VIAVI SOLUTIONS INC.
430 North McCarthy Boulevard
Milpitas, California 95035
(408) 404-3600
Notice of Annual Meeting of Stockholders
and Proxy Statement
2016 Annual Report
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
WE ENCOURAGE YOU TO READ THIS PROXY STATEMENT AND SUBMIT YOUR PROXY OR VOTING
INSTRUCTIONS AS SOON AS POSSIBLE.
PLEASE REFER TO (I) THE INSTRUCTIONS OF THE NOTICE OF INTERNET AVAILABILITY OF PROXY
MATERIALS YOU RECEIVED IN THE MAIL, (II) THE SECTION ENTITLED GENERAL INFORMATION
BEGINNING ON PAGE 1 OF THIS PROXY STATEMENT, OR (III) IF YOU REQUESTED TO RECEIVE
PRINTED PROXY MATERIALS, YOUR ENCLOSED PROXY CARD.
GO GREEN!
REGISTER ELECTRONICALLY FOR STOCKHOLDER MATERIALS
Viavi is pleased to take advantage of the Securities and Exchange Commission (the “SEC”) rules allowing companies to furnish this
Proxy Statement and Annual Report over the Internet to our stockholders who hold Common Stock. We believe that this e-proxy
process, also known as “Notice and Access” will expedite the receipt of proxy materials by our stockholders, reduce our printing and
mailing expenses and reduce the environmental impact of producing the materials required for our Annual Meeting.
You should refer to the “General Information” portion of the following Proxy Statement or contact our Investor Relations hotline at
408- 404-6305 for assistance regarding instructions on how to register for and access our Proxy Statement and Annual Report online.
Viavi Solutions Inc.
Notice of Annual Meeting of Stockholders
To Be Held on November 15, 2016
September 30, 2016
Dear Viavi Stockholder:
We cordially invite you to attend the Viavi Solutions Inc. 2016 Annual Meeting of Stockholders, which will be held on November 15, 2016
at 9:00 a.m. Pacific Time at 690 North McCarthy Boulevard, Milpitas, California 95035.
This year’s Annual Meeting will consider the following proposals:
1.
2.
3.
4.
To elect eight directors to serve until the 2017 annual meeting of stockholders and until their successors are elected and qualified.
To ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the
fiscal year ending July 1, 2017.
To consider a non-binding advisory vote on the compensation of our named executive officers.
To consider such other business as may properly come before the annual meeting and any adjournment or postponement thereof.
These items of business are more fully described in the Proxy Statement which is attached and made a part hereof. Stockholders of record
as of the close of business on September 19, 2016 are entitled vote at this year’s Annual Meeting and any adjournment or postponement.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
VOTE PROMPTLY. For specific instructions on how to vote your shares please refer to (i) the Notice of Internet Availability of Proxy
Materials (the “Notice”) you received in the mail, (ii) the section entitled General Information beginning on page 1 of this Proxy
Statement, or (iii) if you requested to receive printed proxy materials, your enclosed Proxy Card. As specified in the Notice you may
vote your shares by using the Internet or the telephone. All stockholders may also vote shares by marking, signing, dating and
returning the Proxy Card in the enclosed postage-prepaid envelope. If you send in your Proxy Card and then decide to attend the
Annual Meeting to vote your shares in person, you may still do so. Your proxy is revocable in accordance with the procedures set
forth in the Proxy Statement.
Sincerely,
Oleg Khaykin
Chief Executive Officer and President
(This page intentionally left blank.) VIAVI SOLUTIONS INC.
430 North McCarthy Boulevard
Milpitas, California 95035
(408) 404-3600
PROXY STATEMENT
GENERAL INFORMATION
Why am I receiving these proxy materials?
The Board of Directors (the “Board” or “Board of Directors”) of
Viavi Solutions Inc., a Delaware corporation (the “Company”), is
furnishing these proxy materials to you in connection with the
Company’s 2016 Annual Meeting of stockholders (the “Annual
Meeting”). The Company has also sent printed copies of the
proxy materials by mail to each holder of Common Stock who
has requested such copy. The Annual Meeting will be held at
690 North McCarthy Boulevard, Milpitas, California 95035, on
November 15, 2016 at 9:00 a.m., Pacific Time. You are invited
to attend the Annual Meeting and are entitled and requested
to vote on the proposals outlined in this proxy statement
(“Proxy Statement”).
What is the Notice of Internet Availability of Proxy Materials?
(the
Pursuant to rules adopted by the Securities and Exchange
Commission
“SEC”), we have elected to provide
stockholders with access to our proxy materials over the
Internet. Most of our stockholders will not receive printed
copies of the proxy materials unless they request them.
Instead, the “Notice of Internet Availability of Proxy Materials”
(the “Notice”), which was mailed on or about September 30,
2016 to our stockholders who held Common Stock as of the
record date, will instruct you as to how you may access and
review all of the proxy materials on the Internet. The Notice
also instructs you as to how you may submit your proxy on the
Internet. If you would like to receive a paper or e-mail copy of
our proxy materials, you should follow the instructions in the
Notice for requesting such materials.
How do I obtain electronic access to the proxy materials?
The Notice will provide you with instructions regarding how to:
• View our proxy materials for the Annual Meeting on the
Internet; and
Instruct us to send our future proxy materials to you
electronically by e-mail.
•
Choosing to receive your future proxy materials by e-mail will
save us the cost of printing and mailing documents to you and
will reduce the impact of printing and mailing these materials
on the environment. If you choose to receive future proxy
materials by e-mail, you will receive an e-mail next year with
instructions containing a link to those materials and a link to
the proxy voting site. Your election to receive proxy materials
by e-mail will remain in effect until you terminate it.
1
2016 Proxy Statement What if I prefer to receive paper copies of the materials?
If you would prefer to continue receiving paper copies of proxy
materials, please mark the “Paper Copies” box on your Proxy
Card (or provide this information when you vote telephonically
or via the Internet). The Company must provide paper copies
via first class mail to any stockholder who, after receiving the
Notice, requests a paper copy. Accordingly, even if you do not
check the “Paper Copies” box now, you will still have the right
to request delivery of a free set of proxy materials upon receipt
of any Notice in the future.
Additionally, you may request a paper copy of the materials
by (i) calling 1-800-579-1639; (ii) sending an e-mail to
sendmaterial@proxyvote.com;
onto
www.ProxyVote.com. There is no charge to receive the materials
by mail. If requesting material by e-mail, please send a blank
e-mail with the 12 digit “Control Number” (located on the
second page of the Notice) in the subject line.
logging
(iii)
or
What proposals will be voted on at the Annual Meeting?
The following proposals are scheduled to be voted on at the
Annual Meeting:
1. To elect eight directors to serve until the 2017 annual
meeting of stockholders and until their successors are
elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as
the Company’s independent registered public accounting
firm (hereinafter referred to as “independent auditors”) for
the fiscal year ending July 1, 2017.
3. To consider a non-binding advisory vote on
the
compensation of our named executive officers (“NEOs”).
4. To consider such other business as may properly come
before the Annual Meeting and any adjournment or
postponement thereof.
What are the recommendations of the Company’s Board of Directors?
The Board recommends that you vote “FOR” each of the
proposals presented in this Proxy Statement.
Specifically, the Board recommends you vote:
• “FOR” the election of the directors,
• “FOR”
the
ratification of
appointment of
PricewaterhouseCoopers LLP as the Company’s independent
auditors for the fiscal year ending July 1, 2017, and
the
• “FOR”
the approval of
the Company’s executive
compensation programs.
What is the record date and what does it mean?
The record date for the Annual Meeting is September 19, 2016.
The record date is established by the Board as required by
Delaware law. Holders of shares of the Company’s Common
Stock at the close of business on the record date are entitled to
receive notice of the Annual Meeting and to vote at the Annual
Meeting and any adjournments or postponements thereof.
What shares can I vote?
Each holder of the Company’s common stock, par value $.001
per share (“Common Stock”), is entitled to one vote for each
share of Common Stock owned as of the record date
At the record date, 231,998,230 shares of Common Stock were
outstanding.
2
2016 Proxy Statement What constitutes a quorum?
The presence at the Annual Meeting, in person or by proxy,
of the holders of a majority of the shares of Common Stock
outstanding and entitled to vote on the record date will
constitute a quorum permitting the Annual Meeting to
conduct its business.
How are abstentions and broker non-votes treated?
Under Delaware law, an abstaining vote and a broker non-
vote are counted as present and are included for purposes
of determining whether a quorum
is present at the
Annual Meeting.
Broker non-votes are not included in the tabulation of the voting
results on the election of directors or issues requiring approval
of a majority of the shares present or represented by proxy
and entitled to vote at the Annual Meeting. A broker non-vote
occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee
does not have discretionary voting authority with respect to
that item and has not received instructions from the beneficial
owner. Under the rules that govern brokers who are voting
with respect to shares held by them as nominee, brokers have
the discretion to vote such shares only on routine matters.
Where a matter is not considered routine, shares held by your
broker will not be voted absent specific instruction from you,
which means your shares may go unvoted and not affect the
outcome if you do not specify a vote. None of the matters to be
voted on at the Annual Meeting are considered routine, except
for the ratification of the Company’s independent auditors.
For the purpose of determining whether the stockholders
have approved matters, other than the election of directors,
abstentions will have the same effect as a vote against
the proposal.
What is the voting requirement to approve each of the proposals?
Proposal 1. Each director must be elected by the affirmative
vote of a majority of the shares of Common Stock cast with
respect to such director by the shares present in person or
represented by proxy at the Annual Meeting and entitled to
vote on the proposal. This means that the number of votes cast
for a director must exceed the number of votes cast against that
director, with abstentions and broker non-votes not counted
as votes cast as either for or against such director’s election.
2.
the
Ratification
appointment
Proposal
of
of
PricewaterhouseCoopers LLP as the Company’s independent
auditors requires the affirmative vote of a majority of the shares
of Common Stock present or represented by proxy and entitled
to vote on this proposal at the Annual Meeting. As a result,
abstentions will have the same effect as votes against the
proposal. Brokers will have discretion to vote on this proposal.
Proposal 3. Approval of the non-binding advisory vote on the
Company’s executive compensation programs requires the
affirmative vote of a majority of the shares of Common Stock
present or represented by proxy and entitled to vote on this
proposal at the Annual Meeting. As a result, abstentions will
have the same effect as votes against the proposal. Broker
non-votes will have no effect on the outcome of this vote.
All shares of Common Stock represented by valid proxies will be
voted in accordance with the instructions contained therein. In
the absence of instructions, proxies from holders of Common
Stock will be voted in accordance with the recommendations
set forth in the Proxy Statement.
How do I vote my shares?
You can either attend the Annual Meeting and vote in person
or give a proxy to be voted at the Annual Meeting:
• electronically, using
the
Internet and
following
the
instructions provided in the Notice you received by mail.
• by mailing the enclosed proxy card or voting instruction form;
• over the telephone by calling a toll-free number; or
3
2016 Proxy StatementPROXY STATEMENT The Internet and telephone voting procedures have been set
up for your convenience and are designed to authenticate
the stockholders’ identities, to allow them to provide their
voting instructions, and to confirm that their instructions
have been recorded properly. The Company believes the
procedures which have been put in place are consistent with
the requirements of applicable law. Specific instructions for
record holders of Common Stock who wish to use the Internet
or telephone voting procedures are set forth on the enclosed
proxy card.
If you have any questions or require any assistance with voting
your shares, please contact our proxy solicitor by any of the
methods listed below:
The Harkins Group
1 Rockefeller Plaza, 10th Floor
New York, New York 10020
Call Collect: +1 (212) 468-5380
Call Toll-Free: +1 (844) 218-8384 (U.S. and Canada)
Email: viavi@harkinsgroup.com
Who will tabulate the votes?
An automated system administered by Broadridge Financial
Services, Inc. (“Broadridge”) will tabulate votes cast by proxy at
the Annual Meeting and a representative of the Company will
tabulate votes cast in person at the Annual Meeting.
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify
individual stockholders are handled in a manner that protects
your voting privacy. Your vote will not be disclosed either within
the Company or to third parties, except as necessary to meet
applicable legal requirements or to allow for the tabulation
and/or certification of the vote.
Can I change my vote after submitting my proxy?
You may revoke your proxy at any time before the final
vote at the Annual Meeting. You may do so by one of the
following ways:
• submitting another proxy card bearing a later date;
• sending a written notice of revocation to the Company’s
Corporate Secretary at 430 North McCarthy Boulevard,
Milpitas, California, 95035;
• submitting new voting instructions via telephone or the
Internet; or
• attending AND voting in person at the Annual Meeting.
Who is paying for this proxy solicitation?
This solicitation is made by the Company. The Company will
bear the cost of soliciting proxies, including preparation,
assembly, printing and mailing of the Proxy Statement. If
you are a holder of Common Stock and if you choose to
access the proxy materials and/or vote over the Internet, you
are responsible for Internet access charges you may incur.
If you choose to vote by telephone, you are responsible for
telephone charges you may incur. The Company has retained
the services of The Harkins Group as its proxy solicitor for this
year for a fee of approximately $15,000 plus reasonable out-
of-pocket costs and expenses. In addition, the Company will
reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may
be solicited by certain of the Company’s directors, officers and
regular employees, without additional compensation, either
personally, by telephone, facsimile, or telegram.
4
2016 Proxy StatementPROXY STATEMENT How can I find out the voting results?
The Company will announce the preliminary results at the
Annual Meeting and publish the final results in a Current
Report on Form 8-K within four business days after the Annual
Meeting. Stockholders may also find out the final results
by calling the Company’s Investor Relations Department at
(408) 404-6305.
How do I receive electronic access to proxy materials for the current
and future annual meetings?
Stockholders who have previously elected to receive the Proxy
Statement and Annual Report over the Internet will be receiving
an e-mail on or about September 30, 2016 with information
on how to access stockholder information and instructions for
voting over the Internet. Stockholders of record may vote via
the Internet until 11:59 p.m. Eastern Time, November 14, 2016.
If your shares are registered in the name of a brokerage firm
and you have not elected to receive your Proxy Statement and
Annual Report over the Internet, you still may be eligible to vote
your shares electronically over the Internet. A large number of
brokerage firms are participating in the ADP online program,
which provides eligible stockholders who receive a paper copy
of this Proxy Statement the opportunity to vote via the Internet.
If your brokerage firm is participating in ADP’s program, your
proxy card will provide instructions for voting online.
Stockholders can elect to view future proxy statements and
annual reports over the Internet instead of receiving paper
copies, which results in cost savings for the Company. If you
are a stockholder of record and would like to receive future
stockholder materials electronically, you can elect this option
by following the instructions provided when you vote your
proxy over the Internet at www.ProxyVote.com.
If you chose to view future proxy statements and annual
reports over the Internet, you will receive an e-mail notification
next year with instructions containing the Internet address of
those materials. Your choice to view future proxy statements
and annual reports over the Internet will remain in effect until
you contact either your broker or the Company to rescind your
instructions. You do not have to elect Internet access each year.
If you elected to receive this Proxy Statement electronically
over the Internet and would now like to receive a paper copy
of this Proxy Statement so that you may submit a paper proxy
in lieu of an electronic proxy, you should contact your broker
or the Company.
How can I avoid having duplicate copies of the Proxy Statement sent
to my household?
Some brokers and other nominee record holders may
be participating in the practice of “householding” proxy
statements and annual reports, which results in cost savings
for the Company. Householding means that only one copy
of the Proxy Statement and Annual Report, or notice of
internet availability of proxy materials will be sent to multiple
stockholders who share an address. The Company will promptly
deliver a separate copy of either document to any stockholder
who contacts the Company’s Investor Relations Department
at (408) 404-6305 or 430 North McCarthy Boulevard, Milpitas,
California, 95035 Attention:
Investor Relations, requesting
such copies. If a stockholder is receiving multiple copies of
the Proxy Statement and Annual Report at the stockholder’s
household and would like to receive a single copy of those
documents for a stockholder’s household in the future, that
stockholder should contact their broker, other nominee record
holder, or the Company’s Investor Relations Department to
request mailing of a single copy of the Proxy Statement and
Annual Report.
5
2016 Proxy StatementPROXY STATEMENT When are stockholder proposals due for next year’s annual meeting?
In order for stockholder proposals to be considered properly
brought before an annual meeting, the stockholder must have
given timely notice in writing to the Secretary of the Company.
To be timely for the 2017 annual meeting of stockholders
(the “2017 Annual Meeting”), a stockholder’s notice must be
received by the Company at its principal executive offices
not less than 60 days nor more than 90 days prior to first
anniversary of the date of the prior year’s annual meeting;
provided, however, that if no meeting was held the prior year,
or if the date of the annual meeting is advanced by more than
30 days or delayed (other than as a result of adjournment) by
more than 60 days, notice must be received by the Company
no later than the 90th day prior to the annual meeting or the
10th day following the public announcement of the meeting
date. A stockholder’s notice to the Secretary must set forth as
to each matter the stockholder proposes to bring before the
2017 Annual Meeting: (i) a brief description of the business
desired to be brought before the 2017 Annual Meeting and
the text of the proposal or business; (ii) the name and record
address of the stockholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is being
made; (iii) a representation that the stockholder is a holder of
record of the Company’s stock, is entitled to vote at the meeting
and intends to appear in person or by proxy to propose the
business specified in the notice; (iv) any material interest of
the stockholder or any proposing person in such business;
(v) the number of shares owned beneficially and of record
by the stockholder or proposing person, including derivative
interests, contracts or other agreements related to ownership
or rights to vote the Company’s shares and other economic
interests in the Company’s securities; and (vi) any other
information required pursuant to Section 14 of the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”).
Our Bylaws specify in greater detail the requirements as to the
form and content of a stockholder’s notice. We recommend
that any stockholder wishing to bring any item before an
annual meeting review a copy of our Bylaws, as amended and
restated to date, which can be found at www.viavisolutions.com.
We will not entertain any proposals at the 2017 Annual Meeting
that do not meet the requirements set forth in our Bylaws.
Subject to applicable laws and regulations, the Company has
discretion over what stockholder proposals will be included in
the agenda for the 2017 Annual Meeting and/or in the related
proxy materials. If the stockholder does not also comply with
the requirements of Rule 14a-4(c)(2) under the Exchange Act,
we may exercise discretionary voting authority under proxies
that we solicit to vote in accordance with our best judgment
on any such stockholder proposal.
Proposals that a stockholder intends to present at the 2017
Annual Meeting and wishes to be considered for inclusion in
the Company’s Proxy Statement for the 2017 Annual Meeting
must be received by the Company at its principal executive
offices not less than 120 days prior to the date the Proxy
Statement for the 2016 Annual Meeting was made available to
stockholders. If we change the date of the 2017 Annual Meeting
by more than 30 days from the anniversary of the date of this
year’s meeting, then the deadline to submit proposals will be
a reasonable time before we begin to print and mail our proxy
materials. All such proposals must comply with Rule 14a-8
under the Exchange Act, which lists the requirements for the
inclusion of stockholder proposals in Company-sponsored
proxy materials.
6
2016 Proxy StatementPROXY STATEMENT PROPOSAL 1
Election of Directors
At this Annual Meeting, the stockholders will elect seven
directors recommended by the Governance Committee
(which serves as the Company’s Nominating Committee) and
nominated by the Board, each to serve a one-year term until
the 2017 Annual Meeting of Stockholders and until a qualified
successor is elected and qualified or until the director’s earlier
resignation or removal. The Board has no reason to believe
that the nominees named below will be unable or unwilling to
serve as a director if elected.
Considerations in Director Selection
The Company’s Governance Committee is responsible for
reviewing, evaluating and nominating individuals for election
to the Company’s Board. The Governance Committee selects
nominees from a broad base of potential candidates. The
Governance Committee’s charter instructs it to seek qualified
candidates regardless of race, color, religion, ancestry, national
origin, gender, sexual orientation, etc. It is the Governance
Committee’s goal to nominate candidates with diverse
backgrounds and capabilities, to reflect the diverse nature
of the Company’s stakeholders (security holders, employees,
customers and suppliers), while emphasizing core excellence
in areas relevant to the Company’s long term business and
strategic objectives.
The Board believes that it is necessary for each of the Company’s
directors to possess many qualities and skills. When searching
for new candidates, the Governance Committee seeks
individuals of the highest ethical and professional character
who will exercise sound business judgment. The Governance
Committee also seeks people who are accomplished in their
respective field and have superior credentials. In selecting
nominees, the Governance Committee seeks individuals who
can work effectively together to further the interests of the
Company, while preserving their ability to differ with each
other on particular issues. A candidate’s specific background
and qualifications are also reviewed in light of the particular
needs of the Board at the time of an opening.
Each candidate must have an employment and professional
record which demonstrates, in the judgment of the Governance
Committee, that the candidate has sufficient and relevant
experience and background, taking into account positions
held and industries, markets and geographical locations
served, to serve on the Board in the proposed capacity. In
particular, the Governance Committee seeks candidates with
at least two years of experience serving as the Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer, Director,
or the equivalent of such positions, of a well-respected,
publicly-traded company.
Certain individual qualifications and skills of our directors
that contribute to the Board’s effectiveness as a whole are
described below.
7
2016 Proxy Statement 2016 Director Nominees
Richard E. Belluzzo
Age 62
Director Since: February 2005
Chairman of the Board Since: November 2012
Experience:
Mr. Belluzzo served as US Venture Partner of Innogest SGR SpA, a European Venture Fund since February 2015 and is also managing partner of Corso Partners
LLC. From April 2011 to August 2012, he served as Executive Chairman of Quantum Corporation, a provider of backup, recovery and archive products and
services. From 2002 to 2011, he was Chairman and Chief Executive Officer of Quantum Corporation. Prior to that, Mr. Belluzzo was President and Chief Operating
Officer of Microsoft Corporation. Prior to becoming its President and Chief Operating Officer, Mr. Belluzzo served as Microsoft’s group Vice President of the
Personal Services and Devices Group, and was Group Vice President for the Consumer Group. Prior to Microsoft, Mr. Belluzzo was Chief Executive Officer
of Silicon Graphics Inc. (“SGI”). Before SGI, Mr. Belluzzo held a series of increasingly senior roles at Hewlett Packard Company, culminating in his service as
Executive Vice President of the Computer Products Organization. Mr. Belluzzo recently served as a Board Member of PMC-Sierra (Vancouver, Canada) and
the Chairman of the board of directors, member of the governance and nominating committee, and Chairman of the compensation committee of InfoBlox.
Within the past five years, Mr. Belluzzo also served on the board of directors of Quantum Corporation.
Qualifications:
Mr. Belluzzo’s background and experience as the Chief Executive Officer of public companies, as well as his deep knowledge of the technology industry, senior
leadership roles and service on the boards of other prominent public companies allow him to contribute significantly to the Board and to its Compensation
and Governance Committees.
Keith Barnes
Age 65
Director Since: October 2011
Experience:
Mr. Barnes served as Chief Executive Officer of Verigy Ltd, a semiconductor automatic test equipment company, from 2006 through 2010 and as Chairman
of the Board of Verigy from 2008 through 2011. Prior to that he was Chairman and Chief Executive Officer of Electroglas, Inc. from 2003 through 2006 and
Chairman and Chief Executive Officer of IMS from 1995 through 2001. Mr. Barnes is currently a member of the board of directors, compensation committee, and
governance and nominating committee of Mentor Graphics, and a member of the board of directors, governance and nominating committee, and Chairman
of the audit committee of Knowles Corporation and a member of the board of directors, governance and nominating and compensation committees of
Rogers Corporation. Within the past five years, Mr. Barnes also served on the boards of directors of Intermec, Inc. and Spansion Inc.
Qualifications:
Mr. Barnes’ extensive management experience as chief executive officer of several technology companies, test and measurement industry background,
and international sales and marketing knowledge, along with his experience as a board member for several public technology companies, bring important
perspective and expertise to the Board and its Audit and Corporate Development Committees.
Tor Braham
Age 59
Director Since: October 2015
Experience:
Mr. Braham served as Managing Director and Global Head, Technology, Mergers and Acquisitions for Deutsche Bank Securities, from 2004 until 2012. From
2000 to 2004, he served as Managing Director and Co-head, West Coast U.S. Technology, Mergers and Acquisitions for Credit Suisse First Boston. Prior to that,
Mr. Braham was an investment banker with UBS Securities and a lawyer at a prominent Silicon Valley law firm. Mr. Braham currently serves as a member of
the Board of Directors at Yahoo, Inc. Within the past five years, Mr. Braham has also served on the boards of directors of Sigma Designs, Inc. and NetApp, Inc.
Qualifications:
Mr. Braham’s substantial M&A experience will assist the Board in evaluating the Company’s strategic opportunities.
8
2016 Proxy StatementPROPOSAL 1 Timothy Campos
Age 43
Director Since: April 2014
Experience:
Mr. Campos has served as the Chief Information Officer and Vice President of Information Technology of Facebook since August 2010. Prior to Facebook,
he served as the Chief Information Officer and Vice President of Information Technology at KLA-Tencor from 2005 to 2009. Prior to KLA-Tencor, Mr. Campos
worked at internet startup Portera Systems where he was responsible for engineering and hosting architecture.
Qualifications:
Mr. Campos’ extensive industry experience in enterprise networks, application hosting and managing big data provides valuable insight into those markets.
Donald Colvin
Age 63
Director Since: October 2015
Experience:
Mr. Colvin was the Interim Chief Financial Officer of Isola Group Ltd. from June 2015 to July 2016. Mr. Colvin previously served as Chief Financial Officer of
Caesars Entertainment Corporation from November 2012 to January 2015 and before that was Executive Vice President and Chief Financial Officer of ON
Semiconductor Corp. from April 2003 to October 2012. Prior to joining ON Semiconductor, he held a number of financial leadership positions, including Vice
President of Finance and Chief Financial Officer of Atmel Corporation, Chief Financial Officer of European Silicon Structures as well as several financial roles at
Motorola Inc. Mr. Colvin is a Director of Agilysys, Inc. and was previously a Director of Applied Micro Circuits Corp.
Qualifications:
Mr. Colvin’s financial expertise and service on several public company boards of directors will provide valuable perspective on the Company’s operations and
opportunities.
Masood A. Jabbar
Age 66
Director Since: March 2006
Experience:
Mr. Jabbar served as Lead Independent Director from November 2015 to February 2016. Mr. Jabbar was Chief Executive Officer of XDS Inc. from 2004 to
2006. Prior to that, he worked at Sun Microsystems Inc. from 1986 to 2003, where he served in a series of progressively responsible roles including President
of the Computer Systems Division, Chief Financial Officer of the $10 billion Sun Microsystems Computer Corporation, and Executive Vice President of Global
Sales Operations. Mr. Jabbar’s career at Sun culminated as Executive Vice President and Advisor to the Chief Executive Officer, where he was responsible for
advising the CEO on critical strategic issues. Prior to joining Sun, Mr. Jabbar spent ten years in finance and accounting at Xerox Corporation, and two years at
IBM Corporation. Within the past five years, Mr. Jabbar also served on the board of directors of Silicon Image, Inc. and RF Micro Devices, Inc.
Qualifications:
Mr. Jabbar brings significant mergers and acquisitions, global sales and marketing and operational expertise gained from his experience in executive roles at
Sun Microsystems, Inc. In addition, Mr. Jabbar’s experiences at Xerox and IBM and as a senior executive of Sun Microsystems provide the Board with valuable
accounting and financial reporting expertise particular relevant to his service on the Company’s Audit Committee. Finally, Mr. Jabbar’s service on the boards
of several other technology companies provides valuable perspective in his role as a director and chair of the Company’s Corporate Development Committee
and member of the Audit Committee.
9
2016 Proxy StatementPROPOSAL 1 Pamela Strayer
Age 48
Director Since: August 2015
Experience:
Ms. Strayer currently holds the position of Senior Vice President and Chief Financial Officer of Plantronics, Inc., an audio technology company. Prior to joining
Plantronics, from 2005 to 2012, Ms. Strayer held senior financial management roles at Autodesk, Inc., most recently Principal Accounting Officer and Vice
President Controller. From 1999 to 2005, Ms. Strayer held various senior level finance positions at Epiphany, Inc. Before Epiphany, Inc., Ms. Strayer worked in
senior level finance roles at RightPoint Software, which was acquired by Epiphany, and at Informix Software, Inc. Prior to Informix Software, Ms. Strayer worked
in public accounting for KPMG in Silicon Valley and for Price Waterhouse, LLP in Chicago, IL.
Qualifications:
Ms. Strayer is a finance executive with 25 years of experience in a broad range of corporate and finance business partner roles. Her deep technical accounting
and compliance background is rounded out with experience improving business operations globally, partnering with executive management on strategy
and resource allocation decisions and allows her to contribute significantly to the Board and to its Audit Committee as its chairman.
Oleg Khaykin
Age 51
Director Since: February 2016
Experience:
Mr. Khaykin joined Viavi in February 2016 as President and CEO. Prior to joining the Company, Mr. Khaykin was a Senior Advisor with Silver Lake Partners from
February 2015 to February 2016. Before that, he was President and CEO of International Rectifier from 2008 until its acquisition by Infineon AG in the January of
2015. He has also served as Chief Operating Officer of Amkor Technology and Vice President of Strategy & Business Development at Conexant Systems. Earlier
in his career he spent eight years with The Boston Consulting Group and prior to that, he was an engineer at Motorola.
Qualifications:
Mr. Khaykin’s hands on experience leading the Company provides him with day-to-day knowledge of the Company’s operations. Additionally, Mr. Khaykin’s
extensive operational and strategic experience at other technology companies adds substantial value to the Board and the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION TO THE BOARD OF EACH OF THE NOMINEES
NAMED ABOVE.
10
2016 Proxy StatementPROPOSAL 1 CORPORATE GOVERNANCE
Corporate Governance and Ethics
The Board and management of the Company believe that
good corporate governance is an important component in
enhancing investor confidence in the Company and increasing
stockholder value. Continuing to develop and implement best
practices throughout our corporate governance structure is
a fundamental part of our strategy to enhance performance
by creating an environment that
increases operational
efficiency and ensures long-term productivity growth. Good
corporate governance practices also ensure alignment with
stockholder interests by promoting fairness, transparency
and accountability in business activities among employees,
management and the Board.
Our corporate governance practices represent our commitment
to the highest standards of corporate ethics, compliance with
laws, financial transparency and reporting with objectivity and
the highest degree of integrity. Steps we have taken to fulfill
this commitment include, among others:
• Directors are elected on an annual basis.
• Election of directors requires the affirmative vote of a
majority of the shares of Common Stock cast with respect
to a director by the shares present in person or represented
by proxy at the Annual Meeting and entitled to vote on the
proposal, except in the case of contested elections.
• Our non-employee directors have an average tenure of
4.7 years, and half of the directors have been on the board
for less than 2.5 years.
• All members of the Board are independent with the
exception of the Company’s Chief Executive Officer.
Director Independence
• All members of our Board committees are independent.
• Our Board committee charters clearly establish the roles and
responsibilities of each committee.
• All employees and members of the Board are responsible
for complying with our Code of Business Conduct and our
Insider Trading Policy.
• We have an anonymous hotline to encourage employees to
report questionable activities to our Internal Audit and Legal
Departments, and the Audit Committee.
• Our independent public accountants report directly to the
Audit Committee.
• Our
internal audit control
function maintains critical
supervision over the key areas of our business and financial
controls and reports directly to our Audit Committee.
• We have established procedures
for stockholders to
communicate with the Board by contacting the Investor
Relations Department.
• The
independent members of our Board and Board
the presence
regularly without
committees meet
of management.
The Company has adopted a Code of Ethics (known as the
Code of Business Conduct) for its directors, officers and
other employees. The Company will post on its website
any amendments to, or waivers from, any provision of
its Code of Business Conduct. A copy of the Code of
Business Conduct is available on the Company’s website
at www.viavisolutions.com.
In accordance with current NASDAQ listing standards, the Board,
on an annual basis, affirmatively determines the independence
of each director and nominee for election as a director. Our
director independence standards include all elements of
independence set forth in the NASDAQ listing standards, and
can be found in our Corporate Governance Guidelines, which
are included in the “Corporate Governance” section of our
website at www.viavisolutions.com. The Board has determined
that each of its non-employee directors was independent as
determined by the relevant NASDAQ listing standard for board
independence and for any committee on which such director
served during fiscal year 2016. From August 2015 to February
2016, Richard Belluzzo assumed the role of Interim President
and Chief Executive Officer. Pursuant to the NASDAQ listing
standards, Mr. Belluzzo was not considered to be independent
while acting this capacity, but is not disqualified from later
being considered an independent director by virtue of his
employment status provided that he does not serve in such
capacity for more than one year.
The Company is not aware of any agreements or arrangements
between any director and any person or entity other than
the Company relating to compensation or other payment
in connection with such director’s candidacy or service as a
member of the Board.
11
2016 Proxy Statement Board Leadership
The Board has determined that it is in the best interests of
the Company to maintain the Board chairperson and chief
executive officer positions separately. The Board believes that
having an outside, independent director serve as chairperson
is the most appropriate leadership structure, as this enhances
its independent oversight of management and the Company’s
strategic planning, reinforces the Board’s ability to exercise its
independent judgment to represent stockholder interests, and
strengthens the objectivity and integrity of the Board. Moreover,
we believe an independent chairperson can more effectively
lead the Board in objectively evaluating the performance of
management, including the chief executive officer, and guide
it through appropriate Board governance processes. While
Mr. Belluzzo held the position of Interim President and Chief
Executive Officer the Board appointed Masood Jabbar as lead
independent director.
Board Oversight of Risk
The Company takes a comprehensive approach to risk
management. We believe risk can arise in every decision
and action taken by the Company, whether strategic or
operational. The Company, therefore, seeks to include risk
management principles in all of its management processes
and in the responsibilities of its employees at every level.
Our comprehensive approach is reflected in the reporting
processes by which our management provides timely and
comprehensive information to the Board to support the
Board’s role in oversight, approval and decision-making.
Management is responsible for the day-to-day supervision of
risk, while the Board, as a whole and through its committees,
has the ultimate responsibility for the oversight of risk
management. Senior management attends Board meetings,
provides presentations on operations including significant
risks, and is available to address any questions or concerns
raised by the Board. Additionally, our committees assist the
Board in fulfilling its oversight responsibilities. Generally, the
committee with subject matter expertise in a particular area
is responsible for overseeing the management of risk in that
area. For example, the Audit Committee coordinates the
Board’s oversight of the Company’s internal controls over
financial reporting and disclosure controls and procedures.
Management regularly reports to the Audit Committee on
these areas. Additionally, the Compensation Committee assists
the Board in fulfilling its oversight responsibilities with respect
to the management of risks arising from our compensation
policies and programs as well as succession planning for
senior executives. The Governance Committee assists the
Board in fulfilling its oversight responsibilities with respect to
the management of risks associated with board organization,
membership and structure, and corporate governance topics.
When any of the committees receives a report related to
material risk oversight, the chairman of the relevant committee
reports on the discussion to the full Board.
Compensation Program Risk Assessment
Consistent with SEC disclosure requirements, in fiscal year 2016
a team composed of senior members of our human resources,
legal departments and our compensation
finance and
consultant, Compensia, inventoried and reviewed elements
of our compensation policies and practices. This team then
reviewed these policies and practices with Company’s
management in an effort to assess whether any of our policies
or practices create risks that are reasonably likely to have a
material adverse effect on the Company. This assessment
included a review of the primary design features of the
Company’s compensation policies and practices, the process
for determining executive and employee compensation and
consideration of features of our compensation program that
help to mitigate risk. Management reviewed and discussed
the results of this assessment with the Compensation
Committee, which consulted with Compensia. Based on
this review, we believe that our compensation policies and
practices, individually and in the aggregate, do not create risks
that are reasonably likely to have a material adverse effect on
the Company.
12
2016 Proxy StatementCORPORATE GOVERNANCE Board Committees and Meetings
During fiscal year 2016, the Board held 6 meetings. The
Board has four regular committees: an Audit Committee,
Compensation Committee, Governance Committee, and
Corporate Development Committee. The members of the
committees during fiscal year 2016 are identified below.
Each director attended at least 75% of the aggregate of all
meetings of the Board and any committees on which he or she
served during fiscal year 2016 after becoming a member of the
Board or after being appointed to a particular committee. The
Company encourages, but does not require, its Board members
to attend the Annual Meeting. All then-current directors
attended the 2015 Annual Meeting, except Timothy Campos.
the Company’s financial statements;
financial reporting practices;
Audit Committee
The Audit Committee is responsible for assisting the full Board in fulfilling its oversight responsibilities relative to:
•
•
• systems of internal accounting and financial control;
•
• annual independent audits of the Company’s financial statements; and
• such legal and ethics programs as may established from time to time by the Board.
internal audit function;
Members:
Pamela Strayer (Chair)
Keith Barnes
Masood Jabbar
Meetings: 9
The Audit Committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the
Company and may retain external consultants at its sole discretion. In addition, the Audit Committee considers whether the Company’s independent auditors’
provision of non-audit services is compatible with maintaining the independence of the independent auditors. The Board has determined that all members
of the Audit Committee are “independent” as defined in the applicable rules and regulations of the SEC and NASDAQ. The Board has further determined that
Keith Barnes, Pamela Strayer and Masood A. Jabbar are “audit committee financial expert(s)” as defined by Item 401(h) of Regulation S-K of the Exchange Act.
A copy of the Audit Committee charter can be viewed at the Company’s website at www.viavisolutions.com.
Compensation Committee
The Compensation Committee is responsible for:
• ensuring that the Company adopts and maintains responsible and responsive compensation programs for its
employees, officers and directors consistent with the long-range interests of stockholders; and
the administration of the Company’s employee stock purchase plans and equity incentive plans.
•
Members:
Keith Barnes (Chair)
Richard Belluzzo
Timothy Campos
Meetings: 5
The chair of the Compensation Committee reports on the Compensation Committee’s actions and recommendations at Board meetings. In addition, the
Compensation Committee has the authority to engage the services of outside advisors, experts and others to provide assistance as needed. During fiscal year
2016, the Compensation Committee engaged Compensia, Inc. (“Compensia”), a national compensation consulting firm, to assist with the Committee’s analysis
and review of the compensation of our executive officers. Compensia attends all Compensation Committee meetings, works directly with the Committee
Chair and Committee members, and sends all invoices, including descriptions of services rendered, to the Committee Chair for review and payment approval.
Compensia performed no work for the Company that was not in support of the Committee’s charter nor authorized by the Committee Chair during fiscal
year 2016. All members of the Compensation Committee are “independent” as that term is defined in the applicable NASDAQ rules and regulations. A copy
of the Compensation Committee charter can be viewed at the Company’s website at www.viavisolutions.com. Additional information on the Compensation
Committee’s processes and procedures for consideration of executive compensation are addressed in the “Compensation Discussion and Analysis” below.
Pamela Strayer temporarily replaced Mr. Belluzzo as a member of the Compensation Committee during his service as Interim President and Chief Executive
Officer from August 2015 to February 2016.
13
2016 Proxy StatementCORPORATE GOVERNANCE Corporate Development Committee
The Corporate Development Committee is responsible for:
• oversight of the Company’s strategic transaction and investment activities.
Members:
Masood Jabbar (Chair)
Tor Braham
Timothy Campos
Donald Colvin
Meetings: 4
The Corporate Development Committee reviews and approves certain strategic transactions for which approval of the full Board is not required and
makes recommendations to the Board regarding those transactions for which the consideration of the full Board is appropriate. A copy of the Corporate
Development Committee charter can be viewed at the Company’s website at www.viavisolutions.com. Messrs. Colvin and Braham were added to the
Corporate Development Committee in October 2015.
Governance Committee
The Governance Committee:
• serves as the Company’s nominating committee;
•
•
reviews current trends and practices in corporate governance; and
recommends to the Board the adoption of governance programs.
Members:
Richard Belluzzo (Chair)
Keith Barnes
Meetings: 4
As provided in the charter of the Governance Committee, nominations for director may be made by the Governance Committee or by a stockholder of
record entitled to vote. The Governance Committee will consider and make recommendations to the Board regarding any stockholder recommendations
for candidates to serve on the Board. Stockholders wishing to recommend candidates for consideration by the Governance Committee may do so by writing
to the Company’s Corporate Secretary at 430 North McCarthy Boulevard, Milpitas, California 95035 providing the candidate’s name, biographical data and
qualifications, a document indicating the candidate’s willingness to act if elected, and evidence of the nominating stockholder’s ownership of Company’s
stock not less than 60 days nor more than 90 days prior to the first anniversary of the date of the preceding year’s annual meeting to assure time for meaningful
consideration by the Governance Committee. Our Bylaws specify in greater detail the requirements as to the form and content of the stockholder’s notice.
We recommend that any stockholder wishing to nominate a director review a copy of our Bylaws, as amended and restated to date, which can be found at
www.viavisolutions.com. There are no differences in the manner in which the Governance Committee evaluates nominees for director based on whether the
nominee is recommended by a stockholder. All members of the Governance Committee are “independent” as that term is defined in the applicable NASDAQ
rules and regulations.
In reviewing potential candidates for the Board, the Governance Committee considers the individual’s experience in the Company’s industry, the general
business or other experience of the candidate, the needs of the Company for an additional or replacement director, the personality of the candidate,
the candidate’s interest in the business of the Company, as well as numerous other subjective criteria. Of greatest importance is the individual’s integrity,
willingness to be involved and ability to bring to the Company experience and knowledge in areas that are most beneficial to the Company. The Governance
Committee intends to continue to evaluate candidates for election to the Board on the basis of the foregoing criteria. A detailed description of the criteria used
by the Governance Committee in evaluating potential candidates may be found in the charter of the Governance Committee.
The Governance Committee operates under a written charter setting forth the functions and responsibilities of the committee. A copy of the charter can
be viewed at the Company’s website at www.viavisolutions.com. Nominees for the 2016 Annual Meeting were selected by a majority of the independent
directors in office. Mr. Jabbar temporarily replaced Mr. Belluzzo as a member of the Compensation Committee during his service as Interim President and Chief
Executive Officer from August 2015 to February 2016.
14
2016 Proxy StatementCORPORATE GOVERNANCE Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between any member of
the Company’s Board or Compensation Committee and any
member of the board of directors or compensation committee
of any other companies, nor has such interlocking relationship
existed in the past. None of Messrs. Barnes or Campos or
Ms. Strayer, who served on the Company’s Compensation
Committee during fiscal year 2016, were at any time during
or prior to fiscal year 2016 an officer or employee of Viavi.
Mr. Belluzzo served as the Company’s Interim Chief Executive
Officer for a portion of fiscal year 2016, but did not serve on
the Compensation Committee during such time. In addition,
none of our executive officers serves as a member of the board
of directors or compensation committee of any company that
has one or more of its executive officers serving as a member
of our Board or Compensation Committee.
Communication between Stockholders and Directors
Stockholders may communicate with the Company’s Board
through the Company’s Secretary by sending an email to
bod@viavisolutions.com, or by writing to the following address:
Chairman of the Board, c/o Company Secretary, Viavi Solutions,
430 North McCarthy Boulevard, Milpitas, California 95035. The
Company’s Secretary will forward all correspondence to the
Board, except for spam, junk mail, mass mailings, product
Director Compensation
Each non-employee director of the Company is entitled to
receive an annual cash retainer of $60,000 which is paid in
quarterly installments of $15,000. During fiscal year 2016, each
non-employee director received an annual grant of restricted
stock units having a value of $200,000. This initial grant was
pro rated for directors who joined mid-year. The restricted
stock units are subject to a grant agreement which provides
for vesting on the first anniversary of the grant date. Upon
vesting each restricted stock unit is converted into one share
of the Company’s Common Stock. Upon retirement of a non-
employee director, any unvested options and restricted shares
of the Company’s Common Stock will automatically become
fully vested, and the exercise period for any such options will
be extended to expire on the expiration date of such options,
which is generally eight years from the date of grant. Upon
initial appointment to the Board, each non-employee director
receives a pro-rated portion of the annual non-employee
director grant.
In addition, each non-employee director serving on the Audit
Committee received an annual cash retainer of $15,000, whereas
the director serving as the Audit Committee chair received an
annual cash retainer of $30,000. Each non-employee director
serving on the Compensation Committee received an annual
cash retainer of $10,000, whereas the director serving as the
Compensation Committee chair received an annual cash
retainer of $20,000. Each non-employee director serving on the
Governance or Corporate Development Committees received
job
inquiries,
inquiries, surveys, business
complaints or
solicitations or advertisements, or patently offensive or
otherwise inappropriate material. The Company’s Secretary
may forward certain correspondence, such as product-related
inquiries, elsewhere within the Company for review and
possible response.
an annual cash retainer of $7,500, whereas the directors serving
as the Governance or Corporate Development Committee
chairs received an annual cash retainer of $15,000.
Mr. Jabbar, who served as Lead Independent Director from
November 2015 to February 2016, received a pro-rated cash
retainer of $18,750 as compensation for his services. Additionally,
Mr. Belluzzo received a pro-rated cash retainer of $39,549 for
the portion of fiscal 2016 during which he served as Chairman
of the Board but not as Interim Chief Executive Officer.
A special CEO search committee was formed in August 2015.
The committee members were Timothy Campos, Masood
Jabbar and Keith Barnes, who served as chairman of the
committee. Mr. Jabbar and Mr. Campos quarterly received cash
retainers of $7,500 and Mr. Barnes received a quarterly cash
retainer of $15,000. Committee members received additional
compensation for any meeting attended in excess of the first
10 meetings at a rate of $500 for meetings that were shorter
than an hour and $1,000 for meetings that were longer than an
hour. This resulted in an additional $5,000 in fees paid to each
committee member.
Directors who are also employed by the Company do not
receive any compensation for their services as directors.
Accordingly, Mr. Belluzzo did not receive compensation as
a member of the Board while he served as Interim President
and Chief Executive Officer. All directors are reimbursed for
expenses incurred in connection with attending Board and
committee meetings.
15
2016 Proxy StatementCORPORATE GOVERNANCE Director compensation described above is summarized in the following table:
Compensation Element for Role
General Board Service – Cash
Retainer
Meeting Fees
General Board Service – Equity
RSU Value
Vesting Schedule
Committee Service
(No meeting fees)
Non-Employee Board Chair
Additional Board Retainer
Additional Equity
Board Compensation
$60,000
Not applicable (“NA”)
$200,000
Vest on the first anniversary of the grant date
Number of shares determined using 30 calendar day average stock price prior to date
of grant
Audit
Compensation
Governance/Corporate Development
$75,000
NA
Chair
$30,000
$20,000
$15,000
Member
$15,000
$10,000
$7,500
The director compensation policies summarized above resulted in the following total compensation for our non-management
directors in fiscal year 2016:
Director Compensation Table
Name (1)
Keith Barnes (3)
Richard E. Belluzzo (4)
Tor Braham (5)
Timothy Campos (6)
Donald Colvin (7)
Masood A. Jabbar (8)
Pamela Strayer (9)
Fees Earned or
Paid in Cash
($)
137,500
89,732
62,511
97,500
62,511
143,750
86,069
Stock Awards
($) (2)
246,620
614,589
225,469
242,257
225,469
246,620
387,148
Option Awards
($) (2)
0
596
0
0
0
458
0
Total
($)
384,120
704,918
287,979
339,757
287,979
390,828
473,216
(1) Thomas Waechter and Oleg Khaykin, both of whom served as the Company’s Chief Executive Officer and President during fiscal year 2016, are not included in this table as they were
employees of the Company and as such received no compensation for their services as a director. Their compensation is disclosed in the Summary Compensation Table.
(2) The amounts shown in this column are the grant date fair value in the period presented as determined pursuant to stock-based compensation accounting rule FASB ASC Topic
718, excluding the effect of estimated forfeitures, as well as the incremental fair value attributable to stock awards that were modified in fiscal year 2016 in connection with the
separation of the Lumentum business. The assumptions used to calculate these amounts are set forth under Note 15 of the Notes to Consolidated Financial Statements included in
the Company’s Annual Report on Form 10-K for fiscal year 2016 filed with the SEC on August 30, 2016.
(3) Mr. Barnes had no options and 52,527 restricted stock units outstanding at the end of fiscal year 2016.
(4) Mr. Belluzzo had no options and 46,275 restricted stock units outstanding at the end of fiscal year 2016. Compensation reflects only cash and stock awards granted to Mr. Belluzzo
in connection with his service a member of the Board. Mr. Belluzzo’s full compensation, including amounts received while he served as Interim Chief Executive Officer is disclosed
in the Summary Compensation Table.
(5) Mr. Braham had no options and 36,919 restricted stock units outstanding at the end of fiscal year 2016.
(6) Mr. Campos had no options and 54,782 restricted stock units outstanding at the end of fiscal year 2016.
(7) Mr. Colvin had no options and 36,919 restricted stock units outstanding at the end of fiscal year 2016.
(8) Mr. Jabbar had no options and 52,527 restricted stock units outstanding at the end of fiscal year 2016.
(9) Ms. Strayer had no options and 67,401 restricted stock units outstanding at the end of fiscal year 2016.
16
2016 Proxy StatementCORPORATE GOVERNANCE Relationships Among Directors or Executive Officers
There are no family relationships among any of the Company’s directors or executive officers.
Certain Relationships and Related Person Transactions
Review and Approval of Related Person Transactions
We review all relationships and transaction in which the
Company and our directors and executive officers or their
immediate family members are participants to determine
whether such persons have a direct or indirect material interest.
The Company’s legal staff is primarily responsible for the
development and implementation of processes and controls
to obtain information from the directors and executive officers
with respect to related person transactions and for then
determining, based on the facts and circumstances, whether
the Company or a related person has a direct or indirect material
interest in the transaction. On an annual basis, all directors
and executive officers must respond to a questionnaire
requiring disclosure about any related person transactions,
arrangements or relationships (including indebtedness). As
required under SEC rules, any transactions that are determined
to be directly or indirectly material to the Company or a related
person are disclosed in the Company’s Proxy Statement. The
Audit Committee reviews and approves or ratifies any related
person transaction that is required to be disclosed. This review
and approval process is evidenced in the minutes of the Audit
Committee meetings.
Executive Officers
The following sets forth certain information regarding the Company’s executive officers as of the date of this Proxy Statement:
Executive Officer
Oleg Khaykin
Amar Maletira
Dion Joannou
Paul McNab
Ralph Rondinone
Luke Scrivanich
Kevin Siebert
Susan Spradley
Age
51
46
51
54
54
54
47
55
Position
Chief Executive Officer and President
Chief Financial Officer, Executive Vice President
Senior Vice President, Global Sales, Network Enablement and Service Enablement
Executive Vice President, Chief Marketing and Strategy Officer
Senior Vice President, Global Operations, Network Service Enablement
Senior Vice President & General Manager, Optical Security & Performance Products
Vice President, General Counsel and Secretary
Executive Vice President & General Manager Product Line Management & Design, Network Enablement
and Service Enablement
Oleg Khaykin joined Viavi in February 2016 as President
and CEO. Prior to joining the Company, Mr. Khaykin was a
Senior Advisor with Silver Lake Partners from February 2015
to February 2016. Before that, Mr. Khaykin was President and
CEO of International Rectifier from 2008 until its acquisition by
Infineon AG in the January of 2015. He has also served as Chief
Operating Officer of Amkor Technology and Vice President of
Strategy & Business Development at Conexant Systems. Earlier
in his career he spent eight years with The Boston Consulting
Group and prior to that, he was an engineer at Motorola.
Mr. Khaykin holds an MBA from Kellogg School of Management
at Northwestern University and a B.S. in Electrical and Computer
Engineering with honors from Carnegie-Mellon University.
Amar Maletira joined the Company in September 2015
as Chief Financial Officer. Prior to joining the Company,
Mr. Maletira spent 14 years at Hewlett Packard serving in a
number of senior positions in Finance, most recently as
Chief Financial Officer & Vice President, Enterprise Services
Americas. From 1998 to 2000, Mr. Maletira was Chief Operating
Officer and Vice President of a start-up
IT consulting
company, DPP Incorporated. Prior to that, Mr. Maletira
led sales teams at Siemens and HCL in India. Mr. Maletira
holds a B.S. in Electronics & Communication Engineering
from Gogte Institute of Technology at Karnataka University
in India and an M.B.A. from the Ross School of Business in
Ann Arbor, Michigan.
17
2016 Proxy StatementCORPORATE GOVERNANCE Dion Joannou joined the Company as Senior Vice President
of global sales in January 2015. Prior to joining the Company,
Mr. Joannou served as Chief Executive Officer of Advantix
Systems from 2011 to 2013. From 2009 to 2010, Mr. Joannou
served as Chief Executive Officer at The Neptune Society.
Mr. Joannou also held a number of executive positions during
his 15-year career at Nortel Networks, including roles as
president for North America for both the enterprise and carrier
markets, chief strategy officer, president for the Caribbean and
Latin America, and vice president of Vodafone global account.
Mr. Joannou holds a B.A. in business administration from
Southern Illinois University and an M.B.A from the University
of Miami.
Paul McNab joined the Company in September 2014 as
Executive Vice President and Chief Marketing and Strategy
Officer. Prior to joining the Company, Mr. McNab was CEO
of Puro Networks from 2013 to 2014. Before that, Mr. McNab
was with Cisco Systems, Inc. for sixteen years where he
held increasingly senior roles including Vice President and
Chief Technology Officer, Data Center Switching and Vice
President, Enterprise Marketing. Mr. McNab holds a B.S. in
Engineering from Manchester Metropolitan University in the
United Kingdom.
Ralph Rondinone joined the Company in April 2012 as Senior
Vice President of Global Operations and Services. Prior to joining
the Company, Mr. Rondinone served as Senior Vice President
of Operations at BigBand Networks from 2006 to 2012. Prior
to that, Mr. Rondinone held executive positions in operations
at Lucent Technologies, Ascend Communications, and
Digital Equipment Corporation. Mr. Rondinone holds a B.S. in
mechanical engineering from Worcester Polytechnic Institute.
Luke Scrivanich became the Vice President and General
Manager of Optical Security and Performance Products
(OSP) in June 2012 and became Senior Vice President and
General Manager of OSP in August 2012. Mr. Scrivanich joined
the Company in April 2008 as Vice President and General
Manager of Flex Products. Prior to joining the Company in
2008, Mr. Scrivanich was with PPG Industries where he served
in general management, marketing and strategic planning
including fine chemicals,
positions for various divisions,
optical products and coatings. He previously held senior
marketing positions at AGR International, Inc., a manufacturer
of packaging inspection equipment. Mr. Scrivanich holds a B.S.
in Chemical Engineering from Cornell University and an M.B.A.
from the Harvard Graduate School of Business Administration.
Kevin Siebert joined the Company in September 2007 and
became Vice President, General Counsel and Secretary in
February 2015. Before assuming the General Counsel role,
Mr. Siebert held increasingly senior roles within the Company’s
legal department. Before joining the Company, Mr. Siebert
was Senior Counsel at France Telecom from 2004 to 2007
where he primarily had legal responsibility for North American
operations and also handled mergers and acquisitions, among
other functions. Prior to that, Mr. Siebert served as in-house
counsel at a technology company and held associate roles
in private practice, focusing on mergers and acquisitions,
corporate and telecommunications matters. Mr. Siebert holds
a B.A. in Political Science from the University of Richmond and
a J.D. from the Washington University School of Law.
Susan Spradley joined the Company in January 2013 and
became Executive Vice President and General Manager NSE
Solutions and R&D in July 2015. Before joining the Company,
Ms. Spradley served as executive director at US-Ignite from
April 2011 to December 2012. Prior to that, Ms. Spradley was
President of the North America region at Nokia Siemens
Networks from 2007 to 2011 responsible for regional p&l, sales
and service. From 1997 to 2005 she held executive positions at
Nortel. She is also chair of a White House and National Science
Foundation initiative, called U.S. Ignite. Ms. Spradley holds a B.S.
in Computer Science from University of Kansas, Lawrence and
completed an Advanced Management Program at Harvard
Business School.
18
2016 Proxy StatementCORPORATE GOVERNANCE PROPOSAL 2
Ratification of Independent Auditors
The Audit Committee of the Board of Directors has appointed
PricewaterhouseCoopers LLP as the Company’s independent
auditors for the fiscal year ending July 1, 2017, and the Board
has directed that the selection of the independent auditors
be submitted for ratification by the stockholders at the
Annual Meeting.
selection of the independent auditors. Even if the appointment
is ratified, the Audit Committee, in its discretion, may direct
the appointment of a different independent registered public
accounting firm at any time during the fiscal year if the Audit
Committee determines that such a change would be in the
Company’s and its stockholders’ best interests.
Although the Company is not required to seek stockholder
approval of its selection of the independent auditors, the
Board believes it to be sound corporate governance to do so.
If the appointment is not ratified, the Board will investigate
the reasons for stockholder rejection and will reconsider its
Representatives of PricewaterhouseCoopers LLP are expected
to be present at the Annual Meeting. They will have an
opportunity to make a statement if they so desire and will be
available to respond to appropriate questions.
Audit and Non-Audit Fees
The following table presents fees billed for professional audit
services rendered by PricewaterhouseCoopers LLP for the audit
of the Company’s annual financial statements for the years
ended July 2, 2016 and June 27, 2015, respectively, and fees
billed for other services rendered by PricewaterhouseCoopers
LLP and during those periods.
Audit Fees (1)
Audit-Related Fees
Tax Fees (2)
All Other Fees (3)
Total
Fiscal 2016
$2,963,443
0
1,023,866
0
$3,987,309
Fiscal 2015
$ 5,442,605
0
501,785
100,165
$ 6,044,555
(1) Audit Fees are related to professional services rendered in connection with the audit of the Company’s annual financial statements, the audit of internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, reviews of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and audit
services provided in connection with other statutory and regulatory filings. Fees include $692,000 and $2,320,000 for fiscal 2016 and 2015, respectively, for services performed by
PricewaterhouseCoopers LLP in connection with the separation and spin-off of Lumentum Holdings Inc.
(2) Tax Fees for fiscal 2016 and 2015 include professional services rendered in connection with transfer pricing consulting, tax audits, planning services and other tax consulting. The
fees include $860,000 and $397,000 for fiscal 2016 and 2015, respectively, for services performed by PricewaterhouseCoopers LLP in connection with the separation and spin-off
of Lumentum Holdings Inc.
