1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
YEARS ENDED JUNE 30, 1996 1995 1994 1993 1992
(in thousands, except per share amounts)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales $ 69,073 $42,282 $32,922 $ 27,314 $26,405
Income (loss) from operations(1)(2)(3) $ 5,429 $ 581 $ 3,247 $ (1,326) $ 1,772
Net income (loss)(1)(2)(3) $ 2,792 $ 735 $ 2,231 $ (798) $ 1,127
Net income (loss) per share(1)(2)(3) $ 0.21 $ 0.07 $ 0.27 $ (0.14) $ 0.19
Shares used in per share calculation 13,577 10,082 8,274 5,510 5,888
-------- ------- ------- -------- -------
OTHER DATA:
Income from operations before infrequent
or unusual items(4) $ 12,909 $ 5,932 $ 2,892 $ 1,055 $ 2,169
-------- ------- ------- -------- -------
CONSOLIDATED BALANCE SHEET DATA:
Working capital $113,443 $17,316 $18,943 $ 5,002 $ 5,642
Total assets 173,824 31,910 26,214 11,785 11,563
Long-term obligations 7,036 221 -- 132 268
Total stockholders' equity 153,205 24,808 21,331 6,731 7,427
(1) During fiscal years 1992 and 1993, the Company accrued litigation costs of
$397,000 and $2.4 million, respectively, pertaining primarily to a patent
infringement action brought against the Company, and to a lesser extent in
fiscal 1993, for actions against the Company by certain former employees.
The patent infringement action was settled in fiscal 1993. Due to the
settlement of one of the former employee actions in fiscal 1994 at a cost
less than anticipated and the re-evaluation of the potential liability with
respect to the remaining outstanding lawsuit, the Company reversed $355,000
of accrued legal expense in fiscal 1994. In fiscal 1995, such remaining
lawsuit was dismissed.
(2) During fiscal 1995, the Company incurred charges totaling $5.4 million,
primarily for acquired in-process research and development and, to a lesser
extent, for the loss on the sale of the Company's diode laser product line.
The acquired in-process research and development resulted primarily from the
cash purchase of UTP from United Technologies Corporation for a total
purchase price, including acquisition expenses, of $8.7 million. Such
charges reduced net income per share for fiscal 1995 by $0.33.
(3) During fiscal 1996, the Company incurred charges totaling $4.5 million for
acquired in-process research and development related to the acquisition of
UTP Fibreoptics. The Company also incurred an additional $3.0 million of
compensation expense in connection with the cancellation of certain options
of UTP and granted replacement options to purchase Uniphase Common Stock to
UTP employees in order to operate UTP Fibreoptics as a division of UTP.
(4) Other Data is presented as supplemental information and should not be
construed as a substitute, or better indicator of, results of operations
than income from operations or net income determined in accordance with
generally accepted accounting principles.
[A columnar graph of the table below]
92 93 94 95 96
Sales ($ millions) 26.40 27.31 32.92 42.28 69.07
Net Income (loss) ($ millions) 1.13 (0.8) 2.23 0.74 4.08(5) 2.79 9.11(5)
Net Income (loss) per Share 0.19 (0.14) 0.27 0.07 0.40(5) 0.21 0.67(5)
(5) Adjusted net income and net income per share for fiscal 1995 and 1996 to
exclude infrequent or unusual items net of income tax effects.
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company designs, develops, manufactures and markets laser subsystems,
laser-based semiconductor wafer defect examination and analysis equipment and
fiber optic telecommunications equipment products. The Company's laser division
designs, develops, manufactures and markets laser subsystems for a broad range
of OEM applications which include biotechnology, industrial process control and
measurement, graphics and printing, and semiconductor equipment. In 1992, the
Company established its Ultrapointe subsidiary, which designs, develops,
manufactures and markets advanced laser-based systems for semiconductor wafer
defect examination and analysis and shipped its first Ultrapointe System in
fiscal 1994.
The Company entered the telecommunications and CATV markets when it
acquired UTP in May 1995. UTP designs, develops, manufactures and markets
high-speed external modulators and transmitters for fiber optic networks in the
CATV and long-haul telecommunications industries. The acquisition was accounted
for as a purchase and, accordingly, historical financial information of the
Company includes the results of UTP from the date of the purchase. In May 1996,
the Company acquired UTP Fibreoptics. The total purchase price of $9.1 million
included aggregate consideration of $8.6 million, payable through a combination
of cash and notes, and estimated direct transaction costs of $500,000. UTP
Fibreoptics custom packages laser diodes, LEDs and photodetectors for OEMs for
use in fiber optic networks for local telecommunications and data
communications.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
FISCAL YEARS ENDED
JUNE 30, 1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Cost of sales 52.5 57.0 61.0
----- ----- -----
Gross profit 47.5 43.0 39.0
Operating expenses:
Research and development 8.4 8.8 9.3
Royalty and license 1.9 2.8 3.6
Selling, general and administrative 18.4 17.4 17.3
Infrequent or unusual items:
Acquired in-process research
and development 6.5 10.5 --
Compensation expense 4.3 -- --
Loss on sale of product line -- 2.1 --
Litigation -- -- (1.1)
----- ----- -----
Total operating expenses 39.5 41.6 29.1
----- ----- -----
Income from operations 8.0 1.4 9.9
Interest and other income, net 1.9 1.3 0.6
----- ----- -----
Income before income taxes 9.9 2.7 10.5
Income tax expense 5.9 1.0 3.7
----- ----- -----
Net income 4.0% 1.7% 6.8%
===== ===== =====
Other data:
Income from operations before
infrequent or unusual items 18.7% 14.0% 8.8%
See notes in the "Financial Highlights" section of this report. In the above
table, "other data" is presented as supplemental information and should not be
construed as a substitute for, or better indicator of, results of operations or
net income determined in accordance with generally accepted accounting
principles.
UNIPHASE CORPORATION
3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED JUNE 30,
1996, 1995 AND 1994
NET SALES. Net sales for fiscal 1996 were $69.1 million, which represented a
$26.8 million or 63.4 % increase over net sales of $42.3 million in fiscal 1995.
The increase is primarily due to the inclusion of a full year's revenues from
UTP and increased sales of the Company's Ultrapointe Systems which accounted for
$13.9 million and $10.2 million of the increase in net sales, respectively. Net
sales of laser subsystems for fiscal 1996 increased $2.7 million due primarily
to an increase in sales of the Company's argon gas lasers, principally for use
in biotechnology and semiconductor applications, and to a lesser extent solid
state lasers. Together, these sales offset the decline in the sales of the
Company's mature Helium-Neon ("He-Ne") product line principally in the bar code
scanning market. The Company's international sales for fiscal years 1996, 1995
and 1994 accounted for approximately 24.3%, 30.3% and 28.2% of total net sales,
respectively.
Net sales increased $9.4 million or 28.4% to $42.3 million in fiscal 1995
from $32.9 million in fiscal 1994. This increase was primarily attributable to
higher unit volume shipments of the Company's Ultrapointe Systems and its laser
subsystems. Net sales of Ultrapointe Systems increased 214.2% to approximately
$7.4 million in fiscal 1995 from $2.4 million in fiscal 1994. Net sales of the
Company's lasers subsystems increased $3.3 million in fiscal 1995 from fiscal
1994 due primarily to increased sales of the Company's argon gas lasers,
particularly those used in biotechnology and semiconductor applications. This
increase more than offset a decline in sales of certain of the Company's mature
He-Ne gas lasers. In fiscal 1995, the Company's telecommunications products
accounted for net sales of approximately $1.0 million after the May 1995
acquisition of UTP.
