Total liabilities ( 0.5 )

Net tangible assets acquired $ 5.7

The intangible assets are being amortized over their estimated useful lives that range from six to seven years .

Customer backlog will be fully amortized within one year .

Goodwill arising from this acquisition is primarily attributed to sales of future products and services of RPC.

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

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

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

Other 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.

On May 13, 2022 and May 20, 2022, the Company completed business acquisitions for total consideration of approximately $ 9.5 million in cash paid at close and an earn-out liability of up to $ 3.3 million cash to be paid based on the occurrence or achievement of certain agreed upon targets.

In connection with these acquisitions, the Company recorded $ 7.3 million of developed technology and other intangibles, $ 10.0 million of goodwill, and $ 1.6 million of deferred tax liability resulting from the acquisitions.

The acquired developed technology and other intangible assets are being amortized over their estimated useful lives ranging from one to six years .

On September 17, 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 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 five years .

On March 13, 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 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, $ 4.3 million of goodwill, 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 .

1 unchanged sentence

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)

Goodwill consists of expected future economic benefits that will result from expected future product sales, operating efficiencies and other synergies and is not expected to be deductible for tax purposes.

The following table provides a reconciliation of changes in fair value of the Company’s earn-out liabilities for the years ended July 2, 2022 and July 3, 2021, as follows ( in millions ):

June 27, 2020 $ 9.9

Additions to Contingent Consideration — 3.7 3.7

Change in Fair Value measurement ( 4.7 )

Payments of Contingent Consideration ( 1.2 )

June 27, 2020 $ — $ 9.9 $ 9.9

Balance July 3, 2021 (1)

Additions to Contingent Consideration 2.5

Change in Fair Value measurement 0.3

Currency translation adjustment 0.1

Payments of Contingent Consideration ( 4.4 )

Balance July 2, 2022 (2)

(1) See Note 5.

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

(1) Amount is included in other current liabilities in the Consolidated Balance Sheets.

(2) Includes $ 1.8 million in other current liabilities and $ 0.7 million in other non-current liabilities in the Consolidated Balance Sheets.

Balance Sheet and Other Details

11 unchanged sentences

Gross receivables include both billed and Unbilled Receivables/Contract Assets.

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.

As of July 2, 2022 and July 3, 2021, the Company had total Unbilled Receivables/Contract Assets of $ 7.3 million and $ 6.2 million, respectively.

Deferred revenue:

5 unchanged sentences

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 ):

The following table summarizes the activity related to deferred revenue, for the year ended July 2, 2022 ( in millions ):

Deferred revenue:

7 unchanged sentences

(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.

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

Remaining performance obligations:

7 unchanged sentences

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

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

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

End of Period

Year Ended July 2, 2022 $ 2.0 $ 0.9 $ ( 1.5 ) $ 1.4

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

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

2 unchanged sentences

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

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Finished goods $ 41.6 $ 41.0

6 unchanged sentences

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

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Prepayments $ 16.0 $ 13.4

7 unchanged sentences

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

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Land $ 19.2 $ 19.9

10 unchanged sentences

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

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Customer prepayments $ 0.9 $ 0.4

4 unchanged sentences

Operating lease liabilities (Note 12)

Fair value of contingent consideration 1.8 4.0

Interest payable 4.6 1.9

Fair value of forward contracts 8.4 1.4

Other 5.0 5.5

4 unchanged sentences

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

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Pension and post-employment benefits $ 59.6 $ 97.0

1 unchanged sentence

Financing obligation 16.0 16.1

Fair value of contingent consideration (1)

Long-term deferred revenue 19.4 19.8

4 unchanged sentences

Other non-current liabilities $ 170.4 $ 226.0

(1) See “Note 5.

Acquisitions” and “Note 8.

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 ):

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

Interest and Other Income, net

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

July 2, 2022 July 3, 2021 June 27, 2020

Interest income $ 3.4 $ 2.9 $ 7.1

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

Foreign exchange gain, net 1.4 — 2.1

Other income, net 0.4 0.4 0.5

Loss on sale of investments — — ( 0.1 )

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

Interest and other income, net $ 5.2 $ 3.3 $ 9.6

Investments and Forward Contracts

2 unchanged sentences

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.

