1
EXHIBIT 13
FINANCIAL
HIGHLIGHTS
Years Ended June 30, 1997 1996 1995 1994 1993
(in thousands, except per share amounts)
--------- --------- --------- --------- ---------
Consolidated Statement of Operations Data:
Net sales $ 106,966 $ 69,073 $ 42,282 $ 32,922 $ 27,314
Income (loss) from operations(1,2,3,4) $ (16,852) $ 5,429 $ 581 $ 3,247 $ (1,326)
Net income (loss)(1,2,3,4) $ (18,854) $ 2,792 $ 735 $ 2,231 $ (798)
Net income (loss) per share(1,2,3,4) $ (1.14) $ 0.21 $ 0.07 $ 0.27 $ (0.14)
Shares used in per share calculation 16,482 13,577 10,082 8,274 5,510
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data:
Working capital $ 108,388 $ 130,991 $ 17,316 $ 18,943 $ 5,002
Total assets 177,579 173,824 31,910 26,214 11,785
Long-term obligations 2,475 7,036 221 -- 132
Total stockholders' equity 149,777 153,205 24,808 21,331 6,731
1 During fiscal year 1993, the Company accrued litigation costs of $2.4
million, pertaining primarily to a patent infringement action brought
against the Company, and to a lesser extent, 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 $5.4 million of charges, 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. These
charges resulted in a reduction of net income per share for fiscal 1996 by
$0.46.
4 During fiscal 1997, the Company incurred a charge of $33.3 million for
acquired in-process research and development related to the acquisition of
ULE. This charge reduced net income per share in fiscal 1997 by $2.02.
[Graph of Net Sales Numbers Presented Above]
one
2
INDEX TO
CONSOLIDATED
FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
FIFTEEN
CONSOLIDATED STATEMENTS OF OPERATIONS
TWENTY-TWO
CONSOLIDATED BALANCE SHEETS
TWENTY-THREE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWENTY-FOUR
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-FIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-SIX
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
FORTY-ONE
3
MANAGEMENT'S DISCUSSION and ANALYSIS
of Financial Condition and Results of Operations
INTRODUCTION
Uniphase Corporation and its subsidiaries (the "Company" or "Uniphase")
designs, develops, manufactures and markets fiber optic telecommunications
equipment products, laser subsystems and laser-based semiconductor wafer defect
examination and analysis equipment. 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. The Company's
Ultrapointe subsidiary designs, develops, manufactures and markets advanced
laser-based systems for semiconductor wafer defect examination and analysis.
The Company entered the telecommunications market in May 1995, which
includes the products produced by Uniphase Telecommunications Products ("UTP"),
UTP Fibreoptics ("UFP"), and Uniphase Laser Enterprise ("ULE"). UTP designs,
develops, manufactures and markets high-speed external modulators and
transmitters for fiber optic networks in the cable television ("CATV") and
long-haul telecommunications industries. UFP custom packages laser diodes, LEDs
and photodetectors for OEMs for use in fiber optic networks for local
telecommunications and data communications. In March 1997, the Company acquired
the net assets of ULE from the Zurich research laboratory of International
Business Machines ("IBM"). The total purchase price of $45.9 million included
cash consideration of $45 million and transaction costs of $900,000. ULE
develops and manufactures semiconductor diode laser chips used in the long-haul
telecommunication industry.
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, 1997 1996 1995
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 53.7 52.5 57.0
------ ------ ------
Gross profit 46.3 47.5 43.0
Operating expenses:
Research and development 8.7 8.4 8.8
Royalty and license 1.3 1.9 2.8
Selling, general and administrative 20.9 18.4 17.4
Infrequent or unusual charges:
Acquired in-process research and development 31.1 6.5 10.5
Compensation expense -- 4.3 --
Loss on sale of product line -- -- 2.1
------ ------ ------
Total operating expenses 62.0 39.5 41.6
------ ------ ------
Income (loss) from operations (15.7) 8.0 1.4
Interest and other income, net 3.2 1.9 1.3
------ ------ ------
Income (loss) before income taxes (12.5) 9.9 2.7
Income tax expense 5.1 5.9 1.0
------ ------ ------
Net income (loss) (17.6)% 4.0% 1.7%
====== ====== ======
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
Net Sales. Net sales of $107.0 million for fiscal 1997 represented an
increase of $37.9 million or 54.9% over fiscal 1996 net sales of $69.1 million.
The increase is primarily due to the increase in telecommunications sales of
$36.8 million, of which $14.4 million resulted from a full year's revenue from
UFP and the revenues from ULE subsequent to March 10, 1997.
UNIPHASE CORPORATION
FIFTEEN
4
MANAGEMENT'S DISCUSSION and ANALYSIS of
Financial Condition and Results of Operations (cont.)
The sale of the Company's laser subsystems increased by $3.3 million but
were offset by a decrease of $2.2 million in sales of Ultrapointe laser imaging
system. A downturn in the semiconductor industry during fiscal 1997 led certain
of Ultrapointe's customers to delay or cancel purchases of the Company's
Ultrapointe Systems.
International revenues, which are defined by the Company as sales outside
the United States of America, accounted for $32.1 million, $16.9 million, and
$12.2 million or 30.0%, 24.5%, and 28.9%, of total revenues for the years ended
June 30, 1997, 1996, and 1995, respectively. The increase of $15.2 million in
international sales from fiscal 1996 to fiscal 1997 is due primarily to a full
year of UFP sales of $5.6 million, the 1997 acquisition of ULE in March 1997
contributed $3.4 million and $4.3 million from the international expansion in
the telecommunications market. And to a lesser extent, the increase is also due
to the continued penetration of the Ultrapointe system in the Asian market
place. The fiscal 1996 increase over fiscal 1995 of $4.7 million is primarily
due to the increased demand for the Company's laser subsystems, and to a lesser
extent, the increasing sales from the Ultrapointe System and sales revenues from
UTP, which was acquired in May 1995.
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 a full year's revenues from UTP, which accounted
for a $13.9 million increase, and increased sales of the Company's Ultrapointe
Systems which accounted for $10.2 million of the increase in net sales. 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.
Gross Profit. Gross profit of $49.6 million for fiscal 1997 represented an
increase of $16.8 million or 51.2% over fiscal 1996 gross profit of $32.8
million. The increase in gross profit from telecommunication product sales of
213.4% is partially offset by a decline in net sales of relatively high margin
Ultrapointe Systems. Fiscal 1997 amounts include a full year's contribution from
UFP and approximately four months from ULE. The Company experienced a decrease
in gross margins to 46.3% in fiscal 1997 from 47.5% in fiscal 1996. Inventory
charges resulting from the Company's change in strategic focus with respect to
diode based laser applications and from the modification of certain customer and
product strategies incorporating lower powered amplifiers at UTP contributed to
the decline in gross profit and gross margins. The Company's laser subsystems
margins remained relatively consistent with the prior fiscal year. There can be
no assurance 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.