(3) All Other Fees in fiscal 2015 are related to the annual Workforce Engagement Survey and other non-audit related services.
For
fiscal year 2016, the Audit Committee considered
whether audit-related services and services other than
audit-related services provided by PricewaterhouseCoopers
LLP are compatible with maintaining the
independence
of PricewaterhouseCoopers LLP and concluded that the
independence of PricewaterhouseCoopers LLP was maintained.
19
2016 Proxy Statement
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
The Audit Committee pre-approves all audit and permissible
non-audit services provided by the independent auditors.
These services may
include audit services, audit-related
services, tax services and other services. The Audit Committee
has adopted a policy for the pre-approval of services provided
by the independent auditors. Under the policy, pre-approval is
generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and
is subject to a specific budget. In addition, the Audit Committee
may also pre-approve particular services on a case-by-case
basis. For each proposed service, the independent auditors
are required to provide detailed back-up documentation at
the time of approval. Pursuant to the Sarbanes-Oxley Act of
2002, the fees and services provided as noted in the table
above were authorized and approved by the Audit Committee
in compliance with the pre-approval policies and procedures
described herein.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S
INDEPENDENT AUDITORS FOR THE YEAR ENDING
JULY 1, 2017.
20
2016 Proxy StatementPROPOSAL 2 PROPOSAL 3
Advisory Vote on Executive Compensation
The Company’s goal for its executive compensation program
is to attract, motivate and retain the executive talent necessary
to achieve its business objectives. The Company believes that
it can best drive long-term stockholder value by establishing a
strong pay-for-performance system.
At the Company’s 2015 annual meeting of stockholders,
approximately 73% of the votes cast were voted in favor
of approving the compensation of the Company’s Named
Executive Officers (“NEOs”). In the months leading up to and
following the vote, the Company reached out to a significant
number of its major stockholders. After considering their
feedback, as well as current market practices, in May 2015
the Company modified its stock ownership guidelines so
that unvested restricted stock units would no longer count
towards the ownership requirements for directors and
executive officers.
The Compensation Discussion and Analysis (“CD&A”) section
of this Proxy Statement includes a detailed description of the
Company’s compensation philosophy, as well as an analysis
of how the compensation of its NEOs in fiscal year 2016
aligned with that philosophy. Highlights of the Company’s
compensation practices include:
•
•
•
•
Approximately 50% of each NEO’s total target compensation
incentive
is performance-based, consisting of cash
compensation and RSUs with performance-based vesting
conditions, as described below.
The Company emphasizes pay for performance. Cash
incentive compensation paid to its NEOs is generally paid
pursuant to the Company’s Variable Pay Plan (the “VPP”),
with payments directly tied to attainment of the Company’s
operating income objective.
50% of the RSUs awarded to the Company’s NEOs have time-
based vesting requirements – the ultimate value of these
awards is directly tied to the performance of the Company’s
stock, encouraging management to drive stockholder
value which also encouraging retention of key employees.
The other 50% of RSUs awarded to the Company’s NEOs
have vesting requirements tied to the performance
of the Company’s stock as compared to the NASDAQ
telecommunications index, and could vest at a higher or
lower rate or not at all, based on this relative performance.
We refer to these performance-based RSUs as market stock
units, or “MSUs.”
The Company does not generally provide perquisites or other
benefits to its NEOs that are not available to all employees.
•
We regularly evaluate our compensation practices and
modify our programs as appropriate to address evolving best
practices. For example, in fiscal year 2016 we modified the
vesting conditions for the MSUs to make them more difficult
to achieve and modified our stock ownership guidelines
to further align executive compensation with stockholder
interests.
We urge stockholders to read the CD&A section of this Proxy
Statement beginning on page 23 which describes in more
detail how our executive compensation practices operate and
are designed to achieve our compensation objectives.
In accordance with section 14A of the Securities Exchange Act,
stockholders will have the opportunity to cast a non-binding,
advisory vote on the compensation of our NEOs. You are
encouraged to read the Executive Compensation section
of this Proxy Statement, including the CD&A, along with the
accompanying tables and narrative disclosure. Accordingly,
we are asking you to approve, on an advisory basis, the
compensation of the Company’s NEOs, as described in the
CD&A, the accompanying tables and the related narrative
disclosure contained therein.
The following resolution will be submitted for stockholder vote
at the Annual Meeting:
“RESOLVED, that the stockholders approve, on an advisory
basis, the compensation of the Company’s named executive
officers, as disclosed in the Company’s proxy statement for
the 2016 Annual Meeting of stockholders pursuant to the
compensation disclosure rules of the SEC, including the
Compensation Discussion and Analysis, compensation tables
and related narrative discussion.”
Although the advisory vote is non-binding, the Compensation
Committee and the Board will review the results of the vote
and the Compensation Committee will consider the results of
the vote when making future compensation decisions. Unless
the Board of Directors modifies its determination on the
frequency of future advisory votes, the next advisory vote on
the compensation of the Company’s NEOs will be held at the
fiscal 2017 annual meeting of stockholders.
VOTE,
BOARD
OF
ON
RECOMMENDS
DIRECTORS
THE
BASIS,
AN
A
“FOR” THE APPROVAL OF THE COMPENSATION OF
THE COMPANY’S NAMED EXECUTIVE OFFICERS, AS
DESCRIBED IN THE CD&A, THE COMPENSATION TABLES
AND THE RELATED NARRATIVE DISCUSSION IN THIS
PROXY STATEMENT.
ADVISORY
21
2016 Proxy Statement SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information known to
the Company with respect to the beneficial ownership as of
August 31, 2016, by (i) all persons who are beneficial owners of
five percent (5%) or more of the Company’s Common Stock,
(ii) each director and nominee, (iii) the Company’s named
executive officers, and (iv) all current directors and executive
officers as a group.
As of August 31, 2016, there were 232,733,763 shares of the
Company’s Common Stock outstanding. The amounts
and percentages of Common Stock beneficially owned are
reported on the basis of regulations of the Securities and
Exchange Commission (“SEC”) governing the determination
of beneficial ownership of securities. Under the SEC rules, a
person is deemed to be a “beneficial owner” of a security if that
person has or shares “voting power,” which includes the power
to vote or to direct the voting of such security, or “investment
power,” which includes the power to dispose of or to direct
the disposition of such security. A person is also deemed to
be a beneficial owner of any securities of which that person
has a right to acquire beneficial ownership within 60 days.
Under these rules, more than one person may be deemed a
beneficial owner of securities as to which such person has no
economic interest.
Name
5% or more Stockholders (1)
Capital Research Global Investor 333 South Hope Street Los Angeles, CA 90071
The Bank of New York Mellon Corporation One Wall Street, 31st Floor New York, NY 10022
BlackRock, Inc. 40 East 52nd Street New York, NY 10022
The Vanguard Group 100 Vanguard Boulevard Malvern, PA 19355-2331
Goldman Sachs Asset Management 200 West Street c/o Goldman Sachs & Co. New York, NY 10282
Directors and Executive Officers
Oleg Khaykin
Amar Maletira (2)
Susan Spradley (3)
Dion Joannou (4)
Luke Scrivanich (5)
Thomas Waechter (6)
Rex S. Jackson (7)
Richard E. Belluzzo
Keith Barnes
Tor Braham (8)
Timothy Campos
Donald Colvin (9)
Masood A. Jabbar
Pamela Strayer
All directors and executive officers as a group (15 persons) (10)
Number of Shares
Beneficially Owned
Number
Percentage
27,669,274
16,693,348
23,443,879
17,461,158
16,802,154
11.90%
7.17%
10.07%
7.50%
7.22%
0
95,454
68,383
17,333
155,287
537,060
201,397
140,128
44,164
4,186
20,092
4,186
96,201
11,556
825,891
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
* Less than 1%.
(1) Based on information set forth in various Schedule 13 filings with the SEC current as of August 31, 2016 and the Company’s outstanding common stock data as of August 31, 2016.
(2) Includes (i) 47,727 RSUs which vest within 60 days of August 31, 2016 and (ii) 47,727 market stock units (“MSUs”). MSUs are reported at 100% of the target number of shares
scheduled to vest within 60 days of August 31, 2016. The actual number of shares that vest will range from 0% to 150% of the target amount. Details of the conditions and terms
under which the MSUs will vest begin on page 32 of this Proxy Statement.
(3) Includes 50,865 MSUs which vest within 60 days of August 31, 2016
(4) Includes 17,333 MSUs which vest within 60 days of August 31, 2016.
(5) Includes (i) 88,530 shares subject to stock options currently exercisable within 60 days of August 31, 2016 and (ii) 47,819 MSUs which vest within 60 days of August 31, 2016.
(6) Includes 537,060 shares subject to stock options currently exercisable within 60 days of August 31, 2016.
(7) Includes 201,397 shares subject to stock options currently exercisable within 60 days of August 31, 2016.
(8) Includes 4,186 RSUs which vest within 60 days of August 31, 2016.
(9) Includes 4,186 RSUs which vest within 60 days of August 31, 2016.
(10) Includes (i) 88,530 shares subject to stock options currently exercisable within 60 days of August 31, 2016, (ii) 100,854 RSUs which vest within 60 days of August 31, 2016,
and (iii) 279,156 MSUs which vest within 60 days of August 31, 2016.
22
2016 Proxy Statement EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary
Performance Overview
Fiscal year 2016 was a transformative year for the Company,
beginning with the successful spin-off of Lumentum in the first
fiscal quarter and the hiring of a new executive team, including
our Chief Executive Officer (“CEO”) and Chief Financial
Officer
(“CFO”). When setting executive compensation
for fiscal year 2016, the Compensation Committee of the
Board (the “Committee”) considered a comprehensive set of
factors, including:
• The Company’s prior fiscal year performance and the prior
three-year period, in keeping with the Company’s focus on
long-term growth and performance.
• The achievements of the Company’s named executive
officers’ (“NEOs”) and others in completing the spin-off.
• The importance of retaining certain individuals in light of
their prior contributions and in recognition of the importance
of continuity in achieving the Company’s goals during fiscal
year 2016.
In determining the new hire compensation packages for Oleg
Khaykin, who became the Company’s CEO in February 2016,
and Amar Maletira, who became the Company’s CFO in
September 2015, the Committee recognized the importance
of attracting individuals with the skills required to continue
future
the Company’s transformative efforts and drive
growth. In addition, the Committee recognized that new hire
compensation packages usually involve equity grants that are
larger than the annual equity grants awarded to NEOs and vest
over a longer period of time.
Compensation Best Practices
We maintain the following corporate governance policies
to ensure our executive compensation practices support
our pay-for-performance philosophy and manage our
compensation risks:
The Committee is comprised solely of independent directors.
independent
The Committee
compensation consultant to assist it with its review of
executive compensation.
engaged
has
an
Half of the annual equity incentive grants awarded to our
executive officers are performance awards.
We do not generally provide perquisites to any of our
executive officers.
We have a clawback policy that applies to both cash
incentives and equity awards.
We prohibit our executive officers from engaging in hedging
or other speculative transactions involving Company stock.
We maintain stock ownership guidelines that require our
directors and executive officers to maintain an equity interest
in Company stock that is between one and three times their
base salary (or cash retainer in the case of directors).
Results of 2015 Advisory Vote on Executive Compensation
We conducted an advisory vote on executive compensation
at our 2015 Annual Meeting of stockholders. The Board and
the Committee value the opinions of our stockholders and,
to the extent that there is any significant vote against the
compensation of the NEOs, work to identify the specific
concerns driving negative votes and evaluate whether any
actions are necessary to address those concerns.
At the 2015 Annual Meeting of stockholders, approximately
73% of the votes cast were in favor of the NEOs’ compensation
as disclosed in the 2015 Proxy Statement. In the months leading
up to and following our 2015 Annual Meeting, we spoke
with a significant number of our major stockholders. After
considering their feedback, as well as current market practices,
in May 2015 the Committee modified the Company’s stock
ownership guidelines so that unvested restricted stock units
would no longer count towards the ownership requirements
for directors and executive officers.
23
2016 Proxy Statement Compensation Philosophy and Elements
Our Executive Compensation Philosophy
Our executive compensation programs are intended to achieve
certain fundamental objectives:
• Attract, motivate and retain superior executive talent;
relationship between pay
• Create
a direct
and
performance; and
• Create incentives to maximize stockholder value over time.
Our compensation philosophy is designed to achieve these
objectives through the following key principles:
Competitive Compensation
The executive compensation program should provide a fair
and competitive opportunity that enables us to attract and
retain high caliber talent.
Alignment with Stockholder Interest
Executive compensation should be structured to include
variable elements that link financial reward to achievement of
goals and stockholder return, and executive stock ownership
should be encouraged.
“At risk” compensation
A significant portion of each executive’s compensation
should be “at risk” and tied to the Company’s attainment of
annual and long-term business objectives and stockholder
value. For example, in fiscal 2016, approximately 45% of our
Chief Executive Officer’s compensation and 43% of our Chief
Financial Officer’s compensation were at risk.
We believe that the quality, experience, skills, engagement and
dedication of our executive officers are critical factors affecting
the Company’s performance and our ability to drive long-term
stockholder value.
Elements of Executive Compensation
In support of this compensation philosophy, the Committee utilizes three material compensation elements. We also provide 401 (k)
retirement benefits and severance benefits.
Pay Element
Base salary
Cash incentive bonuses
Equity grants, including:
• Time-based restricted stock units (“RSUs”); and
• Market-based RSUs (“MSUs”)
Objective/Purpose
To attract and retain highly-qualified executive talent
To incentivize and reward achievement of near-term financial and business results
To align our executives’ interests with those of our stockholders, drive long-term
value, and reinforce longer-term retention
Fiscal Year 2016 Named Executive Officers
Throughout this proxy statement, the individuals who served
as the Company’s Chief Executive Officer (“CEO”) and Chief
Financial Officer (“CFO”) during fiscal year 2016, as well as the
other individuals included in the Summary Compensation
Table, are referred to as the “named executive officers” (or
“NEOs”). Our NEOs for fiscal year 2016 were:
Named Executive Officer
Oleg Khaykin 1
Amar Maletira 2
Susan Spradley
Dion Joannou
Luke Scrivanich
Thomas Waechter
Rex Jackson
Richard Belluzzo 3
Position
President and CEO
Executive Vice President and CFO
Executive Vice President and General Manager Product Line Management &
Design, Network Enablement (“NE”) and Service Enablement (“SE”)
Senior Vice President, Global Sales, NE and SE
Senior Vice President & General Manager, Optical Security and
Performance Products (“OSP”)
Former President and CEO
Former Executive Vice President and CFO
Interim CEO
1
2
3
Mr. Khaykin joined the Company on February 3, 2016.
Mr. Maletira joined the Company on September 9, 2015.
Mr. Belluzzo served as the Company’s Interim CEO from August 11, 2015 through February 2, 2016.
24
2016 Proxy StatementEXECUTIVE COMPENSATION Mr. Waechter stepped down as the Company’s President and
Chief Executive Officer, effective August 11, 2015. In connection
with Mr. Waechter’s departure, the Company entered into a
Separation Agreement and General Release (the “Waechter
Agreement”) pursuant to which Mr. Waechter received a
lump sum cash payment of $2,680,000, eighteen months of
COBRA payments for him and his wife, and full acceleration
of his time-based equity awards. In addition, the term during
which vested options were exercisable was extended to the
later of September 18, 2018, or the expiration date of each
respective award. The Company also entered into a consulting
arrangement with Mr. Waechter whereby he agreed to provide
consulting services to the Company for a one year period
through September 18, 2016, in exchange for an annual fee
of $533,000, payable in equal monthly installments with a
completion bonus of $267,000 to be paid at the end of the term
of the consulting arrangement, subject to certain conditions.
The Board believed that entering into such an arrangement
with Mr. Waechter was necessary to facilitate an orderly
transition during the search for a new Chief Executive Officer.
Mr. Jackson’s employment with the Company terminated
on September 30, 2015. In connection with his departure, on
February 24, 2015, the Company entered into a separation
agreement (the “Jackson Agreement”) pursuant to which he
received certain severance benefits including: (i) immediate
vesting of any outstanding and unvested equity awards,
including market-based restricted stock units at 100% of
the target amount, (ii) a lump sum cash payment equal to
2 years of base salary as of September 30, 2015, less applicable
withholdings, and (iii) Company paid COBRA benefits for up
to 12 months. The Committee concluded that the terms of
the Jackson Agreement were necessary to induce Mr. Jackson
to remain with the Company through the completion of the
spin-off and the filing of the Company’s FY15 annual report.
Mr. Belluzzo served as Interim President and CEO from
August 11, 2015 through February 2, 2016. In connection with
his appointment, the Company entered into an agreement
(the “Belluzzo Agreement”) governing the terms of his
employment. Pursuant to the terms of the Belluzzo Agreement,
in connection with his services as Interim President and Chief
Executive Officer, Mr. Belluzzo received an annual base salary
of $600,000, with a guaranteed minimum salary of $200,000.
In addition, Mr. Belluzzo accrued a bonus at the rate of $50,000
per month, which was paid once a permanent Chief Executive
Officer commenced employment with the Company, with
a guaranteed minimum bonus of $200,000. Mr. Belluzzo
received a grant of restricted stock units having a value on
the grant date of $400,000 which vested in full upon the date
his employment terminated in connection with a permanent
Chief Executive Officer commencing employment with the
Company. Mr. Belluzzo did not receive any compensation
under the Company’s non-employee director compensation
program while he served as Interim President and Chief
Executive Officer. The Board concluded that the terms of
the Belluzzo Agreement were necessary and reasonable
due to Mr. Belluzzo’s unique ability to step into the role of
Interim President and CEO given that he had over a decade
of experience as a member of the Board. In recognition of
Mr. Belluzzo’s leadership and performance and the Company’s
performance during his tenure as Interim President and CEO,
including exceeding performance goals for two consecutive
quarters, the Board approved a discretionary bonus of $100,000.
terms of
The
the Jackson
the Waechter Agreement,
Agreement and the Belluzzo Agreement were individually
negotiated based on the unique circumstances under which
they provided services to the Company. As such, they were
outside the Committee’s regular process for setting executive
compensation, which is described in greater detail below.
25
2016 Proxy StatementEXECUTIVE COMPENSATION Implementing Our Philosophy – Determining Executive Compensation
When setting NEO compensation, the Committee considers
both the Company’s overall performance and each NEO’s
performance against his individual objectives. The Committee
also engages an
independent third-party consultant, as
described below, to compare proposed NEO compensation
against a group of the Company’s peers. This comparative data
helps ensure that each element of executive compensation,
as well as total compensation, is competitive and meets the
Company’s goal of attracting, motivating and retaining the
talent required to achieve the Company’s business objectives
and drive stockholder value.
Considerations in Determining NEO Compensation
The Committee considers a comprehensive set of factors
when determining NEO Compensation. Some of the key
considerations include:
• The
individual executive’s performance, based on
assessments of his or her contributions to the Company’s
overall performance, ability to lead his or her business unit
or function, to work as part of a team and to reflect the
Company’s core values;
Internal parity between executives based on the NEO’s
duties, responsibilities and contributions to the Company;
•
• Each individual executive’s skills, experience, qualifications
and marketability;
• The Company’s performance against financial goals and
objectives established by the Committee and the Board;
• The Company’s performance relative to industry competitors
and its peer group;
• The positioning of each executive’s compensation in a
ranking of Peer Group compensation data; and
• The compensation practices of the Company’s peer group.
Assessing an Executive’s Performance
The CEO periodically updates
the Committee of his
assessment of each executive officer’s performance to ensure
that compensation decisions are aligned with individual
performance. The CEO bases this evaluation on his personal
knowledge of each executive officer’s performance, actual
results against specific objectives and feedback provided
by others within and outside of the Company. In addition,
the members of the Committee have periodic interactions
with each NEO during the year that allow them to make
independent assessments of the NEO’s performance. NEOs
are not present for, nor do they participate in, Committee
or Board discussions or approvals regarding their own
compensation. The Committee ultimately is responsible for the
final determination of all compensation for NEOs other than
the CEO, whose compensation is determined by the full Board.
The CEO’s performance
is reviewed periodically by the
Committee and the independent members of the full Board
using performance criteria developed by the Committee
and approved by the full Board’s independent directors. In
assessing CEO performance, the Committee and independent
members of the Board review Company business, operational
and financial performance against specific objectives and take
into account other factors that may be included in the CEO’s
individual objectives as well as any feedback received from
the CEO’s direct reports and other employees. The Committee
also engages in discussions with the CEO regarding his
performance against objectives set by the Board. The
Committee recommends all elements of compensation for
the CEO to the independent members of the Board for review,
consideration and approval.
The Role of Compensation Consultants and Peer Group Data
To assist the Committee in its review of executive compensation,
the Company’s Human Resources Department and the
Committee’s primary external compensation consultant,
Compensia, Inc. (“Compensia”), provide compensation data
from companies that the Committee selects as a “peer group”
of technology companies for executive compensation analysis
purposes, as well as a broader cut of market data based on
Radford survey data. The Committee also periodically sought
input from Compensia on a range of external market factors,
including evolving compensation trends, the selection of
appropriate peer group companies and market survey data.
In fiscal year 2016, the Committee assessed the independence
of Compensia as required by SEC and NASDAQ rules and
concluded that no conflict of interest exists that would prevent
Compensia from serving as an independent consultant to
the Committee.
26
2016 Proxy StatementEXECUTIVE COMPENSATION The Committee uses the Peer Group market data provided
by Compensia and others to ensure that the compensation
provided to the Company’s NEOs remains competitive. For
fiscal year 2016, the Committee did not set targets for any
individual element of executive compensation relative to the
market data, but did review proposed compensation levels
against the market data to ensure that compensation was
competitive.
The peer group used by the Committee when considering
executive compensation for fiscal year 2016 was determined
based upon annual
(with peer companies
revenue
ranging from approximately 42% to 188% of the Company’s
annual revenue and the median annual revenue equal to
approximately 75% of the Company’s annual revenue) market
capitalization, industry and geography.
The list of peer group companies (the “Peer Group”) the
Committee considered when setting executive compensation
for fiscal year 2016 was:
ADTRAN, Inc., Arista Networks, Inc., Commvault Systems,
Inc., F5 Networks, Inc., Fortinet, Inc., Harmonic Inc., Ixia,
National Instruments Corporation, NetGear, Inc., Palo Alto
Networks, Inc., Polycom, Inc., QLogic Corporation, Splunk
Inc., Teradyne, Inc., Ubiquity Networks, Inc., Verisign, Inc.
and ViaSat, Inc.
Considerations in Setting Fiscal Year 2016 Compensation
In determining appropriate levels of executive compensation
for fiscal year 2016, the Committee considered the Company’s
financial performance relative to the Peer Group, as well as
performance against the Company’s competition and strategic
and operational objectives. The Committee recognized that
the Company had achieved a significant milestone in spinning
off the Lumentum business but the service enablement market
did not perform as expected. Given the exceptional changes
to the Company’s business and management that were
anticipated for fiscal year 2016, the Committee also strongly
considered the importance of retaining key employees who
were critical to the Company’s plans to unlock stockholder
value and transform the remaining NSE and OSP businesses.
Fiscal Year 2016 Executive Compensation
The fundamental policy of the Committee is to provide NEOs
competitive compensation opportunities based upon the
financial and operational performance of the Company and its
individual operating segments, each NEO’s specific current and
anticipated future contributions to the financial and operational
success of the Company and personal performance relative
to business performance objectives. It is the Committee’s
objective to have a significant portion of each NEO’s
compensation contingent upon the Company’s performance,
and as applicable, individual operating segment performance,
as well as upon his or her own individual contributions to the
achievement of business objectives. As an executive officer’s
level of responsibility increases, a greater proportion of such
executive’s total target compensation is comprised of cash
incentive bonuses and equity compensation vehicles in order
to align total target compensation with the actual achievement
of Company and operating segment business and financial
performance objectives. As illustrated in the chart below,
approximately 50% of the target total direct compensation to
our NEOs was performance-based.4
4
Percentages may not equal 100% due to rounding.
27
2016 Proxy StatementEXECUTIVE COMPENSATION Base Salary
13%
New Hire
Bonus
11%
Target Cash
Incentive
11%
Time-Based
RSUs
32%
Joannou
MSUs
26%
Base Salary
28%
Time-Based
RSUs
26%
Target Cash
Incentive
21%
Khaykin
Maletira
Base Salary
10%
Target
Cash
Incentive
10%
Options
36%
MSUs
32%
MSUs
9%
MSUs
21%
Spradley
Time-Based
RSUs
35%
Base Salary
31%
Time-Based
RSUs
21%
Target Cash
Incentive
26%
Scrivanich
MSUs
22%
Base Salary
31%
Time-Based
RSUs
22%
Target Cash
Incentive
26%
28
2016 Proxy StatementEXECUTIVE COMPENSATION The individual components of each NEO’s compensation
package for fiscal year 2016 are summarized below.
Base Salary. The base salary for each NEO is determined on
the basis of the following factors: scope of responsibilities,
experience, skill level, past performance and expected future
contribution, and salary
in effect for comparable
levels
positions at our peer group companies. Salary levels generally
are considered annually as part of the Company’s performance
review process as well as upon a promotion or other change
of position or level of responsibility. Merit based increases
to salaries of the Company’s NEOs other than the CEO are
recommended by the CEO to the Committee, and all increases
are based on the Committee’s (and in the case of the CEO, the
independent directors of the full Board) review and assessment
of the individual’s performance, skill set and competitive
market factors.
The Committee reviewed the base salaries of Ms. Spradley and
Messrs. Joannou and Scrivanich in August and November 2015,
and approved base salary increases for the remainder of fiscal
year 2016 for each, effective October 2015. The increase to
Ms. Spradley’s base salary reflected continued growth in
her role, including her promotion in July 2015 from Senior
Vice President to Executive Vice President. The increase to
Mr. Joannou’s base salary reflected his responsibility for a
substantially larger portion of the Company’s sales revenue
following the spin-off. Additionally, it was determined that the
increase to Mr. Scrivanich’s base salary was required to keep
his cash compensation competitive with market salaries for
his position.
Khaykin
and Mr. Maletira were
Mr.
in
February 2016 and September 2015, respectively and their
base salaries were set based on the negotiated terms of their
employment agreements.
hired
Named Executive Officer
Oleg Khaykin
Amar Maletira
Susan Spradley
Dion Joannou
Luke Scrivanich
FY 2015 Base Salary
n/a
n/a
$464,000
$400,000
$336,000
FY 2016 Base Salary
$750,000
$425,000
$470,000
$408,000
$372,000
Percentage Increase
n/a
n/a
1.4%
2.0%
10.12%
Cash Incentive Compensation. The Company utilizes a
single cash incentive program for the majority of its employees
globally, including all NEOs except Mr. Joannou, referred to
as the Company’s Variable Pay Plan (“VPP”). Under the VPP,
incentive bonuses are determined based on a quarterly
performance metric, and are paid semi-annually. These awards
are designed to incentivize and reward short-term performance
and achievement of the Company’s operating income targets.
The performance criteria for the VPP were modified by the
Board in November 2015 to better align the program with
the goals of the Company’s individual business segments.
During fiscal year 2016, the Company maintained separate
performance targets and payout metrics for employees of
the Company’s (i) Optical Security and Performance Products
business segment (the “OSP VPP”) and (ii) Network Enablement
and Service Enablement business segments, as well as for
shared services employees (the “NSE VPP”).
Each participant in the VPP is assigned a target incentive
opportunity (“TIO”) equal to a percentage of his or her
base salary, based upon the individual’s grade level within
the Company. Each NEO’s TIO is annually reviewed by the
Committee and compared against the Peer Group data. For
fiscal year 2015 and fiscal year 2016 the assigned TIOs for each
of the NEOs were as follows:
Named Executive Officer
Oleg Khaykin
Amar Maletira
Susan Spradley
Dion Joannou
Luke Scrivanich
FY 2015 TIO
FY 2016 TIO
n/a
n/a
60%
60%
85%
100%
85%
85%
n/a
85%
Mr. Khaykin joined the company in February 2016 and therefore
did not participate in the VPP for the first half of fiscal year 2016.
During the second half of fiscal year 2016, pursuant to the terms
of his employment agreement, Mr. Khaykin’s target bonus was
guaranteed to be not less than 100% of his actual base salary
earned during the period. His actual bonus had the potential
to be increased up to 150% of the target to the extent that
the Company’s actual operating income exceeded 100% of the
target operating income as set forth in the Company’s Annual
Operating Plan. Mr. Khaykin received 100% of his target bonus
for the second half of fiscal year 2016, as the Company did not
exceed its operating income target.
29
2016 Proxy StatementEXECUTIVE COMPENSATION Mr. Maletira was eligible to participate in both the OSP VPP
and NSE VPP, with 80% of his incentive calculated under the
NSE VPP and 20% calculated under the OSP VPP. Ms. Spradley
participated exclusively in the NSE VPP and Mr. Scrivanich
participated exclusively in the OSP VPP.
During fiscal year 2016, Mr. Joannou did not participate in
the Company’s VPP. His cash incentive compensation was
determined based on an individual Sales Incentive Plan
(“SIP”). Pursuant to the SIP, Mr. Joannou’s target incentive
compensation was set at $300,000 (“Target Bonus”) which was
tied to the achievement of an NSE bookings target.
The Target Bonus amount for Mr. Joannou was determined on a sliding scale, with a cap at 200%:
NSE Bookings as a % of Target
0 – 70%
>70 - 100%
>100 - 120%
% of Bookings Bonus Received
up to 40%
up to 100%
up to 200%
No payment was made under the NSE VPP unless NSE
exceeded the operating income target under the annual
operating plan (“AOP”) for the NSE business, and at such point
50% of the amount by which the NSE business exceeded the
target was contributed to the NSE VPP pool. Based on the size
of the pool, participating employees received a percentage of
their TIO that increased from 0% to 200% of TIO. For employees
at the level of Director and above, no payout occurred until the
NSE Operating Income was at or above 110% of AOP.
The actual incentive payments under the NSE VPP may be
adjusted lower or higher by up to 25% based upon the
discretion of the CEO. No CEO discretion was applied during
fiscal year 2016.
No payments were made under the OSP VPP until OSP
exceeded 75% of the operating income target under the
AOP for the OSP business. The percentage of a participating
employee’s TIO was determined on a sliding scale, with a cap
at 200% of TIO.5
OSP Operating Income as a % of Target
0 – 75%
>75 - 100%
>100 - 125%
% of TIO
0%
up to 100%
up to 200%
Final payments for the Company’s chief executive officer,
including any adjustments that would affect the chief
executive officer, must be approved by the independent
members of the Board. Final payments,
including any
adjustments that would affect the other NEOs, must be
approved by the Committee.
Actual incentive payments awarded to our NEOs in fiscal
year 2016 are indicated in the “Non-Equity Incentive Plan
Compensation” column of the Summary Compensation Table.
The actual semi-annual VPP payment to each participant thus
was calculated based upon the following formula (excluding
CEO and Board discretion):
Semi-Annual Eligible Base Pay Earnings (for the employee)
X
TIO %
X
Achievement %
Actual achievement for the Company for each fiscal quarter 2016 was as follows:
Participating Segments
Senior Manager & below
Director & above
H1 FY16 VPP Achievement
OSP
NSE
200%
69%
69%
200%
H2 FY16 VPP Achievement
NSE
0%
0%
OSP
200%
200%
5 The methods for determination of the actual VPP are recommended by management and reviewed and approved by the Committee (and the independent members of the Board
relative to the CEO’s participation in the VPP). The operating income and bookings targets utilized for purposes of determining payments under the VPP and SIP, reflect the actual
financial and business performance objectives, projections and estimates approved by the Board and used by management and the Board for purposes of annual financial and
business planning and analysis. As such, the targets reflects the Company’s confidential and commercially sensitive analysis, expectations and objectives for its financial, operating
and overall business performance, taking into consideration then current forecasted economic conditions, the outlook for the industry and the Company’s businesses, technology
and new product development, and strategic objectives intended to drive growth in long-term stockholder value, among other factors. Due to the confidential and commercially
sensitive nature of these analyses, expectations and objectives and elements, their specific disclosure would result in competitive harm to the Company. It is for this reason that
they are not disclosed. The use of financial metrics and defined operating objectives for the establishment of the Company’s incentive bonus performance criteria is intended to
set challenging goals and is designed to ensure that all participants, including our NEOs, are focused on operating the Company in a disciplined manner in accordance with the
Committee’s and Board’s compensation objectives discussed above.
30
2016 Proxy StatementEXECUTIVE COMPENSATION Long-Term Incentive Compensation. Long-term incentives
are provided through time-based restricted stock units (“RSUs’)
and market-based restricted stock units (“MSUs”), which are
described in detail below. The Committee believes that stock-
based compensation aligns the interests of employees with
long-term stockholder value creation, providing each NEO with
an incentive to manage the Company from the perspective
of an owner. The Committee also believes stock-based
compensation provides the Company with an important long-
term retention tool in a highly competitive market for executive
talent. The Committee sets equity grant levels to executive
officers based on a variety of factors, including the individual
performance of the executive officer, an assessment of the
value of the individual’s current and anticipated future services
to the Company, relative business criticality of the position
held, the awards given to other executives and the desire to
keep the Company’s overall compensation competitive.
The number of shares of Common Stock subject to each grant
is set at a level intended to create a meaningful opportunity
for stock ownership and resulting compensation opportunity
based on the executive officer’s current position with the
Company, the average size and potential returns of comparable
awards made to executive officers in similar positions within
the industry and the Peer Group, the executive officer’s
potential for increased responsibility and promotion over the
grant term and the executive officer’s personal performance
in recent periods. The Committee also takes into account the
value of vested and unvested equity incentives held by the
executive officer in order to maintain an appropriate level
of equity incentives for that executive officer. Additionally,
the Committee generally grants equity awards to executive
officers upon commencement of their employment with the
Company or their promotion, with the level of award based on
factors similar to those considered in connection with awards
to existing executive officers. Finally, the Committee considers
the number of shares of Common Stock which would be
subject to proposed equity incentive awards to individual
NEOs for consistency with the Committee’s objective to limit
actual net dilution attributable to equity awards to all Company
employees to at or below a long-term average of less than 3%
per annum.
In order to ensure equity compensation awards are aligned
with the Committee’s commitment to pay-for-performance, it
is the Committee’s practice that:
• at least 50% of the target number of shares of all such equity
awards to the Company’s NEOs are market-based and are
earned or otherwise vest based on the achievement of
performance targets; and
• criteria applicable to such market-based equity awards
are disclosed in the proxy statement for each applicable
fiscal year.
31
2016 Proxy StatementEXECUTIVE COMPENSATION With the exception of Mr. Khaykin’s new hire grants, all equity compensation awards issued to the Company’s NEOs in fiscal year
2016 complied with this practice which is illustrated below.
Equity Compensation*
Time-Based
RSUs
50%
Performance
RSUs (MSUs)
50%
* Based on target number of shares granted.
Since August 2011, we have granted market-based RSUs, also
known as market stock units (“MSUs”), for executive officers. The
Board believed that MSUs provide an accurate measurement
of the Company’s relative performance and support the
Company’s pay-for-performance philosophy. When granting
MSUs, the Committee assigns a target award for each grant.
MSUs generally vest over three years, and the number of
shares actually earned on each vesting date is determined
by comparing the Company’s total stockholder return (“TSR”)
for the relevant period against the TSR of the component
companies of the NASDAQ Telecom Index (the “Index”) on a
straight-line scale from 0% to 150%. The vesting criteria for the
fiscal year 2016 MSUs is described in the following table.6
Relative Performance
Company TSR 0-25th percentile
Company TSR at 25th – 55th percentile
Company TSR at 55th – 100th percentile
Percent of Target
Award Vesting
0%
0% - 100%
100% - 150%
TSR is initially calculated for a baseline period, which for
grants made in fiscal year 2016, was August 1, 2015 through
September 15, 2015 (the “Initial Measurement Period”). Vesting
is then determined by comparing the TSR during each
subsequent August 1 through September 15 of each year
during the vesting period (the “Measurement Period”) against
the Initial Measurement Period.7 8
Ms. Spradley and Messrs. Joannou and Scrivanich were
awarded RSUs and MSUs in August 2015 as an element of the
Company’s fiscal year 2016 equity award and review process.
Messrs. Maletira and Khaykin received RSUs and MSUs in
September 2015 and February 2016, respectively, in connection
with each commencing employment. The 2015 Time-Based
Awards granted to Ms. Spradley and Messrs. Joannou and
Scrivanich were subject to a vesting schedule providing that
one-third of the award will vest on the first anniversary of the
grant date, with the remaining two-thirds of the award vesting
in eight equal quarterly installments thereafter, subject to
continued employment with the Company.
6 When evaluating each NEO’s performance-based target in comparison to the relevant market data, the Committee assumes for comparison purposes that MSUs will vest at 100% of
the MSU target. Actual MSU grant awards are made at the 150% achievement level to ensure a sufficient number of shares will have been granted if the maximum TSR is achieved.
However, actual vesting of the individual MSU award will range anywhere from 0% to 150%, as described above.
7 For purposes of calculating TSR, (a) dividends are assumed to have been reinvested, (b) share prices are rounded to the nearest $0.01 and dividends are rounded to the nearest
$0.001, and (c) companies without a stock price history for the entire performance or averaging period are excluded.
8 The Initial Measurement Period for Mr. Khaykin’s MSU award was January 29, 2016 through March 13, 2016.
32
2016 Proxy StatementEXECUTIVE COMPENSATION New Hire Awards for Mr. Khaykin
Pursuant to the terms of his employment agreement, Mr.
Khaykin received the following equity grants upon hire,
resulting in approximately 56% of his new hire grants being
subject to either market performance conditions (MSUs) or
stock appreciation risk (options):
• An option grant valued at $2,750,000 vesting in four equal
annual installments.
• A Time-Based Award valued at $2,062,500 vesting over four
equal annual installments.
• An MSU awards valued at $687,500 vesting as described
above.
• A Time-Based RSU for 100,000 shares of common stock that
vests 2/3 on the first anniversary of Mr. Khaykin’s employment
and quarterly for two quarters thereafter.
New Hire Awards for Mr. Maletira
Pursuant to the terms of his employment agreement,
Mr. Maletira received the following equity grants upon hire:
• An MSU award valued at $1,050,00 vesting over four equal
annual installments.
• A Time-Based Award valued at $1,050,00 vesting over four
equal annual installments.
Actual awards to NEOs are shown in the Grants of Plan-Based
Awards Table.
Perquisites and Other Personal Benefits
We believe that our executive officers should not operate
under different standards than other employees. Accordingly,
insurance, and other welfare
the Company’s healthcare,
and employee benefit programs are the same for all eligible
employees,
including executive officers. The Company
generally does not have programs for providing personal
benefit perquisites to NEOs, such as defraying the cost of
financial or legal advice, personal entertainment, recreational
club memberships or family travel. The Company has no
outstanding loans of any kind to any of its executive officers,
and it expects its officers to be role models under its Code of
Business Conduct, which applies equally to all employees.
Mr. Khaykin received relocation benefits of $200,000 (the
“Relocation Bonus”) due to the fact that he was required
to move to the San Francisco Bay Area as a term of his
Compensation Recovery Policy
employment agreement. The Relocation Bonus must be
repaid by Mr. Khaykin if he terminates his employment
other than for Good Reason (as defined in his employment
agreement) or does not relocate within 18 months of his hire
date. Additionally, if and when he sells his prior residence
the Company has agreed to reimburse up to 6% of the sales
commission paid by Mr. Khaykin.
Mr. Maletira received a new hire bonus of $370,000, to induce
Mr. Maletira to join the Company prior to equity vesting and
the payment of his annual cash bonus at his previous employer.
The new hire bonus was repayable to the Company on a pro-
rated basis if he voluntarily terminated his employment within
12 months of his start date.
The Committee adopted the “Viavi Compensation Clawback
Policy” (the “Policy”) in February 2010. The Policy applies to
cash incentive payments and equity compensation awards
provided to Section 16 officers and directors under any
applicable Company incentive plan. In the event of fraud or
intentional misconduct of Section 16 officers or directors, the
Committee may seek:
• repayment of any cash incentive payment,
• cancellation of unvested or unexercised equity incentive
awards, and
• repayment of any compensation earned on previously
exercised equity incentive awards,
where such payments, equity
incentive awards and/or
compensation earned on previously exercised equity incentive
awards was predicated on results that were augmented by
such fraud or intentional misconduct (“Excess Compensation”),
whether or not such activity resulted in a financial restatement.
The Committee will have sole discretion under the Policy,
consistent with any applicable statutory requirements, to seek
reimbursement of Excess Compensation.
Further, following a restatement of the Company’s financial
statements, the Company will recover any compensation
received by the Chief Executive Officer and Chief Financial
Officer that is required to be recovered by Section 304 of the
Sarbanes-Oxley Act of 2002.
33
2016 Proxy StatementEXECUTIVE COMPENSATION For purposes of the Policy, Excess Compensation will be measured as the positive difference, if any, between the compensation
earned by an Executive Officer and the compensation that would have been earned by the Executive Officer had the fraud or
misconduct not occurred.
Executive Stock Ownership Policy
The Committee recommended and the full Board approved
formal stock ownership requirements for non-employee
directors and executive officers of the Company in fiscal
year 2005 and amended this policy in August 2010 and May
2016. Under the policy, each non-employee director of the
Company was required to have a minimum equity interest
in the Company’s stock at least equal to three times that
non-employee director’s annual cash retainer by the fifth
anniversary of his or her first election to the Board. Likewise,
each executive officer of the Company (except for the CEO) was
required to have a minimum equity interest in the Company’s
stock at least equal to that executive officer’s annual base
salary by the fifth anniversary of his or her hire date (or, if later,
promotion to executive officer), and the CEO was required to
have a minimum equity interest in the Company’s stock at
least equal to three times the CEO’s then current annual base
salary by the fifth anniversary of his or her promotion date. The
shares that count towards this Company policy include stock
owned outright and any stock options exercisable within 60
days of the valuation date. The equity incentive awards granted
in fiscal year 2016 to each of the current NEOs are listed in the
Outstanding Equity At Fiscal Year End Table. Each of the non-
employee directors and executive officers of the Company
were in compliance with this policy during fiscal year 2016.
Non-Employee Directors
Chief Executive Officer
Executive Officers (excluding CEO)
Ownership Requirement
3x annual cash retainer
3x annual base salary
1x annual base salary
Deadline for Compliance
5th anniversary of election to the Board
5th anniversary of hire or promotion date
5th anniversary of hire or promotion date
Both hedging and pledging of Company securities are prohibited by the Company’s Insider Trading Policy.
Equity Grant Practices
In fiscal year 2012, the Committee transitioned from a policy
of granting both RSUs and stock options to generally granting
only RSUs. The Company’s policy is that any stock option
awards made to our NEOs, as well as all other Company
employees, have an exercise price equal to the fair market
value of our common stock on the date of grant. Fair market
value is defined under our equity compensation plans as the
closing market price of one share of our common stock on the
NASDAQ Stock Market on the date of grant.
The Committee generally makes grants, which currently include
a mix of RSUs and MSUs as described above, to our NEOs and
other senior management on a once-a-fiscal year basis, but the
Committee retains the discretion to make additional awards to
NEOs at other times in connection with the initial hiring of a
new officer, for retention, promotion, or otherwise. New hire
equity incentive awards are generally granted on the 15th day of
the month immediately following the first day of employment
of such new employee.
The Company does not have any program, plan or practice
to time equity compensation grants to
its executives
in coordination with the release of material nonpublic
information. The Company has not timed, nor does it plan
to time, the release of material nonpublic information for the
purpose of affecting the value of executive compensation, nor
are equity compensation grants timed with regard to current
share price or factors which may affect future share price.
Tax Considerations
The Committee endeavors to maximize deductibility of
compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”) to the extent
practicable while maintaining a competitive, performance-
based compensation program. Based on the amount of
deductions the Company can take each year, the actual
impact of the loss of deduction for compensation paid to any
NEO over the $1 million limitation is extremely small and has
a de minimus impact on the Company’s overall tax position.
For the foregoing reasons, the Committee, while considering
34
2016 Proxy StatementEXECUTIVE COMPENSATION tax deductibility as one of the factors
in determining
compensation, will not limit compensation to those levels or
types of compensation that will be deductible. The Committee
will, of course, consider alternative forms of compensation that,
consistent with its compensation goals, preserve deductibility.
The Company’s 2003 Equity Incentive Plan (the “2003 Plan”)
is structured such that compensation deemed paid to an
executive officer when he or she exercises an outstanding
option under the 2003 Plan, with an exercise price equal to
the fair market value of the option shares on the grant date,
will qualify as performance-based compensation which will
not be subject to the $1 million limitation. In addition, other
stock based awards issued under the 2003 Plan may be exempt
from the $1 million limitation if such awards are subject to
performance criteria and administered in accordance with
Section 162(m) of the Code. The Company has discretion
to issue other stock based awards which are intended to be
exempt from the $1 million limitation as well as other stock
based awards that are not intended to be exempt from the
$1 million limitation.
Payments Upon a Termination or Change of Control
In October 2015, the Committee adopted an Executive
Severance and Retention Plan (the “Retention Plan”). The
Retention Plan provides for severance and retention benefits
to certain executives at the level of vice president and above,
including the Company’s NEOs. In the event of a participant’s
Involuntary Termination (as defined in the Retention Plan)
and dependent upon a participant’s position and when the
Involuntary Termination occurs, the participant will generally
be entitled to the following severance benefits:
Position
Senior Vice President or above
Involuntary Termination Occurs
Other than During Retention Period
• Within Two Years From Date of Appointment
to SVP: A lump sum cash payment equal to
12 months of salary at the time of termination
• After Two Years From Date of Appointment to SVP:
A lump sum cash payment equal to 18 months of
salary at the time of termination
Involuntary Termination Occurs
During Retention Period*
• A lump sum cash payment equal to 18 months of
salary at the time of termination
• 18 months acceleration of time-based RSUs
• Remain eligible for receipt of performance
based equity awards based on a revised
post-termination performance period as set forth
in the Retention Plan
Vice President
• A lump sum cash payment equal to 6 months of
• A lump sum cash payment equal to 12 months of
salary at the time of termination
salary at the time of termination
• 12 months acceleration of time-based RSUs
• Remain eligible for receipt of performance based
equity awards based on a revised post-termination
performance period as set forth in the Retention Plan
* Retention Period means the 12-month period commencing on the date of the hiring of a permanent Chief Executive Officer (i.e. February 2, 2016 to February 3, 2017).
In December 2015, the Committee adopted a Change of
Control Benefits Plan (the “Change of Control Plan”), which
superseded its prior plans. Pursuant to the Change of Control
Plan, eligible executives, including the NEOs (except for the
CEO), will receive cash payments and accelerated vesting
of options and other securities in the event of a qualifying
termination within 12 months after a change of control of the
Company or, in certain cases, a spin-off or sale of the Company’s
NSE or OSP operating segments. If the eligible executive has
received an MSU award, the vesting will accelerate at 100% of
the target amount of the award.
The Committee believes these agreements are beneficial
to our stockholders because they minimize the uncertainty
presented to our valuable workforce following the spin-off and
in the case of a change of control.
On August 13, 2015, the Company entered into a Separation
Agreement and General Release with Mr. Waechter.
Additionally, the Company entered into Separation Agreement
with Mr. Jackson that triggered benefits under the Company’s
previous Change of Control Benefits Plan.
See “Potential Payments Made Upon Termination or Change
of Control” below for a more complete summary of the terms
of the Change of Control Benefits Plan, and the Separation
Agreements with Messrs. Waechter and Jackson, including
the amounts paid in connection with their termination and
estimates of the compensation that would have been payable
to the remaining NEOs had they been triggered on July 2, 2016,
the final day of fiscal year 2016.
35
2016 Proxy StatementEXECUTIVE COMPENSATION COMPENSATION COMMITTEE REPORT
The information contained in the following report shall not be
deemed to be “soliciting material” or to be “filed” with the Securities
and Exchange Commission, except to the extent that the Company
specifically requests that the information be treated as soliciting
material or incorporates it by reference into a document filed under
the Securities Act or the Exchange Act. The information will not be
deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the
registrant specifically incorporates it by reference.
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b)
of Regulation S-K with management. Based on this review and
discussion, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
Compensation Committee
Keith Barnes, Chair
Timothy Campos
Richard Belluzzo
36
2016 Proxy Statement SUMMARY COMPENSATION TABLE
The following table summarizes the total compensation of our chief executive officer, chief financial officer, and the three other
most highly-compensated executive officers (collectively, the “NEOs”) in fiscal years 2016, 2015 and 2014. For fiscal year 2016, our
NEOs also include our former chief executive officer, chief financial officer and interim chief executive officer, but who were not
serving in those positions at the end of the fiscal year.
Name and Principal Position
Oleg Khaykin
President and Chief Executive Officer
Amar Maletira
Executive Vice President and Chief Financial Officer
Susan Spradley
Executive Vice President and General Manager
Product Line Management & Design, Network
Enablement (“NE”) and Service Enablement (“SE”)
Dion Joannou
Senior Vice President, Global Sales, NE and SE
Luke Scrivanich
Senior Vice President & General Manager,
Optical Security and Performance Products (“OSP”)
Thomas Waechter (4)
Former President and Chief Executive Officer
Rex Jackson (5)
Former Executive Vice President and
Chief Financial Officer
Richard Belluzzo (6)
Interim Chief Executive Officer
Salary
($)
Bonus
($)
Stock
Awards
($) (1)
Option
Awards
($) (1)
Non-Equity
Incentive Plan
Compensation
($) (2)
All Other
Compensation
($) (3)
Total
($)
282,692
0
3,576,115
2,750,707
297,115
200,000
7,106,629
Year
2016
2016
331,827
370,000
2,894,420
2016
458,961
0
941,595
2016
2015
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
397,692
184,615
353,769
331,077
313,846
184,615
800,000
800,000
119,105
450,662
433,846
410,501
0
0
0
0
0
0
0
0
0
0
0
410,000
936,139
1,173,263
853,032
597,500
862,600
1,555,708
3,585,000
3,594,168
340,098
1,356,498
1,380,434
614,589
0
0
0
0
112,355
0
0
762,541
0
0
74,784
0
0
596
175,423
147,110
239,201
65,077
635,539
141,513
98,888
0
463,777
415,177
0
157,422
124,399
0
0
0
3,771,670
1,547,666
0
0
4,000
4,000
4,000
3,112,093
4,000
4,000
925,291
4,000
4,000
0
1,573,032
1,422,955
1,958,695
1,074,090
1,279,334
5,214,957
4,852,777
4,813,345
1,459,278
1,968,695
1,942,679
1,435,686
•
•
(1) Amounts shown do not reflect compensation actually received by the NEO. Instead, the amounts shown are the grant date fair value in the period presented as determined pursuant
to stock-based compensation accounting rule FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used to calculate these amounts are set forth
under Note 15 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for fiscal year 2016 filed with the SEC on August 30, 2016.
Stock Awards for Ms. Spradley include the incremental fair value attributable to stock awards that were modified in fiscal year 2016 in connection with the separation of the
•
Lumentum business. These modifications resulted in additional stock-based compensation expense of $339,157.
Stock Awards for Mr. Joannou include the incremental fair value attributable to stock awards that were modified in fiscal year 2016 in connection with the separation of the
Lumentum business. These modifications resulted in additional stock-based compensation expense of $199,038.
Stock Awards and Option Awards for Mr. Scrivanich include the incremental fair value attributable to stock awards and option awards that were modified in fiscal year 2016 in
connection with the separation of the Lumentum business. These modifications resulted in additional stock-based compensation expense of $215,157 and $112,355 for stock and
option awards, respectively.
Stock Awards and Option Awards for Mr. Waechter include the incremental fair value attributable to stock awards and option awards that were modified in fiscal year 2016 in
connection with the separation of the Lumentum business as well as the extension of the exercise period for Mr. Waechter’s outstanding option awards pursuant to the terms of
his Separation Agreement. These modifications resulted in additional stock-based compensation expense of $1,155,708 and $762,541 for stock and option awards, respectively.
No new grants were awarded to Mr. Jackson during fiscal year 2016.
Stock Awards and Option Awards for Mr. Jackson include the incremental fair value attributable to stock awards and option awards that were modified in fiscal year 2016 in
connection with the separation of the Lumentum business as well as the extension of the exercise period for Mr. Jackson’s outstanding option awards pursuant to the terms of
his Separation Agreement. These modifications resulted in additional stock-based compensation expense of $340,098 and $74,784 for stock and option awards, respectively. No
new grants were awarded to Mr. Jackson during fiscal year 2016.
Stock Awards and Option Awards for Mr. Belluzzo include the incremental fair value attributable to stock awards and option awards that were modified in fiscal year 2016 in
connection with the separation of the Lumentum business. These modifications resulted in additional stock-based compensation expense of $45,639 and $596 for stock and option
awards, respectively.
•
•
•
37
2016 Proxy Statement
(2) All non-equity incentive plan compensation was paid pursuant to the Variable Pay Plan, except fiscal year 2016 payments to Mr. Joannou, which were made pursuant to a Sales
Incentive Plan.
(3) Amounts include:
•
•
•
•
Mr. Khaykin: a $200,000 relocation bonus.
Mr. Waechter: (i) $2,680,000 severance payment paid pursuant to the Waechter Agreement; (ii) $11,612 COBRA benefit paid pursuant to the Waechter Agreement and
(iii) $420,481 in consulting fees paid after termination pursuant to the Consulting Agreement between Mr. Waechter and the Company.
Mr. Jackson: (i) $910,800 severance payment paid pursuant to the Separation Agreement and (ii) $14,491 COBRA benefit paid pursuant to the Jackson Agreement.
All others: $4,000 401(k) matching contributions by the Company.
(4) On August 11, 2015, Mr. Waechter stepped down from his position as President and Chief Executive Officer.
(5) On September 30, 2015, Mr. Jackson stepped down from his position as Executive Vice President and Chief Financial Officer.
(6) Mr. Belluzzo served as Interim Chief Executive Officer from August 11, 2016 to February 2, 2016. Amounts for Mr. Belluzzo include compensation earned in his role as Chairman of
the Board of Directors. Mr. Belluzzo did not receive any compensation for serving as a director of the Company while he was Interim Chief Executive Officer. Director compensation
is separately reported in the Director Compensation Table above.
Employment Contracts, Termination of Employment and Change
in Control Arrangements
Khaykin Agreement
On January 28, 2016, the Company entered into an Employment
Agreement with Mr. Khaykin (the “Khaykin Agreement”)
pursuant to which Mr. Khaykin’s starting base salary was set
at $750,000. Mr. Khaykin was also eligible to participate in
the Company’s Variable Pay Plan. For the second half of the
Company’s fiscal year 2016, Mr. Khaykin’s target bonus was
guaranteed at not less than 100% of his actual base salary
earned during the period. His actual bonus was eligible to be
increased up to 150% the target determined on a proportional
basis to the extent that the Company’s actual operating income
exceeded 100% of the target operating income as set forth in
the Company’s Annual Operating Plan. For the Company’s fiscal
year 2017, Mr. Khaykin’s target bonus will equal 100% of his base
salary. If he achieves certain revenue and operating income
objectives, Mr. Khaykin’s actual bonus will range from 100% of
target to 150% of target. Mr. Khaykin received a $200,000 lump-
sum relocation benefit as well as a relocation bonus equal to
the amount of the sales commission on his current residence,
not to exceed 6%, if and when sold. If Mr. Khaykin terminates
his employment other than for Good Reason (as defined in the
Khaykin Agreement) within 12 months, or does not relocate
to the San Francisco Bay area within 18 months, he will be
responsible for repaying the $200,000 relocation benefit.
For a complete summary of the termination and change of
control provisions of the Khaykin Agreement please see the
section titled “Potential Payments Made Upon Termination or
Change of Control” below.
Maletira Agreement
On August 6, 2015, the Company extended an offer letter to
Mr. Maletira (the “Maletira Agreement”) pursuant to which
Mr. Maletira’s starting base salary was set at $425,000 and was
eligible to participate in the Company’s Variable Pay Plan with
a target incentive opportunity of 85% of his base salary. In
addition, Mr. Maletira received a $370,000 signing bonus.
Waechter Agreements
On August 13, 2015, the Company entered into a Separation
Agreement and General Release with Thomas Waechter (the
“Waechter Agreement”). Pursuant to the Waechter Agreement,
Mr. Waechter received a lump sum cash payment of $2,680,000,
eighteen months of COBRA payments for him and his wife, and
the full acceleration of vesting of time-based equity awards.
In addition, the term during which vested options shall be
able to be exercised was extended to the later of three years
from September 18, 2015, or the expiration date of each
respective award.
38
2016 Proxy StatementSUMMARY COMPENSATION TABLE
Mr. Waechter and the Company also agreed to an arrangement
whereby Mr. Waechter will provide consulting services to the
Company for a one-year period through September 18, 2016,
in exchange for an annual fee of $533,000, payable in equal
monthly installments with a completion bonus of $267,000 to
be paid at the end of the term of the consulting arrangement,
subject to certain conditions.
Jackson Agreement
On February 24, 2015, the Company entered into a Separation
Agreement with Rex Jackson (the “Jackson Agreement”),
pursuant to which Mr. Jackson will continue to be employed by
the Company until September 30, 2015. Pursuant to the Jackson
Agreement, Mr. Jackson received certain severance benefits
upon termination specified in the Company’s 2008 Change of
Control Benefits Plan. These benefits included: (i) immediate
vesting of any outstanding and unvested equity awards,
including performance-based restricted stock units which
vested at 100% of the target amount, (ii) a lump sum cash
payment equal to 2 years base salary as September 30, 2015,
less applicable withholdings, and (iii) Company paid COBRA
benefits for a period of up to 12 months.
Retention Plan
A summary of the Viavi Solutions Inc. Executive Severance
and Retention Plan that the Company adopted on October 14,
2015, which explains the severance payments to which
Ms. Spradley, Mr. Joannou and Mr. Scrivanich are entitled under
certain circumstances, can be found under the section titled
“Potential Payments Made Upon Termination or Change of
Control” below.
Change of Control Plan
A summary of the 2015 Change of Control Benefits Plan that
the Company adopted on December 14, 2015, which explains
the termination benefits available to Mr. Maletira, Ms. Spradley,
Mr. Joannou and Mr. Scrivanich can be found under the section
titled “Potential Payments Made Upon Termination or Change
of Control” below.
