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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 30, 2000
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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
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JDS Uniphase Corporation
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(Exact name of registrant as specified in its charter)
Delaware 94-2579683
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
210 Baypointe Parkway
San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
(408) 434-1800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock outstanding as of the latest practicable date,
January 31, 2001 972,136,594, including 173,108,010 Exchangeable Shares of JDS
Uniphase Canada Ltd., each of which are exchangeable at any time into Common
Stock on a one-for-one basis, entitle their holders to dividend and other rights
economically equivalent to those of the Common Stock, and through a voting
trust, vote at meetings of stockholders of the Registrant.
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended Six months ended
--------------------------- ---------------------------
December 30, December 31, December 30, December 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net sales $ 925.1 $ 281.7 $ 1,711.6 $ 511.8
Cost of sales 449.8 139.2 886.4 264.5
----------- --------- ----------- ---------
Gross profit 475.3 142.5 825.2 247.3
Operating expenses
Research and development 71.2 21.6 133.6 38.9
Selling, general and administrative 105.2 33.8 221.4 61.6
Amortization of purchased intangibles 1,104.1 185.1 2,211.6 358.0
Acquired in-process research and
development -- 19.7 8.9 19.7
Other operating expenses 0.5 -- 0.5 --
----------- --------- ----------- ---------
Total operating expenses 1,281.0 260.2 2,576.0 478.2
----------- --------- ----------- ---------
Loss from operations (805.7) (117.7) (1,750.8) (230.9)
Activity related to equity investments (52.3) -- (93.5) --
Interest and other income, net 12.2 10.7 25.8 16.2
----------- --------- ----------- ---------
Loss before income taxes (845.8) (107.0) (1,818.5) (214.7)
Income tax expense 49.6 24.2 93.5 30.5
----------- --------- ----------- ---------
Net loss $ (895.4) $ (131.2) $ (1,912.0) $ (245.2)
=========== ========= =========== =========
Basic and dilutive net loss per share $ (0.93) $ (0.19) $ (2.00) $ (0.36)
=========== ========= =========== =========
Shares used in per share calculation:
Basic and dilutive 963.3 690.5 953.7 684.2
=========== ========= =========== =========
See accompanying notes to condensed consolidated financial statements
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JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
December 30, June 30,
2000 2000
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 430.1 $ 319.0
Short-term investments 700.6 795.3
Accounts receivable, less allowance for doubtful accounts
of $10.5 at December 30, 2000 and $8.2 at June 30, 2000 631.9 381.6
Inventories 493.9 375.4
Deferred income taxes 70.3 62.4
Other current assets 70.2 39.2
----------- -----------
Total current assets 2,397.0 1,972.9
Property, plant and equipment, net 930.7 670.7
Deferred income taxes 680.8 642.7
Intangible assets, including goodwill, net 20,018.3 22,337.8
Long term investments 893.6 760.9
Other assets 24.8 4.1
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Total assets $ 24,945.2 $ 26,389.1
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 232.9 $ 195.2
Accrued payroll and related expenses 114.6 98.8
Income taxes payable 88.3 108.6
Accrued expenses and other current liabilities 243.1 244.6
----------- -----------
Total current liabilities 678.9 647.2
Deferred income taxes 926.9 902.1
Accrued pension and other non-current liabilities 21.3 20.2
Long-term debt 27.2 41.0
Stockholders' equity:
Preferred stock -- --
Common stock and additional paid-in capital 26,340.6 25,898.3
Accumulated deficit (3,014.6) (1,102.5)
Accumulated other comprehensive loss (35.1) (17.2)
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Total stockholders' equity 23,290.9 24,778.6
----------- -----------
Total liabilities and stockholders' equity $ 24,945.2 $ 26,389.1
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See accompanying notes to condensed consolidated financial statements
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JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(unaudited)
Six months ended
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December 30, December 31,
2000 1999
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Operating activities
Net loss $ (1,912.0) $ (245.2)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Acquired in-process research and development 8.9 19.7
Depreciation and amortization expense 2,281.4 372.8
Activity related to equity interests in equity investments 93.5 --
Deferred income taxes (24.7) (31.6)
Tax benefits from stock options 90.5 28.0
Changes in operating assets and liabilities:
Accounts receivable (248.7) (55.3)
Inventories (111.8) (38.9)
Other current assets (21.3) 2.8
Accounts payable, accrued liabilities and other accrued expenses 0.2 48.7
---------- ----------
Net cash provided by operating activities 156.0 101.0
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Investing activities
Purchase of available for sale investments (792.8) (1,370.9)
Proceeds from maturities and sales of available for sale investments 879.6 769.8
Merger related expenses, net of cash acquired (68.4) (131.9)
Purchase of property, plant and equipment (325.0) (76.4)
Other investments (8.8) (3.2)
Increase in other assets (10.5) 0.4
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Net cash used in investing activities (325.9) (812.2)
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Financing activities
Proceeds from issuance of common stock and private placement of -- 713.5
exchangeable shares
Proceeds from issuance of common stock under stock option and stock 313.5 54.6
purchase plans
Principal repayments on notes receivable from stockholders 6.2 --
Repayment of debt acquired (16.8) --
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Net cash provided by financing activities 302.9 768.1
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Effect of exchange rate changes on cash and cash equivalents (21.9) --
Increase (decrease) in cash and cash equivalents 111.1 56.9
Cash and cash equivalents at beginning of period 319.0 75.4
---------- ----------
Cash and cash equivalents at end of period $ 430.1 $ 132.3
========== ==========
See accompanying notes to condensed consolidated financial statements
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JDS UNIPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
The financial information at December 30, 2000 and for the three and six
month periods ended December 30, 2000 and December 31, 1999 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, such information does not include all
of the information and footnotes required by generally accepted accounting
principles for annual financial statements. For further information, refer to
the Consolidated Financial Statements and footnotes thereto included in the
Company's Annual Report on form 10-K, as may be amended, for the year ended June
30, 2000 and the S-4 Proxy Statement-Prospectus, as amended, first filed on
September 7, 2000 regarding the merger proposal with SDL, Inc.
The results for the three and six month periods ended December 30, 2000
may not be indicative of results for the year ending June 30, 2001 or any future
period.
FISCAL CALENDAR CHANGE
The Company changed its fiscal calendar effective July 1, 2000. Fiscal
years thereafter will end on the Saturday nearest to June 30, resulting in a 52
or 53 week fiscal year. The change will not result in any differences in fiscal
2001 financial results as compared to the Company's prior fiscal calendar.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met in order to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. The
Company is required to implement SAB 101, effective the quarter ended June 30,
2001, with retroactive application to the beginning of the Company's fiscal
year. Although the Company has not yet completed its assessment of the impact of
SAB 101, the Company's preliminary assessment is that the impact of adopting SAB
101 on its financial position and results of operations in fiscal 2001 and
thereafter, will not be material.
In March 2000, the Financial Accounting Standard Board issued FASB
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions Involving
Stock Compensation--an Interpretation of APB Opinion No. 25." FIN 44 primarily
clarifies (a) the definition of an employee for purposes of applying APB Opinion
No. 25, (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of previously fixed stock options or awards, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. FIN 44
will have an effect on the manner in which the Company accounts for the options
issued in exchange for unvested options of SDL, Inc. ("SDL") in
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connection with the Company's acquisition of SDL (see Note 11) or in connection
with any other acquisitions subsequent to June 30, 2000. Under FIN 44, the value
assigned to unvested options associated with a purchase business combination
will be allocated to deferred compensation and amortized over the remaining
vesting period.
NOTE 2. COMPREHENSIVE LOSS
The components of comprehensive loss, net of tax, are as follows:
(in millions) Three months ended Six months ended
---------------------------- -----------------------------
December 30, December 31, December 30, December 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Net loss $(895.4) $(131.2) $(1,912.0) $(245.2)
Change in unrealized gain or loss
on available-for-sale investments 2.1 (2.2) 0.5 (1.9)
Change in foreign currency translation
(3.2) (6.2) (18.5) 1.6
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Comprehensive loss $(896.5) $(139.6) $(1,930.0) $(245.5)
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NOTE 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133" and SFAS
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities an amendment of FASB Statement No. 133" as of the beginning of its
fiscal year 2001. The standards require the Company to recognize all derivatives
on the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of the derivatives will
either be offset against the change in fair value of the hedged assets,
liabilities or firm commitments through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The change
in a derivative's fair value related to the ineffective portion of a hedge, if
any, will be immediately recognized in earnings. The effect of adopting SFAS
133, as amended, did not have a material effect on the Company's financial
position or overall trends in results of operations.
The Company's objectives and strategies for holding and issuing
derivatives is to minimize the transaction and translation risks associated with
transactions originating in non-US dollar denominated currency. Currently, the
Company does not enter into fair value or cash flow hedges.
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The Company conducts its business in a number of foreign countries and
sells its products directly to customers in Australia, Canada, Hong Kong, Japan,
the Netherlands, Switzerland and the United Kingdom through its foreign
subsidiaries. These sales are often denominated in the local country's currency.
Therefore, in the normal course of business, the Company's financial position is
routinely subjected to market risk associated with foreign currency rate
fluctuations. The Company's policy is to ensure that business exposure to
foreign exchange risks are identified, measured and minimized using the most
effective and efficient methods to eliminate or reduce such exposures. The
Company has entered into a number of foreign currency forward contracts, but has
not designated such contracts as hedges. The foreign currency forward contracts
generally expire within 30 to 60 days. The change in fair value of these foreign
currency forward contracts is recorded as income (loss) in the Company's
Statement of Operations. The Company does not use derivatives for trading
purposes.
