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

(Mark One)
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2017
 OR
o 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
 
94-2579683
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)

6001 America Center Drive, 6th Floor, San Jose, California 95002
(Address of principal executive offices including Zip code)

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

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 x   No o

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  x   No  o

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

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

o


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

As of January 26, 2018 the Registrant had 225,924,290 shares of common stock outstanding.
 
 
 
 
 




Table of Contents

 
TABLE OF CONTENTS
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1


Table of Contents


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Revenues:
 
 
 
 
 
 
 
Product revenue
$
177.5

 
$
184.2

 
$
349.4

 
$
372.5

Service revenue
24.3

 
22.3

 
47.6

 
44.8

Total net revenues
201.8

 
206.5

 
397.0

 
417.3

Cost of revenues:
 
 
 
 
 
 
 
Product cost of revenue
69.6

 
64.7

 
133.1

 
133.3

Service cost of revenue
12.0

 
13.4

 
23.4

 
26.7

Amortization of acquired technologies
4.1

 
3.7

 
8.2

 
7.5

Total cost of revenues
85.7

 
81.8

 
164.7

 
167.5

Gross profit
116.1

 
124.7

 
232.3

 
249.8

Operating expenses:
 
 
 
 
 
 
 
Research and development
29.9

 
35.9

 
59.0

 
72.0

Selling, general and administrative
76.6

 
76.9

 
149.1

 
152.3

Amortization of other intangibles
3.4

 
3.4

 
6.5

 
6.9

Restructuring and related charges
2.5

 
1.8

 
4.0

 
1.8

Total operating expenses
112.4

 
118.0

 
218.6

 
233.0

Income from operations
3.7

 
6.7

 
13.7

 
16.8

Interest and other income, net
2.9

 
3.8

 
3.1

 
5.1

Gain on sale of investments
—

 
53.9

 
—

 
135.4

Interest expense
(11.7
)
 
(9.4
)
 
(24.2
)
 
(18.6
)
(Loss) income before taxes
(5.1
)
 
55.0

 
(7.4
)
 
138.7

(Benefit from) provision for income taxes
(1.4
)
 
5.8

 
1.1

 
11.5

Net (loss) income
$
(3.7
)
 
$
49.2

 
$
(8.5
)
 
$
127.2

 
 
 
 
 
 
 
 
Net (loss) income per share:
 

 
 

 
 
 
 
Basic
$
(0.02
)
 
$
0.21

 
$
(0.04
)
 
$
0.55

Diluted
$
(0.02
)
 
$
0.21

 
$
(0.04
)
 
$
0.54

 
 
 
 
 
 
 
 
Shares used in per-share calculation - basic
227.4

 
230.5

 
227.7

 
231.4

Shares used in per-share calculation - diluted
227.4

 
234.2

 
227.7

 
235.8

See accompanying notes to consolidated financial statements.

2


Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Net (loss) income
$
(3.7
)
 
$
49.2

 
$
(8.5
)
 
$
127.2

Other comprehensive income (loss):
 
 
 
 
 
 
 
Net change in cumulative translation adjustment, net of tax
7.1

 
(25.6
)
 
17.3

 
(22.2
)
Net change in available-for-sale investments, net of tax:
 
 
 
 
 
 
 
Unrealized holding (loss) gain arising during period
(0.4
)
 
(10.2
)
 
(0.4
)
 
74.2

Less: reclassification adjustments included in net (loss) income
—

 
(52.7
)
 
—

 
(134.2
)
Net change in defined benefit obligation, net of tax:
 
 
 
 
 
 
 
Amortization of actuarial losses
0.5

 
0.4

 
0.9

 
0.9

Net change in accumulated other comprehensive loss
7.2

 
(88.1
)
 
17.8

 
(81.3
)
Comprehensive income (loss)
$
3.5

 
$
(38.9
)
 
$
9.3


$
45.9

 
See accompanying notes to consolidated financial statements.


3


Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and par value data)
(unaudited) 
 
December 30, 2017
 
July 1, 2017
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
753.1

 
$
1,004.4

Short-term investments
452.3

 
432.2

Restricted cash
7.4

 
11.2

Accounts receivable, net
139.9

 
120.4

Inventories, net
77.3

 
48.0

Prepayments and other current assets
49.7

 
50.8

Total current assets
1,479.7

 
1,667.0

Property, plant and equipment, net
135.5

 
136.9

Goodwill
170.7

 
151.6

Intangibles, net
43.3

 
31.1

Deferred income taxes
115.0

 
109.5

Other non-current assets
14.2

 
14.4

Total assets
$
1,958.4

 
$
2,110.5

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
38.7

 
$
32.6

Accrued payroll and related expenses
44.6

 
43.8

Deferred revenue
67.6

 
60.2

Accrued expenses
29.7

 
30.8

Current portion of long-term debt
436.8

 
—

Other current liabilities
62.6

 
61.4

Total current liabilities
680.0

 
228.8

Long-term debt, net of current portion
362.2

 
931.4

Other non-current liabilities
162.8

 
163.9

Commitments and contingencies (Note 16)

 

Stockholders’ equity:
 
 
 
Preferred Stock, $0.001 par value; 1 million shares authorized; 1 share at December 30, 2017 and July 1, 2017, issued and outstanding
—

 
—

Common Stock, $0.001 par value; 1 billion shares authorized; 227 million shares at December 30, 2017 and 228 million shares at July 1, 2017, issued and outstanding
0.2

 
0.2

Additional paid-in capital
70,173.8

 
70,184.4

Accumulated deficit
(69,346.0
)
 
(69,305.8
)
Accumulated other comprehensive loss
(74.6
)
 
(92.4
)
Total stockholders’ equity
753.4

 
786.4

Total liabilities and stockholders’ equity
$
1,958.4

 
$
2,110.5


See accompanying notes to consolidated financial statements.

4
Table of Contents

VIAVI SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
OPERATING ACTIVITIES:
 
 
 
Net (loss) income
$
(8.5
)
 
$
127.2

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

 

Depreciation expense
16.7

 
15.5

Amortization of acquired technologies and other intangibles
14.7

 
14.4

Stock-based compensation
15.2

 
17.8

Asset retirement obligations and deferred rent expenses
0.3

 
(0.2
)
Amortization of debt issuance costs and accretion of debt discount
18.8

 
15.0

Amortization of discount and premium on investments, net
0.2

 
0.8

Gain on sale of investments
—

 
(135.4
)
Loss on disposal of assets
1.5

 
1.7

Loss on extinguishment of debt
3.8

 
—

Noncash accounts receivable charges
4.3

 
1.6

Changes in operating assets and liabilities, net of impact of acquisitions of businesses:
 
 
 
Accounts receivable
(18.7
)
 
(21.2
)
Inventories
(19.1
)
 
(0.6
)
Other current and non-currents assets
5.1

 
(7.1
)
Accounts payable
2.4

 
(9.8
)
Income taxes payable
(0.6
)
 
3.7

Deferred revenue, current and non-current
4.4

 
(16.9
)
Deferred taxes, net
(2.4
)
 
(0.9
)
Accrued payroll and related expenses
(0.8
)
 
(1.5
)
Accrued expenses and other current and non-current liabilities
(2.4
)
 
32.6

Net cash provided by operating activities
34.9

 
36.7

 
 
 
 
INVESTING ACTIVITIES:
 
 
 
Purchases of available-for-sale investments
(297.6
)
 
(373.0
)
Maturities of available-for-sale investments
250.3

 
201.2

Sales of available-for-sale investments
26.6

 
234.3

Changes in restricted cash
4.5

 
0.9

Capital expenditures
(14.9
)
 
(20.1
)
Proceeds from the sale of assets
2.3

 
2.8

Acquisition of business, net of cash acquired
(56.2
)
 
—

Net cash (used in) provided by investing activities
(85.0
)
 
46.1

 
 
 
 
FINANCING ACTIVITIES:
 
 
 
Repurchase and retirement of common stock
(31.0
)
 
(39.7
)
Withholding tax payment on vesting of restricted stock awards
(8.9
)
 
(7.8
)
Repurchase and redemption of convertible debt
(175.0
)
 
—

Payment of financing obligations
(0.9
)
 
(0.4
)
Proceeds from exercise of employee stock options and employee stock purchase plan
2.5

 
4.0

Net cash used in financing activities
(213.3
)
 
(43.9
)
 
 
 
 
Effect of exchange rates on cash and cash equivalents
12.1

 
(16.1
)
Net (decrease) increase in cash and cash equivalents
(251.3
)
 
22.8

Cash and cash equivalents at the beginning of the period
1,004.4

 
482.9

Cash and cash equivalents at the end of the period
$
753.1

 
$
505.7



See accompanying notes to consolidated financial statements.

5

VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation
The financial information for Viavi Solutions Inc. (“VIAVI” also referred to as “the Company”, “we”, “our” and “us”) as of December 30, 2017 and for the three and six months ended December 30, 2017 and December 31, 2016 is unaudited, and includes all normal and recurring adjustments Company management (“Management”) considers necessary for a fair statement of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual consolidated financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended July 1, 2017 .
The balance sheet as of July 1, 2017 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three and six months ended December 30, 2017 and December 31, 2016 may not be indicative of results for the fiscal year ending June 30, 2018 or any future periods.
Fiscal Years
The Company utilizes a 52 - 53  week fiscal year ending on the Saturday closest to June 30th. The Company’s fiscal 2018 is a 52 -week year ending on June 30, 2018 . The Company’s fiscal 2017 was a 52 -week year ending on July 1, 2017 .
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 management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenues and expenses and the disclosure of commitments and contingencies during the reporting periods. The Company bases estimates on historical experience and on various assumptions about the future that are believed to be reasonable based on available information. The Company’s reported financial positions or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect more current information.
Note 2. Recently Issued Accounting Pronouncements
In May 2017, the Financial Accounting Standards Board (“FASB”) issued guidance that clarifies the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under the relevant authoritative guidance. The guidance is to be applied prospectively, and is effective for the Company in the first quarter of fiscal 2019. Early adoption is permitted. The Company does not anticipate the adoption of this guidance to have a material impact on its consolidated financial statements, absent any award(s) modified on or after adoption date.
In November 2016, the FASB issued guidance that will require that the amounts generally described as restricted cash and restricted cash equivalents would be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows. The new guidance also requires certain disclosures to supplement the statement of cash flows. The guidance is effective for the Company in the first quarter of fiscal 2019. Other than changes in the presentation within the statements of cash flows and additional required disclosures, the adoption of this new accounting guidance will not have an impact on the consolidated financial statements.
In October 2016, the FASB issued guidance that requires entities to recognize at the transaction date the income tax consequences of intra-entity transfer of an asset other than inventory. The guidance is effective for the Company in the first quarter of fiscal 2019. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.

6

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

In June 2016, the FASB issued guidance that changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. The guidance is effective for the Company in the first quarter of fiscal 2021 and earlier adoption is permitted. The Company is evaluating the impact of adopting this new accounting guidance on its consolidated financial statements.
In February 2016, the FASB issued guidance regarding both operating and financing leases, requiring lessees to recognize on their balance sheets “right-of-use assets” and corresponding lease liabilities, measured on a discounted basis over the lease term. Virtually all leases will be subject to this treatment except leases that meet the definition of a “short-term lease.” 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. While the Company is not yet in a position to assess the full impact of the application of the new guidance, the Company expects adoption of this guidance will materially increase the assets and liabilities recorded on its Consolidated Balance Sheets.

In May 2014, the FASB issued new authoritative guidance related to revenue recognition from contracts with customers. This new guidance will replace current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. The new guidance provides a unified model to determine when and how revenue is recognized. The core principle of the new guidance 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 new guidance allows for either full retrospective adoption or modified retrospective adoption. The FASB deferred the effective date for this new guidance by one year to December 15, 2017 for annual reporting periods beginning after such date.The Company will adopt the guidance in the first quarter of fiscal 2019 using the full retrospective method, reflecting the application of the new standard in each prior reporting period.

In preparation for the implementation and adoption of the new guidance, the Company has established a cross-functional team and implementation plan to identify processes, systems and internal controls over financial reporting impacted by the new guidance. The implementation plan includes comparison of the Company’s historical accounting policies and practices to the requirements of the new guidance, and identifying differences from applying the requirements of the new guidance to the Company’s contracts, consolidated financial statements and related disclosures.
While the Company’s assessment of the potential impacts of the new guidance is not yet complete, initially the Company believes the most significant impact on the accounting for contracts with customers will be for certain arrangements that include sales of software solutions bundled with post-contract support (PCS) and/or services, where VSOE has not been established for the PCS and/or the services. Due to lack of VSOE under the current guidance, the Company defers recognition of any revenue attributable to such arrangements until the services lacking VSOE are complete. Such revenue is then recognized ratably over the remaining support term. The requirement to have VSOE for undelivered elements to enable the separation of the revenue for delivered software is eliminated under the new guidance and the Company will be required to allocate total contract revenue to each element (referred to as a distinct performance obligation under the new standard) based on either an established or estimated standalone selling price. Accordingly, a portion of the revenue for these types of contracts with customers will be recognized when the software or software solution is transferred to the customer. Dependent on contract-specific terms, the Company expects the actual revenue recognition treatment and timing will vary under the new guidance for some of these arrangements. The Company will continue to evaluate the impact of this new guidance on its consolidated financial statements and related disclosures.

7

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

Note 3. Earnings Per Share
The following table sets forth the computation of basic and diluted net (loss) income per share ( in millions, except per share data ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Numerator:
 

 
 

 
 
 
 
Net (loss) income
$
(3.7
)
 
$
49.2

 
$
(8.5
)
 
$
127.2

Denominator:
 
 
 
 
 
 
 
Weighted-average number of common shares outstanding
 
 
 
 
 
 
 
Basic
227.4

 
230.5

 
227.7

 
231.4

Effect of dilutive securities from stock-based benefit plans
—

 
3.7

 
—

 
4.4

Diluted
227.4

 
234.2

 
227.7

 
235.8

 
 
 
 
 
 
 
 
Net (loss) income per share:
 
 
 
 
 
 
 
Basic
$
(0.02
)
 
$
0.21

 
$
(0.04
)
 
$
0.55

Diluted
$
(0.02
)
 
$
0.21

 
$
(0.04
)
 
$
0.54

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 ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017 (1) (2)
 
December 31, 2016 (1)
 
December 30, 2017 (1) (2)
 
December 31, 2016 (1)
Stock options and ESPP
1.6

 
1.5

 
1.6

 
1.6

Restricted Stock Units
7.7

 
0.2

 
7.8

 
—

Total potentially dilutive securities
9.3

 
1.7

 
9.4

 
1.6

(1)  The Company’s 0.625% Senior Convertible Notes due 2033 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 at the Company’s election. Refer to “ Note 10. Debt ” for more details.

(2)  The Company’s 1.00% Senior Convertible Notes due 2024 are not included in the table above. The par amount of convertible notes is payable in cash equal to the principal amount of the notes plus any accrued and unpaid interest and then the “in-the-money” conversion benefit feature at the conversion price above $13.22 per share is payable in cash, shares of the Company’s common stock or a combination of both at the Company’s election. Refer to “ Note 10. Debt ” for more details.
Note 4. Accumulated Other Comprehensive Loss
The Company’s accumulated other comprehensive loss consists of the accumulated net unrealized gains or losses on available-for-sale investments, foreign currency translation adjustments and change in unrealized components of defined benefit obligations.

8

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

For the six months ended December 30, 2017 the changes in accumulated other comprehensive loss by component net of tax were as follows ( in millions ):
 
Unrealized gains (losses) on available-for sale investments
 
Foreign 
currency translation adjustments
 
Change in unrealized components of defined benefit obligations (1)
 
Total
Beginning balance as of July 1, 2017
$
(5.3
)
 
$
(65.3
)
 
$
(21.8
)
 
$
(92.4
)
Other comprehensive income (loss) before reclassification
(0.4
)
 
17.3

 
—

 
16.9

Amounts reclassified out of accumulated other comprehensive loss
—

 
—

 
0.9

 
0.9

Net current-period other comprehensive (loss) income
(0.4
)
 
17.3

 
0.9

 
17.8

Ending balance as of December 30, 2017
$
(5.7
)
 
$
(48.0
)
 
$
(20.9
)
 
$
(74.6
)


(1)  The amount reclassified out of accumulated other comprehensive loss represents the amortization of actuarial losses included as a component of cost of revenues, research and development (“R&D”) and selling, general and administrative expense (“SG&A”) in the Consolidated Statement of Operations for the six months ended December 30, 2017 . There was no tax impact for the six months ended December 30, 2017 . Refer to “ Note 15. Employee Pension and Other Benefit Plans ” for more details on the computation of net periodic cost for pension plans.

9

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

Note 5. Mergers and Acquisitions
On August 9, 2017, the Company completed the acquisition of Trilithic, Inc. (“Trilithic”), a privately-held provider of electronic test and measurement equipment for telecommunications service providers. The Company acquired all outstanding shares of Trilithic for  $55.5 million  in cash, subject to working capital adjustments. The Company finalized working capital adjustments in the second quarter of fiscal 2018 and made an additional $0.9 million cash payment. The Trilithic acquisition is being integrated into the Company’s Network Enablement (“NE”) 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, and acquisition-related costs totaling $0.9 million were included in selling, general, and administrative expenses in the Company’s Consolidated Statement of Operations during the six months ended December 30, 2017 .

The purchase price was allocated as follows (in millions) :
Net tangible assets acquired
 
$
11.8

Intangible assets acquired:
 
 
Developed technology
 
15.5

Customer relationships
 
11.0

Other
 
0.3

Goodwill
 
17.8

Total purchase price
 
$
56.4

.
 The following table summarizes the components of the tangible assets acquired at fair value (in millions) :
Cash
 
$
0.2

Accounts receivable
 
3.2

Inventory
 
10.1

Property and equipment
 
1.2

Accounts payable
 
(1.7
)
Other liabilities, net of other assets
 
(1.2
)
Net tangible assets acquired
 
$
11.8

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, and other intangible assets was determined based on an income approach using the discounted cash flow method. The intangible assets are being amortized over their estimated useful lives that range from three to five years for the acquired developed technology and customer relationships.

The goodwill arising from this acquisition is primarily attributed to sales of future products and services and the assembled workforce of Trilithic. Goodwill has been assigned to the NE 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.
Trilithic’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.

10

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

Note 6. Balance Sheet and Other Details
Accounts receivable reserves and allowances
The components of accounts receivable reserves and allowances were as follows ( in millions ):
 
December 30, 2017
 
July 1, 2017
Allowance for doubtful accounts
$
1.6

 
$
1.6

Sales allowance
5.2

 
3.4

Total accounts receivable reserves and allowances
$
6.8

 
$
5.0

The activities and balances for allowance for doubtful accounts are as follows (in millions):
 
July 1, 2017
 
Acquisition of Trilithic (1)
 
Charged to Costs and Expenses
 
Deduction
 
December 30, 2017
Allowance for doubtful accounts
$
1.6

 
0.1

 
—

 
(0.1
)
 
$
1.6

 (1) See “ Note 5. Mergers and Acquisitions ” of the Notes to Consolidated Financial Statements for detail of acquisition.

Inventories, net
The components of inventories, net were as follows ( in millions ):
 
December 30, 2017
 
July 1, 2017
Finished goods
$
43.6

 
$
24.9

Work in process
12.8

 
10.3

Raw materials
20.9

 
12.8

Inventories, net
$
77.3

 
$
48.0

Prepayments and other current assets
The components of prepayments and other current assets were as follo ws ( in millions ):
 
December 30, 2017
 
July 1, 2017
Prepayments
$
10.7

 
$
8.3

Asset held for sale
3.0

 
—

Other current assets
36.0

 
42.5

Prepayments and other current assets
$
49.7

 
$
50.8


11

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

Other current liabilities
The components of other current liabilities were as follows ( in millions ):
 
December 30, 2017
 
July 1, 2017
Customer prepayments
$
35.8

 
$
35.2

Restructuring accrual
7.5

 
8.8

Income tax payable
5.5

 
3.3

Warranty accrual
3.6

 
2.9

VAT liabilities
2.4

 
2.2

Deferred compensation plan
2.2

 
2.0

Other
5.6

 
7.0

Other current liabilities
$
62.6

 
$
61.4

Other non-current liabilities
The components of other non-current liabilities were as follo ws ( in millions ):
 
December 30, 2017
 
July 1, 2017
Pension and post-employment benefits
$
102.7

 
$
99.4

Financing obligation
27.5

 
27.8

Long-term deferred revenue
11.7

 
14.0

Other
20.9

 
22.7

Other non-current liabilities
$
162.8

 
$
163.9


Note 7. Investments, Forward Contracts and Fair Value Measurements
Available-For-Sale Investments
The Company’s investments in marketable debt securities were primarily classified as available-for-sale securities. As of December 30, 2017 , the Company’s available-for-sale securities were as follows ( in millions ):
 
Amortized Cost/
Carrying Cost
 
Gross Unrealized Losses
 
Fair Value
Available-for-sale debt securities:
 

 
 

 
 

U.S. treasuries
$
94.1

 
$
(0.1
)
 
$
94.0

U.S. agencies
23.0

 
(0.1
)
 
22.9

Municipal bonds and sovereign debt instruments
2.9

 
—

 
2.9

Asset-backed securities
55.9

 
(0.4
)
 
55.5

Corporate securities
336.4

 
(0.4
)
 
336.0

Total available-for-sale debt securities
$
512.3

 
$
(1.0
)
 
$
511.3

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 December 30, 2017 , of the total estimated fair value, $60.6 million was classified as cash equivalents, $450.1 million was classified as short-term investments and $0.6 million was classified as other non-current assets.