39
2016 Proxy StatementSUMMARY COMPENSATION TABLE GRANTS OF PLAN-BASED AWARDS TABLE
The following table provides information about equity and non-equity awards granted to the NEOs in fiscal year 2016:
Estimated Future
Payouts Under
Non-Equity Incentive
Plan Awards (1)
Grant
Date
Approval
Date
Threshold
($)
Target
($)
Maximum
($)
Estimated Future
Payouts Under
Equity Incentive
Plan Awards
Target
(#)
Threshold
(#)
Maximum
(#)
All Other
Stock Awards:
Number of
Shares of
Stock or Units
(#)
Exercise
or Base
Price of
Option
Awards
($/Sh)
Grant
Date Fair
Value of
Stock and
Option
Awards
($) (2)
2/15/2016
2/15/2016
2/15/2016
2/15/2016
N/A
9/15/2015
9/15/2015
N/A
8/20/2015
8/20/2015
N/A
8/20/2015
8/20/2015
N/A
8/20/2015
8/20/2015
N/A
8/19/2015
2/22/2016
2/9/2016
2/9/2016
2/9/2016
2/9/2016
N/A
8/6/2015
8/6/2015
N/A
8/18/2015
8/18/2015
N/A
8/18/2015
8/18/2015
N/A
8/18/2015
8/18/2015
N/A
8/19/2015
8/18/2015
57,773 (3) 115,546 (3)
173,319 (3)
1,500,000 1,500,000
2,250,000
95,455 (3) 190,909 (3)
286,364 (3)
0
361,250
722,250
0
399,500
799,000
0
300,000
600,000
0
316,200
632,400
21,250 (7)
42,500 (7)
63,750 (7)
26,000 (7)
52,000 (7)
78,000 (7)
22,500 (7)
45,000 (7)
67,500 (7)
1,180,257 (4)
346,638 (5)
100,000 (6)
190,909 (5)
42,500 (8)
52,000 (8)
45,000 (8)
72,333 (9)
26,481(10)
None
None
918,619
2,750,707
2,062,496
595,000
N/A
1,823,420
1,070,999
N/A
372,088
230,350
N/A
455,261
281,840
N/A
393,975
243,900
N/A
400,001
168,945
Name
Oleg Khaykin (11)
Amar Maletira
Susan Spradley
Dion Joannou
Luke Scrivanich
Richard Belluzzo
Tom Waechter
Rex Jackson
(1) These columns show the potential cash value of the payout for each NEO under the Company’s Variable Pay Plan (“VPP”), or in the case of Mr. Joannou, the Sales Incentive Plan, as
described in the Compensation Discussion and Analysis above. The potential payouts are performance-driven and therefore completely at risk. The amounts actually earned by each
NEO in fiscal year 2016 are summarized in the Summary Compensation Table above.
(2) The amounts shown in this column are the grant date fair value in the period presented as determined pursuant to stock-based compensation accounting rule FASB ASC Topic 718,
excluding the effect of estimated forfeitures. The assumptions used to calculate these amounts are set forth under Note 15 of the Notes to Consolidated Financial Statements
included in the Company’s Annual Report on Form 10-K for fiscal year 2016 filed with the SEC on August 30, 2016. The NASDAQ closing price of our Common Stock was $5.53 on
August 19, 2015, $5.42 on August 20, 2015, $5.61 on September 15, 2015, $5.95 on February 12, 2016 and $6.38 on February 22, 2016.
(3) These grants are restricted stock unit awards with market conditions, which we refer to as market stock units (“MSUs”). The MSUs are performance-based stock units which will vest
in four annual tranches based upon the Company’s total stockholder return (“TSR”) relative to the performance of the component companies of the NASDAQ Telecommunications
Index over the four-year period. Details of the conditions and terms under which the MSUs will vest begin on page 32 of this Proxy Statement.
(4) Option grant that vests in four equal annual installments.
(5) Time-based RSUs that vest 1/4 of the shares on the first anniversary of the grant date and the remainder of the shares in equal annual installments for three years thereafter.
(6) Time-based RSUs that vest 2/3 on the first anniversary of Mr. Khaykin’s employment and quarterly for two quarters thereafter.
(7) These grants are MSUs which vest in three annual tranches.
(8) These grants are time-based RSUs that vest 1/3 of the shares on the first anniversary of the grant date and the remainder of the shares in equal quarterly installments for
two years thereafter.
(9) Time-based RSUs that vest 100% upon the earlier of one year from the grant date or the date on which a permanent CEO commenced employment.
(10) Time-based RSU that vest 100% one year from the grant date. This award was granted in connection with Mr. Belluzzo’s service as a member of the Board and was pro rated since
he did not receive any compensation as a member of the Board for the portion of the year during which he served as Interim CEO.
(11) All equity grants, except those awarded to Mr. Khaykin, were granted under the Company’s Amended and Restated 2003 Equity Incentive Plan.
40
2016 Proxy Statement
OUTSTANDING EQUITY AWARDS AT FISCAL
YEAR-END TABLE
The following table provides information regarding outstanding equity awards and applicable market values at the end of fiscal
year 2016.
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
0 (2)
1,180,257
$5.95
2/15/2024
Name
Oleg Khaykin
Amar Maletira
Susan Spradley
Dion Joannou
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) (1)
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($) (1)
346,638 (3)
100,000 (4)
2,291,277
661,000
190,909 (6)
1,261,908
42,500 (7)
22,377 (6)
4,498 (7)
23,612 (7)
280,925
147,912
29,732
156,075
52,000 (7)
60,417 (6)
343,720
399,356
115,546 (5)
763,759
190,909 (5)
1,261,908
42,500 (8)
22,377 (5)
17,902 (8)
37,594 (8)
280,925
147,912
118,332
248,496
52,000 (8)
60,417 (5)
343,720
399,356
41
2016 Proxy Statement
Option Awards
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
26,555 (9)
39,563 (9)
48,967 (9)
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
0
0
0
Option
Exercise
Price
($)
1.99
3.28
5.74
Option
Expiration
Date
2/15/2017
8/15/2017
8/15/2018
Name
Luke Scrivanich
Thomas Waechter
Rex Jackson
Richard Belluzzo
179,020 (9)
358,040 (9)
134,265 (9)
67,132 (9)
0
0
0
0
5.74
5.74
9.93
9.93
8/15/2018
8/15/2018
9/30/2017
9/30/2017
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) (1)
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($) (1)
45,000 (8)
17,920 (8)
29,836 (8)
297,450
118,332
197,216
45,000 (7)
4,498 (7)
18,738 (7)
297,450
29,732
123,858
26,481(10)
6,312(11)
13,482(11)
175,039
41,722
89,116
(1) Amounts reflecting market value of RSUs are based on the price of $6.61 per share, which was the closing price of our common stock as reported on NASDAQ on July 1, 2016.
(2) Stock option with 1/4 of the shares vesting on each of the first four anniversaries of the hire date.
(3) Time-based RSUs with 1/4 of the units vesting on each of the first four anniversaries of the hire date.
(4) Time-based RSU with 66.6% of the units vesting on the first anniversary of the hire date and 16.7% of the units vesting every three months thereafter.
(5) Market stock units (“MSUs”) that vest in four annual tranches based upon the Company’s total stockholder return (“TSR”) relative to the performance of the component companies
of the NASDAQ Telecommunications Index over the four-year period. The actual number of shares that vest range from 0% to 150% of the target amount for each vesting tranche.
The number of MSUs disclosed in the table above reflects vesting at 100% of the target amount. Details of the conditions and terms under which the MSUs will vest begin on
page 32 of this Proxy Statement.
(6) Time-based RSUs with 1/4 of the units vesting on each of the first four anniversaries of the grant date.
(7) Time-based RSUs with 1/3 of the units vesting on the first anniversaries of the grant date and the remainder vesting in equal quarterly installments for two years thereafter.
(8) MSUs that vest in three annual tranches based upon the Company’s total stockholder return (“TSR”) relative to the performance of the component companies of the NASDAQ
Telecommunications Index over the three-year period. The actual number of shares that vest range from 0% to 150% of the target amount for each vesting tranche. The number
of MSUs disclosed in the table above reflects vesting at 100% of the target amount. Details of the conditions and terms under which the MSUs will vest begin on page 32 of this
Proxy Statement.
(9) Fully vested stock option.
(10) Time-based RSUs that vest one year after the grant date.
(11) Time-based RSUs with 1/3 of the units vesting on each of the first three anniversaries of the grant date.
42
2016 Proxy StatementOUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
OPTION EXERCISES AND STOCK VESTED TABLE
The following Option Exercises and Stock Vested Table provides additional information about the value realized by the NEOs due
to the exercise of option awards and vesting of restricted stock units during fiscal year 2016.
Name
Oleg Khaykin
Amar Maletira
Susan Spradley
Dion Joannou
Luke Scrivanich
Tom Waechter
Rex Jackson
Richard Belluzzo (3)
Option Awards
Stock Awards
Number of
Shares
Acquired
on Exercise
(#)
Value
Realized
on Exercise
($) (1)
Number of
Shares
Acquired
on Vesting
(#)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
126,194
44,789
100,295
635,457
255,266
93,845
Value
Realized
on Vesting
($) (2)
0
0
699,074
226,632
620,725
3,506,915
1,389,143
586,762
(1) Represents the amounts realized based on the difference between the market price of our Common Stock on the date of exercise and the exercise price.
(2) Represents the amounts realized based on the product of the number of units vested and the closing price of our Common Stock on NASDAQ on the vesting day (or, if the vesting
day falls on a day on which our stock is not traded, the prior trading day).
(3) Includes 72,333 shares acquired upon vesting of equity awards granted in connection with service as a member of the Board with an aggregate value of $400,001.
Potential Payments Made Upon Termination or Change of Control
The descriptions and table below reflect the amount of
compensation to be paid to each of the NEOs in the event
of termination of such executive’s employment. The figures
shown below, except the amounts for Mr. Waechter and
Mr. Jackson, assume that such termination was effective
as of July 2, 2016 (and therefore use the closing price of
our Common Stock on NASDAQ as of July 1, 2016 for all
equity-based calculations), and thus include amounts earned
through such time and are estimates of the amounts which
would be paid out to the executives upon their termination.
The amounts for Mr. Waechter and Mr. Jackson were calculated
based on the actual amounts they received in connection with
their terminations. The actual amounts that would be paid for
the other NEOs can only be determined at the time of such
executive’s separation from the Company.
2015 Change of Control Benefits Plan
The Company’s 2015 Change of Control Benefits Plan (the
“2015 Plan”), which covers all currently employed NEOs except
Mr. Khaykin, provides the following benefits if a termination
is without Cause or is for Good Reason (each as defined in
the 2015 Plan) within the 12-month period beginning upon
a Change of Control: (a) accelerated vesting of any unvested
stock options and other securities or similar incentives held at
the time of termination (including accelerated vesting of any
performance-based awards at 100% of the target achievement
level), (b) a lump sum payment equal to two years’ base salary,
or 18 months base salary in the case of Mr. Joannou (in each
case, less applicable tax and other withholdings), and (c) a
cash payment equal to 12 months of COBRA premiums for
the NEO and his or her eligible dependents The same benefits
are payable if the NEO is terminated due to Death or Disability
during the coverage period.
43
2016 Proxy Statement Khaykin Agreement
Pursuant to the terms of the Khaykin Agreement, if the
Company terminates Mr. Khaykin’s employment without
Cause or he terminates his employment for Good Reason
(each, as defined in the Khaykin Agreement, an “Involuntary
Termination”), in addition to any accrued payments to which he
is entitled, and provided that he signs a separation agreement
and release of claims, Mr. Khaykin will receive the following
severance benefits.
If an Involuntary Termination occurs within three months prior
to, or one year after a Change of Control (as defined in the
Employment Agreement), Mr. Khaykin will receive:
•
•
•
If the termination date occurs on or before the second
anniversary of his hire date, a lump sum payment equal
to 200% of his annual base salary plus 300% of his target
annual bonus.
If the termination date occurs after the second anniversary
of his hire date, a lump sum payment equal to 150% of his
annual base salary plus 225% of his target annual bonus.
Immediate vesting of all equity awards, with performance
awards treated as earned at the greater of the target amount
or the actual achievement attained as of the termination date.
Retention Plan
If an Involuntary Termination occurs during a time that is not
within three months before or one year after a Change of
Control, or is a termination upon Death or Disability (each as
defined in the Khaykin Agreement), Mr. Khaykin will receive:
• A prorated portion of the Annual Bonus for the fiscal
year in which the termination date occurs, which will be
determined at the end of the Company’s fiscal year based
on the Company’s actual performance.
• An additional amount equal to the sum of (i) 150% of
Mr. Khaykin’s base salary at the time of termination and
(ii) 150% of his target Annual Bonus.
Immediate vesting of all equity awards to the extent that
they would have otherwise vested within 18 months of
the termination date, with performance awards treated as
earned at the target amount.
•
Whether or not an Involuntary Termination occurs within
one year after a Change of Control, Mr. Khaykin will also be
reimbursed for 18 months the amount equal to the difference
between the monthly cost of his COBRA health and dental
benefits and the amount he would have been required to
contribute for health and dental coverage if he remained an
active employee of the Company.
On October 14, 2015, the Compensation Committee approved
the Viavi Solutions Inc. Executive Severance and Retention
Plan (the “Retention Plan”). The Retention Plan provides for
severance and retention benefits to certain executives at
the level of vice president and above, including Ms. Spradley
and Messrs. Joannou and Scrivanich. If an NEO is Involuntary
Terminated (as defined in the Plan), he or she will generally be
entitled to the following severance benefits:
Position
Senior Vice President
Involuntary Termination Occurs
Other than During Retention Period
• Within Two Years From Date of Appointment to SVP: A
Involuntary Termination Occurs
During Retention Period*
• A lump sum cash payment equal to 18 months of salary
lump sum cash payment equal to 12 months of salary at
the time of termination
at the time of termination
• 18 months acceleration of time-based RSUs
• After Two Years From Date of Appointment to SVP: A lump
sum cash payment equal to 18 months of salary at the
time of termination
• Remain eligible for receipt of performance based equity
awards based on a revised post-termination performance
period as set forth in the Plan
Vice President
• A lump sum cash payment equal to 6 months of salary at
• A lump sum cash payment equal to 12 months of salary
the time of termination
at the time of termination
• 12 months acceleration of time-based RSUs
• Remain eligible for receipt of performance based equity
awards based on a revised post-termination performance
period as set forth in the Plan
* Retention Period means the period commencing on the date of the hiring of a permanent Chief Executive Officer (February 3, 2016) and ending on the later of one year from the
date of the hiring or December 31, 2016.
44
2016 Proxy StatementOPTION EXERCISES AND STOCK VESTED TABLE
Maletira Agreement
Pursuant to the terms of the Maletira Agreement, if Mr. Maletira’s
employment is terminated other than for Cause (as defined in
the Maletira Agreement), provided that he signs a separation
agreement and release of claims, he will receive:
•
if the termination occurs within the first 18 months of his
employment, Mr. Maletira will receive accelerated vesting of
his new hire equity awards, as follows:
o 100% vesting of all Time-Based RSUs that are not vested at
• a severance payment equal to 18-months base salary, and
the date of termination; and
o 100% vesting of all Performance RSUs at target given the
Company is at a minimum 90% attainment of its Annual
Operating Plan Income target on a year-to-date basis for
the then-current fiscal year.
Potential Payments Upon Termination or Change in Control
Name
Oleg Khaykin (1)
Amar Maletira
Susan Spradley
Dion Joannou
Luke Scrivanich
Tom Waechter (2)
Rex Jackson (2)
Richard Belluzzo (3)
Within
12 Months
After a Change
in Control
Termination
Not in Connection
with a Change
in Control
3,750,000
11,517,535
30,942
850,000
2,523,817
21,851
940,000
1,410,310
15,829
612,000
1,486,153
21,851
744,000
1,064,038
21,851
2,680,000
1,399,258
23,469
910,800
802,869
14,491
n/a
305,878
n/a
2,250,000
4,350,318
30,942
637,500
1,261,908
0
705,000
880,274
0
612,000
505,050
0
558,000
692,384
0
2,680,000
1,399,258
23,469
910,800
802,869
14,491
n/a
305,878
n/a
Benefit
Salary
Securities
COBRA
Salary
Securities
COBRA
Salary
Securities
COBRA
Salary
Securities
COBRA
Salary
Securities
COBRA
Salary
Securities
COBRA
Salary
Securities
COBRA
Salary
Securities
COBRA
(1) Benefits for Mr. Khaykin are also payable if he is terminated within three months prior to a Change of Control and include (a) a lump sum payment equal to 200% of his base salary
plus 300% of his annual target bonus, (b) accelerated vesting of any unvested stock options and other securities held at the time of termination (including accelerated vesting of any
performance-based awards at the greater of 100% of the target achievement level or the actual achievement level, if measurable as of the termination date) and (c) reimbursement
of COBRA premiums for a period of up to 18 months.
(2) Amounts shown for Mr. Waechter and Mr. Jackson reflect the amounts actually paid upon termination. COBRA amounts assume payment of COBRA benefits for the full
eligibility period.
(3) Pursuant to the terms of the awards, RSUs held by Mr. Belluzzo are accelerated upon termination.
45
2016 Proxy StatementOPTION EXERCISES AND STOCK VESTED TABLE EQUITY COMPENSATION PLANS
The following table sets forth information about shares of the Company’s Common Stock that may be issued under the Company’s
equity compensation plans, including compensation plans that were approved by the Company’s stockholders as well as
compensation plans that were not approved by the Company’s stockholders. Information in the table is as of July 2, 2016.
Plan Category
Equity compensation plans
Approved by security holders
Equity compensation plans
Not approved by security holders
Total / Weighted Ave./ Total
Number of
securities to
be issued upon
exercise
of outstanding
options, warrants
and rights
10,633,409 (1)
1,849,604 (3)
12,483,013 (4)
Weighted-average
exercise price
of outstanding
options,
warrants
and rights
$5.88
$5.61
$5.84
Number of securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities reflected
in first column)
23,421,586 (2)
1,486,385
24,907,971
(1) Represents shares of the Company’s Common Stock issuable upon exercise of options and restricted stock units outstanding under the Company’s Amended and Restated 2003
Equity Incentive Plan. Excluding outstanding RSUs, which have no exercise price, as of July 2, 2016, there were options to purchase 1,878,930 shares outstanding at a weighted
average exercise price of $5.88.
(2) Represents shares of the Company’s Common Stock authorized for future issuance under the following equity compensation plans: Amended and Restated 2003 Equity Incentive
Plan (under which 17,948,316 shares remain available for grant); Amended and Restated 1998 Employee Stock Purchase Plan (under which 5,473,270 shares remain available for
grant).
(3) Represents shares of the Company’s Common Stock issuable upon exercise of options outstanding or authorized for future issuance under the following equity compensation plans:
Amended and Restated 2005 Acquisition Equity Incentive Plan and the inducement grants awarded to Oleg Khaykin on February 15, 2016.
(4) Excluding outstanding RSUs, which have no exercise price, as of June 27, 2015 there were options to purchase 1,878,930 shares outstanding at a weighted average exercise
price of $5.88.
The following are descriptions of the material features of the Company’s equity compensation plan that was not approved by the
Company’s stockholders:
2005 Acquisition Equity Incentive Plan
The Board of Directors adopted the 2005 Acquisition Equity
Incentive Plan (the “2005 Plan”) in August 2005. The 2005 Plan
is administered by the Compensation Committee. Pursuant to
the 2005 Plan, the Compensation Committee may grant stock
options, SARs, Dividend Equivalent Rights, Restricted Stock,
Restricted Stock Units and Performance Units to employees
(including directors and officers) of the Company or any parent
or subsidiary corporation of the Company, or any other such
entity in which the Company holds a substantial ownership
interest. Pursuant to NASDAQ listing rules regarding equity
compensation plans not approved by security holders, the
Company can and will only issue awards under the 2005 Plan
to individuals joining the Company as a result of acquisitions
or related strategic transactions or certain new hires to the
extent permitted by NASDAQ rules, and not for new grants
to continuing employees of the Company, nor to regular new
hires. The 2005 Plan will continue in effect until terminated by
the Board of Directors.
As of July 2, 2016, there were 1,486,385 shares remaining
available for future grants under the 2005 Plan. Shares
underlying awards that are forfeited, canceled or expired are
not counted as having been issued under the 2005 Plan. Stock
options and any awards intended to qualify as performance-
based compensation issued under the 2005 Plan must have
an exercise price of not less than 100% of the fair market value
of the Company’s Common Stock on the date of grant of the
award. Awards are generally non-transferable. The term of all
awards granted under the Plan shall not exceed eight years
from the date of grant.
46
2016 Proxy Statement AUDIT COMMITTEE REPORT
The information contained in the following report shall not be
deemed to be “soliciting material” or to be “filed” with the Securities
and Exchange Commission, except to the extent that the Company
specifically requests that the information be treated as soliciting
material or incorporates it by reference into a document filed under
the Securities Act or the Exchange Act. The information will not be
deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, except to the extent that the
registrant specifically incorporates it by reference.
The Audit Committee of the Board of Directors is responsible for
assisting the full Board in fulfilling its oversight responsibilities
relative to the Company’s financial statements, financial
reporting practices, systems of internal accounting and financial
control, the internal audit function, annual independent audits
of the Company’s financial statements, and such legal and
ethics programs as may be established from time to time by
the Board. The Audit Committee is empowered to investigate
any matter brought to its attention with full access to all books,
records, facilities, and personnel of the Company and may retain
external consultants at its sole discretion. The Audit Committee
is composed solely of non-employee directors, as such term is
defined in Rule 16b-3 under the Securities and Exchange Act
of 1934, as amended, all of whom satisfy the independence,
financial literacy and experience requirements of Section
10A of the Securities Exchange Act of 1934, as amended, the
Sarbanes-Oxley Act of 2002, rules applicable to NASDAQ-listed
issuers, and any other regulatory requirements. All members
of the Committee are required to have a working knowledge
of basic finance and accounting, and at all times at least one
member of the Committee qualifies as a “financial expert” as
defined by the Sarbanes-Oxley Act of 2002.
internal controls. The
Management has the primary responsibility for the financial
statements and the reporting process, including the system
of
independent registered public
accounting firm is responsible for performing an independent
audit of the Company’s consolidated financial statements in
accordance with generally accepted auditing standards and
for issuing a report thereon. The Audit Committee has the
general oversight responsibility with respect to the Company’s
financial reporting and reviews the scope of the independent
audits, the results of the audits and other non-audit services
provided by the Company’s independent registered public
accounting firm.
The following is the Report of the Audit Committee with respect
to the Company’s audited financial statements included in the
Annual Report on Form 10-K for the fiscal year ended July 2,
2016, which includes the consolidated balance sheets of the
Company as of July 2, 2016 and June 27, 2015, and the related
consolidated statements of operations, stockholders’ equity
and cash flows for each of the three years in the period ended
July 2, 2016, and the notes thereto.
Review with Management
The Audit Committee has reviewed and discussed the Company’s audited financial statements with management.
Review and Discussions with Independent Registered Public
Accounting Firm
has
Audit
discussed
Committee
The
with
PricewaterhouseCoopers LLP (“PricewaterhouseCoopers”), the
Company’s independent registered public accounting firm, the
matters required to be discussed by Statement on Accounting
Standards No. 61, “Communications with Audit Committees”
which as amended (AICPA, Professional Standards, Vol. 1. section
380), as adopted by the Public Company Accounting Oversight
Board in Rule 3200T, which includes, among other items, matters
related to the conduct of the audit of the Company’s financial
statements, and both with and without management present,
discussed and reviewed the results of PricewaterhouseCoopers’
examination of the financial statements.
The Audit Committee has received the written disclosures
letter from PricewaterhouseCoopers required by the applicable
requirements of the Public Company Accounting Oversight
independent public accountant’s
Board
communications with the Audit Committee concerning
independence, and has discussed with PricewaterhouseCoopers
the independent public accountant’s independence.
regarding
the
During the course of fiscal year 2016 management engaged
in documentation, testing and evaluation of the Company’s
system of internal control over financial reporting in response to
the requirements set forth in Section 404 of the Sarbanes-Oxley
47
2016 Proxy Statement Act of 2002 and related regulations. The Audit Committee was
kept apprised of the progress of the evaluation and provided
oversight and advice to management during the process.
In connection with this oversight, the Audit Committee
received periodic updates provided by management and
PricewaterhouseCoopers at Audit Committee meetings. At
the conclusion of the process, management provided the
Audit Committee with, and the Audit Committee reviewed, a
report on the effectiveness of the Company’s internal control
over financial reporting. The Audit Committee continues to
oversee the Company’s efforts related to its internal control
over financial reporting and management’s preparations for
the evaluation for fiscal year 2017.
Conclusion
Based on the review and discussions referred to above, the
Audit Committee recommended to the Company’s Board that
the Company’s audited financial statements be included in
the Company’s Annual Report on Form 10-K for the fiscal year
ended July 2, 2016.
Audit Committee
Pamela Strayer, Chair
Keith Barnes
Masood A. Jabbar
48
2016 Proxy StatementAUDIT COMMITTEE REPORT BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange requires the Company’s directors,
executive officers and any persons who directly or indirectly
hold more than 10 percent of the Company’s Common Stock
(“Reporting Persons”) to file reports of ownership and changes
in ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
and written representations from certain Reporting Persons
that no such forms were required, the Company believes that
during fiscal year 2016 all Reporting Persons complied with the
applicable filing requirements on a timely basis.
ANNUAL REPORT ON FORM 10-K AND ANNUAL
REPORT TO STOCKHOLDERS
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON SOLICITED A COPY OF THE FISCAL YEAR 2016
ANNUAL REPORT, INCLUDING FINANCIAL STATEMENTS AND SCHEDULES FILED THEREWITH UPON WRITTEN REQUEST
TO THE CORPORATE SECRETARY, SENT TO:
VIAVI SOLUTIONS INC.
430 NORTH MCCARTHY BOULEVARD
MILPITAS, CALIFORNIA 95035.
By Order of the Board of Directors,
Oleg Khaykin
Chief Executive Officer and President
Milpitas, California
September 30, 2016
49
2016 Proxy Statement UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended July 2, 2016
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 0-22874
VIAVI SOLUTIONS INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-2579683
(I.R.S. Employer
Identification Number)
430 North McCarthy Boulevard, Milpitas, California 95035
(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
Common Stock, par value of $0.001 per share
Name of exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
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 and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting 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
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 December 31, 2015 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was
approximately $1.4 billion, based upon the closing sale prices of the common stock as reported on the NASDAQ Stock Market LLC. Shares of common stock
held by executive officers and directors have been excluded from this calculation because such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other purposes.
As of July 29, 2016, the Registrant had 232,298,097 shares of common stock outstanding.
Documents Incorporated by Reference: Portions of the Registrant’s Notice of Annual Meeting of Stockholders and Proxy Statement to be filed
pursuant to Regulation 14A within 120 days after Registrant’s fiscal year end of July 2, 2016 are incorporated by reference into Part III of this Report.
TABLE OF CONTENTS
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1.
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2.
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 3.
ITEM 4. MINE SAFETY DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
ITEM 8.
ITEM 9.
MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . .
CHANGES IN AND DISAGREEMENTS WITH ACOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9A. CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 9B. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. . . .
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
Page
4
14
23
23
23
23
24
27
28
52
54
115
115
116
117
117
MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . .
117
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
ITEM 14.
DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . .
117
117
PART I
PART II
PART III
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES . . . . . . . . . . . . . . . . . . . . . .
10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 16.
118
120
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121
FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K which are not historical facts are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking
statement may contain words such as “anticipates,” “believes,” “can,” “can impact,” “could,” “continue,”
“estimates,” “expects,” “intends,” “may,” “ongoing,” “plans,” “potential,” “projects,” “should,” “will,” “will
continue to be,” “would,” or the negative thereof or other comparable terminology regarding beliefs, plans,
expectations or intentions regarding the future. Forward-looking statements include statements such as:
• Our expectations regarding demand for our products, including industry trends and technological
advancements that may drive such demand, the role we will play in those advancements and our ability
to benefit from such advancements;
• Our plans for growth and innovation opportunities;
•
•
The anticipated costs, benefits and other impacts of the separation of the Lumentum business;
Financial projections and expectations, including profitability of certain business units, plans to reduce
costs and improve efficiencies, the effects of seasonality on certain business units, continued reliance on
key customers for a significant portion of our revenue, future sources of revenue, competition and pricing
pressures, the future impact of certain accounting pronouncements and our estimation of the potential
impact and materiality of litigation;
• Our plans for continued development, use and protection of our intellectual property;
• Our strategies for achieving our current business objectives, including related risks and uncertainties;
• Our plans or expectations relating to investments, acquisitions, partnerships and other strategic
opportunities;
• Our strategies for reducing our dependence on sole suppliers or otherwise mitigating the risk of supply
chain interruptions;
• Our research and development plans and the expected impact of such plans on our financial
performance; and
• Our expectations related to our products, including costs associated with the development of new
products, product yields, quality and other issues.
Management cautions that forward-looking statements are based on current expectations and assumptions
and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected
in such forward-looking statements. These forward-looking statements are only predictions and are subject to
risks and uncertainties including those set forth in Part I, Item 1A “Risk Factors” and elsewhere in this Annual
Report on Form 10-K and in other documents we file with the Securities and Exchange Commission. Moreover,
neither we assume nor any other person assumes responsibility for the accuracy and completeness of these forward-
looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or
circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We
are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform such
statements to actual results or to changes in our expectations.
3
PART I
ITEM 1. BUSINESS
GENERAL
Overview
Viavi Solutions Inc. (“Viavi,” also referred to as “the Company,” “we,” “our,” and “us”), formerly JDS
Uniphase Corporation (“JDSU”), is a global provider of network test, monitoring and assurance solutions to
communications service providers, enterprises and their ecosystems, supported by a worldwide channel community.
Our solutions deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to
optimize connectivity, quality of experience and profitability. Viavi is also a leader in high performance thin film
optical coatings, providing light management solutions to anti-counterfeiting, consumer and industrial, government
and healthcare and other markets. On August 1, 2015, we completed the separation (“Separation”) of our optical
components and lasers business and created two publicly-traded companies:
•
•
an optical components and commercial lasers company, Lumentum Holdings Inc. (“Lumentum”),
consisting of our former Communications and Commercial Optical Products (“CCOP”) segment and the
WaveReady product line within our Network Enablement (“NE”) segment; and
a network and service enablement and optical coatings company, renamed Viavi, consisting of our NE,
Service Enablement (“SE”) and Optical Security and Performance Products (“OSP”) segments.
In connection with the Separation we distributed approximately 80.1% of the outstanding shares of Lumentum
common stock to our stockholders on August 1, 2015. The Company was renamed Viavi and, at the time of the
distribution, retained ownership of approximately 19.9% of Lumentum’s outstanding shares. Activities related to the
Lumentum business have been presented as discontinued operations in all periods of the Company’s consolidated
financial statements in this Annual Report on Form 10-K and the accompanying disclosures, discussion and analysis
herein pertains to the Company’s continuing operations, unless noted otherwise.
To serve our markets, during fiscal 2016 we operated the following business segments:
• Network Enablement
•
Service Enablement
• Optical Security and Performance Products
Industry Trends
NE and SE
There is a convergence of multiple technologies taking place in the networking industry to meet the needs of
increased network capacity and faster transmission speeds across the physical network and across the airwaves.
In order to meet these demand challenges, the network needs to be more agile, flexible, programmable and cost-
effective. This will require networks to transition from a hardware-centric approach to a virtualized software-centric
approach. These transformative changes in the network are driving the shift to software defined networking (“SDN”)
and network function virtualization (“NFV”).
Our NE and SE products and solutions are well positioned to meet these industry trends in the deployment
of next generation network technologies. There is a race towards providing 1 gigabit per second (“Gbps”) speed
with the deployment of optical fiber-to-the-home (“FTTH”) and to “everywhere” (“FTTx”). Cable service providers
are investing in high speed connection and increased bandwidth availability with the deployment of DOCSIS 3.1.
Network service providers are also upgrading digital subscriber line (“DSL”) to G.fast technology. With the growing
number of connected smart mobile devices and demand for high-speed broadband access to support video and other
high-bandwidth applications, capacity is increasing at the edge of the network pushing the expansion of the overall
network and larger links along with new networks requiring re-architecture for scalability and flexibility. Over the
airwaves, 5G is expected to augment and expand the 4G/Long Term Evolution (“LTE”) wireless technology within
4
the next five years which is expected to provide 100x faster speeds (about 1 Gbps) and 50x lower latency time
(about 1 millisecond). All this network expansion and new technology deployment requires sophisticated network
monitoring and assurance of quality of the overall network.
OSP
Counterfeiting of bank notes and other goods is on the rise because counterfeiters now have access to a broad
range of advanced but relatively low-cost imaging technologies and printing tools giving them the ability to create
convincing simulations of actual documents and products for illicit purposes. At the same time, the penalties for
counterfeiting can often be relatively modest when compared to the penalties for other crimes. We have decades of
anti-counterfeiting expertise leveraging our Optically Variable Pigment (“OVP®”), and more recently our Optically
Variable Magnetic Pigment (“OVMP®”) technologies to protect the integrity of banknotes and other high-value
documents by delivering optical effects that are very easy for consumers to recognize but also very difficult for
counterfeiters to reproduce. We also provide optical technologies for government, healthcare, consumer electronics
and industrial markets.
In addition to network and anti-counterfeiting solutions, we extend our technology expertise to solve complex
problems and deliver unique solutions in other industries. For example, we manufacture and sell optical filters for 3D
sensing products that separate out ambient light from incoming data to allow devices to be controlled by a person’s
movements or gestures.
Sales and Marketing
Communication service providers (“CSPs”), consisting of telecommunications, cable and cloud service
providers, make up the majority of NE and SE revenues. We also market and sell our products to network-equipment
manufacturers ("NEMs"), original equipment manufacturers (“OEMs”), enterprises, governmental organizations,
distributors and strategic partners worldwide. We have a dedicated sales force organized around the markets our
segments serve that works directly with customers’ executive, technical, manufacturing and purchasing personnel to
determine design, performance, and cost requirements. We are also supported by a worldwide channel community,
including Viavi’s Velocity Solution Partners who support our NE and SE segments.
A high level of support is a critical part of our strategy to develop and maintain long-term collaborative
relationships with our customers. We develop innovative products by engaging our customers at the initial design
phase and continue to build that relationship as our customers’ needs change and develop. Service and support are
provided through our offices and those of our partners worldwide.
Additional Information
We were incorporated in California in 1979 as Uniphase Corporation and reincorporated in Delaware in 1993.
We are the product of several significant mergers and acquisitions including, among others, the combination of
Uniphase Corporation and JDS FITEL in 1999. In 2000 we acquired Optical Coatings Lab, Inc., which is currently
part of our OSP business, and in 2005 we acquired Acterna, Inc. which is currently part of our Network and Service
Enablement (“NSE”) business, which consists of our NE and SE segments. Following these acquisitions, we operated
as a company comprised of a portfolio of businesses with a focus on optical innovation, communications network and
service enablement, commercial lasers and anti-counterfeiting solutions. In August 2015, we separated our portfolio
of businesses into two separate publicly-traded companies to gain greater strategic flexibility to address rapidly
changing market dynamics. At the same time, we changed our name to Viavi Solutions Inc.
We are subject to the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act,
pursuant to which we file annual, quarterly and periodic reports, proxy statements and other information with the
SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC. We also make available free of charge all of our
SEC filings on our website at www.viavisolutions.com/investors as soon as reasonably practicable after they are
electronically filed with or furnished to the SEC. The information on our web site is not part of this Annual Report
on Form 10-K.
5
CORPORATE STRATEGY
Our objective is to continue to be a leading provider for all markets and industries we serve. In support of our
business segments, we are pursuing a corporate strategy that we believe will best position us for future opportunities.
The key elements of our corporate strategy include:
•
Enable our customers through collaborative innovation
We are committed to working closely with our customers from initial product design and manufacturing
through solution deployment and training. We strive to engage with our customers at the early stages
of development to provide them with the most innovative and timely products and services and ensure
that our focus remains aligned with their evolving requirements. Our sales, customer support, product
marketing, and development efforts are organized to maximize effectiveness in our customer interactions.
• Maintain and improve our financial flexibility
We continue to take actions to maintain and improve our financial flexibility in order to support our global
business operations and to enable additional investments in growth and innovation. Key elements of this
strategy include maintaining a healthy balance sheet with a strong liquidity position, generating positive
cash flow, diligently managing our cash conversion cycle, managing our capital structure to minimize
cost of capital and preserve access to additional financing, managing capital market risk and refinancing
risk with periodic debt issuance and/or maintenance of revolving credit facilities, and maintaining healthy
bank relationships.
Build a lean, focused and agile business
In August 2015, we completed the Separation of the Lumentum business, which we believe will allow us
to manage our remaining businesses with greater agility to respond to the rapidly changing dynamics of
these markets. Following the Separation, we plan to focus on increasing our presence in higher-growth
markets and realizing cost reductions from streamlined teams and site consolidations.
Invest in profitable, market-based innovation
Based on current and anticipated demand, we continue to invest in research and development (“R&D”)
and pursue acquisitions and partnerships to develop new technologies, products and services that offer
our customers increased value and strengthen our leadership position in our core markets.
Expand our global market presence
•
•
•
Long term, we expect growth in Asia-Pacific, Eastern Europe and Latin America. Therefore, we are
developing products, sales, marketing and customer support to meet the specific customer requirements
in these regions to serve these customers.
Although we expect to successfully implement our strategy, internal and/or external factors could impact our
ability to meet any, or all, of our objectives. These factors are discussed under Item 1A—Risk Factors.
BUSINESS SEGMENTS
Following the Separation of the Lumentum business on August 1, 2015, we operated in two broad business
categories: NSE and OSP. NSE operates in two reportable segments, NE and SE, whereas OSP operates as a
single segment. Our NSE and OSP businesses each are organized with its own engineering, manufacturing and
dedicated sales and marketing groups focused on each of the markets we serve to better support our customers and
respond quickly to market needs. In addition, our segments share common corporate services that provide capital,
infrastructure, resources and functional support, allowing them to focus on core technological strengths to compete
and innovate in their markets.
6
The table below discloses the percentage of our total net revenue attributable to each of our three reportable
segments.
Network Enablement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Enablement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optical Security and Performance Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Network Enablement
June 28,
2014
Years Ended
June 27,
July 2,
2015
2016
55.7% 58.0% 61.5%
19.9
16.9
22.1
27.4
16.8
21.7
Our NE segment provides an integrated portfolio of testing solutions that access the network to perform build-
out and maintenance tasks. These solutions include instruments, software and services to design, build, activate,
certify, troubleshoot and optimize networks. They also support more profitable, higher-performing networks and
facilitate time-to-revenue. Our test instrument portfolio is one of the largest in the industry, with hundreds of
thousands of units in active use by major NEMs, operators and services providers worldwide. Our solutions address
lab and production environments, field deployment and service assurance for wireless and fixed communications
networks, including storage networks.
Markets
Viavi’s NE segment provides solutions for CSPs, as well as NEMs and data center providers that deliver and/or
operate broadband/IP networks (fixed and mobile) supporting voice, video and data services as well as a wide range
of applications. These solutions support the development and production of network equipment, the deployment of
next generation network technologies and services, and ensure a higher-quality customer experience.
Customers
NE customers include wireless and fixed services providers, NEMs, government organizations and large
corporate customers, such as major telecom, mobility and cable operators, chip and infrastructure vendors, storage-
device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Our customers
include Alcatel-Lucent International, América Móvil, S.A.B. de C.V., AT&T Inc., British Telecommunications, Plc.,
CenturyLink, Inc., Cisco Systems, Inc., Comcast Corporation, Lumentum Holdings Inc., Time Warner Inc., and
Verizon Communications Inc.
Following the separation from Lumentum, one NSE customer generated more than 10% of Viavi net revenue
from continuing operations in fiscal 2014. During fiscal 2014 net revenue from AT&T Inc. represented 11.5% Viavi
net revenue from continuing operations. No single customer accounted for more than 10% of Viavi net revenue from
continuing operations during fiscal 2016 or 2015.
Trends
Our NE products are well positioned to meet next generation network technology deployment trends. Growing
bandwidth demand combined with the rapid pace at which technology continues to evolve are impacting the way
that NEMs and operators design, build and deploy new network systems and technologies. Integrating legacy and
next generation network technology and services creates new challenges for communications service providers and
impact service quality and reliability.
These trends are driving shifts in capital spending in network technologies related 100G Metro optical fiber
deployment, a cable upgrade cycle to DOCSIS 3.1, a DSL access upgrade cycle to G.fast as well as increased wireless
deployment of 4G/LTE with emerging 5G within the next five years. Our communication service provider customers
continue to face pressure to increase their average revenue per user (“ARPU”) and are turning to our NE products
solutions to reduce customer service call truck rolls through faster installation and repair completion and improve
user satisfaction.
7
Strategy
We plan to continue evolving our test instrument portfolio and supporting software to maintain our current
leadership position in field test instrumentation. We strive to deliver customer value that includes faster time to
revenue, a quality end user experience, increased ARPU, reduced customer churn and lower operating expenses.
Competition
Our NE segment competes against various companies, including Anritsu Corporation, Exfo Inc., Ixia,
NetScout Systems Inc. and Spirent Communications plc. While we face multiple competitors for each of our product
families, we continue to have one of the broadest portfolios of wireline and wireless products available in the network
enablement industry.
Offerings
Viavi’s NE solutions include instruments and software that support the development and production of network
systems in the lab. These solutions activate, certify, troubleshoot and optimize networks that are differentiated
through superior efficiency, higher profitability, reliable performance and greater customer satisfaction. Designed
to be mobile, these products include instruments and software that access the network to perform installation and
maintenance tasks. They help service provider technicians assess the performance of network elements and segments
and verify the integrity of the information being transmitted across the network. These instruments are highly
intelligent and have user interfaces that are designed to simplify operations and minimize the training required to
operate them. Our NE solutions are also used by NEMs in the design and production of next-generation network
equipment. Thorough testing by NEMs plays a critical role in producing the components and equipment that are the
building blocks of network infrastructure. We leverage our installed base and knowledge of network management
methods and procedures to develop these advanced customer experience solutions.
The company also offers a range of product support and professional services designed to comprehensively
address our customers’ requirements. These services include repair, calibration, software support and technical
assistance for our products. We offer product and technology training as well as consulting services. Our professional
services, provided in conjunction with system integration projects, include project management, installation and
implementation.
During the first quarter of fiscal 2016, we re-grouped our NE products and associated services from seven
product groupings to three as described below:
Wireline: Primarily consisting of (a) Access and Cable products (formerly components of Media, Access
and Content); (b) Fiber Instrument products (formerly a component of Fiber) and (c) Metro products (formerly a
component of Ethernet).
Wireless: Consisting of Wireless products which were formerly a component of Mobility.
Lab: Primarily consisting of (a) Capacity Advisor products (formerly a component of Mobility); (b) Fiber
Optical Transport Products (formerly a component of Fiber); (c) Optical Transport products (formerly a component
of Ethernet); and (d) Storage Network Test products (formerly a component of Cloud and Data Center).
Additionally, following the Separation we no longer sell products or services from the WaveReady product
line. We also moved our Video Assurance products (formerly a component of Media, Access and Content) to our
SE segment. For the purposes of providing year-over-year variance analysis in the “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form
10-K, we have reflected these changes for all prior periods presented so that they are comparable with our current
groupings.
Service Enablement
Our SE segment is a provider of embedded systems and enterprise performance management solutions to global
CSPs and enterprises with visibility into network, service and application data. Our portfolio of SE solutions - which
primarily consist of instruments, microprobes and software - address the same lab and production environments, field
deployment and service assurance for wireless and fixed communications networks, including storage networks, as
8
our NE portfolio. Our SE solutions allow carriers to remotely monitor performance and quality of network, service
and applications performance throughout the entire network. Remote monitoring decreases operating expenses,
while early detection helps provide increased uptime, preserves revenue, and allows operators to better monetize
their networks.
Markets
Our SE segment provides solutions and services primarily for communication service providers and enterprises
that deliver and/or operate broadband/IP networks (fixed and mobile) supporting voice, video and data services as
well as a wide range of applications. These solutions provide network and application visibility to enable more cost-
effective ways to provide a higher-quality customer experience.
Customers
SE customers include similar CSPs, NEMs, government organizations, large corporate customers, and storage-
segment customers that are served by our NE segment.
Trends
Our Service Enablement solutions portfolio is a result of several acquisitions made during the past several years
to address the network industry shift to a more agile, flexible, programmable, and cost-effective virtualized software-
centric network. CSPs along with hyperscale data centers are adopting SDN and NFV which our SE solutions address.
Network operators require improved network visibility and intelligence in order to ensure reliable network and
service performance as well as identify locations for more optimal network deployment and expansion. Traditional
data centers are becoming legacy networks that are not programmable and difficult to integrate with third-party
applications and have given rise to cloud networks that provide greater network agility and programmability. Our
Enterprise product and solutions offerings address customers’ needs to support data center network traffic through
application and performance monitoring. CSPs are increasingly demanding Ethernet assurance solutions to provide
active performance monitoring and validate the quality of service of the networks.
While the network industry is shifting towards SDN and NFV, in fiscal 2016 we experienced a decline in SE net
revenue compared to fiscal 2015 and certain growth products will require a longer investment cycle than originally
expected. In accordance with the authoritative guidance, the Company recorded a goodwill impairment charge of
$91.4 million related to our SE segment in fiscal 2016. Refer to “Note 9. Goodwill” included in Item 8 of this Annual
Report on Form 10-K.
Strategy
We plan to evolve the SE portfolio and determine which products/solutions we believe will provide meaningful
return on investment (“ROI”) and devote greater focus in these areas to drive profitability.
Competition
Our NE and SE segments compete against many of the same companies. Competitors of SE include NetScout
Systems, Inc. Riverbed Technology, and Spirent Communications plc. While we face multiple competitors for each
of our product families, we continue to have one of the broadest portfolios of wireline and wireless monitoring
solutions available in the service enablement industry.
Offerings
Viavi’s SE solutions are embedded network systems-including microprobes and software-that collect and
analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams.
These solutions provide enhanced network management, control, optimization and differentiation for our customers.
Using these solutions, our customers are able to access and analyze the growing amount of network data from a single
console, simplifying the process of deploying, provisioning and managing network equipment and services. These
capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to
make on-site service calls, help to make necessary repairs faster and, as a result, lower costs while providing higher
quality and more reliable services.
9
During the first quarter of fiscal 2016, we re-grouped our SE products and associated services from five product
groupings to three as described below:
Enterprise: Consisting of our Enterprise products (no change from our former Enterprise group).
Wireless: Consisting of our Location Intelligence and RAN Solutions products.
Assurance: Primarily consisting of our (a) Legacy Assurance, Protocol Test and xSIGHT products (formerly
components of Mobile, Assurance and Analytics); (b) Legacy Wireline products (formerly a component of Packet
Portal); (c) Packet Portal products (formerly Packet Portal, excluding Legacy Wireline products); and (d) Video
Assurance products (formerly included in our NE segment).
For the purposes of providing year-over-year variance analysis in the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K, we have
reflected these changes for all prior periods presented so that they are comparable with our current groupings.
Optical Security and Performance Products
Our OSP segment leverages its core optical coating technologies and volume manufacturing capability to design,
manufacture, and sell products targeting anti-counterfeiting, consumer and industrial, government, healthcare and
other markets.
Our security offerings for the currency market include OVP®, OVMP® and banknote thread substrates. OVP®
enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting
applications on banknotes and other high-value documents. Our technologies are deployed on the banknotes of more
than 100 countries today. OSP also develops and delivers overt and covert anti-counterfeiting products that utilize
its proprietary printing platform and are targeted primarily at the pharmaceutical and consumer-electronics markets.
Leveraging our expertise in spectral management and our unique high-precision coating capabilities, OSP
provides a range of products and technologies for the consumer and industrial market, including, for example, 3D
sensing optical filters.
OSP value-added solutions meet the stringent requirements of commercial and government customers. Our
products are used in a variety of aerospace and defense applications, including optics for guidance systems, laser eye
protection and night vision systems. These products, including coatings and optical filters, are optimized for each
specific application.
Markets
Our OSP segment delivers overt and covert features to protect governments and brand owners against
counterfeiting, with a primary focus on the currency market. OSP also produces precise, high-performance, optical
thin-film coatings for a variety of applications in consumer electronics, government, healthcare and other markets.
For example, optical filters are used in 3-D sensing products and other applications.
In addition, we offer custom color solutions that include innovative optically-based color-shifting and other
features that provide product enhancement for brands in the automotive and other industries.
Customers
OSP serves customers such as FLIR Systems, Kingston Digital, L-3 Communications, Lockheed Martin and
SICPA. Following the separation from Lumentum, one OSP customer generated more than 10% of Viavi net revenue
from continuing operations. During fiscal 2016, 2015 and 2014, net revenue from SICPA represented 21.0%, 16.4%
and 12.8%, respectively, of Viavi net revenue from continuing operations.
Trends
Counterfeiting of banknotes and other goods is on the rise because counterfeiters now have access to a broad
range of advanced but relatively low-cost imaging technologies and printing tools, giving them the ability to create
convincing simulations of actual documents and products for illicit purposes. At the same time, the penalties for
counterfeiting can often be relatively modest when compared to the penalties for other crimes. As a result of these
10
trends, demand is increasing for sophisticated overt anti-counterfeiting features, such as Viavi’s OVP® and OVMP®
technologies, which are easy for consumers to validate without the use of special tools but are difficult to create or
simulate using conventional printing technology.
The aerospace, defense, consumer electronics and medical/environmental instrumentation markets require
customized, high-precision coated products and optical components that selectively absorb, transmit or reflect
light to meet the performance requirements of sophisticated systems. Our custom optics products offer an array
of advanced technologies and precision optics-from the UV to the far IR portion of the light spectrum to meet the
specific requirements of our customers.
Strategy
Our strategy is to expand our position as a leading global supplier of anti-counterfeiting technologies to our
customers by providing new optical features that deliver innovative visual effects and new applications which extend
the range of delivery mechanisms for our technologies. We also plan to continue to advance our growth strategy
in 3-D sensing and other applications for consumer electronics. In addition, we plan to continue leveraging our
intellectual property and leading expertise in optics, light management and material science to develop new solutions
in the government and healthcare markets.
Competition
OSP’s competitors include providers of anti-counterfeiting features such as Giesecke & Devrient; special-
effect pigments like Merck KGA; coating companies such as Nidek, Toppan, and Toray and optics companies such
as Materion and Deposition Sciences.
Offerings
Viavi’s OSP business provides innovative optical security and performance products which serve a variety
of applications for customers in the anti-counterfeiting, consumer and industrial, government, healthcare and
other markets.
Anti-counterfeiting: Viavi’s OVP® technology has become a standard used by many governments worldwide
for currency protection. This technology provides a color-shifting effect that enables intuitive visual verification of
banknotes. We also provide other technologies to the banknote market including OVMP®, a technology that delivers
depth and other visual effects for intuitive overt verification. In addition, our proprietary printing processes deliver
anti-counterfeiting solutions for security labels, used by the pharmaceutical and consumer electronics industries for
brand protection.
For product differentiation and brand enhancement, we provide custom color solutions for a variety of
applications using our ChromaFlair® and SpectraFlair® pigments to create color effects that emphasize body
contours, create dynamic environments, or enhance products in motion. These pigments are added to paints, plastics
or textiles for products and packaging.
Consumer and Industrial: Our OSP business manufactures and sells optical filters for 3-D sensing products that
separate out ambient light from incoming data to allow devices to be controlled by a person’s movements or gestures.
Government: Viavi products are used in a variety of aerospace and defense applications, including optics for
guidance systems, laser eye protection and night vision systems. These products, including coatings and optical
filters, are optimized for each specific application.
Healthcare and Other Markets: Viavi provides multicavity and linear variable optical filters on a variety of
substrates for applications including, thermal imaging, and spectroscopy and pollution monitoring. We also develop
and manufacture miniature spectrometers that leverage our linear variable optical filters for use in applications for
agriculture, pharmaceuticals, government and other markets.
11
ACQUISITIONS
As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where
appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or
strengthen, our existing products. We believe we have strengthened our business model by fortifying our core
businesses through acquisition as well as through organic initiatives and will continue to seek strategic opportunities
that support the ongoing development of an end-to-end platform to serve our NE and SE customers.
In January 2014, we completed the acquisition of Network Instruments, a privately-held U.S. company and
leading developer of enterprise network and application-performance management solutions for global 2000
companies. The acquisition further strengthened our position as a key solutions provider to the enterprise, data center
and cloud networking markets. Network Instruments helps enterprises simplify the management and optimization of
their networks with high-performance solutions that provide actionable intelligence and deep network visibility. We
acquired all outstanding shares of Network Instruments for a total purchase price of approximately $208.5 million in
cash. This acquisition was integrated into our SE segment.
In December 2013, we acquired certain technology and other assets from Trendium, a privately-held provider
of real-time intelligence software solutions for customer experience assurance (“CEA”), asset optimization and
monetization of big data for 4G/LTE mobile network operators. The addition of Trendium employees and technology
enabled the Company to introduce a new paradigm of CEA in our Assurance solutions, enabling operators of 4G/LTE
networks to achieve a real and relevant improvement in customer satisfaction while maximizing productivity and
profitability for dynamic converged 4G/LTE networks and beyond. We acquired certain technology and other assets
from Trendium for a total purchase price of approximately $26.1 million in cash. This acquisition was integrated into
SE segment.
Please refer to “Note 6. Mergers and Acquisitions” of the Notes to Consolidated Financial Statements under
Item 8 of this Annual Report on Form 10-K for further discussion of the acquisitions completed during fiscal 2016,
2015 and 2014.
RESTRUCTURING PROGRAMS
We continue to engage in targeted restructuring events intended to consolidate our operations, and align our
businesses in response to market conditions and our current investment strategy. Subsequent to the Separation of
the Lumentum business, we focused on streamlining our teams to gain greater cost efficiencies as we transition
from a portfolio company to a more agile company focused on our NSE and OSP businesses. In fiscal 2016, we
initiated restructuring plans in our NE and SE segments as well as our shared service function as part of this
ongoing commitment. We also continued to restructure and reorganize our segments to eliminate certain positions
by consolidating and shifting resources in our sales, manufacturing and R&D functions to focus on our strategic
growth areas and optimize our operational efficiency.
Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations under
Item 7 and “Note 12. Restructuring and Related Charges” under Item 8 of this Annual Report on Form 10-K for
further discussion on these charges.
RESEARCH AND DEVELOPMENT
During fiscal 2016, 2015 and 2014, we incurred R&D expenses of $166.4 million, $173.3 million, and 161.8
million, respectively. The number of employees engaged in R&D was approximately 800 as of July 2, 2016.
We devote substantial resources to R&D to develop new and enhanced products to serve our markets. Once the
design of a product is complete, our engineering efforts shift to enhancing both product performance and our ability
to manufacture it in greater volume and at lower cost.
In our NE and SE segments, we develop portable test instruments for field service technicians, systems and
software used in Network Operations Centers, and instruments used in the development, testing and production of
communications network components, modules and equipment. We are increasing our focus on IP-based service
assurance and customer experience management, and test instruments for wireless networks and services, while
continuing to develop tools for fiber optic, optical transport, Ethernet, broadband access, video test and storage
network testing. We have centers of excellence for product marketing and development in Asia, Europe and
North America.
12
In our OSP segment, our R&D efforts concentrate on developing more innovative technologies and products
for customers in the anti-counterfeiting, consumer electronics government, healthcare and automotive markets. Our
strength in the banknote anti-counterfeiting market is complemented by our advances in developing novel pigments
and foils for a variety of applications. Other areas of R&D focus for OSP include our efforts to leverage our optical
coating technology expertise to develop applications for the government and defense markets as well as efforts
related to new products for 3-D sensing and smart phone sensors. OSP has also introduced an innovative handheld
spectrometer solution with applications in the agriculture, healthcare and defense markets.
MANUFACTURING
As of July 2, 2016 significant manufacturing facilities for our NE, SE and OSP segments were located in China,
France, Germany, Korea and the United States and our significant contract manufacturing partners were located in
China and Mexico.
SOURCES AND AVAILABILITY OF RAW MATERIALS
Viavi uses various suppliers and contract manufacturers to supply parts and components for the manufacture
and support of multiple product lines. Although our intention is to establish at least two sources of supply for
materials whenever possible, for certain components we have sole or limited source supply arrangements. We may
not be able to procure these components from alternative sources at acceptable prices within a reasonable time, or at
all; therefore, the loss or interruption of such arrangements could impact our ability to deliver certain products on a
timely basis.
PATENTS AND PROPRIETARY RIGHTS
Intellectual property rights apply to our various products include patents, trade secrets and trademarks. We do
not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter
into acceptable patent cross-license agreements. As of July 2, 2016, we owned approximately 700 U.S. patents and
925 foreign patents and have 500 patent applications pending throughout the world.
BACKLOG
Backlog consists of purchase orders for services and products for which we have assigned shipment dates. As of
July 2, 2016 and June 27, 2015, our backlog was approximately $234 million for both periods, excluding the backlog
related to Lumentum as of June 27, 2015.
Due to possible changes in product delivery schedules and cancellation of product orders, and because our sales
often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not
necessarily indicative of actual revenue or the level of orders for any succeeding period.
EMPLOYEES
We employed approximately 3,000 employees as of July 2, 2016, which included approximately 900 employees
in manufacturing, 800 employees in R&D, 850 employees in sales and marketing, and 450 employees in general and
administration. This compared to a workforce of approximately 4,900 and 5,100 as of June 27, 2015 and June 28,
2014, respectively, which also included employees who transferred to Lumentum as part of the Separation. On
August 1, 2015, approximately 1,700 employees were transferred to Lumentum as part of the separation of the
Lumentum business which included approximately 850 employees from manufacturing, 550 employees from R&D,
150 employees from sales and marketing and 150 employees general and administration.
