[JDS UNIPHASE LOGO]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number 0-22874
-----------------------------
JDS Uniphase Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2579683
- --------------------------------------------- -----------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
210 Baypointe Parkway
San Jose, CA 95134
- --------------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
(408) 434-1800
- ---------------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock outstanding as of the latest practicable date,
November 1, 2001 was 1,327,696,241, including 153,549,804 Exchangeable Shares of
JDS Uniphase Canada Ltd. Each Exchangeable share is exchangeable at any time
into Common Stock on a one-for-one basis, entitles a holder to dividend and
other rights economically equivalent to those of the Common Stock, and through a
voting trust, votes at meetings of stockholders of the Registrant.
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
September 30, June 30,
2001 2001
------------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 290.7 $ 762.8
Short-term investments 1,463.4 1,049.4
Accounts receivable, less allowance for doubtful accounts
of $53.3 at September 30, 2001 and $40.3 at June 30, 2001 260.7 477.6
Inventories 232.1 287.6
Deferred income taxes 461.9 340.2
Refundable income taxes 31.2 31.2
Other current assets 92.1 87.5
--------- ---------
Total current assets 2,832.1 3,036.3
Property, plant and equipment, net 976.8 1,173.0
Deferred income taxes 398.1 806.3
Goodwill and other intangible assets, net 6,564.2 7,045.6
Long-term investments 136.7 169.0
Other assets 20.5 15.2
--------- ---------
Total assets $10,928.4 $12,245.4
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 94.4 $ 190.6
Accrued payroll and related expenses 103.5 133.0
Income taxes payable 31.6 30.6
Restructuring accrual 165.1 105.2
Deferred income taxes 28.2 63.0
Warranty accrual 84.1 49.7
Other current liabilities 255.1 276.4
--------- ---------
Total current liabilities 762.0 848.5
Deferred income taxes 618.8 672.4
Other non-current liabilities 4.4 5.2
Long-term debt 10.7 12.8
Stockholders' equity:
Preferred stock -- --
Common stock and additional paid-in capital 68,018.4 67,955.3
Accumulated deficit (58,448.8) (57,224.4)
Accumulated other comprehensive loss (37.1) (24.4)
--------- ---------
Total stockholders' equity 9,532.5 10,706.5
--------- ---------
Total liabilities and stockholders' equity $10,928.4 $12,245.4
========= =========
See accompanying notes to condensed consolidated financial statements
2
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended
--------------------------------
September 30, September 30,
2001 2000
------------- -------------
Net sales $ 328.6 $ 786.5
Cost of sales 343.3 436.7
--------- ---------
Gross profit (loss) (14.7) 349.8
Operating expenses:
Research and development 69.2 62.4
Selling, general and administrative 106.3 116.2
Amortization of purchased intangibles 443.3 1,107.4
Acquired in-process research and development -- 8.9
Reduction of goodwill and other long-lived assets 42.0 --
Restructuring charges 243.0 --
--------- ---------
Total operating expenses 903.8 1,294.9
Loss from operations (918.5) (945.1)
Reduction in value of investments (106.5) --
Activity related to equity method investments (19.3) (41.2)
Interest and other income, net 15.1 13.6
--------- ---------
Loss before income taxes (1,029.2) (972.7)
Income tax expense 195.2 43.9
--------- ---------
Net loss $(1,224.4) $(1,016.6)
========= =========
Basic and dilutive loss per share $ (0.93) $ (1.07)
========= =========
Shares used in per share calculation:
Basic and dilutive 1,322.7 946.6
========= =========
See accompanying notes to condensed consolidated financial statements
3
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net loss ..................................................................... $(1,224.4) $(1,016.6)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation expense ...................................................... 78.9 31.9
Amortization expense ...................................................... 443.3 1,107.4
Acquired in-process research and development .............................. -- 8.9
Amortization of deferred compensation ..................................... 23.8 --
Reduction of goodwill and other long-lived assets ......................... 42.0 --
Noncash restructuring costs ............................................... 141.3 --
Activity related to equity method investments ............................. 19.3 41.2
Reduction in value of investments ......................................... 106.5 --
Tax benefit on non-qualified stock options ................................ -- 44.7
Change in deferred income taxes, net ...................................... 198.2 (11.2)
Loss on disposal of fixed assets .......................................... 4.5 --
Changes in operating assets and liabilities:
Accounts receivable ....................................................... 216.9 (111.7)
Inventories ............................................................... 55.5 (12.3)
Other current assets ...................................................... (4.6) 9.2
Income taxes payable ...................................................... 1.0 (42.1)
Accounts payable, accrued liabilities, warranty accrual, and other
current liabilities ..................................................... (35.1) (27.4)
-------- --------
Net cash provided by operating activities ...................................... 67.1 22.0
-------- --------
INVESTING ACTIVITIES
Purchase of available-for-sale investments, net .............................. (502.9) (144.2)
Acquisitions of businesses, net of cash acquired ............................. (5.7) (65.2)
Purchase of property, plant and equipment .................................... (55.6) (144.7)
Other assets, net ............................................................ (5.3) (18.0)
-------- --------
Net cash used in investing activities .......................................... (569.5) (372.1)
-------- --------
FINANCING ACTIVITIES
Repayment of debt ............................................................ (2.1) (3.4)
Proceeds from issuance of common stock ....................................... 33.4 249.7
-------- --------
Net cash provided by financing activities ...................................... 31.3 246.3
-------- --------
Effect of exchange rates on cash and cash equivalents .......................... (1.0) (1.9)
-------- --------
Decrease in cash and cash equivalents .......................................... (472.1) (105.7)
Cash and cash equivalents at beginning of period ............................... 762.8 319.0
-------- --------
Cash and cash equivalents at end of period ..................................... $ 290.7 $ 213.3
======== ========
See accompanying notes to condensed consolidated financial statements
4
JDS UNIPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
The financial information at September 30, 2001 and for the three months ended
September 30, 2001 and 2000 is unaudited, but includes all adjustments
(consisting only of normal recurring adjustments) that the JDS Uniphase
Corporation ("JDS Uniphase" or the "Company") considers necessary for a fair
presentation of the financial information set forth herein, in accordance with
generally accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such
information does not include all of the information and footnotes required by
generally accepted accounting principles for annual financial statements. For
further information, refer to the Consolidated Financial Statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended June 30, 2001.
The balance sheet at June 30, 2001 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The results for the three months ended September 30, 2001 may not be indicative
of results for the year ending June 30, 2002 or any future period.
The Company operates and reports financial results on a fiscal year ending on
the Saturday closest to June 30. The first fiscal quarter of 2002 and 2001 ended
on September 29, 2001 and September 30, 2000, respectively. For ease of
discussion and presentation, all accompanying financial statements have been
shown as ending on the last day of the calendar month.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations except for qualifying business combinations that were
initiated prior to July 1, 2001. In addition, SFAS 141 further clarifies the
criteria to recognize intangible assets separately from goodwill. Specifically,
SFAS 141 requires that an intangible asset may be separately recognized only if
such an asset meets the contractual-legal criterion or the separability
criterion. The requirements of Statement 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001 (i.e., the acquisition date is July 1, 2001 or after). The Company is
currently evaluating the impact of SFAS 141 and has not yet determined the
impact that adopting SFAS 141 will have on its financial statements. On
adoption, the Company will be required to reassess the goodwill and intangible
assets previously recorded in acquisitions prior to July 1, 2001 to determine if
the new recognition criteria for an intangible asset to be recognized apart from
goodwill are met. As of September 30, 2001, the Company has approximately $42.2
million of separately recognized intangible assets that do not meet the new
recognition criteria for an intangible asset to be recognized apart from
goodwill and the unamortized balance as of June 30, 2002 will be reclassified to
goodwill.
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142,
goodwill and indefinite lived intangible assets are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. For intangible assets with indefinite useful lives, the impairment
review will involve a comparison of fair value to carrying value, with any
excess of carrying value over fair value being recorded as an impairment loss.
For goodwill, the impairment test shall be a two-step process, consisting of a
comparison of the fair value of a reporting unit with its carrying amount,
including the goodwill allocated to each reporting unit. If the carrying amount
is in excess of the fair value, the implied fair value of the reporting unit
goodwill is compared to the carrying amount of the reporting unit goodwill. Any
excess of the carrying value of the reporting unit goodwill over the implied
fair value of the reporting unit goodwill will be recorded as an impairment
loss. Separable intangible assets that are deemed to have a finite life will
continue to be amortized over their useful lives (but with no maximum life).
Intangible assets with finite useful lives will continue to be reviewed for
impairment in accordance with Statements of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The amortization provisions of SFAS 142
apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, the
Company will apply the new accounting rules beginning July 1, 2002 and will
reassess the useful lives of its separately recognized intangible assets in the
first quarter of fiscal 2003. The Company will review for impairment previously
recognized intangible assets that are deemed to have indefinite lives upon the
completion of this analysis in the first quarter of fiscal 2003. Additionally,
upon the adoption of
5
SFAS 142, the Company will perform a transitional impairment review related to
the carrying value of goodwill as of July 1, 2002 by the end of the second
quarter of fiscal 2003. Because of the different transition dates for goodwill
and intangible assets acquired on or before June 30, 2001 and those acquired
after that date, pre-existing goodwill and intangibles will be amortized during
this transition period until adoption whereas new goodwill and indefinite lived
intangible assets acquired after June 30, 2001 will not. The Company is
currently in the process of determining its reporting units for the purpose of
applying the impairment test, analyzing how fair value will be determined for
purposes of applying SFAS 142 and quantifying the anticipated impact of adopting
the provisions of SFAS 142. The adoption of SFAS 142 is expected to have a
material impact on the results of operations primarily due to the
nonamortization of goodwill subsequent to the adoption of SFAS 142. Amortization
of goodwill was $332.7 million for the three months ended September 30, 2001.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supercedes SFAS 121 and the provisions of Accounting Principles
Board Opinion (APB 30), "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" with regard to reporting the
effects of a disposal of a segment of a business. SFAS 144 retains many of the
provisions of FAS 121, but significantly changes the criteria that would have to
be met to classify an asset as held for disposal such that long-lived assets to
be disposed of other than by sale are considered held and used until disposed
of. In addition, SFAS 144 retains the basic provisions of APB 30 for
presentation of discontinued operations in the statement of operations but
broadens that presentation to a component of an entity. The Company will apply
SFAS 144 beginning July 1, 2002. The Company is currently evaluating the
potential impact, if any, the adoption of SFAS 144 will have on its financial
position and results of operations.
NOTE 2. COMPREHENSIVE LOSS
Accumulated other comprehensive loss presented in the accompanying consolidated
balance sheets consists of the accumulated net unrealized gains or losses on
available-for-sale short term investments and foreign currency translation
adjustments, net of the related tax effect for all periods presented. The tax
effects for unrealized losses on short-term investments included in other
comprehensive loss were immaterial. At September 30, 2001 and June 30, 2001, the
Company had a balance of unrealized gains on available-for-sale investments of
$11.0 million and $5.8 million, respectively. Additionally, at September 30,
2001 and September 30, 2000, the Company had $48.1 million and $30.2 million,
respectively, of foreign currency translation losses. The components of
comprehensive loss are as follows (in millions):
Three months ended
September 30,
---------------------------
2001 2000
--------- ---------
Net loss $(1,224.4) $(1,016.6)
Unrealized gains (losses) 5.3 (1.6)
Change in foreign currency translation (18.0) (15.3)
--------- ---------
Total comprehensive loss $(1,237.1) $(1,033.5)
========= =========
NOTE 3. FINANCIAL INSTRUMENTS
Investments
At September 30, 2001, the Company had 24.7 million shares of Nortel Networks
Corporation ("Nortel") common stock with a fair value of $138.6 million. During
the three months ended September 30, 2001, the Company recognized a reduction in
market value of $84.5 million associated with the 24.7 million shares held by
the Company as of September 30, 2001, as the Company has determined the decline
in the market value of the shares of Nortel common stock to be other-than-
temporary. The reduction in market value has been included in the line item
"Reduction in value of investments" in its Statement of Operations. Should the
market value of the shares of Nortel common stock held by or later sold by the
Company continue to decline in the near future, the Company may record
additional losses related to these shares.
