UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 4, 1999
JDS Uniphase Corporation (Exact name of registrant as specified in its charter)
Delaware (State of Other Jurisdiction of Incorporation)
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163 Baypointe Parkway
San Jose, California 95134
(Address of principal executive offices including zip code)
(408) 434-1800
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
This form 8-K/A amends Form 8-K filed with the Securities and Exchange Commission on July 12, 1999 (the "Original Form 8-K") by including the financial statements and pro forma financial information referred to below.
Item 7. Financial Statements, Pro Forma Information and Exhibits
(a) Financial Statements of Business Acquired
(1) Report of Independent Auditors.
(2) JDS FITEL Inc., balance sheets as of May 31, 1999 and 1998 and the related statements of operations and cash flows for each of the three years in the period ended May 31, 1999.
(3) Notes to Financial Statements of JDS FITEL Inc.
July 5, 1999
Auditors' Report
To the Shareholder of
JDS FITEL
We have audited the balance sheets of JDS FITEL Inc. as at May 31, 1999 and May 31, 1998 and the statements of income, shareholders' equity and cash flows for each of the years in the three year period ended May 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at May 31, 1999 and May 31, 1998 and the results of its operations and its cash flows for each of the years in the three year period ended May 31, 1999 in accordance with accounting principals generally accepted in Canada.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Ottawa, Canada
JDS FITEL Inc.
CONSOLIDATED STATEMENTS OF INCOME
(expressed in thousands of Canadian dollars, except share amounts)
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Sales..................................... $455,998 $227,212 $114,970
Cost of goods sold........................ 218,179 109,035 53,689
----------- --------- ---------
Gross profit.............................. 237,819 118,177 61,281
----------- --------- ---------
Operating expenses
Selling, general and administrative....... 50,888 30,469 19,479
Research and development (Note 9)......... 37,996 17,365 7,628
----------- --------- ----------
Total operating expenses.................. 88,884 47,834 27,107
----------- --------- ----------
Income before investment and other 148,935 70,343 34,174
income and income taxes.................
Investment and other income............... 8,358 5,269 1,505
----------- --------- ----------
Income before income taxes................ 157,293 75,612 35,679
Provision for income taxes (Note 10)...... 58,265 27,977 13,220
----------- --------- ---------
Net income for the year................... $99,028 $47,635 $22,459
=========== ========= =========
Earnings per share (Note 2):
Basic................................... $1.27 $0.64 $0.31
Fully diluted........................... $1.22 $0.62 $0.30
Weighted average number of shares:
(in thousands)
Basic................................... 77,992 74,587 71,775
Fully diluted........................... 82,433 77,997 74,325
See accompanying notes to these consolidated financial statements.
JDS FITEL Inc.
CONSOLIDATED BALANCE SHEETS
(expressed in thousands of Canadian dollars, except share amounts)
As at May 31,
---------------------
1999 1998
----------- ---------
Assets
Current assets:
Cash and cash equivalents (Note 3)......... $24,826 $25,679
Short-term investments (Note 3)............ 139,010 160,805
Accounts receivable (less allowances -
1999: $700; 1998:$100)................... 77,806 38,469
Inventories (Note 4)....................... 60,850 29,620
Prepaid expenses and other receivables..... 4,574 2,181
----------- ---------
307,066 256,754
Capital assets (Note 5)................... 128,194 53,653
Intangible and other assets (Note 6)...... 38,106 7,650
Deferred income taxes..................... -- 1,255
----------- ---------
Total assets.............................. $473,366 $319,312
=========== =========
Liabilities and Shareholders'Equity
Current Liabilities:
Accounts payable.......................... $24,002 $15,138
Accrued liabilities....................... 31,362 17,487
Accrued compensation and related expenses. 14,305 7,188
Income taxes payable...................... 26,285 12,412
----------- ---------
95,954 52,225
Deferred income taxes..................... 1,205 --
Non-controlling interest.................. 3,631 --
----------- ---------
$100,790 $52,225
Commitments and contingencies(Notes 12 and 13)
Shareholders'equity:
Preferred shares, unlimited shares
authorized; none issued and
outstanding ............................ -- --
Common shares, unlimited shares
authorized; 78,440,027 and 77,675,181
issued and outstanding (Note 8)......... 174,356 167,998
Retained earnings......................... 197,738 98,710
Foreign currency translation adjustment... 482 379
----------- ---------
372,576 267,087
----------- ---------
Total liabilities and shareholders Equity. $473,366 $319,312
=========== =========
See accompanying notes to these consolidated financial statements.
