LUMENTUM HOLDINGS INC.
You should read the following discussion in conjunction with the unaudited
condensed consolidated financial statements and the corresponding notes included
elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). This
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking 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 see "Risk Factors" and
"Forward-Looking Statements" for a discussion of the uncertainties, risks and
assumptions associated with these statements.
Forward-Looking Statements
This Quarterly 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"). 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 US-China relations, market and
regulatory conditions, trends and uncertainties in our business and financial
results, 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. 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. 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 II, Item 1A of this Quarterly
Report. Furthermore, such forward-looking statements speak only as of the date
of this report. 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.
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--------------------------------------------------------------------------------Overview
We are an industry-leading provider of optical and photonic products defined by revenue and market share, addressing a range of end-market applications includingOptical Communications ("OpComms") and Commercial Lasers ("Lasers") for manufacturing, inspection and life-science applications. We have two operating segments, OpComms and Lasers. The two operating segments were primarily determined based on how the Chief Operating Decision Maker ("CODM") views and evaluates our operations. Operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segments and to assess their performance. Other factors, including market separation and customer specific applications, go-to-market channels, products and manufacturing, are considered in determining the formation of these operating segments. We believe the global markets in whichLumentum participates have fundamentally robust, long-term trends that increase the need for our photonics products and technologies. We 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. 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. 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. As manufacturers demand higher levels of precision, new materials, and factory and energy efficiency, suppliers of manufacturing tools globally are turning to laser based approaches, including the types of lasersLumentum supplies. Laser based 3D sensing and LiDAR for security, industrial and automotive applications are rapidly developing markets. The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day. The use of LiDAR and in-cabin 3D sensing in automobile and delivery vehicles over time significantly adds to our long-term market opportunity. 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. To maintain and grow our market and technology leadership positions, we are continually investing in new and differentiated products and technologies and customer programs that address both nearer-term and longer-term growth opportunities, both organically and through acquisitions, as well as continually improving and optimizing our operations. Over many years, we have developed close relationships with market leading customers. 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. 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. 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, labor shortages, and significant volatility and potential disruption of financial markets. 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. In the geographies where we have operations, we have, in general, 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. 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. We are continuing to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, communities, business partners, suppliers and stockholders, or as required by federal, state, or local authorities. 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 fiscal year 2022. 33 -------------------------------------------------------------------------------- While COVID-19 did not have a material adverse effect on our reported results for our first quarter of fiscal 2022, we are actively monitoring the impact of the pandemic on our operations. The extent to which our operations will 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. 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 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. 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. 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. We believe this strategy is even more apt, and our long-term opportunity is not diminished, with COVID-19. 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 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. 