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What changed in Lumentum Holdings Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Lumentum Holdings Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+461 added−401 removedSource: 10-K (2022-08-24) vs 10-K (2021-08-31)

Top changes in Lumentum Holdings Inc.'s 2023 10-K

461 paragraphs added · 401 removed · 302 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

72 edited+33 added−18 removed54 unchanged
Biggest changeWe endeavor to align the latest technologies with industry leading, scalable manufacturing and operations to drive the next phase of optical communications technologies and products for Telecom and Datacom applications that are faster, more energy efficient, more agile and more reliable, making us a valuable business and technology partner for NEMs, consumer electronic companies, cloud service providers and data center operators. 7 Table of Contents Competition We compete against various companies in the markets we serve, including II-VI, Acacia Communications (which was acquired by Cisco in March 2021), Accelink, ams AG, Broadcom Inc., Furukawa Electric, Mitsubishi Electric, Neophotonics, and Sumitomo Electric Industries, as well as, private companies and subsidiaries of public companies providing optical communications components such as Fujitsu Optical Components - a subsidiary of Fujitsu, Nistica - a subsidiary of Molex, and O-Net.
Biggest changeWe endeavor to align the latest technologies with industry leading, scalable manufacturing and operations to drive the next phase of optical communications technologies and products for Telecom and Datacom applications that are faster, more energy efficient, more agile and more reliable, making us a valuable business and technology partner for NEMs, network operators, consumer electronic companies, cloud service providers and data center operators.
Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new technology challenges that our technology addresses.
Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new challenges that our technology addresses.
In August 2015, we were spun-off from JDSU (the “Separation”) and became an independent publicly-traded company through the distribution of our common stock by JDSU to its stockholders (the “Separation”). In 2015, JDSU was renamed Viavi Solutions Inc. (“Viavi”). Our business traces its origins to Uniphase Corporation, which was formed in 1979, and became publicly traded in 1992.
In August 2015, we were spun-off from JDSU and became an independent publicly-traded company through the distribution of our common stock by JDSU to its stockholders (the “Separation”). In 2015, JDSU was renamed Viavi Solutions Inc. (“Viavi”). Our business traces its origins to Uniphase Corporation, which was formed in 1979 and became publicly traded in 1992.
We also offer components including tunable lasers, receivers and modulators to address the higher end of these same network applications. Our transport products, such as ROADMs, amplifiers and optical channel monitors provide switching, routing and the conditioning of signals. We also make components for transport, including 980nm, multi-mode and Raman pumps for optical amplifiers, and passive components.
We also offer components including tunable lasers, receivers and modulators to address the higher end of these same network applications. Our transport products, such as ROADMs, amplifiers and optical channel monitors provide switching, routing and the conditioning of optical signals. We also make components for transport, including 980nm, multi-mode and Raman pumps for optical amplifiers, and passive components.
Transmission products, such as our tunable transponder, transceiver and transmitter modules, transmit and receive high-speed data signals at the ingress/egress points of networks. These products use dense wavelength division multiplexing technology to maximize the fiber transmission capacity while lowering the cost per bit to meet the needs of increasing internet and cloud demand.
Transmission products, such as our tunable transponder, transceiver and transmitter modules, transmit and receive high-speed data signals at the ingress/egress points of networks. These products use dense wavelength division multiplexing (“DWDM”) technology to maximize the fiber transmission capacity while lowering the cost per bit to meet the needs of increasing internet and cloud demand.
Growth in 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 data centers. 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.
Growth in 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 data centers. Demand in the Telecom market is driven by new and existing bandwidth-intensive applications that can result in sudden and severe changes in demand almost anywhere on the network.
We seek to use 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 3D sensing for consumer electronics and diode light sources for a variety of consumer and industrial applications.
We seek to use 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 3D sensing for consumer electronics and diode light sources for a variety of automotive, consumer and industrial applications.
Acquisitions We evaluate strategic opportunities regularly and, where appropriate, may acquire additional businesses, products, or technologies that are complementary to, or broaden the markets for our products.
Mergers and Acquisitions We evaluate strategic opportunities regularly and, where appropriate, may acquire additional businesses, products, or technologies that are complementary to, or broaden the markets for our products.
Impact of COVID-19 to our Business The COVID-19 pandemic has caused public health officials to recommend, and governments to enact, precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines, closure or restrictions on business and quarantine or other types of “shelter-in-place” orders in many regions of the world.
Impact of COVID-19 to Our Business Since February 2020, the COVID-19 pandemic has caused public health officials to recommend, and governments to enact, precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines, closure or restrictions on business and quarantine or other types of “shelter-in-place” orders in many regions of the world.
OpComms Markets Our OpComms products address the following markets: telecommunications (“Telecom”), data communications (“Datacom”) and consumer and industrial (“Consumer and Industrial”). Our OpComms products include a wide range of components, modules and subsystems to support customers including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications.
OpComms Markets Our OpComms products address the following markets: telecommunications (“Telecom”), data communications (“Datacom”) and consumer and industrial (“Consumer and Industrial”). 5 Table of Contents Our OpComms products include a wide range of components, modules and subsystems to support customers including carrier networks for access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications.
These products are targeted at serving customers engaging in biotechnology, graphics and imaging, remote sensing, and materials processing and precision micromachining markets. 9 Table of Contents Manufacturing We use a combination of contract manufacturers and our own manufacturing facilities. Our significant manufacturing facilities are located in the United States, Thailand, China, the United Kingdom, Slovenia, and Japan.
These products are targeted at serving customers engaging in biotechnology, graphics and imaging, remote sensing, and materials processing and precision micromachining markets. Manufacturing We use a combination of contract manufacturers and our own manufacturing facilities. Our significant manufacturing facilities are located in the United States, Thailand, China, the United Kingdom, Slovenia, and Japan.
In particular, the U.S. and other governments have imposed restrictions on the import and export of, among other things, certain telecommunications products and components. The consequences of any failure to comply with domestic and foreign trade regulations could limit our ability to conduct business in certain areas or with certain customers.
For example, the U.S. and other governments have imposed restrictions on the import and export of, among other things, certain telecommunications products and components. The consequences of any failure to comply with domestic and foreign trade regulations could limit our ability to conduct business in certain areas or with certain customers.
As these trends continue, we 8 Table of Contents believe that manufacturers and other industries will increase their reliance on lasers in order to maintain or increase their competitiveness. We believe we are well-positioned with key OEM providers of laser solutions to these industries.
As these trends continue, we believe that manufacturers and other industries will increase their reliance on lasers in order to maintain or increase their competitiveness. We believe we are well-positioned with key OEM providers of laser solutions to these industries.
For additional information concerning regulatory compliance and a discussion of the risks associated with governmental regulations that may materially impact us, please see the section entitled “Risk Factors” in Item 1A of Part I of this Report.
For additional information concerning regulatory compliance and a discussion of the risks associated with governmental regulations that may materially impact us, please refer to the section entitled “Risk Factors” in Item 1A of Part I of this Report.
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 network equipment manufacturers (“NEMs”) assemble into communications networking systems, which they sell to network service providers, operators or enterprises with their own networks.
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 network equipment manufacturers (“NEMs”) assemble into communications networking systems, which they sell to communication service providers, hyperscale cloud operators and enterprises with their own networks.
As part of our efforts to ensure Lumentum’s practices support a culture of diversity, we are committed to ensuring pay equity as a standard global practice, increasing the representation of underrepresented populations, increasing the percentage of women in senior leadership positions, and developing a pipeline of future leaders through our early hire initiatives for new employees.
As part of our efforts continue to ensure Lumentum’s practices support a culture of diversity through our commitment to ensuring pay equity as a standard global practice, increasing the representation of underrepresented populations, increasing the percentage of women in senior leadership positions, and developing a pipeline of future leaders through our early career hire initiatives for new employees.
Products must provide higher levels of functionality and performance in compact designs that must also meet requirements for quality, reliability, and cost.
Products 6 Table of Contents must provide higher levels of functionality and performance in compact designs that must also meet requirements for quality, reliability, and cost.
The pandemic and these related responses have caused, and may continue to cause a global slowdown of economic activity (including a decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and potential disruption of financial markets.
The pandemic and these related responses continue to cause a global slowdown of economic activity (including a decrease in demand for a broad variety of goods and services), disruptions in global supply chains, labor shortages, and significant volatility and potential disruption of financial markets.
Notable acquisitions in the Lasers business were Lightwave Electronics Corporation in 2005 and Time-Bandwidth Products Inc. (“Time-Bandwidth”) in 2014. Both of these Lasers acquisitions brought high power pulsed solid-state laser products and technology to our business, which address the micro laser machining market and expanded our addressable market.
Notable acquisitions in the Lasers business were Lightwave Electronics Corporation in 2005 and Time-Bandwidth Products Inc. (“Time-Bandwidth”) in 2014. Both of these Lasers acquisitions brought high power pulsed solid-state laser products and technology to our business, which address the micro machining laser market and expanded our addressable market. In December 2018, we completed the acquisition of Oclaro, Inc.
These solutions are initially being used in computing, mobile, and industrial applications, including automotive applications. In our Lasers segment, we continue to develop new product offerings in both solid-state and fiber lasers that take advantage of technologies and components we develop.
These solutions are initially being used in consumer electronics, mobile device, automotive, and industrial applications. In our Lasers segment, we continue to develop new product offerings in both solid-state and fiber lasers that take advantage of technologies and components we develop.
In December 2018, we completed the acquisition of (“Oclaro”), a provider of optical components and modules for the long-haul, metro and data center markets. Oclaro’s products provide differentiated solutions for optical networks and high-speed interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications.
(“Oclaro”), a provider of optical components and modules for the long-haul, metro and data center markets. Oclaro’s products provide differentiated solutions for optical networks and high-speed interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications.
Frictionless and contactless biometric security and access control is of increasing focus globally given the world’s experience with the COVID-19 pandemic. Additionally, we expect 3D-enabled machine vision solutions to expand significantly in industrial applications in the coming years.
Frictionless and contactless biometric security and access control is of increasing focus globally given the world’s experience with the COVID-19 pandemic. Additionally, we expect 3D-enabled machine vision solutions to expand significantly in industrial applications in the coming years. We operate in two reportable segments: OpComms and Lasers.
During fiscal 2021, 2020, and 2019, net revenue generated from a single customer which represented 10% or more of our total net revenue of the applicable fiscal year is summarized in the table below: Years Ended July 3, 2021 June 27, 2020 June 29, 2019 Apple 30.2 % 26.0 % 21.0 % Huawei 10.8 % 13.2 % 15.2 % Ciena 10.1 % * 13.7 % *Represents less than 10% of total net revenue.
During fiscal 2022, 2021, and 2020, net revenue generated from a single customer which represented 10% or more of our total net revenue of the applicable fiscal year is summarized in the table below: Years Ended July 2, 2022 July 3, 2021 June 27, 2020 Apple 28.7 % 30.2 % 26.0 % Ciena 12.6 % 10.1 % * Huawei * 10.8 % 13.2 % *Represents less than 10% of total net revenue.
In certain circumstances customers may request shipment of our products to a contract manufacturer in one country, which may differ 11 Table of Contents from the location of their end customers. Our net revenue is primarily denominated in U.S. dollars, including our net revenue from customers outside the United States based on customer shipment locations as presented above.
In certain circumstances customers may request shipment of our products to a contract manufacturer in one country, which may differ from the location of their end customers. Our net revenue is primarily denominated in U.S. dollars, including our net revenue from customers outside the United States based on customer shipment locations as presented above. Please refer to “Note 19.
Lasers Markets Our Lasers products serve our customers in markets and applications such as sheet metal processing, general manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, glass cutting and solar cell scribing.
Some of these competitors are also our customers. Lasers Markets Our Lasers products serve our customers in markets and applications such as sheet metal processing, general manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation, glass cutting and solar cell scribing.
International Operations During fiscal 2021, 2020 and 2019, net revenue from customers outside the United States based on the geographic region and country where our product is initially shipped, represented 92.3% , 91.1% and 93.6% of net revenue, respectively.
International Operations During fiscal 2022, 2021 and 2020, net revenue from customers outside the United States based on the geographic region and country where our product is initially shipped, represented 89.8% , 92.3% and 91.1% of net revenue, respectively.
Our headquarters are located in San Jose, California, and we employed approximat ely 5,618 full -time employees around the world as of July 3, 2021. Lumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation (“JDSU”) on February 10, 2015.
Our headquarters are located in San Jose, California, and we employed approximat ely 6,815 full -time employees around the world as of July 2, 2022. Lumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation (“JDSU”) on February 10, 2015.
Industry Trends and Business Risks Our business is driven by end-market applications which benefit from the performance advantages of optical and photonics solutions. The OpComms markets we serve are experiencing continually increasing needs for higher data transmission speeds, fiber optic network capacity and network agility.
This acquisition will enable us to expand our business in our OpComms segment. Industry Trends and Business Risks Our business is driven by end-market applications which benefit from the performance advantages of optical and photonics solutions. The OpComms markets we serve are experiencing continually increasing needs for higher data transmission speeds, fiber optic network capacity and network agility.
Please refer to “Note 20. Operating Segments and Geographic Information” in the Notes to Consolidated Financial Statements. For information regarding risks associated with our international operations, see “Item 1A. Risk Factors.” Available Information Our website is located at www.lumentum.com, and our investor relations website is located at www.investor.lumentum.com.
Operating Segments and Geographic Information” to the consolidated financial statements. For information regarding risks associated with our international operations, please refer to “Item 1A. Risk Factors.” 12 Table of Contents Available Information Our website is located at www.lumentum.com, and our investor relations website is located at www.investor.lumentum.com.
We rely on the capabilities of our contract manufacturers to procure components and manage the inventory in these locations. Sources and Availability of Raw Materials We use various suppliers and contract manufacturers to supply parts and components for manufacturing and support of multiple product lines.
Our significant contract manufacturing partners are located primarily in Thailand, Taiwan and Malaysia. We rely on the capabilities of our contract manufacturers to plan and procure components and manage the inventory in these locations. Sources and Availability of Raw Materials We use various suppliers and contract manufacturers to supply parts and components for manufacturing and support of multiple product lines.
Information in, or that can be accessed through, our website is not incorporated into this Form 10-K. 12 Table of Contents
Information in, or that can be accessed through, our website is not incorporated into this Form 10-K. 13
We operate in two reportable segments: OpComms and Lasers. 2 Table of Contents We have a global marketing and sales footprint that enables us to address global market opportunities for our products. We have manufacturing capabilities and facilities in North America, Asia-Pacific, and Europe, with employees engaged in research and development (“R&D”), administration, manufacturing, support and sales and marketing activities.
We have a global marketing and sales footprint that enables us to address global market opportunities for our products. We have manufacturing capabilities and facilities in North America, South America, Asia-Pacific, and Europe, with employees engaged in research and development (“R&D”), administration, manufacturing, support and sales and marketing activities.
Given the continually evolving situation, it is difficult to predict the magnitude and duration of the impact of the COVID-19 pandemic to our markets or precisely when our ability to supply our products will return to full capacity.
Given the continually evolving situation, particularly in light of the recent Delta and Omicron variants, it is difficult to predict the magnitude and duration of the impact of the COVID-19 pandemic to our markets, its effects, or precisely when our ability to supply our products will return to full capacity.
Lumentum’s products and technology enable the scaling of these optical networks and data centers to higher capacities. We expect the accelerating shift to digital and virtual approaches to all aspects of work and life that is driving staggering amounts of data in the world’s networks and cloud datacenters will continue into the future.
We expect the accelerating shift to digital and virtual approaches to all aspects of work and life that is driving staggering amounts of data in the world’s networks and cloud datacenters will continue into the future.
Additionally, ever-advancing electronic devices are needed to consume, produce, and communicate digital and virtual content. All these trends could drive the need for higher volumes of higher performing optical devices that we could supply. As such, we expect to continue to invest strongly in new products, technology, and customer programs.
All these trends could drive the need for higher volumes of higher performing optical devices that we could supply. As such, we expect to continue to invest strongly in new products, technology and customer programs.
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.
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. Strategy In our Lasers segment, we leverage our long-term relationships with OEM customers to drive commercial laser innovation.
We may not be able to procure these components from alternative sources at acceptable prices and quality within a reasonable time, such as the current shortages in semiconductor components, or at all; therefore, the risk of loss or interruption of such arrangements could impact our ability to deliver certain products on a timely basis.
We may not be able to procure these components from alternate sources at acceptable prices and quality within a reasonable time, or at all, such as the current shortages in semiconductor components; therefore, the risk of loss or interruption of such supply could impact our ability to deliver certain products on a timely basis. 10 Table of Contents Intellectual Property Intellectual property rights that apply to our various products include patents, trade secrets and trademarks.
Innovative next generation product designs require 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 singulation of silicon wafers, resulting in greater precision and productivity.
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 singulation of silicon and other types of wafers, resulting in greater precision and productivity.
In fiscal 2020, as part of our plan to discontinue development and manufacturing of Lithium Niobate modulators, we sold the assets associated with certain Lithium Niobate product lines manufactured by our San Donato, Italy site. In fiscal 2021, development and manufacturing were discontinued in our San Jose, California manufacturing locations.
We also ceased manufacturing certain of our specialty products in San Jose, transferring the raw materials to the existing customer. In fiscal 2020, as part of our plan to discontinue development and manufacturing of Lithium Niobate modulators, we sold the assets associated with certain Lithium Niobate product lines manufactured by our San Donato, Italy site.
Our technology, which was originally developed for communications applications is also finding use in other emerging market opportunities including 3D sensing applications that employ our laser technology in mobile devices, computers, augmented and virtual reality and other consumer electronics devices.
Our technology, which was originally developed for communications applications, is also finding use in other emerging market opportunities including 3D sensing applications that employ our laser technology in mobile devices, computers, augmented and virtual reality and other consumer electronics devices. Additionally, our products have been and are continuing to be designed into emerging automotive, industrial, security, safety and surveillance applications.
These capabilities are critical as industries develop products that are smaller and lighter, increasing productivity and yield and lowering their energy consumption. Our optical and laser solutions, developed in close collaboration with OEM partners, are well-positioned to meet demand resulting from these trends. We do, however, expect to continue to encounter a number of industry and market risks and uncertainties.
Our optical and laser solutions, developed in close collaboration with OEM partners, are well-positioned to meet demand resulting from these trends. We do, however, expect to continue to encounter a number of industry and market risks and uncertainties.
In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue.
