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 the impact of the COVID-19 pandemic on our
       business, financial condition and results of operations;

• 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 June 27, 2020.


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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
for communications service providers, enterprises, network equipment
manufacturers, government and avionics. We help these customers harness the
power of instruments, automation, intelligence and virtualization to Command the
network. VIAVI is also a leader in light management solutions for 3D sensing,
anti-counterfeiting, consumer electronics, industrial, government, automotive,
and defense applications.
To serve our markets we operated the following business segments:
• Network Enablement (NE);

• Service Enablement (SE), and;

• 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 network
equipment manufacturers ("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 NEMs in the design and
production of next-generation network equipment. Other Test & Measurement
communications products also serve the public safety, government, and aerospace
and defense markets.
We also offer 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., Lumen Technologies (formerly CenturyLink Inc.), Cisco
Systems, Inc., Nokia Solutions and Networks and Verizon Communications, Inc.
Our NE products and associated services including acquired business are
described below:
Field Instruments: Primarily consisting of (a) Access and Cable products; (b)
Avionics products; (c) Fiber Instrument products; (d) Metro products; (e) RF
Test products; (f) Radio Test products.
Lab Instruments: Primarily consisting of (a) Fiber Optic Production Lab Test;
(b) Optical Transport products; (c) Storage Network Test products; and (d)
Wireless products.

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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.
Our portfolio of SE solutions addresses the same lab and production
environments, field deployment and service assurance for operational 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.
Our SE products and associated services are described below:
Data Center: Consisting of our Network Performance Monitoring and Security
tools.
Assurance: Primarily consisting of our (a) Growth Products (Location
Intelligence and Nitro Mobile products) and (b) Mature Products (Legacy
Assurance and Legacy Wireline).
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, automotive industrial
and other markets.
Our anti-counterfeiting offerings for the currency market include, OVP and OVMP.
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. We also provide OVMP®, a technology that delivers depth
and motion effects for authenticating banknotes. Our anti-counterfeiting
technologies are deployed on the banknotes of more than 100 countries today.
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 and Engineered DiffusersTM.
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, SICPA Holding SA Company (SICPA),
STMicroelectronics N.V., Lockheed Martin Corporation and Seiko Epson
Corporation.
COVID-19 Pandemic Update
The COVID-19 pandemic has confirmed cases in the U.S. and most of the countries
and territories we operate in worldwide. The pandemic has prompted authorities
worldwide to implement measures to contain the virus, which include and are not
limited to, travel bans and restrictions, quarantines, shelter-in-place orders,
temporary business closures, among others. The COVID-19 pandemic and these
aforementioned measures, have had and continue to have, a substantial
macroeconomic impact on businesses and economies worldwide. These conditions may
continue and result in an adverse impact to our operations.
Our priority during the COVID-19 pandemic has remained focused on protecting the
health and safety of all those we serve, - our employees, customers, suppliers,
and communities, including implementing early and regular updates