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.

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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Non-Designated Foreign Currency Forward Contracts

3 unchanged sentences

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

As of July 2, 2022, 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 $ 3.8 million and $ 8.3 million is reflected as prepayments and other current assets and other current liabilities, respectively.

As of June 27, 2020, the fair value of these contracts of $ 2.2 million and $ 1.5 million is reflected as prepayments and other current assets and other current liabilities, respectively.

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

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

As of 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.

As of July 3, 2021, 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.

The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near year end and had a fair value of $ 0.1 million which is reflected in other current liabilities in the Consolidated Balance Sheets as of July 2, 2022 and not significant as of July 3, 2021.

As of July 2, 2022 and July 3, 2021, the notional amounts of the forward contracts that the Company held to purchase foreign currencies were $ 119.1 million and $ 114.0 million, respectively, and the notional amounts of forward contracts that Company held to sell foreign currencies were $ 80.5 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 and other income, net.

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

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

The foreign exchange forward contracts incurred a loss of $ 8.3 million and a gain of $ 14.5 million for the years ended July 2, 2022 and July 3, 2021, 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 ):

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

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

1 unchanged sentence

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)

313.2 313.2 — — 408.9 408.9 — —

Trading securities (3)

1.4 1.4 — — 1.6 1.6 — —

Foreign currency forward contracts (4)

1 unchanged sentence

Total assets $ 319.0 $ 314.6 $ 4.4 $ — $ 413.5 $ 410.5 $ 3.0 $ —

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

Foreign currency forward contracts (5)

3 unchanged sentences

Total liabilities $ 10.9 $ — $ 8.4 $ 2.5 $ 5.4 $ — $ 1.4 $ 4.0

(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.

(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.

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

(2) Includes as of July 2, 2022, $ 301.5 million in cash and cash equivalents, $ 3.1 million in restricted cash, and $ 8.6 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.

(6) As of July 2,2022, includes certain amounts in other current liabilities and other non-current liabilities on the Company’s Consolidated Balance Sheets.

As of July 3, 2021 balance 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 Debt:

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

The Company’s debt measured at fair value for the periods presented are as follows:

July 2, 2022 July 3, 2021

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

3.75 % Senior Notes

$ 337.5 $ — $ 337.5 $ — $ — $ — $ — $ —

1.00 % Senior Convertible Notes

250.7 — 250.7 — 646.9 — 646.9 —

1.75 % Senior Convertible Notes

73.4 — 73.4 — 300.7 — 300.7 —

Total liabilities $ 661.6 $ — $ 661.6 $ — $ 947.6 $ — $ 947.6 $ —

See “Note 11.

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

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

5 unchanged sentences

$ 334.9 $ 4.3 $ 42.2 $ 381.4

Acquisitions (2)

Currency translation 14.8 0.3 — 15.1

Balance as of July 3, 2021 (2)

$ 349.7 $ 4.6 $ 42.2 $ 396.5

Currency translation and other adjustments ( 18.1 ) ( 0.8 ) — ( 18.9 )

Balance as of June 27, 2020 (3)

Acquisitions (3)

— 10.0 — 10.0

Currency translation 14.8 0.3 — 15.1

Balance as of July 2, 2022 (4)

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

(2) 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.

(3) See “Note 5.

Acquisitions” of the Notes to Consolidated Financial Statement for additional information related to the Company’s acquisitions.

(3) 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 $ 633.5 million, $ 286.3 million and $ 126.7 million, respectively as of July 2, 2022.

2 unchanged sentences

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

The Company determined that, based on its organizational structure and the financial information that is provided to and reviewed by 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 July 3, 2021, June 27, 2020 and June 29, 2019.

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 2022, 2021 and 2020 that its reporting units were NE, SE and OSP.