12

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

 In addition to the amounts presented above, as of December 30, 2017 , the Company’s short-term investments classified as trading securities related to the deferred compensation plan were $2.2 million , of which $0.5 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $1.4 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 interest and other income, net.
During the three and six months ended December 30, 2017 and December 31, 2016 , the Company recorded no other-than-temporary impairment charges in each respective period.
As of December 30, 2017 , contractual maturities of the Company’s debt securities classified as available-for-sale securities were as follows ( in millions ):
 
Amortized Cost/
Carrying Cost
 
Estimated
Fair Value
Amounts maturing in less than 1 year
$
413.5

 
$
413.3

Amounts maturing in 1 - 5 years
97.8

 
97.4

Amounts maturing in more than 5 years
1.0

 
0.6

Total debt available-for-sale securities
$
512.3

 
$
511.3

 As of July 1, 2017 , the Company’s available-for-sale securities were as follows ( in millions ):
 
Amortized Cost/
Carrying Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
Available-for-sale securities:
 

 
 

 
 

 
 

U.S. treasuries
$
56.8

 
$
—

 
$
(0.1
)
 
$
56.7

U.S. agencies
45.0

 
—

 
(0.1
)
 
44.9

Municipal bonds and sovereign debt instruments
4.4

 
—

 
—

 
4.4

Asset-backed securities
71.5

 
—

 
(0.4
)
 
71.1

Corporate securities
326.1

 
0.1

 
(0.2
)
 
326.0

Certificates of deposit
6.0

 
—

 
—

 
6.0

Total available-for-sale securities
$
509.8

 
$
0.1

 
$
(0.8
)
 
$
509.1

As of July 1, 2017 , of the total estimated fair value, $78.2 million was classified as cash equivalents, $430.2 million was classified as short-term investments and $0.7 million was classified as other non-current assets.
In addition to the amounts presented above, as of July 1, 2017 , the Company’s short-term investments classified as trading securities, related to the deferred compensation plan, were $2.0 million , of which $0.5 million was invested in debt securities, $0.3 million was invested in money market instruments and funds and $1.2 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 interest and other income, net.

13

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

Fair Value Measurements
Assets measured at fair value as of December 30, 2017 and July 1, 2017 are summarized below ( in millions ):
 
Fair value measurement as of
 
Fair value measurement as of
 
December 30, 2017
 
July 1, 2017
 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
Assets:
 

 
 

 
 

 
 
 
 
 
 
Debt available-for-sale securities
 

 
 

 
 

 
 
 
 
 
 
U.S. treasuries
$
94.0

 
$
94.0

 
$
—

 
$
56.7

 
$
56.7

 
$
—

U.S. agencies
22.9

 
—

 
22.9

 
44.9

 
—

 
44.9

Municipal bonds and sovereign debt instruments
2.9

 
—

 
2.9

 
4.4

 
—

 
4.4

Asset-backed securities
55.5

 
—

 
55.5

 
71.1

 
—

 
71.1

Corporate securities
336.0

 
—

 
336.0

 
326.0

 
—

 
326.0

       Certificate of deposits
—

 
—

 
—

 
6.0

 
—

 
6.0

Total debt available-for-sale securities
511.3

 
94.0

 
417.3

 
509.1

 
56.7

 
452.4

Money market funds
479.9

 
479.9

 
—

 
726.4

 
726.4

 
—

Trading securities
2.2

 
2.2

 
—

 
2.0

 
2.0

 
—

Foreign currency forward contracts
1.9

 
—

 
1.9

 
7.3

 
—

 
7.3

Total assets (1)
$
995.3

 
$
576.1

 
$
419.2

 
$
1,244.8

 
$
785.1

 
$
459.7

 
 
 
 
 
 
 
 
 
 
 
 
Liability:
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
0.8

 
—

 
0.8

 
1.3

 
—

 
1.3

Total liabilities (2)
$
0.8

 
$
—

 
$
0.8

 
$
1.3

 
$
—

 
$
1.3

(1) $ 529.0 million in cash and cash equivalents, $452.3 million in short-term investments, $7.2 million in restricted cash, $ 1.9 million in prepayments and other current assets, and $4.9 million in other non-current assets on the Company’s Consolidated Balance Sheets as of December 30, 2017 . $789.2 million in cash and cash equivalents, $432.2 million in short-term investments, $11.0 million in restricted cash, $7.3 million in prepayments and other current assets, and $5.1 million  in other non-current assets on the Company’s Consolidated Balance Sheets as of July 1, 2017 .
(2) $ 0.8 million and $1.3 million in other current liabilities on the Company’s Consolidated Balance Sheets as of December 30, 2017 and July 1, 2017 , respectively.
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.

14

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

•
Level 1 includes financial instruments for which quoted market prices for identical instruments are available in active markets. Level 1 assets of the Company include money market funds, U.S. Treasury securities and marketable equity securities as they are traded with sufficient volume and frequency of transactions. 
•
Level 2 includes financial instruments for which the valuations are based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities. Level 2 instruments of the Company generally include certain U.S. and foreign government and agency securities, commercial paper, corporate and municipal bonds and notes, asset-backed securities, certificates of deposit, and foreign currency forward contracts. To estimate their fair value, the Company utilizes pricing models based on market data. The significant inputs for the valuation model usually include benchmark yields, reported trades, broker and dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, and industry and economic events. 
•
Level 3 includes financial instruments for which fair value is derived from valuation based on inputs that are unobservable and significant to the overall fair value measurement. As of December 30, 2017 and July 1, 2017 , the Company did not hold any Level 3 investment securities.
Non-Designated Foreign Currency Forward Contracts
The Company has foreign subsidiaries that operate and sell the Company’s products in various markets around the world. As a result, the Company is exposed to foreign exchange risks. The Company utilizes foreign exchange forward contracts to manage foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables, and to reduce the volatility of earnings and cash flows related to foreign-currency transactions. The Company does not use these foreign currency forward contracts for trading purposes.
As of December 30, 2017 , the Company had forward contracts that were effectively closed but not settled with the counterparties by quarter end. Therefore, the fair value of these contracts of $1.9 million and $0.8 million is reflected as prepayments and other current assets and other current liabilities in the Consolidated Balance Sheets as of December 30, 2017 , respectively. As of  July 1, 2017 , the fair value of these contracts of  $7.3 million  and  $1.3 million  is reflected as prepayments and other current assets and other current liabilities, respectively.
The forward contracts outstanding and not effectively closed, with a term of less than 120 days, were transacted near quarter end; therefore, the fair value of the contracts is not significant. As of December 30, 2017 and July 1, 2017 , the notional amounts of the forward contracts the Company held to purchase foreign currencies were $139.4 million and $134.3 million , respectively, and the notional amounts of forward contracts the Company held to sell foreign currencies were $26.0 million and $25.4 million , respectively.
The change in the fair value of foreign currency forward contracts is recorded as gain or loss in the Company’s Consolidated Statements of Operations as a component of interest and other income, net. The cash flows related to the settlement of foreign currency forward contracts are classified as operating activities. The gains on foreign exchange forward contracts were $1.1 million and $4.2 million for the three and six months ended December 30, 2017 , respectively. The losses on foreign exchange forward contracts were $5.6 million and $5.3 million for the three and six months ended December 31, 2016 , respectively.
Note 8. Goodwill
The following table presents the changes in goodwill allocated to the Company’s reportable segments (in millions) :
 
Network
Enablement 
 
Optical Security
and Performance
Products
 
Total
Balance as of July 1, 2017
$
143.3

 
$
8.3

 
$
151.6

Goodwill - Trilithic (1)
17.8

 
—

 
17.8

Currency translation adjustments
1.3

 
—

 
1.3

Balance as of December 30, 2017
$
162.4

 
$
8.3

 
$
170.7

(1) See “ Note 5. Mergers and Acquisitions ” of the Notes to Consolidated Financial Statements for detail.

15

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

The Company reviews goodwill for impairment during the fourth quarter of each fiscal year, or more frequently if events or circumstances indicate that an impairment loss may have occurred. In the fourth quarter of fiscal 2017 , the Company completed the annual impairment test of goodwill with no goodwill impairments for the NE and OSP reporting units.
There were no events or changes in circumstances which triggered an impairment review during the three and six months ended December 30, 2017 .
Note 9. 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 December 30, 2017
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Acquired developed technology
$
387.2

 
$
(362.2
)
 
$
25.0

Customer relationships
106.4

 
(88.2
)
 
18.2

Other (1)
10.2

 
(10.1
)
 
0.1

Total intangibles
$
503.8

 
$
(460.5
)
 
$
43.3

As of July 1, 2017
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Acquired developed technology
$
369.3

 
$
(352.0
)
 
$
17.3

Customer relationships
94.9

 
(81.3
)
 
13.6

Other (1)
9.9

 
(9.7
)
 
0.2

Total intangibles
$
474.1

 
$
(443.0
)
 
$
31.1

(1)
Other intangibles consist of customer backlog, non-competition agreements, patents, proprietary know-how and trade secrets, trademarks and trade names.
The following table presents the amortization recorded relating to acquired developed technology, customer relationships and other intangibles ( in millions ):
    
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Cost of revenues
$
4.1

 
$
3.7

 
$
8.2

 
$
7.5

Operating expenses
3.4

 
3.4

 
6.5

 
6.9

Total amortization of intangible assets
$
7.5

 
$
7.1

 
$
14.7

 
$
14.4


16

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

Based on the carrying amount of acquired developed technology, customer relationships and other intangibles as of December 30, 2017 , and assuming no future impairment of the underlying assets, the estimated future amortization is as follows ( in millions ):
Fiscal Years
 
Remainder of 2018
$
12.3

2019
16.3

2020
8.4

2021
4.1

2022
2.0

Thereafter
0.2

Total amortization
$
43.3

The acquired developed technology, customer relationships and other intangibles balance are adjusted quarterly to record the effect of currency translation adjustments.
Note 10. Debt
As of December 30, 2017 and July 1, 2017 , the Company’s short-term debt and long-term debt on the Consolidated Balance Sheets represented the carrying amount of the liability component, net of unamortized debt discounts and issuance cost, of the Senior Convertible Notes as discussed below. The following table presents the carrying amounts of the liability and equity components ( in millions ):
 
December 30, 2017
 
July 1, 2017
Principal amount of 0.625% Senior Convertible Notes
$
451.0

 
$
610.0

Principal amount of 1.00% Senior Convertible Notes
460.0

 
460.0

Unamortized discount of liability component
(104.7
)
 
(129.4
)
Unamortized debt issuance cost
(7.3
)
 
(9.2
)
Carrying amount of liability component
$
799.0

 
$
931.4

  Current portion of long-term debt
436.8

 
—

Long-term debt, net of current portion
$
362.2

 
$
931.4

 
 
 
 
Carrying amount of equity component (1)
$
209.7

 
$
229.7

(1)
Included in additional paid-in-capital on the Consolidated Balance Sheets.
The Company was in compliance with all debt covenants as of December 30, 2017 and July 1, 2017 .
1.00% Senior Convertible Notes (“2024 Notes”)
On March 3, 2017, the Company issued $400 million aggregate principal amount of 1.00% Senior Convertible Notes due 2024 in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. On March 22, 2017, the Company issued an additional $60 million upon exercise of the over-allotment option of the initial purchasers. The total proceeds from the 2024 Notes amounted to $451.1 million after issuance costs. The 2024 Notes are an unsecured obligation of the Company and bear interest at an annual rate of 1.00% payable in cash semi-annually in arrears on March 1 and September 1 of each year. The 2024 Notes mature on March 1, 2024 unless earlier converted or repurchased. The carrying value of the liability component at issuance was calculated as the present value of its cash flows using a discount rate of  4.8%  based on the  7 -year swap rate plus credit spread as of the issuance date.
Based on quoted market prices as of December 30, 2017 and July 1, 2017 , the fair value of the 2024 Notes was approximately $453.4 million and $481.7 million , respectively. The 2024 Notes are classified within Level 2 as they are not actively traded in markets.

17

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

0.625% Senior Convertible Notes (“2033 Notes”)
On August 21, 2013, the Company issued $650.0 million aggregate principal amount of 0.625%  Senior Convertible Notes due 2033 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 year. The 2033 Notes mature on August 15, 2033 unless earlier converted, redeemed or repurchased. 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.
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. As of  December 30, 2017 , the expected remaining term of the 2033 Notes is  0.6 years and thus was classified as current portion of long-term debt.
During the three and six months ended December 30, 2017 , the Company repurchased  $12.5 million  and $159.0 million aggregate principal amount of the notes, respectively, for  $13.0 million and $175.0 million in cash. In connection with the repurchase, a loss on extinguishment of  $0.2 million  and $3.8 million was recognized in interest and other income, net in compliance with the authoritative guidance for the three and six months ended December 30, 2017 , respectively. After giving effect to the repurchase, the total amount of  0.625%  Senior Convertible Notes outstanding as of December 30, 2017 was  $451.0 million .
Based on quoted market prices as of December 30, 2017 and July 1, 2017 , the fair value of the 2033 Notes was approximately $465.7 million and $676.1 million , respectively. The 2033 Notes are classified within Level 2 as they are not actively traded in markets.
Interest Expense
The following table presents the interest expense for contractual interest, amortization of debt issuance cost and accretion of debt discount ( in millions ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Interest expense-contractual interest
$
1.8

 
$
1.0

 
$
3.8

 
$
2.0

Amortization of debt issuance cost
0.6

 
0.6

 
1.3

 
1.1

Accretion of debt discount
8.4

 
7.0

 
17.5

 
13.9

Note 11. 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 December 30, 2017 and July 1, 2017 , the Company’s total restructuring accrual was $8.6 million and $11.0 million , respectively. During the three and six months ended December 30, 2017 , the Company recorded restructuring and related charges of $2.5 million and $4.0 million , respectively. During the three and six months ended   December 31, 2016 , the Company recorded restructuring and related charges of $1.8 million and $1.8 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.
Summary of Restructuring Plans
The adjustments to the accrued restructuring expenses related to all of the Company’s restructuring plans described below for the three and six months ended December 30, 2017 were as follows (in millions) :

18

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

 
Balance
July 1, 2017
 
Six Months Ended December 30, 2017 Charges (Benefits)
 
Cash
Settlements
 
Non-cash Settlements
and Other Adjustments
 
Balance
December 30, 2017
 
Three Months Ended December 30, 2017 Charges (Benefits)
Fiscal 2018 Plan
 
 
 
 
 
 
 
 
 
 
 
Trilithic Restructuring Plan (1)
$
—

 
$
0.5

 
$
—

 
$
—

 
$
0.5

 
$
0.5

Fiscal 2017 Plan
 
 
 
 
 
 
 
 
 
 
 
OSP Restructuring Plan (1)
0.8

 
—

 
—

 
—

 
0.8

 
—

Focused NSE Restructuring Plan (1) (2)
4.9

 
3.1

 
(4.9
)
 
0.4

 
3.5

 
1.9

Other Plans (2)
—

 
0.5

 
(0.6
)
 
0.1

 
—

 
0.1

Fiscal 2016 Plan
 
 
 
 
 
 
 
 
 
 
 
NE, SE and Shared Services Agile Restructuring Plan (1) (2)
0.2

 
(0.1
)
 
(0.1
)
 
—

 
—

 

NE and SE Agile Restructuring Plan (1)
0.4

 
—

 
—

 
—

 
0.4

 
—

Plans Prior to Fiscal 2016


 

 

 

 

 
 
NE Product Strategy Restructuring Plan (1)
0.9

 
—

 
(0.3
)
 
—

 
0.6

 
—

NE Lease Restructuring Plan (2)
2.6

 
—

 
(0.8
)
 
—

 
1.8

 
—

Other Plans (1)(2)
1.2

 
—

 
(0.2
)
 
—

 
1.0

 
—

Total
$
11.0

 
$
4.0

 
$
(6.9
)
 
$
0.5

 
$
8.6

 
$
2.5

(1) Plan type includes workforce reduction cost.
(2) Plan type includes lease exit cost.
As of December 30, 2017 and July 1, 2017 , $1.1 million and $2.2 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 2018 Plans
Trilithic Restructuring Plan
During the second quarter of fiscal 2018, Management approved a plan within the NE business segment to consolidate and integrate the Trilithic acquisition. As a result, a restructuring charge of $0.5 million was recorded for severance and employee benefits for approximately 20 employees primarily in manufacturing, and SG&A functions located in the United States. Payments related to the severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2019.
Fiscal 2017 Plans
OSP Restructuring Plan
During the fourth quarter of fiscal 2017, Management approved a plan within the OSP business segment to realign its operations and exit from the printed security business. As a result, approximately 30 employees in manufacturing and SG&A functions located in the United States were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2018.
Focused NSE Restructuring Plan
During fiscal 2017, Management approved a plan within the NE and SE business segments as part of VIAVI’s continued strategy to improve profitability in the Company’s Network and Service Enablement (NSE) business by narrowing the scope of the Service Enablement business and reducing costs by streamlining NSE operations. During the second quarter of fiscal 2018, the headcount impact by this plan increased by approximately 20 employees and, as a result, a restructuring charge of $1.7 million was recorded for severance and employee benefits. In total, approximately 340 employees in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2018 . During the third quarter of fiscal 2017, Management also approved a plan in the NE and SE segment to exit the space in Colorado Springs, Colorado. As of September 30, 2017, the Company exited the workspace in Colorado Springs under the plan. The fair value of the remaining contractual obligations as of

19

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

December 30, 2017 was $1.1 million . Payments related to the Colorado Springs lease costs are expected to be paid by the end of the third quarter of fiscal 2021 .
Fiscal 2016 Plans
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 segments and Shared Services function for organizational alignment and consolidation as part of the Company’s continued commitment for a more cost effective organization. As a result approximately 170  employees primarily in manufacturing and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the remaining severance and benefits accrual were paid by the end of the first quarter of fiscal 2018 .
NE and SE Agile Restructuring Plan
During the sec ond quarter of fiscal 2016, Management approved a plan primarily impacting the NE and SE business segments as part of Company’s ongoing commitment for an agile and more efficient operating structure. As a result approximately 40 employees primarily 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 fourth quarter of fiscal 2018.
Plans Prior to 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 December 30, 2017 was $1.8 million . Payments related to the Germantown lease costs are expected to be paid by the end of the second quarter of fiscal 2019 .
As of December 30, 2017 , the restructuring accrual for other plans that commenced prior to fiscal year 2016 was $1.0 million , which consists of immaterial accruals from various restructuring plans.
Note 12. Income Taxes
The Company recorded income tax (benefit) expense of $(1.4) million and $1.1 million for the three and six months ended December 30, 2017 respectively. The Company recorded an income tax expense of $5.8 million  and $11.5 million  related to the income from continuing operations for the three and six months ended   December 31, 2016 , respectively. 
The income tax (benefit) expense for the three and six months ended December 30, 2017 and December 31, 2016 primarily relates to income tax in certain foreign and state jurisdictions based on the Company’s forecasted pre-tax income or loss for the respective fiscal year. For the three and six months ended December 30, 2017, this foreign and state tax is offset by a tax benefit of $0.4 million and $3.1 million , respectively, which was recorded in the Company’s income tax provision related to the income tax intraperiod allocation rules in relation to other comprehensive income. In accordance with authoritative guidance, this benefit may reverse during the fiscal year. Additionally, for the three and six months ended December 30, 2017, the tax provision includes a benefit of $6.5 million resulting from the passage of the U.S. Tax Cuts and Jobs Act (“the Act”), the impacts of which are detailed below.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. Income tax effects resulting from changes in tax laws are accounted for by the Company in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted, and the effects are recorded as a component of the provision for income taxes from

20

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

continuing operations. The law has significantly changed the way the U.S. taxes corporations. The Act repealed the alternative minimum tax (“AMT”) for corporations and provided that the existing AMT credit carryforwards would be refunded in 2022 if not utilized. As a result, the Company recognized a benefit of $4.5 million for the three and six months ended December 30, 2017 for the release of the valuation allowance previously maintained against the AMT credit deferred tax asset. In addition, under the Act, the Company’s current year net operating losses and any future net operating losses can now be carried forward indefinitely. As a result, the Company’s deferred tax liability associated with indefinite-lived intangible assets may now offset these indefinite-lived deferred tax assets, resulting in a benefit of $2.0 million for the three and six months ended December 30, 2017 due to release of the valuation allowance.
The Act imposed a deemed repatriation of the Company’s foreign subsidiaries’ post-1986 earnings and profits (“E&P”) which had previously been deferred from US income tax. The Company has made a provisional estimate of this deemed repatriation of E&P and has determined that there is no current period expense or liability due to the Company having sufficient estimated losses for the fiscal year to offset the income associated with the deemed repatriation. As previously noted, the impact of the deemed repatriation is a provisional estimate. The Company has not yet completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries. Further, this transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. In addition, further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional estimate or the accounting treatment of the provisional estimate.
The Act reduces the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. The Company has not made sufficient progress on remeasuring its deferred tax assets and liabilities to determine a reasonable estimate at this time. However, the Company expects that there will be an equal and offsetting reduction in the valuation allowance such that there should be no impact to its (benefit from) provision for income taxes for the fiscal year related to the rate reduction.
Upon adoption of the new guidance on share-based payment awards, previously unrecognized excess tax benefits were recorded as a deferred tax asset, which was fully offset by a corresponding increase in valuation allowance, resulting in no impact to opening accumulated deficit.  In addition, due to the full valuation allowance on the U.S. deferred tax assets, there was no impact to the income tax provision from excess tax benefits for the three and six months ended December 30, 2017 . 
The income tax expense (benefit) recorded differs from the expected tax expense (benefit) that would be calculated by applying the federal statutory rate to the Company’s income from continuing operations before taxes primarily due to the changes in valuation allowance for deferred tax assets attributable to the Company’s domestic and foreign income (loss) from continuing operations, impacts of the Act and due to the income tax benefit recorded in continuing operations under the income tax intraperiod allocation rules.
As of December 30, 2017 , and July 1, 2017 , the Company’s unrecognized tax benefits totaled $39.1 million and $38.9 million , respectively, and are included in deferred taxes and other non-current tax liabilities, net. The Company had $2.1 million accrued for the payment of interest and penalties at December 30, 2017 . The unrecognized tax benefits that may be recognized during the next twelve months are approximately $0.1 million .
Note 13. Stockholders' Equity
Repurchase of Common Stock
In September 2016, the Board of Directors increased the Company’s previously authorized stock repurchase program from $100 million to $150 million . Under the revised repurchase authorization, the Company may repurchase up to $150 million of the Company’s common stock from time to time at the discretion of the Company’s management. The Board previously authorized expiration of the share repurchase to be extended to December 31, 2017. In December 2017, the Board authorized a further extension of the Company's stock repurchase program for an additional 3 months to expire on March 31, 2018.

