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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 210 BAYPOINTE PARKWAY, SAN JOSE, CA 95134 94-2579683
(State or other jurisdiction of (Address of principal (Zip code) (I.R.S. Employer
incorporation or organization) executive offices) Identification No.)
Registrant's telephone number, including area code (408) 434-1800
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 30, 2000, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $85,967,426,046 based
upon the average of the high and low prices of the Common Stock and Exchangeable
Shares as reported on The Nasdaq National Market and The Toronto Stock Exchange,
respectively, on such date. Shares of Common Stock held by officers, directors
and holders of more than 5% of the outstanding Common Stock have been excluded
from this calculation because such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
As of September 30, 2000, the Registrant had 957,820,638 shares of
Common Stock, including 173,904,237 Exchangeable Shares.
DOCUMENTS INCORPORATED BY REFERENCE (To the Extent Indicated Herein)
Certain information required in Part III hereto is incorporated by reference to
the Definitive Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders filed on October 26, 2000 with the Securities and Exchange
Commission pursuant to Regulation 14A.
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PART I
INTRODUCTORY NOTE
This amendment on Form 10-K/A amends and supersedes the Registrant's
Annual Report on Form 10-K for the year ended June 30, 2000, as filed on
September 28, 2000, and is being filed to update the disclosure of subsequent
events in such Annual Report, including but not limited to, the Registrant's
consolidated financial statements included in Item 8.
ITEM 1. BUSINESS
GENERAL
JDS Uniphase Corporation is the result of a merger between Uniphase
Corporation ("Uniphase") and JDS FITEL Inc. ("JDS FITEL"), pursuant to which
they combined their operations on June 30, 1999. Historic information included
or incorporated by reference in this Annual Report on Form 10-K/A that is
specific to Uniphase Corporation or JDS FITEL Inc. is specifically described as
"Uniphase" or "JDS FITEL" information, respectively. References to "we," "us,"
"our," the "Company" and "JDS Uniphase" refer to the combined entity resulting
from the merger.
We are a leading provider of advanced fiber optic components and
modules. These products are sold to the world's leading telecommunications and
cable television system and subsystem providers, which are commonly referred to
as OEMs and include established system providers, such as Alcatel, Ciena, Cisco,
Corning, Lucent, Marconi, Motorola, Nortel, Scientific Atlanta, Siemens and
Tyco, along with emerging system providers, such as Corvis, ONI Systems, Juniper
Networks and Sycamore. These telecommunication system and subsystem providers
use these components and modules as the building blocks for the systems that
they ultimately supply to telecommunications carriers such as AT&T, WorldCom,
Qwest and Sprint.
Our products are basic building blocks for fiber optic networks and
perform both optical-only, commonly referred to as "passive" functions, and
optoelectronic, commonly referred to as "active" functions, within fiberoptic
networks. Our products include semiconductor lasers, high-speed external
modulators, transmitters, amplifiers, couplers, multiplexers, circulators,
tunable filters, optical switches and isolators for fiberoptic applications. We
also supply our OEM customers with test instruments for both system production
applications and network installation. In addition, we design, manufacture and
market laser subsystems for a broad range of OEM applications, optical display
and projection products used in computer displays and other similar applications
and light interference pigments used in security products and decorative surface
treatments.
The Company was incorporated in Delaware in October 1993. We are the
product of several strategic mergers and acquisitions, including the June 30,
1999 combination of Uniphase and JDS FITEL. During 2000 alone, we acquired the
following companies and businesses, in chronological order: AFC Technologies
("AFC"), Ramar Corporation ("Ramar"), EPITAXX, Inc. ("EPITAXX"), SIFAM Limited
("SIFAM"), Oprel Technologies Inc. ("Oprel"), IOT Limited ("IOT"), Optical
Coating Laboratory, Inc. ("OCLI"), Cronos Integrated Microsystems, Inc.
("Cronos"), Fujian Casix Lasers Inc. ("Casix") and E-TEK Dynamics, Inc.
("E-TEK"). During 2001, we acquired the following companies and businesses in
chronological order: Epion Corporation ("Epion"), Optical Process Automation
Corp. ("OPA") and SDL, Inc. ("SDL").
INDUSTRY BACKGROUND
Businesses and consumers are increasingly accessing public
telecommunications networks to communicate, collect and distribute information.
The explosive growth of the Internet, coupled with the increasing volume of data
and video traffic across corporate and public internets and intranets has fueled
the continuing and rapidly growing demand for more network capacity in both
telecommunications and cable television networks. In response to this growing
demand, telecommunications service providers have been deploying new fiberoptic
systems or upgrading existing fiberoptic systems in order to significantly
increase the capacity of their networks. Given the inherently faster speed of
light signals in fiberoptic networks and their immunity from electromagnetic
interference, fiberoptic systems have become the preferred solution for
increasing network capacity. Today, fiberoptic cable is the primary medium for
long-haul telecommunications and cable television networks and is making inroads
to replace copper in the shorter distance metropolitan, or metro markets that
serve larger metropolitan and other public networks with transmission distances
of less than 100 kilometers.
Demands for increased capacity in fiberoptic networks have led, in
recent years, to a proliferation of an advanced method of transmitting multiple
signals at slightly different wavelengths through a single fiber to achieve
efficient use of fiber capacity. This technique, which is referred to as
wavelength division multiplexing, or WDM, requires separate source lasers
emitting slightly different wavelengths for each signal or "channel". Each
signal or "channel" carries a separate voice or data transmission. Once the
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signal is generated, more complex modulators and optical amplifiers control and
amplify the signal in the network to ensure that the voice or data transmission
signal reaches its destination quickly and reliably. WDM systems, which were
originally designed for eight separate wavelengths or channels in 1996, are
currently being developed to carry over 160 separate channels. This increasingly
complex design for WDM systems has contributed to the need for
telecommunications system suppliers to rely on third party, merchant suppliers,
to provide higher performance components and, ultimately, integrated
combinations of components, or "modules".
A typical WDM system consists of a large number of interdependent active
optoelectronic and passive optical components. An active component is a device
that has both optical and electronic properties while a passive component only
performs its functions in the optical domain. Generally, active components
generate, encode, amplify or detect optical signals, while passive components
are used to mix, filter, adjust and stabilize the optical signals in advanced
fiberoptic networks. Both active and passive components are needed to achieve a
system's specifications for speed, performance and reliability. To minimize the
number of components, and thereby reduce costs and improve system reliability,
telecommunications equipment manufacturers are increasingly requiring the
integration of multiple components into single, integrated modules, which
combine a number of components into a single functional unit within the network
architecture. For example, a module such as an Erbium Doped Fiber Amplifier
(EDFA) is comprised of multiple passive and active components. According to Ryan
Hankin Kent, Inc. or "RHK" (a market research company specializing in
telecommunications), the market for EDFAs alone is expected to grow from $790
million in 1999 to $3.9 billion in 2003.
The current demand for increased capacity in fiberoptic
telecommunications and cable television networks has caused the complexity and
performance requirements of newly deployed fiberoptic networks to substantially
increase while product life cycles for these network systems decrease. OEM
system suppliers are under pressure from their customers to provide higher
capacity and more complex, and at the same time more flexible, systems in
shorter time periods and at reduced costs. These same pressures apply at all
levels of their system products, including components and modules. These
increasing performance requirements and associated development costs are making
it more difficult for many OEM suppliers to compete effectively by vertically
integrating their own components and modules. The growing complexity of these
network systems also results in a substantial increase in the number of
components that the OEM supplier must utilize to achieve desired system level
performance. For example, next-generation systems are expected to reach
transmission speeds of 40 Gbp/s with channel counts surpassing 160. There will
need to be source lasers, modulators, and receivers for every channel, as well
as more powerful amplifiers and additional components to combat spectral issues
that develop in the signal at 40 Gbp/s. At the same time, the need for increased
flexibility within a fiberoptic network, combined with cost reduction pressures,
is driving demand for systems that reduce, and ultimately, eliminate altogether,
the need for electronic switching and regeneration of optical signals. The goal
of these so called "all optical" networks is to keep a signal entirely in the
optical domain from beginning to end of the network. To accomplish this, optical
components will need to perform every function in the network, many of which are
currently accomplished by electronics.
All of these factors, the increasing system performance requirements,
the need for more components and modules to provide the higher channel counts
and higher transmission speeds demanded by the market, the increasing complexity
of these components and modules, along with the need to reduce costs and shorten
time to market, are making it more difficult for the established
telecommunications system providers to design, develop and manufacture these
components and modules, while at the same time providing the network backbone to
meet the market demand. Moreover, emerging system providers, which typically
have little or no internal component manufacturing capability, must rely
exclusively on a robust supply chain from merchant component and module
suppliers to meet their needs.
In lieu of qualifying a different vendor for each of these components,
OEM system suppliers are seeking fewer vendors for a greater variety of
components and integrated modules. A single vendor of multiple components or
modules has the ability to design these products to interact more effectively
within a network infrastructure and to optimize performance between them when
installed in a single network system. Given these factors, there is an
increasing trend by established OEMs to reduce the level of their vertical
integration at the component and module level and to focus on the overall system
design and architecture of their products, which has historically been the
primary means by which those OEM system suppliers have differentiated themselves
from their competitors. Coupled with the developing demand from emerging system
suppliers, the merchant component manufacturers are facing unprecedented demand.
OUR TECHNOLOGY AND PRODUCTS
Our product offering consists of a broad range of components and modules
enabling our customers to satisfy all of their requirements through "one-stop"
shopping at a single supplier. We have two principal operating segments:
Components and Modules. Financial information about our segments and
geographical regions are included in Note 10 of Notes to Consolidated Financial
Statements.
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COMPONENTS
Our component products include both active and passive products. Active
products include source lasers for cable television and telecommunications, pump
lasers, external modulators, photodetectors, receivers, and integrated laser
modulator assemblies. Passive components include isolators, WDM couplers,
monitor tap couplers, gratings, circulators, optical switches, tunable filters,
micro-electro-mechanical-systems, wavelength lockers and switches.
Source Lasers. At the beginning of the network, a source laser powers
the initial signal that will be transmitted over the network. These source
lasers are characterized by their wavelength and power levels and operate most
efficiently at the 1550-nanometer wavelength range for general
telecommunications networks and 1310-nanometer or 1550-nanometer for cable
television telecommunications networks. Power, which is measured in milliwatts,
generally determines the ability of the source laser to transmit over longer
distances, with higher power source lasers enabling greater initial transmission
distances. A single source laser is required for each channel in a WDM system.
We supply both 1550-nanometer and 1310-nanometer diode lasers as sources
for telecommunications and cable television transmitters. These lasers are
either continuous wave for use with external modulators or directly modulated.
For long-haul WDM systems, lasers at up to 20 milliwatts of power are produced
to operate at the many desired optical wavelengths and used in conjunction with
current 2.5 and 10 gigabit per second external lithium niobate modulators, and
40 gigabit per second lithium niobate modulators in development. Directly
modulated 2.5 gigabit per second lasers are used for short-reach fiberoptic
systems. For cable television, higher power (60 milliwatts) 1550-nanometer
continuous wave lasers are used for externally modulated trunk transmitters and
directly modulated 1310-nanometer analog lasers are used for distribution
transmitters.
Modulators. Modulators turn the source light on and off to encode and
send the information throughout the network. Modulation can be achieved either
by directly turning the laser light source on and off or externally by
transmitting or alternating a continuous source laser signal to achieve the same
on and off effect. Lower performance, shorter distance network systems are
better suited for direct modulation, while other systems are designed to utilize
external modulators to encode the information signal. We produce both direct and
external modulators used in fiberoptic telecommunications systems.
Pump Lasers. Pump lasers are used in optical amplifiers within networks
to regenerate the light signal that naturally suffers loss over distance within
the network. The advent of the optical amplifier in the early 1990s has
permitted the development of today's advanced fiberoptic networks by eliminating
the need within those networks to convert attenuated optical signals back into
the electrical domain to amplify these signals for continued transmission over
distances now exceeding 600 kilometers. Optical amplifiers each contain from one
to six pump lasers depending on amplifier performance requirements.
We supply 980-nanometer pump lasers that are used in optical amplifiers.
These pumps are used to energize the erbium-doped fiber that comprises the
amplifier. Output power from the pump modules is in the range of 70 to 200
milliwatts. Optical amplifiers are commonly used in 1550-nanometer fiber systems
that exceed 60 kilometers in length.
Optical Photodetectors and Receivers. Receivers and photodetectors
detect the optical signals and convert them back into electronic signals. We
supply optical photodetectors and receivers for fiberoptic telecommunications
and cable television networks. Receivers are used in WDM products for each
channel at both sides of the fiberoptic link as wavelength translation is
required. Photodetectors are used throughout a network to monitor a variety of
statistics including power levels and channel count.
Couplers, Filters, Isolators and Circulators. WDM couplers are used to
split and combine signals in an optical network. We supply WDM demultiplexers
and access/bi-directional couplers. Many of these products are based on
thin-film filters, microlenses and/or special optical materials. The WDM
products are generally used at the receiver and have one output port for each
system wavelength.
Isolator products are used to cause light signals in a network to
propagate in one direction within a network, but prevent that signal from
returning in the opposite direction. Circulators are similar to isolators in
causing light in a system to flow in only one direction, but are different in
that circulators incorporate multiple ports and use these multiple ports to
perform a routing function within the network. We supply various types of
isolators, circulators and we also produce tunable narrow-bandpass filters that
are wavelength-tunable by voltage control.
Switches and Attenuators. Optical switches are used to route and switch
signals to different destinations within networks. Attenuators are used to
adjust the power of the optical signal to be compatible with the optical
receivers within a network system.
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We supply fixed and variable attenuators and switches. The attenuators
are used in multiple locations in a network, including at the receiver for
performance optimization. Switches are being widely used for path protection,
shared signal monitoring and bandwidth provisioning. Switches will also be key
in future networks for other reconfigurability and cross-connect applications.
