Edgar Filing: Lumentum Holdings Inc.

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lite-10q_20150926.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 26, 2015

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

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)

400 North McCarthy Boulevard, Milpitas, California 95035

(Address of principal executive offices including Zip code)

(408) 546-5483

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of October 24, 2015, the Registrant had 58,975,368 shares of common stock outstanding.

TABLE OF CONTENTS

			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Statements of Operations for the Three Months Ended September 26, 2015 and September 27, 2014	2
		Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended September 26, 2015 and September 27, 2014	3
		Consolidated Balance Sheets as of September 26, 2015 and June 27, 2015	4
		Consolidated Statements of Cash Flows for the Three Months Ended September 26, 2015 and September 27, 2014	5
		Consolidated Statements of Mezzanine and Stockholders’ Equity for the Three Months Ended September 26, 2015	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosure About Market Risks	30
	Item 4.	Controls and Procedures	31

PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	31
	Item 1A.	Risk Factors	31
	Item 6.	Exhibits	45

SIGNATURE			46

PART I - FINANCIAL INFORMATION

Item1. Financial Statements (Unaudited)

LUMENTUM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

	Three Months Ended
	September 26, 2015			September 27, 2014
Net revenue	$	212.6		$	219.0
Cost of sales		144.0			146.8
Amortization of acquired technologies		1.7			1.9
Gross profit		66.9			70.3
Operating expenses:
Research and development		34.4			35.0
Selling, general and administrative		34.0			28.3
Restructuring and related charges		1.0			1.8
Total operating expenses		69.4			65.1
(Loss) income from operations		(2.5	)		5.2
Unrealized gain on derivative liability		2.2			—
Interest and other income (expense), net		(0.2	)		(0.3	)
(Loss) income before income taxes		(0.5	)		4.9
(Benefit) provision for income taxes		(0.3	)		0.6
Net (loss) income		(0.2	)		4.3
Dividends on Series A Preferred Stock		(0.1	)		—
Accretion of Series A Preferred Stock		(9.7	)		—
Net (loss) income attributable to common shareholders	$	(10.0	)	$	4.3

Net (loss) income per share attributable to common shareholders:^(a)
Basic and Diluted	$	(0.17	)	$	0.07
Shares used in per share calculation attributable to common shareholders:^(a)
Basic and Diluted		58.8			58.8

(a)

On August 1, 2015, JDS Uniphase Corporation (“JDSU”) distributed 47.1 million shares, or 80.1% of the outstanding shares of common stock of Lumentum Holdings Inc. (“we”, “our”, “Company” or “Lumentum”) to existing holders of JDSU common stock. JDSU was renamed Viavi Solutions Inc. (“Viavi”) and at the time of the distribution, retained 11.7 million shares, or 19.9% of Lumentum’s outstanding shares. Basic and diluted net (loss) income per share for the three months ended September 27, 2014 is calculated using the shares of Lumentum common stock outstanding on August 1, 2015, as if such shares were outstanding for the entire period.

See accompanying notes to consolidated financial statements.

LUMENTUM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

(unaudited)

	Three Months Ended
	September 26, 2015			September 27, 2014
Net (loss) income	$	(0.2	)	$	4.3
Other comprehensive (loss), net of tax
Foreign currency translation adjustment		(5.5	)		(2.9	)
Net change in accumulated other comprehensive loss		(5.5	)		(2.9	)
Comprehensive (loss) income	$	(5.7	)	$	1.4

See accompanying notes to consolidated financial statements.

LUMENTUM HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share and par value data)

(unaudited)

