16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22874
Uniphase Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-2579683
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
163 Baypointe Parkway
San Jose, CA 95134
(Address of principal executive offices) (Zip Code)
(408) 434-1800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year if changed since
last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of January 31, 1997 .
Common Stock $.001 par value 16,611,968
Class Number of Shares
Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share Three months Six months ended
data) ended
December 31, December 31,
1996 1995 1996 1995
Net sales $22,683 $15,672 $46,146 $28,465
Cost of sales 12,256 8,310 24,464 15,283
------ ------ ------- -------
Gross profit 10,427 7,362 21,682 13,182
Operating expenses:
Research and development 2,128 1,548 3,755 2,459
Royalty and license 416 386 825 749
Selling, general and
administrative 4,216 3,033 8,665 5,666
------ ------ ------ ------
Total operating expenses 6,760 4,967 13,245 8,874
------ ------ ------ ------
Income from operations 3,667 2,395 8,437 4,308
Interest and other income, net 982 391 1,928 438
------ ----- ------ ------
Income before income taxes 4,649 2,786 10,365 4,746
Income tax expense 1,513 893 3,628 1,638
------ ----- ------ ------
Net income $ 3,136 $1,893 $ 6,737 $ 3,108
======= ====== ======= =======
Net income per share $ 0.18 $ 0.14 $ 0.38 $ 0.26
======= ====== ======= =======
Number of weighted average shares
used in per share amounts 17,742 13,520 17,617 12,092
======= ====== ====== ======
See accompanying notes on page 5
UNIPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31 June 30,
1996 1996
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 26,994 $ 52,463
Short-term investments 88,830 61,279
Accounts receivable, less allowances for
returns and doubtful accounts
of $433 at December 31, 1996 and $285 at
June 30, 1996 16,240 16,700
Inventories 16,186 10,641
Refundable income taxes 3,974 --
Deferred income taxes and other current assets 3,792 3,542
-------- --------
Total current assets 156,016 144,625
Property, plant and equipment, net 24,372 20,305
Intangible assets 7,748 8,894
-------- --------
Total assets $188,136 $173,824
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ -- $ 548
Current portion of notes payable 6,061 --
Accounts payable 7,720 5,391
Accrued payroll and related expenses 2,831 3,180
Other accrued expenses 2,504 4,464
-------- -------
Total current liabilities 19,116 13,583
Notes payable -- 6,061
Deferred income taxes 12 656
Other non-current liabilities 120 319
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares--1,000,000
None issued and outstanding -- --
Common stock, $0.001 par value:
Authorized shares--20,000,000
Issued and outstanding shares--16,551,412
at December 31, 1996 and 16,097,855 at
June 30, 1996 17 16
Additional paid-in capital 150,025 141,354
Retained earnings 18,487 11,750
Net unrealized gain (loss) on securities 126 (18)
Foreign currency translation adjustment 233 103
------- -------
Total stockholders' equity 168,888 153,205
------- -------
Total liabilities and stockholders' equity$188,136 $173,824
======== ========
See accompanying notes on page 5
UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Six Months Ended
December 31,
1996 1995
---- ----
Operating activities
Net income $ 6,737 $ 3,108
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 2,233 938
Change in operating assets and liabilities:
Accounts receivable 460 (1,728)
Inventories (5,545) (2,543)
Deferred income taxes and other current
assets 1,823 193
Accounts payable, accrued liabilities and
other (49) 1,847
------- -------
Net cash provided by operating activities 5,659 1,815
------- -------
Investing activities
Increase in other assets -- (87)
Purchase of short-term investments (69,432 (22,459)
Proceeds from sale of short-term investments 42.025 2,030
Optomech -- (238)
------- --------
Net cash used in investing activities (32,752) (22,917)
-------- --------
Financing activities
Notes payable to bank (548) --
Proceeds from issuance of common stock from
public and other offerings -- 52,912
Proceeds from issuance of common stock under
stock option and stock purchase plans 2,172 961
------- -------
Net cash provided by financing activities 1,624 53,873
------- ------
Increase (decrease) in cash and cash equivalents (25,469) 32,771
Cash and cash equivalents at beginning of period 52,463 2,880
------- ------
Cash and cash equivalents at end of period $ 26,994 $35,651
======== =======
Supplemental Cash Flow Information
Tax benefits on stock option and stock
purchase plans $ 6,126 $ --
========= =======
See accompanying notes on page 5
UNIPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business Activities and Basis of Presentation
The financial information at December 31, 1996 and for the
three-month and six-month periods ended December 31, 1996 and
1995 is unaudited, but includes all adjustments (consisting only
of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial information
set forth herein, in accordance with generally accepted
accounting principles for interim financial information, the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for annual financial statements. For further information, refer
to the Consolidated Financial Statements and footnotes thereto
included or incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
Certain reclassifications, relating to investments, have
been made to the fiscal 1996 presentation to conform to the
fiscal 1997 presentation.