We also supply custom design switching modules of sub-assemblies primarily for
optical-path protection. The complexity of these switches varies and is
determined in large part by the number of fiber paths that come in and out of
the switch, and we offer switches with as many as 32 inbound and 32 outbound
light paths.
We also supply a line of switches and attenuators based on the
micro-electro-mechanical-systems ("MEMS") technology which uses traditional
semiconductor process techniques to produce compact, high-performance, and
reliable applications at a low cost in high volume.
Fiber Bragg Gratings. We supply fiber Bragg gratings to separate and
filter multiple wavelengths of light propagating in the same fiber. These
gratings are generally used in signal monitoring, dispersion compensation and
gain flattening applications.
Wavelength Lockers. We supply wavelength lockers that are used to
stabilize the wavelength of lasers used in dense WDM transmission systems. These
lockers ensure that, over the lifetime of the system, the wavelength of a source
laser does not drift to interfere with an adjacent wavelength channel. The
locker operates by filtering and detecting a small amount of the source-laser
light and providing a stabilizing feedback signal to the laser.
MODULES
Capitalizing on our broad range of active and passive components, we
also develop and manufacture modules for telecommunications and cable television
systems. Modules are assemblies of optical and optoelectronic components, and
can be combined with a limited amount of electronics, in a single compact
package. Our module products include amplifiers, add-drop multiplexers,
transmitters, transceivers and test instruments for optical components. A brief
description of our module products are as follows:
Amplifiers. We supply both Ramar and EDFA optical amplifiers. These
amplifiers are designed to boost the WDM optical signals without reconversion to
electrical signal and permit an optical signal to travel a greater distance
between electronic terminals and regenerators. These modules include multiple
passive and active components such as couplers, isolators, pump combiners and
pump lasers.
Add-Drop Multiplexers. We supply add-drop multiplexers that allow
systems to add and drop optical signals without reconversion to an electrical
signal. For example, a system operating from San Francisco to New York can drop
one signal in Chicago and add another allowing for greater network flexibility.
The modules include multiple components such as switches, fiber Bragg gratings
and attenuators.
Transmitters. We manufacture transmitters that combine source lasers,
modulators, wavelength lockers and electronic drivers so that the signal is
created and encoded in a single package.
Transceivers. In addition to transmitters we also offer transceivers
that combine transmitters with receivers so that signals can be generated and
encoded or received and detected in a single package. These modules would be
installed at the beginning and end of a system.
Cable Television Transmitters and Amplifiers. In cable television
networks we supply externally modulated transmitters for trunk-line
applications, directly modulated transmitters for the distribution portion of
cable television networks, return-path lasers for interactive communications and
transmitters providing both analog and digital signals to the recipient.
Telecommunications Specialty Modules and Instruments. We supply a number
of specialty products for multi-gigabit fiberoptics systems. In particular, we
provide some of the transmit/receive instrumentation modules used to design and
test such systems. We also provide a variety of variable-bit rate receivers and
OC-48 transmit/receive products that operate over extended temperature ranges.
Test Instruments. Test instruments are used for testing and measuring
optical components. Many of the test instruments were originally developed for
evaluating our own optical components during the design and production phases.
An example of a test instrument is the series polarization meter, which performs
high resolution measurement of polarization dependent loss (an important
parameter for optical amplifier components used in undersea applications) in
real time. This allows for dynamic fine-tuning of components during assembly.
Other test instruments include return loss meters, broadband noise sources and
swept wavelength test
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systems (certain of which allow for high speed optical spectral analysis of
components such as dense WDM demultiplexers), controllable attenuators and
programmable switches. Controllable attenuators include manually adjustable or
programmable attenuators for laboratory and automated production testing.
Network attenuators perform power management functions in WDM links.
Programmable switches include matrix switches, which are used mainly in
automated test stations for manufacturing or reliability testing. Switches are
also key building blocks for network elements such as remote fiber testing
systems and automated fiber patch panels.
OTHER PRODUCTS
In addition to our core optical components and modules business, we also
manufacture and supply laser subsystems for a broad range of OEM applications,
optical display and projection products used in computer displays and other
similar applications and light interference pigments used in security products
and decorative surface treatments.
Our principal laser subsystem products consist of air-cooled argon gas
laser subsystems, which generally emit blue or green light, Helium-Neon laser
subsystems, which generally emit red or green light, and solid state lasers,
which generally emit infrared, blue or green light. These systems consist of a
combination of a laser head containing the lasing medium, power supply, cabling
and packaging, including heat dissipation elements.
Optical display and projection products control the brightness, contrast
and resolution of next generation display products including computer displays,
digital image projectors, flat panel displays, scanners and personal digital
assistants (commonly known as PDAs).
Light interference pigments achieve unique color shifting
characteristics in security products and decorative surface treatments. Security
related products include bank notes, passports, credit cards, tax stamps and
brand protection labels. Decorative surface treatments include automotive paint,
cosmetics, electronic cases and apparel.
COMPANY STRATEGY
Our goal is to maintain and expand our position as a leading merchant
supplier of advanced components and modules to the rapidly growing
telecommunications and cable television networking marketplace. The key elements
of our business strategy are as follows:
- Offer a Comprehensive Portfolio of Fiberoptic Components. We
seek to position ourselves as a "one-stop" source for an
increasingly greater variety of components and for both the
established network system providers as well as the burgeoning
number of emerging system providers. As our customers continue
to reduce the number of suppliers of components and modules for
their systems, we strive to provide the capacity and expertise
to effectively partner with our customers to provide a
comprehensive solution to their component and module needs.
- Develop Modules to Improve Customer Time-to-Market. Our
customers continue to seek an increase in the level of
integration in the optoelectronic and optical products that they
purchase from their suppliers. We believe that reductions in the
number of component integration and manufacturing steps required
at the customer level enable these customers to better focus
their time and resources on aspects of their business that
leverage their core competencies and their competitive
advantages over other system providers. Through close
relationships with our customers, we try to understand their
needs at an early stage in their product development cycles and
to design our products to meet these specific performance and
time-to-market needs. We believe that our core competencies in
both passive and active components will enable us to design our
module-level solutions quickly and effectively.
- Increase Manufacturing Capacity. As customer demand for our
products continues to grow, we are focused on significantly
increasing our manufacturing capacity through a number of
initiatives including facility expansion, enhanced manufacturing
efficiencies, automation and outsourcing. We continue to add
people, space and equipment at our facilities throughout the
world while simultaneously initiating development efforts that
involve both enhancement and optimization of existing
manufacturing techniques and development of new, more automated
manufacturing solutions. In addition, we are also looking to
outsource certain steps of the manufacturing process where
partners may help remove production bottlenecks and create a
more cost-effective process and scalable process.
- Maintain Technology Leadership and High Product Reliability. We
consider our technological and product leadership and our
existing customer relationships to be critical to our continued
success. We believe one of the barriers to entry in the
long-haul,
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metro and submarine telecommunications markets is the life-test
and quality control criteria established by Telcordia, one of
the world's foremost commercial research and development
organizations for communications applications. Our new product
development often leverages our existing Telcordia test data,
enabling us to use our significant library of life-test and
quality control data to qualify new products more quickly than
our competitors, who may have less available test data. Our
research and development efforts continue to focus on the
advanced technologies critical to our success in meeting our
customers demands for higher channel count systems, increased
power, higher speed modulation, all optical networking and
module level integration.
- Partner with our Customers. We work closely with our customers
from initial product design through to manufacturing and
delivery. By engaging with our customers at every level, we seek
to partner with them at the early stages of system development
so that we can provide them with all of their component and
module needs through customized design and manufacturing.
Maintaining strong customer relationships is critical to our
company's growth and every effort is made to ensure that our
customers' needs are met.
- Seek Complementary Mergers and Acquisitions. The
telecommunications industry is experiencing rapid consolidation
and realignment because of globalization, deregulation and
rapidly changing competitive technologies such as fiberoptics
for cable television, wireless communications and the Internet.
We have grown in part by acquiring or merging with
telecommunications businesses and may continue to do so in the
future. We frequently evaluate strategic opportunities and
intend in the future to actively pursue acquisitions of
additional products, technologies and businesses.
Although we expect to be successful in implementing our strategy, our
statements about our strategy are forward looking. We cannot predict the future
and many factors, some within and some outside of our control may cause us to
fail to achieve one or more of our strategic goals. Some of these factors are
discussed under "Risk Factors" below.
RECENT DEVELOPMENTS
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.
SALES AND MARKETING
We market our telecommunications components to OEMs through our direct
sales force in North America, Asia, Europe and Australia. In addition, we sell
our products through distributors and manufacturers' representatives in North
America, Europe, Asia, South America, the Middle East and Australia. Selected
OEM customers for telecommunications components include:
Alcatel Juniper Networks ONI Systems
Ciena Lucent Scientific Atlanta
Cisco Marconi Siemens
Corning Motorola Sycamore
Corvis Nortel Tyco
We market our laser subsystem products, optical display and projection
products and light interference pigments through our direct sales force and
worldwide network of representatives and distributors.
CUSTOMER SUPPORT AND SERVICE
We believe that a high level of customer support is necessary to
successfully develop and maintain long-term relationships with all our
customers. With respect to our core telecommunications businesses, each
relationship begins at the design-in phase and is
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maintained as customer needs change and evolve. We provide direct service and
support to our OEM customers through our offices in North America and Europe.
RESEARCH AND DEVELOPMENT
During fiscal years 2000, 1999 and 1998, JDS Uniphase incurred research
and development expenditures of $113.4 million, $27.0 million and $14.8 million,
respectively.
We are currently developing new and enhanced telecommunications
components and modules and expanding our manufacturing capability for these
products. Once the design of a product is complete, our engineering efforts
shift to enhance both the performance of that product and our ability to
manufacture it at higher volumes and at lower cost. For the telecommunications
marketplace, we continue to increase the power output of our pump lasers and the
number of source lasers available for multi-channel applications and to develop
several other optical switching technologies. Higher performance modulators and
transmitters are under development, as are advanced multi-gigabit modulators. We
continue to develop packaging technology for a number of our optoelectronic
components so as to enable us to supply more integrated, packaged modules to our
customer base.
MANUFACTURING
The following table sets forth our main locations and the primary
products manufactured at each location:
Location Products
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Canada, Nepean Optical amplifiers, wave division multiplexers, couplers, circulators,
switches, tunable filters, isolators and test instruments for
telecommunications, waveguides and attenuators
Netherlands, Eindhoven Source lasers, semiconductor optical amplifiers, pump lasers for
optical amplifiers and polymer waveguide optical switches
Connecticut, Bloomfield Modulators and wavelength lockers
Switzerland, Zurich Pump lasers
Pennsylvania, Chalfont Cable television transmitters and amplifiers, transceivers for
telecommunications
Florida, Melbourne Test instruments, transmitters and transceivers for telecommunications
Australia, Sydney Fiber Bragg gratings
California, San Jose Add-drop multiplexer modules, wavelength division multiplexers,
couplers, circulators, switches, isolators, optical amplifiers and
laser subsystems
California, Santa Rosa Thin film filters, optical display and projection products and light
intereference pigments
United Kingdom, Plymouth Laser packaging for telecommunications, fused couplers
United Kingdom, Whitney Fiber Bragg gratings for 980nm pump lasers
New Jersey, Trenton Optical photodetectors and receivers
North Carolina, Raleigh-Durham Micro-electro-mechanical-systems
China, Fuzhou YVO4 and lithium niobate crystals
China, Shenzen Isolators and wave division multiplexers
Taiwan, Taipei Couplers and isolators
SOURCES AND AVAILABILITY OF RAW MATERIALS
Our policy is to establish at least two sources of supply for materials
whenever possible, although we do have some sole source supply arrangements. The
loss or interruption of such arrangements could have an impact on our ability to
deliver certain products on a timely basis.
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COMPETITION
The industries 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. Our overall competitive position depends upon a number of factors,
including the price, performance and reliability of our products, the breadth of
our product line, our level of customer service, the quality of our
manufacturing processes, the compatibility of our products with existing
telecommunications and cable television network architectures and our ability to
participate in the growth of emerging technologies.
In the telecommunications markets, we face competition from companies
that have substantially greater financial, engineering, research, development,
manufacturing, marketing, service and support resources, greater name
recognition than us and long-standing customer relationships. These competitors
include, without limitation, Alcatel, Agilent, Avanex, Chorum, Coherent,
Corning, Fujitsu, Furukawa, Harmonic, Lightpath Technologies, Lucent, Motorola,
New Focus, Nortel, Pirelli, SDL, Sumitomo Cement Opto Electronics Group and
Tyco.
PATENTS AND PROPRIETARY RIGHTS
Intellectual property rights that apply to our various products include
patents, trade secrets and trademarks. Because of the rapidly changing
technology and a broad distribution of patents in the optoelectronics industry,
our intention is not to rely primarily on intellectual property rights to
protect or establish our market position. We do not intend to broadly license
our intellectual property rights unless we can obtain adequate consideration or
enter into acceptable patent cross-license agreements. We hold approximately 375
U.S. patents and 383 Foreign patents.
BACKLOG
Backlog consists of written purchase orders for products for which we
have assigned shipment dates within the following 12 months. As of June 30, 2000
our backlog was approximately $931 million including the backlog acquired from
E-TEK as compared to a backlog of approximately $156 million at June 30, 1999.
Orders in backlog are firm, but are subject to cancellation or rescheduling by
the customer. Because of possible changes in product delivery schedules and
cancellation of product orders and because our sales will often reflect orders
shipped in the same quarter in which they are received, our backlog at any
particular date is not necessarily indicative of actual sales for any succeeding
period. Certain of our customers have adopted "just in time" techniques with
respect to ordering the Company's products, which will cause us to have shorter
lead times for providing products. Such shorter lead times are likely to result
in lower backlog.
