NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Lumentum Holdings Inc. ("we", "our", "Lumentum" or the "Company") is an industry leading provider of optical and photonic products defined by revenue and market share addressing a range of end market applications including data communications ("Datacom") and telecommunications ("Telecom") networking and commercial lasers ("Commercial Lasers") for manufacturing, inspection and life-science applications. We are using our core optical and photonic technology and our volume manufacturing capability to expand into attractive emerging markets that benefit from advantages that optical or photonics-based solutions provide, including 3-D sensing for consumer electronics and diode light sources for a variety of consumer and industrial applications. The majority of our customers tend to be original equipment manufacturers ("OEMs") that incorporate our products into their products which then address end-market applications. For example, we sell fiber optic components that our network equipment manufacturer ("NEM") customers assemble into communications networking systems, which they sell to network service providers or enterprises with their own networks. Similarly, many of our customers for our Commercial Lasers products incorporate our products into tools they produce, which are used for manufacturing processes by their customers.
Basis of Presentation
Lumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation ("JDSU") on February 10, 2015 and is comprised of the former communications and commercial optical products (“CCOP”) segment and WaveReady product lines of JDSU.
On July 31, 2015, prior to the Separation (as described below), JDSU transferred substantially all of the assets and liabilities and operations of the CCOP segment and WaveReady product lines to Lumentum. Financial statements for periods prior to the Separation were prepared on a stand-alone basis and were derived from JDSU’s consolidated financial statements and accounting records. The Company prepared consolidated financial statements for the period from June 28, 2015 to August 1, 2015 where expenses were allocated to the Company using estimates that it considers to be a reasonable reflection of the utilization of services provided to, or benefits received by, the Company. Since August 1, 2015, the Company has prepared consolidated financial statements as an independent stand-alone basis pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC) and are in conformity with generally accepted accounting principles in the United States (GAAP). In the opinion of management, these consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated financial statements for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future periods.
On August 1, 2015, Lumentum became an independent publicly-traded company through the distribution by JDSU to its stockholders of
80.1%
of our outstanding common stock (the “Separation”). Each JDSU stockholder of record as of the close of business on July 27, 2015 received one share of Lumentum common stock for every five shares of JDSU common stock held on the record date. JDSU was renamed Viavi Solutions Inc. ("Viavi") and at the time of the distribution retained ownership of
19.9%
of Lumentum’s outstanding shares. Lumentum’s Registration Statement on Form 10 was declared effective by the SEC on July 16, 2015. Lumentum’s common stock began trading “regular-way” under the ticker “LITE” on the NASDAQ stock market on August 4, 2015.
As of April 1, 2017, Viavi held a total of
0.4 million
shares of our common stock, which is under
1%
of our total shares outstanding.
See "
Note 3. Related Party Transactions
" in the Notes to Unaudited Consolidated Financial Statements regarding the relationships we have with Viavi.
Fiscal Years
We utilize a 52-53 week fiscal year ending on the Saturday closest to June 30th. Our fiscal 2017 is a 52-week year ending on
July 1, 2017
, while
fiscal 2016
was a 53-week year and ended on
July 2, 2016
.
Principles of Consolidation
These unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intra-company transactions and balances within our business were eliminated. All material transactions between
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
us and other businesses of Viavi prior to Separation were reflected as net transfers to and from Viavi as a component of financing activities in the consolidated statements of cash flows.
Use of Estimates
The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenue and expenses and the disclosure of commitments and contingencies during the reporting periods. We base estimates on historical experience and on various assumptions about the future believed to be reasonable based on available information. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, inventory valuation, allocation methods and allocated expenses from Viavi, valuation of goodwill and other intangible assets, stock-based compensation, retirement and post-retirement plan assumptions, restructuring, warranty, valuation of derivative liabilities, and accounting for income taxes. Our 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.
Accounting Policies
Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, allocation methods and allocated expenses from Viavi, valuation of goodwill and other intangible assets, stock-based compensation, retirement and post-retirement plan assumptions, restructuring, warranty, valuation of derivative liabilities, and accounting for income taxes.
There have been no material changes in our significant accounting policies during the
nine months ended
April 1, 2017
compared to the significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
. The accompanying unaudited interim consolidated financial statements and accompanying related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended
July 2, 2016
.
Note 2. Recently Issued Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04,
Intangibles -Goodwill and Other (Topic 350)
, which simplifies the subsequent measurement of goodwill by eliminating the quantitative test (“Step 2”) for impairment for any reporting unit with a zero or negative carrying amount based on a qualitative assessment (“Step1”). The provisions of ASU 2017-04 are effective for impairment tests beginning after December 15, 2019, which would be our second quarter of fiscal 2020, and may be early adopted on a prospective basis for impairment tests performed at January 1, 2017. The Company does not expect ASU 2017-04 to have a material impact on its financial position, operational results, or cash flows.
In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805)
, which clarifies the definition of a business. For accounting and financial reporting purposes, businesses are generally comprised of three elements; inputs, processes, and outputs. Integrated sets of assets and activities capable of providing these three elements may not always be considered a business, and the lack of one of the three elements does not always disqualify the set from being a business. The issuance of ASU No. 2017-01 provides a clarifying screen to determine when a set of assets and activities is not a business. Primarily, the screen requires that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. The amendments contained in ASU No. 2017-01 are effective for annual periods beginning after December 15, 2017 and may be early adopted for certain transactions that have occurred before the effective, but only when the underlying transaction has not been reported in the financial statements that have been issued or made available for issuance. The Company does not believe the implementation of ASU 2017-01 will have a material effect on its financial position, operational results, or cash flows.
In November 2016, FASB issued ASU 2016-18,
Statement of Cash Flows (Subtopic 230)
(“ASU 2016-18”). The new guidance requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2017 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-18 on its consolidated financial statements.
In October 2016, FASB issued ASU 2016-16,
Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets other than Inventory
. The new guidance removes the prohibition in ASC 740 against the immediate recognition of the current and deferred
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
income tax effects of intra-entity transfers of assets other than inventory. The new guidance will be effective for us in our first quarter of fiscal 2019. We are currently evaluating the impact of our pending adoption of ASU 2016-16 on our consolidated financial statements.
In August 2016, FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, which clarifies how companies present and classify certain cash receipts and cash payments in the statement of cash flows. ASU 2016-15 is effective for us in our first quarter of fiscal 2019 and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-15 on our consolidated financial statements.
In March 2016, FASB issued ASU 2016-09,
Stock Compensation ASU 718
-
Improvements to Employee Share-Based Payment Accounting
. This guidance simplifies various aspects related to how share-based payments are accounted for and presented in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company will adopt this standard in fiscal year 2018. The Company has not yet determined the effect that the adoption of this standard will have on its consolidated financial statements or results of operations.
In February 2016, FASB issued ASU 2016-02,
Leases.
The new guidance generally requires an entity to recognize on its balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The standard is effective for us in our first quarter of fiscal 2020 and early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements.
In January 2016, FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)
(“ASU 2016-01”). The new standard provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017 and early adoption is not permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements.
In April 2015, FASB issued ASU 2015-04
Compensation-Retirement Benefits
to provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. The Company adopted this guidance effective first quarter of fiscal 2017 on a prospective basis. No prior periods were retrospectively adjusted. The Company does not believe this standard will have a material impact on its consolidated financial statements or the related footnote disclosures. The change will not have a material impact on its consolidated financial position, results of operations and cash flows.
In May 2014, FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the consideration expected to be received in exchange for those goods or services. The new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On July 9, 2015, FASB agreed to delay the effective date by one year and, accordingly, the new standard is effective for the Company beginning in the first quarter of fiscal 2018. Early adoption is permitted, but not before the original effective date of the standard. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. The standard is effective for us for our first quarter of fiscal 2019.
The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
From time to time, new accounting pronouncements are issued by the FASB, or other standards setting bodies, that are adopted by the Company as of the specified effective date. The Company is currently evaluating the impact of recently issued standards that are not yet effective, whether they will have a material impact on its consolidated financial position, results of operations and cash flows upon adoption.