No indications of impairment were identified for fiscal years ending on July 2, 2022, July 3, 2021 and June 27, 2020.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 July 3, 2021, and June 27, 2020, ( in millions ):

The following tables present details of the Company’s acquired developed technology, customer relationships and other intangibles as of July 2, 2022, and July 3, 2021, ( in millions ):

As of July 2, 2022 Weighted-Average Remaining Useful Life Gross Carrying Amount Accumulated Amortization Net

3 unchanged sentences

Total intangibles $ 642.3 $ ( 588.1 ) $ 54.2

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

As of July 3, 2021 Weighted-Average Remaining Useful Life Gross Carrying Amount Accumulated Amortization Net

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

3 unchanged sentences

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

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 July 2, 2022, and assuming no future impairment of the underlying assets, the estimated future amortization is as follows ( in millions ):

1 unchanged sentence

Total amortization $ 54.2

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, 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 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.

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.

As of July 2, 2022 and July 3, 2021, the Company’s debt on the Consolidated Balance Sheets was as follows, including the carrying amounts of the Senior Convertible and Senior Notes, net of unamortized issuance costs ( in millions ):

July 2, 2022 July 3, 2021

Principal amount of 1.00 % Senior Convertible Notes

Principal amount of 1.75 % Senior Convertible Notes

Unamortized Senior Convertible Notes debt issuance cost ( 0.1 ) ( 3.4 )

Other short-term debt 0.4 —

Short-term debt $ 68.4 $ 456.6

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.

Principal amount of 3.75 % Senior Notes

Unamortized 3.75 % Senior Notes debt issuance cost

Principal amount of 1.75 % Senior Convertible Notes

Principal amount of 1.00 % Senior Convertible Notes

Unamortized Senior Convertible Notes debt issuance cost ( 1.0 ) ( 0.9 )

Long-term debt $ 616.5 $ 224.1

The Company was in compliance with all debt covenants as of July 2, 2022 and July 3, 2021.

3.75 % Senior Notes (2029 Notes)

On September 29, 2021, the Company issued $ 400.0 million aggregate principal amount of 3.75 % Senior Notes due 2029 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

Proceeds of the 2029 Notes amounted to $ 393.0 million after issuance costs.

The 2029 Notes are an unsecured obligation of the Company and bear annual interest of 3.75 %, payable semi-annually in arrears on April 1 and October 1 of each year, beginning April 1, 2022.

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

As of July 2, 2022, the expected remaining term of the 2029 Notes is 7.2 years.

1.75 % Senior Convertible Notes (2023 Notes)

On May 29, 2018, the Company issued $ 225.0 million aggregate principal amount of 1.75 % Senior Convertible Notes due 2023 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

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

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

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

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 and issued and sold $ 69.5 million aggregate principal amount of the 2023 Notes in a private placement to accredited institutional buyers (the Private Placement).

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

1 unchanged sentence

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

6 unchanged sentences

• 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.

1 unchanged sentence

The Company may redeem all or a portion of the 2023 Notes for cash at any time on or after June 1, 2021, at a redemption price equal to 100 % of the principal amount of the 2023 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date under certain conditions.

In accordance with the authoritative accounting guidance, the Company separated the 2023 Notes into liability and equity components.

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

The difference between the 2023 Notes principal and the carrying value of the liability component, representing the value of conversion premium assigned to the equity component, was recorded as a debt discount on the issuance date and is being accreted using the effective interest rate of 5.3 % over the period from the issuance date through June 1, 2023 as a non-cash charge to interest expense.

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.

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.

In connection with the issuance of the 2023 Notes, the Company incurred $ 2.2 million of issuance costs.

The debt issuance costs were capitalized and are being amortized to interest expense using the effective interest rate method from issuance date through June 1, 2023.

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

As of July 2, 2022, the unamortized portion of the debt issuance costs related to the 2023 Notes was $ 0.1 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 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.

As of July 2, 2022, the expected remaining term of the 2023 Notes is 11 months.

As a result, the carrying value of the 2023 Notes was re-classified to short-term debt on the Consolidated Balance Sheet.

See Senior Convertible Notes Settlement section below for details of the 2023 Notes exchange transactions during fiscal 2022.

1.00 % Senior Convertible Notes (2024 Notes)

4 unchanged sentences

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

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

1 unchanged sentence

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:

9 unchanged sentences

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

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

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

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 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.

In connection with the issuance of the 2024 Notes, the Company incurred $ 8.9 million of issuance costs.