EMPLOYEES
At June 30, 2000, we had a total of approximately 19,000 full-time
employees worldwide, including 1,540 in research, development and engineering,
545 in sales, marketing and service, approximately 15,886 in manufacturing, and
1,041 in general management, administration and finance. We intend to hire
additional personnel during the next 12 months in each of these areas. Our
future success will depend in part on our ability to attract, train, retain and
motivate highly qualified employees, who are in great demand. There can be no
assurance that we will be successful in attracting and retaining such personnel.
Except for our Netherlands and Germany operations, our employees are not
represented by any collective bargaining organization. Most hourly and salaried
employees in the Netherlands are represented by the Philips Collective Labor
Agreement. We have never experienced a work stoppage, slowdown or strike. We
consider our employee relations to be good.
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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, Inc. on February 13, 2000. 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 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.
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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. 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
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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.
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
Research and Purchased of 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 $230.0 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.
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;
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- competitive pricing pressures;
- the costs associated with the acquisition or disposition of
businesses;
- ourability 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.
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
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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.
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 provider customers accounted for a
substantial portion of our net sales from telecommunications products. Three
customers, Alcatel, Lucent and Nortel, each accounted for over 10% of our net
sales for the quarter ended September 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.
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.
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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 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 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.
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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.
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.
FORWARD-LOOKING STATEMENTS
Statements contained in this Annual Report on Form 10-K/A 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:
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- the 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 next 12 months,
- 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,
- 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 next 12 months,
- 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 Annual Report on Form 10-K/A to conform such statements
to actual results or to changes in our expectations.
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ITEM 2. PROPERTIES
Our principal offices are located in San Jose, California and Nepean,
Ontario. We own five properties in San Jose, California, totaling 289,000 square
feet, of which 20,000 is leased to a third party through May 2001. We also lease
approximately 237,000 square feet of various other facilities, which expire on
various dates from December 2000 through March 2007. These properties include
land, buildings and improvements. We manufacture both fiberoptic components and
modules and certain grating-based modules at four of these properties, and
commercial lasers at the remaining location. Our principal sales, marketing,
technical support, administration, and research and development operations also
occupy these facilities.
We manufacture passive components and modules, amplifiers, and
instruments at our three owned facilities in Nepean, Ontario. These three
facilities total approximately 600,000 square feet. We also lease approximately
539,000 square feet of various other facilities that expire on various dates
through 2005. An additional 412,000 square feet of owned manufacturing and
office space is under construction with occupancy estimated in November 2000 and
September 2001.
We also own a 75 acre site in Santa Rosa, California totaling 490,000
square feet of office space, manufacturing, engineering, and research and
development facilities for our thin film filter products. We also lease an
additional 93,000 square feet for our polymer optical products, which expire on
various dates from July 2000 through December 2002.
Our facilities for our telecommunications equipment products occupy
three leased buildings of 33,750, 57,500 and 60,000 square feet in Bloomfield,
Connecticut, where our modulator products are manufactured and three leased
buildings of 37,500, 80,000, and 46,500 square feet in Chalfont, Pennsylvania
where our transmitter products are manufactured. The Bloomfield leases expire on
various dates from July 2002 through November 2009 and the Chalfont leases
expire on various dates from January 2002 through August 2008. We lease a 98,000
square foot facility in Trenton, New Jersey, a 17,000 square foot facility in
Freehold, New Jersey, an 84,000 square foot facility in Asbury, New Jersey and a
20,000 square foot facility in Mountain Lakes, New Jersey. The Trenton facility
manufactures high-speed, Indium Gallium Arsenide (InGaAs) receivers and monitors
for fiberoptic communications. The Freehold site is primarily a research,
development, and engineering facility, which produces passive components and
optical amplifiers. The Asbury and Mountain Lakes facilities are primarily sales
and marketing offices.
We own a 23,000 square foot building located in Fuzhou, China. In
addition we are leasing two buildings in Shenzen, China, one building in Shunde,
China, one building in Beijing, China and four buildings in Taipei, Taiwan,
totaling approximately 84,000, 35,000, 23,000 and 46,000 square feet,
respectively. We manufacture crystals, fiberoptic components, optics, isolators,
couplers, and other WDM component products at these facilities.
We lease a 46,000 square foot facility in Yamton, United Kingdom, a
16,500 square foot facility in Whitney, United Kingdom and a 20,000 square foot
facility in Plymouth, United Kingdom for our fiberoptic component packaging
plant. Leases for the Yamton, Whitney and Plymouth facilities expire in July
2015, December 2013 and December 2004, respectively. We also lease manufacturing
facilities in Torquay, United Kingdom and Plymouth, United Kingdom. These leases
on these 20,000 and 42,000 square foot facilities expire in February 2005 and
August 2023, respectively. We manufacture analog metering products, high-
specification pump WDMs and tap couplers and gain flattening products at these
facilities. We lease four buildings of 66,000, 66,000, 45,500 and 18,000 square
feet in Eindhoven, the Netherlands, which expire from May 2003 through June
2018. The Eindhoven facility primarily manufactures source lasers, EA
modulators, multimedia lasers and CATV receivers. We also occupy 98,000 square
feet of manufacturing, engineering and office space in Zurich, Switzerland that
is leased through 2012. The Zurich facility primarily manufactures pump lasers.
In addition, we lease various small offices and manufacturing facilities
throughout the United States and on a worldwide basis. For additional
information regarding our obligations under leases, see Note 5 "Lease
Commitments" of Notes to Consolidated Financial Statements of our Current Report
on Form 8-K filed with the SEC on September 1, 2000, which is hereby
incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, various lawsuits and claims are
filed against us. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on our financial statements.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 4A. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
executive officers and directors of the Company:
NAME AGE POSITION(s)
---- --- -----------
Jozef Straus, Ph.D.............................. 54 Co-Chairman, Chief Executive Officer
Charles J. Abbe................................. 59 President, Chief Operating Officer
M. Zita Cobb.................................... 42 Executive Vice President, Strategy and Business Development
Anthony R. Muller............................... 57 Executive Vice President, Chief Financial Officer and
Secretary
Joseph Ip....................................... 43 Senior Vice President, Product Strategy
Frederick L. Leonberger, Ph.D................... 53 Senior Vice President, Chief Technology Officer
Michael C. Phillips............................. 50 Senior Vice President, Business Development, and General
Counsel
Bruce D. Day(1)................................. 44 Director
Robert E. Enos(2)............................... 61 Director
Peter A. Guglielmi(1)(2)........................ 57 Director
Martin A. Kaplan(2)............................. 63 Co-Chairman
Donald J. Listwin............................... 41 Director
John A. MacNaughton(2).......................... 55 Director
Wilson Sibbett, Ph.D............................ 52 Director
William J. Sinclair(1).......................... 47 Director
Casimir S. Skrzypczak(1)........................ 59 Director
- ----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
DR. STRAUS became, in May 2000, Co-Chairman and Chief Executive Officer
and was previously, since July 1999 when JDS FITEL merged with the Company,
Co-Chairman, President and Chief Operating Officer. Dr. Straus co-founded JDS
FITEL in 1981 and served as its Chief Executive Officer and President from
September 1993 until July 1999 when JDS FITEL merged with the Company. He served
on the JDS FITEL Board of Directors from 1981 and held various positions with
JDS FITEL, including Vice President, Sales and Marketing from 1990 to 1993 when
he assumed the position of Chief Executive Officer and President. Prior to 1981,
Dr. Straus held various research and management positions related to fiber optic
technology at Bell-Northern Research Ltd. and Northern Telecom Limited.
MR. ABBE became President and Chief Operating Officer in May 2000. From
the merger of Optical Coating Laboratory, Inc. ("OCLI") with the Company in
February 2000 until May 2000, Mr. Abbe served as Senior Vice President and
Senior Operating Officer of the Company. From April 1998 to February 2000, Mr.
Abbe served as director and President and Chief Executive Officer of OCLI. Mr.
Abbe also served as Vice President and General Manager of OCLI's Santa Rosa
Division from April 1966 through April 1998. Prior to joining OCLI, Mr. Abbe
held various senior management positions with Raychem Corporation from 1989 to
1996. From 1971 to 1989, Mr. Abbe was employed at McKinsey & Company, Inc.,
where he last served as senior partner at the San Francisco, California office.
MS. COBB became, in May 2000, Executive Vice President, Strategy and
Business Development and was previously, since July 1999 when JDS FITEL merged
with the Company, Senior Vice President of Strategy and Integration of the
Company. Ms. Cobb was a director of JDS FITEL as well as its Chief Financial
Officer since February 1996. Ms. Cobb held various positions at JDS FITEL since
joining JDS FITEL as Controller in 1989. Prior to joining JDS FITEL, Ms. Cobb
held various finance-related positions with Fleet Technology Ltd., Arctec, Inc.,
Shell Canada Resources Ltd. and Texaco Canada Resources Ltd.
MR. MULLER became, in May 2000 an Executive Vice President. Mr. Muller
continues to serve, since his appointment in January 1998, as Chief Financial
Officer and Secretary of the Company. Mr. Muller also served as Senior Vice
President, from January 1998 to his appointment as Executive President in May
2000. From September 1984 to January 1998, when he joined the Company, Mr.
Muller was a member of the Board of Directors. From September 1996 to January
1998, he was Senior Vice President and Chief Financial Officer of Micro Focus
Group Plc, a supplier of software tools. From November 1990 to September 1996,
Mr. Muller served
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as Senior Vice President of Operations and Administration and Chief Financial
Officer of Centigram Communications Corporation, a supplier of
telecommunications systems.
MR. IP became Senior Vice President of Product Strategy in July 1999
upon the closing the JDS FITEL merger with the Company. Mr. Ip joined JDS FITEL
in 1990 and since that time held various research, development and product line
management roles. Most recently he held the position of Senior Vice President at
Optical Networking Products and Technologies. Prior to 1990, Mr. Ip held various
research and development positions related to fiber optic technology at
Bell-Northern Research Ltd. and Northern Telecom Limited.
DR. LEONBERGER has been Chief Technology Officer of the Company since
April 1997 and is a Senior Vice President. He was co-founder and general manager
of Uniphase Telecommunications Products, Inc. ("UTP") and joined the Company
upon its acquisition of UTP in May 1995. Dr. Leonberger has been active in the
optoelectronics field for over 20 years and has held a variety of staff and
management positions at MIT Lincoln Laboratory, United Technologies Research
Center, UTP and the Company.
MR. PHILLIPS joined the Company as Senior Vice President, Business
Development and General Counsel in August 1998. Mr. Phillips was a partner at
Morrison & Foerster LLP, which serves as the Company's outside counsel, from
1988 until he joined the Company.
MR. DAY became a member of the Company's Board of Directors in July 1999
as of the closing of the JDS FITEL merger with the Company and was a member of
the JDS FITEL Board of Directors since 1996. Since 1991, Mr. Day has been the
Vice President, Corporate Development of Rogers Communications Inc. and is
principally involved in mergers, acquisitions, divestitures and taxation for
Rogers Communications Inc. and its subsidiaries.
MR. ENOS became a director of the Company in July 1999 upon the closing
of the JDS FITEL merger with the Company and was previously a member of the JDS
FITEL Board of Directors from 1996 until July 1999. Mr. Enos was the Vice
President, Product Line Management, Cable Group and the Vice President,
Transmission Network Division of Northern Telecom Limited from 1992 to 1994 and
from 1989 to 1992, respectively. Mr. Enos retired from Northern Telecom Limited
in 1994.
MR. GUGLIELMI has been a member of the Company's Board of Directors
since May 1998. Mr. Guglielmi is Executive Vice President and Chief Financial
Officer of Tellabs, Inc., and has served as its Chief Financial Officer since
1988. From 1993 to 1997, he was also President of Tellabs International, Inc.
Prior to joining Tellabs, Mr. Guglielmi was Vice President of Finance and
Treasurer of Paradyne Corporation for five years. Mr. Guglielmi serves on
several boards of directors, including Tellabs, Inc., Internet Communications
Corp. and Digital LightWave, Inc..
MR. KAPLAN has been a member of the Company's Board of Directors since
November 1997. In May 2000, Mr. Kaplan was appointed as Co-Chairman of the
Board. Mr. Kaplan is Executive Vice President of Pacific Telesis and is
responsible for coordinating integration plans following the merger of SBC
Communications, Inc. and Pacific Telesis Group. From 1995 to 1997, Mr. Kaplan
was Executive Vice President of Pacific Bell and President of the Network
Services Group. From 1993 to 1995, he was Chief Technology, Quality and
Re-Engineering Officer for Pacific Bell. Mr. Kaplan also is a director of
Conductus.
MR. LISTWIN became a director of the Company in June 2000 upon the
closing of the merger of E-TEK Dynamics, Inc. with the Company. Mr. Listwin is
presently Chief Executive Officer of Phone.com and has served in that position
since September 2000. Mr. Listwin was an Executive Vice President at Cisco
Systems, Inc. ("Cisco"), from 1990 to September 2000. In April 1997, Mr. Listwin
was named the Senior Vice President of Cisco's service provider line of
business. Prior to 1997, Mr. Listwin was Senior Vice President of Cisco's market
development from August 1996 to April 1997, Vice President and General Manager
of Cisco's access business unit from September 1995 to August 1996, and Vice
President of Marketing from September 1993 to September 1995. Mr. Listwin also
serves as a director of TIBCO Software Inc. and Software.com.
MR. MACNAUGHTON joined the Company's Board of Directors in July 1999
upon the closing of the JDS FITEL merger with the Company. Mr. MacNaughton was
President of Leapfrog Capital Corporation from April 1999 to August 1999. Mr.
MacNaughton has been President and Chief Executive Officer of the Canada Pension
Plan Investment Board from September 1999 to the present. Mr. MacNaughton was
President of Nesbitt Burns Inc. and its predecessor company from September 1994
until his retirement on March 31, 1999. From December 1990 to September 1994,
when it was acquired by a subsidiary of Bank of Montreal and merged with Nesbitt
Thomson Inc., he was President and Chief Executive Officer of Burns Fry Limited.
Nesbitt Burns Inc. lead managed the initial public offering of JDS FITEL in
March 1996.