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 II. Critical Accounting Policies and Estimates Our condensed consolidated financial statements are prepared in accordance withU.S. generally accepted accounting principles ("GAAP") as set forth in theFinancial Accounting Standards Board's Accounting Standards Codification ("ASC"), and we consider the various staff accounting bulletins and other applicable guidance issued by theUnited States Securities and Exchange Commission ("SEC"). GAAP, as set forth within the ASC, requires us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. 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 Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year endedJuly 3, 2021 provides a more complete discussion of our critical accounting policies and estimates. There have been no significant changes to these policies during the three months endedOctober 2, 2021 . 34 -------------------------------------------------------------------------------- Recently Issued Accounting Pronouncements Refer to "Note 2. Recently Issued Accounting Pronouncements" in the notes to condensed 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. The following table summarizes selected unaudited condensed consolidated statements of operations items as a percentage of net revenue:
Three Months Ended
October 2, 2021 September 26, 2020
Segment net revenue:
OpComms 90.5 % 94.7 %
Lasers 9.5 5.3
Net revenue 100.0 100.0
Cost of sales 44.7 51.2
Amortization of acquired developed intangibles 3.5 3.3
Gross profit 51.8 45.5
Operating expenses:
Research and development 12.1 11.1
Selling, general and administrative 14.1 12.4
Restructuring and related charges (0.2) -
Total operating expenses (income) 25.9 23.6
Income from operations 25.8 21.9
Interest expense (3.8) (3.5)
Other income, net 0.1 0.1
Income before income taxes 22.2 18.5
Provision for income taxes 4.0 3.6
Net income 18.2 % 14.8 %
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Financial Data for the three months ended
Three Months Ended
October 2, 2021 September 26, 2020 Change Percentage Change
Segment net revenue:
OpComms $ 406.0 $ 428.5 $ (22.5) (5.3) %
Lasers 42.4 23.9 18.5 77.4
Net revenue $ 448.4 $ 452.4 $ (4.0) (0.9) %
Gross profit $ 232.2 $ 205.7 $ 26.5 12.9 %
Gross margin 51.8 % 45.5 %
Research and development $ 54.1 $ 50.4 $ 3.7 7.3 %
Percentage of net revenue 12.1 % 11.1 %
Selling, general and administrative $ 63.3 $ 56.3 $ 7.0 12.4 %
Percentage of net revenue 14.1 % 12.4 %
Restructuring and related charges $ (1.1) $ -$ (1.1) 100.0 % Percentage of net revenue (0.2) % - % Net Revenue Net revenue decreased by$4.0 million , or 0.9%, during the three months endedOctober 2, 2021 compared to the three months endedSeptember 26, 2020 . This decrease was due to$22.5 million lower OpComms revenue, partially offset by increased sales of Lasers of$18.5 million . OpComms net revenue decreased by$22.5 million , or 5.3%, during the three months endedOctober 2, 2021 compared to the three months endedSeptember 26, 2020 . Within OpComms, Telecom and Datacom decreased by$45.3 million primarily a result of continued material and component shortages and lower demand due to continued delays in 5G deployments. Industrial and Consumer increased by$22.8 million due primarily to seasonality and timing of customer product releases, as well as an expansion of the available market as a result of an increased dollar content of 3D sensing lasers and higher adoption rates of 3D sensing in consumer electronic devices compared with the prior period. Lasers net revenue increased by$18.5 million , or 77.4%, during the three months endedOctober 2, 2021 compared to the three months endedSeptember 26, 2020 , primarily due to a return in customer demand for our kilowatt class fiber lasers following the COVID-19 disruption in fiscal 2021. During the three months endedOctober 2, 2021 , our net revenue from a single customer, which represented 10% or greater of total net revenue was concentrated with one customer, who accounted for 41% of our total net revenue. During the three months endedSeptember 26, 2020 , our net revenue from a single customer, which represented 10% or greater of total net revenue was concentrated with one customer, who accounted for 35% of our total net revenue. 36 -------------------------------------------------------------------------------- Revenue by Region We operate in three geographic regions:Americas ,Asia-Pacific and EMEA. Net revenue is assigned to the geographic region and country where our product is initially shipped. For example, certain customers may request shipment of our product to a contract manufacturer in one country; however, the location of the end-customers may differ. The following table presents net revenue by the three geographic regions we operate in and net revenue from countries within those regions that represented 10% or more of our total net revenue (in millions, except for percentages): Three Months Ended October 2, 2021 September 26, 2020 Amount % of Total Amount % of Total Americas: United States $ 28.1 6.3 % $ 