The debt issuance costs were capitalized and are being amortized to interest expense using the effective interest rate method from issuance date through March 1, 2024.

As of July 2, 2022, the unamortized portion of the debt issuance costs related to the 2024 Notes was $ 1.0 million, which was included as a direct reduction from the carrying amount of the debt on the Consolidated Balance Sheets.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

During 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 any of the calendar quarters.

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

As of July 2, 2022, the expected remaining term of the 2024 Notes is 1.7 years.

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

See Senior Convertible Notes Settlement section below for details of the 2024 Notes exchange transactions during fiscal 2022.

Senior Convertible Notes Settlement

On September 2, 2021, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes.

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 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 2023 and 2024 Notes.

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.

On March 2, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes.

The Company settled $ 23.2 million principal amount of the 2023 Notes and $ 26.8 million principal amount of the 2024 Notes in exchange for $ 64.7 million in cash.

On June 3, 2022, the Company entered into separate privately-negotiated agreements with certain holders of its 2023 and 2024 Notes.

The Company settled $ 19.3 million principal amount of the 2023 Notes and $ 3.1 million principal amount of the 2024 Notes in exchange for $ 27.1 million in cash.

The Company recorded a loss of $ 3.1 million in connection with the settlement transactions which is presented as Loss on convertible note settlement in the Company’s Consolidated Statements of Operations.

As of July 2, 2022, the outstanding principal amount of the 2023 and 2024 Notes was $ 68.1 million and $ 223.9 million, respectively, in each case, with terms unchanged.

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.

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.

The debt issuance costs were capitalized and are being amortized to interest expense using the effective interest rate method from issuance date through March 1, 2024.

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

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 July 3, 2021 and June 27, 2020.

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 July 2, 2022, we had no borrowings under this facility and our available borrowing capacity was approximately $ 206.4 million.

Revolving Credit Facility

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 first quarter of fiscal 2022.

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

Interest Expense

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

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

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

July 2, 2022 July 3, 2021 June 27, 2020

Interest expense-contractual interest $ 16.5 $ 8.5 $ 8.5

Amortization of debt issuance cost 2.8 2.3 1.8

Accretion of debt discount 21.7 20.8 21.3

Other 4.0 3.9 3.1

Total Interest Expense $ 23.3 $ 14.7 $ 13.4

The effective interest rate on the Company’s contractual debt was 2.25 %, 1.25 % and 1.25 % for fiscal 2022, 2021 and 2020, respectively.

As discussed in “Note 2.

Recent Accounting Pronouncements”, upon adoption of ASU 2020-06 the non-cash discount amortization for the 2023 and 2024 Notes is eliminated.

As a result, the interest expense recognized for these instruments will typically be closer to the coupon interest rate.

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

1 unchanged sentence

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

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 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.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the fiscal years ended July 2, 2022 and July 3, 2021, the total operating lease costs were $ 14.0 million and $ 13.9 million, respectively.

Total variable lease costs were immaterial during the fiscal years ended July 2, 2022 and 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 July 2, 2022, the weighted-average remaining lease term was 7.2 years, and the weighted-average discount rate was 4.4 %.

During the fiscal years ended July 2, 2022 and July 3, 2021, cash paid for amounts included in the measurement of operating lease liabilities was $ 15.5 million and $ 15.1 million, respectively;

and operating ROU assets obtained in exchange of new operating lease liabilities was $ 14.7 million and $ 15.4 million, respectively.

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

15 unchanged sentences

Present value of lease liabilities $ 43.6

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

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

Operating Leases

11 unchanged sentences

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.

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

During fiscal 2022 and 2021, the Company recorded a benefit related to restructuring actions of $ 0.1 million and $ 1.6 million, respectively.

During fiscal 2020, the Company recorded a charge related to restructuring actions of $ 3.5 million.

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

Balance as of July 3, 2021 Fiscal 2022 Benefit Cash

Settlements Non-cash

Adjustments Balance as of July 2, 2022

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.

Fiscal 2019 NSE $ 0.5 $ ( 0.1 ) $ ( 0.4 ) $ — $ —

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

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 balance of $ 0.5 million as of July 3, 2021 is included in other current liabilities on the Consolidated Balance Sheets and the plan closed after remaining payments were made during fiscal 2022.

