| Commitments and Contingencies | Note 14. Commitments and Contingencies Purchase Obligations Purchase obligations of $345.6 million as of April 2, 2022, represent legally-binding commitments to purchase inventory and other commitments made in the normal course of business to meet operational requirements. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the option to cancel, reschedule and adjust the requirements based on our business needs prior to the delivery of goods or performance of services. Obligations to purchase inventory and other commitments are generally expected to be fulfilled within one year. We depend on a limited number of contract manufacturers, subcontractors and suppliers for raw materials, packages and standard components. We generally purchase these single or limited source products through standard purchase orders or one-year supply agreements and have no significant long-term guaranteed supply agreements with such vendors. While we seek to maintain a sufficient safety stock of such products and maintain on-going communications with our suppliers to guard against interruptions or cessation of supply, our business and results of operations could be adversely affected by a stoppage or delay of supply, substitution of more expensive or less reliable products, receipt of defective parts or contaminated materials, increases in the price of such supplies, or our inability to obtain reduced pricing from our suppliers in response to competitive pressures. Product Warranties We provide reserves for the estimated costs of product warranties at the time revenue is recognized. We typically offer a twelve month warranty for most of our products. However, in some instances depending upon the product, product components or application of our products by the end customer, our warranties can vary and generally range from six months to five years. We estimate the costs of our warranty obligations on an annualized basis based on our historical experience of known product failure rates, use of materials to repair or replace defective products and service delivery costs incurred in correcting product failures. In addition, from time to time, specific warranty accruals may be made if unforeseen technical problems arise with specific products. We assess the adequacy of our recorded warranty liabilities and adjust the amounts as necessary. The following table presents the changes in our warranty reserve for the periods presented ( in millions ): Three Months Ended Nine Months Ended April 2, 2022 April 3, 2021 April 2, 2022 April 3, 2021 Balance as of beginning of period $ 8.6 $ 5.7 $ 5.0 $ 5.0 Provision for warranty 1.5 1.7 7.0 5.8 Utilization of reserve (1.0) (1.8) (2.9) (5.2) Balance as of end of period $ 9.1 $ 5.6 $ 9.1 $ 5.6 Environmental Liabilities Our research and development (“R&D”), manufacturing and distribution operations involve the use of hazardous substances and are regulated under international, federal, state and local laws governing health and safety and the environment. We apply strict standards for protection of the environment and occupational health and safety to sites inside and outside the United States, even if not subject to regulations imposed by foreign governments. We believe that our properties and operations at our facilities comply in all material respects with applicable environmental laws and occupational health and safety laws. However, the risk of environmental liabilities cannot be completely eliminated and there can be no assurance that the application of environmental and health and safety laws will not require us to incur significant expenditures. We are also regulated under a number of international, federal, state and local laws regarding recycling, product packaging and product content requirements. The environmental, product content/disposal and recycling laws are gradually becoming more stringent and may cause us to incur significant expenditures in the future. Legal Proceedings We are subject to a variety of claims and suits that arise from time to time in the ordinary course of our business. While management currently believes that resolving claims against us, individually or in the aggregate, will not have a material adverse impact on our financial position, results of operations or statements of cash flows, these matters are subject to inherent uncertainties and management’s view of these matters may change in the future. We accrue for loss contingencies when it is both probable that we will incur the loss and when we can reasonably estimate the amount of the loss or range of loss. Oclaro Merger Litigation In connection with our acquisition of Oclaro, seven lawsuits were filed by purported stockholders of Oclaro challenging the proposed merger (the “Merger”). Two of the seven suits were putative class actions filed against Oclaro, its directors, Lumentum, Prota Merger Sub, Inc. and Prota Merger, LLC: Nicholas Neinast v. Oclaro, Inc., et al., No. 3:18-cv-03112-VC, in the United States District Court for the Northern District of California (filed May 24, 2018) (the “Neinast Lawsuit”); and Adam Franchi v. Oclaro, Inc., et al., No. 1:18-cv-00817-GMS, in the United States District Court for the District of Delaware (filed June 9, 2018) (the “Franchi Lawsuit”). Both the Neinstat Lawsuit and the Franchi Lawsuit were voluntarily dismissed with prejudice. The other five suits, styled as Gerald F. Wordehoff v. Oclaro, Inc., et al., No. 5:18-cv-03148-NC (the “Wordehoff Lawsuit”), Walter Ryan v. Oclaro, Inc., et al., No. 3:18-cv-03174-VC (the “Ryan Lawsuit”), Jayme Walker v. Oclaro, Inc., et al., No. 5:18-cv-03203-EJD (the “Walker Lawsuit”), Kevin Garcia v. Oclaro, Inc., et al., No. 5:18-cv-03262-VKD (the “Garcia Lawsuit”), and SaiSravan B. Karri v. Oclaro, Inc., et al., No. 3:18-cv-03435-JD (the “Karri Lawsuit” and, together with the other six lawsuits, the “Lawsuits”), were filed in the United States District Court for the Northern District of California on May 25, 2018, May 29, 2018, May 30, 2018, May 31, 2018, and June 9, 2018, respectively. These five Lawsuits named Oclaro and its directors as defendants only and did not name Lumentum. The