The results for the three-month and six-month periods ended
December 31, 1996 are not considered indicative of the results to
be expected for any future period or for the entire year.
Note 2. Inventories
The components of inventory consist of the following:
(in thousands) December 31, June 30,
1996 1996
Raw materials and
purchased parts $ 8,609 $ 4,100
Work in process 4,551 4,382
Finished goods 3,026 2,159
------- -------
$16,186 $10,641
======= =======
Note 3. Taxes
The effective tax rate used for the six-month period ended
December 31, 1996 was 35%. This rate is based on the estimated
annual tax rate complying with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
Note 4. Earnings per Share
Net income per share for the three-month and six-month
periods ended December 31, 1996 and 1995 is computed using the
weighted average number of common shares outstanding plus primary
common share equivalents which have a dilutive effect on earnings
per share. 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 and net income used in the per
share computations are as follows:
Three Monthd Ended Six Months Ended
December 31 December 31
1996 1995 1996 1995
Weighted average common
shares 16,347 12,374 16,239 10,976
Primary common share
equivalents 1,395 1,146 1,378 1,116
------ ------ ------ ------
Total 17,742 13,520 17,617 12,092
====== ====== ====== ======
Net income $3,136 $1,893 $6,737 $3,108
====== ====== ====== ======
Net income per share $ 0.18 $ 0.14 $ 0.38 $ 0.26
====== ====== ====== ======
Note 5. Line of Credit
The Company maintains a $5.0 million revolving bank line of
credit agreement that expires on January 28, 1999. Advances
under the line of credit bear interest at the bank's prime rate
(8.25% at December 31, 1996) and are secured by inventories and
accounts receivable. Under the terms of this agreement, the
Company is required to maintain certain minimum working capital,
net worth, profitability levels and other specific financial
ratios. In addition, the line of credit prohibits the payment of
cash dividends and contains certain restrictions on the Company's
ability to lend 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 December 31, 1996.
Through the acquisition of UTP Fibreoptics, the Company assumed
certain previously established lines of credit. All outstanding
borrowings against these lines of credit were paid off in
September 1996.
Note 6. Litigation and Contingencies
During fiscal 1996, two former employees commenced wrongful
termination actions against the Company. In September 1996, the
Company received notification of two additional lawsuits from two
former employees alleging fraud and termination in violation of
public policy. 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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
UNIPHASE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Risk Factors
The statements contained in this Report on Form 10-Q that
are not purely historical are forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including
statements regarding the Company's expectations, hopes,
intentions, beliefs or strategies regarding the future. Forward
looking statements include the Company's' expectations concerning
periodic fluctuations in gross margins and the Company's
liquidity, anticipated cash needs and availability, and
anticipated expense levels under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." All forward looking statements included in this
document are based on information available to the Company on the
date of this Report, and the Company assumes no obligation to
update any such forward looking statement. It is important to
note that the Company's actual results could differ materially
from those in such forward looking statements. Among the factors
that could cause actual results to differ materially are: the
cyclicality of the semiconductor industry, the declining market
for gas lasers, development and other risks relating to solid
state laser technologies, management of growth, UTP Fibreoptics
acquisition, variability and uncertainty of quarterly operating
results, dependence on key OEM relationships, dependence on sole
and limited source suppliers, difficulties in manufacture of the
Company's products and future capital requirements, as detailed
below. You should also consult the risk factors listed from time
to time in the Company's Reports on Form 10-Q, 8-K, 10-K and
Annual Reports to Stockholders.
