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PART IV

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form 10-K

(Mark One)    
ý   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 28, 2014

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

JDS UNIPHASE CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  94-2579683
(I.R.S. Employer
Identification Number)

430 North McCarthy Boulevard, Milpitas, California 95035
(Address of principal executive offices including Zip code)

(408) 546-5000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of exchange on which registered
Common Stock, par value of $0.001 per share   The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

          Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

          Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o    No ý

          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 ý    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 ý    No o

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company 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 ý

          As of December 28, 2013 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $3.0 billion, based upon the closing sale prices of the common stock as reported on the NASDAQ Stock Market LLC. Shares of common stock held by executive officers and directors have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

          As of July 26, 2014, the Registrant had 230,029,189 shares of common stock outstanding.

        Documents Incorporated by Reference:    Portions of the Registrant's Notice of Annual Meeting of Stockholders and Proxy Statement to be filed pursuant to Regulation 14A within 120 days after Registrant's fiscal year end of June 28, 2014 are incorporated by reference into Part III of this Report.

   


Table of Contents


TABLE OF CONTENTS

 
   
   
  Page  

PART I

     

 

       

  ITEM 1.  

BUSINESS

    4  

  ITEM 1A.  

RISK FACTORS

    19  

  ITEM 1B.  

UNRESOLVED STAFF COMMENTS

    27  

  ITEM 2.  

PROPERTIES

    28  

  ITEM 3.  

LEGAL PROCEEDINGS

    28  

  ITEM 4.  

MINE SAFETY DISCLOSURES

    28  

PART II

     

 

       

  ITEM 5.  

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

    29  

  ITEM 6.  

SELECTED FINANCIAL DATA

    31  

  ITEM 7.  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    33  

  ITEM 7A.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    64  

  ITEM 8.  

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    66  

  ITEM 9.  

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    138  

  ITEM 9A.  

CONTROLS AND PROCEDURES

    138  

  ITEM 9B.  

OTHER INFORMATION

    138  

PART III

     

 

       

  ITEM 10.  

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

    139  

  ITEM 11.  

EXECUTIVE COMPENSATION

    139  

  ITEM 12.  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

    139  

  ITEM 13.  

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

    139  

  ITEM 14.  

PRINCIPAL ACCOUNTING FEES AND SERVICES

    139  

PART IV

     

 

       

  ITEM 15.  

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

    140  


SIGNATURES


 

 

143

 

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FORWARD-LOOKING STATEMENTS

        Statements contained in this Annual Report on Form 10-K which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as "anticipates," "believes," "can," "can impact," "could," "continue," "estimates," "expects," "intends," "may," "ongoing," "plans," "potential," "projects," "should," "will," "will continue to be," "would," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include statements such as:

    our expectations regarding demand for our products, including continued trends in end-user behavior and technological advancements that may drive such demand;

    our belief that the Company is well positioned to benefit from certain industry trends and advancements, and our expectations of the role we will play in those advancements;

    our plans for growth and innovation opportunities;

    our plans to continue to operate as a company comprised of a portfolio of businesses and our plans with respect to the appropriate number and composition of our reportable segments;

    financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition and pricing pressures, the future impact of certain accounting pronouncements and our estimation of the potential impact and materiality of litigation;

    our plans for continued development, use and protection of our intellectual property;

    our strategies for achieving our current business objectives, including related risks and uncertainties;

    our plans or expectations relating to investments, acquisitions, partnerships and other strategic opportunities;

    our strategies for reducing our dependence on sole suppliers or otherwise mitigating the risk of supply chain interruptions;

    our research and development plans and the expected impact of such plans on our financial performance; and

    our expectations related to our products, including costs associated with the development of new products, product yields, quality and other issues.

        Management cautions that forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These forward-looking statements are only predictions and are subject to risks and uncertainties including those set forth in Part I, Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K and in other documents we file with the Securities and Exchange Commission. Moreover, neither we assume nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We are under no duty to update any of the forward-looking statements after the date of this Form 10-K to conform such statements to actual results or to changes in our expectations.

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PART I

ITEM 1.    BUSINESS

General

Overview

        JDS Uniphase Corporation ("JDSU," also referred to as "the Company," "we," "our," and "us") is a leading provider of network and service enablement solutions and optical products for telecommunications service providers, wireless operators, cable operators, network-equipment manufacturers ("NEMs") and enterprises. JDSU is also an established leader in providing anti-counterfeiting technologies for currencies and other high-value documents and products. In addition, we leverage our core networking and optical technology expertise to deliver high-powered commercial lasers for manufacturing applications and expand into emerging markets, including 3D sensing solutions for consumer electronics.

        To serve our markets, JDSU operates the following business segments: Network and Service Enablement ("NSE"), Communications and Commercial Optical Products ("CCOP"), and Optical Security and Performance Products ("OSP"). In the first quarter of fiscal 2014, we changed the name of our Communication Test and Measurement segment to Network and Service Enablement. The name NSE more accurately reflects the value we bring to customers and the evolution of our product portfolio, one that includes communications test instruments as well as microprobes, software and services that provide the necessary visibility throughout the network to improve service and application performance.

        In July 2014, we reorganized our NSE reportable segment into two separate reportable segments, Network Enablement ("NE") and Service Enablement ("SE"), beginning with the first quarter of fiscal 2015. Splitting NSE into two reportable segments is intended to provide greater clarity and transparency regarding the markets, financial performance and business models of these two businesses within NSE. NE is a hardware-centric and more mature business consisting primarily of NSE's traditional communications test instrument products. SE is a more software-centric business consisting primarily of software solutions that are embedded within the network and enterprise performance management solutions.

Industry Trends

        The trends that drive the communications networking industry influence our NSE and CCOP businesses, including the need for increased network capacity and faster transmission speeds. This need is driven by the growing number of connected smart mobile devices and demand for high-speed broadband access to support video and other high-bandwidth applications, which are straining networks and creating new challenges for JDSU's customers. The growing use of social networking and cloud computing also make network traffic more unpredictable, generating sudden spikes in volume, and making it increasingly more challenging to deliver a quality end-user experience. Meeting these challenges requires greater network agility and more cost-effective means to build, deploy and maintain profitable, high-performance networks. JDSU's optical and network and service enablement solutions are well positioned to benefit from these requirements as well as the deployment of next generation network technologies such as 4G/Long Term Evolution ("LTE"), higher-capacity transport solutions to support video ("40G/100G") and fiber-to-the-X ("FTTx").

        Trends related to the increasing threat of counterfeiting impact our OSP business. Counterfeiting for currency and other goods is on the rise because penalties for counterfeiters can be relatively light while technological advances in imaging and printing tools have made counterfeiting easier than ever. JDSU has decades of anti-counterfeiting expertise leveraging our Optically Variable Pigment ("OVP®") and Optically Variable Magnetic Pigment ("OVMP®") technologies to protect the integrity of currency

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and other high-value products and documents. We also provide optical solutions for government, healthcare, consumer and industrial markets.

        In addition to network and anti-counterfeiting solutions, JDSU extends its technology expertise to solve complex problems and deliver unique solutions in other industries. For example, our high-precision lasers are used for a range of manufacturing applications, addressing the need for lower power consumption, reduced manufacturing footprint, increased productivity and more cost-effective processes. In addition, JDSU's laser diodes and optical coatings are used for emerging 3D sensing applications which allow people to control technology with natural body gestures instead of using a remote, mouse or other device. 3D sensing systems, also referred to as gesture-recognition systems, simplify the way people interact with technology, and are first being used in applications for gaming platforms.

Sales and Marketing

        JDSU markets its products to telecommunications and cable service providers, NEMs, original equipment manufacturers ("OEM"), enterprises, governmental organizations, distributors and strategic partners worldwide. Each business segment has a dedicated sales force that works directly with customers' executive, technical, manufacturing and purchasing personnel to determine design, performance, and cost requirements.

        A high level of support is necessary to develop and maintain long-term collaborative relationships with our customers. JDSU develops innovative products by engaging the customer at the initial design phase and continues to build the relationship as customer needs change and develop. Service and support are provided through JDSU offices and those of its partners worldwide.

Additional Information

        JDSU was incorporated in California in 1979 and reincorporated in Delaware in 1993. JDSU is the product of several significant mergers and acquisitions including, among others, the combination of Uniphase Corporation and JDS FITEL in 1999, and the acquisition of Acterna, Inc. in 2005. Our strategy is to operate as a company comprised of a portfolio of businesses with a focus on optical innovation, communications network and service enablement, commercial lasers and anti-counterfeiting solutions.

        We are subject to the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, pursuant to which we file annual, quarterly and periodic reports, proxy statements and other information with the U.S. Securities and Exchange Commission ("SEC"). The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. We also make available free of charge all of our SEC filings on our website at www.jdsu.com/investors as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. The information on our web site is not part of this Annual Report on Form 10-K.

Corporate Strategy

        Our objective is to continue to be a leading provider for all markets and industries we serve. In support of our business segments, we are pursuing a corporate strategy that we believe will best position us for future opportunities. The key elements of our corporate strategy include:

    Enable our customers through collaborative innovation

      We are committed to working closely with our customers from initial product design and manufacturing through solution deployment and training. We strive to engage with our

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      customers at the early stages of development to provide them with the most innovative and timely products and services and ensure that our focus remains aligned with their evolving requirements. Our sales, customer support, product marketing, and development efforts are organized to maximize effectiveness in our customer interactions.

    Maintain and improve our financial flexibility

      We continue to take actions to maintain and improve our financial flexibility in order to support our global business operations and to enable additional investments in growth and innovation. Key elements of this strategy include maintaining a healthy balance sheet with a strong liquidity position, continuing to generate positive cash flow, diligently managing our cash conversion cycle, managing our capital structure to minimize cost of capital and preserve access to additional financing, managing capital market risk and refinancing risk with periodic debt issuance and/or maintenance of revolving credit facilities, and maintaining healthy bank relationships.

    Build a lean and scalable business

      We continue to streamline our manufacturing operations and reduce costs by using contract manufacturers where appropriate and consolidating to reduce our footprint and total fixed costs. We utilize a corporate shared services model to provide our business segments with the centralized strength and depth of a larger company, while allowing each segment to remain focused and responsive to its own market needs.

    Invest in profitable, market-based innovation

      Based on current and anticipated demand, we continue to invest in research and development ("R&D") and pursue acquisitions and partnerships to develop new technologies, products and services that offer our customers increased value and strengthen our leadership position in our core markets. In fiscal 2014, we continued to invest in the development of our product portfolio through R&D and acquisitions consistent with our profitability and growth objectives. The acquisitions of Network Instruments, LLC ("Network Instruments") and certain technology and other assets of Trendium Inc. ("Trendium") expanded our enterprise offerings and mobile networks and service enablement solutions. The acquisition of Time-Bandwidth Products AG ("Time-Bandwidth") strengthened our position as a leading provider of lasers for micromachining applications.

    Expand our global market presence

      Long term, we expect growth in Asia-Pacific, Eastern Europe and Latin America. Therefore, we are developing products, sales, marketing and customer support to meet the specific customer requirements in these regions to serve these customers.

        Although we expect to successfully implement our strategy, internal and/or external factors could impact our ability to meet any, or all, of our objectives. These factors are discussed under Item 1A—Risk Factors.

Business Segments

        JDSU operates in the following business segments: NSE, CCOP and OSP. Each segment has its own engineering, manufacturing, sales and marketing groups to better serve customers and respond quickly to market needs. In addition, our business segments share common corporate services that provide capital, infrastructure, resources and functional support, allowing them to focus on core technological strengths to compete and innovate in their markets.

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        The table below discloses the percentage of our total net revenue attributable to each of our three reportable segments. In addition, it discloses the percentage of our total net revenue attributable to our Optical Communications ("OpComms") products within our CCOP segment, which accounted for more than 10% of our consolidated net revenue in each of the last three fiscal years, and our Laser products, which represent the remainder of our CCOP segment:

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012
 

Network and Service Enablement

    42.9 %   43.4 %   45.4 %

Communications and Commercial Optical Products:

                   

Optical Communications

    38.5     37.3     35.3  

Laser

    7.1     7.0     6.9  
               

Communications and Commercial Optical Products

    45.6     44.3     42.2  

Optical Security and Performance Products

    11.5     12.3     12.4  

Network Service and Enablement

        The NSE business provides network and service enablement solutions which enable the design, development, deployment and maintenance of communication equipment and networks, and ensure the quality of services delivered to the end user. These solutions help accelerate the deployment of new services and lower operating expenses while improving performance and reliability. Included in the product portfolio are instruments, platforms, software and services for wireless and wireline networks. These solutions provide visibility and intelligence across and at all layers of the network and are used in all phases of the network lifecycle, from R&D in the lab and production line validation to field deployment and service assurance. JDSU also provides network and service enablement solutions for private enterprise networks, including storage and storage-network technologies.

    Markets

        JDSU provides instruments, software, and services for communications network operators and equipment manufacturers that deliver and/or operate broadband/IP networks (fixed and mobile) supporting voice, video and data services as well as a wide range of applications. These solutions support the development and production of network equipment, the deployment of next generation network technologies and services, and ensure a higher-quality customer experience.

    Customers

        NSE customers include wireless and fixed services providers, NEMs, government organizations, and large corporate customers. These include major telecom, mobility and cable operators such as AT&T, Bell Canada, Bharti Airtel Limited, British Telecom, China Mobile, China Telecom, Chunghwa Telecom, Comcast, CSL, Deutsche Telecom, France Telecom, Reliance Communications, Softbank, Telefónica, Telmex, TimeWarner Cable, Verizon and Vodafone. NSE customers also include many of the NEMs served by our CCOP segment, including Alcatel-Lucent, Ciena, Cisco Systems, Fujitsu and Huawei. NSE customers also include chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Storage-segment customers include Brocade, Cisco Systems and EMC.

    Trends

        As content and application developer providers are developing new business models to expand their distribution capabilities, they are increasingly adopting on-line channels for rich broadband content such as music, gaming, video programming and movies. Network operators, in turn, seek to

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increase profitability and average revenue per user ("ARPU") by expanding the capabilities of their packet-based networks to increase their network capacity and to deliver sophisticated, more reliable levels of service needed to meet the requirements of content providers, application developers and end users. To implement this strategy, network operators require improved network visibility and intelligence in order to ensure reliable network and service performance and to understand new opportunities to monetize their networks.

        The proliferation of connected mobile devices, including smart phones and tablets, has driven network use and dependency to all-time highs. Communications service providers are competing with each other to offer content providers and consumers the ability to carry virtually any type of voice, data and video content to any device. With more applications and content available, potential benefits for service providers include increased ARPU and lower customer turnover due to better service quality, thus increasing profitability and long-term competitive advantage. Network operators also have opportunities to introduce new classes of service to content and application providers and end users if they can gain more insight into network use.

        Additionally, growing bandwidth demand combined with the rapid pace at which technology continues to evolve means that NEMs and operators require more cost-effective ways to design, build and deploy new network systems and technologies. Integrating legacy and next generation network technology and services create new challenges for communications service providers and impact service quality and reliability.

        These trends are driving shifts in capital spending in network technologies related to next-generation wireless, including 4G/LTE and Ethernet-based backhaul of mobile traffic from cell towers, higher-capacity transport solutions to support video communications, and software-defined network and service enablement solutions.

        Increasing deployments of higher speed networks, the expansion of IP-based services, the need to reduce deployment time and cost, and the importance of increasing ARPU create opportunities for JDSU's network and service enablement solutions. These solutions support the rapid deployment of new services and sources of revenue, increase customer satisfaction by helping technicians complete installation and repair work quickly and correctly, and lower operating expenses by automating and improving network installation, maintenance, and management processes. Our broad portfolio of network and service enablement solutions positions us well to benefit from these developments.

        Like communications service providers, enterprises that operate private networks face new challenges and complexity addressed by JDSU's network and service enablement solutions. Employees using a wide range of connected devices and business applications create an increased need for solutions that increase visibility into network and applications performance to ensure operational efficiency and productivity.

    Strategy

        The NSE business segment plans to continue evolving its test instrument portfolio and supporting software to maintain its current leadership position in field test instrumentation, and to improve profitability and increase revenue in service enablement by continuing to develop and offer higher-margin, software-based solutions that can remotely and more cost-effectively gather the network intelligence our customers need to deliver a quality end user experience, increase ARPU, reduce customer churn and lower operating expenses.

    Competition

        JDSU competes against various companies, including Agilent, Anritsu, Danaher (i.e. Fluke and Tektronix), Exfo, Ixia and Spirent. While JDSU faces multiple competitors for each of its product

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families, it continues to have one of the broadest portfolios of wireline and wireless products and monitoring solutions available in the network and service enablement industry.

    Offerings

        JDSU's NSE business provides network and service enablement solutions that deliver end-to-end visibility and intelligence necessary for consistent, high-quality network, service, and application performance.

        Network Enablement:    JDSU's network enablement solutions include instruments and software that support the development and production of network systems in the lab and that activate, certify, troubleshoot and optimize networks that are differentiated through superior efficiency, higher profitability, reliable performance and greater customer satisfaction. Designed to be mobile, these products include instruments and software that access the network to perform installation and maintenance tasks. They help service provider technicians assess the performance of network elements and segments and verify the integrity of the information being transmitted across the network. These instruments are highly intelligent and have user interfaces that are designed to simplify operations and minimize the training required to operate them. JDSU network enablement solutions are also used by NEMs in the design and production of next-generation network equipment. Thorough testing by NEMs plays a critical role in producing the components and equipment that are the building blocks of network infrastructure.

        JDSU's network enablement products and services are largely organized between seven product groups that target specific network testing solutions: Cloud and Data Center, Ethernet, Fiber, Media Access and Content ("MAC"), Mobility, Services, and Waveready.

        Service Enablement:    JDSU's service enablement solutions are embedded network systems—including microprobes and software—that collect and analyze network data to reveal the actual customer experience and opportunities for new revenue streams. These solutions provide enhanced network management, control, optimization and differentiation for our customers. Using these solutions, JDSU customers are able to access and analyze the growing amount of network data from a single console, simplifying the process of deploying, provisioning and managing network equipment and services. These capabilities allow network operators to initiate service to new customers faster, decrease the need for technicians to make on-site service calls, help to make necessary repairs faster and, as a result, lower costs while providing higher quality and more reliable services.

        JDSU 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. JDSU offers product and technology training as well as consulting services. JDSU professional services, provided in conjunction with system integration projects, include project management, installation and implementation.

        JDSU's service enablement products and services are largely organized between five product groups that target specific network intelligence, visibility and control solutions: Location Intelligence, Mobile Assurance and Analytics ("MAA"), Network Instruments, Packet Portal, and RAN Solutions.

Communications and Commercial Optical Products

        The CCOP business segment provides optical communications products used by NEMs for telecommunications and enterprise data center communications. These products enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables. Transmission products primarily consist of optical transceivers, optical transponders, and their supporting components such as modulators and source lasers, including innovative products such as the tunable small form-factor pluggable ("SFP+"). Transport products primarily consist of amplifiers and

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reconfigurable optical add/drop multiplexers ("ROADMs") and their supporting components such as pump lasers, passive devices, and arrayed waveguides ("AWGs"). In fact, many of today's most advanced optical networks are built on JDSU's transport and transmission components, modules and subsystems.

        JDSU's 3D sensing solutions, formerly referred to as our gesture recognition solutions, include a light source product from the CCOP business segment. These solutions let a person control technology with natural body gestures instead of using a remote, mouse or other device. Emerging 3D sensing systems simplify the way people interact with technology, and are first being used in applications for gaming platforms.

        CCOP also provides lasers employed in a variety of OEM applications. JDSU laser products serve customers in markets and applications such as manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation and solar cell scribing. These products include diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers.

        In addition, our photonic power products include fiber optic-based systems for delivering and measuring electrical power.

    Markets

        The CCOP business segment provides products for the optical communications and commercial laser markets.

        JDSU optical communications products include a wide range of components, modules and subsystems to support and maintain customers in our two primary markets: telecommunications ("Telecom"), including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) networks, and datacom ("Datacom") for enterprise, cloud and data center applications, including storage-access networks ("SANs"), local-area networks ("LANs") and Ethernet wide-area networks ("WANs").

        Additionally, our optical communications products include our light source product which is integrated into 3D sensing platforms, along with OSP's optical filers, to detect and extract external information from a person's movements. The information is then mapped into a 3D image, and incorporated into the system so that a person can easily manipulate an application.

        JDSU's portfolio of laser products includes components and subsystems used in a variety of OEM applications that range in output power from milliwatts to kilowatts and include ultraviolet ("UV"), visible and infrared ("IR") wavelengths. JDSU supports customer applications in the biotechnology, graphics and imaging, remote sensing, materials processing and other precision machining areas.

    Customers

        CCOP's optical communications products customers include Adva, Alcatel-Lucent, Ciena, Cisco Systems, Ericsson, Fujitsu, Huawei, Infinera, Microsoft, Nokia Networks, and Tellabs. CCOP's lasers customers include Amada, ASML, Beckman Coulter, Becton Dickinson, Disco, Electro Scientific Industries, and KLA-Tencor.

    Trends

        Trends for CCOP are discussed, by market, below:

        Optical Communications:    To remain competitive, network operators worldwide must offer broader suites of digital services. To do this, they are migrating to Internet-protocol ("IP") networks and expanding long-haul, metro and FTTx networks, which effectively deliver broadband services while lowering capital and operating costs of dense-wavelength-division multiplexing networks.

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        Demand for capacity in the Datacom market is driven by the growing needs of intra-company LAN and inter-company WAN networks. Datacom is also driven by web and cloud services companies that are expanding data center infrastructure, increasing the need for network capacity within and between these centers. The growing demand for capacity encourages the adoption of optical communications products across the Datacom and Telecom markets.

        Demand in the Telecom market is driven by new bandwidth-intensive applications that can result in sudden and severe changes in demand almost anywhere on the network. Increasing agility in optical networks by employing ROADMs, tunable transponders, and other agile optical products provides an effective way to respond to unpredictable bandwidth demands and to manage expenses. With more agile optical networks, a service provider can add capacity by using remote management applications rather than dispatching technicians to perform manual operations in the field.

        In addition, the high-end routers, switches and cross-connect equipment that must handle legacy and IP traffic are becoming increasingly complex in order to meet higher bandwidth, scalability, speed and reliability needs. Products must provide higher levels of functionality and performance in compact designs that must also meet requirements for emissions, cost and reduced power consumption.

        Deployment of fiber closer to the end user increases the availability of high-bandwidth services and should result in increased demand on the metro and long-haul networks into which these services feed. The dynamically reconfigurable nature of today's agile networks enables lower operating costs and other competitive advantages, allowing service providers to use and scale network capacity more flexibly, streamline service provisioning, accelerate rerouting around points of failure, and modify network topology through simple point-and-click network management systems.

        JDSU is a leading provider of optical products which are well positioned to meet these demands. JDSU innovation is resulting in products that have more functionality, are smaller, require less power and are more cost-effective, particularly in the area of photonic integrated circuits, which can replace many discrete components with a single photonic chip. For example, the tunable 10-gigabit small form-factor pluggable ("XFP") transceiver is 85% smaller than previous tunable models. JDSU also developed the industry's first tunable SFP+ transceiver for enterprise and metro networks. Higher levels of integration have also led to development of the Super Transport Blade ("STB"), which delivers all transport functions (wavelength switching, preamplification, postamplification, and monitoring) in a single, integrated platform, essentially replacing three blades with one.

        Lasers:    As technology advances, high-tech and other vital industries increasingly turn to lasers when they need more precision, higher productivity, and energy efficient or "green" alternatives for problems that cannot be solved by mechanical, electronic or other means. Industries are using lasers to develop products that are smaller and lighter to increase productivity and yield, and to lower their energy consumption. For example, lasers have been used for years to help achieve the scale and precision needed in semiconductor processing. In biotech applications, lasers have been instrumental for advances (and new standard procedures) in cytology, hematology, genome sequencing and crime scene investigations, among others. The long term trends in these industries should lead to increased demand for lasers.