	September 26, 2015		June 27, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	142.1	$	14.5
Accounts receivable, net		156.6		150.5
Inventories		102.9		99.7
Prepayments and other current assets		52.1		46.1
Total current assets		453.7		310.8
Property, plant and equipment, net		141.5		143.2
Goodwill and intangibles, net		25.3		27.4
Deferred income taxes, net		28.9		30.3
Other non-current assets		0.3		0.9
Total assets	$	649.7		512.6
LIABILITIES, MEZZANINE AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	83.0	$	77.9
Accrued payroll and related expenses		20.8		17.7
Income taxes payable		3.6		3.7
Accrued expenses		14.5		11.5
Other current liabilities		10.7		11.4
Total current liabilities		132.6		122.2
Other non-current liabilities		16.3		9.8
Total liabilities		148.9		132.0
Commitments and contingencies (Note 13)
Mezzanine equity:
Non-controlling Interest Redeemable convertible Series A preferred stock, $0.001 par value, 10,000,000 authorized shares; 35,805 shares issued and outstanding as of September 26, 2015, and no shares issued and outstanding as of June 27, 2015		33.8		—
Total mezzanine equity		33.8		—
Stockholders’ equity:
Viavi net investment		—		368.1
Common stock, $0.001 par value, 990,000,000 authorized shares, 58,970,645 shares issued and outstanding as of September 26, 2015, and no shares issued and outstanding as of June 27, 2015		0.1		—
Additional paid-in capital		448.5		—
Retained earnings		11.4		—
Accumulated other comprehensive income		7.0		12.5
Total stockholders’ equity		467.0		380.6
Total liabilities, mezzanine and stockholders’ equity	$	649.7	$	512.6

See accompanying notes to consolidated financial statements.

LUMENTUM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	Three Months Ended
	September 26, 2015			September 27, 2014
OPERATING ACTIVITIES:
Net (loss) income	$	(0.2	)	$	4.3
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation expense		11.7			10.4
Stock-based compensation		6.0			4.9
Unrealized gain on derivative liability		(2.2	)		—
Amortization of acquired technologies and other intangibles		1.8			2.0
Disposal of property, plant and equipment		0.2			(0.1	)
Changes in operating assets and liabilities:
Accounts receivable		(8.6	)		(12.4	)
Inventories		(5.4	)		1.6
Prepayments and other current and non-currents assets		(6.4	)		(4.6	)
Deferred taxes, net		0.2			1.9
Accounts payable		8.3			12.1
Accrued payroll and related expenses		3.6			(2.6	)
Income taxes payable		—			(14.7	)
Accrued expenses and other current and non-current liabilities		1.6			(2.4	)
Net cash provided by operating activities		10.6			0.4
INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(13.9	)		(13.8	)
Net cash used in investing activities		(13.9	)		(13.8	)
FINANCING ACTIVITIES:
Net transfers from Viavi		132.9			9.0
Payment of financing obligation related to acquisition		(2.3	)		—
Proceeds from the exercise of stock options		0.1			—
Net cash provided by financing activities		130.7			9.0
Effect of exchange rates on cash and cash equivalents		0.2			(0.7	)
Increase (decrease) in cash and cash equivalents		127.6			(5.1	)
Cash and cash equivalents at beginning of period		14.5			19.9
Cash and cash equivalents at end of period	$	142.1		$	14.8

See accompanying notes to consolidated financial statements.

LUMENTUM HOLDINGS INC.

CONSOLIDATED STATEMENTS OF MEZZANINE AND STOCKHOLDERS’ EQUITY

(in millions)

(unaudited)

	Non-Controlling Interest Redeemable Convertible Series A Preferred Stock					Common Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Viavi Net Investment			Total Equity
	Shares		Amount			Shares			Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Viavi Net Investment			Total Equity
Balance as of June 28, 2014		—	$	—			—		$	—	$	—		$	—		$	22.7		$	312.9		$	335.6
Net loss		—		—			—			—		—			—		—				(3.4	)		(3.4	)
Other comprehensive loss		—		—			—			—		—			—			(10.2	)		—		(10.2		)
Transfer from Viavi		—		—			—			—		—			—		—			58.6			58.6
Balance as of June 27, 2015		—		—			—			—		—			—			12.5		368.1			380.6

Pre-capitalization activity:
Net loss		—		—			—			—		—			—			—			(11.7	)		(11.7	)
Other comprehensive loss		—		—			—			—		—			—			(4.7	)		—			(4.7	)
Transfer from Viavi		—		—			—			—		—			—			—			136.1			136.1
Total pre-capitalization activity		—		—			—			—		—			—			(4.7	)		124.4			119.7

