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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
 
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2022
 OR
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
 Commission File Number 001-36861
Lumentum Holdings Inc.
(Exact name of Registrant as specified in its charter)
Delaware 47-3108385
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification Number)
1001 Ridder Park Drive, San Jose, California 95131
(Address of principal executive offices including Zip code)
(408) 546-5483
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value of $0.001 per shareLITENasdaq Global Select Market
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x        No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated fileroNon-accelerated fileroSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x
As of November 1, 2022, the Registrant had 68.2 million shares of common stock outstanding.





TABLE OF CONTENTS
Page

1


PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(Unaudited)
Three Months Ended
 October 1, 2022October 2, 2021
Net revenue$506.8 $448.4 
Cost of sales282.6 200.4 
Amortization of acquired developed intangibles 23.0 15.8 
Gross profit201.2 232.2 
Operating expenses:
    Research and development72.7 54.1 
    Selling, general and administrative105.7 63.3 
    Restructuring and related charges9.3 (1.1)
Total operating expenses187.7 116.3 
Income from operations13.5 115.9 
Interest expense(8.5)(16.9)
Other income (expense), net13.8 0.6 
Income before income taxes18.8 99.6 
Provision for income taxes19.2 18.1 
Net income (loss)$(0.4)$81.5 
Net income (loss) per share:
    Basic$(0.01)$1.12 
    Diluted$(0.01)$1.08 
Shares used to compute net income (loss) per share:
    Basic 68.1 72.7 
    Diluted68.1 75.4 
    

See accompanying Notes to Condensed Consolidated Financial Statements.
2

LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(Unaudited)

 Three Months Ended
 October 1, 2022October 2, 2021
Net income (loss)$(0.4)$81.5 
Other comprehensive income (loss), net of tax:
Net change in unrealized gain (loss) on available-for-sale securities(0.6)0.3 
Other comprehensive income (loss), net of tax(0.6)0.3 
Comprehensive income (loss), net of tax$(1.0)$81.8 

See accompanying Notes to Condensed Consolidated Financial Statements.

3

LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except par value)
(Unaudited)


October 1, 2022July 2, 2022
ASSETS  
Current assets: 
Cash and cash equivalents$605.3 $1,290.2 
Short-term investments1,019.6 1,258.8 
Accounts receivable, net 340.5 262.0 
Inventories366.2 250.1 
Prepayments and other current assets106.8 78.1 
Total current assets2,438.4 3,139.2 
Property, plant and equipment, net478.0 360.5 
Operating lease right-of-use assets, net89.4 73.6 
Goodwill693.7 368.9 
Other intangible assets, net576.0 155.7 
Deferred tax asset100.5 27.0 
Other non-current assets11.4 37.3 
Total assets$4,387.4 $4,162.2 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$205.7 $156.7 
Accrued payroll and related expenses62.2 54.6 
Accrued expenses52.8 44.7 
Short term debt420.2 409.9 
Operating lease liabilities, current13.6 11.2 
Other current liabilities48.3 39.4 
Total current liabilities802.8 716.5 
Long term debt1,899.5 1,466.1 
Operating lease liabilities, non-current58.0 48.8 
Deferred tax liability24.8 12.9 
Other non-current liabilities75.9 42.9 
Total liabilities2,861.0 2,287.2 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Common stock, $0.001 par value, 990 authorized shares, 68.2 and 68.0 shares issued and outstanding as of October 1, 2022 and July 2, 2022, respectively
0.1 0.1 
Additional paid-in capital1,596.1 2,003.6 
Accumulated deficit(69.6)(129.1)
Accumulated other comprehensive income (loss)(0.2)0.4 
Total stockholders’ equity1,526.4 1,875.0 
Total liabilities and stockholders’ equity$4,387.4 $4,162.2 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

4

LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions)
(Unaudited)

Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated
Other Comprehensive Loss
Total Stockholders' Equity
SharesAmount
Balance as of July 2, 202268.0 $0.1 $2,003.6 $(129.1)$0.4 $1,875.0 
Cumulative adjustment from adoption of ASU 2020-06— — (426.5)85.6 — (340.9)
Net loss— — — (0.4)— (0.4)
Other comprehensive loss— — — — (0.6)(0.6)
Issuance of shares in connection with vesting of restricted stock units and performance stock units0.7 — — — — — 
Withholding taxes related to net share settlement of restricted stock units
(0.2)— (22.4)— — (22.4)
Repurchases of common stock(0.3)— — (25.7)— (25.7)
Stock-based compensation— — 41.4 — — 41.4 
Balance as of October 1, 202268.2 $0.1 $1,596.1 $(69.6)$(0.2)$1,526.4 

Common StockAdditional Paid-In CapitalRetained EarningsAccumulated
Other Comprehensive Income
Total Stockholders' Equity
SharesAmount
Balance as of July 3, 202173.0 $0.1 $1,743.6 $220.9 $8.2 $1,972.8 
Net income— — — 81.5 81.5 
Other comprehensive income— — — — 0.3 0.3 
Issuance of shares in connection with vesting of restricted stock units and performance stock units0.6 — — — — — 
Withholding taxes related to net share settlement of restricted stock units
(0.2)— (16.6)— — (16.6)
Repurchases of common stock(1.1)— — (91.7)— (91.7)
Stock-based compensation— — 25.1 — — 25.1 
Balance as of October 2, 202172.3 $0.1 $1,752.1 $210.7 $8.5 $1,971.4 

See accompanying Notes to Condensed Consolidated Financial Statements.

5

LUMENTUM HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(Unaudited)
Three Months Ended
October 1, 2022October 2, 2021
OPERATING ACTIVITIES:
Net income (loss)$(0.4)81.5 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense24.5 20.4 
Stock-based compensation 46.6 24.8 
Amortization of acquired intangibles32.2 21.4 
(Gain) loss on sales and dispositions of property, plant and equipment0.3 (5.3)
Amortization of debt discount and debt issuance costs5.7 15.3 
Amortization of inventory fair value adjustment in connection with acquisition4.6  
Other non-cash items(2.2)3.3 
Changes in operating assets and liabilities:
Accounts receivable(11.5)(50.4)
Inventories(24.6)(10.3)
Operating lease right-of-use assets, net3.6 (7.8)
Prepayments and other current and non-currents assets(1.9)(3.9)
Income taxes, net(11.0)(18.1)
Accounts payable(41.1)(10.5)
Accrued payroll and related expenses(14.5)(11.4)
Operating lease liabilities(6.9)9.8 
Accrued expenses and other current and non-current liabilities17.4 3.1 
Net cash provided by operating activities20.8 61.9 
INVESTING ACTIVITIES:
Payments for acquisition of property, plant and equipment(22.9)(17.9)
Acquisition of businesses, net of cash acquired(860.8) 
Purchases of short-term investments(79.5)(255.9)
Proceeds from maturities and sales of short-term investments316.6 151.0 
Proceeds from the sales of property, plant and equipment 5.9 
Net cash used in investing activities(646.6)(116.9)
FINANCING ACTIVITIES:
Repurchase of common stock(35.8)(91.7)
Payment of withholding taxes related to net share settlement of restricted stock units
(22.4)(16.6)
Repayment of term loan(0.9) 
Net cash used in financing activities(59.1)(108.3)
Decrease in cash and cash equivalents(684.9)(163.3)
Cash and cash equivalents at beginning of period 1,290.2 774.3 
Cash and cash equivalents at end of period$605.3 $611.0 
Supplemental disclosure of cash flow information:
Cash paid for taxes$29.3 $36.3 
Cash paid for interest 0.6 0.6 
Supplemental disclosure of non-cash transactions:
Unpaid property, plant and equipment in accounts payable and accrued expenses12.6 5.8 
Repurchase of common stock pending settlement 5.1 
Settlement of loan to NeoPhotonics50.0  
Right-of-use assets obtained in exchange for new operating lease liabilities19.4 10.5 
Unpaid portion of acquisition purchase price0.8  
See accompanying Notes to Condensed Consolidated Financial Statements.
6