During the three months ended September 30, 2001, the Company recorded a charge
of approximately $9.6 million related to a decline in the market value of other
available-for-sale investments that were deemed to be other-than-temporary. The
reduction in market value has been included in the line item "Reduction in value
of investments" in its Statement of Operations.
Additionally, during the three months ended September 30, 2001, the Company
recorded a charge of approximately $12.4 million related to a decline in the
fair value of the Company's non-marketable equity securities accounted for under
the cost
6
method that was deemed to be other-than-temporary. The reduction in fair value
has been included in the line item "Reduction in value of investments" in its
Statement of Operations.
Equity Method Investments
ADVA: At September 30, 2001, the Company had a 29 percent ownership stake in
ADVA. For the three months ended September 30, 2001, the Company recorded $0.7
million in amortization expense related to the difference between the cost of
the investment and the underlying equity in the net assets of ADVA. The
significant decline in the market value of ADVA, as of September 30, 2001, which
the Company determined was other-than-temporary required that its carrying value
be written down to market value and the amount of the write-down was included in
earnings. As a result, the Company recognized a $13.9 million charge to earnings
to write down the basis of its investment in ADVA. For the three months ended
September 30, 2001, under the equity method, the Company recorded a net loss of
$4.4 million as its pro rata share of ADVA's net loss.
The Photonics Fund, LLP: At September 30, 2001, the Company had a 40 percent
stake in The Photonics Fund, LLP, a California limited liability partnership
(the "Partnership"), which emphasizes privately negotiated venture capital
equity investments. For the three months ended September 30, 2001, under the
equity method, the Company recorded a net gain of $0.4 million as its pro rata
share of the Partnership net gain.
The Company's other equity method investments resulted in an aggregate net loss
of $0.7 million
NOTE 4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company's objectives and strategies for holding and issuing derivatives is
to minimize the transaction and translation risks associated with non-functional
currency transactions.
The Company conducts its business in a number of foreign countries and sells its
products directly to customers in Australia, Canada, China, France, Germany,
Hong Kong, Japan, Netherlands, Taiwan, Singapore and the United Kingdom through
its foreign subsidiaries. These sales are often denominated in the local
country's currency. Therefore, in the normal course of business, the Company's
financial position is routinely subjected to market risk associated with foreign
currency rate fluctuations. The Company's policy is to ensure that business
exposures to foreign exchange risks are identified, measured and minimized using
the most effective and efficient methods to eliminate or reduce such exposures.
The Company has entered into a number of foreign currency forward contracts, but
has not designated such contracts as hedges for accounting purposes. The foreign
currency forward contracts generally expire within 30 to 90 days. The change in
fair value of these foreign currency forward contracts is recorded as income
(loss) in the Company's Statement of Operations as a component of interest
income and other, net. The notional amount associated with these foreign
currency forward contracts at September 30, 2001 is approximately $63.7 million
and the fair value of such contracts is not material to the Company's financial
statements. The Company does not use derivatives for trading purposes.
NOTE 5. INVENTORIES
The components of inventory consist of the following (in millions):
September 30, June 30,
2001 2001
------------- --------
Raw materials and purchased parts $ 68.0 $ 56.1
Work in process 66.2 99.2
Finished goods 97.9 132.3
------ ------
$232.1 $287.6
====== ======
The Company recorded an inventory write-down of $62.4 million during the first
quarter of 2002 largely for products becoming obsolete due to its new product
introductions.
NOTE 6. INTANGIBLE ASSETS, INCLUDING GOODWILL
The components of intangible assets are as follows (in millions):
7
September 30, June 30,
2001 2001
------------- ---------
Goodwill $10,958.2 $10,985.6
Purchased intangibles 2,340.7 2,353.6
Licenses and other intellectual property 4.5 4.5
--------- ---------
13,303.4 13,343.7
Less: accumulated amortization (6,739.2) (6,298.1)
--------- ---------
$ 6,564.2 $ 7,045.6
========= =========
The Company recorded a reduction of goodwill and other intangible assets of
$42.0 million during the first quarter of 2002 (see Note 10).
NOTE 7. LOSS PER SHARE
As the Company incurred a loss for the three months ended September 30, 2001 and
2000, the effect of dilutive securities totaling 26.6 million and 64.8 million
equivalent shares, respectively, have been excluded from the computation of loss
per share as they are antidilutive.
The following table sets forth the computation of basic and diluted loss per
share (in millions, except per share data):
September 30, September 30,
2001 2000
------------- -------------
Denominator for basic and dilutive loss per share -- weighted
average shares 1,322.7 946.6
========= =========
Net loss $(1,224.4) $(1,016.6)
========= =========
Basic and dilutive loss per share $ (0.93) $ (1.07)
========= =========
NOTE 8. INCOME TAX EXPENSE
The Company recorded a tax provision of $195.2 million in the first quarter of
2002 as compared to $43.9 million in the same period of the prior year. The
provision for income taxes recorded in the first quarter of 2002 differs from
the expected tax benefit that would be calculated by applying the federal
statutory rate to the loss before income taxes primarily due to non-deductible
acquisition-related charges, write-offs of deferred tax assets recorded in prior
business combinations relating to assumed employee stock options that either
expired unexercised or were exercised during the quarter when the market value
of the underlying stock was less than the previously recorded value at the
business combination date, and increases in the valuation allowance for non
current deferred tax assets due to a reduction in the Company's forecast of
future domestic taxable income. Although realization of the Company's net
deferred tax assets as of September 30, 2001 is not assured, management believes
it is more likely than not that these deferred tax assets will be realized. The
amount of deferred tax assets considered realizable, however, could be reduced
in the near term if forecasts of future domestic taxable income are reduced.
The Company anticipates that its tax provision or benefit for income taxes
recorded in subsequent quarters of fiscal 2002 may be affected by write-offs of
deferred tax assets recorded for employee stock options assumed in prior
business combinations that either expire unexercised or are exercised in
subsequent quarters when the market value of the underlying stock is less than
the previously recorded value at the business combination date.
NOTE 9. OPERATING SEGMENTS
During the first quarter of 2002, JDS Uniphase changed the structure of its
internal organization. Segment information for the prior years has been restated
to conform to the current year's presentation.
The Chief Executive Officer has been identified as the Chief Operating Decision
Maker as defined by Statement of Financial Accounting Standards No. 131 ("SFAS
131"). The Chief Executive Officer allocates resources to each segment based on
their business prospects, competitive factors, net sales and operating profits
before interest, taxes, and certain purchase accounting related costs.
8
JDS Uniphase designs, develops, manufactures and markets optical components and
modules at various levels of integration. The reportable segments are each
managed separately because they manufacture and distribute distinct products
with different production processes. The Company views its business as having
two principal operating segments: (i) Transmission and Network Components Group,
and (ii) Thin Film Filters and Instrumentation Group. The Transmission and
Network Components Group consists primarily of source lasers, pump lasers, pump
modules, external modulators, transmitters, transceivers, optical photodetectors
and receivers, isolators, wavelength division multiplexing (WDM) couplers,
monitor tap couplers, gratings, circulators, optical switches, tunable filters,
micro-electro-mechanical-systems, waveguides, switches, and optical amplifier
products used in telecommunications and cable television ("CATV") applications.
The Thin Film Filters and Instrumentation Group includes thin film filters,
instruments, industrial lasers, and optical display and projection products. The
Company's other operating segments, which are below the quantitative threshold
defined by SFAS 131, are disclosed in the "all other" category and consist of
certain unallocated corporate-level operating expenses. All of the Company's
products are sold directly to original equipment manufacturers and industrial
distributors throughout the world.
Where practicable, the Company allocates corporate sales, marketing, finance and
administration expenses to operating segments, primarily as a percentage of net
sales. Certain corporate-level operating expenses (primarily charges originating
from purchased intangibles, activity related to equity method investments, loss
on sale of investments, other expenses and acquired-in process research and
development expenses) are not allocated to operating segments. In addition, the
Company does not allocate income taxes, non-operating income and expenses or
specifically identifiable assets to its operating segments.
9
Intersegment sales are recorded at either cost or cost plus an agreed upon
intercompany profit on intersegment sales. Information on reportable segments is
as follows (in millions):
Three months ended
-------------------------------
September 30, September 30,
2001 2000
------------- -------------
Transmission and Network Components:
Shipments $ 242.8 $ 698.0
Intersegment sales -- --
--------- --------
Net sales to external customers 242.8 698.0
Operating income (loss) (323.8) 215.0
Thin Film Products and Instrumentation:
Shipments 88.9 128.2
Intersegment sales (5.1) (39.7)
--------- --------
Net sales to external customers 83.8 88.5
Operating income (loss) (18.0) 58.7
Net sales by reportable segments 326.6 786.5
All other net sales 2.0 --
--------- --------
328.6 786.5
--------- --------
Operating income (loss) by reportable
segment (341.8) 273.7
All other operating loss (67.1) (19.0)
Unallocated amounts:
Acquisition related charges and
payroll taxes on stock option exercises (509.6) (1,199.8)
Reduction in fair value of investments (106.5) --
Activity related to equity method
investments (19.3) (41.2)
Interest and other income, net 15.1 13.6
--------- --------
Loss before income taxes $(1,029.2) $ (972.7)
========= ========
10
NOTE 10. SPECIAL CHARGES
Balance as Balance as of
of June 30, Additional Cash Non-cash September 30,
2001 Charges Payments Charges 2001
----------- ---------- -------- -------- -------------
(in millions)
Restructuring activities Phase 1
(fourth quarter fiscal 2001):
Worldwide workforce
reduction $ 43.1 $-- $(20.9) $-- $ 22.2
Lease commitments 62.1 -- (1.7) -- 60.4
------ ------ ------ ------ ------
Restructuring charges Phase 1: 105.2 -- (22.6) -- 82.6
Restructuring activities Phase 2
(first quarter fiscal 2002):
Worldwide workforce
reduction -- 55.8 (19.2) -- 36.6
Facilities and equipment -- 141.3 -- (141.3) --
Lease commitments -- 45.9 -- -- 45.9
------ ------ ------ ------ ------
Restructuring charges Phase 2: -- 243.0 (19.2) (141.3) 82.5
Reduction of goodwill and other
long-lived assets -- 42.0 -- (42.0) --
------ ------ ------ ------ ------
Special charges $105.2 $285.0 $(41.8) $(183.3) $165.1
====== ====== ====== ====== ======
Since the beginning of calendar 2001, the Company and its industry have
experienced a dramatic downturn, the primary direct cause of which has been a
precipitous decrease in network deployment and capital spending by
telecommunications carriers. This decrease can be attributable to, among other
things: (a) network overcapacity, as bandwidth demand, while continuing to grow,
did not reach levels sufficient to sustain the pace of network deployment; (b)
constrained capital markets; and (c) other factors, including the general
inability of the competitive local exchange carriers ("CLECs") to obtain
sufficient access to established telecommunications infrastructures and
consolidation among the telecommunications carriers. The result was a decrease
in the overall demand for new fiber optic networks and capacity increases on
existing networks. In response, carriers dramatically slowed their purchases of
systems from the Company's customers, which in turned slowed purchases of
components and modules from the Company's competitors and the Company. Moreover,
as our customers' sales declined, the Company's customers moved to reduce their
component and module inventory levels. Consequently, the impact of the slowdown
on the Company's business is magnified, as it faces declining sales as the
result of its customers' declining business and the resulting adjustment to
their inventory levels.
In April 2001, the Company initiated the Global Realignment Program (the
"Program"), under which it is restructuring its business in response to the
changes in its industry and customer demand and as part of its continuing
overall integration program. Consequently, this resulted in the Company
recording $264.3 million and $243.0 million related to restructuring activities
in the fourth quarter of fiscal 2001 and first quarter of fiscal 2002,
respectively.