Cyclicality of Semiconductor Industry
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 historically has experienced periods of
oversupply, resulting in significantly reduced demand for capital
equipment. The semiconductor industry is currently experiencing a
downturn which has led many semiconductor manufacturers to delay
or cancel capital expenditures. Certain of the Company's
customers have delayed or canceled purchase of the Company's
Ultrapointe Systems. There can be no assurance that the Company's
operating results will not be materially and adversely affected
by these factors. Furthermore, 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.
Management of Growth; UTP Fibreoptics Acquisition
The Company has experienced recent growth through both
increased levels of operations in its existing businesses and the
acquisition of UTP in May 1995. The Company is devoting
significant resources to develop new solid state lasers for OEM
customers, to improve products and increase market penetration of
its Ultrapointe Systems 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. 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 justify the
increased expense levels associated with these businesses.
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. As a result
of acquiring UTP Fibreoptics, the Company has entered the local
telecommunications and data communications market in which it had
no previous experience, and has expanded its employee base by
approximately 45 persons. The success of the UTP Fibreoptics
acquisition will be dependent on the Company's ability to
integrate UTP Fibreoptics into its existing operations as a
division of UTP. UTP's ability to manage UTP Fibreoptics will be
complicated by the geographical distance between UTP's facilities
in Bloomfield, Connecticut and Chalfont, Pennsylvania and UTP
Fibreoptics's locations in the United Kingdom and in Batavia,
Illinois. There can be no assurance that the operations of UTP
Fibreoptics can be successfully integrated into UTP or that such
integration will not strain the Company's available management,
manufacturing, financial and other resources.
The Company also made capital expenditures to acquire
certain properties in San Jose, California totaling 109,000
square feet, which included land, buildings and improvements for
an aggregate purchase price of approximately $11.0 million and
continues to invest in property, plant and equipment needed for
its business requirements, including adding to manufacturing
capacity throughout the Company. Any failure to utilize these
areas in an efficient manner could have a material adverse effect
on the Company.
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 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.
Declining Market for Gas Lasers; Development and Other Risks
Relating to Solid State Laser Technologies
To date, a substantial portion of the Company's revenue has
been derived from sales of gas laser subsystems. The market for
gas lasers is mature and is expected to decline as customers
transition from conventional lasers, including gas, to solid
state lasers, which are currently expected to be the primary
commercial laser technology in the future. In response to this
transition, the Company has devoted substantial resources to
developing solid state laser products and has introduced its
initial solid state products. To date, sales of the Company's
solid state laser products have been limited and primarily for
customer evaluation purposes. Solid state laser products are
still evolving, and there can be no assurance that the Company's
solid state laser products will be successfully designed into
customers' products or achieve commercial sales volumes. The
Company believes that a number of companies are further advanced
than the Company in their development efforts for solid state
lasers and are competing with evaluation units for many of the
same design-in opportunities than the Company is pursuing. It is
anticipated that the average selling price of solid state lasers
may be significantly less in certain applications than the gas
laser products the Company is currently selling in these markets.
If the Company is unable to successfully make this transition
from gas to solid state lasers, its business, operating results
and financial condition will be materially and adversely
affected. The Company further believes it will be necessary to
continue to reduce the cost of manufacturing and to broaden the
wavelengths provided by its laser products. There can be no
assurance that the Company will successfully develop new solid
state laser products, or that any solid state laser products will
achieve market acceptance or not be rendered obsolete or
uncompetitive by products of other companies.
Variability and Uncertainty of Quarterly Operating Results
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 results 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 experienced 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.