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Lumentum Holdings Inc. (“we,” “us,” “our”, “Lumentum” or the “Company”) is an industry-leading provider of optical and photonic products defined by revenue and market share addressing a range of end market applications including Optical Communications (“OpComms”) and Commercial Lasers (“Lasers”) for manufacturing, inspection and life-science 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 consumer and industrial applications. The majority of our customers are currently as well as historically 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 communications service providers, hyperscale cloud operators, and enterprises with their own networks. Similarly, many of our Lasers products customers 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 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.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires management to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact us in the future, actual results may be different from the estimates. Operating results for the quarter ended October 1, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 1, 2023. In the opinion of the Company’s management, the information presented herein reflects all normal and recurring adjustments necessary for a fair presentation of our results of operations, financial position, stockholders’ equity and cash flows. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are inventory valuation, revenue recognition, income taxes, goodwill and business combinations.
While the impact of COVID-19 pandemic is lessening, the duration and severity of the impact of the pandemic on our business and results of operations in future periods remain uncertain. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including but not limited to the duration and spread of the pandemic and its variants, implementation and duration of local, state and federal issued public health orders in each jurisdiction where we operate or in which our customers and suppliers operate, impact on our customers and our sales cycles, impact on our supply chain and manufacturing partners, impact on our employees and impact on regional and worldwide economies and financial markets in general, all of which are uncertain and cannot be predicted. We assessed the potential impact that this pandemic has on our estimates as of October 1, 2022 and determined that there were no material impacts. However, due to the global supply chain constraint, we have had to incur incremental supply and procurement costs in order to fulfill demand from our customers. As of October 1, 2022, our inventory balance includes $21.9 million of incremental supply procurement costs.
We are also continuously monitoring developments in the ongoing conflict between Russia and Ukraine including the related export controls and resulting sanctions imposed on Russia by the U.S. and other countries. Additional factors such as increased inflation, escalating energy costs, constrained raw material availability, and thus increasing costs could impact the global economy. Although the global implications of the Russian/Ukraine conflict are difficult to predict at this time, we do not presently foresee direct material adverse effects upon our business.
7

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Business Combinations

On August 3, 2022, we completed a merger with NeoPhotonics Corporation (“NeoPhotonics”). Our condensed consolidated financial statements include the operating results of NeoPhotonics for the period from the date of the closing of the merger through October 1, 2022. We have applied the acquisition method of accounting in accordance with ASC 805 Business Combinations to account for this transaction. Refer to “Note 4. Business Combinations” for further discussion of the merger.
On August 15, 2022, we completed a transaction to acquire IPG Photonics’ telecom transmission product lines. Our condensed consolidated financial statements include the operating results of this business unit for the period from the date of the acquisition through October 1, 2022. We have applied the acquisition method of accounting in accordance with ASC 805 Business Combinations to account for this transaction. Refer to “Note 4. Business Combinations” for further discussion of this acquisition.

Fiscal Years
We utilize a 52-53 week fiscal year ending on the Saturday closest to June 30th. Every fifth or sixth fiscal year will have a 53-week period. The additional week in a 53-week year is added to the third quarter, making such quarter consist of 14 weeks. Our fiscal 2023 is a 52-week year ending on July 1, 2023, with the quarter ended October 1, 2022 being a 13-week quarterly period. Our fiscal 2022 was a 52-week year that ended on July 2, 2022, with the quarter ended October 2, 2021 being a 13-week quarterly period.
Principles of Consolidation
These interim unaudited condensed consolidated financial statements include the accounts of Lumentum Holdings Inc. and its wholly-owned subsidiaries. All inter-company transactions and balances are eliminated in consolidation. 
Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassification of the prior period amounts did not impact previously reported condensed consolidated financial statements.
Accounting Policies
The condensed consolidated financial statements and accompanying related notes should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended July 2, 2022.
Except for the accounting policies for convertible instruments as a result of our adoption of Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, there have been no significant changes to our accounting policies during the three months ended October 1, 2022.