Post-capitalization activity:
Issuance of common stock and reclassification of parent company investment in connection with the Separation		—		—			58.8			0.1		456.6			—			—			(456.7	)		—
Issuance of redeemable convertible Series A preferred stock, net of issuance costs of $2.0 million		—		33.8			—			—		—			—			—			(35.8	)		(35.8	)
Bifurcation of the redeemable convertible Series A preferred stock’s derivative		—		(9.7	)		—			—		—			—			—			—			—
Redemption value of the redeemable convertible Series A preferred stock		—		9.7			—			—		(9.7	)		—			—			—			(9.7	)
Net income		—		—			—			—		—			11.5			—			—			11.5
Other comprehensive income		—		—			—			—		—			—			(0.8	)		—			(0.8)
Release of common stock shares upon vesting of restricted stock units		—		—			0.3			—		—			—			—			—			—
Shares withheld for the withholdings on vesting of restricted stock units		—		—			(0.1	)		—		(2.9	)		—			—			—			(2.9	)
Exercise of stock options		—		—			—			—		0.1			—			—			—			0.1
Stock-based compensation		—		—			—			—		4.4			—			—			—			4.4
Accrued dividend for redeemable convertible Series A preferred stock		—		—			—			—		—			(0.1	)		—			—			(0.1	)
Total post-capitalization activity		—		33.8			59.0			0.1		448.5			11.4			(0.8	)		(492.5	)		(33.3	)
Balance at September 26, 2015		—	$	33.8			59.0		$	0.1	$	448.5		$	11.4		$	7.0		$	—		$	467.0

See accompanying notes to consolidated financial statements.

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Description of Business

We are an industry leading provider of optical and photonic products addressing a range of end markets including data communications (“Datacom”) and telecommunications (“Telecom”) networking, and industrial and commercial lasers (“commercial lasers”) for manufacturing, inspection and life-science applications.

Basis of Presentation

On August 1, 2015, Lumentum became an independent publicly-traded company through the distribution by JDSU to its stockholders of 80.1% of our outstanding common stock (the “Separation”). Each JDSU stockholder of record as of the close of business on July 27, 2015 received one share of Lumentum common stock for every five shares of JDSU common stock held on the record date. JDSU was renamed Viavi and at the time of the distribution retained ownership of 19.9% of Lumentum’s outstanding shares. Lumentum was incorporated in Delaware as a wholly owned subsidiary of Viavi on February 10, 2015 and is comprised of the former communications and commercial optical products (“CCOP”) segment and WaveReady product lines of Viavi. Lumentum’s Registration Statement on Form 10 was declared effective by the U.S. Securities and Exchange Commission (“SEC”) on July 16, 2015. Lumentum’s common stock began trading “regular-way” under the ticker “LITE” on the NASDAQ stock market on August 4, 2015.

On July 31, 2015, prior to the Separation, Viavi transferred substantially all of the assets and liabilities and operations of the communications and commercial optical products (“CCOP”) segment and WaveReady product lines to Lumentum (the “Capitalization"). Combined financial statements for periods prior to the Capitalization were prepared on a stand-alone basis and were derived from Viavi’s consolidated financial statements and accounting records. For the three months ended September 26, 2015, expenses were allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us.

The preparation of the consolidated financial statements in accordance with GAAP in the U.S. requires management to make estimates and assumptions that affect the amounts reported in our 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 the company in the future, actual results may be different from the estimates. Our critical accounting policies are those that affect our financial statements materially and involve difficult, subjective or complex judgments by management. Those policies are revenue recognition, inventory valuation, allocation methods and allocated expenses from Viavi, valuation of goodwill and other intangible assets, share-based compensation, retirement and post-retirement plan assumptions, restructuring, warranty and accounting for income taxes.

See “Note 3. Related Party Transactions” in the consolidated financial statements for further information regarding the relationships we had with Viavi and other Viavi entities.

Our consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC and are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). In the opinion of management, these consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated financial statements for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future periods.

Fiscal Years

We utilize a 52-53 week fiscal year ending on the Saturday closest to June 30th. Our fiscal 2016 is a 53-week year ending on July 2, 2016. Our fiscal 2015 ended on June 27, 2015 and was a 52-week year. Our fiscal 2014 ended on June 28, 2014 and was a 52-week year.