20.3 4.5 % Mexico 33.0 7.4 39.8 8.8 Other Americas 2.0 0.4 2.8 0.6 Total Americas $ 63.1 14.1 % $ 62.9 13.9 % Asia-Pacific: Hong Kong$ 142.3 31.7 % $ 144.4 31.9 % Philippines 9.1 2.0 62.8 13.9 South Korea 105.1 23.4 56.0 12.4 Other Asia-Pacific 103.0 23.0 91.6 20.2 Total Asia-Pacific$ 359.5 80.1 % $ 354.8 78.4 % EMEA $ 25.8 5.8 % $ 34.7 7.7 % Total net revenue$ 448.4 $ 452.4 For the three months endedOctober 2, 2021 andSeptember 26, 2020 , net revenue from customers outsidethe United States , based on customer shipping location, represented 93.7% and 95.5% of net revenue, respectively. Our net revenue is primarily denominated inU.S. dollars, including our net revenue from customers outsidethe United States as presented above. We expect revenue from customers outside ofthe United States to continue to be an important part of our overall net revenue and an increasing focus for net revenue growth opportunities. However, regulatory and enforcement actions bythe United States and other governmental agencies, as well as changes in tax and trade policies and tariffs, have impacted and may continue to impact net revenue from customers outsidethe United States . Gross Margin and Segment Gross Margin The following table summarizes segment gross margin for the periods presented (in millions, except for percentages): Three Months Ended Gross Profit Gross Margin September 26, October 2, 2021 2020 October 2, 2021 September 26, 2020 OpComms $ 225.9$ 224.8 55.6 % 52.5 % Lasers 20.8 10.4 49.1 % 43.5 % Segment total $ 246.7$ 235.2 55.0 % 52.0 % Unallocated corporate items: Stock-based compensation (4.6)
(3.7)
Amortization of acquired intangibles (15.8)
(15.0)
Inventory and fixed asset write down due to product line exits - (0.3) Other (charges) gains (1) 5.9 (10.5) Total $ 232.2$ 205.7 51.8 % 45.5 % 37 -------------------------------------------------------------------------------- (1) "Other (charges) gains" of unallocated corporate items for the three months endedOctober 2, 2021 primarily relate to$5.9 million gain as a result of selling equipment that was no longer needed after we transferred certain product lines to new production facilities in fiscal 2021. "Other (charges) gains" of unallocated corporate items for the three months endedSeptember 26, 2020 primarily include costs of$2.1 million of transferring certain product lines to new production facilities and excess and obsolete inventory charges of$5.9 million driven byU.S. trade restrictions and the related decline in demand from Huawei. The unallocated corporate items for the periods presented include the effects of amortization of acquired developed technologies and other intangibles, share-based compensation and certain other charges. We do not allocate these items to the gross margin for each segment because management does not include such information in measuring the performance of the operating segments. Gross Margin Gross margin for the three months endedOctober 2, 2021 increased to 51.8% from 45.5% for the three months endedSeptember 26, 2020 . The increase was primarily driven by higher gross margin from both OpComms and Lasers segment for the three months endedOctober 2, 2021 compared to the three months endedSeptember 26, 2020 . The increase in gross margin during the three months endedOctober 2, 2021 as compared to the three months endedSeptember 26, 2020 was also due to lower excess and obsolescence charges. 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. 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. Segment Gross Margin OpComms OpComms gross margin for the three months endedOctober 2, 2021 increased to 55.6% from 52.5% for the three months endedSeptember 26, 2020 . The increase was primarily due to a more profitable mix of products, including higher sales of higher margin 3D sensing products and benefits from ongoing operational improvements. Lasers Lasers gross margin for the three months endedOctober 2, 2021 increased to 49.1% from 43.5% for the three months endedSeptember 26, 2020 . This increase was primarily due to the higher manufacturing levels related to the return in customer demand for our kilowatt class fiber products, following the COVID-19 disruption in fiscal 2021. Research and Development ("R&D") R&D expense increased by$3.7 million , or 7.3%, for the three months endedOctober 2, 2021 compared to the three months endedSeptember 26, 2020 . The increase in R&D expense was primarily driven by increased payroll and compensation expenses due to additional headcount and increased costs in supplies and tooling for R&D projects. We believe that continuing our investments in R&D is critical to attaining our strategic objectives. Despite the uncertainty related to COVID-19 and the global economic outlook, we plan to continue to invest in R&D and new products that we believe will further differentiate us in the marketplace and expect our investment in R&D to increase in absolute dollars in future quarters. Selling, General and Administrative ("SG&A") SG&A expense increased by$7.0 million , or 12.4%, during the three months endedOctober 2, 2021 compared to the three months endedSeptember 26, 2020 . The increase in SG&A expense was primarily attributable to increased payroll and compensation expenses due to additional headcount and expenses incurred related to optimizing our tax structure. From time to time, we incur non-recurring expenses, such as mergers and acquisition-related expenses, for example, those related to our pending acquisition of NeoPhotonics, which will likely increase our SG&A expenses in the near term and potentially impact our profitability expectations in any particular quarter. 