Gross profit in fiscal 1996 increased to $32.8 million or 47.5% of net sales
compared with $18.2 million or 43.0% of net sales in fiscal 1995. Gross profit
increased $14.6 million or 80.4% 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 experienced higher gross margins than the Company's laser
subsystems. In addition, the Ultrapointe Systems had a favorable impact on gross
margin through improved economies of scale resulting from higher production and
purchasing volumes of components.
Research and Development Expense. Research and development expense of $9.3
million or 8.7% of net sales represented an increase of $3.5 million or 59.8%
increase over fiscal 1996 expense of $5.8 million or 8.4% of net sales. The
increase is primarily due to the continuing efforts to develop the Company's
telecommunication products and, to a lesser extent, the continued development
and modifications of the Ultrapointe Laser Imaging System and automatic defect
classification ("ADC") software. The Company is committed to continuing its
significant research and development expenditures and expects that the absolute
dollar
UNIPHASE CORPORATION
SIXTEEN
5
MANAGEMENT'S DISCUSSION and ANALYSIS of
Financial Condition and Results of Operations (cont.)
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 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 a full
year of expenses from UTP which included expenditures associated with the
development of transmitters, and to a lesser extent, to 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, 1997.
Royalty and License Expense. Royalty and license expense of $1.4 million
represents an increase of 3.2% over fiscal 1996 expense of $1.3 million. The
royalty and license expense has decreased as a percentage of sales to 1.3%
compared to 1.9% in fiscal 1996. The decrease as a percentage of sales is due
primarily to the increased sales of royalty-free telecommunication products.
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 telecommunications products.
The Company continues to develop its solid state laser, semiconductor
equipment and telecommunication technologies. There are numerous patents on
these 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. If there is a 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, or if available, can be obtained on
commercially reasonable terms.
Selling, General and Administrative Expense. Selling, general and
administrative expense of $22.4 million or 20.9% of net sales represents an
increase of $9.7 million or 76.4% over fiscal 1996 expense of $12.7 million or
18.4% of net sales. The increase is due (in part) to the additional expenses of
ULE, acquired in March 1997, and a full year of expenses for UFP which was
acquired in May 1996. As a result of the ULE acquisition and a change in
strategic focus for diode-based laser applications, the Company recorded charges
of $3.2 million to consolidate its European Laser research to Switzerland, close
its Uniphase Lasers, Ltd. facility in Rugby, England, consolidate laser
packaging operations and to recognize the modification of certain customer and
product strategies at UTP incorporating lower powered amplifiers. The Company
also increased its allowance for doubtful accounts and certain other reserves
unrelated to the ULE acquisition by $1.3 million during the third quarter,
primarily related to its telecommunications operations. 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.
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.
UNIPHASE CORPORATION
SEVENTEEN
6
MANAGEMENT'S DISCUSSION and ANALYSIS of
Financial Condition and Results of Operations (cont.)
Infrequent or Unusual Charges. In fiscal 1997, the Company incurred a charge
for in-process research and development of $33.3 million or 31.1% of net sales,
related to the acquisition of the net assets of ULE from IBM on March 10, 1997.
See Note 9 of Notes to Consolidated Financial Statements.
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 UFP 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. See
Note 9 of Notes to Consolidated Financial Statements.
In fiscal 1995, the Company incurred infrequent or unusual charges which
amounted to $5.4 million or 12.7% 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 Note 10 of
Notes to Consolidated Financial Statements.
Interest and Other Income, Net. Interest and other income, net of $3.4
million for fiscal 1997 represented an increase of $2.0 million over fiscal 1996
income of $1.4 million. Fiscal 1996 interest and other income, net increased
$849,000 over fiscal 1995 of $550,000. The fiscal 1997 and 1996 increases are
due primarily to the increase in interest income earned on the net proceeds of
the two public follow-on offerings of common shares in June 1996 and October
1995 and the private placement of common stock with KLA-Tencor (formerly known
as Tencor Corporation prior to its merger with KLA) in November 1995.
Income Tax Expense. The Company recorded tax provisions of $5,432,000 and
$4,036,000 for fiscal 1997 and fiscal 1996, respectively, which were primarily
attributable to non-deductible acquired in-process research and development
resulting from the acquisition of ULE assets in fiscal 1997 and the UTP
Fibreoptics stock purchase in fiscal 1996. Exclusive of these items, the
Company's effective tax rate in fiscal 1997 and 1996 would have been
approximately 35%. The Company's effective tax rate was 35% in fiscal 1995.
The Company has established a valuation allowance covering a portion of the
gross deferred tax assets related to its Swiss subsidiary and the in-process
technology that was expensed during the current year. The amount of the
valuation allowance is based on management's expectations of future taxable
income. The company believes that since the other net deferred tax assets are
more likely than not to be realized from the Company's ongoing operations, no
additional valuation allowance is deemed necessary.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company's combined balance of cash, cash equivalents
and short-term investments was $81.2 million. During fiscal 1997, the Company
met its liquidity needs primarily through cash generated from operations. Net
cash provided by operating activities was $21.5 million in fiscal 1997, compared
with $7.8 million and $3.2 million for fiscal years 1996 and 1995, respectively.
Cash provided by operating activities during fiscal 1997 is primarily the
result of net losses of $18.9 million reduced by noncash charges during the year
for depreciation and amortization of $4.7 million, acquired in-process research
and development costs of
UNIPHASE CORPORATION
EIGHTEEN
7
MANAGEMENT'S DISCUSSION and ANALYSIS of
Financial Condition and Results of Operations (cont.)
$33.3 million, amortization of deferred compensation of $900,000 and the write
off of certain assets due to the change in strategic focus for laser diode-based
applications of $2.0 million. Increases to all other operating assets (including
deferred income taxes) totaling $14.5 million were substantially offset by
increases in all other operating liabilities of $14.0 million.
Cash used in investing activities was $48.7 million in fiscal 1997 compared
with $83.5 million and $4.3 million for fiscal years 1996 and 1995,
respectively. The acquisition of ULE accounted for $45.9 million of investing
activity. The Company incurred capital expenditures of $12.0 million primarily
in facilities improvements and the acquisition of manufacturing and other
equipment to expand its manufacturing capacities and research and development
efforts primarily in its telecommunications product line. These programs were
primarily funded through existing capital and the liquidation of short-term
investments of $9.3 million during fiscal 1997. The Company expects to continue
to expand its worldwide manufacturing capacity, primarily for telecommunication
products by investing approximately $30 million in capital expenditure for
fiscal 1998.
The Company generated $3.9 million from financing activities during fiscal
1997 due primarily to the exercise of stock options and the sale of stock
through an employee stock purchase plan. 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 (8.50% at June 30, 1997) and are secured by
inventories and accounts receivable. There were no borrowings under the line of
credit as of June 30, 1997. 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 January 28, 1999. The interest and notes payable relating to the
acquisition of UFP become due on August 31, 1997. The aggregate payments of
approximately $6.3 million were made to the note holders. See Note 2 of Notes to
Consolidated Financial Statements.