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to our health and safety policies and procedures. We have shut down, slowed, or
modified business operations and activities in certain geographies, including in
some instances, limiting production to essential business services, all in
conjunction with federal, state, and local health and safety regulations and
shelter-in-place directives. We continue to follow the guidance of local and
national governments, including monitoring the health of our employees who have
returned to our offices, by limiting the gathering size of employee groups in
indoor spaces per social distancing guidelines, and requiring those employees to
wear masks and to undergo screenings prior to entering our offices.
The COVID-19 pandemic has not had a substantial net impact on our liquidity
position. We continue to generate operating cash flows to meet our short-term
liquidity needs, and we expect to maintain access to the capital markets enabled
by our strong credit ratings. To date, we have not observed any material or
materially adverse indication of impairments under the authoritative guidance,
to any of our assets or a significant change to the fair value of assets due to
the COVID-19 pandemic.
We have experienced and may continue to experience disruption of our facilities,
suppliers and contract manufacturers, which has and may continue to negatively
impact our sales and operating results. In addition, we have experienced and may
continue to experience shipping and logistics challenges as many of our
customers have also closed their facilities and are operating under similar
restrictions. Additionally, NSE has experienced some impact to customer demand
including for Field Instruments. Customer demand will be challenging to
calibrate, due to the nature and timing of the COVID-19 pandemic.
While COVID-19 has brought unprecedented challenges, we believe that we have a
robust and adaptable supply chain. Our supply chain team has been working to
meet our customer needs by executing on a risk mitigation plan, including
multi-sourcing, pre-ordering components, transforming our logistics network,
prioritizing critical customers, working with local government agencies to
understand challenges, and partnering on solutions that limit disruptions to our
operations while ensuring the safety of our employees, partners and suppliers.
Capital markets and worldwide economies have also been significantly impacted by
the COVID-19 pandemic, and on June 8, 2020, the National Bureau of Economic
Research announced that the U.S. was in a recession. Deterioration of
macro-economic conditions could have a material adverse impact on our
longer-term business as customers curtail and reduce overall spending. As the
pandemic spread across the globe, there has been a tightening of the credit
markets. We entered into a $300 million secured credit facility in May 2020 to
strengthen our liquidity position but have not drawn on this facility to date.
Under a prolonged global recession, we could face future liquidity challenges
and may not be able to obtain additional financing on favorable terms or at all.
Despite the continued challenges that we are facing due to the COVID-19
pandemic, we remain confident that the actions that we are taking to manage such
challenges, combined with our strong liquidity, position us well to navigate
through the current economic environment and continue to execute on our
long-term value creation strategy.
Recently Issued Accounting Pronouncements
Refer to "Note 2. Recently Issued Accounting Pronouncements" regarding the
effect of certain recent accounting pronouncements on our consolidated financial
statements.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America, (U.S.
GAAP), which require management to make judgments, estimates and assumptions
that affect the reported amounts of assets, and liabilities, net revenue and
expenses, and the disclosure of contingent assets and liabilities. Our estimates
are based on historical experience and assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities. We believe
that the accounting estimates employed and the resulting balances are
reasonable; however, actual results may differ from these estimates and such
differences may be material.
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 2020 Annual Report
on Form 10-K filed with the Securities and Exchange Commission (SEC). There have
been no material changes to our critical accounting policies and estimates.

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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
                                     October 3, 2020      September 28, 2019       Change       Percent Change
Segment net revenue:
NE                                 $        162.1        $           198.9       $   (36.8 )         (18.5 )%
SE                                           21.4                     20.9             0.5             2.4  %
OSP                                         101.2                     80.0            21.2            26.5  %
Total net revenue                  $        284.7        $           299.8       $   (15.1 )          (5.0 )%

Gross profit                       $        169.4        $           174.4       $    (5.0 )          (2.9 )%
Gross margin                                 59.5  %                  58.2 %

Research and development           $         48.8        $            51.5       $    (2.7 )          (5.2 )%
Percentage of net revenue                    17.1  %                  17.2 %

Selling, general and
administrative                     $         81.4        $            93.2       $   (11.8 )         (12.7 )%
Percentage of net revenue                    28.6  %                  31.1 %

Restructuring and related
(benefits) charges                 $         (0.6 )      $             0.3       $    (0.9 )        (300.0 )%
Percentage of net revenue                    (0.2 )%                   0.1 %

Interest and other income, net     $          0.6        $             2.7       $    (2.1 )         (77.8 )%
Percentage of net revenue                     0.2  %                   0.9 %

Interest expense                   $         (9.0 )      $            (8.3 )     $     0.7             8.4  %
Percentage of net revenue                     3.2  %                   2.8 %

Provision for income taxes         $          8.6        $             8.3       $     0.3             3.6  %
Percentage of net revenue                     3.0  %                   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, training, 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.
COVID-19
We continue to monitor the rapidly evolving situation and guidance from
international and domestic authorities, including federal, state and local
public health authorities and may take additional actions based on their
recommendations. In these circumstances, there may be developments outside our
control requiring us to adjust our