If our ability to procure needed semiconductor components does not improve, this will impact our ability to supply our products to our customers and may reduce our revenue and profit margin. In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue.
We have adopted several measures in response to the COVID-19 outbreak including complying with local, state or federal orders that require employees to work from home, instructing employees to work from home in certain jurisdictions, limiting the number of employees onsite which slowed our manufacturing operations in certain countries, enhanced use of personal protective equipment and restricting non-critical business travel by our employees.
Some of these measures have included complying with local, state or federal orders that require employees to work from home, instructing employees to work from home in certain jurisdictions, limiting the number of employees onsite which slowed our manufacturing operations in certain countries, enhancing use of personal protective equipment and restricting non-critical business travel by our employees, enacting vaccine and testing mandates in certain jurisdictions, and implementing health and safety enhancements.
We are committed to creating a diverse and welcoming workplace that includes employees with diverse backgrounds and experiences. Lumentum believes that employee and thought diversity delivers more innovation and ultimately better business results.
Lumentum’s focus on diversity, inclusion, and belonging is felt across 11 Table of Contents the entire organization. We are committed to creating a diverse and welcoming workplace that includes employees with diverse backgrounds and experiences. Lumentum believes that employee and thought diversity delivers more innovation and ultimately better business results.
COVID-19 has also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products.
COVID-19 has also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products. These shortages have impacted our ability to meet demand and generate revenue from certain products in fiscal 2022 and, they continue to impact our ability to meet demand today.
Higher levels of integration have also led to development of our Super Transport Blade, which delivers all transport functions (wavelength switching, pre-amplification, post-amplification, optical supervisory channel and monitoring) in a single, integrated platform, essentially replacing three blades with one. 6 Table of Contents Offerings In addition to a full selection of active and passive components, we offer increasing levels of functionality and integration in modules, circuit packs and subsystems for transmission, amplification, wavelength management and more.
Higher levels of integration have also led to development of our Super Transport Blade, which delivers all transport functions (wavelength switching, pre-amplification, post-amplification, optical supervisory channel and monitoring) in a single, integrated platform, essentially replacing three blades with one.
In our OpComms segment , we are maintaining our capability to provide products throughout the network, while focusing on several important sub-segments. We continue to maintain strong investments in Telecom components and modules such as ROADMs and tunable devices needed for long-haul and metro markets, as well as high performance DML, EML, and VCSEL chips for Datacom transceivers.
We continue to maintain strong investments in Telecom components and modules such as ROADMs and tunable devices needed for long-haul and metro markets, as well as high performance DML, EML, and VCSEL chips for Datacom transceivers.
A portion of our revenue arises from vendor-managed inventory arrangements where the timing and volume of customer utilization is difficult to predict.
A significant portion of our revenue arises from vendor-managed inventory (VMI) arrangements where the timing and volume of customer utilization is difficult to predict. Products that are shipped through VMI are not included our reported backlog amounts above.
Emerging applications for this technology include various mobile device applications, autonomous vehicles, self-navigating robotics and drones in industrial applications and 3D capture of objects coupled with 3D printing. 3D sensing can be applied to any device with a camera. The technologies to achieve accurate and stable 3D sensing are converging to laser based solutions.
The immediate applications include full body imaging for gaming, 3D scanning for space mapping, computational photography and facial recognition for security. Emerging applications for this technology include various mobile device applications, autonomous vehicles, self-navigating robotics and drones in industrial applications and 3D capture of objects coupled with 3D printing. 3D sensing can be applied to any device with a camera.
Trends As technology advances, industries such as consumer electronics manufacturing 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.
During fiscal 2022, 2021, and 2020, we did not have any single customer attributable to our Lasers segment that generated net revenue of 10% or more of our total net revenue for the applicable fiscal year. 8 Table of Contents Trends As technology advances, industries such as consumer electronics manufacturing 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.
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 from acquisitions as well as through organic initiatives. On December 10, 2018, we completed our merger with Oclaro, a provider of optical components and modules for the long-haul, metro and data center markets.
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 from acquisitions as well as through organic initiatives. NeoPhotonics On November 4, 2021, we announced a merger agreement with NeoPhotonics.
We believe this strategy is even more apt, and our long-term opportunity is not diminished, with COVID-19. We believe there are be long-term opportunities, as the world’s experience with COVID-19 is driving an increasingly digital and virtual world touching all aspects of life and work that increasingly emphasizes communications systems, cloud services, augmented and virtual reality, and enhanced security.
We believe there are long-term opportunities, as the world’s experience with COVID-19 could drive an increasingly digital and virtual world, touching all aspects of life and work, that increasingly emphasizes the importance of communications systems, cloud services, augmented and virtual reality, and enhanced security. Additionally, ever advancing electronic devices are needed to consume, produce, and communicate digital and virtual content.
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. We do not track our property, plant, and equipment by operating segments. For the geographic identification of these assets and for further information regarding our operating segments, refer to “Note 20. Operating Segments and Geographic Information”.
Operating results are regularly reviewed by our 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. We do not track our property, plant, and equipment by operating segments.
Some of our products may be incorporated into consumer electronic products, which are subject to seasonality and fluctuations in demand. Backlog Backlog consists of purchase orders for products for which we have assigned shipment dates. As of July 3, 2021 and June 27, 2020, our backlog was $521.1 million and $557.8 million, respectively.
Seasonality Our revenue may be influenced on a quarter to quarter basis by customer demand patterns and new product introductions. Some of our products may be incorporated into consumer electronic products, which are subject to seasonality and fluctuations in demand. Backlog Backlog consists of purchase orders for products for which we have assigned shipment dates.
Additionally, our products are being designed into emerging automotive, industrial, security, safety and surveillance applications. 3 Table of Contents In the Lasers markets, customer demand is driven by the need to enable faster, higher precision volume manufacturing techniques with lower power consumption, more environmentally friendly, reduced manufacturing footprint and increased productivity.
In the Lasers markets, customer demand is driven by the need to enable faster, higher precision volume manufacturing techniques with lower power consumption, more environmentally friendly, reduced manufacturing footprint and increased productivity. These capabilities are critical as industries develop products that are smaller and lighter, increasing productivity and yield and lowering their energy consumption.
Research and Development We devote substantial resources to research and development (“R&D”) for the development of 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.
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 OpComms segment , we are maintaining our capability to provide products throughout the network, while focusing on several important sub-segments.
We are a leading supplier of the critical laser illumination sources for 3D sensing systems being used in applications for gaming, computing, mobile devices, and home entertainment. Strategy In our OpComms segment, we are focused on technology leadership through innovation with our customers, cost leadership and functional integration.
The technologies to achieve accurate and stable 3D sensing are converging to laser based solutions. We are a leading supplier of the critical laser 7 Table of Contents illumination sources for 3D sensing systems being used in applications for gaming, computing, mobile devices, and home entertainment.
This represents a fundamental transition for image capture akin to the transition from monochrome to color and gives devices the ability to see the world around them in three dimensions. The immediate applications include full body imaging for gaming, 3D scanning for space mapping, computational photography and facial recognition for security.
Our 3D sensing technology enables real time depth information to any photo or video image. This represents a fundamental transition for image capture akin to the transition from monochrome to color and gives devices the ability to see the world around them in three dimensions.
We believe that our employee relations are good. Diversity, Inclusion & Belonging As a global and multicultural company driven by innovation, Lumentum is building a diverse and inclusive culture where differences are valued, and employees feel they belong. Lumentum’s focus on diversity, inclusion, and belonging is felt across the entire organization.
We offered both remote and hybrid internship opportunities during the last three fiscal years that enabled us to continue building our talent pipeline despite the COVID-19 pandemic. Diversity, Inclusion & Belonging As a global and multicultural company driven by innovation, Lumentum is building a diverse and inclusive culture where differences are valued, and employees feel they belong.
Human Capital Resources As of July 3, 2021, we employed approximatel y 5,618 full-time employees, including approximately 4,011 employees in manufacturing, 891 employees in R&D and 716 employees in SG&A. 10 Table of Contents We believe that the future performance of our Company relies upon the strength of our employees, and our ability to recruit and retain the services of executive, engineering, sales and marketing, and support personnel is critical to our success.
We believe that the future performance of our Company relies upon the strength of our employees, and our ability to recruit, retain, develop and motivate the services of executive, engineering, sales and marketing, and support personnel is critical to our success.
For high volume, short distance applications we developed our VCSELs. VCSELs are ideal for short reach applications because they enable low power, low cost optical solutions that are highly scalable. For high-performance, longer distance applications we have our directly modulated laser (“DML”) and electro-absorption modulated laser (“EML”) dies supporting module applications with speeds from 10Gb/s through 800Gb/s.
For high volume, short distance applications we developed our vertical cavity surface emitting lasers (“VCSELs”). VCSELs are ideal for short reach applications because they enable low power, low cost optical solutions that are highly scalable.
Similarly, many of our customers for our Lasers products incorporate our products into tools they produce, which are used for manufacturing processes by their customers. For 3D sensing, we sell diode lasers to manufacturers of consumer electronics products for mobile, personal computing, gaming, and to manufacturers of emerging automotive and industrial applications who then integrate our devices within their products.
Similarly, many of our customers for our Lasers products incorporate our products into tools they produce, which are used for manufacturing processes by their customers.
Following the Oclaro acquisition, we have a differentiated leadership position across a range of photonic chips on which the Datacom, wireless, and access markets critically rely. In our fiscal fourth quarter of 2019, we moved into our Slovenia factory, which is now fully operational. Our significant contract manufacturing partners are located primarily in Thailand, Taiwan and Malaysia.
Additionally, in fiscal 2020, we discontinued the development and manufacturing of future Datacom transceiver modules which impacted the California and China based Datacom module teams. This affected manufacturing in our Thailand factory as well. Following the Oclaro acquisition, we have a differentiated leadership position across a range of photonic chips on which the Datacom, wireless, and access markets critically rely.
Competition We compete against various public and private companies in the commercial laser markets we serve including Coherent (which has entered into a merger agreement with II-VI), IPG Photonics, MKS Instruments, and TRUMPF Group.
Using established manufacturing, engineering, lasers and photonics expertise, we deliver products that meet cost-of-ownership and reliability needs while delivering on volume production demands. Competition We compete against various public and private companies in the commercial laser markets we serve including Coherent (previously named II-VI), IPG Photonics, MKS Instruments, and TRUMPF Group.
We believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that increase the need for our photonics products and technologies. W e believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers.
W e believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers. Lumentum’s products and technology enable the scaling of these optical networks and data centers to higher capacities.
Customers Our Lasers customers include Amada, ASML Holding, Beckman Coulter, DISCO, Electro Scientific Industries (acquired by MKS Instruments in February 2019), Han’s Laser Technology, KLA-Tencor, Lasertec, Life Technologies, and NR Electric.
Customers Our Lasers customers include Amada, ASM Pacific Technology, DISCO, KLA-Tencor, Lasertec, Life Technologies, LPKF Laser & Electronics, Malvern Panalytical, and MKS Instruments.
It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees, and prospects, or on our financial results going forward. We are actively monitoring the evolving impact of the pandemic.
It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, employees and prospects, or on our financial results for the future. Our primary strategic focus for several years has been technology and product leadership combined with close customer relationships in long-term healthy and growing markets.
In the geographies we have operations, we have, in general, been deemed an essential business and been permitted to continue manufacturing and new product development operations in a more limited capacity during the pandemic. This stems from our critical role in global supply chains for the world’s communications and health-care systems.
At most of our locations, we have transitioned from business continuity plans to return-to-office plans while continuing to maintain high standards of employee safety and sanitization protocols. 4 Table of Contents In the geographies where we have operations, we have, in general and where applicable, been deemed an essential business and been permitted to continue manufacturing and conducting new product development operations in a more limited capacity during the pandemic.
Our individual lasers and compact laser arrays offer an innovative solution for the LANs, SANs, broadband Internet, 5G Wireless and metro-area network as well as hyperscale datacenter applications. Our 3D sensing technology enables real time depth information to any photo or video image.
For high-performance, longer distance applications we have our directly modulated laser (“DML”) and electro-absorption modulated laser (“EML”) chips supporting module applications with speeds from 10Gb/s through 800Gb/s. Our individual lasers and compact laser arrays offer an innovative solution for the LANs, SANs, broadband Internet, 5G Wireless and metro-area network as well as hyperscale datacenter applications.
Our work is driven by a Diversity, Inclusion and Belonging Council represented by all business units and functions and employee resource groups supporting women, early career hires, Black, Asian American and Pacific Islander (AAPI), and our Latinx employees.
Our diversity work is also enhanced by employee resource groups supporting women in North America, Switzerland, Slovenia, UK, Italy, and Japan, early career hires in North America and EMEA, Black, Asian American and Pacific Islander, LatinX in North America, LGBTQIA+, Persons with Disabilities, Working Parents, and our Veteran employees.
Intellectual Property 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.
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 July 2, 2022, we ow ned approximately 915 U.S. patents and 900 foreign patents with expiration dates ranging from July 2022 through August 2041, and had approximately 600 patent applications pending throughout the world.
In fiscal 2021, we transitioned manufacturing of our backend wafer and test products from San Jose, California to our other manufacturing operations. We also ceased manufacturing certain of our specialty products in San Jose, transferring the raw materials back to the customer.
In addition, we purchased land and buildings in Thailand and Slovenia with a fair value of $15.1 million in order to expand our manufacturing capacity. Please refer to “Note 8. Balance Sheet Details” to the consolidated financial statements. In fiscal 2021, we transitioned manufacturing of our backend wafer and test processes from San Jose, California to our other manufacturing operations.
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We cannot predict when or to what extent these uncertainties will be resolved.
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For 3D sensing, we sell diode lasers to manufacturers of consumer electronics products for mobile, personal computing, gaming, and other applications, including to the automotive industry, who then integrate our devices within their products, for eventual resale to consumers and also into other industrial applications. 2 Table of Contents We believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that increase the need for our photonics products and technologies.
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Our revenues, profitability and general financial performance may also be affected by: (i) pricing pressures, particularly within our OpComms markets, due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-Pacific-based competitors, and a general commoditization trend for certain products; (ii) high product mix variability which affects revenue and gross margin; (iii) fluctuations in customer buying patterns, which cause volatility in demand, revenue and profitability; (iv) the current trend of communication industry consolidation and vertical integration, which is expected to continue, that directly affects our customer base and adds additional risk and uncertainty to our financial and business projections; (v) China’s on-going transition to a more localized supply chain; and (vi) ongoing risks related to the economic impact of the COVID-19 pandemic, including component shortages that may impact our ability to supply products.
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On August 3, 2022, we completed our merger (“the Merger”) with NeoPhotonics Corporation (“NeoPhotonics”), which we expect to expand our opportunities in the market for optical components used in cloud and telecom network infrastructure.
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The extent to which our operations will continue to be impacted by the outbreak will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and additional variants, the speed, efficacy, and acceptance of vaccine distributions, variant strains of the virus, actions by government authorities and private businesses to contain the severity of the outbreak and emerging variants in various geographies and the speed and trajectory of any recovery from the impact of the pandemic, among other things.
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Internet, cloud, mobile, and broadband access network capacity requirements continue to grow at an unrelenting pace driven by the digital transformation of work and life, high-bandwidth video, gaming, and other applications.
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These shortages are expected to impact our ability to generate revenue from certain products in early fiscal 2022 and, if our ability to procure needed semiconductor components does not improve, this will impact our ability to supply our products to our customers and may reduce our revenue and profit margin.
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After the Merger, Lumentum has a broader portfolio of next generation products and technologies positioned to address the market opportunity created by this strong growth in network capacity requirements, including NeoPhotonics ultra-pure light tunable lasers and photonics technologies for speed over distance applications. 3 Table of Contents On August 15, 2022, we completed a transaction to acquire a business that develops and markets products for use in telecommunications and datacenter infrastructure, including Digital Signal Processors (DSP’s), ASICs and optical transceivers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSome of the risks that may affect our ability to integrate or realize any anticipated benefits from acquired companies, businesses or assets include those associated with: • loss of customers, suppliers or partners; • potential difficulties in completing projects associated with in-process R&D; • an acquisition or strategic transaction may not further our business strategy as we expected or we may overpay for, or otherwise not realize the expected return on, our investments; 21 Table of Contents • we may face unanticipated liabilities or our exposure for known contingencies and liabilities may exceed our estimates; • insufficient net revenue to offset increased expenses associated with acquisitions; • unexpected losses of key employees of the acquired company, or inability to maintain our company culture; • potential adverse effects on our ability to attract, recruit, retain, and motivate current and prospective employees; • conforming the acquired company’s standards, processes, procedures and controls with our operations, including integrating Enterprise Resource Planning (“ERP”) systems and other key business applications; • coordinating new product and process development; • increasing complexity from combining operations; • increasing the scope, geographic diversity and complexity of our operations; • difficulties in integrating operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries; • difficulties in consolidating facilities and transferring processes and know-how; • diversion of management’s attention from other business concerns; • dilution of our current stockholders as a result of any issuance of equity securities as acquisition consideration; • expenditure of cash that would otherwise be available to operate our business; and • incurrence of indebtedness on terms that are unfavorable to us, limit our operational flexibility or that we are unable to repay.
Biggest changeThe challenges involved integrating businesses and acquisitions include: • difficulty preserving relationship with customers, suppliers or partners; • potential difficulties in completing projects associated with in-process R&D; • unanticipated liabilities or our exposure for known contingencies and liabilities may exceed our estimates; • insufficient net revenue or unexpected expenses that negatively impact our margins and profitability; • unexpected losses of key employees of the acquired company, or inability to maintain our company culture; • unexpected expenses for cost of litigation against us or our directors and officers, or against the acquired company, in connection with an acquisition; • potential adverse effects on our ability to attract, recruit, retain, and motivate current and prospective employees; • conforming the acquired company’s standards, processes, procedures and controls with our operations, including integrating Enterprise Resource Planning (“ERP”) systems and other key business applications; • coordinating new product and process development; • increasing complexity from combining operations, including administrative functions, finance and human resources; • increasing the scope, geographic diversity and complexity of our operations; • difficulties in integrating operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries; • difficulties in integrating acquired technology; • difficulties in coordinating and integrating geographically separated personnel, organizations, systems and facilities; • difficulty managing customer transitions or entering into new markets; • difficulties in consolidating facilities and transferring processes and know-how; • diversion of management’s attention from other business concerns; • temporary loss of productivity or operational efficiency; • dilution of our current stockholders as a result of any issuance of equity securities as acquisition consideration; • adverse tax or accounting impact; • expenditure of cash that would otherwise be available to operate our business; and • indebtedness on terms that are unfavorable to us, limit our operational flexibility or that we are unable to repay In addition, following an acquisition, we may have difficulty forecasting the financial results of the combined company and the market price of our common stock could be adversely affected if the effect of any acquisitions on our consolidated financial results is dilutive or is below the market's or financial analysts' expectations, or if there are unanticipated changes in the business or financial performance of the target company or the combined company.