Approved by:
/s/ Jozef Straus - President /s/ M. Zita Cobb - Chief Financial Officer - ----------------------------------- -------------------------------------------
JDS FITEL Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(expressed in thousands of Canadian dollars, except share amounts)
Common shares Foreign
--------------------- currency Total
Number of Retained translationShareholders'
Shares* Amount Earnings adjustment equity
----------- --------- --------- ---------- ------------
Balance, May 31, 1996..................... 71,762,046 $44,540 $28,616 $ -- $73,156
Issuance for cash under stock option
plan.................................... 135,450 427 -- -- 427
Net income for the year................... -- -- 22,459 -- 22,459
----------- --------- --------- ---------- ------------
Balance, May 31, 1997..................... 71,897,496 $44,967 $51,075 $ -- $96,042
Issuance for cash, net of issuance costs.. 4,500,000 120,040 -- -- 120,040
Issuance to acquire subsidiary (Note 14).. 743,420 998 -- -- 998
Issuance for cash under stock option
plan.................................... 534,265 1,993 -- -- 1,993
Translation adjustment.................... -- -- -- 379 379
Net income for the year................... -- -- 47,635 -- 47,635
----------- --------- --------- ---------- ------------
Balance, May 31, 1998..................... 77,675,181 $167,998 $98,710 $379 $267,087
Issuance to acquire subsidiary (Note 6)... 43,475 1,000 -- -- 1,000
Issuance for cash under stock option
plan.................................... 721,371 5,358 -- -- 5,358
Translation adjustment.................... -- -- -- 103 103
Net income for the year................... -- -- 99,028 -- 99,028
----------- --------- --------- ---------- ------------
Balance, May 31, 1999..................... 78,440,027 $174,356 $197,738 $482 $372,576
=========== ========= ========= ========== ============
*After giving effect to a 3-for-1 split on March 31, 1998
See accompayning notes to these consolidated financial statements.
JDS FITEL Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in thousands of Canadian dollars, except share amounts)
Year ended May 31,
---------------------------------
1999 1998 1997
----------- ----------- ---------
Cash provided by (used in)
Operating activities:
Net income for the year.................... $99,028 $47,635 $22,459
Operating items not requiring cash:
Depreciation and amortization.............. 16,045 7,628 3,224
Loss from equity investment................ -- 23 --
Deferred income taxes...................... 2,460 (422) 304
----------- ----------- ---------
117,533 54,864 25,987
Net change in non-cash working capital
balances related to
operations (Note 11)...................... (26,461) (5,822) (4,162)
----------- ----------- ---------
Cash provided by operating activities....... 91,072 49,042 21,825
----------- ----------- ---------
Investing activities:
Equity investment........................... (1,000) (6,850) --
Land and construction in progress........... (37,034) (14,925) --
Other capital assets and goodwill........... (50,046) (21,826) (7,628)
Businesses and assets acquired.............. (29,813) -- --
Proceeds from maturities of investments..... 190,805 48,353 3,832
Purchases of investments.................... (169,010) (201,635) (9,873)
----------- ----------- ---------
Cash used in investing activities........... (96,098) (196,883) (13,669)
----------- ----------- ---------
Financing activities:
Increase (decrease) in construction
in progress payable..................... (1,185) 3,716 --
Issuance of common shares................. 5,358 121,270 427
----------- ----------- ---------
Cash provided by financing activities..... 4,173 124,986 427
----------- ----------- ---------
Net increase (decrease) in cash
during the year......................... (853) (22,855) 8,583
Cash and cash equivalents, beginning
of year................................. 25,679 48,534 39,951
----------- ----------- ---------
Cash and cash equivalents, end
of year................................. $24,826 $25,679 $48,534
=========== =========== =========
See accompanying notes to these consolidated financial statements.
JDS FITEL Inc.
The consolidated financial statements have been prepared by
management in accordance with accounting principles generally accepted in
Canada, which are consistent in all material aspects with accounting principles
generally accepted in the United States except as disclosed in note 17. Basis of consolidation The consolidated financial statements include the accounts of JDS FITEL Inc.
and its subsidiaries. Investments in companies in which the Company has
significant influence are accounted for by the equity method. Revenue recognition Revenue from product sales is recognized at the time goods are shipped to
customers. Cash equivalents and short-term investments Cash equivalents are defined as highly liquid investments with original
maturities of three months or less. Short-term investments are those with
original terms to maturity in excess of three months but less than one year. All
cash equivalents and short-term investments are held to maturity. Inventories Inventories are recorded at the lower of cost and net realizable value, with
cost being calculated on a first-in, first-out basis. Capital assets Capital assets are recorded at cost. Depreciation is calculated on the declining balance method using rates based
on the expected useful lives of the assets. Buildings are depreciated at an
annual rate of 4% and equipment at annual rates ranging from 5% to 35%. Amortization of leasehold improvements is calculated on a straight-line basis
over the term of the lease plus one renewal period. Amortization of patents, licenses and purchased technology is calculated on a
straight-line basis over their expected useful lives, currently ranging from 3
to 10 years. Depreciation and amortization is included in cost of goods sold and operating
expenses. Goodwill and acquired technology Goodwill, which represents the excess of the purchase price of an investment
in an acquired business over the fair value of the underlying net identifiable
assets, is amortized on a straight-line basis over its useful life, currently
estimated at 5 to 15 years. Acquired technology represents the value of the proprietary "know-
how" which was technologically feasible as of the acquisition date, and is
charged to earnings on a straight line basis over its useful life, currently
estimated at five years. The Company regularly reviews the recoverability of goodwill and acquired
technology based on expected future earnings and cash flows and adjusts the
asset balance to net realizable value as required. Translation of foreign currencies Monetary assets and liabilities of integrated foreign operations are