        In addition, demand continues for electronic products, as well as products and components in other industries, to offer greater functionality while becoming smaller, lighter and less expensive. Product designs that achieve this are requiring precise micromachining and materials processing, such as micro bending, soldering and welding. At the scale and processing speed needed, lasers are replacing mature mechanical tools such as drills for minute holes, or "vias," in printed circuit boards and saws and scribes for singulating silicon wafers, resulting in greater precision and productivity. As these trends continue, we believe that manufacturers and industries will increase their reliance on lasers in order to maintain or increase their competitiveness.

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        JDSU is well-positioned with key OEM providers of laser solutions to these industries. We continue to develop our laser portfolio to offer smaller and more cost-effective products designed specifically for the performance, integration, reliability and support needs of our OEM customers.

    Strategy

        In optical communications, we are focused on technology leadership through collaborative innovation with our customers, cost leadership and functional integration. We will continue to align the latest technologies with best-in-class, scalable manufacturing and operations to drive the next phase of optical communications for Telecom and Datacom applications that are faster, more agile and more reliable, making us a valuable business and technology partner for NEMs, cloud service providers and data center operators.

        JDSU leverages its long-term relationships with OEM customers to drive commercial laser innovation. Leveraging established manufacturing, engineering, telecommunications and photonics expertise, JDSU delivers products that meet cost-of-ownership and reliability needs while delivering on volume production demands.

    Competition

        JDSU competes against various public and private companies in markets served by CCOP. Public company competitors providing optical communications include Finisar, Fujitsu, Furukawa Electric, Oclaro, Oplink Communications, and Sumitomo Electric. JDSU competitors in the laser market include Coherent, IPG Photonics, Rofin-Sinar, CVI-Melles, and the Spectra-Physics division of Newport Corporation.

        In addition to these established companies, JDSU faces significant and focused competition from other companies and emerging startups. While each of its product families has multiple competitors, JDSU has a broad range of products and leading technologies that are aligned with industry trends and the needs of its customers.

    Offerings

        JDSU's CCOP businesses serve the optical communications and commercial laser markets.

        Optical Communications:    JDSU optical communications offerings address the following markets: Telecom, Datacom and consumer and industrial ("Consumer and Industrial"). In addition to a full selection of active and passive components, JDSU offers increasing levels of functionality and integration in modules, circuit packs, and subsystems for transmission, amplification, wavelength management and more.

        In the Telecom market, we offer transmission and transport solutions for the synchronous optical network, synchronous-digital-hierarchy and wavelength-division multiplexer ("WDM") applications. Transmission products, such as our tunable transponder, transceiver and transmitter modules, transmit and receive signals. JDSU also offers transmission components for the previously mentioned products, which include active components such as tunable lasers, detectors/receivers, and modulators.

        JDSU transport products, such as ROADMs and other amplifiers, provide switching, routing and conditioning of signals. JDSU also provides components for transport, including passive components such as our attenuators, circulators, couplers/splitters/WDMs, gain flattening filters, hybrid interleavers, multiplexer/demultiplexers polarization components, switches and wavelength lockers.

        Industry-leading innovation led to the STB, which integrates all major optical transport functions into a single-slot blade. This all-in-one solution reduces the size, cost and power requirements of

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optical components, incorporates nano wavelength selective switch technology, and enables greater chassis density and a smaller footprint.

        In the Datacom market, which relies on storing and moving vast amounts of data, JDSU offers transmission products, such as our optical transceivers for Fibre Channel and Gigabit Ethernet applications. JDSU transceivers are also used in Ethernet connections for servers, routers, hubs, and switches for Internet and e-mail services.

        JDSU integrated fiber optic transceivers provide a high-speed, serial electrical interface for connecting processors, switches and peripherals. They are available in hot-pluggable or pin-through-hole versions with a small footprint for use in compact system designs. This allows manufacturers to double the density of transceivers on a board compared to conventional designs.

        For higher data transfer rates of 40G and 100G, JDSU offers vertical-cavity surface-emitting lasers ("VCSELs"). VCSELs reduce power consumption, heat, EMI and cost while increasing speed, reliability and link distance. Our compact arrays offer an innovative solution for the LANs, SANs, broadband Internet and metro-area network applications that currently depend on high-end routers, switches and cross-connect equipment to handle legacy and IP traffic.

        In the Consumer and Industrial markets, JDSU provides optical technology for 3D sensing systems being used in applications for gaming, computing and home entertainment. JDSU is a supplier of two core elements that make up 3D sensing systems. The CCOP business provides illumination sources, or laser diodes, used to generate infrared or near-infrared light.

        Lasers:    Our broad range of products includes diode-pumped solid-state, fiber, diode, direct-diode and gas lasers such as argon-ion and helium-neon lasers. Diode-pumped solid-state and fiber lasers that provide excellent beam quality, low noise and exceptional reliability are used in biotechnology, graphics and imaging, remote sensing, materials processing and precision machining applications. Diode and direct-diode lasers address a wide variety of applications, including laser pumping, thermal exposure, illumination, ophthalmology, image recording, printing, plastic welding and selective soldering. Gas lasers such as argon-ion and helium-neon lasers provide a stable, low-cost and reliable solution over a wide range of operating conditions, making them well suited for complex, high-resolution OEM applications such as flow cytometry, DNA sequencing, graphics and imaging, and semiconductor inspection.

    Optical Security and Performance Products

        The OSP business segment leverages its core technology strengths of optics and materials science to manage light and color effects. With decades of experience in optical coating technology, OSP provides optical security and performance products targeted to customers in the anti-counterfeiting, consumer electronics, government, healthcare and other markets.

    Markets

        Our OSP segment delivers overt and covert features to protect governments and brand owners against counterfeiting, with a primary focus on the currency market. OSP also produces precise, high-performance, optical thin-film coatings for a variety of applications in consumer electronics, government, healthcare and other markets. For example, OSP's optical filters are used in many of the same 3D sensing products for gaming platforms and other applications that utilize CCOP's light source product.

        In addition, we offer custom color solutions that include innovative optically-based color-shifting and other features that provide product enhancement for brands in the automotive and sports apparel industries.

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    Customers

        OSP serves customers such as 3M, Barco, Kingston, Lockheed Martin, Microsoft, Northrup Grumman, Pan Pacific, Seiko Epson, and SICPA.

    Trends

        Counterfeiting for currency and other goods is on the rise because penalties for counterfeiters can be relatively light while technological advances in imaging and printing tools have made counterfeiting easier than ever. As a result of these trends, demand is increasing for sophisticated overt anti-counterfeiting features, such as JDSU's OVP® and OVMP® technologies, which are easy for consumers to validate without the use of special tools but are difficult to create or simulate using conventional printing technology.

        The aerospace, defense, consumer electronics and medical/environmental instrumentation markets require customized, high-precision coated products and optical components that selectively absorb, transmit or reflect light to meet the performance requirements of sophisticated systems. Our custom optics products offer an array of advanced technologies and precision optics—from the UV to the far IR portion of the light spectrum to meet the specific requirements of our customers.

    Strategy

        Our strategy is to expand our position as a leading global supplier of anti-counterfeiting technologies to our customers by providing new optical features that deliver innovative visual effects and new applications which extend the range of delivery mechanisms for our technologies. We also plan to continue investing in select optical coating technologies to advance our growth strategy in 3D sensing and other consumer electronic applications. In addition, JDSU plans to continue leveraging its intellectual property and leading expertise in optics, light management and material technology to develop new solutions in the government and healthcare markets.

    Competition

        OSP's competitors include providers of anti-counterfeiting features such as Giesecke & Devrient; special-effect pigments like Merck KGA; coating companies such as Nidek, Toppan, and Toray; display-component companies such as Asahi, Fuji Photo-Optical, Nikon, and Nitto Optical; and optics companies such as Materion and Deposition Sciences.

    Offerings

        JDSU's OSP business provides innovative optical security and performance products which serve a variety of applications for customers in the anti-counterfeiting, consumer and industrial, government, healthcare and other markets.

        Anti-counterfeiting:    JDSU's OVP® technology has become a standard used by many governments worldwide for currency protection. This technology provides a color-shifting effect that enables intuitive visual verification of banknotes. JDSU also provides other technologies to the banknote market including OVMP®, a technology that delivers depth and other visual effects for intuitive overt verification. In addition, our proprietary printing processes deliver anti-counterfeiting solutions for labels, hang tags and flexible packaging used by the pharmaceutical and consumer electronics industries for brand protection.

        For product differentiation and brand enhancement, JDSU provides custom color solutions for a variety of applications using our ChromaFlair® and SpectraFlair® pigments to create color effects that emphasize body contours, create dynamic environments, or enhance products in motion. These pigments are added to paints, plastics or textiles for products and packaging.

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        Consumer and Industrial:    JDSU provides optical technology for 3D sensing systems being used in applications for gaming, computing and home entertainment. The OSP business manufactures and sells the second element of JDSU's 3D sensing solution—optical filters—which separate out ambient light from incoming data such as a person's movements or gestures.

        Government:    JDSU products are used in a variety of aerospace and defense applications, including optics for guidance systems, laser eye protection and night vision systems. These products, including coatings and optical filters, are optimized for each specific application.

        Healthcare and Other Markets:    JDSU provides multicavity and linear variable optical filters on a variety of substrates for applications including gas monitoring and analysis, thermal imaging, smart munitions, fire detection, spectroscopy and pollution monitoring. These filters are also used in biomedical applications, semiconductor test systems, and test and measurement equipment.

Acquisitions

        As part of our strategy, we are committed to the ongoing evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets for, our products. We believe we have strengthened our business model by expanding our addressable markets, customer base and expertise, diversifying our product portfolio, and fortifying our core businesses through acquisition as well as through organic initiatives.

        In January 2014, we completed the acquisition of Network Instruments, a privately-held U.S. company and leading developer of enterprise network and application-performance management solutions for global 2000 companies. The acquisition further strengthens our position as a key solutions provider to the enterprise, data center and cloud networking markets. In order to improve application performance, reduce costs and address increasing network complexity, enterprise network administrators are rapidly transforming their IT networks while embracing today's most critical technology initiatives such as unified communications, cloud, and data center consolidation. Network Instruments helps enterprises simplify the management and optimization of their networks with high-performance solutions that provide actionable intelligence and deep network visibility. We acquired all outstanding shares of Network Instruments for a total purchase price of approximately $208.5 million in cash, including holdback payments of approximately $20.0 million.

        Also in January 2014, we completed the acquisition of Time-Bandwidth, a privately-held provider of high powered and ultrafast lasers for industrial and scientific markets. Use of ultrafast lasers for micromachining applications is being driven primarily by increasing use of consumer electronics and connected devices globally. Manufacturers are taking advantage of high-power and ultrafast lasers to create quality micro parts for consumer electronics and to process semiconductor chips for consumer devices. Time-Bandwidth's technology complements our current laser portfolio, while enabling Time-Bandwidth to leverage our high volume and low-cost manufacturing model, global sales team and channel relationships. We acquired all outstanding shares of Time-Bandwidth for a total purchase price of $15.0 million in cash, including a holdback payment of approximately $2.3 million.

        In December 2013, we acquired certain technology and other assets from Trendium, a privately-held provider of real-time intelligence software solutions for customer experience assurance ("CEA"), asset optimization and monetization of big data for 4G/LTE mobile network operators. The addition of Trendium employees and technology enables the Company to introduce a new paradigm of CEA, enabling operators of 4G/LTE networks to achieve a real and relevant improvement in customer satisfaction while maximizing productivity and profitability for dynamic converged 4G/LTE networks and beyond. We acquired certain technology and other assets from Trendium for a total purchase price of approximately $26.1 million in cash, including a holdback payment of approximately $2.5 million.

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        In March 2013, we completed the acquisition of Arieso Ltd. ("Arieso") based in the United Kingdom. Arieso is a provider of location-aware software solutions that enable mobile network operators to boost 2G, 3G and 4G/LTE network performance and enrich the mobile subscriber experience. Arieso brings high-caliber mobile software engineering expertise to address the rapidly growing deployment of small cells and challenges associated with limited spectrum capacity. Utilized by leading wireless network operators and NEMs, Arieso's solutions locate, store and analyze data from billions of mobile connection events that translate into rich intelligence, which help enable mobile operators to optimize network performance, improve customer experience and create new revenue-generating services. We acquired tangible and intangible assets and assumed liabilities of Arieso for a total purchase price of approximately $89.7 million in cash, including holdback payments of approximately $12.8 million.

        In August 2012, we completed the acquisition of GenComm Co., Ltd. ("GenComm") based in Seoul, South Korea. GenComm is a provider of test and measurement solutions for troubleshooting, installation and maintenance of wireless base stations and repeaters. We acquired tangible and intangible assets and assumed liabilities of GenComm for a total purchase price of approximately $15.2 million in cash, including holdback payments of approximately $3.8 million.

        In January 2012, we completed the acquisition of Dyaptive Systems, Inc. ("Dyaptive") based in Vancouver, Canada. Dyaptive is a provider of wireless laboratory test tools for base station and network load simulators. We acquired tangible and intangible assets and assumed liabilities of Dyaptive for a total purchase price of approximately CAD 14.9 million (USD 14.8 million) in cash, including a holdback payment of approximately CAD 2.0 million (USD 2.0 million).

        Please refer to "Note 5. Mergers and Acquisitions" of the Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for further discussion of the acquisitions completed during fiscal 2014, 2013 and 2012.

Restructuring Programs

        We continue to consolidate product manufacturing, taking into consideration our current investment strategy, product offerings, core competencies, opportunities to enhance cost efficiency and the availability of alternative manufacturers, as appropriate. Among other things, we continue to strengthen our partnerships with contract manufacturers. In the last three fiscal years, we restructured and reorganized our segments to improve the efficiency of our manufacturing operations by consolidating or transferring operations to contract manufacturers. We improved efficiency by consolidating the number of contract manufacturing locations worldwide and moving them to lower cost regions, and consolidating and centralizing similar functions to fewer sites to improve leverage. Additionally, we shifted resources in our R&D and sales organizations to focus on strategic growth areas. In fiscal 2014, we approved plans to realign operations with current investments and consolidated facilities in the NSE and CCOP segments. Additionally, we continue to centralize many administrative functions such as information technology, human resources and finance to take advantage of common processes and controls, and economies of scale.

        Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations under Item 7 and the Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K for further discussion on these charges.

Research and Development

        During fiscal 2014, 2013 and 2012, we incurred R&D expenses of $296.0 million, $258.5 million, and $244.0 million, respectively. The number of employees engaged in R&D was approximately 1,600 as of June 28, 2014, 1,450 as of June 29, 2013 and 1,400 as of June 30, 2012.

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        We devote substantial resources to R&D to develop new and enhanced products to serve our markets. Once the design of a product is complete, our engineering efforts shift to enhancing both product performance and our ability to manufacture it in greater volume and at lower cost.

        In our NSE segment, we develop portable test instruments for field service technicians, systems and software used in Network Operations Centers, and instruments used in the development, testing and production of communications network components, modules and equipment. We are increasing our focus on IP-based service assurance and customer experience management, and test instruments for wireless networks and services, while continuing to develop tools for fiber optic, optical transport, Ethernet, broadband access, video test and storage network testing. We have centers of excellence for product marketing and development in Asia, Europe and North America.

        In our CCOP segment, we are increasing our focus on the most promising markets while maintaining our capability to provide products throughout the network. We are increasing our emphasis on Datacom products, such as 40G and 100G transceivers while we continue to maintain strong investments in Telecom components and modules such as ROADMs and tunable devices needed for long-haul and metro market segments. We are also responding to our customers' requests for higher levels of integration, including the integration of optics, electronics and software in our modules, subsystems and circuit packs. We are providing optical technology for 3D sensing systems that enable the control of technology by natural body gestures instead of using a remote, mouse or other device. Emerging 3D sensing systems simplify the way that people interact with technology, and are initially being used in applications for gaming platforms, computing and home entertainment. We continue to develop new product offerings in both solid-state and fiber lasers that take advantage of technologies and components developed within our CCOP segment. All these developments are targeted at serving customers engaging in biotechnology, graphics and imaging, remote sensing, and materials processing and precision micromachining markets.

        In our OSP segment, our R&D efforts concentrate on developing more innovative solutions for our core business areas of anti-counterfeiting, consumer electronics and bio-medical devices. Our strong participation in the currency security market is being augmented with new advances in optically variable pigment technologies, including our OVMP® technology. We are also developing anti-counterfeiting solutions for the consumer electronic markets. OSP leverages its optical coating technology expertise to develop applications for the government and defense markets. OSP has also developed new products for 3D sensing and smart phone sensors. OSP has also introduced an innovative handheld spectrometer solution with applications in the law enforcement, food and agriculture, and defense and security markets.

Manufacturing

        As of June 28, 2014 our significant manufacturing facilities were located in China, France, Germany, Switzerland and the United States. Additionally, our significant contract manufacturing partners were located in China, Mexico, Taiwan and Thailand.

Sources and Availability of Raw Materials

        JDSU uses various suppliers and contract manufacturers to supply parts and components for the manufacture and support of multiple product lines. Although our intention is to establish at least two sources of supply for materials whenever possible, for certain components we have sole or limited source supply arrangements. We may not be able to procure these components from alternative sources at acceptable prices within a reasonable time, or at all; therefore, the loss or interruption of such arrangements could impact our ability to deliver certain products on a timely basis.

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Patents and Proprietary Rights

        Intellectual property rights that apply to our various products include patents, trade secrets and trademarks. We do not intend to broadly license our intellectual property rights unless we can obtain adequate consideration or enter into acceptable patent cross-license agreements. As of June 28, 2014, we owned approximately 1,490 U.S. patents and approximately 1,100 foreign patents, and had approximately 620 patent applications pending throughout the world.

Backlog

        Backlog consists of purchase orders for services and products for which we have assigned shipment dates. As of June 28, 2014 our backlog was approximately $415 million as compared to $416 million at June 29, 2013. Due to possible changes in product delivery schedules and cancellation of product orders, and because our sales often reflect orders shipped in the same quarter in which they are received, our backlog at any particular date is not necessarily indicative of actual revenue or the level of orders for any succeeding period.

Employees

        We employed approximately 5,100 employees as of June 28, 2014, compared to approximately 4,900 and 4,950 as of June 29, 2013 and June 30, 2012, respectively. Our workforce as of June 28, 2014 included approximately 1,800 employees in manufacturing, 1,600 employees in R&D, 1,050 employees in sales and marketing, and 650 employees in general and administration.

        Similar to other technology companies, we rely upon our ability to use "Full Value Awards" (as defined below) and other forms of stock-based compensation as key components of our executive and employee compensation structure. Full Value Awards refer to Restricted Stock Units ("RSUs") and Performance Units that are granted with the exercise price equal to zero and are converted to shares immediately upon vesting. Performance shares are granted based on the achievement of performance targets. Historically, these components have been critical to our ability to retain important personnel and offer competitive compensation packages. Without these components, we would be required to significantly increase cash compensation levels or develop alternative compensation structures to retain our key employees.

        Outside of the United States, our businesses are subject to labor laws that differ from those in the United States. The Company follows statutory requirements, and in certain European countries it is common for a works council, consisting of elected employees, to represent the sites when discussing matters such as compensation, benefits or terminations of employment. We consider our employee relations to be very good.

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ITEM 1A.    RISK FACTORS

We have a history of net losses, and our future profitability is not assured.

        Although we had net income of $57.0 million in fiscal 2013, we incurred net losses of $17.8 million and $55.6 million in fiscal 2014 and fiscal 2012, respectively. JDSU operates as a portfolio company comprised of many product lines, with diverse operating metrics and markets. As a result, our profitability in a particular period is impacted by both revenue and product mix due to the fact that gross margin varies significantly across our product portfolio and business segments. Additionally, for the last several years, we have undergone multiple manufacturing, facility, organizational and product line transitions. We expect some of these activities to continue for the foreseeable future. These activities are costly and can impair our profitability objectives while ongoing. Specific factors that may undermine our financial objectives include, among others:

    uncertain future telecom carrier and cable operator capital and R&D spending levels, which particularly affects our CCOP and NSE segments;

    adverse changes to our product mix, both fundamentally (resulting from new product transitions, the declining profitability of certain legacy products and the termination of certain products with declining margins, among other things) and due to quarterly demand fluctuations;

    intense pricing pressure across our product lines due to competitive forces, increasingly from Asia, and to a highly concentrated customer base for many of our product lines, which continues to offset many of the cost improvements we are realizing quarter over quarter;

    limited availability of components for our products which leads to higher component prices, particularly in our CCOP segment;

    increasing commoditization of previously differentiated products, and the attendant negative effect on average selling prices and profit margins, particularly in our CCOP segment;

    execution challenges, which limit revenue opportunities and harm profitability, market opportunities and customer relations;

    decreased revenue associated with terminated or divested product lines;

    redundant costs related to periodic transitioning of manufacturing and other functions to lower-cost locations;

    ongoing costs associated with organizational transitions, consolidations and restructurings, which are expected to continue in the nearer term;

    continuing high levels of selling, general and administrative, ("SG&A") expenses; and

    seasonal fluctuations in revenue from our NSE segment.

        Taken together, these factors limit our ability to predict future profitability levels and to achieve our long-term profitability objectives. While some of these factors may diminish over time as we improve our cost structure and focus on enhancing our product mix, several factors, such as continuous pricing pressure, increasing Asia-based competition, increasing commoditization of previously-differentiated products, a highly concentrated customer base for many of our product lines and seasonal NSE segment revenue fluctuations, are likely to remain. If we fail to achieve profitability expectations, the price of our debt and equity securities, as well as our business and financial condition, may be materially adversely impacted.

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Our operating results may be adversely affected by unfavorable economic and market conditions.

        Economic conditions worldwide have from time to time contributed to slowdowns in the technology industry at large, as well as to the specific segments and markets in which we operate. The global economic downturn that began in 2008, and the slow pace of economic recovery, including but not limited to the effects on global credit markets, has led to increased uncertainty in the timing and overall demand from our customers. Continuing concerns about global economic conditions could decrease or delay customer spending, increase price competition for our products, increase our risk of excess and obsolete inventories and higher overhead costs as a percentage of revenue. Continued economic challenges could further negatively impact our operations by affecting the solvency of our customers, the solvency of our key suppliers or the ability of our customers to obtain credit to finance purchases of our products. If the global economy and credit markets deteriorate and our future sales decline, our financial condition and results of operations would likely be materially adversely impacted.

        In particular, economic uncertainty in Europe has led to reduced demand in our optical communications product portfolios. If economic conditions in Europe do not recover or continue to deteriorate this may further adversely affect our operations. Actual or perceived currency or budget crises could increase economic uncertainty in Europe, and globally, which could have an adverse effect on our customers' operations and could further reduce demand for our products.

        In addition, we have significant long-lived assets recorded on our balance sheet. We will continue to evaluate the recoverability of the carrying amount of our goodwill and long-lived assets on an ongoing basis, and we may incur substantial impairment charges, which would adversely affect our financial results. There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment charges. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result. If, in any period, our stock price decreases to the point where the fair value of the Company, as determined by our market capitalization, is less than our book value, this too could indicate a potential impairment and we may be required to record an impairment charge in that period.

The manufacture, quality and distribution of our products, as well as our customer relations, may be affected by several factors, including the rapidly changing market for our products, supply issues and internal restructuring efforts. We expect the impact of these issues will become more pronounced as we continue to introduce new product offerings and when overall demand increases.

        Our success depends upon our ability to deliver both our current product offerings and new products and technologies on time and at acceptable cost to our customers. The markets for our products are characterized by rapid technological change, frequent new product introductions, substantial capital investment, changes in customer requirements and a constantly evolving industry. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these issues and provide solutions that meet our customers' current and future needs. As a technology company, we also constantly encounter quality, volume and cost concerns such as:

    Our continuing cost reduction programs, which include site and organization consolidations, asset divestitures, outsourcing the manufacture of certain products to contract manufacturers, other outsourcing initiatives, and reductions in employee headcount, require the re-establishment and re-qualification by our customers of complex manufacturing lines, as well as modifications to systems, planning and operational infrastructure. During this process, we have experienced, and

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      may continue to experience, additional costs, delays in re-establishing volume production levels, planning difficulties, inventory issues, factory absorption concerns and systems integration problems.

    We have experienced increases in demand for certain of our products in the midst of our cost reduction programs, which have strained our execution abilities as well as those of our suppliers. Because of this, we at times experience periodic and varying capacity, workforce and materials constraints, enhanced by the impact of our ongoing product and operational transfers.