Any reduction in our manufacturing yields will adversely affect our gross margins and could have a material impact on our operating results. We may not be able to realize tax savings from our international tax structure, which could materially and adversely affect our operating results. We operate under a defined international structure.
Any reduction in our manufacturing yields will adversely affect our gross margins and could have a material impact on our operating results. We may not be able to realize tax savings from our international structure, which could materially and adversely affect our operating results. We operate under a defined international structure.
Any system failure, disruption, accident or security breach or incident affecting us or our third-party providers could result in disruptions to our operations and loss of, or unauthorized access or damage to, our data or in inappropriate access to, or use, disclosure or otherwise processing of confidential information.
Any system failure, disruption, accident or security breach or incident affecting us or our third-party providers could result in disruptions to our operations and loss of, or unauthorized access or damage to, our data or inappropriate access to, or use, disclosure or otherwise processing of confidential information.
The litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense and divert the efforts of our technical and management personnel, regardless of whether or not we are successful.
The litigation or settlement of these matters, regardless of the merit of the claims, could result in significant expense and divert the efforts of our technical and management personnel, regardless of whether or not we are successful.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2024 Notes and 2026 Notes, or to make cash payments in connection with any conversion of the 2024 Notes, 2026 Notes or upon any fundamental change if holders of the applicable series of notes require us to repurchase their notes for cash, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2024 Notes, 2026 Notes and 2028 Notes, or to make cash payments in connection with any conversion of the 2024 Notes, 2026 Notes, 2028 Notes or upon any fundamental change if holders of the applicable series of Notes require us to repurchase their Notes for cash, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control.
We expect such volatility to continue, which could negatively impact our results by making our non-U.S. operations more expensive when reported in US dollars, primarily due to the costs of payroll. Moreover, local laws and customs in many countries differ significantly from or conflict with those in the United States or other countries in which we operate.
We expect such volatility to continue, which could negatively impact our results by making our non-U.S. operations more expensive when reported in U.S. dollars, primarily due to the costs of payroll. Moreover, local laws and customs in many countries differ significantly from or conflict with those in the United States or other countries in which we operate.
Under that method, diluted earnings per share will be generally calculated assuming that all our 2024 Notes or 2026 Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be antidilutive. ASU 2020-06 is effective for us in our first quarter of fiscal year 2023.
Under that method, diluted earnings per share will be generally calculated assuming that all our 2024 Notes, 2026 Notes or 2028 Notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be antidilutive. ASU 2020-06 is effective for us in our first quarter of fiscal year 2023.
While these geographies are lower cost than the US and such concentration will in general lower our total cost to manufacture, this increase in concentration in non-US manufacturing will also increase the volatility of our results. If the value of the U.S. dollar depreciates relative to certain other foreign currencies, it would increase our costs as expressed in U.S. dollars.
While these geographies are lower cost than the U.S. and such concentration will in general lower our total cost to manufacture, this increase in concentration in non-U.S. manufacturing will also increase the volatility of our results. If the value of the U.S. dollar depreciates relative to certain other foreign currencies, it would increase our costs as expressed in U.S. dollars.
Our ability to hire and retain employees may be negatively impacted by changes in immigration laws, regulations and procedures. Foreign nationals who are not U.S. citizens or permanent residents constitute an important part of our U.S. workforce, particularly in the areas of engineering and product development.
Our ability to hire and retain employees may be negatively impacted by changes in immigration laws, regulations and procedures. 33 Foreign nationals who are not U.S. citizens or permanent residents constitute an important part of our U.S. workforce, particularly in the areas of engineering and product development.
Any failure of our systems or those of our third-party service providers could result in unauthorized access to, or unauthorized use, acquisition, disclosure, or other processing of such information, and any actual or perceived security breach or incident could cause significant damage to our reputation and adversely impact our relationships with our customers.
Any failure or compromise of our systems or those of our third-party service providers could result in unauthorized access to, or unauthorized use, acquisition, disclosure, or other processing of such information, and any actual or perceived security breach or incident could cause significant damage to our reputation and adversely impact our relationships with our customers.
Any such developments could have a material impact on our ability to meet our customers’ expectations and may materially impact our operating results and financial condition. If our customers do not qualify our manufacturing lines or the manufacturing lines of our subcontractors for volume shipments, our operating results could suffer.
Any such developments could have a material impact on our ability to meet our customers’ expectations and may materially impact our operating results and financial condition. 23 If our customers do not qualify our manufacturing lines or the manufacturing lines of our subcontractors for volume shipments, our operating results could suffer.
If we elect to deliver common stock upon conversion of the 2024 Notes or the 2026 Notes, it would dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
If we elect to deliver common stock upon conversion of the 2024 Notes, 2026 Notes or the 2028 Notes, it would dilute the ownership interests of existing stockholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.
In many foreign countries, particularly in those with developing economies, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. regulations applicable to us.
In many foreign countries, particularly in those with developing economies, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or U.S. 21 regulations applicable to us.
Any failure to successfully integrate acquired businesses may disrupt our business and adversely impact our business, financial condition and results of operations. Changes in demand and customer requirements for our products may reduce manufacturing yields, which could negatively impact our profitability.
Any failure to successfully integrate acquired businesses may disrupt our business and adversely impact our business, financial condition and results of operations. 26 Changes in demand and customer requirements for our products may reduce manufacturing yields, which could negatively impact our profitability.
We may be unable to identify or complete prospective acquisitions for many reasons, including increasing competition from other potential acquirers, the effects of consolidation in our industries and potentially high valuations of acquisition candidates.
We may be unable to identify or complete prospective acquisitions for many reasons, including competition from other potential acquirers, the effects of consolidation in our industries and potentially high valuations of acquisition candidates.
The Organization for Economic Cooperation and Development has been working on a set of internationally accepted tax rules as a part of a Base Erosion and Profit Sharing (BEPS) Project aimed at tax avoidance, and that the roll-out of BEPS action steps by various jurisdictions may change aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business.
The Organization for Economic Cooperation and Development has also been working on a set of internationally accepted tax rules as a part of a Base Erosion and Profit Sharing (BEPS) Project aimed at tax avoidance, and the roll-out of BEPS action steps by various jurisdictions may change aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business.
There are also continuing trade tensions, including an uncertain regulatory environment, in the U.S. and countries in Asia, which could materially impact our sales to key customers in these regions. Further, we may be required to purchase raw materials, increase production capacity or make other changes to our business to accommodate certain large customers.
There are also continuing trade tensions, including an uncertain regulatory environment, in the U.S. and countries in Asia, which have and could continue to materially impact our sales to key customers in these regions. Further, we may be required to purchase raw materials, increase production capacity or make other changes to our business to accommodate certain large customers.
Like other companies, we are subject to ongoing attempts by malicious actors, including through hacking, malware, ransomware, denial-of-service attacks, social engineering, exploitation of internet-connected devices, and other attacks, to obtain unauthorized access or acquisition of confidential information or otherwise affect service reliability and threaten the confidentiality, integrity and availability of our systems and information stored or otherwise processed on our systems.
Like other companies, we are subject to ongoing attempts by malicious actors, including through hacking, malware, ransomware, denial-of-service attacks, social engineering, exploitation of internet-connected devices, and other attacks, to obtain unauthorized access to or acquisition or other authorized processing of confidential information or otherwise affect service reliability and threaten the confidentiality, integrity and availability of our systems and information stored or otherwise processed on our systems.
Consequently, upon adoption, our 2024 Notes and 2026 Notes will be accounted for as a single liability measured at amortized cost. Further, ASU 2020-06 eliminates the use of the treasury stock method for convertible instruments that can be settled in whole or in part with equity, and instead requires application of the “if-converted” method.
Consequently, upon adoption, our 2026 Notes and 2028 Notes will be accounted for as a single liability measured at amortized cost. Further, ASU 2020-06 eliminates the use of the treasury stock method for convertible instruments that can be settled in whole or in part with equity, and instead requires application of the “if-converted” method.
Chinese laws and regulations are subject to frequent change, and if our contract manufacturers are unable to obtain or retain the requisite legal permits or otherwise to comply with Chinese legal requirements, we may be forced to obtain products from other manufacturers or to make other operational changes, including transferring our manufacturing to another manufacturer or to our own manufacturing facilities.
Chinese laws and regulations are subject to frequent change, and if our suppliers are unable to obtain or retain the requisite legal permits or otherwise to comply with Chinese legal requirements, we may be forced to obtain products from other manufacturers or to make other operational changes, including transferring our manufacturing to another manufacturer or to our own manufacturing facilities.
Our business, results of operations and financial performance have been negatively impacted by the COVID-19 pandemic and related public health responses, such as shelter-in-place orders, social distancing protocols, and travel restrictions in many of the countries and regions in which we have operations or manufacturing partners.
Our business, results of operations and financial performance have been negatively impacted by the evolution of the COVID-19 pandemic and related countermeasures and public health responses, such as shelter-in-place orders, social distancing protocols, and travel restrictions in many of the countries and regions in which we have operations or manufacturing partners.
Adverse changes to and uncertainty in the global economy, particularly in light of the impacts of COVID-19 and a potential global recession resulting therefrom, may lead to decreased demand for our products, revenue fluctuations, and increased price competition for our products, and may increase the risk of excess and obsolete inventories and higher overhead costs as a percentage of revenue.
Adverse changes to and uncertainty in the global economy, particularly in light of the impacts of COVID-19 and a potential global recession may lead to decreased demand for our products, revenue fluctuations, and increased price competition for our products, and may increase the risk of excess and obsolete inventories and higher overhead costs as a percentage of revenue.
We are subject to the provisions of Section 203 of the Delaware General Corporate Law (“DGCL”) which prohibits us, under some circumstances, 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.
We are subject to the provisions of Section 203 of the Delaware General Corporate Law which prohibits us, under some circumstances, from engaging in business combinations with some stockholders for a specified period of time 38 without the approval of the holders of substantially all of our outstanding voting stock.
In addition, changes in the business requirements, vendor selection, project 15 Table of Contents prioritization, financial prospects, capital resources, and expenditures, or purchasing behavior (including product mix purchased or timing of purchases) of our key customers, or any real or perceived quality issues related to the products that we sell to such customers, could significantly decrease our sales to such customers or could lead to delays or cancellations of planned purchases of our products or services, which increases the risk of quarterly fluctuations in our revenues and operating results.
In addition, changes in the business requirements, vendor selection, project prioritization, financial prospects, capital resources, and expenditures, or purchasing behavior (including product mix purchased or timing of purchases) of our key customers, or any real or perceived quality issues related to the products that we sell to such customers, could significantly decrease our sales to such customers or could lead to delays or cancellations of planned purchases of our products or services, which increases the risk of quarterly fluctuations in our revenues and operating results.
Further, our third-party service providers may have been and may be in the future subject to such attacks or otherwise may suffer security breaches or incidents. In addition, actions by our employees, service providers, partners, contractors, or others, whether malicious or in error, could affect the security of our systems.
Further, our third-party service providers may have been and may be in the future subject to such attacks or otherwise may suffer security breaches or incidents. In addition, actions by our employees, service providers, partners, contractors, or others, whether malicious or in error, could affect the security of our systems and confidential information.
In addition, if we experience problems with our manufacturing facilities or are unable to continue operations at any of these sites, including as a result of social, geopolitical, environmental or health factors, damage caused by natural disasters, or other problems, including pandemics or widespread health epidemics such as COVID-19 impacts, it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer which could then result in interruptions in supply, and would likely materially impact our financial condition and results of operations.
In addition, if we experience problems with our manufacturing facilities or are unable to continue operations at any of these sites, including as a result of social, geopolitical, environmental or health factors, damage caused by natural disasters, or other problems or events beyond our control, including pandemics or widespread health epidemics such as COVID-19, it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer which could then result in interruptions in supply, and would likely materially impact our financial condition and results of operations.
As a result of our international operations, in addition to similar risks we face in our U.S. operations, we are affected by economic, business, regulatory, social, and political conditions in foreign countries, including the following: • impacts related to business disruptions and restrictions related to COVID-19; • changes in general IT spending; • less effective protection of intellectual property; • the imposition of government controls, inclusive of critical infrastructure protection; • changes in or limitations imposed by trade protection laws or other regulatory orders or requirements in the United States or in other countries, including tariffs, sanctions, or other costs or requirements which may affect our ability to import or export our products from various countries or increase the cost to do so, including government action to restrict our ability to sell to foreign customers where sales of products may require export licenses (such as the U.S.
As a result of our international operations, in addition to similar risks we face in our U.S. operations, we are affected by economic, business, regulatory, social, and political conditions in foreign countries, including the following: • impacts related to business disruptions and restrictions related to COVID-19, including supply chain disruptions and labor shortages; 20 • changes in general IT spending; • less effective protection of intellectual property; • the imposition of government controls, inclusive of critical infrastructure protection; • changes in or limitations imposed by trade protection laws or other regulatory orders or requirements in the United States or in other countries, including tariffs, sanctions, or other costs or requirements which may affect our ability to import or export our products from various countries or increase the cost to do so, including government action to restrict our ability to sell to foreign customers where sales of products may require export licenses (such as the U.S.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant time and operational resources, including accounting-related costs and significant management oversight.
Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
Alternatively, if a court outside of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations. 39 ITEM 1B.
Changes in immigration laws, regulations or procedures, including those that have been and may be enacted in the future by the U.S. government, including current U.S. presidential administration, and in the United Kingdom or the European Union in connection with Brexit, may adversely affect our ability to hire or retain such workers, increase our operating expenses and negatively impact our ability to deliver our products and services.
Additional changes in immigration laws, regulations or procedures, including those that have been and may be enacted in the future by the U.S. government, including current U.S. presidential administration, and in the United Kingdom or the European Union in connection with Brexit or the war in Ukraine, may adversely affect our ability to hire or retain such workers, increase our operating expenses and negatively impact our ability to deliver our products and services.
For example, the information gathered and processed by our information management systems assists us in managing our supply chain, monitoring customer accounts, and protecting our proprietary and confidential business information, plans, trade secrets, and intellectual property, among other things.
For example, the information gathered and processed by our information management systems assists us in managing our supply chain, financial reporting, monitoring customer accounts, and protecting our proprietary and confidential business information, plans, trade secrets, and intellectual property, among other things.
Our supply chain has also been affected by measures implemented in response to the pandemic and in certain cases, our suppliers have not had the materials, capacity or capability to supply us with the components necessary for continuing our manufacturing operations or development efforts at our normal levels, such as the impacts we are experiencing from the shortages in semiconductor components.
Our supply chain has been, and continues to be, affected by measures implemented in response to the pandemic and in certain cases, our suppliers have not had the materials, capacity or capability to supply us with the components necessary for continuing our manufacturing operations or development efforts at our normal levels, such as the impacts we are experiencing from the shortages in semiconductor components.
These challenges resulted in extended lead-times to our customers and had a negative impact on our ability to recognize associated revenue and has resulted in and may continue to result in an increase in accelerated ordering for certain of our products.
These challenges have resulted in extended lead-times to our customers and have had a negative impact on our ability to recognize associated revenue and have resulted in and may continue to result in an increase in accelerated ordering for certain of our products.
The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides (including the availability of treatments and vaccines and the impact of new variants on recovery).
The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility, including increasing levels of inflation in the United States; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides (including the availability and efficacy of treatments and vaccines and the impact of new variants on recovery).
Any actual or alleged disruption to, or security breach or incident affecting, our systems or those of our third-party partners could cause significant damage to our reputation, lead to theft or misappropriation of our protected intellectual property and trade secrets, result in claims, 24 Table of Contents investigations, regulatory proceedings, litigation, legal obligations or liability, affect our relationships with our customers, require us to bear significant costs in connection with remediating and otherwise responding to any disruption, breach, or incident, and ultimately harm our business.
Any actual or alleged disruption to, or security breach or incident affecting, our systems or those of our third-party partners could cause significant damage to our reputation, lead to theft or misappropriation of our protected intellectual property and trade secrets, result in claims, investigations, regulatory proceedings, claims, demands and litigation, legal obligations or liability, affect our relationships with our customers, require us to bear significant costs in connection with remediating and otherwise responding to any disruption, breach, or incident, and ultimately harm our business.
We may incur significant costs to correct defective products which could result in the loss of future sales and revenue, indemnification costs or costs to replace or repair the defective products, litigation and damage 18 Table of Contents to our reputation and customer relations. Defective products may also cause diversion of management attention from our business and product development efforts.
We may incur significant costs to correct defective products which could result in the loss of future sales and revenue, indemnification costs or costs to replace or repair the defective products, litigation and damage to our reputation and customer relations. Defective products may also cause diversion of management attention from our business and product development efforts.
In addition, these systems may also contain personal data or other confidential or otherwise protected information about our employees, our customers’ employees, or others. We must continue to expand and update this infrastructure in response to our changing requirements as well as evolving security standards and risks.
In addition, these systems may also contain personal data or other confidential or otherwise protected information about our employees, our customers’ employees, or other business partners. We must continue to expand and update this infrastructure in response to our changing requirements as well as evolving security standards and risks.
Additionally, the merger or consolidation of significant competitors, for example, II-VI’s acquisition of Finisar in September of 2019 and its pending acquisition of Coherent, the acquisition of Acacia Communications by Cisco in March 2021, and the acquisition of OSRAM by AMS in December 2019, may result in competitors with greater resources, enable them to offer a different market approach, or a lower cost structure through economies of scale or other efficiencies that we may be unable to match and which may intensify competition in the various markets.
Additionally, the merger or consolidation of significant competitors, for example, II-VI’s acquisition of Finisar in September of 2019 and its acquisition of Coherent on July 1, 2022, the acquisition of Acacia Communications by Cisco in March 2021, and the acquisition of OSRAM by AMS in December 2019, may result in competitors with greater resources, enable them to offer a different market approach, or a lower cost structure through economies of scale or other efficiencies that we may be unable to match and which may intensify competition in the various markets.
For additional information regarding the impact of COVID-19 on our business, see the risk factor above titled “Our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives may be materially and adversely affected by the ongoing COVID-19 pandemic.” Any or all of these factors could have a material adverse impact on our business, financial condition, and results of operations.