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

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

July 2, 2022 July 3, 2021 June 27, 2020

Domestic $ ( 82.6 ) $ ( 21.7 ) $ ( 14.9 )

2 unchanged sentences

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

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

July 2, 2022 July 3, 2021 June 27, 2020

Current $ — $ — $ —

3 unchanged sentences

Deferred — — —

Total state income tax expense 20.1 2.7 0.1

Total state income tax (benefit) expense ( 2.2 ) 20.1 2.7

Current 63.2 44.8 50.1

Deferred ( 11.4 ) ( 1.6 ) 12.5

Total foreign income tax (benefit) expense 43.2 62.6 31.4

Total foreign income tax expense 51.8 43.2 62.6

Total income tax expense $ 49.6 $ 63.3 $ 65.3

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.

The state current benefit primarily relates to a true-up of the estimated state tax impact of the internal intellectual property restructuring transaction which, was undertaken in the fourth quarter of fiscal 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 release of valuation allowance in a foreign jurisdiction and the amortization of purchased intangible assets.

The foreign current expense primarily relates to the Company’s profitable operations in certain foreign jurisdictions including the current expense related an internal intellectual property restructuring and withholding tax related to intercompany dividends.

The foreign deferred tax (benefit) expense relates to the release of valuation allowance in a foreign jurisdiction, a reclassification of deferred tax expense accrued on intercompany dividends to current tax expense upon dividend declaration 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 ):

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

July 2, 2022 July 3, 2021 June 27, 2020

Income tax expense computed at federal statutory rate $ 13.7 $ 27.5 $ 24.0

Withholding Taxes 8.7 8.7 34.2

US Inclusion of foreign earnings 3.6 12.8 16.0

Inclusion of foreign earnings 19.8 3.6 12.8

Internal Intellectual Property Restructuring 10.1 19.1 —

Valuation allowance 3.3 1.0 ( 3.5 )

6 unchanged sentences

State taxes 0.8 0.9 2.1

Disallowed compensations 2.2 1.4 0.4

Senior Convertible Notes settlements ( 8.3 ) — —

Other — 0.4 ( 0.3 )

4 unchanged sentences

Balance as of

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

July 2, 2022 July 3, 2021 June 27, 2020

Gross deferred tax assets:

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Total net deferred tax assets $ 76.8 $ 85.0 $ 81.5

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.

As of July 2, 2022, the Company had federal, state and foreign tax net operating loss carryforwards of $ 1,940.0 million, $ 444.0 million and $ 454.5 million, respectively, and federal and state research tax credit carryforwards of $ 82.4 million and $ 53.9 million respectively.

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

The federal credit carryforwards start to expire fiscal 2023 and at various dates through fiscal 2043 if not utilized.

The state tax net operating loss carryforwards start to expire in fiscal 2023 and at various dates through 2041 if not utilized.

The state research credit start to expire in fiscal 2023 but a majority of the state credits have an indefinite carryforward period.

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

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

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

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 .

On July 2, 2022, the Company completed a planned internal transaction moving certain of VIAVI’s intellectual properties out of a foreign jurisdiction where tax rates are scheduled to increase to the U.S.

entity established in fiscal 2021 to own and manage VIAVI’s other intellectual properties.

The Company recorded foreign tax expense of $ 13.2 million related to this transaction which is included in the internal intellectual property restructuring line of the current year effective tax rate reconciliation.

Foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries have not been provided on $ 11.8 million of undistributed earnings for certain foreign subsidiaries.

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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.

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

The result of which aligned 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 U.S.

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 U.S.

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 .

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

During fiscal 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.

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Treasury Department, the Internal Revenue Service and others.

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 valuation allowance increased by $ 11.9 million in fiscal 2022, decreased by $ 114.2 million in fiscal 2021, and decreased by $ 4.9 million in fiscal 2020.

The increase during fiscal 2022 was primarily due to the increase in capitalization of federal research expenditures in the U.S.

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.

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

tax return as a consequence of the U.S.

Tax Cuts and Jobs Act.

