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EXHIBIT 99.1
JOZEF STRAUS
Welcome to all of you on this call. I am joined this early morning by Tony
Muller, our Executive VP and CFO. We have important news to report today on both
our recently completed third quarter and changes we are making to realign the
Company during the current business downturn as we position our company to
remain the industry leader. Before going further, I will ask Tony to review the
safe harbor statement.
TONY MULLER
FORWARD LOOKING LANGUAGE
We would like to advise you that our report and the discussions we will have
today will include "forward looking statements," as that term is defined under
the Private Securities Litigation Reform Act of 1995. What we and the Act mean
by forward looking statements are all statements we make, other than those
dealing specifically with historical matters (that is our historical financial
results, which are the subject of our report, and any statements we make about
the conduct of our business, operations and finances up to this moment). All
other statements we make are forward looking statements. Our forward looking
statements include any information we provide on future business operations and
guidance regarding the future financial performance of the Company and any
information regarding the likelihood, timing, cost and any benefits of any of
the business restructuring activities we will discuss today. All forward looking
statements mentioned are subject to risks and uncertainties that could cause the
actual results to differ, possibly materially, from those projected in the
forward looking statements. Some, but not all, of these risks and uncertainties
are discussed from time to time in the press releases and securities filings of
the company with the SEC, particularly the "Risk Factor" section of our Form
10-Q to be filed in the near term for the quarter ended March 31, 2001.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
First, let me explain the timing of this announcement. We originally scheduled
the announcement of third quarter results for this Thursday, April 26. But we
wanted to announce our restructuring early in the week to give us more time to
meet with our employees around the world without having an intervening weekend.
We elected not to announce the rescheduling of the earnings release date because
of the high level of speculation this would have caused in these times of market
uncertainty and intense news coverage and analysis of every scrap of
information. Also, I would like to announce that our investor meeting previously
scheduled for Friday, May 11 in West Trenton, NJ will be rescheduled to a later
date.
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Jozef....
JOZEF
JDS Uniphase operates in a highly competitive and fast-paced market environment,
which constantly requires keen focus, agility, and a sound financial structure.
In these difficult times it is particularly imperative that we align our product
development strategy, organization, and financial structure to continue to
provide high value solutions that support our customers in their efforts to
succeed in a wide range of expanding market and changing economic conditions.
While we will be discussing a number of very important changes today, underlying
each of these decisions is our commitment to continue to be responsive to the
needs of all of our stakeholders -- our customers, our employees, our
communities, and our stockholders.
In times of high growth we have responded aggressively through expansion and
acquisition. Today, we are responding as aggressively during more difficult
times.
Let me summarize the important news we are reporting today:
- - Our third quarter results were consistent with our previous guidance as we
reported sales of $920 million and pro forma earnings of $.14 per share.
- - The Global Realignment Program we announced today is our commitment to
continued competitiveness in these economic times and into the future. In
the Program we have focused on three key areas in which we are committed in
being leaders:
- product technology, performance and innovation;
- manufacturing excellence;
- and customer service
- - To achieve these goals we are taking the following actions:
- First, we are creating global centers for advanced product development.
These centers are intended to provide product development teams with the
critical mass necessary to develop future generations of products and
fiberoptic technologies. As part of this initiative, we are eliminating
overlapping product development programs and creating global centers of
excellence. For example, Ottawa will focus on wavelength division
multiplexing and optical switching, San Jose will concentrate on passive
components for fiber amplifiers and pump laser packaging will be
centered in Victoria, British Columbia.
- Second, we are consolidating the manufacturing of several products from
multiple sites into specific locations around the world. This process
involves consolidating product lines, standardizing on global product
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designs, and relocating products to operations designated as global
centers of manufacturing excellence.
- Third, to improve our customer service we are aligning our sales
organization to offer customers a single point of contact and creating
technical and support centers to streamline customer interactions with
product line managers. We are also building on our successful
information technology implementations to consolidate administrative
functions with the goal to provide improved customer service and realize
significant cost savings.