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operating plan. As such, given the dynamic nature of this situation, the Company
cannot reasonably estimate the ultimate impacts of COVID-19 on our financial
condition, results of operations or cash flows in the future. However, if the
COVID-19 pandemic is prolonged and there are continued delays in resumption of
normal business operations and activities, we expect that it could have a
material negative impact on our future revenue growth as well as our overall
profitability.
Three months ended October 3, 2020 and September 28, 2019
Net revenue decreased by $15.1 million, or 5.0%, during the three months ended
October 3, 2020 compared to the same period a year ago. This decrease was due to
revenue decrease from our NE segment, partially offset by revenue increase in
our OSP and SE segments as discussed below.
Product revenues decreased by $16.9 million, or 6.4%, during the three months
ended October 3, 2020 compared to the same period a year ago. This decrease was
primarily due to revenue declines from our NE and SE segments, partially offset
by increased revenues from our OSP segment as discussed below.
Service revenues increased by $1.8 million, or 5.1%, during the three months
ended October 3, 2020 compared to the same period a year ago. This increase was
primarily due to increased revenues from our NE and SE segments.
NE net revenue decreased by $36.8 million, or 18.5%, during the three months
ended October 3, 2020 compared to the same period a year ago. This decrease was
driven by the impact to our business from the COVID-19 lockdown primarily in our
Field Instruments, such as Cable, Access and AvComm products.
SE net revenue increased by $0.5 million, or 2.4%, during the three months ended
October 3, 2020 compared to the same period a year ago. This increase is
primarily driven by increased revenue from our Growth Assurance products.
OSP net revenue increased by $21.2 million, or 26.5%, during the three months
ended October 3, 2020 compared to the same period a year ago. This increase is
primarily driven by growth in revenue across all product lines which include our
Anti-Counterfeiting, 3D Sensing, and Aerospace & Defense products.
Going forward, we expect to continue to encounter a number of industry and
market risks and uncertainties that may limit our visibility, and consequently,
our ability to predict future revenue, seasonality, profitability, and general
financial performance, which could create period over period variability in our
financial measures and present foreign exchange rate risks.
Additionally, 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; (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; (e) the impact
of ongoing global trade policies, tariffs and sanctions; and (f) regulatory or
economic developments and/or technology challenges that slow or change the rate
of adoption of 5G, 3D Sensing and other emerging secular technologies and
platforms.

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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 (in millions):
                                       Three Months Ended
                          October 3, 2020          September 28, 2019
Americas:
   United States        $    77.8     27.3 %   $     85.0          28.4 %
   Other Americas            17.6      6.2 %         20.7           6.9 %
     Total Americas     $    95.4     33.5 %   $    105.7          35.3 %

Asia-Pacific:
   Greater China        $    79.1     27.8 %   $     71.9          24.0 %

Other Asia-Pacific 29.1 10.2 % 35.3 11.8 %

Total Asia-Pacific $ 108.2 38.0 % $ 107.2 35.8 %



EMEA:
   Switzerland          $    17.9      6.3 %   $     12.2           4.0 %
   Other EMEA                63.2     22.2 %         74.7          24.9 %
     Total EMEA         $    81.1     28.5 %   $     86.9          28.9 %

Total net revenue       $   284.7    100.0 %   $    299.8         100.0 %


Net revenue from customers outside the Americas during the three months ended
October 3, 2020 and September 28, 2019 represented 66.5% and 64.7% 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 increased by 1.3 percentage points during the three months ended
October 3, 2020 from 58.2% in the same period a year ago to 59.5% in the current
period. This increase was primarily driven by favorable product mix within our
OSP segment.
As discussed in more detail under "Net Revenue" above, we sell products in
certain markets that are consolidating, undergoing product, architectural and
business model transitions, have high customer concentrations, are highly
competitive (increasingly due to Asia-Pacific-based competition), are price
sensitive and/or are affected by customer seasonal and mix variant buying
patterns. We expect these factors to continue to result in variability of our
gross margin.
Research and Development
R&D expense decreased by $2.7 million, or 5.2%, during the three months ended
October 3, 2020 compared to the same period a year ago. This decrease was
primarily driven by variable expense reductions and cost efficiencies during the
period. As a percentage of net revenue, R&D remained relatively flat, declining
0.1 percentage points during the three months ended October 3, 2020 compared to
the same period a year ago.
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


