Company Quick10K Filing
Viavi Solutions
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 232 $3,067
10-Q 2019-11-05 Quarter: 2019-09-28
10-K 2019-08-27 Annual: 2019-06-29
10-Q 2019-05-08 Quarter: 2019-03-30
10-Q 2019-02-06 Quarter: 2018-12-29
10-Q 2018-11-07 Quarter: 2018-09-29
10-K 2018-08-28 Annual: 2018-06-30
10-Q 2018-05-09 Quarter: 2018-03-31
10-Q 2018-02-07 Quarter: 2017-12-30
10-Q 2017-11-08 Quarter: 2017-09-30
10-K 2017-08-29 Annual: 2017-07-01
10-Q 2017-05-09 Quarter: 2017-04-01
10-Q 2017-02-07 Quarter: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-10-01
10-K 2016-08-30 Annual: 2016-07-02
10-Q 2016-05-10 Quarter: 2016-04-02
10-Q 2016-02-09 Quarter: 2016-01-02
10-Q 2015-11-12 Quarter: 2015-10-03
10-K 2015-08-25 Annual: 2015-06-27
10-Q 2015-05-05 Quarter: 2015-03-28
10-Q 2015-02-05 Quarter: 2014-12-27
10-Q 2014-11-04 Quarter: 2014-09-27
10-K 2014-08-26 Annual: 2014-06-28
10-Q 2014-05-07 Quarter: 2014-03-29
10-Q 2014-02-06 Quarter: 2013-12-28
10-Q 2013-11-06 Quarter: 2013-09-28
10-K 2013-08-23 Annual: 2013-06-29
10-Q 2013-05-08 Quarter: 2013-03-30
10-Q 2013-02-06 Quarter: 2012-12-29
10-Q 2012-11-08 Quarter: 2012-09-29
10-K 2012-08-24 Annual: 2012-06-30
10-Q 2012-05-08 Quarter: 2012-03-31
10-Q 2012-02-07 Quarter: 2011-12-31
10-Q 2011-11-09 Quarter: 2011-10-01
10-K 2011-08-30 Annual: 2011-07-02
10-Q 2011-05-10 Quarter: 2011-04-02
10-Q 2011-02-08 Quarter: 2011-01-01
10-Q 2010-11-12 Quarter: 2010-10-02
10-K 2010-08-31 Annual: 2010-07-03
10-Q 2010-05-07 Quarter: 2010-04-03
10-Q 2010-02-05 Quarter: 2010-01-02
8-K 2019-11-22 Officers
8-K 2019-11-13 Shareholder Vote
8-K 2019-10-30 Earnings, Exhibits
8-K 2019-09-12 Regulation FD, Exhibits
8-K 2019-08-15 Earnings, Exhibits
8-K 2019-05-22 Officers
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-02-05 Earnings, Exhibits
8-K 2018-11-14 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-09-04 Other Events, Exhibits
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-07-25 Other Events, Exhibits
8-K 2018-07-18 Other Events, Exhibits
8-K 2018-06-19 Officers
8-K 2018-05-22 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-05-22 Other Events, Exhibits
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-03-15 M&A, Regulation FD, Exhibits
8-K 2018-02-13 Officers, Regulation FD, Exhibits
8-K 2018-02-01 Enter Agreement, Regulation FD, Exhibits
8-K 2018-02-01 Earnings, Exhibits
VIAV 2019-09-28
Part I-Financial Information
Item 1. Financial Statements (Unaudited)
Note 1. Basis of Presentation
Note 2. Recently Issued Accounting Pronouncements
Note 3. Revenue
Note 4. Earnings per Share
Note 5. Accumulated Other Comprehensive Loss
Note 6. Acquisitions
Note 7. Balance Sheet and Other Details
Note 8. Investments, Forward Contracts and Fair Value Measurements
Note 9. Goodwill
Note 10. Acquired Developed Technology and Other Intangibles
Note 11. Debt
Note 12. Leases
Note 13. Restructuring and Related Charges
Note 14. Income Taxes
Note 15. Stockholders' Equity
Note 16. Stock-Based Compensation
Note 17. Employee Pension and Other Benefit Plans
Note 18. Commitments and Contingencies
Note 19. Operating Segments and Geographic Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risks
Item 4. Controls and Procedures
Part Ii-Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 viavq1fy2010-q1ex311.htm
EX-31.2 viavq1fy2010q2ex312.htm
EX-32.1 viavq1fy2010q3-ex321.htm
EX-32.2 viavq1fy2010q4-ex322.htm