8

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 2. Recently Issued Accounting Pronouncements
Accounting Pronouncements Recently Adopted
In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-08, Business Combinations (Topic 805)—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers. This ASU is expected to improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The new guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. ASU 2021-08 is effective for us in our first quarter of fiscal year 2024. We early adopted the new standard in the first quarter of fiscal 2023 in connection with the merger with NeoPhotonics Corporation (“NeoPhotonics”), noting no material impact to our condensed consolidated financial statements as of and for the period ended October 1, 2022.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by removing the separation models for (i) convertible debt with a cash conversion feature and (ii) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument is accounted for as a single liability measured at its amortized cost. ASU 2020-06 also requires the application of the if-converted method for calculating diluted earnings per share. We adopted the standard as of July 3, 2022, using the modified retrospective approach. Upon adoption, our 2026 Notes and 2028 Notes were accounted for as a single liability measured at amortized cost, resulting in: (i) an increase to the convertible notes liability balance of $433.0 million to reflect the full principal amount of the convertible notes outstanding, net of issuance costs; (ii) a reduction to additional paid-in capital, net of estimated income tax effects, of $426.5 million, to remove the equity component separately recorded for the conversion features associated with the convertible notes; (iii) an increase to deferred tax assets, net of $92.1 million; and (iv) a cumulative-effect adjustment of $85.6 million, net of estimated income tax effects, to decrease the accumulated deficit. In addition, the adoption requires the use of the if-converted method for all convertible notes in the diluted net income per share calculation and the inclusion of the effect of potential share settlement of the convertible notes, if the effect is more dilutive. There was no impact to diluted earnings per share for the three months ended October 1, 2022, as the inclusion of potential shares of common stock related to the convertible notes was anti-dilutive. Refer to “Note 9. Debt” for further information.
The following table sets forth the impact upon adoption of ASU 2020-06 as of July 3, 2022 (in millions):
Short Term Debt - 2024 NotesLong Term Debt - 2026 NotesLong Term Debt - 2028 NotesAdditional Paid-In CapitalAccumulated DeficitDeferred Tax Asset (Liability), net
Balances pre-adoption of ASC 2020-06$409.9 $831.4 $634.7 $2,003.6 $129.1 $12.9 
Reclassify amounts from equity to debt— 312.9 229.3 (542.2)— — 
Adjustment for interest accretion— (99.5)(9.7)— (109.2)— 
Tax effect— — — 115.7 23.6 92.1 
Balances upon adoption of ASC 2020-06$409.9 $1,044.8 $854.3 $1,577.1 $43.5 $105.0 


9

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 3. Earnings Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share (in millions, except per share data):
 Three Months Ended
 October 1, 2022October 2, 2021
Numerator:  
Net income (loss) - basic and diluted$(0.4)$81.5 
Denominator:
Weighted average common shares outstanding - basic68.1 72.7 
Effect of dilutive securities from 2015 Equity Incentive Plan 0.6 
Shares issuable assuming conversion of the convertible notes 2.1 
Weighted average common shares outstanding - diluted68.1 75.4 
Net income (loss) per share:
Basic$(0.01)$1.12 
Diluted$(0.01)$1.08 
Upon adoption of ASU 2020-06 in the first quarter of fiscal 2023, potentially dilutive common shares issuable upon conversion of our outstanding 2024 Notes, 2026 Notes and 2028 Notes (collectively referred to as the “Convertible Notes”) are determined using the if-converted method. Anti-dilutive shares excluded from the calculation of diluted net income (loss) per share for the three months ended October 1, 2022 include 28.4 million shares related to Convertible Notes and 0.5 million shares related to restricted stock units (“RSUs”) under the 2015 Equity Incentive Plan and shares to be purchased under the Employee Stock Purchase Plan (the “2015 Purchase Plan”). Refer to “Note 13. Equity.”
Periods prior to the adoption of ASU 2020-06, which includes the first quarter of fiscal 2022, our potentially dilutive common shares issuable upon conversion of our outstanding convertible notes are determined using the treasury stock method. Anti-dilutive shares excluded from the calculation of diluted net income (loss) per share for the three months ended October 2, 2021 include 0.4 million shares related to RSUs and the 2015 Purchase Plan.