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PROFESSOR SIBBETT has been a member of the Company's Board of Directors
since February 1995. Since 1994, he has been Director of Research for the School
of Physics and Astronomy at the University of St. Andrews, Scotland and was
previously the Head of Department from 1985 to 1994. Professor Sibbett is a
Council-member of both the UK Engineering and Physical Sciences Research Council
("EPSRC") and the Council of the Central Laboratories of the UK Research
Councils. He is the co-Technical Director of the Photonics Innovation Centre at
the University of St. Andrews and is also the Director of an EPSRC-funded
multi-partner "Ultrafast Photonics Collaboration" (based at the University of
St. Andrews) that is targeted on research developments in ultrafast datacomms.
MR. SINCLAIR became a director of the Company in July 1999 upon the
closing of the JDS FITEL merger with the Company. Mr. Sinclair co-founded JDS
FITEL in 1981, was President of JDS FITEL from 1982 until 1993 and served as a
director of JDS FITEL from 1981 until the closing of the JDS FITEL merger with
the Company in July 1999. He is currently Director, Research and Development, of
Fluorosense Inc. and has held this position since 1995. Mr. Sinclair was an
independent consultant in the area of optics from 1993 to 1995. Prior to 1981,
Mr. Sinclair was a member of the Technical Staff at Bell-Northern Research Ltd.
specializing in fiber optic technology.
MR. SKRZYPCZAK has been a member of the Company's Board of Directors
since July 1997. Since October 1999, Mr. Skrzypczak has been Senior Vice
President at Cisco Systems, Inc. Mr. Skrzypczak served as a Group President at
Telcordia Technologies from July 1997 to October 1999. He was Corporate Vice
President and Group President of Professional Services of Bellcore until March
1997. Earlier, Mr. Skrzypczak was President, NYNEX Science & Technology and Vice
President, Network & Technology Planning for NYNEX. Mr. Skrzypczak has served as
a trustee of Polytechnic University since 1987 and is chairman of its Education
Committee. Mr. Skrzypczak also serves as a director of Stanford Microdevices
Inc.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At September 20, 2000, we had approximately 4,214 holders of record of
our common stock and Exchangeable shares. We had 783,916,401 Common Shares and
173,904,237 Exchangeable Shares outstanding on The Nasdaq National Market and
The Toronto Stock Exchange, respectively. Holders of Exchangeable Shares may
tender their holdings for common stock on a one-for-one basis at any time. The
closing price on September 20, 2000 for the Common Stock and the Exchangeable
Shares was $107.13 and Canadian $158.50, respectively. We have not paid cash
dividends on our common stock and do not anticipate paying cash dividends in the
foreseeable future. The following high and low closing sale prices indicated for
our Common Stock are as reported on the Nasdaq National Market during each of
the quarters indicated. The prices in the following table have been adjusted to
reflect all previous stock dividends and splits through the date of this Annual
Report on Form 10-K/A.
HIGH LOW
-------- --------
Fiscal 2000 Quarter Ended:
June 30 $131.190 $ 73.130
March 31 $153.420 $ 74.500
December 31 $ 88.750 $ 28.000
September 30 $ 30.370 $ 19.310
Fiscal 1999 Quarter Ended:
June 30 $ 20.899 $ 12.813
March 31 $ 14.391 $ 7.938
December 31 $ 8.672 $ 4.297
September 30 $ 7.875 $ 4.703
On August 4, 1999, the Company completed an underwritten public offering
of shares of common stock and a concurrent private offering of Exchangeable
Shares of its wholly-owned subsidiary, JDS Uniphase Canada Ltd. The underwritten
public offering related to 37.0 million shares of common stock at a price of
US$20.656 per share of which 28.1 million shares were sold by the Company and
8.9 million shares were sold by certain stockholders of JDS Uniphase. The
Exchangeable Share offering consisted of 2.2 million Exchangeable Shares sold by
JDS Uniphase Canada Ltd. and 0.8 million Exchangeable Shares sold by certain
stockholders of JDS Uniphase Canada Ltd. The net proceeds to the Company from
both offerings, which are being used for general corporate purposes, aggregated
approximately $600 million. On August 25, 1999, the Company received additional
proceeds of approximately $110 million from the sale of an additional 5.6
million shares of common stock as a result of the underwriters exercising their
over-allotment option in the public offering.
In August 1999, the Company acquired AFC Technologies, Inc for $22.0
million in cash and 674,468 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
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total value of the securities issued was $17.5 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 AFC Technologies, Inc.
In October 1999, the Company acquired Ramar Corporation for $1.0 million
in cash and $3.5 million of convertible debt. Such convertible debt was issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended. The convertible debt is composed of $2.5 million of
aggregated demand obligations and two performance-based instruments totaling
$1.0 million that become due upon achieving certain milestones over the ensuing
12 months. The convertible debt bears interest at 5.54% and the principal can be
exchanged for newly issued shares of JDS Uniphase common stock at a price of
$27.961 per share. The convertible debt is unsecured.
In November 1999, the Company acquired EPITAXX, Inc. for $9.3 million in
cash and 9.0 million shares of the Company's common stock valued at
approximately $429.5 million. The issuance of the common stock was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
The stock was issued to former shareholders of EPITAXX.
In December 1999, the Company amended its Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 300,000,000
shares to 600,000,000.
In December 1999, the Company acquired Oprel Technologies, Inc. for $9.3
million in cash and 190,916 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 $11.7
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 Oprel Technologies, Inc.
In December 1999, the Company issued 43,568 shares of common stock in
exchange for $0.3 million of convertible debt issued in connection with its
purchase in 1998 of certain assets from Chassis Engineering, Inc.
In March 2000, the Company amended its Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 600,000,000 shares
to 3,000,000,000.
In April 2000, the Company acquired Cronos Integrated Microsystems, Inc.
for 6.3 million shares of the Company's common stock, valued at $548.5 million.
The issuance of the common stock was exempt from registration pursuant to
Section 3(a)(10) of the Securities Act of 1933, as amended. The stock was issued
to former shareholders of Cronos.
In June 2000, the Company acquired E-TEK Dynamics, Inc. for, among other
things, 848,166 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, valued at $86.8 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 E-TEK.
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ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
SELECTED FINANCIAL DATA
(In millions, except per share data)
YEARS ENDED JUNE 30, 2000(2)(3) 1999(4) 1998 1997 1996
- -------------------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales ........................................ $ 1,430.4 $ 282.8 $ 185.2 $ 113.2 $ 73.7
Amortization of purchased intangibles ............ $ 896.9 $ 15.7 $ 5.6 $ 1.8 $ 0.2
Acquired in-process research and development ..... $ 360.7 $ 210.4 $ 40.3 $ 33.3 $ 4.5
Merger and other costs(1) ........................ $ -- $ 6.8 $ -- $ -- $ --
Income (loss) from operations .................... $ (865.1) $ (153.2) $ (11.5) $ (15.8) $ 5.8
Net income (loss) ................................ $ (904.7) $ (171.1) $ (19.6) $ (17.8) $ 3.2
Earnings (loss) per share(5):
Basic .......................................... $ (1.27) $ (0.54) $ (0.07) $ (0.07) $ 0.02
Dilutive ....................................... $ (1.27) $ (0.54) $ (0.07) $ (0.07) $ 0.01
Shares used in per share calculation(5):
Basic .......................................... 710.9 318.2 283.6 269.5 204.5
Dilutive ....................................... 710.9 318.2 283.6 269.5 223.3
AT JUNE 30, 2000 1999 1998 1997 1996
- ----------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED BALANCE SHEET DATA:
Working capital .................................. $ 1,325.7 $ 314.8 $ 121.4 $ 110.2 $ 132.2
Total assets ..................................... $ 26,389.1 $ 4,096.1 $ 332.9 $ 180.7 $ 175.7
Long-term obligations ............................ $ 61.2 $ 9.8 $ 5.7 $ 2.5 $ 7.1
Total stockholders' equity ....................... $ 24,778.6 $ 3,619.3 $ 280.0 $ 152.0 $ 154.8
- ----------
(1) Results of operations include $5,877,000 of costs and expenses
attributable to the pooling of interests transaction with Uniphase
Broadband Products, and $882,000 loss on sale of the Ultrapointe Systems
assets in fiscal 1999.
(2) JDS Uniphase merged with Optical Coating Laboratory, Inc. (OCLI) on
February 4, 2000 in a transaction accounted for as a purchase. The
consolidated statement of operations and other data for the year ended
June 30, 2000 and the consolidated balance sheet data as of June 30,
2000 include the results of operations subsequent to February 4, 2000
and financial position, respectively, of OCLI.
(3) JDS Uniphase merged with E-TEK Dynamics, Inc. (E-TEK) on June 30, 2000
in a transaction accounted for as a purchase. The consolidated balance
sheet data as of June 30, 2000 includes the financial position of E-TEK.
(4) Uniphase merged with JDS FITEL effective June 30, 1999 in a transaction
accounted for as a purchase. The consolidated statement of operations
and other data for the year ended June 30, 2000 and the consolidated
balance sheet data as of June 30, 2000 and 1999 include the results of
operations and financial position, respectively, of JDS FITEL.
(5) Share and per share amounts for all historical periods have been
restated to reflect the two separate two-for-one stock splits for
stockholders of record as of December 22, 1999 and March 2, 2000.
25
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
JDS Uniphase Corporation was the result of a merger between Uniphase
Corporation ("Uniphase") and JDS FITEL Inc. ("JDS FITEL"), pursuant to which
they combined their operations on June 30, 1999. Certain historic information
described in this Annual Report on Form 10-K/A pertains only to either Uniphase
Corporation or JDS FITEL Inc. In such instances, historic information that is
specific to Uniphase Corporation or JDS FITEL Inc. is specifically described as
"Uniphase" or "JDS FITEL" information, respectively. References to "we," "us,"
"our," the "Company" and "JDS Uniphase" refer to the combined entity resulting
from the merger.
We are a leading provider of advanced fiber optic components and
modules. These products are sold to the world's leading telecommunications and
cable television system providers, which are commonly referred to as OEMs and
include Alcatel, Ciena, Cisco, Corning, Lucent, Marconi, Motorola, Nortel, ONI
Systems, Scientific Atlanta, Siemens, Sycamore and Tyco. Our products are basic
building blocks for fiber optic networks and perform both optical-only, commonly
referred to as "passive" functions, and optoelectronic, commonly referred to as
"active" functions, within fiberoptic networks. Our products include
semiconductor lasers, high-speed external modulators, transmitters, amplifiers,
couplers, multiplexers, circulators, tunable filters, optical switches and
isolators for fiberoptic applications. We also supply our OEM customers with
test instruments for both system production applications and network
installation. In addition, we design, manufacture and market laser subsystems
for a broad range of OEM applications, optical display and projection products
used in computer displays and other similar applications and light interference
pigments used in security products and decorative surface treatments.
The historical results of operations contained herein include acquired
in-process research and development expense, in the aggregate amounts of (1)
$360.7 million, in connection with the acquisitions of Epitaxx, Inc.
("EPITAXX"), Sifam Limited ("SIFAM"), Optical Coating Laboratory, Inc. ("OCLI"),
Cronos Integrated Microsystems, Inc. ("Cronos") and E-TEK Dynamics, Inc.
("E-TEK") in 2000, and (2) $210.4 million, attributable to the JDS FITEL merger
in 1999.
The Company is the product of several strategic mergers and
acquisitions, including the June 30, 1999 combination of Uniphase and JDS FITEL.
During 2000 alone, we acquired the following companies and businesses, in
chronological order: AFC Technologies ("AFC"), Ramar Corporation ("Ramar"),
EPITAXX, SIFAM, Oprel Technologies Inc. ("Oprel"), IOT Limited ("IOT"), OCLI,
Cronos, Fujian Casix Lasers Inc. ("Casix") and E-TEK. During 2001, we acquired
the following companies and businesses in chronological order: Epion Corporation
("Epion"), Optical Process Automation Corp. ("OPA") and SDL, Inc. ("SDL").
Consequently, while our historical results of operations for each year include
the results of operations of acquired companies from the date of acquisition,
our results from prior years, for comparison purposes, exclude such acquired
companies' results. Most significantly, the 2000 results of operations include a
full year's results of operations from the merger with JDS FITEL as well as the
post acquisition results of each of the companies mentioned above, while the
1999 and 1998 results of operations include business activities from only
Uniphase.
Accordingly, at the end of "Results of Operations -- Actual" and
"Operating Segment Information -- Actual," we have provided supplemental
discussions of our 2000 actual results with 1999 pro forma results, which
combine the historical consolidated 1999 results of operations of the former
Uniphase Corporation for the 12 months ended June 30, 1999, with the historical
results of operations of JDS FITEL for the twelve months ended May 31, 1999,
under the headings "Results of Operations -- Pro forma" and "Operating Segment
Information -- Pro forma." These pro forma results have been disclosed in our
Current Report on Form 8-K/A filed on May 22, 2000 and are hereby incorporated
herein by this reference.
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.