In August 1997, the Company circulated a request of its stockholders to
increase the number of authorized shares of common stock from 20,000,000 to
50,000,000 shares. Additionally, the Company announced that it is currently
negotiating the acquisition of a 49% interest in INDX for approximately $2.0
million. The investment is subject to a number of contingencies including the
negotiation of terms of a definitive agreement, satisfactory completion of due
diligence and customary closing conditions. Accordingly, there can be no
assurance that the acquisition of such interest in INDX will be completed. See
Note 14 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 fiscal year 1998. However, possible investments 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 the Company.
BUSINESS OUTLOOK
The statements contained in this Annual Report that are not purely
historical are forward-looking statements within the meaning of Private
Securities Litigation Reform Act of 1995 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the Company's expectations,
hopes, beliefs, intentions or strategies regarding the future, such as the
Company's belief that future demand for data transmission will continue to
increase substantially and that the Company's products are positioned to be
successful in the industries in which it competes. Actual results could differ
from those projected in any forward-looking statements for the reasons detailed
in the Company's Annual Report on Form 10-K under the headings of "Description
of Business" and "Risk Factors." The fact that some of the risk factors may be
the same or similar to the Company's past filings means only that the risks are
present in multiple periods. The Company believes that many of the risks
detailed here and in the Company's Securities and Exchange Commission filings
are part of doing business in the industry in which the Company competes and
will likely be present in all periods reported. The fact that certain risks are
endemic to the industry does not lessen the significance of the risk. The
forward-
UNIPHASE CORPORATION
NINETEEN
8
MANAGEMENT'S DISCUSSION and ANALYSIS of
Financial Condition and Results of Operations (cont.)
looking statements are made as of the date of this Annual Report and the
Company assumes no obligation to update the forward-looking statements, or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
The Company expects to continue to experience growth through increased
levels of operations in its existing telecommunications businesses and the
acquisition of ULE in March 1997. The Company is devoting significant resources
to develop new solid state lasers for OEM customers and to increase its
penetration of the CATV and telecommunications industries. In addition, the
Company is now increasing its marketing, customer support and administrative
functions in order to support an increased level of operations primarily from
sales of its telecommunications equipment products. Finally, the Company intends
to either maintain or increase its market share in an otherwise declining market
for its gas laser products. No assurance can be given that the Company will be
successful in creating this infrastructure or that any increase in the level of
such operations will be realized or if realized will justify the increased
expense levels associated with these businesses.
In March 1997, the Company acquired ULE. As a result of acquiring ULE, the
Company has gained access to semiconductor based laser applications for use in
telecommunications. The success of the ULE acquisition will be dependent upon
the Company's ability to provide ULE 980 nm lasers and future products used in
erbium doped fiber amplifiers ("EDFA") and the continued demand for ULE products
by major telecommunication equipment manufacturers.
In July 1997, the Company entered into an exclusive OEM Agreement
("Agreement") with KLA-Tencor Corporation ("KLA-Tencor," formerly known as KLA
Instruments and Tencor Instruments prior to their merger) pursuant to which
KLA-Tencor will distribute Ultrapointe Systems through its worldwide
distribution channels. This Agreement supersedes any and all prior OEM
negotiations, correspondence, understandings and agreements regarding the
Company's business relationship with KLA-Tencor. The Company currently expects
that KLA-Tencor will account for a majority of Ultrapointe's net sales for the
foreseeable future for Laser Imaging Systems used to analyze defects on
semiconductor wafers and photomasks during the manufacturing process as well as
automatic defect classification software products. The Agreement outlines
minimum quantities to be purchased by KLA-Tencor in the year of inception,
product specifications, ongoing research and development efforts on the product
line, pricing and payment terms. The Agreement is effective through June 30,
2000 and may be extended for up to three (3) additional one-year renewal periods
thereafter.
On April 30, 1997, Tencor Instruments and KLA Instruments merged and formed
KLA-Tencor Corporation. The Company believes that the timing of the receipt of
orders and the related product mix under the Agreement will not be consistent
with historical orders for Ultrapointe Systems given the size and complexities
associated with merging these organizations. Consequently, interim revenue
levels and profit margins may be adversely affected.
The Company's Ultrapointe Systems and a portion of its laser subsystems
businesses depend upon capital expenditures by manufacturers of semiconductor
devices, including manufacturers that are opening new or expanding existing
fabrication facilities, which, in turn, depend upon the current and anticipated
market demand for semiconductor devices and the products utilizing such devices.
The semiconductor industry is highly cyclical, and has historically experienced
periods of oversupply, resulting in significantly reduced demand for capital
equipment. During the first nine months of fiscal 1997, the semiconductor
industry has experienced a downturn which has led certain of the Company's
customers to delay or cancel purchase of the Company's Ultrapointe Systems.
There can be no assurance that the semiconductor industry will not experience
further downturns or slowdowns in the future, which may materially and adversely
affect the Company's business and operating results.
The Company is devoting substantial resources for new facilities and
equipment for Uniphase Laser Enterprise and to the development of new products
for the solid state laser and telecommunications markets. Although the Company
believes existing cash balances, cash flow from operations and available lines
of credit will be sufficient to meet its capital requirements through the end of
calendar year 1997, the Company may be required to seek additional equity or
debt financing to compete effectively in these markets. The timing and amount of
such capital requirements cannot be precisely determined at this time and will
depend on several factors,
UNIPHASE CORPORATION
TWENTY
9
MANAGEMENT'S DISCUSSION and ANALYSIS of
Financial Condition and Results of Operations (cont.)
including the Company's acquisitions and the demand for the Company's products
and products under development. There can be no assurance that such additional
financing will be available when needed or, if available, will be on terms
satisfactory to the Company.
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. The Company believes that
fluctuations in quarterly results may cause the market price of its Common Stock
to fluctuate, perhaps substantially. Factors which have had an influence on and
may continue to influence the Company's operating results in a particular
quarter include the timing of the receipt of orders from major customers,
product mix, competitive pricing pressures, the relative proportions of domestic
and international sales, costs associated with the acquisition or disposition of
businesses, products or technologies, the Company's ability to design,
manufacture, and ship products on a cost-effective and timely basis, the delay
between incurrence of expenses to further develop marketing and service
capabilities and realization of benefits from such improved capabilities, the
announcement and introduction of cost-effective new products by the Company and
by its competitors, and expenses associated with any intellectual property
litigation. In addition, the Company's sales will often reflect orders shipped
in the same quarter that they are received. Moreover, customers may cancel or
reschedule shipments, and production difficulties could delay shipments. The
timing of sales of the Company's Ultrapointe Systems may result in substantial
fluctuations in quarterly operating revenues due to the substantially higher per
unit price of these products relative to the Company's other products. In
addition, the Company sells its telecommunications equipment products to OEMs
who typically order in large quantities and therefore the timing of such sales
may significantly affect the Company's quarterly results. The timing of such OEM
sales can be affected by factors beyond the Company's control, including demand
for the OEM's products and manufacturing issues experienced by OEMs. In this
regard, the Company has in the past and may continue to experience a temporary
rescheduling of orders by OEM telecommunications customers. As a result of the
above factors, the Company's results of operations are subject to significant
variability from quarter to quarter.
There can be no assurance that other acquisitions or dispositions of
businesses, products or technologies by the Company in the future will not
result in substantial charges or other expenses that may cause fluctuations in
the Company's quarterly operating results.