- - To achieve this realignment and to keep JDS Uniphase competitive now and in
the future we are taking a number of actions to reduce our spending levels,
which we will describe later in this call.
Now, let me ask Tony to review the numbers for the quarter.
TONY MULLER
NUMBERS FOR THE QUARTER
As Jozef said, we met our guidance for the quarter
a) We reported $920 million in sales for the quarter and this was
fractionally below the second quarter and approximately at the level of
our latest guidance. Normalizing for the merger with SDL and the Zurich
divestiture, this represented a sequential sales decline of
approximately 8%, reflecting business conditions in our industry. Sales
were 90% above pro forma combined sales of $485 million in the third
quarter last year.
b) Our customer base is becoming increasingly more diversified -- our top
ten customers represented over 70% of sales in the December quarter and
just above 60% in the March quarter. Alcatel was our only 10% customer
in the quarter.
c) Our book-to-bill ratio was below one for the quarter.
We have revised our segment reporting to reflect the organization of our
Company following our merger with SDL.
(1) Amplification and transmission (A&T)-- this segment represented
47% of total sales and increased 57% from the second quarter
(a) Source lasers, modulators and detectors grew sequentially
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(b) Transponders grew several-fold over the second quarter
(c) Sales of amplifiers declined
(d) A&T sales also grew sequentially because of the effect of
the SDL merger, offset in part by the Zurich divestiture
(2) WDM, switching and thin film products represented 53% of total
sales and declined 26% from the second quarter. (Please note that
this segment includes our non-telecommunications businesses
because of their common reporting relationship)
(a) WDM and fiber amplifier component sales as well as other
passive components declined, some sharply, during the
quarter; however fiber Bragg grating products showed good
growth from the second quarter
(b) Test equipment also grew from the second quarter.
- Gross margin
- Pro forma gross margin was 48.6% of sales for the quarter. This
number is below our guidance reflecting lower sales, the higher
fixed cost structure resulting from the SDL merger, and higher
inventory reserves reflecting our lower sales visibility.
- R&D (pro forma)
- 10% of sales for the quarter.
- SG&A (pro forma)
- SG&A was 13.6% of sales for the quarter.
Both expense levels increased as a percentage of sales because of lower sales.
Summary data
- JDS Uniphase reported $230 million in pro forma operating profit for the
quarter, a margin of 25% of sales.
- Pro forma interest and other income were $12.1 million for the quarter.
- Our pro forma tax rate was 34% for the quarter.
- Diluted shares were 1.182 billion.
- Pro forma earnings were $160 million or $0.14 per share, equal to our
latest guidance.
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Balance Sheet
- We had $133 million in cash flow from operations for the quarter, $289
million year to date.
- Cash and short-term investments were $1.05 billion at the end of the
quarter. In addition, we held $923 million in marketable equity
securities at March 31, 2001.
- Capital spending was $236 million for the quarter. In connection with
our Global Realignment we are reducing our capital spending and expect
to invest $190 million in the fourth quarter, and that would bring
capital spending for the year to slightly above $750 million for the
year.
- DSAR and inventory turns, adjusted for the impact of the purchase
accounting for the SDL merger, were 61 days and 3.6 annual turns,
respectively.
The Company is evaluating the carrying value of certain long-lived assets,
consisting primarily of $56.2 billion of goodwill recorded on its balance sheet
at March 31, 2001. Pursuant to accounting rules, the majority of the goodwill
was recorded based on stock prices at the time merger agreements were executed
and announced. The Company's policy is to assess enterprise level goodwill if
the market capitalization of the Company is less than its net assets. Goodwill
will be reduced to the extent that net assets are greater than market
capitalization. At March 31, 2001, the value of the Company's net assets,
including unamortized goodwill exceeded the Company's market capitalization by
approximately $40 billion.