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

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to Expenses or

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

Other Accounts (1)

Deductions Credited to Expenses or Other Accounts (2)

Year Ended July 2, 2022 $ 1,308.9 $ 101.7 $ ( 89.8 ) $ 1,320.8

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

Year Ended July 3, 2021 $ 1,423.1 $ 617.5 $ ( 731.7 ) $ 1,308.9

Year Ended June 27, 2020 $ 1,427.9 $ 90.1 $ ( 94.9 ) $ 1,423.1

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

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

(2) Deductions include current year releases credited to expenses and current year reductions due to decreases in net deferred tax assets, return to provision true-ups, other adjustments and increases in deferred tax liabilities .

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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 )

1 unchanged sentence

Additions based on tax positions related to current year 14.8

Additions based on tax positions related to prior year 0.3

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

1 unchanged sentence

Reductions for lapse of statute of limitations ( 0.4 )

Balance at June 27, 2020 52.0

Balance at July 3, 2021 59.1

Additions based on tax positions related to current year 0.4

Addition based on tax positions related to prior year 2.6

Reduction based on tax positions related to prior year ( 2.6 )

Reduction related to settlement ( 0.5 )

Reductions for lapse of statute of limitations ( 6.1 )

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

The amount of interest and penalties accrued as of 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 amount of interest and penalties accrued as of July 2, 2022, July 3, 2021 and June 27, 2020 was approximately $ 2.1 million, $ 4.0 million, and $ 2.7 million, respectively.

During fiscal 2022, the Company’s accrued interest and penalties decreased by $ 1.9 million.

The timing and resolution of income tax examinations is uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued for each year.

6 unchanged sentences

Tax Jurisdictions Tax Years

United States* 2002 and onward

United States (1)

2004 and onward

Canada 2021 and onward

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Repurchase of Common Stock

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.

In September 2019, the Board of Directors authorized a stock repurchase plan (“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 fiscal 2022, the Company repurchased 3.1 million shares of its common stock for $ 45.5 million under the 2019 Repurchase plan.

As of July 2, 2022, the Company had approximately $ 67.3 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) :

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

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 above and was solely used for 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 Senior Convertible Notes Settlement section of “Note 11.

Debt” for more details).

During fiscal 2022, the Company repurchased 11.7 million shares of its common stock for $ 190 million under the 2021 Repurchase plan.

As of July 2, 2022, there is no remaining authorization under this plan.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

July 2, 2022 July 3, 2021 June 27, 2020

Total number of shares repurchased 14.8 3.0 3.7

8 unchanged sentences

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

9 unchanged sentences

As of July 2, 2022, 11.3 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)

Employee Stock Purchase Plans

13 unchanged sentences

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 2022, 2021 and 2020 was as follows ( in millions ):

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

July 2, 2022 July 3, 2021 June 27, 2020

Cost of revenue $ 5.2 $ 4.8 $ 4.3

4 unchanged sentences

Stock Option Activity

The following is a summary of stock option activities ( in millions, except per share amounts ):

Options Outstanding

Number of Shares Weighted-Average

Exercise Price

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 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.

There has been no activity for stock-based compensation expense related to stock options during the fiscal years ended July 2, 2022, July 3, 2021, and June 27, 2020.

The following table summarized outstanding and exercisable options as of July 2, 2022 all of which have been fully amortized and recognized since before June 29, 2019.

Options Outstanding Options Exercisable

4 unchanged sentences

$ 5.95 1,180,257 1.62 $ 5.95 $ 8.4 1,180,257 1.62 $ 5.95 $ 8.4

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 aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $ 13.09 as of July 2, 2022, 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 2, 2022 was 1.2 million.

Employee Stock Purchase Plan Activity

6 unchanged sentences

Full Value Awards

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

Performance Shares (1)

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

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

Awards granted 0.7 3.2 3.9 $ 13.76

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

Non-vested June 27, 2020 1.0 5.1 6.1 $ 12.97

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

Awards granted 0.4 2.4 2.8 $ 16.95

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

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

July 2, 2022 July 3, 2021 June 27, 2020

Volatility of common stock 33.8 % 38.5 % 30.4 %

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Risk-free interest rate 0.2 % 0.3 % 1.5 %

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 did no t issue stock option grants during the fiscal years ended July 2, 2022, July 3, 2021 and June 27, 2020.