NOTE 4. INVENTORIES
The components of inventory consist of the following:
December 30, June 30,
(in millions) 2000 2000
------------ -------
Raw materials and purchased parts $ 267.2 $ 159.5
Work in process 191.0 176.7
Finished goods 35.7 39.2
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$ 493.9 $ 375.4
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NOTE 5. INTANGIBLE ASSETS, INCLUDING GOODWILL
The components of intangible assets are as follows:
December 30, June 30,
(in millions) 2000 2000
---------- ----------
Goodwill $ 21,189.3 $ 21,307.1
Purchased intangibles 1,954.2 1,945.5
Licenses and other intellectual property 7.1 5.6
---------- ----------
23,150.6 23,258.2
Less: accumulated amortization (3,132.3) (920.4)
---------- ----------
$ 20,018.3 $ 22,337.8
========== ==========
NOTE 6. LOSS PER SHARE
As the Company incurred a loss for the three and six month periods ended
December 30, 2000, the effect of dilutive securities, totaling 48.9 million and
57.6 million equivalent shares, respectively, have been excluded from the
computation of loss per share, as their impact would be anti-dilutive. In
connection
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with the acquisition of SDL (See Note 11), the Company issued 342.0 million
shares of its common stock, and options to purchase additional shares of its
common stock, estimated at 33.5 million shares.
NOTE 7. INCOME TAX EXPENSE
The Company recorded a tax provision of $49.6 million in the three month
period ended December 30, 2000 as compared to $24.2 million in the same period
of the prior year. For the six months ended December 30, 2000, the Company
recorded a tax provision of $93.5 million as compared to $30.5 million for the
same period of the prior year. The tax provision recorded in each period differs
from the tax provision (benefit) that otherwise would be calculated by applying
the federal statutory rate to income (loss) before income taxes primarily
because of non-deductible acquisition-related charges.
NOTE 8. OPERATING SEGMENTS
During the three months ended September 30, 2000, JDS Uniphase changed
the structure of its internal organization following the acquisition of E-TEK
Dynamics, Inc ("E-TEK") which became effective on the close of business June 30,
2000.
The President and Chief Operating Officer has been identified as the
Chief Operating Decision Maker as defined by Statement of Financial Accounting
Standards ("SFAS") No. 131. The President allocates resources to each segment
based on their business prospects, competitive factors, net sales and operating
profits before interest, taxes, and certain purchase accounting related costs.
JDS Uniphase designs, develops, manufactures and markets optical
components and modules at various levels of integration. The Company views its
business as having two principal operating segments: Active Components and
Modules, and Passive Components and Modules. The Active Components and Modules
Group consists primarily of source lasers, pump lasers, polymer waveguide
optical switches, external modulators, transmitters, transceivers, optical
photodetectors and receivers, and optical amplifier products used in
telecommunications and cable television ("CATV") applications. The Passive
Components and Modules Group includes wavelength division multiplexers ("WDM"),
isolators, WDM couplers, monitor tap couplers, gratings, circulators, optical
switches, tunable filters, thin film filters, micro-electro-mechanical-systems,
instruments, waveguides and switches. The Company's other operating segments,
which are below the quantitative threshold defined by SFAS 131, are disclosed in
the "all other" category and consist of gas laser-based products for industrial,
biotechnology and semiconductor equipment applications, optical display and
projection products, light interference pigments for security products and
decorative surface treatments, and certain unallocated corporate-level operating
expenses. All of the Company's products are sold directly to original equipment
manufacturers and industrial distributors throughout the world.
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Information on reportable segments is as follows (in millions):
Three months ended Six months ended
--------------------------- ---------------------------
December 30, December 31, December 30, December 31,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Active components and modules:
Shipments $ 286.1 $ 137.2 $ 519.3 $ 244.3
Intersegment sales (10.0) (0.3) (15.2) (0.3)
---------- ---------- ---------- --------
Net sales to external customers 276.1 136.9 504.1 244.0
Operating income 78.6 33.5 139.4 59.8
Passive components and modules:
Shipments 565.3 148.0 1,051.8 268.7
Intersegment sales (20.8) (17.2) (37.2) (27.4)
---------- ---------- ---------- --------
Net sales to external customers 544.5 130.8 1,014.6 241.3
Operating income 231.7 56.6 432.3 102.0
Net sales by reportable segments 820.6 267.7 1,518.7 485.3
All other net sales 104.5 14.0 192.9 26.5
---------- ---------- ---------- --------
925.1 281.7 1,711.6 511.8
---------- ---------- ---------- --------
Operating income by reportable
segment 310.3 90.1 571.7 161.8
All other operating income (7.9) 3.1 (14.5) 4.8
Unallocated amounts:
Acquisition related charges &
payroll taxes on stock option
exercises (1,108.1) (210.9) (2,308.0) (397.5)
Activity related to equity
investments (52.3) -- (93.5) --
Interest and other income, net 12.2 10.7 25.8 16.2
---------- ---------- ---------- --------
Loss before income taxes $ (845.8) $ (107.0) $ (1,818.5) $ (214.7)
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NOTE 9. ACQUISITIONS
IRIDIAN SPECTRAL TECHNOLOGIES LIMITED
In October 2000, the Company acquired the remaining 80.1% interest in
Iridian Spectral Technologies Limited ("Iridian") of Ottawa, Canada. Iridian is
a supplier of custom designed thin film filters. The transaction was accounted
for as a purchase and accordingly, the accompanying financial statements include
the results of operations of Iridian subsequent to the acquisition date. The
total purchase price of $40.3 million included consideration of 424,699
exchangeable shares of its subsidiary, JDS Uniphase Canada Ltd. valued at $34.6
million, $4.7 million in cash and direct transaction costs of $1.0 million. The
purchase price allocation included net tangible assets of $2.3 million and
goodwill of $38.0 million that is expected to be amortized over a period of five
years. The purchase price allocation is preliminary and is dependent upon the
Company's final analysis, which it expects to complete during the third quarter
of fiscal 2001.
EPION CORPORATION
In September 2000, the Company acquired Epion Corporation ("Epion") of
Billerica, Massachusetts. Epion is a developer of gas cluster ion beam ("GCIB")
technology and a manufacturer of pulsed laser deposition ("PLD") equipment. The
transaction was accounted for as a purchase and accordingly, the accompanying
financial statements include the results of operations of Epion subsequent to
the acquisition date. The total purchase price of $95.3 million included
consideration of 0.8 million shares of JDS Uniphase common stock valued at $86.8
million, the issuance of options to purchase an additional 91,862 shares of JDS
Uniphase common stock valued at $8.2 million in exchange for Epion options and
direct transaction costs of $0.3 million. The purchase price allocation included
net tangible assets of $11.0 million, acquired in-process research and
development of $8.9 million, purchased intangibles of $14.6 million (including
$3.7 million related to deferred compensation on unvested options) and goodwill
of $60.8 million that are expected to be amortized over a period of three to
five years. The purchase price allocation is preliminary and is dependent upon
the Company's final analysis, which it expects to complete during the third
quarter of fiscal 2001. Subject to the completion of certain milestones, the
merger agreement also provides for the issuance of additional shares of common
stock, valued at approximately $150.0 million, with the final milestone payment
scheduled to be paid on or prior to January 31, 2003.
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E-TEK DYNAMICS, INC.
During the three months ended September 30, 2000, the Company completed
its assessment of the purchase price for E-TEK Dynamics, Inc. ("E-TEK").
The total purchase cost of E-TEK is as follows (in millions):
Value of securities issued $ 15,369.3
Assumption of options 2,005.4
Assumption of employee stock purchase plan 45.5
----------
Total equity consideration 17,420.2
Direct transactions costs and expenses 103.0
----------
Total purchase cost $ 17,523.2
==========
The purchase price allocation is as follows (in millions):
Purchase Price Allocation:
Tangible net assets acquired $ 406.8
Marketable equity investments 950.0
Intangible assets acquired:
Developed technology
Existing Technology 248.7
Core Technology 168.5
Trademark and tradename 60.4
Assembled workforce 10.7
In-process research and development 250.6
Goodwill 15,427.5
---------
Total purchase price allocation $17,523.2
=========
NOTE 10. EQUITY METHOD OF ACCOUNTING
As of December 30, 2000, the Company had a 29% ownership stake in ADVA,
a publicly traded German company that develops and manufactures fiber optic
components and products and a 40% ownership stake in the Photonics Fund
("Photonics Fund"), LLP, a California limited liability partnership (the
"Partnership"), which emphasizes privately negotiated venture capital equity
investments. The Company accounts for its investments in ADVA and the Photonics
Fund under the equity method. Due to the limited availability of timely data,
the Company records the adjustments to its equity basis investments in the
quarter subsequent to the issued financial statements.
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For the three and six months ended December 30, 2000, the Company
recorded $43.1 million and $89.1 million, respectively, in amortization expense
related to the difference between the cost of the investment and the underlying
equity in the net assets of ADVA. At June 30, 2000, the Company's cost and
estimated fair value of its investment in ADVA was $701.1 million. In the
process of completing the E-TEK purchase accounting, the Company increased the
cost and estimated fair value of its investment in ADVA to $931.5 million during
the first fiscal quarter. The difference between the cost of the investment and
the underlying equity in the net assets of ADVA is being amortized over a 5 year
period. For the three months ended December 30, 2000, the Company recorded a
$10.1 million net loss in ADVA relating to their three months ended September
30, 2000. As of February 13, 2001, ADVA had not announced their financial
results for the three months ended December 30, 2000. The Company will record
its share of the income or loss of ADVA in the quarter ending March 31, 2001.
In the three months ended December 30, 2000, the Company recorded a gain
of $0.9 million, which represented the Company's share of the earnings of the
Partnership for the three months ended September 30, 2000. The Company's share
of the loss of the Partnership for the three months ended December 30, 2000 was
approximately $0.3 million, which will be recorded by the Company in the quarter
ending March 31, 2001.