Note 3. Related Party Transactions
Transactions with Viavi
During the
three and nine months ended April 1, 2017
, the Company recognized revenue of
$1.0
million and
$2.5
million,
respectively, from products sold to Viavi. During the
three and nine months ended April 2, 2016
, the Company recognized revenue of
$0.9
million and
$2.4
million, respectively, for products sold to Viavi.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the
three and nine months ended April 1, 2017
, the Company recorded
$0.1 million
and
$0.5 million
, respectively, in research and development cost reimbursement from Viavi. For the
three and nine months ended April 2, 2016
, the Company recorded
$0.5 million
and
$1.7 million
, respectively, in research and development cost reimbursement.
During the three and nine months ended April 1, 2017, the Company recorded
$0.2 million
and
$0.6 million
, respectively, in sublease rental income from Viavi. For the
three and nine months ended April 2, 2016
, the Company recorded and
$0.2 million
and
$0.5 million
, respectively, in sublease rental income from Viavi.
As of
April 1, 2017
and
July 2, 2016
, the Company had
$0.5 million
and
$1.1 million
, respectively, in trade accounts receivable due from Viavi. The Company did not have any trade payables due to Viavi as of
April 1, 2017
or
July 2, 2016
.
As of
April 1, 2017
, the Company had
$0.1 million
in other payables due to Viavi. As of
July 2, 2016
, the Company had
$2.0 million
in other receivables from Viavi. The Company had no other receivables from Viavi as of April 1, 2017 or other payables due to Viavi as of July 2, 2016.
On July 31, 2015, the Company also entered into the following agreements with Viavi:
|
|
a)
|
Contribution Agreement which identified the assets transferred, the liabilities assumed and the contracts assigned and which provided for when and how these transfers, assumptions and assignments would occur.
|
|
|
b)
|
Separation and Distribution Agreement which governs the Separation of the Lumentum business and other matters related to Lumentum’s relationship with Viavi.
|
|
|
c)
|
Tax Matters Agreement which governs the respective rights, responsibilities and obligations of Lumentum and Viavi with respect to tax liabilities and benefits, attributes, proceedings, returns and certain other tax matters.
|
|
|
d)
|
Employee Matters Agreement which governs the compensation and employee benefit obligations with respect to the current and former employees of Lumentum and Viavi, the treatment of equity based compensation and generally allocates liabilities and responsibilities relating to employee compensation, benefit plans and programs. The Employee Matters Agreement provides that employees of Lumentum will participate in benefit plans sponsored or maintained by Lumentum.
|
|
|
e)
|
Securities Purchase Agreement, which also includes Amada Holdings Co., Ltd. (“Amada”) as a party, which sets forth the terms for the sale by Viavi to Amada of shares of Series A Preferred Stock (the "Series A Preferred Stock") of Lumentum Inc., our wholly-owned subsidiary, following the Separation.
|
|
|
f)
|
Intellectual Property Matters Agreement which outlines the intellectual property rights of Lumentum and Viavi following the Separation, as well as non-compete restrictions between Viavi and Lumentum.
|
Allocated Costs
From June 28, 2015 to August 1, 2015, the effective date of the Separation, the consolidated statements of operations included the Company's direct expenses for cost of sales, research and development, sales and marketing, and administration as well as allocations of expenses arising from shared services and infrastructure provided by Viavi to the Company. These allocated expenses include costs of information technology, human resources, accounting, legal, real estate and facilities, corporate marketing, insurance, treasury and other corporate and infrastructure services. In addition, other costs allocated to the Company include restructuring and stock-based compensation related to Viavi’s corporate and shared services employees and are included in the table below. These expenses were allocated to the Company using estimates that we consider to be a reasonable reflection of the utilization of services or benefits received by our business. The allocation methods include revenue, headcount, square footage, actual consumption and usage of services and others.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no allocations of expenses from Viavi for the
three and nine months ended April 1, 2017
, and the three months ended April 2, 2016. During the
nine months ended
April 2, 2016
, allocated costs from Viavi included in the accompanying consolidated statements of operations were as follows
(in millions):
|
|
|
|
|
|
Nine Months Ended
|
|
April 2, 2016
|
Selling, general and administrative expenses
|
$
|
11.7
|
|
Interest and other (income) expenses, net
|
(0.1
|
)
|
Interest expense
|
0.1
|
|
Total allocated expenses
|
$
|
11.7
|
|
Note 4. Earnings Per Share
The following table sets forth the computation of basic and diluted net income (loss) attributable to common stockholders per share (
in millions, except per share data
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(56.0
|
)
|
|
$
|
(7.6
|
)
|
|
$
|
(47.6
|
)
|
|
$
|
(5.0
|
)
|
Less: Cumulative dividends on Series A Preferred Stock
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.6
|
)
|
|
(0.6
|
)
|
Less: Accretion of Series A Preferred Stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.7
|
)
|
Net loss attributable to common stockholders
|
$
|
(56.2
|
)
|
|
$
|
(7.9
|
)
|
|
$
|
(48.2
|
)
|
|
$
|
(17.3
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding
|
|
|
|
|
|
|
|
Basic
|
61.0
|
|
|
59.2
|
|
|
60.4
|
|
|
59.0
|
|
Diluted
|
61.0
|
|
|
59.2
|
|
|
60.4
|
|
|
59.0
|
|
Net loss per share attributable to common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.92
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.29
|
)
|
Diluted
|
$
|
(0.92
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.80
|
)
|
|
$
|
(0.29
|
)
|
On August 1, 2015, JDSU distributed
47.1 million
shares, or
80.1%
of the outstanding shares of the Company's common stock to existing holders of JDSU common stock. The weighted average number of common stock outstanding is calculated as the number of shares of common stock outstanding immediately following the Separation through
April 2, 2016
, and the weighted average number of shares outstanding following the Separation through
April 1, 2017
. Diluted earnings per share is calculated by dividing net income attributable to common stockholders for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period beginning after the Separation.
The dilutive effect of stock-based awards is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense, the tax benefits or shortfalls recorded to additional paid-in capital and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense and tax benefits or shortfalls collectively are assumed proceeds to be used to repurchase hypothetical shares. An increase in the fair value of the Company's common stock can result in a greater dilutive effect from potentially dilutive awards.
The dilutive effect of the redeemable convertible preferred stock is reflected in diluted earnings per share by the application of the if-converted method. The number of shares is increased for the assumed conversion of the instrument. Additionally, cumulative dividends and accretion from measuring the instrument at its redemption value are added back to net income (loss).
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Senior Convertible Notes have no impact to diluted earnings per share during the three and nine months ended April 1, 2017, as the Company has to settle the Notes in cash until the Tax Matters Agreement settlement condition is met. If the TMA settlement condition is met, we intend to apply the treasury stock method to determine the potential dilutive effect of the Notes as a result of the Company’s intent and ability to settle the principle amount of the Notes in Cash. Refer to "
Note 9. Convertible Senior Notes
" for further discussion.
Note 5. Accumulated Other Comprehensive Income (Loss)
Our accumulated other comprehensive income (loss) consists of the accumulated net unrealized gains or losses on foreign currency translation adjustments and defined benefit obligation.
As of
April 1, 2017
and
July 2, 2016
, balances for the components of accumulated other comprehensive income were as follows (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
Defined benefit obligation, net of tax
|
|
Total
|
Beginning balance as of July 2, 2016
|
$
|
11.7
|
|
|
$
|
(2.3
|
)
|
|
$
|
9.4
|
|
Other comprehensive loss
|
(2.7
|
)
|
|
—
|
|
|
(2.7
|
)
|
Ending balance as of April 1, 2017
|
$
|
9.0
|
|
|
$
|
(2.3
|
)
|
|
$
|
6.7
|
|
The Company evaluates the assumptions over fair value of defined benefit obligation annually and makes changes as necessary.
Note 6. Mergers and Acquisitions
In February 2017, we completed the acquisition of a privately held company to enhance our manufacturing and vertical integration capabilities. We acquired all of the outstanding shares of the company. In connection with the acquisition, we paid upfront cash consideration of
$5.1 million
, incurred liabilities of
$2.7 million
contingent upon the achievement of certain production targets being achieved within
36
months following the acquisition date, and retained
$0.9 million
of the purchase price as security for the seller’s indemnification obligations under the purchase agreement. This resulted in total purchase consideration of
$8.7 million
.
