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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 October 02, 2021
 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto

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)

7047 E Greenway Pkwy Suite 250, Scottsdale, Arizona 85254
(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 classTrading SymbolName 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 filerAccelerated filerNon-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting companyEmerging 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 30, 2021, the Registrant had 237,686,271 shares of common stock outstanding.


TABLE OF CONTENTSPage

1


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
 October 2, 2021October 3, 2020
Revenues:
Product revenue$289.1 $247.9 
Service revenue37.7 36.8 
Total net revenue326.8 284.7 
Cost of revenues:
Product cost of revenue106.7 93.6 
Service cost of revenue17.2 13.5 
Amortization of acquired technologies7.9 8.2 
Total cost of revenues131.8 115.3 
Gross profit195.0 169.4 
Operating expenses:
Research and development53.6 48.8 
Selling, general and administrative91.8 81.4 
Amortization of other intangibles2.7 8.5 
Restructuring and related benefits (0.6)
Total operating expenses148.1 138.1 
Income from operations46.9 31.3 
Loss on convertible note settlement (Note 11)(85.9) 
Interest income and other income, net1.4 0.6 
Interest expense(3.6)(3.6)
(Loss) income before taxes(41.2)28.3 
Provision for income taxes13.6 8.6 
Net (loss) income$(54.8)$19.7 
Net (loss) income per share:
Basic$(0.24)$0.09 
Diluted$(0.24)$0.08 
Shares used in per-share calculations:
Basic231.1 228.8 
Diluted231.1 231.8 
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
2


VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
Three Months Ended
October 2, 2021October 3, 2020
Net (loss) income$(54.8)$19.7 
Other comprehensive income (loss):
Net change in cumulative translation adjustment, net of tax(9.6)27.6 
Unrealized holding gain arising during period0.1  
Amortization of actuarial income0.8 0.8 
Net change in accumulated other comprehensive income (loss)(8.7)28.4 
Comprehensive (loss) income$(63.5)$48.1 

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

3


VIAVI SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and par value data)
(unaudited)
October 2, 2021July 3, 2021
ASSETS 
Current assets:  
Cash and cash equivalents$915.6 $697.8 
Short-term investments1.6 1.6 
Restricted cash4.5 4.3 
Accounts receivable, net243.1 256.5 
Inventories, net102.8 94.9 
Prepayments and other current assets65.0 57.0 
Total current assets1,332.6 1,112.1 
Property, plant and equipment, net203.1 196.0 
Goodwill, net393.9 396.5 
Intangibles, net78.2 88.0 
Deferred income taxes104.7 109.3 
Other non-current assets57.0 59.5 
Total assets$2,169.5 $1,961.4 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$66.9 $63.2 
Accrued payroll and related expenses68.3 76.0 
Deferred revenue66.6 69.7 
Accrued expenses33.3 24.8 
Short-term debt (Note11)
 456.6 
Other current liabilities57.4 57.1 
Total current liabilities292.5 747.4 
Long-term debt800.7 224.1 
Other non-current liabilities217.7 226.0 
Stockholders’ equity:
Common stock, $0.001 par value; 1 billion shares authorized; 240 million shares at October 2, 2021 and 228 million shares at July 3, 2021, issued and outstanding
0.2 0.2 
Additional paid-in capital70,349.9 70,183.2 
Accumulated deficit(69,385.6)(69,322.3)
Accumulated other comprehensive loss(105.9)(97.2)
Total stockholders’ equity858.6 763.9 
Total liabilities and stockholders’ equity$2,169.5 $1,961.4 
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
4


VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended
October 2, 2021October 3, 2020
OPERATING ACTIVITIES:
Net (loss) income$(54.8)$19.7 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation expense8.9 8.8 
Amortization of acquired technologies and other intangibles10.6 16.7 
Stock-based compensation13.6 12.5 
Loss on convertible note settlement85.9  
Amortization of debt issuance costs0.5 0.5 
Other1.3 0.6 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable10.9 19.7 
Inventories(10.3)(3.4)
Other current and non-currents assets(7.4)(3.2)
Accounts payable3.4 (8.5)
Income taxes payable 2.5 
Deferred revenue, current and non-current(3.8)4.0 
Deferred taxes, net0.2 (1.0)
Accrued payroll and related expenses(9.6)(1.4)
Accrued expenses and other current and non-current liabilities4.0 (3.6)
Net cash provided by operating activities$53.4 $63.9 
INVESTING ACTIVITIES:
Capital expenditures$(15.7)$(8.0)
Proceeds from the sale of assets2.1 0.5 
Acquisitions, net of cash hold back(1.2) 
Net cash used in investing activities$(14.8)$(7.5)
FINANCING ACTIVITIES:
Proceeds from issuance of 3.75% senior notes
$400.0 $ 
Payment of debt issuance costs(4.9)(0.1)
Repurchase and retirement of common stock(8.8)(6.7)
Withholding tax payment on vesting of restricted stock awards(7.2)(9.3)
Cash paid to note holders in convertible note settlement(196.5) 
Cash paid to third parties in convertible note settlement(3.5) 
Payment of financing obligations (0.4)
Proceeds from employee stock purchase plan3.7 3.5 
Proceeds from revolving credit facility150.0  
Repayment of revolving credit facility(150.0) 
Payment of debt (2.8)
Net cash provided by (used in) financing activities$182.8 $(15.8)
Effect of exchange rates on cash, cash equivalents and restricted cash$(3.1)$11.2 
Net increase in cash, cash equivalents and restricted cash218.3 51.8 
Cash, cash equivalents and restricted cash at the beginning of the period (1)
708.4 547.4 
Cash, cash equivalents and restricted cash at the end of the period (2)
$926.7 $599.2 
(1)    These amounts include both current and non-current balances of restricted cash totaling $10.6 million and $8.4 million as of July 3, 2021 and June 27, 2020, respectively.
(2)    These amounts include both current and non-current balances of restricted cash totaling $11.1 million and $8.4 million as of October 2, 2021 and October 3, 2020, respectively.
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
5


VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
(unaudited)
Three Months Ended October 2, 2021
Common Stock
Shares
Amount
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Loss
Total
Balance at July 3, 2021228.3 $0.2 $70,183.2 $(69,322.3)$(97.2)$763.9 
Net loss— — — (54.8)— (54.8)
Other comprehensive loss— — — — (8.7)(8.7)
Shares issued under employee stock plans, net of tax1.3 — (5.8)— — (5.8)
Stock-based compensation— — 13.4 — — 13.4 
Repurchase of common stock(0.5)— — (8.5)— (8.5)
Convertible note settlement (Note 11)10.6 — 159.1 — 159.1 
Balance at October 2, 2021239.7 $0.2 $70,349.9 $(69,385.6)$(105.9)$858.6 