Viavi Solutions Earnings 2019-09-28

VIAV 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
SMTC 3,315 1,056 602 372 44 109 3,231 62% 29.6 4%
CCMP 3,300 2,299 1,274 916 414 108 283 4,075 45% 14.4 5%
VIAV 3,067 1,815 1,089 1,130 651 5 141 2,536 58% 18.0 0%
SEDG 3,049 1,222 542 1,097 354 111 145 2,873 32% 19.8 9%
FNSR 2,740 2,395 781 1,248 353 -43 78 1,857 28% 23.9 -2%
CRUS 2,486 1,470 353 1,169 595 99 181 2,288 51% 12.6 7%
ENPH 2,458 482 364 405 132 11 35 2,355 33% 66.8 2%
IPHI 2,269 890 547 333 190 -88 41 2,627 57% 64.6 -10%
POWI 2,158 620 77 395 202 58 86 2,058 51% 23.9 9%
AMBA 2,137 490 62 212 126 -41 -28 1,914 59% -68.3 -8%

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 

(Mark One)
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
 
 
to
 
 

Commission File Number 000-22874
Viavi Solutions Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
 
94-2579683
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)

6001 America Center Drive, San Jose, California 95002
(Address of principal executive offices including Zip code)

(408) 404-3600
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of the exchange on which registered
Common Stock, par value of $0.001 per share
 
VIAV
 
The Nasdaq Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No

As of October 26, 2019, the Registrant had 229,790,489 shares of common stock outstanding.
 
 
 
 
 



Table of Contents

 
TABLE OF CONTENTS
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
 
Three Months Ended
 
September 28, 2019
 
September 29, 2018
Revenues:
 
 
 
Product revenue
$
264.8

 
$
241.1

Service revenue
35.0

 
27.4

Total net revenue
299.8

 
268.5

Cost of revenues:
 
 
 
Product cost of revenue
104.3

 
97.9

Service cost of revenue
12.7

 
10.8

Amortization of acquired technologies
8.4

 
9.4

Total cost of revenues
125.4

 
118.1

Gross profit
174.4

 
150.4

Operating expenses:
 
 
 
Research and development
51.5

 
42.6

Selling, general and administrative
93.2

 
84.4

Amortization of other intangibles
8.7

 
9.8

Restructuring and related charges
0.3

 
14.8

Total operating expenses
153.7

 
151.6

Income (loss) from operations
20.7

 
(1.2
)
Interest income and other income, net
2.7

 
1.7

Interest expense
(8.3
)
 
(10.1
)
Income (loss) before taxes
15.1

 
(9.6
)
Provision for income taxes
8.3

 
5.7

Net income (loss)
$
6.8

 
$
(15.3
)
 
 
 
 
Net income (loss) per share:
 
 
 
Basic
$
0.03

 
$
(0.07
)
Diluted
0.03

 
(0.07
)
 
 
 
 
Shares used in per-share calculations:
 
 
 
Basic
229.4

 
227.2

Diluted
236.4

 
227.2

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


2

Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
 
Three Months Ended
 
September 28, 2019
 
September 29, 2018
Net income (loss)
$
6.8

 
$
(15.3
)
Other comprehensive loss:
 
 
 
Net change in cumulative translation adjustment, net of tax
(27.4
)
 
(13.1
)
Net change in available-for-sale investments, net of tax:
 
 
 
Unrealized holding gain arising during period

 
0.1

Plus: reclassification adjustments included in net loss

 
0.2

Net change in defined benefit obligation, net of tax:
 
 
 
Amortization of actuarial losses
0.7

 
0.6

Net change in accumulated other comprehensive income (loss)
(26.7
)
 
(12.2
)
Comprehensive loss
$
(19.9
)
 
$
(27.5
)

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


3

Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and par value data)
(unaudited) 
 