10

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 4. Business Combinations
NeoPhotonics Merger
On November 3, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with NeoPhotonics and Neptune Merger Sub, Inc. On August 3, 2022 (the “Closing date”), we completed the acquisition of NeoPhotonics through the consummation of the merger and, accordingly, we acquired all of the issued and outstanding common stock of NeoPhotonics. The addition of NeoPhotonics expands our opportunity in some of the fastest growing markets for optical components used in cloud and telecom network infrastructure. We expect the integrated company to be better positioned to serve the needs of a global customer base who are increasingly utilizing photonics to accelerate the shift to digital and virtual approaches to work and life, the proliferation of IoT, 5G, and next-generation mobile networks, and the transition to advanced cloud computing architectures.
We have applied the acquisition method of accounting in accordance with ASC 805 Business Combinations, with respect to the fair value of purchase price consideration and the identifiable assets and liabilities of NeoPhotonics, which have been measured at estimated fair value as of the Closing date. The following tables summarize the total purchase price consideration (in millions):
Fair Value
Cash consideration for outstanding NeoPhotonics common stock (1)
$867.3 
Settlement of pre-existing relationship (loan to NeoPhotonics) (2)
50.0 
Share-based compensation (3)
17.1 
Total purchase price consideration$934.4 
(1) Under the terms of the Merger Agreement, NeoPhotonics stockholders received $16.00 per share for each of the 54.2 million NeoPhotonics common stock outstanding at the Closing date. As a result, we paid $867.3 million of cash consideration to shareholders of NeoPhotonics on the Closing Date.
(2) As contemplated by the Merger Agreement, on January 14, 2022, Lumentum and NeoPhotonics entered into a credit agreement where Lumentum agreed to make term loans (“loans”) to NeoPhotonics in an aggregate principal amount not to exceed $50.0 million to help fund capital expenditures and increase working capital associated with NeoPhotonics’ growth plans. During fiscal 2022, the Company funded a $30.0 million loan request to NeoPhotonics. On August 1, 2022, we funded an additional $20.0 million loan request to NeoPhotonics. The interest was payable monthly in arrears on the first day of each month. The loans would have matured on January 14, 2024 unless earlier repaid or accelerated. The $50.0 million loans in aggregate were included as part of the total purchase price consideration.
(3) We paid $22.6 million cash consideration to holders of vested NeoPhotonics equity awards as of closing, of which $13.6 million was allocated to the purchase price consideration and $9.0 million was expensed immediately after the Closing date. Additionally, we issued replacement equity awards (the “Replacement Awards”) in settlement of certain NeoPhotonics equity awards that did not become vested at the Closing date, with the total fair value of $40.2 million based on our closing stock price on the Closing date. The portion of Replacement Awards attributed to pre-merger service was recorded as part of the consideration transferred, which was $3.5 million.
The total transaction consideration of $934.4 million was funded by the cash balances of the combined company. We also recorded $20.9 million of merger-related costs, representing professional and other direct acquisition costs. Of the $20.9 million of merger-related costs, $12.6 million was incurred during the three months ended October 1, 2022 and was recorded as selling, general and administrative expense in the consolidated statement of operations.
11