translated into Canadian dollars at the exchange rate in effect at the balance
sheet date, non-monetary assets and liabilities at historical exchange rates and
revenue and expense items (other than depreciation and amortization expense,
which is translated at the rates applicable to the related capital assets) at
average exchange rates prevailing during the year. Equity investments, which are self-sustaining, are translated using exchange
rates in effect at the balance sheet date for the carrying value of the
investment and at average rates during the year for the Company's share of
investment income. Foreign currency translation adjustments are reflected as a
separate component of shareholders' equity. Derivative financial instruments Gains and losses on forward exchange contracts that hedge exposure to foreign
currency fluctuations on anticipated future cash flows are recognized when the
hedged transactions are recognized. Realized gains and losses on foreign
exchange contracts are recognized and offset against foreign exchange gains and
losses on the underlying net asset or net liability position. Cash flows from
hedge contracts related to operations are classified as an operating
activity. Research and development costs Research costs are expensed as incurred and are reduced by related investment
tax credits. Development costs are expensed as incurred unless they meet generally
accepted accounting criteria for deferral. To date, all development costs have
been expensed. Income taxes Income taxes are provided for based on accounting income using the deferral
method. Under this method, taxes are computed using current tax rates regardless
of when such income is subject to taxes under the tax laws. The deferred tax
balances which result are not adjusted for any subsequent changes in tax rates
and include benefits related to investment tax credits. Use of estimates The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Basic earnings per share has been calculated on the basis of
consolidated net income for the year divided by the weighted average number of
shares outstanding during the year. Fully diluted earnings per share has been calculated on the assumption that
all outstanding options have been exercised at the later of the beginning of the
fiscal year or the option issuance date. Where the impact of the conversion or
exercise of the options is anti-dilutive they are not included in the
calculation of fully diluted earnings per share. Consolidated net income has
been increased by imputed after-tax earnings on the cash that would have been
received on the exercise of the options at an appropriate rate of return. An
allowance for imputed earnings of $1,584 (1998 - $669; 1997 - $210) at an after
tax rate of 2.5% (1998 - 2.5%; 1997 - 2.5%) is used in the calculation of fully
diluted earnings per share.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1999
(expressed in thousands of Canadian dollars, except share amounts)
Carrying Value
---------------------
1999 1998
----------- ---------
Cash...................................... $10,324 $11,100
Corporate securities with original
maturities of three months or less...... 14,502 14,579
----------- ---------
Cash and cash equivelents................. $24,826 $25,679
----------- ---------
Corporate securities with original
maturities greater than three months.... $139,010 $160,805
----------- ---------
Short-term investments.................... $139,010 $160,805
----------- ---------
Carrying value, which approximates fair value, includes cost and accrued interest.
4 Inventories
Year ended May 31,
---------------------
1999 1998
----------- ---------
Raw materials............................. $26,726 $18,743
Work in process........................... 27,201 6,657
Finished goods............................ 6,923 4,220
----------- ---------
Total inventories......................... $60,850 $29,620
=========== =========
5 Capital assets
Year ended May 31,
-----------------------
1999 1998
----------- -----------
Cost:
Land...................................... $7,544 $7,372
Buildings................................. 45,852 8,460
Equipment................................. 97,902 39,254
Leasehold improvements.................... 3,856 2,327
Patents, licenses and purchased
technology.............................. 2,809 2,218
----------- -----------
157,963 59,631
Less accumulated depreciation and amortization:
Buildings................................. 4,063 2,202
Equipment................................. 34,579 12,902
Leasehold improvements.................... 1,965 609
Patents, licenses and purchased
technology.............................. 554 347
----------- -----------
41,161 16,060
----------- -----------
116,802 43,571
Construction in progress.................. 11,392 10,082
----------- -----------
$128,194 $53,653
=========== ===========
Depreciation expense totalled $13,786, $7,575 and $3,162 for the fiscal years ended May 31, 1999, 1998 and 1997 respectively.
6 Intangible and other assets
Year ended May 31,
-----------------------
1999 1998
----------- -----------
Cost:
Goodwill.................................. $23,764 $560
Acquired technology....................... 15,256 --
Long term investments..................... 1,000 7,206
Other..................................... 460 --
----------- -----------
40,480 7,766
Less accumulated amortization:
Goodwill.................................. 1,357 --
Acquired technology....................... 1,017 116
----------- -----------
2,374 116
----------- -----------
$38,106 $7,650
=========== ===========
On September 3, 1998, the Company acquired the remaining 32% of FITEL- Photomatrix (Canada) Inc. ("FPMX") for total consideration of $16,000, including the issuance of 43,475 common shares resulting in goodwill of $15,500.
On June 1, 1997, the Company acquired a 49% equity interest in Integrierte Optik GmbH ("IOT"), a company in the development of glass planar waveguide technology based in Waghaeusel-Kinlach, Germany for total consideration of 8,900 DM ($6,850 Cdn). On February 2, 1999, the Company exercised an option to purchase an additional 2% in IOT for $458 Cdn. As a result, the company now consolidates the results of IOT and no longer accounts for IOT as a long term investment. Goodwill of $4,500 resulted from the transaction.
The remaining goodwill is the result of other minor acquisitions made during the year.
On January 15, 1999, the Company acquired the assets of the Akzo Nobel Photonics business unit from Akzo Nobel Business Developments B.V. for cash consideration of $19,000. The allocation of the purchase price was to capital assets of $3,744 and acquired technology assets of $15,256.