For additional information regarding the impact of COVID-19 on our business, please refer to the risk factor above titled “Our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives may be materially and adversely affected by the ongoing COVID-19 pandemic.” Any or all of these factors could have a material adverse impact on our business, financial condition, and results of operations.
Further, certain of our contract manufacturers are located in China, which exposes us to risks associated with Chinese laws and regulations and U.S. laws, regulations and policies with respect to China, such as those related to import and export policies, tariffs, taxation and intellectual property.
Further, certain of our suppliers are located in China, which exposes us to risks associated with Chinese laws and regulations and U.S. laws, regulations and policies with respect to China, such as those related to import and export policies, tariffs, taxation and intellectual property.
If the 2024 Notes or the 2026 Notes are converted by holders of such series, we have the ability under the applicable indenture to deliver cash, equity, common stock, or any combination of cash or common stock, at our election upon conversion of the applicable series of convertible notes.
If the 2024 Notes, 2026 Notes or the 2028 Notes are converted by holders of such series, we have the ability under the applicable indenture to deliver cash, common stock, or any combination of cash or common stock, at our election upon conversion of the applicable series of Notes.
If substantial modifications to the international structure or the way we operate our business are made, such as if future acquisitions or divestitures occur, if changes in domestic and international tax laws negatively impact the structure, if we do not operate our business consistent with the structure and applicable tax provisions, if we fail to achieve our revenue and profit goals, or if the international structure or our application of arm’s-length principles to intercompany arrangements is successfully challenged by the U.S. or foreign tax authorities, our effective tax rate may increase, which could have a material adverse effect on our operating and financial results. 22 Table of Contents Changes in tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.
If substantial modifications to the international structure or the way we operate our business are made, such as if future acquisitions or divestitures occur, if changes in domestic and international tax laws negatively impact the structure, if we do not operate our business consistent with the structure and applicable tax provisions, if we fail to achieve our revenue and profit goals, or if the international structure or our application of arm’s-length principles to intercompany arrangements is successfully challenged by the U.S. or foreign tax authorities, our effective tax rate may increase, which could have a material adverse effect on our operating and financial results.
We may be unable to cause our suppliers or contract manufactures to comply with these provisions which may adversely affect our relationships with customers.
We may be unable to cause our suppliers or contract manufacturers to comply with these provisions which may adversely affect our relationships with customers.
The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and the accurate prediction of technology and market trends, and is further impacted by the disruptions caused by COVID-19 on our ability to continue with research and development activities.
The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and the accurate prediction of technology and market trends, and is further impacted by the disruptions caused by COVID-19 on our ability to continue with research and development activities and on our customers’ abilities to introduce new products and offerings.
We have adopted Lumentum as a house trademark and trade name for our company, and are in the process of establishing rights in this name and brand. We have 25 Table of Contents also adopted the Lumentum logo as a house trademark for our company, and are in the process of establishing rights in this brand.
We have adopted Lumentum as a house trademark and trade name for our company, and are in the process of establishing rights in this name and brand. We have also adopted the Lumentum logo as a house trademark for our company, and are in the process of establishing rights in this brand.
For example, it could: • make it more difficult for us to satisfy our debt obligations, including the 2024 Notes and the 2026 Notes; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from exploiting business opportunities; • place us at a competitive disadvantage compared to our competitors that have less indebtedness; and • limit our availability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general purposes.
For example, it could: 37 • make it more difficult for us to satisfy our debt obligations, including the 2024 Notes, the 2026 Notes and the 2028 Notes; • increase our vulnerability to general adverse economic and industry conditions; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital and other general corporate purposes; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • restrict us from exploiting business opportunities; • place us at a competitive disadvantage compared to our competitors that have less indebtedness; and • limit our availability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general purposes The accounting method for our 2024 Notes, 2026 Notes and 2028 Notes could adversely affect our financial condition and operating results.
We expect that this customer concentration will continue in the future, and we expect that our growth prospects will continue to depend in part on a small number of customers. Many of our customers purchase products under purchase orders or under contracts that do not contain volume or long-term purchase commitments.
We expect that this customer concentration will continue in the future, and we expect that our financial performance in certain business lines and growth prospects will continue to depend in part on a small number of customers. Many of our customers purchase products under purchase orders or under contracts that do not contain volume or long-term purchase commitments.
We believe we 29 Table of Contents comply with all such legislation where our products are sold, and we continuously monitor these laws and the regulations being adopted under them to determine our responsibilities.
We believe we comply with all such legislation where our products are sold, and we continuously monitor these laws and the regulations being adopted under them to determine our responsibilities.
The CPRA amends and augments the CCPA by expanding individuals’ rights and the obligations of businesses that handle personal data. Similar legislation has been proposed or adopted in other states. Aspects of the CCPA, CPRA and these other state laws and regulations, as well as their enforcement, remain unclear.
The CPRA amends and augments the CCPA by expanding individuals’ rights and the obligations of businesses that handle personal data. Similar legislation has been proposed or adopted in other states, including Colorado, Virginia, Utah, and Connecticut. Aspects of the CCPA, CPRA and these other laws and regulations, as well as their enforcement, remain unclear.
The loss of the services of any of our key employees, the inability to attract or retain personnel in the future or delays in hiring required personnel and the complexity and time involved in replacing or training new employees, could delay the development and introduction of new products, and negatively impact our ability to market, sell, or support our products.
The loss of the services of any of our key employees, the inability to attract or retain personnel in the future, particularly during the integration of NeoPhotonics and with respect to key employees of NeoPhotonics, or delays in hiring required personnel and the complexity and time involved in replacing or training new employees, could delay the development and introduction of new products, and negatively impact our ability to market, sell, or support our products.
If we raise additional funds through future issuances of equity, equity-linked or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
We may in the future engage in additional equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity, equity-linked or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
Furthermore, imposition of tariffs or new or revised export, import or doing-business regulations, including trade sanctions, could cause a decrease in the sales of our products to customers located in China or other customers selling to Chinese end users, which would directly impact our business and results of operations. 20 Table of Contents We face a number of risks related to our strategic transactions.
Furthermore, imposition of tariffs or new or revised export, import or doing-business regulations, including trade sanctions, could cause a decrease in the demand for, or sales of our products to customers located in China or other customers selling to Chinese end users or increase the cost for our products, which would directly impact our business and results of operations. 24 We face a number of risks related to our strategic transactions.
Our failure or perceived failure to comply with any of the foregoing legal and regulatory requirements could result in increased costs for our products, monetary penalties, damage to our reputation, government inquiries and investigations, and legal action.
Our failure or perceived failure to comply with any of the foregoing legal and regulatory requirements could result in increased costs for our products, monetary penalties, damage to our reputation, government inquiries and investigations, legal claims, demands and litigation, and other liabilities.
Additionally, our manufacturing operations and those of our contract manufacturers may be affected by natural disasters, including a global pandemic such as COVID-19, changes in legal requirements, labor strikes and other labor unrest and economic, political or other forces that are beyond our control.
Our manufacturing operations and those of our contract manufacturers may be affected by natural disasters such as earthquakes, typhoons, tsunamis, fires and public health crises, including a global pandemic such as COVID-19, changes in legal requirements, labor strikes and other labor unrest and economic, political or other forces that are beyond our control.
On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, which provides some relief regarding the legality of continued personal data flows from the European Economic Area to the United Kingdom.
On June 28, 2021, the European Commission announced a decision of “adequacy” concluding that the United Kingdom ensures an equivalent level of data protection to the GDPR, providing for the legality of continued personal data flows from the European Economic Area to the United Kingdom.
Investments, partnerships and acquisitions involve risks and uncertainties which 23 Table of Contents could materially and adversely affect our operating and financial results.
Investments, partnerships and acquisitions involve risks and uncertainties which could materially and adversely affect our operating and financial results.
The effects of the CCPA, CPRA and these other state laws and regulations are potentially significant, however, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
The U.S. federal government also is contemplating federal privacy legislation. The effects of the CCPA, CPRA and these other state laws and regulations are potentially significant, however, and may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply.
In connection with acquisitions, risks to us and our business include: • diversion of management’s attention from normal daily operations of the business; • unforeseen expenses, delays or conditions imposed upon the acquisition or transaction, including due to required regulatory approvals or consents, or fees that may be triggered upon a failure to consummate an acquisition or transaction for certain reasons; • unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators; • unanticipated changes in the acquired business, including due to regulatory action or changes in the operating results or financial condition of the business; • the inability to retain and obtain required regulatory approvals, licenses and permits; • difficulties and costs in integrating the operations, technologies, products, IT and other systems, assets, facilities and personnel of the purchased businesses; • loss of customers, suppliers or partners; and • failure to consummate an acquisition resulting in negative publicity and impact on our stock price.
In connection with acquisitions, risks to us and our business include: • diversion of management’s attention from normal daily operations of the business; • failure to achieve the anticipated transaction benefits or the projected financial results and operational synergies; • unforeseen expenses, delays or conditions imposed upon the acquisition or transaction, including due to required regulatory approvals or consents, or fees that may be triggered upon a failure to consummate an acquisition or transaction for certain reasons; • unanticipated changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators; • unanticipated changes in the acquired business, including due to regulatory action or changes in the operating results or financial condition of the business; • the inability to retain and obtain required regulatory approvals, licenses and permits; • difficulties and costs in integrating the operations, technologies, products, IT and other systems, assets, facilities and personnel of the purchased businesses; • disruption due to the integration and rationalization of operations, products, technologies and personnel; • loss of customers, suppliers or partners; and • failure to consummate an acquisition resulting in negative publicity and/or negative impression of us in the investment community that could impact on our stock price Further, an acquisition or strategic transaction may not further our business strategy as we expected or we may overpay for, or otherwise not realized the expected return on, our investments.
Risk Factor Summary Our business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following: General economic factors • the impact of the COVID-19 pandemic and responsive measures; Operational factors • changes in technology and intense competition; • our reliance on a limited number of customers; • our ability to sell to a significant customer; • our reliance on a limited number of suppliers; • our ability to manufacture our products; • our leverage in negotiations with large customers; • order cancellations, reductions or delays in delivery schedules by our customers or distributors; • any delay in collecting or failure to collect accounts receivable; • defects in our products; • our international operations; • our strategic transactions; • our implementation strategy for our acquisitions; • changes in demand and customer requirements for our products; • our international tax structure; • fluctuations in foreign currency; • our ability to hire and retain key personnel; • the effects of immigration policy on our ability to hire and retain employees; • our ability to protect our product and proprietary rights; • our reliance on licensed third-party technology; • the unpredictability of our results of operations; • actual or perceived security or privacy breaches, as well as defects, errors or vulnerabilities in our technology and that of third-party providers; • factors relating to our intellectual property rights as well as the intellectual property rights of others; 13 Table of Contents Regulatory and Legal factors • our ability to obtain government authorization to export our products; • the threat of tariffs; • changes in tax laws; • litigation risks; • changes in laws and the adoption and interpretation of administrative rules and regulations, including U.S. and international customs and export regulations; • intellectual property litigation; • our ability to maintain an effective system of disclosure controls and internal control over financial reporting; Financing and Transactional Risks • our future capital requirements; • our ability to service our current and future debt; Governance Risks and Risks related to Ownership of our Capital Stock • dilution related to our 2024 Notes and 2026 Notes; • provisions of Delaware law and our certificate of incorporation and bylaws that may make a merger, tender offer or proxy contest difficult; • exclusive forum provisions in our bylaws; • the volatility of the trading price of our common stock; and • our intention not to pay dividends for the foreseeable future.
Risk Factor Summary Our business operations are subject to numerous risks, factors and uncertainties, including those outside of our control, that could cause our actual results to be harmed, including risks regarding the following: General Economic Factors • the impact of the ongoing COVID-19 pandemic and responsive measures; and • challenges relating to supply chain constraints Operational Factors • changes in technology and intense competition; • our reliance on a limited number of customers; • our ability to sell to a significant customer; • our reliance on a limited number of suppliers; • our ability to timely procure components needed to manufacture our products; • our ability to manufacture our products; • our leverage in negotiations with large customers; • order cancellations, reductions or delays in delivery schedules by our customers or distributors; • any delay in collecting or failure to collect accounts receivable; • defects in our products; • our international operations; • our strategic transactions; • our level of success in accessing new markets and obtaining new customers; • our implementation strategy for our acquisitions; • changes in spending levels, demand and customer requirements for our products; • our international structure; • restructure charges; • fluctuations in foreign currency; • our ability to hire and retain key personnel; • the effects of immigration policy on our ability to hire and retain employees; • our ability to protect our product and proprietary rights; • our reliance on licensed third-party technology; 14 • the unpredictability of our results of operations; • actual or perceived security or privacy breaches or incidents, as well as defects, errors or vulnerabilities in our technology and that of third-party providers; • factors relating to our intellectual property rights as well as the intellectual property rights of others; and • merger and acquisition related risks Regulatory and Legal Factors • our ability to obtain government authorization to export our products; • our ability to obtain antitrust approvals in connection with certain strategic transactions; • the threat of tariffs; • changes in tax laws; • litigation risks, including intellectual property litigation; • changes in social and environmental responsibility regulations, policies and provisions, as well as customer and investor demands; • changes in laws and the adoption and interpretation of administrative rules and regulations, including U.S. and international customs and export regulations; and • our ability to maintain an effective system of disclosure controls and internal control over financial reporting Financing and Transactional Risks • our future capital requirements; and • our ability to service our current and future debt Risk Related to Our Merger with NeoPhotonics • failure to successfully integrate NeoPhotonics to our business; • failure to realize the benefits expected from the Merger; and • litigation in connection with the Merger Governance Risks and Risks Related to Ownership of Our Capital Stock • dilution related to our 2024 Notes, 2026 Notes and 2028 Notes (each as defined below); • provisions of Delaware law and our certificate of incorporation and bylaws that may make a merger, tender offer or proxy contest difficult; • exclusive forum provisions in our bylaws; • the volatility of the trading price of our common stock; and • our intention not to pay dividends for the foreseeable future 15 Risks Related to Our Business Our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives has been affected, and may be materially and adversely affected by the ongoing COVID-19 pandemic.
We contract with a number of large OEM and end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues.
Any delays or failure to obtain qualifications would harm our reputation, operating results, and customer relationships. We contract with a number of large OEM and end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues.
If we are unable to successfully manage any of these risks in relation to any future acquisitions or divestitures, our business, financial condition and results of operations could be adversely impacted. We may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations.
If we are unable to successfully manage any of these risks in relation to any future acquisitions or divestitures, our business, financial condition and results of operations could be adversely impacted.
If we have insufficient proprietary rights or if we fail to protect our rights, our business would be materially harmed. We seek to protect our products and 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.
We seek to protect our products and 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.
We have in the past received, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe upon their proprietary rights, with two distinct sources of such claims becoming increasingly prevalent.
Lawsuits and allegations of patent infringement and violation of other intellectual property rights occur regularly in our industry. We have in the past received, and anticipate that we will receive in the future, notices from third parties claiming that our products infringe upon their proprietary rights, with two distinct sources of such claims becoming increasingly prevalent.
The market price of our common stock has fluctuated, and may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: • general economic and market conditions and other external factors, particularly in light of the market volatility driven by the impact and duration of COVID-19; • actual or anticipated fluctuations in our quarterly or annual operating results; • changes in earnings estimates by securities analysts or our ability to meet those estimates; • the operating and stock price performance of other comparable companies; • a shift in our investor base; • the financial performance of other companies in our industry, and of our customers; • success or failure of our business strategy; • credit market fluctuations which could negatively impact our ability to obtain financing as needed; • changes in governmental regulation including taxation and tariff policies; • changes in global political tensions that may affect business with our customers; • announcements by us, competitors, customers, or our contract manufacturers of significant acquisitions or dispositions, such as our announcement related to the termination of the merger agreement with Coherent in March 2021, or overall movement toward industry consolidations among our customers and competitors; • investor perception of us and our industry; • changes in accounting standards, policies, guidance, interpretations or principles; • litigation or disputes in which we may become involved; • overall market fluctuations; • sales of our shares by our officers, directors, or significant stockholders; and • the timing and amount of dividends and share repurchases, if any.
The market price of our common stock has fluctuated, and may fluctuate significantly due to a number of factors, some of which may be beyond our control, including: • general economic and market conditions and other external factors, particularly in light of the market volatility driven by the impact and duration of COVID-19; • actual or anticipated fluctuations in our quarterly or annual operating results; 36 • changes in earnings estimates by securities analysts or our ability to meet those estimates; • the operating and stock price performance of other comparable companies; • a shift in our investor base; • the financial performance of other companies in our industry, and of our customers; • general market, economic and political conditions, including market conditions in the semiconductor industry; • success or failure of our business strategy; • credit market fluctuations which could negatively impact our ability to obtain financing as needed; • changes in governmental regulation including taxation and tariff policies; • changes in global political tensions that may affect business with our customers; • announcements by us, competitors, customers, or our contract manufacturers of significant acquisitions or dispositions, or overall movement toward industry consolidations among our customers and competitors; • investor perception of us and our industry; • changes in recommendations by securities analysts; • changes in accounting standards, policies, guidance, interpretations or principles; • differences, whether actual or perceived, between our corporate social responsibility and ESG practices and disclosure and investor expectations; • litigation or disputes in which we may become involved; • overall market fluctuations; • issuances of our shares upon conversion of some or all of the Notes; • sales of our shares by our officers, directors, or significant stockholders; and • the timing and amount of dividends and share repurchases, if any In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies.
Additionally, we have experienced supply constraints due to both constrained manufacturing capacity, as well as component parts shortages, in particular semiconductor components, as our vendors were also facing supply constraints, and increased logistics costs due to air travel and transport restrictions that limited the availability of flights on which we ship our products.
Due to increased demand across a range of industries, our business and customers’ businesses have experienced and are continuing to experience supply constraints due to both constrained manufacturing capacity, as well as component parts shortages, in particular semiconductor components, as our vendors have also been facing supply constraints, and increased logistics costs due to air travel and transport restrictions that limited the availability of flights on which we ship our products.
We have been in the past, and may be in the future, subject to social engineering and other cybersecurity attacks, and these attacks may become more prevalent while our workforce is distributed following shelter-in-place orders particularly given the increased remote access to our networks and systems as a result.
We have been in the past, and may be in the future, subject to social engineering and other cybersecurity attacks, and these attacks may become more prevalent with substantial portion of our workforce being distributed geographically, particularly given the increased remote access to our networks and systems as a result.