The Company estimated the acquisition date fair value of the contingent consideration as the present value of the expected contingent payments, determined using a probabilistic approach. The Company is required to reassess the fair value of contingent payments on a periodic basis. The Company estimated the likelihood of meeting the production targets at
90 percent
and recorded the fair value of such contingent consideration in accrued liabilities on the interim consolidated balance sheet as of April 1, 2017. This contingent consideration will result in a cash payment of
$3.0 million
, if and when the production targets are achieved.
The amount retained to cover any potential liabilities is payable at the
15
month anniversary of the close date. The Company is currently unaware of any claims that would be made against this amount and anticipates that it will be paid in full on the due date.
We recorded the assets acquired and liabilities assumed at their estimated fair values, with the difference between the fair value of the net assets acquired and the purchase consideration reflected in goodwill. The following table reflects the preliminary fair values of assets acquired and liabilities assumed (
in millions
):
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
Accounts receivable, net
|
0.1
|
|
Inventories
|
1.9
|
|
Prepayments and other current assets
|
0.2
|
|
Property, plant and equipment, net
|
0.8
|
|
Developed technology
|
2.4
|
|
Goodwill
|
5.6
|
|
Accounts payable
|
(0.4
|
)
|
Accrued expenses and payroll
|
(0.2
|
)
|
Deferred revenue
|
(1.1
|
)
|
Deferred tax liability
|
(0.6
|
)
|
Total value of assets acquired and liabilities assumed
|
$
|
8.7
|
|
As of the acquisition date, developed technology of the target business had an estimated useful life of
six
years. The goodwill is primarily attributed to the synergies expected to be realized following the acquisition and the assembled workforce. Goodwill has been assigned to the Optical Communications segment and is not deductible for tax purposes.
Results of operations of the business acquired have been included in our consolidated financial statements subsequent to the date of acquisition. Pro forma statements have not been presented because they are not material to our consolidated results of operations.
Note 7. Balance Sheet and Other Details
Inventories
The components of inventories were as follows (
in millions
):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Finished goods
|
$
|
58.2
|
|
|
$
|
46.1
|
|
Work in process
|
35.6
|
|
|
25.5
|
|
Raw materials and purchased parts
|
23.1
|
|
|
29.0
|
|
Inventories
|
$
|
116.9
|
|
|
$
|
100.6
|
|
Prepayments and other current assets
The components of prepayments and other current assets were as follows (
in millions
):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Capitalized manufacturing overhead
|
$
|
33.1
|
|
|
$
|
27.3
|
|
Prepayments
|
8.6
|
|
|
6.4
|
|
Advances to contract manufacturers
|
10.3
|
|
|
10.3
|
|
Due from (to) Viavi, net
|
—
|
|
|
2.0
|
|
Other current assets
|
9.4
|
|
|
15.3
|
|
Prepayments and other current assets
|
$
|
61.4
|
|
|
$
|
61.3
|
|
Amount due from (to) Viavi, net represents certain obligations to be reimbursed from Viavi, net of payables, pursuant to the Separation and Distribution Agreement and Contribution Agreement.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property, plant and equipment, net
The components of property, plant and equipment, net were as follows (
in millions
):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Land
|
$
|
10.5
|
|
|
$
|
5.9
|
|
Buildings and improvement
|
35.7
|
|
|
28.9
|
|
Machinery and equipment
|
443.2
|
|
|
378.5
|
|
Furniture and fixtures and software
|
33.0
|
|
|
32.2
|
|
Leasehold improvements
|
29.8
|
|
|
28.6
|
|
Construction in progress
|
65.1
|
|
|
44.1
|
|
|
617.3
|
|
|
518.2
|
|
Less: Accumulated depreciation
|
(370.7
|
)
|
|
(334.8
|
)
|
Property, plant and equipment, net
|
$
|
246.6
|
|
|
$
|
183.4
|
|
During the
three and nine months ended April 1, 2017
, we recorded depreciation expense of
$14.1 million
and
$39.1 million
,
respectively. During the
three and nine months ended April 2, 2016
, we recorded depreciation expense of
$11.3 million
and
$35.1 million
, respectively. Our construction in progress includes primarily machinery and equipment that was purchased to increase our manufacturing capacity. We expect to place these assets in service in next 12 months.
Other current liabilities
The components of other current liabilities were as follows
(in millions)
:
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Warranty accrual (Note 15)
|
$
|
8.1
|
|
|
$
|
2.8
|
|
Restructuring accrual and related charges (Note 12)
|
5.3
|
|
|
5.5
|
|
Deferred revenue
|
4.6
|
|
|
2.7
|
|
Others
|
1.2
|
|
|
1.1
|
|
Other current liabilities
|
$
|
19.2
|
|
|
$
|
12.1
|
|
Other non-current liabilities
The components of other non-current liabilities were as follows (
in millions
):
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Asset retirement obligation
|
$
|
2.1
|
|
|
$
|
2.3
|
|
Pension and related accrual
|
3.4
|
|
|
3.5
|
|
Deferred rent
|
3.2
|
|
|
1.6
|
|
Restructuring accrual and related charges
|
—
|
|
|
0.2
|
|
Unrecognized tax benefit
|
6.2
|
|
|
0.1
|
|
Other non-current liabilities
|
5.0
|
|
|
1.4
|
|
Other non-current liabilities
|
$
|
19.9
|
|
|
$
|
9.1
|
|
Note 8. Non-Controlling Interest Redeemable Convertible Preferred Stock
On July 31, 2015, our wholly-owned subsidiary, Lumentum Inc., issued
40,000
shares of its Series A Preferred Stock to Viavi. Pursuant to a securities purchase agreement between the Company, Viavi and Amada,
35,805
shares of Series A Preferred Stock were sold by Viavi to Amada in August 2015. The remaining
4,195
shares of the Series A Preferred Stock were canceled.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Series A Preferred Stock is referred to as our Non-Controlling Interest Redeemable Convertible Preferred Stock within these consolidated financial statements.
The Series A Preferred Stock is redeemable at the option of Amada after
five years
and classified as non-controlling interest redeemable convertible preferred stock in our consolidated balance sheet. The Series A Preferred Stock is measured at its redemption value. The Series A Preferred Stock value of
$35.8 million
as of December 26, 2015 has not changed from prior periods. The Series A Preferred Stock conversion feature is bifurcated from the Series A Preferred Stock and accounted for separately as a derivative liability. The derivative liability is measured at fair value each reporting period with the change in fair value recorded in the consolidated statements of operations. See "
Note 10. Derivative Liabilities
" in the Notes to Unaudited Consolidated Financial Statements regarding the derivative liability for the Series A Preferred Stock.
The following paragraphs describe the terms and conditions of the Series A Preferred Stock:
Conversion
The Series A Preferred Stock is convertible, at the option of the holder, into shares of our common stock commencing on the second anniversary of the closing of the securities purchase (absent a change of control of us or similar event) using a conversion price of
$24.63
, which is equal to
125%
of the volume weighted average price per share of our common stock in the
five
“regular-way” trading days following the Separation.
Liquidation
Upon any liquidation, dissolution, or winding up of our business, whether voluntary or involuntary, holders of Series A Preferred Stock will be entitled to receive, in preference to holders of common stock or any other class or series of our outstanding capital stock ranking in any such event junior to the Series A Preferred Stock, an amount per share equal to the greater of (i) the Issuance Value of
$1,000
per share for Series A Preferred Stock plus all accrued and unpaid dividends thereon (whether or not authorized or declared) through the date of payment and (ii) the amount as would have been payable had all Series A Preferred Stock been converted into common stock immediately prior to such liquidation event.
If upon occurrence of any such event, our assets legally available for distribution are insufficient to permit payment of the aforementioned preferential amounts, then all of our assets legally available for distribution will be distributed ratably to the holders of the Series A Preferred Stock and to the holders of any other class or series of our capital stock ranking on parity with the Series A Preferred Stock.