Three Months Ended October 3, 2020
Common Stock
Shares
Amount
Additional Paid-In Capital
Accumulated Deficit
Accumulated Other Comprehensive Loss
Total
Balance at June 27, 2020228.3 $0.2 $70,146.1 $(69,347.2)$(165.9)$633.2 
Net income— — — 19.7 — 19.7 
Other comprehensive income— — — — 28.4 28.4 
Shares issued under employee stock plans, net of tax1.6 — (6.1)— — (6.1)
Stock-based compensation— — 12.5 — — 12.5 
Repurchase of common stock(0.6)— — (6.7)— (6.7)
Balance at October 3, 2020229.3 $0.2 $70,152.5 $(69,334.2)$(137.5)$681.0 
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 October 2, 2021 and October 3, 2020 is unaudited, and includes all normal and recurring adjustments Company’s management considers necessary for a fair statement of the financial information set forth herein. 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 July 3, 2021.
Other than the adoption of Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (refer to “Note 2. Recently Issued Accounting Pronouncements” for more detail), there have been no material changes to the Company’s accounting policies during the three months ended October 2, 2021 as compared to the significant accounting policies presented in “Note 1. Basis of Presentation” of the Notes to the Consolidated Financial Statements included in the Company’s Annual Report for the year ended July 3, 2021 on Form 10-K, filed with the SEC on August 23, 2021.
The Consolidated Balance Sheet as of July 3, 2021 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 October 2, 2021 and October 3, 2020 may not be indicative of results for the fiscal year ending July 2, 2022 or any future periods.
Fiscal Years
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The Company’s fiscal 2022 is a 52-week year ending on July 2, 2022. The Company’s fiscal 2021 was a 53-week year ending on July 3, 2021. The Company’s first quarter of fiscal year 2021 was a 14 week quarter compared to the standard 13 week quarters.
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.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A novel strain of coronavirus (COVID-19) first identified in Wuhan, China by the Chinese government in December 2019, and subsequently declared an international pandemic by the World Health Organization (WHO) in March 2020 continues to have a global impact. The worldwide spread of the COVID-19 virus resulted in a global slowdown of economic activity which could continue to impact demand for a broad variety of goods and services, including from the Company’s customers, while also continuing to disrupt sales channels and marketing activities for an unknown period of time until the disease is contained. In late 2020, new and potentially more contagious variants of the virus emerged, along with a surge in cases in several regions across the globe, resulting in renewed shutdown and shelter in place orders. While rollout of several vaccines commenced in December 2020, the pace of the rollout has been slow and the demand for vaccine far outpaces available supply. As economies recover, there are continued supply chain constraints, shortages and delays, along with inflationary pricing pressures. Governmental vaccine mandates 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 Quarterly Report on Form 10-Q. These estimates may change, as new events occur and additional information becomes available. Actual results may differ materially from these estimates, assumptions or conditions.
Note 2. Recently Issued Accounting Pronouncements
Recent Accounting Pronouncements 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 adoption of this guidance did not have an impact on the Company’s Consolidated Financial Statements.
In December 2019, the FASB issued guidance which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The 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. This new guidance removes separation models for certain convertible debt instruments which will now be accounted for as a single liability measured at amortized cost. In addition, the interest expense recognized for these instruments will typically be closer to the coupon interest rate due to the removal of the separation model’s non-cash discount amortization. ASU 2020-06 is effective for the Company in the first quarter of fiscal 2023, with early adoption permitted for the first quarter of fiscal 2022. Adoption of the new guidance can either be on a modified retrospective or full retrospective method.
The Company adopted ASU 2020-06 effective the first quarter of fiscal 2022, on the full retrospective basis. The elimination of the separation model for the convertible debt instruments reclassified the equity components of the Company’s 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 $20.3 million and $21.4 million for fiscal years ending June 27, 2020 and July 3, 2021, 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.
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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 Balance Sheet as of June 27, 2020 and July 3, 2021 (in millions):
June 27, 2020
As ReportedAdjustmentAs Adjusted
LIABILITIES AND STOCKHOLDERS’ EQUITY
Long-term debt$600.9 $78.2 $679.1 
Additional paid-in capital70,274.3 (128.2)70,146.1 
Accumulated deficit$(69,397.2)$50.0 $(69,347.2)
July 3, 2021
As ReportedAdjustmentAs Adjusted
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt$414.2 $42.4 $456.6 
Long-term debt209.8 14.3 224.1 
Mezzanine equity - convertible notes45.8 (45.8) 
Additional paid-in capital70,265.5 (82.3)70,183.2 
Accumulated deficit$(69,393.7)$71.4 $(69,322.3)
The following table presents the impact of the standard adoption to select line items of the Company’s Consolidated Statement of Operations for the three months ended October 3, 2020 (in millions, except per-share data):
Three Months Ended October 3, 2020
As ReportedAdjustmentAs Adjusted
Interest Expense$(9.0)$5.4 $(3.6)
Net income$14.3 $5.4 $19.7 
Net income per share:
Basic$0.06 $0.03 $0.09 
Diluted$0.06 $0.02 $0.08 
Shares used in per-share calculation:
Basic228.80.00228.8
Diluted231.80.00231.8
Recent Accounting Pronouncements Not Yet Adopted
In October 2021, the FASB issued guidance which improves accounting for acquired revenue contracts with customers in a business combination. The guidance is effective for the Company in first quarter of fiscal year 2024 and early adoption is permitted. The Company is evaluating the effects that the adoption of this guidance will have on its financial statements.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3. Earnings Per Share
The following table sets forth the computation of basic and diluted net income per share (in millions, except per share data):
 Three Months Ended
 October 2, 2021October 3, 2020
Numerator:  
Net (loss) income$(54.8)$19.7 
Denominator:
Weighted-average shares outstanding:
Basic 231.1 228.8 
Effect of dilutive securities from stock-based compensation plans 3.0 
Diluted231.1 231.8 
Net (loss) income per share:
Basic$(0.24)$0.09 
Diluted$(0.24)$0.08 