NOTE 11. SUBSEQUENT EVENTS
On January 31, 2001, the Company acquired Optical Process Automation
Corp. ("OPA") in a transaction accounted for as a purchase. The Company issued
3.0 million shares of common stock for all of the outstanding stock, common and
preferred, of OPA valued at approximately $130.2 million and assumed the
outstanding stock options of OPA, which had an estimated value of approximately
$36.7 million. Subject to the completion of certain milestones, the purchase
agreement also provides for the issuance of additional shares of common stock,
valued at approximately $250.0 million, with the final milestone payment
scheduled to be paid on or prior to January 31, 2004.
On February 13, 2001, the Company completed its acquisition of SDL. As
consideration for the transaction, each outstanding share of SDL was exchanged
for 3.8 shares of the Company's common stock. The total purchase price is
estimated at approximately $41.0 billion, based on the average market value of
the Company's common stock for a range of trading days (June 30, 2000 through
July 14, 2000) around the announcement of the merger. SDL designs, manufactures
and sells semiconductor lasers, laser-based subsystems and fiber optic related
solutions. This transaction will be accounted for as a purchase with goodwill of
approximately $37.4 billion, which is expected to be amortized over its
estimated useful life of five years.
On February 13, 2001, the Company completed the sale of its Zurich,
Switzerland subsidiary to Nortel Networks ("Nortel") for 65.7 million shares of
Nortel common stock valued at $2.1 billion, as well as up to an additional $500
million in Nortel common stock payable to the extent Nortel purchases do not
meet certain levels under new and existing programs through December 31, 2003.
The Company expects to record a gain estimated at $1.9 billion in the quarter
ended March 31, 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RECENT EVENTS
On January 31, 2001, the Company acquired Optical Process Automation
Corp. ("OPA") in a transaction accounted for as a purchase. The Company issued
3.0 million shares of common stock for all of the outstanding stock, common and
preferred, of OPA valued at approximately $130.2 million and assumed the
outstanding stock options of OPA, which had an estimated value of approximately
$36.7 million. Subject to the completion of certain milestones, the purchase
agreement also provides for the issuance of additional shares of common stock,
valued at approximately $250.0 million, with the final milestone payment
scheduled to be paid on or prior to January 31, 2004.
On February 13, 2001, the Company completed its acquisition of SDL. As
consideration for the transaction, each outstanding share of SDL was exchanged
for 3.8 shares of the Company's common stock. The total purchase price is
estimated at approximately $41.0 billion, based on the average market value of
the Company's common stock for a range of trading days (June 30, 2000 through
July 14, 2000) around the announcement of the merger. SDL designs, manufactures
and sells semiconductor lasers, laser-based subsystems and fiber optic related
solutions. This transaction will be accounted for as a purchase with goodwill of
approximately $37.4 billion, which is expected to be amortized over its
estimated useful life of five years.
On February 13, 2001, the Company completed the sale of its Zurich,
Switzerland subsidiary to Nortel Networks ("Nortel") for 65.7 million shares of
Nortel common stock valued at $2.1 billion, as well as up to an additional $500
million in Nortel common stock payable to the extent Nortel purchases do not
meet certain levels under new and existing programs through December 31, 2003.
The Company expects to record a gain estimated at $1.9 billion in the quarter
ended March 31, 2001.
RESULTS OF OPERATIONS
Net Sales. For the three months ended December 30, 2000, net sales of $925.1
million represented an increase of $643.4 million or 228% compared to the same
period of the prior year. For the six months ended December 30, 2000, net sales
were $1,711.6 million an increase of $1,199.8 million or 234% compared to the
same period of the prior year. The increase in net sales reflected growth in
each of our major operating segments and the inclusion of net sales from our
acquisitions that occurred in fiscal 2000. The impact of our significant
acquisitions subsequent to December 31, 1999, provided approximately $321.2
million and $592.1 million of net sales for the three and six months ended
December 30, 2000, respectively. Separate discussions with respect to net sales
and operating profits for each of our reportable operating segments can be found
under the heading Operating Segment Information.
Net sales for the three and six month periods ended December 30, 2000
are not indicative of the expected results for any future period. In addition,
there can be no assurance that the market for our products will grow in future
periods at its historical percentage rate or that certain market segments will
not decline. Further, there can be no assurance that we will be able to increase
or maintain our market share in the future or to achieve historical growth
rates.
Gross Profit. For the three months ended December 30, 2000, gross profit of
$475.3 million represented an increase of $332.8 million or 234% compared to the
same period of the prior year. For the six months ended December 30, 2000, gross
profit was $825.2 million, an increase of $577.9 million or 234% compared to the
same period of the prior year. Strong demand for virtually all our optical
components and modules products combined with the increased operations resulting
from our acquisitions completed subsequent to December 31, 1999 contributed to
the increases in gross profit.
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As a percent of net sales, gross profit remained at 51% and 48% in the
first three and six months, respectively, of 2001 compared to the same periods
of the prior year. The gross profit for the six month periods includes the
impact of purchase accounting adjustments of $48.6 million and $11.4 million,
which increased the inventory balances at June 30, 2000 and 1999, respectively.
These adjustments flowed through to cost of sales in the six months ended
December 30, 2000 and December 31, 1999, respectively.
There can be no assurance that we will be able to maintain gross profits
or gross margins at current levels in future periods. We expect that periodic
fluctuations in our gross margins will continue because of, among other things,
changes in our sales and product mix, manufacturing constraints, competitive
pricing pressures, higher costs resulting from new production facilities,
manufacturing yields, and acquisitions of businesses that may have different
margins than ours and inefficiencies associated with new product introductions.
Research and Development Expense. For the three months ended December 30, 2000,
research and development (R&D) expense of $71.2 million or 8% of net sales
represented an increase of $49.6 million or 230% compared to the same period of
the prior year. R&D expense for the six months ended December 30, 2000 was
$133.6 million, an increase of $94.7 million or 243% compared to the same period
of the prior year. The increase in R&D expenses is primarily due to increased
personnel costs and other expenses related to the development of new products
and technologies, as well as the continued development and enhancement of
existing products and the inclusion of our acquisitions completed subsequent to
December 31, 1999. As a percent of net sales, R&D expense was flat at 8% for the
three and six month periods as compared to the same periods in 2000.
We are committed to the continuation of making significant R&D
expenditures and expect that, while R&D expenses may vary as a percentage of net
sales in future periods, the absolute dollar amount of R&D expenses will
increase as we invest in developing new products and in expanding and enhancing
our existing product lines. However, there can be no assurance that expenditures
for R&D will be successful or that improved processes or commercial products
will result from these projects.
Selling, General and Administrative Expense. For the three months ended December
30, 2000, selling, general and administrative (SG&A) expense of $105.2 million
or 11% of net sales represented an increase of $71.4 million or 211% as compared
to the same period of the prior year. For the six months ended December 30,
2000, SG&A expenses of $221.4 million, represented an increase of $159.8
million or 259% as compared to the same period of the prior year. For the three
month period ended December 30, 2000, as a percentage of sales, SG&A decreased
from 12% to 11% due to our higher level of sales activity. For the six month
period, as a percentage of sales, SG&A increased to 13% from 12% primarily due
to higher payroll tax expenses related to the exercise of non-qualified stock
option exercises, higher SG&A costs resulting from increased internal
information technology efforts, the hiring of additional sales, marketing and
administrative personnel and the inclusion of our acquisitions completed
subsequent to December 31, 1999.
We expect the amount of SG&A expenses to increase in the future,
although such expenses may vary as a percentage of net sales in future periods.
We also expect to continue incurring charges to operations, which to date have
been within management's expectations, associated with integrating recent
acquisitions.
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Amortization of Purchased Intangibles. For the three months ended December 30,
2000, amortization of purchased intangibles ("API") expense of $1,104.1 million
or 119% of net sales represented an increase of $919.0 million or 496% as
compared to the same period of the prior year. For the six months ended December
30, 2000, API expense of $2,211.6 million, represented an increase of $1,853.6
or 518% as compared to the same period of the prior year. The increase in API
expense is due to the intangible assets recorded in connection with our
acquisitions completed subsequent to December 31, 1999, which were transactions
accounted for as purchases.
Our API expense will continue to generate net losses for the foreseeable
future. The balance at December 30, 2000, of goodwill and other intangibles
arising from acquisition activity was $23.2 billion, including the related
deferred tax effect. See Note 5 of Notes to Consolidated Condensed Financial
Statements. In addition, we will record a significant amount of additional
goodwill in connection with our merger with SDL. API expense could change
because of other acquisitions or impairment of existing identified intangible
assets and goodwill in future periods.
Acquired In-process Research and Development. The Company did not record any
acquired in-process research and development expense during the three months
ended December 30, 2000. For the six months ended December 30, 2000, acquired
in-process research and development expense was $8.9 million resulting from the
acquisition of Epion Corporation ("Epion"). See Note 9 of Notes to Condensed
Consolidated Financial Statements. These amounts were expensed on the
acquisition dates because the acquired technology had not yet reached
technological feasibility and had no future alternative uses. There can be no
assurance that acquisitions of businesses, products or technologies by us in the
future will not result in substantial charges for acquired in-process research
and development that may cause fluctuations in our quarterly or annual operating
results.
A description of the acquired in-process technologies, stage of
development, estimated completion costs, and time to complete at the date of the
Epion merger, as well as the current status of acquired in-process research and
development projects for each acquisition can be found at the end of this
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Activity Related to Equity Investments. For the three months ended December 30,
2000, activity related to equity investments was a net loss of $52.3 million.
This included $43.1 million of amortization expense related to the difference
between the cost of the investment and the underlying equity in the net assets
of ADVA and $9.2 million related to our share of the net income of the Photonics
Fund and net loss of ADVA. For the six months ended December 30, 2000, activity
related to equity investments was a net loss of $93.5 million. This included
$89.2 million of amortization expense related to the difference between the cost
of the investment and the underlying equity in the net assets of ADVA and $4.3
million related to our share of the net income of the Photonics Fund and net
loss of ADVA. See Note 10 of Notes to Condensed Consolidated Financial
Statements.