    We have experienced variability of manufacturing yields caused by difficulties in the manufacturing process, the effects from a shift in product mix, changes in product specifications and the introduction of new product lines. These difficulties can reduce yields or disrupt production and thereby increase our manufacturing costs and adversely affect our margin.

    We may incur significant costs to correct defective products (despite rigorous testing for quality both by our customers and by us), which could include lost future sales of the affected product and other products, and potentially severe customer relations problems, litigation and damage to our reputation.

    We are dependent on a limited number of vendors, who are often small and specialized, for raw materials, packages and standard components. We also rely on contract manufacturers around the world to manufacture certain of our products. Our business and results of operations have been, and could continue to be adversely affected by this dependency. Specific concerns we periodically encounter with our suppliers include stoppages or delays of supply, insufficient vendor resources to supply our requirements, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of supplies, and an inability to obtain reduced pricing from our suppliers in response to competitive pressures. Additionally, the ability of our contract manufacturers to fulfill their obligations may be affected by economic, political or other forces that are beyond our control. Any such failure could have a material impact on our ability to meet customers' expectations and may materially impact our operating results.

    New product programs and introductions involve changing product specifications and customer requirements, unanticipated engineering complexities, difficulties in reallocating resources and overcoming resource limitations and with their increased complexity, which expose us to yield and product risk internally and with our suppliers.

        These factors have caused considerable strain on our execution capabilities and customer relations. We have and could continue to see (a) periodic difficulty responding to customer delivery expectations for some of our products, (b) yield and quality problems, particularly with some of our new products and higher volume products, and (c) additional funds and other resources required to respond to these execution challenges. From time to time, we have had to divert resources from new product R&D and other functions to assist with resolving these matters. If we do not improve our performance in all of these areas, our operating results will be harmed, the commercial viability of new products may be challenged and our customers may choose to reduce or terminate their purchases of our products and purchase additional products from our competitors.

We rely on a limited number of customers for a significant portion of our sales.

        We believe that we will continue to rely upon a limited number of customers for a significant portion of our revenues for the foreseeable future. Any failure by us to continue capturing a significant share of these customers could materially harm our business. Dependence on a limited number of customers exposes us to the risk that order reductions from any one customer can have a material adverse effect on periodic revenue. Further, to the extent that there is consolidation among

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communications equipment manufacturers and service providers, we will have increased dependence on fewer customers who may be able to exert increased pressure on our prices and other contract terms. Customer consolidation activity and periodic manufacturing and inventory initiatives could also create the potential for disruptions in demand for our products as a consequence of such customers streamlining, reducing or delaying purchasing decisions.

        We have a strategic alliance with SICPA, our principal customer for our light interference microflakes that are used to, among other things, provide security features in currency. Under a license and supply agreement, we rely exclusively on SICPA to market and sell one of these product lines, optically variable pigment, for document authentication applications worldwide. The agreement requires SICPA to purchase minimum quantities of these pigments over the term of the agreement. If SICPA fails to purchase these quantities, as and when required by the agreement, our business and operating results (including, among other things, our revenue and gross margin) will be harmed as we may be unable to find a substitute marketing and sales partner or develop these capabilities ourselves.

We face a number of risks related to our strategic transactions.

        Our strategy continues to include periodic acquisitions and divestitures of businesses and technologies. Strategic transactions of this nature involve numerous risks, including the following:

    difficulties and costs in integrating or disintegrating the operations, technologies, products, IT and other systems, facilities, and personnel of the affected businesses;

    inadequate internal control procedures and disclosure controls to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or poor integration of a target company's or business's procedures and controls;

    diversion of management's attention from normal daily operations of the business;

    potential difficulties in completing projects associated with in-process R&D;

    difficulties in entering markets in which we have no or limited prior experience and where competitors have stronger market positions;

    difficulties in obtaining or providing sufficient transition services and accurately projecting the time and cost associated with providing these services;

    an acquisition may not further our business strategy as we expected or we may overpay for, or otherwise not realize the expected return on, our investments;

    insufficient net revenue to offset increased expenses associated with acquisitions;

    potential loss of key employees of the acquired companies; and

    difficulty in forecasting revenues and margins.

        Acquisitions may also cause us to:

    issue common stock that would dilute our current shareholders' percentage ownership and may decrease earnings per share;

    assume liabilities, some of which may be unknown at the time of the acquisitions;

    record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;

    incur additional debt to finance such acquisitions;

    incur amortization expenses related to certain intangible assets; or

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    acquire, assume, or become subject to litigation related to the acquired businesses or assets.

Certain of our products are subject to governmental and industry regulations, certifications and approvals.

        The commercialization of certain of the products we design, manufacture and distribute through our CCOP and OSP segments may be more costly due to required government approval and industry acceptance processes. Development of applications for our light interference and diffractive microflakes may require significant testing that could delay our sales. For example, certain uses in cosmetics may be regulated by the U.S. Food and Drug Administration, which has extensive and lengthy approval processes. Durability testing by the automobile industry of our decorative microflakes used with automotive paints can take up to three years. If we change a product for any reason, including technological changes or changes in the manufacturing process, prior approvals or certifications may be invalid and we may need to go through the approval process again. If we are unable to obtain these or other government or industry certifications in a timely manner, or at all, our operating results could be adversely affected.

We face risks related to our international operations and revenue.

        Our customers are located throughout the world. In addition, we have significant operations outside North America, including product development, manufacturing, sales and customer support operations.

        In particular, as a result of our efforts to reduce costs, we have expanded our use of contract manufacturers in Shenzhen, China, and have expanded our R&D activities there. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations, such as those relating to taxation, import and export tariffs, environmental regulations, land use rights, intellectual property and other matters, which laws and regulations remain highly underdeveloped and subject to change, with little or no prior notice, for political or other reasons.

        Our international presence exposes us to certain risks, including the following:

    currency fluctuations;

    our ability to comply with a wide variety of laws and regulations of the countries in which we do business, including, among other things, customs, import/export, anti-bribery, anti-competition, tax and data privacy laws, which may be subject to sudden and unexpected changes;

    difficulties in establishing and enforcing our intellectual property rights;

    tariffs and other trade barriers;

    political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and product development facilities;

    difficulties in staffing and management;

    language and cultural barriers;

    seasonal reductions in business activities in the countries where our international customers are located;

    integration of foreign operations;

    longer payment cycles;

    difficulties in management of foreign distributors; and

    potential adverse tax consequences.

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        Net revenue from customers outside the Americas accounted for 52.6%, 50.9% and 49.9% of our total net revenue for fiscal 2014, 2013 and 2012, respectively. We expect that net revenue from customers outside North America will continue to account for a significant portion of our total net revenue. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may materially and adversely affect our business. In addition, the revenues we derive from many of our customers depend on international sales and further expose us to the risks associated with such international sales.

Our business and operations would be adversely impacted in the event of a failure of our information technology infrastructure.

        We rely upon the capacity, reliability and security of our information technology infrastructure and our ability to expand and continually update this infrastructure in response to our changing needs. In some cases, we rely upon third party hosting and support services to meet these needs. Any failure to manage, expand and update our information technology infrastructure, any failure in the extension or operation of this infrastructure, or any failure by our hosting and support partners in the performance of their services could materially and adversely harm our business.

        Despite our implementation of security measures, our systems are vulnerable to damages from computer viruses, natural disasters, unauthorized access and other similar disruptions. Any system failure, accident or security breach could result in disruptions to our operations. To the extent that any disruptions or security breach results in a loss or damage to our data, or in inappropriate disclosure of confidential information, it could cause significant damage to our reputation and affect our relationships with our customers and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Failure to maintain effective internal controls may adversely affect our stock price.

        Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. The SEC adopted rules requiring public companies to include a report by management on the effectiveness of the Company's internal control over financial reporting in their annual reports on Form 10-K. In addition, our independent registered public accounting firm must report on the effectiveness of our internal control over financial reporting. Although we review our internal control over financial reporting in order to ensure compliance with these requirements, if we or our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which these controls are documented, designed, operated or reviewed, or if our independent registered public accounting firm interprets the requirements, rules and/or regulations differently from our interpretation, then they may issue a qualified report. Furthermore, we may discover that the internal controls of businesses we acquire are inadequate or changes to our existing businesses may impact the effectiveness of our internal controls. These situations could require us to make changes to our internal controls and could cause our independent registered public accounting firm to issue a qualified report, which could result in a loss of investor confidence in the reliability of our financial statements, and could negatively impact our stock price.

In August 2013, we issued $650.0 million of 0.625% Senior Convertible Notes due 2033, which could dilute our existing stockholders and lower our reported earnings per share.

        We issued $650.0 million of indebtedness in August 2013 in the form of 0.625% Senior Convertible Notes due 2033 (the "2033 Notes"). The issuance of the 2033 Notes substantially increased our principal payment obligations. The degree to which we are leveraged could materially and adversely affect our ability to successfully obtain financing for working capital, acquisitions or other purposes and could make us more vulnerable to industry downturns and competitive pressures. In addition, the

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holders of the 2033 Notes are entitled to convert the 2033 Notes into shares of our common stock or a combination of cash and shares of common stock under certain circumstances which would dilute our existing stockholders and lower our reported per share earnings.

If we have insufficient proprietary rights or if we fail to protect those we have, our business would be materially harmed.

Our intellectual property rights may not be adequate to protect our products or product roadmaps.

        We seek to protect our products and our product roadmaps in part by developing and/or securing proprietary rights relating to those products, including patents, trade secrets, know-how and continuing technological innovation. The steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that are similar to our own. It is possible that patents may not be issued from any of our pending applications or those we may file in the future and, if patents are issued, the claims allowed may not be sufficiently broad to deter or prohibit others from making, using or selling products that are similar to ours. We do not own patents in every country in which we sell or distribute our products, and thus others may be able to offer identical products in countries where we do not have intellectual property protection. In addition, the laws of some territories in which our products are or may be developed, manufactured or sold, including Europe, Asia-Pacific or Latin America, may not protect our products and intellectual property rights to the same extent as the laws of the United States.

        Any patents issued to us may be challenged, invalidated or circumvented. Additionally, we are currently a licensee in all of our operating segments for a number of third-party technologies, software and intellectual property rights from academic institutions, our competitors and others, and are required to pay royalties to these licensors for the use thereof. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products, impede the sale of some of our current products, substantially increase the cost to provide these products to our customers, and could have a significant adverse impact on our operating results. In the past, licenses generally have been available to us where third-party technology was necessary or useful for the development or production of our products. In the future licenses to third-party technology may not be available on commercially reasonable terms, if at all.

Our products may be subject to claims that they infringe the intellectual property rights of others.

        Lawsuits and allegations of patent infringement and violation of other intellectual property rights occur in our industry on a regular basis. We have received in the past, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe their proprietary rights. Over the past several years there has been a marked increase in the number and potential severity of third-party patent infringement claims, primarily from two distinct sources. First, large technology companies, including some of our customers and competitors, are seeking to monetize their patent portfolios and have developed large internal organizations that have approached us with demands to enter into license agreements. Second, patent-holding companies, entities that do not make or sell products (often referred to as "patent trolls"), have claimed that our products infringe upon their proprietary rights. We will continue to respond to these claims in the course of our business operations. In the past, the resolution of these disputes has not had a material adverse impact on our business or financial condition, however this may not be the case in the future. Further, the litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful. If we are unsuccessful, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be

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successful in such development, or such licenses may not be available on terms acceptable to us, if at all. Without such a license, we could be enjoined from future sales of the infringing product or products, which could adversely affect our revenues and operating results.

The use of open source software in our products, as well as those of our suppliers, manufacturers and customers, may expose us to additional risks and harm our intellectual property position.

        Certain of the software and/or firmware that we use and distribute (as well as that of our suppliers, manufacturers and customers) may be, be derived from, or contain, "open source" software, which is software that is generally made available to the public by its authors and/or other third parties. Such open source software is often made available under licenses which impose obligations in the event the software or derivative works thereof are distributed or re-distributed. These obligations may require us to make source code for the derivative works available to the public, and/or license such derivative works under a particular type of license, rather than the forms of license customarily used to protect our own software products. While we believe we have complied with our obligations under the various applicable licenses for open source software, in the event that a court rules that these licenses are unenforceable, or in the event the copyright holder of any open source software were to successfully establish in court that we had not complied with the terms of a license for a particular work, we could be required to release the source code of that work to the public and/or stop distribution of that work. Additionally, open source licenses are subject to occasional revision. In the event future iterations of open source software are made available under a revised license, such license revisions may adversely affect our ability to use such future iterations.

We face certain litigation risks that could harm our business.

        We are and may become subject to various legal proceedings and claims that arise in or outside the ordinary course of business. The results of complex legal proceedings are difficult to predict. Moreover, many of the complaints filed against us do not specify the amount of damages that plaintiffs seek, and we therefore are unable to estimate the possible range of damages that might be incurred should these lawsuits be resolved against us. While we are unable to estimate the potential damages arising from such lawsuits, certain of them assert types of claims that, if resolved against us, could give rise to substantial damages. Thus, an unfavorable outcome or settlement of one or more of these lawsuits could have a material adverse effect on our financial condition, liquidity and results of operations. Even if these lawsuits are not resolved against us, the uncertainty and expense associated with unresolved lawsuits could seriously harm our business, financial condition and reputation. Litigation is costly, time-consuming and disruptive to normal business operations. The costs of defending these lawsuits have been significant, will continue to be costly and may not be covered by our insurance policies. The defense of these lawsuits could also result in continued diversion of our management's time and attention away from business operations, which could harm our business. For additional discussion regarding litigation, see the "Legal Proceedings" portion of this Annual Report.

We may be subject to environmental liabilities which could increase our expenses and harm our operating results.

        We are subject to various federal, state and foreign laws and regulations governing the environment, including those governing pollution and protection of human health and the environment and, recently, those restricting the presence of certain substances in electronic products and holding producers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, are often complex and are subject to frequent changes. We will need to ensure that we comply with such laws and regulations as they are enacted, as well as all environmental laws and regulations, and as appropriate or required, that our component suppliers also comply with such laws and

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regulations. If we fail to comply with such laws, we could face sanctions for such noncompliance, and our customers may refuse to purchase our products, which would have a materially adverse effect on our business, financial condition and results of operations.

        With respect to compliance with environmental laws and regulations in general, we have incurred and in the future could incur substantial costs for the cleanup of contaminated properties, either those we own or operate or to which we have sent wastes in the past, or to comply with such environmental laws and regulations. Additionally, we could be subject to disruptions to our operations and logistics as a result of such clean-up or compliance obligations. If we were found to be in violation of these laws, we could be subject to governmental fines and liability for damages resulting from such violations. If we have to make significant capital expenditures to comply with environmental laws, or if we are subject to significant expenditures in connection with a violation of these laws, our financial condition or operating results could be materially adversely impacted.

We are subject to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that could subject us to additional costs and liabilities.

        We are subject to the SEC rules implementing the requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act which establish disclosure and reporting requirements for companies who use "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries in their products. Complying with the disclosure requirements requires substantial diligence efforts to determine the source of any conflict minerals used in our products and may require third-party auditing of our diligence process. These efforts may require internal resources that would otherwise be directed towards operational activities.

        Since our supply chain is complex, we may face reputational challenges if we are unable to sufficiently verify the origins of the conflict minerals used in our products. Additionally, if we are unable to satisfy those customers who require that all of the components of our products are certified as conflict free, they may choose a competitor's products which could materially impact our financial condition and operating results.

Certain provisions in our charter and under Delaware laws could hinder a takeover attempt.

        We are subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short-term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions providing for the limitations of liability and indemnification of our directors and officers, allowing vacancies on our board of directors to be filled by the vote of a majority of the remaining directors, granting our board of directors the authority to establish additional series of preferred stock and to designate the rights, preferences and privileges of such shares (commonly known as "blank check preferred") and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders, which may only be called by the Chairman of the board, the Chief Executive Officer or the board of directors. These provisions may also have the effect of deterring hostile takeovers or delaying changes in control or change in our management.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

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ITEM 2.    PROPERTIES

        We own and lease various properties in the United States and in 25 other countries around the world. We use the properties for executive and administrative offices, data centers, product development offices, customer service offices, and manufacturing facilities. Our corporate headquarters of approximately 163,000 square feet is located in Milpitas, California. As of June 28, 2014, our leased and owned properties in total were approximately 2.0 million square feet, of which approximately 99,000 square feet is owned. Larger leased sites include properties located in Canada, China, France, Germany, Singapore and the United States. We believe our existing properties, including both owned and leased sites, are in good condition and suitable for the conduct of our business.

        From time to time we consider various alternatives related to our long-term facilities needs. While we believe our existing facilities are adequate to meet our immediate needs, it may become necessary to lease, acquire, or sell additional or alternative space to accommodate future business needs.

ITEM 3.    LEGAL PROCEEDINGS

        We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against us, individually or in aggregate, will not have a material adverse impact on its financial position, results of operations or statement of cash flows, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. Were an unfavorable final outcome to occur, there exists the possibility of a material adverse impact on our financial position, results of operations or cash flows for the period in which the effect becomes reasonably estimable.

ITEM 4.    MINE SAFETY DISCLOSURES

        None.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is traded on the NASDAQ Global Select Market under the symbol "JDSU." As of July 26, 2014 we had 230,029,189 shares of common stock outstanding. The closing price on July 25, 2014 was $11.85. The following table summarizes the high and low intraday sales prices for our common stock as reported on the NASDAQ Global Select Market during fiscal 2014 and 2013.

 
  High   Low  

Fiscal 2014:

             

Fourth Quarter

  $ 14.54   $ 10.29  

Third Quarter

    14.99     11.68  

Second Quarter

    16.61     11.70  

First Quarter

    15.45     12.76  

Fiscal 2013:

   
 
   
 
 

Fourth Quarter

  $ 14.90   $ 12.36  

Third Quarter

    15.63     12.38  

Second Quarter

    13.66     9.42  

First Quarter

    13.60     8.47  

        As of July 26, 2014, we had 3,999 holders of record of our common stock. We have not paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future.

        During the fourth quarter of the fiscal 2014 we made the following repurchases of our common stock (in millions, except shares and per share amounts):

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
 

March 30, 2014 - April 26, 2014

      $       $  

April 27, 2014 - May 24, 2014

                 

May 25, 2014 - June 28, 2014(1)

    4,853,961     11.37     4,853,961     44.7  

(1)
Repurchases were made in open market transactions pursuant to the program announced on May 27, 2014. On May 21, 2014 our Board of Directors authorized a program to repurchase up to $100.0 million of the Company's common stock through open market or private transactions between May 27, 2014 and June 27, 2015.

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STOCK PERFORMANCE GRAPH

        The information contained in the following graph shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.

        The following graph and table set forth the total cumulative return, assuming reinvestment of dividends, on an investment of $100 in June 2009 and ending June 2014 in: (i) the Company's Common Stock, (ii) the S&P 500 Index, (iii) the NASDAQ Stock Market (U.S.) Index, and (iv) the NASDAQ Telecommunications Index. Historical stock price performance is not necessarily indicative of future stock price performance.


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

GRAPHIC


*
$100 invested on 6/30/09 in stock or index.

 
  6/09   6/10   6/11   6/12   6/13   6/14  

JDS Uniphase Corporation

    100.00     172.03     291.26     192.31     251.57     218.01  

S&P 500

    100.00     112.12     143.65     148.17     174.72     213.23  

NASDAQ Composite

    100.00     114.94     151.14     159.94     185.46     240.22  

NASDAQ Telecommunications

    100.00     99.61     112.92     98.15     121.98     138.68  

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ITEM 6.    SELECTED FINANCIAL DATA

        This table sets forth selected financial data of JDSU (in millions, except share and per share amounts) for the periods indicated. This data should be read in conjunction with and is qualified by reference to "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of this Annual Report on Form 10-K and our audited consolidated financial statements, including the notes thereto and the other financial information included in Item 8 of this Form 10-K. The selected data in this section are not intended to replace the consolidated financial statements included in this report.

 
  Years Ended  
 
  June 28,
2014(9)(10)
  June 29,
2013(5)(6)(7)(8)
  June 30,
2012(5)
  July 2,
2011(3)(4)(5)
  July 3,
2010(1)(2)(5)
 

Consolidated Statement of Operations Data:

                               

Net revenue

  $ 1,743.2   $ 1,676.9   $ 1,662.4   $ 1,781.9   $ 1,347.3  

Gross profit

    784.3     694.6     705.5     785.7     543.1  

Amortization of other intangibles

    15.8     12.7     21.7     25.9     21.7  

Restructuring and related charges

    23.8     19.0     12.4     14.8     17.7  

Total operating expense

    786.0     719.5     705.1     713.2     588.8  

(Loss) income from operations

    (1.7 )   (24.9 )   0.4     72.5     (45.7 )

(Loss) income from continuing operations, net of tax

    (17.8 )   57.0     (26.1 )   78.7     (51.2 )

Loss from discontinued operations, net of tax

            (29.5 )   (7.1 )   (10.6 )
                       

Net (loss) income

  $ (17.8 ) $ 57.0   $ (55.6 ) $ 71.6   $ (61.8 )
                       
                       

(Loss) income from continuing operations per share—basic

  $ (0.08 ) $ 0.24   $ (0.11 ) $ 0.35   $ (0.23 )

Loss from discontinued operations per share—basic

            (0.13 )   (0.03 )   (0.05 )
                       

Net (loss) income per share—basic

  $ (0.08 ) $ 0.24   $ (0.24 ) $ 0.32   $ (0.28 )
                       
                       

(Loss) income from continuing operations per share—diluted

  $ (0.08 ) $ 0.24   $ (0.11 ) $ 0.34   $ (0.23 )

Loss from discontinued operations per share—diluted

            (0.13 )   (0.03 )   (0.05 )
                       

Net (loss) income per share—diluted

  $ (0.08 ) $ 0.24   $ (0.24 ) $ 0.31   $ (0.28 )
                       
                       

 

 
  Years Ended  
 
  June 28,
2014(10)
  June 29,
2013(5)(6)(7)
  June 30,
2012
  July 2,
2011
  July 3,
2010(1)(2)
 

Consolidated Balance Sheet Data:

                               

Cash, cash equivalents, short-term investments, and restricted cash

  $ 881.3   $ 515.9   $ 752.7   $ 728.7   $ 600.1  

Working capital

    1,001.1     682.6     656.1     885.5     723.7  

Total assets

    2,351.9     1,715.2     1,869.5     1,950.7     1,703.6  

Long-term obligations

    755.8     206.2     176.6     466.7     444.0  

Total stockholders' equity

    1,187.7     1,161.3     1,038.8     1,065.4     908.7  

(1)
During the first quarter of fiscal 2010, we sold certain non-core assets related to our wholly owned subsidiary da Vinci Systems LLC ("da Vinci"). As a result, the operations of da Vinci have been presented as discontinued operations.

(2)
During the fourth quarter of fiscal 2010, we acquired the Network Solutions Division ("NSD") of Agilent Technologies, Inc. ("Agilent") in a transaction accounted for in accordance with the authoritative guidance on business combinations. The Consolidated Statement of Operations for fiscal 2010 included the results of

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    operations from NSD subsequent to May 1, 2010 and the Consolidated Balance Sheet as of July 3, 2010 included NSD's financial position.

(3)
Effective July 4, 2010, the first day of fiscal 2011, we adopted authoritative guidance which applies to revenue arrangements with multiple deliverables and to certain software arrangements. We adopted both sets of guidance on a prospective basis for applicable transactions originating or materially modified on or after July 4, 2010.

(4)
During the third quarter of fiscal 2011, we determined that it is more likely than not that a portion of the deferred tax assets of a foreign jurisdiction will be realized after considering all positive and negative evidence. Accordingly, a deferred tax valuation allowance release of $34.9 million was recorded as an income tax benefit during the quarter.

(5)
During the first quarter of fiscal 2013, we entered into a definitive agreement to sell the hologram business ("Hologram Business") within our OSP segment, which subsequently closed on October 12, 2012. As a result, the operations of the Hologram Business have been presented as discontinued operations for all periods presented.

(6)
During the third quarter of fiscal 2013, we acquired Arieso in a transaction accounted for in accordance with the authoritative guidance on business combinations. The Consolidated Statements of Operations for fiscal 2013 included the results of Arieso subsequent to March 7, 2013 and the Consolidated Balance Sheet as of June 29, 2013 included Arieso's financial position.

