Lumentum Holdings (LITE) 10-K risk factor changes: FY2020 vs FY2019

[removed: Investors] [added: *Investors] in our securities should carefully consider all of the relevant factors disclosed by us, including the following factors that could affect our results of operations, financial condition or stock [removed: price.][added: price.*]

[removed: Risks] [added: Risks] Related to Our [removed: Business][added: Business]

[removed: Changing] [added: Changing] technology and intense competition require us to continuously innovate while controlling product costs, and our failure to do so may result in decreased revenues and [removed: profitability.][added: profitability.]

The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and the accurate prediction of technology and [removed: market trends.]

[removed: We] [added: We] rely on a limited number of customers for a significant portion of our sales; and the majority of our customers do not have contractual purchase [removed: commitments.][added: commitments.]

We expect that this customer concentration will continue in the [removed: future] [added: future,] and we expect that our growth prospects will continue to [removed: be concentrated in] [added: depend on] a small number of customers.

Many of our customers purchase products under purchase orders or under contracts that do not contain volume [added: or long-term] purchase commitments.

Some customers provide us with their expected forecasts for our products several months in advance, but these customers may decrease, cancel or delay purchase orders already in place, including on short notice, [added: particularly in light of the impacts of COVID-19 on their businesses] and [added: markets, and] the impact of any such actions may be intensified given our dependence on a limited number of large customers.

There are also continuing trade [removed: tensions with] [added: tensions, including an uncertain regulatory environment, in] the U.S. and countries in Asia, which could materially impact our sales to key customers in these regions.

[removed: Our] [added: Our] ability to sell our products to a significant customer has been [removed: restricted.][added: restricted.]

On May 16, 2019, Huawei Technologies Co. Ltd. and 68 designated non-U.S. affiliates (collectively, “Huawei”) were added to the Entity List of the Bureau of Industry and Security of the U.S. Department of Commerce, which imposes limitations on the [added: supply of certain U.S. items and product support to Huawei.]

Notwithstanding our determination [added: in 2019] that we [removed: are] [added: were] able to ship certain products in compliance with applicable law, we believe that under the current regulatory regime, our business with Huawei [removed: may] [added: has been and will continue to] be more limited than it was in the past.

For example, we may be unable to supply certain [removed: other] [added: additional] products or be limited or unable to work with Huawei on future product [removed: development] [added: developments] while Huawei remains on the Entity List, which may negatively impact our financial condition [removed: and results of operations.]

We [removed: also] cannot be certain what additional actions the U.S. government may take with respect to Huawei, including changes to the Entity List restrictions, export regulations, tariffs or other trade restrictions.

We are unable to predict the duration of the restrictions enacted in May 2019 or of additional actions, [added: such as the changes published in May through August 2020, or the recent restrictions on Huawei’s access to foreign-made chips made using U.S. technology] which could have a long-term adverse effect on our business.

[removed: Continued] [added: Continued] competition in our markets may lead to an accelerated reduction in our prices, revenues and market [removed: share.][added: share.]

Our competitors include II-VI (which [removed: has announced an agreement to acquire Finisar),] [added: acquired Finisar in September 2019),] Acacia Communications (which has entered [added: into] an agreement to be acquired by Cisco), [removed: AMS,] [added: AMS (which acquired OSRAM in December 2019),] Broadcom, Coherent, [removed: Finisar,] Fujitsu Optical Components, Furukawa Electric, IPG Photonics, MACOM, Mitsubishi Electric, Molex, Neophotonics, nLight, O-net Communications, [removed: OSRAM,] Sumitomo Electric Industries and Trumpf.

Additionally, [removed: if significant competitors were to merge] [added: the merger] or [removed: consolidate,] [added: consolidation of significant competitors,] for example, [added: II-VI’s acquisition of Finisar in September of 2019,] the pending [removed: acquisitions] [added: acquisition] of [removed: Finisar by II-VI and] Acacia Communications by Cisco, [removed: they] [added: and the acquisition of OSRAM by AMS in December 2019,] may [removed: be able] [added: enable our competitors] to offer a [added: different market approach, or a] lower cost structure through economies of scale [added: or other efficiencies] that we may be unable to match and which may intensify competition in the various markets.

[removed: The] [added: The] manufacturing of our products may be adversely affected if we are unable to manufacture certain products in our manufacturing facilities or if our contract manufacturers and suppliers fail to meet our production [removed: requirements.][added: requirements.]

We manufacture some of our finished good products as well as some of the components that we provide to our contract [removed: manufacturers,] [added: manufacturers] in our China, [removed: Italy,] Japan, Thailand, U.K., and San Jose, California manufacturing facilities.

For some of the components and finished good [removed: products] [added: products,] we are the sole manufacturer.

From time to time we have experienced problems achieving acceptable yields in our manufacturing facilities, resulting in delays in the availability of our [removed: products.][added: products and inability to meet customer demand.]

In addition, if we experience problems with our manufacturing [removed: facilities,] [added: facilities or are unable to continue operations at any of these sites, including as a result of COVID-19 impacts,] it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer which could then result in interruptions in supply, and would likely materially impact our financial condition and results of operations.

[removed: Despite] [added: In addition, despite] rigorous testing for quality, both by us and the contract manufacturers to whom we sell products, we may receive and ship defective products.

We may incur significant costs to correct defective products which could result in the loss of future [removed: sales,] [added: sales and revenue,] indemnification costs or costs to replace or repair the defective products, litigation and damage to our reputation and customer relations.

Additionally, our ability to fulfill our customers’ demand, or the ability of our contract manufacturers to fulfill their obligations, may be affected by natural disasters, [added: including a global pandemic such as COVID-19,] changes in legal requirements, labor strikes and other labor unrest and economic, political or other forces that are beyond our control.

For example, in the past we experienced a labor strike at one of our contract manufacturers [added: which threatened the contract manufacturer’s ability to fulfill its product commitments to us and, in turn, our ability to fulfill our obligations to our customers.]

The United States has [removed: recently] imposed tariffs on the import of certain products manufactured in China, and may propose further tariffs in the future, which could increase costs associated with the manufacturing of our products in China, and potentially other countries, and negatively impact our sales levels and profit margins.

For example, [removed: we are] in [removed: the process of transitioning] [added: 2019 we transitioned] the manufacturing of our products with one of our contract manufacturers in China to our Shenzhen and Thailand manufacturing facilities and to other contract manufacturers.

As a result of such transfers, our contract manufacturers may prioritize other customers or otherwise be unable [added: or unwilling] to meet our demand.

Uncertainty with respect to [added: our suppliers’ abilities due to COVID-19 impacts,] tax and trade policies, tariffs and government regulations affecting trade between the United States and other countries has recently increased.

[removed: If] [added: If] our customers do not qualify our manufacturing lines or the manufacturing lines of our subcontractors for volume shipments, our operating results could [removed: suffer.][added: suffer.]

[removed: We] [added: We] depend on a limited number of suppliers for raw materials, packages and components, and any failure or delay by these suppliers in meeting our requirements could have an adverse effect on our business and results of [removed: operations.][added: operations.]

Specific concerns we periodically encounter with our sole suppliers or limited number of suppliers include receipt of defective parts or contaminated materials, stoppages or delays of supply, insufficient resources to supply our requirements, substitution of more expensive or less reliable materials, increases in the price of supplies, and an inability to obtain reduced pricing from our [removed: suppliers in response to competitive pressures.]

Additionally, [added: these suppliers may be unable to operate under restrictions due to COVID-19 or any resulting economic impact to their business and ability to continue operations, and the] supply of and costs of raw materials may be negatively impacted by [added: the COVID-19 pandemic,] trade protection policies such as tariffs, or escalating trade tensions, particularly with countries in Asia.

[added: Any disruption in the] supply of the raw materials, packaging or components used in the manufacture and delivery of our products could have a material adverse impact on our business, financial condition and results of operations.

[removed: We] [added: We] contract with a number of large OEM and end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize [removed: revenues.][added: revenues.]

[removed: Our] [added: Our] products may contain defects that could cause us to incur significant costs, divert our attention from product development efforts and result in [removed: a] loss of [removed: customers.][added: customers.]

[removed: We] [added: We] are subject to risks arising from our international operations, which may adversely affect our business, financial condition, and results of [removed: operations.][added: operations.]

| • | changes in or limitations imposed by trade protection laws or other regulatory orders or requirements in the United States or in other countries, including tariffs, sanctions, or other costs or requirements which may affect our ability to import or export our products from various countries or increase the cost to do so, including government action to restrict our ability to sell to foreign customers where sales of products may require export licenses (such as the U.S. Department of Commerce’s addition of Huawei to the Entity List in May [removed: 2019] [added: 2019, the addition of FiberHome in May 2020, amendment to the Foreign-Produced Direct Product Rule in August 2020] and the prohibition of export and sale of certain products to ZTE Corporation in early 2018) and increased tariffs on various products that have been proposed by the U.S. government and other non-U.S. governments; |

Our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives may be materially and adversely affected by the ongoing COVID-19 pandemic.

Our business, results of operations and financial performance have been negatively impacted by the COVID-19 pandemic and related public health responses, such as shelter-in-place orders, social distancing protocols, and travel restrictions in many of the countries and regions in which we have operations or manufacturing partners.

As a result of the COVID-19 outbreak around the world, Lumentum implemented certain travel restrictions beginning in early February 2020, temporarily closed or limited the number of employees permitted onsite in our offices and manufacturing sites in several heavily impacted locations, and implemented work-from-home rules at most of our facilities.

These restrictions have been lifted in some locations where local governments have relaxed restrictions due to decreases in the number of COVID-19 cases, but we continue to monitor changes in each location and we may need or choose to impose restrictions again as the situation evolves.

These measures as well as additional workforce disruptions due to quarantines, governmental actions, and/or the social distancing measures we have taken to mitigate the impact of COVID-19 at certain of our locations around the world in an effort to protect the health and well-being of our employees, customers, suppliers and the communities in which we operate, have caused, and may continue to cause, disruption and delays in our ability to operate and manufacture, test and assemble products in our internal facilities, particularly in California, China, Thailand and the United Kingdom.

Our ability to continue certain research and development activities has also been limited which could materially and adversely affect our ability to develop new products and technologies on the timelines we previously anticipated.

In addition, we have experienced disruption and delays in our supply chain and with our manufacturing partners, primarily in Malaysia in the first half of 2020, which imposed limitations on which businesses could operate and the amount of the workforce permitted to perform manufacturing operations, and those limitations could be reinstated if the number of COVID-19 cases in particular regions were to increase.

Our supply chain has also been affected by these measures and our suppliers may not have the materials, capacity or capability to supply us with the components necessary for continuing our manufacturing operations or development efforts at our normal levels.

There are also restrictions and delays on logistics, such as air cargo carriers, as well as increased logistics costs due to limited capacity and high demands for freight forwarders.

These disruptions, delays and restrictions have adversely affected our revenue and results of operations and could be extended or further restrictions could be put in place in other regions, which would materially and adversely impact our revenue, results of operations and financial condition.

The COVID-19 pandemic has created economic uncertainty and volatility in the financial markets around the world, resulting in an economic downturn that has affected and may continue to affect demand for our products and impact our results of operations.

The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures); the impact of the pandemic and actions taken in response on global and regional economies, travel, and economic activity; the availability of federal, state, local or non-U.S. funding programs; general economic uncertainty in key global markets and financial market volatility; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.

In addition, the global economic volatility has significantly impacted the foreign exchange markets, and the currencies of various countries in which we operate and have significant volume of local-currency denominated expenses have seen significant volatility.

Although the magnitude of the impact of COVID-19 on our business operations remains uncertain and difficult to predict, and the situation remains a highly dynamic, we have experienced and will continue to experience in subsequent periods, disruptions to our business that will adversely impact our business, financial condition and results of operations.

market trends, and is further impacted by the disruptions caused by COVID-19 on our ability to continue with research and development activities.