GROSS PROFIT. Gross profit increased 80.4% to $32.8 million or 47.5% of net
sales in fiscal 1996 compared with $18.2 million or 43.0% of net sales in fiscal
1995. Gross profit increased in absolute dollars and as a percentage of net
sales in fiscal 1996 primarily due to the addition of the Company's UTP product
line and the increased sales volumes of Ultrapointe Systems, both of which
currently experience higher gross margins than the Company's laser subsystems.
In addition, improved economies of scale resulting from higher production and
purchasing volumes of components in Ultrapointe Systems had a favorable impact
on gross margin. There can be no assurance that these trends will continue and
that the Company will be able to sustain its gross margin at current levels. The
Company expects that there will continue to be periodic fluctuations in its
gross margin resulting from changes in its sales and product mix, competitive
pricing pressures, manufacturing yields, inefficiencies associated with new
product introductions and a variety of other factors. In addition, certain of
UTP Fibreoptics products provide gross margins below those of the Company's
current telecommunications product lines. As sales from UTP Fibreoptics products
grow as a proportion of the Company's total net sales, these sales could have
the effect of modestly reducing the Company's overall gross margins.
Gross profit increased 41.3% to $18.2 million or 43.0% of net sales in
fiscal 1995 from $12.9 million or 39.0% of net sales in fiscal 1994. Gross
profit increased in absolute dollars and as a percentage of net sales due to
several factors, including the higher sales volume of Ultrapointe Systems, which
carry higher gross margins than the Company's laser subsystems. In addition,
improved economies of scale resulting from higher production and purchasing
volumes of Ultrapointe Systems had a favorable impact on gross margin. The
increasing proportion of higher margin argon gas laser subsystems relative to
lower margin He-Ne gas laser subsystems in the Company's sales mix of its laser
products subsystems also contributed to the improvement in gross margin.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense in fiscal
1996 was $5.8 million or 8.4 % of net sales which represented a $ 2.1 million or
57.1 % increase over fiscal 1995. The increase in research and development
expense was primarily due to the addition of UTP expenses which included
expenditures associated with the development of transmitters, and to a lesser
extent, an increase in Ultrapointe expenditures in support of accelerated ADC
software development. For the year ended June 30, 1996, laser subsystems
experienced a decrease in expenditures primarily due to the sale of the laser
division's diode laser product line in June 1995, the redeployment of certain
engineering support to manufacturing and increased reimbursements on expenses
from a certain cooperative agreement with the federal government. This agreement
is scheduled to end on December 31, 1996. The Company is committed to continuing
its significant research and development expenditures
UNIPHASE CORPORATION
4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and expects that the absolute dollar amount of research and development expense
will increase as it invests in developing new products and in expanding and
enhancing its existing product lines, although such expenses may vary as a
percentage of net sales from year to year.
Research and development expense in fiscal 1995 was $3.7 million or 8.8% of
net sales compared with $3.1 million or 9.3% of net sales in fiscal 1994. The
absolute dollar increase in research and development expense in fiscal 1995 was
primarily attributable to the continued development of solid state lasers and
costs associated with improving and enhancing the Ultrapointe Systems product
line.
ROYALTY AND LICENSE EXPENSE. For fiscal 1996, royalty and license expense
increased $165,000 to $1.3 million from $ 1.2 million in fiscal 1995 and
decreased as a percentage of sales to 1.9 % from 2.8 % in fiscal 1995. The
decrease as a percentage of net sales was due to the increasing proportion of
revenues that the Company derived from Ultrapointe Systems, which bear a lower
royalty rate than laser subsystems, and from royalty-free UTP products.
Royalty and license expense was relatively constant in fiscal 1995 from
1994 and decreased as a percentage of net sales to 2.8% in fiscal 1995 from 3.6%
in fiscal 1994. Royalty expense decreased as a percentage of net sales due in
part to lower royalty rates applicable to higher volume sales and international
sales of gas laser subsystems. Increased sales of Ultrapointe Systems, which
bear a lower royalty rate than laser subsystems, also contributed to the
decrease.
The Company continues to develop its solid state laser technology. There
are numerous patents on solid state laser technologies that are held by others,
including academic institutions and competitors of the Company. Such patents
could inhibit the Company's ability to develop, manufacture and sell products in
this area. A number of the patents are conflicting. If there is conflict between
a competitor's patents or products and those of the Company, it could be very
costly for the Company to enforce its rights in an infringement action or defend
such an action brought by another party. In addition, the Company may need to
obtain license rights to certain patents and may be required to make substantial
payments, including continuing royalties, in exchange for such license rights.
There can be no assurance that licenses to third party technology, if needed,
will be available on commercially reasonable terms, if at all.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. In fiscal 1996, selling, general
and administrative expense was $12.7 million or 18.4% of net sales which
represented a $5.3 million or 72.7% increase over selling, general and
administrative expense of $7.4 million or 17.4% of net sales in fiscal 1995. The
increase was attributable to the addition of UTP expenditures (which included
increased expenditures to support the transmitter product line and the
amortization of acquired intangible assets), sales commissions on increased
sales volume of Ultrapointe Systems, increased staffing levels and increased
selling expenses to support the Company's product lines. The Company expects the
dollar amount of its selling, general and administrative expenditures to
increase in the future, although such expenses may vary as a percentage of net
sales from year to year.
Selling, general and administrative expense in fiscal 1995 was $7.4 million
or 17.4% of net sales compared with $5.7 million or 17.3% of net sales in fiscal
1994. The increase in selling, general and administrative expense in fiscal 1995
resulted from increased staffing levels, selling expenses to support the
Company's laser products and new product introductions, sales commissions on
higher sales volume of Ultrapointe Systems, increased business development,
investor relations and stockholder communications activities. In addition,
during fiscal 1994, it was determined that $300,000 of expense previously
accrued in fiscal 1993 for certain intellectual property matters would not have
to be paid, and, accordingly, such costs were reversed as a credit to selling,
general and administrative expense.
INFREQUENT OR UNUSUAL ITEMS. In fiscal 1996, the Company incurred infrequent or
unusual charges which amounted to $7.5 million or 10.8% of net sales. These
charges consisted of acquired in-process research and development expense and
compensation expense. The acquired in-process research and development expense
was $4.5 million or 6.5% of net sales and was attributable to the Company's
purchase of UTP Fibreoptics from its shareholders in June 1996. The compensation
expense was $3.0 million or 4.3% of net sales and resulted from the cancellation
of certain UTP options and granting of replacement options to purchase Uniphase
Common Stock to UTP employees in order to
UNIPHASE CORPORATION
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
operate UTP Fibreoptics as a division of UTP. Additional compensation expense of
$1.4 million will be recognized over the remaining vesting period of
approximately 3 years. See Note 7 of Notes to Consolidated Financial Statements.
In fiscal 1995, the Company incurred infrequent or unusual charges which
amounted to $5.4 million or 12.6% of net sales. These charges consisted of
acquired in-process research and development expense and loss on sale of a
product line. The acquired in-process research and development expense in fiscal
1995 of $4.5 million or 10.5% of net sales resulted primarily from the Company's
purchase of UTP from United Technologies Corporation in May 1995. In June 1995,
the Company incurred a loss of $891,000 on the sale of its diode laser product
line. As part of the sale agreement, the Company obtained a limited
non-exclusive sublicense to a solid state technology patent at a reduced royalty
rate. The diode laser product line was sold primarily due to the commercial
availability of low-cost diode laser component parts from third party
manufacturers and the determination that these external sources will provide
sufficient supply of the components for the foreseeable future. See Notes 10 and
15 of Notes to Consolidated Financial Statements.