The market price of the Company's Common Stock has recently been and is
likely to continue to be highly volatile and significantly affected by factors
such as fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
governmental regulatory action, developments with respect to patents or
proprietary rights, general market conditions and other factors. Further, the
Company's net revenues or operating results in future quarters may be below the
expectations of public market securities analysts and investors. In such event,
the price of the Company's Common Stock would likely decline, perhaps
substantially. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies.
The Company currently has no commitments with respect to any future
acquisitions. The Company, however, frequently evaluates the strategic
opportunities available to it and may in the future pursue investments in or
acquisitions of additional complementary products, technologies or businesses.
Such acquisitions by the Company may result in the diversion of management's
attention from the day-to-day operations of the Company's business and may
include numerous other risks, including difficulties in the integration of the
operations and products, integration and retention of personnel of the acquired
companies and certain financial risks. Further acquisitions by the Company may
result in dilutive issuances of equity securities, the incurrence of additional
debt, reduction of existing cash balances, amortization expenses related to
goodwill and other intangible assets and other charges to operations that may
materially adversely affect the Company's business, financial condition or
operating results.
In addition to the factors discussed in the Outlook Section of this Annual
Report, other factors which could have a material effect on the Company's actual
results include: challenges associated with gallium arsenide manufacturing;
customer concentration; intense industry competition; the Company's ability to
attract and retain key personnel; conflicting patents and intellectual property
rights of third parties; potential infringement claims; limited protection of
intellectual property; dependence on sole and limited source suppliers; and
risks associated with international sales.
UNIPHASE CORPORATION
TWENTY-ONE
10
CONSOLIDATED STATEMENTS
OF OPERATIONS
YEARS ENDED JUNE 30, 1997 1996 1995
(in thousands, except per share data)
--------- --------- ---------
Net sales $ 106,966 $ 69,073 $ 42,282
Cost of sales 57,411 36,300 24,113
--------- --------- ---------
Gross profit 49,555 32,773 18,169
Operating expenses:
Research and development 9,312 5,828 3,710
Royalty and license 1,380 1,337 1,172
Selling, general, and administrative 22,401 12,699 7,355
Infrequent or unusual charges:
Acquired in-process research and development 33,314 4,480 4,460
Compensation expense -- 3,000 --
Loss on sale of a product line -- -- 891
--------- --------- ---------
Total operating expenses 66,407 27,344 17,588
--------- --------- ---------
Income (loss) from operations (16,852) 5,429 581
Interest income 3,985 1,570 487
Interest expense (421) (79) (25)
Other income (expense), net (134) (92) 88
--------- --------- ---------
Income (loss) before income taxes (13,422) 6,828 1,131
Income tax expense 5,432 4,036 396
--------- --------- ---------
Net income (loss) $ (18,854) $ 2,792 $ 735
========= ========= =========
Net income (loss) per share $ (1.14) $ 0.21 $ 0.07
========= ========= =========
Shares used in per share calculation 16,482 13,577 10,082
========= ========= =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
TWENTY-TWO
11
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 1996
(in thousands, except share and per share data)
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 29,186 $ 52,463
Short-term investments 52,009 61,279
Accounts receivable, less allowances for doubtful accounts of
$1,877 at June 30, 1997 and $285 at June 30, 1996 20,317 16,700
Inventories 18,668 10,641
Refundable income taxes 6,010 --
Deferred income taxes 5,882 2,191
Other current assets 1,643 1,300
--------- ---------
Total current assets 133,715 144,574
Property, plant, and equipment, net 31,251 20,305
Long-term deferred income taxes 1,581 --
Intangible assets 10,969 8,894
Other assets 63 51
--------- ---------
Total assets $ 177,579 $ 173,824
========= =========
Liabilities and Stockholders' Equity Current liabilities:
Current portion of notes payable $ 6,061 $ --
Notes payable to bank -- 548
Accounts payable 4,781 5,391
Accrued payroll and related expenses 4,528 3,180
Other accrued expenses 9,957 4,464
--------- ---------
Total current liabilities 25,327 13,583
Notes payable -- 6,061
Deferred income taxes -- 656
Accrued pension and other employee benefits 2,392 --
Other non-current liabilities 83 319
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 - 16,921,967 at June 30, 1997 and
16,097,855 at June 30, 1996 17 16
Additional paid-in capital 156,881 141,354
Retained earnings (deficit) (7,104) 11,750
Net unrealized gain (loss) on securities available-for-sale 11 (18)
Foreign currency translation adjustment (28) 103
--------- ---------
Total stockholders' equity 149,777 153,205
--------- ---------
Total liabilities and stockholders' equity $ 177,579 $ 173,824
========= =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
TWENTY-THREE
12
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
NET
STOCK UNREALIZED FOREIGN
ADDITIONAL PURCHASE RETAINED GAIN CURRENCY
COMMON STOCK PAID-IN NOTE EARNINGS (LOSS) ON TRANSLATION
(in thousands) SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) SECURITIES ADJUSTMENT TOTAL
-------- --------- --------- --------- --------- ---------- ----------- ---------
Balance at June 30, 1994 8,812 $ 8 $ 13,093 $ (18) $ 8,223 $ 11 $ 14 $ 21,331
Exercise of stock options and
related tax benefits 704 2 2,658 -- -- -- -- 2,660
Repayment of stock
purchase note -- -- -- 18 -- -- -- 18
Net income -- -- -- -- 735 -- -- 735
Net unrealized loss on
securities available-for-sale -- -- -- -- -- (11) -- (11)
Foreign currency
translation adjustment -- -- -- -- -- -- 75 75
------ --------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1995 9,516 10 15,751 -- 8,958 -- 89 24,808
Exercise of stock options and
related tax benefits 626 -- 4,703 -- -- -- -- 4,703
Common stock issued upon
public offering,
net of issuance costs 5,290 5 105,524 -- -- -- -- 105,529
Common stock issued to KLA-
Tencor, net of issuance costs 666 1 12,282 -- -- -- -- 12,283
Uniphase Telecommunications
Products stock option
compensation -- -- 3,000 -- -- -- -- 3,000
Amortization of deferred
compensation -- -- 94 -- -- -- -- 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 16,098 16 141,354 -- 11,750 (18) 103 153,205
Exercise of stock options and
related tax benefits 824 1 14,656 -- -- -- -- 14,657
Amortization of deferred
compensation -- -- 871 -- -- -- -- 871
Net loss -- -- -- -- (18,854) -- -- (18,854)
Net unrealized gain on
securities available-for-sale -- -- -- -- -- 29 -- 29
Foreign currency
translation adjustment -- -- -- -- -- -- (131) (131)
------ --------- --------- --------- --------- --------- --------- ---------
Balance at June 30, 1997 16,922 $ 17 $ 156,881 $ -- $ (7,104) $ 11 $ (28) $ 149,777
====== ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
TWENTY-FOUR
13
CONSOLIDATED STATEMENTS
OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 1996 1995
--------- --------- ---------
(in thousands)
Operating activities
Net income (loss) $ (18,854) $ 2,792 $ 735
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation expense 3,079 1,582 1,013
Amortization expense 1,617 499 123
Acquired in-process research and development 33,314 4,480 4,460
Stock compensation expense 871 3,094 --
Write-off of property, equipment and intangible assets 1,977 -- --
Undistributed earnings of affiliate -- -- (114)
Decrease in deferred income taxes, net (1,591) (1,040) (2,188)
Loss on sale of product line -- -- 891
Changes in operating assets and liabilities:
Accounts receivable 1,883 (6,432) (3,286)
Inventories (5,169) (4,087) (1,244)
Refundable income taxes (1,450) -- --
Other current assets 721 (90) (391)