Downturns in telecommunications equipment and financial markets have created
unique circumstances with regard to the assessment of goodwill, and the Company
has sought the counsel of the Staff of the Securities and Exchange Commission on
the interpretation of generally accepted accounting principles with regard to
this matter. The Company anticipates recording additional charges to reduce the
carrying value of the unamortized goodwill and other long-lived assets and such
adjustments could represent a substantial portion of the carrying value. Some of
these charges may be recorded as an adjustment to the Company's financial
statements at March 31, 2001 and the Company would report such adjustments in
subsequent SEC filings.
This situation can be better understood when considering how goodwill was
recorded for the SDL merger. The merger closed on February 13, and two things
happened at that time: we issued JDS Uniphase shares valued by the market at
$38.50 to SDL stockholders, and we recorded $40 billion of goodwill from the
transaction based on a July, 2000 price of $111, as required by generally
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accepted accounting principles. SDL stockholders received shares representing
25% of the combined company, and we feel strongly that the parts of JDS Uniphase
represented by what was SDL today represent that portion of the value of the
entire company.
Jozef will now review some of the things we are seeing in the marketplace, give
you more details on our global realignment program and provide an overview of
some of our successes during the third quarter.
JOZEF STRAUS
MARKET REVIEW
First I would like to reflect on some things we are seeing in the marketplace:
- - Much of the current focus is on the building out of existing installations
to maximize recent investments--for instance, companies are completing the
lighting up of all deployed channels, as well as installing components and
modules that allow the further utilization of the existing installations.
- - Inventories of legacy products are high with many customers choosing to
write off this equipment.
- - The metro marketplace growth continues to be steady, both for DWDM products
as well as SONET products.
- - The North American market has slowed down more quickly than Europe, so
customers with less exposure in North American are more bullish.
- - Nonetheless, our customers, large and small, established and start-up,
continue to design new, next generation systems aggressively and we are
supporting them all. Our design activity continues unabated and we believe
that we are very well positioned with all of the systems manufacturers.
- - Our design activity with major customers is very strong and we are
positioning ourselves to have significant share in the next generation
systems when they hit the market.
GLOBAL REALIGNMENT PROGRAM DETAILS
Now let me provide you with some details about our Global Realignment Program.
Tony will describe the financial implications when he provides guidance for
future periods.
1. As I said earlier our GLOBAL REALIGNMENT PROGRAM is an important step
toward our goal of being a leader in:
- product technology, performance and innovation;
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- manufacturing excellence;
- and customer service
2. Some of the actions we are taking specifically to build on our leadership
in product technology, performance and innovation include creating global
centers of excellence. In addition to Ottawa, San Jose and Victoria, we now
have:
- dedicated amplifier teams focused on Raman, wide band and
micro-amplifiers, respectively;
- two telecommunication laser teams focused on high-power pump lasers and
one on high-speed transmission lasers;
- and one fused coupler team focused on development and advanced
manufacturing operations with high volume manufacturing operations
transferred to our factories in China.
3. To improve our manufacturing excellence, we are:
- moving products developed in Richardson, Texas to San Jose, California;
- considering the consolidation of product development and manufacturing
of the optical performance monitoring products from Bracknell, England
into our operations in Toronto, Ontario;
- transferring significant manufacturing to China to take greater
advantage of its strong optical expertise base and favorable cost and
tax environment;
4. And to provide our customers with the best customer service in the
industry, we are:
- aligning our sales team to offer our customers a single point of
contact.
- streamlining customer interactions with product line managers.
- building on our successful information technology implementations to
consolidate administrative functions to provide improved customer
service and realize significant cost savings.
5. This Global Realignment Program will result in our vacating 25 buildings or
separable portions of buildings in which we remain and reducing our global
workforce by approximately 5,000 employees or 20%. The percentage of
reductions within both our active and passive business groups are nearly
identical, though a larger number of employees are affected in the passive
business group due to its size.
- We are also shutting down some of our operations for one week during Q4
to reduce expenses as well.