Our relationships with large customers may also be harmed to the extent the impacts of the COVID-19 pandemic prevent us from being able to satisfy their orders in a timely manner.

In May 2020 and August 2020, additional regulatory restrictions were imposed on the sale of items with certain U.S. controlled technology or software to Huawei and related entities.

We continue to review the applicability of these limitations and other changes implemented by the Bureau of Industry and Security on our ability to sell our products.

and results of operations.

Tensions between the governments of the US and China have continued to escalate.

The U.S. government has added other customers of ours to the Entity List, such as FiberHome Technologies Group in May 2020, and may continue to do so or otherwise restrict our ability to ship products which may harm our business, financial condition and results of operations.

Such charges could also occur with respect to customized products we manufacture for other customers should the U.S. government add such customers to the Entity List or otherwise restrict our ability to sell to such customers.

Our manufacturing is heavily concentrated in central Asia, and we would be severely impacted if there were further escalation of COVID-19 in that region.

If operations at these contract manufacturers is adversely impacted, such as by restrictions due to COVID-19 or any resulting economic impact to their business, this would likely materially impact our financial condition and results of operations.

suppliers in response to competitive pressures.

| • | impacts related to business disruptions and restrictions related to COVID-19; |

| • | the imposition of sanctions on customers in China may cause those customers to seek domestic alternatives to our products, including developing alternatives internally; |

| • | potential global or regional recession as a result of the COVID-19 pandemic and related responses of individuals, governments, private industry; |

| • | political developments of foreign nations, including Brexit and recent political developments in Hong Kong and the potential impact such developments or further actions could have on our customers in Hong Kong; and |

Additionally, our business is impacted by fluctuations in local economies and currencies.

The COVID 19 pandemic and resulting global economic volatility has significantly impacted the foreign exchange markets, and the currencies of various countries in which we operate and have significant volume of local-currency denominated expenses have seen significant volatility.

We expect such volatility to continue, which could negatively impact our results by making our non-U.S. operations more expensive when reported in US dollars, primarily due to the costs of payroll.

In addition to the above risks related to our international operations, we also face risks related to health epidemics, such as the COVID-19 pandemic.

An outbreak of a contagious disease, and other adverse public health developments, particularly in Asia, could have a material and adverse effect on our business operations.

The effects could include restrictions on our ability to travel to support our sites in Asia or our customers located there, disruptions in our ability to distribute products, and/or temporary closures of our facilities in Asia or the facilities of our suppliers or customers and their contract manufacturers.

Disruption to the operations of our suppliers or customers and their contract manufacturers due to COVID-19 have impacted and will likely continue to impact our sales and operating results.

For additional information regarding the impact of COVID-19 on our business, see the risk factor above titled *“Our business operations, financial performance, results of operations, financial position and the achievement of our strategic objectives may be materially and adversely affected by the ongoing COVID-19 pandemic.”*

For example, in the fourth quarter of fiscal year 2019, we completed the divestiture of our Datacom module business in Japan, and in the second quarter of fiscal year 2020 we sold the assets associated with certain Lithium Niobate product lines manufactured by our San Donato, Italy site.

thereafter.

Our financial statements have been prepared consistent with this outcome.

supply of certain U.S. items and product support to Huawei.

Sales to Huawei accounted for 15.2% of our total revenue for the fiscal year ended June 29, 2019.

which threatened the contract manufacturer’s ability to fulfill its product commitments to us and, in turn, our ability to fulfill our obligations to our customers.

Any disruption in the

| • | fluctuations in local economies; |

| • | political developments of foreign nations; and |

misappropriation of intellectual property, military actions, acts of terrorism, political and social unrest and difficulties in staffing and managing international operations.

For example, during the third quarter of fiscal year 2019, we announced the divestiture of our Datacom module business in Japan which was completed in the fourth quarter of fiscal year 2019.

Such divestitures involve risks, such as difficulty

manufacture, results in lower gross margins from lower yields and additional rework costs.

We have agreed to reimburse Viavi for certain tax liabilities and related costs that may be incurred by Viavi, under certain circumstances, as a result of implementing the new corporate structure or a modified structure in the future.

In addition, the implementation of such a structure has required us to incur expenses, and may require that we incur additional expenses, for which we may not realize the anticipated benefit or it may take us several years to fully realize the anticipated benefit.

Due to the uncertain practical and technical application of many of these provisions, we made reasonable estimates of the effects and recorded provisional amounts where possible for the fiscal year ended June 30, 2018.

During the period ended December 29, 2018, we completed our accounting for the Tax Act with no material adjustment to our provisional estimates.

Our financial statements have been prepared consistent with the ruling and we will continue to monitor any ongoing developments, including the possibility of rehearing or appeal to the U.S. Supreme Court, to determine if future changes are required.

On December 10, 2018, we entered into a credit agreement (the “Credit Agreement”) with Deutsche Bank AG New York Branch for a senior secured term loan facility in an aggregate principal amount of $500 million (the “Term Loan Facility”).

If we are unable to obtain adequate financing or financing on terms satisfactory to us

Legislators have stated that they intend to propose amendments to the CCPA before it goes into effect, and it remains unclear what, if any, modifications will be made to this legislation or how it will be interpreted.

Further, in June 2016, a referendum was passed in the United Kingdom to leave the European Union, commonly referred to as “Brexit.” This created an uncertain political and economic environment in the United Kingdom and other European Union countries, even though the formal process for leaving the European Union may take years to complete and may not ultimately be effectuated.

or judgments.

We face a number of risks related to our Separation from Viavi, including those associated with ongoing indemnification obligations and tax and accounting-related risks, which could adversely affect our business, financial condition, results of operations and cash flows.

In August 2015, we became an independent publicly-traded company through the distribution by JDS Uniphase Corporation (“JDSU”) to its stockholders of 80.1% of our outstanding common stock (the “Separation”).

The Separation and Distribution Agreement dated as of July 31, 2015 by and among JDSU, Lumentum Holdings Inc. and Lumentum Operations LLC (the “Separation Agreement”) requires that we indemnify Viavi, and that Viavi indemnify us, for certain specified liabilities related to the Separation.

Among other things, we are obligated to indemnify Viavi against certain tax-related liabilities that may result from the breach of any of our representations or covenants made in connection with the Separation.

Our indemnification obligations are not subject to maximum loss clauses and, if we are required to indemnify Viavi under the circumstances set forth in the Separation Agreement, we may be subject to substantial liabilities.

Furthermore, third parties could seek to hold us responsible for any of the liabilities that Viavi has agreed to indemnify us for, and there can be no assurance that the indemnity from Viavi will be sufficient to protect us against the full amount of such liabilities, or that Viavi will be able to fully satisfy its indemnification obligations.

If we were to become involved in securities

OurTerm Loan Facility restricts our operations, particularly our ability to respond to changes or to take certain actions regarding our business.

The definitive documents governing the Term Loan Facility provided for in the Commitment Letter contain a number of restrictive covenants that impose operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on the ability to: incur indebtedness, grant liens, undergo certain fundamental changes, dispose of assets, make investments, enter into transactions with affiliates, and make certain restricted payments, in each case subject to limitations and exceptions to be set forth in the definitive documentation for the Term Loan Facility.

The definitive documentation governing the Term Loan Facility also contains customary events of default that include, among other things, certain payment defaults, covenant defaults, cross-defaults to other indebtedness, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults.

Such events of default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies which could have a material adverse effect on our business, operations and financial results.

Furthermore, if we are unable to repay the amounts due and payable under the definitive documentation governing our Term Loan Facility, those lenders could proceed against the collateral granted to them to secure that indebtedness which could force us into bankruptcy or liquidation.

In the event our lenders

accelerated the repayment of the borrowings, we may not have sufficient assets to repay that indebtedness.

Any acceleration of amounts due under the credit agreements would likely have a material adverse effect on us.

As a result of these restrictions, we may be: limited in how we conduct business; unable to raise additional debt or equity financing to operate during general economic or business downturns; or unable to compete effectively or to take advantage of new business opportunities.

[removed: You] [added: *You] should read the following discussion in conjunction with the audited consolidated financial statements and the corresponding notes included elsewhere in this Annual Report.

Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these [removed: statements.][added: statements.*]

[removed: Overview][added: Overview]

The two operating segments were primarily determined based on how [removed: our CODM] [added: the Chief Operating Decision Maker (“CODM”)] views and evaluates our operations.

Operating results are regularly reviewed by [removed: our] [added: the] CODM to make decisions about resources to be allocated to the segments and to assess their performance.

We [removed: see] [added: believe] the world [removed: as] [added: is] becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers, which [removed: demand] [added: require] new networks and data centers to [removed: be built to] satisfy this [removed: insatiable demand for data.][added: demand.]

As [added: manufacturers demand] higher levels of precision, new materials, [added: and] factory and energy [removed: efficiency are being demanded by manufacturers,] [added: efficiency,] suppliers of manufacturing tools globally are turning [removed: more and more] to laser based approaches, including the types of lasers Lumentum supplies.

Refer to “Note [removed: 5.][added: 4.]

Business [removed: Combination”] [added: Combinations”] in the notes to consolidated financial statements for further discussion of the merger.

During [removed: our] fiscal 2019, we recorded [removed: $20.9] [added: $31.9] million in restructuring and related charges in our consolidated statements of operations, [added: primarily] attributable to severance and employee related benefits associated with [removed: Oclaro’s executive severance] [added: the wind down of operations for Lithium Niobate modulators] and [removed: retention agreements.][added: Datacom modules of $21.1 million.]

These retention agreements [removed: provide,] [added: provided,] under certain circumstances, for payments and benefits upon an involuntary termination of [removed: employment, including following a change in control of Oclaro.][added: employment.]

[removed: OpComms][added: *OpComms*]

Our OpComms products include a wide range of components, modules and subsystems to support customers including carrier networks [removed: of] [added: for] access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications.

These products enable the transmission and transport of video, audio and [removed: text] data over high-capacity fiber-optic cables.

We maintain leading positions in these fast growing OpComms markets through our extensive product portfolio, including reconfigurable optical add/drop multiplexers (“ROADMs”), coherent DWDM [added: pluggable transceivers, and tunable small form-factor pluggable transceivers.]

Our OpComms customers include Alphabet, Apple, Ciena, Cisco Systems (which [removed: recently] announced the acquisition of Acacia Communications, another customer of ours), Huawei Technologies (including HiSilicon), Infinera, Innolight, Nokia Networks (including Alcatel-Lucent International), O-Net, and ZTE.

Following the acquisition of Oclaro, during our fiscal 2019, we made several strategic changes to our OpComms business [removed: as follows:][added: to better position it for growth and profitability.]

We expect our Indium Phosphide photonic integrated circuits will [added: continue to] replace Lithium Niobate modulators over [removed: time.][added: time and focusing on the development and sale of Datacom chips has enabled us to participate in the growth of the Datacom and 5G wireless markets.]

[removed: Third,] [added: On April 18, 2019,] we [removed: announced the sale of] [added: closed a transaction selling] many of our Datacom transceiver module [removed: products] [added: product lines] to Cambridge Industries Group (“CIG”).

[removed: We also] [added: (1) In fiscal 2020 and 2019, we] recorded inventory [added: and fixed assets] write down charges of [added: $7.0 million and] $20.8 million related to the decision to exit the Datacom module and Lithium Niobate product [removed: lines in our cost of goods sold of consolidated statements of operations.][added: lines.]

For [removed: additional information,] [added: further information regarding this transaction,] refer to “Note [removed: 15.][added: 4.]

[added: |] Impairment [removed: Charges”.][added: charges | 0.3 | | | 2.0 | | | — | |]

[removed: Lasers][added: *Lasers*]

Gas lasers such as argon-ion and helium-neon lasers provide a stable, low-cost and reliable solution over a wide range of operating conditions, making them [removed: well suited] [added: well-suited] for complex, high-resolution OEM applications such as flow cytometry, DNA sequencing, graphics and imaging and semiconductor inspection.