(7)
During the third quarter of fiscal 2013, we approved a strategic plan to exit NSE's legacy low-speed wireline product line, which resulted in a $2.2 million charge for accelerated amortization of related intangibles, of which $1.8 million and $0.4 million are included in Amortization of acquired technologies and Amortization of other intangibles in the Consolidated Statement of Operations, respectively. In addition, we incurred $11.3 million of inventory related charges included in Cost of sales in the Consolidated Statement of Operations, primarily related to the write-off of inventory no longer being sold due to the legacy low-speed wireline product line exit.

(8)
During the fourth quarter of fiscal 2013, we determined that it is more likely than not that a portion of the deferred tax assets of a non-U.S. jurisdiction will be realized after considering all positive and negative evidence. Accordingly, a deferred tax valuation allowance release of $107.9 million was recorded as an income tax benefit during the quarter.

(9)
During the third quarter of fiscal 2014, we recognized $21.7 million of uncertain tax benefits related to deferred tax assets due to the expiration of the statute of limitations in a non-U.S. jurisdiction.

(10)
During the third quarter of fiscal 2014, we acquired Network Instruments in a transaction accounted for in accordance with the authoritative guidance on business combinations. The Consolidated Statement of Operations for fiscal 2014 included the results of operations from Network Instruments subsequent to January 6, 2014 and the Consolidated Balance Sheet as of June 28, 2014 included Network Instruments' financial position.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Industries and Developments

        JDSU is a leading provider of network and service enablement solutions and optical products for telecommunications service providers, wireless operators, cable operators, NEMs and enterprises. JDSU is also an established leader in providing anti-counterfeiting technologies for currencies and other high-value documents and products. In addition, we leverage our core networking and optical technology expertise to deliver high-powered commercial lasers for manufacturing applications and expand into emerging markets, including 3D sensing solutions for consumer electronics.

        In the first quarter of fiscal 2014, we changed the name of our Communication Test and Measurement segment to Network and Service Enablement. The name NSE more accurately reflects the value the Company brings to customers and the evolution of the Company's product portfolio, one that includes communications test instruments as well as microprobes, software and services that provide the necessary visibility throughout the network to improve service and application performance.

        To serve its markets, JDSU operates the following business segments:

    Network and Service Enablement

    Communications and Commercial Optical Products

    Optical Security and Performance Products

        In July 2014, we reorganized our NSE reportable segment into two separate reportable segments, Network Enablement and Service Enablement, beginning with the first quarter of fiscal 2015. Splitting NSE into two reportable segments is intended to provide greater clarity and transparency regarding the markets, financial performance and business models of these two businesses within NSE. NE is a hardware-centric and more mature business consisting primarily of NSE's traditional communications test instrument products. SE is a more software-centric business consisting primarily of software solutions that are embedded within the network and enterprise performance management solutions.

Network and Service Enablement

        NSE provides an integrated portfolio of network and service enablement solutions that provide end-to-end visibility and intelligence necessary for consistent, high-quality network, service and application performance.

        These solutions are made up of lab and field test instruments and customer experience management solutions ("CEM") supported by microprobes, monitoring software and optimization applications. This portfolio helps network operators and service providers effectively manage the continued growth of network traffic, devices and applications. As a result of this continued growth, operators and providers are looking for new ways to drive business agility and generate revenue with innovative services, while continuing to focus on reducing operating costs and improving performance. To this end, NSE is focused on providing world-class network and service enablement solutions, focusing investments on software and solutions offerings in high-growth markets while leveraging its instruments portfolio. These strategic investments are being placed globally to meet end-customer demand.

        JDSU's network enablement solutions include instruments and software to build, activate, certify, troubleshoot, monitor and optimize networks that are differentiated through superior efficiency, higher profitability, reliable performance and greater customer satisfaction. These products include instruments and software that access the network to perform installation and maintenance tasks. Our service enablement solutions collect and analyze complete network data to reveal the actual customer

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experience and opportunities for new revenue streams with enhanced management, control, optimization and differentiation.

        NSE solutions address lab and production environments, field deployment and service assurance for wireless and fixed communications networks, including storage networks. NSE's solutions include one of the largest test instrument portfolios in the industry, with hundreds of thousands of units in active use by major NEMs, operators and services providers worldwide. NSE is leveraging this installed base and knowledge of network management methods and procedures to develop advanced customer experience solutions. These solutions enable carriers to remotely monitor performance and quality of service and applications performance throughout the entire network. Remote monitoring decreases operating expenses, while early detection increases uptime, preserves revenue and enables operators to better monetize their networks.

        NSE customers include wireless and fixed services providers, NEMs, government organizations and large corporate customers. These include major telecom, mobility and cable operators such as AT&T, Bell Canada, Bharti Airtel Limited, British Telecom, China Mobile, China Telecom, Chunghwa Telecom, Comcast, CSL, Deutsche Telecom, France Telecom, Reliance Communications, Softbank, Telefónica, Telmex, TimeWarner Cable, Verizon and Vodafone. NSE customers also include many of the NEMs served by our CCOP segment, including Alcatel-Lucent, Ciena, Cisco Systems, Fujitsu and Huawei. NSE customers also include chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Storage-segment customers include Brocade, Cisco Systems and EMC.

        During the second quarter of fiscal 2014, we acquired certain technology and other assets from Trendium, a provider of real-time intelligence solutions for customer experience assurance, asset optimization, and monetization of big data for 4G/Long term evolution mobile network operators.

        During the third quarter of fiscal 2014, we acquired Network Instruments, a leading developer of enterprise network and application-performance management solutions for global 2000 companies. Network Instruments extended JDSU's service enablement solutions to the enterprise, data center and cloud networking markets.

Communications and Commercial Optical Products

        CCOP is a leading provider of optical communications and commercial laser products and technologies and commercial laser components.

        Serving telecommunications and enterprise data communications markets, CCOP products include components, modules, subsystems and solutions for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) networks, as well as SANs, LANs and WANs. These products enable the transmission and transport of video, audio and text data over high-capacity fiber-optic cables. CCOP maintains leading positions in the fastest-growing optical communications segments, including ROADMs and tunable XFPs and SFP+s. CCOP's growing portfolio of pluggable transceivers supports LAN/SAN needs and the cloud for customers building proprietary data center networks.

        OEMs use CCOP lasers—fiber, diode, direct-diode, diode-pumped solid-state and gas—that offer low- to high-power output with UV, visible and IR wavelengths. This broad product portfolio addresses the needs of laser clients in applications such as micromachining, materials processing, bio-instrumentation, consumer electronics, graphics, and medical/dental. Core laser technologies include continuous-wave, q-switched and mode-locked lasers addressing application needs from continuous-wave to megahertz repetition rates. Photonic power products transport energy over optical fiber, enabling electromagnetic- and radio-interference-free power and data transmission for remote sensors such as high-voltage line current monitors.

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        3D sensing systems use both CCOP's light source and OSP's optical filters. These systems simplify the way people interact with technology by enabling the use of natural body gestures, like the wave of a hand, instead of using a device like a mouse or remote control. Emerging markets for 3D sensing include gaming platforms, home entertainment, mobile devices and personal computing.

        CCOP's optical communications products customers include Adva, Alcatel-Lucent, Ciena, Cisco Systems, Ericsson, Fujitsu, Huawei, Infinera, Microsoft, Nokia Networks, and Tellabs. CCOP's lasers customers include Amada, ASML, Beckman Coulter, Becton Dickinson, Disco, Electro Scientific Industries and KLA-Tencor.

        During the third quarter of fiscal 2014, we acquired Time-Bandwidth Products, a provider of high powered and ultrafast lasers for the industrial and scientific markets. Manufacturers use high-power, ultrafast lasers to create micro parts for consumer electronics and to process semiconductor chips. Use of ultrafast lasers for micromachining applications is being driven primarily by increasing use of consumer electronics and connected devices globally.

    Optical Security and Performance Products

        OSP designs, manufactures, and sells products targeting anti-counterfeiting, consumer electronics, government, healthcare and other markets.

        OSP's 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 currency and other high-value documents and products. OVP® protects the currencies 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 its expertise in spectral management and its unique high-precision coating capabilities, OSP provides a range of products and technologies for the consumer-electronics market, including, for example, optical filters for 3D sensing devices designed for gaming and other platforms.

        OSP value-added solutions meet the stringent requirements of commercial and government customers in aerospace and defense. JDSU 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 3M, Barco, Kingston, Lockheed Martin, Microsoft, Northrup Grumman, Pan Pacific, Seiko Epson and SICPA.

        During the second quarter of fiscal 2013, we completed the sale of our hologram business ("Hologram Business"), which primarily addressed the transaction card market. We have presented our Consolidated Statements of Operations and segment results to reflect the sale of this business. The historical results of this business are reflected as discontinued operations in accordance with the authoritative guidance under U.S. GAAP and are excluded from our annual and quarterly results from continuing operations for all periods presented.

Recently Issued Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance related to revenue recognition. This guidance will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those

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goods or services. The new guidance is effective for us in the first quarter of fiscal 2018. This guidance allows for two methods of adoption: (a) full retrospective adoption, meaning the guidance is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying this guidance is recognized as an adjustment to the fiscal 2018 opening Accumulated deficit balance. We are evaluating the two adoption methods as well as the impact this new guidance will have on our consolidated financial statements and related disclosures.

        In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. This guidance is effective for us in the first quarter of fiscal 2016. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements, absent any disposition representing a strategic shift in our operations.

        In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for us in the first quarter of fiscal 2015. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements.

        In March 2013, FASB issued authoritative guidance that resolves the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This guidance will be effective for us beginning in the first quarter of fiscal 2015. We do not anticipate the adoption of this guidance will have a material impact on our consolidated financial statements, absent any material transactions involving the derecognition of subsidiaries or groups of assets within a foreign entity.

Critical Accounting Policies and Estimates

        The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, net revenue and expenses, and the related disclosures. We base our estimates on historical experience, our knowledge of economic and market factors and various other assumptions that we believe to be reasonable under the circumstances. Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, such as demand for our products and economic conditions. Accordingly, our estimates and judgments may prove to be incorrect and actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies are affected by significant estimates, assumptions and judgments used in the preparation of our consolidated financial statements:

Revenue Recognition

        We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable and earned when there is persuasive evidence of an arrangement, delivery has occurred,

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the sales price is fixed or determinable, and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided, risk of loss has transferred and in cases where formal acceptance is required, customer acceptance has been obtained or customer acceptance provisions have lapsed. In situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications, revenue is recognized upon shipment provided all other revenue recognition criteria are met. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

        We reduce revenue for rebates and other similar allowances. Revenue is recognized only if these estimates can be reliably determined. Our estimates are based on historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

        In addition to the aforementioned general policies, the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue.

Multiple-Element Arrangements

        When a sales arrangement contains multiple deliverables, such as sales of products that include services, the multiple deliverables are evaluated to determine whether there are one or more units of accounting. Where there is more than one unit of accounting, then the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price. Under this approach, the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of vendor-specific objective evidence ("VSOE") of fair value if available, third-party evidence ("TPE") if VSOE is not available, or management's best estimate of selling price ("BESP") if neither VSOE nor TPE is available. Revenue is recognized when the revenue recognition criteria for each unit of accounting are met.

        We establish VSOE of selling price using the price charged for a deliverable when sold separately and, in remote circumstances, using the price established by management having the relevant authority. TPE of selling price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly situated customers. When VSOE or TPE are not available then we use BESP. Generally, we are not able to determine TPE because our product strategy differs from that of others in our markets, and the extent of customization varies among comparable products or services from our peers. We establish BESP using historical selling price trends and considering multiple factors including, but not limited to geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. When determining BESP, we apply significant judgment in establishing pricing strategies and evaluating market conditions and product lifecycles.

        The determination of BESP is made through consultation with and approval by the segment management. Segment management may modify or develop new pricing practices and strategies in the future. As these pricing strategies evolve, we may modify our pricing practices in the future, which may result in changes in BESP. The aforementioned factors may result in a different allocation of revenue to the deliverables in multiple element arrangements from the current fiscal year, which may change the pattern and timing of revenue recognition for these elements but will not change the total revenue recognized for the arrangement.

        To the extent a deliverable(s) in a multiple-element arrangement is subject to specific guidance (for example, software that is subject to the authoritative guidance on software revenue recognition), we allocate the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance. Some of our product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment. We believe this equipment is not considered software-related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition.

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Hardware

        Revenue from hardware sales is recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement. Any cost of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized.

Services

        Revenue from services and system maintenance is typically recognized on a straight-line basis over the term of the contract. Revenue from time and material contracts is recognized at the contractual rates as labor hours are delivered and direct expenses are incurred. Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period. We also generate service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service.

Software

        Our software arrangements generally consist of a perpetual license fee and Post-Contract Support ("PCS"). Where we have established VSOE of fair value for PCS contracts, it is based on the renewal rate or the bell curve methodology. Revenue from maintenance, unspecified upgrades and technical support is recognized over the period such items are delivered. In multiple-element revenue arrangements that include software, software-related and non-software-related elements are accounted for in accordance with the following policies.

    Non-software and software-related products are bifurcated based on a relative selling price

    Software-related products are separated into units of accounting if all of the following criteria are met:

    The functionality of the delivered element(s) is not dependent on the undelivered element(s).

    There is VSOE of fair value of the undelivered element(s).

    Delivery of the delivered element(s) represents the culmination of the earnings process for that element(s).

        If these criteria are not met, the software revenue is deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If there is VSOE of the undelivered item(s) but no such evidence for the delivered item(s), the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate VSOE of the undelivered elements. In cases where VSOE is not established for PCS, revenue is recognized ratably over the PCS period after all software elements have been delivered and the only undelivered item is PCS.

Allowances for Doubtful Accounts

        We perform credit evaluations of our customers' financial condition. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We record our bad debt expenses as SG&A expense. When we become aware that a specific customer is unable to meet its financial obligations to us, for example, as a result of bankruptcy or deterioration in the customer's operating results or financial position, we record a specific allowance to reflect the level of credit risk in the customer's outstanding receivable balance. In addition, we record additional allowances based on certain percentages of our aged receivable balances. These percentages

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are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers, and if circumstances related to our customers deteriorate, our estimates of the recoverability of our trade receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provide more allowances than we need, we may reverse a portion of such provisions in future periods based on our actual collection experience.

Stock-based Compensation

        The fair value of our time-based Full Value Awards is based on the closing market price of our common stock on the grant date of the award. We use a Monte Carlo simulation to estimate the fair value of certain performance-based Full Value Awards with market conditions ("MSUs"). We estimate the fair value of employee stock purchase plan awards ("ESPP") using the Black-Scholes-Merton option-pricing model. This option-pricing model requires the input of highly subjective assumptions, including the award's expected life and the price volatility of the underlying stock.

        Pursuant to the authoritative guidance, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. When estimating forfeitures, we consider voluntary termination behavior as well as future workforce reduction programs. Estimated forfeiture is trued up to actual forfeiture as the equity awards vest. The total fair value of the equity awards, net of forfeiture, is recorded on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period, except for MSUs which are amortized based upon a graded vesting method.

Investments

        Our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments, net of tax, are reported as a separate component within our Consolidated Statements of Stockholders' Equity. Unrealized gains or losses on trading securities resulting from changes in fair value are recognized in current earnings. Our short-term investments, which are classified as current assets, include certain securities with stated maturities of longer than twelve months as they are highly liquid and available to support current operations.

        We periodically review our investments for impairment. If a debt security's market value is below amortized cost and we either intend to sell the security or it is more likely than not that we will be required to sell the security before its anticipated recovery, we record an other-than-temporary impairment charge to investment income (loss) for the entire amount of the impairment; if a debt security's market value is below amortized cost and we do not expect to recover the entire amortized cost of the security, we separate the other-than-temporary impairment into the portion of the loss related to credit factors, or the credit loss portion, and the portion of the loss that is not related to credit factors, or the non-credit loss portion. The credit loss portion is the difference between the amortized cost of the security and our best estimate of the present value of the cash flows expected to be collected from the debt security. The non-credit loss portion is the residual amount of the other-than-temporary impairment. The credit loss portion is recorded as a charge to income (loss), and the non-credit loss portion is recorded as a separate component of Other comprehensive income (loss).

Inventory Valuation

        We assess the value of our inventory on a quarterly basis and write-down those inventories which are obsolete or in excess of our forecasted usage to their estimated realizable value. Our estimates of realizable value are based upon our analysis and assumptions including, but not limited to, forecasted

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sales levels by product, expected product lifecycle, product development plans and future demand requirements. Our product line management personnel play a key role in our excess review process by providing updated sales forecasts, managing product transitions and working with manufacturing to maximize recovery of excess inventory. If actual market conditions are less favorable than our forecasts or actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs. If actual market conditions are more favorable than anticipated, inventory previously written down may be sold, resulting in lower cost of sales and higher income from operations than expected in that period.

Goodwill Valuation

        We test goodwill for possible impairment on an annual basis in our fourth quarter and at any other time if events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Circumstances that could trigger an impairment test include, but are not limited to: a significant adverse change in the business climate or legal factors, an adverse action or assessment by a regulator, changes in customers, target markets and strategy, unanticipated competition, loss of key personnel, or the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed.

        The authoritative guidance allows an entity to assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If an entity determines that as a result of the qualitative assessment that it is more likely than not (i.e. >50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required. The two-step quantitative goodwill impairment test requires us to estimate the fair value of our reporting units. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In step two of the analysis, we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit's goodwill over its implied fair value, if any.

        Application of the goodwill impairment test requires judgments, including: identification of the reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, a qualitative assessment to determine whether there are any impairment indicators, and determining the fair value of each reporting unit. We generally estimate the fair value of a reporting unit using a combination of the income approach, which estimates the fair value based on the future discounted cash flows, and the market approach, which estimates the fair value based on comparable market prices. Our significant estimates in the income approach include: our weighted average cost of capital, long-term rate of growth and profitability of the reporting unit's business, and working capital effects. The market approach estimates the fair value of the business based on a comparison of the reporting unit to comparable publicly traded companies in similar lines of business. Significant estimates in the market approach include: identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment, and assessing comparable revenue and operating income multiples in estimating the fair value of the reporting unit.

        We base our estimates on historical experience and on various assumptions about the future that we believe are reasonable based on available information. Unanticipated events and circumstances may occur that affect the accuracy of our assumptions, estimates and judgments. For example, if the price of our common stock were to significantly decrease combined with other adverse changes in market conditions, thus indicating that the underlying fair value of our reporting units may have decreased, we might be required to reassess the value of our goodwill in the period such circumstances were identified.

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Long-lived Asset Valuation (Property, Plant and Equipment and Intangible Assets)

Long-lived assets held and used

        We test long-lived assets for recoverability, at the asset group level, when events or changes in circumstances indicate that their carrying amounts may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.

        Recoverability is assessed based on the carrying amounts of the long-lived assets or asset groups and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisals in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Long-lived assets held for sale

        Long-lived assets are classified as held for sale when certain criteria are met, which include: management commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present condition; an active program to locate buyers and other actions to sell the assets has been initiated; whether the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year; whether the assets are being marketed at reasonable prices in relation to their fair value; and how unlikely it is that significant changes will be made to the plan to sell the assets.

        We measure long-lived assets to be disposed of by sale at the lower of carrying amount or fair value less cost to sell. Fair value is determined using quoted market prices or the anticipated cash flows discounted at a rate commensurate with the risk involved.

Income Taxes

        In accordance with the authoritative guidance on accounting for income taxes, we recognize income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.

        The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence. With the exception of certain international jurisdictions, we have determined that at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to our ability to utilize our net operating loss carryforwards before they expire. Accordingly, we have established a valuation allowance for such deferred tax assets. If there is a change in our ability to realize our deferred tax assets for which a valuation allowance has been established, then our tax provision may decrease in the period in which we determine that realization is more likely than not. Likewise, if we determine that it is not more likely than not that its deferred tax assets will be realized, then a valuation allowance may be established for such deferred tax assets and our tax provision may increase in the period in which it makes the determination.

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        The authoritative guidance on accounting for uncertainty in income taxes clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, it provides guidance on recognition, classification, and disclosure of tax positions. We are subject to income tax audits by the respective tax authorities in all of the jurisdictions in which we operate. The determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. We recognize liabilities based on our estimate of whether, and the extent to which, additional tax liabilities are more likely than not. If we ultimately determine that the payment of such a liability is not necessary, then we reverse the liability and recognize a tax benefit during the period in which the determination is made that the liability is no longer necessary.

        The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that we make certain estimates and judgments. Changes to these estimates or a change in judgment may have a material impact on our tax provision in a future period.

Restructuring Accrual

        In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities, generally costs associated with restructuring activities are recognized when they are incurred. However, in the case of leases, the expense is estimated and accrued when the property is vacated. Given the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made from the time the property was vacated, including evaluating real estate market conditions for expected vacancy periods and sub-lease income. Additionally, a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. We continually evaluate the adequacy of the remaining liabilities under our restructuring initiatives. Although we believe that these estimates accurately reflect the costs of our restructuring plans, actual results may differ, thereby requiring us to record additional provisions or reverse a portion of such provisions.

Pension and Other Postretirement Benefits

        The funded status of our retirement-related benefit plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal year end, the measurement date. For defined benefit pension plans, the benefit obligation is the projected benefit obligation ("PBO"); and for the non-pension postretirement benefit plan, the benefit obligation is the accumulated postretirement benefit obligation ("APBO"). The PBO represents the actuarial present value of benefits expected to be paid upon retirement. The APBO represents the actuarial present value of postretirement benefits attributed to employee services already rendered. Unfunded or partially funded plans, with the benefit obligation exceeding the fair value of plan assets, are aggregated and recorded as a retirement and non-pension postretirement benefit obligation equal to this excess. The current portion of the retirement-related benefit obligation represents the actuarial present value of benefits payable in the next 12 months in excess of the fair value of plan assets, measured on a plan-by-plan basis. This liability is recorded in Other current liabilities in the Consolidated Balance Sheets.

        Net periodic pension cost (income) is recorded in the Consolidated Statement of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service cost and (gains) losses previously recognized as a component of accumulated other comprehensive income. Service cost represents the actuarial present value of participant benefits attributed to services rendered by employees in the current year. Interest cost represents the time value of money cost associated with

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the passage of time. (Gains) losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan amendments. (Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost (income) in the Consolidated Statement of Operations as they arise are recognized as a component of accumulated other comprehensive income on the Consolidated Balances Sheets, net of tax. Those (gains) losses and prior service cost (credit) are subsequently recognized as a component of net periodic pension period cost (income) pursuant to the recognition and amortization provisions of the authoritative guidance.

        The measurement of the benefit obligation and net periodic pension cost (income) is based on our estimates and actuarial valuations, provided by third-party actuaries, which are approved by our management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, and mortality rates. We evaluate these assumptions annually at a minimum. In estimating the expected return on plan assets, we consider historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plan's invested assets.

Loss Contingencies

        We are subject to the possibility of various loss contingencies arising in the ordinary course of business. We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals are required.