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27
RESULTS OF OPERATIONS -- ACTUAL
The following table sets forth for the periods indicated certain actual
financial data as a percentage of net sales:
YEARS ENDED JUNE 30,
----------------------------------
2000 1999 1998
------ ------ ------
Net sales .......................................... 100.0% 100.0% 100.0%
Cost of sales ...................................... 52.5% 49.0% 51.9%
------ ------ ------
Gross profit ..................................... 47.5% 51.0% 48.1%
Operating expenses:
Research and development ......................... 7.9% 9.5% 8.0%
Selling, general and administrative .............. 12.2% 13.3% 21.5%
Amortization of purchased intangibles ............ 62.7% 5.6% 3.0%
Acquired in-process research and development ..... 25.2% 74.4% 21.8%
Merger and other costs ........................... -- 2.4% --
------ ------ ------
Total operating expenses ........................... 108.0% 105.2% 54.3%
------ ------ ------
Loss from operations ............................... (60.5)% (54.2)% (6.2)%
Interest and other income, net ................... 2.5% 1.3% 1.8%
------ ------ ------
Loss before income taxes ......................... (58.0)% (52.9)% (4.4)%
Income tax expense ................................. 5.2% 7.6% 6.2%
------ ------ ------
Net loss ........................................... (63.2)% (60.5)% (10.6)%
====== ====== ======
Years Ended June 30, 2000, 1999 and 1998
Net Sales. Net sales of $1,430.4 million for 2000 represented an
increase of $1,147.6 million or 406% over 1999 net sales of $282.8 million,
which increased $97.6 million or 53% over 1998 net sales of $185.2 million. The
increase from 1999 to 2000 reflected 407% and 592% growth in our Components and
Modules segments, respectively. Net sales from JDS FITEL are included for the
entire year 2000, and net sales from the companies we acquired in 2000 are
included subsequent to their date of acquisition (see Note 9 of Notes to
Consolidated Financial Statements). The increase from 1998 to 1999 reflected
100% and 81% growth in our Components and Modules segments, respectively, and
resulted primarily from the net sales from Uniphase Netherlands B.V. ("UNL")
which are included for the entire year of 1999 and net sales from companies we
acquired in 1999 from the date of their acquisition. (see Note 9 of Notes to
Consolidated Financial Statements). Separate discussions with respect to net
sales and operating profits by each of the reportable operating segments can be
found following the Results of Operations -- Pro forma section.
Net sales to customers outside the United States and Canada accounted
for $326.7 million, $114.4 million and $70.5 million or 23%, 40%, and 38% of
total sales for the years ended June 30, 2000, 1999 and 1998, respectively. The
increase of $212.3 million from 1999 to 2000 is primarily because of inclusion
of a full year's sales from JDS FITEL, as well as the acquisitions of OCLI,
SIFAM, Oprel and AFC during 2000. The increase of $43.9 million from 1998 to
1999 is primarily because of increased sales from both our components and
modules segments and the inclusion of a full year's sales from UNL. The decrease
from 40% in 1999 to 23% in 2000, is primarily because of the inclusion of JDS
FITEL, which sells a higher mix of its products to customers in the U.S. and
Canada.
Net sales for the year ended June 30, 2000 are not considered indicative
of the results to be expected 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. Gross profit of $678.8 million, or 47% of net sales for
2000 represents an increase of $534.7 million or 371% over 1999 gross profit of
$144.1 million, which was 51% of net sales. Gross profit increased $55.0 million
or 62% over 1998 gross profit of $89.1 million, which was 48% of net sales.
Strong demand for virtually all of our optical components and modules
products combined with the increased operations resulting from the JDS FITEL
merger contributed to the increases in gross profit for 2000.
The decline in the gross profit percentage of net sales from 1999 to
2000 reflects the impact of $25.3 million in purchase accounting adjustments to
reflect the fair value of JDS FITEL, EPITAXX, SIFAM, OCLI and Cronos
inventories. These adjustments flowed through to cost of sales during the year.
Gross profit was also reduced by a $22.6 million write-down of inventory related
to the E-TEK acquisition based on management's decision subsequent to the
acquisition to discontinue using certain inventory.
27
28
Reductions in average selling prices were largely offset by reductions in
manufacturing costs through automation, yield improvements and other
improvements in the manufacturing processes.
For 1999, the increase in gross profit from our optical components and
modules products more than offset gross profit lost in connection with the sale
of the Ultrapointe business in December 1998. The 1999 amounts also include a
full year's gross profit from UNL, which contributed to the increase, while 1998
gross profits were adversely impacted by $4.1 million in write-downs of
inventory primarily related to the acquisition of UNL ($2.5 million) and the
sale of the Ultrapointe business ($1.0 million).
Gross margin increased to 51% in 1999 from 48% in 1998 primarily because
of certain manufacturing efficiencies and the higher relative growth rate of
product lines with higher gross margin rates.
There can be no assurance that we will be able to maintain gross margins
at current levels in future periods. We expect that periodic fluctuations in our
gross margins will continue because of changes in our sales and product mix,
manufacturing constraints, competitive pricing pressures, higher costs resulting
from new production facilities, manufacturing yields, acquisitions of businesses
that may have different margins than ours and inefficiencies associated with new
product introductions. As we acquire additional companies or businesses through
mergers or acquisitions, we expect that periodic fluctuations in our gross
margins will continue because of the effects of purchase accounting adjustments.
Research and Development Expense. Research and development (R&D) expense
of $113.4 million or 8% of net sales represented an increase of $86.4 million or
320% over 1999 expense of $27.0 million or 10% of net sales. 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, and the continued
development and enhancement of existing products, the inclusion of JDS FITEL for
the entire year of 2000, and the inclusion of our acquisitions during 2000 from
the date of acquisition.
R&D expense of $27.0 million or 10% of net sales in 1999 represented an
increase of $12.2 million or 82% over 1998 expense of $14.8 million or 8% of net
sales. The increase in R&D expenses in 1999 was primarily due to the development
and enhancement of our fiber optic product lines and the acquisition of UNL in
June 1998. As a percentage of net sales, R&D expense declined to 8% in 2000 from
10% in 1999, but was comparable to the 1998 ratio of 8%.
We are committed to continuing our significant R&D expenditures and
expect that 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, although R&D expenses may vary as a percentage of net sales in
future periods. In addition, 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. Selling, general and
administrative expense (SG&A) of $172.9 million or 12% of net sales represented
an increase of $135.5 million or 362% over 1999 expense of $37.4 million or 13%
of net sales. The 1999 SG&A expense represented a decrease of $2.5 million or 6%
as compared to 1998 SG&A expense of $39.9 million or 22% of net sales. The
increase in 2000 is primarily due to higher SG&A costs due to the hiring of
additional sales, marketing and administrative personnel, the inclusion of JDS
FITEL for the entire year of 2000, and the inclusion of our acquisitions during
2000. As a percentage of net sales, SG&A for 2000 was consistent with 1999.
The decrease in 1999 SG&A expenses as compared to 1998 was primarily due
to $9.3 million of non-recurring charges for the reorganization of UNL incurred
in 1998 and the sale of the Ultrapointe business in 1999. Without the
non-recurring charges, 1999 SG&A expenses increased over 1998 primarily due to
higher sales, marketing and administrative costs to support all
telecommunications and cable television ("CATV") products and the addition of
UNL in June 1998, which was offset by a reduction in SG&A expense as a result of
the sale of the Ultrapointe business.
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 expect to incur charges to operations in 2001, which are not currently
estimable, to reflect costs associated with integrating E-TEK's operations.
Amortization of Purchased Intangibles. Since 1995, we have entered into
several mergers and acquisitions that generated approximately $23.3 billion in
identified intangibles (primarily developed technology) and goodwill. In 2000,
amortization of purchased intangibles ("API") was $896.9 million or 63% of net
sales, which represented an increase of $881.2 million or 5,613% over 1999 API
of $15.7 million or 6% of net sales. The increase in API is primarily due to the
intangible assets generated from the acquisition of JDS FITEL in June 1999, and
the acquisitions of AFC, Ramar, EPITAXX, SIFAM, Oprel, IOT, OCLI, Cronos, and
Casix during 2000 (see Note 9 of Notes to Consolidated Financial Statements).
28
29
In 1999, API was $15.7 million or 6% of net sales, which represented a
$10.1 million or 180% increase from API of $5.6 million or 3% of net sales in
1998. The increase in API in 1999 was primarily due to the intangible assets
recorded in connection with the acquisition of UNL in June 1998 and the purchase
of certain assets from Chassis Engineering in September 1998.
Our API will increase significantly in future periods as a result of our
acquisitions during 2000 and, accordingly, we expect to report losses for the
foreseeable future. Goodwill and other intangibles arising from our acquisitions
in 2000 totaled $19.8 billion, including the related deferred tax effect, and
are currently being amortized over periods ranging from 3-15 years. We also
expect to record significant additional goodwill and other intangibles related
to our pending acquisition of SDL. In addition, API could change because of
other acquisitions or impairment of existing identified intangible assets and
goodwill in future periods.
Acquired In-process Research and Development. In 2000, we recorded
charges of $360.7 million or 25% of net sales for acquired in-process research
and development resulting from the acquisitions of EPITAXX ($16.7 million),
SIFAM ($3.0 million), OCLI ($84.1 million), Cronos ($6.3 million) and E-TEK
($250.6 million). In 1999, we recorded $210.4 million or 74% of net sales of
acquired in-process research and development resulting from the former Uniphase
Corporation's merger with JDS FITEL. In 1998, we incurred charges for in-process
research and development of $40.3 million or 22% of net sales related to the
acquisition of UNL ($33.7 million) and Uniphase Fiber Components ("UFC") ($6.6
million) (see Note 9 of Notes to 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 technology, stage of
development, estimated completion costs, and time to complete at the date of the
merger for our significant 2000 acquisitions, 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.
Interest and Other Income. Net interest and other income of $35.3
million for 2000 represented an increase of $31.7 million from 1999 income of
$3.6 million, which represented an increase of $0.4 million from 1998 income of
$3.2 million. The increase in interest and other income was the result of higher
investment balances obtained through cash generated from operating activities,
our mergers with JDS FITEL and OCLI, and the completion of a public offering of
our common stock and a private placement of Exchangeable shares in August 1999
that generated $713.6 million in cash, net of transaction costs. The increase in
interest and other income in 1999 was primarily the result of higher investment
balances.
Income Tax Expense. We recorded tax provisions of $74.9 million, $21.5
million, and $11.4 million for 2000, 1999, and 1998, respectively. The expected
tax benefit derived by applying the federal statutory rate to the operating
losses each year was primarily offset by non-deductible in-process research and
development expenses and non-deductible amortization of purchased intangibles
for 2000, and non-deductible in-process research and development expenses for
1999 and 1998.
We have established a valuation allowance for a portion of the gross
deferred tax assets. The valuation allowance at June 30, 2000 reduces net
deferred tax assets to amounts considered realizable in the near future based on
projected future taxable income. Future taxable income is represented by
recorded deferred tax liabilities. Deferred tax assets related to net operating
losses that are subject to a valuation allowance will be credited to paid in
capital when realized. Deferred tax assets attributable to acquisition related
items that are subject to a valuation allowance will, when realized, first
reduce unamortized goodwill, then other non-current intangible assets of
acquired subsidiaries, and then income tax expense. There can be no assurance
that deferred tax assets subject to the valuation allowance will be realized.
29
30
RESULTS OF OPERATIONS -- PRO FORMA
The following supplemental table compares actual results of operations
of JDS Uniphase for 2000 with pro forma results of operations of the former
Uniphase Corporation and JDS FITEL combined for 1999.
PRO FORMA
RESULTS OF
AS REPORTED OPERATIONS AS REPORTED
GAAP UNIPHASE AND GAAP
RESULTS JDS FITEL RESULTS
OF OPERATIONS COMBINED OF OPERATIONS
------------- ------------ -------------
YEAR ENDED, JUNE 30,
----------------------------------------------
2000 1999 1999
-------- -------- --------
(IN MILLIONS)
Net sales .......................................... $1,430.4 $ 587.9 $ 282.8
Cost of sales ...................................... 751.6 284.4 138.7
-------- -------- --------
Gross profit ..................................... 678.8 303.5 144.1
Operating expenses:
Research and development ......................... 113.4 52.5 27.0
Selling, general and administrative .............. 172.9 71.5 37.4
Amortization of purchased intangibles ............ 896.9 687.5 15.7
Acquired in-process research and development ..... 360.7 210.4 210.4
Merger and other costs ........................... -- 6.8 6.8
-------- -------- --------
Total operating expenses ........................... 1,543.9 1,028.7 297.3
-------- -------- --------
Income (loss) from operations ...................... (865.1) (725.2) (153.2)
Interest and other income, net ................... 35.3 10.4 3.6
-------- -------- --------
Income (loss) before income taxes .................. (829.8) (714.8) (149.6)
Income tax expense ............................... 74.9 (2.5) 21.5
-------- -------- --------
Net income (loss) .................................. $ (904.7) $ (712.3) $ (171.1)
======== ======== ========
Years Ended June 30, 2000 and 1999
Net Sales. Net sales of $1,430.4 million for 2000 represented an
increase of $842.5 million or 143% over pro forma 1999 net sales of $587.9
million. The increase from 1999 to 2000 reflected $648.9 or 330% growth in our
existing Components and Modules segments on a pro forma basis. Growth was driven
by customer demands for higher channel count systems to meet increased bandwidth
requirements. The additional increase in 2000 reflected the impact of $193.6
million net sales from companies we acquired in 2000 (see Note 9 of Notes to
Consolidated Financial Statements). Separate discussions with respect to pro
forma net sales by each of the reportable operating segments can be found after
this section.
Net sales for the year ended June 30, 2000 are not considered indicative
of the results to be expected 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. Gross profit of $678.8 million, or 47% of net sales for
2000 represents an increase of $375.3 million or 124% over 1999 pro forma gross
profit of $303.5 million, or 52% of pro forma net sales. Strong demand for
virtually all our optical components and modules products combined with $83.3
million gross profits from companies we acquired in 2000 contributed to the
increases. The decline in the pro forma gross profit percentage of net sales
from 1999 to 2000 reflects the impact of $25.3 million in purchase accounting
adjustments which increased JDS FITEL, EPITAXX, SIFAM, OCLI and Cronos
inventories. These adjustments flowed through to cost of sales during the year.
Gross profit was also impacted by $22.6 million in adjustments related to the
E-TEK acquisition, which decreased E-TEK's net inventory and flowed through to
cost of sales upon completion of our acquisition of E-TEK. Excluding the impact
of above described acquisition related adjustments, gross profit declined from
52% in 1999 to 51% in 2000. The decrease reflects 15% to 20% reductions in
average selling prices, which were largely offset by reductions in manufacturing
costs through automation, yield improvements and other improvements in the
manufacturing processes.