[removed: Critical] [added: Critical] Accounting Policies and [removed: Estimates][added: Estimates]

[removed: Inventory Valuation][added: *Inventory Valuation*]

We assess the value of our inventory on a quarterly basis and write down those inventories which are obsolete or in excess of our forecasted [removed: usage] [added: demand] to the lower of their cost or estimated net realizable value.

Our estimates of [removed: realizable value] [added: forecasted demand] are based upon our analysis and assumptions including, but not limited to, [removed: forecasted sales levels and historical usage by product,] expected product [removed: lifecycle,] [added: lifecycles,] product development plans and [removed: future demand requirements.][added: historical usage by product.]

If actual market conditions are less favorable than our [removed: forecasts] [added: forecasts,] or actual demand from our customers is lower than our estimates, we may be required to record additional inventory write-downs.

[removed: Revenue Recognition][added: *Revenue Recognition*]

[removed: | • |] [added: -] identification of the contract, or contracts, with a customer; [removed: |]

[removed: | • |] [added: -] identification of the performance obligations in the contract; [removed: |]

[removed: | • |] [added: -] determination of the transaction price; [removed: |]

[removed: | • |] [added: -] allocation of the transaction price to the performance obligations in the contract; and [removed: |]

[removed: | • |] [added: -] recognition of revenues when, or as, the contractual performance obligations are satisfied. [removed: |]

[removed: Transaction] [added: *Transaction] Price Allocated to the Remaining Performance [removed: Obligations][added: Obligations*]

The following table includes estimated revenue expected to be recognized in the future for backlog related performance obligations that are unsatisfied as of June [removed: 29, 2019 (in millions):][added: 27, 2020 (*in millions*):]

| | [removed: Less] [added: Less] than 1 [removed: year] [added: year] | [removed: 1-2 years] [added: 1-2 years] | [removed: Greater] [added: Greater] than 2 [removed: years] [added: years] | [removed: Total] [added: Total] |

[removed: Warranty][added: *Warranty*]

[removed: Shipping] [added: *Shipping] and Handling [removed: Costs][added: Costs*]

These changes included attaining acquisition cost synergies related to redundant capabilities and divestiture of Telecom Lithium Niobate modulators and Datacom transceiver modules because of their muted growth and profitability trends.

These changes were substantially completed in fiscal 2020.

Related to the strategic changes in our OpComms business, we entered into two strategic transactions to sell some of the discontinued product lines.

In the second quarter of fiscal year 2020, we entered into an agreement with Advanced Fiber Resources (Zhuhai) Ltd. (“AFR”), a leading provider of passive optical components, to sell the assets associated with certain Lithium Niobate product lines manufactured by our San Donato site for $17.0 million.

The transaction was closed in the third quarter of fiscal year 2020.

Impact of COVID-19 to our Business

The outbreak of the COVID-19 has been declared a pandemic by the World Health Organization and continues to spread globally.

The spread of COVID-19 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 and issuing a “shelter-in-place” order 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 the decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and 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 we have operations, we have in general been deemed an essential business and been permitted to continue manufacturing and new product development operations in a more limited capacity during the pandemic.

This stems from our critical role in global supply chains for the world’s communications and health-care systems.

Given the rapidly evolving situation, it is difficult to predict precisely when our ability to supply our products will improve or the magnitude and duration of the impact of the COVID-19 pandemic to our markets.

We will continue 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 2021.

While the recent outbreak of the COVID-19 did not have a material adverse effect on our reported results for our third and fourth quarters, we are actively monitoring the impact of the coronavirus outbreak.

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 actions by government authorities and private businesses to contain the outbreak or recover from its impact, among other things.

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 may be 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, see the section titled “Risk Factors” in Item 1A of Part I.

Except for the adoption of ASU 2016-02, Leases (Topic 842) and the resulting changes in our accounting policies and disclosures for lease accounting, there have been no significant changes to our significant accounting policies as of and for the year ended June 27, 2020.

Description of Business and Summary of Significant Accounting Policies” for the details of ASU 2016-02 (Topic 842) adoption.

| Performance Obligations | $525.5 | $32.3 | $— | $557.8 |

or tax returns.

The qualitative factors we assess include long-term prospects of our performance, share price trends and market capitalization, and Company specific events.

The fair value of each of our goodwill reporting units is generally estimated using a combination of public company multiples and discounted cash flow methodologies.

| Interest expense | (3.6 | ) | | (2.3 | ) | | (1.5 | ) |

| Other income (expense), net | 1.9 | | | 1.0 | | | 0.7 | |

| Impairment charges | $ | 4.3 | | | $ | 30.7 | | | $ | (26.4 | ) | | (86.0 | )% | | $ | 30.7 | | | $ | — | | | $ | 30.7 | | | 100.0 | % |

This increase was primarily due to the increased sales of Telecom and Datacom of $68.9 million and Consumer and Industrial of $76.0 million, offset by decreased sales of Lasers of $31.6 million.

| Amortization of fair value adjustments | (5.8 | | ) | | (54.6 | | ) | | — | | | | | | | | | | | |

| Expenses related to COVID-19 outbreak | (6.6 | | ) | | — | | | | — | | | | | | | | | | | |

(2) “Other charges” of unallocated corporate items for the year ended June 27, 2020 primarily include costs of transferring product lines to new production facilities, including Thailand of $11.5 million.

We also incurred excess and obsolete inventory charges driven by the decline in demand from Huawei of $12.8 million during the year ended June 27, 2020.

In addition, for the year ended June 27, 2020, we incurred $6.2 million impairment charges associated with excess capacity related to our Fiber laser business.

In accordance with the terms of the Merger Agreement, each issued and outstanding share of Oclaro common stock was automatically converted into the right to receive (i) $5.60 in cash and (ii) 0.0636 of a share of Lumentum common stock.

The total transaction consideration was $1.4 billion, which was funded through the issuance of Lumentum common stock, new debt (refer to “Note 7.

Term Loan Facility”), and cash balances of the combined company.

The payments and benefits payable under these arrangements in the event of a change in control of Oclaro are subject to a “double trigger,” meaning that both a change in control of Oclaro and a subsequent involuntary termination of employment are required.

In other words, the change in control of Oclaro does not by itself trigger any payments or benefits.

Instead, payments and benefits are paid only if the employment of the employee is subsequently terminated without “cause” (or the employee resigns for “good reason”) during a specified period following the change in control.

We incurred total expense of $20.9 million, of which $5.7 million relates to cash severance as part of our restructuring expense, refer to “Note 14.

Restructuring and Related Charges” and $15.2 million relates to acceleration of equity awards, refer to “Note 17.

Stock-Based Compensation and Stock Plans.”

pluggable transceivers, and tunable small form-factor pluggable transceivers.

First, for overlapping products as a result of the acquisition, we are transitioning to a common lower cost design and manufacturing platform, which we expect will result in gross margin improvement over time.

In addition, we are discontinuing certain Telecom product lines that we believe have muted growth and profitability trends that are inconsistent with our long term model.

We expect that these transitions will be completed in our fiscal 2021.

For the Telecom product lines we are exiting, we do not expect significant revenue declines until fiscal 2021 as in fiscal 2020 we are continuing to satisfy customers’ product needs with respect to these product lines.

Second, we announced our plan to discontinue development and manufacturing of Lithium Niobate modulators, and we plan to wind down these operations in San Donato, Italy during fiscal year 2020.

Development and manufacturing will also be discontinued in our San Jose, California manufacturing locations within the next few quarters in order to facilitate our customers’ transition to new products.

This transaction closed on April 18, 2019.

Business Combination”.

We expect Datacom transceiver sales to ramp down to zero during fiscal year 2020.

We are investing in new Datacom chip development and expect sales of these chips to customers serving the Datacom and 5G wireless markets will grow over time.

With the exit from the business of selling Datacom transceivers, we recorded an impairment charge of $30.7 million to our Long-lived assets that were not deemed to be useful, as they were retired from active use and classified as held-for-sale.

These assets were valued at fair value less cost to sell.

These actions do not qualify as discontinued operations for disclosure purposes as they do not represent a strategic shift having a major effect on an entity’s operations and financial results.

- Business Combinations

During fiscal year 2019, we removed valuation of derivative liability from the list of critical accounting policies and estimates due to the conversion of the Series A Preferred Stock to common stock on November 2, 2018.

Non-Controlling Interest Redeemable Convertible Preferred Stock and Derivative Liability” for additional information.

| | |

| --- | --- |

| Performance Obligations | $446.1 | $7.0 | $— | $453.1 |

Business Combinations

In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business.

Each business combination is then accounted for by applying the acquisition method.

If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition.

Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity.

We capitalize acquisition-related costs and fees associated with asset acquisitions and immediately expense acquisition-related costs and fees associated with business combinations.

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values.

The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.

When determining the fair values of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships and acquired developed technology and discount rates.

Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ materially from estimates.

[removed: Foreign] [added: Foreign] Exchange [removed: Risk][added: Risk]

Due to the impact of changes in foreign currency exchange rates between the U.S. Dollar and foreign currencies, for the fiscal years ended June [added: 27, 2020, June] 29, 2019, [added: and] June 30, 2018, [removed: and July 1, 2017,] we recorded [removed: unrealized gain (loss)] [added: foreign exchange losses, net] of [removed: $(0.6)] [added: $1.4] million, [removed: $(0.3)] [added: $0.6] million, and [removed: $0.6] [added: $0.3] million, respectively, in [removed: interest and] [added: the] other income (expense), net in the consolidated statements of operations.

Although we sell primarily in the U.S. Dollar, we have foreign currency exchange risks related to our [removed: operating] expenses denominated in currencies other than the U.S. Dollar, principally the Chinese Yuan, Canadian Dollar, Thai Baht, Japanese Yen, UK Pound, Swiss Franc and Euro.

[removed: Equity] [added: Equity] Price [removed: Risk][added: Risk]

We are exposed to equity price risk related to the conversion options embedded in our [added: 2026 Notes and] 2024 Notes.

[removed: In March 2017, we] [added: We] issued the [added: 2026 Notes in December 2019 and the] 2024 Notes in [removed: a private placement] [added: March 2017] with an aggregate principal amount of [added: $1,050 million and] $450 [removed: million.][added: million, respectively.]

[removed: We carry] [added: Both] the [added: 2026 Notes and the] 2024 Notes [added: are carried] at face value less amortized discount on the consolidated balance sheet.

The [added: 2026 Notes and the] 2024 Notes bear interest at a rate of [added: 0.50% and] 0.25% per [removed: year.][added: year, respectively.]

Since the [removed: 2024] Notes bear interest at fixed rates, we have no financial statement risk associated with changes in interest rates.

However, the potential value of the shares to be distributed to the holders of [removed: 2024] [added: our] Notes changes when the market price of our stock fluctuates.

[removed: Interest] [added: Interest] Rate Fluctuation [removed: Risk][added: Risk]

As of June [removed: 29, 2019,] [added: 27, 2020,] we had cash, cash equivalents, and short-term investments of [removed: $768.5] [added: $1,553.8] million.

Cash equivalents and short-term investments are primarily comprised of [added: money market funds, treasuries, and] highly liquid investment grade fixed income securities.

As of June [removed: 29, 2019,] [added: 27, 2020,] the weighted-average life of our investment portfolio was [removed: approximately seven] [added: less than six] months.

Based on our investment portfolio balance as of June [removed: 29, 2019,] [added: 27, 2020,] a hypothetical increase or decrease in interest rates of 1% (100 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately [removed: $2.2] [added: $5.4] million, and a hypothetical increase or decrease of [removed: 0.5%] [added: 0.50%] (50 basis points) would have resulted in a decrease or an increase in the fair value of our portfolio of approximately [removed: $1.1] [added: $2.7] million.

[removed: Bank] [added: Bank] Liquidity [removed: Risk][added: Risk]

As of June [removed: 29, 2019,] [added: 27, 2020,] we had approximately [removed: $213.8] [added: $114.2] million of unrestricted cash (excluding money market [removed: funds)] [added: funds and U.S. Treasury securities)] in operating accounts that are held with domestic and international financial institutions.