The precise timing of our restructuring is driven by our business requirements,
and the time required to transfer product lines and manufacturing operations. We
anticipate that the bulk of the reductions in employment will be completed by
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the end of Q1 (September), although some transitions will not be complete by
that date. All of these actions are of course subject to local regulations.
By making the commitment to consolidate, focus and streamline our company to
achieve these goals we expect to create a company that endures and leads in
order to create ongoing value for all our stakeholders: our customers, our
employees, our communities, and our stockholders.
While these are deep and profound changes to the company that align us to
current market conditions, we are very confident in our ability to increase
production to meet customer demand when it increases. Through a combination of
automation, overtime and our past experience of dealing with high growth we
believe we are ready for what the future will bring. Please keep in mind that
during recent periods of extraordinary demand growth, we were compelled to focus
on effectiveness as we did everything we could to increase production. Now, as
we realign our business, we can concentrate on efficiency as well as
effectiveness, and we believe we can re-craft our operations to increase our
agility, lower costs and the ability to respond to rapid changes in demand.
Q3 NEW PRODUCT AND DESIGN WIN REVIEW
Finally, let me spend some time talking about our third quarter. We have had
over 50 new design wins this quarter, while at the same time introduced over 70
new products during the Optical Fiber Conference in March. Many of these new
products were highlighted in an end to end system demonstration using only JDSU
products -- and we are very proud to be the only component vendor capable of
offering such a comprehensive product portfolio. Some of our new standout
products highlighted at the show included: dynamic gain equalizers, tunable
dispersion compensators, 40 Gb/s modulators, Raman amplification pumps, next
generation 980 nm pump lasers, and MEMS-based optical switches.
I will make specific comments on design wins and new product introductions
around the new organizational structure that we outlined during our call
announcing the closing of our merger with SDL. You may recall that we have two
business groups: one is the Amplification and Transmission Business Group led by
Don Scifres and Greg Dougherty and the other is the WDM, Switching and Thin Film
Products Business Group led by Jay Abbe. Some of the key achievements from the
Amplification and Transmission Business Group were:
- - In source lasers, we won four metro system design-ins during the quarter
for our directly-modulated laser (DML) product line leading to a doubling
of our revenue quarter over quarter. We have also introduced a 40 mW
temperature-tunable CW laser launched at OFC.
- - In our fiber amplifier business we have completed the integration of our
SDL and JDS Uniphase optical amplifier groups and we were selected as the
primary vendor to supply narrowband optical amplifiers to a key submarine
system supplier.
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- - We are in volume production of ultra-long haul optical amplifiers for a
major customer, for whom we are also developing Raman pump units.
- - Another important event during this quarter was our agreement with Fujitsu
regarding z-cut lithium niobate technology which offers new advantages to
our customers:
- In partnership with Fujitsu, we will be manufacturing and marketing a
comprehensive line of optical modulators that we believe will deliver
industry leading performance, stability, and value for 10 and 40 Gb/s
applications
- We expect prototypes to be available in the summer with volume
production beginning in the fall of 2001 from our Bloomfield,
Connecticut facility
- JDS Uniphase and Fujitsu will continue to discuss other possible
business partnerships in addition to this z-cut patent licensing.
Within the WDM, Switching and Thin Film Products Business Group we have achieved
important design-wins during the third quarter for numerous products including:
band filter modules, 100 GHz muxes, optical add drop multiplexers, dynamic gain
equalizers, dynamic gain flattening filters, optical performance monitors,
interleavers and wavelength lockers.
One of our key goals is to be number one in product technology, performance and
innovation and I believe that our recent achievements are an indication of our
success in that area. As you may already know, next generation systems have
higher optical component and module content and I am proud to say that at some
customers we have been selected for design-ins for over 50% of all the optical
content of their next generation systems. We feel that this activity is our best
barometer of an eventual turnaround in the industry.
