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.

Changes to Segment Reporting

Following the Separation in the first quarter of fiscal 2016, the Company made changes to its segment measures to reflect how the CODM manages the business post-separation as described below.

The CODM manages the Company in two broad business categories: Network and Service Enablement ("NSE") and OSP. NSE operates in two segments, NE and SE, whereas OSP operates as a single segment. The CODM evaluates segment performance of the NSE business based on NE and SE segment gross margin and NSE operating margin as a whole. Operating expenses associated with the NSE business are not allocated to the NE and SE segments within NSE, as they are managed centrally at the business unit level. The CODM evaluates segment performance of the OSP business based on OSP segment operating margin. In addition, prior to the first quarter of fiscal 2016, the Company did not allocate certain corporate-level operating expenses associated with its shared-service function to its segment results. Beginning in the first quarter of fiscal 2016, the Company has allocated these corporate-level operating expenses to its segment results, with the exception of certain non-core operating and non-operating activities as discussed below.

The Company does not allocate stock-based compensation, acquisition-related charges, amortization of intangibles, restructuring and related charges, impairment of goodwill, non-operating income and expenses, or other 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.

As a result of the Separation, the Company excluded the results of the Lumentum business which historically consisted of the CCOP segment and the WaveReady product line within the NE segment for all periods presented. Refer to “Note 3. Discontinued Operations” for more information on the Separation. Additionally, the Company’s Video Assurance product line was moved out of its NE segment and into its SE segment during the first quarter of fiscal 2016.

The segment information for all periods presented has been revised to be comparable with the changes implemented in the first quarter of fiscal 2016 in the Company’s segment reporting measures.

Information on reportable segments is as follows (in millions):



	Year Ended July 1, 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	$	444.0		$	135.2		$	579.2		$	232.2		$	811.4		$	—		$	811.4

Gross profit	286.3			86.2			372.5			133.8			506.3			(20.3		)	486.0
Gross margin	64.5		%	63.8		%	64.3		%	57.6		%	62.4		%				59.9		%

Operating income							7.3			100.3			107.6			(94.0		)	13.6
Operating margin							1.3		%	43.2		%	13.3		%				1.7		%


	Year Ended July 2, 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	$	504.6		$	153.6		$	658.2		$	248.1		$	906.3		$	—		$	906.3

Gross profit	329.7			99.4			429.1			143.1			572.2			(22.5		)	549.7
Gross margin	65.3		%	64.7		%	65.2		%	57.7		%	63.1		%				60.7		%

Operating income (loss)							12.7			102.9			115.6			(199.9		)	(84.3		)
Operating margin							1.9		%	41.5		%	12.8		%				(9.3		)%

	Year Ended June 27, 2015
	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	$	506.8		$	174.3		$	681.1		$	192.8		$	873.9		$	—		$	873.9

Gross profit	333.9			119.2			453.1			104.3			557.4			(37.3		)	520.1
Gross margin	65.9		%	68.4		%	66.5		%	54.1		%	63.8		%				59.5		%

Operating income (loss)							(0.1		)	68.1			68.0			(143.8		)	(75.8		)
Operating margin							—		%	35.3		%	7.8		%				(8.7		)%



	Years Ended
	July 1, 2017			July 2, 2016			June 27, 2015
Corporate reconciling items impacting gross profit:
Total segment gross profit	$	506.3		$	572.2		$	557.4
Stock-based compensation	(3.6		)	(4.8		)	(4.2		)
Amortization of intangibles	(14.3		)	(17.3		)	(31.9		)
Other charges unrelated to core operating performance	(2.4		)	(0.4		)	(1.2		)
GAAP gross profit	$	486.0		$	549.7		$	520.1

Corporate reconciling items impacting operating income:
Total segment operating income	$	107.6		$	115.6		$	68.0
Stock-based compensation	(33.2		)	(42.4		)	(47.5		)
Amortization of intangibles	(28.3		)	(31.9		)	(51.4		)
Impairment of goodwill	—			(91.4		)	—
Other charges unrelated to core operating performance (1)(2)(3)	(10.9		)	(23.7		)	(18.1		)
Restructuring and related charges	(21.6		)	(10.5		)	(26.8		)
GAAP operating income (loss) from continuing operations	$	13.6		$	(84.3	)	$	(75.8	)


(1)	During the year ended July 1, 2017, other charges unrelated to core operating performance primarily consisted of $5.7 million loss on disposal of long-lived assets and $1.5 million of Viavi-specific charges related to the Separation.


(2)	During the year ended July 2, 2016, other charges unrelated to core operating performance primarily consisted of (a) an $8.4 million charge related to a litigation ruling impacting our U.K. pension obligation, (b) $5.0 million of Viavi-specific charges related to the Separation and (c) $3.5 million of non-recurring incremental severance and related costs upon the exit of a key executive.


(3)	During the year ended June 27, 2015, other charges unrelated to core operating performance primarily consisted of $9.8 million of Viavi-specific charges related to the Separation and $3.6 million IPR&D impairment charge for an ongoing project related to the fiscal 2014 acquisition of Trendium as discussed in “Note 9. Acquired Developed Technology and Other Intangibles.”

The Company operates primarily in three geographic regions: Americas, Asia-Pacific, and Europe, Middle East and Africa (“EMEA”). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded 10% of our total net revenue (dollars in millions):



	Years Ended
	July 1, 2017				July 2, 2016				June 27, 2015
Americas:
United States	$	307.3	37.9	%	$	396.6	43.8	%	$	424.3	48.5	%
Other Americas	71.3		8.8	%	$	66.0	7.3	%	$	62.5	7.2	%
Total Americas	$	378.6	46.7	%	$	462.6	51.1	%	$	486.8	55.7	%

Asia-Pacific
Greater China	$	100.8	12.4	%	$	103.2	11.3	%	$	83.1	9.5	%
Other Asia	72.4		8.9	%	63.1		7.0	%	61.4		7.0	%
Total Asia-Pacific	$	173.2	21.3	%	$	166.3	18.3	%	$	144.5	16.5	%

EMEA:
Switzerland	$	124.0	15.3	%	$	135.6	15.0	%	$	97.7	11.2	%
Other EMEA	135.6		16.7	%	141.8		15.6	%	144.9		16.6	%
Total EMEA	$	259.6	32.0	%	$	277.4	30.6	%	$	242.6	27.8	%

Total net revenue	$	811.4	100.0	%	$	906.3	100.0	%	$	873.9	100.0	%

Following the separation from Lumentum, one customer served by our OSP segment generated 10% or more of Viavi net revenue from continuing operations during fiscal 2017, 2016 and 2015 as summarized below (in millions):



	Years Ended
	July 1, 2017		July 2, 2016		June 27, 2015
Customer A - OSP customer	$	166.8	$	190.1	$	143.0

Property, plant and equipment, net were identified based on the operations in the corresponding geographic areas (in millions):



	Years Ended
	July 1, 2017		July 2, 2016
United States	$	76.0	$	85.6
Other Americas	4.4		4.3
China	41.1		27.3
Other Asia-Pacific	5.0		4.8
Germany	7.9		7.9
Other EMEA	2.5		3.1
Total property, plant and equipment, net	$	136.9	$	133.0