September 28, 2019
 
June 29, 2019
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
525.3

 
$
521.5

Short-term investments
1.5

 
1.5

Restricted cash
3.5

 
3.5

Accounts receivable, net
232.7

 
237.7

Inventories, net
99.4

 
102.7

Prepayments and other current assets
51.8

 
49.9

Total current assets
914.2

 
916.8

Property, plant and equipment, net
170.5

 
179.9

Goodwill, net
376.7

 
381.1

Intangibles, net
191.8

 
211.6

Deferred income taxes
104.4

 
108.4

Other non-current assets
50.1

 
17.3

Total assets
$
1,807.7

 
$
1,815.1

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
60.9

 
$
63.4

Accrued payroll and related expenses
66.0

 
58.7

Deferred revenue
51.2

 
55.3

Accrued expenses
31.3

 
34.2

Other current liabilities
73.1

 
72.4

Total current liabilities
282.5

 
284.0

Long-term debt
584.3

 
578.8

Other non-current liabilities
232.8

 
226.5

Commitments and contingencies (Note 17)

 

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; 1 billion shares authorized; 230 million shares at September 28, 2019 and 229 million shares at June 29, 2019, issued and outstanding
0.2

 
0.2

Additional paid-in capital
70,245.4

 
70,244.7

Accumulated deficit
(69,376.2
)
 
(69,384.5
)
Accumulated other comprehensive loss
(161.3
)
 
(134.6
)
Total stockholders’ equity
708.1

 
725.8

Total liabilities and stockholders’ equity
$
1,807.7

 
$
1,815.1

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

4

Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Three Months Ended
 
September 28, 2019
 
September 29, 2018
OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
6.8

 
$
(15.3
)
Adjustments to reconcile net loss to net cash provided by operating activities:

 

Depreciation expense
9.8

 
9.9

Amortization of acquired technologies and other intangibles
17.1

 
19.2

Stock-based compensation
10.3

 
8.1

Amortization of debt issuance costs and accretion of debt discount
5.5

 
6.9

Net change in fair value of contingent liabilities
1.7

 

Other
0.6

 
0.1

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
0.5

 
(6.7
)
Inventories
(3.4
)
 
1.4

Other current and non-currents assets
(1.7
)
 
(2.9
)
Accounts payable
(1.6
)
 
3.7

Income taxes payable
2.0

 
1.3

Deferred revenue, current and non-current
(4.1
)
 
1.1

Deferred taxes, net
(1.3
)
 
(1.9
)
Accrued payroll and related expenses
3.8

 
2.6

Accrued expenses and other current and non-current liabilities
(14.7
)
 
0.1

Net cash provided by operating activities
31.3

 
27.6

 
 
 
 
INVESTING ACTIVITIES:
 
 
 
Maturities of available-for-sale investments

 
36.5

Sales of available-for-sale investments

 
81.0

Capital expenditures
(7.1
)
 
(12.1
)
Proceeds from the sale of assets
1.2

 
1.6

Net cash (used in) provided by investing activities
(5.9
)
 
107.0

 
 
 
 
FINANCING ACTIVITIES:
 
 
 
Payment of debt issuance costs

 
(0.5
)
Repurchase and retirement of common stock
(1.5
)
 

Withholding tax payment on vesting of restricted stock awards
(7.6
)
 
(5.5
)
Repurchase and redemption of convertible debt

 
(134.3
)
Payment of financing obligations
(1.0
)
 
(0.2
)
Proceeds from exercise of employee stock options and employee stock purchase plan
2.3

 
2.1

Net cash used in financing activities
(7.8
)
 
(138.4
)
 
 
 
 
Effect of exchange rates on cash, cash equivalents and restricted cash
(14.4
)
 
(7.2
)
Net increase (decrease) in cash, cash equivalents and restricted cash
3.2

 
(11.0
)
Cash, cash equivalents and restricted cash at the beginning of the period
530.4

 
624.3

Cash, cash equivalents and restricted cash at the end of the period
$
533.6

 
$
613.3


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

5

Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
 
 
Common Stock
 
 
 
 
 
 
 
 
Three Months Ended September 28, 2019
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total
Balance at June 29, 2019
 
228.8

 
$
0.2

 
$
70,244.7

 
$
(69,384.5
)
 
$
(134.6
)
 
$
725.8

Cumulative adjustment for adoption of ASC 842
 

 

 

 
3.0

 
 
 
3.0

Net income
 

 

 

 
6.8

 

 
6.8

Other comprehensive loss
 

 

 

 

 
(26.7
)
 
(26.7
)
Shares issued under employee stock plans, net of tax
 
1.7

 

 
(9.7
)
 

