Operating Segments

9 Months Ended

Mar. 28, 2015

Operating Segments

Operating Segments

Note 16. Operating Segments

The Company evaluates its reportable segments in accordance with the authoritative guidance on segment reporting. The Company’s Chief Executive Officer, Thomas H. Waechter, is the Company’s Chief Operating Decision Maker (“CODM”) pursuant to the guidance. The CODM allocates resources to the segments based on their business prospects, competitive factors, net revenue and operating results.

The Company is a leading provider of network service and enablement solutions and optical products for telecommunications (“Telecom”) service providers, cable operators, network equipment manufacturers (“NEMs”) and enterprises. JDSU’s diverse technology portfolio also fights counterfeiting and enables commercial lasers for a range of manufacturing applications.

In the first quarter of fiscal 2015, the Company reorganized its NSE reportable segment into two separate reportable segments, Network Enablement and Service Enablement. Splitting NSE into two reportable segments provides greater clarity and transparency regarding the markets, financial performance and business models of the NE and SE businesses. NE is a hardware-centric and more mature business consisting primarily of NSE’s traditional communications test instrument products. SE is a more software-centric business consisting primarily of software solutions that are embedded within the network and enterprise performance management solutions. Historical segment numbers have been recast to conform to this new reporting structure in our financial statements.

The Company’s reportable segments are:

(i) Network Enablement:

NE provides testing solutions that access the network to perform build out and maintenance tasks. These solutions include instruments and software to design, build, turn-up, certify, troubleshoot, and optimize networks.

(ii) Service Enablement:

SE solutions are embedded systems that yield network, service and application performance data. These solutions—including microprobes and software—monitor, collect and analyze network data to reveal the actual customer experience and to identify opportunities for new revenue streams and network optimization.

(iii) Communications and Commercial Optical Products:

CCOP provides optical components, modules, subsystems, and solutions used by Telecom and data communications (“Datacom”) network equipment manufacturers (“NEMs”) and both traditional and cloud/data center service providers. These products enable the transmission and transport of video, audio and text data over high-capacity fiber optic cables. Transmission products primarily consist of optical transceivers, optical transponders, and their supporting components such as modulators and source lasers, including innovative products such as the Tunable Small Form-factor Pluggable Plus transceiver. Transport products primarily consist of modules or sub-systems containing optical amplifiers, reconfigurable optical add/drop multiplexers (“ROADMs”) or Wavelength Selective Switches, Optical Channel Monitors and their supporting components. Our products for 3D sensing applications, formerly referred to as our gesture recognition products, include a light source product. Customer solutions containing our 3D sensing products let a person control electronic or computer devices with natural body or hand gestures instead of using a remote, mouse or other device.

CCOP also provides a broad laser portfolio that serve customers in markets and applications such as manufacturing, biotechnology, graphics and imaging, remote sensing, and precision machining such as drilling in printed circuit boards, wafer singulation and solar cell scribing. These products include diode, direct-diode, diode-pumped solid-state, fiber, and gas lasers. In addition, our photonic power products include fiber optic-based systems for delivering and measuring electrical power.

(iv) Optical Security and Performance Products:

OSP provides innovative optical security solutions, with a strategic focus on serving the anti-counterfeiting market through advanced security pigments, thread substrates and printed features for the currency, pharmaceutical and consumer electronic segments. OSP also provides thin-film coating solutions for 3D and gesture recognition applications.

The accounting policies of the reportable segments are the same as those described in the Company’s Annual Report on Form 10-K for the year ended June 28, 2014. The Company evaluates segment performance based on operating income (loss), excluding certain infrequent or unusual items.

The amounts shown as Corporate consist of certain unallocated corporate-level operating expenses. In addition, the Company does not allocate stock-based compensation, acquisition-related charges and amortization of intangibles, restructuring and related charges, non-operating income and expenses, or other non-recurring charges to its segments as highlighted in the table below.

Information on reportable segments is as follows (in millions):

	Three Months Ended						Nine Months Ended
	March 28, 2015			March 29, 2014			March 28, 2015			March 29, 2014
Net revenue:
Network Enablement	$	128.1		$	136.0		$	394.6		$	436.9
Service Enablement	39.0			36.3			132.9			102.3
Communications and Commercial Optical Products	195.2			194.6			611.6			597.2
Optical Security and Performance Products	48.4			51.1			142.3			158.2
Net revenue	$	410.7		$	418.0		$	1,281.4		$	1,294.6
Operating income (loss):
Network Enablement	$	25.8		$	18.7		$	68.4		$	72.1
Service Enablement	(9.5		)	(8.8		)	(11.2		)	(20.9		)
Communications and Commercial Optical Products	17.4			22.4			69.1			73.5
Optical Security and Performance Products	19.1			18.2			53.8			57.8
Corporate	(21.5		)	(23.3		)	(66.2		)	(70.7		)
Total segment operating income	31.3			27.2			113.9			111.8
Unallocated amounts:
Stock-based compensation	(19.6		)	(16.9		)	(50.3		)	(48.3		)
Amortization of intangibles	(15.8		)	(16.2		)	(47.0		)	(43.0		)
Loss on disposal of long-lived assets	(0.5		)	(1.0		)	(0.5		)	(0.8		)
Restructuring and related charges (1)	(8.3		)	(3.6		)	(20.9		)	(3.8		)
Other charges related to non-recurring activities (1)	(9.4		)	(1.1		)	(21.5		)	(1.1		)
Interest and other income (expense), net	0.3			0.6			1.2			0.4
Interest expense	(8.6		)	(7.7		)	(25.4		)	(21.3		)
(Loss) income from operations before income taxes	$	(30.6	)	$	(18.7	)	$	(50.5	)	$	(6.1	)

(1) During the three and nine months ended March 28, 2015, the Company incurred incremental expenses of $16.2 million and $32.9 million, respectively, to effect the Company’s plan to separate into two separate public companies. These incremental expenses included (a) restructuring charges, (b) accounting, legal, and other professional fees, (c) and cost of additional personnel and related costs dedicated to affect the separation and/or to enable Lumentum to operate successfully immediately following the split.