Similar to other technology companies, we rely upon our ability to use “Full Value Awards” (as defined below)
and other forms of stock-based compensation as key components of our executive and employee compensation
structure. Full Value Awards refer to Restricted Stock Units (“RSUs”) and performance-based RSUs that are granted
with the exercise price equal to zero and are converted to shares immediately upon vesting. The performance-based
RSUs are also referred to as Market Stock Units and have vesting requirements tied to the performance of the
Company’s stock as compared to the NASDAQ telecommunications index, and could vest at a higher or lower rate
or not at all, based on this relative performance. Historically, these components have been critical to our ability to
13
retain important personnel and offer competitive compensation packages. Without these components, we would be
required to significantly increase cash compensation levels or develop alternative compensation structures to retain
our key employees.
Outside of the United States, our businesses are subject to labor laws that differ from those in the United States.
The Company follows statutory requirements, and in certain European countries it is common for a works council,
consisting of elected employees, to represent the sites when discussing matters such as compensation, benefits or
terminations of employment. We consider our employee relations to be good.
ITEM 1A. RISK FACTORS
We have a history of net losses, and our future profitability is not assured.
We incurred net losses of $99.2 million, $88.1 million and $17.8 million in fiscal 2016, 2015 and 2014, respectively.
Historically, Viavi operated as a portfolio company comprised of many product lines, with diverse operating metrics
and markets. As a result, our profitability in a particular period was impacted by both revenue and product mix due to
the fact that gross margin varies significantly across our product portfolio and business segments. While we recently
completed the separation of our Lumentum business, this variability continues to be a factor across our remaining
business segments.
Additionally, for the last several years, we have undergone multiple manufacturing, facility, organizational and
product line transitions. We expect some of these activities to continue for the foreseeable future. These activities
are costly and can impair our profitability objectives. Specific factors that may undermine our financial objectives
include, among others:
•
•
•
•
•
•
•
•
•
•
•
uncertain future telecom carrier and cable operator capital and R&D spending levels, which particularly
affects our NE and SE segments;
adverse changes to our product mix, both fundamentally (resulting from new product transitions, the
declining profitability of certain legacy products and the termination of certain products with declining
margins, among other things) and due to quarterly demand fluctuations;
pricing pressure across our product lines due to competitive forces, increasingly from Asia, and to a
highly concentrated customer base for many of our product lines, which continues to offset many of the
cost improvements we are realizing quarter over quarter;
limited availability of components and resources for our products which leads to higher component prices;
increasing commoditization of previously differentiated products, and the attendant negative effect on
average selling prices and profit margins;
execution challenges, which limit revenue opportunities and harm profitability, market opportunities and
customer relations;
decreased revenue associated with terminated or divested product lines;
redundant costs related to periodic transitioning of manufacturing and other functions to lower-cost
locations;
ongoing costs associated with organizational transitions, consolidations and restructurings, which are
expected to continue in the nearer term;
continuing high levels of selling, general and administrative, (“SG&A”) expenses; and
cyclical demand for our currency products.
Taken together, these factors limit our ability to predict future profitability levels and to achieve our long-term
profitability objectives. If we fail to achieve profitability expectations, the price of our debt and equity securities, as
well as our business and financial condition, may be materially adversely impacted.
14
The separation of the Lumentum business could result in substantial tax liability to us and our stockholders.
One of the conditions for completing the separation was our receipt of a tax opinion from our advisors substantially to
the effect that, for U.S. federal income tax purposes, the separation will qualify as a tax-free distribution under certain
sections of the Internal Revenue Code. If any of the factual representations and assumptions made in connection
with obtaining the tax opinion were inaccurate or incomplete in any material respect, then we will not be able to
rely on the tax opinion. Furthermore, the tax opinion is not binding on the Internal Revenue Service (IRS) or the
courts. Accordingly, the IRS or the courts may challenge the conclusions stated in the tax opinion and such challenge
could prevail.
If, notwithstanding our receipt of the tax opinion, the separation is determined to be taxable, then (i) we would
be subject to tax as if we sold the stock distributed in the separation in a taxable sale for its fair market value; and
(ii) each stockholder who received stock distributed in the separation would be treated as receiving a distribution of
property in an amount equal to the fair market value of the stock that would generally result in tax liabilities for each
stockholder, which may be substantial.
Management turnover creates uncertainties and could harm our business.
We hired a new President and Chief Executive Officer in February 2016 and a new Chief Financial Officer in
September 2015. In addition, during fiscal year 2016 we made leadership changes in several other key functions
throughout the Company, including HR, IT and others. The extent of our management changes could adversely
impact our results of operations and our customer relationships and may make recruiting for future management
positions more difficult. If we are unable to attract and retain qualified executives and employees, or to successfully
integrate any newly-hired personnel within our organization, we may be unable to achieve our operating objectives,
which could negatively impact our financial performance and results of operations.
Our operating results may be adversely affected by unfavorable economic and market conditions.
Economic conditions worldwide have from time to time contributed to slowdowns in the technology industry at large,
as well as to the specific segments and markets in which we operate. The global economic downturn that began in
2008 led to increased uncertainty in the timing and overall demand from our customers which has continued despite
the economic recovery that has occurred in some sectors. Continuing concerns about global economic conditions
could decrease or delay customer spending, increase price competition for our products, increase our risk of excess
and obsolete inventories and higher overhead costs as a percentage of revenue. Continued economic challenges could
further negatively impact our operations by affecting the solvency of our customers, the solvency of our key suppliers
or the ability of our customers to obtain credit to finance purchases of our products. In particular, we have seen recent
demand for our products affected by economic uncertainty in Europe and Latin America. If the global economy and
credit markets deteriorate and our future sales decline, our financial condition and results of operations would likely
be materially adversely impacted.
In addition, we have significant long-lived assets recorded on our balance sheet. We evaluate intangible assets and
goodwill for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying
value may not be recoverable. We monitor factors or indicators, such as unfavorable variances from forecasted
cash flows, established business plans or volatility inherent to external markets and industries that would require
an impairment test. The test for impairment of intangible assets requires a comparison of the carrying value of the
asset or asset group with their estimated undiscounted future cash flows. If the carrying value of the asset or asset
group is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the
asset or asset group exceeds its fair value. The test for impairment of goodwill requires a comparison of the carrying
value of the reporting unit for which goodwill is assigned with the fair value of the reporting unit calculated based
on discounted future cash flows. If the carrying value of the reporting unit is greater than its fair value a second
step is performed to calculate any impairment. When testing goodwill for impairment during the fourth quarter of
fiscal 2016, we concluded that the carrying value of the SE reporting unit was higher than its fair value. Accordingly
step two of the impairment analysis was performed which indicated that all of the entire SE goodwill balance was
impaired resulting in an impairment charge of $91.4 million. This charge does not impact our liquidity, cash flows
from operations, future operations, or compliance with debt covenants. Although the analysis indicated only the
SE reporting unit was impaired, we will continue to monitor the remaining reporting units which had an excess
fair value over carrying value as of the date of annual impairment assessment. As of July 2, 2016 our NE and OSP
reporting goodwill balances were $143.8 million and $8.3 million, respectively.
15
We will continue to evaluate the recoverability of the carrying amount of our goodwill and long-lived assets on an
ongoing basis, and we may incur substantial impairment charges, which would adversely affect our financial results.
There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment
charges. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows
and the impact of market conditions on those assumptions. Future events and changing market conditions may impact
our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of
future cash flows. Although we believe the assumptions we used in testing for impairment are reasonable, significant
changes in any one of our assumptions could produce a significantly different result. If, in any period, our stock
price decreases to the point where the fair value of the Company, as determined by our market capitalization, is less
than our book value, this too could indicate a potential impairment and we may be required to record an impairment
charge in that period.
The manufacture, quality and distribution of our products, as well as our customer relations, may be affected by
several factors, including the rapidly changing market for our products, supply issues and internal restructuring
efforts. We expect the impact of these issues will become more pronounced as we continue to introduce new product
offerings and when overall demand increases.
Our success depends upon our ability to deliver both our current product offerings and new products and technologies
on time and at acceptable cost to our customers. The markets for our products are characterized by rapid technological
change, frequent new product introductions, substantial capital investment, changes in customer requirements and
a constantly evolving industry. Our future performance will depend on the successful development, introduction
and market acceptance of new and enhanced products that address these issues and provide solutions that meet our
customers’ current and future needs. As a technology company, we also constantly encounter quality, volume and
cost concerns such as:
• Our continuing cost reduction programs, which include site and organization consolidations, asset
divestitures, outsourcing the manufacture of certain products to contract manufacturers, other outsourcing
initiatives, and reductions in employee headcount, require the re-establishment and re-qualification by our
customers of complex manufacturing lines, as well as modifications to systems, planning and operational
infrastructure. During this process, we have experienced, and may continue to experience, additional
costs, delays in re-establishing volume production levels, planning difficulties, inventory issues, factory
absorption concerns and systems integration problems.
• We have experienced variability of manufacturing yields caused by difficulties in the manufacturing
process, the effects from a shift in product mix, changes in product specifications and the introduction
of new product lines. These difficulties can reduce yields or disrupt production and thereby increase our
manufacturing costs and adversely affect our margin.
• We may incur significant costs to correct defective products (despite rigorous testing for quality both by
our customers and by us), which could include lost future sales of the affected product and other products,
and potentially severe customer relations problems, litigation and damage to our reputation.
• We are dependent on a limited number of vendors, who are often small and specialized, for raw
materials, packages and standard components. We also rely on contract manufacturers around the world
to manufacture certain of our products. Our business and results of operations have been, and could
continue to be adversely affected by this dependency. Specific concerns we periodically encounter
with our suppliers include stoppages or delays of supply, insufficient vendor resources to supply our
requirements, substitution of more expensive or less reliable products, receipt of defective parts or
contaminated materials, increases in the price of supplies, and an inability to obtain reduced pricing from
our suppliers in response to competitive pressures. Additionally, the ability of our contract manufacturers
to fulfill their obligations may be affected by economic, political or other forces that are beyond our
control. Any such failure could have a material impact on our ability to meet customers’ expectations and
may materially impact our operating results.
• New product programs and introductions involve changing product specifications and customer
requirements, unanticipated engineering complexities, difficulties in reallocating resources and
overcoming resource limitations and with their increased complexity, which expose us to yield and
product risk internally and with our suppliers.
16
These factors have caused considerable strain on our execution capabilities and customer relations. We have and could
continue to see (a) periodic difficulty responding to customer delivery expectations for some of our products, (b) yield
and quality problems, particularly with some of our new products and higher volume products, and (c) additional
funds and other resources required to respond to these execution challenges. From time to time, we have had to divert
resources from new product R&D and other functions to assist with resolving these matters. If we do not improve our
performance in all of these areas, our operating results will be harmed, the commercial viability of new products may
be challenged and our customers may choose to reduce or terminate their purchases of our products and purchase
additional products from our competitors.
We rely on a limited number of customers for a significant portion of our sales.
We believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues
for the foreseeable future. Any failure by us to continue capturing a significant share of these customers could
materially harm our business. Dependence on a limited number of customers exposes us to the risk that order
reductions from any one customer can have a material adverse effect on periodic revenue. Further, to the extent
that there is consolidation among communications equipment manufacturers and service providers, we will have
increased dependence on fewer customers who may be able to exert increased pressure on our prices and other
contract terms. Customer consolidation activity and periodic manufacturing and inventory initiatives could also
create the potential for disruptions in demand for our products as a consequence of such customers streamlining,
reducing or delaying purchasing decisions.
We have a strategic alliance with SICPA, our principal customer for our light interference microflakes that are used to,
among other things, provide security features in currency. Under a license and supply agreement, we rely exclusively
on SICPA to market and sell one of these product lines, optically variable pigment, for document authentication
applications worldwide. The agreement requires SICPA to purchase minimum quantities of these pigments over
the term of the agreement. If SICPA fails to purchase these quantities, as and when required by the agreement, our
business and operating results (including, among other things, our revenue and gross margin) will be harmed as we
may be unable to find a substitute marketing and sales partner or develop these capabilities ourselves.
Movement towards virtualized networks and software solutions may result in lower demand for our hardware
products and increased competition.
The markets for our NE and SE segments are increasingly looking towards virtualized networks and software
solutions. While we are devoting substantial resources to meet these needs, this trend may result in lower demand for
our legacy hardware products. Additionally barriers to entry are generally lower for software solutions, which may
lead to increased competition for our products and services.
We face a number of risks related to our strategic transactions.
Our strategy continues to include periodic acquisitions and divestitures of businesses and technologies. Strategic
transactions of this nature involve numerous risks, including the following:
•
•
•
•
•
•
difficulties and costs in integrating or disintegrating the operations, technologies, products, IT and
other systems, facilities, and personnel of the affected businesses, particularly the separation of the
Lumentum business;
inadequate internal control procedures and disclosure controls to comply with the requirements of
Section 404 of the Sarbanes-Oxley Act of 2002, or poor integration of a target company’s or business’s
procedures and controls;
diversion of management’s attention from normal daily operations of the business;
potential difficulties in completing projects associated with in-process R&D;
difficulties in entering markets in which we have no or limited prior experience and where competitors
have stronger market positions;
difficulties in obtaining or providing sufficient transition services and accurately projecting the time and
cost associated with providing these services;
17
•
an acquisition may not further our business strategy as we expected or we may overpay for, or otherwise
not realize the expected return on, our investments;
insufficient net revenue to offset increased expenses associated with acquisitions;
potential loss of key employees of the acquired companies; and
difficulty in forecasting revenues and margins.
•
•
•
Acquisitions may also cause us to:
•
issue common stock that would dilute our current stockholders’ percentage ownership and may decrease
earnings per share;
•
•
•
•
•
assume liabilities, some of which may be unknown at the time of the acquisitions;
record goodwill and non-amortizable intangible assets that will be subject to impairment testing and
potential periodic impairment charges;
incur additional debt to finance such acquisitions;
incur amortization expenses related to certain intangible assets; or
acquire, assume, or become subject to litigation related to the acquired businesses or assets.
Certain of our products are subject to governmental and industry regulations, certifications and approvals.
The commercialization of certain of the products we design, manufacture and distribute through our OSP segment
may be more costly due to required government approval and industry acceptance processes. Development of
applications for our light interference and diffractive microflakes may require significant testing that could delay
our sales. For example, certain uses in cosmetics may be regulated by the U.S. Food and Drug Administration,
which has extensive and lengthy approval processes. Durability testing by the automobile industry of our decorative
microflakes used with automotive paints can take up to three years. If we change a product for any reason, including
technological changes or changes in the manufacturing process, prior approvals or certifications may be invalid
and we may need to go through the approval process again. If we are unable to obtain these or other government or
industry certifications in a timely manner, or at all, our operating results could be adversely affected.
We face risks related to our international operations and revenue.
Our customers are located throughout the world. In addition, we have significant operations outside North America,
including product development, manufacturing, sales and customer support operations.
Our international presence exposes us to certain risks, including the following:
•
•
•
•
•
•
•
•
currency fluctuations;
our ability to comply with a wide variety of laws and regulations of the countries in which we do business,
including, among other things, customs, import/export, anti-bribery, anti-competition, tax and data
privacy laws, which may be subject to sudden and unexpected changes;
difficulties in establishing and enforcing our intellectual property rights;
tariffs and other trade barriers;
political, legal and economic instability in foreign markets, particularly in those markets in which we
maintain manufacturing and product development facilities;
difficulties in staffing and management;
language and cultural barriers;
seasonal reductions in business activities in the countries where our international customers are located;
18
•
•
•
•
integration of foreign operations;
longer payment cycles;
difficulties in management of foreign distributors; and
potential adverse tax consequences.
Net revenue from customers outside the Americas accounted for 48.9%, 44.3% and 45.3% of our total net revenue,
for fiscal 2016, 2015 and 2014 respectively. We expect that net revenue from customers outside North America will
continue to account for a significant portion of our total net revenue. Lower sales levels that typically occur during
the summer months in Europe and some other overseas markets may materially and adversely affect our business. In
addition, the revenues we derive from many of our customers depend on international sales and further expose us to
the risks associated with such international sales.
Our business and operations would be adversely impacted in the event of a failure of our information technology
infrastructure.
We rely upon the capacity, reliability and security of our information technology infrastructure and our ability
to expand and continually update this infrastructure in response to our changing needs. In some cases, we rely
upon third party hosting and support services to meet these needs. Any failure to manage, expand and update
our information technology infrastructure, any failure in the extension or operation of this infrastructure, or any
failure by our hosting and support partners in the performance of their services could materially and adversely harm
our business.
Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses,
natural disasters, unauthorized access and other similar disruptions. Any system failure, accident or security breach
could result in disruptions to our operations. To the extent that any disruptions or security breach results in a loss or
damage to our data, or in inappropriate disclosure of confidential information, it could cause significant damage to
our reputation and affect our relationships with our customers and ultimately harm our business. In addition, we may
be required to incur significant costs to protect against damage caused by these disruptions or security breaches in
the future.
Failure to maintain effective internal controls may adversely affect our stock price.
Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud.
The SEC adopted rules requiring public companies to include a report by management on the effectiveness of
the Company’s internal control over financial reporting in their annual reports on Form 10-K. In addition, our
independent registered public accounting firm must report on the effectiveness of our internal control over financial
reporting. Although we review our internal control over financial reporting in order to ensure compliance with these
requirements, in August 2016 we determined that we had a material weakness related to an error in the determination
of interim income taxes issue which caused our independent registered public accounting firm to issue a qualified
report on our Consolidated Financial Statements included in this Annual Report on Form 10-K. The Company
will implement an enhanced process and design a control to ensure a more precise review of the interim income
tax provision beginning in the first quarter of fiscal 2017. In accordance with the Company’s internal control over
financial reporting compliance program, the material weakness designation cannot be remediated in full until the
enhanced processes have been operational for a period of time and successfully tested. Such remediation is anticipated
to be completed later in fiscal 2017. Additionally, if we or our independent registered public accounting firm is not
satisfied with our internal control over financial reporting or the level at which these controls are documented,
designed, operated or reviewed in the future, or if our independent registered public accounting firm interprets the
requirements, rules and/or regulations differently from our interpretation, then they may issue a qualified report.
Furthermore, we may discover that the internal controls of businesses we acquire are inadequate or changes to
our existing businesses may impact the effectiveness of our internal controls. These situations could require us to
make changes to our internal controls and could cause our independent registered public accounting firm to issue a
qualified report, which could result in a loss of investor confidence in the reliability of our financial statements, and
could negatively impact our stock price.
19
In August 2013, we issued $650.0 million of 0.625% Senior Convertible Notes due 2033, which could dilute our
existing stockholders and lower our reported earnings per share.
We issued $650.0 million of indebtedness in August 2013 in the form of 0.625% Senior Convertible Notes due
2033 (the “2033 Notes”). The issuance of the 2033 Notes substantially increased our principal payment obligations.
Additionally, in fiscal 2016 we contributed $137.6 million in cash to Lumentum in connection with the separation
of the Lumentum business, subject to the requirements as set forth in the Contribution Agreement between the
Company and Lumentum Operations LLC. All of the obligations related to the 2033 Notes are being retained by
the Company. Following the separation we had substantially lower cash flow which increased our leverage. The
degree to which we are leveraged could materially and adversely affect our ability to successfully obtain financing
for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and
competitive pressures. In addition, the holders of the 2033 Notes are entitled to convert the 2033 Notes into shares of
our common stock or a combination of cash and shares of common stock under certain circumstances which would
dilute our existing stockholders and lower our reported per share earnings.
If we have insufficient proprietary rights or if we fail to protect those we have, our business would be materially
harmed.
Our intellectual property rights may not be adequate to protect our products or product roadmaps.
We seek to protect our products and our product roadmaps in part by developing and/or securing proprietary rights
relating to those products, including patents, trade secrets, know-how and continuing technological innovation. The
steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that
others will not develop competitive technologies or products. Other companies may be investigating or developing
other technologies that are similar to our own. It is possible that patents may not be issued from any of our pending
applications or those we may file in the future and, if patents are issued, the claims allowed may not be sufficiently
broad to deter or prohibit others from making, using or selling products that are similar to ours. We do not own patents
in every country in which we sell or distribute our products, and thus others may be able to offer identical products
in countries where we do not have intellectual property protection. In addition, the laws of some territories in which
our products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may
not protect our products and intellectual property rights to the same extent as the laws of the United States.
Any patents issued to us may be challenged, invalidated or circumvented. Additionally, we are currently a licensee
in all of our operating segments for a number of third-party technologies, software and intellectual property rights
from academic institutions, our competitors and others, and are required to pay royalties to these licensors for the use
thereof. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual
property held by others could inhibit our development of new products, impede the sale of some of our current
products, substantially increase the cost to provide these products to our customers, and could have a significant
adverse impact on our operating results. In the past, licenses generally have been available to us where third-party
technology was necessary or useful for the development or production of our products. In the future licenses to
third-party technology may not be available on commercially reasonable terms, if at all.
Our products may be subject to claims that they infringe the intellectual property rights of others.
Lawsuits and allegations of patent infringement and violation of other intellectual property rights occur in our
industry on a regular basis. We have received in the past, and anticipate that we will receive in the future, notices
from third parties claiming that our products infringe their proprietary rights. Over the past several years there has
been a marked increase in the number and potential severity of third-party patent infringement claims, primarily
from two distinct sources. First, large technology companies, including some of our customers and competitors, are
seeking to monetize their patent portfolios and have developed large internal organizations that have approached us
with demands to enter into license agreements. Second, patent-holding companies, entities that do not make or sell
products (often referred to as “patent trolls”), have claimed that our products infringe upon their proprietary rights.
We will continue to respond to these claims in the course of our business operations. In the past, the resolution of
these disputes has not had a material adverse impact on our business or financial condition, however this may not
be the case in the future. Further, the litigation or settlement of these matters, regardless of the merit of the claims,
20
could result in significant expense to us and divert the efforts of our technical and management personnel, whether
or not we are successful. If we are unsuccessful, we could be required to expend significant resources to develop
non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be
successful in such development, or such licenses may not be available on terms acceptable to us, if at all. Without
such a license, we could be enjoined from future sales of the infringing product or products, which could adversely
affect our revenues and operating results.
The use of open source software in our products, as well as those of our suppliers, manufacturers and customers,
may expose us to additional risks and harm our intellectual property position.
Certain of the software and/or firmware that we use and distribute (as well as that of our suppliers, manufacturers
and customers) may be, be derived from, or contain, “open source” software, which is software that is generally made
available to the public by its authors and/or other third parties. Such open source software is often made available
under licenses which impose obligations in the event the software or derivative works thereof are distributed or
re-distributed. These obligations may require us to make source code for the derivative works available to the public,
and/or license such derivative works under a particular type of license, rather than the forms of license customarily
used to protect our own software products. While we believe we have complied with our obligations under the various
applicable licenses for open source software, in the event that a court rules that these licenses are unenforceable, or
in the event the copyright holder of any open source software were to successfully establish in court that we had not
complied with the terms of a license for a particular work, we could be required to release the source code of that
work to the public and/or stop distribution of that work. Additionally, open source licenses are subject to occasional
revision. In the event future iterations of open source software are made available under a revised license, such
license revisions may adversely affect our ability to use such future iterations.
We face certain litigation risks that could harm our business.
We are and may become subject to various legal proceedings and claims that arise in or outside the ordinary course
of business. The results of complex legal proceedings are difficult to predict. Moreover, many of the complaints filed
against us do not specify the amount of damages that plaintiffs seek, and we therefore are unable to estimate the
possible range of damages that might be incurred should these lawsuits be resolved against us. While we are unable
to estimate the potential damages arising from such lawsuits, certain of them assert types of claims that, if resolved
against us, could give rise to substantial damages. Thus, an unfavorable outcome or settlement of one or more of these
lawsuits could have a material adverse effect on our financial condition, liquidity and results of operations. Even if
these lawsuits are not resolved against us, the uncertainty and expense associated with unresolved lawsuits could
seriously harm our business, financial condition and reputation. Litigation is costly, time-consuming and disruptive
to normal business operations. The costs of defending these lawsuits have been significant, will continue to be
costly and may not be covered by our insurance policies. The defense of these lawsuits could also result in continued
diversion of our management’s time and attention away from business operations, which could harm our business.
For additional discussion regarding litigation, see the “Legal Proceedings” portion of this Annual Report.
We may be subject to environmental liabilities which could increase our expenses and harm our operating
results.
We are subject to various federal, state and foreign laws and regulations governing the environment, including those
governing pollution and protection of human health and the environment and, recently, those restricting the presence
of certain substances in electronic products and holding producers of those products financially responsible for the
collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in
several jurisdictions in which we operate, are often complex and are subject to frequent changes. We will need to
ensure that we comply with such laws and regulations as they are enacted, as well as all environmental laws and
regulations, and as appropriate or required, that our component suppliers also comply with such laws and regulations.
If we fail to comply with such laws, we could face sanctions for such noncompliance, and our customers may refuse
to purchase our products, which would have a materially adverse effect on our business, financial condition and
results of operations.
21
With respect to compliance with environmental laws and regulations in general, we have incurred and in the future
could incur substantial costs for the cleanup of contaminated properties, either those we own or operate or to which
we have sent wastes in the past, or to comply with such environmental laws and regulations. Additionally, we could
be subject to disruptions to our operations and logistics as a result of such clean-up or compliance obligations. If
we were found to be in violation of these laws, we could be subject to governmental fines and liability for damages
resulting from such violations. If we have to make significant capital expenditures to comply with environmental
laws, or if we are subject to significant expenditures in connection with a violation of these laws, our financial
condition or operating results could be materially adversely impacted.
We are subject to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that could
subject us to additional costs and liabilities.
We are subject to the SEC rules implementing the requirements of Section 1502 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act which establish disclosure and reporting requirements for companies who
use “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in their products.
Complying with the disclosure requirements requires substantial diligence efforts to determine the source of any
conflict minerals used in our products and may require third-party auditing of our diligence process. These efforts
may require internal resources that would otherwise be directed towards operational activities.
Since our supply chain is complex, we may face reputational challenges if we are unable to sufficiently verify the
origins of the conflict minerals used in our products. Additionally, if we are unable to satisfy those customers who
require that all of the components of our products are certified as conflict free, they may choose a competitor’s
products which could materially impact our financial condition and operating results.
Certain provisions in our charter and under Delaware laws could hinder a takeover attempt.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some
circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders
for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock.
Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger,
tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests
of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in
the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions providing
for the limitations of liability and indemnification of our directors and officers, allowing vacancies on our board of
directors to be filled by the vote of a majority of the remaining directors, granting our board of directors the authority
to establish additional series of preferred stock and to designate the rights, preferences and privileges of such shares
(commonly known as “blank check preferred”) and providing that our stockholders can take action only at a duly
called annual or special meeting of stockholders, which may only be called by the Chairman of the board, the Chief
Executive Officer or the board of directors. These provisions may also have the effect of deterring hostile takeovers
or delaying changes in control or change in our management.
Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to
certain limitations.
As of July 2, 2016, we had U.S. federal and state net operating losses, or NOLs, of $5,008.3 million and $886.0 million,
respectively, and U.S. federal and state tax credit carryforwards of $100.7 million and $39.6 million, respectively,
which may be utilized against future income taxes. Utilization of these NOLs and tax credit carryforwards may
be subject to a substantial annual limitation if the ownership change limitations under Sections 382 and 383 of the
Internal Revenue Code and similar state provisions are triggered by changes in the ownership of our capital stock. In
general, an ownership change occurs if there is a cumulative change in our ownership by “5-percent shareholders”
that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws.
Accordingly, purchases of our capital stock by others could limit our ability to utilize our NOLs and tax credit
carryforwards in the future.
22
Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs and tax credit carryforwards
before they expire. Due to uncertainty regarding the timing and extent of our future profitability, we continue to
record a valuation allowance to offset our U.S. and certain of our foreign deferred tax assets because of uncertainty
related to our ability to utilize our NOLs and tax credit carryforwards before they expire.
If any of these events occur, we may not derive some or all of the expected benefits from our NOLs and tax credit
carryforwards.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We own and lease various properties in the United States and in 23 other countries around the world. We use
the properties for executive and administrative offices, data centers, product development offices, customer service
offices, and manufacturing facilities. Our corporate headquarters of approximately 54,000 square feet is located in
Milpitas, California. As of July 2, 2016, our leased and owned properties in total were approximately 1.2 million
square feet, of which approximately 18,000 square feet is owned. Larger leased sites include properties located in
China, France, Germany, and the United States. We believe our existing properties, including both owned and leased
sites, are in good condition and suitable for the conduct of our business.
While we believe our existing facilities are adequate to meet our immediate needs, it may become necessary to
lease, acquire, or sell additional or alternative space to accommodate future business needs.
ITEM 3. LEGAL PROCEEDINGS
We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our
business. While management currently believes that resolving claims against us, individually or in aggregate, will
not have a material adverse impact on its financial position, results of operations or statement of cash flows, these
matters are subject to inherent uncertainties and management’s view of these matters may change in the future.
Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial
position, results of operations or cash flows for the period in which the effect becomes reasonably estimable.
ITEM 4. MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the NASDAQ Global Select Market under the symbol “VIAV.” Prior to the
separation of the Lumentum business, our common stock was traded on the NASDAQ Global Select Market under
the symbol “JDSU.” As of July 29, 2016 we had 232,298,097 shares of common stock outstanding. The closing price
on July 29, 2016 was $7.13.
On August 1, 2015, we completed the previously announced distribution of approximately 80.1% of the
outstanding shares of Lumentum common stock to Viavi’s stockholders (the “Distribution”). JDSU was renamed
Viavi Solutions Inc. and, at the time of the Distribution, retained ownership of approximately 19.9% of Lumentum’s
outstanding shares. We agreed not to liquidate the retained shares during the first six months following the Distribution.
However, in connection with a private letter ruling from the Internal Revenue Service, we have committed to liquidate
these shares within three years from the Distribution. The Distribution was made to Viavi’s stockholders of record as
of the close of business on July 27, 2015 (the “Record Date”), who received one share of Lumentum common stock
for every five shares of Viavi common stock held as of the close of business on the Record Date and not sold prior to
August 4, 2015. Viavi stockholders received cash in lieu of any fractional shares of Lumentum common stock. Our
trading commenced “regular-way” trading on August 4, 2015 on NASDAQ under the ticker symbol “VIAV.”
The following table summarizes the high and low intraday sales prices for our common stock as reported on the
NASDAQ Global Select Market during fiscal 2016 and 2015. The stock prices in the following table prior to August 4,
2015, the date of “regular-way” trading commenced following the Lumentum separation, have not been adjusted for
the distribution.
Fiscal 2016
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter subsequent to August 3, 2015 . . . . . . . .
First Quarter through August 3, 2015 . . . . . . . . . . . .
High
Low
$ 7.20
6.94
6.56
6.88
12.00
$ 5.93
4.68
5.45
4.99
10.68
Fiscal 2015
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13.65
14.12
14.25
13.88
$11.85
12.00
11.35
10.26
As of July 29, 2016, we had 3,793 holders of record of our common stock. We have not paid cash dividends on
our common stock and do not anticipate paying cash dividends in the foreseeable future.
24
During the fourth quarter of the fiscal 2016 we made the following repurchases of our common stock (in
millions, except shares and per share amounts):
Period
April 3, 2016 to April 30, 2016 . . . . . . .
May 1, 2016 to May 28, 2016(1) . . . . . .
May 29, 2016 to July 2, 2016(1) . . . . . .
Total Number of
Shares Purchased
—
2,100
674,913
677,013
Average Price
Paid per share
$ —
6.00
6.60
$6.60
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
—
2,100
677,013
677,013
Approximate Dollar
Value of Shares that May
Yet Be Purchased Under
the Plans or Programs
$ —
100.0
95.5
$ 95.5
(1) Repurchases were made in open market transactions pursuant to the program announced in February 2016.
In February 2016, the Company’s Board of Directors authorized a stock repurchase program under which the
Company may purchase shares of its common stock worth up to an aggregate purchase price of $100.0 million
through open market or private transactions. The program expires on February 1, 2017.
25
STOCK PERFORMANCE GRAPH
The information contained in the following graph shall not be deemed to be “soliciting material” or to be
“ filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into
any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
except to the extent that the Company specifically incorporates it by reference in such filing.
The following graph and table set forth the total cumulative return, assuming reinvestment of dividends, on
an investment of $100 in June 2011 and ending June 2016 in: (i) our Common Stock, (ii) the S&P 500 Index, (iii) the
NASDAQ Stock Market (U.S.) Index, and (iv) the NASDAQ Telecommunications Index. The table below presents
our stock performance prior to the separation of the Lumentum business as traded on the NASDAQ Global Select
Market under the symbol “JDSU.” Historical stock price performance is not necessarily indicative of future stock
price performance. For the purpose of this graph, the distribution of approximately 80.1% of the outstanding common
stock of Lumentum to our stockholders, pursuant to which Lumentum became an independent company, is treated
as a non-taxable cash dividend of $21.15 for every five shares of Viavi common stock held, an amount equal to the
closing price of Lumentum common stock on August 4, 2015 which was deemed reinvested in Viavi common stock
at the closing price on August 4, 2015.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
$200
$150
$100
$50
$0
6/11
6/12
Viavi
6/13
6/14
6/15
6/16
S&P 500
NASDAQ Composite
NASDAQ Telecommunication
*
$100 invested on 6/30/11 in stock or index.
Viavi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&P 500 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . .
NASDAQ Telecommunications . . . . . . . . . .
6/11
$100.00
100.00
100.00
100.00
6/12
$ 66.03
103.14
105.82
86.92
6/13
$ 86.37
121.63
122.71
108.02
6/14
$ 74.85
148.43
158.94
122.81
6/15
$ 69.15
156.22
179.80
124.88
6/16
$ 66.77
158.93
174.60
123.62
26
ITEM 6. SELECTED FINANCIAL DATA
This table sets forth selected financial data of Viavi (in millions, except share and per share amounts) for the
periods indicated. This data should be read in conjunction with and is qualified by reference to “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report
on Form 10-K and our audited consolidated financial statements, including the notes thereto and the other financial
information included in Item 8 of this Annual Report on Form 10-K. The selected financial data presented in this
section is not intended to replace the consolidated financial statements included in this report.
July 2,
2016(8)(9)
June 27,
2015(7)(8)
Years Ended
June 28,
2014(5)(6)(8)
June 29,2013
(1)(2)(3)(4)(8)
June 30,
2012(1)(8)
Consolidated Statements of Operations Data:
Net revenue
(Loss) income from continuing operations, net of tax . . .
(Loss) income from discontinued operations, net of tax . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income per share from—basic and diluted:
$906.3
(50.4)
(48.8)
$ (99.2)
$ 873.9
(131.4)
43.3
$ (88.1)
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (0.22)
(0.20)
$ (0.42)
$ (0.57)
0.19
$ (0.38)
$926.9
(74.6)
56.8
$ (17.8)
$ (0.32)
0.24
$ (0.08)
$909.1
11.0
46.0
$ 57.0
$ 0.04
0.20
$ 0.24
$936.6
(65.3)
9.7
$ (55.6)
$ (0.28)
0.04
$ (0.24)
Consolidated Balance Sheets Data:
Cash and cash equivalents, short-term investments,
July 2,
2016(8)(9)
June 27,
2015(7)(8)
Years Ended
June 28,
2014(5)(6)
June 29,
2013(2)(3)(4)
June 30,
2012
and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 979.8 $ 825.6
1,004.6
2,217.8
730.0
1,101.4
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . .
985.3
1,683.1
767.4
689.3
$ 881.3
1,001.1
2,351.9
755.8
1,187.7
$ 515.9
682.6
1,715.2
206.2
1,161.3
$ 752.7
948.9
1,869.5
176.6
1,038.8
(1) During the first quarter of fiscal 2013, we entered into a definitive agreement to sell the hologram business
(“Hologram Business”) within our OSP segment, which subsequently closed on October 12, 2012. As a result, the
operations of the Hologram Business have been presented as discontinued operations for all periods presented.
(2) During the third quarter of fiscal 2013, we acquired Arieso Ltd. (“Arieso”) in a transaction accounted for
in accordance with the authoritative guidance on business combinations. The Consolidated Statements of
Operations for fiscal 2013 included the results of Arieso subsequent to March 7, 2013 and the Consolidated
Balance Sheet as of June 29, 2013 included Arieso’s financial position.
(3) During the third quarter of fiscal 2013, we approved a strategic plan to exit NSE’s legacy low-speed wireline
product line, which resulted in a $2.2 million charge for accelerated amortization of related intangibles, of which
$1.8 million and $0.4 million are included in Amortization of acquired technologies and Amortization of other
intangibles in the Consolidated Statement of Operations, respectively. In addition, we incurred $11.3 million
of inventory-related charges included in Cost of sales in the Consolidated Statement of Operations, primarily
related to the write-off of inventory no longer being sold due to the legacy low-speed wireline product line exit.
(4) During the fourth quarter of fiscal 2013, we determined that it is more likely than not that a portion of the
deferred tax assets of a non-U.S. jurisdiction will be realized after considering all positive and negative
evidence. Accordingly, a deferred tax valuation allowance release of $107.9 million was recorded as an income
tax benefit during the quarter.
(5) During the third quarter of fiscal 2014, we recognized $21.7 million of uncertain tax benefits related to deferred
tax assets due to the expiration of the statute of limitations in a non-U.S. jurisdiction.
27
(6) During the third quarter of fiscal 2014, we acquired Network Instruments in a transaction accounted for in
accordance with the authoritative guidance on business combinations. The Consolidated Statement of Operations
for fiscal 2014 included the results of operations from Network Instruments subsequent to January 6, 2014 and
the Consolidated Balance Sheet as of June 28, 2014 included Network Instruments’ financial position.
(7)
In the third quarter of fiscal 2015, we recognized a $21.8 million tax benefit upon the settlement of an audit in
a non-U.S. jurisdiction.
(8) During the first quarter of fiscal 2016, we completed the Separation. As a result, the operations of the Lumentum
business have been presented as discontinued operations in all periods of the Company’s Consolidated
Statements of Operations and in the Consolidated Balance Sheet as of June 27, 2015.
(9) During the fourth quarter of fiscal 2016, the Company recorded a $91.4 million goodwill impairment charge
related to the SE reporting unit in the Consolidated Statements of Operations. Refer to “Note 9. Goodwill” for
more information.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OUR INDUSTRIES AND DEVELOPMENTS
Viavi, formerly JDSU, is a global provider of network test, monitoring and assurance solutions to
communications service providers, enterprises and their ecosystems, supported by a worldwide channel community.
Our solutions deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to
optimize connectivity, quality of experience and profitability. Viavi is also a leader in high performance thin film
optical coatings, providing light management solutions to anti-counterfeiting, consumer and industrial, government
and healthcare and other markets. On August 1, 2015, we completed the separation of our optical components and
lasers business and created two publicly traded companies:
•
•
an optical components and commercial lasers company named Lumentum, consisting of our CCOP
segment and the WaveReady product line within our NE segment; and
a network and service enablement and optical coatings company, renamed Viavi, consisting of our NE,
SE and OSP segments.
In connection with the Separation we distributed approximately 80.1% of the outstanding shares of Lumentum
common stock to our stockholders on August 1, 2015. The Company was renamed Viavi and, at the time of the
distribution, retained ownership of approximately 19.9% of Lumentum’s outstanding shares. Activities related to the
Lumentum business have been presented as discontinued operations in all periods of the Company’s consolidated
financial statements in this Annual Report on Form 10-K and the accompanying disclosures, discussion and analysis
herein pertains to the Company’s continuing operations, unless noted otherwise.
As discussed in “Note 9. Goodwill” to our consolidated financial statements of this Annual Report on
Form 10-K, we evaluate goodwill for impairment at least annually, or on an interim basis between annual tests when
events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its
carrying value. In the fourth quarter of fiscal 2016 we recorded a goodwill impairment charge of $91.4 million, the
full amount of SE’s goodwill balance, in the accompanying Consolidated Statements of Operations. The impairment
was determined as we completed our annual operating plan for fiscal 2017 in the fourth quarter which revealed a
longer investment cycle will be needed for certain growth products within the SE segment, coupled with a decline in
the segment’s revenue and operating profitability in fiscal 2016. Refer to “Note 9. Goodwill” for more information.
To serve our markets, during fiscal 2016 we operated the following business segments:
• Network Enablement
•
Service Enablement
• Optical Security and Performance Products
28
Network Enablement
NE provides an integrated portfolio of testing solutions that access the network to perform build-out and
maintenance tasks. These solutions include instruments, software and services to design, build, activate, certify,
troubleshoot and optimize networks. They also support more profitable, higher-performing networks and facilitate
time-to-revenue.
Our solutions address lab and production environments, field deployment and service assurance for wireless
and fixed communications networks, including storage networks. Our test instrument portfolio is one of the largest
in the industry, with hundreds of thousands of units in active use by major NEMs, operators and services providers
worldwide. Designed to be mobile, these products include instruments and software that access the network to
perform installation and maintenance tasks. They help service provider technicians assess the performance of network
elements and segments and verify the integrity of the information being transmitted across the network. These
instruments are highly intelligent and have user interfaces that are designed to simplify operations and minimize the
training required to operate them. Our NE solutions are also used by network-equipment manufacturers (“NEMs”)
in the design and production of next-generation network equipment.
Viavi also offers a range of product support and professional services designed to comprehensively address our
customers’ requirements. These services include repair, calibration, software support and technical assistance for our
products. We offer product and technology training as well as consulting services. Our professional services, provided
in conjunction with system integration projects, include project management, installation and implementation.
NE customers include CSPs, NEMs, government organizations and large corporate customers, such as major
telecom, mobility and cable operators, chip and infrastructure vendors, storage-device manufacturers, storage-
network and switch vendors, and deployed private enterprise customers. Our customers include Alcatel-Lucent
International, América Móvil, S.A.B. de C.V., AT&T Inc., British Telecommunications, Plc., CenturyLink, Inc., Cisco
Systems, Inc., Comcast Corporation, Lumentum Holdings Inc., Time Warner Inc., and Verizon Communications Inc.
Service Enablement
SE provides embedded systems and enterprise performance management solutions to global CSPs and
enterprises. These systems and solutions provide visibility into network, service and application data. Our portfolio
of SE solutions - which primarily consist of instruments, microprobes and software - address the same lab and
production environments, field deployment and service assurance for wireless and fixed communications networks,
including storage networks, as our NE portfolio. Our SE solutions allow carriers to remotely monitor performance
and quality of network, service and applications performance throughout the entire network. Remote monitoring
decreases operating expenses, while early detection helps provide increased uptime, preserves revenue, and allows
operators to better monetize their networks.
Viavi’s SE solutions are embedded network systems-including microprobes and software-that collect and
analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams.
These solutions provide enhanced network management, control, optimization and differentiation for our customers.
Using these solutions, our customers are able to access and analyze the growing amount of network data from a single
console, simplifying the process of deploying, provisioning and managing network equipment and services. These
capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to
make on-site service calls, help to make necessary repairs faster and, as a result, lower costs while providing higher
quality and more reliable services.
SE customers include similar CSPs, NEMs, government organizations, large corporate customers, and storage-
segment customers that are served by our NE segment.
Optical Security and Performance Products
Our OSP segment leverages its core optical coating technologies and volume manufacturing capability to design,
manufacture, and sell products targeting anti-counterfeiting, consumer and industrial, government, healthcare and
other markets.
29
Our security offerings for the currency market include OVP®, OVMP® and banknote thread substrates. OVP®
enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting
applications on banknotes and other high-value documents. Our technologies are deployed on the banknotes of more
than 100 countries today. OSP also develops and delivers overt and covert anti-counterfeiting products that utilize
its proprietary printing platform and are targeted primarily at the pharmaceutical and consumer-electronics markets.
Leveraging our expertise in spectral management and our unique high-precision coating capabilities, OSP
provides a range of products and technologies for the consumer and industrial market, including, for example, 3D
sensing optical filters.
OSP value-added solutions meet the stringent requirements of commercial and government customers. Our
products are used in a variety of aerospace and defense applications, including optics for guidance systems, laser eye
protection and night vision systems. These products, including coatings and optical filters, are optimized for each
specific application.
OSP serves customers such as FLIR Systems, Kingston Digital, L-3 Communications, Lockheed Martin
and SICPA.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Refer to “Note 2. Recently Issued Accounting Pronouncements” regarding the effect of certain recent accounting
pronouncements on our consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets
and liabilities, net revenue and expenses, and the related disclosures. We base our estimates on historical experience,
our knowledge of economic and market factors and various other assumptions that we believe to be reasonable
under the circumstances. Estimates and judgments used in the preparation of our financial statements are, by their
nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, such
as demand for our products and economic conditions. Accordingly, our estimates and judgments may prove to be
incorrect and actual results may differ from these estimates under different assumptions or conditions. We believe
the following critical accounting policies are affected by significant estimates, assumptions and judgments used in
the preparation of our consolidated financial statements:
Revenue Recognition
We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable
and earned when there is persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or
determinable, and collectability is reasonably assured. Delivery does not occur until products have been shipped or
services have been provided, risk of loss has transferred and in cases where formal acceptance is required, customer
acceptance has been obtained or customer acceptance provisions have lapsed. In situations where a formal acceptance
is required but the acceptance only relates to whether the product meets its published specifications, revenue is
recognized upon delivery provided all other revenue recognition criteria are met. The sales price is not considered to
be fixed or determinable until all contingencies related to the sale have been resolved.
We reduce revenue for rebates and other similar allowances. Revenue is recognized only if these estimates can
be reliably determined. Our estimates are based on historical results taking into consideration the type of customer,
the type of transaction and the specifics of each arrangement.
In addition to the aforementioned general policies, the following are the specific revenue recognition policies
for multiple-element arrangements and for each major category of revenue.
30
Multiple-Element Arrangements
When a sales arrangement contains multiple deliverables, such as sales of products that include services, the
multiple deliverables are evaluated to determine whether there are one or more units of accounting. Where there is
more than one unit of accounting, then the entire fee from the arrangement is allocated to each unit of accounting
based on the relative selling price. Under this approach, the selling price of a unit of accounting is determined by
using a selling price hierarchy which requires the use of vendor-specific objective evidence (“VSOE”) of fair value
if available, third-party evidence (“TPE”) if VSOE is not available, or management’s best estimate of selling price
(“BESP”) if neither VSOE nor TPE is available. Revenue is recognized when the revenue recognition criteria for each
unit of accounting are met.
We establish VSOE of selling price using the price charged for a deliverable when sold separately. TPE of selling
price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly
situated customers. When VSOE or TPE are not available then we use BESP. Generally, we are not able to determine
TPE because our product strategy differs from that of others in our markets, and the extent of customization varies
among comparable products or services from our peers. We establish BESP using historical selling price trends and
considering multiple factors including, but not limited to geographies, market conditions, competitive landscape,
internal costs, gross margin objectives, and pricing practices. When determining BESP, we apply significant
judgment in establishing pricing strategies and evaluating market conditions and product lifecycles.
The determination of BESP is made through consultation with and approval by the segment management.
Segment management may modify or develop new pricing practices and strategies in the future. As these pricing
strategies evolve, we may modify our pricing practices in the future, which may result in changes in BESP. The
aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element
arrangements from the current fiscal year, which may change the pattern and timing of revenue recognition for these
elements but will not change the total revenue recognized for the arrangement.
To the extent a deliverable(s) in a multiple-element arrangement is subject to specific guidance (for example,
software that is subject to the authoritative guidance on software revenue recognition), we allocate the fair value of
the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the
specific guidance. Some of our product offerings include hardware that are integrated with or sold with software that
delivers the functionality of the equipment. We believe this equipment is not considered software-related and would
therefore be excluded from the scope of the authoritative guidance on software revenue recognition.
Hardware
Revenue from hardware sales is typically recognized when the product meet delivery criteria.
Services
Revenue from services and system maintenance is recognized on a straight-line basis over the term of the
contract. Revenue from professional service engagements is recognized once its delivery obligation is fulfilled.
Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-
line basis over the delivery period. We also generate service revenue from hardware repairs and calibration which is
recognized as revenue upon completion of the service.
Software
Our software arrangements generally consist of a perpetual license fee and Post-Contract Support (“PCS”).
Where we have established VSOE of fair value for PCS contracts, it is based on the renewal rate or the bell curve
methodology. Revenue from maintenance, unspecified upgrades and technical support is recognized over the period
such items are delivered. In multiple-element revenue arrangements that include software, software-related and non-
software-related elements are accounted for in accordance with the following policies.
• Non-software and software-related products are bifurcated based on a relative selling price
•
Software-related products are separated into units of accounting if all of the following criteria are met:
31
• The functionality of the delivered element(s) is not dependent on the undelivered element(s).
• There is VSOE of fair value of the undelivered element(s).
• Delivery of the delivered element(s) represents the culmination of the earnings process for
that element(s).
If these criteria are not met, the software revenue is deferred until the earlier of when such criteria are met
or when the last undelivered element is delivered. If there is VSOE of the undelivered item(s) but no such evidence
for the delivered item(s), the residual method is used to allocate the arrangement consideration. Under the residual
method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less
the aggregate VSOE of the undelivered elements. Generally VSOE has not been established for PCS, and in those
cases we have recognized revenue ratably over the PCS period after all software elements have been delivered and
the only undelivered item is PCS.
Allowances for Doubtful Accounts
We perform credit evaluations of our customers’ financial condition. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to make required payments. We record our
bad debt expenses as SG&A expense. When we become aware that a specific customer is unable to meet its financial
obligations to us, for example, as a result of bankruptcy or deterioration in the customer’s operating results or financial
position, we record a specific allowance to reflect the level of credit risk in the customer’s outstanding receivable
balance. In addition, we record additional allowances based on certain percentages of our aged receivable balances.
These percentages are determined by a variety of factors including, but not limited to, current economic trends,
historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition
of our customers, and if circumstances related to our customers deteriorate, our estimates of the recoverability of our
trade receivables could be materially affected and we may be required to record additional allowances. Alternatively,
if we provide more allowances than we need, we may reverse a portion of such provisions in future periods based on
our actual collection experience.
Investments
Our investments in debt securities and marketable equity securities are primarily classified as available-
for-sale investments or trading securities and are recorded at fair value. The cost of securities sold is based on
the specific identification method. Unrealized gains and losses on available-for-sale investments, net of tax, are
reported as a separate component within our Consolidated Statements of Stockholders’ Equity. Unrealized gains or
losses on trading securities resulting from changes in fair value are recognized in current earnings. Our short-term
investments, which are classified as current assets, include certain securities with stated maturities of longer than
twelve months as they are highly liquid and available to support current operations.
We periodically review our investments for impairment. If a debt security’s market value is below amortized
cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security
before its anticipated recovery, we record an other-than-temporary impairment charge to investment income (loss)
for the entire amount of the impairment; if a debt security’s market value is below amortized cost and we do not
expect to recover the entire amortized cost of the security, we separate the other-than-temporary impairment into
the portion of the loss related to credit factors, or the credit loss portion, and the portion of the loss that is not related
to credit factors, or the non-credit loss portion. The credit loss portion is the difference between the amortized cost
of the security and our best estimate of the present value of the cash flows expected to be collected from the debt
security. The non-credit loss portion is the residual amount of the other-than-temporary impairment. The credit loss
portion is recorded as a charge to income (loss), and the non-credit loss portion is recorded as a separate component
of Other comprehensive income (loss).
Inventory Valuation
We assess the value of our inventory on a quarterly basis and write-down those inventories which are obsolete
or in excess of our forecasted usage to their estimated realizable value. Our estimates of realizable value are based
upon our analysis and assumptions including, but not limited to, forecasted sales levels by product, expected product
lifecycle, product development plans and future demand requirements. Our product line management personnel
32
play a key role in our excess review process by providing updated sales forecasts, managing product transitions
and working with manufacturing to maximize recovery of excess inventory. If actual market conditions are less
favorable than our forecasts or actual demand from our customers is lower than our estimates, we may be required to
record additional inventory write-downs. If actual market conditions are more favorable than anticipated, inventory
previously written down may be sold, resulting in lower cost of sales and higher income from operations than
expected in that period.
Goodwill Valuation
We test goodwill for possible impairment on an annual basis in our fourth quarter and at any other time if events
occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that
could trigger an impairment test include, but are not limited to: a significant adverse change in the business climate
or legal factors, an adverse action or assessment by a regulator, changes in customers, target markets and strategy,
unanticipated competition, loss of key personnel, or the likelihood that a reporting unit or significant portion of a
reporting unit will be sold or otherwise disposed.
The authoritative guidance allows an entity to assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. If an entity determines that as a result of the qualitative
assessment that it is more likely than not (i.e. greater than 50% likelihood) that the fair value of a reporting unit is
less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The
two-step quantitative goodwill impairment test requires us to estimate the fair value of our reporting units. If the
carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and
we proceed to step two of the impairment analysis. In step two of the analysis, we measure and record an impairment
loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, if any.
Application of the goodwill impairment test requires judgments, including: identification of the reporting units,
assigning assets and liabilities to reporting units, assigning goodwill to reporting units, a qualitative assessment to
determine whether there are any impairment indicators, and determining the fair value of each reporting unit. We
generally estimate the fair value of a reporting unit using a combination of the income approach, which estimates
the fair value based on the future discounted cash flows, and the market approach, which estimates the fair value
based on comparable market prices. Our significant estimates in the income approach include: our weighted average
cost of capital, long-term rate of growth and profitability of the reporting unit’s business, and working capital
effects. The market approach estimates the fair value of the business based on a comparison of the reporting unit
to comparable publicly traded companies in similar lines of business. Significant estimates in the market approach
include: identifying similar companies with comparable business factors such as size, growth, profitability, risk and
return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value
of the reporting unit.
We base our estimates on historical experience and on various assumptions about the future that we believe
are reasonable based on available information. Unanticipated events and circumstances may occur that affect the
accuracy of our assumptions, estimates and judgments. For example, if the price of our common stock were to
significantly decrease combined with other adverse changes in market conditions, thus indicating that the underlying
fair value of our reporting units may have decreased, we might be required to reassess the value of our goodwill in
the period such circumstances were identified.
In the fourth quarter of fiscal 2016 we recorded a goodwill impairment charge of $91.4 million, the full
amount of SE’s goodwill balance, in the accompanying Consolidated Statements of Operations. The impairment was
determined as we completed our annual operating plan for fiscal 2017 in the fourth quarter which revealed a longer
investment cycle will be needed for certain growth products within the SE segment, coupled with a decline in the
segment’s revenue and operating profitability in fiscal 2016. Refer to “Note 9. Goodwill” for more information.
Long-lived Asset Valuation (Property, Plant and Equipment and Intangible Assets)
Long-lived assets held and used
We test long-lived assets for recoverability, at the asset group level, when events or changes in circumstances
indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include,
but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the
33
business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of
losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will
more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability is assessed based on the difference between the carrying amount of the asset and the sum of the
undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss
is recognized when the carrying amount is not recoverable and exceeds fair value.
Income Taxes
In accordance with the authoritative guidance on accounting for income taxes, we recognize income taxes
using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in our consolidated financial statements or tax returns. The measurement of current and deferred taxes is
based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.
The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax
assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative
weight of the evidence. With the exception of certain international jurisdictions, we have determined that at this
time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized,
primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire.
Accordingly, we have established a valuation allowance for such deferred tax assets. If there is a change in our ability
to realize our deferred tax assets for which a valuation allowance has been established, then our tax provision may
decrease in the period in which we determine that realization is more likely than not. Likewise, if we determine that it
is not more likely than not that our deferred tax assets will be realized, then a valuation allowance may be established
for such deferred tax assets and our tax provision may increase in the period in which we make the determination.
The authoritative guidance on accounting for uncertainty in income taxes prescribes the recognition threshold
and measurement attributes for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Additionally, it provides guidance on recognition, classification, and disclosure of tax
positions. We are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we
operate. The determination of tax liabilities in each of these jurisdictions requires the interpretation and application
of complex and sometimes uncertain tax laws and regulations. We recognize liabilities based on our estimate of
whether, and the extent to which, additional tax liabilities are more likely than not. If we ultimately determine that
the payment of such a liability is not necessary, then we reverse the liability and recognize a tax benefit during the
period in which the determination is made that the liability is no longer necessary.
The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities
requires that we make certain estimates and judgments. Changes to these estimates or a change in judgment may
have a material impact on our tax provision in a future period.
Restructuring Accrual
In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities,
generally costs associated with restructuring activities are recognized when they are incurred. However, in the case of
leases, the expense is estimated and accrued when the property is vacated. Given the significance of, and the timing
of the execution of such activities, this process is complex and involves periodic reassessments of estimates made
from the time the property was vacated, including evaluating real estate market conditions for expected vacancy
periods and sub-lease income. Additionally, a liability for post-employment benefits for workforce reductions
related to restructuring activities is recorded when payment is probable and, the amount is reasonably estimable.
We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we
believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby
requiring us to record additional provisions or reverse a portion of such provisions.
34
Pension and Other Postretirement Benefits
The funded status of our retirement-related benefit plans is recognized in the Consolidated Balance Sheets. The
funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal
year end, the measurement date. For defined benefit pension plans, the benefit obligation is the projected benefit
obligation (“PBO”); and for the non-pension postretirement benefit plan, the benefit obligation is the accumulated
postretirement benefit obligation (“APBO”). The PBO represents the actuarial present value of benefits expected to
be paid upon retirement. The APBO represents the actuarial present value of postretirement benefits attributed to
employee services already rendered. Unfunded or partially funded plans, with the benefit obligation exceeding the fair
value of plan assets, are aggregated and recorded as a retirement and non-pension postretirement benefit obligation
equal to this excess. The current portion of the retirement-related benefit obligation represents the actuarial present
value of benefits payable in the next 12 months in excess of the fair value of plan assets, measured on a plan-by-plan
basis. This liability is recorded in Other current liabilities in the Consolidated Balance Sheets.
Net periodic pension cost (income) is recorded in the Consolidated Statement of Operations and includes
service cost, interest cost, expected return on plan assets, amortization of prior service cost and (gains) losses
previously recognized as a component of accumulated other comprehensive income. Service cost represents the
actuarial present value of participant benefits attributed to services rendered by employees in the current year.
Interest cost represents the time value of money cost associated with the passage of time. (Gains) losses arise as a
result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions.
Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan
amendments. (Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost
(income) in the Consolidated Statement of Operations as they arise are recognized as a component of accumulated
other comprehensive income on the Consolidated Balances Sheets, net of tax. Those (gains) losses and prior service
cost (credit) are subsequently recognized as a component of net periodic pension period cost (income) pursuant to the
recognition and amortization provisions of the authoritative guidance.
The measurement of the benefit obligation and net periodic pension cost (income) is based on our estimates and
actuarial valuations, provided by third-party actuaries, which are approved by our management. These valuations
reflect the terms of the plans and use participant-specific information such as compensation, age and years of
service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of
compensation increases, and mortality rates. We evaluate these assumptions annually at a minimum. In estimating
the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking
considerations, inflation assumptions and the impact of the active management of the plan’s invested assets.
Loss Contingencies
We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We
consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to
reasonably estimate the amount of loss in determining loss contingencies. An estimated loss is accrued when it is
probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably
estimated. We regularly evaluate current information available to us to determine whether such accruals should be
adjusted and whether new accruals are required.
35
RESULTS OF OPERATIONS
The results of operations for the current period are not necessarily indicative of results to be expected for future
periods. The following table summarizes selected Consolidated Statements of Operations items as a percentage of
net revenue:
Segment net revenue:
NE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OSP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of acquired technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . .
(Benefit from) provisions for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 27,
2015
Years Ended
June 28,
2014
June 29,
2013
55.7%
16.9
27.4
100.0
37.4
1.9
60.7
18.4
38.7
10.1
1.6
1.2
70.0
(9.3)
0.3
7.8
(3.9)
(5.1)
0.5
(5.6)
(5.3)
(10.9)%
58.0%
19.9
22.1
100.0
36.8
3.7
59.5
19.8
43.1
—
2.2
3.1
68.2
(8.7)
0.5
—
(3.8)
(12.0)
3.0
(15.0)
4.9
(10.1)%
61.5%
16.8
21.7
100.0
39.4
3.7
56.9
17.5
41.5
—
1.7
2.2
62.9
(6.0)
(0.1)
—
(3.2)
(9.3)
(1.3)
(8.0)
6.1
(1.9)%
36
Financial Data for Fiscal 2016, 2015 and 2014
The following table summarizes selected Consolidated Statement of Operations items (in millions, except
for percentages):
Segment net revenue:
NE . . . . . . . . . . . . . . . .
SE . . . . . . . . . . . . . . . . .
OSP. . . . . . . . . . . . . . . .
Net revenue . . . . . . . . . . . .
Amortization of acquired
2016
2015
Change
Percent
Change
2015
2014
Change
Percent
Change
$504.6
153.6
248.1
$906.3
$506.8
174.3
192.8
$873.9
$ (2.2)
(20.7)
55.3
$ 32.4
(0.4)% $506.8
174.3
(11.9)
192.8
28.7
3.7% $873.9
$ 570.1
156.0
200.8
$ 926.9
$(63.3)
18.3
(8.0)
$(53.0)
(11.1)%
11.7
(4.0)
(5.7)%
technologies . . . . . . . . .
$ 17.3
$ 31.9
$(14.6)
(45.8)% $ 31.9
$
34.1
$ (2.2)
(6.5)%
Percentage of
net revenue . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Gross margin . . . . . . . . . . .
Amortization
1.9%
3.7%
3.7%
3.7%
549.7
520.1
$ 29.6
5.7% 520.1
527.8
$ (7.7)
(1.5)%
60.7%
59.5%
59.5%
56.9%
of intangibles . . . . . . . .
14.6
19.5
(4.9)
(25.1)% 19.5
15.5
4.0
25.8%
Percentage of
net revenue . . . . . . . . . .
1.6%
2.2%
2.2%
1.7%
Research and
development . . . . . . . . .
166.4
173.3
(6.9)
(4.0)% 173.3
161.8
11.5
7.1%
Percentage of
net revenue . . . . . . . . . .
18.4%
19.8%
19.8%
17.5%
Selling, general
and administrative. . . . .
351.1
376.3
(25.2)
(6.7)% 376.3
384.8
(8.5)
(2.2)%
Percentage of
net revenue . . . . . . . . . .
Impairment of goodwill . . .
Percentage of
38.7%
91.4
43.1%
—
91.4
100.0%
43.1%
—
41.5%
—
—
—%
net revenue . . . . . . . . . .
10.1%
—%
—%
—%
Restructuring and
related charges . . . . . . . .
10.5
26.8
(16.3)
(60.8)% 26.8
21.3
5.5
25.8%
Percentage of
net revenue . . . . . . . . . .
1.2%
3.1%
3.1%
2.2%
Gain on sale
of investments . . . . . . . .
71.6
0.1
71.5 71,500.0%
0.1
0.4
(0.3)
(75.0)%
Percentage of
net revenue . . . . . . . . . .
Provision for (benefit from)
income taxes . . . . . . . . .
Percentage of
7.8%
—%
—%
—%
4.5
26.1
(21.6)
(82.8)% 26.1
(11.2)
37.3
(333.0)%
net revenue . . . . . . . . . .
0.5%
3.0%
3.0%
(1.3)%
Loss (income) from
discontinued operations,
net of tax . . . . . . . . . . . .
Percentage of
(48.8)
43.3
(92.1)
(212.7)% 43.3
56.8
(13.5)
(23.8)%
net revenue . . . . . . . . . .
(5.4)%
4.9%
4.9%
6.1%
37
FOREIGN CURRENCY IMPACT ON RESULTS OF OPERATIONS
While the majority of our net revenue and operating expenses are denominated in U.S. dollar, a portion of our
international operations are denominated in currencies other than the U.S. dollar. Changes in foreign exchange rates
may significantly affect revenue and expenses. While we use foreign currency hedging contracts to mitigate some
foreign currency exchange risk, these activities are limited in the protection that they provide us and can themselves
result in losses. We have presented below “constant dollar” comparisons of our net sales and operating expenses
which exclude the impact of currency exchange rate fluctuations. Constant dollar net revenue and operating expenses
are non-GAAP financial measures, which is information derived from consolidated financial information but not
presented in our financial statements prepared in accordance with U.S. GAAP. Our management believes these non-
GAAP measures, when considered in conjunction with the corresponding U.S. GAAP measures, may facilitate a
better understanding of changes in net revenue and operating expenses.
Fiscal 2016 and 2015
If currency exchange rates had been constant in fiscal 2016 and fiscal 2015, our consolidated net revenue in
“constant dollars” would have increased by approximately $22 million, or 2.5% of net revenue, which primarily
impacted our NE and SE segments. The impact of foreign currency fluctuations on net revenue was not indicative of
the impact on net income due to the offsetting foreign currency impact on operating costs and expenses. If currency
exchange rates had been constant in fiscal 2016 and fiscal 2015, our consolidated operating expenses in “constant
dollars” would have increased by approximately $16 million, or 1.8% of net revenue.
Fiscal 2015 and 2014
During the second half of fiscal 2015, the significant strengthening of the U.S. Dollar relative to certain
other foreign currencies (namely the Euro, Japanese Yen and Canadian Dollar) had an unfavorable impact on our
reported international net revenues but a favorable impact on our reported international operating expenses because
these amounts were translated at lower rates in fiscal 2015 than in fiscal 2014. If currency exchange rates had been
constant in fiscal 2015 and fiscal 2014, our consolidated net revenue in “constant dollars” would have increased
by approximately $15 million, or 1.7% of net revenue, which primarily impacted our NE and SE segments. The
impact of foreign currency fluctuations on net revenue was not indicative of the impact on net income due to the
offsetting foreign currency impact on operating costs and expenses. If currency exchange rates had been constant
in fiscal 2015 and fiscal 2014, our consolidated operating expenses in “constant dollars” would have increased by
approximately $11 million, or 1.3% of net revenue.
The Results of Operations are presented in accordance with U.S. GAAP and not using constant dollars. Refer to
Item 7A. Qualitative and Quantitative Disclosures about Market Risk of this Annual Report on Form 10-K for further
details on foreign currency instruments and our related risk management strategies.
NET REVENUE
Following the Separation, revenue from our service offerings exceeds 10% of our total consolidated net revenue
and is presented separately in our Consolidated Statements of Operations. Service revenue primarily consists of
maintenance and support, extended warranty, professional services and post-contract support in addition to other
services such as rentals, loaners and repair services. When evaluating the performance of our segments, Management
focuses on total net revenue, gross profit and operating income and not the product or service categories. Consequently,
the following discussion of business segment performance focuses on total net revenue, gross profit, and operating
income consistent with our approach for managing the business.
Fiscal 2016 and 2015
Net revenue increased by $32.4 million, or 3.7%, during fiscal 2016 compared to fiscal 2015. This increase
was primarily due to an increase in our OSP segment, partially offset by decreases in our SE and NE segments as
discussed below.
38
Product revenues increased by $37.6 million, or 4.9%, during fiscal 2016 compared to fiscal 2015. This increase
was driven by $62.4 million of product revenue increases from our OSP and NE segments, primarily due to higher
demand for our Anti-Counterfeiting product line in our OSP segment as discussed below. This was partially offset
by a $24.8 million product revenue decrease from our SE segment primarily due to a decline in our more mature
Assurance solutions.
Service revenues decreased $5.2 million, or 5.1%, during fiscal 2016 compared to fiscal 2015. This decrease
was driven by a $9.6 million decline in service revenue from our NE segment primarily related to the release of
new product offerings impacting the timing of renewals for support and maintenance contracts, coupled with lower
revenue from repair services. This was partially offset by $4.4 million of service revenue increases from our SE and
OSP segments driven by maintenance and support contracts for our Enterprise offerings in our SE segment.
NE net revenue remained relatively flat, decreasing by $2.2 million, or 0.4%, during fiscal 2016 compared to
fiscal 2015. This was driven by $21.7 million of net revenue decreases from our Wireline and Wireless offerings,
partially offset by $19.5 million of net revenue increases from our Lab offerings. Wireline and Wireless net revenue
decreased in the fiscal 2016 primarily as the prior period reflected Wireline net revenue from a significant ramp for
a one-time project from a key customer, coupled with lower services revenue. This was partially offset by strength in
our fiber lab and field test instruments driven by “FTTH” and “Fiber for Wireless Backhaul” deployments in North
America and 100G deployments globally as well as higher demand for our optical transport products.
SE net revenue decreased by $20.7 million, or 11.9%, during fiscal 2016 compared to fiscal 2015. This decrease
was driven by $23.5 million of net revenue decreases from our Assurance and Wireless Solutions offerings primarily
due to a change in product mix as our more mature offerings declined at a steeper pace than the growth in our new
offerings. This was partially offset by $2.8 million of net revenue increases from our Enterprise offerings.
OSP net revenue increased by $55.3 million, or 28.7%, during fiscal 2016 compared to fiscal 2015. This
increase was driven by net revenue increases primarily from our Anti-Counterfeiting product line driven by cyclical
demand for our currency products resulting from an increase in currency reprinting and bank-note redesigns over
the normal run-rate in fiscal 2016, coupled with net revenue growth in our Consumer and Industrial and Government
product lines.
Fiscal 2015 and 2014
Net revenue decreased by $53.0 million, or 5.7%, during fiscal 2015 compared to fiscal 2014. This decrease
was primarily due to a decrease in our NE and OSP segments, partially offset by an increase in our SE segment as
discussed below.
Product revenues decreased by $43.7 million, or 5.4%, during fiscal 2015 compared to fiscal 2014. This
decrease was driven by $75.3 million of product revenue decreases from our NE and OSP segments primarily due to
a reduction in CSP spending impacting demand for our instruments products in our NE segment. This was partially
offset by a $31.6 million increase in product revenue from our SE segment driven by the acquisition of Network
Instruments in the second half of fiscal 2014.
Service revenues decreased $9.3 million, or 8.3%, during fiscal 2015 compared to fiscal 2014. This decrease
was driven by a $13.3 million decrease in service revenue from our SE segment primarily due to a decline in our more
mature Assurance solutions. This was partially offset by $4.0 million of service revenue increase from our NE and
OSP segments driven by NE repair services.
NE net revenue decreased by $63.3 million or 11.1%, during fiscal 2015 compared to fiscal 2014. This decrease
was driven by $74.7 million of net revenue decreases from our Wireline and Lab offerings primarily due to a reduction
in CSP spending driven by lower demand from key customers. This was partially offset by $11.4 million of net
revenue increases for our Wireless offerings driven by demand from CSPs.
SE net revenue increased by $18.3 million, or 11.7%, during fiscal 2015 compared to fiscal 2014. This increase
was driven by $30.7 million of net revenue increases from incremental net revenue from our Enterprise offerings
which we acquired in the third quarter of fiscal 2014, coupled with revenue growth from our Wireless Solutions.
This was partially offset by $12.4 million of net revenue decreases primarily driven by a decline in our more mature
Assurance solutions.
39
OSP net revenue decreased by $8.0 million, or 4.0%, during fiscal 2015 compared to fiscal 2014. This decrease
was driven by $35.1 million of net revenue decreases primarily from the planned exit of legacy products which was
completed at the end of fiscal 2015 and lower demand from a key customer for 3-D sensing products in our Consumer
and Industrial product line. This was partially offset by $27.1 million of net revenue increases primarily from our
Anti-Counterfeiting product line driven by cyclical demand for our currency products.
Going forward, we expect to continue to encounter a number of industry and market risks and uncertainties
that may limit our visibility, and consequently, our ability to predict future revenue, profitability and general
financial performance, and that could create quarter over quarter variability in our financial measures. For example,
while the majority of our net revenue and expenses are denominated in U.S. dollars, a portion of our international
operations are denominated in foreign currencies. Recently, the strengthening of the U.S. dollar relative to certain
foreign currencies, namely the Euro, Brazilian Real and Canadian Dollar, negatively impacted reported revenue and
reduced our reported expenses. Additionally, we have seen recent demand for our NE and SE products affected by
macroeconomic uncertainty. We cannot predict when or to what extent these uncertainties will be resolved. Our
revenues, profitability, and general financial performance may also be affected by: (a) strong pricing pressures due
to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based
competitors, and a general commoditization trend for certain products; (b) high product mix variability in our NE
and SE markets, which affects revenue and gross margin; (c) fluctuations in customer buying patterns, which cause
demand, revenue and profitability volatility; and (d) the current trend of communication industry consolidation,
which is expected to continue, that directly affects our NE and SE customer bases and adds additional risk and
uncertainty to our financial and business projections.
In fiscal 2017, we expect to continue to see a decline in net revenue from our more mature Assurance and
Wireless Solutions within our SE segment. In our OSP segment, we expect Anti-Counterfeiting net revenue to
decline in fiscal year 2017 from 2016 levels, as currency reprinting and banknote redesigns return to normal run
rates; however, we expect growth drivers for the Anti-Counterfeiting business to remain intact in the long-term.
REVENUE BY REGION
We operate in three geographic regions: Americas, Asia-Pacific and Europe Middle East and Africa (“EMEA”).
Net revenue is assigned to the geographic region and country where our product is initially shipped. For example,
certain customers may request shipment of our product to a contract manufacturer in one country, which may differ
from the location of their end customers. The following table presents net revenue by the three geographic regions we
operate in and net revenue from countries that exceeded 10% of our total net revenue (dollars in millions):
July 2,
2016
Years Ended
June 27,
2015
June 28,
2014
Americas:
United States . . . . . . . . . . . . . . . . . . . . . .
Other Americas . . . . . . . . . . . . . . . . . . . .
Total Americas . . . . . . . . . . . . . . . . . .
$ 396.6
66.0
$ 462.6
43.8% $ 424.3
62.5
7.3%
51.1% $ 486.8
48.5% $ 448.6
58.8
7.2%
55.7% $ 507.4
48.4%
6.3%
54.7%
Asia-Pacific. . . . . . . . . . . . . . . . . . . . . . . . . .
$ 166.3
18.3% $ 144.5
16.5% $ 140.9
15.2%
EMEA:
Switzerland. . . . . . . . . . . . . . . . . . . . . . . .
Other EMEA . . . . . . . . . . . . . . . . . . . . . .
Total EMEA . . . . . . . . . . . . . . . . . . . .
$ 135.6
141.8
$ 277.4
97.7
15.0% $
144.9
15.6%
30.6% $ 242.6
98.0
11.2% $
180.6
16.6%
27.8% $ 278.6
10.6%
19.5%
30.1%
Total net revenue . . . . . . . . . . . . . . . . . . .
$ 906.3
100.0% $ 873.9
100.0% $ 926.9
100.0%
Net revenue is assigned to geographic regions based on customer shipment locations. Net revenue from
customers outside the Americas for the fiscal years ended 2016, 2015 and 2014 represented 48.9%, 44.3% and 45.3%
of net revenue, respectively. We expect revenue from customers outside of North America to continue to be an
important part of our overall net revenue and an increasing focus for net revenue growth opportunities.
40
GROSS MARGIN
Gross margin in fiscal 2016 increased 1.2 percentage points to 60.7% from 59.5% in fiscal 2015. This increase
was primarily due to a $14.6 million reduction in amortization of developed technology driven by certain intangible
assets becoming fully amortized during fiscal 2015, coupled with an improvement in gross margin from our OSP
segment primarily due to favorable product mix with higher anti-counterfeiting revenue in fiscal 2016. This was
partially offset by lower gross margin in our SE segment and a change in overall segment mix as our OSP segment,
whose products generally carry a lower gross margin than our NE and SE products, represented a higher percentage
of our total net revenue in fiscal 2016.
Gross margin in fiscal 2015 increased 2.6 percentage points to 59.5% from 56.9% in fiscal 2014. This increase
was primarily due to an improvement in gross margin within our SE and OSP segments driven by the addition of our
higher-margin Enterprise product line acquired in the third quarter of fiscal 2014 in our SE segment, coupled with
increased revenue from higher margin anti-counterfeiting products and the exit of lower margin legacy products in
our OSP segment.
As discussed in more detail under “Net Revenue” above, we sell products in certain markets that are
consolidating, undergoing product, architectural and business model transitions, have high customer concentrations,
are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected
by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in variability of
our gross margin.
RESEARCH AND DEVELOPMENT
R&D expense decreased by $6.9 million, or 4.0%, during fiscal 2016 compared to fiscal 2015. This decrease
was primarily due to a $3.6 million in-process research and development (“IPR&D”) impairment charge in the
prior year related to a fiscal 2014 acquisition, coupled with $4.0 million net cost savings realized from our strategic
restructuring activities related to site consolidations, reorganizations, and the insourcing or outsourcing of R&D
activities to align our investment strategy following the Separation. This was partially offset by various other
incremental expenses incurred, including additional cost as fiscal 2016 was a 53-week fiscal year and contained one
additional week compared to fiscal 2015. As a percentage of net revenue R&D decreased by 1.4 percentage points
during fiscal 2016 compared to fiscal 2015 as the Company continues to execute targeted cost savings initiatives.
R&D expense increased by $11.5 million, or 7.1%, during fiscal 2015 compared to fiscal 2014. This increase
was primarily driven by a $4.5 million increase in employee compensation expense primarily due to our ongoing
investment in R&D and our strategic acquisitions in the second and third quarters of fiscal 2014. Also contributing
to the increase was a $3.6 million IPR&D impairment charge in fiscal 2015 related to a fiscal 2014 acquisition. As
a percentage of net revenue, R&D increased 2.3 percentage points in fiscal 2015 as we continued to invest in our
portfolio to develop new technologies, products and services that offer our customers increased value and strengthen
our position in our core markets, coupled with lower net revenue as discussed above.
We believe that continuing our investments in R&D is critical to attaining our strategic objectives. We plan to
continue to invest in R&D and new products that will further differentiate us in the marketplace.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expense decreased by $25.2 million, or 6.7%, in fiscal 2016 compared to fiscal 2015. This decrease was
primarily due to a $30.5 million reduction in labor, benefits and facilities expenses driven by lower headcount and
site consolidations associated with our strategic restructuring activities and ongoing cost reduction efforts coupled
with incremental charge from modification of equity awards pursuant to Change of Control Benefits Plan covering
spin-off in the prior year that were not there this year. This was partially offset by an $8.4 million charge in fiscal
2016 related to a litigation ruling impacting our pension obligation. As a percentage of net revenue, SG&A decreased
by 4.4 percentage points in fiscal 2016 primarily driven by our strategic cost reduction efforts to optimize our
expense structure.
41
SG&A expense decreased by $8.5 million, or 2.2%, in fiscal 2015 compared to fiscal 2014. This decrease was
primarily due to $17.4 million of various reductions including lower labor and benefits expense primarily related to
our continuing cost reduction efforts and strategic initiatives in preparation for the Separation. This was partially
offset by $11.4 million of Viavi-specific incremental charges for professional fees and additional personnel costs to
complete the Separation. As a percentage of net revenue, SG&A increased by 1.6 percentage points in fiscal 2015
primarily due to costs incurred related to the separation of the Lumentum business coupled with lower net revenue
as discussed above.
We intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. However, we
have in the recent past experienced, and may continue to experience in the future, certain non-core expenses, such
as mergers and acquisitions-related expenses, expenses related to our separation of the business into two public
companies and litigation expenses, which could increase our SG&A expenses and potentially impact our profitability
expectations in any particular quarter.
IMPAIRMENT OF GOODWILL
During the fourth quarter of fiscal 2016 the Company impaired the full balance of SE goodwill of $91.4 million
which is presented as “Impairment of goodwill” in the accompanying Consolidated Statements of Operations. The
impairment was determined in the fourth quarter of fiscal 2016 as the Company completed its annual operating plan
for fiscal 2017 which revealed a longer investment cycle will be needed for certain growth SE products, coupled
with the decline in SE net revenue and operating profitability in fiscal 2016. Refer to “Note 9. Goodwill” for more
information on goodwill including our valuation approach and assumptions.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles for fiscal 2016 decreased $19.5 million, or 37.9%, to $31.9 million from $51.4 million
in fiscal 2015. This decrease is driven by a $14.6 million reduction in amortization of developed technology primarily
due to certain significant intangible assets becoming fully amortized in the fourth quarter of fiscal 2015.
Amortization of intangibles for fiscal 2015 increased $1.8 million, or 3.6%, to $51.4 million from $49.6 million
in fiscal 2014. The increase is due incremental amortization of intangible assets from our fiscal 2015 acquisitions,
offset by certain significant intangible assets becoming fully amortized.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT (“IPR&D”)
In accordance with authoritative guidance, we recognize IPR&D at fair value as of the acquisition date, and
subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated
research and development efforts. We periodically review the stage of completion and likelihood of success of each
IPR&D project. The nature of the efforts required to develop IPR&D projects into commercially viable products
principally relates to the completion of all planning, designing, prototyping, verification and testing activities that
are necessary to establish that the products can be produced to meet their design specifications, including functions,
features and technical performance requirements.
During fiscal 2014, we acquired IPR&D through the acquisitions of Network Instruments and Trendium. The
current status of our significant IPR&D projects from acquisitions is as follows:
Network Instruments Acquisition
Network Instruments was acquired in the third quarter of fiscal 2014 and was accounted for in accordance with
the authoritative guidance on business combinations. At the time of acquisition, Network Instruments was in the
process of developing next generation integrated network software solutions. During the first quarter of fiscal 2015,
we completed our in-process research and development (“IPR&D”) project related to the acquisition of Network
Instruments. Accordingly, $1.7 million was transferred from indefinite life intangible assets to acquired developed
technology intangible assets and began amortizing over its useful life of fifty-two months.
42
Trendium Acquisition
Trendium was acquired in the second quarter of fiscal 2014 and was accounted for in accordance with the
authoritative guidance on business combinations. At the time of acquisition, Trendium was in the process of
developing network probe software and next generation service assurance solutions. During fiscal 2015, we recorded
a $3.6 million IPR&D impairment charge related to the fiscal 2014 acquisition of Trendium in accordance with the
authoritative accounting guidance. The charge was recorded to Research and development (“R&D”) expense in the
Consolidated Statements of Operations. During fiscal 2016, we completed our in-process research and development
(“IPR&D”) project related to the acquisition of Trendium. Accordingly, $1.8 million was transferred from indefinite
life intangible assets to acquired developed technology intangible assets and began amortizing over its useful life of
thirty-six months.
RESTRUCTURING AND RELATED CHARGES
From time to time, we have initiated strategic restructuring events primarily intended to reduce costs,
consolidate our operations, rationalize the manufacturing of our products and align our businesses in response to
market conditions. We estimate annualized gross cost savings of approximately $20 million excluding any one-time
charge as a result of the restructuring activities initiated in the past year. We have reinvested and plan to reinvest a
portion of our cost savings into R&D and new products that we believe will further differentiate us in the marketplace.
See “Note 12. Restructuring and Related Charges” for more information.
As of July 2, 2016, our total restructuring accrual was $18.0 million.
During fiscal 2016, we recorded $10.5 million in restructuring and related charges. The charges are a
combination of new and previously announced restructuring plans and are primarily the result of the following:
i.
During May and June of fiscal 2016, Management approved a plan within the NE and SE business
segment and Shared Services function for organizational alignment and consolidation in as part of
Viavi’s continued commitment for a more cost effective organization. As a result, a restructuring charge
of $8.8 million was recorded for severance and employee benefits for approximately 190 employees
primarily in manufacturing, R&D, and SG&A functions located in North America, Latin America,
Europe and Asia. Payments related to the remaining severance and benefits accrual are expected to be
paid by the end of the fourth quarter of fiscal 2017.
ii. During the second quarter of fiscal 2016, Management approved a plan primarily impacting the NE and
SE business segments as part of Viavi’s ongoing commitment for an agile and more efficient operating
structure. As a result, a restructuring charge of $2.4 million was recorded for severance and employee
benefits for approximately 50 employees primarily in manufacturing, R&D, and SG&A functions located
in North America, Latin America, Europe and Asia. Payments related to the remaining severance and
benefits accrual are expected to be paid by the end of the third quarter of fiscal 2017.
iii. A restructuring benefit of $1.0 million primarily related to a reduction in the number of employees
impacted by the Central Finance and IT Restructuring Plan.
During fiscal 2015, we recorded $26.8 million in restructuring and related charges. The charges are a
combination of new and previously announced restructuring plans and are primarily the result of the following:
i.
During the second, third and fourth quarters of fiscal 2015, Management approved a plan to eliminate
certain positions in its shared services functions in connection with the Company’s plan to split into
two separate public companies. Further, Management consolidated its operations, sales and R&D
organizations and eliminated positions within the NE and SE segments to align to the Company’s
product market strategy and lower manufacturing costs in connection with the Separation. As a result, a
restructuring charge of $24.9 million was recorded for severance and employee benefits for approximately
330 employees in manufacturing, R&D and SG&A functions located in North America, Latin America,
Europe and Asia were impacted. Payments related to the remaining severance and benefits accrual are
expected to be paid by the end of the third quarter of fiscal 2018.
ii. A restructuring charge of $1.9 million for previously announced restructuring plans.
43
During fiscal 2014, we recorded $21.3 million in restructuring and related charges which were primarily the
result of the following:
i.
During the fourth quarter of fiscal 2014, Company management (“Management”) approved a plan in the
NE segment to realign its operations and strategy to allow for greater investment in high-growth areas.
As a result, a restructuring charge of $4.6 million was recorded for severance and employee benefits for
123 employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin
America, Asia and Europe. Payments related to the remaining severance and benefits accrual were paid
by the end of the second quarter of fiscal 2016.
ii. During the fourth quarter of fiscal 2014, Management approved a plan to eliminate positions and
re-define roles and responsibilities in our Shared Service function in order to reduce cost, standardize
global processes and establish a more efficient organization. As a result, a restructuring charge of
$1.8 million was recorded for severance and employee benefits for 48 employees primarily in general and
administrative functions located in the United States, Latin America, Asia and Europe. Payments related
to the remaining severance and benefits accrual were paid by the fourth quarter of fiscal 2016.
iii. During the third quarter of fiscal 2014, Management approved a plan in the NE segment to realign its
services, support and product resources in response to market conditions in the mobile assurance market
and to increase focus on software products and next generation solutions through acquisitions and R&D.
As a result, a year to date restructuring charge of $7.2 million was recorded for severance and employee
benefits for 63 employees primarily in SG&A and manufacturing functions located in North America,
Latin America, Asia and Europe. Payments related to the remaining severance and benefits accrual are
expected to be paid by the end of the first quarter of fiscal 2020.
iv. During the second quarter of fiscal 2014, Management approved a plan in the NE segment to exit the
remaining space in Germantown, Maryland. As of June 28, 2014, the Company exited the workspace
in Germantown under the plan. The fair value of the remaining contractual obligations, net of sublease
income as of June 28, 2014 was $6.9 million. Payments related to the Germantown lease costs are expected
to be paid by the end of the second quarter of fiscal 2019.
v. During the second quarter of fiscal 2014, Management approved a plan to eliminate positions and
re-define roles and responsibilities in the Finance and IT organization to align with the future state of
the organizations under new executive management and move positions to lower-cost locations where
appropriate. As a result, a year-to-date restructuring charge of $3.1 million was recorded for severance
and benefits for 22 employees primarily in SG&A functions located in North America, Asia and Europe.
Payments related to the remaining severance and benefits accrual are expected to be paid by the end of
the third quarter of fiscal 2022.
vi. A restructuring benefit of $0.6 million for previously announced restructuring plans.
Our restructuring and other lease exit cost obligations are net of sublease income or lease settlement estimates
of approximately $1.1 million. Our ability to generate sublease income, as well as our ability to terminate lease
obligations and recognize the anticipated related savings, is highly dependent upon the economic conditions,
particularly commercial real estate market conditions in certain geographies, at the time we negotiate the lease
termination and sublease arrangements with third parties as well as the performances by such third parties of their
respective obligations. While the amount we have accrued represents the best estimate of the remaining obligations
we expect to incur in connection with these plans, estimates are subject to change. Routine adjustments are required
and may be required in the future as conditions and facts change through the implementation period. If adverse
macroeconomic conditions continue, particularly as they pertain to the commercial real estate market, or if, for any
reason, tenants under subleases fail to perform their obligations, we may be required to reduce estimated future
sublease income and adjust the estimated amounts of future settlement agreements, and accordingly, increase
estimated costs to exit certain facilities. Amounts related to the lease expense, net of anticipated sublease proceeds,
will be paid over the respective lease terms through fiscal 2019.
44
GAIN ON SALE OF INVESTMENTS
Gain on sale of investments of $71.6 million in fiscal 2016 primarily to the sale of approximately 4.5 million
shares of the 11.7 million shares of Lumentum common stock which was retained as part of the Separation. We
recognized gross realized gain of $71.5 million, which is reflected in “Gain on sale of investments” in the Company’s
Consolidated Statements of Operations and within the operating activities section of the Statements of Cash Flows,
while the cash proceeds received are reflected in “Sales of available-for-sale investments” within the investing
activities section. Additionally, the sale gave rise to a $2.0 million tax effect related to the intraperiod tax allocation
rules. As of July 2, 2016, the Company owns approximately 7.2 million shares of Lumentum’s common stock with an
unrealized gain of $109.2 million. Refer to “Note 8. Investments and Fair Value Measurements” for more information.
INTEREST EXPENSE
Interest expense increased by $2.4 million, or 7.2%, during fiscal 2016 compared to fiscal 2015. This was
primarily due to the accretion of unamortized debt discount related to the 2033 Notes.
Interest expense increased by $3.9 million, or 13.3%, during fiscal 2015 compared to fiscal 2014. This was
primarily due to an increase of $4.6 million and $0.6 million in accretion of unamortized debt discount and contractual
interest expense related to the 2033 Notes, which were issued on August 21, 2013. This was partially offset by a
$1.3 million write-off of unamortized issuance cost related to the termination of our $250.0 million revolving credit
facility in the first quarter of fiscal 2014.
PROVISION FOR (BENEFIT FROM) INCOME TAX
Fiscal 2016 Tax Expense/Benefit
We recorded an income tax expense of $4.5 million for fiscal 2016. The expected tax benefit derived by applying
the federal statutory rate to our loss before income taxes for fiscal 2016 differed from the income tax expense
recorded primarily as a result of domestic and foreign losses that were not realized due to valuation allowances and a
tax expense of $8.9 million related to a one-time increase in valuation allowance associated with deferred tax assets
transferred to Lumentum in connection with the Separation. The tax expense was partially offset by a deferred tax
benefit of $9.5 million related to the write off of tax deductible goodwill and a tax benefit of $20.7 million related to
the income tax intraperiod tax allocation rules for discontinued operations and other comprehensive income.
Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic
uncertainty in the industry, Management has determined that in many of our jurisdictions, it is more likely than not
that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2016, the valuation allowance
for deferred tax assets decreased by $160.2 million primarily due to the Lumentum transaction. We are routinely
subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been
provided for any adjustments that may result from these examinations.
Fiscal 2015 Tax Expense/Benefit
We recorded an income tax expense of $26.1 million for fiscal 2015. The expected tax benefit derived by
applying the federal statutory rate to our loss before income taxes for fiscal 2015 differed from the income tax expense
recorded primarily as a result of domestic and foreign losses that were not realized due to valuation allowances.
Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic
uncertainty in the industry, Management has determined that in many of our jurisdictions, it is more likely than
not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2015, the valuation
allowance for deferred tax assets increased by $12.7 million. The increase was primarily related to the increases in
the deferred tax assets and intangible amortization. We are routinely subject to various federal, state and foreign
audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may
result from these examinations.
45
Fiscal 2014 Tax Expense/Benefit
We recorded an income tax benefit of $11.2 million for fiscal 2014. The expected tax benefit derived by applying
the federal statutory rate to our loss before income taxes for fiscal 2014 differed from the income tax benefit recorded
primarily as a result of domestic and foreign losses that were not realized due to valuation allowances and offset by
the recognition of $21.7 million of uncertain tax benefits related to deferred tax assets due to the expiration of the
statute of limitations in a non-US jurisdiction. In addition, we recorded a tax benefit of $6.4 million related to the
income tax intraperiod tax allocation rules in relation to other comprehensive income.
Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic
uncertainty in the industry, Management has determined that in many of our jurisdictions, it is more likely than not
that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2014, the valuation allowance
for deferred tax assets decreased by $12.1 million. The decrease was primarily related to an increase in acquisition
and debt issuance related deferred tax liabilities. We are routinely subject to various federal, state and foreign audits
by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from
these examinations.
DISCONTINUED OPERATIONS
Our discontinued operations activities during fiscal 2016, 2015 and 2014 related to the Separation on August 1,
2015 and activities in fiscal 2016 related to the sale of the hologram business (“Hologram Business”).
Lumentum Separation
As a result of the Separation, the financial results of Lumentum are presented as discontinued operations during
fiscal 2016, 2015 and 2014. Net revenue attributable to the Lumentum discontinued operations was $66.5 million,
$835.2 million and $816.3 million during fiscal 2016, 2015 and 2014, respectively. Net (loss) income attributable to
the Lumentum discontinued operations was $(49.0) million, $43.3 million $56.8 million during fiscal 2016, 2015 and
2014, respectively. Refer to “Note 3. Discontinued Operations” for more information.
Hologram Business Disposition
During the fiscal 2016 we recorded $0.3 million of net income from discontinued operations related to the
Hologram Business related to proceeds received following a favorable arbitration ruling to resolve a dispute regarding
the amount we were owed under an earnout clause in connection with the sale in 2013.
Operating Segment Information (in millions):
2016
2015
Change
Percentage
Change
2015
2014
Change
Percentage
Change
65.3%
NE
Net revenue . . . . . . . . . . . . $504.6
Gross profit . . . . . . . . . . . .
329.7
Gross margin . . . . . . . . . .
SE
Net revenue . . . . . . . . . . . . $153.6
99.4
Gross profit . . . . . . . . . . . .
Gross margin . . . . . . . . . .
64.7%
NSE
Net revenue . . . . . . . . . . . . $658.2
Operating income (loss) . . .
12.7
Operating margin . . . . . . .
OSP
Net revenue . . . . . . . . . . . . $248.1
Operating income . . . . . . .
102.9
Operating margin . . . . . . .
41.5%
1.9%
$506.8
333.9
65.9%
$174.3
119.2
68.4%
$ (2.2)
(4.2)
(0.4)% $506.8
(1.3)% 333.9
$570.1
371.0
$(63.3)
(37.1)
(11.1)%
(10.0)%
65.9%
65.1%
$(20.7)
(19.8)
(11.9)% $174.3
(16.6)% 119.2
68.4%
$156.0
95.4
61.2%
$ 18.3
23.8
11.7%
24.9%
$681.1
(0.1)
$(22.9)
12.8
(3.4)% $681.1
(0.1)
(12,800.0)%
$726.1
(0.2)
$(45.0)
0.1
(6.2)%
(50.0)%
—%
—%
—%
$192.8
68.1
35.3%
$ 55.3
34.8
28.7% $192.8
68.1
51.1%
35.3%
$200.8
63.8
31.8%
$ (8.0)
4.3
(4.0)%
6.7%
46
Network Enablement
NE gross margin decreased 0.6 percentage points during fiscal 2016 to 65.3% from 65.9% in fiscal 2015. This
decrease was primarily due to unfavorable product mix, coupled with a decline in net revenue as discussed above.
NE gross margin increased 0.8 percentage points during fiscal 2015 to 65.9% from 65.1% in fiscal 2014. This
increase was primarily due to favorable product mix, partially offset by a decline in net revenue as discussed above.
Service Enablement
SE gross margin decreased 3.7 percentage points during fiscal 2016 to 64.7% from 68.4% in fiscal 2015. This
gross margin erosion was primarily driven by lower revenue levels and unfavorable product mix from the continued
run-off of our more mature, but high margin, Assurance solutions. This was coupled with gross margin dilution
driven by initial acceptances being received in the second half of fiscal 2016 for growth Assurance solutions resulting
in recognition of revenue at lower margin from hardware components included in these solutions.
SE gross margin increased 7.2 percentage points during fiscal 2015 to 68.4% from 61.2% in fiscal 2014. This
gross margin improvement was primarily driven by a more favorable product mix, which included higher software and
maintenance revenue in fiscal 2015 including incremental revenue from our Enterprise offerings as discussed above.
Network and Service Enablement (“NSE”)
NSE operating margin increased 1.9 percentage points during fiscal 2016 compared to a break-even operating
margin in fiscal 2015. The increase in operating margin was primarily due to a decrease in operating expenses
as a percentage of net revenue, largely from reductions in general and administrative spending, driven by lower
headcount as a result of strategic restructuring plans initiated in current and prior years and our ongoing cost
reduction initiatives. This was partially offset by a decline in NE and SE gross margin as discussed above.
NSE operating margin was break-even in both fiscal 2015 and fiscal 2014. In fiscal 2015, operating expenses
as a percentage of net revenue increased driven by a decline in net revenue, as discussed above, coupled with an
increase in headcount associated with our ongoing R&D investments. This was offset by improvements in gross
margin primarily due to a more favorable product mix as discussed above.
Optical Security and Performance Products
OSP operating margin increased 6.2 percentage points during fiscal 2016 to 41.5% from 35.3% in fiscal 2015.
The increase in operating margin was primarily due to an improvement in gross margin driven by an increase in
revenue from our higher margin Anti-Counterfeiting product line, as discussed above, coupled with a reduction in
operating expenses as a percentage of net revenue.
OSP operating margin increased 3.5 percentage points during fiscal 2015 to 35.3% from 31.8% in fiscal 2014.
The increase in operating margin was primarily due to an improvement in gross margin driven by an increase in
revenue from our higher margin Anti-Counterfeiting product line, coupled with the exit from lower margin legacy
products in the fourth quarter of fiscal 2014. This was partially offset by an increase in operating expenses as a
percentage of net revenue driven by lower revenue as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our cash investments are made in accordance with an investment policy approved by the Audit Committee of
our Board of Directors. In general, our investment policy requires that securities purchased be rated A-1/P-1, A/A2 or
better. Our policy allows an allocation to securities rated A-2/P-2, BBB/Baa2 or better, so long as such allocation below
A-1/P-1, A/A2 but minimum A-2/P-2, BBB/Baa2 does not exceed 10% of any investment portfolio. Securities that are
downgraded subsequent to purchase are evaluated and may be sold or held at management’s discretion. No security
may have an effective maturity that exceeds 37 months, and the average duration of our holdings may not exceed
18 months. At any time, no more than 5.0% or $5.0 million, whichever is greater, of each of our investment portfolios
may be concentrated in a single issuer other than the U.S. or sovereign governments or agencies. Our investments in
debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading
47
assets and are recorded at fair value. The cost of securities sold is based on the specific identification method.
Unrealized gains and losses on available-for-sale investments are recorded as other comprehensive (loss) income
and are reported as a separate component of stockholders’ equity. We did not hold any investments in auction rate
securities, mortgage backed securities, collateralized debt obligations, or variable rate demand notes at July 2, 2016
and virtually all debt securities held were of investment grade (at least BBB-/Baa3). As of July 2, 2016, U.S. entities
owned approximately 67.4% of our cash and cash equivalents, short-term investments and restricted cash.
As of July 2, 2016, the majority of our cash investments have maturities of 90 days or less and are of high credit
quality. Although we intend to hold these investments to maturity, in the event that we are required to sell any of these
securities under adverse market conditions, losses could be recognized on such sales. During the year ended July 2,
2016, we have not realized material investment losses but can provide no assurance that the value or the liquidity
of our investments will not be impacted by adverse conditions in the financial markets. In addition, we maintain
cash balances in operating accounts that are with third party financial institutions. These balances in the U.S. may
exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. While we monitor the cash balances
in our operating accounts and adjust the cash balances as appropriate, these cash balances could be impacted if the
underlying financial institutions fail.
Year Ended July 2, 2016
As of July 2, 2016 our combined balance of cash and cash equivalents, short-term investments and restricted
cash increased by $140.4 million to $979.8 million from $839.4 million as of June 27, 2015, including cash and cash
equivalents and short-term investments of $13.8 million transferred to Lumentum. Additionally, the cash provided
by and used in operating, investing and financing activities below contains activities related to Lumentum through
the separation date.
Cash provided by operating activities was $52.9 million, primarily resulting from $69.0 million of net loss
adjusted for both non-cash charges (e.g., goodwill impairment, depreciation, amortization of intangibles, stock-based
compensation, amortization of debt issuance cost and discount, and a gain on sale of investments) and changes in
deferred tax and other tax balances which are non-cash in nature, partially offset by changes in operating assets and
liabilities that used $16.1 million. Our cash provided by operating activities was also impacted by our Separation
related activities. Changes in our operating assets and liabilities related primarily to a decrease in accrued payroll
and related expenses of $25.2 million due to timing of salary and bonus payments, a decrease in accounts payable
of $2.1 million due to higher payment activity and a decrease in accrued expenses and other current and non-
current liabilities of $10.8 million primarily due to separation related liabilities for both employee severance and
third party payments paid after Separation. This was partially offset by cash inflows from a decrease in accounts
receivable of $23.4 million primarily driven by timing of collections of Lumentum related accounts receivable prior
to the Separation.
Cash provided by investing activities was $244.2 million, primarily resulting from $689.0 million of proceeds
from the sales and maturities of available-for-sale investments and other assets, which included proceeds of
$109.7 million from the sale of 4.5 million shares of Lumentum common stock in fiscal 2016, and a $14.0 million
decrease in restricted cash, partially offset by $422.4 million of purchases of available-for-sale investments and
$35.5 million of cash used for capital expenditures.
Cash used in financing activities was $147.7 million, primarily resulting from activities related to the Separation
during first quarter of fiscal 2016 and $44.5 million used in share repurchase programs. In accordance with the
Contribution Agreement, the Company made cash contributions of $137.6 million Lumentum, which was partially
offset by $35.8 million from the sale of Lumentum Series A Preferred Stock to Amada Holdings Co., Ltd. (“Amada”)
pursuant to a binding commitment under the Securities Purchase Agreement. Cash used in financing activities
also include payment of financing obligations of $5.9 million primarily related to holdback payment related to a
2013 acquisition, partially offset by $4.5 million in proceeds from the exercise of stock options and the issuance of
common stock under our employee stock purchase plan.
48
Year Ended June 27, 2015
As of June 27, 2015 our combined balance of cash and cash equivalents, short-term investments and restricted
cash decreased by $41.9 million to $839.4 million, which includes $13.8 million which was transferred to Lumentum
as part of the Separation, from $881.3 million as of June 28, 2014. Additionally, the cash provided by and used in
operating, investing and financing activities during fiscal 2015 below contains activities related to Lumentum.
Cash provided by operating activities was $82.3 million, primarily resulting from $155.4 million of net income
adjusted for both non-cash charges (e.g., depreciation, amortization and stock-based compensation) and changes
in our deferred tax and other tax liabilities balances which are non-cash in nature, partially offset by changes in
operating assets and liabilities that used $73.1 million. Our cash provided by operating activities was also impacted
by our Separation related activities including our restructuring events. Changes in our operating assets and liabilities
related primarily to a decrease in accrued payroll and related expenses of $32.4 million due to timing of salary and
bonus payments, an increase in accounts receivable of $12.5 million primarily due to collections timing, a decrease
in accounts payable of $10.1 million due to higher payment activity and a decrease in accrued expenses and other
current and non-current liabilities of $6.8 million.
Cash used in investing activities was $5.8 million, primarily resulting from $562.7 million of purchases
of available-for-sale investments and $101.5 million of cash used for capital expenditures, partially offset by
$652.4 million of proceeds from the sales and maturities of available-for-sale investments and other assets and a
$6.0 million decrease in restricted cash.
Cash used in financing activities was $7.3 million, primarily resulting from holdback payments of $22.2 million
related to our acquisitions in fiscal 2015 and $4.8 million of cash used to repurchase our common stock, partially
offset by $20.8 million of proceeds from the exercise of stock options and the issuance of common stock under our
employee stock purchase plan.
Year Ended June 28, 2014
As of June 28, 2014 our combined balance of cash and cash equivalents, short-term investments and restricted
cash increased by $365.4 million, or 70.8%, to $881.3 million from $515.9 million as of June 29, 2013. The increase
in the combined balance was primarily driven by $650.0 million of cash received from the issuance of the 2033
Notes and $176.6 million of cash provided by operations, partially offset by (i) $216.0 million of cash used for the
acquisitions of Network Instruments, Time-Bandwidth and Trendium, (ii) $155.2 million of cash used to repurchase
our common stock and (iii) $99.8 million of cash used for capital expenditures. Additionally, the cash provided
by and used in operating, investing and financing activities during fiscal 2014 below contains activities related to
Lumentum.
Cash provided by operating activities was $176.6 million, primarily resulting from $175.9 million of net income
adjusted for both non-cash charges (e.g., depreciation, amortization and stock-based compensation) and changes in
our deferred tax balances which are non-cash in nature, partially offset by changes in operating assets and liabilities
of $0.7 million. Changes in our operating assets and liabilities related primarily to a $25.9 million increase in accounts
payable due to timing and slightly slower payment activity in the fourth quarter of fiscal 2015 as compared to the
same period in the prior year, partially offset by a $19.6 million decrease in accrued payroll and related expenses
due to the lower commissions and variable incentive pay, and a $9.6 million increase in accounts receivable due to
a year-over-year increase in revenue.
Cash used in investing activities was $651.8 million, primarily resulting from (i) $1,072.9 million of purchases
of available-for-sale investments, (ii) $216.0 million of cash used for the acquisitions of Network Instruments,
Time-Bandwidth and Trendium, (iii) and $99.8 million of cash used for capital expenditures, partially offset by
$730.0 million of maturities and sales of available-for-sale investments, and $9.2 million of net proceeds from the
sale of assets.
Cash provided by financing activities was $489.6 million, primarily resulting from $650.0 million of cash
received from our issuance of the 2033 Notes, $22.5 million of cash received from the exercise of stock options and
the issuance of common stock under our employee stock purchase plan, partially offset $155.2 million of cash used
to repurchase our common stock, $14.2 million to pay financing obligations, and $13.5 million of cash used for the
payment of issuance costs for the 2033 Notes.
49
CONTRACTUAL OBLIGATIONS
The following summarizes our contractual obligations at July 2, 2016, and the effect such obligations are
expected to have on our liquidity and cash flow over the next five years (in millions):
Payments due by period
1 - 3
years
3 - 5
years
Less than
1 year
More than
5 years
Total
Contractual Obligations
Asset retirement obligations—expected cash payments. . . . .
Long-term debt:
2033 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated interest payments . . . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations (1) . . . . . . . . . . . . . . . . . . . . . . . .
Pension and post-retirement benefit payments (2) . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.7
$ 0.2
$
0.8
$ 1.5
$ 1.2
650.0
8.7
55.9
73.9
108.5
$900.7
—
4.1
49.8
18.7
6.6
$79.4
650.0
4.6
4.6
32.8
12.0
$704.8
—
—
1.5
17.6
11.5
$32.1
—
—
—
4.8
78.4
$84.4
(1) Refer to “Note 17. Commitments and Contingencies” for more information.
(2) Refer to “Note 16. Employee Pension and Other Benefit Plans” for more information.
As of July 2, 2016, we have accrued on our Consolidated Balance Sheet $5.7 million in connection with
restructuring and related activities relating to our operating lease obligations disclosed above, of which $2.2 million
was included in Other current liabilities and $3.5 million was included in Other non-current liabilities.
Purchase obligations represent legally-binding commitments to purchase inventory and other commitments
made in the normal course of business to meet operational requirements. Of the $55.9 million of purchase obligations
as of July 2, 2016, $12.8 million are related to inventory and the other $43.1 million are non-inventory items.
As of July 2, 2016, our other non-current liabilities primarily relate to asset retirement obligations, pension and
financing obligations which are presented in various lines in the preceding table.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements, as such term is defined in rules promulgated by the SEC,
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are
material to investors.
LIQUIDITY AND CAPITAL RESOURCES REQUIREMENT
We believe that our existing cash balances and investments will be sufficient to meet our liquidity and capital
spending requirements over the next twelve months. However, there are a number of factors that could positively or
negatively impact our liquidity position, including:
•
•
•
•
•
global economic conditions which affect demand for our products and services and impact the financial
stability of our suppliers and customers;
changes in accounts receivable, inventory or other operating assets and liabilities which affect our working
capital;
increase in capital expenditure to support the revenue growth opportunity of our business;
changes in customer payment terms and patterns, which typically results in customers delaying payments
or negotiating favorable payment terms to manage their own liquidity positions;
timing of payments to our suppliers;
50
•
•
•
•
•
•
•
factoring or sale of accounts receivable;
volatility in fixed income and credit market which impact the liquidity and valuation of our investment
portfolios;
volatility in foreign exchange market which impacts our financial results;
possible investments or acquisitions of complementary businesses, products or technologies;
issuance or repurchase of debt or equity securities;
potential funding of pension liabilities either voluntarily or as required by law or regulation; and
compliance with covenants and other terms and conditions related to our financing arrangements.
ACQUISITIONS
As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where
appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or
strengthen, our existing products. We believe we have strengthened our business model by fortifying our core
businesses through acquisition as well as through organic initiatives and will continue to seek strategic opportunities
that support the ongoing development of an end-to-end platform to serve our NE and SE customers.
In January 2014, we completed the acquisition of Network Instruments, a privately-held U.S. company and
leading developer of enterprise network and application-performance management solutions for global 2000
companies. The acquisition further strengthens our position as a key solutions provider to the enterprise, data center
and cloud networking markets. Network Instruments helps enterprises simplify the management and optimization of
their networks with high-performance solutions that provide actionable intelligence and deep network visibility. We
acquired all outstanding shares of Network Instruments for a total purchase price of approximately $208.5 million in
cash, net of working capital adjustments. This acquisition was integrated into our SE segment.
In December 2013, we acquired certain technology and other assets from Trendium, a privately-held provider
of real-time intelligence software solutions for customer experience assurance (“CEA”), asset optimization and
monetization of big data for 4G/LTE mobile network operators. The addition of Trendium employees and technology
enables the Company to introduce a new paradigm of CEA in our Assurance solutions, enabling operators of 4G/LTE
networks to achieve a real and relevant improvement in customer satisfaction while maximizing productivity and
profitability for dynamic converged 4G/LTE networks and beyond. We acquired certain technology and other assets
from Trendium for a total purchase price of approximately $26.1 million in cash. This acquisition was integrated into
SE segment.
Please refer to “Note 6. Mergers and Acquisitions” of the Notes to Consolidated Financial Statements under
Item 8 of this Annual Report on Form 10-K for further discussion of the acquisitions completed during fiscal 2016,
2015 and 2014.
EMPLOYEE EQUITY INCENTIVE PLAN
Our stock option and Full Value Award program is a broad-based, long-term retention program that is intended
to attract and retain employees and align stockholder and employee interests. As of July 2, 2016, we have available
for issuance 19.4 million shares of common stock for grant primarily under our Amended and Restated 2003 Equity
Incentive Plan (the “2003 Plan”) and 2005 Acquisition Equity Incentive Plan (the “2005 Plan”). The exercise price
for the options is equal to the fair market value of the underlying stock at the date of grant. Options generally become
exercisable over a three-year or four-year period and, if not exercised, expire from five to ten years post grant date.
Full Value Awards refer to RSUs and performance-based RSUs that are granted with the exercise price equal to
zero and are converted to shares immediately upon vesting. The performance-based RSUs, or MSUs, have vesting
requirements tied to the performance of the Company’s stock as compared to the NASDAQ telecommunications
index, and could vest at a higher or lower rate or not at all, based on this relative performance. Full Value Awards are
expected to vest over one to four years. The fair value of the time-based Full Value Awards is based on the closing
market price of our common stock on the grant date of the award. Refer to “Note 15. Stock-Based Compensation”
for more information.
51
PENSION AND OTHER POST-RETIREMENT BENEFITS
As a result of acquiring Acterna, Inc. (“Acterna”) in August 2005 and the Network Solutions Division of Agilent
Technologies Inc. (“NSD”) in May 2010, we sponsor significant pension plans for certain past and present employees in
the United Kingdom (“U.K.”) and Germany. We are also responsible for the non-pension post-retirement benefit obligation
assumed from a past acquisition. Most of these plans have been closed to new participants and no additional service costs
are being accrued, except for certain plans in Germany assumed in connection with an acquisition during fiscal 2010.
The U.K. plan is partially funded and the German plans, which were initially established as “pay-as-you-go” plans, are
unfunded. As of July 2, 2016, our pension plans were under funded by $107.4 million since the PBO exceeded the fair
value of plan assets. Similarly, we had a liability of $1.1 million related to our non-pension post-retirement benefit plan.
We anticipate future annual outlays related to the German plans will approximate estimated future benefit
payments. These future benefit payments have been estimated based on the same actuarial assumptions used to
measure our projected benefit obligation and currently are forecasted to range between $4.5 million and $5.5 million
per annum. In addition, we expect to contribute approximately $0.6 million to the U.K. plan during fiscal 2017.
During fiscal 2016 we contributed GBP 0.5 million, or approximately $0.7 million, while in fiscal 2015, we
contributed GBP 0.7 million or approximately $1.1 million to our U.K. pension plan. These contributions allowed the
Company to comply with regulatory funding requirements.
A key actuarial assumption in calculating the net periodic cost and the PBO is the discount rate. Changes in the
discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact
that the PBO is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax
cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a
50 basis point (“BPS”) decrease or increase in the discount rate would cause a corresponding increase or decrease,
respectively, in the PBO of approximately $8.6 million based upon data as of July 2, 2016.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE RISK
We utilize foreign exchange forward contracts and other instruments, including option 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 and other instruments
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 (expense), 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.
The following table provides information about our foreign currency forward contracts outstanding as of
July 2, 2016. The forward contracts, most with a term of less than 120 days, were transacted near quarter end;
therefore, the fair value of the contracts is not significant.
Contract Amount
(Local Currency)
(in millions)
CAD
8.5
Canadian Dollar (contracts to sell CAD / buy USD). . . . . . . . . . . . . . . . . . . . .
CNY 123.9
Chinese Renminbi (contracts to buy CNY / sell USD). . . . . . . . . . . . . . . . . . .
2.7
GBP
British Pound (contracts to buy GBP / sell USD) . . . . . . . . . . . . . . . . . . . . . . .
65.3
EUR
Euro (contracts to buy EUR / sell USD) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Singapore Dollar (contracts to sell SGD / buy USD) . . . . . . . . . . . . . . . . . . . .
37.2
SGD
Mexican Peso (contracts to buy MXN / sell USD) . . . . . . . . . . . . . . . . . . . . . . MXN 132.2
5.8
Australian Dollar (contracts to sell AUD / buy USD). . . . . . . . . . . . . . . . . . . .
AUD
19.9
Brazilian Real (contracts to sell BRL / buy USD). . . . . . . . . . . . . . . . . . . . . . .
BRL
746.6
Japanese Yen (contracts to sell JPY / buy USD) . . . . . . . . . . . . . . . . . . . . . . . .
JPY
INR
Indian Rupee (contracts to sell INR / buy USD). . . . . . . . . . . . . . . . . . . . . . . .
269.3
KRW 4,236.0
South Korean Won (contracts to buy KRW / sell USD) . . . . . . . . . . . . . . . . . .
3.7
CHF
Swiss Franc (contracts to buy CHF / sell USD) . . . . . . . . . . . . . . . . . . . . . . . .
11.6
SEK
Swedish Krona (contracts to buy SEK / sell USD) . . . . . . . . . . . . . . . . . . . . . .
Total USD notional amount of outstanding foreign exchange contracts . . . . .
Contract Amount
(USD)
6.5
$
18.5
3.6
72.3
27.4
7.0
4.2
5.7
7.3
3.9
3.6
3.8
1.4
$165.2
52
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
We maintain an investment portfolio in a variety of financial instruments, including, but not limited to, U.S.
government and agency securities, corporate obligations, money market funds, asset-backed securities, and other
investment-grade securities. The majority of these investments pay a fixed rate of interest. The securities in the
investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness,
marketability, and other factors. These investments are generally classified as available-for-sale and, consequently,
are recorded on our Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate
component of Other comprehensive (loss) income.
Investments in both fixed-rate and floating-rate interest earning instruments carry a degree of interest rate risk.