One last announcement, Zita Cobb, our Executive Vice President of Strategy and
Business Development, will be taking a well-deserved leave of absence --
literally -- to sail the seven seas in her boat. As some of you know, Zita took
a leave of absence several years ago for a year and returned, and we are hopeful
she will do so again. Zita has made immeasurable contributions to the success of
our company, and we wish her smooth sailing.
Now Tony will take you through our future guidance.
Tony.......
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TONY MULLER
GUIDANCE, RESTRUCTURING COSTS
First, let me detail the effect of the Global Realignment Program described
earlier in the call.
In the fourth quarter we will be recording one time charges covering employee
severance, consolidation of product lines, closing of some operations, vacating
approximately 25 buildings, and inventory write-offs associated with the
consolidation different product designs and manufacturing processes onto single
global manufacturing platforms. In addition to these one time charges, we will
incur costs for accelerated depreciation, moving and employee retention costs in
the first three quarters of fiscal 2002. It is physically impossible to retire
all facilities, move all equipment and re-qualify products in a single quarter.
Therefore, certain facilities and equipment will be phased out over the next
three quarters. Accounting rules require that we accelerate the depreciation of
these assets over this phase out period (3 to 9 months) and expense moving and
employee retention as incurred. It is anticipated that the costs of the Global
Realignment Program will be between $375 and $425 million. We will break these
costs out separately in future financial reports.
We expect our Global Realignment Program to reduce our annual expense levels by
over $250 million. While it is quite painful to make these changes, we are
making JDS Uniphase into a leaner, more competitive company with sharply lower
costs without reducing our level of investment in new product development.
We believe this Global Realignment Program will position JDS Uniphase to be
profitable at lower sales rates than we have recently achieved -- our
projections are that at $700 million in quarterly sales we can achieve a pro
forma operating margin of 15% of sales with the ability to earn higher margins
with any future sales recovery.
Our guidance for future periods is as follows:
- - We remain in a downturn resulting from lower carrier capital spending and
inventory reductions by our system supplier customers. In addition, we will
incur the charges associated with the Global Realignment Program discussed
earlier.
- - Please keep in mind that our Global Realignment Program is taking place
almost one-third of the way into the quarter.
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- - Our current expectation is that fourth quarter sales will be approximately
$700 million, a sequential sales decline of 24%. (27% adjusting for the SDL
merger.)
Is this the bottom? We are not sure, but believe that our customers' inventory
disinvestment could have run its course by the end of the June or September
quarter. After conclusion of the inventory disinvestment, our sales will be
closely related to carrier capital spending. Given these uncertainties, we have
limited visibility as to future sales and we are not currently providing sales
guidance for fiscal 2002.
Excluding restructuring costs, but including the higher level of costs for April
(the first month of the quarter), we anticipate the following expense and profit
structure for the June quarter:
- Gross margin -- 41% (reflecting lower volumes)
- R&D -- 11%
- SG&A -- 16%
- Pro forma operating margin -- 14%
- Tax rate -- 34%
- Shares outstanding -- 1.394 billion
- E.P.S. - $0.05
In a quarter with the full impact of our global realignment, we anticipate that
our gross margin would be 42% of sales, our operating margin 15% and EPS at
$0.06 at $700 million in quarterly sales.
Jozef....
JOZEF
To summarize, we remain confident about the long-term growth prospects for
optical telecommunications, and we believe that current market conditions are
only a temporary slowdown in one of the great growth markets of our time. With
the changes we have announced today, we believe JDS Uniphase will be well
positioned to meet the challenges and opportunities ahead, most importantly to
be able to meet the needs of our customers and to continue to remain a leader in
our industry. We believe that we are concentrating on the most promising new
product development programs in the industry, that we have streamlined our
organization, and that we are significantly improving the cost structure and
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competitiveness of JDS Uniphase. We have the broadest product line in our
industry, a broad array of attractive new product development programs,
effective low-cost manufacturing around the world, and a team that will number
over 20,000 capable professionals dedicated to meeting our customers' needs on a
global scale.
We can now open the call to questions.
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