There can be no assurance that we will be able to maintain gross margins
at current levels in future periods. We expect that periodic fluctuations in our
gross margins will continue because of changes in our sales and product mix,
manufacturing constraints, competitive pricing pressures, higher costs resulting
from new production facilities, manufacturing yields, acquisitions of businesses
that may have different margins than ours and inefficiencies associated with new
product introductions.
30
31
Research and Development Expense. R&D expense of $113.4 million or 8% of
net sales represented an increase of $60.9 million or 116% over pro forma 1999
expense of $52.5 million or 9% of pro forma net sales. 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, and the continued
development and enhancement of existing products and the inclusion of our
acquisitions during 2000 from the date of acquisition.
We are committed to continuing our significant R&D expenditures and
expect that 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, although R&D expenses may vary as a percentage of net sales in
future periods. In addition, 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. Selling, general and
administrative expense (SG&A) of $172.9 million or 12% of net sales represented
an increase of $101.4 million or 142% over pro forma 1999 expense of $71.5
million or 12% of net sales. The increase in 2000 is primarily a result of
higher SG&A costs due to the hiring of additional administrative personnel and
inclusion of our 2000 acquisitions expenses subsequent to the date of
acquisition. As a percentage of net sales, SG&A for 2000 was consistent with pro
forma 1999 SG&A. As our business continues to grow, 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 expect to continue incurring
charges to operations, which to date have been within management's expectations,
associated with integrating recent acquisitions.
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 expect to incur charges to operations, which are not currently estimable, in
2001 to reflect costs associated with integrating E-TEK's operations.
Amortization of Purchased Intangibles. Since 1995, we have entered into
several mergers and acquisitions that generated approximately $23.3 billion in
identified intangibles (primarily developed technology) and goodwill. In 2000,
API was $896.9 million or 63% of net sales, which represented an increase of
$209.4 million or 30% over pro forma 1999 API of $687.5 million or 117% of net
sales. The pro forma 1999 API is calculated as the 12 months amortization
expense for JDS FITEL, which would have been incurred in 1999 assuming that the
merger between Uniphase and JDS FITEL was completed on July 1, 1998. The
increase in API in 2000, is primarily due to the intangible assets generated
from the acquisitions of AFC, Ramar, EPITAXX, SIFAM, Oprel, IOT, OCLI, Cronos,
and Casix during 2000 (see Note 9 of Notes to Consolidated Financial
Statements).
Our API will increase significantly in future periods as a result of our
acquisitions during 2000 as well as the E-TEK acquisition that was completed on
June 30, 2000 and, accordingly, we expect to report losses for the foreseeable
future. Goodwill and other intangibles arising from our acquisitions in 2000
totaled $19.8 billion, including the related deferred tax effect, and are
currently being amortized over periods ranging from 3 -- 15 years. We also
expect to incur significant additional API related to our pending acquisition of
SDL. In addition, API could change because of other acquisitions or impairment
of existing identified intangible assets and goodwill in future periods.
Acquired In-Process Research and Development. In 2000, we recorded
charges of $360.7 million or 25% of net sales for acquired in-process research
and development resulting from the acquisitions of EPITAXX ($16.7 million),
SIFAM ($3.0 million), OCLI ($84.1 million), Cronos ($6.3 million) and E-TEK
($250.6 million). In 1999, we recorded $210.4 million or 36% of pro forma net
sales of acquired in-process research and development resulting from the former
Uniphase Corporation's merger with JDS FITEL. See Note 9 of Notes to
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 technology, stage of
development, estimated completion costs, and time to complete at the date of the
merger for our significant 2000 acquisitions, 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.
Interest and Other Income. Net interest and other income of $35.3
million for 2000 represented an increase of $24.9 million from pro forma 1999
income of $10.4 million. The increase in interest and other income was the
result of higher investment balances obtained through cash generated from
operating activities, our acquisition of OCLI and the completion of a public
offering of our common stock and a private placement of Exchangeable shares in
August 1999 that generated $713.6 million in cash, net of transaction costs.
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OPERATING SEGMENT INFORMATION -- ACTUAL
Components. Net Sales for 2000 increased $673.6 million or 407% from
1999. This increase is primarily as a result of the merger with JDS FITEL and
increased demand across a broad range of products. Please refer to the
comparison of pro forma combined 1999 sales to 2000 sales at the end of this
discussion. Net sales for 1999 increased $82.6 million or 100% from 1998. This
increase reflects the introduction of several new products including a high
powered 980-nm pump laser, the submarine 980-nm pump laser and a wavelength
locker. Net Sales for 1999 also includes a full years contribution to net sales
from the acquisition of UNL accounted for as a purchase in June 1998.
Operating income for 2000 increased $287.8 million or 541% from 1999.
This increase reflects the increased sales as discussed above and the change in
the product mix as a result of the merger with JDS FITEL. Operating income for
1999 increased $29.4 million or 123% from 1998. This was the result of the
increased sales discussed above as well as the higher volumes enabled by final
qualification of Uniphase Laser Enterprise's ("ULE") new wafer fabrication
facility.
Modules. Net Sales for 2000 increased $367.2 million or 592% from 1999.
This increase is primarily a result of the merger with JDS FITEL and increased
demand for optical amplifiers. Please refer to the comparison of pro forma
combined 1999 sales to 2000 sales. Net sales for 1999 increased $27.7 million or
81% from 1998. This increase reflects the introduction of new products such as
the 1310-nm CATV transmitter product line.
Operating income for 2000 increased $75.9 million or 477% from 1999.
This increase reflects the increased sales as discussed above and the change in
product mix as a result of the merger with JDS FITEL. Operating income for 1999
increased $13.2 million or 489% from 1998. This was the result of the increased
sales discussed above and the costs incurred in 1998 to develop the 1310-nm
transmitter products and the discontinuance of a small specialty product line in
the same period.
OPERATING SEGMENT INFORMATION -- PRO FORMA NET SALES
The following supplemental operating segments table compares actual
operating segment information for net sales of JDS Uniphase for 2000 with pro
forma operating segment information of the former Uniphase Corporation and JDS
FITEL combined for 1999.
PRO FORMA
NET SALES
AS REPORTED UNIPHASE AND AS REPORTED
GAAP JDS FITEL GAAP
NET SALES COMBINED NET SALES
----------- ------------ -----------
YEAR ENDED, JUNE 30,
----------------------------------------------
2000 1999 1999
-------- -------- --------
(IN MILLIONS)
Components:
Shipments ............................ $ 961.8 $ 399.0 $ 169.4
Intersegments sales .................. (122.6) (15.9) (3.8)
-------- -------- --------
Net sales to external customers ...... 839.2 383.1 165.6
Modules:
Shipments ............................ 429.5 149.6 62.0
Intersegments sales .................. (0.3) -- --
-------- -------- --------
Net sales to external customers ...... 429.2 149.6 62.0
Net sales by reportable segments ....... 1,268.4 532.7 227.6
All other net sales .................... 162.0 55.2 55.2
-------- -------- --------
$1,430.4 $ 587.9 $ 282.8
======== ======== ========
Components. Shipments for 2000 increased $562.8 million or 141% from
1999 pro forma net sales. This increase reflects the $109.0 million impact from
entities acquired in 2000, $106.7 million increase in intersegment shipments in
support of module growth and increased customer demand for virtually all product
families.
Modules. Net sales for 2000 increased $279.6 million or 187% from 1999
pro forma net sales. This increase is primarily a result of increased demand for
optical amplifiers. None of the entities acquired in 2000 were classified within
the module segment.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, our combined balance of cash, cash equivalents and
short-term investments was $1,114.3 million. For the year, we met our liquidity
needs through cash generated from operating activities. Net cash provided by
operating activities was $281.0 million in 2000, compared with $67.0 million and
$51.0 million in 1999 and 1998, respectively.
Cash provided by operating activities during 2000 was $281.1 million.
The net loss of $904.7 million included non cash charges for depreciation and
amortization of $950.7 million and acquired in-process research and development
costs of $360.7 million, offset by a net increase in deferred tax liabilities of
$78.9 million. Increases in accounts receivable of $132.9 million resulted from
higher sales. Inventories increased $94.7 million to meet the ongoing increases
in demand for nearly all of our component and module products. Cash flow from
operating activities also benefited from increases in other liabilities and
taxes payable of $174.9 million and an increase in other current assets of $5.5
million. Increases to accounts receivable, inventories and other working capital
attributable to our acquisitions in 2000 are excluded from operating cash flow
as the acquisition of these balances is not a result of operations (see Note 9
of Notes to Consolidated Financial Statements).
Cash used in investing activities was $819.6 million in 2000 compared
with $40.3 million and $45.7 million for 1999 and 1998, respectively. Our
acquisitions of OCLI, Cronos, and E-TEK in 2000, provided $295.4 million in
cash, net of transaction related costs of approximately $9.3 million. This was
partially offset by cash used of $195.6 million for the acquisitions of AFC,
Ramar, EPITAXX, SIFAM, Oprel, IOT, and Casix as well as other acquisition
related activities during 2000. In 2000 we incurred capital expenditures of
$280.0 million primarily for facilities improvements and equipment purchases to
expand our manufacturing capacity throughout the company and the purchase and
installation of a new ERP system. We expect to continue to expand our worldwide
manufacturing capacity, primarily for telecommunications products, by making
approximately $ 750.0 million in capital expenditures for 2001. In addition, we
invested excess net cash of $638.6 million in short-term investments during
2000.
We generated $782.1 million and $15.4 million in cash from financing
activities in 2000 and 1999, respectively, as compared to cash used in financing
activities of $1.7 million in 1998. Cash of $713.5 million in 2000 was
attributable to our sale of common stock in a public offering and a private
placement of Exchangeable Shares in August 1999. In 2000, we generated $113.7
million from the exercise of stock options and the sale of stock through our
employee stock purchase plan and used $45.1 million to repay a portion of the
debt assumed from our acquisitions in 2000.
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 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.
The Company has outstanding as of June 30, 2000, debt totaling $56.1
million, assumed from entities acquired in 2000 (see Note 2 of Notes to
Consolidated Financial Statements). The Company can, at its election, prepay the
debt. In addition, the Company has lines of credit totaling $60.0 million
Canadian (approximately U.S. $40.0 million) and $1 billion Yen (approximately
U.S. $10 million).
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS
E-TEK
An independent valuation specialist performed an allocation of the total
purchase price of E-TEK to its individual assets. Of the total purchase price,
$250.6 million has been allocated to in-process research and development
("IPRD") and was charged to expense in the quarter ended June 30, 2000. The
remaining purchase price has been allocated specifically to identifiable assets
acquired.
After allocating value to the IPRD projects and E-TEK's tangible assets,
specific intangible assets were then identified and valued. The identifiable
intangible assets include existing technology, core technology, trademarks and
tradename, and assembled workforce.
The IPRD is comprised of three main categories: (1) wavelength division
multiplexers (WDMs); (2) submarine products; and (3) other component products
and modules. The following is a brief description of each IPRD project as of the
date of the acquisition:
WDMs. E-TEK is developing a number of different WDM components and
modules. Narrowband WDM multiplexers combine light sources of different
wavelengths for simultaneous transmission along a single fiber. E-TEK's current
development efforts on narrowband WDM is to increase the number of optical
signals transmitted simultaneously on a single fiber. E-TEK expects the current
development cycle for these new WDM components and modules to continue for
another 2 months, with expected completion dates in the third quarter of
calendar 2000. Development costs incurred on WDM products to date are
approximately $3.8 million with
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estimated cost to complete of approximately $0.4 million, which E-TEK expects to
incur ratably for the remainder of the development cycle.
Submarine Products. E-TEK is continuing to develop its new submarine
products, including high reliability isolators for undersea networks. An
isolator prevents reflected signals from traveling past it in the wrong
direction while still allowing the unimpeded passage of signals in the original
direction. Isolators must offer low signal loss, which means that a high
percentage of light passes through and only small amounts of light are lost.
E-TEK expects the current development cycle for its submarine products to
continue for 12 months, with expected completion dates in the second quarter of
calendar 2001. Development costs incurred on submarine products to date are
approximately $0.5 million with estimated cost to complete of approximately $0.8
million, which E-TEK expects to incur ratably for the remainder of the
development cycle.
Other Component Products and Modules. E-TEK is continuing its
development of a variety of other new components and modules including improved
versions of:
- attenuators, which are used to adjust the strength of optical
signals;
- circulators, which are used to direct signals;
- switches, which are used to flexibly reroute signals;
- dispersion equalization modules, which ensure that an optical
signal arrives cleanly at the end of an optical fiber. Different
colors of light travel along an optical fiber at slightly
different speeds, and light signals that carry information
always have some small variation in the color of the light. The
dispersion equalization modules cancel out those differences in
speed so that all the colors of the light signal arrive at the
same time; and
- optical performance monitors, which watch the optical signals
passing through an optical fiber. They count which wavelengths
(colors) of light signals are present. They check to see how
strong each wavelength signal is and whether it is interfering
with other signals. As communication systems move more towards
optical networks, these traffic monitors become increasingly
important to prevent "optical gridlock."
E-TEK's development effort for Other Component Products and Modules is
aimed at enhancing their performance and enable their deployment in metropolitan
fiber optic networks and cable television networks. E-TEK expects the current
development cycle for these components and modules to continue for between 2 to
7 months, with expected completion dates in the third and fourth quarters of
calendar 2000. Development costs incurred on these components and modules to
date are approximately $3.6 million with estimated cost to complete of
approximately $1.0 million, which E-TEK expects to incur ratably for the
remainder of the development cycle.
VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT
The value assigned to IPRD was determined by considering the relative
importance of each project to the overall development plan, estimating costs to
develop the purchased IPRD into commercially viable products, estimating the
resulting net cash flows from the projects when completed and discounting the
net cash flows to their present value. The revenue estimates used to value the
purchased IPRD were based on estimates of relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of new
product introductions by E-TEK and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on E-TEK's weighted average cost of capital. Given the nature of the
risks associated with the difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, anticipated market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets, the weighted average cost of
capital was adjusted. Based on these factors, discount rates of 12% and 20% were
deemed appropriate for the existing and in-process technology, respectively.