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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 as a percentage of net revenue:

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012
 

Segment net revenue:

                   

NSE

    42.9 %   43.4 %   45.4 %

CCOP

    45.6     44.3     42.2  

OSP

    11.5     12.3     12.4  
               

Net revenue

    100.0     100.0     100.0  

Cost of sales

    52.5     54.8     54.1  

Amortization of acquired technologies

    2.5     3.8     3.5  
               

Gross profit

    45.0     41.4     42.4  
               

Operating expenses:

                   

Research and development

    17.0     15.4     14.7  

Selling, general and administrative

    25.8     25.6     25.7  

Amortization of other intangibles

    0.9     0.8     1.3  

Restructuring and related charges

    1.4     1.1     0.7  
               

Total operating expenses

    45.1     42.9     42.4  
               

Loss from operations

    (0.1 )   (1.5 )    

Interest and other income (expense), net

        (0.2 )   0.8  

Interest expense

    (1.7 )   (1.1 )   (1.6 )
               

Loss from continuing operations before income taxes

    (1.8 )   (2.8 )   (0.8 )

(Benefit from) provision for income taxes

    (0.8 )   (6.2 )   0.7  
               

(Loss) income from continuing operations, net of tax

    (1.0 )   3.4     (1.5 )

Loss from discontinued operations, net of tax

            (1.8 )
               

Net (loss) income

    (1.0 )%   3.4 %   (3.3 )%
               
               

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Financial Data for Fiscal 2014, 2013 and 2012

        The following table summarizes selected Consolidated Statement of Operations items (in millions, except for percentages):

 
  2014   2013   Change   Percentage
Change
  2013   2012   Change   Percentage
Change
 

Segment net revenue:

                                                 

NSE

  $ 748.3   $ 728.9   $ 19.4     2.7 % $ 728.9   $ 754.8   $ (25.9 )   (3.4 )%

CCOP

    794.1     742.2     51.9     7.0     742.2     701.6     40.6     5.8  

OSP

    200.8     205.8     (5.0 )   (2.4 )   205.8     206.0     (0.2 )   (0.1 )
                                       

Net revenue

  $ 1,743.2   $ 1,676.9   $ 66.3     4.0 % $ 1,676.9   $ 1,662.4   $ 14.5     0.9 %
                                       
                                       

Gross profit

  $ 784.3   $ 694.6   $ 89.7     12.9 % $ 694.6   $ 705.5   $ (10.9 )   (1.5 )%

Gross margin

    45.0 %   41.4 %               41.4 %   42.4 %            

Research and development

   
296.0
   
258.5
   
37.5
   
14.5

%
 
258.5
   
244.0
   
14.5
   
5.9

%

Percentage of net revenue

    17.0 %   15.4 %               15.4 %   14.7 %            

Selling, general and administrative

   
450.4
   
429.3
   
21.1
   
4.9

%
 
429.3
   
427.0
   
2.3
   
0.5

%

Percentage of net revenue

    25.8 %   25.6 %               25.6 %   25.7 %            

Amortization of intangibles

   
59.0
   
76.0
   
(17.0

)
 
(22.4

)%
 
76.0
   
80.3
   
(4.3

)
 
(5.4

)%

Percentage of net revenue

    3.4 %   4.6 %               4.6 %   4.8 %            

Restructuring and related charges

   
23.8
   
19.0
   
4.8
   
25.3

%
 
19.0
   
12.4
   
6.6
   
53.2

%

Percentage of net revenue

    1.4 %   1.1 %               1.1 %   0.7 %            

Loss from discontinued operations, net of tax

   
   
   
   

%
 
   
(29.5

)
 
29.5
   
(100.0

)%

Percentage of net revenue

    %   %               %   (1.8 )%            

Net Revenue

        Net revenue increased by $66.3 million, or 4.0%, during fiscal 2014 compared to fiscal 2013. This increase was primarily due to an increase in our CCOP and NSE segments, partially offset by a decrease in our OSP segment as discussed below.

        NSE net revenue increased by $19.4 million, or 2.7%, during fiscal 2014 compared to fiscal 2013. This increase was driven by $81.9 million of net revenue increases primarily from our MAC, Fiber, Location Intelligence, and Network Instrument product lines. These increases were primarily due to (i) demand for new products from a key customer in our MAC product line, (ii) increased spending for the deployment of LTE networks by key customers of our Fiber product line and (iii) incremental sales of new products from our strategic acquisitions in the second half of fiscal 2013 and during fiscal 2014. This was partially offset by $62.5 million of net revenue decreases primarily from our Mobile Assurance and Analytics, Packet Portal and Cloud and Data Center product lines. These decreases were primarily due to (i) the fact that the prior period reflected net revenue from a significant one-time project in our Mobile Assurance and Analytics product line, (ii) reduced spending in the current period from key customers in our Packet Portal product line and (iii) the exit of certain products in our Cloud and Data Center product line in the second half of fiscal 2013.

        CCOP net revenue increased $51.9 million, or 7.0%, during fiscal 2014 compared to fiscal 2013. This increase was driven by $68.8 million of net revenue increases primarily from products addressing the Consumer and Industrial markets, which consists of products in our 3D Sensing and Industrial Diode Laser product lines, and the Datacom market, which consists of products in our Pluggables product line. These increases were primarily driven by higher demand for our 3D sensing light source product related to the launch of our customer's next generation gaming console in the Consumer and

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Industrial markets and due to demand growth for our 10G and 40G products in the Datacom market. This was partially offset by $16.9 million of net revenue decreases from products addressing the Telecom market, which primarily consists of products in our Circuit Packs, Modulators, Passive Components, ROADMs, and Tunables product lines. These decreases were primarily due to lower spending on new network developments by large service providers.

        OSP net revenue decreased by $5.0 million, or 2.4%, during fiscal 2014 compared to fiscal 2013. This decrease was driven by $10.2 million of net revenue decreases primarily from our Anti-Counterfeiting product line driven by lower cyclical demand in fiscal 2014. This was partially offset by $5.2 million of net revenue increases primarily from our Consumer and Industrial product line driven by increased cyclical demand for our 3D sensing optical filters and from last-time buys during fiscal 2014 of certain legacy products which we exited in the fourth quarter of fiscal 2014.

        Net revenue increased by $14.5 million, or 0.9%, during fiscal 2013 compared to fiscal 2012. This increase was primarily due to an incremental increase in volume in our CCOP segment in fiscal 2013 and the fact that fiscal 2012 reflected a reduction in CCOP net revenue of approximately $15 million due to the regional flooding in Thailand which temporarily suspended operations at one of our primary contract manufacturers, Fabrinet (the "Thailand Flooding Impact"). This was partially offset by a decline in NSE net revenue primarily due to the exit and wind down of certain products.

        NSE net revenue decreased by $25.9 million, or 3.4%, during fiscal 2013 compared to fiscal 2012. This decrease was driven by $54.0 million of net revenue decreases primarily from our Broadband and Networking and Services product lines. These decreases were primarily due to (i) the exit of certain CPO products in the prior year, (ii) the wind down of legacy low-speed wireline products and (iii) procurement delays at a key customer. This was partially offset by $28.1 million of net revenue increases primarily from our Mobility product line driven by new products from the acquisitions of Dyaptive Systems, Inc. ("Dyaptive") and GenComm.

        CCOP net revenue increased $40.6 million, or 5.8%, during fiscal 2013 compared to fiscal 2012. This increase was driven by $77.4 million of net revenue increases primarily from our Pluggables, Gesture Recognition Light Source, Modulators, and Tunables product lines. These increases were primarily due to (i) higher demand from key customers, (ii) strong demand for new products and (iii) the recovery from the Thailand Flooding Impact of fiscal 2012. This was partially offset by $36.8 million of net revenue decreases primarily from our ROADMs, Passive Components and Gas Lasers product lines, primarily due to lower demand from key customers for these products.

        OSP net revenue remained relatively flat in fiscal 2013 compared to fiscal 2012, decreasing by $0.2 million, or 0.1%. This decrease was driven by $7.6 million of net revenue decreases from our Consumer and Industrial product line primarily due to lower demand for defense products as a result of reductions in government spending and reduced orders for display and 3D products. This was partially offset by $7.4 million of net revenue increases primarily from our Anti-Counterfeiting product line driven by pigment security demand.

        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, continued economic issues in Europe have led to uncertain demand in our NSE and optical communications product portfolios, and we cannot predict when or to what extent this uncertainty will be resolved. Our revenues, profitability, and general financial performance may also be affected by: (a) strong pricing pressures, particularly within our optical communications markets, due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based competitors, and a general commoditization trend for certain products; (b) high product mix variability, particularly in our CCOP and NSE markets, which affects revenue and gross margin; (c) fluctuations in customer buying patterns, which cause demand, revenue

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and profitability volatility; and (d) the current trend of communication industry consolidation, which is expected to continue, that directly affects our CCOP and NSE customer bases and adds additional risk and uncertainty to our financial and business projections. In addition, we anticipate lower demand and revenue from our 3D sensing products in our CCOP and OSP segments over the first two quarters of fiscal 2015 compared to the same periods in fiscal 2014.

        We operate primarily in three geographic regions: Americas, Asia-Pacific and Europe Middle East and Africa ("EMEA"). The following table presents net revenue by geographic regions (dollars in millions):

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012
 

Net revenue:

                                     

Americas

  $ 826.0     47.4 % $ 822.5     49.1 % $ 833.2     50.1 %

Asia-Pacific

    505.4     29.0     473.2     28.2     428.5     25.8  

EMEA

    411.8     23.6     381.2     22.7     400.7     24.1  
                           

Total net revenue

  $ 1,743.2     100.0 % $ 1,676.9     100.0 % $ 1,662.4     100.0 %
                           
                           

        Net revenue is assigned to geographic regions based on customer shipment locations. Net revenue from customers outside the Americas for the fiscal years ended 2014, 2013 and 2012 represented 52.6%, 50.9% and 49.9% of net revenue, respectively. Net revenue from customers in the Americas for the fiscal years ended 2014, 2013 and 2012 included net revenue from the United States of $626.7 million, $630.8 million and $673.6 million, respectively. We expect revenue from customers outside of North America to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities.

        During fiscal 2014, 2013 and 2012, no single customer accounted for more than 10% of the Company's net revenue.

Gross Margin

        Gross margin in fiscal 2014 increased 3.6 percentage points to 45.0% from 41.4% in fiscal 2013. This increase was primarily due to (i) a reduction in amortization of developed technology driven by certain significant intangible assets becoming fully amortized in the first quarter of fiscal 2014, (ii) an improvement in NSE gross margin driven by cost efficiencies resulting from operational, supply chain and product lifecycle management improvements, and the consolidation of our contract manufacturing partners during the second half of fiscal 2013, and (iii) an improvement in CCOP gross margin due to a more favorable product mix and cost reductions in fiscal 2014. This was partially offset by a change in segment mix as CCOP net revenue, which generates lower gross margin generally than our other two segments, represented a higher percentage of consolidated net revenue in fiscal 2014.

        Gross margin in fiscal 2013 decreased 1.0 percentage point to 41.4% from 42.4% in fiscal 2012. The decrease in gross margin was primarily due to (i) inventory charges and accelerated amortization of acquired developed technology related to the strategic exit of the legacy low-speed wireline product line in fiscal 2013, (ii) an increase in amortization expense of acquired developed technology primarily due to recent acquisitions and (iii) CCOP net revenue, which yields lower gross margin than our other two segments, represented a higher percentage of consolidated net revenue in fiscal 2013 compared to fiscal 2012. This was partially offset by improvements in CCOP gross margin primarily due to a more favorable product mix and improvements in yield in fiscal 2013.

        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

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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 increased $37.5 million, or 14.5%, in fiscal 2014 compared to fiscal 2013. This increase was driven by a $29.2 million increase in labor and benefits expense primarily due to higher headcount and corresponding compensation associated with our ongoing investment in R&D and our strategic acquisitions. As a percentage of net revenue, R&D expense increased by 1.6 percentage points in fiscal 2014 as we continued to invest in our product portfolio through R&D and acquisitions in order to develop new technologies, products and services that offer our customers increased value and strengthen our position in our core markets.

        R&D expense increased $14.5 million, or 5.9%, in fiscal 2013 compared to the same period a year ago. This increase was driven by a $15.6 million increase in labor and benefits expense primarily due to higher headcount associated with our continued investment in product development coupled with higher variable incentive and stock-based compensation in fiscal 2013. This was partially offset by a $2.0 million decrease in facilities expense primarily due to the exit from certain sites in connection with restructuring activities in our NSE segment in fiscal 2013. As a percentage of net revenue, R&D expense remained relatively flat, decreasing by 0.1 percentage points in fiscal 2013.

        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 and expect our investment in dollar terms to increase in future quarters.

Selling, General and Administrative

        SG&A expense increased $21.1 million, or 4.9%, in fiscal 2014 compared to fiscal 2013. This increase was primarily driven by a $23.9 million increase in labor and benefits expense primarily due to higher headcount and corresponding compensation related to our strategic acquisitions. This was partially offset by a $4.1 million decrease in external costs due to the insourcing of certain IT applications in the fourth quarter of fiscal 2013. As a percentage of net revenue, SG&A expense remained relatively flat, increasing by 0.2 percentage points in fiscal 2014.

        SG&A expense increased $2.3 million, or 0.5%, in fiscal 2013 compared to fiscal 2012. This increase was primarily driven by a $15.3 million increase in labor and benefits expense primarily due to higher headcount coupled with higher compensation. This was partially offset by reductions in legal expenses primarily due to the absence in fiscal 2013 of a $7.9 million legal expense in fiscal 2012 related to a litigation settlement and $4.7 million of net decreases in various other expenses. As a percentage of net revenue, SG&A expense remained relatively flat, decreasing by 0.1 percentage points in fiscal 2013.

        We intend to continue to focus on reducing our SG&A expense as a percentage of net revenue. However, we have in the recent past experienced, and may continue to experience in the future, certain non-core expenses, such as mergers and acquisitions-related expenses and litigation expenses, which could increase our SG&A expenses and potentially impact our profitability expectations in any particular quarter.

Amortization of Intangibles

        Amortization of intangibles for fiscal 2014 decreased $17.0 million, or 22.4%, to $59.0 million from $76.0 million in fiscal 2013. This decrease is driven by a $20.1 million reduction in amortization of developed technology primarily due to certain significant intangible assets becoming fully amortized in

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the first quarter of fiscal 2014. This was partially offset by incremental amortization of intangible assets from our fiscal 2013 and fiscal 2014 acquisitions.

        Amortization of intangibles for fiscal 2013 decreased $4.3 million, or 5.4%, to $76.0 million from $80.3 million in fiscal 2012.

Acquired In-Process Research and Development ("IPR&D")

        In accordance with authoritative guidance, we recognize IPR&D at fair value as of the acquisition date, and subsequently account for it as an indefinite-lived intangible asset until completion or abandonment of the associated research and development efforts. We periodically review the stage of completion and likelihood of success of each IPR&D project. The nature of the efforts required to develop IPR&D projects into commercially viable products principally relates to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements.

        During fiscal 2014, we acquired IPR&D through the acquisitions of Network Instruments and Trendium. The current status of our significant IPR&D projects from acquisitions is as follows:

Network Instruments Acquisition

        Network Instruments was acquired in January 2014 and was accounted for in accordance with the authoritative guidance on business combinations. At the time of acquisition, Network Instruments was in the process of developing next generation integrated network software solutions. We have incurred post-acquisition costs of approximately $1.1 million in fiscal 2014 and estimate that additional investment of approximately $0.4 million in research and development will be required to complete the project. The project is currently in the development stage and we expect to complete the project in the first quarter of fiscal 2015.

Trendium Acquisition

        Trendium was acquired in December 2013 and was accounted for in accordance with the authoritative guidance on business combinations. At the time of acquisition, Trendium was in the process of developing network probe software and next generation service assurance solutions. We have incurred post-acquisition costs of approximately $1.0 million in fiscal 2014 and estimate that additional investment of approximately $1.4 million in research and development will be required to complete the project. The project is currently in the development stage and we expect to complete the project in the second quarter of fiscal 2015.

Restructuring and Related Charges

        We continue to reduce costs through targeted restructuring efforts intended to consolidate our operations, rationalize the manufacturing of our products and align our businesses in response to market conditions. We estimate annualized cost savings of approximately $32.3 million excluding any one-time charge as a result of the restructuring activities initiated in the past year. Refer to "Note 11. Restructuring and Related Charges" for more information.

        As of June 28, 2014, our total restructuring accrual was $26.2 million.

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        During the twelve months ended June 28, 2014, we recorded $23.8 million in restructuring and related charges. The charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

    (i)
    During the fourth quarter of fiscal 2014, Company management ("Management") approved a plan in the NSE segment to realign its operations and strategy to allow for greater investment in high-growth areas. As a result, a restructuring charge of $4.6 million was recorded for severance and employee benefits for 123 employees primarily in manufacturing, R&D and SG&A functions located in North America, Latin America, Asia and Europe. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2015.

    (ii)
    During the fourth quarter of fiscal 2014, Management approved a plan in the CCOP segment to close the Serangoon office located in Singapore and move to a lower cost region in order to reduce manufacturing and R&D expenses. As a result, a restructuring charge of $1.7 million was recorded for severance and employee benefits for approximately 50 employees primarily in manufacturing and R&D functions. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2015.

    (iii)
    During the fourth quarter of fiscal 2014, Management approved a plan to eliminate positions and re-define roles and responsibilities in our Shared Service function in order to reduce cost, standardize global processes and establish a more efficient organization. As a result, a restructuring charge of $1.8 million was recorded for severance and employee benefits for 48 employees primarily in general and administrative functions located in the United States, Latin America, Asia and Europe. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the fourth quarter of fiscal 2015.

    (iv)
    During the third quarter of fiscal 2014, Management approved a plan in the NSE segment to realign its services, support and product resources in response to market conditions in the mobile assurance market and to increase focus on software products and next generation solutions through acquisitions and R&D. As a result, a year to date restructuring charge of $7.2 million was recorded for severance and employee benefits for 63 employees primarily in SG&A and manufacturing functions located in North America, Latin America, Asia and Europe. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2020.

    (v)
    During the second quarter of fiscal 2014, Management approved a plan in the NSE segment to exit the remaining space in Germantown, Maryland. As of June 28, 2014, the Company exited the workspace in Germantown under the plan. The fair value of the remaining contractual obligations, net of sublease income as of June 28, 2014 was $6.9 million. Payments related to the Germantown lease costs are expected to be paid by the end of the second quarter of fiscal 2019.

    (vi)
    During the second quarter of fiscal 2014, Management approved a plan to eliminate positions and re-define roles and responsibilities in the Finance and IT organization to align with the future state of the organizations under new executive management and move positions to lower-cost locations where appropriate. As a result, a year-to-date restructuring charge of $3.1 million was recorded for severance and benefits for 22 employees primarily in SG&A functions located in North America, Asia and Europe. Payments related to the remaining severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2022.

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        During the twelve months ended June 29, 2013, we recorded $19.0 million in restructuring and related charges. The charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

    (i)
    During the fourth quarter of fiscal 2013, Management approved a plan to re-align certain functions related to the CCOP segment to drive organizational efficiency and enhance the product line marketing leadership. As a result, a restructuring charge of $1.2 million was recorded for severance and employee benefits for 28 employees primarily in manufacturing, R&D and SG&A functions located in the North America and Asia. Payments related to the severance and benefits accrual are expected to be paid by the end of the second quarter of fiscal 2015.

    (ii)
    During the fourth quarter of fiscal 2013, Management approved a plan in our OSP segment to realign its operations to focus on priority markets such as Anti-Counterfeiting, Consumer and Industrial and Other offerings in government, aerospace and defense which resulted in ceasing production of certain legacy products such as anti-reflection coatings and front-surface mirrors for display and office automation applications, solar cell covers, and select infrared products that use our Multi-layer Anti-reflection Coater, custom display, and some box coater production platforms which were at the end of their lifecycle. The business segment phased out production of these product offerings by the end of the second quarter of fiscal 2014 and de-commission and dispose of certain production equipment as part of the plan. This will result in consolidation of manufacturing operations and office space in our site in Santa Rosa, CA and reduction of workforce by approximately 126 employees primarily in in manufacturing, R&D 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 2015.

    (iii)
    During the fourth quarter of fiscal 2013, Management approved a plan to consolidate workspace in Germantown, Maryland and Beijing, China, primarily used by the NSE segment. As of June 29, 2013, the Company had exited the affected facilities in both Germantown and Beijing under the plan. We accrued $4.2 million exit costs in accordance with authoritative guidance related to lease and contract terminations. The fair value of the remaining contractual obligations, net of sublease income as of June 29, 2013 was $5.0 million. Payments related to the Germantown lease costs are expected to be paid by the end of the second quarter of fiscal 2019. Final payments related to the Beijing lease costs were paid during the first quarter of fiscal 2014.

    (iv)
    During the third quarter of fiscal 2013, Management approved a plan to transition certain functions related to the CCOP segment to an offshore contract manufacturer to align with our continuous efforts for supply chain optimization. As a result, a restructuring charge of $0.9 million was recorded for severance and employee benefits for 44 employees primarily in manufacturing, R&D 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 third quarter of fiscal 2015.

    (v)
    During the second quarter of fiscal 2013, Management approved a plan to align the Company's investment strategy in its NSE segment with customer spending priorities in high-growth product lines such as wireless network assurance and eliminate positions in R&D, sales and operations organization that supported low-growth product lines. As a result, a restructuring charge of $3.0 million was recorded for severance and employee benefits for 63 employees primarily in manufacturing, R&D and SG&A functions located in North America, Europe and Asia. Payments related to the severance and benefits accrual are expected to be paid by the end of the first quarter of fiscal 2015.

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    (vi)
    During the first quarter of fiscal 2013, Management approved a plan to terminate the CPV product line within the CCOP segment based on limited opportunities for market growth. As a result, a restructuring charge of $0.4 million was recorded for severance and employee benefits for 9 employees primarily in manufacturing, R&D and SG&A functions located in United States, Europe, and Asia. Payments related to the severance and benefits accrual were paid by the end of the fourth quarter of fiscal 2013.

    (vii)
    The Company also incurred restructuring and related charges from previously announced restructuring plans in fiscal 2013 on the following: (i) $4.3 million additional severance and employee benefits primarily to adjust the accrual for the NSE Operation and Repair Outsourcing Restructuring announced during the fourth quarters of fiscal 2012 arising from 64 employees added to the original plan; (ii) $0.8 million for transfer costs and lease construction costs in NSE as the result of the repair outsourcing initiative announced by management during the fourth quarter of fiscal 2012; and (iii) $0.5 million for the exit of two leased sites in NSE for the plan announced during the fourth quarter of fiscal 2012. Payments related to the additional severance and benefits accrual in fiscal 2013 are expected to be paid by the end of the third quarter of fiscal 2017.

        During the twelve months ended June 30, 2012, we incurred restructuring expenses of $12.5 million, of which $0.1 million was attributable to the Hologram Business and is presented in the Consolidated Statements of Operations as a component of Loss from discontinued operations, net of tax. The charges are a combination of new and previously announced restructuring plans and are primarily the result of the following:

    (i)
    During the fourth quarter of fiscal 2012, Management approved the NSE Operation and Repair Outsourcing Restructuring Plan which focuses on three areas in the NSE segment: (1) moving the repair organization to a repair outsourcing partner; (2) reorganizing the R&D global team because of portfolio prioritization primarily in the CEM business to consolidate key platforms from several sites to single site; (3) reorganizing Global Sales to focus on strategic software growth, wireless growth, and to ensure sales account resources on the most critical global growth accounts. As a result, a restructuring charge of $4.3 million was recorded towards severance and employee benefits for 117 employees in manufacturing, R&D and SG&A functions. Payments related to the severance and benefits accrual are expected to be paid by the end of the third quarter of fiscal 2017.

    (ii)
    During the fourth quarter of fiscal 2012, Management approved the OSP Business Consolidation plan to consolidate and re-align the various business units within its OSP segment to improve synergies. As a result, a restructuring charge of $0.8 million was recorded towards severance and employee benefits for 17 employees primarily in manufacturing, R&D and SG&A functions. Of this $0.8 million restructuring charge, $0.1 million was attributable to the Hologram Business relating to severance and employee benefits for 1 employee and is presented in the Consolidated Statements of Operations as a component of Loss from discontinued operations, net of tax. Payments related to the severance and benefits accrual were paid off by the third quarter of fiscal 2013.

    (iii)
    During the third quarter of fiscal 2012, Management approved the NSE Manufacturing Support Consolidation Plan to continue to consolidate its manufacturing support operations in the NSE segment, by reducing the number of contract manufacturer locations worldwide and moving most of them to lower cost regions such as Mexico and China. As a result, a restructuring charge of $2.8 million was recorded towards severance and employee benefits for 80 employees in manufacturing, R&D and SG&A functions. Payments related to the severance and benefits accrual were paid off by the first quarter of fiscal 2014.

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    (iv)
    During the second quarter of fiscal 2012, Management approved the NSE Solution Business Restructuring Plan to re-organize the CEM business of the NSE segment to improve business efficiencies with greater focus on the mobility and video software test business, and to re-organize NSE's global operations to reduce costs by moving towards an outsourcing model. As a result, a restructuring charge of $1.7 million was recorded towards severance and employee benefits for 57 employees in manufacturing, R&D and SG&A functions. Payments related to the remaining severance and benefits accrual were paid off by the second quarter of fiscal 2013.