Accounts payable, accrued liabilities,
and other accrued expenses 5,069 6,962 3,221
--------- --------- ---------
Net cash provided by operating activities 21,467 7,760 3,220
--------- --------- ---------
Investing activities
Purchase of available-for-sale investments (97,959) (74,326) (10,604)
Sale of available-for-sale investments 107,258 17,726 17,081
Acquisition of net assets of Laser Enterprise (45,900) -- --
Acquisition of UTP Fibreoptics -- (9,150) --
Acquisition of remaining interest in I.E. Optomech Ltd. -- (237) (12)
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 (12,048) (17,561) (1,808)
Decrease (increase) in other assets (11) 91 17
--------- --------- ---------
Net cash used in investing activities (48,660) (83,457) (4,298)
--------- --------- ---------
Financing activities
Repayment of notes payable and lease obligations (548) (297) (132)
Issuance of notes payable -- 6,061 --
Repayment of stock purchase note -- -- 18
Proceeds from issuance of common stock other
than in the public offerings 4,464 1,704 1,024
Proceeds from offering of stock -- 117,812 --
--------- --------- ---------
Net cash provided by financing activities 3,916 125,280 910
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (23,277) 49,583 (168)
Cash and cash equivalents at beginning of period 52,463 2,880 3,048
--------- --------- ---------
Cash and cash equivalents at end of period $ 29,186 $ 52,463 $ 2,880
========= ========= =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
TWENTY-FIVE
14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 BUSINESS ACTIVITIES and SUMMARY of SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Uniphase Corporation (the "Company" or "Uniphase") designs, develops,
manufactures and markets fiber optic telecommunications equipment products,
laser subsystems and laser-based semiconductor wafer defect examination and
analysis equipment. Uniphase engages in manufacturing activities in the United
States, the United Kingdom and Switzerland. 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 1995, Uniphase acquired certain net
assets of 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 Uniphase subsidiary, Uniphase
Telecommunications Products, Inc. ("UTP"). 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 ("UFP"). UFP custom packages laser diodes, light emitting diodes
("LEDs") and photodetectors for OEMs for use in fiber optic networks. In March
1997, the Company acquired the net assets of Uniphase Laser Enterprise AG
("ULE"), formerly the laser operations of IBM Corporation's ("IBM") Zurich
Research Laboratory in Switzerland. Uniphase also has wholly-owned subsidiaries
in Germany and the United Kingdom to market and service its products in Europe.
Concurrent with the acquisition of ULE in the third quarter of fiscal 1997,
the Company consolidated its European laser research to Switzerland, closed
Uniphase Lasers Ltd. (formerly I.E. Optomech), located in Rugby, England and
consolidated the laser packaging operations of UFP resulting in $2.2 million of
charges, including a charge for the impairment of goodwill. In addition, certain
customer and product strategies at UTP incorporating lower-powered amplifiers
were modified resulting in charges of $2.0 million related to the write down of
existing assets and an increase in inventory reserves. Of the total charges,
approximately $1.0 million was recorded in cost of sales as an inventory
writedown and approximately $3.2 million was included in selling, general and
administrative expenses.
BASIS OF PRESENTATION
The consolidated financial statements include Uniphase and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
CASH, CASH EQUIVALENTS AND SHORT-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 greater than ninety days. 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
UNIPHASE CORPORATION
TWENTY-SIX
15
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
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, 1997 Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
Floating rate bonds $14,122 $ -- $ -- $14,122
Municipal bonds 42,008 38 27 42,019
Auction instruments 4,702 -- -- 4,702
Money market instruments 3,896 -- -- 3,896
------- ------- ------- -------
$64,728 $ 38 $ 27 $64,739
======= ======= ======= =======
JUNE 30, 1996 Gross Gross Estimated
Amortized 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
======== ======== ======= ========
The following is a summary of contractual maturities of the company's
investments:
JUNE 30, 1997 Estimated
Amortized Fair
Cost Value
--------- ---------
(in thousands)
Money market funds $ 3,896 $ 3,896
Amounts maturing within one year 49,572 49,593
Amounts maturing after one year, within five years 11,260 11,250
------- -------
$64,728 $64,739
======= =======
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has evaluated the estimated fair value of financial instruments.
The amounts reported for cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable, notes payable and accrued expenses
approximate the fair value due to their short maturities. Investment securities
are reported at their estimated fair value based on quoted market prices.
UNIPHASE CORPORATION
TWENTY-SEVEN
16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
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, 1997 1996
------- -------
(in thousands)
Finished goods $ 2,324 $ 2,159
Work in process 10,468 4,382
Raw materials and purchased parts 5,876 4,100
------- -------
$18,668 $10,641
======= =======
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, 1997 1996
-------- --------
(in thousands)
Land $ 4,868 $ 4,868
Building and improvements 8,556 7,582
Machinery and equipment 22,561 8,342
Furniture, fixtures and office equipment
4,882 3,788
Leasehold improvements 2,114 1,439
-------- --------
42,981 26,019
Less: accumulated depreciation and amortization (11,730) (5,714)
-------- --------
$ 31,251 $ 20,305
======== ========
AMORTIZATION OF INTANGIBLE ASSETS
Intangible assets primarily represent acquired developed technology and the
excess acquisition cost over the fair value of tangible net assets of businesses
acquired. Intangible assets are being amortized using the straight-line method
over estimated useful lives ranging from 5 to 7 years. Accumulated amortization
expense at fiscal year ended June 30, 1997 and 1996 was $696,000 and $1,199,000,
respectively.
At June 30, 1996, intangible assets included the excess of the investment in
I.E. Optomech ("Optomech") over the fair market value of the net assets acquired
of approximately $527,000. The intangible asset was reviewed during the third
quarter 1997 in light of the Company's acquisition of ULE and the resultant
closure of Optomech. This review suggested that the Optomech intangible asset
was impaired, as determined based on projected cash flows from Optomech over the
remaining amortization period. The cash flow projections take into effect the
change in strategic focus by the Company for semiconductor laser-based
applications due to ULE, the costs and expected benefit from Optomech products
prospectively, and management's intention to cease capital funding at
UNIPHASE CORPORATION
TWENTY-EIGHT
17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
Optomech. Consequently, the carrying value of the Optomech intangible assets
totaling $477,000 was written off as a component of operating expenses during
fiscal 1997.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, short-term investments and
trade receivables. The Company places its cash equivalents and short-term
investments with high credit-quality financial institutions. The Company invests
its excess cash primarily in auction and money market instruments, and municipal
and floating rate bonds. 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 the manufacture of
telecommunication equipment products. 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
The Company's international subsidiaries use their local currency as their
functional currency. 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
The Company recognizes revenue generally at the time of 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.