During the three months ended December 30, 2017 , the Company repurchased approximately 2.4 million shares of its common stock for $21.8 million . As of December 30, 2017 , the Company had remaining authorization of $22.5 million for future share repurchases. The number of shares to be repurchased and the timing of such repurchases will be based on several factors, including business and financial market conditions.

All common shares repurchased under this program have been canceled and retired.

21

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

Note 14. Stock-Based Compensation
Overview
The impact on the Company’s results of operations of recording stock-based compensation by function for the three and six months ended December 30, 2017 and December 31, 2016 was as follows (in millions):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Cost of revenues
$
0.7

 
$
1.0

 
$
1.6

 
$
2.0

Research and development
1.4

 
1.6

 
2.5

 
3.3

Selling, general and administrative
5.6

 
6.5

 
11.1

 
12.5

Stock-based compensation
$
7.7

 
$
9.1

 
$
15.2

 
$
17.8

Approximately $0.9 million and $0.7 million of stock-based compensation were capitalized to inventory at December 30, 2017 and December 31, 2016 respectively.
Amendment and Restatement of Amended and Restated 2003 Equity Incentive Plan
On November 15, 2017, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 2003 Equity Incentive Plan (the 2003 Plan, as most recently amended and restated, the “ Amended and Restated 2003 Plan”), under which:
(1) the number of shares of the Company’s Common Stock reserved under the 2003 Plan increased by the sum of (i) 4,000,000 new shares, (ii) the number of shares remaining for issuance under the Company’s 2005 Acquisition Equity Incentive Plan (“Acquisition Plan”) as of November 15, 2017, the date such Acquisition Plan was terminated (the “Restatement Date”), and (iii) the number of shares subject to outstanding stock awards granted under the Acquisition Plan that on or after Restatement Date would have otherwise been available for reissuance under the Acquisition Plan;
(2) the 2003 Plan’s fungible share provision was eliminated;
(3) a limit on the total value of equity and cash compensation that may be paid to each of the Company's non-employee directors during each fiscal year was set; and
(4) the material terms of the 2003 Plan for purposes of Section 162(m) of the Internal Revenue Code were re-approved, including, but not limited to the performance goals and share limitations set forth in the 2003 Plan.
As such, an additional 5.5 million shares were authorized under the re-approved 2003 plan and the 2005 Acquisition plan was terminated effective as of November 15, 2017.
Amendment and Restatement of Amended and Restated 1998 Employee Stock Purchase Plan
On November 15, 2017, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 1998 Employee Stock Purchase Plan (the “ESPP”, as most recently amended and restated, the “Amended and Restated ESPP”), to extend the termination date from August 1, 2018 to November 15, 2027.
Full Value Awards
Full Value Awards refer to restricted stock units that are granted with the exercise price equal to zero and are converted to shares immediately upon vesting. These Full Value Awards are time-based, performance-based or a combination of both and expected to vest over three to four years. When converted into shares upon vesting, shares equivalent in value to the minimum withholding taxes liability on the vested shares are withheld by the Company for the payment of such taxes.
During the six months ended December 30, 2017 and December 31, 2016 , the Company granted 3.1 million and 3.9 million time-based awards, respectively. 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. The majority of these time-based awards vest over three years , with 33% vesting after one year and the balance vesting quarterly over the remaining two years .

22

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

During the six months ended December 30, 2017 and December 31, 2016 , the Company granted 0.5 million and 0.4 million , performance-based awards, respectively. These performance-based shares represent the target amount of grants, and the actual number of shares awarded upon vesting may vary depending upon the achievement of the relevant performance conditions. The shares attained over target upon vesting are reflected as awards granted during the period. Accordingly, during the six months ended December 30, 2017 and December 31, 2016 , the Company granted additional 0.2 million and 0.1 million shares due to performance-bases shares attained over target. The aggregate grant-date fair value of performance-based awards granted during the six months ended December 30, 2017 and December 31, 2016 were estimated to be $6.1 million and $3.3 million , respectively. The majority of performance-based awards vest in equal annual installments over three years based on the attainment of certain performance measures and the employee’s continued service through the vest date. The performance-based awards with market condition were valued using a Monte Carlo simulation.
As of December 30, 2017 , $53.0 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.
On July 2, 2017, the Company adopted the new authoritative guidance that simplified 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. Under the new guidance, companies can make an accounting policy election to either continue to estimate forfeitures or account for forfeitures as they occur. Upon adoption, the Company elected to account for forfeitures when they occur, on a modified retrospective basis. The Company recognized net cumulative effect of $0.6 million as an increase to accumulated deficit as of the first day of fiscal 2018. Additionally, the new authoritative guidance required the employee tax paid by withholding shares of restricted stock units on the statements of cash flows to be classified as financing cash flows. Accordingly, upon adoption, the Company reclassified $7.8 million of tax payment withheld on vesting of restricted stock from operating cash flows to financing cash flows for the six months ended December 31, 2016 . Further, the new authoritative guidance required previously unrecognized deferred tax benefits to be recorded as deferred tax assets.  Upon adoption, the Company had $117.7 million of net operating loss carryforwards resulting from excess tax benefit deductions. However, there was no impact to the accumulated deficit resulting from adoption, as the deferred tax assets associated with these net operating loss carryforwards were fully offset by a corresponding valuation allowance.   All other aspects of the guidance did not have a material effect on the Company’s consolidated financial statements.
Note 15. Employee Pension and Other Benefit Plans
The Company sponsors significant qualified and non-qualified pension plans for certain past and present employees in the United Kingdom (“U.K.”) and Germany. The Company also is responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition.
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 December 30, 2017 , 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. During the six months ended December 30, 2017 , the Company contributed $1.0 million to the U.K. plan. The funded plan assets consist primarily of managed investments.
The following table presents the components of the net periodic cost for the pension and benefits plans ( in millions ):
 
Three Months Ended
 
Six Months Ended
Pension Benefits
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Service cost
$
—

 
$
0.1

 
$
—

 
$
0.2

Interest cost
0.7

 
0.6

 
1.4

 
1.0

Expected return on plan assets
(0.4
)
 
(0.3
)
 
(0.8
)
 
(0.5
)
Amortization of net actuarial losses
0.5

 
0.4

 
0.9

 
0.9

Net periodic benefit cost
$
0.8

 
$
0.8

 
$
1.5

 
$
1.6


23

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

Both the calculation of the projected benefit obligation and net periodic cost are based upon 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 Company expects to incur cash outlays of approximately $8.1 million related to its defined benefit pension plans during fiscal 2018 to make current benefit payments and fund future obligations. As of December 30, 2017 , approximately $2.6 million had been incurred. These payments have been estimated based on the same assumptions used to measure the Company’s projected benefit obligation at July 1, 2017 .
Note 16. Commitments and Contingencies
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. The Company determined that the likelihood of loss to be probable as of July 2, 2016 and accrued GBP 5.7 million (USD  7.7 million as of December 30, 2017), in accordance with authoritative guidance on contingencies. The Company is pursuing an appeal of the court decision and is also pursuing a claim against the U.K. law firm responsible for the error. As of December 30, 2017 , there was no change to the accrual.
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.
Guarantees
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 December 30, 2017 and July 1, 2017 .
Outstanding Letters of Credit and Performance Bonds
As of  December 30, 2017 , the Company had standby letters of credit of  $11.5 million  and performance bonds of  $1.8 million  collateralized by restricted cash.
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.

24

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

The following table presents the changes in the Company’s warranty reserve during fiscal 2018 and fiscal 2017 ( in millions ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Balance as of beginning of period
$
6.4

 
$
5.2

 
$
5.8

 
$
4.9

Provision for warranty
1.7

 
1.6

 
2.2

 
3.2

Utilization of reserve
(2.6
)
 
(0.9
)
 
(3.5
)
 
(2.0
)
Adjustments related to pre-existing warranties (including changes in estimates)
1.3

 
(0.6
)
 
2.0

 
(0.8
)
Acquisition of Trilithic (1)
—

 
—

 
0.3

 
—

Balance as of end of period
$
6.8


$
5.3

 
$
6.8

 
$
5.3

(1) See “ Note 5. Mergers and Acquisitions ” of the Notes to Consolidated Financial Statements for detail of acquisition.
Note 17. 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 is 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.
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 instruments, microprobes and software—monitor, collect and analyze network data to reveal the actual customer experience and to identify opportunities for new revenue streams and network optimization.
(iii) Optical Security and Performance Products (“OSP”):
OSP provides innovative, precision, high performance optical products for anti-counterfeiting, government, industrial, automotive and consumer electronic markets, including 3D sensing applications.
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.
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 charges unrelated to core operating performance 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.

25

VIAVI SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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):
 
Three Months Ended December 30, 2017
 
Network and Service Enablement
 
 
 
 
 
 
 
 
 
 
 
Network Enablement
 
Service Enablement
 
Network and Service Enablement
 
Optical Security and Performance Products
 
Total Segment Measures
 
Reconciling Items
 
Consolidated GAAP Measures
Net revenue
$
121.5

 
$
32.1

 
$
153.6

 
$
48.2

 
$
201.8

 
$
—

 
$
201.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
73.8

 
22.4

 
96.2

 
26.2

 
122.4

 
(6.3
)
 
116.1

Gross margin
60.7
%
 
69.8
%
 
62.6
%
 
54.4
%
 
60.7
%
 
 
 
57.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
 
 
8.0

 
17.4

 
25.4

 
(21.7
)
 
3.7

Operating margin
 
 
 
 
5.2
%
 
36.1
%
 
12.6
%
 
 
 
1.8
%
 
Three Months Ended December 31, 2016
 
Network and Service Enablement
 
 
 
 
 
 
 
 
 
 
 
Network Enablement
 
Service Enablement
 
Network and Service Enablement
 
Optical Security and Performance Products
 
Total Segment Measures
 
Reconciling Items
 
Consolidated GAAP Measures
Net revenue
$
117.0

 
$
40.6

 
$
157.6

 
$
48.9

 
$
206.5

 
$
—

 
$
206.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
74.6

 
27.1

 
101.7

 
28.2

 
129.9

 
(5.2
)
 
124.7

Gross margin
63.8
%
 
66.7
%
 
64.5
%
 
57.7
%
 
62.9
%
 
 
 
60.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
 
 
6.0

 
20.9

 
26.9

 
(20.2
)
 
6.7

Operating margin
 
 
 
 
3.8
%
 
42.7
%
 
13.0
%
 
 
 
3.2
%
 
Three Months Ended
 
December 30, 2017
 
December 31, 2016
Corporate reconciling items impacting gross profit:
 
 
 
Total segment gross profit
$
122.4

 
$
129.9

Stock-based compensation
(0.7
)
 
(1.0
)
Amortization of intangibles
(4.1
)
 
(3.7
)
Other charges unrelated to core operating performance (1)
(1.5
)
 
(0.5
)
GAAP gross profit
$
116.1

 
$
124.7

 
 
 
 
Corporate reconciling items impacting operating income:
 
 
 
Total segment operating income
$
25.4

 
$
26.9

Stock-based compensation
(7.7
)
 
(9.1
)
Amortization of intangibles
(7.5
)
 
(7.1
)
Other charges unrelated to core operating performance (1)
(4.0
)
 
(2.2
)
Restructuring and related charges
(2.5
)
 
(1.8
)
GAAP operating income
$
3.7

 
$
6.7


(1) During the three months ended December 30, 2017 and December 31, 2016 , other charges unrelated to core operating performance primarily consisted of acquisition related costs, amortization of inventory step-up and loss on disposal of long-lived assets.


26

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

 
Six Months Ended December 30, 2017
 
Network and Service Enablement
 
 
 
 
 
 
 
 
 
 
 
Network Enablement
 
Service Enablement
 
Network and Service Enablement
 
Optical Security and Performance Products
 
Total Segment Measures
 
Reconciling Items
 
Consolidated GAAP Measures
Net revenue
$
233.3

 
$
61.1

 
$
294.4

 
$
102.6

 
$
397.0

 
$
—

 
$
397.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
144.4

 
42.9

 
187.3

 
57.6

 
244.9

 
(12.6
)
 
232.3

Gross margin
61.9
%
 
70.2
%
 
63.6
%
 
56.1
%
 
61.7
%
 
 
 
58.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
 
 
15.2

 
39.6

 
54.8

 
(41.1
)
 
13.7

Operating margin
 
 
 
 
5.2
%
 
38.6
%
 
13.8
%
 
 
 
3.5
%

 
Six Months Ended December 31, 2016
 
Network and Service Enablement
 
 
 
 
 
 
 
 
 
 
 
Network Enablement
 
Service Enablement
 
Network and Service Enablement
 
Optical Security and Performance Products
 
Total Segment Measures
 
Reconciling Items
 
Consolidated GAAP Measures
Net revenue
$
235.6

 
$
77.0

 
$
312.6

 
$
104.7

 
$
417.3

 
$
—

 
$
417.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
152.0

 
48.4

 
200.4

 
59.8

 
260.2

 
(10.4
)
 
249.8

Gross margin
64.5
%
 
62.9
%
 
64.1
%
 
57.1
%
 
62.4
%
 
 
 
59.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
 
 
10.1

 
44.3

 
54.4

 
(37.6
)
 
16.8

Operating margin
 
 
 
 
3.2
%
 
42.3
%
 
13.0
%
 
 
 
4.0
%

 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
Corporate reconciling items impacting gross profit:
 
 
 
Total segment gross profit
$
244.9

 
$
260.2

Stock-based compensation
(1.6
)
 
(2.0
)
Amortization of intangibles
(8.2
)
 
(7.5
)
Other charges unrelated to core operating performance (1)
(2.8
)
 
(0.9
)
GAAP gross profit
$
232.3

 
$
249.8

 
 
 
 
Corporate reconciling items impacting operating income:
 
 
 
Total segment operating income
$
54.8

 
$
54.4

Stock-based compensation
(15.2
)
 
(17.8
)
Amortization of intangibles
(14.7
)
 
(14.4
)
Other charges unrelated to core operating performance (1)
(7.2
)
 
(3.6
)
Restructuring and related charges
(4.0
)
 
(1.8
)
GAAP operating income (loss) from continuing operations
$
13.7

 
$
16.8

(1) During the six months ended December 30, 2017 and December 31, 2016 , other charges unrelated to core operating performance primarily consisted of acquisition related costs, amortization of inventory step-up, loss on disposal of long-lived assets and VIAVI specific charges related to the separation.

27

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

Note 18. Subsequent Events
Repurchase of Common Stock
Subsequent to our fiscal quarter ended December 30, 2017 , the Company repurchased approximately  1.1 million  shares of common stock at an average price of  $8.78  per share under the stock repurchase program authorized on February 1, 2016.
Repurchase of 2033 Notes
Subsequent to our fiscal quarter ended December 30, 2017 , the Company repurchased $22.5 million of its 2033 Notes for $23.1 million in cash.
Definitive Agreement
On February 1, 2018, the Company announced its entry into a Stock Purchase Agreement (the “Purchase Agreement”) with certain subsidiaries of Cobham plc (“Cobham”) to acquire Cobham’s Test and Measurement business for $455 million cash consideration, subject to certain customary closing adjustments. The acquisition is expected to close subject to satisfaction of the closing conditions under the Purchase Agreement.

28



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements contained in this Quarterly report on Form 10-Q, which we also refer to as the Report, 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;  
•
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 II, Item 1A “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the U.S. Securities and Exchange Commission. Moreover, neither we 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-Q to conform such statements to actual results or to changes in our expectations.
In addition, Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended July 1, 2017 .


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Table of Contents

You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in “Risk Factors” and “Forward-Looking Statements.”
OUR INDUSTRIES AND QUARTERLY DEVELOPMENTS
Viavi Solutions Inc. (“VIAVI,” also referred to as “the Company,” “we,” “our,” and “us”), is a global provider of network test, monitoring and assurance solutions to communications service providers (“CSPs”), enterprises and their ecosystems, supported by a worldwide channel community including VIAVI Velocity Solution Partners (“Velocity”). Our Velocity program allows us to optimize the use of direct or partner sales depending on application and sales volume. Its strategy is to expand our reach into new market segments as well as expand our capability to sell and deliver solutions. 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.
To serve our markets we operate in the following business segments:
•
Network Enablement (“NE”)
•
Service Enablement (“SE”)
•
Optical Security and Performance Products (“OSP”)
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 América Móvil, AT&T Inc., Charter Communications, Inc., Cisco Systems, Inc., Comcast Corporation, Nokia Solutions and Networks and Verizon Communications, Inc..
We grouped our NE products and associated services to two product groupings: Field Instruments and Lab Instruments.
On August 9, 2017, the Company completed the acquisition of Trilithic, a privately-held provider of electronic test and measurement equipment for telecommunications service providers. Trilithic serves the cable, Ethernet and leakage test market and is being integrated into the Company’s NE segment.
Service Enablement
SE provides embedded systems and enterprise performance management solutions that give global CSPs, enterprises and cloud operators visibility into network, service and application data. These solutions - which primarily consist of instruments, microprobes and software - monitor, collect and analyze network data to reveal the actual customer experience and identify opportunities for new revenue streams and network optimization.