Wordehoff, Ryan, Walker, and Garcia Lawsuits have been voluntarily dismissed, and the Wordehoff, Ryan, and Walker dismissals were with prejudice. The Karri Lawsuit has not yet been dismissed. The Ryan Lawsuit was, and the Karri Lawsuit is, a putative class action. The Lawsuits generally alleged, among other things, that Oclaro and its directors violated Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 14a-9 promulgated thereunder by disseminating an incomplete and misleading Form S-4, including proxy statement/prospectus. The Lawsuits further alleged that Oclaro’s directors violated Section 20(a) of the Exchange Act by failing to exercise proper control over the person(s) who violated Section 14(a) of the Exchange Act. The remaining Lawsuit (the Karri Lawsuit) currently purports to seek, among other things, damages to be awarded to the plaintiff and any class, if a class is certified, and litigation costs, including attorneys’ fees. A lead plaintiff and counsel has been selected, and an amended complaint was filed on April 15, 2019, which also named Lumentum as a defendant. A motion to dismiss the amended complaint was granted in part and denied in part by the court on October 8, 2020. On December 1, 2020, defendants answered the amended complaint. On December 23, 2020, defendants filed a motion for leave to file a motion for reconsideration of the Court’s October 8th order on the motion to dismiss, which was denied on January 29, 2021. On June 22, 2021, the Court granted the parties’ stipulation to dismiss Lumentum as a defendant from the action. On September 17, 2021, lead plaintiff filed a second amended complaint (“SAC”). Defendants moved to stay discovery in light of the SAC, and on January 11, 2022 the Court struck the SAC as untimely, terminated defendants’ motions to dismiss as moot, and lifted the stay. The Karri Lawsuit remains pending with the parties currently in discovery. Defendants intend to defend the Karri Lawsuit vigorously. NeoPhotonics Merger Litigation In connection with our planned acquisition of NeoPhotonics Corporation (“NeoPhotonics”) announced in November 2021, ten lawsuits (the “NeoPhotonics Lawsuits”) were filed by purported stockholders of NeoPhotonics challenging the proposed merger (the “NeoPhotonics Merger”). Four of the NeoPhotonics Lawsuits, styled as Elaine Wang v. NeoPhotonics Corporation, et al., No. 1:21-cv-10338, Heather Smith v. NeoPhotonics Corporation, et al., No. 1:21-cv-10698, Matthew Hopkins v. NeoPhotonics Corporation, et al., No. 1:21-cv-10725, and John Ryan v. NeoPhotonics Corporation, et al., No. 1:22-cv-00046, were filed in the United States District Court for the Southern District of New York on December 3, 2021, December 14, 2021, December 15, 2021, and January 4, 2022, respectively. Three of the NeoPhotonics Lawsuits, styled as Mengsheng Ku v. NeoPhotonics Corporation, et al., No. 5:21-cv-09479, Stephen Bushansky v. NeoPhotonics Corporation, et al., No. 5:21-cv-09825, and James Parshall v. NeoPhotonics Corporation, et al., No. 5:22-cv-00055, were filed in the United States District Court for the Northern District of New York on December 8, 2021, December 20, 2021, and January 5, 2022, respectively. One NeoPhotonics Lawsuit, styled as James Hendrickson v. NeoPhotonics Corporation, et al., No. 1:21-cv-06919, was filed in the United States District Court for the Eastern District of New York on December 15, 2021. One NeoPhotonics Lawsuit, styled as Alex Ciccotelli v. NeoPhotonics Corporation, et al., No. 2:21-cv-05611, was filed in the United States District Court for the Eastern District of Pennsylvania on December 23, 2021. One NeoPhotonics Lawsuit, styled as Christopher Taylor v. NeoPhotonics Corporation, et al., No. 1:22-cv-00002, was filed in the United States District Court for the District of Delaware on January 3, 2022. These ten NeoPhotonics Lawsuits name NeoPhotonics and its directors as defendants and do not name Lumentum. The NeoPhotonics Lawsuits generally allege, among other things, that NeoPhotonics and its directors violated Section 14(a) of the Exchange Act, Rule 14a-9 promulgated thereunder, and 17 C.F.R. § 244.100 by disseminating an incomplete and misleading Preliminary Proxy Statement on Schedule 14A, filed with the SEC on December 1, 2021 regarding the NeoPhotonics Merger. The NeoPhotonics Lawsuits further allege that NeoPhotonics’ directors violated Section 20(a) of the Exchange Act by failing to exercise proper control over the person(s) who violated Section 14(a) of the Exchange Act. The complaints seek injunctive relief, rescission or rescissory damages, dissemination of a proxy statement that discloses certain information requested by the plaintiffs, and an award of plaintiffs’ costs, including attorneys’ fees and expenses. Indemnifications In the normal course of business, we enter into agreements that contain a variety of representations and warranties and provide for general indemnification. Exposure under these agreements is unknown because claims may be made against us in the future, and we may record charges in the future as a result of these indemnification obligations. As of April 2, 2022, we did not have any material indemnification claims that were probable or reasonably possible. Audit Proceedings We are under audit by various domestic and foreign tax authorities with regards to income tax and indirect tax matters. In some, although not all cases, we have reserved for potential adjustments to our provision for income taxes and accrual of indirect taxes that may result from examinations by these tax authorities or final outcomes in judicial proceedings, and we believe that the final outcome of these examinations, agreements or judicial proceedings will not have a material effect on our results of operations. If events occur which indicate payment of these amounts is unnecessary, the reversal of the liabilities would result in the recognition of benefits in the period we determine the liabilities are no longer necessary. If our estimates of the federal, state, and foreign income tax liabilities and indirect tax liabilities are less than the ultimate assessment, it could result in a further charge to expense. |