The Company's operating results in a particular quarter may
also be affected by the acquisition or disposition of other
businesses, products or technologies by the Company. For example,
during the quarter ended June 30, 1996, the Company incurred a
charge of approximately $3.0 million in connection with the
cancellation of certain UTP options and granting of replacement
options to purchase Uniphase Common Stock to UTP employees in
order to operate UTP Fibreoptics as a division of UTP. The
Company also incurred a charge of $4.8 million for acquired in-
process research and development in connection with the
acquisition of UTP Fibreoptics in the quarter ended June 30,
1996. 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.
Dependence on Key OEM Relationships
In November 1995, the Company entered into an exclusive OEM
resale agreement with Tencor pursuant to which Tencor will
distribute Ultrapointe Systems through its worldwide distribution
channels. As a result of such agreement, the Company currently
expects that Tencor will account for a majority of Ultrapointe's
net sales for the foreseeable future. In addition, one laser
subsystems customer, the Applied Biosystems Division of Perkin-
Elmer Corporation, accounted for approximately 12% of the
Company's net sales for fiscal years 1996, 1995, and 1994,
respectively. The loss of orders from these or other OEM
relationships could have a materially adverse effect on the
Company's business and operating results.
Dependence on Sole and Limited Source Suppliers
Various components included in the manufacture of the
Company's products are currently obtained from single or limited
source suppliers. A disruption or loss of supplies from these
companies or an increase in price of these components would have
a material adverse effect on the Company's results of operations,
product quality and customer relationships. For example, the
Company obtains all the robotics, workstations and many optical
components used in its Ultrapointe Systems from Equipe
Technologies, Silicon Graphics, Inc., and Olympus Corporation,
respectively. The Company currently utilizes a sole source for
the crystal semiconductor chip sets incorporated in the Company's
solid state microlaser products and acquires its pump diodes for
use in its solid state laser products from SDL, Inc., Opto Power
Corporation and GEC. The Company also obtains lithium niobate
wafers, specialized fiber components and certain lasers used in
its UTP products primarily from Crystal Technology, Inc.,
Fujikura, Ltd. and Philips Key Modules, respectively. The Company
does not have long-term or volume purchase agreements with any of
these suppliers, and no assurance can be given that these
components will be available in the quantities required by the
Company, if at all. Further, UTP depends on relatively
specialized components and it cannot be assured that its
respective suppliers will be able to continue to meet UTP's
requirements.
Difficulties in Manufacture of the Company's Products
The manufacture of the Company's products involves highly
complex and precise processes, requiring production in highly
controlled and clean environments. Changes in the Company's or
its suppliers' manufacturing process or the inadvertent use of
defective or contaminated materials by the Company or its
suppliers could adversely affect the Company's ability to achieve
acceptable manufacturing yields and product reliability. In
addition, UTP has previously experienced certain manufacturing
yield problems that have materially and adversely affected both
UTP's ability to deliver products in a timely manner to its
customers and its operating results. The Company recently began
manufacturing UTP products at its newly constructed clean room at
UTP's Bloomfield, Connecticut facility and in May 1996 vacated
the clean room space leased from UTP's former parent corporation.
No assurance can be given that the Company will be successful in
manufacturing UTP products in the future at performance or cost
levels necessary to meet its customer needs, if at all. In
addition, UTP established a new transmitter production facility
in Chalfont, Pennsylvania in March 1996 and consolidated the
transmitter production line previously located in Bloomfield,
Connecticut into this facility in April 1996. The Company has no
assurance that this facility will be able to deliver the planned
production qualities of transmitters to customers specifications
at the cost and yield levels required. To the extent the Company
or UTP does not achieve and maintain yields or product
reliability, the Company's operating results and customer
relationships will be adversely affected.
Future Capital Requirements
The Company is devoting substantial resources to the
development of new products for the solid state laser,
semiconductor capital equipment, CATV 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 at least 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, 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.