 

 
(9.7
)
Stock-based compensation
 

 

 
10.4

 

 

 
10.4

Repurchase of common stock
 
(0.1
)
 

 

 
(1.5
)
 

 
(1.5
)
Balance at September 28, 2019
 
230.4

 
$
0.2

 
$
70,245.4

 
$
(69,376.2
)
 
$
(161.3
)
 
$
708.1

 
 
Common Stock
 
 
 
 
 
 
 
 
Three Months Ended September 29, 2018
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total
Balance at June 30, 2018
 
226.7

 
$
0.2

 
$
70,216.2

 
$
(69,378.6
)
 
$
(102.9
)
 
$
734.9

Net loss
 

 

 

 
(15.3
)
 

 
(15.3
)
Other comprehensive loss
 

 

 

 

 
(12.2
)
 
(12.2
)
Shares issued under employee stock plans, net of tax
 
1.5

 

 
(5.8
)
 

 

 
(5.8
)
Stock-based compensation
 

 

 
8.2

 

 

 
8.2

Other
 

 

 

 
(0.2
)
 

 
(0.2
)
Balance at September 29, 2018
 
228.2

 
$
0.2

 
$
70,218.6

 
$
(69,394.1
)
 
$
(115.1
)
 
$
709.6

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

6


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation
The financial information for Viavi Solutions Inc. (“VIAVI” also referred to as “the Company”) for the three months ended September 28, 2019 and September 29, 2018 is unaudited, and includes all normal and recurring adjustments Company management considers necessary for a fair statement of the financial information set forth herein. The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 29, 2019.
Other than updates to the Company’s lease accounting policy under Accounting Standards Codification (“ASC”) 842 - Leases, as disclosed in “Note 2. Recently Issued Accounting Pronouncements” and “Note 12. Leases”, there have been no material changes to the Company’s accounting policies during the three months ended September 28, 2019, as compared to the significant accounting policies presented in “Note 1. Basis of Presentation” of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report for the year ended June 29, 2019 on Form 10-K filed with the SEC on August 27, 2019.
The balance sheet as of June 29, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three months ended September 28, 2019 and September 29, 2018 may not be indicative of results for the fiscal year ending June 27, 2020 or any future periods.
Fiscal Years
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The Company’s fiscal 2020 is a 52-week year ending on June 27, 2020. The Company’s fiscal 2019 was a 52-week year ending on June 29, 2019.
Principles of Consolidation
The consolidated financial statements include the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenues and expenses and the disclosure of commitments and contingencies during the reporting periods. The Company bases estimates on historical experience and assumptions about future periods that are believed to be reasonable based on available information. The Company’s reported financial positions or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect readily available current information.
Note 2. Recently Issued Accounting Pronouncements
Recent Accounting Pronouncements Adopted
In 2016, the Financial Accounting Standards Board (“FASB”) issued guidance on the financial reporting requirements for leasing arrangements, ASC 842 - Leases. ASC 842 requires lessees to recognize operating leases with a term greater than one year on their balance sheets as Right-of-Use (“ROU”) assets and corresponding lease liabilities, measured at the present value of the lease payments. In the first quarter of fiscal 2020 the Company adopted this standard using the modified retrospective approach. The Company elected to apply the optional transition approach of not adjusting comparative period financial statements for the adoption impact. The Company also elected the package of practical expedients to not reassess whether a contract contains a lease, lease classification and accounting for

7


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

initial direct costs. Adoption of the leasing standard resulted in $35.5 million of ROU assets and $37.0 million of lease liabilities. In addition, the Company recorded an adjustment to accumulative deficit, net of taxes, of $3.0 million from the recognition of previously deferred profit under sale-leaseback arrangements and de-recognition of related real estate assets of $7.1 million and financing obligations of $10.1 million. The adoption of the new standard did not have a material impact on the Company’s Consolidated Statements of Operations and Statements of Cash Flows. For additional information refer to “Note 12. Leases.”
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued guidance to amend the disclosure requirements related to defined benefit pension and other post-retirement plans. Some of the changes include adding a disclosure requirement for significant gains and losses related to changes in the benefit obligation for the period and removing the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. This guidance is effective for the Company in the first quarter of fiscal 2022 and early adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on its Consolidated Financial Statements.
In June 2016, the FASB issued guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The guidance is effective for the Company in the first quarter of fiscal 2021 and earlier adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on its Consolidated Financial Statements.
Note 3. Revenue
The Company accounts for revenue in accordance with ASC 606, which was adopted in fiscal 2019 using the retrospective transition method. The Company’s revenue is derived from a diverse portfolio of network solutions and optical technology products and services, as follows:
Products: Network Enablement (“NE”) and Service Enablement (“SE”) products include instruments, microprobes and perpetual software licenses that support the development, production, maintenance and optimization of network systems. 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.
Services: The Company also offers a range of product support and professional services designed to comprehensively address customer requirements. These include repair, calibration, extended warranty, software support, technical assistance, training and consulting services. Implementation services provided in conjunction with hardware or software solution projects include sale of the products along with project management, set-up and installation.