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SG&A expense decreased by $11.8 million or 12.7%, during the three months ended
October 3, 2020 compared to the same period a year ago. This decrease was
primarily due to decreased spend on sales commissions, travel and entertainment
expenses in the current period. As a percentage of net revenue, SG&A decreased
2.5 percentage points during the three months ended October 3, 2020 compared to
the same period a year ago.
We intend to continue to focus on reducing our SG&A expense as a percentage of
net revenue. However, we may experience in the future, certain charges unrelated
to our core operating performance, such as mergers and acquisitions-related
expenses, litigation expenses and charges from changes in the fair value
measurement of our contingent consideration liabilities, 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, integrate various
acquisitions, rationalize the manufacturing of our products and align our
businesses to address market conditions.

As of October 3, 2020, our total restructuring accrual was $4.0 million. During
the three months ended October 3, 2020, we recorded restructuring and benefits
charges of $0.6 million. During the three months ended September 28, 2019, the
Company recorded restructuring and related charges of $0.3 million. Refer to
"Note 13. Restructuring and Related Charges" for more information.
Interest and Other Income, Net
Interest and other income, net, was $0.6 million during the three months ended
October 3, 2020 compared to $2.7 million the same period a year ago. This $2.1
million decrease was primarily driven by a $1.3 million decrease in interest
income due to lower yields on money market funds in which we invest excess cash
during the current period and a $1.1 million unfavorable foreign exchange impact
as the balance sheet hedging program provided less favorable offset to the
remeasurement of underlying foreign exchange exposures during the current
period.
Interest Expense
Interest expense increased by $0.7 million, or 8.4%, during the three months
ended October 3, 2020 compared to the same period a year ago. This increase was
primarily due to the commitment fee on unutilized portion of the revolving
credit facility, the amortization of issuance costs related to the revolving
credit facility as well as an increase in debt discount accretion of the 2023
Notes and 2024 Notes during the current period.
Provision for Income Taxes
We recorded an income tax provision of $8.6 million and $8.3 million for the
three months ended October 3, 2020 and September 28, 2019, respectively.
The income tax provision for the three months ended October 3, 2020 and
September 28, 2019 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.
The income tax provision recorded differs from the expected tax provision that
would be calculated by applying the federal statutory rate to our income from
continuing operations before taxes primarily due the changes in valuation
allowance for deferred tax assets attributable to our domestic and foreign
income (loss) from continuing operations.
As of October 3, 2020, and June 27, 2020, our unrecognized tax benefits totaled
$48.3 million and $48.4 million, respectively, and are included in deferred
taxes and other non-current tax liabilities, net. We had $3.6 million accrued
for the payment of interest and penalties at October 3, 2020. The timing and
resolution of income tax examinations is uncertain, and the amounts ultimately
paid, if any, upon resolution of issues raised by the taxing authorities may
differ from the amounts accrued for each year. Although we do not expect that
our balance of gross unrecognized tax benefits will change materially in the
next 12 months, given the uncertainty in the development of ongoing income tax
examinations, we are unable to estimate the full range of possible adjustments
to this balance.

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Operating Segment Information
Information related to our operating segments were as follows, (in millions):
                                                           Three Months Ended
                             October 3, 2020      September 28, 2019         Change        Percentage Change

Network Enablement
Net revenue                 $          162.1     $           198.9       $      (36.8 )           (18.5 )%
Gross profit                           103.5                 128.0              (24.5 )           (19.1 )%
Gross margin                            63.8 %                64.4 %

Service Enablement
Net revenue                 $           21.4     $            20.9       $        0.5               2.4  %
Gross profit                            14.3                  12.6                1.7              13.5  %
Gross margin                            66.8 %                60.3 %

Network and Service
Enablement
Net revenue                 $          183.5     $           219.8       $      (36.3 )           (16.5 )%
Operating income                        13.3                  22.3               (9.0 )           (40.4 )%
Operating margin                         7.2 %                10.1 %

Optical Security and
Performance
Net revenue                 $          101.2     $            80.0       $       21.2              26.5  %
Gross profit                            61.0                  43.3               17.7              40.9  %
Gross margin                            60.3 %                54.1 %
Operating income                        47.3                  30.4               16.9              55.6  %
Operating margin                        46.7 %                38.0 %