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Table of Contents

Our portfolio of SE solutions addresses 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 solutions let carriers remotely monitor performance and quality of network, service and applications performance throughout the entire network. This provides our customers with enhanced network management, control, and optimization that 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. Remote monitoring decreases operating expenses, while early detection helps increase uptime, preserve revenue, and helps operators better monetize their networks.
SE customers include similar CSPs, NEMs, government organizations, large corporate customers, and storage-segment customers that are served by our NE segment.
We grouped our SE products and associated services to two product groupings: Data Center and Assurance.
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.
OSP serves customers such as FLIR Systems, Lockheed Martin, SICPA and STMicroelectronics.
In October 2017, the OSP operations in Santa Rosa, California were temporarily impacted due to the Sonoma County wildfires and then resumed shortly thereafter.
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.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For a description of the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Item 7 on Management Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2017 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).
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 ( in millions, except for percentages ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
Change
 
Percent Change
 
December 30, 2017
 
December 31, 2016
 
Change
 
Percent Change
Segment net revenue:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NE
$
121.5

 
$
117.0

 
$
4.5

 
3.8
 %
 
$
233.3

 
$
235.6

 
$
(2.3
)
 
(1.0
)%
SE
32.1

 
40.6

 
(8.5
)
 
(20.9
)%
 
61.1

 
77.0

 
(15.9
)
 
(20.6
)%
OSP
48.2

 
48.9

 
(0.7
)
 
(1.4
)%
 
102.6

 
104.7

 
(2.1
)
 
(2.0
)%
Total net revenue
$
201.8

 
$
206.5

 
$
(4.7
)
 
(2.3
)%
 
$
397.0

 
$
417.3

 
$
(20.3
)
 
(4.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
$
116.1

 
$
124.7

 
$
(8.6
)
 
(6.9
)%
 
$
232.3

 
$
249.8

 
$
(17.5
)
 
(7.0
)%
Gross margin
57.5
 %
 
60.4
 %
 
 
 
 
 
58.5
 %
 
59.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
$
29.9

 
$
35.9

 
$
(6.0
)
 
(16.7
)%
 
$
59.0

 
$
72.0

 
$
(13.0
)
 
(18.1
)%
Percentage of net revenue
14.8
 %
 
17.4
 %
 
 
 
 
 
14.9
 %
 
17.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative
$
76.6

 
$
76.9

 
$
(0.3
)
 
(0.4
)%
 
$
149.1

 
$
152.3

 
$
(3.2
)
 
(2.1
)%
Percentage of net revenue
38.0
 %
 
37.2
 %
 
 
 
 
 
37.6
 %
 
36.5
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring and related charges
$
2.5

 
$
1.8

 
$
0.7

 
38.9
 %
 
$
4.0

 
$
1.8

 
$
2.2

 
122.2
 %
Percentage of net revenue
1.2
 %
 
0.9
 %
 
 
 
 
 
1.0
 %
 
0.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest and other income, net
2.9

 
3.8

 
(0.9
)
 
(23.7
)%
 
3.1

 
5.1

 
(2.0
)
 
(39.2
)%
Percentage of net revenue
1.4
 %
 
1.8
 %
 
 
 
 
 
0.8
 %
 
1.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gain on sale of investments
$
—

 
$
53.9

 
$
(53.9
)
 
(100.0
)%
 
$
—

 
$
135.4

 
$
(135.4
)
 
(100.0
)%
Percentage of net revenue
—
 %
 
26.1
 %
 
 
 
 
 
—
 %
 
32.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
$
(11.7
)
 
$
(9.4
)
 
$
(2.3
)
 
24.5
 %
 
$
(24.2
)
 
$
(18.6
)
 
$
(5.6
)
 
30.1
 %
Percentage of net revenue
(5.8
)%
 
(4.6
)%
 
 
 
 
 
(6.1
)%
 
(4.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Benefit from) provision for income taxes
$
(1.4
)
 
$
5.8

 
$
(7.2
)
 
(124.1
)%
 
$
1.1

 
$
11.5

 
$
(10.4
)
 
(90.4
)%
Percentage of net revenue
(0.7
)%
 
2.8
 %
 
 
 
 
 
0.3
 %
 
2.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenue
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 calibration 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.

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Three months ended December 30, 2017 and December 31, 2016
Net revenue decrease d by $4.7 million , or 2.3% , during the three months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily due to decrease s in SE due to lower volume of sales as discussed below.
Product revenues decrease d by $6.7 million , or 3.6% , during the three months ended December 30, 2017 compared to the same period a year ago, primarily due to continued run-off of our Mature Assurance portfolio and our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Service revenues increase d by $2.0 million , or 9.0% , during the three months ended December 30, 2017 compared to the same period a year ago primarily due to increased support activities in our SE segment.
NE net revenue increase d by $4.5 million , or 3.8% , during the three months ended December 30, 2017 compared to the same period a year ago. This increase was driven by revenue from the Trilithic business acquired in the first quarter of fiscal 2018, and a $14.4 million net increase in Field Instruments contributed by strength in Cable, which was driven by the DOCSIS 3.1 deployment and high demand for other products in Field Instruments in North America. The increase was mostly offset by revenue declines of $13.7 million in Lab Instruments as the continued China slowdown negatively impacted our optical components customers.
SE net revenue decrease d by $8.5 million , or 20.9% , during the three months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by continued run-off of our Mature Assurance portfolio solutions, which contributed a decline of $5.5 million, and a decline of $3.2 million from Growth Assurance offerings due to our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Data center revenue was relatively flat compared to prior period.
OSP net revenue decrease d by $ 0.7 million , or 1.4% , during the three months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by weaker demand in our Anti-Counterfeiting products, partially offset by 3D Sensing revenue increase in our Consumer and Industrial products and increase in our Government products.
Six Months Ended December 30, 2017 and December 31, 2016
Net revenue decrease d by $20.3 million , or 4.9% , during the six months ended December 30, 2017 compared to the same period a year ago due to decrease s in all of our segments as discussed below.
Product revenues decrease d by $23.1 million , or 6.2% , during the six months ended December 30, 2017 compared to the same period a year ago, primarily due to continued run-off of our Mature Assurance portfolio and our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Service revenues increase d by $2.8 million , or 6.3% , during the six months ended December 30, 2017 compared to the same period a year ago primarily due to increased support activities in our SE segment.
NE net revenue decrease d by $2.3 million , or 1.0% , during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by a $25.8 million net revenue decrease in Lab instruments as the continued China slowdown negatively impacted our optical components customers. This decrease was partially offset by revenue from the Trilithic business acquired in the first quarter of fiscal 2018, and a $15.7 million net revenue increase in Field Instruments demand contributed by strength in Cable, which was driven by the DOCSIS 3.1 deployment and high demand for other products in Field Instruments in North America.
SE net revenue decrease d by $15.9 million , or 20.6% , during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by continued run-off of our Mature Assurance portfolio solutions, which contributed a decline of $9.8 million, and a decline of $6.1 million from Growth Assurance offerings due to our planned restructuring announced in January 2017 to narrow the scope of SE product lines. Data center revenue was relatively flat compared to prior period.
OSP net revenue decrease d by $2.1 million , or 2.0% , during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by net revenue decrease from our Anti-Counterfeiting product line. The Company expects the Anti-Counterfeiting business to continue to follow its historical pattern of cyclicality as currency customers continually rebalance their inventories relative to market demand. The decrease was partially offset by revenue increase in 3D Sensing within our Consumer and Industrial product lines and increases in our Government product line.
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. The strengthening of the U.S. dollar relative to foreign currencies could negatively impact reported revenue and expenses. Additionally,

33


Table of Contents

we have seen 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) 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) 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 2018, we expect to continue to see a decline in net revenue from our mature Assurance product offerings within our SE segment. In our OSP segment, we expect the revenue to rebound in the second half of fiscal 2018. In the first half of fiscal 2018, we commenced shipment of 3D sensing products. We expect 3D sensing products to be more meaningful to OSP segment longer term as the market adopts security authentication technology in mobile devices and other applications.
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 ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
December 30, 2017
 
December 31, 2016
Americas
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     United States
$
89.1

 
44.2
%
 
$
80.0

 
38.7
%
 
$
166.8

 
42.0
%
 
$
161.4

 
38.7
%
     Other Americas
21.1

 
10.4
%
 
20.6

 
10.0
%
 
40.2

 
10.1
%
 
41.4

 
9.9
%
          Total Americas
110.2

 
54.6
%
 
100.6

 
48.7
%
 
207.0

 
52.1
%
 
202.8

 
48.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asia-Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Greater China
$
29.1

 
14.5
%
 
$
28.0

 
13.5
%
 
$
76.8

 
19.3
%
 
$
54.3

 
13.0
%
     Other Asia
16.4

 
8.1
%
 
17.7

 
8.6
%
 
6.6

 
1.7
%
 
37.8

 
9.1
%
          Total Asia-Pacific

45.5

 
22.6
%
 
45.7

 
22.1
%
 
83.4

 
21.0
%
 
92.1

 
22.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EMEA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Switzerland
12.1

 
6.0
%
 
21.5

 
10.4
%
 
40.4

 
10.2
%
 
50.5

 
12.1
%
     Other EMEA
34.0

 
16.8
%
 
38.7

 
18.8
%
 
66.2

 
16.7
%
 
71.9

 
17.2
%
          Total EMEA
46.1

 
22.8
%
 
60.2

 
29.2
%
 
106.6

 
26.9
%
 
122.4

 
29.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total net revenue
$
201.8

 
100.0
%
 
$
206.5

 
100.0
%
 
$
397.0

 
100.0
%
 
$
417.3

 
100.0
%
Net revenue from customers outside the Americas during the three months ended December 30, 2017 and December 31, 2016 represented 45.4% and 51.3% of net revenue, respectively. Net revenue from customers outside the Americas during the six months ended December 30, 2017  and  December 31, 2016  represented 47.9%  and  51.4%  of net revenue, respectively. We expect revenue from customers outside of United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.
Gross Margin
Gross margin decrease d by 2.9 percentage points during the three months ended December 30, 2017 from 60.4% in the same period a year ago to 57.5% in the current period. This decrease was primarily driven by gross margin reduction in our NE and OSP segments and higher cost related to the inventory fair value step-up amortization from Trilithic. This decrease was partially offset by gross margin improvement in our SE segment.
Gross margin decrease d by 1.4 percentage points during the six months ended December 30, 2017 from 59.9% in the same period a year ago to 58.5% in the current period. This decrease was primarily driven by gross margin reduction in our NE and OSP

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segment and higher cost related to the inventory fair value step-up amortization from Trilithic . This decrease was partially offset by gross margin improvement in our SE 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 decrease d by $6.0 million , or 16.7% , during the three months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by net cost savings realized from our strategic restructuring activities related to site consolidations and internal reorganizations to align our investment strategy. As a percentage of net revenue R&D decrease d by 2.6 percentage points during the three months ended December 30, 2017 compared to the same period a year ago as the Company continued to execute targeted cost savings initiatives.
R&D expense decrease d by $13.0 million , or 18.1% , during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily driven by net cost savings realized from our strategic restructuring activities related to site consolidations and internal reorganizations to align our investment strategy. As a percentage of net revenue R&D decrease d by 2.4 percentage points during the six months ended December 30, 2017 compared to the same period a year ago as the Company continued to execute targeted cost savings initiatives.
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 remained relatively flat during the three months ended December 30, 2017 compared to the same period a year ago. As a percentage of net revenue SG&A increase d 0.8 percentage points during the three months ended December 30, 2017 compared to the same period a year ago, driven by decreased revenue as discussed above.
SG&A expense decrease d by $3.2 million , or 2.1% , during the six months ended December 30, 2017 compared to the same period a year ago. This decrease was primarily due to reduction in labor and facilities expenses associated with our strategic restructuring activities and ongoing cost reduction efforts. As a percentage of net revenue SG&A increase d 1.1 percentage points during the six months ended December 30, 2017 compared to the same period a year ago, driven by decreased revenue as discussed above.
We intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. Specifically, in January 2017 we announced a restructuring and global workforce reduction plan designed to improve profitability and reduce costs by streamlining NSE operations. However, we have in the past experienced, and may continue to experience in the future, certain non-core expenses, such as mergers and acquisitions-related expenses and litigation expenses, which could increase our SG&A expenses and potentially impact our profitability expectations in any particular quarter.
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 $49 million excluding any one-time charges as a result of the restructuring activities initiated in the past year. Refer to “ Note 11. Restructuring and Related Charges ” for more information.

During the three and six months ended December 30, 2017 , we incurred $2.5 million and $4.0 million in restructuring and related charges, respectively, due to new and previously announced restructuring plans. During the three and six months ended December 31, 2016, we incurred restructuring and related charges of $1.8 million and $1.8 million , respectively.

During the second quarter of fiscal 2018, we recorded $2.5 million in restructuring and related charges. These charges are primarily the result of the following:


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•
During the second quarter of fiscal 2018, Management approved a plan within the NE business segment to consolidate and integrate the Trilithic acquisition. As a result, a restructuring charge of $0.5 million was recorded for severance and employee benefits for approximately 20 employees primarily in manufacturing and SG&A functions located in the United States. Payments related to the severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2019 .

•
During fiscal 2017, Management approved a plan in the NE and SE business segments as part of VIAVI’s continued strategy to improve profitability in the Company’s Network and Service Enablement (NSE) business by narrowing the scope of the Service Enablement business and reducing costs by streamlining NSE operations. During the second quarter of fiscal 2018, the headcount impact by this plan has increased by approximately 20 employees and as a result a restructuring charge of $1.7 million was recorded for severance and employee benefits. As a result approximately 340 employees in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2018.

During the second quarter of fiscal 2017, we recorded $1.8 million in restructuring and related charges. These charges were primarily the result of the following:

•
During the second quarter of fiscal 2017, as part of the strategy to narrow the scope of the SE business and reducing cost by streamlining NSE operations, VIAVI entered into a separation agreement with two key executives and as a result, a restructuring charge of $1.4 million was recorded for severance and employee benefits.

During the six months ended December 30, 2017, we incurred $4.0 million in restructuring and related charges. These charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

•
During the second quarter of fiscal 2018, Management approved a plan within NE business segment to related to the integration of the Trilithic business acquired in the first quarter of fiscal 2018. As a result, a restructuring charge of $0.5 million was recorded for severance and employee benefits for approximately 20 employees primarily in manufacturing and SG&A functions located in the United States who 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 2019 .

•
During fiscal 2017, Management approved a plan in the NE and SE business segments as part of VIAVI’s continued strategy to improve profitability in the Company’s Network and Service Enablement (NSE) business by narrowing the scope of the Service Enablement business and reducing costs by streamlining NSE operations. During the second quarter of fiscal 2018, the headcount impact by this plan has increased by approximately 20 employees and as a result a restructuring charge of $1.7 million was recorded for severance and employee benefits. As a result approximately 340 employees in manufacturing, R&D and SG&A functions located in North America, Latin America, Europe and Asia were impacted. Payments related to the severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2018.

•
During the third quarter of fiscal 2017, Management approved a plan in the NE and SE segment to exit the space in Colorado Springs, Colorado. As of September 30, 2017, the Company exited the workspace in Colorado Springs under the plan and recorded a lease exit cost of $1.2 million . Payments related to the Colorado Springs lease costs are expected to be paid by the end of the third quarter of fiscal 2021.
Our restructuring and other lease exit cost obligations are net of sublease income or lease settlement estimates of approximately $2.5 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

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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 2021 .
Interest and Other Income, Net
Interest and other income, net was $2.9 million during the three months ended December 30, 2017 compared to $3.8 million the same period a year ago. This $0.9 million decrease was primarily driven by a $0.2 million loss on repurchase of debt, a $0.9 million more unfavorable foreign exchange impact and a $1.8 million decrease in other income primarily due to gain on sale of other assets from prior period, partially offset by a $2.0 million increase in interest income.
Interest and other income, net was $3.1 million during the six months ended December 30, 2017 compared to $5.1 million the same period a year ago. This $2.0 million decrease was primarily driven by a $3.8 million loss on repurchase of debt, a $0.8 million more unfavorable foreign exchange impact and a $1.3 million decrease in other income primarily due to gain on sale of other assets from prior period, partially offset by a $4.3 million increase in interest income.
Gain on Sale of Investments
We sold 1.7 million and 5.6 million shares of Lumentum common stock during three and six months ended December 31, 2016 and recognized a gross realized gain of approximately $53.8 million and $135.3 million, respectively, reflected in "Gain on sale of investments" in our Consolidated Statements of Operations. As of July 1, 2017, the Company had sold all ownership of Lumentum’s common stock. 
Interest Expense
Interest expense increased by $2.3 million , or 24.5% , during the three months ended December 30, 2017 compared to the same period a year ago. This increase was primarily due to $4.5 million interest expense in relation to the 2024 Notes issued in March 2017, partially offset by $2.2 million reduction in interest expense related to the 2033 Notes due to repurchase of debt.
Interest expense increase d by $5.6 million , or 30.1% , during the six months ended December 30, 2017 compared to the same period a year ago. This increase was primarily due to $9.1 million interest expense in relation to the 2024 Notes issued in March 2017, partially offset by $3.5 million reduction in interest expense related to the 2033 Notes due to repurchase of debt.
Provision for Income Taxes
We recorded income tax (benefit) expense of $(1.4) million and $1.1 million for the three and six months ended December 30, 2017 , respectively. We recorded income tax expense of $5.8 million and $11.5 million for the three and six months ended December 31, 2016 , respectively.
The income tax (benefit) expense for the three and six months ended December 30, 2017 and December 31, 2016 primarily relates to income tax in certain foreign and state jurisdictions based on our forecasted pre-tax income or loss for the respective fiscal year. For the three and six months ended December 30, 2017, this foreign and state tax is offset by a tax benefit of $0.4 million and $3.1 million, respectively, which was recorded in our income tax provision related to the income tax intraperiod allocation rules in relation to other comprehensive income. In accordance with authoritative guidance, this benefit may reverse during the fiscal year. Additionally, for the three and six months ended December 30, 2017, the tax provision includes a benefit of $6.5 million resulting from the passage of the U.S. Tax Cuts and Jobs Act (“the Act”), the impacts of which are detailed below.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act was enacted. Income tax effects resulting from changes in tax laws are accounted for by us in accordance with the authoritative guidance, which requires that these tax effects be recognized in the period in which the law is enacted, and the effects are recorded as a component of the provision for income taxes from continuing operations. The law has significantly changed the way the U.S. taxes corporations. The Act repealed the alternative minimum tax (“AMT”) for corporations and provided that the existing AMT credit carryforwards would be refunded in 2022 if not utilized. As a result, we recognized a benefit of $4.5 million for the three and six months ended December 30, 2017 for the release of the valuation allowance previously maintained against the AMT credit deferred tax asset. In addition, under the Act, our current year net operating losses and any future net operating losses can now be carried forward indefinitely. As a result, our deferred tax liability associated with indefinite-lived intangible assets may now offset these indefinite-lived deferred tax assets, resulting in a benefit of $2.0 million for the three and six months ended December 30, 2017 due to release of valuation allowance.
The Act imposed a deemed repatriation of our foreign subsidiaries’ post-1986 earnings and profits (“E&P”) which had previously been deferred from US income tax. We have made a provisional estimate of this deemed repatriation of E&P and has

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determined that there is no current period expense or liability due our having sufficient estimated losses for the fiscal year to offset the income associated with the deemed repatriation. As previously noted, the impact of the deemed repatriation is a provisional estimate. We have not yet completed the calculation of the total post-1986 foreign E&P for all foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets. In addition, further interpretations from U.S. federal and state governments and regulatory organizations may change the provisional estimate or the accounting treatment of the provisional estimate.
The Act reduces the U.S. federal corporate tax rate from 35% to 21% as of January 1, 2018. We have not made sufficient progress on remeasuring our deferred tax assets and liabilities to determine a reasonable estimate at this time. However, we expect that there will be an equal and offsetting reduction in the valuation allowance such that there should be no impact to our (benefit from) provision for income taxes for the fiscal year related to the rate reduction.
Upon adoption of the new guidance on share-based payment awards, previously unrecognized excess tax benefits were recorded as a deferred tax asset, which was fully offset by a corresponding increase in valuation allowance, resulting in no impact to opening accumulated deficit.  In addition, due to the full valuation allowance on the U.S. deferred tax assets, there was no impact to the income tax provision from excess tax benefits for the three and six months ended December 30, 2017.
The income tax expense (benefit) recorded differs from the expected tax expense (benefit) that would be calculated by applying the federal statutory rate to our income from continuing operations before taxes primarily due to the changes in valuation allowance for deferred tax assets attributable to our domestic and foreign income (loss) from continuing operations, impacts of the Act, and due to the income tax benefit recorded in continuing operations under the income tax intraperiod allocation rules.
As of December 30, 2017 , and July 1, 2017 , our unrecognized tax benefits totaled $39.1 million and $38.9 million, respectively, and are included in deferred taxes and other non-current tax liabilities, net. We had $2.1 million accrued for the payment of interest and penalties at December 30, 2017 . The unrecognized tax benefits that may be recognized during the next twelve months are approximately $0.1 million.
Operating Segment Information ( in millions ):
 
Three Months Ended
 
Six Months Ended
 
December 30, 2017
 
December 31, 2016
 
Change
 
Percentage Change
 
December 30, 2017
 
December 31, 2016
 
Change
 
Percentage Change
Network Enablement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
121.5

 
$
117.0

 
$
4.5

 
3.8
 %
 
$
233.3

 
$
235.6

 
$
(2.3
)
 
(1.0
)%
Gross profit
73.8

 
74.6

 
(0.8
)
 
(1.1
)%
 
144.4

 
152.0

 
(7.6
)
 
(5.0
)%
Gross margin
60.7
%
 
63.8
%
 
 
 

 
61.9
%
 
64.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service Enablement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
32.1

 
40.6

 
(8.5
)
 
(20.9
)%
 
61.1

 
77.0

 
(15.9
)
 
(20.6
)%
Gross profit
22.4

 
27.1

 
(4.7
)
 
(17.3
)%
 
42.9

 
48.4

 
(5.5
)
 
(11.4
)%
Gross margin
69.8
%
 
66.7
%
 

 

 
70.2
%
 
62.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Network and Service Enablement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
153.6

 
157.6

 
(4.0
)
 
(2.5
)%
 
294.4

 
312.6

 
(18.2
)
 
(5.8
)%
Operating income
8.0

 
6.0

 
2.0

 
33.3
 %
 
15.2

 
10.1

 
5.1

 
50.5
 %
Operating margin
5.2
%
 
3.8
%
 
 
 
 
 
5.2
%
 
3.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OSP
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenue
$
48.2

 
$
48.9

 
$
(0.7
)
 
(1.4
)%
 
102.6

 
$
104.7

 
$
(2.1
)
 
(2.0
)%
Gross profit
26.2

 
28.2

 
(2.0
)
 
(7.1
)%
 
57.6

 
59.8

 
(2.2
)
 
(3.7
)%
Gross margin
54.4
%
 
57.7
%
 

 