Restructuring activities Phase 1 (Fourth Quarter of Fiscal 2001)
During the three months ended June 30, 2001, the Company had completed and
approved plans to close nine operations located in North America, Europe and
Asia, vacate approximately 25 buildings or 1.2 million square feet of
manufacturing and office space at operations to be closed, as well as at
continuing operations, and reduce its workforce by approximately 9,000
employees.
Worldwide workforce reduction
During the three months ended June 30, 2001, the Company had recorded a charge
of approximately $79.1 million primarily related to severance and fringe
benefits associated with the reduction of 9,000 employees. Of the 9,000
terminations for which costs have been accrued prior to June 30, 2001,
approximately 8,200 were engaged in manufacturing activities and approximately
7,100, 1,200, and 700 were from sites located in North America, Europe and Asia,
respectively. As of September 30, 2001, 7,976 employees had been terminated in
connection with Phase 1 of the restructuring activities. In
11
addition, the Company incurred non-cash severance charges of $11.1 million
related to the modification of a former executive's stock options.
The remaining cash expenditures relating to workforce reduction and termination
agreements will be paid throughout the second quarter of 2002.
Consolidation of excess facilities and equipment
The consolidation of excess facilities includes the closure of certain
manufacturing, research and development facilities, and administrative and sales
offices throughout North America, Europe and Asia for business activities that
have been restructured as part of the Program. The operations closed as of June
30, 2001 were in Asheville, North Carolina; Bracknell, United Kingdom; Freehold,
New Jersey; Hillend, United Kingdom; Oxford, United Kingdom; Richardson, Texas;
Rochester, New York; Shunde, China and Taipei, Taiwan. The total number of sites
closed under the Global Realignment Program, including both Phase 1 and Phase 2,
is seventeen.
Property and equipment that was disposed of or removed from operations resulted
in a charge of $122.2 million of which of which $29.4 million, $89.3 million and
$3.5 million, related to the Thin Film Products and Instrumentation Group,
Transmission and Network Components Group, and other operating segments,
respectively. The property and equipment write-down consisted primarily of
leasehold improvements, computer equipment and related software, production and
engineering equipment, and office equipment, furniture, and fixtures. In
addition, the Company incurred a charge of $63.0 million for exiting and
terminating leases primarily related to excess or closed facilities with planned
exit dates. The Company estimated the cost of exiting and terminating the
facility leases based on the contractual terms of the agreements and then
current real estate market conditions. The Company determined that it would take
approximately three to twenty-one months to sublease the various properties that
will be vacated in connection with the Phase 1 of the restructuring activities.
Amounts related to the lease expense (net of anticipated sublease proceeds) will
be paid over the respective lease terms through 2015. The Company anticipates
completing implementation of its Phase 1 restructuring program during the next
nine months.
Restructuring activities Phase 2 (First Quarter of Fiscal 2002)
In addition to Phase 1 restructuring activities, during the three months ended
September 30, 2001, the Company had completed and approved plans to close eight
operations located in North America, Europe and Asia, vacate approximately
eleven buildings or 0.8 million square feet of manufacturing and office space at
operations to be closed, as well as at continuing operations, and reduce its
workforce by 5,156 employees.
Worldwide workforce reduction
During the three months ended September 30, 2001, the Company had recorded a
charge of approximately $55.8 million primarily related to severance and fringe
benefits associated with the reduction of 5,156 employees. Of the 5,156
terminations for which costs have been accrued during the three months ended
September 30, 2001, 4,232 were engaged in manufacturing activities and 4,818,
292, and 46 were from sites located in North America, Europe and Asia,
respectively. During the three months ended September 30, 2001, 2,951 employees
had been terminated under Phase 2 of the restructuring activities. The workforce
reduction in aggregate under the Global Realignment Program is 16,000 employees.
Prior to the date of the financial statements, management with the appropriate
level of authority, approved and committed the Company to a plan of termination
which included the benefits terminated employees would receive. During the three
months ended September 30, 2001, the expected termination benefits were
communicated to employees in detail sufficient to enable them to determine the
nature and amounts of their individual severance benefits.
The remaining cash expenditures relating to workforce reduction and termination
agreements will be paid throughout the second and third quarters of fiscal 2002.
Consolidation of excess facilities and equipment
The consolidation of excess facilities includes the closure of certain
manufacturing, research and development facilities, and administrative and sales
offices throughout North America, Europe and Asia for business activities that
have been restructured as part of the Program. The operations being closed as
Part 2 of the restructuring program at September 30, 2001 are in
12
Arnhem, Netherlands; Plymouth, United Kingdom; Witham, United Kingdom; Manteca,
California; Gloucester, Massachusetts; Victoria, British Columbia; and two
operations in Ottawa, Ontario. The total number of sites closed under the Global
Realignment Program, including both Phase 1 and Phase 2, is seventeen.
Property and equipment that was disposed or removed from operations resulted in
a charge of $141.3 million of which $11.8 million, $129.5 million and nil
related to the Thin Film Products and Instrumentation Group, Transmission and
Network Components Group, and other operating segments, respectively. The
property and equipment write-down consisted primarily of leasehold improvements,
computer equipment and related software, production and engineering equipment,
and office equipment, furniture, and fixtures. In addition, the Company incurred
a charge of $45.9 million for exiting and terminating leases primarily related
to excess or closed facilities with planned exit dates. The Company estimated
the cost of exiting and terminating the facility leases based on the contractual
terms of the agreements and then current real estate market conditions. The
Company determined that it would take approximately three to twenty-four months
to sublease the various properties that will be vacated in connection with the
Phase 2 of the restructuring activities.
Amounts related to the lease expense (net of anticipated sublease proceeds) will
be paid over the respective lease terms through 2020. The Company anticipates
completing implementation of its Phase 2 restructuring program during the next
twelve months.
In addition, because the Company restructured certain of its businesses and
realigned its operations to focus on profit contribution, high growth markets,
and core opportunities, the Company reduced the workforce that had been valued
in previous acquisitions. In accordance with Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company wrote the related
intangible assets down to their fair value and recorded charges of $10.8 million
related to the reduction in purchased intangibles and $31.2 million related to
goodwill associated with these assets. The charge is included in the "Reduction
of goodwill and other long-lived assets" caption in the Statements of
Operations.
Impairment of goodwill and other long-lived assets
The Company, as part of its review of financial results for the three months
ended September 30 2001, also performed an assessment of the carrying value of
the Company's long-lived assets to be held and used including significant
amounts of goodwill and other intangible assets recorded in connection with its
various acquisitions. The assessment was performed pursuant to SFAS 121 because
of the significant negative industry and economic trends affecting both the
Company's current operations and expected future sales as well as the general
decline of technology valuations. The conclusion of the SFAS 121 assessment was
that the Company had no additional required write-downs during the three months
ended September 30, 2001.
In addition, in accordance with the Company's policy of assessing enterprise
level goodwill, there was no required reduction in enterprise level goodwill
during the three months ended September 30, 2001. The Company determined that
the remaining intangible asset balances will continue to be amortized on a
straight-line basis over the remaining useful lives established at the time of
the related acquisition as the remaining useful life of these intangible assets
has not changed.
NOTE 11. SUBSEQUENT EVENTS
On October 29, 2001, the Company entered into an automation development alliance
agreement with Adept Technology ("Adept"). In connection with this alliance, the
Company invested $25 million in Adept convertible preferred stock.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT EVENTS
In response to the current market environment, in April 2001, we initiated the
Global Realignment Program, under which we are restructuring our business in
response to the changes in our industry and customer demand and as part of our
continuing overall integration program.
The Global Realignment Program includes:
- - Beginning in the fourth quarter of fiscal 2001 and continuing through
the first quarter of 2002, we recorded costs of $778 million related to
the implementation of the Global Realignment Program. The charges
recorded in the first quarter of 2002 included $278 million in
restructuring and related charges, of which $243 million was reported as
restructuring charges, $26 million was charged to cost of goods sold,
and $9 million was charged to operating expenses. Included in the total
costs of the Global Realignment Program are charges for obsolete
inventory write-downs related to product platform consolidation,
accelerated depreciation, and moving and employee costs related to the
phasing out of certain facilities and equipment.
- - Reducing our workforce from approximately 29,000 employees to
approximately 13,000 employees.
- - As of September 30, 2001, seventeen sites have been closed or scheduled
for closure.
During the fourth quarter of 2001 and the first quarter of 2002, we recorded
total restructuring charges of $264.3 million and $243.0 million as part of the
Global Realignment Program. In addition, approximately $236.6 million and $62.4
million of other charges primarily related to inventory write-downs associated
with discontinued products recorded in the fourth quarter of 2001 and first
quarter of 2002. These costs were classified as cost of sales.
The Global Realignment Program is expected to reduce our costs by approximately
$800 million annually after its complete implementation, which is expected by
the end of fiscal 2002. We believe that the measures taken under the Program
will provide us the flexibility to meet our customers' current operating needs
without sacrificing our ability to expand our businesses and respond to future
increases in business levels.
The Global Realignment Program represents our concerted efforts to respond to
the current demands of our industry. However, these efforts may be inappropriate
or insufficient. The Global Realignment Program may not be successful in
achieving the cost reductions or other benefits expected, may be insufficient to
align our operations with customer demand and the changes affecting our
industry, or may be more costly or extensive than currently anticipated.
Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations." SFAS 141 eliminates the pooling-of-interests method of accounting
for business combinations except for qualifying business combinations that were
initiated prior to July 1, 2001. In addition, SFAS 141 further clarifies the
criteria to recognize intangible assets separately from goodwill. Specifically,
SFAS 141 requires that an intangible asset may be separately recognized only if
such an asset meets the contractual-legal criterion or the separability
criterion. The requirements of Statement 141 are effective for any business
combination accounted for by the purchase method that is completed after June
30, 2001 (i.e., the acquisition date is July 1, 2001 or after). We are currently
evaluating the impact of SFAS 141 and have not yet determined the impact that
adopting SFAS 141 will have on its financial statements. On adoption, we will be
required to reassess the goodwill and intangible assets previously recorded in
acquisitions prior to July 1, 2001 to determine if the new recognition criteria
for an intangible asset to be recognized apart from goodwill are met. As of
September 30, 2001, we have approximately $42.2 million of separately recognized
intangible assets that do not meet the new recognition criteria for an
intangible asset to be recognized apart from goodwill and the unamortized
balance as of June 30, 2002 will be reclassified to goodwill.