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 1997, 1996, and 1995, the
Company earned reimbursements of $355,000, $704,000, and $245,000 in connection
with these contracts which were recorded as credits to research and development
expense. At June 30, 1997, a total of approximately $778,000 remains to be
expended under these contracts for which the Company will receive reimbursements
of approximately $388,000. 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 (LOSS) PER SHARE
Net income (loss) 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. As the Company incurred a loss in its most
recent fiscal year,
UNIPHASE CORPORATION
TWENTY-NINE
18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
common share equivalents have been excluded from the computation for 1997 as
they are antidilutive. Since fully diluted earnings per share is not materially
different, only primary earnings per share is shown below. Shares used in the
per share computations are as follows:
JUNE 30, 1997 1996 1995
------ ------ ------
(in thousands)
Weighted average common shares 16,482 12,416 9,108
Effect of stock options -- 1,161 974
------ ------ ------
Total 16,482 13,577 10,082
====== ====== ======
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted for the quarter
ended December 31, 1997. At that time, the Company will be required to change
the method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating earnings per share, the
dilutive effect of stock options will be excluded. There is no impact on primary
earnings per share for the year ended June 30, 1997. The impact to the results
of the fiscal years ended June 30, 1996 and 1995 would have been an increase of
$0.02 and $0.01 per share, respectively. Diluted earnings per share is not
materially different for the fiscal years ended June 30, 1997, 1996, and 1995,
as reported.
STOCK-BASED COMPENSATION
In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," the Company records and amortizes, over the related vesting periods,
deferred compensation representing the difference between the price per share of
stock issued or the exercise price of stock options granted and the fair value
of the Company's common stock at the time of issuance or grant.
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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income," was issued and is effective for fiscal
years commencing after December 15, 1997.
In 1997, the Statement of Financial Accounting Standards No. 131 ("SFAS
131"), "Disclosures About Segments of an Enterprise and Related Information,"
was issued and is effective for fiscal years commencing after December 15, 1997.
The Company is required to adopt the provisions of SFAS 130 and 131 in
fiscal year 1999 and expects the adoption will not impact results of operations
or financial position but will require additional disclosures.
RECLASSIFICATIONS
The Company reclassified its available-for-sale investments as short-term
investments to reflect the Company's intention regarding the securities. For
comparative purposes, amounts in prior years have been reclassified to conform
to current year presentations.
UNIPHASE CORPORATION
THIRTY
19
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
NOTE 2. LINE of CREDIT
The Company has a $5.0 million revolving bank line of credit that expires on
January 28, 1999. Advances under the line of credit bear interest at the bank's
prime rate (8.50% at June 30, 1997) 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, 1997.
NOTE 3. OTHER ACCRUED EXPENSES
The components of other accrued expenses are as follows:
JUNE 30, 1997 1996
------ ------
(in thousands)
Income taxes payable $5,049 $ 807
Royalties payable 405 536
Warranty reserve 1,005 598
Other accrued liabilities 3,498 2,523
------ ------
$9,957 $4,464
====== ======
NOTE 4. INCOME TAXES
The expense (benefit) for income taxes consists of the following:
YEAR ENDED JUNE 30, 1997 1996 1995
------- ------- -------
(in thousands)
Federal:
Current $ 4,169 $ 4,381 $ 1,967
Deferred 99 (934) (1,688)
------- ------- -------
4,268 3,447 279
State:
Current 1,222 635 550
Deferred (160) (130) (500)
------- ------- -------
1,062 505 50
Foreign:
Current 1,632 84 67
Deferred (1,530) -- --
------- ------- -------
102 84 67
------- ------- -------
Income tax expense $ 5,432 $ 4,036 $ 396
======= ======= =======
UNIPHASE CORPORATION
THIRTY-ONE
20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
a reconciliation of the income tax expense (benefit) at the federal
statutory rate to the income tax expense (benefit) at the effective tax rate is
as follows:
YEAR ENDED JUNE 30, 1997 1996 1995
------- ------- -------
(in thousands)
Income taxes (benefit) computed at
federal statutory rate $(4,563) $ 2,321 $ 385
State taxes, net of federal benefit 701 333 33
Acquired in-process research and development
for which no tax benefit is currently recognizable 9,466 1,523 --
Foreign taxes in excess of federal statutory rate 330 -- --
Tax exempt income (502) (213) --
Research, development, and foreign tax credits -- -- (15)
Other -- 72 (7)
------- ------- -------
$ 5,432 $ 4,036 $ 396
======= ======= =======
As of June 30, 1997, the Company has federal and state net operating loss
carryforwards of approximately $8,000,000 and $3,000,000, respectively, that
will expire in the fiscal years 2012 and 2002, respectively, if not utilized.
The components of deferred taxes consist of the following:
YEAR ENDED JUNE 30, 1997 1996
-------- --------
(in thousands)
Deferred tax assets:
State taxes $ -- $ 188
AMT and state credit carryforwards 350 --
Net operating loss carryforwards 2,872 --
Accounts receivable reserves 450 --
Inventory reserve 447 268
Vacation accruals -- 123
Deferred compensation -- 1,168
Intangibles and acquired in-process research
and development 10,651 1,591
Warranty and other reserves 1,077 223
Other accruals not deductible for tax 767 268
-------- --------
Total deferred tax assets 16,614 3,829
Valuation allowance (7,797) --
-------- --------
Net deferred tax assets 8,817 3,829
Deferred tax liabilities:
Interest charge DISC commission 493 551
UTP Fibreoptics intangibles 803 1,711
Other 58 32
-------- --------
Total deferred tax liabilities 1,354 2,294
-------- --------
Total net deferred tax assets $ 7,463 $ 1,535
======== ========
UNIPHASE CORPORATION
THIRTY-TWO
21
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
The Company has established a valuation allowance covering a portion of the
gross deferred tax assets related to its Swiss subsidiary and the in-process
technology that was expensed during the current year. This amount of the
valuation allowance is based on management's expectations of future taxable
income and the actual taxable income. The Company believes that since the other
net deferred tax assets are more likely than not to be realized from the
Company's ongoing operations, no additional valuation allowance is deemed
necessary. Cumulative undistributed earnings of Uniphase's foreign subsidiaries
were approximately $2,037,000, $736,000 and $568,000 at June 30, 1997, 1996 and
1995, 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 $10,192,000, $2,999,000 and $1,636,000 for the years
ended June 30, 1997, 1996 and 1995, respectively. Such benefits are credited to
additional paid-in capital when realized.
NOTE 5. LEASE COMMITMENTS
The Company leases manufacturing and office space primarily in Manteca,
California; Bloomfield, Connecticut; Chalfont, Pennsylvania; Witney, United
Kingdom and Zurich, Switzerland 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 are as
follows:
Operating Leases
(in thousands)
1998 $1,357
1999 1,291
2000 1,222
2001 1,144
2002 985
Thereafter 5,372
-------
Total minimum lease payments $11,371
=======
Rental expense for operating leases for the years ended June 30, 1997, 1996,
and 1995 amounted to approximately $904,000, $685,000 and $605,000,
respectively.