During fiscal 1994, the Company reversed a litigation accrual provided in
the prior fiscal year in the amount of $355,000 due to a settlement of certain
litigation at a cost that was less than anticipated and which led to the
reevaluation of the potential liability of one remaining outstanding lawsuit.
This remaining lawsuit was dismissed in fiscal 1995.
INTEREST AND OTHER INCOME, NET. Interest and other income, net in fiscal 1996
increased to $1.4 million from $550,000 in fiscal 1995 and $212,000 in fiscal
1994. The increase in fiscal 1996 was primarily due to the additional interest
income earned on the net proceeds received from the Company's public offerings
of Common Stock in October 1995 and June 1996 and from the sale of Common Stock
to Tencor in November 1995. The increase in fiscal 1995 was the result of
interest income on investments due to the inclusion of a full year of interest
income on the net proceeds of the initial public offering.
INCOME TAX EXPENSE.The Company's effective tax rate was 59.1% in fiscal 1996 as
compared to 35.0% in fiscal 1995. The Company's effective tax rate in fiscal
1996 would have been approximately 36.3% exclusive of the effect of
non-deductible acquired in-process research and development resulting from the
UTP Fibreoptics stock purchase.
The Company's effective tax rate was 35.0% in fiscal 1995 as compared to
35.5% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's combined balance of cash, cash equivalents
and investments was $113.7 million. The Company has met its liquidity needs to
date primarily through cash generated from operations and sales of its equity
securities.
Cash generated from operations was $7.8 million in fiscal 1996, compared
with $3.2 million and $1.8 million for fiscal years 1995 and 1994, respectively.
The increase in cash generated from operations is attributable to: the
increase in net income that resulted from a significant increase in net sales,
accounts payable and accrued expenses, and the non-cash charges of $4.5 million
of acquired in-process research and development and $3.0 million of compensation
expense. Together, these increases were partially offset by increases in
accounts receivable and inventories. Accounts receivable increased $6.4 million
in fiscal 1996 when compared to fiscal 1995 primarily due to increased sales
volumes. Inventory levels increased in fiscal 1996 when compared to fiscal 1995
primarily due to increased purchases of components to support increased
production that resulted from higher sales levels, particularly in the UTP and
Ultrapointe product lines.
Cash used in investing activities was $83.5 million in fiscal 1996 compared
with $4.3 million and $12.6 million for fiscal years 1995 and 1994,
respectively. The Company's cash used in investing activities increased
primarily due to the investment of excess cash from the proceeds of sales of
common stock. The Company also made capital expenditures of $17.6 million which
included the acquisition of certain properties in San Jose, California totaling
109,000 square feet, for an aggregate purchase price of $11.0 million, and the
construction of a clean room and production facility in support of UTP's
products. In July 1995, the Company also acquired the remaining outstanding
shares of I.E. Optomech Ltd. In May 1996, the Company acquired UTP Fibreoptics.
The total purchase price of $9.1 million included aggregate consideration of
UNIPHASE CORPORATION
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$8.6 million, payable through a combination of cash and notes, and estimated
direct transaction costs of $500,000.
In fiscal 1996, the Company completed two underwritten public offering of
shares of Common Stock for net proceeds of approximately $105.5 million. In
November 1995, Tencor agreed to become the exclusive OEM reseller of the
Ultrapointe Systems and the Identifier(TM), the Company's ADC software product,
and in connection therewith acquired 666,000 shares of the Company's Common
Stock for a net purchase price of approximately $12.3 million.
The Company has a $5.0 million revolving line of credit with a bank.
Advances under the line of credit bear interest at the bank's prime rate (8.25%
at June 30, 1996) and are secured by inventories and accounts receivable. There
were no borrowings under the line of credit as of June 30, 1996. Under the terms
of the line of credit agreement, the Company is required to maintain certain
minimum working capital, net worth, profitability levels and other specific
financial ratios. The agreement also prohibits the payment of cash dividends and
contains certain restrictions on the Company's ability to borrow money or
purchase assets or interests in other entities without the prior written consent
of the bank. The line of credit expires on November 1, 1996. The Company intends
to renew its line of credit. See Note 2 of Notes to Consolidated Financial
Statements.
The Company believes that its existing cash balances and investments,
together with cash flow from operations and available lines of credit, will be
sufficient to meet its liquidity and capital spending requirements at least
through the end of calendar year 1997. However, possible acquisitions of
complementary businesses, products or technologies may require additional
financing prior to such time. There can be no assurance that additional
financing will be available when required or, if available, will be on terms
satisfactory to the Company. The Company has no present plans, agreements or
commitments, and is not currently engaged in any negotiation with respect to any
such acquisition.
BUSINESS OUTLOOK
The statements contained in this Annual Report to Stockholders which
express the "belief," "anticipation" or "expectation," as well as other
statements which are not historical fact, and statements as to product
compatibility, design, features, functionality and performance insofar as they
may apply prospectively, are forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties including, but not limited to, the Company's recent entry into and
the competitiveness of the telecommunications market, the cyclicality of the
semiconductor industry, the declining market for gas lasers, the management of
growth and the variability of quarterly operating results.
The Company expects to continue to experience growth through increased
levels of operations in its business as a whole, including its recent
acquisitions, although the growth rate of each business may vary significantly.
The Company anticipates that a substantial portion of its growth within the next
year will occur within its telecommunications business, in which the Company had
no experience prior to its acquisition of UTP in May 1995. The Company's success
in increasing sales of its telecommunications products will depend in large part
on factors such as but not limited to the following: the magnitude and timing of
capital spending for fiber optic networks by communications operators, the rate
at which OEMs migrate to the externally modulated products offered by the
Company, industry competition and management's ability to execute timely
increases in production and, manage and integrate multi-site operations. The
market for gas lasers is mature and expected to decline; however, the Company
expects sales of certain of its argon gas laser subsystems to increase in the
next fiscal year, principally for biotechnology applications. The Company also
expects to continue to invest significant resources in solid state technology
which it expects will be the primary laser technology of the future. The Company
is concerned about the current downturn in the semiconductor industry which has
led many semiconductor manufacturers including customers of its Ultrapointe
Systems to delay or cancel expenditures. The Company's current expectation is
that the long-term outlook for its Ultrapointe product line is favorable;
however, for the duration of the downturn, the Company intends to manage its
Ultrapointe business conservatively while continuing to invest in development
programs that enhance its product line including its ADC software product. See
also the risks and uncertainties described in Part I of the Company's Annual
Report on Form 10-K under the headings "Description of Business" and "Risk
Factors" that could cause actual results to differ materially from those
projected.