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142,
goodwill and indefinite lived intangible assets are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. For intangible assets with indefinite useful lives,
14
the impairment review will involve a comparison of fair value to carrying value,
with any excess of carrying value over fair value being recorded as an
impairment loss. For goodwill, the impairment test shall be a two-step process,
consisting of a comparison of the fair value of a reporting unit with its
carrying amount, including the goodwill allocated to each reporting unit. If the
carrying amount is in excess of the fair value, the implied fair value of the
reporting unit goodwill is compared to the carrying amount of the reporting unit
goodwill. Any excess of the carrying value of the reporting unit goodwill over
the implied fair value of the reporting unit goodwill will be recorded as an
impairment loss. Separable intangible assets that are deemed to have a finite
life will continue to be amortized over their useful lives (but with no maximum
life). Intangible assets with finite useful lives will continue to be reviewed
for impairment in accordance with Statements of Financial Accounting Standards
No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." The amortization provisions of SFAS
142 apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001, we
will apply the new accounting rules beginning July 1, 2002 and will reassess the
useful lives of its separately recognized intangible assets in the first quarter
of fiscal 2003. We will review for impairment previously recognized intangible
assets that are deemed to have indefinite lives upon the completion of this
analysis in the first quarter of fiscal 2003. Additionally, upon the adoption of
SFAS 142, we will perform a transitional impairment review related to the
carrying value of goodwill as of July 1, 2002 by the end of the second quarter
of fiscal 2003. Because of the different transition dates for goodwill and
intangible assets acquired on or before June 30, 2001 and those acquired after
that date, pre-existing goodwill and intangibles will be amortized during this
transition period until adoption whereas new goodwill and indefinite lived
intangible assets acquired after June 30, 2001 will not. We are currently in the
process of determining its reporting units for the purpose of applying the
impairment test, analyzing how fair value will be determined for purposes of
applying SFAS 142 and quantifying the anticipated impact of adopting the
provisions of SFAS 142. The adoption of SFAS 142 is expected to have a material
impact on the results of operations primarily due to the nonamortization of
goodwill subsequent to the adoption of SFAS 142. Amortization of goodwill was
$332.7 million for the three months ended September 30, 2001.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets," which supercedes SFAS 121 and the provisions of Accounting Principles
Board Opinion (APB 30), "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" with regard to reporting the
effects of a disposal of a segment of a business. SFAS 144 retains many of the
provisions of FAS 121, but significantly changes the criteria that would have to
be met to classify an asset as held for disposal such that long-lived assets to
be disposed of other than by sale are considered held and used until disposed
of. In addition, SFAS 144 retains the basic provisions of APB 30 for
presentation of discontinued operations in the statement of operations but
broadens that presentation to a component of an entity. We will apply SFAS 144
beginning July 1, 2002. We are currently evaluating the potential impact, if
any, the adoption of SFAS 144 will have on its financial position and results of
operations.
RESULTS OF OPERATIONS -- FIRST QUARTER OF 2002 COMPARED TO FIRST QUARTER OF 2001
Net Sales. For the three months ended September 30, 2001, net sales of $328.6
million represented a decrease of $457.9 million or 58 percent compared to the
same period of the prior year. The decline in our net sales is due to: (i) lower
demand across all telecommunication products due to the severe industry
downturn; (ii) price declines in our products; and (iii) generally weaker global
economy. The impact of acquisitions completed subsequent to September 30, 2000
provided approximately $43.3 million of net sales for the three months ended
September 30, 2001. Separate discussions with respect to net sales and operating
profits for each of our reportable operating segments can be found under the
heading Operating Segment Information.
We had one customer representing more than ten percent of net sales during the
three months ended September 30, 2001 compared to three in the comparable prior
year period. During the three months ended September 30, 2001, Alcatel
represented 14 percent of net sales. During the three months ended September 30,
2000, Nortel, Lucent, and Alcatel represented 17 percent, 15 percent and 11
percent of net sales, respectively.
Net sales to customers outside North America represented 30 percent of net sales
for the three months ended September 30, 2001 and 2000.
Gross Margin. Gross margin decreased to negative 4 percent for the three months
ended September 30, 2001 from 44 percent in the comparable fiscal 2001 period.
The decrease in gross margin was primarily due to the following: (i) inventory
write-downs of $62.4 million largely for products becoming obsolete in
connection with new product introductions; (ii) price declines in our products;
(iii) higher warranty costs during the three months ended September 30, 2001
compared to the same
15
period of the prior year; (iv) non-recurring costs associated with the Global
Realignment Program of $25.9 million; and, (v) non-cash stock compensation
expenses of $8.6 million.
Our gross margin can generally be affected by a number of factors, including
product mix, customer mix, applications mix, product demand, pricing pressures,
manufacturing constraints, warranty costs, higher costs resulting from new
production facilities, product yield, non-cash stock compensation expenses, and
acquisitions of businesses that may have different margins than ours. If actual
orders do not match our forecasts, as we experienced in the second half of 2001
and the first quarter of fiscal 2002, we may have excess or shortfalls of some
materials and components as well as excess inventory purchase commitments.
Furthermore, we could experience reduced or delayed product shipments or incur
additional inventory write-downs and cancellation charges or penalties, which
would increase our costs and could seriously harm our business. Considering
these factors, gross margin fluctuations are difficult to predict and there can
be no assurance that we will achieve or maintain gross margin percentages at
historical levels in future periods.
Research and Development. Research and development ("R&D") expense was $69.2
million, or 21 percent of net sales for the three months ended September 30,
2001 as compared to $62.4 million, or 8 percent of net sales for the three
months ended September 30, 2000. The increase in R&D spending is due to the
continued development and enhancement of existing products, non-cash stock
compensation expense of $4.9 million, and the inclusion of acquisitions
completed subsequent to September 30, 2000. These increases were offset by the
elimination of overlapping product development programs as part of our Global
Realignment Program. The increase in R&D as a percentage of net sales is due to
our net sales declining faster than our R&D spending.
We believe that continued investment in R&D is critical to attaining our
strategic objectives. However, due to our recent announced Global Realignment
Program, we expect our level of R&D expenses to decline in future quarters. We
expect to spend over 15 percent of net sales over the remainder of fiscal 2002
on R&D. There can be no assurance that expenditures for R&D will continue at
expected levels or that such expenditures will be successful or that improved
processes or commercial products will result from these projects.
Selling, General and Administrative Expense. Selling, general and administrative
("SG&A") expense was $106.3 million, or 32 percent of net sales for the three
months ended September 30, 2001 as compared to $116.2 million, or 15 percent of
net sales for the three months ended September 30, 2000. The decrease in SG&A
spending was due to the following (i) lower expenses resulting from the Global
Realignment Program, (ii) lower payroll tax expenses related to the lower value
of non-qualified stock option exercises, and (iii) lower sales commissions.
These cost reductions were offset by (i) non-cash stock compensation expenses of
$10.3 million and (ii) higher depreciation charges resulting from the
implementation of our Enterprise Resource Planning system, the acquisition of
SDL, and other information technology capital assets.
Due to our Global Realignment Program, we expect our SG&A expenses to decline in
future quarters. We also expect to continue incurring charges to operations,
which to date have been within management's expectations, associated with
integrating recent acquisitions. There can be no assurance however as to the
amount or nature of our future SG&A expenses.
Amortization of Purchased Intangibles. For the three months ended September 30,
2001, amortization of purchased intangibles ("API") expense of $443.3 million or
135 percent of net sales represented a decrease of $664.1 million or 60 percent
as compared to the same period of the prior year. The decrease in API is due to
the intangible assets written-off during the third and fourth quarters of fiscal
2001.
We expect that our API expense will continue to contribute or cause net losses,
at least through the end of fiscal 2002 at which time new accounting rules will
apply. The balance at September 30, 2001, of goodwill and other intangibles
arising from acquisition activity was $6.6 billion (see Note 6 of Notes to
Consolidated Condensed Financial Statements).
Acquired In-process Research and Development. During September 2000, we acquired
Epion which resulted in the write-off of acquired in-process research and
development ("IPR&D") of $8.9 million. This amount was expensed on the
acquisition date because the acquired technology had not yet reached
technological feasibility and had no future alternative use. There can be no
assurance that acquisitions of businesses, products or technologies by us in the
future will not result in substantial charges for acquired IPR&D that may cause
fluctuations in our quarterly or annual operating results.
A description of the current status of acquired in-process research and
development projects for each acquisition can be found later in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
16
Reduction of Goodwill and Other Long-lived Assets. Pursuant to our Global
Realignment Program, we restructured certain of our businesses and realigned our
operations to focus on profit contribution, high growth markets, and core
opportunities, we reduced the workforce that had been valued in previous
acquisitions. In accordance with SFAS 121, we wrote the related intangible
assets down to their fair value and recorded a charge of $10.8 million related
to the reduction in purchased intangibles and $31.2 million related to goodwill
associated with these assets.
It is possible that the estimates and assumptions used under a SFAS 121
assessment may change in the near term resulting in the need to write-down our
goodwill and other long-lived assets. In addition, it is possible we may incur
additional reductions in goodwill if our market capitalization declines to a
level that is less than our net assets in future periods.
Restructuring Costs. In April 2001, we initiated the Global Realignment Program
(the "Program"), under which we are restructuring our business in response to
the changes in our industry and customer demand and as part of our continuing
overall integration program. Consequently, this resulted in us recording $264.3
million and $243.0 million related to restructuring activities in the fourth
quarter of fiscal 2001 and first quarter of fiscal 2002, respectively. During
the three months ended September 30, 2001, we incurred non-cash changes and
cash payments related to the Global Realignment Program of $141.3 million and
$41.8 million, respectively.
Restructuring activities Phase 2
During the three months ended September 30, 2001, we completed and approved
plans to close eight operations located in North America, Europe and Asia,
vacate approximately eleven buildings or 0.8 million square feet of
manufacturing and office space at operations to be closed, as well as at
continuing operations, and reduce our workforce by approximately 5,156
employees.
Worldwide workforce reduction
During the three months ended September 30, 2001, we recorded a charge of
approximately $55.8 million primarily related to severance and fringe benefits
associated with the reduction of 5,156 employees. Of the 5,156 terminations for
which costs have been accrued prior to September 30, 2001, 4,232 were engaged in
manufacturing activities and 4,818, 292, and 46 were from sites located in North
America, Europe and Asia, respectively. As of September 30, 2001, 2,951
employees had been terminated under Phase 2 of the restructuring activities. The
workforce reduction in aggregate under the Global Realignment Program is 16,000
employees.
The remaining cash expenditures related to workforce reduction and completed
termination agreements will be paid throughout the second and third quarters of
fiscal 2002.
Consolidation of excess facilities and equipment
The consolidation of excess facilities includes the closure of certain
manufacturing, research and development facilities, and administrative and sales
offices throughout North America, Europe and Asia for business activities that
have been restructured as part of the Program. The operations being closed as of
September 30, 2001 under Phase 2 of the Restructuring Program are in Arnhem,
Netherlands; Plymouth, United Kingdom; Witham, United Kingdom; Manteca,
California; Gloucester, Massachusetts; Victoria, British Columbia; and two
operations in Ottawa, Ontario. The total number of sites closed under the Global
Realignment Program, including both Phase 1 and Phase 2, is seventeen.
Property and equipment that was disposed or removed from operations resulted in
a charge of $141.3 million of which $11.8 million, $129.5 million and nil
related to the Thin Film Products and Instrumentation Group, Transmission and
Network Components Group, and other operating segments, respectively. The
property and equipment write-down consisted primarily of leasehold improvements,
computer equipment and related software, production and engineering equipment,
and office equipment, furniture, and fixtures. In addition, we incurred a charge
of $45.9 million for exiting and terminating leases primarily related to excess
or closed facilities with planned exit dates. We estimated the cost of exiting
and terminating the facility leases based on the contractual terms of the
agreements and then current real estate market conditions. We determined that it
would take approximately three to twenty-four months to sublease the various
properties that will be vacated in connection with Phase 2 of the restructuring
activities.
Amounts related to the lease expense (net of anticipated sublease proceeds) will
be paid over the respective lease terms through 2020. We anticipate completing
implementation of our restructuring program during the next twelve months.
17
Reduction in value of investments. At September 30, 2001, we had 24.7 million
shares of Nortel common stock at a market value of $138.6 million. During the
quarter, we recognized a reduction in market value of $84.5 million associated
with the 24.7 million shares held by us as of September 30, 2001, as we
determined the decline in the market value of the shares of Nortel common stock
to be other-than-temporary. We also recorded a charge of $9.6 million in
connection with other available-for-sale investments because of an
other-than-temporary decline in market value. In addition, we recorded a charge
of $12.4 million related to a decline the fair value of our non-marketable
equity securities accounted for under the cost method that was deemed to be
other-than-temporary.
Activity Related to Equity Investments. For the three months ended September 30,
2001, activity related to equity investments was $19.3 million. This includes:
(i) a $13.9 million charge to earnings to write down the carrying value of our
investment in ADVA due to a other-than-temporary decline in its market value,
(ii) $0.7 million of amortization expense related to the difference between the
cost of the investment and the underlying equity in the net assets of ADVA; and
(iii) $4.7 million related to our share of the net loss of ADVA and other equity
method investments and net income on the Photonics Fund.