    (v)
    During the second quarter of fiscal 2012, Management approved the NSE Germantown Tower Restructuring Plan to consolidate workspace in Germantown, Maryland, primarily used by the NSE segment. As of December 31, 2011, the Company exited the workspace in Germantown under the plan. We accrued $0.6 million exit costs in accordance with authoritative guidance related to lease and contract terminations. The fair value of the remaining contractual obligations, net of sublease income as of June 30, 2012 was $0.5 million. Payments related to the lease costs are expected to be paid by the end of the second quarter of fiscal 2019.

    (vi)
    During the first quarter of fiscal 2012, Management approved the CCOP Fiscal Q1 2012 Plan to restructure certain CCOP segment functions and responsibilities to drive efficiency and segment profitability in light of economic conditions. As a result, a restructuring charge of $1.1 million was recorded towards severance and employee benefits for 40 employees in manufacturing, R&D and SG&A functions. Payments related to the severance and benefits were paid off by the second quarter of fiscal 2012.

    (vii)
    We also incurred restructuring and related charges from previously announced restructuring plans in fiscal 2012 on the following: (i) $0.5 million benefit arising primarily from $1.2 million benefit to adjust down the previous accrual of employee severance and benefits under NSE Sales and Market Rebalance Plan due to management's decision to re-locate employees and realize co-location efficiencies, offset by $0.7 million on severance and employee benefits, primarily on continued implementation of the NSE Germany Restructuring Plan; (ii) $1.6 million for manufacturing transfer costs in the NSE and OSP segments which were the result of the transfer of certain production processes into existing sites in the United States or to contract manufacturers; and (iii) $0.1 million charge arising primarily from $1.0 million lease termination cost under NSE Rebalancing Restructuring Plan, offset by $0.9 million benefit to adjust the accrual for previously restructured leases in the NSE segment which were the result of continued efforts to reduce and/or consolidate manufacturing locations.

        Our restructuring and other lease exit cost obligations are net of sublease income or lease settlement estimates of approximately $6.0 million. Our ability to generate sublease income, as well as our ability to terminate lease obligations and recognize the anticipated related savings, is highly dependent upon the economic conditions, particularly commercial real estate market conditions in certain geographies, at the time we negotiate the lease termination and sublease arrangements with third parties as well as the performances by such third parties of their respective obligations. While the amount we have accrued represents the best estimate of the remaining obligations we expect to incur in connection with these plans, estimates are subject to change. Routine adjustments are required and may be required in the future as conditions and facts change through the implementation period. If adverse macroeconomic conditions continue, particularly as they pertain to the commercial real estate market, or if, for any reason, tenants under subleases fail to perform their obligations, we may be required to reduce estimated future sublease income and adjust the estimated amounts of future settlement agreements, and accordingly, increase estimated costs to exit certain facilities. Amounts related to the lease expense, net of anticipated sublease proceeds, will be paid over the respective lease terms through fiscal 2019.

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Interest and Other Income (Expense), Net

        Interest and other income (expense), net was $0.5 million in fiscal 2014 as compared to $(4.1) million in fiscal 2013. This $4.6 million change was primarily the result of a $4.1 million realized loss in the prior period in connection with the repurchase of $150.0 million aggregate principal amount of our 1% Senior Convertible Notes due 2026 (the "2026 Notes"). The 2026 Notes were fully repurchased and redeemed in fiscal 2013.

        Interest and other income (expense) net decreased by $16.9 million during fiscal 2013, to $4.1 million of expense from $12.8 million of income during fiscal 2012. This decrease was primarily driven by (i) a reduction in other income primarily due to the absence in 2013 of $9.4 million of insurance proceeds received in fiscal 2012 from our claims on loss associated with the Thailand flooding, (ii) $3.4 million of additional loss realized from the repurchase of $150.0 million aggregate principal amount of 1% Senior Convertible Notes at or below par during fiscal 2013 and (iii) a $2.8 million unfavorable variance in foreign exchange results in fiscal 2013 compared to fiscal 2012. This was partially offset by a $0.6 million decrease in various other expenses.

Interest Expense

        Interest expense increased by $11.8 million, or 65.9%, in fiscal 2014 compared to fiscal 2013. This increase was primarily due to higher accretion of the debt discount and contractual interest expense recognized on our 2033 Notes in fiscal 2014 as compared to the accretion and contractual interest expense on our 2026 Notes in fiscal 2013. The increase was primarily driven by the fact that the unamortized debt discount of our 2033 Notes was significantly higher than that of our 2026 Notes in fiscal 2013. During fiscal 2014 we accreted debt discount and recognized contractual interest expense on our 2033 Notes of $20.7 million and $3.5 million, respectively. During fiscal 2013 we accreted debt discount and recognized contractual interest expense on our 2026 Notes of $12.0 million and $1.8 million, respectively.

        Interest expense decreased by $9.4 million, or 34.4%, to $17.9 million from $27.3 million in fiscal 2013 compared to fiscal 2012. The decrease in interest expense during fiscal 2013 was primarily due to repurchases of $150.0 million of the aggregate principal amount of the 1% Senior Convertible Notes during the first three quarters of fiscal 2013 and the redemption of the remaining $161.0 million aggregate principal amount of our 1% Senior Convertible Notes in the fourth quarter of fiscal 2013.

(Benefit from) Provision for Income Tax

Fiscal 2014 Tax Expense/Benefit

        We recorded an income tax benefit of $13.1 million for fiscal 2014. The expected tax benefit derived by applying the federal statutory rate to our loss before income taxes for fiscal 2014 differed from the income tax benefit recorded primarily as a result of domestic and foreign losses that were not realized due to valuation allowances and offset by the recognition of $21.7 million of uncertain tax benefits related to deferred tax assets due to the expiration of the statute of limitations in a non-US jurisdiction. In addition, we recorded a tax benefit of $6.4 million related to the income tax intraperiod tax allocation rules in relation to other comprehensive income.

        Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, Management has determined that in many of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2014, the valuation allowance for deferred tax assets decreased by $49.3 million. The decrease was primarily related to an increase in acquisition and debt issuance related deferred tax liabilities. We are routinely subject to various federal, state and foreign audits by taxing

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authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

Fiscal 2013 Tax Expense/Benefit

        We recorded an income tax benefit of $103.9 million for 2013. The expected tax benefit derived by applying the federal statutory rate to our loss before income taxes for fiscal 2013 differed from the income tax benefit recorded primarily due to a net reduction in our valuation allowance related to valuation allowance releases, utilization of foreign net operating losses, and the recognition of tax credits generated during the current year.

        During fiscal year 2013, after considering all available evidence, both positive and negative, we determined that a valuation allowance release of $107.9 million was appropriate for a foreign subsidiary because it was more likely than not that the deferred tax assets of the foreign subsidiary would be realized.

        Previously, upon considering the totality of the negative evidence that existed with respect to the realization of the foreign subsidiary's deferred tax assets, which included its history of losses, the economic uncertainty of the foreign subsidiary's operations existing at that time, and the fact that there was no reasonable expectation or projections of future pre-tax income to support the realization of the deferred tax assets associated with the cumulative losses, we had recorded a full valuation allowance against the deferred tax assets.

        In light of the historical losses and in order to improve the profitability of the foreign subsidiary, beginning in fiscal year 2011 and continuing in later years, we implemented targeted reorganization activities and instituted a new business model for the foreign subsidiary. Under the new business model, we became the worldwide distributor for most of the products manufactured by the foreign subsidiary and the foreign subsidiary began performing certain cost-plus reimbursable services for us.

        The foreign subsidiary's operations improved as a result of the actions described above and resulted in a pre-tax profit for fiscal year 2013 and cumulative pre-tax income for the preceding three-year period. Moreover, based on the foreign subsidiary's improved operational activities and performance under the new business model it was able to reasonably forecast continued future pre-tax earnings. The reasonableness of the foreign subsidiary's forecast of continued future pre-tax earnings is supported by the facts that we intend to continue to use the new business model and the forecast is not dependent on any changes to the new business model, additional reorganization activities, or improvements to operational activities.

        Therefore, as described above, based on all available evidence, including both positive and negative, and the weight of that evidence, we concluded that it was more likely than not that the deferred tax assets of the foreign subsidiary would be realized and that the applicable valuation allowance should be released.

        In addition, during fiscal 2013 we recorded net income tax expense of $4.0 million attributable to the results of our worldwide operations.

        Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, Management has determined that in many of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2013, the valuation allowance for deferred tax assets decreased by $87.9 million. The decrease was primarily related to the valuation allowance release mentioned above. We are routinely subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

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Fiscal 2012 Tax Expense/Benefit

        We recorded an income tax expense of $12.0 million for fiscal 2012. The expected tax benefit derived by applying the federal statutory rate to our loss before income taxes for fiscal 2012 differed from the income tax expense recorded primarily as a result of domestic and foreign losses that were not benefited due to valuation allowances.

        Based on a jurisdiction by jurisdiction review of anticipated future income and due to the continued economic uncertainty in the industry, management has determined that in most of our jurisdictions, it is more likely than not that our net deferred tax assets will not be realized in those jurisdictions. During fiscal 2012, the valuation allowance for deferred tax assets increased by $25.8 million. The increase was primarily due to domestic and foreign tax net operating losses sustained during the fiscal year, offset by utilization and expiration of domestic and foreign net operating losses. We are routinely subject to various federal, state and foreign audits by taxing authorities. We believe that adequate amounts have been provided for any adjustments that may result from these examinations.

Discontinued Operations

        During the second quarter of fiscal 2013, we closed the sale of the Hologram Business, previously within the OSP reportable segment, and received gross proceeds of $11.5 million in cash, subject to an earnout clause requiring the buyer to pay up to a maximum additional amount of $4.0 million if the revenue generated by the business exceeds a pre-determined target amount during the one-year period immediately following the closing. In the fourth quarter of fiscal 2014, we submitted an arbitration demand to resolve a dispute regarding the amount we are owed from the buyer under the earnout clause. If any amount related to the earn-out clause meets the recognition criteria it will be included as a component of discontinued operations in the Consolidated Statements of Operations.

        Net revenue of the Hologram Business for fiscal 2013 and 2012 was $5.2 million and $19.7 million, respectively. Net loss from discontinued operations for fiscal 2013 and 2012 was zero and $29.5 million, respectively. Net loss from discontinued operation in fiscal 2012 primarily related to impairment charges on long-lived assets. There was no tax effect associated with the discontinued operation for any periods presented.

Operating Segment Information (dollars in millions):

 
  2014   2013   Change   Percentage
Change
  2013   2012   Change   Percentage
Change
 

NSE:

                                                 

Net revenue

  $ 748.3   $ 728.9   $ 19.4     2.7 % $ 728.9   $ 754.8   $ (25.9 )   (3.4 )%

Operating income

    80.3     83.1     (2.8 )   (3.4 )   83.1     98.3     (15.2 )   (15.5 )

Operating margin

    10.7 %   11.4 %               11.4 %   13.0 %            

CCOP:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Net revenue

  $ 794.1   $ 742.2   $ 51.9     7.0 % $ 742.2   $ 701.6   $ 40.6     5.8 %

Operating income

    93.5     82.4     11.1     13.5     82.4     72.0     10.4     14.4  

Operating margin

    11.8 %   11.1 %               11.1 %   10.3 %            

OSP:

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

Net revenue

  $ 200.8   $ 205.8   $ (5.0 )   (2.4 )% $ 205.8   $ 206.0   $ (0.2 )   (0.1 )%

Operating income

    72.0     73.2     (1.2 )   (1.6 )   73.2     72.5     0.7     1.0  

Operating margin

    35.9 %   35.6 %               35.6 %   35.2 %            

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Network and Service Enablement

        Network and Service Enablement operating margin decreased 0.7 percentage points during fiscal 2014 to 10.7% from 11.4% in fiscal 2013. The decrease in operating margin was primarily due to an increase in operating expenses driven by (i) higher headcount, (ii) R&D investments primarily related to our strategic acquisitions and (iii) higher commissions driven by the overall increase in NSE net revenue as referenced above. This was partially offset by cost efficiencies resulting from operational, supply chain and product lifecycle management improvements, and the consolidation of our contract manufacturing partners during the second half of fiscal 2013.

        NSE operating margin decreased 1.6 percentage points during fiscal 2013 to 11.4% from 13.0% in fiscal 2012. The decrease was primarily driven by a 3.4% decrease in net revenue as discussed above, partially offset by an improvement in gross margin primarily due to (i) a more favorable product mix as net revenue from higher margin products increased compared to fiscal 2012, particularly from new products from the acquisitions of Dyaptive and GenComm in our Mobility product line, (ii) savings obtained through restructuring activities to consolidate and rationalize business functions, and (iii) savings associated with the recent outsourcing of our repair operations and ongoing efforts to outsource manufacturing and reduce the number of contract manufacturing partners.

Communications and Commercial Optical Products

        CCOP operating margin increased 0.7 percentage points during fiscal 2014 to 11.8% from 11.1% in fiscal 2013. The increase was driven by an improvement in gross margin primarily due to a more favorable product mix and cost reductions, coupled with an overall increase in CCOP net revenue as referenced above. This was partially offset by an increase in R&D expense primarily due to higher headcount associated with our ongoing R&D investments and to lower R&D offsets from customer-funded development projects in the current period versus the prior period.

        CCOP operating margin increased 0.8 percentage points during fiscal 2013 to 11.1% from 10.3% in fiscal 2012. The increase was primarily driven by an improvement in gross margin primarily due to a more favorable product mix and improvement in yield in fiscal 2013. Also contributing to the increase in operating margin was a 5.8% increase in net revenue as discussed above. This was partially offset by an increase in R&D and SG&A expense primarily due to higher R&D headcount and increased variable incentive compensation in fiscal 2013.

Optical Security and Performance Products

        OSP operating margin remained relatively flat in fiscal 2014, increasing by 0.3 percentage points from fiscal 2013.

        OSP operating margin increased 0.4 percentage points during fiscal 2013 to 35.6% from 35.2% in fiscal 2012. The increase was primarily driven by reductions in SG&A expense due to a one-time benefit from a litigation settlement related to an insurance claim in fiscal 2013 and due to lower labor and benefits expense. This was partially offset by (i) a decline in gross margin driven by factory underutilization and charges associated with the announced exit of certain product lines and (ii) an increase in R&D expense primarily due to spending on key innovation initiatives.

Liquidity and Capital Resources

        Our cash investments are made in accordance with an investment policy approved by the Audit Committee of our Board of Directors. In general, our investment policy requires that securities purchased be rated A-1/P-1, A/A2 or better. In November, 2012, the policy was amended to allow an allocation to securities rated A-2/P-2, BBB/Baa2 or better, with such allocation not to exceed 10% of any investment portfolio. Securities that are downgraded subsequent to purchase are evaluated and may

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be sold or held at management's discretion. No security may have an effective maturity that exceeds 37 months, and the average duration of our holdings may not exceed 18 months. At any time, no more than 5% or $5 million (whichever is greater) of each investment portfolio may be concentrated in a single issuer other than the U.S. or sovereign governments or agencies. Our investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading assets and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments are reported as a separate component of stockholders' equity. We did not hold any investments in auction rate securities, mortgage backed securities, collateralized debt obligations, or variable rate demand notes at June 28, 2014 and virtually all debt securities held were of investment grade (at least BBB/Baa2). As of June 28, 2014, Company entities in the U.S. owned approximately 81.7% of our cash and cash equivalents, short-term investments and restricted cash.

        As of June 28, 2014, 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 twelve months ended June 28, 2014, 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.

Fiscal 2014

        As of June 28, 2014 our combined balance of cash and cash equivalents, short-term investments and restricted cash increased by $365.4 million, or 70.8%, to $881.3 million from $515.9 million as of June 29, 2013. The increase in the combined balance was primarily driven by $650.0 million of cash received from the issuance of the 2033 Notes and $176.6 million of cash provided by operations, partially offset by (i) $216.0 million of cash used for the acquisitions of Network Instruments, Time-Bandwidth and Trendium, (ii) $155.2 million of cash used to repurchase our common stock and (iii) $99.8 million of cash used for capital expenditures.

        Cash provided by operating activities was $176.6 million, primarily resulting from $175.9 million of net income adjusted for both non-cash charges (e.g., depreciation, amortization and stock-based compensation) and changes in our deferred tax balances which are non-cash in nature, partially offset by changes in operating assets and liabilities of $0.7 million. Changes in our operating assets and liabilities related primarily to a $25.9 million increase in accounts payable due to timing and slightly slower payment activity in the fourth quarter of fiscal 2014 as compared to the same period in the prior year, partially offset by a $19.6 million decrease in accrued payroll and related expenses due to the lower commissions and variable incentive pay, and a $9.6 million increase in accounts receivable due to a year-over-year increase in revenue.

        Cash used in investing activities was $651.8 million, primarily resulting from (i) $1,072.9 million of purchases of available-for-sale investments, (ii) $216.0 million of cash used for the acquisitions of Network Instruments, Time-Bandwidth and Trendium, (iii) and $99.8 million of cash used for capital expenditures, partially offset by $730.0 million of maturities and sales of available-for-sale investments, and $9.2 million of net proceeds from the sale of assets.

        Cash provided by financing activities was $489.6 million, primarily resulting from $650.0 million of cash received from our issuance of the 2033 Notes, $22.5 million of cash received from the exercise of stock options and the issuance of common stock under our employee stock purchase plan, partially

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offset $155.2 million of cash used to repurchase our common stock, $14.2 million to pay financing obligations, and $13.5 million of cash used for the payment of issuance costs for the 2033 Notes.

Fiscal 2013

        We had a combined balance of cash and cash equivalents, short-term investments and restricted cash of $515.9 million at June 29, 2013, a decrease of $236.8 million from June 30, 2012. Cash and cash equivalents decreased by $120.1 million in the twelve months ended June 29, 2013, primarily due to $306.8 million used to repurchase our 1% Senior Convertible Notes, $83.2 million used for the acquisitions of business, and $65.1 million used for the purchase of property, plant and equipment, offset by net cash inflows of $110.0 million provided by the maturities, sales and purchases of investments, and cash provided by operating activities of $187.8 million.

        Cash provided by operating activities was $187.8 million, resulting from our net income adjusted for non-cash items such as depreciation, amortization and stock-based compensation of $279.4 million offset by changes in operating assets and liabilities that used $91.6 million. Changes in operating assets and liabilities related primarily to an increase in net deferred taxes of $119.5 million, due to a $107.9 million non-cash release of deferred tax valuation allowances in a non-U.S. jurisdiction, a decrease in accounts payable of $16.1 million primarily due to an increase in payments prior to year end enabled by stronger operating cash flows in fiscal 2013, and a decrease in accrued payroll and related expenses of $9.4 million, offset by a decrease in accounts receivable of $39.2 million primarily driven by our collection efforts and a decrease in inventory of $27.2 million primarily due to an increase in shipments and further leveraging our contract manufacturing supply chain management.

        Cash used in investing activities was $25.0 million, primarily related to cash used for the acquisitions of GenComm and Arieso of $83.2 million, and cash used for the purchase of property, plant and equipment of $65.1 million offset by net cash inflows provided by the maturities, sales and purchases of investments of $110.0 million, and net proceeds from sale of the Hologram Business of $11.2 million. Investments made during the twelve months ended June 29, 2013 included new technology, laboratory and manufacturing equipment, the set up and improvements to facilities, and upgrading information technology systems.

        Cash used in financing activities was $283.8 million, primarily related to the repurchase of our 1% Senior Convertible Notes in the amount of $306.8 million, offset by proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan of $25.7 million.

Fiscal 2012

        We had a combined balance of cash and cash equivalents, short-term investments and restricted cash of $752.7 million at June 30, 2012, an increase of $24.0 million from July 2, 2011. Cash and cash equivalents increased by $5.7 million in the twelve months ended June 30, 2012, primarily due to cash provided by operating activities of $119.1 million, offset by $72.2 million used for the purchases of property, plant and equipment, net cash outflows of $26.6 million used for the purchase of available-for-sale investments, $12.5 million used for the acquisition of QuantaSol Limited ("QuantaSol") and Dyaptive and $1.9 million used in financing activities.

        Cash provided by operating activities was $119.1 million, resulting from our net loss adjusted for non-cash items such as depreciation, amortization, impairment of long-lived assets and stock-based compensation of $199.4 million, and changes in operating assets and liabilities that used $80.3 million related primarily to a decrease in accounts payable of $29.2 million, a decrease in accrued payroll and related expenses of $25.3 million, an increase in other current and non-current assets of $14.8 million, a decrease in accrued expenses and other current and non-current liabilities of $11.1 million, and an increase in inventories of $7.7 million, offset by a decrease in accounts receivable of $17.2 million primarily due to decrease in net revenue compared with fiscal 2011.

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        The $29.2 million decrease in accounts payable was primarily due to timing of purchases and payments. The $25.3 million decrease in accrued payroll and related expenses was primarily due to timing of salary and payroll tax payments and lower bonus and commission accruals. The $14.8 million increase in other current and non-current assets was primarily due to higher advances to our contract manufacturers to support future growth and increases in value-added tax receivables and prepayments of license and maintenance fees. The $11.1 million decrease in other current and non-current liabilities was mainly due to timing of invoicing and lower accrual related to contract manufacturing scrap expenses.

        Cash used by investing activities was $105.7 million, primarily related to cash used for the purchase of property, plant and equipment of $72.2 million, net cash outflows used for the purchase of available-for-sale investments of $26.6 million, and cash used for the acquisition of QuantaSol and Dyaptive of $12.5 million, offset by proceeds from sale of assets of $2.1 million. Since we continue to invest in new technology, laboratory equipment, and manufacturing capacity to support revenue growth across all three segments, significant investments were made during fiscal 2012 to increase our manufacturing capacity in Asia and the U.S. and to upgrade our information technology systems.

        Our financing activities used cash of $1.9 million, related to repayments of the carrying amount and reacquisition of the equity component of our 1% Senior Convertible Notes in the amount of $13.2 million, payments made on financing obligations of $11.6 million primarily related to software licenses, and payments for issuance cost of our revolving credit facility of $1.9 million, offset by proceeds from the exercise of stock options and the issuance of common stock under our employee stock purchase plan of $17.9 million and proceeds from financing obligation of $6.9 million related to the Eningen sale and leaseback transaction.

Contractual Obligations

        The following summarizes our contractual obligations at June 28, 2014, and the effect such obligations are expected to have on our liquidity and cash flow over the next five years (in millions):

 
  Payments due by period  
 
  Total   Less than
1 year
  1 - 3
years
  3 - 5
years
  More than
5 years
 

Contractual Obligations

                               

Asset retirement obligations—expected cash payments

  $ 7.1   $ 2.0   $ 2.1   $ 1.2   $ 1.8  

Long term debt:(1)

                               

0.625% Senior convertible notes

    650.0             650.0      

Estimated interest payments

    16.8     4.1     8.1     4.6      

Purchase obligations(2)

    150.0     141.2     5.5     0.4     2.9  

Operating lease obligations(2)

    118.7     26.6     44.8     28.1     19.2  

Pension and postretirement benefit payments(3)

    111.5     5.2     13.0     14.4     78.9  

Other non-current liabilities related to acquisition holdbacks(4)

    6.0         5.5     0.5      
                       

Total

  $ 1,060.1   $ 179.1   $ 79.0   $ 699.2   $ 102.8  
                       
                       

(1)
Refer to "Note 10. Debts and Letters of Credit" for more information.

(2)
Refer to "Note 17. Commitments and Contingencies" for more information.

(3)
Refer to "Note 15. Employee Benefit Plans" for more information.

(4)
Refer to "Note 5. Mergers and Acquisitions" for more information.

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        As of June 28, 2014, we have accrued in our Consolidated Balance Sheets $13.1 million in connection with restructuring and related activities relating to our operating lease obligations disclosed above, of which $3.8 million was included in Other current liabilities and $9.3 million was included in Other non-current liabilities.

        Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Of the $150.0 million of purchase obligations as of June 28, 2014, $48.1 million are related to inventory and the other $101.9 million are non-inventory items.

        As of June 28, 2014, our other non-current liabilities primarily relate to asset retirement obligations, pension and financing obligations which are presented in various lines in the preceding table.

