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Equity
 6 Months Ended
Dec. 30, 2023
Equity [Abstract]  
Equity
Note 13. Equity
Description of Lumentum Stock-Based Compensation Plans
Equity Incentive Plan
On November 28, 2023, our board of directors authorized 1.5 million shares of common stock reserved for issuance in connection with the adoption of the Cloud Light Share Option Scheme as a result of the Cloud Light acquisition.
On November 17, 2023, our stockholders approved amendments to the Amended and Restated Equity Incentive Plan (the “2015 Plan”) to increase the number of shares of common stock reserved for issuance by an additional 3.0 million shares.
As of December 30, 2023, we had 5.5 million shares subject to stock options, restricted stock units, restricted stock awards, and performance stock units issued and outstanding under the 2015 Plan. Restricted stock units, restricted stock awards, and performance stock units are performance-based, time-based or a combination of both and are expected to vest within four years. The fair value of these grants is based on the closing market price of our common stock on the date of grant. The exercise price for stock options is equal to the fair value of the underlying stock at the date of grant. We issue new shares of common stock upon exercise of stock options. Options generally have vesting period of three years. As of December 30, 2023, 3.8 million shares of common stock under the 2015 Plan were available for grant.
Stock Options
In connection with the acquisition of Cloud Light, each of Cloud Light’s outstanding options was exchanged for a combination of cash and options to acquire Lumentum common stock having equivalent value (the “replacement options”) using an exchange ratio of 0.04375 according to the terms in the Merger Agreement. At the acquisition Closing date, the replacement options consisted of 1.1 million options with a weighted average grant date fair value of $34.63. These replacement options have a total fair value of $38.9 million as of the Closing date, of which $23.5 million attributed to pre-acquisition service was recorded as part of purchase price consideration and the remaining $15.4 million will be recorded as post-acquisition stock-based compensation expense over the vesting period of three years from the acquisition Closing date. Refer to “Note 4. Business Combinations.”
We estimate the fair value of the replacement options on the date of grant using the Black-Scholes option-pricing model. The assumptions used to estimate the fair value of the replacement options are as follows:
At the Acquisition Date
Expected terms (years)3.0
Expected volatility45.0 %
Risk-free interest rate5.0 %
Dividend yield— %
Restricted Stock Units
Restricted stock units (“RSUs”) under the 2015 Plan are grants of shares of our common stock, the vesting of which is based on the requisite service requirement. Generally, our RSUs are subject to forfeiture and are expected to vest within four years. For annual grants to existing employees, RSUs generally vest ratably on an annual basis, or combination of annual and quarterly basis, over three years.
During the six months ended December 30, 2023, our board of directors approved grants of 1.9 million RSUs, which primarily vest over three years.
In connection with the NeoPhotonics acquisition, we issued equity awards to certain NeoPhotonics employees, consisting of restricted stock units (the “replacement awards”) in exchange for their NeoPhotonics equity awards. The terms of these replacement awards are substantially similar to the original NeoPhotonics equity awards. The replacement awards consisted of 0.4 million restricted stock units with a grant date fair value of $93.4 per share, which represents our closing stock price on August 3, 2022, the acquisition closing date. The total fair value of these replacement awards is $40.2 million, $3.5 million of which is attributable to employee services rendered through the acquisition Closing date and was recognized as a component of the purchase consideration. The remaining $36.7 million of the replacement awards is recorded as stock-based compensation over the remaining vesting period. Refer to “Note 4. Business Combinations.”
Performance Stock Units
Performance stock units (“PSUs”) under the 2015 Plan are grants of shares of our common stock that vest upon the achievement of certain performance and service conditions. We begin recognizing compensation expense when we conclude that it is probable that the performance conditions will be achieved. We reassess the probability of vesting at each reporting period and adjust our compensation cost based on this probability assessment. Our PSUs are subject to risk of forfeiture until performance and service conditions are satisfied and generally vest within three years.
During the six months ended December 30, 2023, our board of directors approved a grant of 0.3 million PSUs with an aggregate grant date fair value of $16.0 million to executive and non-executive employees as part of our revised Annual Incentive Plan. These PSUs are subject to performance targets and service conditions, with a vesting period of one year. The board of directors also approved a grant of 0.4 million PSUs with an aggregate grant date fair value of $19.3 million to certain executive officers and senior management. These PSUs will vest subject to the achievement of revenue targets and certain non-financial performance measurements, as well as service conditions, over three years.
Employee Stock Purchase Plan
Our 2015 Purchase Plan provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions and provides a 15% purchase price discount as well as a 6-month look-back period. The 2015 Purchase Plan is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. The 2015 Purchase Plan will terminate upon the date on which all shares available for issuance have been sold. Of the 3.0 million shares authorized under the 2015 Purchase Plan, 0.9 million shares remained available for issuance as of December 30, 2023.