Interest and Other Income. Net interest income increased $1.5 million during the
three months ended September 30, 2001 over that of the comparable period during
fiscal 2001 because of additional cash received from the proceeds of employee
stock ownership programs and the sale of equity investments in interest income
generating investments.
Income Tax Expense. We recorded a tax provision of $195.2 million in the first
quarter of 2002 as compared to $43.9 million in the same period of the prior
year. The provision for income taxes recorded in the first quarter of 2002
differs from the expected tax benefit that would be calculated by applying the
federal statutory rate to the loss before income taxes primarily due to
non-deductible acquisition-related charges, write-offs of deferred tax assets
recorded in prior business combinations relating to assumed employee stock
options that either expired unexercised or were exercised during the quarter
when the market value of the underlying stock was less than the previously
recorded value at the business combination date, and increases in the valuation
allowance for non current deferred tax assets due to a reduction in our forecast
of future domestic taxable income. Although realization of our net deferred tax
assets as of September 30, 2001 is not assured, management believes it is more
likely than not that these deferred tax assets will be realized. The amount of
deferred tax assets considered realizable, however, could be reduced in the near
term if forecasts of future domestic taxable income are reduced.
We anticipate that our tax provision or benefit for income taxes recorded in
subsequent quarters of fiscal 2002 may be affected by write-offs of deferred tax
assets recorded for employee stock options assumed in prior business
combinations that either expire unexercised or are exercised in subsequent
quarters when the market value of the underlying stock is less than the
previously recorded value at the business combination date.
Operating Segment Information
Transmission and Network Components. Net sales for the Transmission and Network
Components Group decreased 65 percent in the three months ended September 30,
2001 compared to the comparable period in the prior year. The decrease in net
sales is due a lower demand across all the products due to the severe
telecommunications industry downturn. Net sales for the three months ended
September 30, 2001 also include a full quarter's contribution of net sales from
the acquisition of SDL. Operating loss as a percentage of net sales was 133
percent during the current quarter as compared to operating income of 31 percent
of net sales for the comparable period in the prior year. The decrease in
operating income as a percentage of net sales was due to the significant decline
in sales during the current period resulting in a higher fixed cost base,
inventory write-downs, and the costs associated with the Global Realignment
Program implemented during April 2001.
Thin Film Products and Instrumentation. Net sales for the Thin Film Products and
Instrumentation Group decreased 5 percent in the three months ended September
30, 2001 compared to the comparable period in the prior year. The decrease in
net sales for the Thin Film Products and Instrumentation Group was primarily due
to significant unit volume declines of the Instrumentation products during the
three months ended September 30, 2001. Operating loss as a percentage of net
sales was 21 percent during the current quarter as compared to operating income
of 66 percent of net sales for the comparable period in the prior year. The
decrease in operating income as a percentage of net sales was due to the decline
in sales during the current period resulting in a higher fixed cost base,
inventory write-downs, and the costs associated with the Global Realignment
Program implemented during April 2001.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, our combined balance of cash, cash equivalents and
short-term investments was $1,754.1 million. Operating activities generated
$67.1 million during the three months ended September 30, 2001 primarily
resulting from the
18
following: (i) non-cash accounting charges for depreciation, stock based
compensation, reduction of goodwill and other long-lived assets, non-cash
restructuring costs, reduction in the value of investments, activity related to
equity method investments, and amortization of intangibles, (ii) decrease in
accounts receivable, and (iii) decrease in net deferred income taxes. These
items were partially offset by a decrease in current liabilities.
Cash used by investing activities was $569.5 million in the three months ended
September 30, 2001. We incurred capital expenditures of $55.6 million for
facilities expansion and capital equipment purchases during the first quarter of
fiscal 2002. We currently expect to spend approximately $150 million for capital
equipment purchases and leasehold improvements during the remainder of fiscal
2002, although there can be no assurance as to the actual level and nature of
our future capital expenditures. During the first three months of fiscal 2002,
we invested excess net cash of $502.9 million in short-term investments.
Our financing activities for the three months ended September 30, 2001 provided
cash of $31.3 million. The exercise of stock options and the sale of stock
through our employee stock purchase plans provided $33.4 million in cash offset
by the repayment of assumed debt of $2.1 million.
We had $10.7 million of debt outstanding at September 30, 2001. This debt was
assumed from entities we acquired. We can, at our election, prepay the debt. In
addition, we have two standby letter of credit facilities totaling approximately
$11.0 million. We also had an unsecured operating U.S. dollar line of credit
totaling $25.0 million. We had no outstanding borrowings under this facility at
September 30, 2001.
We believe that our existing cash balances and investments, together with cash
flow from operations will be sufficient to meet our liquidity and capital
spending requirements at least through the foreseeable future. However, possible
investments in or acquisitions of complementary businesses, products or
technologies may require additional financing prior to such time. There can be
no assurance that additional debt or equity financing will be available when
required or, if available, can be secured on terms satisfactory to us.
CURRENT STATUS OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS
We periodically review the stage of completion and likelihood of success of each
of the IPR&D projects. The current status of the IPR&D projects for all
significant mergers and acquisitions during the past three years are as follows:
SDL
The products under development at the time of acquisition included: (1) pump
laser chips; (2) pump laser modules; (3) Raman chips and amplifiers; (4)
external modulators and drivers; and (5) industrial laser products. The pump
laser chips and industrial laser products have been completed at a cost
consistent with our expectations. The pump laser modules and Raman chips are
expected to be completed by the fourth quarter of fiscal 2002. We have incurred
costs of $31.9 million, with estimated costs to complete of $3.9 million. The
differences between the actual outcome noted above and the assumptions used in
the original valuation of the technology are not expected to significantly
impact our results of operations and financial position.
19
Epion
The products under development at the time of acquisition included Gas Cluster
Ion Beam technology used for atomic scale surface smoothing and cleaning where
surface or film quality is of great importance. Epion has incurred $2.9 million
to date and estimates that a total investment of approximately $4.0 million in
research and development over the next 24 months will be required to complete
the IPR&D. The nature of the efforts required to develop the purchased IPR&D
into commercially viable products principally relate to the completion of all
planning, designing, prototyping, verification and testing activities that are
necessary to establish that the products can be produced to meet their design
specifications, including functions, features and technical performance
requirements. The differences between the actual outcome noted above and the
assumptions used in the original valuation of the technology are not expected to
significantly impact our results of operations and financial position.
E-TEK
The products under development at the time of acquisition included: (1)
wavelength division multiplexers (WDM's); (2) submarine products; and (3) other
component products and modules. The WDM and submarine products have been
completed at a cost consistent with our expectations. Our development efforts
for other components and modules include attenuators, circulators, switches,
dispersion equalization monitors and optical performance monitors. Our
development efforts fell behind schedule on some of these products but are now
complete at a cost of $7.7 million. The differences between the actual outcome
noted above and the assumptions used in the original valuation of the technology
are not expected to significantly impact our results of operations and financial
position.
OCLI
The products under development at the time of the acquisition included: (1) thin
film filters and switches, (2) optical display and projection products, and (3)
light interference pigments. Thin film filters includes switches and dispersion
compensators. The MEMS 2x2 Switch development has been terminated at OCLI and
transferred to another division within the Company. Thin film dispersion
compensator research has been cancelled. We incurred post acquisition costs of
approximately $4.9 million. The optical display and projection products
development has been terminated due to the uncertainty of current market
conditions. Light interference pigments are currently in the commercial stage of
the development cycle for this product family and these projects were completed
in the first quarter of calendar year 2002. We have incurred post-acquisition
research and development expenses of approximately $16.2 million and estimates
that cost to complete these projects will be another $0.4 million. The
differences between the actual outcome noted above and the assumptions used in
the original valuation of the technology are not expected to significantly
impact our results of operations and financial position.
SIFAM
The products under development at the time of the acquisition included: (1)
miniature couplers; (2)-combined components; and (3) micro-optic devices.
Miniature coupler development and combined components development are complete
at a cost consistent with our expectations. Micro-optic device development is
currently being evaluated relative to similar efforts already underway within
our organization. The costs incurred post acquisition for micro-optic device
development has been consistent with our expectations.
EPITAXX
The products under development at the time of the acquisition included (1)
high-speed receivers and (2) an optical spectrum analyzer product. The
high-speed receiver and optical spectrum analyzer have been completed at costs
consistent with our expectations.
JDS FITEL
The products under development at the time of our merger included: (i) Thermo
Optic Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz WDM, and (iv)
Erbium Doped Fiber Amplifiers ("EDFA"). Thermo Optic Waveguide Attenuator
development was discontinued in the first quarter of 2001, due to lower than
expected demands for this product, and higher demands for other products. Solid
State Switch, WDM and EDFA developments are complete at a cost consistent with
our expectations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
FOREIGN EXCHANGE
We generate a significant portion of our sales from sales to customers located
outside the United States, principally in Europe. International sales are made
mostly from our foreign subsidiaries in the local countries and are typically
denominated in either U.S. dollars or the local currency of each country. These
subsidiaries also incur most of their expenses in the local currency.
Accordingly, all foreign subsidiaries use the local currency as their functional
currency.
Our international business is subject to risks typical of an international
business including, but not limited to: differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, our future
results could be materially adversely impacted by changes in these or other
factors.
We enter into foreign exchange forward contracts to offset the impact of
currency fluctuations on certain nonfunctional currency assets and liabilities,
primarily denominated in the Australian dollar, Canadian dollar, Euro and
British pound.
The foreign exchange forward contracts we enter into generally have original
maturities ranging from one to three months. We do not enter into foreign
exchange forward contracts for trading purposes. We do not expect gains or
losses on these contracts to have a material impact on our financial results.
INTEREST RATES
We invest our cash in a variety of financial instruments, including fixed and
floating rate bonds, municipal bonds, auction instruments and money market
instruments. These investments are denominated in U.S. and Canadian dollars.
Cash balances in foreign currencies overseas are operating balances and are
primarily invested in short-term deposits of a local operating bank.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted because of a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income may fall short
of expectations because of changes in interest rates or we may suffer losses in
principal if forced to sell securities that have seen a decline in market value
because of changes in interest rates.
Our investments are made in accordance with an investment policy approved by the
Board of Directors. Under this policy, no investment securities can have
maturities exceeding three years and the average duration of the portfolio can
not exceed eighteen months.
LEASES
We are exposed to interest rate risk associated with leases on our facilities
where payments are tied to the London Interbank Offered Rate ("LIBOR"). We have
evaluated the hypothetical change in lease obligations held at September 30,
2001 due to changes in the LIBOR. The modeling technique used measures
hypothetical changes in lease obligations arising from selected hypothetical
changes in LIBOR. The hypothetical market changes reflected immediate parallel
shifts in the LIBOR curve of plus or minus 50 BPS, 100 BPS, and 150 BPS over a
12-month period. The results of this analysis were not material in comparison to
our financial results.
21
RISK FACTORS
OUR OPERATING RESULTS AND STOCK PRICE FLUCTUATE SUBSTANTIALLY
Operating results for future periods are never perfectly predictable even in the
most certain of economic times, and we expect to continue to experience
fluctuations in our quarterly results and in our guidance, when provided, for
financial performance in future periods. These fluctuations, which in the future
may be significant, could cause substantial variability in the market price of
our stock. In addition to those concerns discussed below, all of the concerns we
have discussed under "Risk Factors" could affect our operating results from time
to time.
Our operating results and stock price are affected by fluctuations in our
customers' businesses
Our business is dependent upon product sales to telecommunications network
system providers, who in turn are dependent for their business upon orders for
fiber optic systems from telecommunications carriers. Any downturn in the
business of any of these parties affects us. Moreover, our sales often reflect
orders shipped in the same quarter in which they are received, which makes our
sales vulnerable to short-term fluctuations in customer demand and difficult to
predict. In general, customer orders may be cancelled, modified or rescheduled
after receipt. Consequently, the timing of these orders and any subsequent
cancellation, modification or rescheduling of these orders have affected and
will in the future affect our results of operations from quarter to quarter.