The fair market values of our fixed-rate securities decline if interest rates rise, while floating-rate securities may
produce less income than expected if interest rates fall. Due in part to these factors, our future investment income
may be less than expectations because of changes in interest rates or we may suffer losses in principal if we sell
securities that have experienced a decline in market value because of changes in interest rates. As of July 2, 2016,
a hypothetical 100 basis point increase or decrease in interest rates would not result in a material change in the fair
value of our available-for-sale debt instruments held that are sensitive to changes in interest rates, which includes U.S.
treasuries, U.S. agencies, municipals, asset-backed securities and corporate securities. A sensitivity analysis was also
performed on our investment in Lumentum to assess the potential impact of fluctuations in stock price. Hypothetical
declines in stock price of five percent and ten percent were selected based on potential near-term changes in the
stock price that could have an adverse effect on our investment. As of July 2, 2016 the fair value of our investment in
Lumentum common stock was $171.3 million. As of July 2, 2016, a decline in Lumentum’s stock price of five percent
and ten percent would have resulted in a $8.6 million and $17.1 million decline, respectively, in the total fair value of
our investment.
We seek to mitigate the credit risk of our portfolio of fixed-income securities by holding only high-quality,
investment-grade obligations with effective maturities of 37 months or less. 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.
DEBT
The fair value of our 2033 Notes is 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 notes may also increase as the market price of Viavi stock rises
and decrease as the market price of our stock falls. Changes in interest rates and Viavi stock price 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 2, 2016, the fair value of the 2033 Notes was approximately $633.0 million. Refer to “Note 11. Debts
and Letters of Credit” for more information.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Viavi Solutions Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of
operations, of comprehensive (loss) income, of stockholders’ equity and of cash flows present fairly, in all material
respects, the financial position of Viavi Solutions Inc. and its subsidiaries at July 2, 2016 and June 27, 2015, and
the results of their operations and their cash flows for each of the three years in the period ended July 2, 2016 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
Company did not maintain, in all material respects, effective internal control over financial reporting as of July 2,
2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control
over financial reporting related to the ineffective design of controls over the determination of the interim tax
provision as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to
above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.
We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our
audit of the 2016 consolidated financial statements and our opinion regarding the effectiveness of the Company’s
internal control over financial reporting does not affect our opinion on those consolidated financial statements. The
Company’s management is responsible for these financial statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in
management’s report referred to above. Our responsibility is to express opinions on these financial statements and on
the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 13 to the consolidated financial statements, the Company changed the manner in which it
classifies deferred tax assets and liabilities on the consolidated balance sheet in 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
August 30, 2016
54
VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
July 2,
2016
Years Ended
June 27,
2015
Revenues:
Product revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Service revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total net revenues� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$808�8
97�5
906�3
$ 771�2
102�7
873�9
Cost of revenues:
Product cost of revenues � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Service cost of revenues� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of acquired technologies � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total cost of revenues � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gross profit� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Operating expenses:
Research and development� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Selling, general and administrative � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Impairment of goodwill � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of other intangibles � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Restructuring and related charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total operating expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Loss from operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest and other income (expense), net � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gain on sale of investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest expense � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Loss from continuing operations before income taxes � � � � � � � � � � � � � �
Provision for (benefit from) income taxes� � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Loss from continuing operations, net of tax � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(Loss) income from discontinued operations, net of tax� � � � � � � � � � � � � � � � � � �
Net loss� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net loss per share from - basic and diluted:
Continuing operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net income (loss) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Shares used in per-share calculation - basic and diluted� � � � � � � � � � � � � � � � � � �
278�1
61�2
17�3
356�6
549�7
166�4
351�1
91�4
14�6
10�5
634�0
(84�3)
2�5
71�6
(35�7)
(45�9)
4�5
$ (50�4)
(48�8)
$ (99�2)
$ (0�22)
(0�20)
$ (0�42)
234�0
259�1
62�8
31�9
353�8
520�1
173�3
376�3
—
19�5
26�8
595�9
(75�8)
3�7
0�1
(33�3)
(105�3)
26�1
$(131�4)
43�3
$ (88�1)
$ (0�57)
0�19
$ (0�38)
232�7
June 28,
2014
$814�9
112�0
926�9
296�0
69�0
34�1
399�1
527�8
161�8
384�8
—
15�5
21�3
583�4
(55�6)
(1�2)
0�4
(29�4)
(85�8)
(11�2)
$ (74�6)
56�8
$ (17�8)
$ (0�32)
0�24
$ (0�08)
234�2
55
See accompanying notes to consolidated financial statements. VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in millions)
Net loss� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other comprehensive (loss) income:
Net change in cumulative translation adjustment, net of tax � � � � � � � � � � � � � �
Net change in available-for-sale investments, net of tax:
July 2,
2016
$ (99�2)
Years Ended
June 27,
2015
$ (88�1)
June 28,
2014
$(17�8)
(32�0)
(55�4)
9�8
Unrealized holding gains (losses) arising during period� � � � � � � � � � � � � � �
Less: reclassification adjustments included in Net (loss) income � � � � � � � �
177�3
(69�6)
(0�4)
—
0�4
(0�1)
Net change in defined benefit obligation, net of tax:
Unrealized actuarial losses arising during period� � � � � � � � � � � � � � � � � � � �
Amortization of actuarial losses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net change in Accumulated other comprehensive income (loss) � � � � � � � � � � �
Comprehensive loss � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(10�6)
0�7
65�8
$ (33�4)
(3�7)
0�4
(59�1)
$(147�2)
(7�7)
0�1
2�5
$(15�3)
56
See accompanying notes to consolidated financial statements. VIAVI SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and par value data)
ASSETS
Current assets:
Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Short-term investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Restricted cash � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accounts receivable, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventories, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Prepayments and other current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Current assets of discontinued operations� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total current assets� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Property, plant and equipment, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Goodwill � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Intangibles, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred income taxes� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other non-current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current assets of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued payroll and related expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Current liabilities of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Long-term debt � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other non-current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current liabilities of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Commitments and contingencies (Note 17)
Stockholders’ equity:
Preferred Stock, $0�001 par value; 1 million shares authorized;
July 2,
2016
June 27,
2015
$
482�9
484�7
12�2
148�4
51�4
32�1
—
1,211�7
133�0
152�1
59�9
108�8
17�6
—
$ 1,683�1
$
47�0
44�9
78�6
24�9
31�0
—
226�4
588�3
179�1
—
$
334�5
464�9
26�2
152�3
53�8
38�2
310�2
1,380�1
149�2
255�5
90�6
117�3
20�9
204�2
$ 2,217�8
$
42�0
52�6
80�6
23�7
46�6
130�0
375�5
561�6
168�4
10�9
1 share at July 2, 2016 and June 27, 2015, issued and outstanding � � � � � � � � � � �
—
—
Common Stock, $0�001 par value; 1 billion shares authorized;
232 million shares at July 2, 2016 and 235 million shares at
June 27, 2015, issued and outstanding � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Additional paid-in capital � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accumulated deficit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accumulated other comprehensive income (loss) � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total stockholders’ equity � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total liabilities and stockholders’ equity � � � � � � � � � � � � � � � � � � � � � � � � � � � �
0�2
70,059�8
(69,380�7)
10�0
689�3
$ 1,683�1
0�2
70,022�7
(68,873�5)
(48�0)
1,101�4
$ 2,217�8
57
See accompanying notes to consolidated financial statements. VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
OPERATING ACTIVITIES:
Net loss � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of acquired technologies and other intangibles � � � � � � � � � � � � � � � �
Stock-based compensation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of debt issuance costs and accretion of debt discount � � � � � � � � � � �
Amortization of discount and premium on investments, net� � � � � � � � � � � � � � � � �
Impairment of goodwill � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gain on sale of investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Changes in operating assets and liabilities, net of impact of Lumentum
distribution and acquisitions of businesses:
Accounts receivable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventories� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current and non-currents assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accounts payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income taxes payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred revenue, current and non-current � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred taxes, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued payroll and related expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued expenses and other current and non-current liabilities� � � � � � � � � � �
Net cash provided by operating activities� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
INVESTING ACTIVITIES:
Purchases of available-for-sale investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Maturities of available-for-sale investments� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Sales of available-for-sale investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Changes in restricted cash� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Acquisition of businesses, net of cash acquired � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Capital expenditures � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from the sale of assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net cash provided by (used in) investing activities � � � � � � � � � � � � � � � � � � � � � � � � � � �
FINANCING ACTIVITIES:
Proceeds from sale of Lumentum Holdings Inc� Series A Preferred Stock� � � � � � � � �
Cash contribution to Lumentum Holdings Inc� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from issuance of senior convertible debt � � � � � � � � � � � � � � � � � � � � � � � � � � �
Payment of debt issuance costs � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Repurchase and retirement of common stock� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Payment of financing obligations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from exercise of employee stock options and
employee stock purchase plan� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net cash (used in) provided by financing activities � � � � � � � � � � � � � � � � � � � � � � � � � � �
Effect of exchange rates on cash and cash equivalents� � � � � � � � � � � � � � � � � � � � � � � � �
Net increase in cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash and cash equivalents at beginning of period � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash and cash equivalents at end of period � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Supplemental disclosure of cash flow information � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash paid for interest � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cash paid for taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
Years Ended
June 27,
2015
June 28,
2014
$ (99�2)
$ (88�1)
$
(17�8)
38�1
32�5
44�0
28�8
0�8
91�4
(71�6)
3�6
23�4
(2�6)
5�1
(2�1)
(1�5)
(2�4)
0�6
(25�2)
(10�8)
52�9
(422�4)
395�7
287�3
14�0
(0�9)
(35�5)
6�0
244�2
35�8
(137�6)
—
—
(44�5)
(5�9)
80�8
59�2
66�9
27�3
3�2
—
(0�1)
8�2
(12�5)
(6�0)
(9�0)
(10�1)
(21�3)
3�2
19�8
(32�4)
(6�8)
82�3
(562�7)
574�8
71�4
6�0
—
(101�5)
6�2
(5�8)
—
—
—
—
(4�8)
(23�3)
4�5
(147�7)
(14�4)
135�0
347�9*
$ 482�9
$
6�6
$ 31�8
20�8
(7�3)
(18�5)
50�7
297�2
$ 347�9*
$
6�5
$ 23�8
72�5
59�0
64�1
22�9
4�2
—
(0�3)
4�4
(9�6)
(3�2)
5�4
25�9
1�3
2�7
(33�1)
(19�6)
(2�2)
176�6
(1,072�9)
480�9
249�1
(2�3)
(216�0)
(99�8)
9�2
(651�8)
—
650�0
(13�5)
(155�2)
(14�2)
22�5
489�6
1�8
16�2
281�0
297�2
4�6
18�7
$
$
$
*
Cash and cash equivalents at June 27, 2015 included $13�4 million in current assets of the discontinued operations
of Lumentum Holdings Inc�
58
See accompanying notes to consolidated financial statements. VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
Balance at June 29, 2013 � � � � � � � � � � � � � �
Net loss� � � � � � � � � � � � � � � � � � � � � � � � �
Comprehensive income � � � � � � � � � � � �
Shares issued under employee
stock plans, net of tax effects � � � � �
Stock-based compensation� � � � � � � � � �
Repurchases of common stock � � � � � �
Equity component related to
issuance of senior convertible
notes, net of equity component
issuance costs � � � � � � � � � � � � � � � � �
Balance at June 28, 2014 � � � � � � � � � � � � � �
Net loss� � � � � � � � � � � � � � � � � � � � � � � � �
Comprehensive loss � � � � � � � � � � � � � � �
Shares issued under employee
stock plans, net of tax effects � � � � �
Stock-based compensation� � � � � � � � � �
Repurchases of common stock � � � � � �
Balance at June 27, 2015 � � � � � � � � � � � � � �
Net loss� � � � � � � � � � � � � � � � � � � � � � � � �
Distribution of Lumentum
Holdings Inc� � � � � � � � � � � � � � � � � �
Comprehensive income � � � � � � � � � � � �
Shares issued under employee stock
plans, net of tax effects� � � � � � � � � �
Stock-based compensation� � � � � � � � � �
Repurchases of common stock � � � � � �
Balance at July 2, 2016 � � � � � � � � � � � � � � �
Common Stock
Shares
237�4
—
—
Amount
$ 0�2
—
—
5�3
—
(12�3)
—
—
—
—
230�4
—
—
5�3
—
(0�4)
235�3
—
$ 0�2
—
—
—
—
—
$ 0�2
Additional
Paid-In
Capital
$69,760�1
—
—
Accumulated
Other
Accumulated Comprehensive
Deficit
$(68,607�6)
(17�8)
—
Income
$ 8�6
—
2�5
1�4
64�0
—
—
—
(155�2)
—
—
—
131�5
$69,957�0
—
—
—
$(68,780�6)
(88�1)
—
(1�2)
66�9
—
$70,022�7
—
—
(4�8)
$(68,873�5)
(99�2)
(363�5)
—
$ 11�1
—
(59�1)
—
—
—
$(48�0)
Total
$1,161�3
(17�8)
2�5
1�4
64�0
(155�2)
131�5
$1,187�7
(88�1)
(59�1)
(1�2)
66�9
(4�8)
$1,101�4
(99�2)
(7�8)
65�8
(371�3)
65�8
4�5
(7�3)
232�5
—
$ 0�2
(6�9)
44�0
—
$70,059�8
(44�5)
$(69,380�7)
$ 10�0
(6�9)
44�0
(44�5)
$ 689�3
59
See accompanying notes to consolidated financial statements. NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Viavi Solutions Inc� (“Viavi,” also referred to as “the Company,” “we,” “our,” and “us”), formerly JDS Uniphase
Corporation (“JDSU”), is a global provider of network test, monitoring and assurance solutions to communications
service providers, enterprises and their ecosystems, supported by a worldwide channel community� Our solutions
deliver end-to-end visibility across physical, virtual and hybrid networks, enabling customers to optimize
connectivity, quality of experience and profitability� Viavi is also a leader in high performance thin film optical
coatings, providing light management solutions to anti-counterfeiting, consumer and industrial, government and
healthcare and other markets�
Lumentum Separation
On August 1, 2015 (the “Separation Date”), Viavi completed the distribution of approximately 80�1% of the
outstanding shares of Lumentum Holdings Inc� (“Lumentum”) common stock (the “Distribution”)� Concurrent with
the Distribution, JDSU was renamed Viavi Solutions Inc� and, at the time of the Distribution, retained ownership of
approximately 19�9% of Lumentum’s outstanding shares� Lumentum was formed to hold Viavi’s communications
and commercial optical products business segment (“CCOP”) and the WaveReady product line and, as a result of the
Distribution, is now an independent public company trading under the symbol “LITE” on The Nasdaq Stock Market
(“NASDAQ”)� The Distribution was made to Viavi’s stockholders of record as of the close of business on July 27, 2015
(the “Record Date”), who received one share of Lumentum common stock for every five shares of Viavi common
stock held as of the close of business on the Record Date and not sold prior to August 4, 2015, the ex-dividend date�
The historical results of operations and the financial position have been recasted to present the Lumentum business
as discontinued operations as described in “Note 3� Discontinued Operations�” Unless noted otherwise, discussion in
the Notes to Consolidated Financial Statements pertain to continuing operations�
Fiscal Years
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th� The Company’s
fiscal 2016 was a 53-week year ending on July 2, 2016� The Company’s fiscal 2015 and 2014 were 52-week fiscal
years ending on June 27, 2015, and June 28, 2014�
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“U�S� GAAP”) and 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 in conformity with U�S� GAAP requires
Company management (“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 revenue and expenses and
the disclosure of commitments and contingencies during the reporting periods� The Company bases estimates on
historical experience and on various assumptions about the future believed to be reasonable based on available
information� The Company’s reported financial position 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
more current information�
60
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Cash and Cash Equivalents
The Company considers highly-liquid instruments such as treasury bills, commercial paper and other money
market instruments with original maturities of 90 days or less at the time of purchase to be cash equivalents�
Restricted Cash
At July 2, 2016 and June 27, 2015, the Company’s short-term restricted cash balances were $12�2 million and
$26�2 million, respectively, and the Company’s long-term restricted cash balances were $6�0 million and $6�1 million,
respectively� These balances primarily include interest-bearing investments in bank certificates of deposit and money
market funds which act as collateral supporting the issuance of letters of credit and performance bonds for the benefit
of third parties� Refer to the Company’s “Note 11� Debts and Letters of Credit” for more information�
Investments
The Company’s investments in debt securities and marketable equity securities, including the Company’s
ownership of Lumentum’s common stock, are primarily classified as available-for-sale investments or trading
securities and are recorded at fair value� The cost of securities sold is based on the specific identification method�
Unrealized gains and losses on available-for-sale investments, net of tax, are reported within accumulated other
comprehensive income (loss), a separate component of stockholders’ equity� Unrealized gains or losses on trading
securities resulting from changes in fair value are recognized in current earnings� The Company’s short-term
investments, which are classified as current assets, include certain securities with stated maturities of longer than
twelve months as they are highly liquid and available to support current operations�
The Company periodically reviews these investments for impairment� If a debt security’s fair value is below
amortized cost and the Company either intends to sell the security or it is more likely than not that the Company
will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary
impairment charge to investment income (loss) for the entire amount of the impairment; if a debt security’s fair value
is below amortized cost and the Company does not expect to recover the entire amortized cost of the security, the
Company separates the other-than-temporary impairment into the portion of the loss related to credit factors, or the
credit loss portion, and the portion of the loss that is not related to credit factors, or the non-credit loss portion� The
credit loss portion is the difference between the amortized cost of the security and the Company’s best estimate of
the present value of the cash flows expected to be collected from the debt security� The non-credit loss portion is the
residual amount of the other-than-temporary impairment� The credit loss portion is recorded as a charge to income
(loss), and the non-credit loss portion is recorded as a separate component of Other comprehensive income (loss)�
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts
receivable, accounts payable, and deferred compensation liability, approximate fair value because of their short
maturities� 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
market participants would use in valuing the asset or liability and are developed based on market data obtained from
sources independent of the Company� Unobservable inputs are inputs that reflect the assumptions about the factors
that market participants would use in valuing the asset or liability�
Estimates of fair value of fixed-income securities are based on third party, market-based pricing sources which
the Company believes to be reliable� These estimates represent the third parties’ good faith opinion as to what a buyer
in the marketplace would pay for a security in a current sale� For instruments that are not actively traded, estimates
61
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
may be based on current treasury yields adjusted by an estimated market credit spread for the specific instrument�
The fair market value of the Company’s 0�625% Senior Convertible Notes due 2033 (the “2033 Notes”) fluctuates
with interest rates and with the market price of the stock, but does not affect the carrying value of the debt on the
balance sheet� Refer to the Company’s “Note 11� Debts and Letters of Credit” for more information�
Inventories
Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not
in excess of net realizable market value� The Company assesses the valuation on a quarterly basis and writes down
the value for estimated excess and obsolete inventory based upon estimates of future demand, including warranty
requirements� Our inventories include material, labor, and manufacturing overhead costs�
Property, Plant and Equipment
Property, plant and equipment are stated at cost� Depreciation is computed by the straight-line method over
the following estimated useful lives of the assets: 10 to 50 years for building and improvements, 2 to 20 years
for machinery and equipment, and 2 to 5 years for furniture, fixtures, software and office equipment� Leasehold
improvements are amortized by the straight-line method over the shorter of the estimated useful lives of the assets
or the term of the lease� Demonstration units, which are Company products used for demonstration purposes for
customers and/or potential customers and generally not intended to be sold, have an estimated useful life of 5 years
and are amortized by the straight-line method�
Costs related to software acquired, developed or modified solely to meet the Company’s internal requirements
and for which there are no substantive plans to market are capitalized in accordance with the authoritative guidance
on accounting for the costs of computer software developed or obtained for internal use� Only costs incurred after the
preliminary planning stage of the project and after management has authorized and committed funds to the project
are eligible for capitalization� Costs capitalized for computer software developed or obtained for internal use are
included in Property, plant and equipment, net on the Consolidated Balance Sheets�
Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of
the identifiable assets acquired and liabilities assumed� The Company tests for impairment of goodwill on an annual
basis in the fourth quarter and at any other time when events occur or circumstances indicate that the carrying
amount of goodwill may not be recoverable� Refer to “Note 9� Goodwill” for more information�
Circumstances that could trigger an impairment test include, but are not limited to: a significant adverse change
in the business climate or legal factors, an adverse action or assessment by a regulator, change in customer, target
market and strategy, unanticipated competition, loss of key personnel, or the likelihood that a reporting unit or
significant portion of a reporting unit will be sold or otherwise disposed�
An assessment of qualitative factors may be performed to determine whether it is necessary to perform the
two-step quantitative goodwill impairment test� If the result of the qualitative assessment is that it is more likely than
not (i�e�, greater than 50% likelihood) that the fair value of a reporting unit, is less than its carrying amount, then the
quantitative test is required� Otherwise, no further testing is required�
Under the quantitative test, if the carrying amount of the reporting unit goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recorded in the Consolidated Statements of Operations as “Impairment
of goodwill�” Measurement of the fair value of a reporting unit is based on one or more of the following fair value
measures: amounts at which the unit as a whole could be bought or sold in a current transaction between willing
parties, using present value techniques of estimated future cash flows, or using valuation techniques based on
multiples of earnings or revenue, or a similar performance measure�
62
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Intangible Assets
Intangible assets consist primarily of purchased intangible assets through acquisitions� Purchased intangible
assets primarily include acquired developed technologies (developed and core technology), customer relationships,
proprietary know-how, trade secrets, and trademarks and trade names� Intangible assets are amortized using the
straight-line method over the estimated economic useful lives of the assets, which is the period during which expected
cash flows support the fair value of such intangible assets� Refer to “Note 10� Acquired Developed Technology and
Other Intangibles” for more information�
Long-lived Asset Valuation (Property, Plant and Equipment and Intangible Assets Subject to Amortization)
Long-lived assets held and used
The Company tests long-lived assets for recoverability, at the asset group level, when events or changes in
circumstances indicate that their carrying amount may not be recoverable� Circumstances which could trigger a
review include, but are not limited to: significant decreases in the market price of the asset, significant adverse
changes in the business climate or legal factors, accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset, current period cash flow or operating losses combined with
a history of losses or a forecast of continuing losses associated with the use of the asset, or current expectation that
the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life�
Recoverability is assessed based on the difference between the carrying amount of the asset and the sum of the
undiscounted cash flows expected to result from the use and the eventual disposal of the asset� An impairment loss
is recognized when the carrying amount is not recoverable and exceeds fair value�
Pension and Other Postretirement Benefits
The funded status of the Company’s retirement-related benefit plans is recognized on the Consolidated
Balance Sheets� The funded status is measured as the difference between the fair value of plan assets and the benefit
obligation at fiscal year end, the measurement date� For defined benefit pension plans, the benefit obligation is the
projected benefit obligation (“PBO”) and for the non-pension postretirement benefit plan the benefit obligation is
the accumulated postretirement benefit obligation (“APBO”)� The PBO represents the actuarial present value of
benefits expected to be paid upon retirement� The APBO represents the actuarial present value of postretirement
benefits attributed to employee services already rendered� Unfunded or partially funded plans, with the benefit
obligation exceeding the fair value of plan assets, are aggregated and recorded as a retirement and non-pension
postretirement benefit obligation equal to this excess� The current portion of the retirement-related benefit obligation
represents the actuarial present value of benefits payable in the next 12 months in excess of the fair value of plan
assets, measured on a plan-by-plan basis� This liability is recorded in Other current liabilities in the Consolidated
Balance Sheets� Refer to “Note 3� Discontinued Operations” for the impact on the pension plan obligations related to
the Lumentum Separation�
Net periodic pension cost (income) is recorded in the Consolidated Statements of Operations and includes
service cost, interest cost, expected return on plan assets, amortization of prior service cost and (gains) losses
previously recognized as a component of accumulated other comprehensive income� Service cost represents the
actuarial present value of participant benefits attributed to services rendered by employees in the current year�
Interest cost represents the time value of money cost associated with the passage of time� (Gains) losses arise as a
result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions�
Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan
amendments� (Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost
(income) in the Consolidated Statements of Operations as they arise are recognized as a component of Accumulated
63
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
other comprehensive income on the Consolidated Balance Sheets, net of tax� Those (gains) losses and prior service
cost (credit) are subsequently recognized as a component of net periodic pension cost (income) pursuant to the
recognition and amortization provisions of the authoritative guidance�
The measurement of the benefit obligation and net periodic pension cost (income) is based on the Company’s
estimates and actuarial valuations provided, by third-party actuaries, which are approved by Management� These
valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years
of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate
of compensation increases, and mortality rates� The Company evaluates these assumptions annually at a minimum�
In estimating the expected return on plan assets, the Company considers historical returns on plan assets, adjusted
for forward-looking considerations, inflation assumptions and the impact of the active management of the plan’s
invested assets�
Concentration of Credit and Other Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily
of cash and cash equivalents, short-term investments, trade receivables and foreign currency forward contracts� The
Company’s cash and cash equivalents and short-term investments are held in safekeeping by large, creditworthy
financial institutions� The Company invests its excess cash primarily in U�S� government and agency bonds
securities, corporate securities, money market funds, asset-backed securities, and other investment-grade securities�
The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain
safety and liquidity of these investments� The Company’s foreign exchange derivative instruments expose the
Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements� The
Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading
such risk across several major financial institutions� In addition, the potential risk of loss with any one counterparty
resulting from such risk is monitored by the Company on an ongoing basis�
The Company performs credit evaluations of its customers’ financial condition and generally does not require
collateral from its customers� These evaluations require significant judgment and are based on a variety of factors
including, but not limited to, current economic trends, historical payment, bad debt write-off experience, and
financial review of the customer�
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability
of its customers to make required payments� When the Company becomes aware that a specific customer is unable
to meet its financial obligations, the Company records a specific allowance to reflect the level of credit risk in the
customer’s outstanding receivable balance� In addition, the Company records additional allowances based on certain
percentages of aged receivable balances� These percentages take into account a variety of factors including, but not
limited to, current economic trends, historical payment and bad debt write-off experience� The Company classifies
bad debt expenses as selling, general and administrative (“SG&A”) expense�
The Company is not able to predict changes in the financial stability of its customers� Any material change in
the financial status of any one or a group of customers could have a material adverse effect on the Company’s results
of operations and financial condition� Although such losses have been within management’s expectations to date,
there can be no assurance that such allowances will continue to be adequate� The Company has significant trade
receivables concentrated in the telecommunications industry� While the Company’s allowance for doubtful accounts
balance is based on historical loss experience along with anticipated economic trends, unanticipated financial
instability in the telecommunications industry could lead to higher than anticipated losses�
As of July 2, 2016, one customer represented greater than 10% of our total accounts receivable, net� As of
June 27, 2015, no customers represented greater than 10% of our total accounts receivable, net�
64
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
During fiscal 2016, 2015 and 2014 certain customers generated more than 10% of total net revenue� Refer to
“Note 18� Operating Segments and Geographic Information” for more information�
The Company relies on a limited number of suppliers for a number of key components contained in our products�
The Company also relies on a limited number of significant independent contract manufacturers for the production
of certain key components and subassemblies contained in our products�
The Company generally uses a rolling twelve month forecast based on anticipated product orders, customer
forecasts, product order history and backlog to determine its materials requirements� Lead times for the parts and
components that the Company orders vary significantly and depend on factors such as the specific supplier, contract
terms and demand for a component at a given time� If the forecast does not meet actual demand, the Company may
have excess or shortfalls of some materials and components, as well as excess inventory purchase commitments�
The Company could experience reduced or delayed product shipments or incur additional inventory write-downs
and cancellation charges or penalties, which would increase costs and could have a material adverse impact on the
Company’s results of operations�
Foreign Currency Forward Contracts
The Company conducts its business and sells its products to customers primarily in North America, Europe
and Asia� In the normal course of business, the Company’s financial position is routinely subject to market risks
associated with foreign currency rate fluctuations due to balance sheet positions in foreign currencies� The Company
evaluates foreign exchange risks and utilizes foreign currency forward contracts to reduce such risks, hedging the
gains or losses generated by the re-measurement of significant foreign currency denominated monetary assets and
liabilities� The fair value of these contracts is reflected as other current assets or other current liabilities and the
change in fair value of these foreign currency forward contracts is recorded as income or loss in the Company’s
Consolidated Statements of Operations as a component of Interest and other income (expense), net to largely offset
the change in fair value of the foreign currency denominated monetary assets and liabilities which is also recorded
as a component of Interest and other income (expense), net�
Foreign Currency Translation
Assets and liabilities of non-U�S� subsidiaries that operate in a local currency environment, where that local
currency is the functional currency, are translated into U�S� dollars at exchange rates in effect at the balance sheet date,
with the resulting translation adjustments directly recorded as a component of Accumulated other comprehensive
income (loss), on the Consolidated Balance Sheets� Income and expense accounts are translated at the prior month
balance sheet exchange rates, which are deemed to approximate average monthly rate� Gains and losses from re-
measurement of monetary assets and liabilities denominated in currencies other than the respective functional
currencies are included in the Consolidated Statements of Operations as a component of Interest and other income
(expense), net�
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned� The Company considers revenue
realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the
sales price is fixed or determinable and collectibility is reasonably assured� Delivery does not occur until products
have been shipped or services have been provided, risk of loss has transferred and in cases where formal acceptance
is required, customer acceptance has been obtained or customer acceptance provisions have lapsed� In situations
where a formal acceptance is required but the acceptance only relates to whether the product meets its published
specifications, revenue is recognized upon delivery provided all other revenue recognition criteria are met� The sales
price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved�
65
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
The Company reduces revenue for rebates and other similar allowances� Revenue is recognized only if these
estimates can be reliably determined� The Company’s estimates are based on its historical results taking into
consideration the type of customer, the type of transaction and the specifics of each arrangement�
In addition to the aforementioned general policies, the following are the specific revenue recognition policies
for multiple-element arrangements and for each major category of revenue�
Multiple-Element Arrangements
When a sales arrangement contains multiple deliverables, such as sales of products that include services, the
multiple deliverables are evaluated to determine whether there are one or more units of accounting� Where there is
more than one unit of accounting, then the entire fee from the arrangement is allocated to each unit of accounting
based on the relative selling price� Under this approach, the selling price of a unit of accounting is determined by
using a selling price hierarchy which requires the use of vendor-specific objective evidence (“VSOE”) of fair value if
available, third-party evidence (“TPE”) if VSOE is not available, or best estimate of selling price (“BESP”) if neither
VSOE nor TPE is available� Revenue is recognized when the revenue recognition criteria for each unit of accounting
are met�
The Company establishes VSOE of selling price using the price charged for a deliverable when sold separately
and, in remote circumstances, using the price established by management having the relevant authority� TPE of
selling price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly
situated customers� When VSOE or TPE are not available the Company then uses BESP� Generally, the Company is
not able to determine TPE because its product strategy differs from that of others in our markets, and the extent of
customization varies among comparable products or services from its peers� The Company establishes BESP using
historical selling price trends and considering multiple factors including, but not limited to geographies, market
conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices� When determining
BESP, the Company applies significant judgment in establishing pricing strategies and evaluating market conditions
and product lifecycles�
To the extent a deliverable(s) in a multiple-element arrangement is subject to specific guidance (for example,
software that is subject to the authoritative guidance on software revenue recognition), the Company allocates the fair
value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance
with the specific guidance� Some product offerings include hardware that are integrated with or sold with software
that delivers the functionality of the equipment� The Company believes this equipment is not considered software-
related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition�
Hardware
Revenue from hardware sales is recognized when the product is shipped to the customer and when there are no
unfulfilled obligations from the Company that affect the customer’s final acceptance of the arrangement� Any cost
of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding
revenue is recognized�
Services
Revenue from services and system maintenance is recognized on a straight-line basis over the term of the
contract� Revenue from professional service engagements is recognized once its delivery obligation is fulfilled�
Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line
basis over the delivery period� The Company also generates service revenue from hardware repairs and calibration
which is recognized as revenue upon completion of the service�
66
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Software
The Company’s software arrangements generally consist of a perpetual license fee and Post-Contract Support
(“PCS”)� Where the Company has established VSOE of fair value for PCS contracts, this has generally been based
on the renewal rate or the bell curve methodology� Revenue from maintenance, unspecified upgrades and technical
support is recognized over the period such items are delivered� In multiple-element revenue arrangements that include
software, software-related and non-software-related elements are accounted for in accordance with the following
policies:
• Non-software and software-related products are bifurcated based on a relative selling price
•
The functionality of the delivered element(s) is not dependent on the undelivered element(s)�
Software-related products are separated into units of accounting if all of the following criteria are met:
•
•
• Delivery of the delivered element(s) represents the culmination of the earnings process for that
There is VSOE of fair value of the undelivered element(s)�
element(s)�
If these criteria are not met, the software revenue is deferred until the earlier of when such criteria are met
or when the last undelivered element is delivered� If there is VSOE of the undelivered item(s) but no such evidence
for the delivered item(s), the residual method is used to allocate the arrangement consideration� Under the residual
method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration
less the aggregate VSOE of the undelivered elements� In cases where VSOE is not established for PCS, revenue is
recognized ratably over the PCS period after all software elements have been delivered and the only undelivered item
is PCS�
Warranty
The Company provides reserves for the estimated costs of product warranties at the time revenue is recognized�
It estimates the costs of its warranty obligations based on its historical experience of known product failure rates, use
of materials to repair or replace defective products and service delivery costs incurred in correcting product failures�
In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise�
Shipping and Handling Costs
The Company records costs related to shipping and handling of revenue in cost of sales for all periods presented�
Advertising Expense
The Company expenses advertising costs as incurred� Advertising costs totaled $2�6 million, $1�7 million and
$2�2 million in fiscal 2016, 2015 and 2014, respectively�
Research and Development (“R&D”) Expense
Costs related to R&D, which primarily consists of labor and benefits, supplies, facilities, consulting and outside
service fees, are charged to expense as incurred� The authoritative guidance allows for capitalization of software
development costs incurred after a product’s technological feasibility has been established until the product is
available for general release to the public� To date, the period between achieving technological feasibility, which the
Company has defined as the establishment of a working model and typically occurs when beta testing commences,
and the general availability of such software has been very short� Accordingly, software development costs have been
expensed as incurred�
67
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Stock-Based Compensation
Stock-based compensation is measured at grant date, and recognized in expense over the requisite service
period based on the fair value of the equity award� The fair value of the time-based Full Value Awards is based on the
closing market price of the Company’s common stock on the grant date of the award� The Company uses the Monte
Carlo simulation to estimate the fair value of Full Value Awards with market conditions (“MSUs”)� The Company
estimates the fair value of stock options and employee stock purchase plan awards (“ESPP”) using the Black-Scholes
Merton (“BSM”) option-pricing model� This option-pricing model requires the input of assumptions, including the
award’s expected life and the price volatility of the underlying stock�
The Company estimates the expected forfeiture rate pursuant to the authoritative guidance, and only recognizes
expense for those shares expected to vest� When estimating forfeitures, the Company considers voluntary termination
behavior as well as future workforce reduction programs� Estimated forfeiture is trued up to actual forfeiture as the
equity awards vest� The total fair value of the equity awards, net of forfeiture, is recorded on a straight-line basis over
the requisite service period of the awards for each separately vesting period of the award, except for MSUs which are
amortized based upon graded vesting method�
Income Taxes
In accordance with the authoritative guidance on accounting for income taxes, the Company recognizes income
taxes using an asset and liability approach� This approach requires the recognition of taxes payable or refundable
for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been
recognized in its consolidated financial statements or tax returns� The measurement of current and deferred taxes is
based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated�
The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax
assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative
weight of the evidence� With the exception of certain international jurisdictions, the Company has determined that
at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be
realized, primarily due to uncertainties related to its ability to utilize its net operating loss carryforwards before
they expire� Accordingly, the Company has established a valuation allowance for such deferred tax assets� If there
is a change in the Company’s ability to realize its deferred tax assets for which a valuation allowance has been
established, then its tax provision may decrease in the period in which it determines that realization is more likely
than not� Likewise, if the Company determines that it is not more likely than not that our deferred tax assets will be
realized, then a valuation allowance may be established for such deferred tax assets and the Company’s tax provision
may increase in the period in which we make the determination�
The authoritative guidance on accounting for uncertainty in income taxes prescribes the recognition threshold
and measurement attributes for financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return� Additionally, it provides guidance on recognition, classification, and disclosure of tax
positions� The Company is subject to income tax audits by the respective tax authorities in all of the jurisdictions in
which it operates� The determination of tax liabilities in each of these jurisdictions requires the interpretation and
application of complex and sometimes uncertain tax laws and regulations� The Company recognizes liabilities based
on its estimate of whether, and the extent to which, additional tax liabilities are more likely than not� If the Company
ultimately determines that the payment of such a liability is not necessary, then it reverses the liability and recognizes
a tax benefit during the period in which the determination is made that the liability is no longer necessary�
The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities
requires that the Company make certain estimates and judgments� Changes to these estimates or a change in judgment
may have a material impact on the Company’s tax provision in a future period�
68
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Restructuring Accrual
In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities,
generally costs associated with restructuring activities are recognized when they are incurred� However, in the case of
leases, the expense is estimated and accrued when the property is vacated� Given the significance of, and the timing
of the execution of such activities, this process is complex and involves periodic reassessments of estimates made
from the time the property was vacated, including evaluating real estate market conditions for expected vacancy
periods and sub-lease income�
Additionally, a liability for post-employment benefits for workforce reductions related to restructuring activities
is recorded when payment is probable, and the amount is reasonably estimable� The Company continually evaluates
the adequacy of the remaining liabilities under its restructuring initiatives� Although the Company believes that
these estimates accurately reflect the costs of its restructuring plans, actual results may differ, thereby requiring the
Company to record additional provisions or reverse a portion of such provisions�
Loss Contingencies
The Company is subject to the possibility of various loss contingencies arising in the ordinary course of
business� The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as
well as its ability to reasonably estimate the amount of loss in determining loss contingencies� An estimated loss is
accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss
can be reasonably estimated� The Company regularly evaluates current information available to determine whether
such accruals should be adjusted and whether new accruals are required�
Asset Retirement Obligations (“ARO”)
ARO are legal obligations associated with the retirement of long-lived assets pertaining to leasehold
improvements� These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized
by increasing the carrying amount of the related assets by the same amount as the liability� Asset retirement costs are
subsequently depreciated over the useful lives of the related assets� Subsequent to initial recognition, the Company
records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either
the timing or the amount of the original estimate of undiscounted cash flows� The Company derecognizes ARO
liabilities when the related obligations are settled� As of July 2, 2016 and June 27, 2015, the Consolidated Balance
Sheets included ARO of $0�2 million and $1�7 million, respectively, in Other current liabilities and $3�5 million
and $2�7 million, respectively, in Other non-current liabilities� The activities and balances for ARO are as follows
(in millions):
Year ended July 2, 2016 � � � � � � � � � �
Year ended June 27, 2015 � � � � � � � � �
Balance at
Beginning of
Period
$4�4
$4�9
Liabilities
Incurred
0�4
0�1
Liabilities
Settled
(0�9)
(0�6)
Accretion
Expense
0�2
0�3
Revisions to
Estimates
(0�4)
(0�3)
Balance at End
of Period
$3�7
$4�4
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2016, the Financial Accounting Standards Board (“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�
69
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
In March 2016, the FASB issued guidance which simplifies several aspects of accounting for share-based
payment award transactions including income tax consequences, classification of awards as either equity or liabilities
and classification on the statement of cash flows� The guidance is effective for the Company in the first quarter of
fiscal 2018 and earlier adoption is permitted� The Company is evaluating the impact of adopting this new accounting
guidance on its consolidated financial statements�
In March 2016, the FASB issued guidance that clarifies the steps required when assessing whether contingent
call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to
the economic characteristics and risks of their debt instrument� The guidance is effective for the Company in the
first quarter of fiscal 2018� The Company is evaluating the impact of adopting this new accounting guidance on its
consolidated financial statements�
In February 2016, the FASB issued guidance related to how an entity should recognize lease assets and lease
liabilities� The guidance specifies that an entity who is a lessee under lease agreements should recognize lease assets
and lease liabilities for those leases classified as operating leases under previous FASB guidance� Accounting for
leases by lessors is largely unchanged under the new guidance� The guidance requires a modified retrospective
transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period
presented in the financial statements� The guidance is effective for the Company in the first quarter of fiscal 2020�
The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial
statements�
In July 2015, the FASB issued guidance to change the subsequent measurement of inventory from lower of cost
or market to lower of cost and net realizable value� The guidance is effective for the Company in the first quarter
of fiscal 2018� Earlier application is permitted as of the beginning of an interim or annual reporting period� The
Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements�
In May 2015, the FASB issued guidance to remove the requirement to categorize within the fair value hierarchy
all investments for which fair value is measured using net asset value per share practical expedient� The guidance is
effective for the Company in the first quarter of fiscal 2017 and will apply to certain pension assets� The guidance
will be applied retrospectively� The adoption is expected to result in change in disclosure only and will not have any
material impact on the consolidated financial statements�
In April 2015, the FASB issued new authoritative guidance to simplify the presentation of debt issuance costs
by requiring debt issuance costs to be presented as a deduction from the corresponding liability, consistent with
debt discounts or premiums� This guidance is effective for the Company in the first quarter of fiscal 2017 for its
convertible debt, and will be applied retrospectively� Debt issuance costs as stated in Note 11� Debts and Letters of
Credit will be netted against the long-term debt effective in the first quarter of fiscal 2017� The consolidated balance
sheet of each individual period presented will be retrospectively adjusted to reflect the period-specific effects of
applying this new guidance�
In May 2014, the FASB issued new authoritative guidance related to revenue recognition� This guidance will
replace current U�S� GAAP guidance on this topic and eliminate industry-specific guidance� The new revenue
recognition guidance provides a unified model to determine when and how revenue is recognized� The core principle
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in
an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods
or services� This guidance allows for either full retrospective adoption or modified retrospective adoption� The
FASB deferred the effective date for this guidance by one year to December 15, 2017 for annual reporting periods
beginning after such date� Earlier application of this guidance is permitted but not before the original date of
December 15, 2016� In March, April and May 2016, the FASB clarified the implementation guidance on principal
versus agent, identifying performance obligations, licensing, collectibility, noncash consideration, presentation of
sales tax, provided clarifying guidance in certain narrow areas and added some practical expedients as well as other
70
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
transition matters� The new guidance is effective for the Company in the first quarter of fiscal 2019� The Company
is evaluating the impact that this new accounting guidance will have on its consolidated financial statements and
related disclosures�
NOTE 3. DISCONTINUED OPERATIONS
On August 1, 2015, the Company completed the separation of the Lumentum business (the “Separation”) and
made a tax-free distribution of approximately 80�1% of the outstanding shares of Lumentum common stock to Viavi
shareholders who received one share of Lumentum common stock for every five shares of Viavi common stock held
as of the close of business on July 27, 2015 (the “Record Date”) and not sold prior to August 4, 2015 (the “ex-dividend
date”)� In connection with the Separation Viavi agreed to contribute $137�6 million all of which was contributed
during fiscal 2016� As of the Distribution, the Company retained ownership of approximately 19�9%, or 11�7 million
shares, of Lumentum’s outstanding common stock� Lumentum was formed to hold Viavi’s CCOP business and the
WaveReady product line� As a result of the Distribution, Lumentum is now an independent public company trading
under the symbol “LITE” on The Nasdaq Stock Market (“NASDAQ”)� The Company agreed not to liquidate the
retained shares during the first six months following the Distribution� However, in connection with a private letter
ruling from the Internal Revenue Service, the Company committed to liquidate these shares within three years from
the Distribution� As of July 2, 2016, the Company owns approximately 7�2 million shares, of Lumentum’s common
stock� Refer to “Note 8� Investments and Fair Value Measurements” for more information�
In connection with the Separation, the Company entered into a Contribution Agreement, Separation and
Distribution Agreement, a Tax Matters Agreement, Employee Matters Agreement, Securities Purchase Agreement,
a Supply Agreement, and an Intellectual Property Matters Agreement with Lumentum and others�
The Contribution Agreement identifies the assets to be transferred, the liabilities to be assumed and the
contracts to be assigned and it provides for when and how these transfers, assumptions and assignments will occur�
The Separation and Distribution Agreement governs the separation of the CCOP and WaveReady business, the
transfer of assets and other matters related to Viavi’s relationship with Lumentum�
The Tax Matters Agreement governs the respective rights, responsibilities and obligations of Lumentum and
Viavi with respect to tax liabilities and benefits, tax attributes, tax contests, tax returns, and certain other tax matters�
The Employee Matters Agreement governs the compensation and employee benefit obligations with respect
to the current and former employees and non-employee directors of Lumentum and Viavi, and generally allocates
liabilities and responsibilities relating to employee compensation, benefit plans and programs� The Employee Matters
Agreement provides that employees of Lumentum will no longer participate in benefit plans sponsored or maintained
by Viavi�
The Securities Purchase Agreement with the Company, Lumentum and Amada Holdings Co�, Ltd� (“Amada”)
set forth terms whereby the Company received 40,000 shares of Lumentum’s Series A Preferred Stock (“Series A
Preferred Stock”) pursuant to a binding commitment to sell the Series A Preferred Stock to Amada following the
Separation� Upon Separation, in connection with the agreement, during the first quarter of fiscal 2016 the Company
sold 35,805 shares of the Series A Preferred Stock to Amada for $35�8 million and the remaining 4,195 shares of
the Series A Preferred Stock were canceled� The $35�8 million is included as a part of financing activities in the
Statement of Cash Flows�
The Supply Agreement outlines that Viavi will supply test equipment to Lumentum and Lumentum will supply
components related to the Company’s metro, fiber and optical product lines and development services related to
smart transceivers� The most significant component of the Supply Agreement is $15�0 million related to the sale
of certain optical test equipment to Lumentum from the date of the agreement through July 2, 2016, of which the
company recorded $14�1 million of net revenue during the fiscal year ended July 2, 2016�
71
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3. DISCONTINUED OPERATIONS (Continued)
The Intellectual Property Matters Agreement outlines the intellectual property rights and technology transferred
to Lumentum upon the Separation, as well as the intellectual property and technology both companies can license
from each other� In addition it outlines non-compete restrictions between Viavi and Lumentum�
As the separation of the Lumentum business represents a strategic shift that has and will have a major effect
on the Company’s operations and financial results, the results of operations and net assets of the Lumentum business
are presented separately as discontinued operations for the fiscal years ended July 2, 2016 and June 27, 2015 and as
of July 2, 2016, in accordance with the authoritative guidance�
As of the Separation Date, Lumentum is a stand-alone publicly traded company that separately reports it
financial results� Due to the difference between the basis of presentation for discontinued operations and the basis of
presentation as a stand-alone company, the financial results of Lumentum included within discontinued operations
for the Company may not be indicative of actual financial results of Lumentum as a stand-alone company�
The following table presents the carrying amounts of the major classes of the assets and liabilities of the
Lumentum business which are presented as discontinued operation on the Consolidated Balance Sheets (in millions)�
Assets:
Cash and cash equivalents � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accounts receivable, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventories, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Prepayments and other current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Current assets of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Property, plant and equipment, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Goodwill� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Intangibles, net� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other non-current assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current assets of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total assets of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Liabilities:
Accounts payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued payroll and related expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income taxes payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accrued expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Current liabilities of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current liabilities of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total liabilities of discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
June 27,
2015
$ 13�4
150�2
100�0
46�6
310�2
145�4
5�6
21�8
31�4
204�2
$514�4
$ 79�1
18�3
3�7
17�5
11�4
130�0
10�9
$140�9
In connection with the Separation, $7�8 million of accumulated other comprehensive loss, net of income taxes,
related to foreign currency translation adjustments and the pension plan obligation was transferred to Lumentum on
the Separation Date� Refer to “Note 5� Accumulated Other Comprehensive Income (Loss)” for more information�
The Company also transferred deferred tax assets of $29�5 million, deferred tax liabilities of $1�0 million,
current income tax payables of $3�3 million, an income tax receivable of $1�3 million and other long-term liabilities
related to uncertain tax positions totaling $0�1 million on the Separation date� The Company utilized approximately
$1�0 billion of federal net operating losses to offset income recognized as a result of the Separation and the license of
Lumentum’s intellectual property to a foreign subsidiary�
72
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3. DISCONTINUED OPERATIONS (Continued)
The removal of Lumentum’s net assets and equity related adjustments upon the Separation are presented as
an increase of Viavi's accumulated deficit in the Consolidated Statements of Stockholders’ Equity and represents
a non-cash financing activity, excluding the cash transferred� Refer to “Note 15� Stock-Based Compensation” for
information on modifications to stock-based compensation awards as a result of the Distribution�
The following table summarizes results from discontinued operations of the Lumentum business included in
the Consolidated Statement of Operations (in millions):
Net revenues � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Cost of revenues � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of acquired technologies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gross profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Operating expenses:
Research and development� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Selling, general and administrative � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Restructuring charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total operating expenses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income (loss) from operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest and other income (expense), net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income (loss) before income taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(Benefit from) provision for income taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net income (loss) from discontinued operations(1) � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$ 66�5
49�8
0�6
16�1
12�5
24�7
0�1
37�3
(21�2)
—
(21�2)
27�8
$(49�0)
Years Ended
June 27,
2015
$835�2
569�1
7�5
258�6
139�9
87�5
7�7
235�1
23�5
(1�1)
22�4
(20�9)
$ 43�3
June 28,
2014
$816�3
550�7
9�1
256�5
134�2
65�9
2�5
202�6
53�9
1�0
54�9
(1�9)
$ 56�8
(1) No income or expense relating to the Lumentum business was recorded after the Separation Date�
During the fiscal year ended July 2, 2016, the income tax provision for discontinued operations of $27�8 million
included approximately $6�2 million cash taxes that are due to federal and state authorities as a result of the Separation�
In addition, approximately $19�0 million of the income tax provision for discontinued operations related to the income
tax intraperiod tax allocation rules in relation to continuing operations and other comprehensive income�
Net (loss) income from discontinued operations also included costs incurred by the Company to separate
Lumentum, such as transaction charges, advisory and consulting fees, of $16�5 million, $21�4 million and zero for the
fiscal years ended July 2, 2016, June 27, 2015 and June 28, 2014, respectively�
The following table presents supplemental cash flow information: depreciation expense, amortization expense,
stock-based compensation expense and capital expenditures of the Lumentum business (in millions):
Operating activities:
Depreciation expense� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization expense � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Stock-based compensation expense� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 3�7
0�6
1�6
$43�4
7�9
19�4
$36�3
9�3
19�4
Investing activities:
Capital expenditures � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 5�8
$55�9
$64�0
Years Ended
June 27,
2015
June 28,
2014
July 2,
2016
73
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4. EARNINGS PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted
average number of common shares outstanding during the period� Diluted net income (loss) per share is computed by
dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially
dilutive common stock outstanding during the period� The dilutive effect of outstanding ESPP, Full Value Awards,
and options is reflected in diluted net income (loss) per share by application of the treasury stock method� The
calculation of diluted net income (loss) per share excludes all anti-dilutive common shares�
The following table sets forth the computation of basic and diluted net (loss) income per share (in millions,
except per share data):
Numerator:
Income (loss) from continuing operations, net of tax � � � � � � � � � � � � � � � � � � � � � � �
Loss from discontinued operations, net of tax � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net income (loss) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Denominator:
Weighted-average number of common shares outstanding
July 2,
2016
Years Ended
June 27,
2015
June 28,
2014
$ (50�4)
(48�8)
$ (99�2)
$ (131�4)
43�3
$ (88�1)
$ (74�6)
56�8
$ (17�8)
Basic � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Effect of dilutive securities from stock-based benefit plans � � � � � � � � � � � �
Diluted � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
234�0
—
234�0
232�7
—
232�7
234�2
—
234�2
Net loss per share from - basic and diluted:
Continuing operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Discontinued operations � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net income (loss) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ (0�22)
(0�20)
$ (0�42)
$ (0�57)
0�19
$ (0�38)
$ (0�32)
0�24
$ (0�08)
The following table sets forth the weighted-average potentially dilutive securities excluded from the computation
of the diluted net (loss) income per share because their effect would have been anti-dilutive (in millions):
Stock options and ESPP � � � � � � � � � � � � � � � � � � � � � � �
Full Value Awards � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total potentially dilutive securities � � � � � � � � � � � � � �
July 2,
2016(1)(2)
3�4
10�9
14�3
Years Ended
June 27,
2015(1)(2)
3�6
10�3
13�9
June 28,
2014(1)(2)
4�9
10�1
15�0
(1) As the Company incurred a net loss from continuing operations in the period, potential dilutive securities from
employee stock options, employee stock purchase plan (“ESPP”) and Restricted Stock Units (“RSUs”) have
been excluded from the diluted net loss per share computations as their effects were deemed anti-dilutive�
(2) The Company’s 0�625% Senior Convertible 2033 Notes 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 $11�28 per share
is payable in cash, shares of the Company’s common stock or a combination of both� Refer to “Note 11� Debts
and Letters of Credit” for more details�
74
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The Company’s accumulated other comprehensive income (loss) consists of the accumulated net unrealized
gains and losses on available-for-sale investments, foreign currency translation adjustments and defined benefit
obligations�
At July 2, 2016 and June 27, 2015, balances for the components of accumulated other comprehensive income
(loss) were as follows (in millions):
Beginning balance as of June 27, 2015 � � � � � � � �
Transferred to Lumentum(1) � � � � � � � � � � � � � � �
Other comprehensive (loss) income
before reclassification � � � � � � � � � � � � � � � � � �
Amounts reclassified from Accumulated other
comprehensive (loss) income � � � � � � � � � � � �
Net current-period other comprehensive
(loss) income � � � � � � � � � � � � � � � � � � � � � � � � �
Ending balance as of July 2, 2016 � � � � � � � � � � � �
Unrealized
(losses) on
available-for-sale
investments(2)
$ (3�2)
—
Foreign currency
translation
adjustments
$ (29�2)
(8�9)
Defined benefit