7 Operating lines of creditAt May 31, 1999, the Company had unused operating bank lines of credit amounting to approximately $65,000. Borrowings under the U.S. bank line of credit have interest charged at LIBOR (London Interbank Offered Rate) plus 1/4%; those under the Canadian bank line of credit have interest charged at Canadian prime. During 1999, the Company had no borrowings under these facilities.
The Company has letters of credit outstanding at May 31, 1999 of approximately $1,256.
8 Common shares and stock optionsThe Company is authorized to issue an unlimited number of common shares. On November 12, 1997, pursuant to an underwriting agreement, the Company sold to a group of underwriters 4,500,000 common shares at a price of $27.41 per share. Gross cash proceeds were $123,375 less net share issue costs of $3,335 ($5,185 less $1,850 deferred tax benefit).
At May 31, 1999, 78,440,027 common shares were issued and outstanding.
Stock options
During 1994, the Company established a stock option plan for certain key employees. The aggregate number of common shares reserved for issuance under the plan was 553,302. These options vest between March 21, 1996 and March 21, 2000 and expire on March 20, 2003.
During 1996, the Company established a stock option plan for employees and directors. Under this plan, options are granted at an exercise price equal to the then-current fair market value of the common shares of the Company. The options generally become exercisable in equal proportions during each of the five years following the date of the grant and, if not exercised, expire 7 years from the date of grant or upon termination of employment.
The following table summarizes stock option activity under both plans from May 31, 1996 to May 31, 1999:
Options outstanding
---------------------
Weighted
average
Number exercise
of Shares* price
----------- ---------
Balance, May 31, 1996..................... 2,079,582 $3.15
Granted................................... 959,667 7.44
Cancelled................................. (233,955) 4.00
Exercised................................. (135,450) 3.15
----------- ---------
Balance, May 31, 1997..................... 2,669,844 $4.62
Granted................................... 1,232,665 13.90
Cancelled................................. (78,051) 7.22
Exercised................................. (534,265) 3.06
----------- ---------
Balance, May 31, 1998..................... 3,290,193 $8.18
Granted................................... 1,885,240 27.80
Cancelled................................. (178,026) 16.67
Exercised................................. (721,371) 7.43
----------- ---------
Balance, May 31, 1999..................... 4,276,036 $16.60
=========== =========
*After giving retroactive effect to a 3-for-1 split on March 31, 1998.
Shares available for grant at May 31, 1999 totalled 5,692,615 (1998 - 7,399,829; 1997 - 2,916,660).
The following table summarizes information about options outstanding at May 31, 1999:
Options outstanding Options exercisable
- ------------------------------------------------------- ----------------------
Weighted Weighted Weighted
average average average
Range of Number remaining exercise Number exercise
exercise prices outstanding life (years) price exercisable price
- --------------------------------------------------------------------------------
$0 - $10.10 1,365,424 3.9 $4.31 519,224 $3.46
$10.11 - $20.20 1,141,817 5.2 $12.43 126,229 $10.63
$20.21 - $30.30 1,437,415 6.0 $22.43 10,440 $25.67
$30.31 - $101 331,380 6.6 $56.11 nil nil
Options exercisable at May 31, 1999 totaled 655,893 (1998 - 601,171; 1997 -
476,250).
9 Research and development
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Research and development costs............ $42,141 $19,565 $8,968
Less: Investment tax credits.............. 4,145 2,200 1,340
----------- --------- ---------
$37,996 $17,365 $7,628
=========== ========= =========
10 Income taxes
The income tax provisions reported are comprised as follows:
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Current................................... $55,805 $26,657 $12,916
Deferred.................................. 2,460 1,320 304
----------- --------- ---------
$58,265 $27,977 $13,220
=========== ========= =========
The income tax provisions reported differ from the amounts computed by applying the Canadian statutory rate to income before income taxes. The reasons for the differences and the related tax effects are as follows:
1999 1998 1997
% % %
----------- --------- ---------
Statutory income tax rate................. 44.6 44.6 44.6
Manufacturing and processing deduction.... (7.8) (7.7) (8.3)
Provincial research and development
deduction............................... (0.8) (0.7) (0.7)
Foreign income and other.................. 1.0 0.8 1.5
----------- --------- ---------
Effective income tax rate................. 37.0 37.0 37.1
=========== ========= =========
The types of temporary differences and the balances of their related tax effects, which create deferred income taxes, are as follows:
1999 1998
----------- ---------
Common share issue costs not yet
deductible for tax...................... $1,350 $1,942
Accounting provisions not currently
deductible for tax...................... 3,169 1,395
Research and development expenses
deducted for tax in excess of
accounting.............................. (2,130) (976)
Tax depreciation in excess of accounting
depreciation............................ (3,594) (1,106)
----------- ---------
Balance of deferred income taxes.......... ($1,205) $1,255
=========== =========
Income taxes paid in fiscal 1999, 1998 and 1997 totalled $33,934, $16,091 and $6,880 respectively.