Voting Rights
|
|
•
|
The Series A Preferred Stock has no voting rights except as follows:
|
|
|
•
|
Authorize, approve, or make any change to the powers, preferences, privileges or rights of the Series A Preferred Stock;
|
|
|
•
|
Authorize or issue any additional shares of Series A Preferred Stock or reduce the number of shares of Series A Preferred Stock; or
|
|
|
•
|
Create, or hold capital stock in, any subsidiary that is not wholly-owned by the Company.
|
Dividends
Holders of Series A Preferred Stock, in preference to holders of common stock or any other class or series of our outstanding capital stock ranking in any such event junior to the Series A Preferred Stock, are entitled to receive, when and as declared by the board of directors, quarterly cumulative cash dividends at the annual rate of
2.5%
of the Issuance Value per share on each outstanding share of Series A Preferred Stock. The accrued dividends are payable on March 31, June 30, September 30 and December 31 of each year commencing on September 30, 2015.
The accrued dividends as of
April 1, 2017
and July 2, 2016 are $
0.2 million
and
$0.2 million
, respectively. Dividends paid were
$0.6 million
and
$0.3 million
for the nine months ended April 1, 2017 and April 2, 2016, respectively.
Redemption
Optional redemption by the Company
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On or after the third anniversary, we will have the option to redeem for cash all (but not less than all) of the shares of Series A Preferred Stock at a redemption price equal to the Issuance Value plus the accrued and unpaid dividends on each share and any past due dividends, whether or not authorized or declared.
Optional redemption by holders
Commencing on the fifth anniversary of the Issuance Date, each holder of Series A Preferred Stock may cause the Company to redeem for cash any number of shares of Series A Preferred Stock on any date at a redemption price for share redeemed equal to the Issuance Value plus the accrued and unpaid dividends on each share and any past due dividends, whether or not authorized or declared.
Note 9. Convertible Senior Notes
On March 8, 2017, the Company issued
$450.0 million
aggregate principal amount of
0.25%
Convertible Senior Notes due 2024 (the “Notes”), in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Notes are governed by an indenture between the Company, as the issuer, and U.S. Bank National Association, as trustee (the “Indenture”). The Notes are unsecured and do not contain any financial covenants, restrictions on dividends, incurrence of senior debt or other indebtedness, or the issuance or repurchase of securities by the Company.
The Notes will bear interest at a rate of
0.25%
per year. Interest on the Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2017. The Notes will mature on March 15, 2024, unless earlier repurchased by the Company or converted pursuant to their terms.
The initial conversion rate of the Notes is
16.4965
shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately
$60.62
per share, a
132.5%
premium to the fair market value at the date of issuance. Prior to the close of business on the business day immediately preceding December 15, 2023, the Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after July 1, 2017 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least
20
trading days (whether or not consecutive) during the period of
30
consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to
130%
of the applicable conversion price on each applicable trading day; (2) during the
five
consecutive business day period after any
five
consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of such measurement period was less than
98%
of the product of the last reported sale price of the Company’s common stock and the applicable conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after December 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time. In addition, upon the occurrence of a make-whole fundamental change, the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Notes in connection with such make-whole fundamental change.
Until such time as the Company satisfies the Tax Matters Agreement settlement condition (“TMA settlement condition”, as described below), the Company is required to satisfy its conversion obligation solely in cash. However, if the Company has satisfied the TMA share settlement condition, the Company may satisfy its conversion obligation in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election.
The TMA settlement condition can be met by the Company either receiving (i) an opinion of a nationally recognized accounting firm selected by the Company and Viavi by mutual consent to the effect that the issuance of the Notes and the shares of Common Stock upon conversion of the Notes (assuming for each such purpose that Physical Settlement applies and the maximum number of Additional Shares have been added to the Conversion Rate) does not result in the imposition or incurrence of certain taxes upon Viavi, the Company, their respective Affiliates or any third party to which any of Viavi, the Company or their respective Affiliates is or may become liable in connection with the failure of the Separation to qualify as a transaction in which no income, gain or loss is recognized under Section 355 and Section 368(A)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”) (including any tax resulting from the application of Section 355(d) or Section 355(e) of the Code to the Separation but only to the extent such tax is not reduced by a tax asset) or (ii) the consent of Viavi to the issuance of the Notes and the shares of Common Stock upon conversion of the Notes (assuming for each such purpose that Physical Settlement applies and the maximum number of Additional Shares have been added to the Conversion Rate), in each case, in a manner that the Company has determined satisfies the requirements of the Tax Matters Agreement with Viavi. All capitalized terms not previously defined have the definitions set forth in the Indenture.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company may not redeem the Notes prior to their maturity date and no sinking fund is provided for the Notes. Upon the occurrence of a fundamental change, holders may require the Company to repurchase all or a portion of their Notes for cash at a price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest.
The Company considered the features embedded in the notes other than the conversion feature, including the holders' put feature, the Company's call feature, and the make-whole feature, and concluded that they are not required to be bifurcated and accounted for separately from the host debt instrument.
Because the Company can only settle the notes in cash until the TMA settlement condition is met, the Company determined that the conversion feature meets the definition of a derivative liability. The Company separated the derivative liability from the host debt instrument based on the fair value of the derivative liability. As of the issuance date, March 8, 2017, the derivative liability fair value of
$129.9 million
was calculated using the binomial valuation approach. The residual principal amount of the notes of
$320.1 million
before issuance costs was allocated to the debt component. The Company incurred approximately
$7.7 million
in transaction costs in connection with the issuance of the notes. These costs were allocated to the debt component and recognized as a debt discount. The Company amortizes the debt discount, including both the initial value of the derivative liability and the transaction costs, over the term of the Notes using the effective interest method. The effective interest rate of the Notes is
5.4%
per year. As of April 1, 2017, the remaining debt discount amortization period was
83
months.
As of April 1, 2017, the Notes consisted of the following (in millions):
|
|
|
|
|
Liability component:
|
April 1, 2017
|
Principal
|
$
|
450.0
|
|
Unamortized debt discount
|
(136.6
|
)
|
Net carrying amount of the liability component
|
$
|
313.4
|
|
Carrying amount of the embedded derivative liability
|
$
|
168.6
|
|
The carrying value of the derivative liability related to the Notes as of April 1, 2017 was
$168.6 million
. Refer to "
Note 10. Derivative Liabilities
".
The following table sets forth interest expense information related to the 2024 Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(in millions, except percentages)
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Contractual interest expense
|
$
|
0.1
|
|
|
—
|
|
|
$
|
0.1
|
|
|
—
|
|
Amortization of the debt discount
|
1.0
|
|
|
—
|
|
|
1.0
|
|
|
—
|
|
Total interest cost
|
$
|
1.1
|
|
|
—
|
|
|
$
|
1.1
|
|
|
—
|
|
Effective interest rate on the liability component
|
5.4
|
%
|
|
—
|
%
|
|
5.4
|
%
|
|
—
|
%
|
The Notes have no impact to diluted earnings per share during the three and nine months ended April 1, 2017, as the Company has to settle the Notes in cash until the TMA settlement condition is met. If the TMA settlement condition is met, we intend to apply the treasury stock method to determine the potential dilutive effect of the Notes as a result of the Company’s intent and ability to settle the principal amount of the Notes in cash.
Note 10. Derivative Liabilities
We estimate the fair value
of the embedded derivatives for the Series A Preferred Stock and Notes using the binomial lattice model. We applied the lattice model to value the embedded derivatives using a "with-and-without method," where the value of the Series A Preferred Stock or Notes, including the embedded derivative, is defined as the "with", and the value of the Series A Preferred Stock or Notes, excluding the embedded derivative, is defined as the "without". The lattice model requires the following inputs: (i) the Company's common stock price; (ii) conversion price; (iii) term; (iv) yield; (v) recovery rate for the Series A Preferred Stock; (vi) estimated stock volatility; and (vii) risk-free rate. The fair value of the embedded derivative was determined using level 3 inputs under the fair value hierarchy (unobservable inputs). Changes in the inputs into this valuation model have a material impact in the estimated fair value of the embedded derivative. For example, a decrease (increase) in the stock price and the volatility results in a decrease (increase) in the estimated fair value of the embedded derivative. The changes in the fair value of the bifurcated embedded derivatives for the Series A Preferred Stock and Notes
are primarily related to the change in the price of the Company's underlying common stock and are reflected in the consolidated statements of operations as "Unrealized loss on derivative liabilities".
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unrealized loss on derivative liabilities amounted to $
56.6 million
and $
74.5 million
for the
three and nine months ended April 1, 2017
, respectively, and $
4.8 million
and $
5.0 million
for the three and nine months ended April 2, 2016, respectively.