UNIPHASE CORPORATION
7
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1996 1995 1994
(in thousands, except per share data)
Net sales $ 69,073 $ 42,282 $ 32,922
Cost of sales 36,300 24,113 20,067
-------- -------- --------
Gross profit 32,773 18,169 12,855
Operating expenses:
Research and development 5,828 3,710 3,058
Royalty and license 1,337 1,172 1,212
Selling, general, and administrative 12,699 7,355 5,693
Infrequent or unusual items:
Acquired in-process research and development 4,480 4,460 --
Compensation expense 3,000 -- --
Loss on sale of a product line -- 891 --
Litigation -- -- (355)
-------- -------- --------
Total operating expenses 27,344 17,588 9,608
-------- -------- --------
Income from operations 5,429 581 3,247
Interest income 1,570 487 274
Interest expense (79) (25) (37)
Other income (expense), net (92) 88 (25)
-------- -------- --------
Income before income taxes 6,828 1,131 3,459
Income tax expense 4,036 396 1,228
-------- -------- --------
Net income $ 2,792 $ 735 $ 2,231
======== ======== ========
Net income per share $ 0.21 $ 0.07 $ 0.27
======== ======== ========
Shares used in per share calculation 13,577 10,082 8,274
======== ======== ========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
8
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 1995
(in thousands, except share and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 52,463 $ 2,880
Short-term investments 43,731 4,679
Accounts receivable, less allowances for doubtful accounts of
$285 at June 30, 1996 and $164 at June 30,1995 16,700 8,793
Inventories 10,641 5,478
Deferred income taxes and other current assets 3,491 2,367
--------- -------
Total current assets 127,026 24,197
Long-term investments 17,548 --
Property, plant, and equipment, net 20,305 3,452
Intangible assets 8,894 3,178
Other assets 51 1,083
--------- -------
Total assets $ 173,824 $31,910
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 548 $ --
Accounts payable 5,391 2,249
Accrued payroll and related expenses 3,180 1,965
Other accrued expenses 4,464 2,667
--------- -------
Total current liabilities 13,583 6,881
Notes payable 6,061 --
Deferred income taxes 656 --
Other non-current liabilities 319 221
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $0.001 par value:
1,000,000 shares authorized, none issued and outstanding -- --
Common stock, $0.001 par value
Authorized shares - 20,000,000
Issued and outstanding shares - 16,097,855 at June 30, 1996 and
9,515,604 at June 30, 1995 16 10
Additional paid-in capital 141,354 15,751
Retained earnings 11,750 8,958
Net unrealized loss on securities available-for-sale (18) --
Foreign currency translation adjustment 103 89
--------- -------
Total stockholders' equity 153,205 24,808
--------- -------
Total liabilities and stockholders' equity $ 173,824 $31,910
========= =======
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
9
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 1995 1994
(in thousands)
OPERATING ACTIVITIES
Net income $ 2,792 $ 735 $ 2,231
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,081 1,136 946
Acquired in-process research and development 4,480 4,460 --
Stock compensation expense 3,094 -- --
Undistributed earnings affiliate -- (114) --
Increase (decrease) in deferred income taxes, net (1,040) (2,188) 179
Loss on sale of product line -- 891 --
Changes in operating assets and liabilities:
Accounts receivable (6,432) (3,286) (754)
Inventories (4,087) (1,244) (788)
Other current assets (90) (391) (259)
Accounts payable, accrued liabilities
income tax payable and other 6,962 3,221 286
--------- -------- --------
Net cash provided by operating activities 7,760 3,220 1,841
--------- -------- --------
INVESTING ACTIVITIES
Notes receivable from related parties -- -- 133
Purchase of available-for-sale investments (74,326) (10,604) (11,156)
Sale of available-for-sale investments 17,726 17,081 --
Acquisition of UTP Fibreoptics 9,150 -- --
Acquisition of remaining interest in I.E. Optomech Ltd. (237) (12) (528)
Acquisition of net assets of United Technologies Photonics, Inc. -- (8,747) --
Acquisition of licenses -- (600) --
Proceeds from sale of product line -- 375 --
Purchase of property, plant and equipment (17,561) (1,808) (1,065)
Decrease (increase) in other assets 91 17 (3)
--------- -------- --------
Net cash used in investing activities (83,457) (4,298) (12,619)
--------- -------- --------
FINANCING ACTIVITIES
Repayment of notes payable (297) -- --
Issuance of notes payable 6,061 -- --
Repurchase of common stock -- -- (8)
Repayment of stock purchase note -- 18 148
Proceeds from the issuance of common stock other
than in the public offerings 1,704 1,024 299
Proceeds from offering of stock 117,812 -- 11,460
Principal payments on capital lease obligations -- (132) (107)
--------- -------- --------
Net cash provided by financing activities 125,280 910 11,792
--------- -------- --------
Increase (decrease) in cash and cash equivalents 49,583 (168) 1,014
Cash and cash equivalents at beginning of period 2,880 3,048 2,034
--------- -------- --------
Cash and cash equivalents at end of period $ 52,463 $ 2,880 $ 3,048
========= ======== ========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
STOCK
ADDITIONAL PURCHASE
COMMON STOCK PAID-IN NOTE
(in thousands) SHARES AMOUNT CAPITAL RECEIVABLE
------ ------ --------- ----------
Balance at June 30, 1993 5,158 $ 6 $ 948 $(166)
Repurchase of common stock (6) -- (8) --
Exercise of stock options and
related tax benefits 352 -- 695 --
Common stock issued upon
initial public offering,
net of issuance costs 3,308 2 11,458 --
Repayment of stock
purchase note -- -- -- 148
Net income -- -- -- --
Net unrealized gain on
securities available-for-sale -- -- -- --
Foreign currency
translation adjustment -- -- -- --
------- --- --------- -----
Balance at June 30, 1994 8,812 8 13,093 (18)
Exercise of stock options and
related tax benefits 704 2 2,658 --
Repayment of stock
purchase note -- -- -- 18
Net income -- -- -- --
Net realized loss on
securities available-for-sale -- -- -- --
Foreign currency
translation adjustment -- -- -- --
------- --- --------- -----
Balance at June 30, 1995 9,516 10 15,751 --
Exercise of stock options and
related tax benefits 626 -- 4,703 --
Common stock issued upon
public offerings,
net of issuance costs 5,290 5 105,524 --
Common stock issued to Tencor,
net of issuance costs 666 1 12,282 --
Uniphase Telecommunications
Products stock option
compensation -- -- 3,000 --
Amortization of deferred
compensation -- -- 94 --
Net income -- -- -- --
Net unrealized loss on
securities available-for-sale -- -- -- --
Foreign currency
translation adjustment -- -- -- --
------- --- --------- -----
Balance at June 30, 1996 16,098 $16 $ 141,354 $ --
======= === ========= =====
NET FOREIGN
UNREALIZED CURRENCY
RETAINED GAIN (LOSS) TRANSLATION
(in thousands) EARNINGS ON SECURITIES ADJUSTMENT TOTAL
-------- ------------- ----------- ---------
Balance at June 30, 1993 $ 5,992 $-- $ (49) $ 6,731
Repurchase of common stock -- -- -- (8)
Exercise of stock options and
related tax benefits -- -- -- 695
Common stock issued upon
initial public offering,
net of issuance costs -- -- -- 11,460
Repayment of stock
purchase note -- -- -- 148
Net income 2,231 -- -- 2,231
Net unrealized gain on
securities available-for-sale -- 11 -- 11
Foreign currency
translation adjustment -- -- 63 63
------- ---- ----- ---------
Balance at June 30, 1994 8,223 11 14 21,331
Exercise of stock options and
related tax benefits -- -- -- 2,660
Repayment of stock
purchase note -- -- -- 18
Net income 735 -- -- 735
Net realized loss on
securities available-for-sale -- (11) -- (11)
Foreign currency
translation adjustment -- -- 75 75
------- ---- ----- ---------
Balance at June 30, 1995 8,958 -- 89 24,808
Exercise of stock options and
related tax benefits -- -- -- 4,703
Common stock issued upon
public offerings,
net of issuance costs -- -- -- 105,529
Common stock issued to Tencor,
net of issuance costs -- -- -- 12,283
Uniphase Telecommunications
Products stock option
compensation -- -- -- 3,000
Amortization of deferred
compensation -- -- -- 94
Net income 2,792 -- -- 2,792
Net unrealized loss on
securities available-for-sale -- (18) -- (18)
Foreign currency
translation adjustment -- -- 14 14
------- ---- ----- ---------
Balance at June 30, 1996 $11,750 $(18) $ 103 $ 153,205
======= ==== ===== =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Uniphase Corporation (the "Company" or "Uniphase") designs, develops,
manufactures and markets laser subsystems, laser-based semiconductor wafer
defect examination and analysis equipment and fiber optic telecommunications
equipment products. Uniphase operates manufacturing facilities in the United
States and the United Kingdom. The Company's laser division designs, develops,
manufactures and markets laser subsystems for a broad range of OEM applications,
which include biotechnology, industrial process control and measurement,
graphics and printing and semiconductor equipment. Uniphase's domestic
wholly-owned subsidiary, Ultrapointe Corporation, designs, develops,
manufactures and markets advanced laser-based systems for semiconductor wafer
defect examination and analysis. In May 1994, the Company acquired a 49% equity
position in I.E. Optomech Ltd., an optoelectronics company located in the United
Kingdom. The Company increased its ownership percentage on May 1, 1995 to 51.5%
through an additional equity investment and on July 1, 1995, purchased the
remaining equity interest. In May 1995, Uniphase acquired United Technologies
Photonics, Inc., which designs, develops, manufactures and markets high-speed
external modulators and transmitters for fiber optic networks in the CATV and
long-haul telecommunications industries, and which is being operated as a
wholly-owned Uniphase subsidiary, Uniphase Telecommunications Products, Inc.