11 Changes in non-cash working capital balances related to operations
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Accounts receivable....................... ($37,622) ($13,681) ($8,763)
Inventories............................... (29,064) (18,681) (2,760)
Prepaid expenses and other receivables.... (2,411) (836) (1,112)
Accounts payable.......................... 8,500 9,750 (1,192)
Accrued liabilities....................... 13,145 6,097 3,074
Accrued compensation and related expenses. 7,117 3,923 1,710
Income taxes payable...................... 13,874 7,606 4,881
----------- --------- ---------
($26,461) ($5,822) ($4,162)
=========== ========= =========
12 Commitments
The Company leases manufacturing and office space under operating leases expiring at various dates through December 2001.
Future minimum commitments for noncancelable operating leases are as follows:
Operating
Year ending May 31 leases
- ------------------------------------------- ---------
2000..................... 833
2000..................... 287
---------
Total minimum lease paymants... 1,120
=========
13 Contingencies
In the ordinary course of business, the Company may be contingently liable for litigation and claims with customers, suppliers or other parties. Management believes that adequate provisions have been recorded in the accounts where required. Although it is not possible to estimate the potential costs and losses, if any, management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position of the Company or the consolidated results of its operations.
14 Related party transactionsThe Furukawa Electric Co., Ltd. controlled or exercised significant influence over the Company during each of the years in the three year period ended May 31, 1999. The Furukawa Electric Co., Ltd. also had a controlling interest in Furukawa Industrial S.A. during the same period.
On May 29, 1998, the Company issued 743,420 common shares to The Furukawa Electric Co., Ltd. in exchange for its controlling interest (68%) in FITEL- Photomatrix (Canada) Inc. ("FPMX").
The transaction was recorded by the Company at the carrying amount on the books of FPMX net of $200 of related acquisition costs as follows:
Accounts receivable............... $1,040 Inventories....................... 2,690 Other current assets.............. 1,324 Capital assets.................... 1,757 Current liabilities............... 5,050 Shareholders' equity.............. 1,761
During the year ended May 31, 1999, the Company entered into transactions with these related parties in the normal course of business. Transactions were priced at competitive market rates with normal payment terms. The approximate values of these transactions and related ending balances are as listed below:
Year ended May 31,
---------------------------------
1999 1998 1997
----------- ----------- ---------
Sales
The Furukawa Electric Co., Ltd............ $9,076 $6,114 $3,991
FITEL-Photomatrix (Canada) Inc............ -- 1,112 671
Furukawa Industrial S.A................... 196 415 526
Purchases
The Furukawa Electric Co., Ltd............ 16,117 9,857 9,712
FITEL-Photomatrix (Canada) Inc............ -- 127 134
Accounts receivable
The Furukawa Electric Co., Ltd............ 2,417 1,268 840
FITEL-Photomatrix (Canada) Inc............ -- 115 167
Furukawa Industrial S.A................... 6 -- 41
Accounts payable
The Furukawa Electric Co., Ltd............ 2,773 620 889
15 Operating segments and geographic information
The Company adopted CICA Section 1701 - Segment Disclosures in fiscal 1999. Information about operating segments, geographic information and major customers for fiscal 1999, 1998 and 1997 are presented below in accordance with CICA Section 1701.
The operating segments identified below report directly to the Chief Executive Officer ("CEO"). Financial information is available for each segment, and the CEO allocates resources to each of these segments based on their net sales and operating profits before taxes and investment income. The CEO has been identified as the Chief Operating Decision Maker.
The Company designs, develops, manufactures and markets optical components and modules at various levels of integration. During fiscal 1999, the Company had two operating segments, Fiber Optics Products and Transmission and Test Products. The Company expects to revise these segments in fiscal 2000 because of its merger with Uniphase Corporation on June 30, 1999 (see note 19). The Fiber Optics Group consists primarily of couplers, WDM pump combiners, monitor tap couplers, optical isolators, attenuators, polarization components and optical circulators. The group also distributes certain products manufactured by others including fusion splicers, connectors, adaptors and jumpers. The Test and Transmission Group includes optical amplifier modules, optical add-drop multiplexer modules and instruments products used for measuring optical components. The Company's products are sold directly to original equipment manufacturers and industrial distributors throughout the world. The Company does not allocate income taxes and investment income to its operating segments.
Information about reportable segments' sales and operating income are as follows:
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Fiber optics group:
Net sales to external customers........... $342,279 $177,649 $91,117
Intersegment sales........................ 17,204 1,001 715
Operating income.......................... 126,548 54,865 28,804
Transmission and test group:
Net sales to external customers........... $130,923 $50,564 $24,568
Operating income.......................... 22,387 15,478 5,370
A reconciliation of the amounts presented from reportable segments to the applicable line items on the consolidated financial statements is as follows:
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Net sales:
Net sales to external customers by
reportable segments................... $455,998 $227,212 $114,970
Intersegment sales by reportable
segments.............................. 17,204 1,001 715
Elimination of intersegment sales......... (17,204) (1,001) (715)
----------- --------- ---------
Total net sales........................... $455,998 $227,212 $114,970
=========== ========= =========
Income before income taxes:
Operating income by reportable
segments.............................. $148,935 $70,343 $34,174
Unallocated amounts:
Other income............................ 8,358 5,269 1,505
----------- --------- ---------
Income before income taxes................ $157,293 $75,612 $35,679
=========== ========= =========
Net sales and identifiable assets by country are as follows:
Year ended May 31,
-------------------------------
1999 1998 1997
----------- --------- ---------
Net sales:
Canada............................... $8,692 $6,748 $5,716
United States........................ 364,531 169,365 81,421
Other................................ 82,775 51,099 27,833
----------- --------- ---------
Total net sales........................... $455,998 $227,212 $114,970
=========== ========= =========
Identifiable assets:
Canada............................... $448,655 $310,396 $110,552
Other................................ 24,711 8,916 6,623
----------- --------- ---------
Total identifiable assets................. $473,366 $319,312 $117,175
=========== ========= =========
Net sales are attributed to countries based on the invoicing address of customers. Identifiable assets are those assets of the Company that are identified with the operations of the corresponding country.