Interest and Other Income. For the three months ended December 30, 2000, net
interest and other income of $12.2 million or 1% of net sales represented an
increase of $1.5 million or 14% as compared to the same period of the prior
year. For the six months ended December 30, 2000, net interest and other income
of $25.8 million represented an increase of $9.6 million or 59% as compared to
the same period of the prior year. The increases in interest and other income
for both periods was the result of higher investment balances obtained through
cash generated from operating activities, our acquisition of E-
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TEK, proceeds from the public offering of common stock in August 1999 and $313.5
million in proceeds from the issuance of common stock under our stock option and
stock purchase plans.
Income Tax Expense. We recorded a tax provision of $49.6 million in the three
months ended December 30, 2000 as compared to $24.2 million in the same period
of the prior year. For the six months ended December 30, 2000, we recorded a tax
provision of $93.5 million as compared to $30.5 million for the same period of
the prior year. The tax provision recorded in each quarter differs from the tax
provision (benefit) that otherwise would be calculated by applying the federal
statutory rate to income (loss) before income taxes primarily due to
non-deductible acquisition-related charges.
OPERATING SEGMENT INFORMATION
Active Components and Modules. For the three and six months ended December 30,
2000, net sales of active components and modules increased 102% and 107%,
respectively, as compared to the same periods of the prior year primarily
because of the increased demand for active products used in optical
communications applications, such as our optical amplifiers, our 980-nm pump
lasers, our transceiver product lines, and our acquisitions completed subsequent
to December 31, 1999. Margins reflect improved manufacturing efficiencies and
the sale of higher margin new products, offset by price declines consistent with
historical patterns. Sales growth also reflected sales of new products including
higher-powered CW source lasers, 10Gb/s modulators and transceiver products. For
the three and six months ended December 30, 2000, operating income increased
134% and 133%, respectively, compared to the same periods of the prior year
because of these same factors.
Passive Components and Modules. For the three and six months ended December 30,
2000, net sales increased 316% and 321%, respectively, as compared to the same
periods of the prior year, primarily because of the inclusion of our
acquisitions completed subsequent to December 31, 1999, and increased demand for
dense wavelength division multiplexers ("DWDMs"), couplers and isolators.
Margins reflect improved manufacturing efficiencies and the sale of higher
margin new products, offset by price declines consistent with historical
patterns. For the three and six months ended December 30, 2000, operating income
increased 309% and 324%, respectively, compared to the same period of the prior
years because of these same factors.
LIQUIDITY AND CAPITAL RESOURCES
At December 30, 2000, our combined balance of cash, cash equivalents and
short-term investments was $1,130.7 million, an increase of $16.4 million from
June 30, 2000. For the six months ended December 30, 2000, net cash provided by
operating activities was $156.0 million, compared with $101.0 million for the
same period of the prior year.
Cash provided by operating activities for the six months ended December
30, 2000 was primarily generated from net income before non-cash charges of
$537.6 million offset by higher levels of operating activity which resulted in
net increases in accounts receivable, inventories, other current assets and
accounts payable and other current liabilities using $381.6 million of cash.
Our investing activities for the six months ended December 30, 2000 used
$325.9 million cash for investing activities during the quarter as compared with
using $812.2 million during the same period of the prior year. During the six
months ended December 30, 2000, we used $792.8 million to purchase
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short-term investments which was offset by proceeds from the sale of $879.6
million of short-term investments. Merger related expenses, net of cash acquired
used an additional $68.4 million. In addition, we incurred capital expenditures
of $325.0 million for facility expansions and equipment purchases to increase
our worldwide manufacturing capacity. We expect to continue to expand our
worldwide manufacturing capacity, primarily for telecommunications products, by
making approximately $425 million in additional capital expenditures during the
remainder of the year.
Our financing activities for the six months ended December 30, 2000
provided cash of $302.9 million as compared to $768.1 million in the same period
of the prior year. The exercise of stock options and the sale of stock through
our employee stock purchase plan provided $313.5 million in cash. Cash provided
by financing activities in the prior year was primarily attributable to our sale
of common stock in a public offering of common stock in August 1999.
We had outstanding debt totaling $29.6 million. This debt was assumed
from entities we acquired in fiscal 2000. The Company can, at its election,
prepay the debt. In addition, the Company has an U.S. dollar line of credit
totaling $25.0 million and $1.0 billion Yen (approximately U.S. $9.0 million).
We have entered into several agreements to lease property and
improvements located in Melbourne, Florida and Research Triangle Park, North
Carolina. The Melbourne facility, when construction is complete, will comprise
two buildings, 200,000 square feet, and will provide space for office and
assembly and light manufacturing. The underlying 20 acre parcel is subject to a
long-term ground lease. The Research Triangle Park facility will provide
approximately 151,000 square feet space for manufacturing and office use on
approximately 110 acres. In connection with these transactions, we have pledged
$26.3 million of our investments as collateral for certain obligations under the
leases. The Company may pledge up to $60 million. We anticipate that we will
occupy more leased property in the future that will require similar pledged
securities; however, we do not expect such activities to materially affect
liquidity.
We believe that our existing cash balances and investments, together
with cash flow from operations will be sufficient to meet our liquidity and
capital spending requirements at least through the end of calendar year 2001.
However, possible investments in or acquisitions of complementary businesses,
products or technologies may require additional financing prior to such time.
There can be no assurance that additional debt or equity financing will be
available when required or, if available, can be secured on terms satisfactory
to us.
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CURRENT STATUS OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS
We periodically review the stage of completion and likelihood of success
of each of the in-process research and development projects. The estimates used
in valuing IPRD were based upon assumptions we believe to be reasonable but
which are inherently uncertain and unpredictable. Our assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the projected results. Any such variance may result in a material adverse
effect on our financial condition and results of operations.
The current status of the in-process research and development (IPRD)
projects for all major mergers and acquisitions during the past three years are
as follows:
EPION
An independent appraiser performed an allocation of the total purchase
price of Epion to its individual assets. Of the total purchase price, $8.9
million has been allocated to IPRD and was charged to expense in the quarter
ended September 30, 2000. The remaining purchase price has been allocated
specifically to identifiable assets acquired.
The products under development at the time of acquisition included Gas
Cluster Ion Beam technology used for atomic scale surface smoothing and cleaning
where surface or film quality is of great importance.
Epion has incurred $1.3 million to date and estimates that a total
investment of approximately $1.9 million in research and development over the
next 18 months will be required to complete the IPRD. The nature of the efforts
required to develop the purchased IPRD into commercially viable products
principally relate to the completion of all planning, designing, prototyping,
verification and testing activities that are necessary to establish that the
products can be produced to meet their design specifications, including
functions, features and technical performance requirements.
E-TEK
The products under development at the time of acquisition included: (1)
wavelength division multiplexers (WDM's); (2) submarine products: and (3) other
component products and modules. The WDM project has been completed at a cost
consistent with our expectations. The submarine products are on schedule to be
completed by the fourth quarter of calendar 2001. We have incurred costs of $0.4
million to date, with estimated costs to complete of $0.9 million. Our
development efforts for Other Components and Modules include attenuators,
circulators, switches, dispersion equalization monitors and optical performance
monitors. Our development efforts are slightly behind schedule on some of these
products, with estimated completion dates in the third and fourth quarters of
calendar 2001. The costs incurred to date are approximately $2.2 million, with
estimated costs to complete of $1.2 million. The estimated cost to complete this
technology, in combination with our other continuing research and development
expenses, will not be in excess of our historic expenditures for research and
development as a percentage of our net sales. The differences between the actual
outcome noted above and the assumptions used in the original valuation of the
technology are not expected to significantly impact our results of operations
and financial position.
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CRONOS
The products under development at the time of acquisition included: (1)
RF microrelays; (2) variable optical attenutators; and (3) active fiber
aligners. The microrelays development and the variable optical attenuators
project are substantially complete at a cost consistent with our expectations.
The active fiber aligners development project is currently being evaluated
relative to similar efforts already underway within the Company.
OCLI
The products under development at the time of the acquisition included:
(1) thin film filters and switches, (2) optical display and projection products,
and (3) light interference pigments. Thin film filters included switches, filter
lock lasers, add-drop multiplexers and dispersion compensators. The Company has
discontinued the development of certain switches, filter lock lasers and
add-drop multiplexers due to duplicate efforts already underway within the
Company. Dispersion compensators and other switches, are currently in the
exploratory and prototype development stages of the development cycle. The
expected development on these products is between 5 and 15 months. The Company
has incurred post acquisition costs of approximately $5.2 million with an
estimated cost to complete the remaining projects of $9.3 million, which the
Company expects to incur ratably for the remainder of the development cycle.
The optical display and projection products development is currently
being evaluated due to the uncertainty of current market conditions. Light
interference pigments are currently in the prototype stage of the development
cycle for this product family and these projects are on schedule with completion
expected in the first quarter of calendar year 2001. The Company has incurred
post-acquisition research and development expenses of approximately $13.7
million and estimates that cost to complete these projects will be another $2.9
million which the Company expects to incur ratably over the remainder of the
product development cycle.
SIFAM
The products under development at the time of the acquisition included:
(1) miniature couplers; (2) combined components; and (3) micro-optic devices.
Miniature coupler development and combined components development are
substantially complete at a cost consistent with our expectations. Micro-optic
device development is currently being evaluated relative to similar efforts
already underway within the Company. The costs incurred post acquisition for
micro-optic device development has been consistent with our expectations.
EPITAXX
The products under development at the time of the acquisition included
(1) high-speed receivers, and (2) an optical spectrum analyzer product.