obligation, net
of tax(3)
$ (15�6)
1�1
Total
$ (48�0)
(7�8)
177�3
(69�6)
107�7
$104�5
(32�0)
—
(32�0)
$ (70�1)
(10�6)
134�7
0�7
(68�9)
(9�9)
$ (24�4)
65�8
$ 10�0
(1) Amount represents the transfer of accumulated other comprehensive balances to Lumentum as of the Separation
Date� Refer to “Note 3� Discontinued Operations” for more information�
(2) Activity before reclassifications to the Consolidated Statements of Operations during the year ended July 2, 2016
primarily relates to a $180�7 million unrealized gain on the marketable equity securities of Lumentum held
by Viavi, net of a $3�7 million income tax effect related to the intraperiod tax allocation rules� The amount
reclassified out of accumulated other comprehensive income (loss) is primarily composed of a $71�5 million
gross realized gain during the year ended July 2, 2016 from the sale of 4�5 million shares of the 11�7 million
shares of the marketable equity securities of Lumentum held by Viavi upon the Separation� The sale gave rise
to a $2�0 million income tax effect related to the intraperiod tax allocation rules� The gain and the income
tax effect are included in “Gain on sale of investments” and “Provision for (benefit from) income taxes,”
respectively, in the Consolidated Statement of Operations for the year ended July 2, 2016�
(3) Activity before reclassifications to the Consolidated Statements of Operations during the year ended
July 2, 2016 relates to the unrealized net actuarial loss of $14�2 million, net of income tax benefits of $3�6 million�
The amount reclassified out of accumulated other comprehensive income (loss) represents the amortization of
actuarial losses included as a component of Selling, general and administrative expense (“SG&A”) in the
Consolidated Statement of Operations for the year ended July 2, 2016� Refer to “Note 16� Employee Pension and
Other Benefit Plans” for more details on the computation of net periodic cost for pension plans�
NOTE 6. MERGERS AND ACQUISITIONS
Fiscal 2014 Acquisitions
Network Instruments, LLC (“Network Instruments”)
On January 6, 2014 (“Network Instruments Closing Date”), the Company completed the acquisition of
Network Instruments, a privately-held U�S� company� Network Instruments is a leading developer of enterprise
network and application-performance management solutions for global 2000 companies� The Company acquired
all outstanding shares of Network Instruments for $208�5 million in cash, subject to final cash and working capital
adjustments including holdback payments of approximately $20�0 million which are reserved for potential breaches
75
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6. MERGERS AND ACQUISITIONS (Continued)
of representations and warranties� During 2015 the Company made holdback payments totaling $19�7 million, net
of working capital adjustments, which were classified as a financing activity within the Consolidated Statements of
Cash Flows�
The acquisition of Network Instruments further strengthens the Company’s portfolio of solutions for the
enterprise, data center and cloud networking markets� In order to improve application performance, reduce costs
and address increasing network complexity, enterprise network administrators are rapidly transforming their IT
networks while embracing today’s most critical technology initiatives such as unified communications, cloud, and
data center consolidation� Network Instruments helps enterprises simplify the management and optimization of their
networks with high-performance solutions that provide actionable intelligence and deep network visibility� Network
Instruments was integrated into the Company’s SE operating segment�
The Company accounted for the transaction 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�
The Company finalized the purchase price allocation related to this acquisition during fiscal 2014� The purchase
price was allocated as follows (in millions):
Net tangible assets acquired � � � � � � � � � � � � � � � � � � � �
Intangible assets acquired:
Developed technology � � � � � � � � � � � � � � � � � � � � � �
Customer relationships � � � � � � � � � � � � � � � � � � � � �
In-process research and development � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Goodwill � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total purchase price � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 20�8
21�7
38�3
1�7
0�3
125�6
$208�4
The following table summarizes the components of the tangible assets acquired at fair value (in millions):
Cash � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accounts receivable� � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventory � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Property and equipment � � � � � � � � � � � � � � � � � � � � � � �
Accounts payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred tax liabilities, net � � � � � � � � � � � � � � � � � � � � �
Other liabilities, net of other assets � � � � � � � � � � � � � � �
Deferred revenue � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net tangible assets acquired � � � � � � � � � � � � � � � � � � � �
$ 9�0
13�8
6�0
1�0
(1�5)
(0�6)
(4�4)
(2�5)
$20�8
Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based
on inputs that are unobservable and significant to the overall fair value measurement� The fair value of acquired
developed technology, customer relationships, acquired in-process research and development (“IPR&D”) and
other intangible assets was determined based on an income approach using the discounted cash flow method� The
intangible assets, except IPR&D, are being amortized over their estimated useful lives of five years for the majority
of acquired developed technology and customer relationships and one year for trade name� Order backlog was fully
amortized in fiscal 2014�
In accordance with authoritative guidance, the Company recognizes IPR&D at fair value as of the Network
Instruments Closing Date� The IPR&D is accounted for as an indefinite-lived intangible asset until completion or
abandonment of the associated research and development efforts� IPR&D is tested for impairment during the period
it is considered an indefinite lived asset�
76
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6. MERGERS AND ACQUISITIONS (Continued)
The goodwill arising from this acquisition is primarily attributed to sales of future products and services and
the assembled workforce of Network Instruments� Goodwill has been assigned to the NE and SE segment and is
not deductible for tax purposes� Goodwill is not being amortized but is reviewed annually for impairment or more
frequently if impairment indicators arise, in accordance with authoritative guidance�
The estimated amount of Network Instruments’ net revenue and net loss, included in the Company’s Consolidated
Statement of Operations for the year ended June 28, 2014 was $12�6 million and $9�6 million, respectively� Network
Instruments’ net revenue and net loss disclosed above reflect Management’s best estimate, based on information
available at the reporting date�
The following table presents certain unaudited pro forma information, for illustrative purposes only, for fiscal
2014 and fiscal 2013 as if Network Instruments had been acquired on July 1, 2012� The unaudited estimated pro forma
information combines the historical results of Network Instruments with the Company’s consolidated historical results
and includes certain adjustments reflecting the estimated impact of fair value adjustments for the respective periods�
The pro forma information is not indicative of what would have occurred had the acquisition taken place on July 1, 2012�
Additionally, the pro forma financial information does not include the impact of possible business model changes and
does not reflect pro forma adjustments to conform accounting policies between Network Instruments and the Company�
Actual results will differ from the unaudited pro forma information presented below (unaudited, in millions):
Pro forma net revenue � � � � � � � � � � � � � � � � � � � � � � � � �
Pro forma net (loss) income � � � � � � � � � � � � � � � � � � � �
Years Ended
June 28,
2014
$ 1,770�0
(14�5)
Trendium Inc. (“Trendium”)
On December 10, 2013 (“Trendium Closing Date”), the Company acquired certain technology and other assets
from Trendium, a privately-held U�S� company, for a purchase price of $26�1 million in cash including a holdback
payment of approximately $2�5 million which is reserved for potential breaches of representations and warranties�
During fiscal 2015, the Company made the $2�5 million holdback payment following the one-year anniversary of
the Trendium Closing Date� The payment is classified as a financing activity within the Consolidated Statements of
Cash Flows�
Trendium provides real-time intelligence software solutions for customer experience assurance (“CEA”),
asset optimization and monetization of big data for 4G/Long Term Evolution (“LTE”) mobile network operators�
The addition of Trendium employees and technology enables the Company to introduce a new paradigm of CEA,
enabling operators of 4G/LTE networks to achieve a real and relevant improvement in customer satisfaction while
maximizing productivity and profitability for dynamic converged 4G/LTE networks and beyond� The purchased
assets are included in the Company’s SE segment�
The Company accounted for the transaction in accordance with the authoritative guidance on business
combinations; therefore, the tangible and intangible assets acquired were recorded at fair value on the acquisition
date� The Company finalized the purchase price allocation related to this acquisition, including measurement period
adjustments with the corresponding offset to goodwill, during fiscal 2014� The purchase price was allocated as
follows (in millions):
Tangible assets acquired:
Property, plant and equipment � � � � � � � � � � � � � � � � � � � � � � �
$ 0�2
Intangible assets acquired:
Developed technology � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
In-process research and development � � � � � � � � � � � � � � � � � �
Goodwill � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total purchase price � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
6�1
5�4
14�4
$26�1
77
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6. MERGERS AND ACQUISITIONS (Continued)
Acquired intangible assets are classified as Level 3 assets for which fair value is derived from valuation based
on inputs that are unobservable and significant to the overall fair value measurement� The fair value of acquired
developed technology was determined based on an income approach using the discounted cash flow method and are
being amortized over their estimated useful lives of seven years�
In accordance with authoritative guidance, the Company recognized IPR&D at fair value as of the Trendium
Closing Date� The IPR&D is accounted for as an indefinite-lived intangible asset until completion or abandonment
of the associated research and development efforts� IPR&D is tested for impairment during the period it is considered
an indefinite lived asset�
The goodwill arising from this acquisition is primarily attributed to product synergies and the assembled
workforce of Trendium� Goodwill was assigned to the NE and SE segment and is deductible for tax purposes�
Goodwill is not amortized but is reviewed annually for impairment or more frequently if impairment indicators arise,
in accordance with authoritative guidance�
Trendium’s results of operations have been included in the Company’s consolidated financial statements
subsequent to the date of acquisition� Pro forma 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 reserves and allowances
The components of accounts receivable reserves and allowances were as follows (in millions):
Allowance for doubtful accounts � � � � � � � � � � � � � � � � � � � � � � � �
Allowance for sales returns � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total accounts receivable reserves and allowances� � � � � � � � � � �
July 2,
2016
$2�2
2�5
$4�7
June 27,
2015
$2�4
0�7
$3�1
The activities and balances for allowance for doubtful accounts are as follows (in millions):
Year Ended July 2, 2016� � � � � � � � � � � � � � � � � � � � � � � � �
Year Ended June 27, 2015 � � � � � � � � � � � � � � � � � � � � � � �
Year Ended June 28, 2014 � � � � � � � � � � � � � � � � � � � � � � �
Balance at
Beginning of
Period
$2�4
2�9
2�3
Charged to
Costs and
Expenses
$0�3
0�3
1�2
Deduction(1)
$(0�5)
(0�8)
(0�6)
Balance at End
of Period
$2�2
2�4
2�9
(1) Represents the effect of currency translation adjustments and write-offs of uncollectible accounts, net
of recoveries�
Inventories, net
The components of Inventories, net were as follows (in millions):
Finished goods � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Work in process � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Raw materials � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventories, net� � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$29�1
7�5
14�8
$51�4
June 27,
2015
$31�5
6�8
15�5
$53�8
78
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7. BALANCE SHEET AND OTHER DETAILS (Continued)
Prepayments and other current assets
The components of Prepayments and other current assets were as follows (in millions):
Prepayments� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current assets � � � � � � � � � � � � � � � � � � � � � � � � � �
Prepayments and other current assets � � � � � � � � �
July 2,
2016
$10�4
21�7
$32�1
June 27,
2015
$15�7
22�5
$38�2
Property, plant and equipment, net
The components of Property, plant and equipment, net were as follows (in millions):
Land � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Buildings and improvements� � � � � � � � � � � � � � � � � � � � � � � � � � � �
Machinery and equipment� � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Furniture, fixtures, software and office equipment � � � � � � � � � �
Leasehold improvements � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Construction in progress � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Property, plant and equipment, gross � � � � � � � � � � � � � � � � � �
Less: Accumulated depreciation � � � � � � � � � � � � � � � � � � � � � � � � �
Property, plant and equipment, net � � � � � � � � � � � � � � � � � � � �
Other current liabilities
The components of Other current liabilities were as follows (in millions):
Restructuring accrual � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income tax payable � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Warranty accrual � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred compensation plan � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred income taxes� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$ 14�6
32�4
218�7
120�5
54�3
10�3
450�8
(317�8)
$ 133�0
June 27,
2015
$ 14�7
32�7
200�4
124�5
55�6
27�8
455�7
(306�5)
$ 149�2
July 2,
2016
$13�3
3�3
2�6
2�4
—
9�4
$31�0
June 27,
2015
$19�1
3�1
2�3
3�0
7�1
12�0
$46�6
Other non-current liabilities
The components of Other non-current liabilities were as follows (in millions):
Pension and post-employment benefits � � � � � � � � � � � � � � � � �
Financing obligation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Long-term deferred revenue � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other non-current liabilities � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$103�0
28�7
22�7
24�7
$179�1
June 27,
2015
$ 87�2
29�1
23�6
28�5
$168�4
79
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 7. BALANCE SHEET AND OTHER DETAILS (Continued)
Interest and other income (expense), net
The components of Interest and other income (expense), net were as follows (in millions):
Interest income � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange gains (losses), net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Proceeds from Nortel(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other income (expense), net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest and other income (expense), net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$ 5�9
(2�6)
—
(0�8)
$ 2�5
Years Ended
June 27,
2015
4�6
(3�8)
2�2
0�7
$ 3�7
June 28,
2014
$ 3�6
(4�2)
—
(0�6)
$(1�2)
(1)
In fiscal 2015, the Company received proceeds of $2�2 million from the Fair Fund established to provide
compensation for losses incurred in connection with investments in Nortel Networks Corporation (“Nortel”)
securities from the SEC’s claims against Nortel�
NOTE 8. INVESTMENTS AND FAIR VALUE MEASUREMENTS
Available-For-Sale Investments
The Company’s investments in marketable debt and equity securities were primarily classified as available-for-
sale investments� As of July 2, 2016, the Company’s available-for-sale securities were as follows (in millions):
Debt securities:
U�S� treasuries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
U�S� agencies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Municipal bonds and sovereign debt instruments � � � � �
Asset-backed securities � � � � � � � � � � � � � � � � � � � � � � � � �
Corporate securities � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total debt securities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Marketable equity securities � � � � � � � � � � � � � � � � � � � � � � � �
Total available-for-sale investments � � � � � � � � � � � � � � � � � �
Amortized
Cost/Carrying
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$ 46�1
24�9
2�0
50�4
224�5
347�9
62�1
$410�0
$ —
—
—
0�1
0�2
0�3
109�2
$109�5
$ —
—
—
(0�3)
(0�1)
(0�4)
—
$ (0�4)
$ 46�1
24�9
2�0
50�2
224�6
347�8
171�3
$519�1
The Company generally classifies debt securities 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 July 2, 2016, of the total estimated fair value, $36�1 million was classified as cash equivalents,
$311�1 million was classified as short-term investments and $0�6 million was classified as other non-current assets�
Marketable equity securities consist of the Company’s ownership of Lumentum common stock remaining in
connection with the Separation� Refer to “Note 3� Discontinued Operations” for more information� These securities
are stated at fair value, with unrealized gains and losses reported in other comprehensive income, net of tax and
are classified as short-term investments on the Consolidated Balance Sheets as of July 2, 2016 at $171�3 million�
The Company sold 4�5 million Lumentum common shares during the third and fourth quarters of fiscal 2016
and recognized gross realized gain of $71�5 million, reflected in “Gain on sale of investments” in the Company’s
80
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. INVESTMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Consolidated Statements of Operations� The sale resulted in $2�0 million tax effect related to the intraperiod tax
allocation rules� The realized gain is also reflected within the operating activities section of the Statements of Cash
Flows, while the cash proceeds received are reflected in “Sales of available-for-sale investments” within the investing
activities section�
In addition to the amounts presented above, as of July 2, 2016, the Company’s short-term investments classified
as trading securities related to the Deferred Compensation Plan were $2�4 million, of which $0�3 million was invested
in debt securities, $0�8 million was invested in money market instruments and funds and $1�3 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 (expense), net�
During the fiscal years ended July 2, 2016, June 27, 2015 and June 28, 2014, the Company recorded no other-
than-temporary impairment in each respective period�
As of July 2, 2016, the Company’s total gross unrealized losses on available-for-sale securities, aggregated by
type of investment instrument, were as follows (in millions):
Asset-backed securities � � � � � � � � � � � � � � � � � � �
Corporate securities � � � � � � � � � � � � � � � � � � � � � �
Total gross unrealized losses � � � � � � � � � � � � � � �
Less than
12 Months
$ —
(0�1)
$(0�1)
Greater than
12 Months
$(0�3)
—
$(0�3)
Total
$(0�3)
(0�1)
$(0�4)
As of July 2, 2016, contractual maturities of the Company’s debt securities classified as available-for-sale
securities were as follows (in millions):
Amounts maturing in less than 1 year � � � � � � � � � � � � � � �
Amounts maturing in 1 - 5 years� � � � � � � � � � � � � � � � � � � �
Amounts maturing in more than 5 years� � � � � � � � � � � � � �
Total debt available-for-sale securities � � � � � � � � � � � � � � �
Amortized
Cost/Carrying
Cost
$252�6
94�3
1�0
$347�9
Estimated
Fair Value
$252�7
94�5
0�6
$347�8
As of June 27, 2015, the Company’s available-for-sale securities were as follows (in millions):
Amortized
Cost/Carrying
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
Debt securities:
U�S� treasuries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
U�S� agencies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Municipal bonds and sovereign debt instruments � � � � �
Asset-backed securities � � � � � � � � � � � � � � � � � � � � � � � � �
Corporate securities � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total available-for-sale securities � � � � � � � � � � � � � � � � � � � �
$ 51�9
96�0
4�0
70�6
274�1
$496�6
$ —
—
—
—
0�1
$0�1
$ —
—
—
(0�2)
(0�1)
$ (0�3)
$ 51�9
96�0
4�0
70�4
274�1
$496�4
81
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. INVESTMENTS AND FAIR VALUE MEASUREMENTS (Continued)
As of June 27, 2015, of the total estimated fair value, $33�7 million was classified as cash equivalents,
$461�9 million was classified as short-term investments and $0�8 million was classified as other non-current assets�
In addition to the amounts presented above, as of June 27, 2015, the Company’s short-term investments classified
as trading securities, related to the deferred compensation plan, were $3�0 million, of which $0�4 million was invested
in debt securities, $0�7 million was invested in money market instruments and funds and $1�9 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 (expense), net�
As of June 27, 2015, the Company’s total gross unrealized losses on available-for-sale securities, aggregated by
type of investment instrument, were as follows (in millions):
Asset-backed securities � � � � � � � � � � � � � � � � � � � � � �
Corporate securities � � � � � � � � � � � � � � � � � � � � � � � � �
Total gross unrealized losses � � � � � � � � � � � � � � � � � �
Less than
12 Months
$ —
(0�1)
$(0�1)
Greater than
12 Months
$(0�2)
—
$(0�2)
Total
$(0�2)
(0�1)
$(0�3)
Fair Value Measurements
Assets measured at fair value as of July 2, 2016 are summarized below (in millions):
Fair Value Measurement as of
July 2, 2016
Assets:
Available-for-sale securities:
U�S� treasuries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
U�S� agencies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Municipal bonds and sovereign debt instruments � � � � �
Asset-backed securities � � � � � � � � � � � � � � � � � � � � � � � � �
Corporate securities � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total debt available-for-sale securities � � � � � � � � � � �
Marketable equity securities � � � � � � � � � � � � � � � � � � � � �
Money market funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Trading securities� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total assets(1)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total
$ 46�1
24�9
2�0
50�2
224�6
347�8
171�3
274�4
2�4
795�9
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
$ 46�1
—
—
—
46�1
171�3
274�4
2�4
494�2
$ —
24�9
2�0
50�2
224�6
301�7
—
—
—
301�7
(1) $295�4 million in cash and cash equivalents, $484�7 million in short-term investments, $11�3 million in restricted
cash, and $4�5 million in other non-current assets on the Company’s Consolidated Balance Sheets�
82
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. INVESTMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Assets measured at fair value as of June 27, 2015 are summarized below (in millions):
Fair value measurement as of
June 27, 2015
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Total
Assets:
Debt available-for-sale securities:
U�S� treasuries � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
U�S� agencies � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Municipal bonds and sovereign debt instruments � � � � �
Asset-backed securities � � � � � � � � � � � � � � � � � � � � � � � � �
Corporate securities � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total debt available-for-sale securities � � � � � � � � � � �
Money market funds � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Trading securities� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total assets(1)� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 51�9
96�0
4�0
70�4
274�1
496�4
220�6
3�0
$720�0
$ 51�9
—
—
—
—
51�9
220�6
3�0
$275�5
$ —
96�0
4�0
70�4
274�1
444�5
—
—
$444�5
(1) $225�4 million in cash and cash equivalents, $464�9 million in short-term investments, $25�1 million in restricted
cash, and $4�6 million in other non-current assets on the Company’s Consolidated Balance Sheets�
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
market participants would use in valuing the asset or liability and are developed based on market data obtained from
sources independent of the Company� Unobservable inputs are inputs that reflect the assumptions about the factors
that market participants would use in valuing the 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, 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 on inputs that
are unobservable and significant to the overall fair value measurement� As of July 2, 2016 and June 27,
2015, the Company did not hold any Level 3 investment securities�
83
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 8. INVESTMENTS AND FAIR VALUE MEASUREMENTS (Continued)
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 and other instruments 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 forward contracts, most with a term of less than 120 days, were transacted near fiscal year end; therefore,
the fair value of the contracts as of both July 2, 2016 and June 27, 2015 is not material� The change in the fair value
of these foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of
Operations as a component of Interest and other income (expense), net�
NOTE 9. GOODWILL
The following table presents the changes in goodwill allocated to the Company’s reportable segments
(in millions):
Balance as of June 28, 2014(1)� � � � � � � � � � � � � � � � � � � � � � � � � �
Currency translation and other adjustments � � � � � � � � � � � � � � �
Balance as of June 27, 2015(2)� � � � � � � � � � � � � � � � � � � � � � � � � �
Goodwill allocation - WaveReady(3) � � � � � � � � � � � � � � � � � � � �
Currency translation and other adjustments � � � � � � � � � � � � � � �
Goodwill impairment charge� � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance as of July 2, 2016(4) � � � � � � � � � � � � � � � � � � � � � � � � � � �
Network
Enablement
$158�0
(3�5)
$154�5
(6�0)
(4�7)
—
$143�8
Service
Enablement
$ 94�8
(2�1)
$ 92�7
—
(1�3)
(91�4)
$ —
Optical Security
and Performance
Products
$8�3
—
$8�3
—
—
—
$8�3
Total
$261�1
(5�6)
$255�5
(6�0)
(6�0)
(91�4)
$152�1
(1) Gross goodwill balances for NE, SE and OSP were $459�9 million, $276�0 million and $92�8 million, respectively
as of June 28, 2014� Accumulated impairment for NE, SE and OSP was $301�9 million, $181�2 million and
$84�5 million, respectively as of June 28, 2014�
(2) Gross goodwill balances for NE, SE and OSP were $456�4 million, $273�9 million and $92�8 million, respectively
as of June 27, 2015� Accumulated impairment for NE, SE and OSP was $301�9 million, $181�2 million and
$84�5 million, respectively as of June 27, 2015�
(3) Amount represents a release of the relative fair value of goodwill in our NE reporting unit related to the
WaveReady products line, which is now a part of Lumentum as of the Separation Date� Refer to “Note 3�
Discontinued Operations” for more information�
(4) Gross goodwill balances for NE, SE and OSP were $445�7 million, $272�6 million and $92�8 million, respectively
as of July 2, 2016� Accumulated impairment for NE, SE and OSP was $301�9 million, $272�6 million and
$84�5 million, respectively as of July 2, 2016�
The following table presents gross goodwill and aggregate impairment balances for the fiscal years ended
July 2, 2016, and June 27, 2015 (in millions):
Gross goodwill balance � � � � � � � � � � � � � � � � � � � � � � �
Accumulated impairment losses � � � � � � � � � � � � � � � �
Net goodwill balance � � � � � � � � � � � � � � � � � � � � � � � � �
Years Ended
July 2,
2016
$ 811�1
(659�0)
$ 152�1
June 27,
2015
$ 823�1
(567�6)
$ 255�5
84
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9. GOODWILL (Continued)
Impairment of Goodwill
The Company reviews goodwill for impairment annually during the fourth quarter of the fiscal year or
more frequently if events or circumstances indicate that an impairment loss may have occurred� The Company
determined that, based on its organizational structure and the financial information that is provided to and reviewed
by Management for the year ended fiscal 2016 and 2015, its reporting units were NE, SE and OSP� For the year ended
Fiscal 2014, the Company’s reporting unit were NSE and OSP�
Fiscal 2016
Interim Review
During the first quarter of fiscal 2016, the Company released the relative fair value of goodwill in our NE
reporting unit related to the WaveReady products line which is now part of Lumentum as of the Separation date�
In connection with this change in the NE reporting unit, the Company performed a goodwill impairment test for
its NE reporting unit under the qualitative assessment of the authoritative guidance for impairment testing� The
Company concluded that it was more likely than not that the fair value of the NE reporting unit exceeded its carrying
amount� There were no events or changes in circumstances which triggered an impairment review for the remaining
reporting units�
Annual Review
During the fourth quarter the Company performed the goodwill impairment test for all its reporting units
under the two-step quantitative goodwill impairment test in accordance with the authoritative guidance� Other than
noted above there were no other triggering events during the interim periods of fiscal 2016 and thus, the Company
reviewed goodwill for impairment during the fourth quarter, in line with its completion of its annual operating plan
for fiscal 2017�
Under the first step of the authoritative guidance for impairment testing, the fair value of the NE and OSP
reporting units was determined based on a combination of the income approach, which estimates the fair value based
on the future discounted cash flows, and the market approach, which estimates the fair value based on comparable
market prices� The market approach estimates the fair value of the business based on a comparison of the reporting
unit to comparable publicly traded companies in similar lines of business� Due to lack of comparability with its peer
companies the fair value of the SE reporting unit was determined only utilizing the income approach� The Company
assumed a cash flow period of 10 years, long-term annual growth rates of 3�0% to 7�0%, discount rates of 14�0% to
17�0% and terminal value growth rates of 3�0% to 5�0%� The Company believes that the assumptions and rates used
in the impairment test are reasonable, but they are judgmental, and variations in any of the assumptions or rates could
result in materially different calculations of impairment amounts� The determination of the estimated fair value of
goodwill required the use of significant unobservable inputs which are considered Level 3 fair value measurements�
The sum of the fair values of the reporting units was reconciled to the Company’s current market capitalization
plus an estimated control premium� Based on the first step of the authoritative guidance for impairment testing, the
Company concluded that the fair value of all reporting units, except SE, were in excess of their carrying value� The
fair value of the SE reporting unit was lower than the carry value based on the completion of its annual operating
plan for fiscal 2017 in the fourth quarter which revealed a longer investment cycle being needed for certain growth
products within the SE, coupled with a decline in the reporting unit’s revenue and operating profitability in fiscal
2016 compared to fiscal 2015 when goodwill was last tested for impairment�
85
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9. GOODWILL (Continued)
The second step of the goodwill impairment test involved performing a hypothetical purchase price allocation
to determine the implied fair value of the SE reporting unit’s goodwill� This process is complex and required
judgment in the development of assumptions that affected the determination of the fair value of the SE reporting
unit’s individual assets and liabilities, including previously unrecognized intangible assets� Based on the step two
analysis, the Company determined that all of the SE goodwill balance of $91�4 million was impaired and therefore
recorded as an impairment charge in the fourth quarter of fiscal 2016 in the accompanying Consolidated Statements
of Operations� Prior to completing the goodwill impairment test, the Company tested the recoverability of the SE
long-lived assets (other than goodwill) and concluded that such assets were not impaired�
Fiscal 2015
Interim Review
As the Company reorganized its NSE segment into two reportable segments, NE and SE, during the first
quarter of fiscal 2015, goodwill allocated to the new NE and SE reporting units was reviewed under the two-step
quantitative goodwill impairment test in accordance with the authoritative guidance�
The fair value of the new reporting units was determined based on a combination of the income approach,
which estimates the fair value based on the future discounted cash flows, and the market approach, which estimates
the fair value based on comparable market prices� Based on the first step of the analysis, the Company determined
that the fair value of each reporting unit is significantly above its carrying amount� As such, the Company was not
required to perform step two of the analysis� The Company recorded no impairment charge as a result of the interim
period impairment test performed during the three months ended September 27, 2014� There were no events or
changes in circumstances which triggered an impairment review for the remaining reporting units�
Annual Review
During the fourth quarter the Company reviewed the goodwill of all its reporting units under the qualitative
assessment of the authoritative guidance for impairment testing� The Company concluded that it was more likely than
not that the fair value of the reporting units that currently have goodwill recorded exceeded its carrying amount� In
assessing the qualitative factors, the Company considered the impact of key factors, including: change in industry
and competitive environment, budgeted-to-actual operating performance from prior year, and consolidated company
stock price and performance� As such, it was not necessary to perform the two-step goodwill impairment test at this
time and hence the Company recorded no impairment charge in accordance with its annual impairment test�
Fiscal 2014
During fiscal 2014, the Company reviewed goodwill for impairment during the fourth quarter as no triggering
events were noted� The Company reviewed goodwill under the two-step quantitative goodwill impairment test in
accordance with the authoritative guidance� Under the first step of the authoritative guidance for impairment testing,
the fair value of the reporting units was determined based on a combination of the income approach, which estimates
the fair value based on the future discounted cash flows, and the market approach, which estimates the fair value
based on comparable market prices� Based on the first step of the analysis, the Company determined that the fair
value of each reporting unit is significantly above its carrying amount� As such, the Company was not required to
perform step two of the analysis on any reporting unit to determine the amount of the impairment loss� The Company
recorded no impairment charge in accordance with its annual impairment test�
86
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 10. ACQUIRED DEVELOPED TECHNOLOGY AND OTHER INTANGIBLES
The following tables present details of the Company’s acquired developed technology, customer relationships
and other intangibles (in millions):
As of July 2, 2016
Acquired developed technology � � � � � � � � � � � � � � � � �
Customer relationships � � � � � � � � � � � � � � � � � � � � � � � �
Other(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total intangibles � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
As of June 27, 2015
Acquired developed technology � � � � � � � � � � � � � � � � �
Customer relationships � � � � � � � � � � � � � � � � � � � � � � � �
Other(1) � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total intangibles subject to amortization � � � � � � � � � �
In-process research and development � � � � � � � � � � � � �
Total intangibles � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gross
Carrying
Amount
$369�3
95�6
10�8
$475�7
Gross
Carrying
Amount
$418�9
178�7
19�5
617�1
1�8
$618�9
Accumulated
Amortization
$(337�3)
(68�0)
(10�5)
$(415�8)
Accumulated
Amortization
$(373�6)
(135�8)
(18�9)
(528�3)
—
$(528�3)
Net
$ 32�0
27�6
0�3
$ 59�9
Net
$ 45�3
42�9
0�6
88�8
1�8
$ 90�6
(1) Other intangibles consist of customer backlog, non-competition agreements, patents, proprietary know-how
and trade secrets, trademarks and trade names�
Fiscal 2016
During the first quarter of fiscal 2016, the Company completed its in-process research and development
(“IPR&D”) project related to the fiscal 2014 acquisition of Trendium� Accordingly, $1�8 million was transferred from
indefinite life intangible assets to acquired developed technology intangible assets with a useful life of thirty-six
months�
Prior to conducting step one of the goodwill impairment tests for the SE reporting unit, the Company first
evaluated the recoverability of the long-lived assets, including purchased intangible assets� In accordance with
authoritative guidance, when indicators of impairment are present, the Company tests long-lived assets (other than
goodwill) for recoverability by comparing the carrying value of an asset group, which is the same as the reporting
unit, to its net undiscounted cash flows expected to be generated from its use and their eventual disposition over the
remaining useful live of the primary asset� The result of the analysis indicated that the estimated undiscounted cash
flows exceed the carrying amount of the long-lived asset group, the long-lived asset group is recoverable; therefore,
an impairment was not identified�
Fiscal 2015
During fiscal 2015, the Company completed its in-process research and development (“IPR&D) project related
to the fiscal 2014 acquisition of Network Instruments� Accordingly, $1�7 million was transferred from indefinite life
intangible assets to acquired developed technology intangible assets and the Company began amortizing over its
useful life of fifty-two months� Also during fiscal 2015, the Company recorded a $3�6 million IPR&D impairment
charge for an ongoing project related to the fiscal 2014 acquisition of Trendium in accordance with the authoritative
accounting guidance� The charge was recorded to Research and development (“R&D”) expense in the Consolidated
Statements of Operations�
87
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 10. ACQUIRED DEVELOPED TECHNOLOGY AND OTHER INTANGIBLES (Continued)
During fiscal 2016, 2015 and 2014, the Company recorded $31�9 million, $51�4 million and $49�6 million,
respectively, of amortization related to acquired developed technology and other intangibles� The following table
presents details of the Company’s amortization (in millions):
Cost of sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Operating expense � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$17�3
14�6
$31�9
Years Ended
June 27,
2015
$31�9
19�5
$51�4
June 28,
2014
$34�1
15�5
$49�6
Based on the carrying amount of acquired developed technology, customer relationships and other intangibles
as of July 2, 2016, and assuming no future impairment of the underlying assets, the estimated future amortization is
as follows (in millions):
Fiscal Years
2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total amortization � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$28�5
20�4
9�3
1�4
0�3
$59�9
NOTE 11. DEBTS AND LETTERS OF CREDIT
As of July 2, 2016 and June 27, 2015, the Company’s long-term debt on the Consolidated Balance Sheets
represented the carrying amount of the liability component of the 0�625% Senior Convertible Notes as discussed
below� The following table presents the carrying amounts of the liability and equity components (in millions):
Principal amount of 0�625% Senior Convertible Notes � � �
Unamortized discount of liability component � � � � � � � � � �
Carrying amount of liability component � � � � � � � � � � � � � �
Carrying amount of equity component(1) � � � � � � � � � � � � �
July 2,
2016
$650�0
(61�7)
$588�3
$134�4
June 27,
2015
$650�0
(88�4)
$561�6
$134�4
(1)
Included in Accumulated paid-in-capital on the Consolidated Balance Sheets�
The Company was in compliance with all debt covenants and held no short term debt as of July 2, 2016 and
June 27, 2015�
0.625% Senior Convertible Notes
On August 21, 2013, the Company issued $650�0 million aggregate principal amount of 0�625% Senior
Convertible Notes due 2033 (“2033 Notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended� The proceeds from the 2033 Notes amounted to $636�3 million after
issuance costs� The 2033 Notes are an unsecured obligation of the Company and bear interest at an annual rate of
0�625% payable in cash semi-annually in arrears on February 15 and August 15 of each calendar year� The 2033 Notes
mature on August 15, 2033 unless earlier converted, redeemed or repurchased�
88
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 11. DEBTS AND LETTERS OF CREDIT (Continued)
Under certain circumstances and during certain periods, the 2033 Notes may be converted at the option of
the holders into cash up to the principal amount, with the remaining amount converted into cash, shares of the
Company’s common stock, or a combination of cash and shares of the Company’s common stock at the Company’s
election� The initial conversion price is $18�83 per share, representing a 40�0% premium to the closing sale price of
the Company’s common stock on the pricing date, August 15, 2013, which will be subject to customary anti-dilution
adjustments� Holders may convert the 2033 Notes at any time on or prior to the close of business on the business
day immediately preceding February 15, 2033, and other than during the period from, and including, February 15,
2018 until the close of business on the business day immediately preceding August 20, 2018, in multiples of $1,000
principal amount, under the following circumstances:
•
•
•
•
•
on any date during any calendar quarter beginning after December 31, 2013 (and only during such
calendar quarter) if the closing price of the Company’s common stock was more than 130% of the then
current conversion price for at least 20 trading days during the 30 consecutive trading-day period ending
the last trading day of the previous calendar quarter;
if the 2033 Notes are called for redemption;
upon the occurrence of specified corporate events;
if the Company is party to a specified transaction, a fundamental change or a make-whole fundamental
change (each as defined in the indenture of the 2033 Notes); or
during the five consecutive business-day period immediately following any 10 consecutive trading-day
period in which the trading price per $1,000 principal amount of the 2033 Notes for each day of such 10
consecutive trading-day period was less than 98% of the product of the closing sale price of the Company’s
common stock and the applicable conversion rate on such date�
During the periods from, and including, February 15, 2018 until the close of business on the business day
immediately preceding August 20, 2018 and from, and including, February 15, 2033 until the close of business on the
business day immediately preceding the maturity date, holders may convert the 2033 Notes at any time, regardless
of the foregoing circumstances�
In the fourth quarter of fiscal 2015, holders of the 2033 Notes were given notice of the planned separation of
the Lumentum business and the right to convert any debentures they own from the date of notice through the end of
the business day preceding the ex-dividend date� No holders of the 2033 Notes exercised the conversion right before
it expired�
Following the separation of the Lumentum business on August 1, 2015, the conversion price per share was
adjusted pursuant to the terms of the 2033 Notes relating to the occurrence of a spin-off event� Effective as of the end
of the business day on August 17, 2015, the initial conversion price per share was adjusted to $11�28 per share of the
Company’s common stock traded on NASDAQ under the ticker symbol “VIAV�”
Holders of the 2033 Notes may require the Company to purchase all or a portion of the 2033 Notes on each of
August 15, 2018, August 15, 2023 and August 15, 2028, or upon the occurrence of a fundamental change, in each
case, at a price equal to 100% of the principal amount of the 2033 Notes to be purchased, plus accrued and unpaid
interest to, but excluding the purchase date� The Company may redeem all or a portion of the 2033 Notes for cash at
any time on or after August 20, 2018, at a redemption price equal to 100% of the principal amount of the 2033 Notes
to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date�
In accordance with the authoritative accounting guidance, the Company separated the 2033 Notes into liability
and equity components� The carrying value of the liability component at issuance was calculated as the present value
of its cash flows using a discount rate of 5�4% based on the 5-year swap rate plus credit spread as of the issuance date�
The credit spread for the Company is based on the historical average “yield to worst” rate for BB rated issuers� The
difference between the 2033 Notes principal and the carrying value of the liability component, representing the value
89
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 11. DEBTS AND LETTERS OF CREDIT (Continued)
of conversion premium assigned to the equity component, was recorded as a debt discount on the issuance date and
is being accreted using the effective interest rate of 5�4% over the period from the issuance date through August 15,
2018 as a non-cash charge to interest expense� The carrying value of the liability component was determined to be
$515�6 million, and the equity component, or debt discount, of the 2033 Notes was determined to be $134�4 million�
As of July 2, 2016, the expected remaining term of the 2033 Notes is 2�1 years�
In connection with the issuance of the 2033 Notes, the Company incurred $13�7 million of issuance costs,
which were bifurcated into the debt issuance costs, attributable to the liability component of $10�9 million and the
equity issuance costs, attributable to the equity component of $2�8 million based on their relative values� The debt
issuance costs were capitalized and are being amortized to interest expense using the effective interest rate method
from issuance date through August 15, 2018� The equity issuance costs were netted against the equity component
in additional paid-in capital at the issuance date� As of July 2, 2016, the unamortized portion of the debt issuance
costs related to the 2033 Notes was $5�0 million, which was included in Other non-current assets on the Consolidated
Balance Sheets�
Based on quoted market prices as of July 2, 2016 and June 27, 2015, the fair value of the 2033 Notes was
approximately $633�0 million and $644�0 million� The 2033 Notes are classified within Level 2 as they are not
actively traded in markets�
The following table presents the effective interest rate and the interest expense for the contractual interest and
the accretion of debt discount (in millions, except for the effective interest rate):
Effective interest rate � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest expense-contractual interest � � � � � � � � � � � � � � �
Accretion of debt discount � � � � � � � � � � � � � � � � � � � � � � �
Years Ended
July 2,
2016
5�4%
$ 4�1
26�7
June 27,
2015
5�4%
$ 4�1
25�3
Revolving Credit Facility
On August 21, 2013, in addition to the close of the 2033 Notes offering, the Company terminated its existing
$250�0 million revolving credit facility, which had no amounts outstanding upon termination� The $1�3 million of
unamortized debt issuance costs was fully amortized to interest expense upon termination in the first quarter of
fiscal 2014�
Outstanding Letters of Credit
As of July 2, 2016, the Company had 12 standby letters of credit totaling $15�1 million�
NOTE 12. RESTRUCTURING AND RELATED CHARGES
The Company has initiated various strategic restructuring events primarily intended to reduce its costs,
consolidate its operations, rationalize the manufacturing of its products and align its businesses in response to
market conditions� As of July 2, 2016 and June 27, 2015, the Company’s total restructuring accrual was $18�0 million
and $27�2 million� During fiscal 2016, 2015 and 2014 the Company recorded restructuring and related charges of
$10�5 million, $26�8 million and $21�3 million, respectively� The Company’s restructuring charges can include
severance and benefit costs to eliminate a specified number of positions, facilities and equipment costs to vacate
facilities and consolidate operations, and lease termination costs� The timing of associated cash payments is
dependent upon the type of restructuring charge and can extend over multiple periods�
90
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. RESTRUCTURING AND RELATED CHARGES (Continued)
Summary of Restructuring Plans
The adjustments to the accrued restructuring expenses related to all of the Company’s restructuring plans
described below for the year ended July 2, 2016 were as follows (in millions):
Fiscal 2016 Plan
NE, SE and Shared Service
Agile Restructuring Plan(1)(2)
NE and SE Agile Restructuring Plan(1)
Fiscal 2015 Plan
NE, SE and Shared Service
Balance
as of
June 27,
2015
Fiscal
Year 2016
Charges
(Releases)
Cash
Settlements
Non-cash
Settlements
and Other
Adjustments
Balance
as of
July 2,
2016
$ — $ 9�1
$ — $ 2�4
$ (0�4)
$ (1�5)
$(0�1)
$(0�1)
$ 8�6
$ 0�8
Separation Restructuring Plan(1)(2)
14�9
(0�2)
(13�1)
(0�2)
1�4
Fiscal 2014 Plans
NE Realignment Plan(1)
Shared Services Restructuring Plan(1)
NE Product Strategy Restructuring Plan(1)
NE Lease Restructuring Plan (first floor)(2)
Central Finance and IT Restructuring Plan(1)
Plans Prior to Fiscal 2014 � � � � � � � � � � � � � � � � � � � � � � �
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
0�6
0�7
2�3
5�2
1�1
2�4
$27�2
(0�1)
—
(0�1)
0�2
(0�7)
(0�1)
$10�5
(0�5)
(0�7)
(0�7)
(1�4)
(0�1)
(0�9)
$(19�3)
—
—
—
—
—
—
$(0�4)
—
—
1�5
4�0
0�3
1�4
$18�0
(1) Plan type includes workforce reduction cost�
(2) Plan type includes lease exit cost�
As of July 2, 2016 and June 27, 2015, $4�7 million and $8�1 million, respectively, of our restructuring liability
was long-term in nature and included as a component of Other non-current liabilities, with the remaining short-term
portion included as a component of Other current liabilities on the Consolidated Balance Sheets�
Fiscal 2016 Plan
NE, SE and Shared Service Agile Restructuring Plan
During the fourth quarter of fiscal 2016, Management approved a plan within the NE and SE business
segment and Shared Services function for organizational alignment and consolidation as part of Viavi’s continued
commitment for a more cost effective organization� As a result, a restructuring charge of $8�8 million was recorded
for severance and employee benefits for approximately 190 employees primarily in manufacturing, R&D and SG&A
functions located in North America, Latin America, Europe and Asia� Payments related to the remaining severance
and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2017�
NE and SE Agile Restructuring Plan
During the second quarter of fiscal 2016, Management approved a plan primarily impacting the NE and SE
business segments as part of Viavi’s ongoing commitment for an agile and more efficient operating structure� As a
result, a restructuring charge of $2�4 million was recorded for severance and employee benefits for approximately 50
employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe
and Asia� Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the
third quarter of fiscal 2017�
91
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. RESTRUCTURING AND RELATED CHARGES (Continued)
Fiscal 2015 Plans
NE, SE and Shared Service Separation Restructuring Plan
During the second, third and fourth quarters of fiscal 2015, Management approved a plan to eliminate certain
positions in its shared services functions in connection with the Company’s plan to split into two separate public
companies� Further, Management consolidated its operations, sales and R&D organizations and eliminated positions
within the NE and SE segments to align to the Company’s product market strategy and lower manufacturing costs
in connection with the separation� As a result, approximately 330 employees in manufacturing, R&D and SG&A
functions located in North America, Latin America, Europe and Asia were impacted� Payments related to the
remaining severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2018�
During the fourth quarter of fiscal 2015, Management also approved a plan in the NE and SE segment to exit the
space in Roanoke, Virginia� As of July 2, 2016, the Company exited the workspace in Roanoke under the plan�
The fair value of the remaining contractual obligations as of July 2, 2016 was $0�3 million� Payments related to the
Roanoke lease costs are expected to be paid by the end of the fourth quarter of fiscal 2017�
Fiscal 2014 Plans
NE Realignment Plan
During the fourth quarter of fiscal 2014, Management approved a NE plan to realign its operations and strategy
to allow for greater investment in high-growth areas� As a result, approximately 100 employees in manufacturing,
R&D and SG&A functions located in North America, Asia and Europe were impacted� Payments related to the
remaining severance and benefits accrual were paid by the end of the second quarter of fiscal 2016�
Shared Services Restructuring Plan
During the fourth quarter of fiscal 2014, Management approved a plan to eliminate positions and re-define roles
and responsibilities in its shared services functions in order to reduce cost, standardize global processes and establish
a more efficient organization� As a result, approximately 40 employees primarily in the general and administrative
functions located in the United States, Asia and Europe were impacted� Payments related to the remaining severance
and benefits accrual were paid by the end of the fourth quarter of fiscal 2016�
NE Product Strategy Restructuring Plan
During the third quarter of fiscal 2014, Management approved a NE plan to realign its services, support and
product resources in response to market conditions in the mobile assurance market and to increase focus on software
products and next generation solutions through acquisitions and R&D� As a result, approximately 60 employees
primarily in SG&A and manufacturing functions located in North America, Latin America, Asia and Europe were
impacted� Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the
first quarter of fiscal 2020�
NE Lease Restructuring Plan
During the second quarter of fiscal 2014, Management approved a NE plan to exit the remaining space in
Germantown, Maryland� As of June 28, 2014, the Company exited the space in Germantown under the plan� The fair
value of the remaining contractual obligations, net of sublease income, as of July 2, 2016 was $4�0 million� Payments
related to the Germantown lease costs are expected to be paid by the end of the second quarter of fiscal 2019�
92
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12. RESTRUCTURING AND RELATED CHARGES (Continued)
Central Finance and Information Technology (“IT”) Restructuring Plan
During the second quarter of fiscal 2014, Management approved a plan to eliminate positions and re-define
roles and responsibilities in the Finance and IT organization to align with the future state of the organizations under
new executive management and move positions to lower-cost locations where appropriate� As a result, approximately
20 employees primarily in SG&A functions located in North America, Asia and Europe were impacted� Payments
related to the remaining severance and benefits accrual are expected to be paid by the end of the fourth quarter of
fiscal 2019�
Plans Prior to Fiscal 2014
As of July 2, 2016, the restructuring accrual for plans that commenced prior to fiscal year 2014 was $1�4
million, which consists of immaterial accruals from various restructuring plans�
NOTE 13. INCOME TAXES
The Company’s income (loss) before income taxes consisted of the following (in millions):
Domestic � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
(Loss) income before income taxes � � � � � � � � � � � � � �
July 2,
2016
$(110�9)
65�0
$ (45�9)
Years Ended
June 27,
2015
$(173�1)
67�8
$(105�3)
June 28,
2014
$(136�4)
50�6
$ (85�8)
The Company’s income tax expense (benefit) consisted of the following (in millions):
Federal:
Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
State:
Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign:
Current � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total income tax (benefit) expense
Years Ended
June 27,
2015
July 2,
2016
$ —
(26�2)
(26�2)
$ 0�1
2�3
2�4
—
(1�5)
(1�5)
21�3
10�9
32�2
$ 4�5
(0�1)
0�1
—
17�9
5�8
23�7
$ 26�1
June 28,
2014
$ (0�2)
(4�5)
(4�7)
—
(0�3)
(0�3)
16�7
(22�9)
(6�2)
$(11�2)
The federal and state deferred tax benefit primarily relates to the intraperiod allocation rules for other
comprehensive income and discontinued operations and the release of deferred tax liabilities on tax deductible
goodwill that is impaired for financial statement purposes� The foreign current expense primarily relates to the
Company’s profitable operations in certain foreign jurisdictions� The foreign deferred tax expense primarily relates
to a one-time increase in valuation allowance associated with deferred tax assets transferred to Lumentum in
connection with the Separation�
There was no material tax benefit associated with exercise of stock options for the fiscal years ended July 2,
2016, June 27, 2015 and June 28, 2014�
93
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 13. INCOME TAXES (Continued)
A reconciliation of the Company’s income tax expense (benefit) at the federal statutory rate to the income tax
expense (benefit) at the effective tax rate is as follows (in millions):
Income tax (benefit) expense computed at federal statutory rate � � � � � � � � � � � � � � �
Goodwill impairment � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Intraperiod allocation � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign rate differential � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Valuation allowance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Research and experimentation benefits and other tax credits � � � � � � � � � � � � � � � � � �
Statute expiration � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Reversal of previously accrued taxes � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Permanent items � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Income tax (benefit) expense � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$(16�1)
19�4
(20�7)
(2�0)
18�2
(1�1)
—
—
6�7
0�1
$ 4�5
Years Ended
June 27,
2015
$(36�8)
—
—
(2�3)
56�7
(0�9)
—
(0�8)
8�0
2�2
$ 26�1
June 28,
2014
$(30�0)
—
(6�4)
(0�5)
43�6
(0�1)
(21�7)
(0�7)
3�8
0�8
$(11�2)
The components of the Company’s net deferred taxes consisted of the following (in millions):
Gross deferred tax assets:
Tax credit carryforwards � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net operating loss carryforwards � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Capital loss carryforwards� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Inventories � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accruals and reserves � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Investments � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Acquisition-related items � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gross deferred tax assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Valuation allowance � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred tax assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Gross deferred tax liabilities:
Acquisition-related items � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Undistributed foreign earnings � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Deferred tax liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total net deferred tax assets (liabilities) � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
Years Ended
June 27,
2015
$
141�0
1,846�3
145�9
6�1
27�4
34�4
60�3
65�2
2,326�6
(2,174�3)
152�3
(13�2)
—
(31�1)
(44�3)
108�0
$
$
131�4
2,226�1
4�1
6�7
30�2
0�7
55�5
59�9
2,514�6
(2,334�5)
180�1
(20�9)
(4�7)
(44�5)
(70�1)
110�0
$
$
June 28,
2014
124�8
2,261�4
4�9
6�4
43�9
0�8
54�3
54�3
2,550�8
(2,321�8)
229�0
(31�0)
(4�2)
(49�3)
(84�5)
144�5
$
At the beginning of the second quarter of fiscal 2016, the Company prospectively adopted the authoritative
guidance on balance sheet classification of deferred taxes, which requires deferred tax assets and liabilities, and any
related valuation allowance, to be classified as non-current on the Consolidated Balance Sheets� This classification
eliminates the need to separately identify the net current and net non-current deferred tax asset or liability in each
jurisdiction� As of June 27, 2015, deferred tax assets and deferred tax liabilities of $2�0 million and $7�1 million,
respectively, were not reclassified from current to non-current as the Company elected to adopt the authoritative
guidance prospectively�
94
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 13. INCOME TAXES (Continued)
As of July 2, 2016, the Company had federal, state and foreign tax net operating loss carryforwards of
$5,008�3 million, $886�0 million and $609�2 million, respectively, and federal, state and foreign research and other
tax credit carryforwards of $100�7 million, $39�6 million and $0�7 million, respectively� As a result of the Lumentum
transaction we utilized federal and state net operating losses of approximately $1,026 million and $226 million,
respectively, and generated capital losses of approximately $393 million� Of the remaining net operation losses,
approximately $106�4 million when realized will be credited to additional paid-in capital� The Company’s policy
is to account for the utilization of tax attributes under a with-and-without approach� The tax net operating loss, tax
credit and capital loss carryforwards will start to expire in calendar 2017 and at various other dates through 2035
if not utilized� Utilization of the tax net operating losses may be subject to a substantial annual limitation due to
the ownership change limitations provided by the Internal Revenue Code and similar state and foreign provisions�
Loss carryforward limitations may result in the expiration or reduced utilization of a portion of the Company’s net
operating losses�
U�S� income and foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries
have not been provided on $319�6 million of undistributed earnings for certain foreign subsidiaries� The Company
intends to reinvest these earnings indefinitely outside of the United States� The Company estimates that an additional
$17�0 million of U�S� income or foreign withholding taxes would have to be provided if these earnings were repatriated
back to the U�S�
The valuation allowance decreased by $160�2 million in fiscal 2016, increased by $12�6 million in fiscal 2015,
and decreased by $12�1 million in fiscal 2014� The decrease during fiscal 2016 was primarily due to the Lumentum
transaction� The increase during fiscal 2015 was primarily related to the increases in the deferred tax assets and
intangible amortization� The decrease during fiscal 2014 was primarily related to an increase in acquisition and debt
issuance related deferred tax liabilities� The following table provides information about the activity of our deferred
tax valuation allowance (in millions):
Deferred Tax Valuation Allowance
Year Ended July 2, 2016 � � � � � � � � � � � � � � � � � � � �
Year Ended June 27, 2015 � � � � � � � � � � � � � � � � � � �
Year Ended June 28, 2014 � � � � � � � � � � � � � � � � � � �
Balance at
Beginning
of Period
$2,334�5
$2,321�8
$2,333�9
Additions Charged
to Expenses or
Other Accounts(1)
$227�5
$ 39�5
$ 32�2
Deductions Credited
to Expenses or Other
Accounts(2)
$(387�7)
$ (26�8)
$ (44�3)
Balance at
End of
Period
$2,174�3
$2,334�5
$2,321�8
(1) Additions include current year additions charged to expenses and current year build due to increases in net
deferred tax assets, return to provision true-ups, other adjustments and OCI impact to deferred taxes�
(2) Deductions include current year releases credited to expenses and current year reductions due to decreases in
net deferred tax assets, return to provision true-ups, other adjustments and OCI impact to deferred taxes�
Approximately $514�7 million of the valuation allowance as of July 2, 2016 was attributable to pre-fiscal 2006
windfall stock option deductions, the benefit of which will be credited to paid-in-capital if and when realized through
a reduction in income tax payable� Beginning with fiscal 2006, the Company began to track the windfall stock option
deductions off-balance sheet� If and when realized, the tax benefit associated with those deductions will be credited
to additional paid-in-capital�
During fiscal 2014, the Company recognized $21�7 million of uncertain tax benefits related to deferred
tax assets due to the expiration of the statute of limitations in a non-US jurisdiction� In addition, the Company
recorded a tax benefit of $6�4 million related to the income tax intraperiod tax allocation rules in relation to other
comprehensive income�
95
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 13. INCOME TAXES (Continued)
A reconciliation of unrecognized tax benefits between June 29, 2013 and July 2, 2016 is as follows (in millions):
Balance at June 29, 2013 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Additions based on tax positions related to current year � � � � � � � � � � � � � � � � �
Additions due to foreign currency rate fluctuation� � � � � � � � � � � � � � � � � � � � � �
Reductions for lapse of statute of limitations � � � � � � � � � � � � � � � � � � � � � � � � � �
Reductions based on state credit expiration � � � � � � � � � � � � � � � � � � � � � � � � � � �
Reductions based on the tax positions related to the prior year � � � � � � � � � � � �
Balance at June 28, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Additions based on tax positions related to current year � � � � � � � � � � � � � � � � �
Reductions for lapse of statute of limitations � � � � � � � � � � � � � � � � � � � � � � � � � �
Reductions due to foreign currency rate fluctuations� � � � � � � � � � � � � � � � � � � �
Balance at June 27, 2015 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Additions based on tax positions related to current year � � � � � � � � � � � � � � � � �
Reductions for lapse of statute of limitations � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance at July 2, 2016 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$ 58�2
3�2
1�1
(21�7)
(1�7)
(0�8)
38�3
1�9
(3�3)
(0�1)
36�8
5�1
(0�2)
$ 41�7
The unrecognized tax benefits relate primarily to the allocations of revenue and costs among the Company’s
global operations and the validity of some U�S� tax credits� Included in the balance of unrecognized tax benefits at
July 2, 2016 are $3�0 million of tax benefits that, if recognized, would impact the effective tax rate� Also included
in the balance of unrecognized tax benefits at July 2, 2016 are $38�7 million of tax benefits that, if recognized,
would result in adjustments to the valuation allowance and are included in deferred taxes and other non-current tax
liabilities, net in the Consolidated Balance Sheets�
The Company’s policy is to recognize accrued interest and penalties related to unrecognized tax benefits
within the income tax provision� The amount of interest and penalties accrued as of July 2, 2016 and June 27, 2015
was approximately $1�7 million and $1�6 million, respectively� During fiscal 2016, the Company’s accrued interest
and penalties decreased by $0�1 million primarily relating to the lapse of statute in a non-US jurisdiction� The
unrecognized tax benefits that may be recognized during the next twelve months is approximately $1�0 million�
The Company is routinely subject to various federal, state and foreign audits by taxing authorities� The Company
believes that adequate amounts have been provided for any adjustments that may result from these examinations�
The following table summarizes the Company’s major tax jurisdictions and the tax years that remain subject to
examination by such jurisdictions as of July 2, 2016:
Tax Jurisdictions
United States � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Canada � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
China � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
France� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Germany � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Korea � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
United Kingdom � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Tax Years
2013 and onward
2010 and onward
2011 and onward
2013 and onward
2014 and onward
2011 and onward
2015 and onward
96
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14. STOCKHOLDERS’ EQUITY
Repurchase of Common Stock
Fiscal 2014
During fiscal 2014, the Company repurchased 7�4 million shares of its outstanding common stock at $13�45 per
share in privately negotiated transactions concurrently with the issuance of its 2033 Notes� The repurchases were
not made pursuant to any plan or program� The total purchase price of $100�0 million was reflected as a decrease to
common stock based on the stated par value per share with the remainder charged to accumulated deficit�
On May 21, 2014, the Company’s Board of Directors authorized a stock repurchase program under which
the Company may purchase shares of its common stock worth up to an aggregate purchase price of $100�0 million
through open market or private transactions between May 27, 2014 and June 27, 2015� During the fourth quarter of
fiscal 2014, the Company repurchased approximately 4�9 million shares of common stock in open market purchases
at an average price of $11�37 per share�
Fiscal 2015
During the first quarter of fiscal 2015, the Company repurchased approximately 0�4 million shares of common
stock in open market purchases at an average price of $11�93 per share under the stock repurchase program authorized
on May 21, 2014� The total purchase price of these repurchases under the stock repurchase program of $60�0 million
was reflected as a decrease to common stock based on the stated par value per share with the remainder charged to
accumulated deficit�
Fiscal 2016
In November 2015, the Company entered into a $40�0 million accelerated share repurchase agreement (the
“ASR”) with a financial institution that was completed during the third quarter of fiscal 2016� Upon making the
upfront payment of $40�0 million, the Company received an initial delivery of 5�3 million shares from the financial
institution during the second quarter of fiscal 2016, which were retired and recorded as a $32�0 million reduction
to stockholder’s equity on the Consolidated Balance Sheet� During the third quarter of fiscal 2016 the ASR was
completed and an additional 1�3 million shares were delivered from the financial institution, based on the final
settlement price of $6�05 per share, which were retired and recorded as an $8�0 million reduction to stockholder’s
equity on the Consolidated Balance Sheet� The Company reflects the repurchase of common stock under the ASR in
the period the shares are delivered for the purposes of calculating earnings per share�
On February 1, 2016, the Company’s Board of Directors authorized a stock repurchase program under which
the Company may purchase shares of its common stock worth up to an aggregate purchase price of $100�0 million
through open market or private transactions between February 1, 2016 and February 1, 2017� During the fourth
quarter of fiscal 2016, the Company repurchased approximately 0�7 million shares of common stock in open market
purchases at an average price of $6�60 per share under the stock repurchase program authorized on February 1, 2016�
The total purchase price of these repurchases under the stock repurchase program of $4�5 million was reflected as a
decrease to common stock based on the stated par value per share with the remainder charged to accumulated deficit�
All common shares repurchased during fiscal 2016, 2015 and 2014 under this program have been canceled
and retired�
Preferred Stock
The Company’s Board of Directors has authority to issue up to 1,000,000 shares of undesignated preferred
stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted
to or imposed upon any wholly unissued shares of undesignated preferred stock and to fix the number of shares
constituting any series and the designation of such series, without the consent of the Company’s stockholders� The
97
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14. STOCKHOLDERS’ EQUITY (Continued)
preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of
common stock� The issuance of any preferred stock subsequently issued by the Company’s Board of Directors, under
some circumstances, could have the effect of delaying, deferring or preventing a change in control�
Exchangeable Shares of JDS Uniphase Canada Ltd.