The following table sets forth the weighted-average potentially dilutive securities excluded from the computation of the diluted net income per share because their effect would have been anti-dilutive (in millions):
 Three Months Ended
 October 2, 2021October 3, 2020
(1)(2)
Restricted stock units6.1 1.0 
Stock options and ESPP1.5  
Shares issuable from Senior Convertible Notes8.3  
Total potentially dilutive securities15.9 1.0 
(1)    As the Company incurred a loss from continuing operations in the period, potential securities from employee stock options, Employee Stock Purchase Plan (ESPP), restricted stock units (RSUs), performance stock units (PSUs) and Senior Convertible Notes have been excluded from the dilutive net loss per share computations as their effects were deemed anti-dilutive.
(2)    The Company’s 1.00% Senior Convertible Notes due 2024 are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the money” conversion benefit feature at the conversion price above $13.22 per share is payable in cash, shares of the Company’s common stock or a combination of both, at the Company’s election. The Company’s average stock price for the period presented did not exceed the conversion price of $13.22. In addition, the Company’s 1.75% Senior Convertible Notes due 2023 are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the money” conversion benefit feature at the conversion price above $13.94 per share is payable in cash, shares of the Company’s common stock or a combination of both, at the Company’s election. The Company’s average stock price for the period presented did not exceed the conversion price of $13.94. Refer to “Note 11. Debt” for more details.
Note 4. Accumulated Other Comprehensive Loss
The Company’s accumulated other comprehensive loss consists of the accumulated net unrealized gains or losses on available-for-sale investments, foreign currency translation adjustments and change in unrealized components of defined benefit obligations.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the three months ended October 2, 2021, the changes in accumulated other comprehensive loss, net of tax, by component were as follows (in millions):
Unrealized losses on available-for sale investmentsForeign 
currency translation adjustments, net of tax
Change in unrealized components of defined benefit obligations (1)
Total
Beginning balance as of July 3, 2021$(5.1)$(68.1)$(24.0)$(97.2)
Other comprehensive loss before reclassification0.1 (9.6) (9.5)
Amounts reclassified out of accumulated other comprehensive loss  0.8 0.8 
Net current-period other comprehensive loss0.1 (9.6)0.8 (8.7)
Ending balance as of October 2, 2021$(5.0)$(77.7)$(23.2)$(105.9)
(1)     The amount reclassified out of accumulated other comprehensive loss represents the amortization of actuarial losses included as a component of cost of revenues, research and development (R&D) and selling, general and administrative (SG&A) in the Consolidated Statement of Operations for the three months ended October 2, 2021. There was no tax impact for the three months ended October 2, 2021. Refer to “Note 17. Employee Pension and Other Benefit Plans” for more details on the computation of net periodic cost for pension plans.
Note 5. Acquisitions
During the three months ended October 2, 2021, the Company acquired all of the equity of one business for approximately $1.6 million cash consideration, of which $1.2 million was paid with cash on hand and $0.4M remains in current liabilities. The acquisition was accounted for as an asset purchase under the authoritative guidance. The developed technology will be amortized over its estimated useful life of 5 years.
Prior Year Acquisitions
3Z Telecom, Inc. 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 acquisition of 3Z expands the Company’s Field Instrument offerings.
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 to be paid based on the achievement of certain gross profit targets over approximately a four year period, subsequent to the RPC Close Date. The acquisition of RPC expands the Company’s 3D Sensing offerings.
Other Acquisition
During the twelve months ended June 27, 2020, the Company completed a business acquisition for total consideration of approximately $5.2 million in cash paid at close and an earn-out liability of up to $5.5 million in cash to be paid based on the occurrence or achievement of certain agreed upon targets. In connection with this acquisition, the Company recorded approximately $6.2 million of developed technology and customer relationships and $1.4 million of deferred tax liability resulting from the acquisitions. The acquired developed technology and customer relationship assets are being amortized over their estimated useful lives of six years.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table provides a reconciliation of changes in the fair value of the Company’s earn-out liabilities associated with Company’s acquisitions for the three months ended October 2, 2021 and October 3, 2020 (in millions):
Three Months Ended
October 2, 2021October 3, 2020
Beginning period balance$4.0 $9.9 
Fair value adjustment of earn-out liabilities0.3  
Ending period balance$4.3 $9.9 
No payments were made in connection with the Company’s earn-out liabilities during the three months ended October 2, 2021 and October 3, 2020.
Note 6. Balance Sheet and Other Details
Contract Balances
Gross receivables include both billed and unbilled receivables (Unbilled Receivables and Contract Assets). As of October 2, 2021, and July 3, 2021, the Company had total unbilled receivables of $6.5 million and $6.2 million, respectively.
The Company also has short-term and long-term deferred revenues related to undelivered hardware and professional services, consisting of installations and consulting engagements, which are recognized as the Company's performance obligations under the contract are completed and accepted by the customer.
The following tables summarize the activity related to deferred revenue (in millions):
October 2, 2021
Three months ended
Deferred revenue:
Balance at beginning of period$89.5 
Revenue deferrals for new contracts (1)
27.0 
Revenue recognized during the period (2)
(31.4)
Balance at end of period (3)
$85.1 
Short-term deferred revenue$66.6 
Long-term deferred revenue$18.5 
(1)    Included in these amounts is the impact from foreign currency exchange rate fluctuations.
(2)    Revenue recognized during the period represents releases from the balance at the beginning of the period as well as releases from the current period deferrals.
(3)    The long-term portion of deferred revenue is included as a component of other non-current liabilities, on the Consolidated Balance Sheets.