8


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance sheet and other details
Unbilled Receivables: The Company records a receivable when an unconditional right to consideration exists and transfer of control has occurred, such that only the passage of time is required before payment of consideration is due. Timing of revenue recognition may differ from the timing of customer invoicing. Payment terms vary based on product or service offerings and payment is generally required within 30 to 90 days from date of invoicing. Certain performance obligations may require payment before delivery of the service to the customer.
Contract Assets: A Contract Asset is recognized when a conditional right to consideration exists and transfer of control has occurred. Contract Assets include fixed fee professional services, where the transfer of services has occurred in advance of the Company's right to invoice. Contract Assets, included in accounts receivable, net, on the Consolidated Balance Sheets, are not material to the Consolidated Financial Statements. The prior year’s Consolidated Balance Sheets and Statements of Cash Flows have been updated to conform to the current period’s presentation. Contract asset balances will fluctuate based upon the timing of transfer of services, billings and customers’ acceptance of contractual milestones.
Gross receivables include both billed and Unbilled Receivables/Contract Assets. For the three months ended September 28, 2019 and June 29, 2019 the Company had total non-billed receivables (Unbilled Receivables/Contract Assets) of $5.5 million and $11.5 million, respectively.
Deferred Revenue: Deferred revenue consists of contract liabilities primarily related to support, solution deployment services, software maintenance, product, professional services, and training when the Company has a right to invoice or payments have been received and transfer of control has not occurred. Revenue is recognized on these items when the revenue recognition criteria are met, generally resulting in ratable recognition over the contract term. Contract liabilities are included in deferred revenue and non-current liabilities on the Consolidated Balance Sheets.
The Company also has short term and long term deferred revenues related to undelivered hardware and professional services, consisting of installations and consulting engagements, which are recognized as the Company's performance obligations under the contract are completed and accepted by the customer.
The following tables summarize the activity related to deferred revenue (in millions):
 
September 28, 2019
 
Three Months Ended
Deferred revenue:
 
Balance at beginning of period
$
68.5

Revenue deferrals for new contracts (1)
18.9

Revenue recognized during the period
(23.0
)
Balance at end of period
$
64.4

 
 
Short-term deferred revenue
$
51.2

Long-term deferred revenue
$
13.2

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

Remaining Performance Obligations: Remaining performance obligations represent the aggregate amount of the transaction price allocated to performance obligations not delivered or are incomplete, as of September 28, 2019. Remaining performance obligations include deferred revenue plus unbilled amounts not yet recorded. The aggregate amount of the transaction price allocated to remaining performance obligations does not include amounts owed under cancelable contracts where there is no substantive termination penalty.
Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, periodic revalidation, adjustments for revenue that has not materialized, and adjustments for currency.

9


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The value of the transaction price allocated to remaining performance obligations as of September 28, 2019, was $228.9 million. The Company expects to recognize 92% of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.
Disaggregation of revenue
The Company's revenue is presented on a disaggregated basis on the Consolidated Statements of Operations and in “Note 19. Operating Segments and Geographic Information”. This information includes revenue from reportable segments and a break-out of products and services for which the nature and timing of the revenue as characterized above is generally at a point in time and over time, respectively.
Note 4. Earnings Per Share
The following table sets forth the computation of basic and diluted net loss per share (in millions, except per share data):
 
Three Months Ended
 
September 28, 2019
 
September 29, 2018
Numerator:
 

 
 

Net income (loss)
$
6.8

 
$
(15.3
)
Denominator:
 
 
 
Weighted-average shares outstanding:
 