COVID-19 Risk

There are a number of market risk factors related to the COVID-19 pandemic and associated global economic impacts.

We continue to actively evaluate these risks, and have taken reserves and financial positions as of June 27, 2020 that we believe are reasonable based on the information currently available.

However, the COVID-19 pandemic and regional shelters-in-place is an unprecedented phenomenon that is continually evolving, and there could be significant changes and/or charges resulting in the future.

These market risks include, for example:

| | |

| --- | --- |

| • | Accounts receivable collectability - there could be significant bad debt expenses incurred if our customers experience financial difficulties. |

| | |

| --- | --- |

| • | Accounts receivable collections timing - our working capital and cash flows could be impacted if we start to agree to longer payment terms for our customers. Although we have not done so, a broader market move to longer payment terms could delay our collection timing as well. |

| | |

| --- | --- |

| • | Inventory (excess and obsolete) - our customers may not be able to purchase inventory that we have built for them, or their demand may slow down to a point where inventory becomes aged. |

| | |

| --- | --- |

| • | Short-term investment values - as seen in past economic slowdowns, there may be credit losses and defaults which cause losses and/or liquidity issues in our investment portfolio. |

| | |

| --- | --- |

| • | Long-term assets such as fixed assets, goodwill, and intangibles - a market slowdown could impair the value of these assets. |

| | |

| --- | --- |

| • | Tax valuation - we have significant NOL’s (Net Operating losses) in the United States which have associated deferred tax assets on our balance sheet, and these could be deemed unrecoverable in the future. |

In addition, all of the below market risks are heightened in light of the current market situation.

Foreign exchange markets could be impacted and cause significant fluctuations in our future expenses.

The price of our common stock has fluctuated significantly in the past and global equity markets are experiencing significant volatility following the COVID-19 outbreak.

Interest rates have already reduced dramatically since the onset of the outbreak, and our future income from these investments likely will be negatively impacted in the future.

The 2026 Notes will mature on December 15, 2026, unless earlier repurchased by us or converted pursuant to their terms, at a conversion price of approximately $99.29 per share.

A hypothetical increase or decrease of 0.5% (50 basis points) in interest rates would have resulted in an approximate $2.5 million increase or decrease in our interest expense for the year on the Term Loan Facility.

[removed: General][added: General]

[removed: Overview][added: *Overview*]

Lumentum Holdings Inc. [removed: (“we”,] [added: (“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 [added: (“OpComms”)] and Commercial Lasers [added: (“Lasers”)] for manufacturing, inspection and life-science applications.

We seek to use our core optical and photonic [removed: technology] [added: technology,] and our volume manufacturing [removed: capability] [added: 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.

For example, we sell fiber optic components that [removed: our] network equipment [removed: manufacturer (“NEM”) customers] [added: manufacturers (“NEMs”)] assemble into communications networking systems, which they sell to network service [removed: providers] [added: providers, operators] or enterprises with their own networks.

For 3D sensing, we sell diode lasers to manufacturers of consumer electronics products for mobile, personal computing, [added: gaming,] and [removed: gaming] [added: other applications] who then integrate our devices within their products, for eventual resale to consumers and also into other industrial applications.

We operate in two reportable segments: [removed: Optical Communications (“OpComms”)] [added: OpComms] and [removed: Commercial Lasers (“Lasers”).][added: Lasers.]

We have manufacturing capabilities and facilities in North America, Asia-Pacific, and Europe, with employees engaged in [removed: R&D,] [added: research and development (“R&D”),] administration, manufacturing, support and sales and marketing activities.

Our headquarters are located in [removed: Milpitas,] [added: San Jose,] California, and we employed approximately [removed: 5,161] [added: 5,473] full-time employees around the world as of June [removed: 29, 2019.][added: 27, 2020.]

Lumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation (“JDSU”) on February 10, [removed: 2015, and is comprised of the former communications and commercial optical products (“CCOP”) segment and WaveReady product lines of JDSU.][added: 2015.]

In August 2015, we [added: were spun-off from JDSU (the “Separation”) and] became an independent publicly-traded company through the distribution [added: of our common stock] by JDSU to its stockholders [removed: of 80.1% of our outstanding common stock] (the “Separation”).

The fundamental laser component technologies which we acquired through these acquisitions, form the basis of [removed: virtually all] optical networks today, and we believe will continue to do so for the foreseeable future.

[removed: On] [added: In] December [removed: 10,] 2018, we completed [removed: a merger with Oclaro, Inc.] [added: the acquisition of] (“Oclaro”), a provider of optical components and modules for the long-haul, metro and data center markets.

This acquisition [removed: has] strengthened our product portfolio, [removed: including] by [removed: gaining] [added: adding] Oclaro’s indium phosphide laser and photonic integrated circuit and coherent component and module [removed: capabilities; broadens] [added: capabilities which broadened] our revenue mix; and positions us strongly to meet the future needs of our customers.

[removed: Industry Trends] [added: *Industry* *Trends] and Business [removed: Risks][added: Risks*]

Our business is driven by end-market applications which benefit from the performance advantages [removed: that] [added: of] optical [removed: solutions enable.][added: solutions.]

This is driven by rapid growth in both the number of higher bandwidth broadband [removed: connections, notably those associated with mobile devices,] [added: applications] such as high-definition video, online gaming, cloud computing and the number and scale of datacenters that require fiber optic links to enable the higher speeds and increased scale necessary to deliver high bandwidth video and other services.

In the Lasers markets, customer demand is driven by the need to enable faster, higher precision volume manufacturing techniques with lower power consumption, [added: more environmentally friendly,] reduced manufacturing footprint and increased productivity.

Our revenues, profitability and general financial performance may also be affected by: (i) pricing pressures, particularly within our OpComms markets, due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-Pacific-based competitors, and a general commoditization trend for certain products; (ii) high product mix variability which affects revenue and gross margin; (iii) fluctuations in customer buying patterns, which cause volatility in demand, revenue and profitability; [removed: and] (iv) the current trend of communication industry [removed: consolidation,] [added: consolidation and vertical integration,] which is expected to continue, that directly affects our customer [removed: bases] [added: base] and adds additional risk and uncertainty to our financial and business [removed: projections.][added: projections; and (v) ongoing risks related to the economic impact of the COVID-19 pandemic.]

[removed: Reportable Segments][added: Reportable Segments]

Other factors, including market separation and customer specific applications, go-to-market channels, products and manufacturing, are considered [added: in determining the formation of these operating segments.]

For the geographic identification of these [removed: assets,] [added: assets and for further information regarding our operating segments,] refer to “Note 20.

| | [removed: Years Ended | | | | | | | | |] [added: Years Ended] | | | | | | | |

| | [removed: June 29, 2019] [added: June 27, 2020] | | | [added: June 29, 2019] | | | [removed: June] [added: June] 30, [removed: 2018 | | | | | | July 1, 2017 | | |] [added: 2018] | |

[removed: Markets][added: *Markets*]

Our OpComms products include a wide range of components, modules and subsystems to support customers including carrier networks [removed: of] [added: for] access (local), metro (intracity), long-haul (city-to-city and worldwide) and submarine (undersea) applications.

These products enable the transmission and transport of video, audio and [removed: text] data over high-capacity fiber-optic cables.

In the Consumer and Industrial market, our OpComms products include laser light sources, which are integrated into 3D sensing platforms being used in applications for mobile devices, gaming, [added: payment kiosks,] computers, and other consumer electronics devices.

Following the acquisition of Oclaro, during our fiscal 2019, we made several strategic changes to our OpComms business [removed: as follows:][added: to better position it for growth and profitability.]

We expect our Indium Phosphide photonic integrated circuits will [added: continue to] replace Lithium Niobate modulators over [removed: time.][added: time and focusing on the development and sale of Datacom chips has enabled us to participate in the growth of the Datacom and 5G wireless markets.]

[removed: Customers][added: *Customers*]

Our OpComms customers include Alphabet, Apple, Ciena, Cisco Systems (which [removed: recently] announced the acquisition of Acacia Communications, another customer of ours), Huawei Technologies (including HiSilicon), Infinera, Innolight, Nokia Networks (including Alcatel-Lucent International), O-Net, and ZTE.

During fiscal [added: 2020,] 2019, [removed: 2018,] and [removed: 2017,] [added: 2018,] net revenue generated from a single customer which represented 10% or more of our total net revenue of the applicable fiscal year is summarized in the table below:

| Apple | [removed: 21.0] [added: 26.0] | % | | [removed: 30.0] [added: 21.0] | % | | [removed: *] [added: 30.0] | [added: %] |

| Huawei | [removed: 15.2] [added: 13.2] | % | | [removed: 11.0] [added: 15.2] | % | | [removed: 16.7] [added: 11.0] | % |

| Ciena | [removed: 13.7] [added: *] | [removed: %] | | [removed: 11.0] [added: 13.7] | % | | [removed: 18.5] [added: 11.0] | % |

[removed: Trends][added: *Trends*]

We believe the optical communications market has started to expand beyond a small number of very large service providers, and is transitioning to a variety of open and captive networks created for [removed: in house] [added: in-house] use by large video services, search engines and companies offering a variety of cloud computing services.

To do this, they are migrating to Internet-protocol (“IP”) networks and expanding long-haul, metro regional and metro access networks, which effectively deliver broadband [removed: services] [added: services,] while lowering capital and operating costs of dense-wavelength-division multiplexing networks.

The dynamically reconfigurable nature of today’s [removed: agile] networks enables lower operating costs and other competitive advantages, allowing [added: communications] service providers to use and scale network capacity more flexibly, streamline service provisioning, accelerate rerouting around points of failure and modify network topology through simple point-and-click network management systems.

Further, we have begun shipping prototype units of diode lasers and optical devices to automotive customers for sensing and LiDAR applications.

We believe the world is becoming more reliant on ever-increasing amounts of data flowing through optical networks and data centers, which require new networks and data centers to satisfy this demand.

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 lasers Lumentum supplies.

Laser based 3D sensing is a rapidly developing market.

The technology enables computer vision applications that enhance security, safety, and new functionality in the electronic devices that people rely on every day.

We believe the global markets in which Lumentum participates have fundamentally robust, long-term trends that increase the need for our photonics products and technologies.

In 2015, JDSU was renamed Viavi Solutions Inc. (“Viavi”).

These changes included attaining acquisition cost synergies related to redundant capabilities and divestiture of Telecom Lithium Niobate modulators and Datacom transceiver modules because of their muted growth and profitability trends.

These changes were substantially completed in fiscal 2020.

We believe increasing speeds at the edge of the network, including the significant increase in speed in 5G mobile networks, combined with increasing demand for high bandwidth applications and services, including streaming video, will result in increasing demand for additional capacity in datacenter interconnect, metro regional and long-haul networks.

These products use dense wavelength division multiplexing technology to maximize the fiber transmission capacity while lowering the cost per bit to meet the needs of increasing internet and cloud demand.

*Markets*

*Customers*

*Trends*

*Offerings*

*Strategy*

*Competition*

In fiscal 2020, as part of our plan to discontinue development and manufacturing of Lithium Niobate modulators, we sold the assets associated with certain Lithium Niobate product lines manufactured by our San Donato, Italy site.

This affected manufacturing in our Thailand factory as well.

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 such date.

JDSU was renamed Viavi Solutions Inc. (“Viavi”) and at the time of distribution, retained ownership of 19.9% of Lumentum’s outstanding shares.

Since the Separation, Viavi has sold its shares and is no longer a shareholder of Lumentum.

in determining the formation of these operating segments.

The table below discloses our total net revenue attributable to each of our two reportable segments.