("UTP"). At the end of fiscal 1995, the Company sold the net assets of its diode
laser product line, which was previously operated in a Los Angeles facility. In
June 1996, the Company acquired two affiliated companies, GCA Fibreoptics Ltd.
("GCA") and Fiberoptic Alignment Solutions, Inc. ("FAS") which the Company
combined and operates under the name UTP Fibreoptics as a division of UTP. UTP
Fibreoptics custom packages laser diodes, light emitting diodes ("LEDs") and
photodetectors for OEMs for use in fiber optic networks. Uniphase also has
wholly-owned subsidiaries in Germany and the United Kingdom to market and
service its products in Europe.
BASIS OF PRESENTATION
The consolidated financial statements include Uniphase, its wholly-owned
subsidiaries, I.E. Optomech subsequent to obtaining controlling interest on May
1, 1995, UTP and UTP Fibreoptics subsequent to their purchase by the Company in
May 1995 and June 1996, respectively. All significant intercompany accounts and
transactions have been eliminated. Amounts applicable to the minority interest
of I.E. Optomech from May 1, 1995 to July 1, 1995 are insignificant.
UNIPHASE CORPORATION
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH, CASH EQUIVALENTS, AND SHORT-TERM AND LONG-TERM INVESTMENTS
Uniphase considers all liquid investments with maturities of ninety days or
less when purchased to be cash equivalents. The Company's short-term investments
have maturities of one year or less and long-term investments have maturities of
over one year. The Company's securities are classified as available-for-sale and
are recorded at fair value. Fair value is based upon quoted market prices on the
last day of the fiscal year. The cost of debt securities sold is based on the
specific identification method. Unrealized gains and losses are reported as a
separate component of stockholders' equity. Gross realized gains and losses are
included in interest income and have not been material. The Company's
investments consist of the following:
JUNE 30, 1996 GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(in thousands) -------- ---------- ---------- ---------
Floating rate bonds $ 15,660 $-- $ -- $ 15,660
Municipal bonds 56,114 28 46 56,096
Auction instruments 25,839 -- -- 25,839
Money market instruments 13,474 -- -- 13,474
-------- --- -------- --------
$111,087 $28 $ 46 $111,069
======== === ======== ========
Included in cash and cash equivalents $ 49,790 $-- $ -- $ 49,790
Included in short-term investments 43,745 9 23 43,731
Included in long-term investments 17,552 19 23 17,548
-------- --- -------- --------
$111,087 $28 $ 46 $111,069
======== === ======== ========
JUNE 30, 1995 GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(in thousands) ------ ---------- ---------- ---------
Auction instruments $3,000 $ -- $ -- $3,000
Municipal bonds 1,679 -- -- 1,679
Certificate of deposits 1,003 -- -- 1,003
Money market instruments 549 -- -- 549
------ ----- ------ ------
$6,231 $ -- $ -- $6,231
====== ===== ====== ======
Included in cash and cash equivalents $1,552 $ -- $ -- $1,552
Included in short-term investments 4,679 -- -- 4,679
------ ----- ------ ------
$6,231 $ -- $ -- $6,231
====== ===== ====== ======
UNIPHASE CORPORATION
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The components of inventory consist of the following:
JUNE 30, 1996 1995
(in thousands) ------- ------
Finished goods $ 2,159 $2,043
Work in process 4,382 1,072
Raw materials and purchased parts 4,100 2,363
------- ------
$10,641 $5,478
======= ======
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
by the straight-line method over the following estimated useful lives of the
assets: building and improvements, 5 to 40 years; machinery and equipment, 2 to
5 years; furniture, fixtures, and office equipment, 5 years. Leasehold
improvements are amortized by the straight-line method over the shorter of the
estimated useful lives of the assets or the term of the lease. The components of
property, plant and equipment are as follows:
JUNE 30, 1996 1995
(in thousands) -------- -------
Land $ 4,868 $ --
Building and improvements 7,582 --
Machinery and equipment 8,342 4,944
Furniture, fixtures, and office equipment 3,788 2,887
Leasehold improvements 1,439 556
-------- -------
26,019 8,387
Less: accumulated depreciation and amortization (5,714) (4,935)
-------- -------
$ 20,305 $ 3,452
======== =======
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
and long-term investments and trade receivables. The Company places its cash
equivalents, short-term and long-term investments with high credit-quality
financial institutions. The Company invests its excess cash primarily in auction
instruments, municipal bonds, floating rate bonds and money market instruments.
The Company has established guidelines relative to credit ratings,
diversification and maturities that seek to maintain safety and liquidity. The
Company sells primarily to customers involved in the application of laser
technology, the manufacture of semiconductors or telecommunications equipment.
The Company performs ongoing credit evaluations of its customers and does not
require collateral. The Company provides reserves for potential credit losses,
and such losses and yearly provisions have not been significant and have been
within management's expectations.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated
using the exchange rate on the balance sheet dates. Revenues and expenses are
translated using average rates of exchange prevailing during the year. The
translation adjustment resulting from this process is shown separately as a
component of stockholders' equity. Foreign currency transaction gains and losses
are not material and are included in the determination of net income.
REVENUE RECOGNITION
Revenue from the sale of products is generally recognized upon shipment.
Revenue on the shipment of Ultrapointe Systems on evaluation is deferred until
customer acceptance. The Company provides for the estimated cost to repair
products under warranty at the time of sale.
UNIPHASE CORPORATION
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues from UTP's research contracts are recognized on the
percentage-of-completion method, measured by costs incurred to date to estimated
total costs for each contract. Under this method, revenues are recognized as
various stages of research contracts are completed. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined.
The Company is party to certain research and development contracts with
third parties whereby the Company is obligated to spend certain specified
amounts over periods ranging from two to three years on certain research and
development activities and will be reimbursed by the third party participants
for a portion of such expenditures. During fiscal 1996 and 1995, the Company
earned reimbursements of $704,000 and $245,000 in connection with these
contracts which were recorded as credits to research and development expense.