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

1 unchanged sentence

Employee Stock Purchase Plans

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

July 2, 2022 July 3, 2021 June 27, 2020

Expected term (in years) 0.5 0.5 0.5

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The Company has not paid and does not anticipate paying any dividends in the near future.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Employee Pension and Other Benefit Plans

2 unchanged sentences

The 401(k) Plan allows employees to contribute up to 50 % of their annual compensation, with contributions limited to $ 20,500 in calendar year 2022 as set by the Internal Revenue Service.

VIAVI SOLUTIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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The Company sponsors significant qualified and non-qualified pension plans for certain past and present employees in the U.K.

and Germany including the plan assumed from AW acquisition.

and Germany including the plan assumed in a prior acquisition.

The Company also is responsible for the non-pension postretirement benefit obligation assumed from a past acquisition.

11 unchanged sentences

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

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

July 2, 2022 July 3, 2021 June 27, 2020

Service cost $ 0.2 $ 0.2 $ 0.3

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

The amount expected to be recognized in net periodic benefit cost during fiscal 2023 is $ 0.2 million.

3 unchanged sentences

Pension Benefit Plans

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

Change in benefit obligation

2 unchanged sentences

Interest cost 1.6 1.5

Actuarial (gains) losses ( 4.8 ) 4.6

Actuarial gains ( 25.7 ) ( 4.8 )

Benefits paid ( 6.3 ) ( 6.1 )

11 unchanged sentences

Pension Benefit Plans

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

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

6 unchanged sentences

Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income:

Net actuarial gain (loss) $ 4.1 $ ( 5.4 )

Net actuarial gain $ 13.9 $ 4.1

Amortization of accumulated net actuarial losses 2.9 3.1

Total recognized in other comprehensive income (loss) $ 16.8 $ 7.2

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

As of July 2, 2022 and July 3, 2021, 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

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

July 2, 2022 July 3, 2021 June 27, 2020

Used to determine net period cost at end of year:

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Total assets $ 29.3 100.0 % $ 2.2 $ 27.1

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 ).

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

Fair value as of

June 27, 2020

Target Allocation Total Percentage of Plan Assets Level 1 Level 2

18 unchanged sentences

Thereafter 13.6

Total $ 104.3

Commitments and Contingencies

21 unchanged sentences

As of July 2, 2022, $ 0.1 million was included in Other current liabilities , and $ 16.0 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 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 July 2, 2022, future minimum annual lease payments of Santa Rosa’s non-cancelable leaseback agreements were as follows (in millions) :

11 unchanged sentences

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 July 3, 2021 and June 27, 2020.

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.

1 unchanged sentence

Outstanding Letters of Credit and Performance Bonds

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.

As of July 2, 2022, the Company had standby letters of credit of $ 11.7 million, and other claims of $ 1.2 million collateralized by restricted cash.

Product Warranties

4 unchanged sentences

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

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

July 3, 2021 June 27, 2020

The following table presents the changes in the Company’s warranty reserve during fiscal 2022 and 2021 ( in millions ):

July 2, 2022 July 3, 2021

Balance as of beginning of period $ 9.7 $ 9.4

9 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 Balance Sheets, respectively.

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

The Company pursued an appeal of the court decision.

6 unchanged sentences

Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable.

Operating Segments and Geographic Information

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

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Operating Segments and Geographic Information

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

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

The Company’s reportable segments are:

(i) Network Enablement:

NE provides testing solutions that access the network to perform build-out and maintenance tasks.

These solutions include instruments, software and services to design, build, activate, certify, troubleshoot and optimize networks.

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

These solutions include instruments, software and services to design, build, turn-up, certify, troubleshoot and optimize networks.

The Company also offers a range of product support and professional services such as repair, calibration, software support and technical assistance for its products.

1 unchanged sentence

(ii) Service Enablement:

SE solutions are embedded systems that yield network, service and application performance data.

SE provides embedded systems and enterprise performance management solutions that give global CSPs, enterprises and cloud operators visibility into network, service and application data.