In fiscal 1999, four customers accounted for 20.9%, 14.7%, 11.5% and 11.0% of total sales. In fiscal 1998, three customers accounted for 13.9%, 13.6% and 12.1% of total sales. In fiscal 1997, one customer accounted for 11.5% of total sales.
16 Financial instruments and credit riskFinancial instruments
The carrying amounts reflected in the consolidated balance sheets for cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term to maturity of these instruments.
The Company uses forward exchange contracts to manage its foreign currency exposures. These exposures arise due to the fact that the majority of the Company's sales are in U.S. dollars and a portion of the Company's purchases are in U.S. dollars and Japanese yen. The Company does not engage in speculative trading activities. All contracts mature within one year.
These contracts require the Company to purchase Japanese yen and sell U.S. dollars with or for Canadian dollars at contractual rates. At May 31, 1999, the Company had $48,159 (1998 - $70,088; 1997 - $47,965) outstanding in foreign exchange contracts with an aggregate unrecognized foreign exchange gain (loss) of $1,728 (1998 - ($3,234); 1997 - $359).
The Company is exposed to credit-risk losses in the event of non-performance by counterparties to the financial instrument contracts. The Company only deals with large recognized financial institutions and does not expect any counterparty to fail to meet its obligations.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and trade receivables. The Company places its cash equivalents and short-term investments with Canadian governmental agencies and high-quality Canadian financial institutions. The Company performs ongoing credit evaluations of its customers and periodically purchases credit insurance. The Company provides reserves for potential credit losses and such losses and yearly provisions have not been significant and have been within management's expectations.
17 Significant differences between Canadian and United States Generally Accepted Accounting PrinciplesThe Company's accounting policies are consistent in all material aspects with U.S. GAAP with the following exceptions:
Net income reconciliation
The following table reconciles the net income as reported on the consolidated statements of income to the net income that would have been reported in accordance with U.S. GAAP and also discloses basic and diluted earnings per share as calculated using U.S. GAAP:
Year ended May 31,
--------------------- ---------
1999 1998 1997
----------- --------- ---------
Net income as reported under
Canadian GAAP........................... $99,028 $47,635 $22,459
Recognition of unrealized foreign
exchange gains (losses)(1).............. 1,728 (3,234) (359)
Income tax effect of above................ (639) 1,158 129
----------- --------- ---------
Net income as reported under U.S. GAAP.... $100,117 $45,559 $22,229
=========== ========= =========
(1) Foreign exchange gains and losses
Under Canadian GAAP, gains and losses on foreign exchange contracts related to anticipatory transactions are not recognized until realized.
Under U.S. GAAP, gains and losses on such foreign exchange contracts are recognized in the period that the exchange rates change.
Earnings per share: Basic................................... $1.28 $0.61 $0.31 Diluted................................. $1.23 $0.59 $0.30 Weighted average number of shares: (in thousands) Basic................................... 77,992 74,587 71,775 Diluted................................. 81,562 76,922 73,572
The Company has reported basic and fully diluted earnings per share according to Canadian generally accepted accounting principles. This presentation complies with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", where "fully diluted" earnings per share equals the SFAS 128 "diluted" earnings per share except that the dilutive effect of stock options is calculated using the imputed income method under Canadian GAAP and using the treasury stock method under U.S. GAAP.
For the purpose of reporting under U.S. GAAP, companies are required to use an asset and liability approach in accounting for income taxes. There were no material differences between this approach and the deferral method followed by the Company under Canadian GAAP.
Balance sheets
The following is a reconciliation of the balance sheets between accounting principles generally accepted in Canada and the United States:
Year ended May 31,
---------------------
1999 1998
----------- ---------
Accrued Liabilities
Balance under Canadian GAAP.......... 31,362 17,487
Adjustment relating to recognition
of unrealized foreign exchange
losses............................. (1,728) 3,234
----------- ---------
Balance under U.S. GAAP $29,634 $20,721
=========== =========
Income taxes payable
Balance under Canadian GAAP.......... 26,285 12,412
Adjustment relating to recognition
of unrealized foreign exchange
losses............................. 639 (1,158)
----------- ---------
Balance under U.S. GAAP $26,924 $11,254
=========== =========
Common share capital
Balance under Canadian GAAP.......... 174,356 167,998
Distribution to parent company(1).... 19,404 19,404
----------- ---------
Balance under U.S. GAAP $193,760 $187,402
=========== =========
Retained earnings
Balance under Canadian GAAP.......... 197,738 98,710
Distribution to parent company(1).... (19,404) (19,404)
Adjustment relating to recognition
of unrealized foreign exchange
losses............................. 1,089 (2,076)
----------- ---------
Balance under U.S. GAAP $179,423 $77,230
=========== =========
(1) On May 29, 1998, the Company acquired a 68% controlling equity interest in FPMX from Furukawa, its parent company, for common shares of the Company with an estimated fair value of $20.4 million. As this transaction was between non-arm's length parties, this controlling equity interest in FPMX was recorded at its historical cost to the parent company. Under U.S. GAAP, the difference between the fair value of the common shares issued and the historical cost of the asset acquired is reflected as a distribution and is charged to retained earnings.