38 -------------------------------------------------------------------------------- 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. During the three months endedOctober 2, 2021 , we recorded a net reversal to our restructuring and related charges of$1.1 million in our condensed consolidated statements of operations which was attributable to lower than anticipated employee severance charges primarily as a result of retaining and re-assigning certain employees. During the three months endedSeptember 26, 2020 , we did not record any restructuring and related charges in our condensed consolidated statements of operations. Interest Expense For the three months endedOctober 2, 2021 andSeptember 26, 2020 , we recorded interest expense of$16.9 million and$16.0 million , respectively. The increase was driven by the amortization of the debt discount and issuance costs of our 2024 Notes and 2026 Notes. Other Income (Expense), Net The components of other income (expense), net are as follows (in millions): Three Months Ended October 2, 2021
Foreign exchange gains (losses), net $ (0.1) $ (2.3)
Interest and investment income 0.6 2.4
Other income (expense), net 0.1 0.5
Total other income (expense), net $ 0.6 $ 0.6
For the three months ended October 2, 2021 , other income (expense), net remained
constant as compared to the three months ended September 26, 2020 . During the
three months ended October 2, 2021 , we recorded $2.2 million less in foreign
exchange losses as compared to the three months ended September 26, 2020 as a
result of more stable exchange rates between the U.S. dollar and certain foreign
currencies. The $1.8 million decrease in interest and investment income during
the three months ended October 2, 2021 as compared to the three months ended
September 26, 2020 is a result of our cash equivalent and investments acquired
before COVID-19 maturing and being reinvested at lower yielding investments,
while our average maturity and liquidity profile remained consistent.
Provision for Income Taxes
(in millions) Three Months Ended
October 2, 2021 September 26, 2020
Provision for income taxes $ 18.1 $ 16.5
We recorded a tax provision of $18.1 million and $16.5 million for the three
months ended October 2, 2021 and September 26, 2020 , respectively. Our tax
provision for the three months ended October 2, 2021 includes a discrete tax
expense of $1.1 million primarily related to return-to-provision differences.
Our estimated effective tax rate for fiscal 2022 differs from the 21% U.S.
statutory rate primarily due to the income tax benefit from the earnings of our
foreign subsidiaries being taxed at rates that differ from the U.S. statutory
rate and U.S. federal R&D tax credits, partially offset by the income tax
expense from the tax effect of Global Intangible Low-Taxed Income ("GILTI"), net
of benefit for foreign tax credits, subpart F inclusion and non-deductible
stock-based compensation.
Financial Condition
Liquidity and Capital Resources
As of October 2, 2021 and July 3, 2021 , our cash and cash equivalents of $611.0
million and $774.3 million , respectively, were largely held in the United
States . As of October 2, 2021 and July 3, 2021 , our short-term investments of
$1,273.6 million and $1,171.7 million , respectively, were all held in the United
States . Cash equivalents and short-term investments are primarily comprised of
money market funds and US treasury securities. Our investment policy and
strategy is focused on the preservation of capital and supporting our liquidity
requirements.
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The total amount of cash outside the United States held by the non-United States
entities as of October 2, 2021 was $185.3 million , which was primarily held by
entities incorporated in the United Kingdom , the British Virgin Islands , Japan ,
Hong Kong, China , Canada and Thailand . Although the cash currently held in the
United States , as well as the cash generated in the United States from future
operations, is expected to cover our normal operating requirements, a
substantial amount of additional cash could be required for other purposes, such
as capital expenditures to support our business and growth, including costs
associated with increasing internal manufacturing capabilities, particularly in
our Thailand facility, strategic transactions and partnerships, and future
acquisitions.