Results of Operations
Net Sales
In the second quarter of fiscal 1997, ended December 31,
1996, net sales were $22.7 million, which represented a $7.0
million or 44.7% increase over net sales of $15.7 million in the
second quarter of fiscal 1996. For the first six months of fiscal
1997, net sales were $46.1 million, which represented a $17.7
million or 62.1% increase over net sales of $28.5 million in the
same period of fiscal 1996. The increase for both the quarter and
six-month periods were primarily due to increased sales of $7.4
million and $14.2 million, respectively by the Company's Uniphase
Telecommunications Products ("UTP"), which included sales of $2.5
million for the second quarter and $4.8 million for the first six
months fo fiscal 1997 resulting from the acquisition of UTP
Fibreoptics in a purchase transaction in May 1996. The Company
continued to experience increased laser sales, primarily from
increased sales of argon laser subsystems. The Company's
Ultrapointe division experienced a decrease in sales in the
second quarter of fiscal 1997 and relatively flat sales for the
first six months of fiscal 1997 as compared to the same periods
in fiscal 1996.
Gross Profit
In the second quarter of fiscal 1997, the Company's gross
profit increased 41.6% to $10.4 million or 46.0% of net sales
from $7.4 million or 47.0% of net sales in the same period of
fiscal 1996. For the first six months of fiscal 1997, gross
profits increased 64.5% to $21.7 million or 47.0% of net sales
from $13.2 million or 46.3% of net sales in the same period of
fiscal 1996. The Company's increase in gross profit for the
quarter and the six-month period is due to higher sales volume
and the addition of UTP Fibreoptics over fiscal 1996. Gross
margins declined in the second quarter which is due primarily to
the decline in net sales of relatively high margin Ultrapointe
Systems and a higher proportion of revenue from certain low
margin telecommunication components. Gross margin for the six-
month period increased over the same period in fiscal 1996. The
increase is due primarily to the growth in sales of the Company's
relatively high margin UTP products. 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.
Research and Development Expense
In the second quarter of fiscal 1997, research and
development expense was $2.1 million or 9.4% of net sales which
represented a $580,000 or 37.5% increase over research and
development expense of $1.5 million or 9.9% of net sales in the
second quarter of fiscal 1996. For the first six months of fiscal
1997, research and development expense was $3.8 million or 8.1%
of net sales which represents a $1.3 million or 52.7% increase
over the same period in fiscal 1996. The increase in research and
development expense is due to increased expenditures associated
with the continued development and enhancement of the Company's
Ultrapointe and telecommunications product lines, which included
expenses of the newly acquired UTP Fibreoptics division.
The Company also continues to invest in the development of solid
state lasers.
Royalty and License Expense
In the second quarter of fiscal 1997, royalty and license
expense increased $30,000 to $416,000 from $386,000 in the same
period of fiscal 1996 and decreased as a percentage of net sales
to 1.8% in the quarter ended December 31, 1996 from 2.5% in the
same period in fiscal 1996. For the first six months of fiscal
1997, royalty and license expense increased $76,000 to $825,000
from $749,000 in the same period of fiscal 1996 and decreased as
a percentage of sales to 1.8% from 2.6% in the same period of
fiscal 1996. The decrease as a percentage of net sales was due to
the increasing proportion of revenues that the Company derived
from royalty-free UTP products.
The Company continues to develop products in solid state
laser, telecommunications and semiconductor equipment technology.
There are numerous patents in these areas 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.
Selling, General and Administrative Expense
In the second quarter of fiscal 1997, selling, general and
administrative expense was $4.2 million or 18.6% of net sales,
which represented a $1.2 million or 39.0% increase over selling,
general and administrative expense of $3.0 million or 19.4% of
net sales in the second quarter of fiscal 1996. For the six
months of fiscal 1997, selling, general and administrative
expense was $8.7 million or 18.8% of net sales which represented
a $3.0 million or 52.9% increase over selling and administrative
expense of $5.7 million or 19.9% of net sales in the same period
of fiscal 1996. The increase is due primarily to additional
expenses due to amortization of intangible assets and
compensation expense associated with the acquisition of UFP
Fibreoptics in May 1996 and to support UTP's Pennsylvania
facility, which was established in April 1996.