Our competitors include II-VI, Acacia Communications (which was acquired by Cisco in March 2021), Accelink, ams AG, Broadcom Inc., Coherent (which has entered into a merger agreement with II-VI), Fujitsu Optical Components, Furukawa Electric, IPG Photonics, Mitsubishi Electric, MKS Instruments, Molex, Neophotonics, O-Net Communications, Sumitomo Electric Industries, and Trumpf Group.
Our competitors include Coherent (previously named II-VI), Acacia Communications (acquired by Cisco in 2021), Accelink, ams AG, Broadcom Inc., Fujitsu Optical Components, Furukawa Electric, IPG Photonics, Mitsubishi Electric, MKS Instruments, Molex, and O-Net Communications, Sumitomo Electric Industries, and Trumpf Group.
To the extent we are successful in making acquisitions, we may be unsuccessful in implementing our acquisitions strategy, or integrating acquired companies or product lines and personnel with existing operations, or the integration may be more difficult or more costly than anticipated.
We may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations. 25 To the extent we are successful in making acquisitions, such as our recent acquisition of NeoPhotonics, we may be unsuccessful in implementing our acquisitions strategy, or integrating acquired companies, businesses or product lines and personnel with existing operations, or the integration may be more difficult or more costly than anticipated.
Complying with these disclosure requirements involves 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 demand internal resources that would otherwise be directed towards operations activities.
Complying with these disclosure requirements involves 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.
Legal Proceedings.” 26 Table of Contents Our products incorporate and rely upon licensed third-party technology, and if licenses of third-party technology do not continue to be available to us or are not available on terms acceptable to us, our revenues and ability to develop and introduce new products could be adversely affected.
Commitments and Contingencies” to the consolidated financial statements. 32 Our products incorporate and rely upon licensed third-party technology, and if licenses of third-party technology do not continue to be available to us or are not available on terms acceptable to us, our revenues and ability to develop and introduce new products could be adversely affected.
Our manufacturing is heavily concentrated in regions in Asia, and we would be severely impacted if there were further escalation of COVID-19 or related restrictions imposed by governments or private industry in that region. We also rely on several independent contract manufacturers to supply us with certain products.
Our manufacturing is heavily concentrated in regions in Asia, and we would be severely impacted if there were further escalation of COVID-19 or related restrictions imposed by governments or private industry in that region.
Further, if our revenue mix changes, it may also cause results to differ from historical seasonality. Accordingly, our quarterly and annual revenues, operating results, cash flows, and other financial and operating metrics may vary significantly in the future, and the results of any prior periods should not be relied upon as an indication of future performance.
Further, if our revenue mix changes, it may also cause results to differ from historical seasonality. Accordingly, our quarterly and annual revenues, operating results, cash flows, and other financial and operating metrics may vary significantly in the future.
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 “Part II, Item 1.
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, please refer to “Part I, Item 3. Legal Proceedings,” and “Note 18.
The payment of any dividends to our stockholders in the future, and the timing and amount thereof, if any, is within the discretion of our board of directors.
We do not expect to pay dividends on our common stock. We do not currently expect to pay dividends on our common stock. The payment of any dividends to our stockholders in the future, and the timing and amount thereof, if any, is within the discretion of our board of directors.
Additionally, while our security systems are designed to maintain the physical security of our facilities and information systems, accidental or willful security breaches or incidents or other unauthorized access by third parties to our facilities or our information systems could lead to unauthorized access to, or misappropriation, disclosure, or other processing of proprietary and confidential information.
Additionally, while our security systems are designed to maintain the physical security of our facilities and information systems, accidental or willful security breaches or incidents or other unauthorized access by third parties to our facilities or our information systems could lead to unauthorized access to, or misappropriation, disclosure, or other processing of proprietary and confidential information. 29 Despite our implementation of security measures, our systems and those of our third-party service providers are vulnerable to damage from these types of attacks or errors.
Similarly, our customers have also experienced, and could continue to experience, disruptions in their operations, which may result in reduced, delayed, or canceled orders, and has increased collection risks, 14 Table of Contents which may adversely affect our results of operations.
Similarly, our customers have also experienced, and could continue to experience, disruptions in their operations, which may result in reduced, delayed, or canceled orders, and has increased collection risks, which may adversely affect our results of operations. Further, we have seen delayed deployments of 5G networks, particularly in China, which has harmed and may continue to harm our OpComms revenue.
We cannot be certain what additional actions the U.S. government may take with respect to Huawei or other entities in China or other countries, including additional changes to the Entity List restrictions, export regulations, tariffs or other trade restrictions.
Huawei may seek to obtain similar or substitute products from our competitors that are not subject to these restrictions, or to develop similar or substitute products themselves. 19 We cannot be certain what additional actions the U.S. government may take with respect to Huawei or other entities in China or other countries, including additional changes to the Entity List restrictions, export regulations, tariffs or other trade restrictions.
This trade uncertainty may cause delays or cancellations, which could adversely affect our business, financial conditions and operating results. We believe this trade uncertainty has caused and may in the future cause delays or cancellations, which could adversely affect our business, financial conditions and operating results.
We believe this trade uncertainty has caused and may in the future cause delays or cancellations, which could adversely affect our business, financial conditions and operating results. Intense competition in our markets may lead to an accelerated reduction in our prices, revenues, margins and market share.
For example, sanctions on sales to certain parties of US semiconductors and semiconductor equipment has caused a delay in 5G deployment in China while the affected companies seek alternative solutions, which has reduced the demand for our products from some of our Chinese customers; • varying and potentially conflicting laws and regulations; • potential global or regional recession as a result of the COVID-19 pandemic and related responses of individuals, governments, private industry; • wage inflation or a tightening of the labor market; • political developments of foreign nations, including Brexit and political developments in Hong Kong and the potential impact such developments or further actions could have on our customers in Hong Kong; and • the impact of the following on service provider and government spending patterns as well as our contract and internal manufacturing: political considerations, unfavorable changes in tax treaties or laws, unfavorable events that affect foreign currencies on an absolute or relative basis, natural disasters, epidemic disease, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property, military actions, acts of terrorism, political and social unrest and difficulties in staffing and managing international operations. 17 Table of Contents Additionally, our business is impacted by fluctuations in local economies and currencies.
For example, sanctions on sales to certain parties of U.S. semiconductors and semiconductor equipment has caused a delay in 5G deployment in China while the affected companies seek alternative solutions, which has reduced the demand for our products from some of our Chinese customers; • varying and potentially conflicting laws and regulations; • overlapping, differing or more burdensome tax structure and laws; • potential global or regional recession as a result of the COVID-19 pandemic and related responses of individuals, governments and private industry; • markets for 5G infrastructure not developing in the manner or in the time periods we anticipate, including as a result of unfavorable developments with evolving laws and regulations worldwide; • inflationary pressures that may occur as a result of economic recovery following the COVID-19 pandemic; • wage inflation or a tightening of the labor market; • the impact of recessions and other economic conditions in economies outside the United States, including, for example, dips in the manufacturing Purchasing Managers Index as well as the Institute for Supply Management data in the Eurozone; • tax and customs changes that adversely impact our global sourcing strategy, manufacturing practices, transfer-pricing, or competitiveness of our products for global sales; • volatility in oil prices and increased costs, or limited supply of other natural resources; • political developments, geopolitical unrest or other conflicts in foreign nations, including Brexit, the war in Ukraine and political developments in Hong Kong and the potential impact such developments or further actions could have on our customers in the markets in which we operate; and • the impact of the following on service provider and government spending patterns as well as our contract and internal manufacturing: political considerations, unfavorable changes in tax treaties or laws, unfavorable events that affect foreign currencies on an absolute or relative basis, natural disasters, epidemic disease, labor unrest, earnings expatriation restrictions, misappropriation of intellectual property, military actions, acts of terrorism, political and social unrest and difficulties in staffing and managing international operations Additionally, our business is impacted by fluctuations in local economies and currencies.
Such proposed changes, as well as regulations and legal decisions interpreting and applying these changes, may have significant impacts on our effective tax rate, cash tax expenses and net deferred tax assets in future periods. Other countries also continue to enact and consider enacting new laws, which could adversely affect us.
Such proposed changes, as well as regulations and legal decisions interpreting and applying these changes, may have significant impacts on our effective tax rate, cash tax expenses and net deferred tax assets in future periods.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of July 3, 2021, our leased and owned properties in total are approximately 1,800,000 square feet, of which we own approximately 825,000 square feet, including the 560,000 square feet manufacturing site in Thailand, the 238,000 square feet on the San Jose campus, and the 25,000 square feet manufacturing in Slovenia.
Biggest changeAs of July 2, 2022, our leased and owned properties in total are approximately 2.5 million square feet, of which we own approximately 1,447,000 square feet, including the 1,173,000 square feet manufacturing site in Thailand, the 238,000 square feet on the San Jose campus, and the 36,000 square feet manufacturing in Slovenia.
Larger leased sites include properties located in Canada, China, Japan, Italy, the United Kingdom 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.
Larger leased sites include properties located in Canada, China, Italy, Japan, Switzerland, Taiwan, the United Kingdom 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. 33 Table of Contents
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

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 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.
Biggest changeITEM 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. As such, we regularly evaluate developments in legal matters that could affect the amount of the previously accrued liability and record adjustments as appropriate.
Should we experience an unfavorable final outcome, 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. Merger Litigation In connection with our acquisition of Oclaro, seven lawsuits were filed by purported stockholders of Oclaro challenging the proposed merger (the “Merger”).
Should we experience an unfavorable final outcome, 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. Please refer to “Note 18. Commitments and Contingencies” to the consolidated financial statements. ITEM 4. MINE SAFETY DISCLOSURES None. 41 PART II ITEM 5.
Removed
Two of the seven suits were putative class actions filed against Oclaro, its directors, Lumentum, Prota Merger Sub, Inc. and Prota Merger, LLC: Nicholas Neinast v. Oclaro, Inc., et al., No. 3:18-cv-03112-VC, in the United States District Court for the Northern District of California (filed May 24, 2018) (the “Neinast Lawsuit”); and Adam Franchi v.
Added
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the NASDAQ Stock Market under the symbol “LITE”. According to records of our transfer agent, we had 2,389 stockholders of record as of August 17, 2022 and we believe there is a substantially greater number of beneficial holders.
Removed
Oclaro, Inc., et al., No. 1:18-cv-00817-GMS, in the United States District Court for the District of Delaware (filed June 9, 2018) (the “Franchi Lawsuit”). Both the Neinstat Lawsuit and the Franchi Lawsuit were voluntarily dismissed with prejudice. The other five suits, styled as Gerald F. Wordehoff v. Oclaro, Inc., et al., No. 5:18-cv-03148-NC (the “Wordehoff Lawsuit”), Walter Ryan v.
Added
We do not expect to pay cash dividends on our common stock in the foreseeable future.
Removed
Oclaro, Inc., et al., No. 3:18-cv-03174-VC (the “Ryan Lawsuit”), Jayme Walker v. Oclaro, Inc., et al., No. 5:18-cv-03203-EJD (the “Walker Lawsuit”), Kevin Garcia v. Oclaro, Inc., et al., No. 5:18-cv-03262-VKD (the “Garcia Lawsuit”), and SaiSravan B. Karri v.
Added
Stock Performance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Lumentum Holdings Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Removed
Oclaro, Inc., et al., No. 3:18-cv-03435-JD (the “Karri Lawsuit” and, together with the other six lawsuits, the “Lawsuits”), were filed in the United States District Court for the Northern District of California on May 25, 2018, May 29, 2018, May 30, 2018, May 31, 2018, and June 9, 2018, respectively.
Added
The following graph compares the cumulative total return of our common stock with the total return for the NASDAQ Composite Index (the “IXIC”) and the NASDAQ 100 Technology Sector Index (the “NDXT”) from July 3, 2016 through July 2, 2022.
Removed
These five Lawsuits named Oclaro and its directors as defendants only and did not name Lumentum. The Wordehoff, Ryan, Walker, and Garcia Lawsuits have been voluntarily dismissed, and the Wordehoff, Ryan, and Walker dismissals were with prejudice. The Karri Lawsuit has not yet been dismissed. The Ryan Lawsuit was, and the Karri Lawsuit is, a putative class action.
Added
The stock price performance on the following graph is not necessarily indicative of future stock price performance. 42 Recent Sale of Unregistered Equity Securities None.
Removed
The Lawsuits generally alleged, among other things, that Oclaro and its directors violated Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9 promulgated thereunder by disseminating an incomplete and misleading Form S-4, including proxy statement/prospectus.
Added
Issuer Purchases of Equity Securities The following table sets forth issuer purchases of equity securities for the fourth quarter of fiscal 2022 ( in millions, except share and per share amounts ): Period Total number of shares purchased (1) Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum number (or approximation dollar value) of shares that may yet be purchased under the plans or programs April 3, 2022 to April 30, 2022 — $ — — $ 513.5 May 1, 2022 to May 28, 2022 304,000 $ 86.34 304,000 $ 487.2 May 29, 2022 to July 2, 2022 961,200 $ 80.13 961,200 $ 410.2 Total 1,265,200 $ 81.62 1,265,200 $ 410.2 (1) On May 7, 2021, our board of directors approved the 2021 share buyback program, which authorizes us to use up to $700.0 million to purchase our own shares of common stock.
Removed
The Lawsuits further alleged that Oclaro’s directors violated Section 20(a) of the Exchange Act by failing to exercise proper control over the person(s) who violated Section 14(a) of the Exchange Act.
Added
The buyback program was authorized for 2 years. On March 3, 2022, our board of directors approved an increase in our share buyback program, which authorizes us to use up to an aggregate amount of $1.0 billion (an increase from $700.0 million) to purchase our own shares of common stock through May 2024.
Removed
The remaining Lawsuit (the Karri Lawsuit) currently purports to seek, among other things, damages to be awarded to the plaintiff and any class, if a class is certified, and litigation costs, including attorneys’ fees. A lead plaintiff and counsel has been selected, and an amended complaint was filed on April 15, 2019, which also names Lumentum as a defendant.
Added
The share buyback program may be suspended or terminated by the board of directors at any time. (2) Average price paid per share includes costs associated with the repurchases.
Removed
A motion to dismiss the amended complaint was granted in part and denied in part by the court on October 8, 2020. On December 1, 2020, defendants answered the amended complaint.
Added
Separate from the 2021 share buyback program and concurrent with the issuance of the 2028 Notes, we repurchased 2.0 million shares of our common stock in privately negotiated transactions in the third quarter of fiscal 2022. The average price paid was $99.00 per share for an aggregate purchase price of $200.0 million. These shares were retired immediately.
Removed
On December 23, 2020, defendants filed a motion for leave to file a motion for reconsideration of the Court’s October 8 order on the motion to dismiss, which was denied on January 29, 2021. The Karri Lawsuit remains pending with the parties currently in discovery. Defendants intend to defend the Karri Lawsuit vigorously. ITEM 4.
Removed
MINE SAFETY DISCLOSURES None. 34 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

0 edited+8 added−9 removed0 unchanged
Removed
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the NASDAQ Stock Market under the symbol “LITE”. According to records of our transfer agent, we had 2,519 stockholders of record as of August 23, 2021 and we believe there is a substantially greater number of beneficial holders.
Added
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 42 ITEM 6 . RESERVED 43 ITEM 7 . MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 44 ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 64 ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 66 ITEM 9 .
Removed
We do not expect to pay cash dividends on our common stock in the foreseeable future.
Added
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 122 ITEM 9 A. CONTROLS AND PROCEDURES 122 ITEM 9 B. OTHER INFORMATION 124 ITEM 9 C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 124 PART III ITEM 10 . DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 125 ITEM 1 1 . EXECUTIVE COMPENSATION 125 ITEM 1 2 .
Removed
Stock Performance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Lumentum Holdings Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Added
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 125 ITEM 1 3 . CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE 125 ITEM 1 4 . PRINCIPAL ACCOUNTING FEES AND SERVICES 125 PART IV ITEM 1 5 . EXHIBITS, FINANCIAL STATEMENTS SCHEDULES 126 ITEM 1 6 .
Removed
The following graph compares the cumulative total return of our common stock with the total return for the NASDAQ Composite Index (the “IXIC”) and the NASDAQ 100 Technology Sector Index (the “NDXT”) from August 4, 2015 through July 3, 2021.
Added
FORM 10-K SUMMARY 130 SIGNATURES 131 1 Table of Contents FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).
Removed
The stock price performance on the following graph is not necessarily indicative of future stock price performance. 35 Table of Contents Recent Sale of Unregistered Equity Securities None.
Added
These statements relate to, among other things, our markets and industry, products and strategy, the impact of export regulation changes, the impact of the COVID-19 pandemic and related responses of business and governments to the pandemic on our business and results of operations, sales, gross margins, operating expenses, capital expenditures and requirements, liquidity, product development and R&D efforts, manufacturing plans, litigation, effective tax rates and tax reserves, our corporate and financial reporting structure, our plans for growth and innovation, our expectations regarding U.S.-China relations, market and regulatory conditions, trends and uncertainties in our business and financial results, and our merger with NeoPhotonics and the successful integration of NeoPhotonics’s business (including personnel), and are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would,” “contemplate,” “believe,” “predict,” “potential” and similar expressions or variations intended to identify forward-looking statements.
Removed
Issuer Purchases of Equity Securities In December 2019, we purchased approximately $200.0 million or 2.9 million shares of our common stock concurrently with the pricing of the 2026 Notes in privately negotiated transactions effected through the initial purchaser of the 2026 Notes or its affiliates as its agent.
Added
These statements are based on the beliefs and assumptions of our management, which are in turn based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements.
Removed
On May 7, 2021, our board of directors approved the 2021 share buyback program, which authorizes us to use up to $700.0 million to purchase our own shares of common stock in open market or in privately negotiated transactions.
Added
Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “ Risk Factors ” included under Part I, Item 1A below. Furthermore, such forward-looking statements speak only as of the date of this report.
Removed
The buyback program is authorized for 2 years but may be suspended or terminated by the board of directors at any time.