The corresponding amounts during fiscal 1994 were insignificant. At June 30,
1996, a total of approximately $1,578,000 remains to be expended under these
contracts for which the Company will receive reimbursements of approximately
$767,000. The research activities covered by the contracts are complementary to
the Company's own research and development activities. At the end of the
contracts, the Company will own or have access to the technology developed in
connection with the contracts.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from stock options
using the treasury stock method. Since fully diluted earnings per share differs
from primary earnings per share by less than 3%, only primary earnings per share
is shown below. Shares used in the per share computations are as follows:
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------ ------ -----
Weighted average common shares 12,416 9,108 7,276
Stock options 1,161 974 998
------ ------ -----
Total 13,577 10,082 8,274
====== ====== =====
STOCK SPLIT
On April 27, 1996, the Company's Board of Directors approved a
two-for-one split of its Common Stock (the "Stock Split") to be effected in the
form of a 100% stock dividend, payable on June 3, 1996 to stockholders of record
on May 20, 1996. All prior period common stock and per share data in these
financial statements and the notes thereto have been adjusted to reflect this
stock split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications, relating to geographic sales information, have
been made to the fiscal 1994 and fiscal 1995 presentation to conform to the
fiscal 1996 presentation.
UNIPHASE CORPORATION
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the first quarter of the fiscal year 1997 and, based on current
circumstances, does not believe the effect of adoption will be material. The
Company is evaluating the impact of the new standard on its financial position,
results of operations, and cash flows, and expects the effect to be immaterial.
In October 1995, the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation" which also will be effective for the Company's 1996
fiscal year. Statement 123 allows companies which have stock-based compensation
arrangements with employees to adopt a new fair-value basis of accounting for
stock options and other equity instruments, or to continue to apply the existing
accounting rules under APB Opinion 25 "Accounting for Stock Issued to Employees"
but with additional financial statement disclosure. The Company expects to
continue to account for stock-based compensation arrangements under APB Opinion
25 and therefore does not expect Statement 123 to have a material impact on its
financial position, results of operations and cash flows.
2 LINE OF CREDIT
The Company has a $5.0 million revolving bank line of credit that expires
on November 1, 1996. Advances under the line of credit bear interest at the
bank's prime rate (8.25% at June 30, 1996) and are secured by inventories and
accounts receivable. Under the terms of the line of credit agreement, the
Company is required to maintain certain minimum working capital, net worth,
profitability levels and other specific financial ratios. In addition, the
agreement prohibits the payment of cash dividends and contains certain
restrictions on the Company's ability to borrow money or purchase assets or
interests in other entities without the prior written consent of the bank. There
were no borrowings under the line of credit at June 30, 1996. The Company
intends to seek renewal of this line of credit.
Through the acquisition of UTP Fibreoptics, the Company assumed
established lines of credit that are as follows:
GCA maintains approximately $1,500,000 under a revolving line of credit
agreement. Advances under the line of credit bear interest at 2% above the
bank's prime rate (8.00% at June 30, 1996) and are secured by the UK accounts
receivable of GCA. As of June 30, 1996 the outstanding balance was $408,000.
FAS agreed to a $150,000 revolving line of credit agreement. Advances under
the line of credit bear interest at 2% above the bank's prime rate (8.25% at
June 30, 1996) and are secured by all receivables, inventory, property, plant
and equipment, and any cash and non-cash proceeds of any of the foregoing items.
Under the terms of the agreement, the Company is required to maintain certain
debt to tangible net worth ratios and net cash flow related to the long-term
debt. The agreement has been guaranteed by two former significant shareholders
of FAS. As of June 30, 1996 the outstanding balance was $140,000.
UNIPHASE CORPORATION
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 OTHER ACCRUED EXPENSES
The components of other accrued expenses are as follows:
JUNE 30, 1996 1995
(in thousands) ------ ------
Income taxes payable $ 807 $ 221
Royalties payable 536 435
Warranty reserve 598 385
Other accrued liabilities 2,523 1,626
------ ------
$4,464 $2,667
====== ======
4 INCOME TAXES
The expense for income taxes consists of the following:
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------- ------- ------
Federal:
Current $ 4,381 $ 1,967 $ 806
Deferred (934) (1,688) 173
------- ------- ------
3,447 279 979
State:
Current 635 550 196
Deferred (130) (500) 6
------- ------- ------
505 50 202
Foreign:
Current 84 67 47
------- ------- ------
Income tax expense $ 4,036 $ 396 $1,228
======= ======= ======
A reconciliation of the income tax expense at the federal statutory rate to
the income tax expense at the effective tax rate is as follows:
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------- ------- -------
Income taxes (benefit) computed
at the federal statutory rate $ 2,321 $ 385 $ 1,176
State taxes, net of federal benefit 333 33 133
Acquired in-process
research and development 1,523 -- --
Tax exempt income (213) -- --
Research, development,
and foreign tax credits -- (15) (132)
Other 72 (7) 51
------- ------- -------
$ 4,036 $ 396 $ 1,228
======= ======= =======
The components of deferred taxes consist of the following:
YEAR ENDED JUNE 30, 1996 1995
(in thousands)
Deferred tax assets:
State taxes $ 188 $ 186
Inventory reserve 268 234
Vacation accruals 123 128
Deferred compensation 1,168 --
Intangibles and acquired in-process
research and development 1,591 1,760
Warranty reserve 223 139
Diode laser product line write-off -- 257
Other accruals not deductible for tax 268 110
------ ------
Total deferred tax assets 3,829 2,814
Deferred tax liabilities:
Tax over book depreciation -- 19
Interest charge DISC commission 551 613
UTP Fibreoptics intangibles 1,711 --
Other 32 --
------ ------
Total deferred tax liabilities 2,294 632
------ ------
Total net deferred tax assets $1,535 $2,182
====== ======
UNIPHASE CORPORATION
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company believes that net deferred tax assets are more likely than not
to be realized from the Company's ongoing operations. Thus, no valuation
allowance is deemed necessary. Cumulative undistributed earnings of Uniphase's
foreign subsidiaries were approximately $348,000, $282,000 and $99,000 at June
30, 1996, 1995 and 1994, respectively. These amounts have been permanently
reinvested, and accordingly, no provision for federal and state income taxes has
been provided thereon. The tax benefit associated with exercises of stock
options reduced taxes currently payable by $2,999,000, $1,636,000 and $346,000
for the years ended June 30, 1996, 1995 and 1994, respectively. Such benefits
are credited to additional paid-in capital when realized.
5 LEASE COMMITMENTS
The Company leases manufacturing and office space primarily in Manteca,
California, Bloomfield, Connecticut, Chalfont, Pennsylvania and Witney, United
Kingdom under operating leases expiring at various dates through December 2013
and containing certain renewal options ranging from one to four years. The
Company has the option of terminating two of the lease agreements on December
25, 2003 upon six months written notification.
Future minimum commitments for noncancelable operating leases, which
excludes $221,000 accrued at June 30, 1996 for vacated space upon sale of a
product line, are as follows:
OPERATING LEASES
(in thousands)
1997 $ 694
1998 681
1999 559
2000 533
2001 484
Thereafter 347
------
Total minimum lease payments $3,298
======
Rental expense for operating leases for the years ended June 30, 1996,
1995 and 1994 amounted to approximately $685,000, $605,000 and $530,000,
respectively.
6 EMPLOYEE BENEFIT PLAN
Uniphase has an employee 401 (k) salary deferral plan, covering all
domestic employees. Employees may make contributions by withholding a percentage
of their salary up to $9,500 per year. Company contributions consist of $0.25
per dollar contributed by employees with at least six months of service. Company
contributions were approximately $215,000, $131,000 and $100,000 for the years
ended June 30, 1996, 1995, and 1994, respectively.