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Principles of Consolidation

The consolidated financial statements include certain assets and liabilities that were historically held at the Viavi level which were specifically identifiable or otherwise attributable to us. All intra-company transactions within our business were eliminated. All significant transactions between us and other businesses of Viavi prior to separation were reflected as net transfers to and from Viavi in the consolidated statement of stockholders’ equity and as a component of financing activities in the consolidated statement of cash flows

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires Management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements, the reported amount of net revenue and expenses and the disclosure of commitments and contingencies during the reporting periods. We base estimates on historical experience and on various assumptions about the future believed to be reasonable based on available information. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. If estimates or assumptions differ from actual results, subsequent periods are adjusted to reflect more current information.

Accounting Policies

There have been no material changes in our significant accounting policies during the three months ended September 26, 2015 compared to the significant accounting policies described in our Annual Report on Form 10-K/A for the fiscal year ended June 27, 2015. The accompanying unaudited interim consolidated financial statements and accompanying related notes should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K/A for the fiscal year ended June 27, 2015.

Note 2. Recently Issued Accounting Pronouncements

In July 2015, the Financial Accounting Standards Board (“FASB”) issued guidance to change the subsequent measurement of inventory from lower of cost or market to lower of cost and net realizable value. The guidance is effective for us in the first quarter of fiscal 2018. Earlier application is permitted as of the beginning of an interim or annual reporting period. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In May 2015, the FASB issued guidance to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using a net asset value per share practical expedient. The guidance is effective for us in the first quarter of fiscal 2017 and may apply to certain pension assets. The guidance will be applied retrospectively and earlier adoption is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In April 2015, the FASB issued new authoritative guidance to provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity’s fiscal year-end and apply that practical expedient consistently from year to year. This guidance is effective for us in the first quarter of fiscal 2017. Prospective application is required, and early adoption is permitted. We are evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

In May 2014, the FASB issued new authoritative guidance related to revenue recognition. This guidance will replace current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance allows for either full retrospective adoption or modified retrospective adoption. The FASB deferred the effective date for this guidance by one year to December 15, 2017 for annual reporting periods beginning after that. Earlier application of this guidance is permitted but not before the original date of December 15, 2016. We are evaluating the impact that this new accounting guidance will have on our consolidated financial statements and the related disclosures.

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3. Related Party Transactions

Transactions with Viavi

Agreements with Viavi

On July 31, 2015, the Company entered into a Supply Agreement with Viavi providing that each party will supply certain products at pre-determined prices, and providing Viavi with research and development services at cost plus a specified markup. The Company has also agreed to supply office space via a sublease agreement to Viavi. The sublease income and research and development cost reimbursements are each recorded as contra operating expenses in the Consolidated Statements of Operations for the three months ended September 26, 2015.

The Supply Agreement contains a $15.0 million purchase commitment with Viavi for certain products, and for the three months ended September 26, 2015, the Company has made no purchases against this commitment. During this period, the Company recognized revenue of $0.8 million due to products sold to Viavi. Subsequent to September 26, 2015, the Company purchased $4.6 million in product from Viavi against the $15.0 million purchase commitment. For the three months ended September 26, 2015, the Company recorded $0.5 million in research and development cost reimbursement and $0.1 million in sublease rental income. As of September 26, 2015, the Company had $0.8 million in accounts receivable due from .

On July 31, 2015, the Company also entered into the following agreements with Viavi:

Contribution Agreement which identifies the assets to be transferred, the liabilities to be assumed and the contracts to be assigned and it provides for when and how these transfers, assumptions and assignments will occur.

Separation and Distribution Agreement which governs the separation of the Lumentum business and other matters related to Lumentum’s relationship with Viavi.

Tax Matters Agreement which governs the respective rights, responsibilities and obligations of Lumentum and Viavi with respect to tax liabilities and benefits, attributes, proceedings, returns and certain other tax matters.

Employee Matters Agreement which governs the compensation and employee benefit obligations with respect to the current and former employees of Lumentum and Viavi, the treatment of equity based compensation and generally allocates liabilities and responsibilities relating to employee compensation, benefit plans and programs. The Employee Matters Agreement provides that employees of Lumentum will participate in benefit plans sponsored or maintained by Lumentum.

Securities Purchase Agreement, which also includes Amada Holdings Co., Ltd. (“Amada”) as a party, which sets forth the terms for the sale by Viavi to Amada of shares of Series A Preferred Stock of Lumentum Inc., our wholly-owned subsidiary, following the Separation.