In addition, it discloses the percentage of our total net revenue attributable to our product offerings which serve the Telecom, Datacom, and Consumer and Industrial markets which accounted for 10% or more of our total net revenue during the periods presented (in millions, except percentage data):

| | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| OpComms: | | | | | | | | | | | | | | | | | |

| Telecom | $ | 786.5 | | 50.2 | % | | $ | 476.3 | | 38.1 | % | | $ | 610.7 | | 61.0 | % |

| Datacom | 166.4 | | | 10.6 | % | | 150.4 | | | 12.1 | % | | 201.3 | | | 20.0 | % |

| Consumer and Industrial | 417.3 | | | 26.7 | % | | 432.5 | | | 34.7 | % | | 45.8 | | | 4.6 | % |

| Total OpComms | $ | 1,370.2 | | 87.5 | % | | $ | 1,059.2 | | 84.9 | % | | $ | 857.8 | | 85.6 | % |

| Lasers | 195.1 | | | 12.5 | % | | 188.5 | | | 15.1 | % | | 143.8 | | | 14.4 | % |

| Total Revenue | $ | 1,565.3 | | | | | $ | 1,247.7 | | | | | $ | 1,001.6 | | | |

For further information regarding our operating segments, please refer to “Note 20.

Operating Segments and Geographic Information” in the Notes to Consolidated Financial Statements.

First, for overlapping products as a result of the acquisition, we are transitioning to a common lower cost design and manufacturing platform, which we expect will result in gross margin improvement over time.

In addition, we are discontinuing certain Telecom product lines that we believe have muted growth and profitability trends that are inconsistent with our long term model.

We expect that these transitions will be completed in our fiscal 2021.

For the Telecom product lines we are exiting, we do not expect significant revenue declines until fiscal 2021 as in fiscal 2020 we are continuing to satisfy customers’ product needs with respect to these product lines.

Second, we announced our plan to discontinue development and manufacturing of Lithium Niobate modulators, and we plan to wind down these operations in San Donato, Italy during fiscal year 2020.

Development and manufacturing will also be discontinued in our San Jose, California manufacturing locations within the next few quarters in order to facilitate our customer

s’ transition to new products.

Third, we announced the sale of many of our Datacom transceiver module products to Cambridge Industries Group (“CIG”).

This transaction closed on April 18, 2019.

For further information regarding this transaction, refer to “Note 5.

Business Combination”.

We expect Datacom transceiver sales to ramp down to zero during fiscal year 2020.

We are investing in new Datacom chip development and expect sales of these chips to customers serving the Datacom and 5G wireless markets will grow over time.

With the exit from the business of selling Datacom transceivers, we recorded an impairment charge of $30.7 million to our Long-lived assets that were not deemed to be useful, as they were retired from active use and classified as held-for-sale.

These assets were valued at fair value less cost to sell.

We also recorded inventory write down charges of $20.8 million related to the decision to exit the Datacom module and Lithium Niobate product lines in our cost of goods sold of consolidated statements of operations.

These actions do not qualify as discontinued operations for disclosure purposes as they do not represent a strategic shift having a major effect on an entity’s operations and financial results.

For additional information, refer to “Note 15.

Impairment Charges”.

| | Years Ended | | | | | | | |

| | June 29, 2019 | | | June 30, 2018 | | | July 1, 2017 | |

| Cisco | * | | | * | | | 12.4 | % |

Deployment of fiber closer to the end user increases the availability of high-bandwidth services and we expect it will result in increased demand on the metro regional and long-haul networks into which these services feed.

[removed: Merger Litigation][added: *Merger Litigation*]

The remaining Lawsuit (the Karri Lawsuit) currently purports to seek, among other things, damages to be awarded to the plaintiff and any [removed: class] [added: class,] if [removed: the Merger] [added: a class] is [removed: consummated,] [added: certified,] and litigation costs, including attorneys’ fees.

A lead plaintiff and counsel has been selected, and an amended complaint was filed on April 15, 2019, which also names Lumentum as a defendant.

A motion to dismiss the amended complaint has been fully briefed and is currently pending, and defendants intend to defend the Karri Lawsuit vigorously.

The defendants intend to defend the Karri Lawsuit vigorously.

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Form 10-K][added: Form 10-K]

[removed: (Mark One)][added: (Mark One)]

[removed: x ANNUAL] [added: ☒ ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

[removed: For] [added: For] the fiscal year [removed: ended June 29, 2019][added: ended June 27, 2020]

[removed: o TRANSITION] [added: ☐ TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934][added: 1934]

[removed: For] [added: For] the transition period [removed: from][added: from]

[removed: Commission] [added: Commission] File [removed: Number 001-36861][added: Number 001-36861]

[removed: Lumentum] [added: Lumentum] Holdings [removed: Inc.][added: Inc.]

[removed: (Exact] [added: (Exact] name of Registrant as specified in its [removed: charter)][added: charter)]

| [removed: Delaware] [added: Delaware] | | [removed: 47-3108385] [added: 47-3108385] |

[removed: (408) 546-5483][added: (408) 546-5483]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

[removed: None][added: None]

Yes [removed: o] [added: ☐] No x

| Large accelerated filer | x | Accelerated filer | o | Non-accelerated filer | o | Smaller reporting company | [removed: o] [added: ☐] |

| | | | | | | Emerging Growth company | [removed: o] [added: ☐] |

As of December [removed: 29, 2018,] [added: 28, 2019,] the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately [removed: $2,264] [added: $3,735] million based on the closing sales price of the registrant’s common stock as reported on the NASDAQ Stock Market on December [removed: 28, 2018] [added: 27, 2019] of [removed: $41.57] [added: $79.01] per share.

As of August [removed: 20, 2019,] [added: 18, 2020,] the Registrant had [removed: 76.9] [added: 75.2] million shares of common stock outstanding.

Portions of the information called for by Part III of this Annual Report on Form 10-K is hereby incorporated by reference from the definitive proxy statement for the Registrant’s annual meeting of stockholders, which will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant’s fiscal year ended June [removed: 29, 2019.][added: 27, 2020.]

| [removed: TABLE] [added: TABLE] OF [removed: CONTENTS] [added: CONTENTS] | | | |

| | | | [removed: Page] [added: Page] |

[removed: | [PART I](#sf25d72df2c0f49a9bd4391e84b7275a9) | | | |][added: PART I]

| | [ITEM [removed: 1.](#s853cec84e07d4bacbbb87619a285cd18)] [added: 1.](#s67965270DBFC567ABAB4BA6F25CE5601)] | [removed: [BUSINESS](#s853cec84e07d4bacbbb87619a285cd18)] [added: [BUSINESS](#s67965270DBFC567ABAB4BA6F25CE5601)] | [removed: [2](#s853cec84e07d4bacbbb87619a285cd18)] [added: [2](#s67965270DBFC567ABAB4BA6F25CE5601)] |

| | [ITEM [removed: 1A.](#s3FAF01C99B415ADAA2E9E03B155C4AC7)] [added: 1A.](#s529D741986CA5325AB65BECDC98D61B1)] | [RISK [removed: FACTORS](#s3FAF01C99B415ADAA2E9E03B155C4AC7)] [added: FACTORS](#s529D741986CA5325AB65BECDC98D61B1)] | [removed: [12](#s3FAF01C99B415ADAA2E9E03B155C4AC7)] [added: [10](#s529D741986CA5325AB65BECDC98D61B1)] |

| | [ITEM [removed: 1B.](#s47554e3883fa49b8837c6db75491fc31)] [added: 1B.](#s693CBDE723DF5AC6A14B73FA8493EE0B)] | [UNRESOLVED STAFF [removed: COMMENTS](#s47554e3883fa49b8837c6db75491fc31)] [added: COMMENTS](#s693CBDE723DF5AC6A14B73FA8493EE0B)] | [removed: [28](#s47554e3883fa49b8837c6db75491fc31)] [added: [27](#s693CBDE723DF5AC6A14B73FA8493EE0B)] |

| | [ITEM [removed: 2.](#sc9ead23f41ee49f0892a4c6ff5f02c18)] [added: 2.](#s72DF7A9179075B9CAFC4F1E4194947B0)] | [removed: [PROPERTIES](#sc9ead23f41ee49f0892a4c6ff5f02c18)] [added: [PROPERTIES](#s72DF7A9179075B9CAFC4F1E4194947B0)] | [removed: [29](#sc9ead23f41ee49f0892a4c6ff5f02c18)] [added: [28](#s72DF7A9179075B9CAFC4F1E4194947B0)] |

| | [ITEM [removed: 3.](#s8c78f2c26be44bc29ea23393976103ad)] [added: 3.](#s70714238E9F455F49E9B293965BFD37E)] | [LEGAL [removed: PROCEEDINGS](#s8c78f2c26be44bc29ea23393976103ad)] [added: PROCEEDINGS](#s70714238E9F455F49E9B293965BFD37E)] | [removed: [30](#s8c78f2c26be44bc29ea23393976103ad)] [added: [29](#s70714238E9F455F49E9B293965BFD37E)] |

| | [ITEM [removed: 4.](#s92caacba6b784c49b53a1b65f2a63edf)] [added: 4.](#sC0AD0834EB74570498D86208A39EE2B0)] | [MINE SAFETY [removed: DISCLOSURES](#s92caacba6b784c49b53a1b65f2a63edf)] [added: DISCLOSURES](#sC0AD0834EB74570498D86208A39EE2B0)] | [removed: [31](#s92caacba6b784c49b53a1b65f2a63edf)] [added: [30](#sC0AD0834EB74570498D86208A39EE2B0)] |

| | [ITEM [removed: 5.](#sb09a5d0c5dbe42dc846baf1812ce79fc)] [added: 5.](#s13071E5B44B3564FABFF0D39DBB1315B)] | [MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY [removed: SECURITIES](#sb09a5d0c5dbe42dc846baf1812ce79fc)] [added: SECURITIES](#s13071E5B44B3564FABFF0D39DBB1315B)] | [removed: [32](#sb09a5d0c5dbe42dc846baf1812ce79fc)] [added: [31](#s13071E5B44B3564FABFF0D39DBB1315B)] |

| | [ITEM [removed: 6.](#s6f81446023f04976835161a06cf803d8)] [added: 6.](#sD18FFD08800A596A903BB7F269885C94)] | [SELECTED FINANCIAL [removed: DATA](#s6f81446023f04976835161a06cf803d8)] [added: DATA](#sD18FFD08800A596A903BB7F269885C94)] | [removed: [34](#s6f81446023f04976835161a06cf803d8)] [added: [33](#sD18FFD08800A596A903BB7F269885C94)] |

| | [ITEM [removed: 7.](#s14E8B2ECC9D655FDBC017CC312B2A0EE)] [added: 7.](#s248013A66A3B59788F272D36FE14E5DA)] | [MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF [removed: OPERATIONS](#s14E8B2ECC9D655FDBC017CC312B2A0EE)] [added: OPERATIONS](#s248013A66A3B59788F272D36FE14E5DA)] | [removed: [36](#s14E8B2ECC9D655FDBC017CC312B2A0EE)] [added: [35](#s248013A66A3B59788F272D36FE14E5DA)] |

| | [ITEM [removed: 7A.](#sA646E39F3041599DA7B51953B350F698)] [added: 7A.](#s5B884312E94E5EF194268ADE3237D057)] | [QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET [removed: RISK](#sA646E39F3041599DA7B51953B350F698)] [added: RISK](#s5B884312E94E5EF194268ADE3237D057)] | [removed: [53](#sA646E39F3041599DA7B51953B350F698)] [added: [53](#s5B884312E94E5EF194268ADE3237D057)] |

| | [ITEM [removed: 8.](#s558A788A6BCF5D9B93EC644C7D41725E)] [added: 8.](#s1CDB89F305FE5E69B8A1327B806B2FA0)] | [FINANCIAL STATEMENTS AND SUPPLEMENTARY [removed: DATA](#s558A788A6BCF5D9B93EC644C7D41725E)] [added: DATA](#s1CDB89F305FE5E69B8A1327B806B2FA0)] | [removed: [54](#s558A788A6BCF5D9B93EC644C7D41725E)] [added: [55](#s1CDB89F305FE5E69B8A1327B806B2FA0)] |