NOTE 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 $.25 per dollar
contributed by the employees with at least six months of service. Company
contributions were approximately $309,000, $215,000 and $131,000 for the years
ended June 30, 1997, 1996, and 1995, respectively.
NOTE 7. PENSION and OTHER EMPLOYEE BENEFITS
Pension
Through the acquisition of ULE in Switzerland, the Company assumed two
foreign defined-benefit pension plans, related to the employees of ULE. Benefits
are based on years of service and annual compensation on retirement. Plans are
funded in accordance with applicable Swiss regulations.
UNIPHASE CORPORATION
THIRTY-THREE
22
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
The funded status of the foreign defined-benefit plans as of June 30, 1997
is summarized below:
(in thousands)
Vested benefit obligation $ 3,129
Accumulated benefit obligation $ 3,129
Projected benefit obligation $(6,448)
Fair market value of plan assets 4,488
-------
Projected benefit obligation less than
(in excess of) plan assets $(1,960)
=======
The components of net pension costs for 1997 are as follows:
(in thousands)
Service cost $ 458
Interest cost 322
Expected return on plan assets (224)
-----
Net pension expense $ 556
=====
At June 30, 1997, the weighted average discount rates and long-term rates
for compensation increases used for estimating the benefit obligations and the
expected return on plan assets were as follows:
Discount rate 5.0%
Rate of increase in compensation levels 3.5%
Expected long-term return on assets 4.0%
Plan assets of the foreign plans consist primarily of listed stocks, bonds
and cash surrender value life insurance policies.
OTHER POSTEMPLOYMENT BENEFITS
The Company has adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." There was no material impact on the
Company's financial statements for the periods presented.
NOTE 8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors has the authority, without any further vote or action
by the stockholders, to provide for the issuance of 1,000,000 shares of
preferred stock from time to time in one or more series with such designations,
rights, preferences and limitations as the Board of Directors may determine,
including the consideration received therefore, the number of shares comprising
each series, dividend rates, redemption provisions, liquidation preferences,
redemption fund provisions, conversion rights and voting rights, all without the
approval of the holders of common stock.
STOCK OPTION PLANS
As of June 30, 1997, Uniphase has reserved approximately 3,218,000 shares of
common stock for future issuance to employees, directors and consultants under
its 1984 Amended and
UNIPHASE CORPORATION
THIRTY-FOUR
23
NOTES to CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
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 is generally equal to fair value of
the underlining stock 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, 1997:
Options Outstanding
------------------------------------
Shares Weighted
Available Number Average
for grant of shares Exercise Price
--------- --------- --------------
(in thousands, except price per share)
Balance at June 30, 1995 458 2,586 $ 4.41
Increase in authorized shares 210 -- --
Granted (704) 704 11.95
Canceled 78 (246) 3.99
Exercised -- (529) 2.43
------- -------- ---------
Balance at June 30, 1996 42 2,515 6.65
Increase in authorized shares 1,371 -- --
Granted (1,001) 1,001 40.29
Canceled 118 (114) 24.88
Exercised -- (714) 5.39
------- -------- ---------
Balance at June 30, 1997 530 2,688 $ 18.81
======= ======== =========
The following table summarizes information about options outstanding at
June 30, 1997:
Options Outstanding Options Exercisable
------------------------------------------- ------------------------------
Weighted Average
Range Number Remaining Weighted Number Weighted
of Exercise Outstanding Contractual Average Exercisable Average
Prices at 6/30/97 Life (Years) Exercise Price at 6/30/97 Exercise Price
- ---------------- ----------- ------------ ---------------- ----------- --------------
(shares in thousands)
$ 0.46 - $ 6.13 990 5.94 $ 3.51 701 $ 2.84
6.88 - 32.83 1,120 8.22 18.69 244 11.54
34.00 - 51.25 578 8.56 45.25 17 50.00
----- ---- ----- --- ----
2,688 7.45 18.81 962 5.90
===== ==== ===== === ====
During fiscal 1996, the Company replaced all options to purchase UTP stock
previously issued to UTP employees with options to purchase stock of the
Company. 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 as of the grant date, has
been charged to expense in the fiscal year ended June 30, 1996. The remaining
$1,400,000 is being charged to expense over the remaining vesting period of
three years.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation," requires the use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB No. 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized in the Company's financial
statements.
UNIPHASE CORPORATION
THIRTY-FIVE
24
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
In conjunction with the acquisition of ULE in fiscal 1997, the Company
issued stock options to key employees of ULE at a value that was less than the
market value. Management believed this decision was necessary to ensure the
continued success of ULE. The Company will recognize compensation expense for
the total value of $1,970,000 over the vesting period of four years.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. This information is required to be determined as if
the Company had accounted for its employee stock options (including shares
issued under the Employee Stock Purchase Plan, collectively called "options")
granted subsequent to June 30, 1995 under the fair value method of that
statement. The fair value of options granted in 1997 and 1996 reported below has
been estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions:
EMPLOYEE EMPLOYEE STOCK PURCHASE
STOCK OPTIONS PLAN SHARES
-------------------- -----------------------
1997 1996 1997 1996
------- ------- ------- -------
Expected life (in years) 5.5 5.5 .5 .5
Risk-free interest rate 6.5% 5.9% 5.4% 5.4%
Volatility .64 .64 .75 .57
Dividend yield 0% 0% 0% 0%
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. A total of approximately 661,000 options were granted
during fiscal 1997 with exercise prices equal to the market price of the stock
on the grant date. The weighted-average exercise price and weighted-average fair
value of these options were $44.13 and $27.48, respectively. A total of 340,000
options were granted during fiscal 1997 with exercise prices less than the
market price of the stock on the grant date. The weighted-average exercise price
and weighted-average fair value of these options were $32.83 and $25.37,
respectively. The weighted-average exercise price and weighted-average fair
value of stock options granted during fiscal 1996 was $11.95 and $9.18 per
share, respectively. The weighted average fair value of shares granted under the
Employee Stock Purchase Plan during 1997 and 1996 was $14.16 and $6.70,
respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
YEAR ENDED JUNE 30, 1997 1996
--------- ------
Pro forma net income $(23,070) $1,720
Pro forma earnings per share $ (1.40) $ 0.13
Pro-forma net income represents the difference between compensation expense
recognized under APB 25 and the related expense using the fair value method of
SFAS No. 123 taking into account any additional tax effects of applying SFAS No.
123. The effects on pro forma disclosures of applying SFAS No. 123 are not
likely to be representative of the effects on pro forma disclosures of future
years. Because SFAS No. 123 is applicable only to options granted subsequent to
June 30, 1995, the pro forma effect will not be fully reflected until 1999.
UNIPHASE CORPORATION
THIRTY-SIX
25
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
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 1997, employees purchased
110,287 shares of common stock under the Purchase Plan and 134,687 shares are
available for future issuance.