Stock option plans - compensation costs
In 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS 123 defines a fair- value method of accounting for employee stock options or similar equity instruments. However, SFAS 123 also allows companies to continue to use the intrinsic value method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees". The Company has elected to account for stock options in accordance with APB No. 25 and has adopted the disclosure-only aspects of SFAS 123.
Under APB No. 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized in the Company's financial statements.
Pro-forma information regarding net income and earnings per share is required by SFAS 123. This information is required to be determined as if the Company had accounted for its employee stock options granted subsequent to May 31, 1995 under the fair value method of that statement. The fair value of options granted in 1999 reported below has been estimated at the date of grant using the Black- Scholes option pricing model with the following weighted average assumptions:
Employee stock options
--------------------- ---------
1999 1998 1997
----------- --------- ---------
Expected life in years.................... 5 5 5
Risk-free interest rate................... 5.2% 5.6% 6.5%
Volatility................................ 53% 48% 50%
Dividend yield............................ nil nil nil
The weighted-average fair value of these options was $6.88 per share in 1999 (1998 - $6.84; 1997 - $3.85).
For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro-forma information follows:
Year ended May 31,
--------------------- ---------
1999 1998 1997
----------- --------- ---------
Net income per U.S. GAAP.................. $100,117 $45,559 $22,229
Pro-forma net income...................... $95,930 $43,532 $21,098
Pro-forma basic earnings per share........ $1.23 $0.58 $0.29
Pro-forma diluted earnings per share...... $1.18 $0.57 $0.29
Pro-forma net income represents the difference between compensation expense recognized under APB No. 25 and the related expense using the fair value method of SFAS 123 taking into account any additional tax effects of applying SFAS 123. The effects on pro-forma disclosures of applying SFAS 123 are not likely to be representative of the effects on pro-forma disclosures of future years. Because SFAS 123 is applicable only to options granted subsequent to May 31, 1995, the pro-forma effect will not be fully reflected until 2000.
Statements of comprehensive income
For the purposes of reporting under U.S. GAAP, the following statements of comprehensive income are required:
1999 1998 1997
----------- --------- ---------
Net income as reported under U.S. GAAP.... $100,117 $45,559 $22,229
Change in currency translation
adjustment.............................. 103 379 --
----------- --------- ---------
Comprehensive income...................... $100,220 $45,938 $22,229
=========== ========= =========
The Company implemented Statement of Accounting Standards No. 130 "Reporting Comprehensive Income" in fiscal 1999, regarding comprehensive income for purposes of reconciliation to U.S. GAAP. Under U.S. GAAP, items defined as other comprehensive income such as foreign currency translation adjustments, are separately classified in the financial statements and the accumulated balance of other comprehensive income (loss) is reported separately in shareholders' equity on the balance sheet.
Recent pronouncement
The Company intends to adopt Statement of Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", as amended by Statement of Financial Accounting Standard No. 137 "Deferral of Effective Date of FASB Statement 133", as of the beginning of its fiscal year 2001. The Standard will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in fair value of the derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in earnings. The change in a derivative's fair value related to the ineffective portion of a hedge, if any, will be immediately recognized in earnings. The effect of adopting the Standard is currently being evaluated but is not expected to have a material effect on the Company's financial position or overall trends in results of operations.
18 Uncertainty due to the Year 2000 IssueThe Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems when using certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect the Company's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved.
19 Subsequent eventOn June 30, 1999, the Company merged with Uniphase Corporation of San Jose, California. The merged company will be known as JDS Uniphase Corporation.
_____________________
Pro Forma Financial Information
Item 7. Financial Statements, Pro Forma Information and Exhibits
(Continued)
(b) Pro Forma Financial Information
Effective June 30, 1999, Uniphase Corporation combined its operations with JDS FITEL Inc. of Ottawa, Canada in a transaction accounted for as a purchase. JDS FITEL primarily manufactures passive products that include components and modules that route and guide optical signals transmitted through a fiberoptic network. The JDS Uniphase fiscal 1999 financial statements reflect the issuance of common shares or Exchangeable Shares of JDS Uniphase Canada Ltd. for all of the outstanding JDS FITEL common shares based on the outstanding JDS FITEL common shares on June 30, 1999, the exchange ratio of 0.50855 of a JDS Uniphase share of common stock or 0.50855 of an Exchangeable Share of JDS Uniphase Canada, Ltd. for each JDS FITEL common share and an average market price per JDS Uniphase common share of $81.713 per share. The average market price per JDS Uniphase common share is based on the average closing price for a range of trading days (January 22 through February 4, 1999) around the announcement date (January 28, 1999) of the merger. In addition, JDS Uniphase issued options to purchase 6.6 million JDS Uniphase common shares in exchange for outstanding JDS FITEL options with the number of shares and the exercise price appropriately adjusted by the exchange ratio. The value of the options, as well as estimated direct transaction expenses of $12 million, have been included as a part of the total estimated purchase cost. In addition, the Company granted options to purchase approximately 6.8 million shares of JDS Uniphase Common Shares to certain former JDS FITEL employees subsequent to the effective date of the merger.