Interest and Other Income, Net
In the second quarter of fiscal 1997, interest and other
income, net was $982,000, which represented a $591,000 or
1,872.5% increase over $391,000 in the second quarter of fiscal
1996. For the first six months of fiscal 1997, interest and other
income, net increased to $1.9 million from $438,000 in the same
period of fiscal 1996. The increase in the interest and other
income, net is due to the related interest on investment of
fundsproceeds received on sale of common stock in June 1996.
Income Tax Expense
As stated in Note 3 of Notes to Consolidated Financial
Statements, the effective tax rate used for the first six months
of fiscal 1997 was 35% as compared to 35% used in the same period
of fiscal 1996.
Liquidity and Capital Resources
At December 31, 1996 the Company's combined balance of cash,
cash equivalents and short-term investments was $115.8 million.
The Company has met its liquidity needs to date primarily through
cash generated from operations.
Cash provided by operations was $5.7 million for the first
six months of fiscal 1997. The primary provider of cash in
operations was from net income before deprecation and
amortization expense and the creation of refundable income taxes.
These uses of cash were offset by increased inventory levels.
Cash used in investing activities was $32.8 million for the
first six months of fiscal 1997. The Companys' net investment of
excess cash accounted for $27.4 million of cash usage. The
Company incurred capital expenditures of $5.3 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. The Company also anticipates additional capital
expenditures of approximately $5.3 million for the remainder of
the fiscal year.
The Company has a $5.0 million revolving line of credit with
a bank. There were no borrowings under the line of credit at
December 31, 1996. Advances under the line of credit bear
interest at the bank's prime rate (8.25% at December 31, 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. The line of
credit expires on January 28, 1999. Through the acquisition of
UTP Fibreoptics, the Company assumed certain previously established
lines of credit. All outstanding borrowing against these lines of
credit were repaid in September 1996.
The Company believes that its existing cash balances and
short-term investments, together with existing cash flow from
operations and available line 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.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. Legal Proceedings, in the
Registrant's Annual Report on Form 10-K for the year ended June
30, 1996 and Part II, Item 1. Legal Proceedings in the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders (the "Annual Meeting")
of the Company was held on November 7, 1996. At the Company's
Annual Meeting, the following persons were duly elected as
Class III of the Board of Directors by the stockholders, for a
three-year term and until their successors are elected and
qualified: Kevin N. Kalkhoven, 14,524,395 shares for and
233,092 shares withheld and Catherine P. Lego (formerly known
as Catherine P. Goodrich), 14,524,991 shares for and 232,496
shares withheld. The terms of each of the following Class I and
Class II directors continued after the Annual Meeting: William
B. Bridges, Robert C. Fink, Stephen C. Johnson, Anthony R.
Muller and Wilson Sibbett.
The stockholders ratified and approved the increase in the
number of shares reserved for issuance under the Company's 1993
Flexible Stock Incentive Plan from 1,550,000 to 2,225,000
shares of Common Stock by a vote of 13,314,211 shares for,
1,353,500 shares against, 8,778 shares abstaining, and 80,998
broker non-votes.
The stockholders further ratified the appointment of Ernst
and Young, LLP as the Company's independent auditors for the
fiscal year ending June 30, 1996 by a vote of 14,735,509 shares
for 10,800 shares against and 11,178 shares abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Loan and Security Agreement, dated January 28, 1997,
between Bank of the West and Registrant.
27. Financial Data Schedule
b) Forms 8-K
None
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Uniphase Corporation
(Registrant)
Date February 14, 1997 \s\ Danny E. Pettit
Danny E. Pettit, Vice President of Finance and CFO
(Principal Financial and Accounting Officer)
Date February 14, 1997 \s\ Kevin Kalkhoven
Kevin N. Kalkhoven, Chairman and CEO
(Principal Executive Officer)