Network Enablement
During the three months ended October 3, 2020, NE gross margin decreased by 0.6
percentage points from 64.4% in the same period a year ago to 63.8% in the
current period reflecting lower revenue volumes due to the impact of COVID-19.
Service Enablement
During the three months ended October 3, 2020, SE gross margin increased by 6.5
percentage points from 60.3% in the same period a year ago to 66.8% in the
current period. This increase was primarily due to favorable product mix in our
Assurance growth products.
Network and Service Enablement ("NSE")
During the three months ended October 3, 2020, NSE operating margin decreased by
2.9 percentage points from 10.1% in the same period a year ago to 7.2% in the
current period. This decrease in operating margin was primarily driven by lower
revenue volume and gross profit margin in NE segment and offset by a reduction
in operating expenses reflecting disciplined expense management and ongoing
efficiency programs and lower variable expenses such as commissions, events
travel and entertainment due to the pandemic.
Optical Security and Performance Products
During the three months ended October 3, 2020 OSP gross margin increased by 6.2
percentage points from 54.1% in the same period a year ago to 60.3% in the
current period. This increase was primarily due to higher volume and better
manufacturing cost absorption.

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OSP operating margin increased by 8.7 percentage points during the three months
ended October 3, 2020 from 38.0% in the same period a year ago to 46.7% in the
current period. The increase in operating margin was primarily due to higher
gross margins as discussed above.
Liquidity and Capital Resources
As of October 3, 2020 and June 27, 2020, we had assets classified as cash and
cash equivalents, as well as short-term investments and short-term restricted
cash, in an aggregate amount of $595.5 million and $544.0 million, respectively.
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. As of October 3, 2020, U.S. entities owned approximately
50.9% of our cash and cash equivalents, short-term investments and short-term
restricted cash. The recent COVID-19 pandemic has caused disruption in global
capital markets and over time may impact our ability to obtain credit and/or
negotiate acceptable financing terms.
As of October 3, 2020, the majority of our cash investments have maturities of
90 days or less and are of high credit quality. Although we intend to hold these
investments to maturity, in the event that we are required to sell any of these
securities under adverse market conditions, losses could be recognized on such
sales. During the three months ended October 3, 2020, 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.
On May 5, 2020, we entered into a credit agreement (the "Credit Agreement") with
Wells Fargo Bank, National Association ("Wells Fargo") as administrative agent,
and other lender related parties. The Credit Agreement provides for a $300
million senior secured revolving credit facility, which matures on March 1,
2023. The Credit Agreement also provides that, under certain circumstances, we
may incur term loans or increase the aggregate principal amount of revolving
commitments by an aggregate amount of up to $200 million plus additional amounts
so long as our secured net leverage ratio, determined on a pro forma basis does
not exceed 1.50:1.00. The proceeds from the credit facility established under
the Credit Agreement will be used for working capital and other general
corporate purposes. The obligations under the Credit Agreement are secured by
substantially all of our assets.

Amounts outstanding under the Credit Agreement accrue interest at a rate equal
to either, at our election, LIBOR plus a margin of 1.75% to 2.50% per annum, or
a specified base rate plus a margin of 0.75% to 1.50%, in each case, depending
on our consolidated secured leverage ratio. We are required to pay a commitment
fee on the unutilized portion of the facility which ranges between 0.30% and
0.40% per annum depending on our consolidated secured leverage ratio. As of
October 3, 2020, we had no amounts outstanding under the Credit Agreement.
Three Months Ended October 3, 2020
As of October 3, 2020, our combined balance of cash and cash equivalents and
restricted cash increased by $51.8 million to $599.2 million from $547.4 million
as of June 27, 2020.
During the three months ended October 3, 2020, Cash provided by operating
activities was $63.9 million, consisting of net income of $14.3 million adjusted
for non-cash charges (e.g., depreciation, amortization and stock-based
compensation) which totaled $43.5 million, including changes in deferred tax
balances, and changes in operating assets and liabilities that provided $6.1
million. Changes in our operating assets and liabilities related primarily to a
decrease in accounts receivable of $19.7 million driven by strong collections in
the quarter, an increase in deferred revenue of $4.0 million, an increase in
income taxed payable of $2.5 million. These were partially offset by a decrease
in accounts payable of $8.5 million due to the timing of payment in the quarter,
an increase in other current and non-current assets of $3.2 million, an increase
in inventory of $3.4 million, a decrease in accrued expenses and other current
and non-current liabilities of $3.6 million, and a decrease in accrued payroll
and related expenses of $1.4 million.
During the three months ended October 3, 2020, Cash used in investing activities
was $7.5 million, primarily related to $8.0 million of cash used for capital
expenditures, offset by $0.5 million proceeds from sales of assets.