The estimates used in valuing IPRD were based upon assumptions believed
to be reasonable but which are inherently uncertain and unpredictable.
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 E-TEK's financial condition and results of
operations.
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35
With respect to the in-process technologies, the calculations of value
were adjusted to reflect only the value creation efforts of E-TEK prior to the
merger. Following are the estimated completion percentages and technology lives:
EXPECTED
PERCENT TECHNOLOGY
PROJECT COMPLETED LIFE
- ------- ---------- ----------
WDMs.......................................................... 92% 5 years
Submarine Products............................................ 39% 5 years
Other Component Products and Modules.......................... 50% to 92% 5 years
The value assigned to each IPRD project is as follows (in millions):
WDMs............................................................................. $ 124.5
Submarine Products............................................................... 18.5
Other Component Products and Modules............................................. 107.6
--------
Total in-process research and development.............................. $ 250.6
========
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through analysis of data provided by E-TEK concerning developmental products,
their stage of development, the time and resources needed to complete them, and,
if applicable, their expected income generating ability, target markets and
associated risks. The Income Approach, which includes an analysis of the
markets, cash flows and risks associated with achieving such cash flows, was the
primary technique utilized in valuing the developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and were charged to expense upon closing of the merger. E-TEK
estimates that a total investment of $2.2 million in research and development
over the next 2 to 12 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.
CRONOS
An independent appraiser performed an allocation of the total purchase
price of Cronos to its individual assets. Of the total purchase price, $6.3
million has been allocated to IPRD and was charged to expense in the quarter
ended June 30, 2000. The remaining purchase price has been allocated
specifically to identifiable assets acquired.
After allocating value to the IPRD projects and Cronos's tangible
assets, specific intangible assets were then identified and valued. The
identifiable intangible assets include existing technology, proprietary know-
how or core technology, and assembled workforce.
The IPRD is comprised of three main categories: (1) RF microrelays; (2)
variable optical attenuators; and (3) active fiber aligners. The following is a
brief description of each IPRD project as of the date of the acquisition:
RF Microrelays. Cronos' current engineering efforts are focused on the
development of miniature electrical relays (switches) based upon
micro-mechanical systems ("MEMS") technology. Manufactured using traditional
semiconductor process techniques, MEMS devices are compact, high performance,
reliable and, in high volume applications, low cost. In particular, MEMS
technology makes it possible to produce compact arrays of low cost relays that
can be manufactured in a wide variety of custom configurations. Cronos expects
the development cycle to continue for approximately 7 months with completion
scheduled by the end of the fourth quarter in calendar year 2000. Development
costs incurred on those products to date are approximately $0.2 million with
estimated cost to complete of approximately $0.1 million, which Cronos expects
to incur ratably for the remainder of the development cycle. Cronos believes the
associated risks of developing these products to commercial viability include
potential difficulties meeting customer and market performance specifications
and competition from products using competing technologies that offer comparable
functionality.
Variable Optical Attenuators. Current development efforts are focused on
the development of a MEMS based device that is used to attenuate light
transmitted in optical fiber telecommunications. These miniature low cost
devices use a continuously movable "shutter" to provide variable attenuation of
the transmitted light in a wide variety of applications. They typically replace
larger and more costly mechanical systems that use a stepper motor to move a
conventional shutter blade. Cronos expects the development cycle to continue for
approximately 2 months with completion expected in the second quarter of
calendar year 2000. Development costs
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36
incurred on those products to date are approximately $0.4 million with estimated
cost to complete of approximately $0.1 million, which Cronos expects to incur
ratably for the remainder of the development cycle. Cronos believes the
associated risks of developing these products to commercial viability include
potential difficulties meeting customer and market performance specifications
and competition from products using competing technologies that offer comparable
functionality.
Active Fiber Aligner. This work is focused on the development of a
miniature MEMS based three dimensional stage that can be used to actively
position optical fibers in optical systems, typically for telecommunications
applications. The purpose of this device is to provide an active capability to
move the optical fiber in 3 dimensions so as to achieve or maintain optimum
optical alignment. It is believed that these devices can provide a simpler and
less expensive route to fiber alignment than other currently available
solutions. Cronos expects the development cycle to continue for approximately 14
months with completion expected in the second quarter of calendar year 2001.
Development costs incurred on those products to date are approximately $0.5
million with estimated cost to complete of approximately $0.1 million, which
Cronos expects to incur ratably for the remainder of the development cycle.
Cronos believes the associated risks of developing these products to commercial
viability include potential difficulties meeting customer and market performance
specifications and competition from products using competing technologies that
offer comparable functionality.
VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT
The value assigned to IPRD was determined by considering the importance
of each project to the overall development plan, estimating costs to develop the
purchased IPRD into commercially viable products, estimating the resulting net
cash flows from the projects when completed and discounting the net cash flows
to their present value. The revenue estimates used to value the purchased IPRD
were based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions by Cronos and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on Cronos' weighted average cost of capital. Given the nature of the
risks associated with the difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, anticipated market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets, the weighted average cost of
capital was adjusted. Based on these factors, discount rates of 12% and 20% were
deemed appropriate for the existing and in-process technology, respectively.
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 Cronos' financial condition and results of
operations.
With respect to the in-process technologies, the calculations of value
were adjusted to reflect the value creation efforts of Cronos prior to the
acquisition. The range of estimated completion percentages and technology lives
are 63% to 83% and 5 years, respectively. The value assigned to the in-process
technologies was $6.3 million.
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by Cronos concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the acquisition.
Cronos estimates that a total investment of approximately $0.3 million in
research and development over the next 15 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.
OCLI
An independent appraiser performed an allocation of the total purchase
price of OCLI to its individual assets. Of the total purchase price, $84.1
million has been allocated to IPRD and was charged to expense in the third
quarter of 2000. The remaining purchase price
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37
has been allocated to specifically identifiable tangible and intangible assets
acquired, including an adjustment to write up property and equipment of OCLI to
fair value by $28.0 million.
The identifiable intangible assets include existing technology,
proprietary know-how, trademarks and trademark and tradename, and assembled
workforce.
The IPRD relates to sophisticated optical components, filters and
materials that manage light propagation in today's most advanced
telecommunications systems, projection display engines and state of the art
optically variable security devices. The IPRD is comprised of three main
categories: (1) thin film filters and switches, (2) optical display and
projection products, and (3) light interference pigments.
The following is a brief description of each IPRD project as of the date
of the acquisition:
Thin film filters and switches. The main application for these products
is to control the reflection, refraction, transmission and absorption of
lightwave signals that are transmitted through fiberoptic cables. OCLI's current
development efforts are directed toward improved spectral precision and enhanced
wavelength division capability of the filters and switches. Products in-process
include switches, filter lock lasers, add-drop multiplexers and dispersion
compensators, which are in the exploratory through the prototype stages of the
development cycle. OCLI expects the development cycle to range between 3 and 25
months with expected completion dates from the second quarter of calendar year
2000 through the first quarter of calendar year 2002. Development costs incurred
on those products to date are approximately $7.6 million with estimated cost to
complete of approximately $22.0 million, which OCLI expects to incur ratably for
the remainder of the development cycle. OCLI believes the associated risks of
developing these products to commercial viability include potential difficulties
meeting customer and market performance specifications and competition from
products using competing technologies that offer comparable functionality.
Optical display and projection products. The main application for this
product is to control the brightness, contrast and resolution of next generation
display products including computer displays, digital image projectors, flat
panel displays, scanners and personal digital assistants (commonly known as
PDAs). The performance of these products is highly dependent upon optical
components utilizing thin film filter technology coupled with increasingly
smaller size and weight requirements. OCLI is currently in the prototype stage
of the development cycle for this product family and expects the development
cycle to continue for approximately 9 months with completion expected in the
third quarter of calendar year 2000. Development costs incurred to date are
approximately $6.0 million with estimated cost to complete of approximately $3.0
million, which OCLI expects to incur ratably for the remainder of the
development cycle. OCLI believes the associated risks of developing these
products to commercial viability include potential difficulties meeting customer
and market performance specifications and competition from products using
competing technologies that offer comparable functionality.
Light interference pigments. The main application for this product is to
achieve unique color shifting characteristics in security products and
decorative surface treatments. Security related products include bank notes,
passports, credit cards, tax stamps and brand protection labels. Decorative
surface treatments include automotive paint, cosmetics, electronic cases and
apparel. OCLI is currently in the prototype stage of the development cycle for
this product family and expects the development cycle to continue for
approximately 12 months with completion expected in the first quarter of
calendar year 2001. Development costs incurred to date are approximately $8.2
million with estimated cost to complete of approximately $11.3 million, which
OCLI expects to incur ratably for the remainder of the development cycle. OCLI
believes the associated risks of developing these products to commercial
viability include meeting customer and market performance specifications,
meeting customer and market volume requirements and competition from products
using competing technologies that offer comparable functionality.
VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT
The value assigned to IPRD was determined by considering the importance
of each project to the overall development plan, estimating costs to develop the
purchased IPRD into commercially viable products, estimating the resulting net
cash flows from the projects when completed and discounting the net cash flows
to their present value. The revenue estimates used to value the purchased IPRD
were based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions by OCLI and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on OCLI's weighted average cost of capital and the weighted average
return on assets. Given the nature of the risks associated with the difficulties
and uncertainties in completing each project and thereby achieving technological
feasibility, anticipated market acceptance and penetration, market growth rates
and risks related to the impact of potential changes in future target markets,
the weighted average cost of capital was adjusted. Based on these
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38
factors, discount rates of 18% and 25% were deemed appropriate for optical
display and projection products, light interference pigments and thin film
filters and switches, respectively. 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 OCLI's financial
condition and results of operations.
With respect to the in-process technologies, the calculations of value
were adjusted to reflect the value creation efforts of OCLI prior to the
acquisition. Following are the estimated completion percentages and technology
lives:
EXPECTED
PERCENT TECHNOLOGY
PROJECT COMPLETED LIFE
- ------- ---------- --------------
Thin film filter............................................ 26% 6 -- 10 years
Optical display and projection products..................... 67% 10 years
Light interference pigments................................. 42% 10 -- 15 years
The value assigned to each IPRD is as follows (in millions):
Thin film filter............................................................. $ 56.9
Optical display and projection products...................................... 12.8
Light interference pigments.................................................. 14.4
-------
Total acquired in-process research and development................. $ 84.1
=======
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by OCLI concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the acquisition. OCLI
estimates that a total investment of $36.3 million in research and development
over the next 20 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.
SIFAM
An independent appraiser performed an allocation of the total purchase
price of SIFAM to its individual assets. Of the total purchase price, $3.0
million has been allocated to IPRD and was charged to expense in the quarter
ended December 31, 1999. The remaining purchase price has been allocated
specifically to identifiable assets acquired.
After allocating value to the IPRD projects and SIFAM's tangible assets,
specific intangible assets were then identified and valued. The identifiable
intangible assets include existing technology, proprietary know-how or core
technology, and assembled workforce.
The IPRD is comprised of three main categories: (1) miniature couplers;
(2) combined components; and (3) micro-optic devices. The following is a brief
description of each IPRD project as of the date of the acquisition:
Miniature Couplers. SIFAM's current engineering efforts are focused on
reducing the coupler dimensions and building prototypes based on completed
feasibility studies. SIFAM expects the development cycle to continue for
approximately 3 months with completion scheduled by the end of the first quarter
in calendar year 2000. Development costs incurred on those products to date are
approximately $0.04 million with estimated cost to complete of approximately
$0.01 million, which SIFAM expects to incur ratably for the remainder of the
development cycle. SIFAM believes the associated risks of developing these
products to commercial viability include potential difficulties meeting customer
and market performance specifications and competition from products using
competing technologies that offer comparable functionality.
38
39
Combined Components. Current development efforts relate to integration
of various components into a single package. This will provide customers with a
single module that has multiple functionality previously offered only in
separate components. Integrated components also improve overall system
performance and reliability. SIFAM expects the development cycle to continue for
approximately 6 months with completion expected in the second quarter of
calendar year 2000. SIFAM believes the associated risks of developing these
products to commercial viability include potential difficulties meeting customer
and market performance specifications and competition from products using
competing technologies that offer comparable functionality.
Micro-optic Devices. Engineering effort in this area encompasses
development of other passive components used in optical telecommunications
networks. SIFAM expects the development cycle to continue for approximately 15
months with completion expected in the second quarter of calendar year 2001.
Development costs incurred on those products to date are approximately $0.06
million with estimated cost to complete of approximately $0.14 million, which
SIFAM expects to incur ratably for the remainder of the development cycle. SIFAM
believes the associated risks of developing these products to commercial
viability include potential difficulties meeting customer and market performance
specifications and competition from products using competing technologies that
offer comparable functionality.
VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT
The value assigned to IPRD was determined by considering the importance
of each project to the overall development plan, estimating costs to develop the
purchased IPRD into commercially viable products, estimating the resulting net
cash flows from the projects when completed and discounting the net cash flows
to their present value. The revenue estimates used to value the purchased IPRD
were based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions by SIFAM and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on SIFAM's weighted average cost of capital. Given the nature of the
risks associated with the difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, anticipated market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets, the weighted average cost of
capital was adjusted. Based on these factors, discount rates of 12% and 18% were
deemed appropriate for the existing and in-process technology, respectively.
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 SIFAM's financial condition and results of
operations.
With respect to the in-process technologies, the calculations of value
were adjusted to reflect the value creation efforts of SIFAM prior to the
acquisition. The range of estimated completion percentages and technology lives
are 30% to 79% and 5 years, respectively.
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by SIFAM concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the acquisition. SIFAM
estimates that a total investment of approximately $0.2 million in research and
development over the next 15 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.
EPITAXX
An independent appraiser performed an allocation of the total purchase
price of EPITAXX to its individual assets. Of the total purchase price, $16.7
million has been allocated to IPRD and was charged to expense in the quarter
ended December 31, 1999. The remaining purchase price has been allocated to
specifically identifiable assets acquired.