Also, as our customers typically order in large quantities, any subsequent
cancellation, modification or rescheduling of an individual order may alone
affect our results of operations.
We are experiencing decreased sales and increased difficulty in predicting
future operating results
As the result of currently unfavorable economic and market conditions, (a) our
sales are declining, (b) we are unable to predict future sales accurately, and
(c) we are currently unable to provide long-term guidance for future financial
performance. The conditions contributing to this difficulty include:
- - uncertainty regarding the capital spending plans of the major
telecommunications carriers, upon whom our customers and, ultimately we,
depend for sales;
- - the telecommunications carriers' current limited access to the capital
required for expansion;
- - our customers decreasing inventory levels, which, in turn, reduces our
sales;
- - lower near term sales visibility; and
- - general market and economic uncertainty.
Based on these and other factors, many of our major customers have reduced,
modified, cancelled or rescheduled orders for our products and have expressed
uncertainty as to their future requirements. As a result, we currently
anticipate that our net sales in future periods may decline. In addition, our
ability to meet financial expectations for future periods may be harmed.
We have incurred, and may in the future incur, inventory-related charges, the
amounts of which are difficult to predict accurately
As a result of the business downturn we have incurred charges to align our
inventory with actual customer requirements over the near term. We use a rolling
six-month forecast based on anticipated product orders, product order history,
forecasts, and backlog to assess our inventory requirements. As discussed above,
our ability to forecast our customers' needs for our products in the current
economic environment is very limited. We have incurred, and may in the future
incur, significant inventory-related charges. In the fourth quarter of 2001, we
incurred charges related to inventory write-downs and losses on excess inventory
purchase commitments of $510.6 million, and $59.8 million, respectively. We may
incur significant similar charges in future periods. Moreover, because of our
current difficulty in forecasting sales, we may in the future revise our
previous forecasts. While we believe, based on current information, that the
inventory-related charges recorded in 2001, are appropriate, subsequent changes
to our forecast may indicate that these charges were insufficient or even
excessive.
As a result of these and other factors, our stock price has declined
substantially over the past year. Despite this decline, the market price of our
stock and the stocks of many of the other companies in the optical components,
modules and systems
22
industries continue to trade at high multiples of earnings. An outgrowth of
these multiples and market volatility is the significant vulnerability of our
stock price and the stock prices of our customers and competitors to any actual
or perceived fluctuation in the strength of the markets we serve, no matter how
minor in actual or perceived consequence. Consequently, these multiples and,
hence, market prices may not be sustainable. These broad market and industry
factors have caused and may in the future cause the market price of our stock to
decline, regardless of our actual operating performance or the operating
performance of our customers.
IF WE FAIL TO MANAGE OR ANTICIPATE OUR FUTURE GROWTH, OUR BUSINESS WILL SUFFER
The optical networking business has historically grown, at times rapidly, and we
have grown accordingly. We have made and, although we are currently in an
industry downturn, expect to continue to make significant investments to enable
our future growth through, among other things, internal expansion programs,
internal product development and acquisitions and other strategic relationships.
If we fail to effectively manage or anticipate our future growth effectively,
particularly during periods of industry decline, such as these, our business
will suffer.
Difficulties associated with integrating our acquired businesses could harm our
overall business operations
Our growth strategy includes acquisitions of other companies, technologies and
product lines to complement our internally developed products. In fact, we are
the product of several substantial acquisitions, including, among others, JDS
FITEL on June 30, 1999, OCLI on February 4, 2000, E-TEK on June 30, 2000 and SDL
on February 13, 2001. We expect to continue this strategy. Critical to the
success of this strategy and, ultimately, our business as a whole, is the
ordered, efficient integration of acquired businesses into our organization. If
our integration efforts are unsuccessful, our businesses will suffer. Successful
integration depends upon:
- - our ability to integrate the manufacture, sale and marketing of the
products of the businesses acquired with our existing products;
- - our ability to complete product development programs and consolidate
research and development efforts;
- - our ability to retain key personnel of the acquired business and
effectively organize the acquired business' personnel with our own;
- - our ability to consolidate and reorganize operations with those of the
acquired business; and
- - our ability to expand our information technology systems (including
accounting and financial systems, management controls and procedures).
Our integration efforts, which are ongoing, may not be successful and may result
in unanticipated operations problems, expenses and liabilities and the diversion
of management attention.
Our acquisition strategy is costly
Our acquisition strategy is costly. For example, we have incurred direct costs
associated with the combination of Uniphase and JDS FITEL of $12.0 million,
incurred $8.2 million associated with the acquisition of OCLI, incurred $32.3
million associated with the acquisition of E-TEK and incurred $44.6 associated
with the acquisition of SDL. In addition, we paid certain SDL executives $300.9
million in consideration of their agreement to amend their change of control
agreements and enter into non-compete agreements with us. We may incur
additional material charges in subsequent quarters to reflect additional costs
associated with these and other combinations and acquisitions, which will be
expensed as incurred. Moreover, to the extent an acquired business does not
perform as expected, we have and may continue to incur substantial additional
unforeseen costs to develop, restructure or dispose of such business.
Nonperforming or underperforming acquired businesses may also divert management
attention, dilute the value of our common stock and exchangeable shares and
weaken our financial condition.
Our Global Realignment Program may not be successful
As part of our continuing integration efforts and in response to the current
economic slowdown, we recently commenced a Global Realignment Program, under
which we are, among other things:
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- - consolidating our product development programs and eliminating
overlapping programs,
- - consolidating our manufacturing of several products from multiple sites
into specific locations around the world, and
- - realigning our sales organization to offer customers a single point of
contact within the company, and creating regional and technical centers
to streamline customer interactions with product line managers.
Implementation of the Global Realignment Program involves reductions in our
workforce and facilities and, in certain instances, the relocation of products,
technologies and personnel. We will incur significant expenses to implement the
program and we expect to realize significant future cost savings as a result. As
with our other integration efforts, the Global Realignment Program may not be
successful in achieving the expected benefits within the expected timeframes,
may be insufficient to align our operations with customer demand and the changes
affecting our industry, may disrupt our operations, or may be more costly than
currently anticipated. Even if the Global Realignment Program is successful,
our sales must increase for us to be profitable.
If we fail to commercialize new product lines our business will suffer
We intend to continue to develop new product lines and to improve existing
product lines to meet our customers' diverse and changing needs. However, our
development of new products and improvements to existing products may not be
successful, as:
- - we may fail to complete the development of a new product or product
improvement; or
- - our customers may not purchase the new product or improved product
because, among other things, the product is too expensive, is defective
in design, manufacture or performance, or is uncompetitive, or because
the product has been superceded by another product or technology.
Nonetheless, if we fail to successfully develop and introduce new products and
improvements to existing products, our business will suffer.
Furthermore, new products require increased sales and marketing, customer
support and administrative functions to support anticipated increased levels of
operations. We may not be successful in creating this infrastructure nor may we
realize any increased sales and operations to offset the additional expenses
resulting from this increased infrastructure. In connection with our recent
acquisitions, we have incurred expenses in anticipation of developing and
selling new products. Our operations may not achieve levels sufficient to
justify the increased expense levels associated with these new businesses.
Any failure of our information technology infrastructure could harm our business
We rely upon the capacity, reliability and security of our information
technology hardware and software infrastructure and our ability to expand and
update this infrastructure in response to our growth and changing needs. In
connection with our growth, we are constantly updating our current information
technology infrastructure and expect to incur significant costs and expend
significant management and other resources relating to our upgrade efforts.
Among other things, we are currently unifying our manufacturing, accounting,
sales and human resource data systems using an Oracle platform and expanding and
upgrading our networks and integrating our voice communications systems. Any
failure to manage, expand and update our information technology infrastructure
could hurt our business.
WE HAVE MANUFACTURING AND PRODUCT QUALITY CONCERNS
If we do not achieve acceptable manufacturing volumes, yields and costs, our
business will suffer
Our success depends upon our ability to timely deliver products to our customers
at acceptable volume and cost levels. The manufacture of our products involves
highly complex and precise processes, requiring production in highly controlled
and clean environments. Changes in our manufacturing processes or those of our
suppliers, or their inadvertent use of defective or contaminated materials,
could significantly hurt our ability to meet our customers' product volume and
quality needs. Moreover, in some cases, existing manufacturing techniques, which
involve substantial manual labor, may not achieve the volume or cost targets of
our customers. In these cases, we will need to develop new manufacturing
processes and techniques, which are anticipated to involve higher levels of
automation, to achieve these targets, and we will need to undertake other
efforts to reduce manufacturing costs. Currently, we are devoting significant
funds and other resources to (a) the development
24
of advanced manufacturing techniques to improve product volumes and yields and
reduce costs, and (b) realign some of our product manufacturing to locations
offering optimal labor costs. These efforts may not be successful. If we fail to
achieve acceptable manufacturing yields, volumes and costs, our business will be
harmed.
If our customers do not qualify our manufacturing lines for volume shipments,
our operating results could suffer
Customers will not purchase any of our products, other than limited numbers of
evaluation units, prior to qualification of the manufacturing line for the
product. Each new manufacturing line must go through varying levels of
qualification with our customers. Moreover, under our Global Realignment Program
we are consolidating our worldwide manufacturing operations. Among other things,
we will be moving the manufacturing of some of our products to other facilities.
The manufacturing lines for these products at the consolidated facilities must
undergo qualification with our customers before commercial manufacture of these
products can recommence. The qualification process, whether for new products or
in connection with the relocation of manufacturing of current products,
determines whether the manufacturing line achieves the customers' quality,
performance and reliability standards. Delays in qualification can cause a
product to be dropped from a long-term supply program and result in significant
lost sales opportunities over the term of that program. We may experience delays
in obtaining customer qualification of our manufacturing lines and, as a
consequence, our operating results and customer relationships would be harmed.
If our products fail to perform, our business will suffer
Our business depends on our producing excellent products of consistently high
quality. To this end, our products are rigorously tested for quality both by us
and our customers. Nevertheless, our products are highly complex and our
customers testing procedures are limited to evaluating our products under likely
and foreseeable failure scenarios. For various reasons (including, among others,
the occurrence of performance problems unforeseeable in testing), our products
may fail to perform as expected. Failures could result from faulty design or
problems in manufacturing. In either case, we could incur significant costs to
repair and/or replace defective products under warranty, particularly when such
failures occur in installed systems. We have experienced such failures in the
past and remain exposed to such failures, as our products are widely deployed
throughout the world in multiple demanding environments and applications. In
some cases, product redesigns or additional capital equipment may be required to
correct a defect. In addition, any significant or systemic product failure could
result in lost future sales of the affected product and other products, as well
as customer relations problems.
ACCOUNTING TREATMENT OF OUR ACQUISITIONS HAS IMPACTED OUR OPERATING RESULTS
Our operating results are adversely impacted by purchase accounting treatment,
primarily due to the impact of amortization of and other reductions in the
carrying value of goodwill and other intangibles originating from acquisitions
Under accounting principles generally accepted in the United States through June
30, 2001, we accounted for most of our acquisitions using the purchase method of
accounting. Under purchase accounting, we recorded the market value of our
common shares and the exchangeable shares of our subsidiary, JDS Uniphase Canada
Ltd., issued in connection with acquisitions and the fair value of the stock
options assumed and the amount of direct transaction costs as the cost of
acquiring these entities. That cost is allocated to the individual assets
acquired and liabilities assumed, including various identifiable intangible
assets such as in-process research and development, acquired technology,
acquired trademarks and trade names and acquired workforce, based on their
respective fair values. We allocated the excess of the purchase cost over the
fair value of the net identifiable assets to goodwill.
The impact of purchase accounting on our operating results is significant. For
fiscal 2001, we recorded an acquisition related amortization expense of $5,387.0
million.