| | [ITEM [removed: 9.](#s69d7e0bd6c354f699535551f48806b8e)] [added: 9.](#s63B8695A5EB1540BBF3B45073F997C4C)] | [CHANGES IN AND DISAGREEMENTS WITH ACOUNTANTS ON ACCOUNTING AND FINANCIAL [removed: DISCLOSURE](#s69d7e0bd6c354f699535551f48806b8e)] [added: DISCLOSURE](#s63B8695A5EB1540BBF3B45073F997C4C)] | [removed: [115](#s69d7e0bd6c354f699535551f48806b8e)] [added: [109](#s63B8695A5EB1540BBF3B45073F997C4C)] |

| | [ITEM [removed: 9A.](#s3B5558F543E0562BB38E2560B4BDD2AE)] [added: 9A.](#s976CC84E7BBD5BA7A56E5B227A34C316)] | [CONTROLS AND [removed: PROCEDURES](#s3B5558F543E0562BB38E2560B4BDD2AE)] [added: PROCEDURES](#s976CC84E7BBD5BA7A56E5B227A34C316)] | [removed: [115](#s3B5558F543E0562BB38E2560B4BDD2AE)] [added: [109](#s976CC84E7BBD5BA7A56E5B227A34C316)] |

| | [ITEM [removed: 9B.](#s91553264fabb43f98d4d7e466808bf59)] [added: 9B.](#sF5C61DB5E85C5DE2B9DDB2E837E7FEFE)] | [OTHER [removed: INFORMATION](#s91553264fabb43f98d4d7e466808bf59)] [added: INFORMATION](#sF5C61DB5E85C5DE2B9DDB2E837E7FEFE)] | [removed: [117](#s91553264fabb43f98d4d7e466808bf59)] [added: [111](#sF5C61DB5E85C5DE2B9DDB2E837E7FEFE)] |

| [PART [removed: III](#sc20a2219477f4dc9ad67aa3265230d67)] [added: III](#sC92D6F78834D5E4D8605D8E104C06980)] | | | |

| | [ITEM [removed: 10.](#sAE994E67CE7E5FFA8BBF171A320D1A43)] [added: 10.](#s9238853BD1FD5BEFA51582905E1E35C7)] | [DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE [removed: GOVERNANCE](#sAE994E67CE7E5FFA8BBF171A320D1A43)] [added: GOVERNANCE](#s9238853BD1FD5BEFA51582905E1E35C7)] | [removed: [118](#sAE994E67CE7E5FFA8BBF171A320D1A43)] [added: [112](#s9238853BD1FD5BEFA51582905E1E35C7)] |

OR

to

1001 Ridder Park Drive, San Jose, California 95131

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

| [PART II](#sB44C7FCC8A4C59BF90876E25C48A2312) | | | |

| [PART IV](#s77D2093E63295661BE032262EBEAE4F0) | | | |

| [SIGNATURES](#s04F2E216398D552591ADB2D17B295966) | | | [118](#s04F2E216398D552591ADB2D17B295966) |

10-K 1 lumentumfy19-10k.htm 10-K

OR

to

400 North McCarthy Boulevard, Milpitas, California 95035

| [PART II](#s39db17b0e8c54e6ab8b5c7da2e4b3a66) | | | |

| [PART IV](#sbcea2d3c1cb44ef2840b6aa27cd6f6f1) | | | |

| [SIGNATURES](#s36F57E4666495A32A95320389EFB8B4D) | | | [124](#s36F57E4666495A32A95320389EFB8B4D) |

These statements are based on our current expectations and involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.

We own and lease various properties in the United States and [removed: nine] [added: eleven] other countries around the world.

Our current corporate headquarters is approximately [removed: 126,000] [added: 238,000] square feet and located in [removed: Milpitas, California.][added: San Jose, California which we own.]

As of June [removed: 29, 2019,] [added: 27, 2020,] our leased and owned properties in total are approximately 2,100,000 square feet, of which we own approximately 900,000 square feet, including the 560,000 square feet manufacturing site in [removed: Thailand and] [added: Thailand,] the [removed: new] 238,000 square feet [added: on the] San Jose [removed: campus.][added: campus, and the 80,000 square feet manufacturing facility in San Jose.]

Larger leased sites include properties located in Canada, China, [removed: Japan] [added: Japan, the United Kingdom] and the United States.

In May 2019, we purchased a three-building campus property consisting of approximately 238,000 square feet in San Jose, California.

We plan to relocate our corporate headquarters to this new San Jose campus and consolidate another leased San Jose site to this campus by end of calendar year 2019.

[removed: PART II][added: PART II]

[removed: From August 4, 2015, our] [added: Our] common stock [removed: has traded] [added: trades] on the NASDAQ Stock Market under the symbol “LITE”.

According to records of our transfer agent, we had [removed: 2,957] [added: 2,708] stockholders of record as of August [removed: 20, 2019] [added: 18, 2020] and we believe there is a substantially greater number of beneficial holders.

[removed: Stock] [added: Stock] Performance [removed: Graph][added: Graph]

[removed: This] [added: *This] performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or incorporated by reference into any filing of Lumentum Holdings Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such [removed: filing.][added: filing.*]

The following graph compares the cumulative total return of our common stock with the total return for the NASDAQ Composite Index (the “IXIC”) and the NASDAQ 100 Technology Sector Index (the “NDXT”) from August 4, 2015 through June [removed: 29, 2019.][added: 27, 2020.]

[removed: ][added: ]

[removed: Recent] [added: Recent] Sale of Unregistered Equity [removed: Securities][added: Securities]

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

In December 2019, we purchased approximately $200 million or 2.9 million shares of our common stock concurrently with the pricing of the 2026 Notes in privately negotiated transactions effected through the initial purchaser of the 2026 Notes or its affiliates as its agent.

Market Information for Common Stock and Stockholders

The following table sets forth the range of high and low closing prices of our common stock per the NASDAQ Global Select Market for the periods indicated:

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | High | | | | Low | | |

| Fiscal 2019 Quarter Ended: | | | | | | | |

| June 29, 2019 | $ | 63.74 | | | $ | 40.47 | |

| March 30, 2019 | $ | 56.54 | | | $ | 39.01 | |

| December 29, 2018 | $ | 62.36 | | | $ | 37.50 | |

| September 29, 2018 | $ | 68.80 | | | $ | 52.10 | |

| Fiscal 2018 Quarter Ended: | | | | | | | |

| June 30, 2018 | $ | 64.50 | | | $ | 50.20 | |

| March 31, 2018 | $ | 73.20 | | | $ | 42.60 | |

| December 30, 2017 | $ | 64.75 | | | $ | 46.40 | |

| September 30, 2017 | $ | 67.95 | | | $ | 50.80 | |

Dividends

Our subsidiary, Lumentum Inc., issued $35.8 million in Series A Preferred Stock to Viavi, which was sold to Amada following the Separation.

On November 2, 2018, all 35,805 shares of Series A Preferred Stock, were converted into 1.5 million shares of our common stock.

Up through the date of conversion, holders of Series A Preferred Stock, in preference to holders of common stock or any other class or series of our outstanding capital stock ranking in any such event junior to the Series A Preferred Stock, were entitled to receive, when and as declared by the board of directors, quarterly cumulative cash dividends at the annual rate of 2.5% of the Issuance Value per share on each outstanding share of Series A Preferred Stock.

The accrued dividends were payable on March 31, June 30, September 30 and December 31 of each year commencing on September 30, 2015.

The accrued dividends as of November 2, 2018, the effective date of the conversion of all outstanding Series A Preferred Stock, and June 30, 2018, were $0.3 million and $0.4 million, respectively.

During the years ended June 29, 2019, June 30, 2018, and July 1, 2017, we paid $0.7 million, $0.7 million, and $0.9 million, respectively, in dividends to the holders of Series A Preferred Stock.

None.

This table sets forth selected financial data of Lumentum [removed: (in millions,] [added: (*in millions*,] except share and per share amounts) for the periods indicated.

Our historical consolidated financial statements for the fiscal [removed: years] [added: year] ended July 2, 2016 [removed: and June 27, 2015,] include allocations of expenses arising from shared services and infrastructure provided by Viavi to us, including costs of information technology, human resources, accounting, legal, real estate and facilities, corporate marketing, insurance, treasury and other corporate and infrastructure services.

There were no allocations of expenses from Viavi for the [added: other] fiscal years [removed: ended June 29, 2019, June 30, 2018, or July 1, 2017.][added: presented below.]

| | [removed: Years Ended] [added: Years Ended] | | | | | | | | | | | | | | | | | | |

| | [removed: June 29, 2019 (1)] [added: June 27, 2020 (1)] | | | | [removed: June 30, 2018 (2)] [added: June 29, 2019 (2)] | | | | [removed: July 1, 2017 (3)] [added: June 30, 2018 (3)] | | | | [removed: July 2, 2016] [added: July 1, 2017 (4)] | | | | [removed: June 27, 2015 (4)] [added: July 2, 2016] | | |

| [removed: Consolidated] [added: Consolidated] Statements of Operations [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | |

| Net revenue | $ | [removed: 1,565.3] [added: 1,678.6] | | | $ | [removed: 1,247.7] [added: 1,565.3] | | | $ | [removed: 1,001.6] [added: 1,247.7] | | | $ | [removed: 903.0] [added: 1,001.6] | | | $ | [removed: 837.1] [added: 903.0] | |

| Gross profit | [removed: 425.9] [added: 650.2] | | | | [removed: 432.1] [added: 425.9] | | | | [removed: 318.1] [added: 432.1] | | | | [removed: 277.3] [added: 318.1] | | | | [removed: 257.9] [added: 277.3] | | |

| Income (loss) from operations | [added: 204.1 | | | |] (21.6 | | ) | | 139.9 | | | | 47.6 | | | | 11.5 | | | [removed: | (23.4 | | ) |]

| Net [removed: (loss)] income [added: (loss)] | [added: 135.5 | | | |] (36.4 | | ) | | 248.1 | | | | (102.5 | | ) | | 9.3 | | | [removed: | (3.4 | | ) |]

| Cumulative dividends on Series A Preferred Stock | [removed: (0.3] [added: —] | | [removed: )] | | [removed: (0.9] [added: (0.3] | | ) | | (0.9 | | ) | | [removed: (0.8] [added: (0.9] | | ) | | [removed: —] [added: (0.8] | | [added: )] |

| Accretion of Series A Preferred Stock | — | | | | — | | | | — | | | | [removed: (11.7] [added: —] | | [removed: )] | | [removed: —] [added: (11.7] | | [added: )] |

| Earnings allocated to Series A Preferred Stock | [removed: (1.2] [added: —] | | [removed: )] | | [removed: (5.7] [added: (1.2] | | ) | | [removed: —] [added: (5.7] | | [added: )] | | — | | | | — | | |

| Net income (loss) attributable to common stockholders | $ | [removed: (37.9] [added: 135.5] | [removed: )] | | $ | [removed: 241.5] [added: (37.9] | [added: )] | | $ | [removed: (103.4] [added: 241.5] | [removed: )] | | $ | [removed: (3.2] [added: (103.4] | ) | | $ | [removed: (3.4] [added: (3.2] | ) |

| Net income (loss) per share attributable to common [removed: stockholders (5):] [added: stockholders:] | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: (0.54] [added: 1.79] | [removed: )] | | $ | [removed: 3.88] [added: (0.54] | [added: )] | | $ | [removed: (1.71] [added: 3.88] | [removed: )] | | $ | [removed: (0.05] [added: (1.71] | ) | | $ | [removed: (0.06] [added: (0.05] | ) |

| Diluted | $ | [removed: (0.54] [added: 1.75] | [removed: )] | | $ | [removed: 3.82] [added: (0.54] | [added: )] | | $ | [removed: (1.71] [added: 3.82] | [removed: )] | | $ | [removed: (0.05] [added: (1.71] | ) | | $ | [removed: (0.06] [added: (0.05] | ) |