Stock-Based Compensation
The impact on our results of operations of recording stock-based compensation by function for the periods presented was as follows (in millions):
Three Months EndedSix Months Ended
December 30, 2023December 31, 2022December 30, 2023December 31, 2022
Cost of sales$9.0 $6.7 $15.0 $12.2 
Research and development10.0 10.6 20.3 20.2 
Selling, general and administrative15.6 19.3 31.4 50.8 
Total stock-based compensation$34.6 $36.6 $66.7 $83.2 
Stock-based compensation for the six months ended December 31, 2022 includes $11.9 million of expenses related to the acceleration of certain equity awards in connection with the NeoPhotonics acquisition.
During the three months ended December 30, 2023, we recorded $0.2 million of net reversal of stock-based compensation related to PSUs due to decline in the anticipated achievement of performance conditions. During the six months ended December 30, 2023, we recorded $4.5 million of stock-based compensation related to PSUs. During the three and six months ended December 31, 2022, we recorded $6.2 million and $15.0 million of stock-based compensation related to PSUs, respectively. The amount of stock-based compensation expense recognized in any one period related to PSUs can vary based on the achievement or anticipated achievement of the performance conditions. If the performance conditions are not met or not expected to be met, no compensation cost would be recognized on the underlying PSUs, and any previously recognized compensation expense related to those PSUs would be reversed.
Total income tax benefit associated with stock-based compensation recognized in our condensed consolidated statements of operations during the periods presented was as follows (in millions):
Three Months EndedSix Months Ended
December 30, 2023December 31, 2022December 30, 2023December 31, 2022
Income tax benefit associated with stock-based compensation$0.6 $6.4 $2.5 $11.5 
Approximately $16.8 million and $14.2 million of stock-based compensation was capitalized to inventory as of December 30, 2023 and July 1, 2023, respectively.
As of December 30, 2023, $187.3 million of stock-based compensation cost related to RSU awards remains to be amortized, which is expected to be recognized over an estimated amortization period of 2.1 years.
Stock Award Activity
The following table summarizes our award activities for the six months ended December 30, 2023 (in millions):
Stock OptionsRestricted Stock UnitsPerformance Stock Units
Number of SharesWeighted-Average Exercise Price per ShareNumber of SharesWeighted-Average Grant Date Fair Value per ShareNumber of SharesWeighted-Average Grant Date Fair Value per Share
Balance as of July 1, 2023— $— 2.6 $85.0 0.6 $89.1 
Replacement options in connection with Cloud Light acquisition1.1 34.6 — — — — 
Granted— — 1.9 52.6 0.7 53.2 
Vested/Exercised (1)
— 8.0 (1.0)87.4 (0.1)89.5 
Canceled— — (0.2)78.5 (0.1)88.9 
Balance as of December 30, 20231.1 $34.6 3.3 $66.2 1.1 $65.9 
(1) Vested/exercised number of shares related to stock options is less than 0.1 million.
A summary of awards available for grant is as follows (in millions):
Awards Available for Grant
Balance as of July 1, 20232.7 
   Authorized in connection with Cloud Light acquisition1.5 
   Replacement options in connection with Cloud Light acquisition(1.1)
Authorized3.0 
Granted(2.6)
Canceled0.3 
Balance as of December 30, 20233.8 
Employee Stock Purchase Plan Activity
The 2015 Purchase Plan expense for the three and six months ended December 30, 2023 was $1.0 million and $2.2 million, respectively. The 2015 Purchase Plan expense for the three and six months ended December 31, 2022 was $0.8 million and $2.0 million, respectively. The expense related to the 2015 Purchase Plan is recorded on a straight-line basis over the relevant subscription period.
During the six months ended December 30, 2023, there were 0.2 million shares issued to employees through the 2015 Purchase Plan. During the six months ended December 31, 2022, there were 0.1 million shares issued to employees through the 2015 Purchase Plan.
Repurchase and Retirement of Common Stock
Share Buyback Program
We have a share buyback program that authorizes us to utilize up to an aggregate amount of $1.2 billion to purchase our own shares of common stock through May 2025. During the six months ended December 30, 2023, we did not repurchase any shares of our common stock. During the six months ended December 31, 2022, we repurchased 0.3 million shares of our common stock at an average price of $89.80 per share for an aggregate purchase price of $25.7 million. Since the board of directors initially approved the share buyback program, we have repurchased 7.7 million shares in aggregate at an average price of $81.66 per share for a total purchase price of $630.4 million. We recorded the $630.4 million aggregate purchase price as a reduction of retained earnings within our condensed consolidated balance sheet and immediately retired all repurchased shares. As of December 30, 2023, we have $569.6 million remaining under the share buyback program.
The price, timing, amount, and method of future repurchases will be determined based on the valuation of market conditions and other factors, at prices determined to be attractive and in the best interests of both the Company and our stockholders. The stock repurchase program may be suspended or terminated at any time.