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
We allocated the fair value of the purchase price consideration to the assets acquired and liabilities assumed as of the Closing date based on their estimated fair values. The excess of purchase price consideration over the fair value of net assets acquired is recorded as goodwill. Our preliminary allocation of the purchase price consideration to the assets acquired and liabilities assumed as of the Closing date is as follows (in millions):
Fair Value
Total purchase price consideration$934.4 
Assets acquired
Cash and cash equivalents$92.9 
Accounts receivable, net66.5 
Inventories85.3 
Prepayments and other current assets24.2 
Property, plant and equipment, net106.6 
Operating lease right-of-use assets, net16.9 
Other intangible assets, net (1)
412.5 
Other non-current assets1.9 
Total assets806.8 
Liabilities assumed
Accounts payable79.6 
Accrued payroll and related expenses12.0 
Accrued expenses4.1 
Other current liabilities10.6 
Operating lease liabilities, current2.8 
Operating lease liabilities, non-current13.2 
Deferred tax liability40.1 
Other non-current liabilities28.3 
Total liabilities190.7 
Goodwill$318.3 
(1) Other intangible assets include customer relationship of $144.5 million, developed technology of $220.0 million, and in-process research and development (“IPR&D”) of $48.0 million. Refer to “Note 8. Goodwill and Other Intangible Assets” for more information.
The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, is based upon preliminary information and subject to change. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of inventories, property, plant and equipment, intangible assets, deferred tax assets and liabilities, and contingent liabilities. Further adjustments may result before the end of the measurement period, which ends one year from the Closing date. During the measurement period, if new information is obtained about facts and circumstances that existed as of the Closing date that, if known, would have resulted in revised estimated values of assets acquired and liabilities assumed, we will revise the preliminary purchase price allocation. The effect of measurement period adjustments to the estimated fair values will be calculated as if the adjustments had been completed on the acquisition date. The impact of all changes that do not qualify as measurement period adjustments will be included in current period earnings.
Goodwill has been assigned to the OpComms segment. The preliminary goodwill of $318.3 million arising from the acquisition is attributed to the expected synergies, including future cost efficiencies and other benefits that are expected to be generated by combining Lumentum and NeoPhotonics. None of the goodwill is expected to be deductible for local tax purposes. Refer to “Note 8. Goodwill and Other Intangible Assets.”
12

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
From the Closing date, NeoPhotonics contributed $72.8 million of our consolidated net revenue for the three months ended October 1, 2022. Due to the continued integration of the combined businesses, as well as our corporate structure and the allocation of selling, general and administrative costs, it is impractical to determine NeoPhotonics’ contribution to our earnings.
Supplemental Pro Forma Information
The following supplemental pro forma information presents the combined results of operations for the three months ended October 1, 2022 and October 2, 2021, as if the merger was completed at the beginning of fiscal 2022. The supplemental pro forma financial information presented below is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated. The supplemental pro forma financial information does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position.
The pro forma financial information includes adjustments for: (i) additional amortization expense that would have been recognized related to the acquired intangible assets, (ii) additional depreciation expense that would have been recognized related to the acquired property, plant, and equipment, (iii) additional cost of sales related to the inventory valuation adjustment, (iv) acquisition related costs, such as third party transaction costs and restructuring costs, (vi) stock-based compensation expense and (vi) the estimated income tax effect on the pro forma adjustments.
The supplemental pro forma financial information for the periods presented is as follows (in millions):
 Three Months Ended
October 1, 2022October 2, 2021
Net revenue$530.7 $532.1 
Net income32.4 22.2 
Acquisition of IPG Photonics’ Telecom Transmission Product Lines
On August 15, 2022 (“IPG Closing date”), we completed a transaction to acquire IPG Photonics’ telecom transmission product lines that develops and markets products for use in telecommunications and datacenter infrastructure, including Digital Signal Processors (DSPs), ASICs and optical transceivers. This acquisition will enable us to expand our business in the OpComms segment.
We have applied the acquisition method of accounting in accordance with ASC 805 Business Combinations to account for this transaction. The total purchase price is $55.9 million, which was paid in cash. Our preliminary allocation of the purchase price consideration includes $29.1 million of in-process research and development (“IPR&D”), $8.6 million of developed technology, $2.3 million of customer relationships, $9.4 million of other net assets and liabilities, resulting in preliminary goodwill of $6.5 million. The allocation of the purchase price to the assets acquired and liabilities assumed, including the residual amount allocated to goodwill, is based upon preliminary information and adjustments may result before the end of the measurement period, which ends one year from the IPG Closing date.
We incurred $1.4 million transaction costs during the three months ended October 1, 2022, which was recorded as selling, general and administrative expense in the condensed consolidated statement of operations.
The pro forma financial information from the IPG Photonics’ telecom transmission product lines, assuming the acquisition had occurred as of the beginning of the fiscal year prior to the fiscal year of the acquisition, as well as revenue and earnings generated during the current fiscal year, were not material for disclosure purposes.