 
56.1
%
 
57.1
%
 
 
 
 
Operating income
17.4

 
20.9

 
(3.5
)
 
(16.7
)%
 
39.6

 
44.3

 
(4.7
)
 
(10.6
)%
Operating margin
36.1
%
 
42.7
%
 

 

 
38.6
%
 
42.3
%
 
 
 
 

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Network Enablement
During the three months ended December 30, 2017 , NE gross margin decrease d by 3.1 percentage points from 63.8% in the same period a year ago to 60.7% in the current period. This decrease was primarily due to unfavorable product mix as Lab Instruments revenue declined and higher product cost during the current period.
During the six months ended December 30, 2017 , NE gross margin decrease d by 2.6 percentage points from 64.5% in the same period a year ago to 61.9% in the current period. This decrease was primarily due to unfavorable product mix as Lab Instruments revenue declined and higher product cost during the current period.
Service Enablement
During the three months ended December 30, 2017 , SE gross margin increase d by 3.1 percentage points from 66.7% in the same period a year ago to 69.8% in the current period. This increase was primarily due to improved quality of revenue resulting from our planned restructuring announced in January 2017 to narrow the scope of SE product lines.
During the six months ended December 30, 2017 , SE gross margin increase d by 7.3 percentage points from 62.9% in the same period a year ago to 70.2% in the current period. This increase was primarily due to improved quality of revenue resulting from our planned restructuring announced in January 2017 to narrow the scope of SE product lines and favorable product mix as a result of lower margin pass-through hardware revenue mix in our Growth Assurance offerings in the same period a year ago
Network and Service Enablement (“NSE”)
During the three months ended December 30, 2017 , NSE operating margin increase d by 1.4 percentage points from 3.8% in the same period a year ago to 5.2% in the current period. This increase in operating margin was primarily driven by reduction in NSE operating expense across all function lines due to net cost savings realized from our prior fiscal year’s strategic restructuring activities as we continue to drive efficiencies and streamline operations to improve profitability, partially offset by NE gross margin reduction.
During the six months ended December 30, 2017 , NSE operating margin increase d by 2.0 percentage points from 3.2% in the same period a year ago to 5.2% in the current period. This increase in operating margin was primarily driven by reduction in NSE operating expense across all function lines due to net cost savings realized from our prior fiscal year’s strategic restructuring activities as we continue to drive efficiencies and streamline operations to improve profitability, partially offset by NE gross margin reduction.
Optical Security and Performance Products
During the three months ended December 30, 2017 , OSP gross margin decrease d by 3.3 percentage points from 57.7% in the same period a year ago to 54.4% in the current period. This decrease was primarily due to unfavorable product mix driven by lower revenue from Anti-Counterfeiting products coupled with incremental revenue from 3D Sensing products.
During the six months ended December 30, 2017 , OSP gross margin decrease d by 1.0 percentage points from 57.1% in the same period a year ago to 56.1% in the current period. This decrease was primarily due to unfavorable product mix driven by lower revenue from Anti-Counterfeiting products coupled with incremental revenue from 3D Sensing products.
OSP operating margin decrease d by 6.6 percentage points during the three months ended December 30, 2017 from 42.7% in the same period a year ago to 36.1% in the current period. The decrease in operating margin was primarily due to decrease in gross margin as discussed above and increased operating expense associated with R&D investment in growth initiatives.
OSP operating margin decrease d by 3.7 percentage points during the six months ended December 30, 2017 from 42.3% in the same period a year ago to 38.6% in the current period. The decrease in operating margin was primarily due to decrease in gross margin as discussed above and increased operating expense associated with R&D investment in growth initiatives and headcount growth in sales.
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 and has not changed from that disclosed in our 10-K. Virtually all debt securities held were minimum BBB/Baa2. As of December 30, 2017 , U.S. entities owned approximately 68.2% of our cash and cash equivalents, short-term investments and restricted cash.
As of December 30, 2017 , 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

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under adverse market conditions, losses could be recognized on such sales. During the three months ended December 30, 2017 , 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.
During the second quarter of fiscal 2018, the Company repurchased  $12.5 million  aggregate principal amount of the 2033 Notes for  $13.0 million  in cash. In connection with the repurchase, a loss on extinguishment of $0.2 million was recognized in interest and other income, net in compliance with the authoritative guidance. After giving effect to the repurchase, the total amount of 2033 Notes outstanding as of December 30, 2017 was  $451.0 million . As of  December 30, 2017 , the expected remaining term of the 2033 Notes is  0.6 years and thus was classified as current portion of long-term debt.
On February 1, 2018, the Company announced its entry into the Purchase Agreement with certain subsidiaries of Cobham to acquire Cobham’s Test and Measurement business for $455 million cash consideration, subject to certain customary closing adjustments. Please refer to Note 18. Subsequent events for more details.
Six Months Ended December 30, 2017
As of December 30, 2017 our combined balance of cash and cash equivalents, short-term investments, including marketable equity securities, and restricted cash decreased by $235.0 million to $1,212.8 million from $1,447.8 million as of July 1, 2017 .
During the six months ended December 30, 2017 , cash provided by operating activities was $34.9 million , consisted of net loss of $ 8.5 million adjusted for non-cash charges (e.g., depreciation, amortization and stock-based compensation) which totaled $ 73.1 million , including changes in deferred tax balance, offset by net decrease in operating assets and liabilities of $29.7 million . Net decreases in our operating assets and liabilities related primarily to an increase in inventories of $ 19.1 million due to inventory build-up primarily for our 3D sensing products, an increase in accounts receivables of $ 18.7 million due to the higher billings in the current quarter, and a decrease in accrued expenses and other current and non-current liabilities of $ 2.4 million due to payment for severance related liabilities. This was offset by a decrease in other current and non-current assets of $ 5.1 million primarily driven by change in forward contract and prepaid inventory, an increase in deferred revenue of $ 4.4 million primarily from our 3D sensing products offset by amortization of support agreements and the release of revenue upon customer acceptance, and an increase in accounts payable of $ 2.4 million driven by the timing of payments.
During the six months ended December 30, 2017 , cash used in investing activities was $85.0 million , primarily related to $ 56.2 million of cash used for the acquisition of Trilithic, $14.9 million of cash used for capital expenditures and $ 20.7 million of net purchase, sales and maturities of available-for-sale debt securities offset by $ 4.5 million decrease in restricted cash and $2.3 million proceeds from sales of assets.
During the six months ended December 30, 2017 , cash used in financing activities was $213.3 million , primarily resulting from $ 175.0 million used for repurchase of our 2033 Notes, $ 31.0 million of cash used to repurchase common stock under our share repurchase program, $ 8.9 million in withholding tax payment on vesting of restricted stock awards and $ 0.9 million in payment of financing obligations offset by $2.5 million  in proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.
Six Months Ended December 31, 2016
As of December 31, 2016 , our combined balance of cash and cash equivalents, short-term investments, including marketable equity securities, and restricted cash increased by $35.1 million to $1,014.9 million from $979.8 million as of July 2, 2016.
During the six months ended December 31, 2016 , cash provided by operating activities was $36.7 million , consisted of net income of $127.2 million adjusted for non-cash charges (e.g., depreciation, amortization and stock-based compensation) which totaled $65.7 million , including changes in deferred tax balance less gain on sale of investment of $135.4 million , offset by net decrease in operating assets and liabilities of $20.8 million . Net decreases in our operating assets and liabilities related primarily to an increase in accounts receivable of $21.2 million primarily driven by timing of collections, a decrease in deferred revenue of $16.9 million due to amortization of support agreements and the release of revenue upon customer acceptance, a decrease in accounts payable of $9.8 million driven by the timing of payments, an increase in other current and non-current assets of $7.1 million due to prepaid inventory, and a decrease in accrued payroll and related expenses of $1.5 million due to the timing of salary payments. This was offset by an increase in accrued expenses and other current and non-current liabilities of $32.6 million due to a customer prepayment offset by restructuring payments and an increase in income taxes payable of $3.7 million .

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During the  six months ended   December 31, 2016 ,  cash provided by  investing activities was  $46.1 million , primarily from the sale of 5.6 million shares of marketable equity securities relating to Lumentum stock which generated $ 183.2 million  of cash proceeds offset by $ 120.7 million  of net purchase, sales and maturities of available-for-sale debt securities and  $20.1 million of cash used for capital expenditures.
During the  six months ended   December 31, 2016 ,  cash used in  financing activities was  $43.9 million , primarily resulting from  $39.7 million  in repurchase of our common stock, $7.8 million in withholding tax payment on vesting of restricted stock awards, offset by  $4.0 million  in proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan.
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;
•
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, which may include open market purchases of our 2033 Notes prior to their maturity or of our common stock;
•
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.
Contractual Obligations
There were no material changes to our existing contractual commitments during the second quarter of fiscal 2018 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than the guarantees discussed in “ Note 16. Commitments and Contingencies .”
Employee Equity Incentive Plan
Our stock-based benefit plans are a broad-based, long-term retention program that is intended to attract and retain employees and align stockholder and employee interests. Refer to “ Note 14. Stock-Based Compensation ” for more details.
Pension and Other Post-retirement Benefits
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 or PBO assumed from a past acquisition. All 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 acquisitions during fiscal 2010. The U.K. plan is partially funded and the Germany plans, which were initially established as “pay-as-you-go” plans, are unfunded. As of December 30, 2017 , our pension plans were under funded by $107.9  million since the PBO exceeded the fair value of its plan assets. Similarly, we had a liability of $1.1 million related to our non-pension post-retirement benefit plan. Pension plan assets are managed by external third parties and we monitor

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the performance of our investment managers. As of  December 30, 2017 , the fair value of plan assets had increased approximately 4.8% since July 1, 2017 , our most recent fiscal year end.
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 $9.5 million based upon data as of July 1, 2017 .
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 active management of the plan’s invested assets. While it is not possible to accurately predict future rate movements, we believe our current assumptions are appropriate. Refer to “ Note 15. Employee Pension and Other Benefit Plans ” for more details.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
The Company’s market risk has not changed materially from the foreign exchange and interest rate risks disclosed in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017 .
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure. Our management, with the participation of our CEO and CFO, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 30, 2017 .
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. 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 our 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. If an unfavorable final outcome were to occur, it may have 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 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in Part I, Item 1A of our Annual Report for the fiscal year ended July 1, 2017 except as noted below.
In October 2017, we temporarily closed our Santa Rosa, California facility, which resulted in production stoppage due to wildfires in the region and the facility’s close proximity to the wildfire evacuation zone. The location of our production facility could subject us to production delays and/or equipment and property damage.
The geographic location of our Northern California headquarters and production facilities subject them to earthquake and wildfire risks. It is impossible to predict the timing, magnitude or location of such natural disasters or their impacts on the local economy and on our operations. If a major earthquake, wildfire or other natural disaster were to damage or destroy our facilities

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or manufacturing equipment, we may experience potential impacts ranging from production and shipping delays to lost profits and revenues.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share repurchase activity during the three months ended December 30, 2017 was as follows:
Period
Total Number of Shares Purchased
 
Average Price Paid per share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 (in millions)
October 1, 2017 to October 28, 2017
986,419

 
$9.49
 
986,419

 
$
35

October 29, 2017 to November 25, 2017
515,870

 
$9.08
 
515,870

 
30

November 26, 2017 to December 30, 2017
869,898

 
$8.90
 
869,898

 
23


2,372,187

 
$9.19
 
2,372,187

 
$
23

In September 2016, the Board of Directors increased the Company’s previously authorized stock repurchase program from $100 million to $150 million. Under the revised repurchase authorization, the Company may repurchase up to $150 million of the Company’s common stock from time to time at the discretion of the Company’s management. The Board previously authorized expiration of the share repurchase to be extended to December 31, 2017. In December 2017, the Board authorized a further extension of the Company's stock repurchase program for an additional 3 months to expire on March 31, 2018.
Item 3. Defaults Upon Senior Securities
 None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None. 

43


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Item 6. Exhibits
The following documents are filed as Exhibits to this report:
 
 
 
 
Incorporated by Reference
 
Filed
Exhibit No.
 
Exhibit Description
 
Form
 
Exhibit
 
Filing Date
 
Herewith
 
Amended and Restated Bylaws of Viavi Solutions Inc.
 
 
 
 
 
 
 
X
 
Restated 1998 Employee Stock Purchase Plan
 
 
 
 
 
 
 
X
 
Restated 2003 Equity Incentive Plan
 
 
 
 
 
 
 
X
 
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
 
 
 
 
 
 
 
X
 
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.
 
 
 
 
 
 
 
X
 
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.
 
 
 
 
 
 
 
X
 
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.
 
 
 
 
 
 
 
X
101.INS
 
XBRL Instance
 
 
 
 
 
 
 
X
101.SCH
 
XBRL Taxonomy Extension Schema
 
 
 
 
 
 
 
X
101.CAL
 
XBRL Taxonomy Extension Calculation
 
 
 
 
 
 
 
X
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
 
 
 
X
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
 
 
 
 
 
 
X
101.PRE
 
XBRL Taxonomy Extension Presentation
 
 
 
 
 
 
 
X

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SIGNATURES
 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  Date: February 7, 2018
VIAVI SOLUTIONS INC.
 
(Registrant)
 
By:
/s/ AMAR MALETIRA
 
Name:
Amar Maletira
 
Title:
Executive Vice President and Chief Financial Officer
 
 
(Duly Authorized Officer and Principal Financial and Accounting Officer)

45

AMENDED AND RESTATED BYLAWS OF
VIAVI SOLUTIONS INC.
a Delaware corporation
(as of November 15, 2017)




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Article I

Offices
Section 1.      Registered Office.
The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent.
Section 2.      Other Offices.
The corporation shall also have and maintain an office or principal place of business at 430 North McCarthy Boulevard, Milpitas, California 95035, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II     

Stockholders’ Meetings
Section 1.      Place of Meetings.
(a)      Meetings of stockholders may be held at such place, either within or without this State, as may be designated by or in the manner provided in these Bylaws or, if not so designated, as determined by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by paragraph (b) of this Section 1.
(b)      If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication:
(1)      Participate in a meeting of stockholders; and
(2)      Be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (A) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to

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read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.
(c)      For purposes of this Section 1, “remote communication” shall mean electronic mail or other forms of written or visual electronic communication satisfying the requirements of Section 11(b).
Section 2.      Annual Meetings.
The annual meetings of the stockholders of the corporation for the purpose of election of directors and for such other business as may lawfully come before it shall be held on such date and at such time as may be designated from time to time by the Board of Directors.
Section 3.      Special Meetings.
Special Meetings of the stockholders of the corporation may be called, for any purpose or purposes, by the Chairman of the Board or the Chief Executive Officer or the Board of Directors at any time, subject to the rights of the holders of any stock having a preference over the common stock as to dividends or liquidation. Stockholders are not permitted to call a special meeting or to require the Board of Directors to call a special meeting of stockholders. Business transacted at any special meeting of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.
Section 4.      Notice of Meetings.
(a)      Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, if any, date and hour and purpose or purposes of the meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than twenty nor more than sixty days prior to such meeting.
(b)      If at any meeting action is proposed to be taken which, if taken, would entitle stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a

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statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section.
(c)      When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
(d)      Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and, to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
(e)      Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under any provision of this chapter, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent, and (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given pursuant to this subparagraph (e) shall be deemed given: (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of these Bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record

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that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
Section 5.      Quorum.
At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
Section 6.      Action at Meeting.
(a)      At any meeting of stockholders for the election of one or more directors at which a quorum is present, each director shall be elected by the vote of a majority of the votes cast with respect to the director, provided that if the number of nominees exceeds the number of directors to be elected, the directors shall be elected by the vote of a plurality of the votes cast by the stockholders entitled to vote at the election. For purposes of this Section 6, a majority of the votes cast means that the number of shares voted “for” a director exceeds the number of votes cast “against” that director. If a director then serving on the Board of Directors does not receive the required majority, the director shall tender his resignation to the Board of Directors. Within 90 days after the date of the certification of the election results, the Governance Committee or other committee that may be designated by the Board of Directors will make a recommendation to the Board of Directors on whether to accept or reject the resignation, or whether other action should be taken and the Board of Directors will act on such committee’s recommendation.
(b)      Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all other matters shall be determined by a majority in voting power of the shares present in person or represented by proxy and entitled to vote on the matter, provided that a quorum is present.

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Section 7.      Voting Rights.
(a)      Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.
(b)      Every person entitled to vote or to execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a stockholder. No proxy shall be voted on after three (3) years from its date unless the proxy provides for a longer period. Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given.
(c)      Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this Section, the following shall constitute a valid means by which a stockholder may grant such authority:
(1)      A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.
(2)      A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telephone, telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telephone transmission, telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telephone transmission, telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol

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from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization. If it is determined that such telephone transmissions, telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.
(d)      Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this Section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Section 8.      Voting Procedures and Inspectors of Elections.
(a)      The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.
(b)      The inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.
(c)      The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the Inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
(d)      All voting, including on the election of directors, but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or the stockholder’s proxy, a vote by ballot shall be taken. Each

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ballot shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 212(c)(2) of the Delaware General Corporation Law, ballots and the regular books and records of the corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification pursuant to subsection (b)(v) of this Section shall specify the precise information considered by them including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.
Section 9.      List of Stockholders.
The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present.
Section 10.      Stockholder Proposals at Annual Meetings.
At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely a stockholder’s notice

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must be delivered to or mailed and received at the principal executive offices of the corporation 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 as first specified in the corporation’s notice of meeting (without regard to any postponements or adjournments of such meeting after such notice was first sent); provided, however, that if no annual meeting was held in the previous year or 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 from the first anniversary of the previous year’s annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the date on which such public announcement of the date of such meeting was made.
A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting
(i)      a brief description of the business desired to be brought before the meeting and the text of the proposal or business, including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws of the corporation, the language of the proposed amendment,
(ii)      as to the stockholder giving the notice, the beneficial owner, if any, on whose behalf the proposal is being made, and any of their respective affiliates or associates or others acting in concert therewith (each, a “Proposing Person”), the name and address, as they appear on the corporation’s books, of the stockholder proposing such business and of any other Proposing Person,
(iii)      a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at the meeting on the date of such notice and intends to appear in person or by proxy at the meeting to propose the business specified in the notice,
(iv)      any material interest of the stockholder and any other Proposing Person in such business,
(v)      the following information regarding the ownership interests of the stockholder and any other Proposing Person which shall be supplemented in writing by the stockholder not later than 10 days after the record date for voting at the meeting to disclose such interests as of such record date: (A) the class or series and number of shares of the corporation that are owned beneficially and of record by the stockholder and any other Proposing Person; (B) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or

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series of shares of the corporation or with a value derived in whole or in part from the value of any class or series of shares of the corporation, any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of shares of the corporation, through the delivery of cash or other property, or otherwise, and without regard to whether the stockholder of record or any other Proposing Person may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder or other Proposing Person, and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation; (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or other Proposing Person has a right to vote any shares of any security of the corporation; (D) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by such stockholder or other Proposing Person, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder or other Proposing Person with respect to any class or series of the shares of the corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the corporation (“Short Interests”); (E) any rights to dividends on the shares of the corporation owned beneficially by such stockholder or other Proposing Person that are separated or separable from the underlying shares of the corporation; (F) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder or other Proposing Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; (G) any performance-related fees (other than an asset-based fee) to which such stockholder or other Proposing Person is entitled based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any, as of the date of such notice, including, without limitation, any such interests held by members of such stockholder’s or other Proposing Person’s immediate family sharing the same household; (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the corporation held by such

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stockholder or other Proposing Person; and (I) any direct or indirect interest of such stockholder or other Proposing Person in any contract with the corporation, any affiliate of the corporation or any principal competitor of the corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement), and
(vi)      any other information relating to such stockholder or other Proposing Person, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder.
The provisions of this Section 10 and of Section 11 dealing with requirements to be satisfied by a stockholder who wishes to present business at the annual meeting are applicable whether or not the stockholder seeks to have proposed business included in the corporation’s proxy statement; provided, however, that nothing in this Section 10 or Section 11 shall affect the right of a stockholder to request inclusion of a proposal in the corporation’s proxy statement to the extent that such right is provided by an applicable rule of the Securities and Exchange Commission.
Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in Section 1 and this Section 10, provided, however, that nothing in this Section 10 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of Section 1 and this Section 10, and if he should so determine he shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted.
Section 11.      Nominations of Persons for Election to the Board of Directors.
(a)      In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors (each, a “Board Nominee”) or by any

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stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 11 (each, a “Stockholder Nominee”). Such nominations, other than a Board Nominee, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the corporation 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 as first specified in the corporation’s notice of meeting (without regard to any postponements or adjournments of such meeting after such notice was first sent); provided, however, that if no annual meeting was held in the previous year or 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 from the first anniversary of the previous year’s annual meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the date on which such public announcement of the date of such meeting was made. Each such notice shall set forth:
(i)      as to the stockholder giving the notice, the beneficial owner, if any, on whose behalf the nomination is being made, and any of their respective affiliates or associates or others acting in concert therewith (each, a “Nominating Person”), the name and address, as they appear on the corporation’s books, of the stockholder who intends to make the nomination and of any other Nominating Person,
(ii)      a representation that the stockholder is a holder of record of stock of the corporation entitled to vote for the election of directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice,
(iii)      the following information regarding the ownership interests of the stockholder and any other Nominating Person, which shall be supplemented in writing by the stockholder not later than 10 days after the record date for notice of the meeting to disclose such interests as of such record date: (A) the class or series and number of shares of the corporation that are owned beneficially and of record by the stockholder and any other Nominating Person; (B) any Derivative Instrument directly or indirectly owned beneficially by such stockholder or other Nominating Person, and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation; (C) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder or other Nominating Person has a right to vote any shares of any security of the corporation; (D) any Short Interests in any securities of the corporation directly or indirectly owned beneficially by such stockholder or other Nominating Person; (E) any rights to dividends on the shares of the

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corporation owned beneficially by such stockholder or other Nominating Person that are separated or separable from the underlying shares of the corporation; (F) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder or other Nominating Person is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; (G) any performance-related fees (other than an asset-based fee) to which such stockholder or other Nominating Person is entitled based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any, as of the date of such notice, including, without limitation, any such interests held by members of such stockholder’s or other Nominating Person’s immediate family sharing the same household; (H) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the corporation held by such stockholder or other Nominating Person; and (I) any direct or indirect interest of such stockholder or other Nominating Person in any contract with the corporation, any affiliate of the corporation or any principal competitor of the corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement),
(iv)      a description of all arrangements or understandings between the stockholder or other Nominating Person and each Stockholder Nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder,
(v)      a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and any other Nominating Person, on the one hand, and each proposed Stockholder Nominee, and his respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the Stockholder Nominee were a director or executive officer of such registrant,
(vi)      such other information regarding each Stockholder Nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the Stockholder Nominee been nominated, or intended to be nominated, by the Board of Directors, and
(vii)      the consent of each Stockholder Nominee to serve as a director of the corporation if so elected.