NOTE 9. ACQUISITIONS
UTP FIBREOPTICS
On May 31, 1996, the Company acquired 100% of the outstanding shares of GCA
and FAS. GCA and FAS operates as UFP. UFP custom packages laser diodes, light
emitting diodes ("LEDs") and photodectectors for use in fiber optic networks.
The total purchase price of $9,150,000 consisted of approximately $2,589,000
cash payment, and $6,061,000 notes payable to the former shareholders and
$500,000 in related acquisition costs. The principal and accumulated interest on
the notes payable 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, 1997 and 1996 was $176,000 and $30,000, respectively.
The acquisition has been accounted for by the purchase method of accounting
and accordingly, the accompanying financial statements include the results of
operations of UFP 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 $1,413,000 over the purchase price is being
amortized over the estimated useful life of 7 years.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of UFP 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 UFP 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
THIRTY-SEVEN
26
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
UNIPHASE LASER ENTERPRISE
On March 10, 1997, the Company acquired the net assets of ULE from IBM. ULE
designs and manufactures semiconductor diode laser chips used by the
telecommunication industry. The total purchase price of $45,900,000 includes a
cash payment of $45,000,000 to IBM and acquisition expenses of $900,000.
The acquisition has been accounted for by the purchase method of accounting
and accordingly, the accompanying financial statements include the results of
operations of ULE subsequent to the acquisition date. The purchase included net
assets and acquired in-process research and development of $33,314,000 at fair
market value. The purchased intangible assets are being amortized over the
estimated useful life of 5 years.
To determine the value of the acquired in-process research and development,
the Company considered, among other factors, the stage of development of each
project, the time and resources needed to complete each project, expected
income, target markets and associated risks. Associated risks included inherent
difficulties and uncertainties in completing the project and thereby achieving
technical feasibility, and risks related to the viability of and potential
changes in future target markets. The Company applied a discount rate of 20% in
the valuation of in-process technology. This analysis resulted in a valuation of
$33,314,000 for acquired in-process research and development that had not
reached technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles, the
$33,314,000 was expensed. The Company estimates that a total investment of
$9,400,000 in research and development over the next three years will be
required to complete the in-process research and development.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company, excluding the charge for acquired in-process
research and development, as if the acquisition of ULE had occurred at the
beginning of fiscal 1996 and does not purport to be indicative of what would
have occurred had the acquisition been made as of the beginning of fiscal 1996
or of results which may occur in the future.
YEAR ENDED JUNE 30, 1997 1996
-------- --------
(in thousands, except per share data)
Net sales $123,813 $ 88,264
Net income 17,159 $ 6,618
Net income per share $ 1.04 $ 0.49
The effects of the ULE acquisition on the 1997 consolidated statement of
cash flows were as follows (in thousands):
Working capital acquired $ 8,358
Property, plant and equipment 3,477
Prepaid lease and service agreement 1,064
Intangibles 4,733
Other liabilities (5,046)
In-process research and development 33,314
--------
Total purchase price $ 45,900
========
NOTE 10. 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.
UNIPHASE CORPORATION
THIRTY-EIGHT
27
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
NOTE 11. LITIGATION AND CONTINGENCIES
On May 19, 1997, Tacan Corporation ("Tacan") filed a lawsuit in the U.S.
District Court for the Southern District of California (the "Southern California
Action") against UTP. The Complaint alleges claims of breach of contract, breach
of implied and express warranties, negligent misrepresentation, conversion and
negligent interference with perspective economic advantage. The Company believes
the Southern California Action will not have a material negative impact on the
Company's financial condition or results of operations. However, given the
inherent uncertainty of litigation and the early stage of discovery, there can
be no assurance that the ultimate outcome in the Southern California Action will
be in the Company's favor.
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.
NOTE 12. 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, 1997 1996 1995
--------- --------- ---------
(in thousands)
Net sales:
United States-domestic $ 73,785 $ 52,313 $ 29,456
United States-export 20,043 13,742 10,967
Europe 22,816 8,738 7,100
Intercompany (9,678) (5,720) (5,241)
--------- --------- ---------
Total net sales $ 106,966 $ 69,073 $ 42,282
========= ========= =========
Operating income (loss):
United States $ 12,452 $ 4,987 $ 276
Europe (28,693) (77) 299
Eliminations (611) 519 6
--------- --------- ---------
Total operating income (loss) $ (16,852) $ 5,429 $ 581
========= ========= =========
Identifiable assets:
United States $ 149,008 $ 168,095 $ 28,785
Europe 28,571 5,729 3,125
--------- --------- ---------
Total assets $ 177,579 $ 173,824 $ 31,910
========= ========= =========
UNIPHASE CORPORATION
THIRTY-NINE
28
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONT.)
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
accounted for a combined 13% of the Company's consolidated net sales in fiscal
1996. One laser subsystem customer accounted for 10%, 12% and 12% of the
Company's consolidated net sales in years ended June 30, 1997, 1996, and 1995,
respectively.
NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION
YEAR ENDED JUNE 30, 1997 1996 1995
------ ------ ------
(in thousands)
Cash payments for:
Interest $ 217 $ 43 $ 11
Income taxes $2,262 $1,107 $1,213
NOTE 14. SUBSEQUENT EVENTS (UNAUDITED)
In August 1997, the Company circulated notice of a special meeting of
stockholders for the approval of an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock which the Company
is authorized to issue from 20,000,000 to 50,000,000 shares. Additionally, the
Company announced that it is currently negotiating the acquisition of a 49%
interest in INDX, a supplier of fiber bragg grating for wavelength division
multiplexing applications, for approximately $2.0 million. As currently
contemplated, such acquisition would include options to acquire the remaining
interest in installments beginning one year after the initial investment, and
the Company would enter into a loan agreement with INDX for an undetermined
amount at commercial rates beginning one year after the consummation of a
definitive agreement. The investment is subject to a number of contingencies
including the negotiation of terms of a definitive agreement, satisfactory
completion of due diligence and customary closing conditions. Accordingly, there
can be no assurance that the acquisition of such interest in INDX will be
completed.
UNIPHASE CORPORATION
FORTY
29
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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1997. 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, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
San Jose, California
July 30, 1997
UNIPHASE CORPORATION
FORTY-ONE
30
COMMON STOCK MARKET PRICE
At September 15, 1997, the Company had approximately 86 holders of record of
its Common Stock and 17,181,518 shares outstanding. The Company has not paid
dividends on its common stock and does not anticipate paying cash dividends in
the foreseeable future. The following high and low closing bid prices indicated
for Uniphase Common Stock are as reported on the Nasdaq National Market during
each of the quarters indicated.
FISCAL 1996 QUARTER ENDED FISCAL 1997 QUARTER ENDED
SEPT 30 DEC 31 MAR 31 JUN 30 SEPT 30 DEC 31 MAR 31 JUN 30
------- ------ ------ ------ ------- ------ ------ ------
High 19 1/16 19 21 1/4 35 1/2 42 1/4 59 1/2 49 1/2 60 5/8
Low 10 3/8 12 1/2 14 7/8 18 5/8 20 3/8 41 1/4 31 13/16 35 1/8
UNIPHASE CORPORATION
FORTY-TWO