On March 31, 2014 (“the Redemption Date”), the Company exercised its right to redeem approximately 3�2
million outstanding exchangeable shares of JDS Uniphase Canada Ltd (“Exchangeable Shares”)� On the Redemption
Date, holders of Exchangeable Shares were entitled to receive one share of the Company’s common stock in exchange
for each Exchangeable Share held� There were no Exchangeable Shares issued and outstanding as of July 2, 2016 and
June 27, 2015, respectively�
NOTE 15. STOCK-BASED COMPENSATION
Stock-Based Benefit Plans
Stock Option Plans
As of July 2, 2016, the Company had 12�5 million shares of stock options and Full Value Awards issued and
outstanding to employees and directors under the Restated 2005 Acquisition Equity Incentive Plan (“the 2005 Plan”),
Restated 2003 Equity Incentive Plan (“the 2003 Plan”), inducement grants in connection with the appointment of our
new CEO in fiscal 2016 and various other plans the Company assumed through acquisitions� The exercise price for
stock options is equal to the fair value of the underlying stock at the date of grant� The Company issues new shares
of common stock upon exercise of stock options� Options generally become exercisable over a three-year or four-year
period and, if not exercised, expire from five to ten years after the date of grant�
On November 14, 2012, the Company’s shareholders approved two amendments to the 2003 Plan� The first
amendment increased the number of shares that may be issued under this plan by 10,000,000 shares� The second
amendment extended the 2003 Plan’s terms for an additional ten year period after the date of approval of the
amendment� On December 5, 2014, the Company’s shareholders approved another amendment to the 2003 Plan to
increase the number of shares that may be issued under the plan by 9,000,000 shares� On August 1, 2015, following
the Separation, the number of shares available for grant and all outstanding awards were automatically adjusted
pursuant to the terms of the 2003 Plan and 2005 Plan�
As of July 2, 2016, 19�4 million shares of common stock, primarily under the 2003 Plan and the 2005 Plan, were
available for grant�
Employee Stock Purchase Plans
In June 1998, the Company adopted the 1998 Employee Stock Purchase Plan, as amended (the “1998 Purchase
Plan”)� The 1998 Purchase Plan, which became effective August 1, 1998, provides eligible employees with the
opportunity to acquire an ownership interest in the Company through periodic payroll deductions and provides
a discounted purchase price as well as a look-back period� The 1998 Purchase Plan is structured as a qualified
employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986� However, the 1998 Purchase
Plan is not intended to be a qualified pension, profit sharing or stock bonus plan under Section 401(a) of the Internal
Revenue Code of 1986 and is not subject to the provisions of the Employee Retirement Income Security Act of 1974�
The 1998 Purchase Plan will terminate upon the earlier of August 1, 2018 or the date on which all shares available
for issuance have been sold� On August 1, 2015, following the Separation, the number of shares available for issuance
was automatically adjusted pursuant to the terms of the 1998 Purchase Plan� As of July 2, 2016, 5�5 million shares
remained available for issuance� The 1998 Purchase Plan provides a 5% discount and a six month look-back period�
98
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15. STOCK-BASED COMPENSATION (Continued)
Full Value Awards
Full Value Awards refer to RSUs (time-based, Non-Performance Shares) and MSUs (Market-based, Performance
Shares) that are granted with the exercise price equal to zero and are converted to shares immediately upon vesting�
These Full Value Awards are performance-based with market conditions, time-based or a combination of both and
expected to vest over one to four years� The fair value of the time-based Full Value Awards is based on the closing
market price of the Company’s common stock on the date of award�
Stock-Based Compensation
The impact on the Company’s results of operations of recording stock-based compensation expense by function
for fiscal 2016, 2015 and 2014 was as follows (in millions):
Cost of sales � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Research and development � � � � � � � � � � � � � � � � � �
Selling, general and administrative � � � � � � � � � � �
Total stock-based compensation expense � � � � � � �
Years Ended
June 27,
2015
$ 4�2
8�1
35�2
$ 47�5
July 2,
2016
$ 4�8
8�4
29�2
$42�4
June 28,
2014
$ 4�3
8�4
32�0
$44�7
Approximately $0�8 million of stock-based compensation expense was capitalized to inventory at July 2, 2016�
Impact on Stock-based Compensation Due to Separation
In connection with the separation of the Lumentum business on August 1, 2015 and in accordance with the
Employee Matters Agreement, the Company made certain adjustments to the exercise price and number of shares
underlying stock-based compensation awards with the intention of preserving the economic value of the awards for
Viavi employees� These adjustments resulted in a modification of equity awards with total incremental stock-based
compensation of $13�6 million, to be amortized over the remaining service periods of the underlying awards�
Unless otherwise noted, share amounts and grant-date fair values for periods prior to the Separation Date
represent the Company’s historical information and have not been adjusted to remove grants made to employees who
transferred to Lumentum as part of the Separation� Refer to “Note 3� Discontinued Operations” for more information
on the Separation�
Impact on Stock-based Compensation Due to Amendments in the Change of Control Benefits Plan
During the year ended June 27, 2015, the Company amended its Change of Control Benefits Plan (the “Plan”)
to add a spin-off of certain Company assets to the circumstances that could trigger benefits under the Plan, as well
as other revisions� The Chief Executive Officer of the Company and the Chairman of the Compensation Committee
approved the separation of certain executives in the current fiscal year� Pursuant to the Plan, upon termination,
all unvested equity awards that have been granted or issued to certain terminated executives become immediately
vested and stock options shall become fully exercisable with an extended exercise period of two years from the
termination date�
The amendments resulted in a modification of equity awards for six executives and total incremental
stock-based compensation of $6�3 million, which was amortized over the period between the modification date and
the termination dates of the executives�
99
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15. STOCK-BASED COMPENSATION (Continued)
Stock Option Activity
The following is a summary of stock option activities (amount in millions except per share amounts):
Balance as of June 29, 2013 � � � � � � � � � � � � � � � � � �
Exercised � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Canceled � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance as of June 28, 2014 � � � � � � � � � � � � � � � � � �
Exercised � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Canceled � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Balance as of June 27, 2015 � � � � � � � � � � � � � � � � � �
Granted � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Exercised � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Canceled � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net adjustment due to the separation � � � � � � � � � � �
Balance as of July 2, 2016 � � � � � � � � � � � � � � � � � � � �
Number
of Shares
5�6
(1�6)
(0�5)
3�5
(0�9)
(0�1)
2�5
1�2
(0�7)
(0�4)
0�5
3�1
Expected to vest � � � � � � � � � � � � � � � � � � � � � � � � � � �
2�8
Weighted-Average
Exercise Price(1)
$10�56
7�91
22�24
10�13
7�58
14�54
10�84
5�95
4�74
10�52
$ 5�91
$ 5�91
(1) Weighted average exercise price is calculated using exercise prices prior to the Separation and after
the Separation�
The total intrinsic value of options exercised during the year ended July 2, 2016 was $1�3 million� In connection
with these exercises, the tax benefit realized by the Company was immaterial due to the fact that the Company has
no material benefit in foreign jurisdictions and a full valuation allowance on its domestic deferred tax assets� As of
July 2, 2016, $2�0 million of unrecognized stock-based compensation expense related to stock options remains to be
amortized� That cost is expected to be recognized over an estimated amortization period of 3�6 years�
The following table summarizes significant ranges of outstanding and exercisable options as of July 2, 2016,
adjusted to reflect the impact of the Lumentum separation�
Options Outstanding
Weighted
Average
Remaining
Contractual
Term
(in years)
0�99
1�52
7�62
1�25
2�87
3�79
Weighted
Average
Exercise
Price
$ 2�96
5�74
5�95
8�75
11�82
$ 5�91
Aggregate
Intrinsic
Value
(in millions)
$3�6
Number of
Shares
564,672
812,359
—
394,487
107,412
1,878,930
Options Exercisable
Weighted
Average
Remaining
Contractual
Term
(in years)
1�4
Weighted
Average
Exercise
Price
$ 2�96
5�74
—
8�75
11�82
$ 5�88
Aggregate
Intrinsic
Value
(in millions)
$2�8
Range of Exercise Prices
$1�99 - $3�28 � � � � �
$5�74 - $5�74 � � � � �
$5�95 - $5�95 � � � � �
$6�52 - $9�93 � � � � �
$11�82 - $11�82 � � � �
Number of
Shares
564,672
812,359
1,180,257
394,487
107,412
3,059,187
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the
Company’s closing stock price of $6�61 as of July 2, 2016, which would have been received by the option holders had
all option holders exercised their options as of that date� The total number of in-the-money options exercisable as of
July 2, 2016 was 1�5 million�
100
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15. STOCK-BASED COMPENSATION (Continued)
Employee Stock Purchase Plan Activity
The expense related to the plan is recorded on a straight-line basis over the relevant subscription period�
The following summarizes the shares issued and the fair market value at purchase date, pursuant to the
Company’s ESPP during the year ended July 2, 2016:
Purchase date
Shares issued � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Fair market value at purchase date � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
January 29, 2016
253,885
4�75
$
As of July 2, 2016, there was $0�1 million of unrecognized stock-based compensation cost related to ESPP
remains to be amortized� The cost will be recognized in the first quarter of fiscal 2017�
Full Value Awards Activity
A summary of the status of the Company’s non-vested Full Value Awards as of July 2, 2016 and changes during
the same period is presented below (amount in millions, except per share amounts):
Non-vested at June 29, 2013 � � � � � � � � � � �
Awards granted � � � � � � � � � � � � � � � � � � � � �
Awards vested � � � � � � � � � � � � � � � � � � � � � �
Awards forfeited � � � � � � � � � � � � � � � � � � � �
Non-vested at June 28, 2014 � � � � � � � � � � �
Awards granted � � � � � � � � � � � � � � � � � � � � �
Awards vested � � � � � � � � � � � � � � � � � � � � � �
Awards forfeited � � � � � � � � � � � � � � � � � � � �
Non-vested at June 27, 2015 � � � � � � � � � � �
Awards granted � � � � � � � � � � � � � � � � � � � � �
Awards vested � � � � � � � � � � � � � � � � � � � � � �
Awards forfeited � � � � � � � � � � � � � � � � � � � �
Net adjustment due to the separation � � � �
Non-vested at July 2, 2016 � � � � � � � � � � � �
Performance
Shares(1)
1�0
0�6
(0�4)
(0�1)
1�1
0�7
(0�8)
—
1�0
0�7
(0�7)
(0�4)
0�4
1�0
Full Value Awards
Total
Number
of Shares
9�0
6�0
(4�5)
(1�1)
9�4
6�0
(5�2)
(1�4)
8�8
6�8
(5�5)
(2�2)
1�5
9�4
Non-
Performance
Shares
8�0
5�4
(4�1)
(1�0)
8�3
5�3
(4�4)
(1�4)
7�8
6�1
(4�8)
(1�8)
1�1
8�4
Weighted-average
grant-dated
fair value
$12�61
13�42
12�26
12�94
13�19
11�78
12�96
13�10
12�36
5�75
6�01
7�89
$ 6�55
(1) Performance Shares refer to the Company’s MSU awards, where the actual number of shares awarded upon
vesting may be higher or lower than the target amount depending on the achievement of the relevant market
conditions� The majority of MSUs vest in equal annual installments over three to four years based on the
attainment of certain total shareholder return performance measures and the employee’s continued service
through the vest date� The aggregate grant-date fair value of MSUs granted during fiscal 2016, 2015 and
2014 was estimated to be $3�7 million, $9�4 million and $9�2 million respectively, and was calculated using a
Monte Carlo simulation�
As of July 2, 2016, $39�1 million of unrecognized stock-based compensation cost related to Full Value Awards
remains to be amortized� That cost is expected to be recognized over an estimated amortization period of 2�0 years�
Full Value Awards are converted into shares upon vesting� Shares equivalent in value to the minimum
withholding taxes liability on the vested shares are withheld by the Company for the payment of such taxes� During
fiscal 2016, 2015 and 2014, the Company paid $11�4 million, $22�1 million and $21�4 million, respectively, and
classified the payments as operating cash outflows in the Consolidated Statements of Cash Flows�
101
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15. STOCK-BASED COMPENSATION (Continued)
Valuation Assumptions
The Company estimates the fair value of the MSUs on the date of grant using a Monte Carlo simulation with
the following assumptions:
Volatility of common stock � � � � � � � � � � � � � � � � � � � � � � �
Average volatility of peer companies � � � � � � � � � � � � � � � �
Average correlation coefficient of peer companies � � � � �
Risk-free interest rate � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
33�8%
52�9%
Years Ended
June 27,
2015
40�8%
53�4%
June 28,
2014
53�9%
58�6%
0�1103
0�2156
0�2920
0�8%
0�6%
0�8%
The Company estimates the fair value of Stock Options and ESPP using a BSM valuation model� The
fair value is estimated on the date of grant using the BSM option valuation model with the following weighted-
average assumptions:
Expected term (in years) � � �
Expected volatility � � � � � � �
Risk-free interest rate � � � � �
Stock Options
July 2,
2016
5�2
42�3%
1�2%
Employee Stock Purchase Plans
June 28,
June 27,
July 2,
2014
2015
2016
0�5
0�5
0�5
39�5%
45�7% 37�9%
0�1%
0�1%
0�4%
Expected Term: The Company’s expected term for stock options was calculated utilizing the simplified method
in accordance with the authoritative guidance� The Company used the simplified method as the Company does
not have sufficient historical share option exercise data due to the limited number of shares granted as well as
changes in the Company’s business following the Separation, rendering existing historical experience less reliable
in formulating expectations for current grants� The Company’s expected term for ESPP is in line with the six month
look-back period of its ESPP�
Expected Volatility: The Company has limited trading history following the Separation; therefore, the expected
volatility for stock options was based on the historical volatility of the Company’s common stock and its peers�
For grants prior to the Separation and for ESPP grants, the Company determined that a combination of the implied
volatility of its traded options and historical volatility of its stock price based on the expected term of the equity
instrument most appropriately reflects market expectation of future volatility� Implied volatility is based on traded
options of the Company’s common stock with a remaining maturity of four and a half months or greater�
Risk-Free Interest Rate: The Company bases the risk-free interest rate used in the BSM valuation method on the
implied yield currently available on U�S� Treasury zero-coupon issues with an equivalent remaining term�
Expected Dividend: The BSM valuation model calls for a single expected dividend yield as an input� The
Company has not paid and does not anticipate paying any dividends in the near future�
NOTE 16. EMPLOYEE PENSION AND OTHER BENEFIT PLANS
Employee 401(k) Plans
The Company sponsors the Viavi Solutions 401(k) Plan (the “401(k) Plan”), a Defined Contribution Plan under
ERISA, which provides retirement benefits for its eligible employees through tax deferred salary deductions� The
401(k) Plan allows employees to contribute up to 50% of their annual compensation, with contributions limited to
$18,000 in calendar year 2016 as set by the Internal Revenue Service�
102
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. EMPLOYEE PENSION AND OTHER BENEFIT PLANS (Continued)
For all eligible participants who have completed 180 days of service with Viavi, the 401(k) Plan provided for a
100% match of employees’ contributions up to the first 3% of annual compensation and 50% match on the next 2% of
compensation� All matching contributions are made in cash and vest immediately� The Company’s matching contributions
to the 401(k) Plan were $4�7 million, $4�8 million, and $4�8 million in fiscal 2016, 2015 and 2014, respectively�
Deferred Compensation Plan
The Company also provides for the benefit of certain eligible employees in the U�S� a non-qualified retirement
plan� This plan is designed to permit employee deferral of a portion of salaries in excess of certain tax limits and
deferral of bonuses� This plan’s assets are designated as trading securities on the Company’s Consolidated Balance
Sheets� Refer to “Note 8� Investments and Fair Value Measurements” for more information� Effective January 1, 2011,
the Company suspended all employee contributions into the plan�
Employee Defined Benefit Plans
The Company sponsors significant qualified and non-qualified pension plans for certain past and present
employees in the U�K� and Germany� The Company also is responsible for the non-pension post-retirement benefit
obligation assumed from a past acquisition� In connection with the Separation, the Company transferred the liabilities
and assets of the Switzerland defined benefit pension plans to Lumentum in the amount of $6�7 million and $4�6
million, respectively�
Most of the plans have been closed to new participants and no additional service costs are being accrued, except
for certain plans in Germany assumed in connection with an acquisition during fiscal 2010� Benefits are generally
based upon years of service and compensation or stated amounts for each year of service� As of July 2, 2016, the
U�K� plan was partially funded while the other plans were unfunded� The Company’s policy for funded plans is to
make contributions equal to or greater than the requirements prescribed by law or regulation� For unfunded plans, the
Company pays the post-retirement benefits when due� Future estimated benefit payments are summarized below� No
other required contributions to defined benefit plans are expected in fiscal 2016, but the Company, at its discretion,
can make contributions to one or more of the defined benefit plans�
The Company accounts for its obligations under these pension plans in accordance with the authoritative
guidance which requires the Company to record its obligation to the participants, as well as the corresponding net
periodic cost� The Company determines its obligation to the participants and its net periodic cost principally using
actuarial valuations provided by third-party actuaries� The obligation the Company records on its Consolidated
Balance Sheets is reflective of the total PBO and the fair value of plan assets�
In the fourth quarter of fiscal 2016 the Company has elected to early adopt the authoritative guidance issued by
the FASB that provides a practical expedient permitting an entity to measure defined benefit plan assets and obligations
using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from
year to year� The Company has elected to early adopt the month-end date of June 30, which is the closest month-end to
the Company’s fiscal year as the measurement date for all of the Company’s qualified and the non-qualified pension
plans in certain countries beginning in fiscal 2016� Measurement dates for prior periods are not impacted�
The following table presents the components of the net periodic cost for the pension and benefits plans
(in millions):
Pension Benefits
Service cost � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest cost � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected return on plan assets � � � � � � � � � � � � �
Recognized net actuarial losses � � � � � � � � � � � �
Provision for legal proceeding � � � � � � � � � � � � �
Net periodic benefit cost � � � � � � � � � � � � � � � � � �
Years Ended
2015
$ 0�2
3�7
(1�6)
0�4
—
$ 2�7
2016
$ 0�2
3�0
(1�5)
0�7
8�4
$10�8
2014
$ 0�4
4�5
(1�4)
0�1
—
$ 3�6
103
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. EMPLOYEE PENSION AND OTHER BENEFIT PLANS (Continued)
The Company’s accumulated other comprehensive income includes unrealized net actuarial (gains)/losses� The
amount expected to be recognized in net periodic benefit cost during fiscal 2017 is $2�0 million� Refer to “Note 17�
Commitments and Contingencies” for further information on the provision for legal proceeding�
The changes in the benefit obligations and plan assets of the pension and benefits plans were (in millions):
Change in benefit obligation
Benefit obligation at beginning of year � � � � � � � � � � � � � � � � � � � � �
Service cost � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Interest cost � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Actuarial losses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Benefits paid� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Provision for legal proceeding � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange impact � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Benefit obligation at end of year � � � � � � � � � � � � � � � � � � � � � � � � � �
Change in plan assets
Fair value of plan assets at beginning of year � � � � � � � � � � � � �
Actual return on plan assets� � � � � � � � � � � � � � � � � � � � � � � � � � �
Employer contributions � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Benefits paid� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Foreign exchange impact � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Fair value of plan assets at end of year � � � � � � � � � � � � � � � � � � � � �
Funded status � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Accumulated benefit obligation � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Pension Benefit
Plans
2016
2015
$ 121�2
0�2
3�0
14�5
(4�7)
8�4
(8�0)
$ 134�6
30�2
1�8
4�6
(4�7)
(4�7)
$ 27�2
$ (107�4)
$ 133�9
$139�3
0�2
3�7
3�9
(4�7)
—
(21�2)
$121�2
30�5
1�7
5�0
(4�7)
(2�3)
$ 30�2
$ (91�0)
$120�6
Pension Benefit
Plans
2016
2015
Amount recognized in the
Consolidated Balance Sheets at end of year:
Current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Non-current liabilities � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net amount recognized at end of year � � � � � � � � � � � � � � � � � � � �
$
5�5
101�9
$107�4
$
4�8
86�2
$ 91�0
Amount recognized in Accumulated
other comprehensive income at end of year:
Actuarial losses, net of tax� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Net amount recognized at end of year � � � � � � � � � � � � � � � � � � � �
$ (24�4)
$ (24�4)
$ (14�5)
$ (14�5)
Other changes in plan assets and benefit obligations
recognized in Other comprehensive loss:
Net actuarial losses � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of accumulated net actuarial losses � � � � � � � � � � � � �
Total recognized in other comprehensive loss � � � � � � � � � � � � � �
$ (10�6)
0�7
$ (9�9)
$ (2�8)
0�4
$ (2�4)
104
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. EMPLOYEE PENSION AND OTHER BENEFIT PLANS (Continued)
As of July 2, 2016 and June 27, 2015, the liability related to the post retirement benefit plan was $1�1 million
and $1�0 million respectively� The balances were included in Other non-current liabilities on the Consolidated
Balance Sheets�
During fiscal 2016, the Company contributed GBP 0�5 million or approximately $0�7 million, while in
fiscal 2015, the Company contributed GBP 0�7 million or approximately $1�1 million to its U�K� pension plan� These
contributions allowed the Company to comply with regulatory funding requirements�
Assumptions
Underlying both the calculation of the PBO and net periodic cost are actuarial valuations� These valuations
use participant-specific information such as salary, age, years of service, and assumptions about interest rates,
compensation increases and other factors� At a minimum, the Company evaluates these assumptions annually and
makes changes as necessary�
The discount rate reflects the estimated rate at which the pension benefits could be effectively settled� In
developing the discount rate, the Company considered the yield available on an appropriate AA corporate bond index,
adjusted to reflect the term of the scheme’s liabilities as well as a yield curve model developed by the Company’s
actuaries�
The expected return on assets was estimated by using the weighted average of the real expected long term
return (net of inflation) on the relevant classes of assets based on the target asset mix and adding the chosen inflation
assumption�
The following table summarizes the weighted average assumptions used to determine net periodic cost and
benefit obligation for the Company’s U�K� and German pension plans:
Pension Benefit Plans
2015
2016
2014
Weighted-average assumptions used to determine net period cost:
Discount rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Expected long-term return on plan assets � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Rate of pension increase � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2�1% 3�0% 3�7%
5�8
5�3
2�3
2�3
5�4
2�2
Weighted-average assumptions used to determine benefit obligation at end of year:
Discount rate � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Rate of pension increase � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
1�7% 2�6% 3�0%
2�2
2�1
2�2
Investment Policies and Strategies
The Company’s investment objectives for its funded pension plan are to ensure that there are sufficient assets
available to pay out members’ benefits as and when they arise and that should the plan be discontinued at any point
in time there would be sufficient assets to meet the discontinuance liabilities�
To achieve the objectives, the trustees of the U�K� pension plan are responsible for regularly monitoring the
funding position and managing the risk by investing in assets expected to outperform the increase in value of the
liabilities in the long term and by investing in a diversified portfolio of assets in order to minimize volatility in the
funding position� The trustees invest in a range of frequently traded funds (“pooled funds”) rather than direct holdings
in individual securities to maintain liquidity, achieve diversification and reduce the potential for risk concentration�
The funded plan assets are managed by professional third-party investment managers�
105
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. EMPLOYEE PENSION AND OTHER BENEFIT PLANS (Continued)
Fair Value Measurement of Plan Assets
The following table sets forth the U�K� plan assets at fair value and the percentage of assets allocations as of
July 2, 2016 (in millions, except percentage data):
Target Allocation
Total
Percentage of
Plan Assets
Fair value measurement as of
July 2, 2016
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Assets:
Global equity � � � � � � � �
Fixed income � � � � � � � �
Other� � � � � � � � � � � � � � �
Cash � � � � � � � � � � � � � � �
Total assets � � � � � � � � � � � � �
40%
40%
20%
$10�5
10�7
5�4
0�6
$27�2
38�6%
39�3%
19�9%
2�2%
100�0%
$ —
—
—
0�6
$0�6
$10�5
10�7
5�4
—
$26�6
The following table sets forth the plan’s assets at fair value and the percentage of assets allocations as of
June 27, 2015 (in millions, except percentage data)�
Target Allocation
Total
Percentage of
Plan Assets
Fair value measurement as of
June 27, 2015
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Assets:
Global equity � � � � � � � �
Fixed income � � � � � � � �
Other� � � � � � � � � � � � � � �
Cash � � � � � � � � � � � � � � �
Total assets � � � � � � � � � � � � �
40%
40%
20%
$12�3
11�7
5�9
0�3
$30�2
40�7%
38�7%
19�5%
1�0%
100�0%
$ —
—
—
0�3
$0�3
$12�3
11�7
5�9
—
$29�9
The Company’s pension assets consist of multiple institutional funds (“pension funds”) of which the fair values
are based on the quoted prices of the underlying funds� Pension funds are classified as Level 2 assets since such funds
are not directly traded in active markets�
Global equity consists of several index funds that invest primarily in U�K� equities and other overseas equities�
Fixed income consists of several funds that invest primarily in index-linked Gilts (over 5 year), sterling-
denominated investment grade corporate bonds, and overseas government bonds�
Other consists of several funds that primarily invest in global equities, bonds, private equity, global real estate
and infrastructure funds�
106
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. EMPLOYEE PENSION AND OTHER BENEFIT PLANS (Continued)
Future Benefit Payments
The following table reflects the total expected benefit payments to defined benefit pension plan participants�
These payments have been estimated based on the same assumptions used to measure the Company’s PBO at year
end and include benefits attributable to estimated future compensation increases�
(in millions)
2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2022 - 2026 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Pension
Benefit Plans
$
6�6
5�9
6�0
5�6
5�8
31�6
45�9
$107�4
Timing of the payment relating to the legal proceeding, which is included in the above table under “Thereafter,”
is not yet determined� Refer to “Note 17� Commitments and Contingencies” for further information�
NOTE 17. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain real and personal property from unrelated third parties under non-cancelable
operating leases that expire at various dates through fiscal 2023� Certain leases require the Company to pay property
taxes, insurance and routine maintenance, and include escalation clauses� As of July 2, 2016, future minimum annual
lease payments under non-cancelable operating leases were as follows (in millions):
2017 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2018 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2019 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2020 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
2021 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Thereafter � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total minimum operating lease payments � � � � � � � � � � � � � � � � � �
$18�7
18�6
14�2
9�9
7�7
4�8
$73�9
Included in the future minimum lease payments table above is $5�7 million related to lease commitments in
connection with the Company’s restructuring and related activities� Refer to “Note 12� Restructuring and Related
Charges” for more information�
The aggregate future minimum rentals to be received under non-cancelable subleases totaled $4�7 million as of
July 2, 2016� Rental expense relating to building and equipment was $13�8 million, $14�3 million and $17�7 million in
fiscal 2016, 2015 and 2014, respectively�
107
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 17. COMMITMENT AND CONTINGENCIES (Continued)
Purchase Obligations
Purchase obligations of $55�9 million as of July 2, 2016, represent legally-binding commitments to purchase
inventory and other commitments made in the normal course of business to meet operational requirements� Although
open purchase orders are considered enforceable and legally binding, the terms generally allow the option to cancel,
reschedule and adjust the requirements based on the Company’s business needs prior to the delivery of goods or
performance of services� Obligations to purchase inventory and other commitments are generally expected to be
fulfilled within one year�
The Company depends on a limited number of contract manufacturers, subcontractors, and suppliers for
raw materials, packages and standard components� The Company generally purchases these single or limited
source products through standard purchase orders or one-year supply agreements and has no significant long-term
guaranteed supply agreements with such vendors� While the Company seeks to maintain a sufficient safety stock of
such products and maintains on-going communications with its suppliers to guard against interruptions or cessation
of supply, the Company’s business and results of operations could be adversely affected by a stoppage or delay of
supply, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials,
increases in the price of such supplies, or the Company’s inability to obtain reduced pricing from its suppliers in
response to competitive pressures�
Financing Obligations—Eningen and Santa Rosa
Eningen
On December 16, 2011, the Company executed and closed the sale and leaseback transaction of certain buildings
and land in Eningen, Germany (the “Eningen Transactions”)� The Company sold approximately 394,217 square feet
of land, nine buildings with approximately 386,132 rentable square feet, and parking areas� The Company leased
back approximately 158,154 rentable square feet comprised of two buildings and a portion of a basement of another
building (the “Leased Premises”)� The lease term is 10 years with the right to cancel a certain portion of the lease
after 5 years�
Concurrent with the sale and lease back, the Company has provided collateral in case of a default by the
Company relative to future lease payments for the Leased Premises� Due to this continuing involvement, the related
portion of the cash proceeds and transaction costs, associated with the Leased Premises and other buildings which
the Company continues to occupy, was recorded under the financing method in accordance with the authoritative
guidance on leases and sales of real estate� Accordingly, the carrying value of these buildings and associated land
will remain on the Company’s books and the buildings will continue to be depreciated over their remaining useful
lives� The portion of the proceeds received have been recorded as a financing obligation, a portion of the lease
payments are recorded as a decrease to the financing obligation and a portion is recognized as interest expense�
Imputed rental income from the buildings sold but not leased back and currently being occupied is recorded as a
reduction in the financing obligation�
As of July 2, 2016, of the total financing obligation related to the Eningen Transactions, $0�1 million was
included in Other current liabilities, and $4�0 million was included in Other non-current liabilities� As of June 27,
2015, of the total financing obligation related to the Eningen Transactions, $0�1 million was included in Other current
liabilities, and $4�1 million was included in Other non-current liabilities�
108
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 17. COMMITMENT AND CONTINGENCIES (Continued)
Santa Rosa
On August 21, 2007, the Company entered into a sale and lease back of certain buildings and land in Santa
Rosa, California (the “Santa Rosa Transactions”)� The Company sold approximately 45 acres of land, 13 buildings
with approximately 492,000 rentable square feet, a building pad, and parking areas� The Company leased back 7
buildings with approximately 286,000 rentable square feet� The net cash proceeds received from the transaction were
$32�2 million� The lease terms range from a one-year lease with multiple renewal options to a ten-year lease with two
five-year renewal options�
The Company has an ongoing obligation to remediate environmental matters, impacting the entire site, as
required by the North Coast Regional Water Quality Control Board which existed at the time of sale� Concurrent
with the sale and lease back, the Company has issued an irrevocable letter of credit for $3�8 million as security
for the remediation of the environmental matter that remains in effect until the issuance of a notice of no further
action letter from the North Coast Regional Water Quality Control Board� In addition, the lease agreement for
one building included an option to purchase at fair market value, at the end of the lease term� Due to these various
forms of continuing involvement the transaction was recorded under the financing method in accordance with the
authoritative guidance on leases and sales of real estate�
Accordingly, the value of the buildings and land will remain on the Company’s books and the buildings will
continue to be depreciated over their remaining useful lives� The proceeds received have been recorded as a financing
obligation, a portion of the lease payments are recorded as a decrease to the financing obligation and a portion is
recognized as interest expense� Imputed rental income from the buildings sold but not leased back is recorded as a
reduction in the financing obligation�
As of July 2, 2016, $0�8 million was included in Other current liabilities, and $24�7 million was included
in Other non-current liabilities� As of June 27, 2015, $1�4 million was included in Other current liabilities, and
$24�8 million was included in Other non-current liabilities�
The lease payments due under the agreement reset to fair market rental rates upon the Company’s execution of
the renewal options�
Guarantees
In accordance with authoritative guidance which requires that upon issuance of a guarantee, the guarantor
must recognize a liability for the fair value of the obligation it assumes under that guarantee� In addition, disclosures
about the guarantees that an entity has issued, including a tabular reconciliation of the changes of the entity’s product
warranty liabilities, are required�
The Company from time to time enters into certain types of contracts that contingently require the Company
to indemnify parties against third-party claims� These contracts primarily relate to: (i) divestiture agreements,
under which the Company may provide customary indemnifications to purchasers of the Company’s businesses or
assets; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for
environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and
(iii) certain agreements with the Company’s officers, directors and employees, under which the Company may be
required to indemnify such persons for liabilities arising out of their employment relationship�
The terms of such obligations vary� Generally, a maximum obligation is not explicitly stated� Because the
obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the
obligations cannot be reasonably estimated� Historically, the Company has not been obligated to make significant
payments for these obligations, and no liabilities have been recorded for these obligations on the Consolidated
Balance Sheets as of July 2, 2016 and June 27, 2015�
109
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 17. COMMITMENTS AND CONTINGENCIES (Continued)
Product Warranties
In general, the Company offers a three-year warranty for most of its products� The Company provides reserves
for the estimated costs of product warranties at the time revenue is recognized� The Company estimates the costs of
its warranty obligations based on its historical experience of known product failure rates, use of materials to repair
or replace defective products and service delivery costs incurred in correcting product failures� In addition, from
time to time, specific warranty accruals may be made if unforeseen technical problems arise with specific products�
The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary�
The following table presents the changes in the Company’s warranty reserve during fiscal years 2016 and 2015
(in millions):
Balance as of beginning of period � � � � � � � � � � � � � � �
Provision for warranty � � � � � � � � � � � � � � � � � � � � � � � �
Utilization of reserve � � � � � � � � � � � � � � � � � � � � � � � � �
Adjustments related to pre-existing warranties
(including changes in estimates) � � � � � � � � � � � � � �
Balance as of end of period � � � � � � � � � � � � � � � � � � � �
Year Ended
July 2,
2016
$ 3�7
3�9
(3�3)
0�6
$ 4�9
June 27,
2015
$ 3�6
3�8
(3�8)
0�1
$ 3�7
Legal Proceedings
In June 2016, the Company received a court decision regarding the validity of an amendment to a pension
deed of trust related to one of its foreign subsidiaries which the Company contends contained an error requiring the
Company to increase the pension plan’s benefit� The Company had subsequently further amended the deed to rectify
the error� The court ruled that the amendment increasing the pension plan benefit was valid until the subsequent
amendment� Prior to this decision, the Company, in consultation with outside legal counsel, believed that the pension
deed of trust document was invalid or, alternatively, that the subsequent rectification should be applied retroactively�
Under both scenarios, the Company believed that the likelihood of an increase in plan benefits was remote� While
the Company is pursuing other legal arguments in this matter, such as appealing the court decision and pursuing a
claim against the U�K� law firm responsible for the error, the Company determined that the likelihood of loss to be
probable as of July 2, 2016 and estimated the increase in liability to range from GBP 5�7 million to GBP 8�4 million�
The Company accrued GBP 5�7 million, or $8�4 million, in accordance with authoritative guidance on contingencies�
The accrual is included as a component of selling, general and administrative expense and included in pension and
post-employment benefits, which is a component of other non-current liabilities, in the Company’s Consolidated
Statement of Operations and Consolidated Balance Sheets, respectively�
The Company is subject to a variety of claims and suits that arise from time to time in the ordinary course
of our business� While management currently believes that resolving claims against the Company, individually or
in aggregate, will not have a material adverse impact on its financial position, results of operations or statement of
cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change
in the future� Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact
on the Company’s financial position, results of operations or cash flows for the period in which the effect becomes
reasonably estimable�
NOTE 18. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
The Company evaluates its reportable segments in accordance with the authoritative guidance on segment
reporting� The Company’s Chief Executive Officer, Oleg Khaykin, the Company’s Chief Operating Decision Maker
(“CODM”) pursuant to the guidance� The CODM allocates resources to the segments based on their business
prospects, competitive factors, net revenue and operating results�
110
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 18. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)
The Company is a global provider of network test, monitoring and assurance solutions to communications
service providers, enterprises and their ecosystems� Our solutions deliver end-to-end visibility across physical,
virtual and hybrid networks, enabling customers to optimize connectivity, quality of experience and profitability�
Viavi is also a leader in high performance thin film optical coatings, providing light management solutions to anti-
counterfeiting, consumer and industrial, government and healthcare and other markets�
The Company’s reportable segments are:
(i)
Network Enablement (“NE”):
NE provides testing solutions that access the network to perform build-out and maintenance tasks� These
solutions include instruments, software and services to design, build, activate, certify, troubleshoot and optimize
networks� The company also offers a range of product support and professional services such as repair, calibration,
software support and technical assistance for our products�
(ii)
Service Enablement (“SE”):
SE solutions are embedded systems that yield network, service and application performance data� These
solutions—including microprobes and software—monitor, collect and analyze network data to reveal the actual
customer experience and to identify opportunities for new revenue streams and network optimization�
(iii)
Optical Security and Performance Products (“OSP”):
OSP provides innovative optical security solutions, with a strategic focus on serving the anti-counterfeiting
market through advanced security pigments, thread substrates and printed features for the currency, pharmaceutical
and consumer electronic segments� OSP also provides thin-film coating solutions for 3D sensing applications�
Changes to Segment Reporting
Following the Separation in the first quarter of fiscal 2016, the Company made changes to its segment measures
to reflect how the CODM manages the business post-separation as described below�
The CODM manages the Company in two broad business categories: Network and Service Enablement
(“NSE”) and OSP� NSE operates in two segments, NE and SE, whereas OSP operates as a single segment� The
CODM evaluates segment performance of the NSE business based on NE and SE segment gross margin and NSE
operating margin as a whole� Operating expenses associated with the NSE business are not allocated to the NE and
SE segments within NSE, as they are managed centrally at the business unit level� The CODM evaluates segment
performance of the OSP business based on OSP segment operating margin� In addition, prior to the first quarter
of fiscal 2016 the Company did not allocate certain corporate-level operating expenses associated with its shared-
service function to its segment results� Beginning in the first quarter of fiscal 2016, the Company has allocated these
corporate-level operating expenses to its segment results, with the exception of certain non-core operating and non-
operating activities as discussed below�
The Company does not allocate stock-based compensation, acquisition-related charges, amortization of
intangibles, restructuring and related charges, impairment of goodwill, non-operating income and expenses, or other
non-core operating and non-recurring charges to its segments because Management does not include this information
in its measurement of the performance of the operating segments� These items are presented as “Reconciling Items”
in the table below� Additionally, the Company does not specifically identify and allocate all assets by operating
segment�
As a result of the Separation, the Company excluded the results of the Lumentum business which historically
consisted of the CCOP segment and the WaveReady product line within the NE segment for all periods presented�
Refer to “Note 3� Discontinued Operations” for more information on the Separation� Additionally, the Company’s
Video Assurance product line was moved out of its NE segment and into its SE segment during the first quarter of
fiscal 2016�
111
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 18. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)
The segment information for all periods presented has been revised to be comparable with the changes in the
Company’s segment reporting measures�
Information on reportable segments is as follows (in millions):
Network and Service
Enablement
Year Ended July 2, 2016
Network
Enablement
Net revenue � � � � � � � � � � � � $504�6
Gross profit � � � � � � � � � � � �
329�7
65�3%
Gross margin � � � � � � � � � �
Operating (loss) income � �
Operating margin � � � � � � �
Service
Enablement
$153�6
99�4
64�7%
Network and
Service
Enablement
$658�2
429�1
65�2%
12�7
1�9%
Optical Security
and Performance
Products
$248�1
143�1
57�7%
102�9
41�5%
Total
Segment
Measures
$906�3
572�2
63�1%
115�6
12�8%
Reconciling
Items
Consolidated
GAAP
Measures
$ — $906�3
549�7
(22�5)
(199�9)
60�7%
(84�3)
(9�3)%
Network and Service
Enablement
Year Ended June 27, 2015
Network
Enablement
Net revenue � � � � � � � � � � � � $506�8
333�9
Gross profit � � � � � � � � � � � �
Gross margin � � � � � � � � � �
65�9%
Operating income (loss) � �
Operating margin � � � � � � �
Service
Enablement
$174�3
119�2
68�4%
Network and
Service
Enablement
$681�1
453�1
66�5%
(0�1)
—%
Optical Security
and Performance
Products
$192�8
104�3
54�1%
68�1
35�3%
Total
Segment
Measures
$873�9
557�4
63�8%
68�0
7�8%
Reconciling
Items
Consolidated
GAAP
Measures
$ — $873�9
520�1
(37�3)
(143�8)
59�5%
(75�8)
(8�7)%
Network and Service
Enablement
Year Ended June 28, 2014
Network
Enablement
Net revenue � � � � � � � � � � � � $570�1
371�0
Gross profit � � � � � � � � � � � �
Gross margin � � � � � � � � � �
65�1%
Operating income (loss) � �
Operating margin � � � � � � �
Service
Enablement
$156�0
95�4
61�2%
Network and
Service
Enablement
$726�1
466�4
64�2%
(0�2)
—%
Optical Security
and Performance
Products
$200�8
100�7
50�1%
63�8
31�8%
Total
Segment
Measures
$926�9
567�1
61�2%
63�6
6�9%
Corporate reconciling items impacting gross profit:
Total segment gross profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Stock-based compensation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of intangibles � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other charges unrelated to core operating performance� � � � � � � � � � � � � � � �
GAAP gross profit � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2,
2016
$572�2
(4�8)
(17�3)
(0�4)
$549�7
Reconciling
Items
Consolidated
GAAP
Measures
$ — $926�9
527�8
(39�3)
(119�2)
Years Ended
June 27,
2015
$557�4
(4�2)
(31�9)
(1�2)
$520�1
56�9%
(55�6)
(6�0)%
June 28,
2014
$567�1
(4�3)
(34�1)
(0�9)
$527�8
112
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 18. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)
Corporate reconciling items impacting operating income (loss):
Total segment operating income� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Stock-based compensation� � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Amortization of intangibles � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Impairment of goodwill � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other charges unrelated to core operating performance(1)(2) � � � � � � � � � � �
Restructuring and related charges � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
GAAP operating income (loss) from continuing operations� � � � � � � � � �
$115�6
(42�4)
(31�9)
(91�4)
(23�7)
(10�5)
$ (84�3)
$ 68�0
(47�5)
(51�4)
—
(18�1)
(26�8)
$ (75�8)
$ 63�6
(44�7)
(49�6)
—
(3�6)
(21�3)
$ (55�6)
(1) During the year ended July 2, 2016 other charges unrelated to core operating performance primarily consisted
of (a) an $8�4 million charge related to a litigation ruling impacting our U�K� pension obligation, (b) $5�0 million
of Viavi-specific charges related to the Separation and (c) $3�5 million of non-recurring incremental severance
and related costs upon the exit of a key executive�
(2) During the year ended June 27, 2015, other charges unrelated to core operating performance primarily consisted
of $9�8 million of Viavi-specific charges related to the Separation and $3�6 million IPR&D impairment charge
for an ongoing project related to the fiscal 2014 acquisition of Trendium as discussed in “Note 10� Acquired
Developed Technology and Other Intangibles�”
The Company operates primarily in three geographic regions: Americas, Asia-Pacific, and Europe, Middle
East and Africa (“EMEA”)� Net revenue is assigned to the geographic region and country where our product is
initially shipped� For example, certain customers may request shipment of our product to a contract manufacturer
in one country, which may differ from the location of their end customers� The following table presents net revenue
by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net
revenue (dollars in millions):
Americas:
United States � � � � � � � � � � � � � � � � � � � � � � � � � �
Other Americas � � � � � � � � � � � � � � � � � � � � � � � �
Total Americas � � � � � � � � � � � � � � � � � � � � � �
$396�6
66�0
$462�6
43�8% $424�3
7�3% $ 62�5
51�1% $486�8
48�5% $448�6
7�2% $ 58�8
55�7% $507�4
48�4%
6�3%
54�7%
July 2, 2016
Years Ended
June 27, 2015
June 28, 2014
Asia-Pacific � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
$166�3
18�3% $144�5
16�5% $140�9
15�2%
EMEA:
Switzerland� � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other EMEA � � � � � � � � � � � � � � � � � � � � � � � � � �
Total EMEA � � � � � � � � � � � � � � � � � � � � � � � �
$135�6
141�8
$277�4
15�0% $ 97�7
15�6%
144�9
30�6% $242�6
11�2% $ 98�0
16�6%
180�6
27�8% $278�6
10�6%
19�5%
30�1%
Total net revenue � � � � � � � � � � � � � � � � � � � � � �
$906�3
100�0% $873�9
100�0% $926�9
100�0%
Following the separation from Lumentum, one customer served by our OSP segment and one customer served
by our NE and SE segments generated more than 10% of Viavi net revenue from continuing operations during fiscal
2016, 2015 and 2014 as summarized below (in millions):
Customer A - OSP Customer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � $190�1
*
Customer B - NE and SE Customer � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
July 2, 2016
Years Ended
June 27, 2015
$143�0
*
June 28, 2014
$118�2
106�6
*
Customer represented less than 10% of consolidated net revenue in the specified fiscal year�
113
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 18. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (Continued)
Property, plant and equipment, net were identified based on the operations in the corresponding geographic
areas (in millions):
United States � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other Americas � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
China � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other Asia-Pacific � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Germany � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Other EMEA � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Total property, plant and equipment, net � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Years Ended
July 2, 2016
$ 85�6
4�3
27�3
4�8
7�9
3�1
$133�0
June 27, 2015
$ 91�8
5�8
32�1
6�9
8�5
4�1
$149�2
NOTE 19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents the Company’s selected quarterly financial information from the Consolidated
Statements of Operations for fiscal 2016 and 2015 (in millions, except per share data):
July 2,
2016(1)
April 2,
2016
Net revenue � � � � � � � � � � � � � � � � � � $224�1 $220�4
131�3
Gross profit � � � � � � � � � � � � � � � � � �
Net (loss) income from continuing
operations, net of tax � � � � � � � �
(64�5)
136�1
28�8
Net income (loss) from
discontinued operations,
net of tax � � � � � � � � � � � � � � � � �
5�0
Net income (loss) � � � � � � � � � � � � � $ (67�9) $ 33�8
(3�4)
January 2,
2016
$232�1
141�8
October 3,
2015(2)
$229�7
140�5
June 27,
2015(2)
$219�8
131�1
March 28,
2015(2)(3)
$212�4
127�0
December 27,
2014(2)
$226�4
133�1
September 27,
2014(2)
$215�3
128�9
1�0
(15�7)
(32�1)
(35�8)
(37�7)
(25�8)
3�0
4�0
$
(53�4)
22�6
$ (69�1) $ (40�1) $ (13�2)
(8�0)
12�6
$ (25�1)
16�1
$ (9�7)
Net (loss) income per share
from - basic:
Continuing operations(4) � � � � � $ (0�28) $ 0�13
0�02
Discontinued operations(4) � � �
Net (loss) income(4) � � � � � � $ (0�29) $ 0�15
(0�01)
Net (loss) income per share
from - diluted:
Continuing operations(4) � � � � � $ (0�28) $ 0�12
0�02
Discontinued operations(4) � � �
Net (loss) income(4) � � � � � � $ (0�29) $ 0�14
(0�01)
Shares used in per-share
$ 0�01
0�01
$ 0�02
$ (0�07) $ (0�14) $ (0�16)
0�10
(0�03)
$ (0�29) $ (0�17) $ (0�06)
(0�22)
$ (0�16)
0�05
$ (0�11)
$ (0�11)
0�07
$ (0�04)
$ 0�01
0�01
$ 0�02
$ (0�07) $ (0�14) $ (0�16)
0�10
(0�03)
$ (0�29) $ (0�17) $ (0�06)
(0�22)
$ (0�16)
0�05
$ (0�11)
$ (0�11)
0�07
$ (0�04)
calculation (basic) � � � � � � � � � �
232�7
232�0
234�9
236�0
234�6
233�2
232�1
230�8
Shares used in per-share
calculation (diluted) � � � � � � � �
232�7
234�6
237�1
236�0
234�6
233�2
232�1
230�8
(1) During the fourth quarter of fiscal 2016, the Company recorded a $91�4 million goodwill impairment charge
related to the SE reporting unit�
114
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 19. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)
(2) During the first quarter of fiscal 2016, we completed the Separation� As a result, the operations of the Lumentum
business have been presented as discontinued operations in all periods of the Company’s Consolidated Statement
of Operations�
(3) During the third quarter of fiscal 2015, the Company recognized $21�8 million tax benefit recognized upon the
settlement of an audit in a non-U�S� jurisdiction�
(4) Net (loss) income per share is computed independently for each of the fiscal quarters presented� Therefore, the
sum of the quarterly basic and diluted net (loss) income per share amounts may not equal the annual basic and
diluted net (loss) income per share amount for the full fiscal years�
NOTE 20. SUBSEQUENT EVENTS
Sale of Lumentum Common Stock
Subsequent to our fiscal year ended July 2, 2016, the Company sold 2�7 million of Lumentum common shares
generating gross proceeds of $71�6 million and a gross realized gain of $48�9 million, respectively�
Repurchase of Common Stock
Subsequent to our fiscal year ended July 2, 2016, the Company repurchased approximately 1�4 million shares
of common stock purchases at an average price of $7�50 per share under the stock repurchase program authorized on
February 1, 2016� All common shares repurchased have been canceled and retired�
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None�
ITEM 9A. CONTROLS AND PROCEDURES
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management is responsible for establishing and maintaining “disclosure controls and procedures” (as
defined in Rule 13a-15(e) under the Exchange Act) for our Company to ensure that the information required to be
disclosed by us in reports that we file or submit under the Exchange Act was (i) recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and (ii) accumulated and communicated to our
management, including our principal executive and principal financial officers, to allow timely decisions regarding
required disclosures� Based on the evaluation of our disclosure controls and procedures as of July 2, 2016, our CEO
and CFO have concluded that due to the existence of a material weakness as discussed below, our disclosure controls
and procedures were not effective� Notwithstanding the identified material weakness, our management believes
the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material
respects our Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income (Loss),
Consolidated Balance Sheets, Consolidated Statements of Cash Flows, and Consolidated Statements of Stockholders’
Equity at and for the periods presented in accordance with U�S� GAAP�
(b) MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act)� Our management, including our chief executive
officer and chief financial officer, conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in the Internal Control-Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission� Based on its evaluation under the framework in the
115
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Internal Control-Integrated Framework (2013), our management concluded that we did not maintain effective
internal control over financial reporting as of July 2, 2016 because of a previously reported material weakness in our
internal control over financial reporting as reported in Item 4 on Form 10-Q/A for each of the interim periods ended
October 3, 2015, January 2, 2016, and April 2, 2016 and as described below�
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting
such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements
will not be prevented or detected on a timely basis� During the preparation of the Company’s fiscal 2016 Annual Report
on Form 10-K, the Company’s management identified a material weakness in our internal controls over financial
reporting� Specifically, the internal controls with respect to the determination of the interim income tax provision
were not designed at a precision level to identify the use of an inaccurate tax rate� This control deficiency could result
in a misstatement of the related account balances or disclosures that would result in a material misstatement to the
interim consolidated financial statements that would not be prevented or detected� For the quarters ended October 3,
2015, January 2, 2016 and April 2, 2016, this control deficiency did result in misstatements of our income tax expense
and income taxes payable�
The Company’s internal control over financial reporting as of July 2, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which
appears in this Annual Report on Form 10-K under Item 8�
(c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting as defined in Exchange Act
Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting�
(d)
PLAN FOR REMEDIATION OF MATERIAL WEAKNESS IN INTERNAL CONTROLS OVER
FINANCIAL REPORTING
The Company will implement an enhanced process and design a control to ensure a more precise review of the
interim income tax provision beginning in the first quarter of fiscal 2017� In accordance with the Company’s internal
control over financial reporting compliance program, the material weakness designation cannot be remediated in full
until the enhanced processes have been operational for a period of time and successfully tested� Such remediation is
anticipated to be completed later in fiscal 2017�
ITEM 9B. OTHER INFORMATION
None�
116
VIAVI SOLUTIONS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding the Company’s executive officers and directors required by this Item is incorporated
by reference to the section entitled “Proposal One—Elections of Directors” in the Company’s Definitive Proxy
Statement in connection with the 2016 Annual Meeting of Stockholders (the “Proxy Statement”), which will be filed
with the Securities and Exchange Commission within 120 days after the fiscal year ended July 2, 2016� Information
required by Item 405 of Regulation S-K is incorporated by reference to the section entitled “Beneficial Ownership
Reporting Compliance” in the Proxy Statement�
The Company has adopted the “Viavi Code of Business Conduct” as its code of ethics, which is applicable to all
employees, officers and directors of the Company� The full text of the Viavi Code of Business Conduct is available
under Corporate Governance Information which can be found under the Investors tab on the Company’s website
at www�viavisolutions�com�
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference to the sections entitled “Executive Compensation,”
“Director Compensation,” “Compensation Program Risk Assessment,” “Corporate Governance—Compensation
Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in the Proxy Statement�
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated
by reference to the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the
Proxy Statement�
Information regarding the Company’s stockholder approved and non-approved equity compensation plans is
incorporated by reference to the section entitled “Equity Compensation Plans” in the Proxy Statement�
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by this Item is incorporated by reference to the sections entitled “Certain Relationships
and Related Person Transactions,” and “Code of Ethics,” “Director Independence,” and “Board Committees and
Meetings” under the “Corporate Governance” heading in the Proxy Statement�
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by this item is incorporated by reference to the section entitled “Audit and Non-Audit
Fees” in the Proxy Statement�
117
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following items are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm � � � � � � � � � � � � � � � � � � � � � � � � � �
Consolidated Statements of Operations—Years Ended
July 2, 2016, June 27, 2015, and June 28, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Consolidated Statements of Comprehensive (Loss) Income—Years Ended
July 2, 2016, June 27, 2015 and June 28, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Consolidated Balance Sheets—July 2, 2016 and June 27, 2015 � � � � � � � � � � � � � � � � � � � � � � � �
Consolidated Statements of Cash Flows—Years Ended
July 2, 2016, June 27, 2015, and June 28, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Consolidated Statements of Stockholders’ Equity—Years Ended
July 2, 2016, June 27, 2015, and June 28, 2014 � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Notes to Consolidated Financial Statements � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � � �
Page
54
55
56
57
58
59
60
(2) Financial Statement Schedules:
All financial statement schedules have been omitted because the required information is not present in amounts
sufficient to require submission of the schedule, not applicable, or because the required information is included in the
Consolidated Financial Statements or Notes thereto�
(3) Exhibits:
See Item 15(b)
(b) Exhibits:
The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the
Securities and Exchange Commission�
Exhibit No.
Exhibit Description
2�1 Agreement and Plan of Merger, dated December 6, 2013,
by and among NI Holdings I, Inc�, a Delaware corporation,
the Company, Jade Acquisition I, Inc�, a Delaware
corporation and wholly owned subsidiary of the Company,
Thoma Bravo, LLC, a Delaware limited liability company,
solely in its capacity as Representative for NI Holdings’
stockholders, Thoma Bravo Fund X, L�P�, a Delaware
limited partnership, and Thoma Bravo Fund X-A�, L�P�,
a Delaware limited partnership�
Incorporated by Reference
Form
Exhibit
Filing Date
Filed
Herewith
8-K
2�1
12/11/2013
2�2 Contribution Agreement by and between JDS Uniphase
Corporation and Lumentum Operations LLC
8-K
2�1
8/5/2015
2�3 Membership Interest Transfer Agreement by and between
JDS Uniphase Corporation and Lumentum Inc�
8-K
2�2
8/5/2015
2�4
Separation and Distribution Agreement by and between
JDS Uniphase Corporation, Lumentum Holdings Inc� and
Lumentum Operations LLC
3�1 Restated Certificate of Incorporation
3�2 Certificate of Amendment to Restated Certificate
8-K
8-K
2�3
3�1
8/5/2015
11/18/2013
of Incorporation
8-K
3�1
8/5/2015
118
Exhibit No.
Exhibit Description
3�5 Amended and Restated Bylaws of Viavi Solutions Inc�
4�1
4�2
4�3
Indenture, dated as of August 21, 2013, between JDS
Uniphase Corporation and Wells Fargo Bank, National
Association, as Trustee
Form of 0�625% Senior Convertible Debentures due 2033
Stockholder’s and Registration Rights Agreement by
and between JDS Uniphase Corporation and Lumentum
Holdings Inc�
10�2 Amended and Restated 1993 Flexible Stock Incentive Plan
(Amended and Restated as of November 9, 2001)
10�3 Restated 1998 Employee Stock Purchase Plan
Incorporated by Reference
Form
8-K
Exhibit
3�1
Filing Date
6/1/2016
Filed
Herewith
8-K
8-K
4�1
4�2
8/21/2013
8/21/2013
8-K
4�1
8/5/2015
10-Q 10�1
10-K 10�3
2/11/2002
8/25/2015
10�4 Amended and Restated 1999 Canadian Employee Stock
Purchase Plan (Amended and Restated as of July 31, 2002)
10-K 10�4
10�5 Restated 2005 Acquisition Equity Incentive Plan
10-K 10�5
9/17/2002
8/25/2015
10�6
10�7
2005 Acquisition Equity Incentive Plan Form of Stock
Option Award Agreement
2005 Acquisition Equity Incentive Plan Form of Restricted
Stock Unit Award Agreement
10�9
Form of Indemnification Agreement
10�10 Restated 2003 Equity Incentive Plan
10-K 10�6
9/30/2005
10-K 10�7
8-K
10�9
9/30/2005
4/20/2015
10-K 10�10
8/25/2015
10�11
10�12
10�13
Separation Agreement between JDS Uniphase Corporation
and Rex Jackson dated February 24, 2015
8-K
10�1
2/26/2015
Separation Agreement between the JDS Uniphase
Corporation and David Heard, dated October 23, 2014
8-K
10�1
10/23/2014
Separation Agreement and General Release between Viavi
Solutions Inc� and Thomas Waechter dated August 13, 2015
8-K
10�1
8/19/2015
10�14 Employment Agreement between Viavi Solutions Inc� and
Richard Belluzzo dated August 19, 2015
8-K
10�2
8/19/2015
10�15 Tax Matters Agreement by and between JDS Uniphase
Corporation and Lumentum Holdings Inc�
8-K
10�1
8/5/2015
10�16 Employee Matters Agreement by and between JDS
Uniphase Corporation, Lumentum Holdings Inc� and
Lumentum Operations LLC
8-K
10�2
8/5/2015
10�17
Intellectual Property Matters Agreement by and between
JDS Uniphase Corporation and Lumentum Operations LLC 8-K
10�3
8/5/2015
10�18 Viavi Solutions Inc� 2015 Change of Control Benefits Plan,
effective December 14
8-K
10�1
12/17/2015
10�20
10�24
2003 Equity Incentive Plan Form of Stock Option Award
Agreement (for the U�S)
2003 Equity Incentive Plan Form of Restricted Stock Unit
Award Agreement (for the U�S)
10-K 10�20
8/31/2010
10-K 10�24
8/31/2010
21�1
Subsidiaries of Viavi Solutions Inc�
X
119
Exhibit No.
Exhibit Description
23�1 Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP)
31�1 Certification of the Chief Executive Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002�
31�2 Certification of the Chief Financial Officer pursuant to
Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002�
32�1 Certification of the Chief Executive Officer pursuant to
18 U�S�C� Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002�
32�2 Certification of the Chief Financial Officer pursuant to
18 U�S�C� Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002�
101�INS XBRL Instance
101�SCH XBRL Taxonomy Extension Schema
101�CAL XBRL Taxonomy Extension Calculation
101�DEF XBRL Taxonomy Extension Definition Linkbase Document
101�LAB XBRL Taxonomy Extension Label Linkbase
101�PRE XBRL Taxonomy Extension Presentation
ITEM 16. 10-K SUMMARY
None�
Incorporated by Reference
Form
Exhibit
Filing Date
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
120
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized�
Date: August 30, 2016
VIAVI SOLUTIONS INC�
By:
Name:
Title:
/s/ AMAR MALETIRA
Amar Maletira
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated�
Signature
/s/ OLEG KHAYKIN
Oleg KhayKin
/s/ AMAR MALETIRA
amar maletira
/s/ RICHARD BELLUZZO
richard BelluzzO
/s/ KEITH BARNES
Keith Barnes
/s/ TOR BRAHAM
tOr Braham
/s/ TIMOTHY E� CAMPOS
timOthy e. campOs
/s/ DONALD COLVIN
dOnald cOlvin
/s/ MASOOD JABBAR
masOOd JaBBar
/s/ PAMELA STRAYER
pamela strayer
Title
President and Chief Executive Officer
(Principal Executive Officer)
Date
August 30, 2016
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
August 30, 2016
August 30, 2016
August 30, 2016
August 30, 2016
August 30, 2016
August 30, 2016
August 30, 2016
August 30, 2016
Chairman
Director
Director
Director
Director
Director
Director
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