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(b)      In addition to the information required to be provided in the stockholder’s notice of this Section 11(a), each Stockholder Nominee and Board Nominee shall provide to the Secretary of the corporation within two weeks of receipt of the Secretary’s written request therefor, (i) a completed copy of the corporation’s form of director’s questionnaire, as provided by the Secretary, (ii) an agreement to comply with the corporation’s corporate governance, conflict of interest, confidentiality, and other corporate governance policies, as provided by the Secretary, and (iii) a reasonable written disclosure of any of the following: (A) any agreement or understanding as to how he or she will vote on any matter; (B) any direct or indirect compensatory, payment or other financial agreement, arrangement or understanding with any person or entity other than the corporation, including, without limitation, any agreement, arrangement or understanding with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a nominee or as a director; and (C) any transactions between a Nominating Person and the Stockholder Nominee or the Board Nominee within the preceding five years. The Secretary of the corporation may also request in writing that a Stockholder Nominee or Board Nominee report entering into any of the items listed in (iii)(A) through (C) above at any time during such nominee’s service as a director.
(c)      No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. These provisions shall not apply to nomination of any persons entitled to be separately elected by holders of preferred stock.
(d)      The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
Section 12.      Action Without Meeting.
Any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.
ARTICLE III     

Directors
Section 1.      Number and Term of Office.
The number of directors which shall constitute the whole of the Board of Directors shall initially be seven (7) and, thereafter, shall be fixed from time to time exclusively by the Board of

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Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption). Elected directors shall hold office until the expiration of the term for which elected and until their successors shall be duly elected and qualified. Directors need not be stockholders. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 2.      Powers.
The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors.
Section 3.      Vacancies.
Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in Section 4 below) to elect the number of directors then constituting the whole Board.
Section 4.      Resignations and Removals.
(a)      Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
(b)      At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors, or any individual director, may be removed from

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office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors.
Section 5.      Meetings.
(a)      The annual meeting of the Board of Directors shall be held immediately after the annual stockholders’ meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b)      Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 of Article I hereof. Regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolutions of the Board of Directors or the written consent of all directors.
(c)      Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors.
(d)      Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat.
Section 6.      Quorum and Voting.
(a)      A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with Section 1 of Article III of these Bylaws, but not less than one; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b)      At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws.

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(c)      Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d)      The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 7.      Action Without Meeting.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee.
Section 8.      Fees and Compensation.
Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors.
Section 9.      Committees.
(a)      Executive Committee: The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement or merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, to recommend to the stockholders of the corporation a dissolution of the corporation or a revocation of a dissolution, or to amend these Bylaws.

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(b)      Other Committees: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c)      Term: The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this Section 9, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d)      Meetings: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 9 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to Section 2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee

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shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV     

Officers
Section 1.      Officers Designated.
The officers of the corporation shall be a Chairman of the Board of Directors and a President, each of whom shall be a member of the Board of Directors, and one or more Vice-Presidents, a Secretary, and a Treasurer. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors or the Chairman of the Board or the President may also appoint one or more assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it or he shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 2.      Tenure and Duties of Officers.
(a)      General: All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation.
(b)      Duties of the Chairman of the Board of Directors: The Chairman of the Board of Directors (if there be such an officer appointed) shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(c)      Duties of President: The President shall be the chief executive officer of the corporation (unless the Board of Directors shall designate otherwise) and shall preside at all meetings of the shareholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such

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other duties and have such other powers as the Board of Directors shall designate from time to time.
(d)      Duties of Vice-Presidents: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e)      Duties of Secretary: The Secretary shall attend all meetings of the shareholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the shareholders, and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f)      Duties of Treasurer: The Treasurer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. At the election of the Board of Directors, the duties of Treasurer shall be performed by a Vice President designated by the Board of Directors to perform financial functions.
ARTICLE V     

Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
Section 1.      Execution of Corporate Instruments.

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(a)      The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation.
(b)      Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
(c)      All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Section 2.      Voting of Securities Owned by Corporation.
All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President.
ARTICLE VI     

Shares of Stock
Section 1.      Form and Execution of Certificates.
The shares of capital stock of the corporation shall be represented by a certificate, unless and until the Board of Directors of the corporation adopts a resolution permitting shares to be uncertificated. Notwithstanding the adoption of any such resolution providing for uncertificated shares, every holder of capital stock of the corporation theretofore represented by certificates and, upon request, every holder of uncertificated shares, shall be entitled to have a certificate for

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shares of capital stock of the corporation signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice- President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate or otherwise noted in the case of an uncertificated share which the corporation shall issue to represent such class or series of stock or otherwise noted in the case of an uncertificated share, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
Section 2.      Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.
Section 3.      Transfers.

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Transfers of stock shall be made on the books of the corporation, and in the case of certificated shares of stock, only by the holder thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates, properly endorsed for transfer and payment of all necessary transfer taxes; or, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by such person’s attorney lawfully constituted in writing, and upon payment of all necessary transfer taxes and compliance with appropriate procedures for transferring shares in uncertificated form; provided, however, that such surrender and endorsement, compliance or payment of taxes shall not be required in any case in which the officers of the corporation shall determine to waive such requirement. With respect to certificated shares of stock, every certificate exchanged, returned or surrendered to the corporation shall be marked “Cancelled,” with the date of cancellation, by the Secretary or Assistant Secretary of the corporation or the transfer agent thereof. No transfer of stock shall be valid as against the corporation for any purpose until it shall have been entered in the stock records of the corporation by an entry showing from and to whom transferred.
Section 4.      Fixing Record Dates.
(a)      In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b)      In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be

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the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c)      In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 5.      Registered Stockholders.
The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII     

Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice- President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature

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of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation, or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE VIII     

Corporate Seal
The corporate seal shall consist of a die bearing the name of the corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX     

Indemnification of
Officers, Directors, Employees and Agents
Section 1.      Right to Indemnification.
Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a “Proceeding”), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an “Agent”), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may

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hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter “Expenses”); provided, however, that except as to actions to enforce indemnification rights pursuant to Section 3 of this Article, the corporation shall indemnify any Agent seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right.
Section 2.      Authority to Advance Expenses.
Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, provided, however, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon.
Section 3.      Right of Claimant to Bring Suit.
If a claim under Section 1 or 2 of this Article is not paid in full by the corporation within 120 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible

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under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
Section 4.      Provisions Nonexclusive.
The rights conferred on any person by this Article shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate, agreement, or vote of the stockholders or disinterested directors is inconsistent with these bylaws, the provision, agreement, or vote shall take precedence.
Section 5.      Authority to Insure.
The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article.
Section 6.      Survival of Rights.
The rights provided by this Article shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
Section 7.      Settlement of Claims.
The corporation shall not be liable to indemnify any Agent under this Article (a) for any amounts paid in settlement of any action or claim effected without the corporation’s written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
Section 8.      Effect of Amendment.

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Any amendment, repeal, or modification of this Article shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification.
Section 9.      Subrogation.
In the event of payment under this Article, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
Section 10.      No Duplication of Payments.
The corporation shall not be liable under this Article to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X     

Exclusive Forum for Adjudication of Disputes
Unless the corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate of Incorporation or these Bylaws (in each case, as they may be amended from time to time), or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Court of Chancery in the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware), in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of these Bylaws.
ARTICLE XI     

Notices

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Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given either (1) in writing, timely and duly deposited in the United States Mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent, or (2) by a means of electronic transmission that satisfies the requirements of Section 4(e) of Article II of these Bylaws, and has been consented to by the stockholder to whom the notice is given. Any notice required to be given to any director may be given by the method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to Section 2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom

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communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
ARTICLE XII     

Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors.


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VIAVI SOLUTIONS INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
(Restated effective as of November 15, 2017)
 
I. PURPOSE
The Viavi Solutions Inc. 1998 Employee Stock Purchase Plan is intended to provide eligible employees of the Company and one or more of its Corporate Affiliates with the opportunity to acquire a proprietary interest in the Company through participation in a plan designed to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code (the “ Code ”) for Participants in the United States. The Plan was initially established as the JDS Uniphase Corporation 1998 Employee Stock Purchase Plan effective as of August 1, 1998 and was subsequently amended a number of times. In connection with the spin-off of Lumentum Holdings, Inc. from the Company on August 1, 2015 (the “Spin-off”), and the related renaming of JDS Uniphase Corporation as Viavi Solutions Inc., the Plan was amended and restated in its entirety as the Viavi Solutions Inc. 1998 Employee Stock Purchase Plan and certain adjustments were made to the number of shares of Stock reserved for issuance under the Plan. On November 15, 2017 (the “Restatement Effective Date”), the Plan was amended and restated to, among other things, extend the term of the Plan until November 15, 2027 and shall be effective for offerings made under the Plan commencing on or after February 1, 2018.
II.      DEFINITIONS
For purposes of administration of the Plan, the following terms shall have the meanings indicated:
 
Compensation means the (i) regular base salary or base wages paid to a Participant by one or more Participating Companies during such individual’s period of participation in the Plan, plus (ii) any amounts contributed by the Corporation or any Corporate Affiliate pursuant to a salary reduction agreement which are not includible in the gross income of the Participant by reason of Code Sections 402(e)(3) or 125, plus (iii) all of the following amounts to the extent paid in cash: overtime payments, bonuses, commissions, profit-sharing distributions and other incentive-type payments. However, Compensation shall not include any contributions (other than those excludible from the Participant’s gross income under Code Sections 402(e)(3) or 125) made on the Participant’s behalf by the Company or any Corporate Affiliate to any deferred compensation plan or welfare benefit program now or hereafter established.
 
Board means the Board of Directors of the Company.
 
Company means Viavi Solutions Inc., a Delaware corporation, formerly known as JDS Uniphase Corporation, and any corporate successor to all or substantially all of the assets or voting stock of Viavi Solutions Inc., which shall by appropriate action adopt the Plan.
 
Corporate Affiliate means any company which is, or in the future becomes, either the parent corporation or a subsidiary corporation of the Company (as determined in accordance with Section 424 of the Code).
 
Employee means any person who is regularly engaged, for a period of more than 20 hours per week and more than 5 months per calendar year, in the rendition of personal services to the Company or any other Participating Company for earnings considered wages under Section 3121(a) of the Code. For purposes of the Plan, a person’s employment with the Company or a Participating Company terminates and the person ceases to be an Employee on the date on which such person ceases to provide continuous active service to the Company or Participating Company. In jurisdictions requiring notice in advance of an effective termination of an employee’s employment, an employee’s continuous active service shall be deemed terminated upon the actual cessation of the active performance of duties or responsibilities in providing services to the Company or a Participating Company, notwithstanding any required notice period that must be fulfilled or pay in lieu of notice or severance pay that must be provided before a termination as an employee can otherwise become effective under applicable laws, regardless of whether such notice has been fulfilled or pay in lieu of notice or severance pay has been provided. Further, and notwithstanding anything else in the Plan, a person’s employment with the Company or a Participating Company terminates and the person ceases to be an Employee on the date that he or she is notified that his or her employment is terminated for cause or for just cause. The terms “termination of employment” or “cessation of Employee status” or similar terms have meaning corresponding to this definition of “Employee.”
 
Participant means any Employee of a Participating Company who is actively participating in the Plan.

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Participating Company means the Company and such Corporate Affiliates as may be designated from time to time by the Board.
 
Plan means this 1998 Employee Stock Purchase Plan.
 
Plan Administrator means either the Board or a committee of the Board that is responsible for administration of the Plan.
 
Purchase Period means each six-month period commencing on (1) any February 1 and ending on the subsequent July 31, or (2) commencing on August 1 and ending on the subsequent January 31; provided, however, that the Plan Administrator may establish prior to the commencement of any Purchase Period, a different duration for one or more Purchase Periods or different commencing or ending dates for such Purchase Periods; provided that no Purchase Period may have a duration exceeding six (6) months. If the first day of a Purchase Period is not a Trading Day, then the next subsequent Trading Day will be deemed the first day of the Purchase Period unless the Company provides otherwise prior to the commencement of such Purchase Period. If the last day of a Purchase Period is not a Trading Day, the immediately preceding Trading Day will be deemed the last day of the Purchase Period unless the Company provides otherwise prior to the commencement of such Purchase Period.
 
Stock means shares of the common stock of the Company.

Trading Day means a day on which the principal stock exchange or quotation system on which the Stock is then listed is open for trading.

III.      ADMINISTRATION
The Plan shall be administered by the Plan Administrator which shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Plan Administrator shall, to the full extent permitted by applicable law, be final and binding upon all persons.
IV.     PURCHASE PERIODS
(a)    Stock shall be offered for purchase under the Plan through a series of Purchase Periods established by the Plan Administrator until such time as (i) the maximum number of shares of Stock available for issuance under the Plan shall have been purchased or (ii) the Plan shall have been sooner terminated, discontinued, or suspended in accordance with Article X or Article XI.
(b)    The Participant shall be granted a separate purchase right for each Purchase Period in which he/she participates. The purchase right shall be granted on the first day of the Purchase Period and shall be automatically exercised on the last day of such Purchase Period provided such purchase right remains outstanding on such date.
(c)    The acquisition of Stock through participation in the Plan for any Purchase Period shall neither limit nor require the acquisition of Stock by the Participant in any subsequent Purchase Period, subject to the limitations of Sections V, VII, and VIII hereof.
(d)    Under no circumstances shall any purchase rights granted under the Plan be exercised, nor shall any shares of Stock be issued hereunder, until such time as (i) the Plan shall have been approved by the Company’s stockholders and (ii) the Company shall have complied with all applicable requirements of the Securities Act of 1933 (as amended), all applicable listing requirements of any securities exchange on which the Stock is listed and all other applicable requirements established by law or regulation.
V.      ELIGIBILITY AND PARTICIPATION
(a)    Every Employee of a Participating Company shall be eligible to participate in the Plan on the first day of the first Purchase Period following the Employee’s commencement of service with the Company or any Corporate Affiliate.

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(b)    In order to participate in the Plan for a particular Purchase Period, the Employee must complete the enrollment forms prescribed by the Plan Administrator (including a purchase agreement and a payroll deduction authorization) and file such forms with the Plan Administrator (or its designate) prior to the commencement date of the Purchase Period.
(c)    The payroll deduction authorized by a Participant for purposes of acquiring Stock under the Plan may be any multiple of 1% of Compensation paid to the Participant during the relevant Purchase Period, up to a maximum of 10%. The deduction rate so authorized shall continue in effect for the entire Purchase Period unless the Participant shall, prior to the end of the Purchase Period for which the purchase right is in effect, reduce the rate by filing the appropriate form with the Plan Administrator (or its designate). The reduced rate shall become effective as soon as practicable following the filing of such form. Each Participant shall be permitted such a rate reduction only one (1) time in each Purchase Period. The reduced rate shall continue in effect for the entire Purchase Period and for each subsequent Purchase Period, unless the Participant shall, prior to the commencement of any subsequent Purchase Period, designate a different rate (up to the 10% maximum) by filing the appropriate form with the Plan Administrator (or its designate). The new rate shall become effective for the first Purchase Period commencing after the filing of such form. Payroll deductions, however, will automatically cease upon the termination of the Participant’s purchase right in accordance with Section VII(d) or (e) below.
(d)    With respect to Participants who are not United States residents, the amount deducted for each such Participant shall be deducted from the Participant’s salary in the currency in which such Participant is compensated and shall be converted to United States dollars by using the United States buying rate as reported by Bloomberg for the purchase of United States dollars with such currency on the day Stock is purchased for the Participant’s account.
VI.     STOCK SUBJECT TO PLAN
(a)    The Stock purchasable by Participants under the Plan shall, solely in the Board’s discretion, be made available from either authorized but unissued Stock or from reacquired Stock, including shares of Stock purchased on the open market. On August 1, 2015, in connection with the Spin-off, the Plan was amended and restated to adjust the number of shares of Stock that were available for issuance under the Plan as of that date from 3,199,171 shares to 5,727,155, subject to adjustment under Section VI(b). As of the Restatement Effective Date, 4,573,845 shares of Stock were available for issuance under the Plan, subject to adjustment under Section VI(b). With respect to any amendment to increase the total number of shares of Stock under the Plan, the Plan Administrator shall have discretion to disallow the purchase of any increased shares of Stock for the Purchase Period in existence at the time of such increase. If the Plan Administrator determines that on a given purchase date the number of shares with respect to which purchase rights are to be exercised may exceed the number of shares then available for sale under the Plan, the Plan Administrator may make a pro-rata allocation of the shares remaining available for purchase on such purchase date in as uniform a manner as shall be practicable and as it shall determine to be equitable and continue such Purchase Period. Any amount remaining in a Participant’s payroll account following such pro-rata allocation shall be promptly refunded to the Participant without interest and shall not be carried over to any future Purchase Period.
(b)    In the event any change is made to the Stock purchasable under the Plan by reason of any recapitalization, stock dividend, stock split, combination of shares or other change affecting the outstanding common stock of the Company as a class without receipt of consideration, then appropriate adjustments shall be made by the Plan Administrator to the class and maximum number of shares purchasable under the Plan, the class and maximum number of shares purchasable per Participant under any purchase right outstanding at the time or purchasable per Participant over the term of the Plan, and the class and number of shares and the price per share of the Stock subject to outstanding purchase rights held by Participants under the Plan.
VII.      PURCHASE RIGHTS
An Employee who participates in the Plan for a particular Purchase Period shall have the right to purchase Stock on the purchase date for such Purchase Period upon the terms and conditions set forth below and shall execute a purchase agreement embodying such terms and conditions and such other provisions (not inconsistent with the Plan) as the Plan Administrator may deem advisable.
 