Intellectual Property Matters Agreement which outlines the intellectual property rights of Lumentum and Viavi following the Separation, as well as non-compete restrictions between Viavi and Lumentum.

Allocated Costs

The consolidated statements of operations includes our direct expenses for cost of sales, research and development, sales and marketing, and administration as well as allocations of expenses arising from shared services and infrastructure provided by Viavi to us. These allocated expenses include costs of information technology, human resources, accounting, legal, real estate and facilities, corporate marketing, insurance, treasury and other corporate and infrastructure services. In addition, other costs allocated to us include restructuring and stock-based compensation related to Viavi’s corporate and shared services employees and are included in the table below. These expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services or benefits received by our business. The allocation methods include revenue, headcount, square footage, actual consumption and usage of services and others.

Allocated costs included in the accompanying consolidated statements of operations are as follows (in millions):

	Three Months Ended
	September 26, 2015			September 27, 2014
Selling, general and administrative		11.7			16.8
Interest and other (income) expenses, net		(0.1	)		0.1
Interest expense		0.1			0.2
Total allocated costs	$	11.7		$	17.1

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4. Earnings Per Share

The following table sets forth the computation of basic and diluted net (loss) income per share (in millions, except per share data):

	Three Months Ended
	September 26, 2015			September 27, 2014
Numerator:
Net (loss) income	$	(0.2	)	$	4.3
Less: Dividends on Series A Preferred Stock		(0.1	)		—
Less: Accretion of Series A Preferred Stock		(9.7	)		—
Net (loss) income attributable to common stockholders		(10.0	)		4.3

Denominator:
Weighted-average number of common shares outstanding - basic and diluted		58.8			58.8
Net (loss) income per share attributable to common stockholders	$	(0.17	)	$	0.07

On August 1, 2015, JDSU distributed 58.8 million shares of Lumentum common stock to existing holders of JDSU common stock. Basic earnings per share for the three months ended September 26, 2015 is calculated by dividing net income for the period by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding is calculated as the number of shares of common stock outstanding immediately following the Separation, and the weighted average number of shares outstanding following the Separation through September 26, 2015. Diluted earnings per share is calculated by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period beginning after the Separation.

The dilutive effect of share-based awards is reflected in diluted earnings per share by application of the treasury stock method, which includes consideration of unamortized share-based compensation expense, the tax benefits or shortfalls recorded to additional paid-in capital and the dilutive effect of in-the-money options and non-vested restricted stock units. Under the treasury stock method, the amount the employee must pay for exercising stock options and unamortized share-based compensation expense and tax benefits or shortfalls collectively are assumed proceeds to be used to repurchase hypothetical shares. An increase in the fair market value of the company's common stock can result in a greater dilutive effect from potentially dilutive awards.

The dilutive effect of the redeemable convertible preferred stock is reflected in diluted earnings per share by the application of the if-converted method. The number of shares is increased for the assumed conversion of the instrument. Additionally, cumulative dividends and accretion from measuring the instrument at its redemption value are added back to net income.

We excluded from the calculation of diluted earnings per share all anti-dilutive instruments.

The following table sets forth the weighted-average potentially dilutive securities excluded from the computation of the diluted net (loss) income per share because the effect would have been anti-dilutive (in millions):

	Three Months Ended
	September 26, 2015
Restricted stock units		1.8
Redeemable convertible preferred stock		1.5
Stock options and employee stock purchase plan		0.1
Total potentially dilutive securities		3.4

Note 5. Accumulated Other Comprehensive Income (Loss)

Our accumulated other comprehensive (loss) income consists of cumulative foreign currency translation adjustments and defined benefit obligation adjustments.