| Shares used to compute net income (loss) per share attributable to common [removed: stockholders (5):] [added: stockholders:] | | | | | | | | | | | | | | | | | | | |

| Basic | [removed: 70.7] [added: 75.9] | | | | [removed: 62.3] [added: 70.7] | | | | [removed: 60.6] [added: 62.3] | | | | [removed: 59.1] [added: 60.6] | | | | [removed: 58.8] [added: 59.1] | | |

| Diluted | [removed: 70.7] [added: 77.6] | | | | [removed: 63.3] [added: 70.7] | | | | [removed: 60.6] [added: 63.3] | | | | [removed: 59.1] [added: 60.6] | | | | [removed: 58.8] [added: 59.1] | | |

| | [removed: Balance] [added: Balance] as [removed: of] [added: of] | | | | | | | | | | | | | | | | | | |

| [removed: Consolidated] [added: Consolidated] Balance Sheet [removed: Data:] [added: Data:] | | | | | | | | | | | | | | | | | | | |

| Cash and cash equivalents | $ | [removed: 432.6] [added: 298.0] | | | $ | [removed: 397.3] [added: 432.6] | | | $ | [removed: 272.9] [added: 397.3] | | | $ | [removed: 157.1] [added: 272.9] | | | $ | [removed: 14.5] [added: 157.1] | |

| Total assets | [removed: 2,716.6] [added: 3,292.6] | | | | [removed: 1,581.5] [added: 2,716.6] | | | | [removed: 1,232.9] [added: 1,581.5] | | | | [removed: 726.3] [added: 1,232.9] | | | | [removed: 512.6] [added: 726.3] | | |

| Convertible notes | [removed: 351.9] [added: 1,120.3] | | | | [removed: 334.2] [added: 351.9] | | | | [removed: 317.5] [added: 334.2] | | | | [removed: —] [added: 317.5] | | | | — | | |

| Term loan, non-current | [removed: 484.0] [added: —] | | | | [removed: —] [added: 484.0] | | | | — | | | | — | | | | — | | |

| Derivative liability | — | | | | [removed: 52.4] [added: —] | | | | [removed: 51.6] [added: 52.4] | | | | [removed: 10.3] [added: 51.6] | | | | [removed: —] [added: 10.3] | | |

| Other non-current liabilities | [removed: 33.7] [added: 36.0] | | | | [removed: 19.0] [added: 33.7] | | | | [removed: 25.0] [added: 19.0] | | | | [removed: 9.1] [added: 25.0] | | | | [removed: 9.8] [added: 9.1] | | |

| Total redeemable convertible preferred stock | — | | | | [removed: 35.8] [added: —] | | | | 35.8 | | | | 35.8 | | | | [removed: —] [added: 35.8] | | |

| Total stockholders’ equity | [removed: 1,497.1] [added: 1,749.2] | | | | [removed: 926.1] [added: 1,497.1] | | | | [removed: 618.8] [added: 926.1] | | | | [removed: 497.4] [added: 618.8] | | | | [removed: 380.6] [added: 497.4] | | |

| [removed: (1)] [added: (2)] | On December 10, 2018, we completed the acquisition of Oclaro, a provider of optical components and modules for the long-haul, metro and data center markets, for $1.4 billion, which was funded through the issuance of Lumentum common stock, new debt, and cash balances of the combined company. Refer to “Note [removed: 5.] [added: 4.] Business [removed: Combination”] [added: Combinations”] in the notes to consolidated financial statements for further discussion of the merger. Results of operations and financial position of the business acquired have been included in our consolidated financial statements subsequent to the date of acquisition. |

| [removed: (2)] [added: (3)] | During the second quarter of fiscal 2018, we had a credit of $207.0 million primarily related to a release of a U.S. valuation allowance, which was offset by a write-down of deferred tax assets in the amount of $83.0 million due to the lower corporate tax rate enacted under the 2017 “Tax Cuts and Jobs Act” reform. |

| [removed: (3)] [added: (4)] | During the third quarter of fiscal 2017, we completed the acquisition of a privately held company. Results of operations and financial position of the business acquired have been included in our consolidated financial statements subsequent to the date of acquisition. |

| | June 27, 2020 (1) | | | | June 29, 2019 (2) | | | | June 30, 2018 (3) | | | | July 1, 2017 (4) | | | | July 2, 2016 | | |

| Short-term investments | 1,255.8 | | | | 335.9 | | | | 314.2 | | | | 282.4 | | | | — | | |

| (1) | In fiscal 2020, we repaid, in full, all amounts outstanding under our Term Loan Facility. In December 2019, we issued $1,050.0 million of the 2026 Notes in a private offering. We used approximately $196 million of the net proceeds of the offering to repay in full all amounts outstanding under our term loan facility, and a portion of the net proceeds of the offering to purchase approximately $200 million of our common stock concurrently with the pricing of the offering in privately negotiated transactions. |

| | |

| --- | --- |

| (4) | In fiscal 2015, we settled an audit in a non-U.S. jurisdiction which resulted in the recognition of a $21.8 million tax benefit. In addition, we recognized $14.1 million of additional deferred tax assets which were fully offset by a corresponding increase in the deferred tax valuation allowance. |

| (5) | On August 1, 2015, JDSU distributed 47.1 million shares, or 80.1% of the outstanding shares of Lumentum common stock to existing holders of JDSU common stock. JDSU was renamed Viavi and at the time of distribution, retained 11.7 million shares, or 19.9% of Lumentum’s outstanding shares. Basic and diluted net income (loss) per share for all periods through June 27, 2015 is calculated using the shares of Lumentum common stock outstanding on August 1, 2015. |

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of Lumentum Holdings Inc. and subsidiaries (the “Company”) as of June [removed: 29, 2019] [added: 27, 2020] and June [removed: 30, 2018,] [added: 29, 2019,] the related consolidated statements of operations, comprehensive income (loss), cash flows, and redeemable convertible preferred stock and stockholders’ equity for each of the three years in the period ended June [removed: 29, 2019,] [added: 27, 2020,] and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June [removed: 29, 2019] [added: 27, 2020] and June [removed: 30, 2018,] [added: 29, 2019,] and the results of its operations and its cash flows for each of the three years in the period ended June [removed: 29, 2019,] [added: 27, 2020,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June [removed: 29, 2019,] [added: 27, 2020,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August [removed: 27, 2019,] [added: 25, 2020,] expressed an unqualified opinion on the Company's internal control over financial reporting.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: LUMENTUM] [added: LUMENTUM] HOLDINGS [removed: INC.][added: INC.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF [removed: OPERATIONS][added: OPERATIONS]

[removed: (in] [added: (in] millions, except per share [removed: data)][added: data)]

| | [removed: Years Ended] [added: Years Ended] | | | | | | | | | | |

| | [removed: June] [added: | June] 29, [removed: 2019] [added: 2019] | | | | [removed: June] [added: June] 30, [removed: 2018 | | | | July 1, 2017] [added: 2018] | | |

| Net revenue | $ | [removed: 1,565.3] [added: 1,678.6] | | | $ | [removed: 1,247.7] [added: 1,565.3] | | | $ | [removed: 1,001.6] [added: 1,247.7] | |

| Cost of sales | [removed: 1,092.9] [added: 974.6] | | | | [removed: 812.4] [added: 1,092.9] | | | | [removed: 677.0] [added: 812.4] | | |

| Amortization of acquired [added: developed] intangibles | [removed: 46.5] [added: 53.8] | | | | [removed: 3.2] [added: 46.5] | | | | [removed: 6.5] [added: 3.2] | | |

| Gross profit | [removed: 425.9] [added: 650.2] | | | | [removed: 432.1] [added: 425.9] | | | | [removed: 318.1] [added: 432.1] | | |

| Research and development | [removed: 184.6] [added: 198.6] | | | | [removed: 156.8] [added: 184.6] | | | | [removed: 148.3] [added: 156.8] | | |

| Selling, general and administrative | [removed: 200.3] [added: 235.2] | | | | [removed: 128.2] [added: 200.3] | | | | [removed: 110.2] [added: 128.2] | | |

| Restructuring and related charges | [removed: 31.9] [added: 8.0] | | | | [removed: 7.2] [added: 31.9] | | | | [removed: 12.0] [added: 7.2] | | |

| Impairment charges | [removed: 30.7] [added: 4.3] | | | | [removed: —] [added: 30.7] | | | | — | | |

| Total operating expenses | [removed: 447.5] [added: 446.1] | | | | [removed: 292.2] [added: 447.5] | | | | [removed: 270.5] [added: 292.2] | | |

| [removed: Income/(loss)] [added: Income (loss)] from operations | [removed: (21.6] [added: 204.1] | | [removed: )] | | [removed: 139.9] [added: (21.6] | | [added: )] | | [removed: 47.6] [added: 139.9] | | |

| Unrealized gain (loss) on derivative liability | [removed: 8.8] [added: —] | | | | [removed: (0.8] [added: 8.8] | | [removed: )] | | [removed: (104.2] [added: (0.8] | | ) |

| Interest expense | [removed: (36.3] [added: (61.2] | | ) | | [removed: (18.2] [added: (36.3] | | ) | | [removed: (5.5] [added: (18.2] | | ) |

| Other income (expense), net | [removed: 15.8] [added: 31.4] | | | | [removed: 8.5] [added: 15.8] | | | | [removed: 2.3] [added: 8.5] | | |

| [removed: Income/(loss)] [added: Income (loss)] before income taxes | [removed: (33.3] [added: 174.3] | | [removed: )] | | [removed: 129.4] [added: (33.3] | | [added: )] | | [removed: (59.8] [added: 129.4] | | [removed: )] |

| Provision for (benefit from) income taxes | [removed: 3.1] [added: 38.8] | | | | [removed: (118.7] [added: 3.1] | | [removed: )] | | [removed: 42.7] [added: (118.7] | | [added: )] |

| Net [removed: income/(loss)] [added: income (loss)] | $ | [removed: (36.4] [added: 135.5] | [removed: )] | | $ | [removed: 248.1] [added: (36.4] | [added: )] | | $ | [removed: (102.5] [added: 248.1] | [removed: )] |

| Items reconciling net [removed: income/(loss)] [added: income (loss)] to net [removed: income/(loss)] [added: income (loss)] attributable to common stockholders: | | | | | | | | | | | |

| Less: Cumulative dividends on Series A Preferred Stock | [removed: (0.3] [added: —] | | [removed: )] | | [removed: (0.9] [added: (0.3] | | ) | | (0.9 | | ) |

| Less: Earnings allocated to Series A Preferred Stock | [removed: (1.2] [added: —] | | [removed: )] | | [removed: (5.7] [added: (1.2] | | ) | | [removed: —] [added: (5.7] | | [added: )] |

| Net [removed: income/(loss)] [added: income (loss)] attributable to common stockholders - Basic | $ | [removed: (37.9] [added: 135.5] | [removed: )] | | $ | [removed: 241.5] [added: (37.9] | [added: )] | | $ | [removed: (103.4] [added: 241.5] | [removed: )] |

| Net [removed: income/(loss)] [added: income (loss)] attributable to common stockholders - Diluted | $ | [removed: (37.9] [added: 135.5] | [removed: )] | | $ | [removed: 241.5] [added: (37.9] | [added: )] | | $ | [removed: (103.4] [added: 241.5] | [removed: )] |

| Net [removed: income/(loss)] [added: income (loss)] per share attributable to common stockholders: | | | | | | | | | | | |

| Basic | $ | [removed: (0.54] [added: 1.79] | [removed: )] | | $ | [removed: 3.88] [added: (0.54] | [added: )] | | $ | [removed: (1.71] [added: 3.88] | [removed: )] |

| Diluted | $ | [removed: (0.54] [added: 1.75] | [removed: )] | | $ | [removed: 3.82] [added: (0.54] | [added: )] | | $ | [removed: (1.71] [added: 3.82] | [removed: )] |

| Shares used to compute net [removed: income/(loss)] [added: income (loss)] per share attributable to common stockholders: | | | | | | | | | | | |

| Basic | [removed: 70.7] [added: 75.9] | | | | [removed: 62.3] [added: 70.7] | | | | [removed: 60.6] [added: 62.3] | | |

| Diluted | [removed: 70.7] [added: 77.6] | | | | [removed: 63.3] [added: 70.7] | | | | [removed: 60.6] [added: 63.3] | | |

[removed: See] [added: *See] accompanying Notes to Consolidated Financial [removed: Statements.][added: Statements.*]

[removed: CONSOLIDATED] [added: CONSOLIDATED] STATEMENTS OF COMPREHENSIVE INCOME [removed: (LOSS)][added: (LOSS)]

Change in Accounting Principle

As discussed in Notes 1 and 2 to the financial statements, the Company has changed its method of accounting for leases in the year ended June 27, 2020 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories, Valuation of Inventory - Refer to Notes 1 and 8 to the Financial Statements

*Critical Audit Matter Description*

The Company assesses the value of inventory and writes down those inventories which are obsolete or in excess of forecasted demand to the lower of their cost or estimated net realizable value.