Added
Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. PART I
Removed
The following table sets forth the repurchase activity for the 2021 share buyback program ( in millions, except share 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 Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs May 7, 2021 to May 29, 2021 2,104,427 $76.01 2,104,427 $540.0 May 30, 2021 to July 3, 2021 992,000 $81.72 992,000 $459.0 36 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

94 edited+57 added−44 removed69 unchanged
Biggest changeThe following table summarizes selected Consolidated Statements of Operations items as a percentage of net revenue: Years Ended July 3, 2021 June 27, 2020 June 29, 2019 Segment net revenue: OpComms 93.0 % 90.3 % 87.5 % Lasers 7.0 9.7 12.5 Net revenue 100.0 100.0 100.0 Cost of sales 51.5 58.1 69.8 Amortization of acquired developed intangibles 3.5 3.2 3.0 Gross profit 44.9 38.7 27.2 Operating expenses: Research and development 12.3 11.8 11.8 Selling, general and administrative 13.9 14.0 12.8 Restructuring and related charges 0.4 0.5 2.0 Merger termination fee and related costs, net (11.9) — — Impairment charges — 0.3 2.0 Total operating expenses 14.7 26.6 28.6 Income (loss) from operations 30.2 12.2 (1.4) Unrealized gain on derivative liability — — 0.6 Interest expense (3.8) (3.6) (2.3) Other income (expense), net 0.2 1.9 1.0 Income (loss) before income taxes 26.6 10.4 (2.1) Provision for income taxes 3.8 2.3 0.2 Net income (loss) 22.8 % 8.1 % (2.3) % 45 Table of Contents Financial Data for Fiscal 2021, 2020 and 2019 The following table summarizes selected Consolidated Statements of Operations items ( in millions, except for percentages ): 2021 2020 Change Percentage Change 2020 2019 Change Percentage Change Segment net revenue: OpComms $ 1,620.7 $ 1,515.1 $ 105.6 7.0 % $ 1,515.1 $ 1,370.2 $ 144.9 10.6 % Lasers 122.1 163.5 (41.4) (25.3) 163.5 195.1 (31.6) (16.2) Net revenue $ 1,742.8 $ 1,678.6 $ 64.2 3.8 % $ 1,678.6 $ 1,565.3 $ 113.3 7.2 % Gross profit $ 783.1 $ 650.2 $ 132.9 20.4 % $ 650.2 $ 425.9 $ 224.3 52.7 % Gross margin 44.9 % 38.7 % 38.7 % 27.2 % Research and development $ 214.5 $ 198.6 $ 15.9 8.0 % $ 198.6 $ 184.6 $ 14.0 7.6 % Percentage of net revenue 12.3 % 11.8 % 11.8 % 11.8 % Selling, general and administrative $ 241.4 $ 235.2 $ 6.2 2.6 % $ 235.2 $ 200.3 $ 34.9 17.4 % Percentage of net revenue 13.9 % 14.0 % 14.0 % 12.8 % Restructuring and related charges $ 7.7 $ 8.0 $ (0.3) (3.8) % $ 8.0 $ 31.9 $ (23.9) (74.9) % Percentage of net revenue 0.4 % 0.5 % 0.5 % 2.0 % Merger termination fee and related costs, net $ (207.5) $ — $ (207.5) 100.0 % $ — $ — 0 — % Percentage of net revenue (11.9) % — % — % — % Impairment charges $ — $ 4.3 $ (4.3) (100.0) % $ 4.3 $ 30.7 $ (26.4) (86.0) % Percentage of net revenue — % 0.3 % 0.3 % 2.0 % Net Revenue Net revenue increased by $64.2 million, or 3.8%, during fiscal 2021 compared to fiscal 2020.
Biggest changeThe following table summarizes selected consolidated statements of operations items as a percentage of net revenue: Years Ended July 2, 2022 July 3, 2021 June 27, 2020 Segment net revenue: OpComms 88.7 % 93.0 % 90.3 % Lasers 11.3 7.0 9.7 Net revenue 100.0 100.0 100.0 Cost of sales 50.3 51.5 58.1 Amortization of acquired developed intangibles 3.7 3.5 3.2 Gross profit 46.0 44.9 38.7 Operating expenses: Research and development 12.9 12.3 11.8 Selling, general and administrative 15.5 13.9 14.0 Restructuring and related charges (0.1) 0.4 0.5 Merger termination fee and related costs, net — (11.9) — Impairment charges — — 0.3 Total operating expenses 28.3 14.7 26.6 Income from operations 17.7 30.2 12.2 Interest expense (4.7) (3.8) (3.6) Other income (expense), net 0.7 0.2 1.9 Income before income taxes 13.7 26.6 10.4 Provision for income taxes 2.1 3.8 2.3 Net income 11.6 % 22.8 % 8.1 % 52 Financial Data for Fiscal 2022, 2021, and 2020 The following table summarizes selected consolidated statements of operations items ( in millions, except for percentages ): 2022 2021 Change Percentage Change 2021 2020 Change Percentage Change Segment net revenue: OpComms $ 1,518.5 $ 1,620.7 $ (102.2) (6.3) % $ 1,620.7 $ 1,515.1 $ 105.6 7.0 % Lasers 194.1 122.1 72.0 59.0 122.1 163.5 (41.4) (25.3) Net revenue $ 1,712.6 $ 1,742.8 $ (30.2) (1.7) % $ 1,742.8 $ 1,678.6 $ 64.2 3.8 % Gross profit $ 788.6 $ 783.1 $ 5.5 0.7 % $ 783.1 $ 650.2 $ 132.9 20.4 % Gross margin 46.0 % 44.9 % 44.9 % 38.7 % Research and development $ 220.7 $ 214.5 $ 6.2 2.9 % $ 214.5 $ 198.6 $ 15.9 8.0 % Percentage of net revenue 12.9 % 12.3 % 12.3 % 11.8 % Selling, general and administrative $ 265.7 $ 241.4 $ 24.3 10.1 % $ 241.4 $ 235.2 $ 6.2 2.6 % Percentage of net revenue 15.5 % 13.9 % 13.9 % 14.0 % Restructuring and related charges $ (1.1) $ 7.7 $ (8.8) (114.3) % $ 7.7 $ 8.0 $ (0.3) (3.8) % Percentage of net revenue (0.1) % 0.4 % 0.4 % 0.5 % Merger termination fee and related costs, net $ — $ (207.5) $ 207.5 (100.0) % $ (207.5) $ — $ (207.5) N/A Percentage of net revenue — % (11.9) % (11.9) % — % Impairment charges $ — $ — $ — — % $ — $ 4.3 $ (4.3) (100.0) % Percentage of net revenue — % — % — % 0.3 % Net Revenue Net revenue decreased by $30.2 million, or 1.7%, during fiscal 2022 as compared to fiscal 2021, due to a $102.2 million decrease in OpComms revenue, partially offset by a $72.0 million increase in Lasers revenue.
Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new technology challenges that our technology addresses.
Virtual meetings, video calls, and hybrid in-person and virtual environments for work and other aspects of life will continue to drive strong needs for bandwidth growth and present dynamic new challenges that our technology addresses.
Lasers Lasers gross margin in fiscal 2021 increased to 46.9% from 46.6% in fiscal 2020. This increase was primarily driven by the streamlining of our manufacturing supply chain related to our kilowatt class fiber products over the past year, offset by the impact of lower manufacturing levels related to COVID-19 reducing customer demand for our kilowatt class fiber products.
Lasers gross margin in fiscal 2021 increased to 46.9% from 46.6% in fiscal 2020. This increase was primarily driven by the streamlining of our manufacturing supply chain related to our kilowatt class fiber products over the past year, offset by the impact of lower manufacturing levels related to COVID-19 reducing customer demand for our kilowatt class fiber products.
The increase in R&D expense was primarily due to an increase in payroll related expense and stock-based compensation partially due to the additional week in fiscal year 2021, offset by a decrease in R&D materials, as well as a reduction in discretionary travel, primarily due to COVID-19 restrictions.
The increase in R&D expense was primarily due to an increase in payroll related expense and stock-based compensation partially due to the additional week in fiscal year 2021, partially offset by a decrease in R&D materials, as well as a reduction in discretionary travel, primarily due to COVID-19 restrictions.
Defined Benefit Plans The Company sponsors defined benefit pension plans covering employees in Japan, Switzerland, and Thailand. Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of each country’s plan. Employees are entitled to a lump sum benefit upon retirement or upon certain instances of termination.
Defined Benefit Plans 58 The Company sponsors defined benefit pension plans covering employees in Japan, Switzerland, and Thailand. Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of each country’s plan. Employees are entitled to a lump sum benefit upon retirement or upon certain instances of termination.
Cash provided by financing activities of $328.8 million during the year ended June 27, 2020, primarily resulted from the proceeds of the issuance of the 2026 Notes of $1,042.2 million, net of issuance costs, offset by repayment of our term loan facility of $497.5 million and the repurchase of shares of our common stock of $200.0 million.
Cash provided by financing activities of $328.8 million during the year ended June 27, 2020, primarily resulted from the proceeds of the issuance of the 2026 Notes of $1,042.2 million, net of issuance costs, offset by repayment of our term loan facility of $497.5 million and the repurchase of shares of our common stock of $200.0 million. 63
If the closing price of our stock exceeds $129.08 for 20 of the last 30 trading days of any future quarter, our 2026 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our Consolidated Balance Sheet.
If the closing price of our stock exceeds $129.08 for 20 of the last 30 trading days of any future quarter, our 2026 Notes would also become convertible at the option of the holders and the debt component would be reclassified to current liabilities in our condensed consolidated balance sheet.
Revenue under VMI programs is recognized when control transfers to the customer, which is generally once the customer pulls the inventory from the hub. Revenue from all sales types is recognized at the transaction price.
Revenue under VMI programs is recognized when control transfers to the customer, which is generally once the customer pulls the inventory from the hub. 48 Revenue from all sales types is recognized at the transaction price.
Goodwill Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed. We test 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.
Goodwill Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed. We test goodwill impairment on an annual basis in the fiscal fourth quarter and at any other time when events occur or circumstances indicate that the carrying amount of goodwill may not be recoverable.
The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please refer to “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue. The impact of semiconductor component shortages may increase in the near term as supplier and customer buffer inventories and safety stocks are exhausted.
In addition, if our customers are unable to procure needed semiconductor components, this could reduce their demand for our products and reduce our revenue. The impact of semiconductor component shortages may continue in the near term as supplier and customer buffer inventories and safety stocks are exhausted.
The increase was primarily due to higher manufacturing volumes, a more profitable mix of products, including higher sales of higher margin Datacom and 3D sensing chips, pump lasers, and HiRel components products. We also benefited from exiting lower margin product lines, such as Datacom transceiver module and Lithium Niobate modulator products, as well as from ongoing operational improvements.
The increase was primarily due to higher manufacturing volumes, a more profitable mix of products, including higher sales of higher margin Datacom, pump lasers, and HiRel components products. We also benefited from exiting lower margin product lines, such as Datacom transceiver module and Lithium Niobate modulator products, as well as from ongoing operational improvements.
We also sell laser chips for use in manufacturing of high-speed Datacom transceivers.In the Consumer and Industrial market, our OpComms products include laser light sources, which are integrated into 3D sensing 39 Table of Contents platforms being used in applications for mobile devices, gaming, computers, and other consumer electronics devices.
We also sell laser chips for use in manufacturing of high-speed Datacom transceivers. In the Consumer and Industrial market, our OpComms products include laser light sources, which are integrated into 3D sensing platforms being used in applications for mobile devices, gaming, computers, and other consumer electronics devices.
COVID-19 has also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products.
Supply Chain Constraints COVID-19 has also created dynamics in the semiconductor component supply chains that have led to shortages of the types of components we and our customers require in our products.
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.
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 may reassess the value of our goodwill in the period such circumstances were identified.
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 43 Table of Contents statements or tax returns.
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.
In the geographies we have operations, we have, in general, been deemed an essential business and been permitted to continue manufacturing and providing new product development operations in a more limited capacity during the pandemic. This stems from our critical role in global supply chains for the world’s communications and health-care systems.
In the geographies where we have operations, we have, in general and where applicable, been deemed an essential business and been permitted to continue manufacturing and conducting new product development operations in a more limited capacity during the pandemic. This stems from our critical role in global supply chains for the world’s communications and health-care systems.
Any contributions for the following fiscal year and later will depend on the value of the plan assets in the future and thus are uncertain. As such, we have not included any amounts beyond one year in the table above. Refer to “Note 18. Employee Retirement Plans” in the notes to consolidated financial statements.
Any contributions for the following fiscal year and later will depend on the value of the plan assets in the future and thus are uncertain. As such, we have not included any amounts beyond one year in the table above. Please refer to “Note 17. Employee Retirement Plans” to the consolidated financial statements.
We believe there are long-term opportunities, as the world’s experience with COVID-19 is driving an increasingly digital and virtual world touching all aspects of life and work that increasingly emphasizes communications systems, cloud services, augmented and virtual reality, and enhanced security. Additionally, ever advancing electronic devices are needed to consume, produce, and communicate digital and virtual content.
We believe there are long-term opportunities, as the world’s experience with COVID-19 could drive an increasingly digital and virtual world, touching all aspects of life and work, that increasingly emphasizes the importance of communications systems, cloud services, augmented and virtual reality, and enhanced security. Additionally, ever advancing electronic devices are needed to consume, produce, and communicate digital and virtual content.
As a result of these actions, we recorded impairment charges of $4.3 million and $30.7 million in fiscal 2020 and 2019, respectively, to our long-lived assets that were not deemed to be useful. While we expect strong growth in Datacom volumes in the future, gross margins at the transceiver market level are lower due to extreme competition.
As a result of these actions, we recorded impairment charges of $4.3 million in fiscal 2020 to our long-lived assets that were not deemed to be useful. While we expect strong growth in Datacom volumes in the future, gross margins at the transceiver market level are lower due to extreme competition.
However, in some instances depending upon the product, specific market, product line and geography in which we operate, and what is common in the industry, our warranties can vary and range from six months to five years.
However, in certain circumstances depending upon the product, specific market, product line and geography in which we operate, and what is common in the industry, our warranties can vary and range from six months to five years.
(3) Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Refer to “Note 19. Commitments and Contingencies” in the notes to consolidated financial statements.
(3) Purchase obligations represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Please refer to “Note 18. Commitments and Contingencies” to the consolidated financial statements.
Provision for Income Taxes : Years Ended (in millions) July 3, 2021 June 27, 2020 June 29, 2019 Provision for income taxes $ 65.8 $ 38.8 $ 3.1 Our provision for income taxes for fiscal 2021 differs from the 21% U.S. statutory rate primarily due to income tax benefit from earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate, which is offset by the tax expense from U.S. income inclusions from Subpart F and GILTI.
Provision for Income Taxes : Years Ended (in millions) July 2, 2022 July 3, 2021 June 27, 2020 Provision for income taxes $ 36.2 $ 65.8 $ 38.8 Our tax provision for fiscal 2022 differs from the 21% U.S. statutory rate primarily due to the income tax benefit from earnings of our foreign subsidiaries being taxed at rates that differ from the U.S. statutory rate, offset by the tax expense from U.S. income inclusions from Subpart F and GILTI.
The pandemic and these related responses have caused, and are expected to continue to cause a global slowdown of economic activity (including a decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and potential disruption of financial markets.
The pandemic and these related responses continue to cause a global slowdown of economic activity (including a decrease in demand for a broad variety of goods and services), disruptions in global supply chains, labor shortages, and significant volatility and potential disruption of financial markets.
During our fiscal 2021, 2020 and 2019, net revenue generated from a single customer which represented 10% or greater of total net revenue is summarized as follows: Years Ended July 3, 2021 June 27, 2020 June 29, 2019 Apple 30.2 % 26.0 % 21.0 % Huawei 10.8 % 13.2 % 15.2 % Ciena 10.1 % * 13.7 % *Represents less than 10% of total net revenue.
During our fiscal 2022, 2021 and 2020, net revenue generated from a single customer which represented 10% or greater of total net revenue is summarized as follows: Years Ended July 2, 2022 July 3, 2021 June 27, 2020 Apple 28.7 % 30.2 % 26.0 % Ciena 12.6 % 10.1 % * Huawei * 10.8 % 13.2 % *Represents less than 10% of total net revenue.
This increase was primarily due to $105.6 million higher OpComms net revenue, offset by of $41.4 million lower sales of Lasers. OpComms net revenue increased by $105.6 million, or 7.0%, during fiscal 2021 compared to fiscal 2020. Within OpComms, sales of Industrial and Consumer increased $67.7 million and Telecom and Datacom products increased by $37.9 million.
This increase was primarily due to a $105.6 million increase in OpComms revenue, partially offset by a $41.4 million decrease in Lasers revenue. OpComms net revenue increased by $105.6 million, or 7.0%, during fiscal 2021 as compared to fiscal 2020. Within OpComms, sales of Industrial and Consumer increased $67.7 million and Telecom and Datacom products increased by $37.9 million.
We estimate a 100 basis point decrease or increase in the discount rate would cause a corresponding increase or decrease, respectively, in the PBO of $4.1 million or $(3.5) million, based upon data as of July 3, 2021. We expect to contribut e $1.0 million to our defined benefit pension plans in fiscal 2022.
We estimate a 100 basis point decrease or increase in the discount rate would cause a corresponding increase or decrease of $2.8 million or $2.4 million, respectively, in the PBO based upon data as of July 2, 2022. We expect to contribut e $1.4 million to our defined benefit pension plans in fiscal 2023.
Refer to “Note 20. Operating Segments and Geographic Information” for a presentation of disaggregated revenue. We do not present other levels of disaggregation, such as by type of products, customer, markets, contracts, duration of contracts, timing of transfer of control and sales channels, as this information is not used by our CODM to manage the business.
Please refer to “Note 20. Revenue Recognition” to the consolidated financial statements for a presentation of disaggregated revenue. We do not present other levels of disaggregation, such as by type of products, customer, markets, contracts, duration of contracts, timing of transfer of control and sales channels, as this information is not used by our CODM to manage the business.
As of July 3, 2021 , the debt component of our 2024 Notes of $390.7 million (principal balance of $450 million maturing in 2024) is presented in short-term liabilities since our stock price exceeded $78.80 for 20 of the last 30 trading days of the quarter ended July 3, 2021 and the 2024 Notes are convertible at the option of the holders.
Indebtedness As of July 2, 2022 , the debt component of our 2024 Notes of $409.9 million (principal balance of $450 million maturing in 2024) is presented in short-term liabilities since our stock price exceeded $78.80 for 20 of the last 30 trading days of the quarter ended July 2, 2022 and the 2024 Notes are convertible at the option of the holders.
These shortages are expected to impact our ability to generate revenue from certain products in early fiscal 2022 and, if our ability to procure needed semiconductor components does not improve, this will impact our ability to supply our products to our customers and may reduce our revenue and profit margin.
These shortages have impacted our ability to meet demand and generate revenue from certain products in fiscal 2022 and, if our ability to procure needed semiconductor components does not improve, this will impact our ability to supply our products to our customers and may reduce our revenue and profit margin.