The Company is required to reassess the fair value of contingent payments on a quarterly basis. The following table provides a reconciliation of the fair value of the embedded derivatives for the Series A Preferred Stock and Notes measured by significant unobservable inputs (Level 3) for the
three and nine months ended April 1, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
(in millions)
|
|
|
|
|
|
|
|
|
Balance as of beginning of period
|
|
$
|
28.2
|
|
|
$
|
9.9
|
|
|
$
|
10.3
|
|
|
$
|
—
|
|
Fair value of the embedded derivative for the Series A Preferred Stock at issuance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9.7
|
|
Fair value of the embedded derivative for the Notes at issuance
|
|
129.9
|
|
|
—
|
|
|
129.9
|
|
|
—
|
|
Unrealized loss on the Notes derivative liability
|
|
38.7
|
|
|
—
|
|
|
38.7
|
|
|
—
|
|
Unrealized loss on the Series A Preferred Stock derivative liability
|
|
17.9
|
|
|
4.8
|
|
|
35.8
|
|
|
5.0
|
|
Balance as of end of period
|
|
$
|
214.7
|
|
|
$
|
14.7
|
|
|
$
|
214.7
|
|
|
$
|
14.7
|
|
The following table summarizes the assumptions used to determine the fair value of the embedded derivative for the Notes at the issuance date and as of April 1, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
March 8, 2017
|
Stock price
|
|
$
|
53.35
|
|
|
$
|
45.50
|
|
Conversion price
|
|
$
|
60.60
|
|
|
$
|
60.60
|
|
Expected term (years)
|
|
7
|
|
|
7
|
|
Expected annual volatility
|
|
45.0
|
%
|
|
45.0
|
%
|
Risk-free rate
|
|
2.22
|
%
|
|
2.40
|
%
|
The following table summarizes the assumptions used to determine the fair value of the embedded derivative for Series A Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Stock price
|
|
$
|
53.35
|
|
|
$
|
23.65
|
|
Conversion price
|
|
$
|
24.63
|
|
|
$
|
24.63
|
|
Expected term (years)
|
|
3.36
|
|
|
4.11
|
|
Expected annual volatility
|
|
45.0
|
%
|
|
40.0
|
%
|
Risk-free rate
|
|
1.58
|
%
|
|
0.96
|
%
|
Preferred yield
|
|
8.13
|
%
|
|
8.84
|
%
|
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11. Goodwill and Other Intangible Assets
Goodwill
The following table presents the changes in goodwill by operating segments
during the nine months ended April 1, 2017
(
in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical Communications
|
|
Commercial Lasers
|
|
Total
|
Balance as of July 2, 2016
|
$
|
—
|
|
|
$
|
5.4
|
|
|
$
|
5.4
|
|
|
Addition
|
5.6
|
|
|
—
|
|
|
5.6
|
|
|
Currency translation
|
—
|
|
|
(0.2
|
)
|
|
(0.2
|
)
|
Balance as of April 1, 2017
|
$
|
5.6
|
|
|
$
|
5.2
|
|
|
$
|
10.8
|
|
Impairment of Goodwill
We review goodwill for impairment during the fourth quarter of each fiscal year or more frequently if events or circumstances indicate that an impairment loss may have occurred. In the fourth quarter of fiscal 2016, we completed the annual impairment test of goodwill,
which
indicated there was
no
goodwill impairment. During the
three and nine months ended April 1, 2017
, there have been no events or circumstances that have required us to perform an interim assessment of goodwill for impairment.
Acquired Developed Technology and Other Intangibles
We allocated acquired developed technology and other intangibles resulting from past acquisitions to our Commercial Lasers operating segment.
In the fiscal third quarter of 2017, we completed the acquisition with
$2.4 million
acquired developed technology which was allocated to Optical Communications operating segment. The following tables present details of our acquired developed technology and other intangibles (
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 1, 2017
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
Acquired developed technology
|
$
|
105.2
|
|
|
$
|
(93.9
|
)
|
|
$
|
11.3
|
|
Other
|
9.4
|
|
|
(9.2
|
)
|
|
0.2
|
|
Total Intangibles
|
$
|
114.6
|
|
|
$
|
(103.1
|
)
|
|
$
|
11.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 2, 2016
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net
|
Acquired developed technology
|
$
|
103.0
|
|
|
$
|
(88.9
|
)
|
|
$
|
14.1
|
|
Other
|
9.4
|
|
|
(9.0
|
)
|
|
0.4
|
|
Total Intangibles
|
$
|
112.4
|
|
|
$
|
(97.9
|
)
|
|
$
|
14.5
|
|
During the
three and nine months ended April 1, 2017
, the Company recorded
$1.8 million
and
$5.4 million
, respectively, of amortization related to acquired developed technology and other intangibles.
During the
three and nine months ended April 2, 2016
, the Company recorded
$1.8 million
and
$5.4 million
, respectively, of amortization expense relating to acquired developed technology and other intangibles.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents details of our amortization
(in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Cost of sales
|
$
|
1.7
|
|
|
$
|
1.7
|
|
|
$
|
5.1
|
|
|
$
|
5.1
|
|
Operating expense
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
0.3
|
|
Total
|
$
|
1.8
|
|
|
$
|
1.8
|
|
|
$
|
5.4
|
|
|
$
|
5.4
|
|
Based on the carrying amount of acquired developed technology and other intangibles as of
April 1, 2017
, and assuming no future impairment of the underlying assets, the estimated future amortization is as follows
(in millions):
|
|
|
|
|
|
|
Remainder of 2017
|
$
|
1.8
|
|
2018
|
3.2
|
|
2019
|
3.0
|
|
2020
|
2.5
|
|
Thereafter
|
1.0
|
|
Total amortization
|
$
|
11.5
|
|
Note 12. Restructuring and Related Charges
We have initiated various strategic restructuring events primarily intended to reduce costs, consolidate our operations, optimize the manufacturing of our products and align our business in response to the market conditions. As of
April 1, 2017
and
July 2, 2016
, our total restructuring accrual was $
5.3 million
and
$5.7 million
, respectively.
During the
three and nine months ended April 1, 2017
, we recorded $
3.1 million
and $
10.0 million
, respectively, in restructuring and related charges in the consolidated statements of operations. Of the $
3.1 million
and $
10.0 million
charge recorded during the three months and nine months ended April 1, 2017,
$0.4 million
and
$2.0 million
, respectively, was related to severance, retention, lease termination costs, and employee benefits; and
$2.7 million
and
$7.8 million
, respectively, was related to other restructuring related charges which include relocation costs, equipment set-up costs, product qualification costs, facilities, and equipment costs to vacate facilities and consolidate operations. The timing of cash payments associated with these restructuring related charges and exit costs is dependent upon the type of restructuring charge and can extend over multiple periods.
As of
April 2, 2016
, our total restructuring accrual was
$3.8 million
. During the
three and nine months ended
April 2, 2016
, we recorded
$1.8 million
and
$3.9 million
, respectively, in restructuring and related charges in the consolidated statements of operations. Of the
$1.8 million
and
$3.9 million
charge recorded during the three months and nine months ended April 1, 2017,
$0.4 million
and
$1.7 million
, respectively, was related to severance, retention, lease termination costs, and employee benefits; and
$1.4 million
and
$2.2 million
, respectively, was related to other restructuring related charges which include relocation costs, equipment set-up costs, product qualification costs, facilities, and equipment costs to vacate facilities and consolidate operations. The timing of cash payments associated with these restructuring related charges and exit costs is dependent upon the type of restructuring charge and can extend over multiple periods.
Summary of Restructuring Plans
The adjustments to the restructuring accrual related to all of our restructuring plans described below as of
April 1, 2017
, were as follows (
in millions
):
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 & earlier Restructuring Plan
|
|
Fiscal 2016 Restructuring Plan
|
|
|
|
Restructuring Charges
|
|
Exit Costs
|
|
Other Charges
|
|
Restructuring Charges
|
|
Total
|
Liability as of July 2, 2016
|
$
|
4.5
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
5.7
|
|
Charges
|
2.2
|
|
|
—
|
|
|
7.8
|
|
|
—
|
|
|
10.0
|
|
Payments
|
(1.8
|
)
|
|
(0.1
|
)
|
|
(7.8
|
)
|
|
(0.7
|
)
|
|
(10.4
|
)
|
Liability as of April 1, 2017
|
$
|
4.9
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5.3
|
|
As of
April 1, 2017
, our restructuring liability includes
$5.3 million
in short-term other current liabilities. Our consolidated balance sheets do not have any non-current restructuring liabilities as of April 1, 2017.