13

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5. Cash, Cash Equivalents and Short-term Investments
The following table summarizes our cash, cash equivalents and short-term investments by category for the periods presented (in millions):
Amortized
Cost
 Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
October 1, 2022:
Cash$326.9 $— $— $326.9 
Cash equivalents:
Commercial paper24.5 — — 24.5 
Money market funds221.1 — — 221.1 
U.S. Agency securities9.0 — — 9.0 
U.S. Treasury securities23.8 — — 23.8 
Total cash and cash equivalents$605.3 $— $— $605.3 
Short-term investments:
Certificates of deposit$33.3 $ $ $33.3 
Commercial paper66.1  (0.4)65.7 
Corporate debt securities492.4  (7.6)484.8 
Municipal bonds1.0   1.0 
U.S. Agency securities87.5  (1.8)85.7 
U.S. Treasury securities353.2 0.1 (4.2)349.1 
Total short-term investments$1,033.5 $0.1 $(14.0)$1,019.6 
July 2, 2022:
Cash$235.9 $— $— $235.9 
Cash equivalents:
Commercial paper23.6 — — 23.6 
Money market funds1,000.2 — — 1,000.2 
U.S. Agency securities8.0 — — 8.0 
U.S. Treasury securities22.5 — 22.5 
Total cash and cash equivalents$1,290.2 $— $— $1,290.2 
Short-term investments:
Certificates of deposit$28.3 $ $ $28.3 
Commercial paper107.4  (0.4)107.0 
Corporate debt securities539.9 (7.4)532.5 
Municipal bonds1.0   1.0 
U.S. Agency securities67.1  (1.4)65.7 
U.S. Treasury securities528.2 0.3 (4.2)524.3 
Total short-term investments$1,271.9 $0.3 $(13.4)$1,258.8 
We review our investment portfolio to identify and evaluate investments that have indicators of possible impairment. Factors considered in determining whether a loss is other-than-temporary include, but are not limited to, the length of time and extent a security’s fair value has been below its cost, the financial condition and near-term prospects of the investee, the credit quality of the security’s issuer, likelihood of recovery and our intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in value. For our debt instruments, we also evaluate whether we have the intent to sell the security or whether it is more likely than not that we will be required to sell the security before recovery of its cost basis. We have not recorded our unrealized losses on our short-term investments into income because we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis.
14

LUMENTUM HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
We use the specific-identification method to determine any realized gains or losses from the sale of our short-term investments classified as available-for-sale. During the three months ended October 1, 2022 and October 2, 2021, we did not realize significant gains or losses on a gross level from the sale of our short-term investments classified as available-for-sale.
During the three months ended October 1, 2022 and October 2, 2021, our other income (expense), net was $13.8 million income and $0.6 million income, respectively, which includes interest and investment income on cash equivalents and short-term investments of $4.8 million and $0.6 million, respectively.
As of October 1, 2022 and July 2, 2022, we recorded interest receivables of $3.9 million and $3.9 million, respectively, in prepayments and other current assets within the condensed consolidated balance sheets. We did not recognize an allowance for credit losses against interest receivables in any of the periods presented as there were no such losses.
As of October 1, 2022, we had corporate debt securities and U.S. government bonds of $148.9 million and $19.7 million, respectively, that have been in a continuous unrealized loss position for more than 12 months with an unrealized loss position of $2.6 million and $0.4 million, respectively. As of July 2, 2022, we had corporate debt securities of $57.4 million that have been in a continuous loss position for more than 12 months with an unrealized loss position of $0.9 million.
The following table summarizes unrealized losses on our cash equivalents and short-term investments by category that have been in a continuous unrealized loss position for less than 12 months as of the periods presented (in millions):
Fair ValueUnrealized Losses
October 1, 2022:
U.S. Agency securities$86.4 (1.8)
Certificates of deposit6.4  
Commercial paper90.2 (0.4)
Corporate debt securities334.4 (5.0)
U.S. government bonds262.5 (3.7)
Total $779.9 $(10.9)
July 2, 2022:
U.S. Agency securities$73.7 $(1.4)
Certificates of deposit16.2  
Commercial paper130.7 (0.4)
Corporate debt securities473.2 (6.5)
Municipal bonds1.0  
U.S. government bonds