However, if market conditions are favorable, we may evaluate alternatives to opportunistically pursue additional financing. 53 Table of Contents 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, including the impact of COVID-19; • fluctuations in demand for our products as a result of changes in regulations, tariffs or other trade barriers, and trade relations in general; • changes in accounts receivable, inventory or other operating assets and liabilities, which affect our working capital; • increase in capital expenditures to support our business and growth; • the tendency of customers to delay payments or to negotiate favorable payment terms to manage their own liquidity positions; • timing of payments to our suppliers; • 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, or other strategic transactions or partnerships; • issuance of debt or equity securities, or other financing transactions, including bank debt; • potential funding of pension liabilities either voluntarily or as required by law or regulation; and • the settlement of any conversion or redemption of the 2024 Notes and the 2026 Notes in cash. • common stock repurchase under 2021 share buyback program, Fiscal 2021 As of July 3, 2021, our consolidated balance of cash and cash equivalents increased by $476.3 million, to $774.3 million from $298.0 million as of June 27, 2020.
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, including the impact of COVID-19; 61 • fluctuations in demand for our products as a result of changes in regulations, tariffs or other trade barriers, and trade relations in general; • changes in accounts receivable, inventory or other operating assets and liabilities, which affect our working capital; • increase in capital expenditures to support our business and growth, including increases in manufacturing capacity; • the tendency of customers to delay payments or to negotiate favorable payment terms to manage their own liquidity positions; • timing of payments to our suppliers; • 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, or other strategic transactions or partnerships; • issuance of debt or equity securities, or other financing transactions, including bank debt; • potential funding of pension liabilities either voluntarily or as required by law or regulation; • other acquisitions or strategic transactions; • the settlement of any conversion or redemption of the 2024 Notes, the 2026 Notes, and the 2028 Notes in cash, and • common stock repurchases under 2021 share buyback program Fiscal 2022 As of July 2, 2022, our consolidated balance of cash and cash equivalents increased by $515.9 million, to $1,290.2 million from $774.3 million as of July 3, 2021.
Frictionless and contactless biometric security and access control is of increasing focus globally given the world’s experience with the COVID-19 pandemic. Additionally, we expect 3D-enabled machine vision solutions to expand significantly in industrial applications in the coming years.
Frictionless and contactless biometric security and access control is of increasing focus globally given the world’s experience with the COVID-19 pandemic. Additionally, we expect 3D-enabled machine vision solutions to expand significantly in industrial applications in the coming years. OpComms Our OpComms products address the following markets: Telecom, Datacom and Consumer and Industrial.
If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its fair value, not to exceed the carrying amount of goodwill.
If the carrying value of a reporting unit exceeds its fair value, we record goodwill impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its fair value, not to exceed the carrying amount of goodwill.
Under these arrangements, we receive purchase orders from our customers, and the inventory is shipped to the VMI location upon receipt of the purchase order. The customer then pulls the inventory from the VMI hub based on its production needs.
We have entered into vendor managed inventory (“VMI”) programs with our customers. Under these arrangements, we receive purchase orders from our customers, and the inventory is shipped to the VMI location upon receipt of the purchase order. The customer then pulls the inventory from the VMI hub based on its production needs.
Given the continually evolving situation, it is difficult to predict the magnitude and duration of the impact of the COVID-19 pandemic to our markets or precisely when our ability to supply our products will return to full capacity.
Given the continually evolving situation, particularly in light of the recent Delta and Omicron variants, it is difficult to predict the magnitude and duration of the impact of the COVID-19 pandemic to our markets, its effects, or precisely when our ability to supply our products will return to full capacity.
Financial Condition Liquidity and Capital Resources As of July 3, 2021 and June 27, 2020, our cash and cash equivalents of $774.3 million and $298.0 million, respectively, were largely held in the United States. As of July 3, 2021 and June 27, 2020, our short-term investments of $1,171.7 million and $1,255.8 million, respectively, were all held in the United States.
Financial Condition Liquidity and Capital Resources As of July 2, 2022 and July 3, 2021, our cash and cash equivalents of $1,290.2 million and $774.3 million, respectively, were largely held in the United States. As of July 2, 2022 and July 3, 2021, our short-term investments of $1,258.8 million and $1,171.7 million, respectively, were all held in the United States.
Revenue Recognition Pursuant to Topic 606, our revenues are recognized upon the application of the following steps: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenues when, or as, the contractual performance obligations are satisfied.
Revenue Recognition Pursuant to Topic 606, our revenues are recognized upon the application of the following steps: • identification of the contract, or contracts, with a customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of revenues when, or as, the contractual performance obligations are satisfied The majority of our revenue comes from product sales, consisting of sales of Lasers and OpComms hardware products to our customers.
If a customer pays consideration, or if we have a right to an amount of consideration that is unconditional before we transfer a good or service to the customer, those amounts are classified as deferred revenue or deposits received from customers which are included in other current liabilities or other long-term liabilities when the payment is made or when it is due, whichever is earlier. 42 Table of Contents Transaction Price Allocated to the Remaining Performance Obligations Remaining performance obligations represent the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied as of the end of the reporting period.
If a customer pays consideration, or if we have a right to an amount of consideration that is unconditional before we transfer a good or service to the customer, those amounts are classified as deferred revenue or deposits received from customers which are included in other current liabilities or other long-term liabilities when the payment is made or when it is due, whichever is earlier.
The total amount of cash outside the United States held by the non-US entities as of July 3, 2021 was $113.3 million, which was primarily held by entities incorporated in the United Kingdom, the British Virgin Islands, Japan, Hong Kong, China, Canada, and Thailand.
The total amount of cash outside the United States held by the non-U.S. entities as of July 2, 2022 was $216.1 million, which was primarily held by entities incorporated in the United Kingdom, the British Virgin Islands, Japan, Hong Kong, China, Canada, and Thailand.
Cash provided by operating activities of $524.3 million during the year ended June 27, 2020, primarily resulted from $323.4 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs on our term loan and the Notes, and other non-cash items), net income of $135.5 million, and $65.4 million of changes in our operating assets and liabilities. 54 Table of Contents Cash used in investing activities of $987.7 million during the year ended June 27, 2020, was primarily attributable to purchases of short-term investments, net of sales and maturities of $917.8 million.
Cash provided by operating activities of $524.3 million during the year ended June 27, 2020, primarily resulted from $323.4 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs on our term loan and the Notes, and other non-cash items), net income of $135.5 million, and $65.4 million of changes in our operating assets and liabilities.
If we determine that as a result of the qualitative assessment that it is more likely than not (i.e., greater than 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.
If we determine that, as a result of the qualitative assessment, it is more likely than not (i.e., greater than 50% likelihood) that the fair value of a reporting unit is less than its carrying amount, we perform the quantitative test by estimating the fair value of our reporting units.
We sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive, 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.
We sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive, are price sensitive and/or are affected by customer seasonal and mix variant buying patterns.
In the fiscal fourth quarter of 2021, we repurchased 3.1 million shares of our common stock at an average price of $77.84 per share for an aggregate purchase price of $241.0 million. These shares were retired immediately.
During fiscal 2021, we repurchased 3.1 million shares of our common stock at an average price of $77.84 per share for an aggregate purchase price of $241.0 million.
Contract liabilities are classified as deferred revenue and customer deposits, and are included in other current liabilities within our Consolidated Balance Sheet. Payment terms vary by customer. The time between invoicing and when payment is due is not significant.
Contract liabilities are classified as deferred revenue and customer deposits, and are included in other current liabilities within our consolidated balance sheet. Payment terms vary by customer.
Gross Margin Gross margin in fiscal 2021 increased to 44.9% from 38.7% in fiscal 2020, due to both higher OpComms and Lasers segment gross margins. The increase was primarily driven by a higher mix of higher margin product lines, particularly due to increased revenue of 3D sensing, pump lasers and High-Reliability (“HiRel”) components products, which have higher than average margins.
The increase was primarily driven by a higher mix of higher margin product lines, particularly due to increased revenue of 3D sensing, pump lasers and High-Reliability (“HiRel”) components products, which have higher than average margins.
In addition, during the fourth quarter of fiscal 2021, we sold land and building located in San Jose, California for $23.0 million and recognized a $8.3 million gain in SG&A. SG&A expense increased by $34.9 million, or 17.4%, in fiscal 2020 compared to fiscal 2019.
In addition, during the fourth quarter of fiscal 2021, we sold land and building located in San Jose, California for $23.0 million and recognized a $8.3 million gain in SG&A.
The funding policy is consistent with the local requirements of each country. As of July 3, 2021, a defined benefit plan in Switzerland was partially funded, while defined benefit plans in Japan and Thailand were unfunded.
The funding policy is consistent with the local requirements of each country. As of July 2, 2022, a defined benefit plan in Switzerland was partially funded, while defined benefit plans in Japan and Thailand were unfunded. As of July 2, 2022, our projected benefit obligations, net, in Japan, Switzerland, and Thailand were $2.6 million, $1.7 million, and $3.4 million, respectively.
The following table presents net revenue by the three geographic regions we operate in and net revenue from countries within those regions that generally represented 10% or more of our total net revenue ( in millions, except for percentages ): Years Ended July 3, 2021 June 27, 2020 June 29, 2019 Net revenue: Americas: United States $ 133.4 7.7 % $ 149.8 8.9 % $ 100.9 6.4 % Mexico 134.8 7.7 122.8 7.3 214.9 13.7 Other Americas 12.1 0.7 5.5 0.3 4.3 0.3 Total Americas $ 280.3 16.1 % $ 278.1 16.5 % $ 320.1 20.4 % Asia-Pacific: Hong Kong $ 546.3 31.3 % $ 532.0 31.8 % $ 387.9 24.8 % Philippines 148.6 8.5 56.3 3.4 52.2 3.3 South Korea 240.0 13.8 260.9 15.5 162.4 10.4 Japan 114.7 6.6 137.9 8.2 176.0 11.2 Other Asia-Pacific 272.7 15.7 289.7 17.2 303.9 19.4 Total Asia-Pacific $ 1,322.3 75.9 % $ 1,276.8 76.1 % $ 1,082.4 69.1 % EMEA $ 140.2 8.0 % $ 123.7 7.4 % $ 162.8 10.5 % Total net revenue $ 1,742.8 $ 1,678.6 $ 1,565.3 During fiscal 2021, 2020 and 2019, net revenue from customers outside the United States, based on customer shipping location, represented 92.3%, 91.1% and 93.6% of net revenue, respectively.
The following table presents net revenue by the three geographic regions we operate in and net revenue from countries within those regions that generally represented 10% or more of our total net revenue ( in millions, except for percentages ): Years Ended July 2, 2022 July 3, 2021 June 27, 2020 Net revenue: Americas: United States $ 173.9 10.2 % $ 133.4 7.7 % $ 149.8 8.9 % Other Americas 173.0 10.1 146.9 8.4 128.3 7.6 Total Americas $ 346.9 20.3 % $ 280.3 16.1 % $ 278.1 16.5 % Asia-Pacific: Hong Kong $ 458.2 26.7 % $ 546.3 31.3 % $ 532.0 31.8 % South Korea 265.2 15.5 240.0 13.8 260.9 15.5 Japan 181.2 10.6 114.7 6.6 137.9 8.2 Other Asia-Pacific 344.7 20.1 421.3 24.2 346.0 20.6 Total Asia-Pacific $ 1,249.3 72.9 % $ 1,322.3 75.9 % $ 1,276.8 76.1 % EMEA $ 116.4 6.8 % $ 140.2 8.0 % $ 123.7 7.4 % Total net revenue $ 1,712.6 $ 1,742.8 $ 1,678.6 During fiscal 2022, 2021 and 2020, net revenue from customers outside the United States, based on customer shipping location, represented 89.8% , 92.3% and 91.1% of net revenue, respectively.
Selling, General and Administrative (“SG&A”) S G&A expense increased by $6.2 million, or 2.6%, in fiscal 2021 compared to fiscal 2020.
Selling, General and Administrative (“SG&A”) S G&A expense increased by $24.3 million, or 10.1%, in fiscal 2022 as compared to fiscal 2021.
Inventory Valuation Inventory is recorded at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable value.
Please refer to “Note 4. Business Combination” to the consolidated financial statements. Inventory Valuation Inventory is recorded at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of net realizable value.
Further our provision for income taxes includes an income tax expense from changes in our valuation allowance because it is not more-likely-than-not that certain deferred tax assets will be realized in the future.
Further our provision for income taxes includes an income tax expense from changes in our valuation allowance because it is not more-likely-than-not that certain deferred tax assets will be realized in the future. Subsequent to fiscal 2022, President Biden signed into law the CHIPS and Science Act and the Inflation Reduction Act.
Revenues are recognized at a point in time when control of the promised goods or services are transferred to our customers upon shipment or delivery, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. We have entered into vendor managed inventory (“VMI”) programs with our customers.
Our revenue contracts generally include only one performance obligation. Revenues are recognized at a point in time when control of the promised goods or services are transferred to our customers upon shipment or delivery, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
In addition, our industrial diode lasers are used primarily as pump sources for pulsed and kilowatt class fiber lasers. Our OpComms customers include Alphabet, Apple, Ciena, Cisco Systems (which acquired Acacia Communications on March 1, 2021, another customer of ours), Huawei Technologies (including HiSilicon), Infinera, Innolight, NEC, Nokia Networks (including Alcatel-Lucent International), and ZTE.
In addition, our industrial diode lasers are used primarily as pump sources for pulsed and kilowatt class fiber lasers. 44 Our OpComms customers include Accelink, Alphabet, Amazon, Apple, Ciena, Cisco Systems (including Acacia Communications, which was acquired by Cisco), Comcast, Infinera, Nokia Networks (including Alcatel-Lucent International), and ZTE.
We have adopted several measures in response to the COVID-19 outbreak including complying with local, state or federal orders that require employees to work from home, instructing employees to work from home in certain jurisdictions, limiting the number of employees onsite which slowed our manufacturing operations in certain countries, enhanced use of personal protective equipment and restricting non-critical business travel by our employees.
Some of these measures have included complying with local, state or federal orders that require employees to work from home, instructing employees to work from home in certain jurisdictions, limiting the number of employees onsite which slowed our manufacturing operations in certain countries, enhancing use of personal protective equipment and restricting non-critical business travel by our employees, enacting vaccine and testing mandates in certain jurisdictions, and implementing health and safety enhancements.
As of July 3, 2021, we expect to receive sublease income of approximately $3.6 million over the next three years. Refer to “Note 9. Leases” in the notes to consolidated financial statements. (2) The amount in the preceding table represents planned contributions to our defined benefit plans.
As of July 2, 2022, we expect to receive sublease income of approximately $2.4 million over the next year. Please refer to “Note 9. Leases” to the consolidated financial statements. (2) The amount of pension plan contributions represents planned contributions to our defined benefit plans.
(4) Includes principal and interest on our 0.25% Convertible Notes due in 2024 (the “2024 Notes”) through March 2024, and principal and interest on our 0.50% Convertible Notes due in 2026 (the “2026 Notes” and together with the 2024 Notes, the “Notes”) through December 2026.
(4) The amounts related to convertible notes include principal and interest on our 0.25% Convertible Senior Notes due in 2024 (the “2024 Notes”), principal and interest on our 0.50% Convertible Senior Notes due in 2026 (the “2026 Notes”), and principal and interest on our 0.50% Convertible Notes due in 2028 (the “2028 Notes”, and together with the 2024 Notes and 2026 Notes, the “Notes”).
Interest Expense The components of interest expense are as follows for the years presented ( in millions ): Years Ended July 3, 2021 June 27, 2020 June 29, 2019 Interest expense $ (66.7) $ (61.2) $ (36.3) For fiscal 2021, we recorde d interest expense of $66.7 million.
Interest Expense The components of interest expense are as follows for the years presented ( in millions ): Years Ended July 2, 2022 July 3, 2021 June 27, 2020 Interest expense $ 80.2 $ 66.7 $ 61.2 For fiscal 2022, we recorde d interest expense of $80.2 million, driven by the amortization of the debt discount and issuance costs of our Notes.
The charges were mainly attributable to severance charges associated with the decision to move certain manufacturing from San Jose, California to our facility in Thailand.
The charges were mainly attributable to severance charges associated with the decision to move certain manufacturing from San Jose, California to our facility in Thailand. Please refer to “Note 13. Restructuring and Related Charges” to the consolidated financial statements.
Results of Operations The results of operations for the periods presented are not necessarily indicative of results to be expected for future periods.
Recently Issued Accounting Pronouncements” to the consolidated financial statements. 51 Results of Operations The results of operations for the periods presented are not necessarily indicative of results to be expected for future periods.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”), and we consider the various staff accounting bulletins and other applicable guidance issued by the United States Securities and Exchange Commission (“SEC”).
For more information on risks associated with supply chain constraints, please refer to the section titled “Risk Factors” in Item 1A of Part I of this report. 47 Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) as set forth in the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”), and we consider the various staff accounting bulletins and other applicable guidance issued by the United States Securities and Exchange Commission (“SEC”).
Liquidity and Capital Resources Requirements We believe that our cash and cash equivalents as of July 3, 2021, and cash flows from our operating activities will be sufficient to meet our liquidity and capital spending requirements for at least the next 12 months.
Liquidity and Capital Resources Requirements We believe that our cash and cash equivalents as of July 2, 2022, and cash flows from our operating activities will be sufficient to meet our liquidity and capital spending requirements for at least the next 12 months. However, if market conditions are favorable, we may evaluate alternatives to opportunistically pursue additional financing.
Although the magnitude of the impact of COVID-19 on our business operations remains uncertain and difficult to predict, and this remains a highly dynamic situation, we have experienced, and we expect that we may continue to experience disruptions to our and our customers’ businesses that will adversely impact our business, financial condition and results of operations. 48 Table of Contents Segment Gross Margin OpComms OpComms gross ma rgin in fiscal 2021 increased to 51.2% from 46.5% in fiscal 2020.
We expect these factors to continue to result in variability of our gross margin. 55 The magnitude of the impact of COVID-19 on our business operations remains uncertain and difficult to predict, and this remains a highly dynamic situation, we have experienced, and we expect that we may continue to experience disruptions to our and our customers’ businesses that will adversely impact our business, financial condition and results of operations.
These increases, along with growth in Transport product lines, more than offset the $57.2 million of lower sales from product lines we are exiting, such as Datacom transceiver modules and certain Lithium Niobate product lines. These results also include a deferral of $14.8 million of revenue due to delays in 5G deployments in China.