        As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits including penalties and interest, the table does not include $28.2 million of such liabilities recorded on our consolidated balance sheet as of June 28, 2014.

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.

Acquisitions

        As part of our strategy, we are committed to the on-going evaluation of strategic opportunities and, where appropriate, the acquisition of additional products, technologies or businesses that are complementary to, or broaden the markets for our products. We believe we strengthened our business model by expanding our addressable market, customer base, and expertise, diversifying our product portfolio, and fortifying our core businesses through acquisition as well as through organic initiatives.

        In January 2014, we completed the acquisition of Network Instruments, a privately-held U.S. company and leading developer of enterprise network and application-performance management solutions for global 2000 companies. The acquisition further strengthens our position as a key solutions provider to the enterprise, data center and cloud networking markets. In order to improve application performance, reduce costs and address increasing network complexity, enterprise network administrators are rapidly transforming their IT networks while embracing today's most critical technology initiatives such as unified communications, cloud, and data center consolidation. Network Instruments helps enterprises simplify the management and optimization of their networks with high-performance solutions that provide actionable intelligence and deep network visibility. We acquired all outstanding shares of Network Instruments for a total purchase price of $208.5 million in cash, including holdback payments of approximately $20.0 million.

        Also in January 2014, we completed the acquisition of Time-Bandwidth, a privately-held provider of high powered and ultrafast lasers for industrial and scientific markets. Use of ultrafast lasers for micromachining applications is being driven primarily by increasing use of consumer electronics and connected devices globally. Manufacturers are taking advantage of high-power and ultrafast lasers to create quality micro parts for consumer electronics and to process semiconductor chips for consumer devices. Time-Bandwidth's technology complements our current laser portfolio, while enabling Time-Bandwidth to leverage our high volume and low-cost manufacturing model, global sales team and channel relationships. We acquired all outstanding shares of Time-Bandwidth for a total purchase price of $15.0 million in cash, including a holdback payment of approximately $2.3 million.

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        In December 2013, we acquired certain technology and other assets from Trendium, a privately-held provider of real-time intelligence software solutions for customer experience assurance ("CEA"), asset optimization and monetization of big data for 4G/LTE mobile network operators. The addition of Trendium employees and technology enables the Company to introduce a new paradigm of CEA, enabling operators of 4G/LTE networks to achieve a real and relevant improvement in customer satisfaction while maximizing productivity and profitability for dynamic converged 4G/LTE networks and beyond. We acquired certain technology and other assets from Trendium for a total purchase price of $26.1 million in cash, including a holdback payment of approximately $2.5 million.

        In March 2013, we completed the acquisition of Arieso based in the United Kingdom. We acquired tangible and intangible assets and assumed liabilities of Arieso for a total purchase price of approximately $89.7 million in cash, including holdback payments of approximately $12.8 million.

        In August 2012, we completed the acquisition of GenComm based in Seoul, South Korea. We acquired tangible and intangible assets and assumed liabilities of GenComm for a total purchase price of approximately $15.2 million in cash, including holdback payments of approximately $3.8 million.

        In January 2012, we completed the acquisition of Dyaptive based in Vancouver, Canada. We acquired tangible and intangible assets and assumed liabilities of Dyaptive for a total purchase price of approximately CAD 14.9 million (USD 14.8 million) in cash, including a holdback payment of approximately CAD 2.0 million (USD 2.0 million).

        Please refer to "Note 5. Mergers and Acquisitions" of our Notes to Consolidated Financial Statements.

Employee Equity Incentive Plan

        Our stock option and Full Value Award program is a broad-based, long-term retention program that is intended to attract and retain employees and align stockholder and employee interests. As of June 28, 2014, we have available for issuance 8.2 million shares of common stock for grant primarily under our Amended and Restated 2003 Equity Incentive Plan (the "2003 Plan") and 2005 Acquisition Equity Incentive Plan (the "2005 Plan"). The exercise price for the options is equal to the fair market value of the underlying stock at the date of grant. Options generally become exercisable over a three-year or four-year period and, if not exercised, expire from five to ten years post grant date. Full Value Awards are performance-based, time-based, or a combination of both and are expected to vest over one to four years. The fair value of the time-based Full Value Awards is based on the closing market price of our common stock on the grant date of the award. Refer to "Note 14. Stock-Based Compensation" for more information.

Pension and Other Postretirement Benefits

        As a result of acquiring Acterna, Inc. ("Acterna") in August 2005, NSD in May 2010, and Time-Bandwidth in January 2014, we sponsor significant pension plans for certain past and present employees in the United Kingdom ("U.K."), Germany and Switzerland. We are also responsible for the non-pension post-retirement benefit obligation assumed from a past acquisition. Most of these plans have been closed to new participants and no additional service costs are being accrued, except for certain plans in Germany and Switzerland assumed in connection with acquisitions during fiscal 2010 and the third quarter of fiscal 2014. The U.K. plan and Switzerland plan are partially funded and the German plans, which were initially established as "pay-as-you-go" plans, are unfunded. As of June 28, 2014, our pension plans were under funded by $110.4 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.

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        We anticipate future annual outlays related to the German plans will approximate estimated future benefit payments. These future benefit payments have been estimated based on the same actuarial assumptions used to measure our projected benefit obligation and currently are forecasted to range between $4.2 million and $5.8 million per annum. In addition, we expect to contribute approximately $0.8 million and $0.3 million to the U.K. and Switzerland plans during fiscal 2015.

        During fiscal 2014 and fiscal 2013, we contributed GBP 0.5 million or approximately $0.7 million in each fiscal year to our U.K. pension plan. These contributions allowed the Company to comply with regulatory funding requirements.

        A key actuarial assumption in calculating the net periodic cost and the PBO is the discount rate. Changes in the discount rate impact the interest cost component of the net periodic benefit cost calculation and PBO due to the fact that the PBO is calculated on a net present value basis. Decreases in the discount rate will generally increase pre-tax cost, recognized expense and the PBO. Increases in the discount rate tend to have the opposite effect. We estimate a 50 basis point ("BPS") decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of approximately $9.7 million based upon data as of June 28, 2014.

Liquidity and Capital Resources Requirement

        Our primary liquidity and capital spending requirements over at least the next 12 months will be the funding of our operating activities and capital expenditures. As of June 28, 2014 our expected commitments for capital expenditures totaled approximately $25.2 million. We believe our existing cash balances and investments will be sufficient to meet our liquidity and capital spending requirements for at least the next 12 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;

    the tendency of customers to delay payments or to negotiate favorable payment term to manage their own liquidity positions;

    timing of payments to our suppliers;

    factoring or sale of accounts receivable;

    volatility in fixed income and credit which impact the liquidity and valuation of our investment portfolios;

    volatility in foreign exchange markets which impacts our financial results;

    possible investments or acquisitions of complementary businesses, products or technologies;

    issuance or repurchase of debt or equity securities;

    potential funding of pension liabilities either voluntarily or as required by law or regulation, and

    compliance with covenants and other terms and conditions related to our financing arrangements.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

        We utilize foreign exchange forward contracts and other instruments, including option contracts, to hedge foreign currency risk associated with foreign currency denominated monetary assets and liabilities, primarily certain short-term intercompany receivables and payables. Our foreign exchange forward contracts and other instruments are accounted for as derivatives whereby the fair value of the contracts are reflected as other current assets or other current liabilities and the associated gains and losses are reflected in Interest and other income (expense), net in the Consolidated Statements of Operations. Our hedging programs reduce, but do not eliminate, the impact of currency exchange rate movements. The gains and losses on those derivatives are expected to be offset by re-measurement gains and losses on the foreign currency denominated monetary assets and liabilities.

        The following table provides information about our foreign currency forward contracts outstanding as of June 28, 2014. The forward contracts, most with a term of less than 120 days, were transacted near quarter end; therefore, the fair value of the contracts is not significant.

(in millions)
  Contract
Amount
(Local Currency)
  Contract
Amount
(USD)
 

Australian Dollar (contracts to sell AUD / buy USD)

  AUD     6.5     6.0  

Brazilian Real (contracts to sell BRL / buy USD)

  BRL     25.5     11.2  

Canadian Dollar (contracts to buy CAD / sell USD)

  CAD     61.9     57.6  

Swiss Franc (contracts to buy CHF / sell USD)

  CHF     2.7     3.0  

Chinese Renmimbi (contracts to buy CNY / sell USD)

  CNY     218.7     34.9  

Euro (contracts to buy EUR / sell USD)

  EUR     60.0     81.8  

British Pound (contracts to buy GBP / sell USD)

  GBP     3.6     6.1  

Indian Rupee (contracts to sell INR / buy USD)

  INR     252.7     4.1  

Japanese Yen (contracts to buy JPY / sell USD)

  JPY     347.0     3.4  

South Korean Won (contracts to buy KRW / sell USD)

  KRW     2,635.0     2.6  

Mexican Peso (contracts to buy MXN / sell USD)

  MXN     91.5     7.0  

Swedish Krona (contracts to buy SEK / sell USD)

  SEK     34.0     5.0  

Singapore Dollar (contracts to sell SGD / buy USD)

  SGD     46.7     37.4  
                 

Total notional amount of outstanding Foreign Exchange Contracts

            $ 260.1  
                 
                 

        The counterparties to these hedging transactions are creditworthy multinational banks. The risk of counterparty nonperformance associated with these contracts is not considered to be material. Notwithstanding our efforts to mitigate some foreign exchange risks, we do not hedge all of our foreign currency exposures, and there can be no assurances that our mitigating activities related to the exposures that we do hedge will adequately protect us against the risks associated with foreign currency fluctuations.

Investments

        We maintain an investment portfolio in a variety of financial instruments, including, but not limited to, U.S. government and agency securities, corporate obligations, money market funds, asset-backed securities, and other investment-grade securities. The majority of these investments pay a fixed rate of interest. The securities in the investment portfolio are subject to market price risk due to changes in interest rates, perceived issuer creditworthiness, marketability, and other factors. These investments are generally classified as available-for-sale and, consequently, are recorded on our Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of Other comprehensive (loss) income.

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        Investments in both fixed-rate and floating-rate interest earning instruments carry a degree of interest rate risk. The fair market values of our fixed-rate securities decline if interest rates rise, while floating-rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may be less than expectations because of changes in interest rates or we may suffer losses in principal if we sell securities that have experienced a decline in market value because of changes in interest rates.

        The following table (in millions) presents the hypothetical changes in fair value in the available-for-sale debt instruments held at June 28, 2014 that are sensitive to changes in interest rates. These instruments are not leveraged or hedged and are held for purposes other than trading. Investments in money market funds and similar investment funds that seek to maintain a constant net asset value per unit of investment are not considered to be subject to market price risk and are not included in this sensitivity analysis. The modeling technique used measures the change in fair values arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 BPS, 100 BPS and 150 BPS with a yield floor of zero. Beginning fair values represent the market value, excluding accrued interest as of June 28, 2014.

 
  Valuation of Securities
Given an
Interest Rate Decrease of
"X" BPS
   
  Valuation of Securities
Given an
Interest Rate Increase of
"X" BPS
 
 
  Fair
Value as of
June 28,
2014
 
 
  150 BPS   100 BPS   50 BPS   50 BPS   100 BPS   150 BPS  

U.S. treasuries

  $ 36.8   $ 36.8   $ 36.8   $ 36.7   $ 36.5   $ 36.4   $ 36.2  

U.S. agencies

    69.9     69.9     69.9     69.8     69.6     69.4     69.3  

Municipals and Sovereign

    16.8     16.8     16.8     16.7     16.7     16.6     16.6  

Asset-backed securities

    94.8     94.8     94.8     94.5     94.3     94.0     93.7  

Corporate securities

    370.1     370.1     370.0     369.4     368.5     367.7     366.9  
                               

Total

  $ 588.4   $ 588.4   $ 588.3   $ 587.1   $ 585.6   $ 584.1   $ 582.7  
                               
                               

        We seek to mitigate the credit risk of our portfolio of fixed-income securities by holding only high-quality, investment-grade obligations with effective maturities of 37 months or less. We also seek to mitigate marketability risk by holding only highly-liquid securities with active secondary or resale markets. However, the investments may decline in value or marketability due to changes in perceived credit quality or changes in market conditions.

Long-term Debt

        The fair market value of our 2033 Notes is subject to interest rate and market price risk due to the convertible feature of the notes and other factors. Generally, the fair market value of fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The fair market value of the notes may also increase as the market price of JDSU stock rises and decrease as the market price of our stock falls. Changes in interest rates and JDSU stock price affects the fair market value of the notes but does not impact our financial position, cash flows or results of operations. Based on quoted market prices, as of June 28, 2014, the fair market value of the 2033 Notes was approximately $653.0 million. Refer to "Note 10. Debts and Letters of Credit" for more information.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of JDS Uniphase Corporation:

        In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of JDS Uniphase Corporation and its subsidiaries at June 28, 2014 and June 29, 2013, and the results of their operations and their cash flows for each of the three years in the period ended June 28, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 28, 2014, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As described in Management's Report on Internal Control over Financial Reporting, management has excluded Network Instruments ("NI") from its assessment of internal control over financial reporting as of June 28, 2014 because it was acquired by the Company in a purchase business combination during fiscal 2014. We have also excluded NI from our audit of internal control over financial reporting. NI is a wholly-owned subsidiary whose total assets and total net revenue represented approximately 1% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended June 28, 2014.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
August 26, 2014

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JDS UNIPHASE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012
 

Net revenue

  $ 1,743.2   $ 1,676.9   $ 1,662.4  

Cost of sales

    915.7     919.0     898.3  

Amortization of acquired technologies

    43.2     63.3     58.6  
               

Gross profit

    784.3     694.6     705.5  
               

Operating expenses:

                   

Research and development

    296.0     258.5     244.0  

Selling, general and administrative

    450.4     429.3     427.0  

Amortization of other intangibles

    15.8     12.7     21.7  

Restructuring and related charges

    23.8     19.0     12.4  
               

Total operating expenses

    786.0     719.5     705.1  
               

(Loss) income from operations

    (1.7 )   (24.9 )   0.4  

Interest and other income (expense), net

    0.5     (4.1 )   12.8  

Interest expense

    (29.7 )   (17.9 )   (27.3 )
               

Loss from continuing operations before income taxes

    (30.9 )   (46.9 )   (14.1 )

(Benefit from) provision for income taxes

    (13.1 )   (103.9 )   12.0  
               

(Loss) income from continuing operations, net of tax

    (17.8 )   57.0     (26.1 )

Loss from discontinued operations, net of tax

            (29.5 )
               

Net (loss) income

  $ (17.8 ) $ 57.0   $ (55.6 )
               
               

Basic net (loss) income per share from:

                   

Continuing operations

  $ (0.08 ) $ 0.24   $ (0.11 )

Discontinued operations

            (0.13 )
               

Net (loss) income

  $ (0.08 ) $ 0.24   $ (0.24 )
               
               

Diluted net (loss) income per share from:

                   

Continuing operations

  $ (0.08 ) $ 0.24   $ (0.11 )

Discontinued operations

            (0.13 )
               

Net (loss) income

  $ (0.08 ) $ 0.24   $ (0.24 )
               
               

Shares used in per share calculation:

                   

Basic

    234.2     235.0     230.0  

Diluted

    234.2     239.3     230.0  

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012
 

Net (loss) income

  $ (17.8 ) $ 57.0   $ (55.6 )

Other comprehensive (loss) income:

                   

Net change in cumulative translation adjustment, net of tax

    9.8     5.8     (9.4 )

Net change in available-for-sale investments, net of tax

                   

Unrealized gains arising during period, net of tax

    0.4     0.2      

Less: reclassification adjustments included in Net (loss) income

    (0.1 )   (0.5 )   (1.2 )

Net change in defined benefit obligation, net of tax

                   

Unrealized actuarial losses arising during the period

    (7.7 )   (4.4 )   (14.3 )

Amortization of actuarial losses (gains)

    0.1         (0.4 )
               

Net change in Accumulated other comprehensive income (loss)

    2.5     1.1     (25.3 )
               

Comprehensive (loss) income

  $ (15.3 ) $ 58.1   $ (80.9 )
               
               

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value data)

 
  June 28,
2014
  June 29,
2013
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 297.2   $ 281.0  

Short-term investments

    552.2     205.2  

Restricted cash

    31.9     29.7  

Accounts receivable, net (Note 6)

    296.2     273.3  

Inventories, net

    153.3     145.8  

Prepayments and other current assets

    78.7     95.3  
           

Total current assets

    1,409.5     1,030.3  

Property, plant and equipment, net

    288.8     247.0  

Goodwill

    267.0     115.1  

Intangibles, net

    177.8     149.7  

Deferred income taxes

    183.3     155.5  

Other non-current assets

    25.5     17.6  
           

Total assets

  $ 2,351.9   $ 1,715.2  
           
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             

Accounts payable

  $ 137.1   $ 97.7  

Accrued payroll and related expenses

    79.9     77.0  

Income taxes payable

    21.4     18.7  

Deferred revenue

    77.5     71.9  

Accrued expenses

    34.8     37.1  

Other current liabilities

    57.7     45.3  
           

Total current liabilities

    408.4     347.7  
           

Long-term debt

    536.3      

Other non-current liabilities

    219.5     206.2  

Commitments and contingencies (Note 17)

             

Stockholders' equity:

             

Preferred Stock, $0.001 par value; 1 million shares authorized; 1 share at June 28, 2014 and June 29, 2013, issued and outstanding

         

Common Stock, $0.001 par value; 1 billion shares authorized; 230 million shares at June 28, 2014 and 237 million shares at June 29, 2013, issued and outstanding

    0.2     0.2  

Additional paid-in capital

    69,957.0     69,760.1  

Accumulated deficit

    (68,780.6 )   (68,607.6 )

Accumulated other comprehensive income

    11.1     8.6  
           

Total stockholders' equity

    1,187.7     1,161.3  
           

Total liabilities and stockholders' equity

  $ 2,351.9   $ 1,715.2  
           
           

   

See accompanying notes to consolidated financial statements.

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JDS UNIPHASE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012
 

OPERATING ACTIVITIES:

                   

Net (loss) income

  $ (17.8 ) $ 57.0   $ (55.6 )

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

                   

Depreciation expense

    72.5     68.4     70.3  

Amortization of acquired technologies and other intangibles

    59.0     76.2     87.5  

Stock-based compensation

    64.1     56.5     49.1  

Amortization of debt issuance costs and accretion of debt discount

    22.9     12.9     20.9  

Loss on disposal and impairment of long-lived assets

    1.9     3.5     22.7  

Other

    6.4     4.9     4.5  

Changes in operating assets and liabilities, net of impact of acquisitions of businesses and dispositions of assets:

                   

Accounts receivable

    (9.6 )   39.2     17.2  

Inventories

    (3.2 )   27.2     (7.7 )

Other current and non-current assets

    5.4     (15.3 )   (14.8 )

Accounts payable

    25.9     (16.1 )   (29.2 )

Income taxes payable

    1.3     0.1     (0.8 )

Deferred revenue, current and non-current

    2.7     1.1     (5.1 )

Deferred taxes, net

    (33.1 )   (119.5 )   (3.5 )

Accrued payroll and related expenses

    (19.6 )   (9.4 )   (25.3 )

Accrued expenses and other current and non-current liabilities

    (2.2 )   1.1     (11.1 )
               

Net cash provided by operating activities

    176.6     187.8     119.1  
               

INVESTING ACTIVITIES:

                   

Purchases of available-for-sale investments

    (1,072.9 )   (466.6 )   (444.8 )

Maturities of available-for-sale investments

    480.9     287.7     316.6  

Sales of available-for-sale investments

    249.1     288.9     101.6  

Changes in restricted cash

    (2.3 )   1.6     3.5  

Acquisitions of businesses, net of cash acquired

    (216.0 )   (83.2 )   (12.5 )

Capital expenditures

    (99.8 )   (65.1 )   (72.2 )

Proceeds from the sales of a business and assets, net of selling costs

    9.2     11.7     2.1  
               

Net cash used in investing activities

    (651.8 )   (25.0 )   (105.7 )
               

FINANCING ACTIVITIES:

                   

Proceeds from issuance of senior convertible debt

    650.0          

Payment of debt issuance costs

    (13.5 )   (0.2 )   (1.9 )

Repurchase and retirement of common stock

    (155.2 )        

Redemption of senior convertible debt

        (306.8 )   (13.2 )

Payment of financing obligations

    (14.2 )   (2.5 )   (11.6 )

Proceeds from financing obligations

            6.9  

Proceeds from exercise of employee stock options and employee stock purchase plan

    22.5     25.7     17.9  
               

Net cash provided by (used in) financing activities

    489.6     (283.8 )   (1.9 )
               

Effect of exchange rates on cash and cash equivalents

    1.8     0.9     (5.8 )

Increase (decrease) in cash and cash equivalents

    16.2     (120.1 )   5.7  

Cash and cash equivalents at beginning of period

    281.0     401.1     395.4  
               

Cash and cash equivalents at end of period

  $ 297.2   $ 281.0   $ 401.1  
               
               

Supplemental disclosure of cash flow information:

                   

Cash paid for interest

  $ 4.6   $ 4.8   $ 6.0  

Cash paid for taxes

    18.7     14.3     16.2  

Non-cash transactions:

                   

Purchase of infrastructure technology equipment and licenses

            3.2  

   

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in millions)

 
  Common Stock    
   
  Accumulated
Other
Comprehensive
Income
   
 
 
  Additional
Paid-In
Capital
  Accumulated
Deficit
   
 
 
  Shares   Amount   Total  

Balance at July 2, 2011

    227.6   $ 0.2   $ 69,641.4   $ (68,609.0 ) $ 32.8   $ 1,065.4  

Net loss

                (55.6 )       (55.6 )

Comprehensive loss

                    (25.3 )   (25.3 )

Shares issued under employee stock plans, net of tax effects

    4.3         5.0             5.0  

Stock-based compensation

            49.5             49.5  

Reacquisition of equity component related to convertible debt repurchase

            (0.2 )           (0.2 )
                           

Balance at June 30, 2012

    231.9     0.2     69,695.7     (68,664.6 )   7.5     1,038.8  

Net income

                57.0         57.0  

Comprehensive income

                    1.1     1.1  

Shares issued under employee stock plans, net of tax effects

    5.5         9.9             9.9  

Stock-based compensation

            56.5             56.5  

Reacquisition of equity component related to convertible debt repurchase

            (2.0 )           (2.0 )
                           

Balance at June 29, 2013

    237.4   $ 0.2   $ 69,760.1   $ (68,607.6 ) $ 8.6   $ 1,161.3  

Net loss

                (17.8 )       (17.8 )

Comprehensive income

                    2.5     2.5  

Shares issued under employee stock plans, net of tax effects

    5.3         1.4             1.4  

Stock-based compensation

            64.0             64.0  

Repurchases of common stock

    (12.3 )           (155.2 )       (155.2 )

Equity component related to issuance of senior convertible notes, net of equity component issuance costs

            131.5             131.5  
                           

Balance at June 28, 2014

    230.4   $ 0.2   $ 69,957.0   $ (68,780.6 ) $ 11.1   $ 1,187.7  
                           
                           

   

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business and Summary of Significant Accounting Policies

Description of Business

        JDS Uniphase Corporation ("JDSU," also referred to as "the Company," "we," "our," and "us") is a leading provider of network and service enablement solutions and optical products for telecommunications service providers, wireless operators, cable operators, network-equipment manufacturers ("NEMs") and enterprises. JDSU is also an established leader in providing anti-counterfeiting technologies for currencies and other high-value documents and products. In addition, we leverage our core networking and optical technology expertise to deliver high-powered commercial lasers for manufacturing applications and expand into emerging markets, including 3D sensing solutions for consumer electronics.

Fiscal Years

        The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30th. The Company's fiscal 2014 ended on June 28, 2014 and was a 52-week year. The Company's fiscal 2013 ended on June 29, 2013 and was a 52-week year. The Company's fiscal 2012 ended on June 30, 2012 and was a 52-week year.

Principles of Consolidation

        The consolidated financial statements have been prepared in accordance in accordance with U.S. GAAP and include the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated.