High-speed receiver development is substantially complete at a cost consistent
with our expectations. Optical spectrum analyzer development is expected to be
completed in the first quarter of calendar 2001 with expected cost to complete
of approximately $0.4 million which EPITAXX expects to incur ratably for the
remainder of the development cycle.
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UNIPHASE NETHERLANDS
We have begun shipments of the CW Lasers for WDMs and the project is
substantially complete. The DFB/EA modulators have also begun shipments but we
do not anticipate completing this technology until the first quarter of calendar
2001. The WDM laser - direct modulation is expected to have a lower revenue
growth rate than originally anticipated. The development of the semiconductor
optical amplifier technology has been delayed because of market demand for other
products. We estimate that this technology will be substantially complete in the
second quarter of calendar 2001. The development of the telecom technology is on
schedule but the revenue growth rate in initial periods is expected to be lower
than originally anticipated. Development of the CATV technologies is
approximately six months behind schedule and is expected to take a higher level
of development effort to achieve technological feasibility. We have incurred
post-acquisition research and development expenses of approximately $11.2
million in developing the in-process technology and estimate the cost to
complete this technology, in combination with our other continuing research and
development expenses, will not be in excess of our historic expenditures for
research and development as a percentage of our net sales. The differences
between the actual outcome noted above and the assumptions used in the original
valuation of the technology are not expected to significantly impact our results
of operations and financial position.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
FOREIGN EXCHANGE
We generate a significant portion of our sales from sales to customers
located outside the United States, principally in Europe. International sales
are made mostly from our foreign subsidiaries in the local countries and are
typically denominated in either U.S. dollars or the local currency of each
country. These subsidiaries also incur most of their expenses in the local
currency. Accordingly, all foreign subsidiaries use the local currency as their
functional currency.
Our international business is subject to risks typical of an
international business including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely affected by changes in these or
other factors.
We use foreign currency forward contracts as the vehicle for reducing
the foreign exchange risk with respect to assets and liabilities denominated in
foreign currencies; however, we have not designated these derivatives to be
hedging instruments. Therefore, all gains or losses resulting from the change in
fair value of these contracts have been included in earnings in the current
period. If the Company designates these types of contracts or other derivatives
as hedges in the future, depending on the nature of the hedge, changes in the
fair value of the derivatives will be offset against the change in fair value of
assets, liabilities, or firm commitments through earnings (fair value hedges) or
recognized in other comprehensive income until the hedged item is recognized in
earnings (cash flow hedges). The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings.
At December 30, 2000, the nominal value of our foreign currency forward
contracts totaled approximately U.S. dollar $173.2 million equivalent. All
foreign currency forward contracts are carried at fair value and all positions
had maturity dates within three months.
INTEREST RATES
We invest our cash in a variety of financial instruments, including fixed
and floating rate bonds, municipal bonds, auction instruments and money market
instruments. These investments are denominated in U.S. and Canadian dollars.
Cash balances in foreign currencies overseas are operating balances and are only
invested in short term deposits of the local operating bank.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted because of a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment income
may fall short of expectations because of changes in interest rates or the
Company may suffer losses in principal if forced to sell securities which have
seen a decline in market value because of changes in interest rates.
Our investments are made in accordance with an investment policy approved
by the Board of Directors. Under this policy, no investment securities can have
maturities exceeding three years and the average duration of the portfolio can
not exceed eighteen months.
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RISK FACTORS
DIFFICULTIES WE MAY ENCOUNTER MANAGING OUR GROWTH COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS
We have historically achieved growth through a combination of internally
developed new products and acquisitions. Our growth strategy depends on our
ability to continue developing new components, modules and other products for
our customer base. However, along with internal new product development efforts
as part of this strategy, we expect to continue to pursue acquisitions of other
companies, technologies and complementary product lines. The success of each
acquisition will depend upon:
- our ability to manufacture and sell the products of the businesses
acquired;
- continued demand for these acquired products by our customers;
- our ability to integrate the acquired business' operations, products
and personnel;
- our ability to retain key personnel of the acquired businesses; and
- our ability to expand our financial and management controls and
reporting systems and procedures.
Difficulties in integrating new acquisitions could adversely affect our business
Critical to the success of our growth is the ordered, efficient
integration of acquired businesses into our organization and, with this end, we
have in the past spent and continue to spend significant resources. If our
integration efforts are unsuccessful, our businesses will suffer. We are the
product of several substantial combinations, mergers and acquisitions,
including, among others, the combination of Uniphase and JDS FITEL on June 30,
1999, and the acquisitions of OCLI on February 4, 2000, E-TEK on June 30, 2000
and SDL on February 13, 2001. Each combination, merger and acquisition, presents
unique product, marketing, research and development, facilities, information
systems, accounting, personnel and other integration challenges. In the case of
several of our acquisitions, we acquired businesses that had previously been
engaged primarily in research and development and that needed to make the
transition from a research activity to a commercial business with sales and
profit levels that are consistent with our overall financial goals. Also, our
information systems and those of the companies we acquired are often
incompatible, requiring substantial upgrades to one or the other. Further, our
current senior management is a combination of the prior senior management teams
of JDS Uniphase, OCLI, E-TEK and SDL, several of whom have not previously worked
with other members of management. Our integration efforts may not be successful,
and may result in unanticipated operations problems, expenses and liabilities
and the diversion of management attention. Consequently, our operating results
would suffer.
We often incur substantial costs related to our combinations, mergers
and acquisitions. For example, we have incurred direct costs associated with the
combination of Uniphase and JDS FITEL of
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approximately $12.0 million, incurred approximately $8.0 million associated with
the acquisition of OCLI, incurred approximately $92.0 million associated with
the acquisition of E-TEK and incurred approximately $360.0 million associated
with the acquisition of SDL . We expect to continue to incur substantial costs
relating to our merger with SDL. We may incur additional material charges in
subsequent quarters to reflect additional costs associated with these and other
combinations and acquisitions, which will be expensed as, incurred.
If we fail to efficiently integrate our sales and marketing forces, our sales
could suffer
Our sales force is and will in the future be a combination of our sales
force and the sale forces of the businesses we acquired, which must be
effectively integrated for us to remain successful. Our combinations, mergers
and acquisitions often result in sales forces differing in products sold,
marketing channels used and sales cycles and models applied. Accordingly, we may
experience disruption in sales and marketing in connection with our efforts to
integrate our various sales and marketing forces, and we may be unable to
efficiently or effectively correct such disruption or achieve our sales and
marketing objectives if we fail in these efforts. Our sales personnel not
accustomed to the different sales cycles and approaches required for products
newly added to their portfolio may experience delays and difficulties in selling
these newly added products. Furthermore, it may be difficult to retain key sales
personnel. As a result we may fail to take full advantage of the combined sales
forces' efforts, and one company's sales approach and distribution channels may
be ineffective in promoting another entity's products, all of which may
materially harm our business, financial condition or operating results.
We may fail to commercialize new product lines
We intend to continue to develop new product lines to address our
customers' diverse needs and the several market segments in which we
participate. If we fail, our business will suffer. As we target new product
lines and markets, we will further increase our sales and marketing, customer
support and administrative functions to support anticipated increased levels of
operations from these new products and markets as well as growth from our
existing products. We may not be successful in creating this infrastructure nor
may we realize any increase in the level of our sales and operations to offset
the additional expenses resulting from this increased infrastructure. In
connection with our recent acquisitions, we have incurred expenses in
anticipation of developing and selling new products. Our operations may not
achieve levels sufficient to justify the increased expense levels associated
with these new businesses.
Any failure of our information technology infrastructure could materially harm
our results of operations
Our success depends, among other things, upon the capacity, reliability
and security of our information technology hardware and software infrastructure.
Any failure relating to this infrastructure could significantly and adversely
impact the results of our operations. In connection with our growth, we have
identified the need to update our current information technology infrastructure
and expect to incur significant costs relating to this upgrade. Among other
things, we are currently unifying our manufacturing, accounting, sales and human
resource data systems using an Oracle platform, expanding and upgrading our
networks and integrating our voice communications systems.
We must continue to expand and adapt our system infrastructure to keep
pace with our growth. Demands on infrastructure that exceed our current
forecasts could result in technical difficulties.
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Upgrading the network infrastructure will require substantial financial,
operational and management resources, the expenditure of which could affect the
results of our operations. We may not successfully and in a timely manner
upgrade and maintain our information technology infrastructure, and a failure to
do so could materially harm our business, results of operations and financial
condition.
WE HAVE MANUFACTURING DIFFICULTIES
If we do not achieve acceptable manufacturing volumes, yields or sufficient
product reliability, our operating results could suffer
The manufacture of our products involves highly complex and precise
processes, requiring production in highly controlled and clean environments.
Changes in our manufacturing processes or those of our suppliers, or their
inadvertent use of defective or contaminated materials, could significantly
reduce our manufacturing yields and product reliability. Because the majority of
our manufacturing costs are relatively fixed, manufacturing yields are critical
to our results of operations. Some of our divisions have in the past experienced
lower than expected production yields, which could delay product shipments and
impair gross margins. These divisions or any of our other manufacturing
facilities may not maintain acceptable yields in the future. For example, our
existing Uniphase Netherlands facility has not achieved acceptable manufacturing
yields since the June 1998 acquisition, and there is continuing risk attendant
to this facility and our manufacturing yields and costs. To the extent we do not
achieve acceptable manufacturing yields or experience product shipment delays,
our business, operating results and financial condition would be materially and
adversely affected.