These increases, along with growth in Transport product lines more than offset the $57.2 million of lower sales from product lines we exited, such as Datacom transceiver modules and certain Lithium Niobate product lines.
During fiscal 2021 compared to fiscal 2020, our net revenue from the Philippines grew due to an introduction of a new product to one of our large customers. 47 Table of Contents Gross Margin and Segment Gross Margin The following table summarizes segment gross profit and gross margin for fiscal 2021, 2020 and 2019 ( in millions, except for percentages ): Gross Profit Gross Margin Years Ended Years Ended 2021 2020 2019 2021 2020 2019 OpComms $ 830.2 $ 704.0 $ 534.1 51.2 % 46.5 % 39.0 % Lasers 57.3 76.2 84.4 46.9 % 46.6 % 43.3 % Segment total $ 887.5 $ 780.2 $ 618.5 50.9 % 46.5 % 39.5 % Unallocated corporate items: Stock-based compensation (19.2) (16.1) (15.1) Amortization of acquired intangibles (61.7) (53.8) (46.6) Amortization of inventory fair value adjustments — (5.8) (54.6) Inventory and fixed asset write down due to product line exits (1) (0.4) (7.0) (20.8) Integration related costs — (4.9) (6.6) Other charges (2) (23.1) (42.4) (48.9) Total $ 783.1 $ 650.2 $ 425.9 44.9 % 38.7 % 27.2 % (1) In fiscal year 2021, 2020 and 2019, we recorded inventory and fixed assets write down charges of $0.4 million, $7.0 million and $20.8 million related to the decision to exit the Datacom module and Lithium Niobate product lines.
However, regulatory and enforcement actions by the United States and other governmental agencies, as well as changes in tax and trade policies and tariffs, have impacted and may continue to adversely impact net revenue from customers outside the United States. 54 Gross Margin and Segment Gross Margin The following table summarizes segment gross profit and gross margin for fiscal 2022, 2021 and 2020 ( in millions, except for percentages ): Gross Profit Gross Margin Years Ended Years Ended 2022 2021 2020 2022 2021 2020 OpComms $ 780.9 $ 830.2 $ 704.0 51.4 % 51.2 % 46.5 % Lasers 102.1 57.3 76.2 52.6 % 46.9 % 46.6 % Segment total $ 883.0 $ 887.5 $ 780.2 51.6 % 50.9 % 46.5 % Unallocated corporate items: Stock-based compensation (20.8) (19.2) (16.1) Amortization of acquired intangibles (62.9) (61.7) (53.8) Amortization of inventory fair value adjustments — — (5.8) Inventory and fixed asset write down due to product line exits (1) (0.1) (0.4) (7.0) Integration related costs — — (4.9) Other charges (2) (10.6) (23.1) (42.4) Total $ 788.6 $ 783.1 $ 650.2 46.0 % 44.9 % 38.7 % (1) In fiscal 2022, 2021 and 2020, we recorded inventory and fixed assets write down charges of $0.1 million, $0.4 million and $7.0 million, respectively, related to the decision to exit the Datacom module and Lithium Niobate product lines.
The following table reflects the changes in contract balances as of July 3, 2021 ( in millions, except percentages ): Contract balances Balance sheet location July 3, 2021 June 27, 2020 Change Percentage Change Accounts receivable, net Accounts receivable, net $212.8 $233.5 $(20.7) (8.9)% Deferred revenue and customer deposits Other current liabilities $0.6 $1.9 $(1.3) (68.4)% Disaggregation of Revenue We disaggregate revenue by geography and by product.
The time between invoicing and when payment is due is not significant. 49 The following table reflects the changes in contract balances as of July 2, 2022 ( in millions, except percentages ): Contract balances Balance sheet location July 2, 2022 July 3, 2021 Change Percentage Change Accounts receivable, net Accounts receivable, net $ 262.0 $ 212.8 $ 49.2 23.1% Deferred revenue and customer deposits Other current liabilities $ — $ 0.6 $ (0.6) (100.0)% Disaggregation of Revenue We disaggregate revenue by geography and by product.
A portion of our revenue arises from vendor-managed inventory arrangements where the timing and volume of customer utilization is difficult to predict. Warranty Hardware products regularly include warranties to the end customers such that the product continues to function according to published specifications. We typically offer a twelve-month warranty for most of our products.
Warranty Hardware products regularly include warranties to the end customers such that the product continues to function according to published specifications. We typically offer a twelve-month warranty for most of our products.
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.
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.
Lasers net revenue decreased by $41.4 million, or 25.3%, during fiscal 2021 compared to fiscal 2020, primarily due to the reduced customer demand for our kilowatt class fiber lasers as a result of COVID-19. N et revenue increased by $113.3 million, or 7.2%, during fiscal 2020 compared to fiscal 2019.
These results also include a deferral of $14.8 million of revenue due to delays in 5G deployments in China. 53 Lasers net revenue decreased by $41.4 million, or 25.3%, during fiscal 2021 as compared to fiscal 2020, primarily due to reduced customer demand for our kilowatt class fiber lasers as a result of COVID-19.
All these trends could drive the need for higher volumes of higher performing optical devices that we could supply. As such, we expect to continue to invest strongly in new products, technology, and customer programs. For more information on risks associated with the COVID-19 outbreak and regulatory actions, see the section titled “Risk Factors” in Item 1A of Part I.
All these trends could drive the need for higher volumes of higher performing optical devices that we could supply. As such, we expect to continue to invest strongly in new products, technology and customer programs.
Refer to “Note 12. Debt” in the notes to consolidated financial statements. As of July 3, 2021, our other non-current liabilities also include $23.0 million of unrecognized tax benefit for uncertain tax positions. We are unable to reliably estimate the timing of future payments related to uncertain tax positions and therefore have excluded them from the preceding table.
Please refer to “Note 11. Debt” to the consolidated financial statements. Unrecognized Tax Benefits As of July 2, 2022, our other non-current liabilities also include $30.5 million of unrecognized tax benefit for uncertain tax positions. We are unable to reliably estimate the timing of future payments related to uncertain tax positions.
We have the right to redeem the 2024 Notes and the 2026 Notes in whole or in part at any time on or after March 15, 2024 and on or after December 15, 2026, respectively. The principal balances of our Notes are reflected in the payment periods in the table above based on their respective contractual maturities assuming no conversion.
The 2024 Notes have a maturity date of March 15, 2024, the 2026 Notes have a maturity date of December 15, 2026, and the 2028 Notes have a maturity date of June 15, 2028. The principal balances of our Notes are reflected in the payment periods in the table above based on their respective contractual maturities assuming no conversions.
Cash provided by operating activities was also generated from $339.9 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs on our Notes, and other non-cash charges), offset by $1.5 million of changes in our operating assets and liabilities.
Cash provided by operating activities was also generated from $339.9 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs on our Notes, and other non-cash charges), offset by $1.5 million of changes in our operating assets and liabilities. 62 Cash provided by investing activities of $1.0 million during the year ended July 3, 2021 was primarily attributable to proceeds from maturities and sales of short-term investment, net of purchases of $71.2 million and proceeds from sales of product lines of $1.3 million and sales of property and equipment of $23.3 million.
The increase in interest expense during fiscal 2020 as compared to fiscal 2019 was mainly driven by the increase in amortization of the debt discount and contractual interest expense due to the issuance of our 0.50% Convertible Notes due in 2026 (the “2026 Notes”), as well as the loss on early extinguishment of debt of $8.0 million, which represents the write-off of the issuance costs in conjunction with payback of our term loan facility in the second quarter of fiscal 2020. 50 Table of Contents Other Income, Net The components of other income (expense), net are as follows for the years presented ( in millions ): Years Ended July 3, 2021 June 27, 2020 June 29, 2019 Foreign exchange losses, net $ (4.4) $ (1.4) $ (0.6) Interest and investment income 5.7 15.8 13.9 Other income, net 1.5 17.0 2.5 Total other income (expense), net $ 2.8 $ 31.4 $ 15.8 During fiscal 2021 , other income, net decreased by $28.6 million as compared to fiscal 2020 , mainly driven by a gain on the sale of Lithium Niobate modulators business of $13.8 million completed in fiscal 2020 and $10.1 million decrease in interest and investment income due to lower returns from our short-term investments at lower interest rates.
The increase in interest expense during fiscal 2021 as compared to fiscal 2020 was mainly driven by the increase in amortization of the debt discount and contractual interest expense of our 2026 Notes issued in December 2019, partially offset by a loss and decreased interest expense due to the early extinguishment of our term loan facility in the second quarter of fiscal 2020. 57 Other Income (Expense), Net The components of other income (expense), net are as follows for the years presented ( in millions ): Years Ended July 2, 2022 July 3, 2021 June 27, 2020 Foreign exchange gains (losses), net $ 6.1 $ (4.4) $ (1.4) Interest and investment income 6.1 5.7 15.8 Other income (expense), net (0.2) 1.5 17.0 Total other income (expense), net $ 12.0 $ 2.8 $ 31.4 During fiscal 2022 , other income (expense), net increased by $9.2 million as compared to fiscal 2021, primarily due to $10.5 million more in foreign exchange gains as a result of a strengthening U.S. dollar relative to other foreign currencies, offset by $1.7 million decrease in other income.
The accounting policies that 41 Table of Contents reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: • Inventory Valuation • Revenue Recognition • Income Taxes • Long-lived Asset Valuation • Goodwill There have been no significant changes to our significant accounting policies as of and for the year ended July 3, 2021.
The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following: • Inventory Valuation • Revenue Recognition • Income Taxes • Business Combinations • Goodwill As a result of our Merger Agreement with NeoPhotonics, we added Business Combinations and Goodwill to our critical accounting policies and estimates in fiscal 2022.
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.
The recognition and measurement of current taxes payable or refundable and deferred tax assets and liabilities requires that we make certain estimates and judgments.
This gain was offs et by $10.1 million of acquisit ion related expenses and the net amount is presented as “merger termination fee and related costs, net” in our Consolidated Statement of Operations for the year ended July 3, 2021. 40 Table of Contents Impact of COVID-19 to our Business The COVID-19 pandemic has caused public health officials to recommend, and governments to enact, precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines, closure or restrictions on business and quarantine or other types of “shelter-in-place” orders in many regions of the world.
Impact of COVID-19 to Our Business Since February 2020, the COVID-19 pandemic has caused public health officials to recommend, and governments to enact, precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines, closure or restrictions on business and quarantine or other types of “shelter-in-place” orders in many regions of the world.
Unsatisfied and partially unsatisfied performance obligations consist of contract liabilities and non-cancellable backlog. Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted that are scheduled or in the process of being scheduled for shipment.
Non-cancellable backlog includes goods and services for which customer purchase orders have been accepted that are scheduled or in the process of being scheduled for shipment. A portion of our revenue arises from vendor-managed inventory arrangements where the timing and volume of customer utilization is difficult to predict.
From time to time, we expect to incur non-core expenses, such as mergers and acquisition-related expenses and litigation expenses, which will likely increase our SG&A expenses and potentially impact our profitability expectations in any particular quarter.
From time to time, we expect to incur non-recurring expenses, such as mergers and acquisition-related expenses, which will likely increase our SG&A expenses in the near term and potentially impact our profitability expectations in any particular quarter. 56 Restructuring and Related Charges We have initiated various strategic restructuring events primarily intended to reduce costs, consolidate our operations, rationalize the manufacturing of our products and align our business in response to market conditions.
As of July 3, 2021, our projected benefit obligations, net in Japan, Switzerland, and Thailand were $2.9 million, $4.8 million, and $3.1 million, 52 Table of Contents respectively. They were recorded in our Consolidated Balance Sheets as other non-current liabilities and represent the total projected benefit obligation (“PBO”) less the fair value of plan assets.
They were recorded in our consolidated balance sheets as other non-current liabilities and represent the total projected benefit obligation (“PBO”) less the fair value of plan assets. A key actuarial assumption in calculating the net periodic cost and the PBO is the discount rate.
Fiscal 2019 As of June 29, 2019, our consolidated balance of cash and cash equivalents increased by $35.3 million, to $432.6 million from $397.3 million as of June 30, 2018.
Fiscal 2021 As of July 3, 2021, our consolidated balance of cash and cash equivalents increased by $476.3 million, to $774.3 million from $298.0 million as of June 27, 2020.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+3 added−2 removed6 unchanged
Biggest changeHowever, the potential value of the shares to be distributed to the holders of our Notes changes when the market price of our stock fluctuates. The 2026 Notes will mature on December 15, 2026, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $99.29 per share.
Biggest changeThe 2028 Notes, the 2026 Notes and the 2024 Notes will mature on June 15, 2028, December 15, 2026 and March 15, 2024 , respectively, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $131.03 per share for the 2028 Notes, approximately $99.29 per share for the 2026 Notes, and approximately $60.62 per share for the 2024 Notes.
The 2026 Notes and the 2024 Notes bear interest at a rate of 0.50% and 0.25% per year, respectively. Since the Notes bear interest at fixed rates, we have no financial statement risk associated with changes in market interest rates.
The 2028 Notes, 2026 Notes and the 2024 Notes bear interest at a rate of 0.50%, 0.50% and 0.25% per year, respectively. Since the Notes bear interest at fixed rates, we have no financial statement risk associated with changes in market interest rates.
Although we sell primarily in the U.S. Dollar, we have foreign currency exchange risks related to our expenses denominated in currencies other than the U.S. Dollar, principally the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, UK Pound, Swiss Franc and Euro. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
Dollar, we have foreign currency exchange risks related to our expenses denominated in currencies other than the U.S. Dollar, principally the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, UK Pound, Swiss Franc and Euro. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COVID-19 Risk There are a number of market risk factors related to the COVID-19 pandemic and associated global economic impacts. We continue to actively evaluate these risks, and have taken reserves and financial positions as of July 3, 2021 that we believe are reasonable based on the information currently available.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK COVID-19 Risk There are a number of market risk factors related to the COVID-19 pandemic and associated global economic impacts. We continue to actively evaluate these risks, and have taken reserves and financial positions as of July 2, 2022 that we believe are reasonable based on the information currently available.
Notwithstanding, we have not incurred any losses to date and have had full access to our operating accounts. We believe any failures of domestic and international financial institutions could impact our ability to fund our operations in the short term. 57 Table of Contents
Notwithstanding, we have not incurred any losses to date and have had full access to our operating accounts. We believe any failures of domestic and international financial institutions could impact our ability to fund our operations in the short term. 65
We issued the 2026 Notes in December 2019 and the 2024 Notes in March 2017 with an aggregate principal amount of $1,050 million and $450 million, respectively. Both the 2026 Notes and the 2024 Notes are carried at face value less amortized discount on the Consolidated Balance Sheet.
We issued the 2028 Notes in March 2022, the 2026 Notes in December 2019 and the 2024 Notes in March 2017 with an aggregate principal amount of $861.0 million , $1,050.0 million and $450.0 million, respectively. The 2028 Notes, 2026 Notes and the 2024 Notes are carried at face value less amortized discount on the condensed consolidated balance sheet.
Based on our investment portfolio balance as of July 3, 2021, a hypothetical increase or decrease in interest rates of 1% (100 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $9.6 million, and a hypothetical increase or decrease of 0.50% (50 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $4.8 million.
Based on our investment portfolio balance as of July 2, 2022, a hypothetical increase or decrease in interest rates of 1% (100 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $6.3 million , and a hypothetical increase or decrease of 0.50% (50 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately $3.1 million .
In the event our foreign currency denominated assets, liabilities, sales or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business. Equity Price Risk We are exposed to equity price risk related to the conversion options embedded in our 2026 Notes and 2024 Notes.
In the event our foreign currency denominated monetary assets and liabilities, sales or expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business as compared with the U.S. dollar. 64 Equity Price Risk We are exposed to equity price risk related to the conversion options embedded in our 2028 Notes, 2026 Notes and 2024 Notes.
Bank Liquidity Risk As of July 3, 2021, we had approximately $128.3 million of unrestricted cash (excluding cash equivalents) in operating accounts that are held with domestic and international financial institutions.
Bank Liquidity Risk As of July 2, 2022, we had approximately $235.9 million of unrestricted cash (excluding cash equivalents) in operating accounts that are held with domestic and international financial institutions.
Due to the impact of changes in foreign currency exchange rates between the U.S. Dollar and foreign currencies, for the fiscal years ended July 3, 2021, June 27, 2020, and June 29, 2019, we recorded foreign exchange losses, net of $4.4 million, $1.4 million, and $0.6 million, respectively, in the other income (expense), net in the Consolidated Statements of Operations.
Dollar and foreign currencies, for the fiscal years ended July 2, 2022, July 3, 2021, and June 27, 2020, we recorded foreign exchange gains of $6.1 million, foreign exchange losses of $4.4 million, and foreign exchange losses of $1.4 million, respectively, in the other income (expense), net in the consolidated statements of operations. Although we sell primarily in the U.S.
As of July 3, 2021, the weighted-average life of our investment portfolio was approximately eight months. Our fixed-income portfolio is subject to fluctuations in interest rates, which could affect our results of operations.
Our fixed-income portfolio is subject to fluctuations in interest rates, which could affect our results of operations.
Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit, and commercial paper. Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investme nts for trading or speculative purposes.
Interest Rate Fluctuation Risk As of July 2, 2022, we had cash, cash equivalents, and short-term investments of $2,549.0 million. Cash equivalents and short-term investments are primarily comprised of money market funds, treasuries, agencies, high quality investment grade fixed income securities, certificates of deposit, and commercial paper.
Removed
The 2024 Notes will mature on March 15, 2024, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $60.62 per share. 56 Table of Contents Since the closing price of our stock exceeded $78.80 per share for 20 of the last 30 trading days of the fourth quarter of fiscal 2021, the 2024 Notes have become convertible at the option of the holders.
Added
Due to the impact of changes in foreign currency exchange rates between the U.S.
Removed
If the closing price of our stock exceeds $129.08 per share for 20 of th e last 30 trading days of any future quarter, our 2026 Notes would also become convertible at the option of the holders. Interest Rate Fluctuation Risk As of July 3, 2021, we had cash, cash equivalents, and short-term investments of $1,946.0 million.
Added
However, the potential value of the shares to be distributed to the holders of our Notes changes when the market price of our stock fluctuates.
Added
Our investment policy and strategy is focused on the preservation of capital and supporting our liquidity requirements. We do not enter into investme nts for trading or speculative purposes. As of July 2, 2022, the weighted-average life of our investment portfolio was approximately four months.

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