Additionally, we also incur other purchase accounting related costs and expenses
in the period a particular transaction closes to reflect purchase accounting
adjustments adversely affecting gross profit and the costs of integrating new
businesses or curtailing overlapping operations. Purchase accounting treatment
of our mergers and acquisitions, at least through the end of 2002 at which time
new accounting rules will apply, will result in a net loss, which will have a
material and adverse effect on our results of operations.
The downturn in telecommunications equipment and financial markets created
unique circumstances with regard to the assessment of certain of our long-lived
assets and investments. In the second half of fiscal 2001, we evaluated the
carrying
25
value of certain long-lived assets and acquired equity investments, consisting
primarily of goodwill and other intangible assets and our investment in ADVA. We
were carrying a large amount of goodwill on our balance sheet because of our
significant acquisitions as accounting rules require that goodwill be recorded
based on stock prices at the time merger agreements are executed and announced,
and our merger agreements were negotiated and announced at times when market
valuations were considerably higher than at present.
During the last quarter of fiscal 2001, under applicable accounting rules, we
began to evaluate the carrying value of our goodwill and certain other
long-lived assets. As the result of this evaluation, we recorded reductions of
$39.8 billion and $10.3 billion in goodwill and other intangible assets for the
quarters ended March 31, 2001 and June 30, 2001, respectively. In addition, we
recorded a $715 million charge for the quarter ended March 31, 2001 to write
down the value of our investment in ADVA. It is possible that our operating
results would be adversely affected by additional write-downs of our goodwill
and other long-lived assets.
OUR SALES ARE DEPENDENT UPON A FEW KEY CUSTOMERS
Our customer base is highly concentrated. Historically, orders from a relatively
limited number of optical system providers accounted for a substantial portion
of our net sales. During 2001, three customers, Nortel Networks Corporation,
Alcatel, and Lucent Technologies, Inc., accounted for 14 percent, 12 percent and
10 percent of net sales, respectively. During 2000, Lucent Technologies, Inc.,
and Nortel Networks Corporation, accounted for 21 percent and 15 percent of net
sales, respectively. We expect that, for the foreseeable future, sales to a
limited number of customers will continue to account for a high percentage of
our net sales. Sales to any single customer may vary significantly from quarter
to quarter. If current customers do not continue to place orders, we may not be
able to replace these orders with new orders from new customers. In the
telecommunications industry, our customers evaluate our products and competitive
products for deployment in their telecommunications systems. Our failure to be
selected by a customer for particular system projects can significantly impact
our business, operating results and financial condition. Similarly, even if our
customers select us, the failure of those customers to be selected as the
primary suppliers for an overall system installation could adversely affect us.
Such fluctuations could materially harm our business.
INTERRUPTIONS AFFECTING OUR KEY SUPPLIERS COULD DISRUPT PRODUCTION, COMPROMISE
OUR PRODUCT QUALITY AND ADVERSELY AFFECT OUR SALES
We obtain various components included in the manufacture of our products from
single or limited source suppliers. A disruption or loss of supplies from these
companies or a price increase for these components would materially harm our
results of operations, product quality and customer relationships. In addition,
we currently utilize a sole source for the crystal semiconductor chip sets
incorporated in our solid state microlaser products for use in our solid state
laser products from Opto Power Corporation and GEC. We obtain lithium niobate
wafers, gallium arsenide wafers, specialized fiber components and some lasers
used in our telecommunications products primarily from Crystal Technology, Inc.,
Fujikura, Ltd., Philips Key Modules and Sumitomo, respectively. These materials
are important components of certain of our products and we currently do not have
alternative sources for such materials. Also, we do not have long-term or volume
purchase agreements with any of these suppliers, and these components may not in
the future be available in the quantities required by us, if at all, in which
case our business could be materially harmed.
ANY FAILURE TO REMAIN COMPETITIVE IN OUR INDUSTRY WOULD HARM OUR OPERATING
RESULTS
If our business operations are insufficient to remain competitive in our
industry, our operating results could suffer
The telecommunications markets in which we sell our products are highly
competitive and characterized by rapidly changing and converging technologies.
We face intense competition from established competitors and the threat of
future competition from new and emerging companies in all aspects of our
business. Among our current competitors are our customers, who are vertically
integrated and either manufacture and/or are capable of manufacturing some or
all of the products we sell to them. In addition to our current competitors, we
expect that new competitors providing niche, and potentially broad, product
solutions will increase in the future. While the current economic downturn has
reduced the overall level of business in our industry, the competition for that
business remains fierce. To remain competitive in both the current and future
business climates, we believe we must maintain a substantial commitment to
focused research and development, improve the efficiency of our manufacturing
operations, and streamline our marketing and sales efforts, and attendant
customer service and support. Under our Global Realignment Program, we have
ongoing initiatives in each of these areas. However, our efforts to remain
competitive, under the Global Realignment Program and otherwise, may be
unsuccessful. Among other things, we may not have sufficient resources to
continue to make the investments necessary to remain competitive, or we may not
make the
26
technological advances necessary to remain competitive. In addition,
notwithstanding our efforts, technological changes, manufacturing efficiencies
or development efforts by our competitors may render our products or
technologies obsolete or uncompetitive.
Our industry is consolidating
Our industry is consolidating and we believe it will continue to consolidate in
the future as companies attempt to strengthen or hold their market positions in
an evolving industry. We anticipate that consolidation will accelerate as the
result of the current industry downturn. We believe that industry consolidation
may result in stronger competitors that are better able to compete as
sole-source vendors for customers. This could lead to more variability in
operating results as we compete to be a single vendor solution and could hurt
our business.
Fiber optic component average selling prices are declining
Prices for telecommunications fiber optic products generally decline over time
as new and more efficient components and modules, with increased functionality,
are developed, manufacturing processes improve and competition increases. The
current economic downturn has exacerbated the general trend, as declining sales
have forced telecommunications carriers and their systems provider suppliers to
reduce costs, leading to increasing pricing pressure on us and our competitors.
Weakened demand for optical components and modules has created an oversupply of
these products, which has increased pressure on us to reduce our prices. To the
extent this oversupply is not corrected in subsequent periods, we anticipate
continuing pricing pressure. Moreover, currently, fiber optic networks have
significant excess capacity. Industry participants disagree as to the amount of
this excess capacity. However, to the extent that there is significant
overcapacity and this capacity is not profitably utilized in subsequent periods,
we expect to face additional pricing pressure.
In response to pricing pressure, we must continue to (1) timely develop and
introduce new products that incorporate features that can be sold at higher
selling prices, (2) increase the efficiency of our manufacturing operations, and
(3) generally reduce costs. Failure to do so could cause our net sales and gross
margins to decline, which would harm our business.
If we fail to attract and retain key personnel, our business could suffer
Our future depends, in part, on our ability to attract and retain key personnel.
In addition, our research and development efforts depend on hiring and retaining
qualified engineers. Competition for highly skilled engineers is extremely
intense, and, the current economic downturn notwithstanding, we continue to face
difficulty identifying and hiring qualified engineers in many areas of our
business. We may not be able to hire and retain such personnel at compensation
levels consistent with our existing compensation and salary structure. Our
future also depends on the continued contributions of our executive officers and
other key management and technical personnel, each of whom would be difficult to
replace. We do not maintain a key person life insurance policy on our chief
executive officer or any other officer. The loss of the services of one or more
of our executive officers or key personnel or the inability to continue to
attract qualified personnel could delay product development cycles or otherwise
materially harm our business.
As a consequence of the current economic downturn and as part of our Global
Realignment Program, we announced a reduction in our global workforce from
29,000 employees to 13,000 employees. To date, we have not lost the services of
any personnel (either through the announced reduction or otherwise), which has
had or which we expect will have a material adverse effect on our business or
financial condition. However, we cannot predict the impact our recent workforce
reductions and any reductions we are compelled to make in the further will have
on our ability to attract and retain key personnel in the future.
WE FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND SALES
Our customers are located throughout the world. In addition, we have significant
offshore operations, including manufacturing facilities, sales personnel and
customer support operations. Our operations outside North America include
facilities in the United Kingdom, the Netherlands, Germany, Australia and the
People's Republic of China.
Our international presence exposes us to risks not faced by wholly North
American companies. Specifically, we face the following risks, among others:
27
- - our ability to comply with the customs, import/export and other trade
compliance regulations of the countries in which we do business,
together with any unexpected changes in such regulations;
- - tariffs and other trade barriers;
- - political, legal and economic instability in foreign markets,
particularly in those markets in which we maintain manufacturing and
research facilities;
- - difficulties in staffing and management;
- - language and cultural barriers;
- - seasonal reductions in business activities in the summer months in
Europe and some other countries;
- - integration of foreign operations;
- - longer payment cycles;
- - greater difficulty in accounts receivable collection;
- - currency fluctuations; and
- - potentially adverse tax consequences.
Net sales to customers outside the United States and Canada accounted for
$1,043.4 million, $326.7 million and $114.4 million or 32 percent, 23 percent,
and 40 percent of net sales for the years ended June 30, 2001, 2000 and 1999,
respectively. We expect that sales to customers outside of North America will
continue to account for a significant portion of our net sales. We continue to
expand our operations outside of the United States and to enter additional
international markets, both of which will require significant management
attention and financial resources.
Since a significant portion of our foreign sales are denominated in U.S.
dollars, our products may also become less price competitive in countries in
which local currencies decline in value relative to the U.S. dollar. Lower sales
levels that typically occur during the summer months in Europe and some other
overseas markets may also materially and adversely affect our business.
Furthermore, the sales of many of our optical system provider customers depend
on international sales and consequently further exposes us to the risks
associated with such international sales.
We have significant and increasing operations in the People's Republic of China
and those operations are subject to greater political, legal and economic risks
than those faced by our other international operations. In particular, the
political, legal and economic climate in China is extremely fluid and
unpredictable. Among other things, the legal system in China, both at the
national and regional levels, remains highly underdeveloped and subject to
change, with little or no prior notice, for political or other reasons.
Moreover, the enforceability of applicable existing Chinese laws and regulations
is uncertain. These concerns are exacerbated for foreign businesses, such as
ours, operating in China. Our business could be materially harmed by any
modifications to the political, legal or economic climate in China or the
inability to enforce applicable Chinese laws and regulations.
IF WE HAVE INSUFFICIENT PROPRIETARY RIGHTS OR IF WE FAIL TO PROTECT THOSE WE
HAVE, OUR BUSINESS WOULD BE MATERIALLY HARMED
We may not obtain the intellectual property rights we require
Others, including academic institutions and our competitors hold numerous
patents in the industries in which we operate. We may seek to acquire license
rights to these or other patents or other intellectual property to the extent
necessary for our business. Unless we are able to obtain such licenses on
commercially reasonable terms, patents or other intellectual property held by
others could inhibit our development of new products for our markets. While in
the past licenses generally have been available to us where third-party
technology was necessary or useful for the development or production of their
products, in the future licenses to third-party technology may not be available
on commercially reasonable terms, if at all. Generally, a license, if granted,
includes payments by us of up-front fees, ongoing royalties or a combination
thereof. Such royalty or other
28
terms could have a significant adverse impact on our operating results. We are a
licensee of a number of third-party technologies and intellectual properties
rights and are required to pay royalties to these third-party licensors on some
of our telecommunications products and laser subsystems.
Our products may be subject to claims that they infringe the intellectual
property rights of others
The industry in which we operate experiences periodic claims of patent
infringement or other intellectual property rights. We have in the past and may
from time to time in the future receive notices from third parties claiming that
our products infringe upon third-party proprietary rights. Any litigation to
determine the validity of any third-party claims, regardless of the merit of
these claims, could result in significant expense to us and divert the efforts
of our technical and management personnel, whether or not we are successful in
such litigation. If we are unsuccessful in any such litigation, we could be
required to expend significant resources to develop non-infringing technology or
to obtain licenses to the technology that is the subject of the litigation. We
may not be successful in such development or such licenses may not be available
on terms acceptable to us, if at all. Without such a license, we could be
enjoined from future sales of the infringing product or products. We are
currently subject to various claims regarding third party intellectual property
rights. These claims are not expected to have a material adverse effect on our
business.