Fiscal 2013 Out-of-Period Adjustments

        During the year ended June 29, 2013, the Company recorded out-of-period adjustments that impacted cost of sales and other income related to prior fiscal years. The impact of the out-of-period adjustments recorded by the Company resulted in a $2.5 million increase in net income during the year ended June 29, 2013. Management and the Audit Committee have concluded these errors, both individually and in aggregate, were not material to any prior year financial statements and the impact of correcting these errors in fiscal 2013 was not material to the full year fiscal 2013 financial statements.

Discontinued Operations

        During the second quarter of fiscal 2013, the Company closed the sale of its hologram business ("Hologram Business") to OpSec Security Inc. for $11.5 million in cash. The Consolidated Statements of Operations have been recast to present the Hologram Business as discontinued operations as described in "Note 19. Discontinued Operations." Unless noted otherwise, discussion in the Notes to Consolidated Financial Statements pertain to continuing operations.

Use of Estimates

        The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires Company management ("Management") to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenue and expenses and the disclosure of commitments and contingencies during the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

reporting periods. The Company bases estimates on historical experience and on various assumptions about the future believed to be reasonable based on available information. The Company's reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect more current information.

Cash and Cash Equivalents

        The Company considers highly-liquid instruments such as treasury bills, commercial paper and other money market instruments with original maturities of 90 days or less at the time of purchase to be cash equivalents.

Restricted Cash

        At June 28, 2014 and June 29, 2013, the Company's short-term restricted cash balances were $31.9 million and $29.7 million, respectively, and the Company's long-term restricted cash balances were $6.6 million and $6.5 million, respectively. These balances primarily include interest-bearing investments in bank certificates of deposit and money market funds which act as collateral supporting the issuance of letters of credit and performance bonds for the benefit of third parties.

Investments

        The Company's investments in debt securities and marketable equity securities are primarily classified as available-for-sale investments or trading securities and are recorded at fair value. The cost of securities sold is based on the specific identification method. Unrealized gains and losses on available-for-sale investments, net of tax, are reported as a separate component of stockholders' equity. Unrealized gains or losses on trading securities resulting from changes in fair value are recognized in current earnings. The Company's short-term investments, which are classified as current assets, include certain securities with stated maturities of longer than twelve months as they are highly liquid and available to support current operations.

        The Company periodically reviews these investments for impairment. If a debt security's market value is below amortized cost and the Company either intends to sell the security or it is more likely than not that the Company will be required to sell the security before its anticipated recovery, the Company records an other-than-temporary impairment charge to investment income (loss) for the entire amount of the impairment; if a debt security's market value is below amortized cost and the Company does not expect to recover the entire amortized cost of the security, the Company separates the other-than-temporary impairment into the portion of the loss related to credit factors, or the credit loss portion, and the portion of the loss that is not related to credit factors, or the non-credit loss portion. The credit loss portion is the difference between the amortized cost of the security and the Company's best estimate of the present value of the cash flows expected to be collected from the debt security. The non-credit loss portion is the residual amount of the other-than-temporary impairment. The credit loss portion is recorded as a charge to income (loss), and the non-credit loss portion is recorded as a separate component of Other comprehensive income (loss).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

Fair Value of Financial Instruments

        The carrying amounts of certain of the Company's financial instruments, including cash equivalents, accounts receivable, accounts payable, and deferred compensation liability, approximate fair value because of their short maturities. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. There is an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the assumptions about the factors that market participants would use in valuing the asset or liability.

        Estimates of fair value of fixed-income securities are based on third party, market-based pricing sources which the Company believes to be reliable. These estimates represent the third parties' good faith opinion as to what a buyer in the marketplace would pay for a security in a current sale. For instruments that are not actively traded, estimates may be based on current treasury yields adjusted by an estimated market credit spread for the specific instrument. The fair market value of the Company's 2033 Notes fluctuates with interest rates and with the market price of the stock, but does not affect the carrying value of the debt on the balance sheet. Refer to the Company's "Note 10. Debts and Letters of Credit" for more information.

Inventories

        Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable market value. The Company assesses the valuation on a quarterly basis and writes down the value for estimated excess and obsolete inventory based upon estimates of future demand, including warranty requirements.

Property, Plant and Equipment

        Property, plant and equipment are stated at cost. Depreciation is computed by the straight-line method over the following estimated useful lives of the assets: 10 to 50 years for building and improvements, 2 to 20 years for machinery and equipment, and 2 to 5 years for furniture, fixtures, software and office equipment. Leasehold improvements are amortized by the straight-line method over the shorter of the estimated useful lives of the assets or the term of the lease. Demonstration units, which are Company products used for demonstration purposes for customers and/or potential customers and generally not intended to be sold, have an estimated useful life of 5 years and are amortized by the straight-line method.

        Costs related to software acquired, developed or modified solely to meet the Company's internal requirements and for which there are no substantive plans to market are capitalized in accordance with the authoritative guidance on accounting for the costs of computer software developed or obtained for internal use. Only costs incurred after the preliminary planning stage of the project and after management has authorized and committed funds to the project are eligible for capitalization. Costs capitalized for computer software developed or obtained for internal use are included in Property, plant and equipment, net on the Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)


Goodwill

        Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable assets acquired and liabilities assumed. The Company tests for impairment of goodwill on an annual basis in the fourth quarter and at any other time when events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable. Refer to "Note 8. Goodwill" for more information.

        Circumstances that could trigger an impairment test include, but are not limited to: a significant adverse change in the business climate or legal factors, an adverse action or assessment by a regulator, change in customer, target market and strategy, unanticipated competition, loss of key personnel, or the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed.

        An assessment of qualitative factors may be performed to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. If the result of the qualitative assessment is that it is more likely than not (i.e. > 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, then the quantitative test is required. Otherwise, no further testing is required.

        Under the quantitative test, if the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recorded in the Consolidated Statements of Operations as "Impairment of goodwill." Measurement of the fair value of a reporting unit is based on one or more of the following fair value measures: amounts at which the unit as a whole could be bought or sold in a current transaction between willing parties, using present value techniques of estimated future cash flows, or using valuation techniques based on multiples of earnings or revenue, or a similar performance measure.

Intangible Assets

        Intangible assets consist primarily of purchased intangible assets through acquisitions. Purchased intangible assets primarily include acquired developed technologies (developed and core technology), customer relationships, proprietary know-how, trade secrets, and trademarks and trade names. Intangible assets are amortized using the straight-line method over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets.

Long-lived Asset Valuation (Property, Plant and Equipment and Intangible Assets)

Long-lived assets held and used

        The Company tests long-lived assets for recoverability, at the asset group level, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset, significant adverse changes in the business climate or legal factors, accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset, current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset, or current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

        Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.

Long-lived assets held for sale

        Long-lived assets are classified as held for sale when certain criteria are met, which include: Management's commitment to a plan to sell the assets, the availability of the assets for immediate sale in their present condition, an active program to locate buyers and other actions to sell the assets has been initiated, whether the sale of the assets is probable and their transfer is expected to qualify for recognition as a completed sale within one year, whether the assets are being marketed at reasonable prices in relation to their fair value, and how unlikely it is that significant changes will be made to the plan to sell the assets.

        The Company measures long-lived assets to be disposed of by sale at the lower of carrying amount or fair value less cost to sell. Fair value is determined using quoted market prices or the anticipated cash flows discounted at a rate commensurate with the risk involved.

Pension and Other Postretirement Benefits

        The funded status of the Company's retirement-related benefit plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at fiscal year end, the measurement date. For defined benefit pension plans, the benefit obligation is the projected benefit obligation ("PBO") and for the non-pension postretirement benefit plan the benefit obligation is the accumulated postretirement benefit obligation ("APBO"). The PBO represents the actuarial present value of benefits expected to be paid upon retirement. The APBO represents the actuarial present value of postretirement benefits attributed to employee services already rendered. Unfunded or partially funded plans, with the benefit obligation exceeding the fair value of plan assets, are aggregated and recorded as a retirement and non-pension postretirement benefit obligation equal to this excess. The current portion of the retirement-related benefit obligation represents the actuarial present value of benefits payable in the next 12 months in excess of the fair value of plan assets, measured on a plan-by-plan basis. This liability is recorded in Other current liabilities in the Consolidated Balance Sheets.

        Net periodic pension cost (income) is recorded in the Consolidated Statements of Operations and includes service cost, interest cost, expected return on plan assets, amortization of prior service cost and (gains) losses previously recognized as a component of accumulated other comprehensive income. Service cost represents the actuarial present value of participant benefits attributed to services rendered by employees in the current year. Interest cost represents the time value of money cost associated with the passage of time. (Gains) losses arise as a result of differences between actual experience and assumptions or as a result of changes in actuarial assumptions. Prior service cost (credit) represents the cost of benefit improvements attributable to prior service granted in plan amendments. (Gains) losses and prior service cost (credit) not recognized as a component of net periodic pension cost (income) in the Consolidated Statements of Operations as they arise are recognized as a component of Accumulated other comprehensive income on the Consolidated Balance Sheets, net of tax. Those (gains) losses and prior service cost (credit) are subsequently recognized as a component of net

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

periodic pension period cost (income) pursuant to the recognition and amortization provisions of the authoritative guidance.

        The measurement of the benefit obligation and net periodic pension cost (income) is based on the Company's estimates and actuarial valuations provided, by third-party actuaries, which are approved by Management. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions, including estimates of discount rates, expected return on plan assets, rate of compensation increases, and mortality rates. The Company evaluates these assumptions annually at a minimum. In estimating the expected return on plan assets, the Company considers historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plan's invested assets.

Concentration of Credit and Other Risks

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, trade receivables and foreign currency forward contracts. The Company's cash and cash equivalents and short-term investments are held in safekeeping by large, creditworthy financial institutions. The Company invests its excess cash primarily in U.S. government and agency bonds securities, corporate securities, money market funds, asset-backed securities, and other investment-grade securities. The Company has established guidelines relative to credit ratings, diversification and maturities that seek to maintain safety and liquidity of these investments. The Company's foreign exchange derivative instruments expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the agreements. The Company seeks to mitigate such risk by limiting its counterparties to major financial institutions and by spreading such risk across several major financial institutions. In addition, the potential risk of loss with any one counterparty resulting from such risk is monitored by the Company on an ongoing basis.

        The Company performs credit evaluations of its customers' financial condition and generally does not require collateral from its customers. These evaluations require significant judgment and are based on a variety of factors including, but not limited to, current economic trends, historical payment, bad debt write-off experience, and financial review of the customer.

        The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. When the Company becomes aware that a specific customer is unable to meet its financial obligations, the Company records a specific allowance to reflect the level of credit risk in the customer's outstanding receivable balance. In addition, the Company records additional allowances based on certain percentages of aged receivable balances. These percentages take into account a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. The Company classifies bad debt expenses as selling, general and administrative ("SG&A") expense.

        The Company is not able to predict changes in the financial stability of its customers. Any material change in the financial status of any one or a group of customers could have a material adverse effect on the Company's results of operations and financial condition. Although such losses have been within management's expectations to date, there can be no assurance that such allowances will continue to be adequate. The Company has significant trade receivables concentrated in the telecommunications

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

industry. While the Company's allowance for doubtful accounts balance is based on historical loss experience along with anticipated economic trends, unanticipated financial instability in the telecommunications industry could lead to higher than anticipated losses. No one customer accounted for greater than 10% of accounts receivables or revenue during the periods presented.

        The Company generally uses a rolling twelve month forecast based on anticipated product orders, customer forecasts, product order history and backlog to determine its materials requirements. Lead times for the parts and components that the Company orders vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. If the forecast does not meet actual demand, the Company may have excess or shortfalls of some materials and components, as well as excess inventory purchase commitments. The Company could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase costs and could have a material adverse impact on the Company's results of operations.

Foreign Currency Forward Contracts

        The Company conducts its business and sells its products to customers primarily in North America, Europe and Asia. In the normal course of business, the Company's financial position is routinely subject to market risks associated with foreign currency rate fluctuations due to balance sheet positions in foreign currencies. The Company evaluates foreign exchange risks and utilizes foreign currency forward contracts to reduce such risks, hedging the gains or losses generated by the re-measurement of significant foreign currency denominated monetary assets and liabilities. The fair value of these contracts is reflected as other assets or other liabilities and the change in fair value of these foreign currency forward contracts is recorded as income or loss in the Company's Consolidated Statements of Operations as a component of Interest and other income (expense), net to largely offset the change in fair value of the foreign currency denominated monetary assets and liabilities which is also recorded as a component of Interest and other income (expense), net.

Foreign Currency Translation

        Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where that local currency is the functional currency, are translated into U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of Accumulated other comprehensive income, within the Consolidated Statements of Stockholder's Equity. Income and expense accounts are translated at the prior month balance sheet exchange rates, which are deemed to approximate average monthly rate. Gains and losses from re-measurement of assets and liabilities denominated in currencies other than the respective functional currencies are included in the Consolidated Statements of Operations as a component of Interest and other income (expense), net.

Revenue Recognition

        The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Delivery does not occur until products have been shipped or services have been provided, risk of loss

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

has transferred and in cases where formal acceptance is required, customer acceptance has been obtained or customer acceptance provisions have lapsed. In situations where a formal acceptance is required but the acceptance only relates to whether the product meets its published specifications, revenue is recognized upon shipment provided all other revenue recognition criteria are met. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

        The Company reduces revenue for rebates and other similar allowances. Revenue is recognized only if these estimates can be reliably determined. The Company's estimates are based on its historical results taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

        In addition to the aforementioned general policies, the following are the specific revenue recognition policies for multiple-element arrangements and for each major category of revenue.

Multiple-Element Arrangements

        When a sales arrangement contains multiple deliverables, such as sales of products that include services, the multiple deliverables are evaluated to determine whether there are one or more units of accounting. Where there is more than one unit of accounting, then the entire fee from the arrangement is allocated to each unit of accounting based on the relative selling price. Under this approach, the selling price of a unit of accounting is determined by using a selling price hierarchy which requires the use of vendor-specific objective evidence ("VSOE") of fair value if available, third-party evidence ("TPE") if VSOE is not available, or best estimate of selling price ("BESP") if neither VSOE nor TPE is available. Revenue is recognized when the revenue recognition criteria for each unit of accounting are met.

        The Company establishes VSOE of selling price using the price charged for a deliverable when sold separately and, in remote circumstances, using the price established by management having the relevant authority. TPE of selling price is established by evaluating similar and interchangeable competitor goods or services in sales to similarly situated customers. When VSOE or TPE are not available the Company then uses BESP. Generally, the Company is not able to determine TPE because its product strategy differs from that of others in our markets, and the extent of customization varies among comparable products or services from its peers. The Company establishes BESP using historical selling price trends and considering multiple factors including, but not limited to geographies, market conditions, competitive landscape, internal costs, gross margin objectives, and pricing practices. When determining BESP, the Company applies significant judgment in establishing pricing strategies and evaluating market conditions and product lifecycles.

        To the extent a deliverable(s) in a multiple-element arrangement is subject to specific guidance (for example, software that is subject to the authoritative guidance on software revenue recognition), the Company allocates the fair value of the units of accounting using relative selling price and that unit of accounting is accounted for in accordance with the specific guidance. Some product offerings include hardware that are integrated with or sold with software that delivers the functionality of the equipment. The Company believes this equipment is not considered software-related and would therefore be excluded from the scope of the authoritative guidance on software revenue recognition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

Hardware

        Revenue from hardware sales is recognized when the product is shipped to the customer and when there are no unfulfilled company obligations that affect the customer's final acceptance of the arrangement. Any cost of warranties and remaining obligations that are inconsequential or perfunctory are accrued when the corresponding revenue is recognized.

Services

        Revenue from services and system maintenance is typically recognized on a straight-line basis over the term of the contract. Revenue from time and material contracts is recognized at the contractual rates as labor hours are delivered and direct expenses are incurred. Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the delivery period. The Company also generates service revenue from hardware repairs and calibration which is recognized as revenue upon completion of the service.

Software

        The Company's software arrangements generally consist of a perpetual license fee and Post-Contract Support ("PCS"). Where the Company has established VSOE of fair value for PCS contracts, this has generally been based on the renewal rate or the bell curve methodology. Revenue from maintenance, unspecified upgrades and technical support is recognized over the period such items are delivered. In multiple-element revenue arrangements that include software, software-related and non-software-related elements are accounted for in accordance with the following policies.

    Non-software and software-related products are bifurcated based on a relative selling price

    Software-related products are separated into units of accounting if all of the following criteria are met:

    The functionality of the delivered element(s) is not dependent on the undelivered element(s).

    There is VSOE of fair value of the undelivered element(s).

    Delivery of the delivered element(s) represents the culmination of the earnings process for that element(s).

        If these criteria are not met, the software revenue is deferred until the earlier of when such criteria are met or when the last undelivered element is delivered. If there is VSOE of the undelivered item(s) but no such evidence for the delivered item(s), the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of consideration allocated to the delivered item(s) equals the total arrangement consideration less the aggregate VSOE of the undelivered elements. In cases where VSOE is not established for PCS, revenue is recognized ratably over the PCS period after all software elements have been delivered and the only undelivered item is PCS.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

Warranty

        The Company provides reserves for the estimated costs of product warranties at the time revenue is recognized. It estimates the costs of its warranty obligations based on its historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise.

Shipping and Handling Costs

        The Company records costs related to shipping and handling of revenue in cost of sales for all periods presented.

Advertising Expense

        The Company expenses advertising costs as incurred. Advertising costs totaled $2.2 million, $0.8 million and $1.2 million in fiscal 2014, 2013 and 2012, respectively.

Research and Development ("R&D") Expense

        Costs related to R&D, which primarily consists of labor and benefits, supplies, facilities, consulting and outside service fees, are charged to expense as incurred. The authoritative guidance allows for capitalization of software development costs incurred after a product's technological feasibility has been established until the product is available for general release to the public. To date, the period between achieving technological feasibility, which the Company has defined as the establishment of a working model and typically occurs when beta testing commences, and the general availability of such software has been very short. Accordingly, software development costs have been expensed as incurred.

Stock-Based Compensation

        Stock-based compensation is measured at grant date, based on the fair value of the award, and recognized in expense over the requisite service period. The fair value of the time-based Full Value Awards is based on the closing market price of the Company's common stock on the grant date of the award. The Company uses the Monte Carlo simulation to estimate the fair value of Full Value Awards with market conditions ("MSUs").The Company estimates the fair value of employee stock purchase plan awards ("ESPP") using the Black-Scholes Merton ("BSM") option-pricing model. This option-pricing model requires the input of highly subjective assumptions, including the award's expected life and the price volatility of the underlying stock.

        The Company estimates the expected forfeiture rate and only recognizes expense for those shares expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as future workforce reduction programs. Estimated forfeiture is trued up to actual forfeiture as the equity awards vest. The total fair value of the equity awards, net of forfeiture, is recorded on a straight-line basis over the requisite service period of the awards, which is generally the vesting period, except for MSUs which are amortized based upon graded vesting method.

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Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)


Income Taxes

        In accordance with the authoritative guidance on accounting for income taxes, the Company recognizes income taxes using an asset and liability approach. This approach requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in its consolidated financial statements or tax returns. The measurement of current and deferred taxes is based on provisions of the enacted tax law and the effects of future changes in tax laws or rates are not anticipated.

        The authoritative guidance provides for recognition of deferred tax assets if the realization of such deferred tax assets is more likely than not to occur based on an evaluation of both positive and negative evidence and the relative weight of the evidence. With the exception of certain international jurisdictions, the Company has determined that at this time it is more likely than not that deferred tax assets attributable to the remaining jurisdictions will not be realized, primarily due to uncertainties related to its ability to utilize its net operating loss carryforwards before they expire. Accordingly, the Company has established a valuation allowance for such deferred tax assets. If there is a change in the Company's ability to realize its deferred tax assets for which a valuation allowance has been established, then its tax provision may decrease in the period in which it determines that realization is more likely than not. Likewise, if the Company determines that it is not more likely than not that its deferred tax assets will be realized, then a valuation allowance may be established for such deferred tax assets and the Company's tax provision may increase in the period in which it makes the determination.

        The authoritative guidance on accounting for uncertainty in income taxes clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements and prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Additionally, it provides guidance on recognition, classification, and disclosure of tax positions. The Company is subject to income tax audits by the respective tax authorities in all of the jurisdictions in which it operates. The determination of tax liabilities in each of these jurisdictions requires the interpretation and application of complex and sometimes uncertain tax laws and regulations. The Company recognizes liabilities based on its estimate of whether, and the extent to which, additional tax liabilities are more likely than not. If the Company ultimately determines that the payment of such a liability is not necessary, then it reverses the liability and recognizes a tax benefit during the period in which the determination is made that the liability is no longer necessary.

        The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that the Company make certain estimates and judgments. Changes to these estimates or a change in judgment may have a material impact on the Company's tax provision in a future period.

Restructuring Accrual

        In accordance with authoritative guidance on accounting for costs associated with exit or disposal activities, generally costs associated with restructuring activities are recognized when they are incurred. However, in the case of leases, the expense is estimated and accrued when the property is vacated. Given the significance of, and the timing of the execution of such activities, this process is complex and involves periodic reassessments of estimates made from the time the property was vacated, including evaluating real estate market conditions for expected vacancy periods and sub-lease income.

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Note 1. Description of Business and Summary of Significant Accounting Policies (Continued)

Additionally, a liability for post-employment benefits for workforce reductions related to restructuring activities is recorded when payment is probable, the amount is reasonably estimable, and the obligation relates to rights that have vested or accumulated. The Company continually evaluates the adequacy of the remaining liabilities under its restructuring initiatives. Although the Company believes that these estimates accurately reflect the costs of its restructuring plans, actual results may differ, thereby requiring the Company to record additional provisions or reverse a portion of such provisions.

Loss Contingencies

        The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. The Company considers the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as its ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted and whether new accruals are required.

Asset Retirement Obligations ("ARO")

        ARO are legal obligations associated with the retirement of long-lived assets pertaining to leasehold improvements. These liabilities are initially recorded at fair value and the related asset retirement costs are capitalized by increasing the carrying amount of the related assets by the same amount as the liability. Asset retirement costs are subsequently depreciated over the useful lives of the related assets. Subsequent to initial recognition, the Company records period-to-period changes in the ARO liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows. The Company derecognizes ARO liabilities when the related obligations are settled. As of June 28, 2014 and June 29, 2013, the Consolidated Balance Sheets included ARO of $2.0 million and $0.4 million, respectively, in Other current liabilities and $5.1 million and $8.8 million, respectively, in Other non-current liabilities.

(in millions)
  Balance at
Beginning of
Period
  Liabilities
Incurred
  Liabilities
Settled
  Accretion
Expense
  Revisions to
Estimates
  Balance at End
of Period
 

Asset Retirement Obligations:

                                     

Year ended June 28, 2014

  $ 9.2     0.4     (1.0 )   0.4     (1.9 ) $ 7.1  

Year ended June 29, 2013

  $ 10.8         (1.8 )   0.5     (0.3 ) $ 9.2  

Note 2. Recently Issued Accounting Pronouncements

        In May 2014, the Financial Accounting Standards Board ("FASB") issued new authoritative guidance related to revenue recognition. This guidance will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for the Company in the first quarter of fiscal 2018. This guidance allows for two methods of adoption: (a) full retrospective adoption, meaning the

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Note 2. Recently Issued Accounting Pronouncements (Continued)

guidance is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying this guidance is recognized as an adjustment to the fiscal 2018 opening Accumulated deficit balance. The Company is evaluating the two adoption methods as well as the impact this new guidance will have on the consolidated financial statements and related disclosures.

        In April 2014, the FASB issued authoritative guidance, which specifies that only disposals, such as a disposal of a major line of business, representing a strategic shift in operations should be presented as discontinued operations. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. This guidance is effective for the Company in the first quarter of fiscal 2016. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements, absent any disposition representing a strategic shift in the Company's operations.

        In July 2013, the FASB issued authoritative guidance that requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for the Company in the first quarter of fiscal 2015. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements.

        In March 2013, FASB issued authoritative guidance that resolves the diversity in practice regarding the release into net income of the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. This guidance will be effective for the Company beginning in the first quarter of fiscal 2015. The Company does not anticipate the adoption of this guidance will have a material impact on its consolidated financial statements, absent any material transactions involving the derecognition of subsidiaries or groups of assets within a foreign entity.

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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):

 
  Years Ended  
 
  June 28,
2014
  June 29,
2013
  June 30,
2012