Remaining performance obligation estimates are subject to change and are affected by several factors, including terminations, changes in the scope of contracts, adjustments for revenue that have not materialized, and adjustments for currency.
The value of the transaction price allocated to remaining performance obligations as of October 2, 2021, was $250.3 million. The Company expects to recognize approximately 92% of remaining performance obligations as revenue within the next 12 months, and the remainder thereafter.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Accounts receivable allowance - Credit losses
The following table presents the activities and balances for allowance for credit losses (in millions):
July 3, 2021Charged to Costs and Expenses
Deductions (1)
October 2, 2021
Allowance for credit losses$2.0 $0.2 $(0.2)$2.0 
(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):
October 2, 2021July 3, 2021
Finished goods$40.9 $41.0 
Work in process15.3 16.6 
Raw materials46.6 37.3 
Inventories, net$102.8 $94.9 
Prepayments and other current assets
The following table presents the components of prepayments and other current assets (in millions):
October 2, 2021July 3, 2021
Prepayments$13.1 $13.4 
Asset held for sale6.5 6.5 
Advances to contract manufacturers13.0 10.1 
Refundable income taxes7.4 5.9 
Transaction tax receivables17.9 13.2 
Other current assets7.1 7.9 
Prepayments and other current assets$65.0 $57.0 
Other current liabilities
The following table presents the components of other current liabilities (in millions):
October 2, 2021July 3, 2021
Customer prepayments$0.8 $0.4 
Restructuring accrual0.2 0.5 
Income tax payable22.5 22.6 
Warranty accrual, current4.5 4.3 
Transaction tax payable4.8 4.9 
Operating lease liabilities (Note 12)10.4 11.6 
Other14.2 12.8 
Other current liabilities$57.4 $57.1 
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other non-current liabilities
The following table presents components of other non-current liabilities (in millions):
October 2, 2021July 3, 2021
Pension and post-employment benefits$94.5 $97.0 
Financing obligation16.5 16.1 
Deferred tax liability21.8 24.3 
Long-term deferred revenue18.5 19.8 
Warranty accrual, non-current5.8 5.4 
Operating lease liabilities (Note 12)28.4 30.8 
Uncertain tax position18.4 18.3 
Other13.8 14.3 
Other non-current liabilities$217.7 $226.0 
Note 7. Investments and Forward Contracts
Short-Term Investments
As of October 2, 2021 the Company’s short-term investments of $1.6 million were comprised primarily of trading securities related to the deferred compensation plan, of which $0.3 million was invested in debt securities, $0.3 million was invested in money market instruments and $1.0 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in the Company’s Consolidated Statements of Operations as a component of Interest income and other income, net.
As of July 3, 2021, the Company’s short-term investments of $1.6 million were comprised primarily of trading securities related to the deferred compensation plan, of which $0.3 million was invested in debt securities, $0.3 million was invested in money market instruments and $1.0 million was invested in equity securities. Trading securities are reported at fair value, with the unrealized gains or losses resulting from changes in fair value recognized in the Company’s Consolidated Statements of Operations as a component of Interest income and other income, net.
Non-Designated Foreign Currency Forward Contracts
The Company has foreign subsidiaries that operate and sell the Company’s products in various markets around the world. As a result, the Company is exposed to foreign exchange risks. The Company utilizes foreign exchange forward contracts to manage foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions. The Company does not use these foreign currency forward contracts for trading purposes.