As of
July 2, 2016
, our restructuring liability includes $
5.5 million
in short-term other current liabilities and $
0.2 million
in other non-current liabilities on the consolidated balance sheets.
Note 13. Income Taxes
The effective tax rate was
(26.1)%
and
(47.8)%
for the three and nine months ended April 1, 2017, respectively. The amounts differ from the statutory rate of
35.0%
primarily due to the non-deductible unrealized loss from the embedded derivatives for the Series A Preferred Stock and the Notes, non-deductible stock-based compensation
and partially offset by foreign rate differential, R&D tax credits and the utilization of U.S. deferred tax assets that were subject to a full valuation allowance.
The Company recorded a tax provision of
$11.6 million
and
$15.4 million
for the three and nine months ended April 1, 2017, respectively. The Company recorded a tax provision of
$0.1 million
and
$0.3 million
for the three and nine months ended April 2, 2016, respectively. The quarterly provision for income taxes is based on the estimated annual effective tax rate, plus any discrete items for the respective year. The Company updates its estimated annual effective tax rate at the end of each quarterly period and which takes into account estimates of annual pre-tax income, the geographical mix of pre-tax income, and permanent book-to-tax differences.
The Company’s tax provision for both the three and nine months ended April 1, 2017, was primarily due to the discrete impact of the non-deductible unrealized loss from the embedded derivatives for the Series A Preferred Stock and the Notes, non-deductible stock-based compensation
and partially offset by foreign rate differential, R&D tax credits and the utilization of U.S. deferred tax assets that were subject to a full valuation allowance.
The Company’s tax provision for both the three and nine months ended April 2, 2016 was primarily attributable to the utilization of U.S. tax attributes that were subject to a full valuation allowance, and certain Canadian tax incentives.
The Company’s net deferred tax assets relate predominantly to the Canadian tax jurisdiction for which it has recognized a partial valuation allowance against such deferred tax assets. The Company weighed all available positive and negative evidence and determined that due to the limited carryover period of certain tax attributes in Canada, there is a continued need for a partial valuation allowance against these deferred tax assets as of April 1, 2017. The change in the Company’s valuation allowance position in the future may have a material impact to net income in the period such adjustment is made.
The Company also evaluates the ability to realize its U.S. net deferred tax assets based upon all available evidence, both positive and negative, on a quarterly basis. The realization of net deferred tax assets is dependent on the Company’s ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. The Company weighed all available positive and negative evidence and determined that due to cumulative losses in the United States, there is a continued need for a full valuation allowance against the U.S. deferred tax assets as of April 1, 2017.
As of April 1, 2017 and April 2, 2016, the Company has
$6.2 million
and
$0.1 million
, respectively, in its liability for unrecognized tax benefits, which, if recognized, would affect the effective tax rate. The Company is routinely subject to various federal, state and foreign audits by taxing authorities. The timing for the resolution and closure of tax audits is highly unpredictable. Given the uncertainty, it is reasonably possible that certain tax audits may be concluded within the next 12 months that could materially impact the balance of our gross unrecognized tax benefits. The estimated impact to tax expense and net income from the resolution and closure of tax exams is not expected to be significant within the next 12 months.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 14. Stock-Based Compensation and Stock Plans
Description of Lumentum Stock-Based Benefit Plans
Stock Option Plans
On June 23, 2015, the board of directors of JDSU approved, and subsequently, our sole stockholder adopted, the 2015 Equity Incentive Plan (the "2015 Plan") under which
8.5 million
shares of our Common Stock were authorized for issuance. The 2015 Plan was ratified by the Company’s board of directors on July 31, 2015. In connection with our Separation from JDSU on August 1, 2015, outstanding JDSU equity-based awards, held by employees continuing employment with the Company after the Separation, were converted into equity-based awards under the 2015 Plan, reducing the number of shares remaining available for grant under the 2015 Plan. As of immediately following our Separation from JDSU,
2.1 million
shares of our Common Stock were subject to outstanding equity-based awards under the 2015 Plan that were converted from JDSU equity-based awards.
On November 4, 2016, the Company’s stockholders approved an amendment to increase the number of shares that may be issued under the 2015 Plan by
3.0 million
shares and to approve the material terms of the 2015 Plan.
As of
April 1, 2017
, the Company had
2.6 million
stock options, performance stock units, restricted stock awards, and restricted stock units outstanding under the 2015 Plan. Performance stock units, restricted stock awards, and restricted stock units 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 performance stock units, restricted stock awards, or restricted stock units is based on the closing market price of the Company’s common stock on the date of award.
The exercise price for stock options is equal to the fair value of the underlying stock at the date of grant. The Company issues new shares of common stock upon exercise of stock options. Options generally become exercisable over a
three
-year or
four
-year period and, if not exercised, expire from
five
to
ten
years after the date of grant. As of
April 1, 2017
,
6.6 million
shares of common stock under the 2015 Plan were available for grant.
Employee Stock Purchase Plan
On June 23, 2015, the board of directors of JDSU approved, and subsequently, our sole stockholder adopted, the 2015 Employee Stock Purchase Plan (the “2015 Purchase Plan”) under which
3.0 million
shares of our Common Stock were authorized for issuance. The 2015 Purchase Plan was ratified by our board of directors on July 31, 2015. The 2015 Purchase Plan provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions and provides a
15%
purchase price discount as well as a
six
-month look-back period. The 2015 Purchase Plan is structured as a qualified employee stock purchase plan under Section 423 of the Code. However, the 2015 Purchase Plan is not intended to be a qualified pension, profit sharing or stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986 and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The 2015 Purchase Plan will terminate upon the date on which all shares available for issuance have been sold. Of the
3.0 million
shares authorized under the 2015 Purchase Plan,
2.6 million
shares remained available for issuance as of
April 1, 2017
.
Restricted Stock Units
Each restricted stock unit (“RSU”) granted under the 2015 Plan is a bookkeeping entry representing an amount equal to the fair market value of one share. RSUs result in a payment to a holders if any performance goals or other vesting criteria are achieved or the awards otherwise vest. The administrator determines in its sole discretion whether an award will be settled in stock, cash, or a combination of both.
Generally, our RSUs have service conditions, performance conditions, or a combination of both and are expected to vest over
one
to
four
years. The fair value of the time-based RSUs is based on the closing market price of the common stock on the date of award.
Restricted Stock Awards
Restricted stock awards (“RSAs”) under the 2015 Plan are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Restricted stock awards are expected to vest over
one
to
four years
, and the shares acquired may not be transferred by the holder until the vesting conditions (if any) are satisfied.
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation
The impact on our results of operations of recording stock-based compensation by function for the
three and nine months ended April 1, 2017
and
April 2, 2016
was as follows
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Cost of sales
|
$
|
1.9
|
|
|
$
|
2.2
|
|
|
$
|
6.0
|
|
|
$
|
4.9
|
|
Research and development
|
3.0
|
|
|
2.5
|
|
|
8.8
|
|
|
6.7
|
|
Selling, general and administrative
|
3.2
|
|
|
3.5
|
|
|
10.2
|
|
|
9.4
|
|
|
$
|
8.1
|
|
|
$
|
8.2
|
|
|
$
|
25.0
|
|
|
$
|
21.0
|
|
Approximately
$1.2 million
and
$1.2 million
of stock-based compensation was capitalized to inventory as of
April 1, 2017
and
July 2, 2016
, respectively. The table above includes allocated stock-based compensation from Viavi of
$0.5 million
for the nine months ended
April 2, 2016
. There were no allocations to stock-based compensation from Viavi
during the nine months ended April 1, 2017
. Refer to "
Note 3. Related Party Transactions
" in the Notes to Unaudited Consolidated Financial Statements.