Our intellectual property rights may not be adequately protected
Our future depends in part upon our intellectual property, including trade
secrets, know-how and continuing technological innovation. We currently hold
numerous U.S. patents on products or processes and corresponding foreign patents
and has applications for some patents currently pending. The steps taken by us
to protect our intellectual property may not adequately prevent misappropriation
or ensure that others will not develop competitive technologies or products.
Other companies may be investigating or developing other technologies that is
similar to our own. It is possible that patents may not be issued from any
application pending or filed by us and, if patents do issue, the claims allowed
may not be sufficiently broad to deter or prohibit others from marketing similar
products. Any patents issued to us may be challenged, invalidated or
circumvented. Further, the rights under our patents may not provide a
competitive advantage to us. In addition, the laws of some territories in which
our products are or may be developed manufactured or sold, including Asia,
Europe or Latin America may not protect our products and intellectual property
rights to the same extent as the laws of the United States.
IF WE FAIL TO SUCCESSFULLY MANAGE OUR EXPOSURE TO WORLDWIDE FINANCIAL MARKETS,
OUR OPERATING RESULTS COULD SUFFER
We are exposed to financial market risks, including changes in interest rates,
foreign currency exchange rates and marketable equity security prices. We
utilize derivative financial instruments to mitigate these risks. We do not use
derivative financial instruments for speculative or trading purposes. The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, a majority of our marketable investments are floating
rate and municipal bonds, auction instruments and money market instruments
denominated in U.S. dollars. We mitigate currency risks of investments
denominated in foreign currencies with forward currency contracts. If we
designate such contracts as hedges and they are determined to be effective,
depending on the nature of the hedge, changes in the fair value of derivatives
will be offset against the change in fair value of assets, liabilities or firm
commitments through earnings (fair value hedges) or recognized in other
comprehensive income until the hedged item is recognized in earnings (cash flow
hedges). The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. A substantial portion of our sales, expense
and capital purchasing activities are transacted in U.S. dollars. However, we do
enter into these transactions in other currencies, primarily Canadian and
European currencies. To protect against reductions in value and the volatility
of future cash flows caused by changes in foreign exchange rates, we enter into
foreign currency forward contracts. The contracts reduce, but do not always
entirely eliminate, the impact of foreign currency exchange rate movements.
Actual results on our financial position may differ materially.
IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL AT THE TIMES, IN THE AMOUNTS AND UPON
THE TERMS REQUIRED, OUR BUSINESS COULD SUFFER
We have devoted substantial resources for new facilities and equipment to the
production of our products. Currently we are incurring substantial costs
associated with restructuring our business and operations under our Global
Realignment Program. Although we believe existing cash balances, cash flow from
operations, available lines of credit, and proceeds from the realization of
investments in other businesses will be sufficient to meet our capital
requirements at least for the next 12 months, we may be required to seek
additional equity or debt financing to compete effectively in these markets. We
cannot precisely determine the timing and amount of such capital requirements
and will depend on several factors, including our acquisitions
29
and the demand for our products and products under development. Such additional
financing may not be available when needed, or, if available, may not be on
terms satisfactory to us.
OUR CURRENTLY OUTSTANDING PREFERRED STOCK AND OUR ABILITY TO ISSUE ADDITIONAL
PREFERRED STOCK COULD HARM THE RIGHTS OF OUR COMMON STOCKHOLDERS
In connection with the acquisition of Uniphase Netherlands in June 1998, we
issued 100,000 shares of non-voting, non-cumulative Series A Preferred Stock to
Philips Electronics having a par value of $0.001 per share. The Series A
Preferred Stock is generally convertible into additional shares of common stock
based on an agreed upon formula for annual and cumulative shipments of certain
products during the four-year period ending June 30, 2002. The number of shares
of common stock to be issued upon conversion of this preferred stock is tied to
unit shipments of certain products by UNL during the four-year period ending
June 30, 2002 and our stock price at the date the contingency attributable to
the unit shipments is removed. During the fourth quarter of 2001, Uniphase
Netherlands achieved cumulative shipments of certain products that will require
us to issue at least $90.8 million of the Company's common stock to Philips. The
number of common shares to be issued is based on the stock price at the end of
the earn-out period and cannot currently be calculated.
In June 1998, we adopted a Stockholder Rights Agreement, as amended and declared
a dividend distribution of one right per share of common stock for stockholders
of record as of July 6, 1998. As adjusted for stock splits and dividends by us,
each outstanding share of our common stock currently includes one-eighth of a
right. Each right entitles stockholders to purchase 1/1000 share of our Series B
Preferred Stock at an exercise price of $3,600. The rights only become
exercisable in certain limited circumstances following the tenth day after a
person or group announces acquisitions of or tender offers for 15 percent or
more of our common stock. For a limited period of time following the
announcement of any such acquisition or offer, the rights are redeemable by us
at a price of $0.01 per right. If the rights are not redeemed, each right will
then entitle the holder to purchase common stock having the value of twice the
then-current exercise price. For a limited period of time after the
exercisability of the rights, each right, at the discretion of our board of
directors, may be exchanged for either 1/1000 share of Series B Preferred Stock
or one share of common stock per right. The rights expire on June 22, 2008.
Our board of directors has the authority to issue up to 799,999 shares of
undesignated preferred stock and to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any wholly unissued shares of undesignated preferred stock and to fix the number
of shares constituting any series and the designation of such series, without
the consent of our stockholders. The preferred stock could be issued with
voting, liquidation, dividend and other rights superior to those of the holders
of common stock.
The issuance of Series B Preferred Stock or any preferred stock subsequently
issued by our board of directors, under some circumstances, could have the
effect of delaying, deferring or preventing a change in control.
Some provisions contained in the rights plan, and in the equivalent rights plan
that our subsidiary, JDS Uniphase Canada Ltd., has adopted with respect to our
exchangeable shares, may have the effect of discouraging a third party from
making an acquisition proposal for us and may thereby inhibit a change in
control. For example, such provisions may deter tender offers for shares of
common stock or exchangeable shares which offers may be attractive to the
stockholders, or deter purchases of large blocks of common stock or exchangeable
shares, thereby limiting the opportunity for stockholders to receive a premium
for their shares of common stock or exchangeable shares over the then-prevailing
market prices.
SOME ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND UNDER DELAWARE LAWS
COULD HINDER A TAKEOVER ATTEMPT
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law prohibiting, under some circumstances, publicly-held Delaware
corporations from engaging in business combinations with some stockholders for a
specified period of time without the approval of the holders of substantially
all of our outstanding voting stock. Such provisions could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving us, even if such events could be beneficial, in
the short term, to the interests of the stockholders. In addition, such
provisions could limit the price that some investors might be willing to pay in
the future for shares of our common stock. Our certificate of incorporation and
bylaws contain provisions relating to the limitations of liability and
indemnification of our directors and officers, dividing our board of directors
into three classes of directors serving three-year terms and providing that our
stockholders can take action only at a duly called annual or special meeting of
stockholders. These provisions also may have the effect of deterring hostile
takeovers or delaying changes in control or management of us.
30
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. A forward-looking
statement may contain words such as "plans," "hopes," "believes," "estimates,"
"will continue to be," "will be," "continue to," "intend," "expect to,"
"anticipate that," " to be" or "can impact" or similar words. These
forward-looking statements include any statements we make, or implications
suggested by statements we make, as to:
- - the impact on our business and financial condition of new Financial
Accounting Standards ("FAS") -- FAS 141, FAS 142 and FAS 144.
- - our ability to realize our deferred tax assets and the effect of
deferred tax assets recorded for assumed employee stock options on our
tax provision or benefit for income taxes recorded in future periods.
- - the future prospects for and growth of us and our industry, including,
without limitation, (a) the extent and duration of the current economic
downturn, (b) the timing and extent of any recovery from such downturn,
(c) the viability, development and growth of new fiber optic
telecommunications markets, including the metro and fiber to the curb
markets, and (d) the benefits and opportunities for us and others in our
industry provided by such new markets,
- - the implementation of our Global Realignment Program, the timing and
level of cost reductions and other benefits we expect to receive as a
result of the Program, and the expected cost to complete the Program,
including, without limitation, (a) the level of the expected workforce
reductions, (b) the benefits we expect to receive from the elimination
and consolidation of research and development programs and manufacturing
facilities, and (c) the benefits we expect to receive from integrating
our sales force and restructuring our customer service program,
- - the sufficiency of existing cash balances and investments, together with
cash flow from operations and available lines of credit to meet our
liquidity and capital spending requirements for future periods, and
- - the cost to complete our acquired in-process research and development
and the expected amortization of such costs.
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ materially from
those projected in such forward-looking statements. These risks and
uncertainties include, among other things, the risk that (1) the current
economic downturn may be more severe and long-lasting than we can anticipate,
and, notwithstanding our projections, beliefs and expectations for our business,
may cause our business and financial condition to suffer, (2) due to the current
economic slowdown, in general, and setbacks in our customers' businesses, in
particular, our ability to predict our financial performance, in particular, and
our future success, in general, for future periods is far more difficult than in
previous periods; (3) our ongoing integration and restructuring efforts,
including, among other things, the Global Realignment Program, may not be
successful in achieving their cost saving and other expected benefits, may be
insufficient to align our operations with customer demand and the changes
affecting our industry, or may be more costly or extensive than currently
anticipated; (4) increasing pricing pressure, as the result of the economic
downturn and competitive factors, may harm our revenues and profit margins; (5)
our research and development programs may be insufficient or too costly or may
not produce new products, with performance, quality, quantity and price levels
satisfactory to our customers; and (6) our ongoing efforts to reduce product
costs to our customers, through, among other things, automation, improved
manufacturing processes and product rationalization may be unsuccessful.
Further, our future business, financial condition and results of operations
could differ materially from those anticipated by such forward- looking
statements and are subject to risks and uncertainties including the risks set
forth above. We are under no duty to update any of the forward-looking
statements after the date of this Quarterly Report on Form 10-Q to conform such
statements to actual results or to changes in our expectations.
31
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
During the first quarter of fiscal 2002, the Company issued 0.5 million shares
of the Company's common stock in connection with the acquisition of OPA valued
at $4.0 million. These shares were issued in connection with milestones achieved
as part of initial purchase agreement. The issuance of the common stock was
exempt from registration pursuant to Section 3(a)(10) of the Securities Act of
1933, as amended.
During the first quarter of fiscal 2002, the Company issued 0.3 million shares
of the Company's common stock to Rockwell International Corporation. The
issuance of common stock was exempt from registration pursuant to Section 4(2)
of the Securities Act regarding transactions by an issuer not involving any
public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
99.1 Beneficial Ownership Table
b) Reports on Form 8-K
The Company filed five reports on Form 8-K during the quarter ended September
30, 2001. Information regarding the items reported on is as follows:
DATE OF REPORT ITEM REPORTED ON
- -------------- ----------------
September 24, 2001 Regulation FD disclosure in connection with revised guidance
for future periods.
September 19, 2001 Regulation FD disclosure in connection with additional
charges recorded to fiscal 2001 results.
September 4, 2001 Regulation FD disclosure in connection with a
stockholder update delivered by the officers
of the Company on September 4, 2001 that included written
communication comprised of slides.
July 26, 2001 Regulation FD disclosure in connection with a
conference call delivered by the officers of the Company
on July 26, 2001.
July 24, 2001 Regulation FD disclosure in connection with a
32
stockholder update delivered by the officers of the
Company on July 24, 2001 that included written
communication comprised of slides.
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 thereunto duly authorized.
JDS Uniphase Corporation
---------------------------------------------------
(Registrant)
Date: November 12, 2001 /s/ Anthony R. Muller
---------------------------------------------------
Anthony R. Muller, Executive Vice President and CFO
(Principal Financial and Accounting Officer)
33
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.1 Beneficial Ownership Table