Our intent is to indefinitely reinvest funds held outside the United States and,
except for the funds held in the Cayman Islands , the British Virgin Islands ,
Japan and Hong Kong , our current plans do not demonstrate a need to repatriate
them to fund our domestic operations. However, if in the future, we encounter a
significant need for liquidity domestically or at a particular location that we
cannot fulfill through borrowings, equity offerings, or other internal or
external sources, or the cost to bring back the money is not significant from a
tax perspective, we may determine that cash repatriations are necessary or
desirable. Repatriation could result in additional material taxes. These factors
may cause us to have an overall tax rate higher than other companies or higher
than our tax rates have been in the past. Additionally, if conditions warrant,
we may seek to obtain additional financing through debt or equity sources. To
the extent we issue additional shares, our existing stockholders may be diluted.
However, any such financing may not be available on terms favorable to us, or
may not be available at all.
Liquidity and Capital Resources Requirements
We believe that our cash and cash equivalents as of October 2, 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. However, if
market conditions are favorable, we may evaluate alternatives to
opportunistically pursue additional financing.
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;
•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;
•funding of pension liabilities either voluntarily or as required by law or
regulation;
•the settlement of any conversion or redemption of the 2024 Notes and the 2026
Notes in cash;
•common stock repurchases under the 2021 share buyback program;
•payment of tax obligations; and
•acquisitions, in particular our recently announced acquisition of NeoPhotonics
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The following table summarizes certain of our contractual obligations as of
Payments due by period
Less than 1 More than 5
Total year 1 - 3 years 3 - 5 years years
Contractual Obligations
Asset retirement obligations $ 4.7 $ - Operating lease liabilities, including imputed interest (1) 77.8 13.7 23.4 16.3 24.4 Pension plan contributions (2) 0.5 0.5 - - - Purchase obligations (3) 260.4 247.7 12.6 0.1 - Convertible notes - principal (4) 1,500.0 - 450.0 - 1,050.0 Convertible notes - interest (4) 31.6 6.4 12.2 10.5 2.5 Total$ 1,875.0 $ 268.3 $ 499.8 $ 28.5 $ 1,078.4 (1) The amounts of operating lease liabilities in the table above do not include any sublease income amounts nor do they include payments for short-term leases or variable lease payments. As ofOctober 2, 2021 , we expect to receive sublease income of approximately$2.8 million over the next two years. Refer to "Note 7. Leases" in the notes to condensed consolidated financial statements. (2) The amount in the preceding table represents planned contributions to our defined benefit plans. Although additional future contributions will be required, the amount and timing of these contributions will be affected by actuarial assumptions, the actual rate of returns on plan assets, the level of market interest rates, legislative changes, and the amount of voluntary contributions to the plan. 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. (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 14. Commitments and Contingencies" in the notes to condensed consolidated financial statements. (4) Includes principal and interest payment in cash on our 0.25% Convertible Notes due in 2024 (the "2024 Notes") throughMarch 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") throughDecember 2026 . We have the right to redeem the 2024 Notes and the 2026 Notes in whole or in part at any time on or afterMarch 15, 2024 and on or afterDecember 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. Refer to "Note 9. Debt" in the notes to condensed consolidated financial statements. We do not have any off-balance sheet arrangements, as such term is defined in rules promulgated by theSEC , that have or are reasonably likely to have a current or future effect on our liquidity or capital resources that are material to investors. Indebtedness As ofOctober 2, 2021 , the debt component of our 2024 Notes of$395.8 million (principal balance of$450.0 million maturing in 2024) is presented in current liabilities in our condensed consolidated balance sheet since our stock price exceeded$78.80 for 20 of the last 30 trading days of the quarter endedOctober 2, 2021 and the 2024 Notes are convertible at the option of the holders. During the three months endedOctober 2, 2021 , we received conversion requests for less than$0.1 million principal amount of the 2024 Notes, which were settled in cash in the first quarter of fiscal 2022. As ofOctober 2, 2021 , the debt component of our 2026 Notes of$800.0 million (principal balance of$1,050.0 million maturing in 2026) is presented in non-current liabilities. 