 
 
Basic
229.4

 
227.2

Shares issuable assuming conversion of convertible notes(1)
2.8

 

Effect of dilutive securities from stock-based benefit plans
4.2

 

Diluted
236.4

 
227.2

 
 
 
 
Net income (loss) per share:
 
 
 
Basic
$
0.03

 
$
(0.07
)
Diluted
$
0.03

 
$
(0.07
)


(1) 
Represents the number of shares that would be issued if the Company’s Senior Convertible Notes had been converted. The par amount of the Company’s convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and the “in-the money” conversion benefit feature above the conversion price is payable in cash, shares of the Company’s common stock or a combination of both, at the Company’s election.

10


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table sets forth the weighted-average potentially dilutive securities excluded from the computation of the diluted net loss per share because their effect would have been anti-dilutive (in millions):
 
Three Months Ended
 
September 28, 2019
 
September 29, 2018
 
 
 
(2) (3) (4) (5) 
Stock options and ESPP

 
1.6

Restricted stock units
0.1

 
7.0

Total potentially dilutive securities
0.1

 
8.6


(2) 
As the Company incurred a loss from continuing operations in the period, potential dilutive securities from employee stock options, ESPP, RSUs and PSUs have been excluded from the diluted net loss per share computations as their effects were deemed anti-dilutive.
(3) 
The Company’s 0.625% Senior Convertible Notes due 2033 are not included in the table above. In October 2018, the 2033 Notes were fully converted and redeemed by the Company and any potential EPS dilution effect of the Notes was realized upon the Company settling the “in-the-money” conversion benefit feature of the Notes with shares of common stock. Refer to “Note 11. Debt” for more details.
(4) 
The Company’s 1.00% Senior Convertible Notes due 2024 are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $13.22 per share payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. The Company’s average quarterly stock price for the period presented did not exceed the conversion price of $13.22. Refer to “Note 11. Debt” for more details.
(5) 
The Company’s 1.75% Senior Convertible Notes due 2023 are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the money” conversion benefit feature at the conversion price above $13.94 per share payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. The Company’s average quarterly stock price for the period presented did not exceed the conversion price of $13.94. Refer to “Note 11. Debt” for more details.
Note 5. Accumulated Other Comprehensive Loss
The Company’s accumulated other comprehensive loss consists of the accumulated net unrealized gains or losses on available-for-sale investments, foreign currency translation adjustments and change in unrealized components of defined benefit obligations.
For the three months ended September 28, 2019, the changes in accumulated other comprehensive loss, net of tax, by component were as follows (in millions):
 
Unrealized losses on available-for sale investments
 
Foreign 
currency translation adjustments
 
Change in unrealized components of defined benefit obligations (1)
 
Total
Beginning balance as of June 29, 2019
$
(5.0
)
 
$
(101.0
)
 
$
(28.6
)
 
$
(134.6
)
Other comprehensive income (loss) before reclassification

 
(27.4
)
 

 
(27.4
)
Amounts reclassified to accumulated other comprehensive loss

 

 
0.7

 
0.7

Net current-period other comprehensive income (loss)

 
(27.4
)
 
0.7

 
(26.7
)
Ending balance as of September 28, 2019
$
(5.0
)
 
$
(128.4
)
 
$
(27.9
)
 
$
(161.3
)
(1)  The amount reclassified out of accumulated other comprehensive loss represents the amortization of actuarial losses included as a component of cost of revenues, research and development (“R&D”) and SG&A in the Consolidated Statement of Operations for the three months ended September 28, 2019. There was no tax impact for the three months ended September 28, 2019. Refer to “Note 17. Employee Pension and Other Benefit Plans” for more details on the computation of net periodic cost for pension plans.
Note 6. Acquisitions
3Z Telecom, Inc. Acquisition
On May 31, 2019 (“3Z Close Date”), the Company acquired all of the equity of 3Z Telecom, Inc. (“3Z”) for approximately $23.2 million in cash and contingent consideration (“earn-out”) liability of up to $7.0 million in cash based on the achievement of certain net revenue targets over approximately a two year period, subsequent to the 3Z Close Date. The $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 at the 3Z Close Date was determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs not observable in the market, and therefore represents a Level 3 measurement. The fair value of the Company’s earn-out liabilities is further discussed in “Note 8. Investments, Forward Contracts and Fair Value Measurements.”