UNIPHASE CORPORATION
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 STOCK OPTION PLANS
As of June 30, 1996, Uniphase has reserved 2,557,000 shares of common
stock for future issuance to employees, directors and consultants under its 1984
Amended and Restated Stock Option Plan (the "1984 Option Plan") and Amended and
Restated 1993 Flexible Stock Incentive Plan (the "1993 Option Plan"). The Board
of Directors has the authority to determine the type of option and the number of
shares subject to option. The exercise price cannot be less than the fair value
at the date of grant. Options generally become exercisable over a four-year
period and, if not exercised, expire from five to ten years from the date of
grant. The following table summarizes option activity through June 30, 1996:
OPTIONS OUTSTANDING
------------------------------------------------------
SHARES AGGREGATE
AVAILABLE NUMBER PRICE EXERCISE
FOR GRANT OF SHARES PER SHARE PRICE
(in thousands, except price per share) --------- --------- -------------- ---------
Balance at June 30, 1994 600 2,486 $0.46 - $4.63 $ 5,123
Increase in authorized shares 700 -- -- --
Granted (874) 874 $3.88 - $11.57 7,354
Canceled 32 (128) $1.30 - $9.88 (373)
Exercised -- (646) $0.46 - $4.63 (827)
---- ------ -------
Balance at June 30, 1995 458 (2,586) $0.46 - $11.57 11,277
Increase in authorized shares 210 -- -- --
Granted (704) 704 $5.48 - $25.50 7,903
Canceled 78 (246) $0.46 - $18.06 (949)
Exercised -- (529) $0.46 - $9.88 (1,287)
---- ------ -------------- -------
Balance at June 30, 1996 42 2,515 $0.46 - $25.50 $16,944
==== ====== =======
UNIPHASE CORPORATION
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options for 1,083,000 shares are exercisable as of June 30, 1996.
In fiscal 1995, certain employees of UTP were granted tandem stock options
whereby such employees received options to purchase shares of either Common
Stock of UTP (the "UTP Options") under the UTP 1995 Flexible Stock Incentive
Plan (the "1995 Option Plan") or Common Stock of Uniphase (the "Uniphase
Options") under Uniphase's 1993 Option Plan. Under the tandem option plan
structure, the aggregate value of the UTP Options and the Uniphase Options that
were granted to each optionee are equal. The optionees could exercise either
their UTP Options or Uniphase Options, but not both. When the optionees
exercised their options as to UTP Common Stock, their corresponding Uniphase
Options automatically terminate, and vice versa.
During fiscal 1996, the Company assumed all options to purchase UTP stock
previously issued to UTP employees and granted replacement options to such
employees to purchase stock of the Company. Management believed this decision
was necessary to operate UTP Fibreoptics as a division of UTP. The Company will
incur compensation expense totaling $4,400,000 in connection with such options
granted which were effective May 15, 1996. Of this total $3,000,000, related to
options which have vested to date, has been charged to expense in the fiscal
year ended June 30, 1996. The remaining $1,400,000 will be charged to expense
over the remaining vesting period of approximately three years.
8 EMPLOYEE STOCK PURCHASE PLAN
The Uniphase 1993 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in October 1993 and amended during fiscal 1994. The Company has reserved
400,000 shares of common stock for issuance under the Purchase Plan. The
Purchase Plan, effective February 1, 1994, provides eligible employees with the
opportunity to acquire an ownership interest in Uniphase through participation
in a program of periodic payroll deductions applied at specific intervals to the
purchase of common stock. The Purchase Plan is structured as a qualified
employee stock purchase plan under Section 423 of the amended Internal Revenue
Code of 1986. However, the Purchase Plan is not intended to be a qualified
pension, profit sharing or stock bonus plan under Section 401(a) of the 1986
Code and is not subject to the provisions of the Employee Retirement Income
Security Act of 1974. The Purchase Plan will terminate upon the earlier of
December 31, 1998 or the date on which all shares available for issuance under
the Purchase Plan have been sold. During fiscal 1996, employees purchased 97,176
shares of common stock under the Purchase Plan and 244,974 shares are available
for future issuance.
9 INVESTMENT IN I.E. OPTOMECH LTD.
During fiscal 1994 and 1995, the Company, through a series of
transactions, purchased all of the outstanding common stock of I.E. Optomech
Ltd., a privately held optoelectronics company located in the United Kingdom.
I.E. Optomech develops, manufactures and sells solid state lasers. The purchase
price was not significant to the Company.
10 ACQUISITION OF UNIPHASE TELECOMMUNICATIONS PRODUCTS, INC.
On May 15, 1995, the Company acquired all the net assets of UTP, from
United Technologies Corporation. UTP designs, develops, manufactures and markets
high-speed external modulators and transmitters for fiber optic networks in the
CATV and long-haul telecommunications industries. The total purchase price of
$8,747,000 included a cash payment of $8,050,000 to United Technologies
Corporation and $697,000 for related acquisition expenses. The acquisition has
been accounted for by the purchase method of accounting and accordingly, the
accompanying financial statements include the results of operations of UTP
subsequent to the acquisition date. The fair value of the net assets and
acquired in-process research and development purchased was
UNIPHASE CORPORATION
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$7,975,000. The excess of $772,000 of the acquisition price over such fair value
and the purchased intangible assets are being amortized over estimated useful
lives ranging from 5 to 10 years. Accumulated amortization is approximately
$349,000 at June 30, 1996.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of UTP had occurred at the
beginning of fiscal 1994 and does not purport to be indicative of what would
have occurred had the acquisition been made as of the beginning of fiscal 1994
or of results which may occur in the future.
YEAR ENDED JUNE 30, 1995 1994
(in thousands, except per share data) ------- -------
Net sales $46,512 $39,967
Net income $ 222 $ 2,756
Net income per Common Share $ .02 $ .34
The effects of the UTP acquisition on the 1995 consolidated statement of
cash flows were as follows (in thousands):
Working capital acquired $1,215
Property, plant and equipment 1,260
Intangibles and goodwill 2,072
In-process research and development 4,200
------
Total purchase price $8,747
======
11 ACQUISITION OF UTP FIBREOPTICS
On May 31, 1996, the Company acquired 100% of the outstanding shares of
GCA Fibreoptics Ltd. ("GCA") and Fiberoptic Alignment Solutions, Inc. ("FAS").
GCA and FAS will operate as a division of UTP under the name UTP Fibreoptics.
UTP Fibreoptics custom packages laser diodes, light emitting diodes ("LEDs") and
photodetectors for use in fiber optic networks. The total purchase price of
$9,150,000 consisted of approximately $2,589,000 cash payment, $6,061,000 notes
payable to the former shareholders and an estimated $500,000 in related
acquisition costs. The principal and accumulated interest on the notes is due
and payable in full in August 1997. The notes earn interest at a rate of 6%
compounded annually. Accrued interest expense as of June 30, 1996 was $30,000.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include the
results of operations of UTP Fibreoptics subsequent to the acquisition date. The
purchase included net assets and acquired in-process research and development of
$4,827,000 at fair market value. The excess of $1,913,000 of the acquisition
price over such fair value, the purchased intangible assets and the related
deferred taxes are being amortized over the estimated useful life of 7 years.
The accumulated amortization as of June 30, 1996 is approximately $65,000.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisition of UTP Fibreoptics
had occurred at the beginning of fiscal 1995 and does not purport to be
indicative of what would have occurred had the acquisition been made as of the
beginning of fiscal 1995 or of results which may occur in the future.
