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: 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 “Other Items” in the table below. Additionally, the Company does not specifically identify and allocate all assets by operating segment.

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 March 31, 2018
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items			Consolidated GAAP Measures
Net revenue	$	127.0		$	30.1		$	157.1		$	62.3		$	—		$	219.4

Gross profit	80.9			20.7			101.6			32.8			(10.7		)	123.7
Gross margin	63.7		%	68.8		%	64.7		%	52.6		%				56.4		%

Operating income							9.6			23.6			(32.8		)	0.4
Operating margin							6.1		%	37.9		%				0.2		%



	Three Months Ended April 1, 2017
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items			Consolidated GAAP Measures
Net revenue	$	103.4		$	28.7		$	132.1		$	63.9		$	—		$	196.0

Gross profit	67.5			17.7			85.2			36.7			(4.9		)	117.0
Gross margin	65.3		%	61.7		%	64.5		%	57.4		%				59.7		%

Operating income							(4.4		)	27.8			(38.6		)	(15.2		)
Operating margin							(3.3		)%	43.5		%				(7.8		)%



	Three Months Ended
	March 31, 2018			April 1, 2017
Corporate reconciling items impacting gross profit:
Total segment gross profit	$	134.4		$	121.9
Stock-based compensation	(0.8		)	(0.7		)
Amortization of intangibles	(6.2		)	(3.6		)
Other charges unrelated to core operating performance (1)	(3.7		)	(0.6		)
GAAP gross profit	$	123.7		$	117.0

Corporate reconciling items impacting operating income:
Total segment operating income	$	33.2		$	23.4
Stock-based compensation	(7.6		)	(8.1		)
Amortization of intangibles	(10.7		)	(7.1		)
Other charges unrelated to core operating performance (1)	(14.2		)	(5.0		)
Restructuring and related charges	(0.3		)	(18.4		)
GAAP operating income	$	0.4		$	(15.2	)

(1) During the three months ended March 31, 2018 and April 1, 2017, 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.



	Nine Months Ended March 31, 2018
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items (1)			Consolidated GAAP Measures
Net revenue	$	360.3		$	91.2		$	451.5		$	164.9		$	—		$	616.4

Gross profit	225.3			63.6			288.9			90.4			(23.3		)	356.0
Gross margin	62.5		%	69.7		%	64.0		%	54.8		%				57.8		%

Operating income							24.8			63.2			(73.9		)	14.1
Operating margin							5.5		%	38.3		%				2.3		%



	Nine Months Ended April 1, 2017
	Network and Service Enablement
	Network Enablement			Service Enablement			Network and Service Enablement			Optical Security and Performance Products			Other Items (1)			Consolidated GAAP Measures
Net revenue	$	339.0		$	105.7		$	444.7		$	168.6		$	—		$	613.3

Gross profit	219.5			66.1			285.6			96.5			(15.3		)	366.8
Gross margin	64.7		%	62.5		%	64.2		%	57.2		%				59.8		%

Operating income							5.7			72.1			(76.2		)	1.6
Operating margin							1.3		%	42.8		%				0.3		%



	Nine Months Ended
	March 31, 2018			April 1, 2017
Corporate reconciling items impacting gross profit:
Total segment gross profit	$	379.3		$	382.1
Stock-based compensation	(2.4		)	(2.7		)
Amortization of intangibles	(14.4		)	(11.1		)
Other charges unrelated to core operating performance (1)	(6.5		)	(1.5		)
GAAP gross profit	$	356.0		$	366.8

Corporate reconciling items impacting operating income:
Total segment operating income	$	88.0		$	77.8
Stock-based compensation	(22.8		)	(25.9		)
Amortization of intangibles	(25.4		)	(21.5		)
Other charges unrelated to core operating performance (1)	(21.4		)	(8.6		)
Restructuring and related charges	(4.3		)	(20.2		)
GAAP operating income (loss) from continuing operations	$	14.1		$	1.6

(1) During the nine months ended March 31, 2018 and April 1, 2017, 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 Company specific charges related to the separation.