Stock Option, Restricted Stock Awards, and Restricted Stock Units Activity
We granted
no
stock options during the
three and nine months ended April 1, 2017
. The total intrinsic value of options exercised by our employees during the
three and nine months ended April 1, 2017
was
$1.0 million
and
$4.6 million
, respectively. The total intrinsic value of options exercised by our employees during the
three and nine months ended
April 2, 2016
was
$0.6 million
and
$0.7 million
, respectively.
In connection with these exercises, the tax benefit realized during the three and nine months ended April 1, 2017 was
$2.3 million
and
$5.2 million
, respectively. For the three and nine months ended April 2, 2016 there was
no
tax benefit related to options exercised.
As of
April 1, 2017
,
$50.2 million
of stock-based compensation cost related to RSUs, performance stock units (“PSUs”), and RSAs granted to our employees remains to be amortized. That cost is expected to be recognized over an estimated amortization period of
2 years
.
The following table summarizes our stock option, RSA, and RSU activities during the
three and nine months ended April 1, 2017
(amount in millions except per share amounts)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Grant
|
|
Options Outstanding
|
|
Restricted Stock Units/Awards Outstanding
|
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Number of Shares
(PSU)
|
|
Number of Shares
(RSU/RSA)
|
|
Weighted-Average Grant Date Fair Value
|
Balances as of July 2, 2016
|
4.7
|
|
|
0.3
|
|
|
$
|
17.83
|
|
|
0.1
|
|
|
2.5
|
|
|
$
|
21.04
|
|
Authorized
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
(1.3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
34.09
|
|
Exercised / Vested
|
—
|
|
|
(0.2
|
)
|
|
14.61
|
|
|
(0.1
|
)
|
|
(1.1
|
)
|
|
21.30
|
|
Canceled
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
23.10
|
|
Balances as of April 1, 2017
|
6.6
|
|
|
0.1
|
|
|
28.33
|
|
|
—
|
|
|
2.5
|
|
|
27.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest
|
|
|
0.1
|
|
|
$
|
28.33
|
|
|
—
|
|
|
2.3
|
|
|
$
|
27.62
|
|
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Employee Stock Purchase Plan (“ESPP”) Activity
The ESPP expense we recorded for the
three and nine months ended April 1, 2017
was
$0.7 million
and
$2.0 million
, respectively. The expense related to the plan is recorded on a straight-line basis over the relevant subscription period. During the
three and nine months ended April 1, 2017
, there were
188,864
shares issued to employees through the ESPP program in one offering period from May 16, 2016 to November 15, 2016.
The first offering period for 2015 Purchase Plan was from November 17, 2015 to May 15, 2016. The ESPP expense recorded for the
three and nine months ended April 2, 2016
amounted to
$0.6 million
and
$0.8 million
, respectively.
Note 15. Commitments and Contingencies
Operating Leases
We lease certain real and personal property from unrelated third parties under non-cancellable operating leases that expire at various dates through fiscal 2026. Certain leases require us to pay property taxes, insurance and routine maintenance, and include escalation clauses. As of
April 1, 2017
, the future minimum annual lease payments under non-cancellable operating leases were as follows (
in millions
):
|
|
|
|
|
Remainder of 2017
|
$
|
1.7
|
|
2018
|
6.5
|
|
2019
|
6.0
|
|
2020
|
4.6
|
|
2021
|
3.6
|
|
Thereafter
|
6.9
|
|
Total minimum operating lease payments
|
$
|
29.3
|
|
Included in the future minimum lease payments table above is
$0.5 million
related to lease commitments in connection with our restructuring and related activities. Refer to "
Note 12. Restructuring and Related Charges
" in the Notes to Unaudited Consolidated Financial Statements.
Acquisition Contingencies
The Company incurred contingent liabilities in the amount of
$3.6 million
in connection with the February 2017 acquisition. The amount of
$2.7 million
is payable in
36
months following the acquisition date contingent upon meeting certain production targets. The Company retained
$0.9 million
of the purchase price to cover any potential liabilities under the representations, warranties and indemnifications included in the purchase agreement, the amount is payable at the
15
month anniversary of the close date. Refer to "
Note 6. Mergers and Acquisitions
".
0.25%
Convertible Senior Notes due 2024
The future interest and principal payments related to the Notes are as follows as of April 1, 2017:
|
|
|
|
|
Remainder of 2017
|
$
|
—
|
|
2018
|
1.2
|
|
2019
|
1.1
|
|
2020
|
1.1
|
|
2021
|
1.1
|
|
Thereafter
|
452.8
|
|
Total Notes payments
|
$
|
457.3
|
|
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchase Obligations
Purchase obligations of
$110.5 million
as of
April 1, 2017
, represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the option to cancel, reschedule and adjust the requirements based on our business needs prior to the delivery of goods or performance of services. Obligations to purchase inventory and other commitments are generally expected to be fulfilled within
one
year.
We depend on a limited number of contract manufacturers, subcontractors and suppliers for raw materials, packages and standard components. We generally purchase these single or limited source products through standard purchase orders or one-year supply agreements and have no significant long-term guaranteed supply agreements with such vendors. While we seek to maintain a sufficient safety stock of such products and maintain on-going communications with our suppliers to guard against interruptions or cessation of supply, our business and results of operations could be adversely affected by a stoppage or delay of supply, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of such supplies, or our inability to obtain reduced pricing from our suppliers in response to competitive pressures.
Product Warranties
We provide reserves for the estimated costs of product warranties at the time revenue is recognized. We typically offer a twelve month warranty for most of our products. However, in some instances depending upon the product, product component or application of our products by the end customer, our warranties can vary and generally range from
six
months to
five
years. We estimate the costs of our warranty obligations on an annualized basis based on our historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise with specific products. We assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary.
The following table presents the changes in our warranty reserve during the
three and nine months ended April 1, 2017
and
April 2, 2016
(
in millions
):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Balance as of beginning of period
|
$
|
8.7
|
|
|
$
|
3.1
|
|
|
$
|
2.8
|
|
|
$
|
2.8
|
|
Provision for warranty
|
0.6
|
|
|
0.8
|
|
|
9.3
|
|
|
2.5
|
|
Utilization of reserve
|
(1.2
|
)
|
|
(0.8
|
)
|
|
(4.0
|
)
|
|
(2.3
|
)
|
Adjustments related to pre-existing warranties (including
changes in estimates)
|
—
|
|
|
(1.3
|
)
|
|
—
|
|
|
(1.2
|
)
|
Balance as of period end
|
$
|
8.1
|
|
|
$
|
1.8
|
|
|
$
|
8.1
|
|
|
$
|
1.8
|
|
Environmental Liabilities
Our research and development ("R&D"), manufacturing and distribution operations involve the use of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We apply strict standards for protection of the environment and occupational health and safety to sites inside and outside the United States, even if not subject to regulations imposed by foreign governments. We believe that our properties and operations at our facilities comply in all material respects with applicable environmental laws and occupational health and safety laws. However, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmental and health and safety laws will not require us to incur significant expenditures. We are also regulated under a number of international, federal, state and local laws regarding recycling, product packaging and product content requirements. The environmental, product content/disposal and recycling laws are gradually becoming more stringent and may cause us to incur significant expenditures in the future.
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 the aggregate, will not have a material adverse impact on our financial position, results of operations or statements 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
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
Note 16. Operating Segments and Geographic Information
Our chief executive officer is our Chief Operating Decision Maker ("CODM"). The CODM allocates resources to the segments based on their business prospects, competitive factors, net revenue and gross margin.
We are an industry leading provider of optical and photonic products defined by revenue and market share addressing a range of end-market applications including optical communications and commercial lasers. We have
two
operating segments, Optical Communications, which we refer to as OpComms, and Commercial Lasers, which we refer to as Lasers. The
two
operating segments were primarily determined based on how the CODM views and evaluates our operations. Operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segments and to assess their performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and manufacturing, are considered in determining the formation of these operating segments.
OpComms
Our OpComms products address the following markets: telecommunications (Telecom), data communications (Datacom) and Consumer and Industrial.