As of October 2, 2021, the Company had forward contracts that were effectively closed but not settled with the counterparties by quarter end. Therefore, the fair value of these contracts of $1.1 million and $2.9 million is reflected as prepayments and other current assets and other current liabilities, 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 quarter end; therefore, the fair value of the contracts is not significant. As of October 2, 2021 and July 3, 2021, the notional amounts of the forward contracts the Company held to purchase foreign currencies were $158.5 million and $114.0 million, respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were $20.8 million and $27.8 million, respectively.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The change in the fair value of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of Interest income and other income, net. The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities. The foreign exchange forward contracts incurred a loss of $1.8 million for the three months ended October 2, 2021 and a gain of $6.5 million for the three months ended October 3, 2020.
Note 8. Fair Value Measurements
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 as follows:
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, foreign currency forward contracts and long-term debt. To estimate their fair value, the Company utilizes pricing models based on market data. The significant inputs for the valuation model usually include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events.
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 October 2, 2021 and July 3, 2021, the Company did not hold any Level 3 investment securities. The Company’s Level 3 liabilities as of October 2, 2021 and July 3, 2021, consist of contingent purchase consideration. The Company has aggregate contingent liabilities related to its business and asset acquisitions completed during fiscal 2020 and 2019. 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 expense of the Consolidated Statements of Operations.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Measurements
The Company’s assets and liabilities measured at fair value for the periods presented are as follows (in millions):
October 2, 2021July 3, 2021
TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
Assets:      
Debt available-for-sale securities:   40   
Asset-backed securities$0.5 $ $0.5 $ $0.4 $ $0.4 $ 
Total debt available-for-sale securities0.5  0.5  0.4  0.4  
Money market funds635.2 635.2   408.9 408.9   
Trading securities1.6 1.6   1.6 1.6   
Foreign currency forward contracts (1)
1.1  1.1  2.6  2.6  
Total assets (2)
$638.4 $636.8 $1.6 $ $413.5 $410.5 $3.0 $ 
Liability:
Foreign currency forward contracts (3)
$2.9 $ $2.9 $ $1.4 $ $1.4 $ 
Contingent consideration (4)
4.3   4.3 4.0   4.0 
Total liabilities$7.2 $ $2.9 $4.3 $5.4 $ $1.4 $4.0 
(1)$1.1 million and $2.6 million in prepayments and other current assets on the Company’s Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021, respectively.
(2)Includes as of October 2, 2021, $626.7 million in cash and cash equivalents, $1.6 million in short-term investments, $3.0 million in restricted cash, $1.1 million in prepayments and other current assets and $6.0 million in other non-current assets on the Company’s Consolidated Balance Sheets. Includes as of July 3, 2021, $401.0 million in cash and cash equivalents, $1.6 million in short-term investments, $2.7 million in restricted cash, $2.6 million in prepayments and other current assets, and $5.6 million in other non-current assets on the Company’s Consolidated Balance Sheets.
(3)$2.9 million and $1.4 million in other current liabilities on the Company’s Consolidated Balance Sheets as of October 2, 2021 and July 3, 2021, respectively.
(4)Includes $4.3 million and $4.0 million in other current liabilities as of October 2, 2021 and July 3, 2021, respectively.

Other Fair Value Measures
Fair Value of Long-term Debt: If measured at fair value in the Consolidated Balance Sheets, the Company’s 1.75% Senior Convertible Notes (2023 Notes) and 1.00% Senior Convertible Notes (2024 Notes) would be classified in Level 2 of the fair value hierarchy as they are not actively traded in the markets. As of October 2, 2021 and July 3, 2021, the fair value of the 2023 Notes was approximately $165.3 million and $300.7 million, respectively and the fair value of the 2024 Notes was approximately $368.4 million and $646.9 million, respectively. See “Note 11. Debt”, for further discussion of the Company’s long-term debt.
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VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 9. Goodwill
The following table presents changes in goodwill allocated to the Company’s reportable segments (in millions):
Network EnablementService Enablement
Optical Security
and Performance
Products
Total
Balance as of July 3, 2021$349.7 $4.6 $42.2