As our customers' needs for our products increase, we must increase our
manufacturing volumes to meet these needs and satisfy customer demand. Failure
to do so may materially harm our business, operating results and financial
condition. In some cases, existing manufacturing techniques, which involve
substantial manual labor, may be insufficient to achieve the volume or cost
targets of our customers. As such, we will need to develop new manufacturing
processes and techniques, which are anticipated to involve higher levels of
automation, to achieve the targeted volume and cost levels. In addition, it is
frequently difficult at a number of our manufacturing facilities to hire
qualified manufacturing personnel in a timely fashion, if at all, when customer
demands increase over shortened time periods. While we continue to devote
research and development efforts to improvement of our manufacturing techniques
and processes, we may not achieve manufacturing volumes and cost levels in our
manufacturing activities that will fully satisfy customer demands.
If our customers do not qualify our manufacturing lines for volume shipments,
our operating results could suffer
Customers will not purchase any of our products, other than limited
numbers of evaluation units, prior to qualification of the manufacturing line
for the product. Each new manufacturing line must go through varying levels of
qualification with our customers. This qualification process determines whether
the manufacturing line achieves the customers' quality, performance and
reliability standards. Delays in qualification can cause a product to be dropped
from a long term supply program and result in significant lost revenue
opportunity over the term of that program. We may experience delays in obtaining
customer qualification of our new facilities. If we fail in the timely
qualification of these or other new manufacturing lines, our operating results
and customer relationships would be adversely affected.
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OUR OPERATING RESULTS SUFFER AS A RESULT OF PURCHASE ACCOUNTING TREATMENT,
PRIMARILY DUE TO THE IMPACT OF AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
ORIGINATING FROM ACQUISITIONS
Under U.S. generally accepted accounting principles that apply to us, we
accounted for a number of business combinations using the purchase method of
accounting. Under purchase accounting, we recorded the market value of our
common shares and the exchangeable shares of our subsidiary, JDS Uniphase Canada
Ltd., issued in connection with mergers and acquisitions with the fair value of
the stock options assumed, which became options to purchase our common shares
and the amount of direct transaction costs as the cost of acquiring these
entities. That cost is allocated to the individual assets acquired and
liabilities assumed, including various identifiable intangible assets such as
in-process research and development, acquired technology, acquired trademarks
and trade names and acquired workforce, based on their respective fair values.
We allocated the excess of the purchase cost over the fair value of the net
assets to goodwill.
The impact of purchase accounting on our operating results is
significant. The following table reflects the impact of in-process research and
development expense (in the quarter the acquisition closed) and the prospective
quarterly/annual amortization of purchased intangibles attributable to our
significant mergers and acquisitions that have closed in the past four quarters
(in millions):
Quarterly Annual
In-process Amortization of Amortization of
Research and Purchased Purchased
Entity Development Intangibles Intangibles
- ------ ------------ --------------- ---------------
OCLI $ 84.1 $ 79.8 $ 319.1
Cronos $ 6.3 $ 27.9 $ 111.8
E-TEK $ 250.6 $ 850.8 $ 3,403.2
The impact of these mergers and acquisitions as well as other
acquisitions consummated in the past five years resulted in amortization expense
of $896.9 million for the fiscal year ended June 30, 2000 and is expected to
result in amortization of approximately $4.6 billion for the fiscal year ending
June 30, 2001.
In addition, we will account for the SDL merger using the purchase
method of accounting. In-process research and development, which is currently
estimated at $230 million, will be expensed in the three months ended March 31,
2001. Intangible assets including goodwill will be generally amortized over a
five year period and deferred compensation will be amortized over the remaining
vesting period of the unvested SDL stock options assumed by JDS Uniphase of up
to four years. The amount of purchase cost allocated to goodwill and other
intangibles is estimated to be approximately $38.1 billion. The amount of
purchase cost allocated to deferred compensation is currently estimated at $1.0
billion. If goodwill and other intangible assets were amortized in equal
quarterly amounts over a five year period and the deferred compensation was
amortized over the remaining vesting period of the options, the accounting
charge attributable to these items would be approximately $2.1 billion per
quarter and $8.2 billion per year.
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Additionally, we also incur other purchase accounting related costs and
expenses in the period a particular transaction closes to reflect purchase
accounting adjustments adversely impacting gross profit and costs of integrating
new businesses or curtailing overlapping operations. Purchase accounting
treatment of our mergers and acquisitions will result in a net loss for the
foreseeable future, which could have a material and adverse effect on the market
value of our stock.
OUR STOCK PRICE FLUCTUATES SUBSTANTIALLY
The unpredictability of our quarterly operating results could cause our stock
price to be volatile or decline
We expect to continue to experience fluctuations in our quarterly
results, which in the future may be significant and cause substantial
fluctuations in the market price of our stock. All of the concerns we have
discussed under "Risk Factors" could affect our operating results, including,
among others:
- the timing of the receipt of product orders from a limited number of
major customers;
- the loss of one or more of our major suppliers or customers;
- competitive pricing pressures;
- the costs associated with the acquisition or disposition of
businesses;
- our ability to design, manufacture and ship technologically advanced
products with satisfactory yields on a timely and cost-effective
basis;
- the announcement and introduction of new products by us; and
- expenses associated with any intellectual property or other
litigation.
In addition to concerns potentially affecting our operating results
addressed elsewhere under "Risk Factors," the following factors may also
influence our operating results:
- our product mix;
- the relative proportion of our domestic and international sales;
- the timing differences between when we incur expenses to increase our
marketing and sales capabilities and when we realize benefits, if
any, from such expenditures; and
- fluctuations in the foreign currencies of our foreign operations.
Finally, our net revenues and operating results in future quarters may
be below the expectations of public market securities analysts and investors. In
such event, the price of our common stock and the exchangeable shares of our
subsidiary, JDS Uniphase Canada Ltd., would likely decline, perhaps
substantially.
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Fluctuations in our customers' business could cause our business and stock price
to suffer
Our business is dependent upon product sales to telecommunications
network system providers, who in turn are dependent for their business upon
orders for fiber-optic systems from telecommunications carriers. Business
fluctuations affecting our system provider customers or their telecommunication
carrier customers have affected and will continue to affect our business.
Moreover, our sales often reflect orders shipped in the same quarter in which
they are received, which makes our sales vulnerable to short-term fluctuations
in customer demand and difficult to predict. In general, customer orders may be
cancelled, modified or rescheduled after receipt. Consequently, the timing of
these orders and any subsequent cancellation, modification or rescheduling of
these orders have affected and will in the future affect our results of
operations from quarter to quarter. Also, as our customers typically order in
large quantities, any subsequent cancellation, modification or rescheduling of
an individual order may alone affect our results of operations. In this regard,
we have experienced rescheduling of orders by customers and may experience
similar rescheduling in the future, which we believe reflects reductions in
carrier capital spending and inventory adjustments by our customers in response
to less certain carrier demand.
Factors other than our quarterly results could cause our stock price to be
volatile or decline
The market price of our common stock has been and, is likely to continue
to be, highly volatile because of causes other than our historical quarterly
results, such as:
- announcements by our competitors and customers of their quarterly
results or technological innovations or new products;
- developments with respect to patents or proprietary rights;
- governmental regulatory action; and
- general market conditions.
Recently, the Nasdaq National Market, in general, and our stock and the stock of
our customers and competitors, in particular, has experienced substantial price
and volume fluctuations, in many cases without any direct relationship to the
affected companies' operating performance. Nevertheless, the market prices of
the stocks of companies in the optical components, modules and systems
industries continue to trade at high multiples of earnings. An outgrowth of
these multiples and market volatility is the significant vulnerability of our
stock price and the stock prices of our customers and competitors to any actual
or perceived fluctuation in the strength of the markets we serve, no matter how
minor in actual or perceived consequence. Consequently, these multiples and,
hence, market prices may not be sustainable. These broad market and industry
factors have and may in the future cause the market price of our stock to
decline, regardless of our actual operating performance or the operating
performance of our customers.
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OUR SALES WOULD SUFFER IF ONE OR MORE OF OUR KEY CUSTOMERS SUBSTANTIALLY REDUCED
ORDERS FOR OUR PRODUCTS
Our customer base is highly concentrated. Historically, orders from a
relatively limited number of optical system providers accounted for a
substantial portion of our net sales from telecommunications products. Two
customers, Lucent and Nortel, each accounted for over 10% of our net sales for
the quarter ended December 30, 2000. We expect that, for the foreseeable future,
sales to a limited number of customers will continue to account for a high
percentage of our net sales. Sales to any single customer may vary significantly
from quarter to quarter. If current customers do not continue to place orders,
we may not be able to replace these orders with new orders from new customers.
In the telecommunications industry, our customers evaluate our products and
competitive products for deployment in their telecommunications systems. Our
failure to be selected by a customer for particular system projects can
significantly impact our business, operating results and financial condition.
Similarly, even if our customers select us, the failure of those customers to be
selected as the primary suppliers for an overall system installation, could
adversely affect us. Such fluctuations could materially harm our business,
financial condition and operating results.
INTERRUPTIONS AFFECTING OUR KEY SUPPLIERS COULD DISRUPT PRODUCTION, COMPROMISE
OUR PRODUCT QUALITY AND ADVERSELY AFFECT OUR SALES
We currently obtain various components included in the manufacture of
our products from single or limited source suppliers. A disruption or loss of
supplies from these companies or a price increase for these components would
materially harm our results of operations, product quality and customer
relationships. In addition, we currently utilize a sole source for the crystal
semiconductor chip sets incorporated in our solid state microlaser products and
acquire our pump diodes for use in our solid state laser products from Opto
Power Corporation and GEC. We obtain lithium niobate wafers, gallium arsenide
wafers, specialized fiber components and some lasers used in our
telecommunications products primarily from Crystal Technology, Inc., Fujikura,
Ltd., Philips Key Modules and Sumitomo, respectively. We do not have long-term
or volume purchase agreements with any of these suppliers, and these components
may not in the future be available in the quantities required by us, if at all.