The total purchase cost of the JDS FITEL merger is as follows (in thousands):
Value of securities issued................ $3,263,119
Assumption of JDS FITEL options........... 221,614
-----------
3,484,733
Direct transaction costs and expenses..... 12,000
-----------
Total purchase cost....................... $3,496,733
===========
The Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended June 30, 1999 should be read in conjunction with the consolidated financial statements of JDS Uniphase Corporation ("the Company"), as previously filed and the separate financial statements of JDS FITEL included herein. Those financial statements are based on the historical financial statements of the Company and JDS FITEL after giving effect to the acquisition under the purchase method of accounting and the assumptions and adjustments described in the accompanying Notes to the Unaudited Pro Forma Condensed Combined Statements of Operation. The pro forma information does not purport to be indicative of the results which would have been reported if the above transaction had been in effect for the period presented or which may result in the future.
The Unaudited Pro Forma Condensed Combined Statements of Operations are presented as if the operations of the Company and JDS FITEL had been combined as of the beginning of fiscal 1999. The Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended June 30, 1999 combines the year ended June 30, 1999 for Uniphase Corporation and the year ended May 31, 1999 for JDS FITEL. The Unaudited Pro Forma Statement of Operations for JDS FITEL has been converted to U.S. dollar at an average exchange rate for the period presented.
Pro Forma Condensed Combined Consolidated
Statement of Operations (Unaudited)
June 30, 1999
(in thousands, except per share data)
Year Ended June 30, 1999 --------------------------------------------- Pro Pro Forma Forma JDS JDS Adjust- Uniphase Uniphase FITEL ments Combined ---------- ---------- ---------- ---------- Net sales................... $282,828 $305,729 ($668)(B) $587,889 Cost of sales............... 138,748 146,278 (668)(B) 284,358 ---------- ---------- ---------- ---------- Gross profit 144,080 159,451 -- 303,531 Acquired in-process Operating expenses: Research and development.. 27,048 25,496 -- 52,544 Selling, general, and administrative........... 37,365 34,123 -- 71,488 Amortization of purchased intangibles.............. 15,730 -- 671,772 (A) 687,502 Acquired in-process research and development. 210,400 -- -- 210,400 Other operating expenses.. 6,759 -- -- 6,759 ---------- ---------- ---------- ---------- Total operating expenses.... 297,302 59,619 671,772 1,028,693 ---------- ---------- ---------- ---------- Income (loss) from operations................. (153,222) 99,832 (671,772) (725,162) Interest and other income, net................ 3,633 6,762 -- 10,395 ---------- ---------- ---------- ---------- Income (loss) before income taxes............... (149,589) 106,594 (671,772) (714,767) Income tax expense (benefit).................. 21,468 39,493 (63,472)(C) (2,511) ---------- ---------- ---------- ---------- Net income (loss)........... ($171,057) $67,101 ($608,300) ($712,256) ========== ========== ========== ========== Average number of shares Basic earnings (loss) per share.................. ($2.15) ($4.48) ========== ========== Dilutive earnings (loss) per share.................. ($2.15) ($4.48) ========== ========== Average number of shares outstanding................ 79,562 158,888 ========== ========== Average number of shares outstanding assuming dilution .................. 79,562 158,888 ========== ==========
See accompanying notes to unaudited pro forma condensed combined financial statements
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
(A) In June 1999 Uniphase Corporation merged with JDS FITEL, Inc. in a transaction accounted for as a purchase. The total purchase price of $3.5 billion included consideration of 79.9 million shares of common stock, the assumption of 6.6 million stock options valued at $221.6 million and estimated direct costs of $12.0 million.
Of the total purchase price, $210.4 million has been allocated to in-process research and development and charged to expense. The remaining purchase price has been allocated to specifically identifiable assets acquired. The intangible assets acquired of approximately $3.4 billion is expected to be amortized over an average estimated useful life of five years. The related amortization is reflected as a pro forma adjustment to the Unaudited Pro Forma Condensed Combined Statement of Operations.
The purchase price allocation is preliminary subject to change based on the Company's final analysis.
(B) Reflects the elimination of sales between JDS and Uniphase.
(C) The pro forma combined provisions for income taxes do not represent the
amounts that would have resulted had Uniphase and JDS filed consolidated income tax returns during the periods presented. The provision for income tax includes the amortization of deferred tax liabilities originating from the transaction of $317.4 million.
Item 7. Financial Statements, Pro Forma Information and Exhibits (continued)
(c) Exhibits
The Exhibit Index appearing on page 19 is incorporated by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
JDS UNIPHASE CORPORATION
/s/ Anthony R. Muller
-----------------------------------
Anthony R. Muller
Senior Vice President
of Finance and CFO
Date: November 1, 1999