11


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The preliminary identified tangible and intangible assets acquired, as of the 3Z Close Date, were as follows (in millions):
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 preliminary allocation of the purchase price to tangible assets, based on the estimated fair values of assets acquired and liabilities assumed on the 3Z Close Date, was as follows (in millions):
Cash
 
$
2.2

Total other assets
 
3.6

Total liabilities
 
(1.7
)
Net tangible assets acquired
 
$
4.1


The allocation of the purchase price was based upon a preliminary valuation, and our estimates and assumptions are subject to refinement and final cash and net working capital adjustments within the measurement period (up to one year from the 3Z Close Date). The purchase price allocation may require prospective adjustments to goodwill.
Acquired intangible assets are classified as Level 3 assets for which fair value is derived from a valuation based on inputs that are unobservable and significant to the overall fair value measurement. 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. Acquisition
On October 30, 2018 (“RPC Close Date”), the Company acquired all of the equity interest of RPC Photonics, Inc. (“RPC”) for approximately $33.4 million in cash and an additional earn-out of up to $53.0 million in cash based on the achievement of certain gross profit targets over approximately a four years period, subsequent to the RPC Close Date. The achievement or distributions of earn-out payments are not limited in any one period. The estimated fair value of the contingent consideration portion of the earn-out is $31.7 million as of September 28, 2019. The acquisition of RPC expands the Company’s 3D Sensing offerings.
The Company accounted for the transaction in accordance with the authoritative guidance on business combination; therefore, the tangible and intangible assets acquired and liabilities assumed are recorded at fair value on the acquisition date.

12


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The fair value of consideration transferred for the RPC Close Date, were as follows (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 at the RPC Close Date were determined by applying a risk-neutral framework using a Monte Carlo Simulation, which includes inputs that are not observable in the market, and therefore represents a Level 3 measurement. The fair value of this earn-out is discussed further in “Note 8. Investments, Forward Contracts and Fair Value Measurements”.
The identified tangible and intangible assets acquired, as of the RPC Close Date, were as follows (in millions):
Tangible assets acquired:
 
$
5.7

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 on the RPC Close Date, were as follows (in millions):
Cash
 
$
1.8

Other current assets
 
1.8

Property and equipment
 
2.6

Total liabilities
 
(0.5
)
Net tangible assets acquired
 
$
5.7


The allocation of the purchase price was based upon a valuation performed. Acquired intangible assets are classified as Level 3 assets for which fair value is derived from a valuation based on inputs that are unobservable and significant to the overall fair value measurement. 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 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.
Note 7. Balance Sheet and Other Details
Accounts receivable allowance
The following table presents the activities and balances for allowance for doubtful accounts (in millions):

13


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
June 29, 2019
 
Charged to Costs and Expenses
 
Deductions (1)
 
September 28, 2019
Allowance for doubtful accounts
$
2.0

 
$
0.4

 
$
(0.2
)
 
$
2.2


(1) Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, net of recoveries.
Inventories, net
The following table presents the components of inventories, net (in millions):
 
September 28, 2019
 
June 29, 2019
Finished goods
$
35.8

 
$
36.7

Work in process
22.9

 
26.5

Raw materials
40.7

 
39.5

Inventories, net
$
99.4

 
$
102.7


Prepayments and other current assets
The following table presents the components of prepayments and other current assets (in millions):
 
September 28, 2019
 
June 29, 2019
Prepayments
$
14.0

 
$
14.2

Asset held for sale
2.5

 
2.5

Advances to contract manufacturers
6.1

 
5.1

Refundable income taxes
8.1

 
8.9

Transaction tax receivables
11.1

 
11.8

Other current assets
10.0

 
7.4

Prepayments and other current assets
$
51.8

 
$
49.9


Other current liabilities
The following table presents the components of other current liabilities (in millions):
 
September 28, 2019
 
June 29, 2019
Customer prepayments
$
17.7

 
$
30.2

Restructuring accrual
7.4

 
8.6

Income tax payable
11.0

 
8.5

Warranty accrual
4.8

 
4.7

Transaction tax payable
2.7

 
3.8

Operating lease liabilities (Note 12)
11.8

 

Foreign exchange forward contracts liability
4.6

 
4.0

Other
13.1

 
12.6

Other current liabilities
$
73.1

 
$
72.4



14


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other non-current liabilities
The following table presents components of other non-current liabilities (in millions):
 