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. 41 -------------------------------------------------------------------------------- Share Buyback Program OnMay 7, 2021 , our board of directors approved the two year share buyback program, which authorizes the repurchase of up to$700.0 million of our own shares of common stock, in the open market or in privately negotiated transactions. In the fiscal first quarter of 2022, we repurchased 1.1 million shares of our common stock at an average price of$82.45 per share for an aggregate purchase price of$91.7 million . Since the share buyback program was approved by the board of directors, we have repurchased in aggregate, a total of 4.2 million shares of our common stock at an average price of$79.05 per share for total proceeds of$332.7 million . All repurchased shares were retired immediately. The price, timing, amount, and method of such repurchases will be determined based on the valuation of market conditions and other factors, at prices determined to be attractive and in the best interests of bothLumentum and our stockholders. Unrecognized Tax Benefits As ofOctober 2, 2021 , our other non-current liabilities also include$24.7 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. Cash Flows As ofOctober 2, 2021 , our balance of cash and cash equivalents decreased by$163.3 million , to$611.0 million from$774.3 million as ofJuly 3, 2021 . The decrease in cash and cash equivalents during the three months endedOctober 2, 2021 was due to lower cash provided by operating activities of$61.9 million , and higher cash used in investing activities of$116.9 million and financing activities of$108.3 million , respectively. Operating Cash Flow Cash provided by operating activities was$61.9 million during the three months endedOctober 2, 2021 . Our net income was$81.5 million for the three months endedOctober 2, 2021 . Cash provided by operating activities was also generated from$79.9 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs, and other non-cash charges), offset by$99.5 million of changes in our operating assets and liabilities. Changes in our operating assets and liabilities related primarily to an increase in accounts receivable of$50.4 million and inventories of$10.3 million , offset by a decrease in income taxes, net of$18.1 million , a decrease of accrued payroll and related expenses of$11.4 million , and a decrease in accounts payable of$10.5 million . Cash provided by operating activities was$104.7 million during the three months endedSeptember 26, 2020 . Our net income was$67.1 million for the three months endedSeptember 26, 2020 . Cash provided by operating activities was generated primarily from$80.3 million of non-cash items (such as depreciation, stock-based compensation, amortization of intangibles, amortization of debt discount and debt issuance costs on our convertible notes, and other non-cash charges), offset by$42.7 million of changes in our operating assets and liabilities. Changes in our operating assets and liabilities related primarily to an increase in accounts receivable of$30.3 million and inventories of$22.9 million , offset by an increase in accrued expenses and other current and non-current liabilities of$16.3 million . Investing Cash Flow Cash used in investing activities of$116.9 million during the three months endedOctober 2, 2021 was primarily attributable to purchases of short-term investments, net of sales and maturities of$104.9 million , capital expenditures of$17.9 million , partially offset by proceeds from the sales of property, plant and equipment of$5.9 million . Cash used in investing activities of$114.0 million during the three months endedSeptember 26, 2020 was primarily attributable to purchases of short-term investments, net of sales and maturities of$88.2 million and capital expenditures of$26.3 million . Financing Cash Flow Cash used in financing activities of$108.3 million during the three months endedOctober 2, 2021 resulted primarily from the repurchase of shares of our common stock of$91.7 million and tax payments related to restricted stock of$16.6 million . Cash used in financing activities of$19.2 million during the three months endedSeptember 26, 2020 resulted primarily from tax payments related to restricted stock of$19.1 million . 42
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