WE MAY BECOME SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS
Our employees who are employed at manufacturing facilities located in
North America are not bound by or party to any collective bargaining agreements
with it. These employees may become bound by or party to one or more collective
bargaining agreements with us in the future. Some of our employees outside of
North America, particularly in the Netherlands and Germany, are subject to
collective bargaining agreements. If, in the future, more of our employees
become bound by or party to any collective bargaining agreements, then our
related costs and our flexibility with respect to managing our business
operations involving such employees may be materially adversely affected.
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ANY FAILURE TO REMAIN COMPETITIVE IN OUR INDUSTRY WOULD IMPAIR OUR
OPERATING RESULTS
If our business operations are insufficient to remain competitive in our
industry, our operating results could suffer
The telecommunications markets in which we sell our products are highly
competitive. In all aspects of our business, we face intense competition from
established competitors and the threat of future competition from new and
emerging companies. Some of these competitors have greater financial,
engineering, manufacturing, marketing, service and support resources than we do
and may have greater name recognition, manufacturing expertise and capability
and longer standing customer relationships than we do. Among these competitors
are our customers. These customers are vertically integrated and either
manufacture and/or are capable of manufacturing some or all of the products we
sell to them. Finally, some of our customers have implemented and/or expanded
their manufacturing capability for components they might otherwise purchase from
us. To remain competitive, we believe it must maintain a substantial investment
in research and development, expanding our manufacturing capability, marketing,
and customer service and support. We may not compete successfully in all or some
of our markets in the future, and we may not have sufficient resources to
continue to make such investments, or we may not make the technological advances
necessary to maintain our competitive position so that our products will receive
industry acceptance. In addition, technological changes, manufacturing
efficiencies or development efforts by our competitors may render our products
or technologies obsolete or uncompetitive.
Fiber optic component average selling prices are declining
Prices for telecommunications fiber optic components are generally
declining because of, among other things, new and emerging fiber optic component
and module suppliers, continued pricing pressure on optical suppliers, increased
manufacturing efficiency, technological advances and greater unit volumes as
telecommunications service providers continue to deploy fiber optic networks. We
have in the past and may in the future experience substantial period to period
fluctuations in average selling prices.
We anticipate that average selling prices will decrease in the future in
response to technological advances, to product introductions by competitors and
by us or to other factors, including price pressures from significant customers.
Therefore, we must continue to (1) timely develop and introduce new products
that incorporate features that can be sold at higher selling prices and (2)
reduce our manufacturing costs. Failure to achieve any or all of the foregoing
could cause our net sales and gross margins to decline, which may have a
material adverse effect on our business, financial condition and operating
results.
If we fail to attract and retain key personnel, our business could suffer
Our future depends, in part, on our ability to attract and retain key
personnel. In addition, our research and development efforts depend on hiring
and retaining qualified engineers. Competition for highly skilled engineers is
extremely intense, and we are currently experiencing difficulty in identifying
and hiring qualified engineers in many areas of our business. We may not be able
to hire and retain such personnel at compensation levels consistent with our
existing compensation and salary structure. Our future also depends on the
continued contributions of our executive officers and other key management
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and technical personnel, each of whom would be difficult to replace. We do not
maintain a key person life insurance policy on our chief executive officer, our
chief operating officer or any other officer. The loss of the services of one or
more of our executive officers or key personnel or the inability to continue to
attract qualified personnel could delay product development cycles or otherwise
materially harm our business, financial condition and operating results.
MARKET CONSOLIDATION HAS CREATED AND CONTINUES TO CREATE COMPANIES THAT ARE
LARGER AND HAVE GREATER RESOURCES THAN US
In the recent past, there have been a number of significant acquisitions
announced among our competitors and customers, including:
- Lucent Technologies, Inc./Ortel Corporation;
- Corning Incorporated/NetOptix Corporation;
- Nortel Networks Corp./Xros, Inc.;
- Nortel Networks Corp./Core Tek, Inc.;
- Corning Incorporated/NZ Applied Technologies Corp.;
- Corning Incorporated/Oak Industries;
- Lucent Technologies, Inc./Chromatis Networks, Inc.; and
- Corning, Inc./Optical Technologies (a division of Pirelli S.p.A.).
The effect on our operations that these completed and pending
acquisitions, as well as future transactions, cannot be predicted with accuracy,
but some of these competitors are aligned with companies that are larger or
better established than us. As a result, these competitors may have access to
greater financial, marketing and technical resources than us. Consolidation of
these and other companies may also disrupt our marketing and sales efforts.
WE FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND SALES
Our customers are located throughout the world. In addition, we have
significant offshore operations, including manufacturing facilities, sales
personnel and customer support operations. Our operations outside of North
America include facilities in Great Britain, Switzerland, the Netherlands,
Germany, Australia, the People's Republic of China and Taiwan, ROC.
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Our international presence exposes us to risks not faced by
wholly-domestic companies. Specifically, we face the following risks, among
others:
International sales are subject to inherent risks, including:
- unexpected changes in regulatory requirements;
- tariffs and other trade barriers;
- political, legal and economic instability in foreign markets,
particularly in those markets in which we maintain manufacturing and
research facilities;
- difficulties in staffing and management;
- language and cultural barriers;
- seasonal reductions in business activities in the summer months in
Europe and some other countries;
- integration of foreign operations;
- longer payment cycles;
- greater difficulty in accounts receivable collection;
- currency fluctuations; and
- potentially adverse tax consequences.
Net sales to customers outside of North America accounted for
approximately 23%, 40% and 38% of our net sales in 2000, 1999 and 1998,
respectively. We expect that sales to customers outside of North America will
continue to account for a significant portion of our net sales. We continue to
expand our operations outside of the United States and to enter additional
international markets, both of which will require significant management
attention and financial resources.
Since a significant portion of our foreign sales are denominated in U.S.
dollars, our products may also become less price competitive in countries in
which local currencies decline in value relative to the U.S. dollar. Our
business and operating results may also be materially and adversely affected by
lower sales levels that typically occur during the summer months in Europe and
some other overseas markets. Furthermore, the sales of many of our optical
system provider customers depend on international sales and consequently further
exposes us to the risks associated with such international sales.
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IF WE HAVE INSUFFICIENT PROPRIETARY RIGHTS OR IF WE FAIL TO PROTECT THOSE WE
HAVE, OUR BUSINESS WOULD BE MATERIALLY IMPAIRED
We may not obtain the intellectual property rights we require
Numerous patents in the industries in which we operate are held by
others, including academic institutions and our competitors. We may seek to
acquire license rights to these or other patents or other intellectual property
to the extent necessary for our business. Unless we are able to obtain such
licenses on commercially reasonable terms, patents or other intellectual
property held by others could inhibit our development of new products for our
markets. While in the past licenses generally have been available to us where
third-party technology was necessary or useful for the development or production
of their products, in the future licenses to third-party technology may not be
available on commercially reasonable terms, if at all. Generally, a license, if
granted, includes payments by us of up-front fees, ongoing royalties or a
combination thereof. Such royalty or other terms could have a significant
adverse impact on our operating results. We are a licensee of a number of
third-party technologies and intellectual property rights and are required to
pay royalties to these third-party licensors on some of our telecommunications
products and laser subsystems.
Our products may be subject to claims that they infringe the intellectual
property rights of others
The industry in which we operate experiences periodic claims of patent
infringement or other intellectual property rights. We have in the past and may
from time to time in the future receive notices from third parties claiming that
our products infringe upon third-party proprietary rights. Any litigation to
determine the validity of any third-party claims, regardless of the merit of
these claims, could result in significant expense to us and divert the efforts
of our technical and management personnel, whether or not we are successful in
such litigation. If we are unsuccessful in any such litigation, we could be
required to expend significant resources to develop non-infringing technology or
to obtain licenses to the technology that is the subject of the litigation. We
may not be successful in such development or such licenses may not be available
on terms acceptable to us, if at all. Without such a license, we could be
enjoined from future sales of the infringing product or products. We are
currently a party to various claims regarding intellectual property rights. The
Company is currently a defendant in litigation claiming damages for infringement
of an expired wafer fabrication patent and in litigation alleging infringement
of certain patents by our optical amplifier products. None of these claims are
expected to have a material adverse effect on our business.
Our intellectual property rights may not be adequately protected
Our future depends in part upon our intellectual property, including
trade secrets, know-how and continuing technological innovation. We currently
hold numerous U.S. patents on products or processes and corresponding foreign
patents and have applications for some patents currently pending. The steps
taken by us to protect our intellectual property may not adequately prevent
misappropriation or ensure that others will not develop competitive technologies
or products. Other companies may be investigating or developing other
technologies that are similar to our own. It is possible that patents may not be
issued from any application pending or filed by us and, if patents do issue, the
claims allowed may not be sufficiently broad to deter or prohibit others from
marketing similar products. Any patents issued to us may be challenged,
invalidated or circumvented. Further, the rights under our patents may not
provide a competitive advantage to us. In addition, the laws of some territories
in which our products are or may be
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developed, manufactured or sold, including Asia, Europe or Latin America, may
not protect our products and intellectual property rights to the same extent as
the laws of the United States.
IF WE FAIL TO SUCCESSFULLY MANAGE OUR EXPOSURE TO WORLDWIDE FINANCIAL MARKETS,
OUR OPERATING RESULTS COULD SUFFER
We are exposed to financial market risks, including changes in interest
rates, foreign currency exchange rates and marketable equity security prices. We
utilize derivative financial instruments to mitigate these risks. We do not use
derivative financial instruments for speculative or trading purposes. The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, a majority of our marketable investments are floating
rate and municipal bonds, auction instruments and money market instruments
denominated in U.S. dollars. We mitigate currency risks of investments
denominated in foreign currencies with forward currency contracts. If we
designate such contracts as hedges and they are determined to be effective,
depending on the nature of the hedge, changes in the fair value of derivatives
will be offset against the change in fair value of assets, liabilities or firm
commitments through earnings (fair value hedges) or recognized in other
comprehensive income until the hedged item is recognized in earnings (cash flow
hedges). The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. A substantial portion of our revenue,
expense and capital purchasing activities are transacted in U.S. dollars.