September 28, 2019
 
June 29, 2019
Pension and post-employment benefits
$
98.9

 
$
103.2

Financing obligation
16.3

 
25.5

Deferred tax liability
12.9

 
14.6

Long-term deferred revenue
13.2

 
13.2

Fair value of contingent consideration (1)
38.4

 
37.7

Operating lease liabilities (Note 12)
24.2

 

Uncertain tax position
12.9

 
13.6

Other
16.0

 
18.7

Other non-current liabilities
$
232.8

 
$
226.5



(1) See “Note 6. Acquisitions” of the Notes to our Consolidated Financial Statements for more detail.
Note 8. Investments, Forward Contracts and Fair Value Measurements
Available-For-Sale Investments
The following table presents the Company’s available-for-sale securities as of September 28, 2019 (in millions):
 
Amortized Cost/
Carrying Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Available-for-sale debt securities:
 

 
 

 
 

 
 

Asset-backed securities
$
0.9

 
$

 
$
(0.3
)
 
$
0.6

Total available-for-sale debt securities
$
0.9

 
$

 
$
(0.3
)
 
$
0.6


The Company generally classifies debt securities as available-for-sale and as cash equivalents, short-term investments or other non-current assets based on the stated maturities; however, certain securities with stated maturities of longer than twelve months which are highly liquid and available to support current operations are also classified as short-term investments. As of September 28, 2019, the total estimated fair value of $0.6 million was classified as other non-current assets.
 In addition to the amounts presented above, the Company’s short-term investments classified as trading securities related to the deferred compensation plan as of September 28, 2019, were $1.5 million, of which $0.4 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $0.8 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in the Company’s Consolidated Statements of Operations as a component of interest and other income, net.
During the three months ended September 28, 2019 and September 29, 2018, the Company recorded no other-than-temporary impairment charges in each respective period.
The following table presents contractual maturities of the Company’s debt securities classified as available-for-sale as of September 28, 2019, (in millions):
 
Amortized Cost/
Carrying Cost
 
Estimated
Fair Value
Amounts maturing in more than 5 years
$
0.9

 
$
0.6

Total debt available-for-sale securities
$
0.9

 
$
0.6



15


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the Company’s available-for-sale securities as of June 29, 2019, (in millions):
 
Amortized Cost/
Carrying Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Available-for-sale securities:
 

 
 

 
 

 
 

Asset-backed securities
$
0.9

 
$

 
$
(0.3
)
 
$
0.6

Total available-for-sale securities
$
0.9

 
$

 
$
(0.3
)
 
$
0.6


As of June 29, 2019, of the estimated fair value of $0.6 million was classified as other non-current assets.
In addition to the amounts presented above, as of June 29, 2019, the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $1.5 million, of which $0.4 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $0.8 million was invested in equity securities. 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.
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 Company’s cash and investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy based on quoted prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
Level 1: includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 1 assets of the Company include money market funds, U.S. Treasury securities and marketable equity securities as they are traded with sufficient volume and frequency of transactions. 
Level 2: includes financial instruments for which the valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Level 2 instruments of the Company generally include certain U.S. and foreign government and agency securities, commercial paper, corporate and municipal bonds and notes, asset-backed securities, certificates of deposit, and foreign currency forward contracts. To estimate their fair value, the Company utilizes pricing models based on market data. The significant inputs for the valuation model usually include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events. 
Level 3: 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 September 28, 2019 and June 29, 2019, the Company did not hold any Level 3 investment securities. As of September 28, 2019, the fair value of the Company’s contingent liability was determined using Level 3 inputs, as discussed below.

16


VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fair Value Measurements
The following table presents assets and liabilities measured at fair value as of September 28, 2019 and June 29, 2019, (in millions):
 
September 28, 2019
 
June 29, 2019
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Debt available-for-sale securities
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
Asset-backed securities
$
0.6

 
$

 
$
0.6

 
$

 
$
0.6

 
$

 
$
0.6

 
$

Total debt available-for-sale securities
0.6

 

 
0.6

 

 
0.6

 

 
0.6

 

Money market funds
336.1

 
336.1

 

 

 
322.9

 
322.9

 

 

Trading securities
1.5

 
1.5

 

 

 
1.5