YEAR ENDED JUNE 30, 1996 1995
(in thousands, except per share data) ------- -------
Net sales $74,781 $48,104
Net income $ 6,635 $ 1,078
Net income per share $ 0.49 $ 0.11
The effects of the UTP Fibreoptics acquisition on the 1996 consolidated
statement of cash flows were as follows (in thousands):
Working capital acquired $ 609
Property, plant and equipment 924
Intangibles and goodwill, net of deferred taxes 4,323
Other liabilities (1,186)
In-process research and development 4,480
-------
Total purchase price $ 9,150
=======
UNIPHASE CORPORATION
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12 ACQUISITION OF REAL ESTATE
On February 8, 1996, the Company acquired two properties in San Jose,
California, totaling 109,000 square feet, which includes land and buildings, for
an aggregate purchase price of approximately $11.0 million. One of the
properties is the Company's current principal facility previously occupied under
an operating lease which would have expired in August 1998. The Company's
principal sales, marketing, technical support, administration, and research and
development operations as well as manufacturing operations for the argon laser
and Ultrapointe products occupy these facilities. The Company has agreed to
lease certain unused space to Centigram Communications Corporation (Centigram)
of which an executive officer is also a director of the Company. The Company
received rental income from Centigram of approximately $43,000 as well as a
security deposit of approximately $43,000 in fiscal 1996.
13 PUBLIC OFFERINGS
During the fiscal year 1996, the Company received proceeds, net of
expenses, of approximately $105,529,000 from two follow on public offerings of
5,290,000 shares of common stock.
14 PRIVATE PLACEMENT OF COMMON STOCK
In November 1995, Tencor agreed to become the exclusive OEM reseller of
the Ultrapointe Systems and the Identifier, the Company's ADC software product,
and in connection therewith acquired 666,000 shares of the Company's Common
Stock for a net purchase price of approximately $12.3 million.
15 SALE OF DIODE LASER PRODUCT LINE
The Company sold its diode laser product line for $375,000 in cash on June
30, 1995. The loss on sale of the product line was $891,000. In conjunction with
the sale, the Company also obtained a limited non-exclusive sublicense to a
solid state technology patent at a reduced royalty rate.
16 LITIGATION AND CONTINGENCIES
During fiscal 1994, the Company settled one of two remaining lawsuits
against the Company which had been filed by certain former employees. Due to the
settlement of this lawsuit at a cost which was less than anticipated and the
re-evaluation of the potential liability with respect to the remaining
outstanding lawsuit (which was subsequently dismissed in fiscal 1995), the
Company reversed $355,000 of accrued legal expense. In addition, during fiscal
1994, it was determined that certain costs accrued for in fiscal 1993, with
respect to certain third party patents, would not have to be paid. As a result
of this determination, accrued expenses of $300,000 were reversed in fiscal 1994
as a credit to selling, general and administrative expense.
During fiscal 1996, two former employees commenced wrongful termination
actions against the Company. The Company believes these claims are without merit
and is vigorously defending them. Even if these claims are adjudicated in favor
of the plaintiffs, the Company does not believe that the ultimate resolution of
these matters will have a material adverse impact on the Company or its
operations.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial statements.
UNIPHASE CORPORATION
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17 GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
Uniphase operates in two geographic regions: the United States and
Europe. The Company operates in a single industry segment, the design,
manufacture and sale of laser subsystems and laser based products. The
following table shows sales, operating income (loss) and other financial
information by geographic region:
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) --------- -------- --------
Net sales:
United States-domestic $ 53,313 $ 29,456 $ 23,654
United States-export 13,742 10,967 7,872
Europe 8,738 7,100 6,498
Intercompany (5,720) (5,241) (5,102)
--------- -------- --------
Total net sales $ 69,073 $ 42,282 $ 32,922
========= ======== ========
Operating income (loss):
United States $ 4,987 $ 276 $ 3,115
Europe (77) 299 107
Eliminations 519 6 25
--------- -------- --------
Total operating income $ 5,429 $ 581 $ 3,247
========= ======== ========
Identifiable assets:
United States $ 168,095 $ 28,785 $ 24,219
Europe 5,729 3,125 1,995
--------- -------- --------
Total assets $ 173,824 $ 31,910 $ 26,214
========= ======== ========
Intercompany transfers represent products that are transferred between
geographic areas on a basis intended to reflect as nearly as possible the market
value of the products. Identifiable assets are those assets of the Company that
are identified with the operations of the corresponding geographic area.
One customer purchased both laser subsystems and Ultrapointe Systems and
accounted for a combined 13% of the Company's consolidated net sales in fiscal
1996. One laser subsystem customer accounted for 12%, 12% and 12% of the
Company's consolidated net sales in the years ended June 30, 1996, 1995, and
1994, respectively. In addition, another laser subsystem customer accounted for
10% of the Company's consolidated net sales in the year ended June 30, 1994.
18 SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------ ------ ----
Cash paid for interest $ 43 $ 11 $ 28
Cash paid for income taxes $1,107 $1,213 $965
19 QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
(in thousands,
except per share amounts) SEPT 30 DEC 31 MAR 31 JUN 30
------- ------- ------- --------
Fiscal 1996:
Net sales $12,793 $15,673 $18,876 $ 21,732
Gross profit 5,819 7,363 9,058 10,533
Income (loss) from operations 1,913 2,395 3,692 (2,571)
Net income (loss) 1,216 1,892 2,553 (2,869)(1)
Net income (loss) per share $ 0.12 $ 0.14 $ 0.17 $ (0.20)(1)
Fiscal 1995:
Net sales $ 9,083 $ 9,941 $11,122 $ 12,136
Gross profit 3,835 4,095 4,838 5,401
Income (loss) from operations 990 1,232 1,668 (3,309)
Net income (loss) 697 885 1,124 (1,971)(1)
Net income (loss) per share $ 0.07 $ 0.09 $ 0.11 $ (0.21)(1)
1 Results in the fourth quarter included infrequent or unusual items. In fiscal
1996, these items included in-process research and development and a
compensation expense related to the acquisition of UTP Fibreoptics. In fiscal
1995, these items included primarily in-process research and development
associated with the acquisition of UTP. Excluding such items, net income for
the fourth quarter ended June 30, 1996 and 1995 would have been approximately
$3.4 million or $0.22 per share and $1.4 million or $0.13 per share,
respectively. This supplemental information should not be construed as a
substitute for, or better indicator of, results of operations or net income
determined in accordance with generally accepted accounting principles.
UNIPHASE CORPORATION
23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Uniphase Corporation
We have audited the accompanying consolidated balance sheets of Uniphase
Corporation as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Uniphase
Corporation at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
July 30, 1996
COMMON STOCK MARKET PRICE
FISCAL 1995 QUARTER ENDED FISCAL 1996 QUARTER ENDED
SEPT 30 DEC 31 MAR 31 JUN 30 SEPT 30 DEC 31 MAR 31 JUN 30
----- ----- ----- ------ ------- ------ ------ ------
High 5 1/2 8 1/8 10 12 1/8 19 1/16 19 21 1/4 35 1/2
Low 3 7/8 5 1/4 6 3/8 8 7/8 10 3/8 12 1/2 14 7/8 18 5/8
The high and low closing bid prices are as reported on the Nasdaq National
Market during each of the quarters for Uniphase Common Stock. At September 10,
1996, the Company had approximately 54 holders of record of its Common Stock and
16,218,582 shares outstanding. The Company has not paid dividends on its common
stock and does not anticipate paying cash dividends in the foreseeable future.
UNIPHASE CORPORATION