These solutions—including instruments, microprobes and software—monitor, collect and analyze network data to reveal the actual customer experience and to identify opportunities for new revenue streams and network optimization.

(iii) Optical Security and Performance Products:

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

OSP leverages its core optical coating technologies and volume manufacturing capability to design, manufacture, and sell technologies for the anti-counterfeiting, consumer electronics, industrial, government and automotive markets.

Segment Reporting

21 unchanged sentences

Operating margin 15.6 % 40.5 % 14.3 %

Year Ended June 27, 2020

Year Ended July 3, 2021

Network and Service Enablement

21 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

July 2, 2022 July 3, 2021 June 27, 2020

Corporate reconciling items impacting gross profit:

2 unchanged sentences

Amortization of intangibles ( 30.0 ) ( 33.2 ) ( 32.7 )

Other charges unrelated to core operating performance 0.2 ( 1.9 ) ( 0.5 )

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

— 0.2 ( 1.9 )

GAAP gross profit $ 773.5 $ 714.4 $ 665.3

6 unchanged sentences

( 9.6 ) ( 3.4 ) ( 8.4 )

Restructuring and related charges 1.6 ( 3.5 ) ( 15.4 )

Restructuring and related benefits (charges) 0.1 1.6 ( 3.5 )

GAAP operating income from continuing operations $ 185.0 $ 142.2 $ 118.1

(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.

(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.

Fair Value Measurements” for further detail.

(1) During the years ended July 2, 2022, July 3, 2021, and June 27, 2020 other (charges) benefits unrelated to core operating performance primarily consisted of certain acquisition and integration related charges, transformational initiatives such as site consolidations, reorganization, and loss on disposal of long-lived assets.

The Company operates primarily in three geographic regions:

3 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 ):

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

July 2, 2022 July 3, 2021 June 27, 2020

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

12 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

SICPA Holding SA Company (SICPA), served by the Company’s OSP segment, generated more than 10% of VIAVI net revenue from continuing operations during fiscal 2021, 2020 and 2019 as summarized below ( in millions ):

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

SICPA Holding SA Company (SICPA), a customer of the Company’s OSP segment, generated more than 10% of VIAVI net revenue from continuing operations during fiscal 2022, 2021 and 2020 as summarized below ( in millions ):

July 2, 2022 July 3, 2021 June 27, 2020

SICPA - OSP customer $ 178.4 $ 193.9 $ 139.9

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

July 3, 2021 June 27, 2020

July 2, 2022 July 3, 2021

United States $ 148.3 $ 109.4

9 unchanged sentences

The following table presents the Company’s selected quarterly financial information from the Consolidated Statements of Operations for fiscal 2022 and 2021 ( in millions, except per share data ):

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

July 2, 2022 April 2, 2022 January 1, 2022 October 2, 2021 July 3, 2021 April 3, 2021 January 2, 2021 October 3, 2020

Net revenue $ 335.3 $ 315.5 $ 314.8 $ 326.8 $ 310.9 $ 303.4 $ 299.9 $ 284.7

Gross profit 201.1 186.9 190.5 195.0 182.9 182.0 180.1 169.4

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)

Net income (loss) $ 16.5 $ 19.2 $ 34.6 $ ( 54.8 ) $ 3.3 $ 17.2 $ 27.3 $ 19.7

Net income (loss) per share - basic:

Net income (loss) (1)

$ 0.07 $ 0.08 $ 0.15 $ ( 0.24 ) $ 0.01 $ 0.08 $ 0.12 $ 0.09

Net (loss) income per share - diluted:

Net (loss) income (1)

Net income (loss) per share - diluted:

Net income (loss) (1)

$ 0.07 $ 0.08 $ 0.14 $ ( 0.24 ) $ 0.01 $ 0.07 $ 0.12 $ 0.08

2 unchanged sentences

Diluted 231.3 236.8 242.3 231.1 241.9 240.2 231.1 231.8

(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.

(1) 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 income (loss) per share amount for the full fiscal years.

Subsequent Events

On July 18, 2022, the Company completed a business acquisition for total consideration of approximately $ 19 million.

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