Our OpComms products include a wide range of components, modules and subsystems to support and maintain customers in our
two
primary markets: Telecom and Datacom. The Telecom market includes carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) networks. The Datacom market addresses enterprise, cloud and data center applications, including storage-access networks (“SANs”), local-area networks (“LANs”) and wide-area networks (“WANs”). These products enable the transmission and transport of video, audio and text data over high-capacity fiber-optic cables. We maintain leading positions in the fastest-growing OpComms markets, including reconfigurable optical add/drop multiplexers (“ROADMs”), 100G coherent components, tunable 10-gigabit small form-factor pluggable transceivers and tunable small form-factor pluggables. Our 10G, 40G legacy transceivers and a growing portfolio of 100G pluggable transceivers support LAN/SAN/WAN needs and the cloud for customers building enterprise and hyperscale data center networks.
In the Consumer and Industrial markets, our OpComms products include our light source products, which are integrated into 3-D sensing platforms being used in applications for gaming, computing, virtual and augmented reality, mobile and industrial segments. These systems simplify the way people interact with technology by enabling the use of natural body gestures, like the wave of a hand, to control a product or application. Systems can also be used for human identification, safety, and process efficiency, among numerous other application spaces. Emerging applications for this technology include various mobile device applications, autonomous vehicles, self-navigating robotics and drones in industrial applications and 3-D capture of objects coupled with 3-D printing. Our light sources are also used in a variety of other industrial laser and processing applications.
Lasers
Our Lasers products serve our 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.
Our Laser products include 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 provide excellent beam quality, low noise and exceptional reliability and 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.
We also provide 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 glass, semiconductor, LED, and other types of materials. Use of ultrafast lasers for micromachining applications is being driven primarily by the increasing use of consumer electronics and connected devices globally.
We do not allocate research and development, sales and marketing, or general and administrative expenses to our segments because management does not include the information in its measurement of the performance of the operating segments. In addition,
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
we do not allocate amortization and impairment of acquisition-related intangible assets, stock-based compensation, and other charges impacting the gross margin of each segment because management does not include this information in its measurement of the performance of the operating segments. Other charges are primarily warranty expenses that were accrued and which are expected to be reimbursed by the manufacturer.
Information on reportable segments utilized by our CODM is as follows (
in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Net revenue:
|
|
|
|
|
|
|
|
OpComms
|
$
|
216.1
|
|
|
$
|
197.2
|
|
|
$
|
671.0
|
|
|
$
|
560.1
|
|
Lasers
|
39.7
|
|
|
33.2
|
|
|
107.9
|
|
|
101.2
|
|
Net revenue
|
$
|
255.8
|
|
|
$
|
230.4
|
|
|
$
|
778.9
|
|
|
$
|
661.3
|
|
Gross profit:
|
|
|
|
|
|
|
|
OpComms
|
71.5
|
|
|
58.7
|
|
|
229.2
|
|
|
171.4
|
|
Lasers
|
16.4
|
|
|
15.5
|
|
|
44.8
|
|
|
43.9
|
|
Total segment gross profit
|
87.9
|
|
|
74.2
|
|
|
274.0
|
|
|
215.3
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
Stock-based compensation
|
(1.9
|
)
|
|
(2.2
|
)
|
|
(6.0
|
)
|
|
(4.9
|
)
|
Amortization of intangibles
|
(1.7
|
)
|
|
(1.7
|
)
|
|
(5.1
|
)
|
|
(5.1
|
)
|
Other charges
|
(2.2
|
)
|
|
(7.5
|
)
|
|
(12.1
|
)
|
|
(7.5
|
)
|
Gross profit
|
$
|
82.1
|
|
|
$
|
62.8
|
|
|
$
|
250.8
|
|
|
$
|
197.8
|
|
The table below discloses the percentage of our total net revenue attributable to each of our
two
reportable segments. In addition, it discloses the percentage of our total net revenue attributable to our product offerings which serve the Telecom, Datacom and Consumer and Industrial markets which accounted for more than 10% or more of our total net revenue during the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
OpComms:
|
|
|
84.5
|
%
|
|
85.6
|
%
|
|
86.1
|
%
|
|
84.7
|
%
|
Telecom
|
|
|
64.5
|
%
|
|
60.7
|
%
|
|
63.0
|
%
|
|
62.0
|
%
|
Datacom
|
|
|
15.2
|
%
|
|
19.8
|
%
|
|
19.4
|
%
|
|
17.6
|
%
|
Consumer and Industrial
|
|
|
4.8
|
%
|
|
5.1
|
%
|
|
3.7
|
%
|
|
5.1
|
%
|
Lasers
|
|
|
15.5
|
%
|
|
14.4
|
%
|
|
13.9
|
%
|
|
15.3
|
%
|
LUMENTUM HOLDINGS INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We operate in
three
geographic regions: Americas, Asia-Pacific, and EMEA (Europe, Middle East and Africa). Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country, which may differ from the location of their end customers. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries that exceeded
10%
of our total net revenue
(in millions, except percentage data)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
April 1, 2017
|
|
April 2, 2016
|
|
April 1, 2017
|
|
April 2, 2016
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
34.7
|
|
|
13.6
|
%
|
|
$
|
28.8
|
|
|
12.5
|
%
|
|
$
|
106.2
|
|
|
13.6
|
%
|
|
$
|
91.3
|
|
|
13.8
|
%
|
Mexico
|
70.0
|
|
|
27.4
|
|
|
34.4
|
|
|
14.9
|
|
|
158.5
|
|
|
20.3
|
|
|
112.7
|
|
|
17.0
|
|
Other Americas
|
1.5
|
|
|
0.6
|
|
|
5.1
|
|
|
2.2
|
|
|
7.4
|
|
|
1.0
|
|
|
17.9
|
|
|
2.7
|
|
Total Americas
|
$
|
106.2
|
|
|
41.6
|
%
|
|
$
|
68.3
|
|
|
29.6
|
%
|
|
$
|
272.1
|
|
|
34.9
|
%
|
|
$
|
221.9
|
|
|
33.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia-Pacific:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hong Kong
|
$
|
47.2
|
|
|
18.5
|
%
|
|
$
|
67.9
|
|
|
29.5
|
%
|
|
$
|
181.2
|
|
|
23.3
|
%
|
|
$
|
150.5
|
|
|
22.7
|
%
|
Japan
|
25.9
|
|
|
10.1
|
|
|
19.8
|
|
|
8.6
|
|
|
78.5
|
|
|
10.1
|
|
|
65.8
|
|
|
10.0
|
|
Thailand
|
21.3
|
|
|
8.3
|
|
|
20.5
|
|
|
8.9
|
|
|
66.8
|
|
|
8.6
|
|
|
64.5
|
|
|
9.8
|
|
Other Asia-Pacific
|
25.1
|
|
|
9.8
|
|
|
27.0
|
|
|
11.7
|
|
|
98.0
|
|
|
12.6
|
|
|
69.3
|
|
|
10.5
|
|
Total Asia-Pacific
|
$
|
119.5
|
|
|
46.7
|
%
|
|
$
|
135.2
|
|
|
58.7
|
%
|
|
$
|
424.5
|
|
|
54.6
|
%
|
|
$
|
350.1
|
|
|
53.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMEA
|
$
|
30.1
|
|
|
11.8
|
%
|
|
$
|
26.9
|
|
|
11.7
|
%
|
|
$
|
82.3
|
|
|
10.6
|
%
|
|
$
|
89.3
|
|
|
13.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue
|
$
|
255.8
|
|
|
|
|
$
|
230.4
|
|
|
|
|
$
|
778.9
|
|
|
|
|
$
|
661.3
|
|
|
|
Our net revenue is primarily denominated in U.S. dollars, including our net revenue from customers outside the United States as presented above.
Long-lived assets, namely net property, plant and equipment were identified based on the operations in the corresponding geographic areas
(in millions)
:
|
|
|
|
|
|
|
|
|
|
April 1, 2017
|
|
July 2, 2016
|
Property, Plant and Equipment, net
|
|
|
|
United States
|
$
|
85.2
|
|
|
$
|
69.0
|
|
Canada
|
14.8
|
|
|
21.4
|
|
China
|
71.6
|
|
|
46.6
|
|
Thailand
|
70.9
|
|
|
43.8
|
|
Other Asia-Pacific
|
1.6
|
|
|
0.2
|
|
EMEA
|
2.5
|
|
|
2.4
|
|
Total Property, Plant and Equipment, net
|
$
|
246.6
|
|
|
$
|
183.4
|
|