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At September 26, 2015 and June 27, 2015, balances for the components of accumulated other comprehensive income were as follows (in millions):

	Foreign currency translation adjustments, net of tax			Defined benefit obligation, net of tax			Total
Beginning balance as of June 27, 2015	$	13.7		$	(1.2	)	$	12.5
Other comprehensive loss		(5.5	)		—			(5.5	)
Ending balance as of September 26, 2015	$	8.2		$	(1.2	)	$	7.0

Note 6. Mergers and Acquisitions

Holdback Payments Related to Fiscal 2014 Acquisitions

On January 27, 2014 (“Time-Bandwidth Closing Date”), we completed the acquisition of Time-Bandwidth Products, Inc. (“Time-Bandwidth”), a privately-held company headquartered in Switzerland. Time-Bandwidth is a provider of high-powered and ultrafast lasers for industrial and scientific markets. We acquired all outstanding shares of Time-Bandwidth for a purchase price consideration of $15.0 million in cash, including a holdback amount of approximately $2.3 million which had been withheld to satisfy potential breaches of representations and warranties. During the first quarter of fiscal 2016, we released the holdback amount of $2.3 million following the eighteen-month anniversary of the Time-Bandwidth Closing Date. The payment is classified as a financing activity within the consolidated statements of cash flows.

Note 7. Balance Sheet and Other Details

Accounts receivable allowances

As of September 26, 2015, our accounts receivable allowance was $0.7 million. Our accounts receivable allowance balance as of June 27, 2015 was $1.2 million.

Inventories

The components of inventories were as follows (in millions):

	September 26, 2015		June 27, 2015
Finished goods	$	51.3	$	60.1
Work in process		23.2		23.4
Raw materials and purchased parts		28.4		16.2
Inventories	$	102.9	$	99.7

During the three months ended September 26, 2015, we wrote-off $0.5 million of inventory.

Prepayments and other current assets

The components of prepayments and other current assets were as follows (in millions):

	September 26, 2015		June 27, 2015
Prepayments	$	27.5	$	20.4
Advances to contract manufacturers		9.4		9.5
Due from Viavi		4.8		—
Other current assets		10.4		16.2
Prepayments and other current assets	$	52.1	$	46.1

Amount due from Viavi represents certain obligations to be reimbursed from Viavi pursuant to the Separation and Distribution Agreement and Contribution Agreement.

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property, plant and equipment, net

The components of property, plant and equipment, net were as follows (in millions):

	September 26, 2015			June 27, 2015
Land	$	5.9		$	5.9
Buildings and improvement		28.7			28.6
Machinery and equipment		332.3			326.4
Furniture and fixtures and software		30.9			8.0
Leasehold improvements		29.2			20.5
Construction in progress		16.6			26.8
		443.6			416.2
Less: Accumulated depreciation		(302.1	)		(273.0	)
Property, plant and equipment, net	$	141.5		$	143.2

During the three months ended September 26, 2015 and September 27, 2014, we recorded depreciation expense of $11.7 million, and $10.4 million, respectively.

Other current liabilities

The components of other current liabilities were as follows (in millions):

	September 26, 2015		June 27, 2015
Restructuring accrual and related charges	$	5.6	$	3.2
Warranty accrual		2.5		2.8
Others		2.6		5.4
Other current liabilities	$	10.7	$	11.4

Other non-current liabilities

The components of other non-current liabilities were as follows (in millions):

	September 26, 2015		June 27, 2015
Derivative liability	$	7.5	$	—
Asset retirement obligation		2.2		1.8
Pension and related accruals		2.6		2.1
Deferred rent		1.6		1.7
Restructuring accrual and related charges		0.5		1.7
Other non-current liabilities		1.9		2.5
Other non-current liabilities	$	16.3	$	9.8

Note 8. Goodwill and Other Intangible Assets

Goodwill

The following table presents the changes in goodwill allocated to the reportable segments during the three months ended September 26, 2015 (in millions):

	Commercial Lasers			Total
Balance as of June 27, 2015	$	5.6		$	5.6
Currency translation and other adjustments		(0.3	)		(0.3	)
Balance as of September 26, 2015	$	5.3		$	5.3

LUMENTUM HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We review goodwill for impairment during the fourth quarter of each fiscal year or more frequently if events or circumstances indicate that an impairment loss may have occurred. In the fourth quarter of fiscal 2015, we completed the annual impairment test of goodwill, which indicated there was no goodwill impairment. During the three months ended September 26, 2015, there have been no events or circumstances that have required us to perform an interim assessment of goodwill for impairment.

Acquired Developed Technology and Other Intangibles

The following tables present details of our acquired developed technology and other intangibles (in millions):

As of September 26, 2015