However, we do enter into these transactions in other currencies, primarily
Canadian and European currencies. To protect against reductions in value and the
volatility of future cash flows caused by changes in foreign exchange rates, we
enter into foreign currency forward contracts. The contracts reduce, but do not
always entirely eliminate, the impact of foreign currency exchange rate
movements. Actual results on our financial position may differ materially.
IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL AT THE TIMES, IN THE AMOUNTS AND UPON
THE TERMS REQUIRED, OUR BUSINESS COULD SUFFER
We are devoting substantial resources for new facilities and equipment
to the production of our products. Although we believe existing cash balances,
cash flow from operations, available lines of credit, and proceeds from the
realization of investments in other businesses will be sufficient to meet our
capital requirements at least for the next 12 months, we may be required to seek
additional equity or debt financing to compete effectively in these markets. We
cannot precisely determine the timing and amount of such capital requirements
and will depend on several factors, including our acquisitions and the demand
for our products and products under development. Such additional financing may
not be available when needed, or, if available, may not be on terms satisfactory
to us.
OUR CURRENTLY OUTSTANDING PREFERRED STOCK AND OUR ABILITY TO ISSUE ADDITIONAL
PREFERRED STOCK COULD IMPAIR THE RIGHTS OF OUR COMMON STOCKHOLDERS
Our board of directors has the authority to issue up to 799,999 shares
of undesignated preferred stock and to determine the powers, preferences and
rights and the qualifications, limitations or restrictions granted to or imposed
upon any wholly unissued shares of undesignated preferred stock and to fix the
number of shares constituting any series and the designation of such series,
without the consent of our stockholders. The preferred stock could be issued
with voting, liquidation, dividend and other rights superior to those of the
holders of common stock.
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The issuance of preferred stock under some circumstances could have the
effect of delaying, deferring or preventing a change in control. Each
outstanding share of our common stock includes one right. Each right entitles
the registered holder, subject to the terms of the rights agreement, to purchase
from us one unit, equal to one one-thousandth of a share of series B preferred
stock, at a purchase price of $3,600 per unit, subject to adjustment, for each
share of common stock held by the holder. The rights are attached to all
certificates representing outstanding shares of our common stock, and no
separate rights certificates have been distributed. The purchase price is
payable in cash or by certified or bank check or money order payable to our
order. The description and terms of the rights are set forth in a rights
agreement between us and American Stock Transfer & Trust Company, as rights
agent, dated as of June 22, 1998, as amended from time to time.
Some provisions contained in the rights plan, and in the equivalent
rights plan that our subsidiary, JDS Uniphase Canada Ltd., has adopted with
respect to our exchangeable shares, may have the effect of discouraging a third
party from making an acquisition proposal for us and may thereby inhibit a
change in control. For example, such provisions may deter tender offers for
shares of common stock or exchangeable shares which offers may be attractive to
the stockholders, or deter purchases of large blocks of common stock or
exchangeable shares, thereby limiting the opportunity for stockholders to
receive a premium for their shares of common stock or exchangeable shares over
the then-prevailing market prices.
SOME ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND UNDER DELAWARE LAWS
COULD IMPAIR A TAKEOVER ATTEMPT
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law prohibiting, under some circumstances, publicly-held Delaware
corporations from engaging in business combinations with some stockholders for a
specified period of time without the approval of the holders of substantially
all of our outstanding voting stock. Such provisions could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving us, even if such events could be beneficial, in
the short term, to the interests of the stockholders. In addition, such
provisions could limit the price that some investors might be willing to pay in
the future for shares of our common stock. Our certificate of incorporation and
bylaws contain provisions relating to the limitations of liability and
indemnification of our directors and officers, dividing our board of directors
into three classes of directors serving three-year terms and providing that our
stockholders can take action only at a duly called annual or special meeting of
stockholders. These provisions also may have the effect of deterring hostile
takeovers or delaying changes in control or management of us.
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FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended. A forward-looking
statement may contain words such as "plans," "hopes," "believes," "estimates,"
"will continue to be," "will be," "continue to," "expect to," "anticipate that,"
" to be" or "can impact." These forward-looking statements include statements
relating to our expectations as to:
- the schedule and cost to complete our acquired in-process research
and development and the expected amortization of such costs,
- the amount (both in absolute dollars and as a percentage of net
sales) of our expenditures for research and development, selling,
general and administrative and capital acquisitions and improvements,
- the sufficiency of existing cash balances and investments, together
with cash flow from operations and available lines of credit to meet
our liquidity and capital spending requirements at least through the
end of calendar year 2001,
- the development costs, anticipated completion, introduction and
projected revenues from new and developing products and technologies
including the Thermo Optic Waveguide Attenuator, Solid State Switch,
WDM EDFA, WDM laser direct modulation, the Submount and RWG series
products, CATV technologies, MEMS Devices, High Speed Modulators,
High Speed Receivers and Transceivers, and Optical Network Monitors,
- costs associated with prior, pending and future acquisitions and
plans relating thereto,
- fluctuations in our quarterly results and the price of our common
stock,
- periodic fluctuations in gross margins,
- expansion of our worldwide manufacturing capacity,
- the growing complexity of network systems used in fiber optic
telecommunications and cable television networks and the resulting
demand for components and modules,
- the reduction in the number of suppliers for components used by
optical networks,
- increasing demand for higher levels of integration in optoelectronic
and optical products,
- increasing demand for our products,
- our plans to hire additional personnel in the near future,
- our plans with respect to the licensing of our intellectual property
rights,
- the expectation that sales to a limited number of customers will
continue to account for a high percentage of our net revenues,
- the expectation that a significant portion of our net sales will be
to customers outside of North America and
- expectations of market growth.
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause our actual results to differ materially from
those projected in such forward-looking statements. These risks and
uncertainties include the risk that
- R&D expenditures will be materially greater or less than those
expected,
- funds will be insufficient to meet our liquidity and capital
resources requirements through the end of calendar year 2001,
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- development costs, anticipated completion, introduction and projected
revenues from new and developing products and technologies may be
materially different than anticipated and
- future acquisitions may not be completed as expected, or at all.
Further, our future business, financial condition and results of operations
could differ materially from those anticipated by such forward-looking
statements and are subject to risks and uncertainties including the risks set
forth above. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of the forward-looking statements. We are
under no duty to update any of the forward-looking statements after the date of
this Quarterly Report on Form 10-Q to conform such statements to actual results
or to changes in our expectations.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
In October 2000, the Company acquired Iridian Spectral Technologies,
Inc. for $4.0 million in cash and 424,636 Exchangeable Shares of its subsidiary,
JDS Uniphase Canada Ltd., each of which is exchangeable at the option of the
holder for one share of common stock. The total value of the securities issued
was $34.6 million. The issuance of the Exchangeable Shares was exempt from
registration pursuant to Regulation S promulgated under the Securities Act of
1933, as amended. The stock was issued to former stockholders of Iridian
Spectral Technologies, Inc.
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 December 13, 2000.
At the Annual Meeting, three items were put to a vote of the
stockholders:
1. The election of three Class II directors of the Company to serve until
the 2003 Annual Meeting of Stockholders or until their successors are
elected and qualified;
2. An amendment to increase the number of the Company's authorized shares
of common stock to 6,000,000,000.
3. An amendment to increase the number of shares of common stock reserved
for issuance under the Company's 19984 Employee Stock Purchase Plan
(ESPP) to 25,000,000 shares.
4. The appointment of Ernst & Young LLP as the independent auditors for the
Company for the fiscal year ending June 30, 2001.
The voting results were:
Broker
Item For Against Abstained Non-votes
---- --- ------- --------- ---------
1. Directors
Robert E. Enow 772,580,793 5,556,002 0
Peter E. Guglielmi 774,848,405 3,288,390 0
Wilson Sibbett, Ph.D. 772,594,459 5,542,326 0
2. Increase in authorized
share capital 726,227,987 49,198,226 2,747,931 0
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3. Increase number of shares
reserved for the ESPP 760,395,331 14,798,005 2,928,358 0
4. Appointment of auditors 775,009,676 608,544 2,518,544 0
ITEM 5. OTHER INFORMATION
As of October 16, 2000, the Company had approximately 959,980,952 shares
of Common Stock outstanding, including shares issuable upon exchange of the
Exchangeable Shares, and approximately 174,816,320 shares reserved for future
issuance under the Company's stock incentive plans and employee stock plans, of
which approximately 122,241,115 were covered by outstanding options and
approximately 52,575,205 million were available for grant or purchase. Based
upon the foregoing number of outstanding and reserved shares of Common Stock,
the Company had, as of October 16, 2000, approximately 1,865,202,728 shares
remaining available for other purposes.
As of December 31, 2000, the Company had approximately 966,582,354
shares of Common Stock outstanding, including shares issuable upon exchange of
the Exchangeable Shares, and approximately 168,457,441 shares reserved for
future issuance under the Company's stock incentive plans and employee stock
plans, of which approximately 122,870,528 were covered by outstanding options
and approximately 45,586,913 shares were available for grant or purchase. Based
upon the foregoing number of outstanding and reserved shares of Common Stock,
the Company had, as of December 31, 2000, approximately 4,864,960,205 shares
remaining available for other purposes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None.
b) Reports on Form 8-K
Report on Form 8-K as filed on November 13, 2000.
Report on Form 8-K as filed on December 8, 2000.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JDS Uniphase Corporation
--------------------------------------------
(Registrant)
Date: February 13, 2001 /s/ Anthony R. Muller
----------------- --------------------------------------------
Anthony R. Muller,
Executive Vice President and CFO
(Principal Financial and Accounting Officer)
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