VIAVI SOLUTIONS INC. 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange Risk We use foreign exchange forward contracts to hedge foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables. Our foreign exchange forward contracts are accounted for as derivatives whereby the fair value of the contracts are reflected as other current assets or other current liabilities and the associated gains and losses are reflected in Interest and other income, net in the Consolidated Statements of Operations. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements. The gains and losses on those derivatives are expected to be offset by re-measurement gains and losses on the foreign currency denominated monetary assets and liabilities. As of July 1, 2023, we had forward contracts that were effectively closed but not settled with the counterparties by year end. The fair value of these contracts of $3.5 million and $2.4 million is reflected as Prepayments and other current assets and Other current liabilities on the Consolidated Balance Sheets as of July 1, 2023, respectively. The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near year end and had minimal value as of July 1, 2023 and a fair value of $0.1 million which is reflected in Other current liabilities on the Consolidated Balance Sheets as of July 2, 2022. As of July 1, 2023 and July 2, 2022, the notional amounts of the forward contracts that we held to purchase foreign currencies were $87.5 million and $119.1 million, respectively, and the notional amounts of forward contracts that we held to sell foreign currencies were $19.3 million and $80.5 million, respectively. The counterparties to these hedging transactions are creditworthy multinational banks. The risk of counterparty nonperformance associated with these contracts is not considered to be material. Notwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign currency exposures, and there can be no assurances that our mitigating activities related to the exposures that we do hedge will adequately protect us against the risks associated with foreign currency fluctuations. Investments Majority of our investments have maturities 90 days or less. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investments as a result of changes in interest rates. Changes in interest rates can affect the interest earned on our investments. We seek to mitigate the credit risk of investments by holding high-quality, investment-grade debt instruments. We also seek to mitigate marketability risk by holding only highly liquid securities with active secondary or resale markets. However, the investments may decline in value or marketability due to changes in perceived credit quality or changes in market conditions. As of July 1, 2023, the Company’s short-term investments of $14.6 million were comprised of a 30-day term deposit of $13.1 million and trading securities related to the deferred compensation plan of $1.5 million, of which $0.1 million was invested in debt securities, $1.2 million was invested in equity securities and $0.2 million was invested in money market instruments. Debt The fair value of our 2029 Notes is subject to interest rate risk while the fair values of our 2024 and 2026 Notes are subject to interest rate and market price risk due to the convertible feature of the Notes and other factors. Generally, the fair value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair value of the 2024 and 2026 Notes may also increase as the market price of our stock rises and decrease as the market price of our stock falls. Changes in interest rates and our stock price in the case of convertible notes affect the fair value of the Notes but does not impact our financial position, cash flows or results of operations. Based on quoted market prices, as of July 1, 2023, the fair value of the 2024 Notes was $95.6 million, the fair value of the 2026 Notes was $262.7 million and the fair value of the 2029 Notes was $341.8 million. The carrying value of the 2024 Notes was $96.2 million, the carrying value of the 2026 Notes was $235.0 million and the carrying value of the 2029 Notes was $394.5 million. Refer to “Note 11. Debt” under Item 8 of this Annual Report on Form 10-K for more information. 48 Table of Contents