(a)     Purchase Price . The purchase price per share shall be the lesser of (i) 95% of the fair market value of a share of Stock on the date on which the purchase right is granted or (ii) 95% of the fair market value of a share of Stock on the date

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the purchase right is exercised. For purposes of determining such fair market value (and for all other valuation purposes under the Plan), the fair market value per share of Stock on any date shall be the closing selling price per share (or the closing bid, if no sales are reported on such date), as officially quoted on any established stock exchange or a national market system, including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, on the date of determination (or, if no closing selling price or closing bid was reported on that date, as applicable, on the last Trading Day such closing selling price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Plan Administrator deems reliable;
(b)     Number of Purchasable Shares . The number of shares purchasable by a Participant on a purchase date for a Purchase Period shall be the number of whole shares obtained by dividing the amount collected from the Participant through payroll deductions during the Purchase Period, together with any amount carried over from the prior Purchase Period pursuant to the provisions of Section VII(f), by the purchase price in effect for such purchase date. However, the maximum number of shares purchasable by the Participant pursuant to any one outstanding purchase right shall not exceed 4,000 shares (subject to adjustment under Section VI(b)).
Under no circumstances shall purchase rights be granted under the Plan to any Employee if such Employee would, immediately after the grant, own (within the meaning of Section 424(d) of the Code), or hold outstanding options or other rights to purchase, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any of its Corporate Affiliates.
(c)     Payment . Payment for Stock purchased under the Plan shall be effected by means of the Participant’s authorized payroll deductions. Such deductions shall begin on the first pay day coincident with or immediately following the commencement date of the relevant Purchase Period and shall terminate with the pay day ending with or immediately prior to the last day of the Purchase Period. The amounts so collected shall be credited to the Participant’s individual account under the Plan, but no interest shall be paid on the balance from time to time outstanding in the account. The amounts collected from a Participant may be commingled with the general assets of the Company and may be used for general corporate purposes.
(d)     Termination of Purchase Rights .
(i)    A Participant may, prior to any purchase date, terminate his/her outstanding purchase right under the Plan by filing the prescribed notification form with the Plan Administrator (or its designate). The Company will then refund the payroll deductions which the Participant made with respect to the terminated purchase right without interest, and no further amounts will be collected from the Participant with respect to such terminated right.
(ii)    The termination shall be irrevocable with respect to the particular Purchase Period to which it pertains and shall also require the Participant to re-enroll in the Plan (by making a timely filing of a new purchase agreement and payroll deduction authorization) if the Participant wishes to resume participation in a subsequent Purchase Period.
(e)     Termination of Employment . If a Participant ceases Employee status during any Purchase Period, then the Participant’s outstanding purchase right under the Plan shall immediately terminate and all sums previously collected from the Participant and not previously applied to the purchase of stock during such Purchase Period shall be promptly refunded without interest. However, should the Participant die or become permanently disabled while in Employee status, then the Participant or the person or persons to whom the rights of the deceased Participant under the Plan are transferred by will or by the laws of descent and distribution (the “successor”) will have the election, exercisable at any time prior to the purchase date for the Purchase Period in which the Participant dies or becomes permanently disabled that is scheduled to occur within three (3) months of the date that the Participant ceases to be an Employee due to death or permanent disability, to (i) withdraw all of the funds in the Participant’s payroll account at the time of his/her cessation of Employee status or (ii) have such funds held for purchase of shares of Stock on the purchase date. If the Plan Administrator (or its designate) does not receive such an election prior to the purchase date for such Purchase Period, or the Purchase Period will end more than three (3) months after the Participant ceases to be an Employee due to death or permanent disability, the successor will be deemed to have elected to withdraw all of the funds in the Participant’s payroll account at the time of his/her cessation of Employee status and such funds shall be distributed to the successor as soon as administratively practicable. In no event, however, shall any further payroll deductions be added to the Participant’s account following his/her cessation of Employee status.

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For purposes of the Plan, a Participant shall be deemed to be permanently disabled if he/she is unable, by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of at least twelve (12) months, to engage in any substantial gainful employment.
(f)     Stock Purchase . Outstanding purchase rights shall be automatically exercised as provided in Section IV(b). The exercise shall be effected by applying the amount credited to the Participant’s account on the last date of the Purchase Period to the purchase of whole shares of Stock (subject to the limitations on the maximum number of purchasable shares set forth in Section VII(b)) at the purchase price in effect for such purchase date. Any amount remaining in the Participant’s account after such exercise representing a fractional share of Stock shall be held for the purchase of Stock on the next purchase date; provided , however, that any other amount not applied to the purchase of Stock at the end of a Purchase Period shall be refunded without interest promptly after the close of the Purchase Period, including any amount not applied to the purchase of stock by reason by the Section VII(b) or the Section VIII limitations on the maximum number of purchasable shares.
(g)     Rights as Stockholder . A Participant shall have no rights as a stockholder with respect to shares covered by the purchase rights granted to the Participant under the Plan until the shares are actually purchased on the Participant’s behalf in accordance with Section VII(f). No adjustments shall be made for dividends, distributions or other rights for which the record date is prior to the date of such purchase.
(h)     Assignability . No purchase rights granted under the Plan shall be assignable or transferable by a Participant except by will or by the laws of descent and distribution, and the purchase rights shall, during the lifetime of the Participant, be exercisable only by such Participant.
(i)     Merger or Liquidation of Company . In the event the Company or its stockholders enter into an agreement to dispose of all or substantially all of the assets or outstanding capital stock of the Company by means of a sale, merger or reorganization in which the Company will not be the surviving corporation (other than a reorganization effected primarily to change the State in which the Company is incorporated) or in the event the Company is liquidated, then all outstanding purchase rights under the Plan shall automatically be exercised immediately prior to such sale, merger, reorganization or liquidation (or such other time, as determined by the Plan Administrator) determined by applying all sums previously collected from Participants pursuant to their payroll deductions in effect for such rights to the purchase of whole shares of Stock, subject, however, to the applicable limitations of Section VII(b) and Section VIII.
VIII.      ACCRUAL LIMITATIONS
(a)    No Participant shall be entitled to accrue rights to acquire Stock pursuant to any purchase right under this Plan if and to the extent such accrual, when aggregated with (I) Stock rights accrued under other purchase rights outstanding under this Plan and (II) similar rights accrued under other employee stock purchase plans (within the meaning of Section 423 of the Code) of the Company or its Corporate Affiliates, would otherwise permit such Participant to purchase more than $25,000 worth of stock of the Company or any Corporate Affiliate (determined on the basis of the fair market value of such stock on the date or dates such rights are granted to the Participant) for each calendar year such rights are at any time outstanding.
(b)    For purposes of applying the accrual limitations of Section VIII(a), the right to acquire Stock pursuant to each purchase right outstanding under the Plan shall accrue as follows:
(i)    The right to acquire Stock under each such purchase right shall accrue as and when the purchase right first becomes exercisable during the calendar year as provided in Section IV(b).
(ii)    No right to acquire Stock under any outstanding purchase right shall accrue to the extent the Participant has already accrued in the same calendar year the right to acquire $25,000 worth of Stock (determined on the basis of the fair market value on the date or dates of grant) pursuant to that purchase right or one or more other purchase rights which may have been held by the Participant during such calendar year.
(iii)    If by reason of the Section VIII(a) limitations, the Participant’s outstanding purchase right does not accrue for any Purchase Period, then the payroll deductions which the Participant made during that Purchase Period with respect to such purchase right shall be promptly refunded without interest.

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(c)    In the event there is any conflict between the provisions of this Article VIII and one or more provisions of the Plan or any instrument issued thereunder, the provisions of this Article VIII shall be controlling.
IX.      STATUS OF PLAN UNDER FEDERAL TAX LAWS
(a)    The Plan is designed to qualify as an employee stock purchase plan under Section 423 of the Code for Participants in the United States. However, the Plan Administrator may, at its discretion, cease to administer the Plan as a qualified employee stock purchase plan under Code Section 423. Accordingly, share purchases effected under the Plan at any time after the Plan ceases to be administered as a qualified employee stock purchase plan under Code Section 423 (whether pursuant to purchase rights granted before or after the Plan ceases to be qualified) shall result in taxable income to each Participant equal to the excess of (i) the fair market value of the purchased shares on the purchase date over (ii) the purchase price paid for such shares.
(b)    To the extent required by law, the Company’s obligation to deliver shares to the Participant upon the exercise of any outstanding purchase right shall be subject to the Participant’s satisfaction of all applicable federal, state and local income and employment and similar non-United States tax withholding requirements.
X.      AMENDMENT AND TERMINATION
(a)    The Board may from time to time alter, amend, suspend or discontinue the Plan; provided , however, that no such action shall become effective prior to the exercise of outstanding purchase rights at the end of the Purchase Period in which such action is authorized. To the extent necessary to comply with Code Section 423, the Company shall obtain stockholder approval in such a manner and to such a degree as required.
(b)    The Company shall have the right, exercisable in the sole discretion of the Plan Administrator, to terminate the Plan immediately following the end of a Purchase Period. Should the Company elect to exercise its right to terminate the Plan, then the Plan shall terminate in its entirety, and no further purchase rights shall thereafter be granted, and no further payroll deductions shall thereafter be collected, under the Plan.
XI.      GENERAL PROVISIONS
(a)    The Plan shall terminate upon the earlier of (i) November 15, 2027 or (ii) the date on which all shares available for issuance under the Plan shall have been sold pursuant to purchase rights exercised under the Plan.
(b)       All costs and expenses incurred in the administration of the Plan shall be paid by the Company.
(c)    Neither the action of the Company in establishing the Plan, nor any action taken under the Plan by the Plan Administrator, nor any provision of the Plan itself shall be construed so as to grant any person the right to remain in the employ of the Company or any of its Corporate Affiliates for any period of specific duration, and such person’s employment may be terminated at any time, with or without cause. Termination of the Plan, or of a person’s status as an Employee or a Participant under the Plan, shall not constitute a constructive dismissal of the Participant’s employment with the Company or a Participating Company. Further, no person shall have any rights or entitlement under the Plan after such person has ceased to be an Employee for purposes of the Plan or a Participant in the Plan.
(d)     Governing Law . The Plan is to be construed in accordance with and governed by the internal laws of the State of California (as permitted by Section 1646.5 of the California Civil Code, or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties, except to the extent the internal laws of the State of California are superseded by the laws of the United States. Should any provision of the Plan be determined by a court of law to be illegal or unenforceable, the other provisions shall nevertheless remain effective and shall remain enforceable.


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VIAVI SOLUTIONS INC.
 
2003 EQUITY INCENTIVE PLAN
 
(Restated effective as of November 15, 2017)
 
1.   Establishment and Purpose of the Plan . The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company by offering them an opportunity to participate in the Company’s future performance. The Plan was initially established as the JDS Uniphase Corporation 2003 Equity Incentive Plan effective as of November 6, 2003 and has subsequently been amended a number of times. In connection with the spin-off of Lumentum Holdings, Inc. from the Company on August 1, 2015, and the related renaming of JDS Uniphase Corporation as Viavi Solutions Inc., the Plan was amended and restated in its entirety as the Viavi Solutions Inc. 2003 Equity Incentive Plan and certain adjustments were made to the number of Shares reserved for issuance under the Plan and subject to outstanding Awards granted under the Plan. On November 15, 2017 (the “Restatement Effective Date”), the Plan was amended and restated, to among other things: (i) increase the number of Shares reserved under the Plan; (ii) set a limit on the total value of equity and cash compensation that may be paid to each Non-Employee Director during each fiscal year; (iii) provide that Awards granted under the Plan after the Restatement Effective Date will have a minimum one-year vesting period from the date of grant, subject to certain limited exceptions; and (iv) provide that any dividends or Dividend Equivalent Rights credited with respect to an Award will be paid or distributed only if, when and to the extent the Shares underlying the Award vest.
2.     Definitions . As used herein, the following definitions shall apply:
(a)    “ Administrator ” means the Board or any of the Committees appointed to administer the Plan.
(b)    “ Affiliate ” and “ Associate ” shall have the respective meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
(c)    “ Applicable Laws ” means the legal requirements relating to the Plan and the Awards under applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein.
(d)    “ Assumed ” means that pursuant to a Corporate Transaction either (i) the Award is expressly affirmed by the Company or (ii) the contractual obligations represented by the Award are expressly assumed (and not simply by operation of law) by the successor entity or its Parent in connection with the Corporate Transaction with appropriate adjustments to the number and type of securities of the successor entity or its Parent subject to the Award and the exercise or purchase price thereof which preserves the compensation element of the Award existing at the time of the Corporate Transaction as determined in accordance with the instruments evidencing the agreement to assume the Award.
(e)    “ Award ” means the grant of an Option, SAR, Dividend Equivalent Right, Restricted Stock, Restricted Stock Unit, Performance Unit, Performance Share, or other right or benefit under the Plan.
(f)    “ Award Agreement ” means the written agreement evidencing the grant of an Award executed by the Company and the Grantee, including any amendments thereto.
(g)    “ Board ” means the Board of Directors of the Company.
(h)    “ Cause ” means, with respect to the termination by the Company or a Related Entity of the Grantee’s Continuous Active Service, that such termination is for “Cause” as such term is expressly defined in a then-effective written agreement between the Grantee and the Company or such Related Entity, or in the absence of such then-effective written agreement and definition, is based on, in the determination of the Administrator, the Grantee’s: (i) performance of any act or failure to perform any act in bad faith and to the detriment of the Company or a Related Entity; (ii) dishonesty, intentional misconduct, material violation of any applicable Company or Related Entity policy, or material breach of any agreement with

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the Company or a Related Entity; or (iii) commission of a crime involving dishonesty, breach of trust, or physical or emotional harm to any person.
(i)    “ Change in Control ” means a change in ownership or control of the Company effected through either of the following transactions:
(i)    the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders which a majority of the Continuing Directors who are not Affiliates or Associates of the offeror do not recommend such stockholders accept, or
(ii)    a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members (rounded up to the next whole number) ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who are Continuing Directors.
(j)    “ Code ” means the Internal Revenue Code of 1986, as amended.
(k)    “ Committee ” means any committee composed of members of the Board appointed by the Board to administer the Plan.
(l)    “ Common Stock ” means the common stock of the Company.
(m)    “ Company ” means Viavi Solutions Inc., a Delaware corporation, formerly known as JDS Uniphase Corporation.
(n)    “ Consultant ” means any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.
(o)    “ Continuing Directors ” means members of the Board who either (i) have been Board members continuously for a period of at least thirty-six (36) months or (ii) have been Board members for less than thirty-six (36) months and were elected or nominated for election as Board members by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.
(p)    “ Continuous Active Service ” means that the provision of services to the Company or a Related Entity in any capacity of Employee, Director or Consultant is not interrupted or terminated. In jurisdictions requiring notice in advance of an effective termination as an Employee, Director or Consultant, Continuous Active Service shall be deemed terminated upon the actual cessation of providing services to the Company or a Related Entity notwithstanding any required notice period that must be fulfilled before a termination as an Employee, Director or Consultant can be effective under Applicable Laws. Continuous Active Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Award Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave. For purposes of each Incentive Stock Option granted under the Plan, if such leave exceeds ninety (90) days, and reemployment upon expiration of such leave is not guaranteed by statute or contract, then the Incentive Stock Option shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the expiration of such ninety (90) day period.
(q)    “ Corporate Transaction ” means any of the following transactions:
(i)    a merger or consolidation in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated;
(ii)    the sale, transfer or other disposition of all or substantially all of the assets of the Company;

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(iii)    the complete liquidation or dissolution of the Company;
(iv)    any reverse merger or series of related transactions culminating in a reverse merger (including, but not limited to, a tender offer followed by a reverse merger) in which the Company is the surviving entity but in which securities possessing more than forty percent (40%) of the total combined voting power of the Company’s outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger or the initial transaction culminating in such merger but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction; or
(v)    acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series of related transactions that the Administrator determines shall not be a Corporate Transaction.
(r)    “ Covered Employee ” means an Employee who is a “covered employee” under Section 162(m)(3) of the Code.
(s)    “ Director ” means a member of the Board or the board of directors of any Related Entity.
(t)    “ Disability ” means as defined under the long-term disability policy of the Company or the Related Entity to which the Grantee provides services regardless of whether the Grantee is covered by such policy. If the Company or the Related Entity to which the Grantee provides service does not have a long-term disability plan in place, “Disability” means that a Grantee is unable to carry out the responsibilities and functions of the position held by the Grantee by reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Grantee will not be considered to have incurred a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Administrator in its discretion.
(u)    “ Dividend Equivalent Right ” means a right entitling the Grantee to compensation measured by dividends paid with respect to Common Stock.
(v)    “ Employee ” means any person, including an Officer or Director, who is in the employ of the Company or any Related Entity, subject to the control and direction of the Company or any Related Entity as to both the work to be performed and the manner and method of performance. The payment of a director’s fee by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.
(w)    “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.
(x)       “ Fair Market Value ” means, as of any date, the value of Common Stock determined as follows:
(i)    If the Common Stock is listed on any established stock exchange or a national market system, including without limitation The Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the date of determination (or, if no closing sales price or closing bid was reported on that date, as applicable, on the last trading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii)    If the Common Stock is regularly quoted on an automated quotation system (including the OTC Bulletin Board) or by a recognized securities dealer, but selling prices are not reported, the Fair Market Value of a share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or
(iii)    In the absence of an established market for the Common Stock of the type described in (i) and (ii), above, the Fair Market Value thereof shall be determined by the Administrator in good faith.

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(y)    “ Full Value Award ” means the grant of Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares under the Plan with a per share or unit purchase price lower than 100% of Fair Market Value on the date of grant.
(z)    “ Grantee ” means an Employee, Director or Consultant who receives an Award under the Plan.
(aa)    “ Immediate Family ” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Grantee’s household (other than a tenant or employee), a trust in which these persons (or the Grantee) have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the Grantee) control the management of assets, and any other entity in which these persons (or the Grantee) own more than fifty percent (50%) of the voting interests.
(bb)       “ Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(cc)    “ Non-Employee Director ” means a Director who is not an Employee.
(dd)    “ Non-Qualified Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.
(ee)    “ Officer ” means a person who is an officer of the Company or a Related Entity within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(ff)    “ Option ” means an option to purchase Shares pursuant to an Award Agreement granted under the Plan.
(gg)    “ Parent ” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.
(hh)    “ Performance-Based Compensation ” means compensation qualifying as “performance-based compensation” under Section 162(m) of the Code.
(ii)    “ Performance Shares ” means Shares or an Award denominated in Shares which may be earned in whole or in part upon attainment of performance criteria established by the Administrator.
(jj)    “ Performance Units ” means an Award which may be earned in whole or in part based upon attainment of performance criteria established by the Administrator and which may be settled for cash, Shares or other securities or a combination of cash, Shares or other securities as established by the Administrator.
(kk)    “ Plan ” means this 2003 Equity Incentive Plan.
(ll)     Related Entity ” means any Parent or Subsidiary of the Company and any business, corporation, partnership, limited liability company or other entity in which the Company or a Parent or a Subsidiary of the Company holds a substantial ownership interest, directly or indirectly.
(mm)    “ Replaced ” means that pursuant to a Corporate Transaction the Award is replaced with a comparable stock award or a cash incentive program of the Company, the successor entity (if applicable) or Parent of either of them which preserves the compensation element of such Award existing at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same (or a more favorable) vesting schedule applicable to such Award. The determination of Award comparability shall be made by the Administrator and its determination shall be final, binding and conclusive.
(nn)    “ Restricted Stock ” means Shares issued under the Plan to the Grantee for such consideration, if any, and subject to such restrictions on transfer, rights of first refusal, repurchase provisions, forfeiture provisions, and other terms and conditions as established by the Administrator.
(oo)    “ Restricted Stock Unit ” means a grant of a right to receive in cash or stock, as established by the Administrator, the market value of one Share.
(pp)    “ Rule 16b-3 ” means Rule 16b-3 promulgated under the Exchange Act or any successor thereto.