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During the three months ended October 3, 2020, Cash used in financing activities
was $15.8 million, primarily resulting from $9.3 million in withholding tax
payments on the vesting of restricted stock awards, $6.7 million in cash paid to
repurchase common stock under our share repurchase program, $2.8 million cash
paid to settle assumed debt from an acquisition in fiscal year 2020 and $0.4
million payments on financing obligations; offset by $3.5 million in proceeds
from the issuance of common stock under our employee stock purchase plan.
Three Months Ended September 28, 2019
As of September 28, 2019, our combined balance of cash and cash equivalents and
restricted cash decreased by $3.2 million to $533.6 from $530.4 million as of
June 29, 2019.
During the three months ended September 28, 2019, Cash provided by operating
activities was $31.3 million, consisting of net income of $6.8 million adjusted
for non-cash charges (e.g., depreciation, amortization and stock-based
compensation) which totaled $43.7 million, including changes in deferred tax
balance, and changes in operating assets and liabilities that used $19.2
million. Changes in our operating assets and liabilities related primarily to an
increase in inventories of $3.4 million, a decrease in deferred revenue of $4.1
million, an increase in other current and non-current assets of $1.7 million, a
decrease in accounts payable of $1.6 million, and a decrease in accrued expenses
and other current and non-current liabilities of $14.7 million. These changes
were partially offset by an increase in accrued payroll and related expenses of
$3.8 million, an increase in income taxes payable of $2.0 million, and a
decrease in accounts receivable of $0.5 million
During the three months ended September 28, 2019, Cash used in investing
activities was $5.9 million, primarily related to $7.1 million of cash used for
capital expenditures, offset by $1.2 million proceeds from sales of assets.
During the three months ended September 28, 2019, Cash used in financing
activities was $7.8 million, primarily due to $7.6 million in withholding tax
payments on vesting of restricted stock awards, $1.5 million in cash paid to
repurchase common stock under our share repurchase program, and $1.0 million in
payment of financing obligations; offset by $2.3 million in proceeds from 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;

• Impact of the COVID-19 pandemic on our financial condition;

• 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 2023 Notes and/or 2024 Notes prior to their
        maturity or of our common stock; and


•       potential funding of pension liabilities either voluntarily or as
        required by law or regulation.


Contractual Obligations
There were no material changes to our existing contractual commitments during
the first quarter of fiscal 2021.

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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, as such term is defined in
rules promulgated by the SEC, that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors, other than the
guarantees discussed in "Note 18. 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 16. 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 ("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 an acquisition in fiscal 2010. The U.K. plan is
partially funded, and the other Germany plans, which were initially established
as "pay-as-you-go" plans, are unfunded. As of October 3, 2020, our pension plans
were under funded by $113.2 million since the PBO exceeded the fair value of
plan assets. Similarly, we had a liability of $0.4 million related to our
non-pension post-retirement benefit plan. Pension plan assets are managed by
external third parties and we monitor the performance of our investment
managers. As of October 3, 2020, the fair value of plan assets had decreased
approximately 2.4% since June 27, 2020, 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 decrease or increase in the discount rate would cause
a corresponding increase or decrease, respectively, in the PBO of approximately
$9.2 million based upon data as of June 27, 2020.
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 17. 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 June 27, 2020.
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
October 3, 2020.

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Changes in Internal Control Over Financial Reporting
There have been no 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.
Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure
controls and procedures of our internal controls will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
systems will be achieved. No evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within our
company have been detected. Accordingly, our disclosure controls and procedures
provide reasonable assurance of achieving their objective.

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