The Company’s estimates of forecasted demand are based upon analysis and assumptions including, but not limited to, expected product lifecycles, product development plans and historical usage by product.

We identified the valuation of inventory as a critical audit matter because of the significant assumptions management makes with regards to estimating the excess and obsolete write downs.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates of forecasted demand.

*How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to management’s estimates of forecasted demand used in the valuation of inventory excess and obsolete write downs included the following, among others:

| • | We tested the effectiveness of controls over the review and approval of the valuation of inventory for excess and obsolete write downs, including controls designed to review and approve forecasted demand and the underlying assumptions regarding expected product lifecycles, product development plans and historical usage by product. |

| • | To understand the assumptions behind the inventory excess and obsolete write downs, including the related forecasted demand, we made inquiries of business unit managers as well as executives, sales, and operations personnel about the expected product lifecycles and product development plans and historical usage by product. |

| • | We selected a sample of inventory products and tested the forecasted demand by comparing internal and external information (e.g. historical usage, contracts, communications with customers, expected product lifecycles, product development plans, and macroeconomic conditions) with the Company’s forecasted demand. |

| • | We selected a sample of inventory products and evaluated management's ability to accurately estimate forecasted demand by comparing historical usage by product to estimates made in prior years. |

| • | We considered the existence of contradictory evidence based on reading of internal communications to management and the board of directors, Company press releases, and analysts' reports, as well as our observations and inquires as to changes within the business. |

August 25, 2020

| Net income (loss) attributable to common stockholders - Basic and Diluted | $ | 135.5 | | | $ | (37.9 | ) | | $ | 241.5 | |

LUMENTUM HOLDINGS INC.

*See accompanying Notes to Consolidated Financial Statements.*

LUMENTUM HOLDINGS INC.

| | June 27, 2020 | | | | June 29, 2019 | | |

| Operating lease right-of-use assets, net | 78.7 | | | | — | | |

| Operating lease liabilities, current | 10.8 | | | | — | | |

| Operating lease liabilities, non-current | 57.6 | | | | — | | |

*See accompanying Notes to Consolidated Financial Statements.*

LUMENTUM HOLDINGS INC.

(in millions)

| Net income (loss) | $ | 135.5 | | | $ | (36.4 | ) | | $ | 248.1 | |

| Loss on early extinguishment of debt | 8.0 | | | | — | | | | — | | |

| Gain on sale of product lines | (14.5 | | ) | | — | | | | — | | |

| Impairment and other losses on property, plant and equipment | 21.8 | | | | 32.9 | | | | 0.6 | | |

| Amortization of debt discount and debt issuance costs | 39.6 | | | | 18.5 | | | | 16.7 | | |

| Operating lease right-of-use assets, net | 11.6 | | | | — | | | | — | | |

| Operating lease liabilities | (11.6 | | ) | | — | | | | — | | |

| Repurchase of common stock | (200.0 | | ) | | — | | | | — | | |

| Principal payments on finance leases | (12.5 | | ) | | (8.8 | | ) | | (6.4 | | ) |

LUMENTUM HOLDINGS INC.

August 27, 2019

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| Derivative liability | — | | | | 52.4 | | |

| Total redeemable convertible preferred stock | — | | | | 35.8 | | |

| Common stock, $0.001 par value, 990,000,000 authorized shares, 76,653,478 and 62,790,087 shares issued and outstanding as of June 29, 2019 and June 30, 2018, respectively | 0.1 | | | | 0.1 | | |

| Amortization of discount on 0.25% Convertible Notes due 2024 | 17.7 | | | | 16.7 | | | | 5.1 | | |

| Amortization of favorable/unfavorable leases | 0.5 | | | | — | | | | — | | |

| Excess tax benefit associated with stock-based compensation | — | | | | — | | | | 3.8 | | |

| Repayment of capital lease obligations | (8.8 | | ) | | (6.4 | | ) | | — | | |

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Balance as of July 2, 2016 | — | | | $ | 35.8 | | | 59.6 | | | $ | 0.1 | | | $ | 467.7 | | | $ | 20.2 | | | $ | 9.4 | | | $ | 497.4 | |

| Declared dividend for preferred stock | — | | | — | | | | — | | | — | | | | — | | | | (0.9 | | ) | | — | | | | (0.9 | | ) |

| Reclassification of 2024 Notes derivative liability in connection with cash settlement condition | — | | | — | | | | — | | | — | | | | 192.8 | | | | — | | | | — | | | | 192.8 | | |

| Excess tax benefit associated with stock-based compensation | — | | | — | | | | — | | | — | | | | 3.8 | | | | — | | | | — | | | | 3.8 | | |

Our fiscal 2017 ended on July 1, 2017 and was a 53-week year.

Certain prior period amounts have been reclassified to conform to the current year presentation.

For fiscal 2018, we have reclassified $20.5 million of capitalized manufacturing overhead from prepayments and other current assets to inventory work in process to conform to current period presentation.

Related Party Transactions

Since October 2017, all transactions with Viavi were no longer related party transactions, as Viavi held less than 5% of our total shares outstanding.

During fiscal year 2017, we recognized revenue of $3.6 million from products sold to Viavi, recorded $0.5 million in research and development cost reimbursement, and $0.7 million in sublease rental income.

During fiscal year 2017, we also recorded $0.6 million in other income, which resulted from a tax indemnification agreement between Lumentum and Viavi.

We believe that of our significant accounting policies described below, certain accounting

During fiscal year 2019, we removed valuation of derivative liability from the list of critical accounting policies and estimates due to the conversion of the Series A Preferred Stock to common stock on November 2, 2018.

Impairment of Marketable and Non-Marketable Securities

We periodically review our marketable and non-marketable securities for impairment.

If we conclude that any of these investments are impaired, we determine whether such impairment is other-than-temporary.

We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and whether we intend to sell.

For marketable debt securities, we also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses.

If any impairment is considered other-than-temporary, we will write-down the security to its fair value.

In March 2017, we issued $450 million in aggregate principal amount of 0.25% Convertible Senior Notes due in 2024 (the “2024 Notes”).

Convertible Notes” for details.

Revenues are recognized at a point in

| Performance Obligations | $446.1 | $7.0 | $— | $453.1 |

In step two of the analysis, we measure and record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, if any.

Application of the goodwill impairment test requires judgments, including: identification of the reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, a qualitative assessment to determine whether there are any impairment indicators, and determining the fair value of each reporting unit.

[removed: (a)] [added: (a)] Evaluation of Disclosure Controls and [removed: Procedures][added: Procedures]

Management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June [removed: 29, 2019.][added: 27, 2020.]

Based on the evaluation of our disclosure controls and procedures as of June [removed: 29, 2019,] [added: 27, 2020,] our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level.

[removed: (b)] [added: (b)] Management’s [removed: Report on] [added: Report on] Internal Control Over Financial [removed: Reporting][added: Reporting]

Based on the assessment, management has concluded that its internal control over financial reporting was effective as of June [removed: 29, 2019] [added: 27, 2020] to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP.

Deloitte & Touche LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has issued a report, included herein, on the effectiveness of the Company’s internal control over financial reporting as of June [removed: 29, 2019.][added: 27, 2020.]

[removed: (c)] [added: (c)] Changes in Internal Control over Financial [removed: Reporting][added: Reporting]

[removed: (d)] [added: (d)] Inherent Limitations on Effectiveness of [removed: Controls][added: Controls]

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited the internal control over financial reporting of Lumentum Holdings Inc. and subsidiaries (the “Company”) as of June [removed: 29, 2019,] [added: 27, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June [removed: 29, 2019,] [added: 27, 2020,] based on criteria established in [removed: Internal] [added: *Internal] Control - Integrated Framework [removed: (2013)] [added: (2013)*] issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended June [removed: 29, 2019,] [added: 27, 2020,] of the Company and our report dated August [removed: 27, 2019,] [added: 25, 2020,] expressed an unqualified opinion on those financial [removed: statements.][added: statements and included an explanatory paragraph relating to the Company’s adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).]

[removed: As described in Management’s Report on Internal Control Over Financial Reporting,] [added: The Company’s] management [removed: excluded from] [added: is responsible for maintaining effective internal control over financial reporting and for] its assessment [added: of] the [added: effectiveness of] internal control over financial [removed: reporting at Oclaro, Inc. (Oclaro).][added: reporting, included in the accompanying *Management’s Report on Internal Control Over Financial Reporting*.]

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Definition] [added: Definition] and Limitations of Internal Control over Financial [removed: Reporting][added: Reporting]

August 25, 2020

On December 10, 2018, we acquired Oclaro (see “Note 5.

Business Combination” to the accompanying consolidated financial statements for additional information).

Management excluded Oclaro from its assessment of internal control over financial reporting as of June 29, 2019.

Total assets and revenues of Oclaro excluded from our assessment of internal control over financial reporting, were 24% as of June 29, 2019, and 16% for the year ended June 29, 2019, respectively.

We are in the process of integrating the acquired business into our existing operations and evaluating the internal controls over financial reporting of the acquired business.

Oclaro was acquired on December 10, 2018 and its financial statements constitute 24% and 16% of consolidated total assets and revenues, respectively, as of and for the year ended June 29, 2019.

Accordingly, our audit did not include the internal control over financial reporting at Oclaro.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

August 27, 2019

[removed: PART III][added: PART III]

This is called “incorporation by reference.” We intend to file our definitive proxy statement for our [removed: 2019] [added: 2020] annual meeting of stockholders (the “Proxy Statement”) pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report, and certain information to be contained therein is incorporated in this report by reference.

[removed: PART IV][added: PART IV]

Financial [removed: Statements][added: Statements]

| [Report of Independent Registered Public Accounting [removed: Firm](#sa4278b18fe8b493d9c88c1000c27df5c)] [added: Firm](#s944DE4630B9850358450F2F62471D851)] | [removed: [54](#sa4278b18fe8b493d9c88c1000c27df5c)] [added: [55](#s944DE4630B9850358450F2F62471D851)] |

| [Consolidated Statements of Operations—Years Ended June [added: 27, 2020, June] 29, 2019, [added: and] June 30, [removed: 2018, and July 1, 2017](#s556ECDD80B3450B7870F450A3E3A7C37)] [added: 2018](#s795428C2773B5A09A59D5880FA742418)] | [removed: [55](#s556ECDD80B3450B7870F450A3E3A7C37)] [added: [57](#s795428C2773B5A09A59D5880FA742418)] |

| [Consolidated Statements of Comprehensive Income (Loss)—Years Ended June [added: 27, 2020, June] 29, 2019, [added: and] June 30, [removed: 2018, and July 1, 2017](#sBA6694DD84A85024810D5B87593E0D2E)] [added: 2018](#s90F5B8ED9728522ABCAC6EFDD3ECD83C)] | [removed: [56](#sBA6694DD84A85024810D5B87593E0D2E)] [added: [58](#s90F5B8ED9728522ABCAC6EFDD3ECD83C)] |