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(qq)    “ SAR ” means a stock appreciation right entitling the Grantee to Shares or cash compensation, as established by the Administrator, measured by appreciation in the value of Common Stock.
(rr)    “ Share ” means a share of the Common Stock.
(ss)    “ Subsidiary ” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.
3.     Stock Subject to the Plan .
(a)    Effective as of the Restatement Effective Date, subject to the provisions of Section 10 below, the maximum aggregate number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) shall be equal to the sum of (i) the number of Shares that were available for the future grant of Awards as of the Restatement Effective, (ii) 4,000,000 new Shares, (iii) the number of Shares subject to Awards outstanding under the Plan as of the Restatement Effective Date, (iv) the number of unallocated Shares remaining available for the grant of new awards under the Company’s 2005 Acquisition Equity Incentive Plan (“Acquisition Plan”) as of the Restatement Date, and (v) the number of Shares subject to outstanding stock awards granted under the Acquisition Plan that on or after Restatement Date would have otherwise been available for reissuance under the Acquisition Plan. The Shares to be issued pursuant to Awards may be authorized, but unissued, or reacquired Common Stock.
(b)    Any Shares subject to Awards will be counted against the numerical limits of this Section 3 as one Share for every one Share subject thereto. To the extent that a Share that was subject to an Award that counted as 1.5 Shares against the Plan reserve prior to the Restatement Date is recycled back into the Plan under the next paragraph of this Section 3, the Plan will be credited with 1.5 Shares.
(c)    Any Shares covered by an Award (or portion of an Award) which is forfeited, canceled or expires (whether voluntarily or involuntarily) shall be deemed not to have been issued for purposes of determining the maximum aggregate number of Shares which may be issued under the Plan. Shares that actually have been issued under the Plan pursuant to an Award shall not be returned to the Plan and shall not become available for future issuance under the Plan, except that if unvested Shares are forfeited, or repurchased by the Company at the lower of their original purchase price or their Fair Market Value at the time of repurchase, such Shares shall become available for future grant under the Plan. With respect to Options and SARs, the gross number of Shares subject to the Award will cease to be available under the Plan (whether or not the Award is net settled for a lesser number of Shares, or if Shares are utilized to exercise such an Award). In addition, if Shares are withheld to pay any withholding taxes applicable to an Award, then the gross number of Shares subject to such Award will cease to be available under the Plan.
4.     Administration of the Plan .
(a)     Plan Administrator .
(i)     Administration with Respect to Directors and Officers . With respect to grants of Awards to Directors or Employees who are also Officers or Directors of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws and to permit such grants and related transactions under the Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board.
(ii)     Administration With Respect to Consultants and Other Employees . With respect to grants of Awards to Employees or Consultants who are neither Directors nor Officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which Committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. The Board may authorize one or more Officers to grant such Awards and may limit such authority as the Board determines from time to time.
(iii)     Administration With Respect to Covered Employees . Notwithstanding the foregoing, grants of Awards to any Covered Employee intended to qualify as Performance-Based Compensation shall be made only by a

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Committee (or subcommittee of a Committee) which is comprised solely of two or more Directors eligible to serve on a committee making Awards qualifying as Performance-Based Compensation. In the case of such Awards granted to Covered Employees, references to the “Administrator” or to a “Committee” shall be deemed to be references to such Committee or subcommittee.
(iv)     Administration Errors . In the event an Award is granted in a manner inconsistent with the provisions of this subsection (a), such Award shall be presumptively valid as of its grant date to the extent permitted by the Applicable Laws.
(b)     Powers of the Administrator . Subject to Applicable Laws and the provisions of the Plan (including any other powers given to the Administrator hereunder), and except as otherwise provided by the Board, the Administrator shall have the authority, in its discretion:
(i)    to select the Employees, Directors and Consultants to whom Awards may be granted from time to time hereunder;
(ii)    to determine whether and to what extent Awards are granted hereunder;
(iii)    to determine the number of Shares or the amount of other consideration to be covered by each Award granted hereunder;
(iv)    to approve forms of Award Agreements for use under the Plan;
(v)    to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder;
(vi)    to amend the terms of any outstanding Award granted under the Plan, provided that (A) any amendment that would adversely affect the Grantee’s rights under an outstanding Award shall not be made without the Grantee’s written consent, (B) the reduction of the exercise price of any Option or SAR awarded under the Plan shall be subject to stockholder approval and (C) canceling or “buying-out” an Option or SAR at a time when its exercise price exceeds the Fair Market Value of the underlying Shares, in exchange for cash, another Option, SAR, Restricted Stock, Restricted Stock Unit, or other Award shall be subject to stockholder approval, unless the cancellation and exchange occurs in connection with a Corporate Transaction;
(vii)    to construe and interpret the terms of the Plan and Awards, including without limitation, any notice of Award or Award Agreement, granted pursuant to the Plan;
(viii)    to establish additional terms, conditions, rules or procedures to accommodate the rules or laws of applicable non-U.S. jurisdictions and to afford Grantees favorable treatment under such rules or laws; provided, however, that no Award shall be granted under any such additional terms, conditions, rules or procedures with terms or conditions which are inconsistent with the provisions of the Plan; and
(ix)    to take such other action, not inconsistent with the terms of the Plan, as the Administrator deems appropriate.
(c)     Minimum Vesting Requirements . Notwithstanding any provision of the Plan to the contrary, all Awards granted under the Plan after the Restatement Effective Date shall have a minimum vesting period of one-year measured from the date of grant; provided, however, that up to 5% of the Shares available for future distribution under this Plan as of the Restatement Effective Date may be granted without such minimum vesting requirement. Nothing in this Section 4(c) shall limit the Company's ability to grant Awards that contain rights to accelerated vesting on a termination of employment or service (or to otherwise accelerate vesting), or limit any rights to accelerated vesting in connection with a Corporate Transaction.
(d)     Indemnification . In addition to such other rights of indemnification as they may have as members of the Board or as Officers or Employees of the Company or a Related Entity, members of the Board and any Officers or Employees of the Company or a Related Entity to whom authority to act for the Board, the Administrator or the Company is delegated shall be defended and indemnified by the Company to the extent permitted by law on an after-tax basis against all

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reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any claim, investigation, action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any Award granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by the Company) or paid by them in satisfaction of a judgment in any such claim, investigation, action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such claim, investigation, action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct; provided, however, that within thirty (30) days after the institution of such claim, investigation, action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at the Company’s expense to handle and defend the same.
5.     Eligibility . Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. Incentive Stock Options may be granted only to Employees of the Company or a Parent or a Subsidiary of the Company. An Employee, Director or Consultant who has been granted an Award may, if otherwise eligible, be granted additional Awards. Awards may be granted to such Employees, Directors or Consultants who are residing in non-U.S. jurisdictions as the Administrator may determine from time to time.
6.     Terms and Conditions of Awards .
(a)     Type of Awards . The Administrator is authorized under the Plan to award any type of arrangement to an Employee, Director or Consultant that is not inconsistent with the provisions of the Plan and that by its terms involves or might involve the issuance of (i) Shares, (ii) cash or (iii) an Option, a SAR, or similar right with a fixed or variable price related to the Fair Market Value of the Shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions. Such Awards include, without limitation, Options, SARs, Restricted Stock, Restricted Stock Units, Dividend Equivalent Rights, Performance Units or Performance Shares, and an Award may consist of one such security or benefit, or two (2) or more of them in any combination or alternative.
(b)     Designation of Award . Each Award shall be designated in the Award Agreement. In the case of an Option, the Option shall be designated as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by a Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the grant date of the relevant Option.
(c)     Conditions of Award . Subject to the terms of the Plan, the Administrator shall determine the provisions, terms, and conditions of each Award including, but not limited to, the Award vesting schedule, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, Shares, or other consideration) upon settlement of the Award, payment contingencies, and satisfaction of any performance criteria. The performance criteria established by the Administrator may be based on any one of, or combination of, the following: (i) increase in share price, (ii) earnings per share, (iii) total stockholder return, (iv) operating margin, (v) gross margin, (vi) return on equity, (vii) return on assets, (viii) return on investment, (ix) operating income, (x) net operating income, (xi) pre-tax profit, (xii) cash flow, (xiii) revenue, (xiv) expenses, (xv) earnings before interest, taxes and depreciation, (xvi) economic value added, (xvii) market share, (xviii) personal management objectives, and (xix) other measures of performance selected by the Administrator. Partial achievement of the specified criteria may result in a payment or vesting corresponding to the degree of achievement as specified in the Award Agreement. The Administrator may provide at the time of grant for the adjustment of the performance criteria applicable to Performance-Based Compensation to include or exclude any objectively determinable components of such performance criteria.
(d)     Dividends and Dividend Equivalent Rights . The Administrator in its sole discretion may credit to each holder of an Award, in the form of Dividend Equivalent Rights or otherwise, an amount equal to the value of all dividends and other distributions (whether in cash, Shares or other property) paid or distributed by the Company on the equivalent number of Shares; provided , however, that such holder will not be paid any dividends or other distributions (or any related

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earnings or interest on such dividends or distributions, if the Administrator in its sole discretion provides for such payments) unless and until the underlying Award vests. The value of dividends or other distributions (or any related earnings or interest, if applicable) payable with respect to Awards that do not vest shall be forfeited.
(e)     Acquisitions and Other Transactions . The Administrator may issue Awards under the Plan in settlement, assumption or substitution for, outstanding awards or obligations to grant future awards in connection with the Company or a Related Entity acquiring another entity, an interest in another entity or an additional interest in a Related Entity whether by merger, stock purchase, asset purchase or other form of transaction.
(f)     Deferral of Award Payment . The Administrator may establish one or more programs under the Plan to permit selected Grantees the opportunity to elect to defer receipt of consideration upon exercise of an Award, satisfaction of performance criteria, or other event that absent the election would entitle the Grantee to payment or receipt of Shares or other consideration under an Award. The Administrator may establish the election procedures, the timing of such elections, the mechanisms for payments of, and accrual of interest or other earnings, if any, on amounts, Shares or other consideration so deferred, and such other terms, conditions, rules and procedures that the Administrator deems advisable for the administration of any such deferral program.
(g)     Separate Programs . The Administrator may establish one or more separate programs under the Plan for the purpose of issuing particular forms of Awards to one or more classes of Grantees on such terms and conditions as determined by the Administrator from time to time.
(h)       Individual Limitations on Awards . The maximum number of Shares with respect to which Awards may be granted to any Grantee in any fiscal year of the Company shall be 1,790,200 Shares. In connection with a Grantee’s (i) commencement of Continuous Active Service or (ii) first promotion in any fiscal year of the Company prior to the Restatement Effective Date, a Grantee may be granted Awards for up to an additional 1,790,200 Shares which shall not count against the limit set forth in the preceding sentence. The foregoing limitations shall be adjusted proportionately in connection with any change in the Company’s capitalization pursuant to Section 10, below. To the extent required by Section 162(m) of the Code or the regulations thereunder, in applying the foregoing limitations with respect to a Grantee, if any Awards are canceled, the canceled Awards shall continue to count against the maximum number of Shares with respect to which Awards may be granted to the Grantee. For this purpose, the repricing of an Option (or in the case of a SAR, the base amount on which the stock appreciation is calculated is reduced to reflect a reduction in the Fair Market Value of the Common Stock) shall be treated as the cancellation of the existing Option or SAR and the grant of a new Option or SAR. If the vesting or receipt of Shares under the Award is deferred to a later date, any amount (whether denominated in Shares or cash) paid in addition to the original number of Shares subject to the Award will not be treated as an increase in the number of Shares subject to the Award if the additional amount is based either on a reasonable rate of interest or on one or more predetermined actual investments such that the amount payable by the Company at the later date will be based on the actual rate of return of a specific investment (including any decrease as well as any increase in the value of an investment).
(i)     Limitations on Awards to Non-Employee Directors . Notwithstanding any other provision of the Plan to the contrary, the maximum value of Awards granted under the Plan during a fiscal year of the Company to a Non-Employee Director for services on the Board, taken together with any cash fees paid by the Company to such Non-Employee Director during such fiscal year for services on the Board, shall not exceed $1,000,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards under applicable financial accounting standards), including for this purpose the value of any Awards that are received in lieu of payment of all or a portion of his or her regular annual retainer or other similar cash based payments. For the avoidance of doubt, neither Awards granted or compensation paid to a Non-Employee Director for services as an Employee or Consultant nor any amounts paid to a Non-Employee Director as a reimbursement of an expense shall count against the foregoing limitation.
(j)     Early Exercise . The Award Agreement may, but need not, include a provision whereby the Grantee may elect at any time while an Employee, Director or Consultant to exercise any part or all of the Award prior to full vesting of the Award. Any unvested Shares received pursuant to such exercise may be subject to a repurchase right in favor of the Company or a Related Entity or to any other restriction the Administrator determines to be appropriate.
(k)     Term of Award . The term of each Award shall be the term stated in the Award Agreement, provided, however, that the term of an Award shall be no more than eight (8) years from the date of grant thereof. However, in the case

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of an Incentive Stock Option granted to a Grantee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the term of the Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Award Agreement.
(l)     Transferability of Awards . Incentive Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. Other Awards shall be transferable by will and by the laws of descent and distribution, and during the lifetime of the Grantee, by gift or pursuant to a domestic relations order to members of the Grantee’s Immediate Family to the extent and in the manner determined by the Administrator. Notwithstanding the foregoing, the Grantee may designate a beneficiary of the Grantee’s Award in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator.
(m)     Time of Granting Awards . The date of grant of an Award shall for all purposes be the date on which the Administrator makes the determination to grant such Award, or such later date as is determined by the Administrator.
7.     Award Exercise or Purchase Price, Consideration and Taxes .
(a)     Exercise or Purchase Price . The exercise or purchase price, if any, for an Award shall be as follows:
(i)    In the case of an Incentive Stock Option:
(A)    granted to an Employee who, at the time of the grant of such Incentive Stock Option owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary of the Company, the per Share exercise price shall be not less than one hundred ten percent (110%) of the Fair Market Value per Share on the date of grant; or
(B)    granted to any Employee other than an Employee described in the preceding paragraph, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(ii)    In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(iii)    In the case of a SAR, the base amount on which the stock appreciation is calculated shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(iv)    In the case of Awards intended to qualify as Performance-Based Compensation, the exercise or purchase price, if any, shall be not less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.
(v)    In the case of other Awards, such price as is determined by the Administrator.
(vi)    Notwithstanding the foregoing provisions of this Section 7(a), in the case of an Award issued pursuant to Section 6(d) above, the exercise or purchase price for the Award shall be determined in accordance with the provisions of the relevant instrument evidencing the agreement to issue such Award.
(b)     Consideration . Subject to Applicable Laws, the consideration to be paid for the Shares to be issued upon exercise or purchase of an Award including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant). In addition to any other types of consideration the Administrator may determine, the Administrator is authorized to accept as consideration for Shares issued under the Plan the following, provided that the portion of the consideration equal to the par value of the Shares must be paid in cash or other legal consideration permitted by the Delaware General Corporation Law:
(i)    cash;
(ii)    check;

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(iii)    surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require (including withholding of Shares otherwise deliverable upon exercise of the Award) which have a Fair Market Value on the date of surrender or attestation equal to the aggregate exercise price of the Shares as to which said Award shall be exercised, provided, however, that Shares acquired under the Plan or any other equity compensation plan or agreement of the Company must have been held by the Grantee for a period of more than six (6) months;
(iv)    with respect to Options, payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (A) shall provide written instructions to a Company designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate exercise price payable for the purchased Shares and (B) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction; or
(v)    any combination of the foregoing methods of payment.
(c)     Taxes . No Shares shall be delivered under the Plan to any Grantee or other person until such Grantee or other person has made arrangements acceptable to the Administrator for the satisfaction of any non-U.S., federal, state, or local income and employment tax withholding obligations, including, without limitation, obligations incident to the receipt of Shares or the disqualifying disposition of Shares received on exercise of an Incentive Stock Option. Upon exercise of an Award the Company shall withhold or collect from Grantee an amount sufficient to satisfy such tax obligations.
8.     Exercise of Award .
(a)     Procedure for Exercise; Rights as a Stockholder .
(i)    Any Award granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator under the terms of the Plan and specified in the Award Agreement.
(ii)    An Award shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment for the Shares with respect to which the Award is exercised, including, to the extent selected, use of the broker-dealer sale and remittance procedure to pay the purchase price as provided in Section 7(b)(iv).
(b)     Exercise of Award Following Termination of Continuous Active Service .
(i)    An Award may not be exercised after the termination date of such Award set forth in the Award Agreement and may be exercised following the termination of a Grantee’s Continuous Active Service only to the extent provided in the Award Agreement.
(ii)    Where the Award Agreement permits a Grantee to exercise an Award following the termination of the Grantee’s Continuous Active Service for a specified period, the Award shall terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the Award, whichever occurs first.
(iii)    Any Award designated as an Incentive Stock Option to the extent not exercised within the time permitted by law for the exercise of Incentive Stock Options following the termination of a Grantee’s Continuous Active Service shall convert automatically to a Non-Qualified Stock Option and thereafter shall be exercisable as such to the extent exercisable by its terms for the period specified in the Award Agreement.
9.     Conditions Upon Issuance of Shares .
(a)    Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares pursuant thereto shall comply with all Applicable Laws, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b)    As a condition to the exercise of an Award, the Company may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and

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without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any Applicable Laws.
10.     Adjustments Upon Changes in Capitalization . Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan, the exercise or purchase price of each such outstanding Award, the maximum number of Shares with respect to which Awards may be granted to any Grantee in any fiscal year of the Company, as well as any other terms that the Administrator determines require adjustment shall be proportionately adjusted for (i) any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Shares, or similar transaction affecting the Shares, (ii) any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company, or (iii) as the Administrator may determine in its discretion, any other transaction with respect to Common Stock including a corporate merger, consolidation, acquisition of property or stock, separation (including a spin-off or other distribution of stock or property), reorganization, liquidation (whether partial or complete) or any similar transaction; provided, however that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator and the Administrator’s determination shall be final, binding and conclusive. Except as the Administrator determines, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason hereof shall be made with respect to, the number or price of Shares subject to an Award.
11.     Corporate Transactions .
(a)     Termination of Award to Extent Not Assumed in Corporate Transaction . Effective upon the consummation of a Corporate Transaction, all outstanding Awards under the Plan shall terminate. However, all such Awards shall not terminate to the extent they are Assumed in connection with the Corporate Transaction.
(b)     Acceleration of Award Upon Corporate Transaction . Except as provided otherwise in an individual Award Agreement, in the event of a Corporate Transaction, for the portion of each Award that is neither Assumed nor Replaced, such portion of the Award shall automatically become fully vested and exercisable and be released from any repurchase or forfeiture rights (other than repurchase rights exercisable at fair market value) for all of the Shares at the time represented by such portion of the Award, immediately prior to the specified effective date of such Corporate Transaction.
(c)     Effect of Acceleration on Incentive Stock Options . Any Incentive Stock Option accelerated under this Section 11 in connection with a Corporate Transaction shall remain exercisable as an Incentive Stock Option under the Code only to the extent the $100,000 dollar limitation of Section 422(d) of the Code is not exceeded. To the extent such dollar limitation is exceeded, the excess Options shall be treated as Non-Qualified Stock Options.
12.     Effective Date and Term of Plan . The Plan originally became effective upon its approval by the stockholders of the Company. The Plan, as amended and restated, shall become effective upon its approval by the stockholders of the Company. It shall continue in effect for a term of ten (10) years from the date of such approval unless sooner terminated. Subject to Applicable Laws, Awards may be granted under the Plan upon its becoming effective.
13.     Amendment, Suspension or Termination of the Plan .
(a)    The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such amendment shall be made without the approval of the Company’s stockholders to the extent such approval is required by Applicable Laws, or if such amendment would change any of the provisions of Section 4(b)(vi) or this Section 13(a). Notwithstanding any other provision of the Plan to the contrary, the Board may, in its sole and absolute discretion and without the consent of any participant, amend the Plan or any Award Agreement, to take effect retroactively or otherwise, as it deems necessary or advisable for the purpose of conforming the Plan or such Award Agreement to any present or future law, regulation or rule applicable to the Plan, including, but not limited to, Section 409A of the Code.
(b)    No Award may be granted during any suspension of the Plan or after termination of the Plan.

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(c)    No suspension or termination of the Plan (including termination of the Plan under Section 12, above) shall adversely affect any rights under Awards already granted to a Grantee.
14.    Reservation of Shares.
(a)    The Company, during the term of the Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
(b)    The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
15.      No Effect on Terms of Employment/Consulting Relationship . The Plan shall not confer upon any Grantee any right with respect to the Grantee’s Continuous Active Service, nor shall it interfere in any way with his or her right or the right of the Company or any Related Entity to terminate the Grantee’s Continuous Active Service at any time, with or without Cause, and with or without notice. The ability of the Company or any Related Entity to terminate the employment of a Grantee who is employed at will is in no way affected by its determination that the Grantee’s Continuous Active Service has been terminated for Cause for the purposes of this Plan.
16.     No Effect on Retirement and Other Benefit Plans . Except as specifically provided in a retirement or other benefit plan of the Company or a Related Entity, Awards shall not be deemed compensation for purposes of computing benefits or contributions under any retirement plan of the Company or a Related Entity, and shall not affect any benefits under any other benefit plan of any kind or any benefit plan subsequently instituted under which the availability or amount of benefits is related to level of compensation. The Plan is not a “Retirement Plan” or “Welfare Plan” under the Employee Retirement Income Security Act of 1974, as amended.
17.     Unfunded Obligation . Grantees shall have the status of general unsecured creditors of the Company. Any amounts payable to Grantees pursuant to the Plan shall be unfunded and unsecured obligations for all purposes, including, without limitation, Title I of the Employee Retirement Income Security Act of 1974, as amended. Neither the Company nor any Related Entity shall be required to segregate any monies from its general funds, or to create any trusts, or establish any special accounts with respect to such obligations. The Company shall retain at all times beneficial ownership of any investments, including trust investments, which the Company may make to fulfill its payment obligations hereunder. Any investments or the creation or maintenance of any trust or any Grantee account shall not create or constitute a trust or fiduciary relationship between the Administrator, the Company or any Related Entity and a Grantee, or otherwise create any vested or beneficial interest in any Grantee or the Grantee’s creditors in any assets of the Company or a Related Entity. The Grantees shall have no claim against the Company or any Related Entity for any changes in the value of any assets that may be invested or reinvested by the Company with respect to the Plan.


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Exhibit 31.1
VIAVI SOLUTIONS INC.
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
 
I, Oleg Khaykin , certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Viavi Solutions Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Dated: February 7, 2018
 
/s/ OLEG KHAYKIN
 
Oleg Khaykin
Chief Executive Officer
(Principal Executive Officer)
 




Exhibit 31.2
 
VIAVI SOLUTIONS INC.
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Amar Maletira, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Viavi Solutions Inc.;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Dated: February 7, 2018
 
/s/ AMAR MALETIRA
 
Amar Maletira
 
Executive Vice President and Chief Financial Officer
 
(Principal Financial and Accounting Officer)
 




Exhibit 32.1
 
VIAVI SOLUTIONS INC.
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of Viavi Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended December 30, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, Oleg Khaykin , Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
 
1.The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
 
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 
Dated: February 7, 2018
 
/s/ OLEG KHAYKIN
 
Oleg Khaykin
 
Chief Executive Officer
 
(Principal Executive Officer)
 




Exhibit 32.2
 
VIAVI SOLUTIONS INC.
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Viavi Solutions Inc. (the “Company”) on Form 10-Q for the quarter ended December 30, 2017 as filed with the Securities and Exchange Commission (the “Report”), I, Amar Maletira, Executive Vice President and Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
 
1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
 
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
 
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 
Dated: February 7, 2018
 
/s/ AMAR MALETIRA
 
Amar Maletira
 
Executive Vice President and Chief Financial Officer
 
(Principal Financial and Accounting Officer)