39
40
After allocating value to the IPRD projects and EPITAXX's tangible
assets, specific intangible assets were then identified and valued. The
identifiable intangible assets include existing technology, trademarks and
tradenames, and assembled workforce.
The IPRD relates to optical detectors and receivers for long-haul
terrestrial, submarine, and metro dense wavelength division multiplexing
("DWDM") applications. The IPRD is comprised of two main categories: (1) high
speed receivers, and (2) an optical spectrum analyzer product.
The following is a description of each IPRD project as of the date of
the acquisition:
High Speed Receivers. Recently, the number of channels offered in DWDM
systems has grown from 4 to 160. This trend has simultaneously multiplied the
number of receivers used in the network, since receivers are used for each
channel at both sides of the fiber optic link as wavelength translation is
required. As channel and bit rates grow, increasing numbers of higher
performance receivers will be required. EPITAXX's current engineering efforts
are focused on developing both a K package and a coplanar package, as well as
development of highly integrated optical receiver products. The output of the K
package is easily accessible via a coax cable, while the output of the coplanar
device is via leads on the package, which can be soldered directly onto a
receiver board, which simplifies large volume manufacturing. Integration of
electronic functions in both multi-chip modules and at the circuit board
subsystem level will allow EPITAXX to offer a complete optical receiver solution
to DWDM system level end users who may not possess microwave and digital design
resources. EPITAXX expects the development cycle to continue for approximately 6
and 12 months, with expected completion dates from the second through fourth
quarters of calendar year 2000. Development costs incurred on those products to
date are approximately $0.4 million with estimated cost to complete of
approximately $0.5 million, which EPITAXX expects to incur ratably for the
remainder of the development cycle. EPITAXX believes the associated risks of
developing these products to commercial viability include potential difficulties
meeting customer and market performance specifications and competition from
products using competing technologies that offer comparable functionality.
Optical Spectrum Analyzer. This product has the ability to monitor all
wavelengths being used in a network and is an addition to the existing product
line related to network monitoring. Current development efforts relate to the
creation of a photodiode array, read-out integrated circuit, and optics
integration. EPITAXX expects the development cycle to continue for approximately
13 months with completion expected in the fourth quarter of calendar year 2000.
Development costs incurred to date are approximately $0.2 million with estimated
cost to complete of approximately $0.3 million, which EPITAXX expects to incur
ratably for the remainder of the development cycle. EPITAXX believes the
associated risks of developing these products to commercial viability include
potential difficulties meeting customer and market performance specifications
and competition from products using competing technologies that offer comparable
functionality.
VALUE ASSIGNED TO IN-PROCESS RESEARCH AND DEVELOPMENT
The value assigned to IPRD was determined by considering the importance
of each project to the overall development plan, estimating costs to develop the
purchased IPRD into commercially viable products, estimating the resulting net
cash flows from the projects when completed and discounting the net cash flows
to their present value. The revenue estimates used to value the purchased IPRD
were based on estimates of relevant market sizes and growth factors, expected
trends in technology and the nature and expected timing of new product
introductions by EPITAXX and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on EPITAXX's weighted average cost of capital. Given the nature of the
risks associated with the difficulties and uncertainties in completing each
project and thereby achieving technological feasibility, anticipated market
acceptance and penetration, market growth rates and risks related to the impact
of potential changes in future target markets, the weighted average cost of
capital was adjusted. Based on these factors, discount rates of 12% and 18% were
deemed appropriate for the existing and in-process technology, respectively.
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 EPITAXX's financial condition and results of
operations.
With respect to the in-process technologies, the calculations of value
were adjusted to reflect the value creation efforts of EPITAXX prior to the
acquisition. The range of estimated completion percentages and technology lives
are 25% to 32% and 7 years, respectively.
40
41
The value assigned to each IPRD is as follows (in millions):
High Speed Receivers............................................... $ 8.9
Optical Network Monitoring......................................... 7.8
-------
Total IPRD............................................... $ 16.7
=======
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by EPITAXX concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the acquisition.
EPITAXX estimates that a total investment of approximately $0.8 million in
research and development over the next 13 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.
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 IPRD projects. The current status of the IPRD projects for all
major mergers and acquisitions during the past three years are as follows:
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 is substantially complete at a cost
consistent with our expectations. The variable optical attenuators and active
fiber aligners development projects are progressing as expected at a cost
consistent with our expectations.
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 24 months. The Company
has incurred post acquisition costs of approximately $2.0 million with an
estimated cost to complete the remaining projects of $10.0 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 $0.2 million
and estimates that cost to complete these projects will be another $12.2 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 is substantially complete at a cost consistent
with our expectations. Combined components development is expected to continue
for six months with an estimated cost to complete this product of $0.3 million.
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.
41
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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 expected to continue for approximately six
months, with expected cost to complete of approximately $0.2 million which
EPITAXX expects to incur ratably for the remainder of the development cycle.
Optical spectrum analyzer development is expected to continue approximately six
months with expected cost to complete of approximately $0.1 million which
EPITAXX expects to incur ratably for the remainder of the development cycle.
JDS FITEL
The products under development at the time of our merger included: (i)
Thermo Optic Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz WDM,
and (iv) Erbium Doped Fiber Amplifiers ("EDFA"). Thermo Optic Waveguide
Attenuator development is expected to continue for approximately six months at a
cost of approximately $0.4 million ratably until its completion. Solid State
Switch, WDM and EDFA developments are substantially complete at a cost
consistent with our expectations.
UNIPHASE NETHERLANDS
The product introductions for the WDM lasers -- CW and direct
modulation, and DFB/EA modulators are either on schedule or are approximately
six months behind schedule. 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. 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 $8.7 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.
UNIPHASE FIBER COMPONENTS
The initial products developed for submarine and unpackaged technology
projects were completed approximately on schedule and post-acquisition research
and development expenses approximately equaled the estimated cost to complete at
the acquisition date. The Company is experiencing higher levels of demand for
the submarine products than anticipated in the original estimates. The
temperature compensation project is behind schedule because of unforeseen
technical difficulties in maintaining specifications at the harshest
environmental test points, although we are satisfied with the developments
achieved to date, and expect the development of this project to be substantially
completed by the end of the second quarter of 2001. The dispersion compensation
project is significantly behind schedule and the market does not appear to be
developing as anticipated. The Add-Drop projects were discontinued concurrent
with the merger with JDS FITEL. We have incurred post-acquisition research and
development expenses of approximately $3.8 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 affect our results of operations and financial position.
UNIPHASE LASER ENTERPRISE
The submount and RWG series products were released on schedule and
post-acquisition research and development expenses approximately equaled the
estimated cost to complete at the acquisition date. Actual revenue for these
products has significantly exceeded the estimates used in the valuation of the
technology. We did not pursue development of the distributed feedback laser
because of resources being redirected to expand the submount and RWG series
development program in response to strong market demand. The high power project
is somewhat delayed because of shifting R&D resources to submount/RWG. We have
incurred post-acquisition research and development expenses of approximately
$8.3 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
FOREIGN EXCHANGE
We generate a significant portion of our sales from sales to customers
located outside the United States, principally in Europe. International sales
are made mostly from our foreign subsidiaries in the local countries and are
typically denominated in either U.S. dollars or the local currency of each
country. These subsidiaries also incur most of their expenses in the local
currency. Accordingly, all foreign subsidiaries use the local currency as their
functional currency.
Our international business is subject to risks typical of an
international business including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely impacted by changes in these or
other factors.
We use forward foreign exchange contracts as the vehicle for hedging
certain assets and liabilities denominated in foreign currencies. In general,
these forward foreign exchange contracts have three months or less to maturity.
Gains and losses on hedges are recorded in non-operating other income as an
offset against losses and gains on the underlying exposures. Management of the
foreign exchange hedging program is done in accordance with corporate policy.
At June 30, 2000, hedge positions totaled U.S. dollar $81.1 million
equivalent. All hedge positions are carried at fair value and all hedge
positions had maturity dates within three months.
INTEREST RATES
We invest our cash in a variety of financial instruments, including
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 of these factors, the Company's future investment income
may fall short of expectations because of changes in interest rates or the
Company may suffer loses 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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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
JDS UNIPHASE CORPORATION
We have audited the accompanying consolidated balance sheets of JDS
Uniphase Corporation as of June 30, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 2000. Our audits also included the
financial statement schedule listed in the index at Item 14. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of JDS
Uniphase Corporation at June 30, 2000 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 2000 in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
-------------------------------
San Jose, California
July 24, 2000, except for Note 13
as to which date is October 20, 2000
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JDS UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
YEARS ENDED JUNE 30,
-------------------------------------------------
2000 1999 1998
--------- --------- ---------
Net sales .......................................... $ 1,430.4 $ 282.8 $ 185.2
Cost of sales ...................................... 751.6 138.7 96.1
--------- --------- ---------
Gross profit ..................................... 678.8 144.1 89.1
Operating expenses:
Research and development ......................... 113.4 27.0 14.8
Selling, general and administrative .............. 172.9 37.4 39.9
Amortization of purchased intangibles ............ 896.9 15.7 5.6
Acquired in-process research and development ..... 360.7 210.4 40.3
Merger and other costs ........................... -- 6.8 --
--------- --------- ---------
Total operating expenses ........................... 1,543.9 297.3 100.6
--------- --------- ---------
Loss from operations ............................... (865.1) (153.2) (11.5)
Interest income .................................... 40.7 4.0 3.0
Interest expense ................................... (0.5) -- (0.1)
Other income (expense), net ........................ (4.9) (0.4) 0.4
--------- --------- ---------
Loss before income taxes ........................... (829.8) (149.6) (8.2)
Income tax expense ................................. 74.9 21.5 11.4
--------- --------- ---------
Net loss ........................................... $ (904.7) $ (171.1) $ (19.6)
========= ========= =========
Basic and dilutive loss per share .................. $ (1.27) $ (0.54) $ (0.07)
========= ========= =========
Shares used in per share calculation:
Basic and dilutive ............................... 710.9 318.2 283.6
========= ========= =========
See accompanying notes to consolidated financial statements.
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JDS UNIPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
JUNE 30,
-----------------------------
2000 1999
--------- ---------
Current assets:
Cash and cash equivalents ............................................................... $ 319.0 $ 75.4
Short-term investments .................................................................. 795.3 158.5
Accounts receivable, less allowances for doubtful accounts of $8.2 at June 30, 2000
and $1.1 at June 30, 1999 ............................................................. 381.6 120.9
Inventories ............................................................................. 375.4 87.9
Refundable income taxes ................................................................. 8.1 4.8
Deferred income taxes ................................................................... 62.4 7.9
Other current assets .................................................................... 31.1 8.2
--------- ---------
Total current assets ............................................................. 1,972.9 463.6
Property, plant, and equipment, net ....................................................... 670.7 181.1
Deferred income taxes ..................................................................... 642.7 5.4
Goodwill and other intangible assets ...................................................... 22,337.8 3,444.2
Long-term investments ..................................................................... 760.9 --
Other assets .............................................................................. 4.1 1.8
--------- ---------
Total assets ..................................................................... $26,389.1 $ 4,096.1
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................ $ 195.2 $ 38.1
Accrued payroll and related expenses .................................................... 98.8 27.2
Income taxes payable .................................................................... 108.6 37.2
Other current liabilities ............................................................... 244.6 46.3
--------- ---------
Total current liabilities ........................................................ 647.2 148.8
Deferred income taxes ..................................................................... 902.1 318.2
Accrued pension and other employee benefits ............................................... 4.4 6.1
Other non-current liabilities ............................................................. 15.8 3.7
Long-term debt ............................................................................ 41.0 --
Commitments and contingencies .............................................................
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares -- 1,000,000
Series A: 100,000 shares issued and outstanding at June 30, 2000 and 1999 ............. -- --
Series B: 100,000 shares authorized at June 30, 2000 and 1999 ......................... -- --
Undesignated: 1 voting share authorized, issued and outstanding ....................... -- --
Common stock, $0.001 par value
Authorized shares -- 3,000,000,000
Issued and outstanding shares -- 935,928,995 at June 30, 2000 and 643,690,504 at
June 30, 1999 ....................................................................... 0.9 0.6
Additional paid-in capital .............................................................. 25,897.4 3,822.2
Accumulated deficit ..................................................................... (1,102.5) (197.8)
Accumulated other comprehensive income (loss) ........................................... (17.2) (5.7)
--------- ---------
Total stockholders' equity ....................................................... 24,778.6 3,619.3
--------- ---------
Total liabilities and stockholders' equity ....................................... $26,389.1 $ 4,096.1
========= =========
See accompanying notes to consolidated financial statements.
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JDS UNIPHASE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN MILLIONS)
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
--------------- -------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME(LOSS) TOTAL
------ ------ ------ ------ ---------- ----------- ------------- ---------
Balance at June 30, 1997 ..................... -- -- 276.6 $ 0.3 $ 156.7 $ (4.9) $ (0.1) $ 152.0
Shares issued under employee stock
plans and related tax benefits ........... -- -- 8.7 -- 11.3 -- -- 11.3
Preferred and common stock issued to
Philips................................... 0.1 -- 26.1 -- 131.3 -- -- 131.3
Amortization of deferred compensation ...... -- -- -- -- 1.0 -- -- 1.0
Stock compensation ......................... -- -- -- -- 6.9 -- -- 6.9
Dividends on BCP stock ..................... -- -- -- -- -- (0.6) -- (0.6)
Adjustments to conform BCP with
Company's fiscal year end ................ -- -- -- -- -- (1.0) -- (1.0)
Net loss ................................... -- -- -- -- -- (19.6) -- (19.6)
Net unrealized gain (loss) on
securities available-for-sale ............ -- -- -- -- -- -- 0.1 0.1
Foreign currency translation adjustment .... -- -- -- -- -- -- (1.4) (1.4)
---------
Comprehensive loss ......................... -- -- -- -- -- -- -- (20.9)
----- ---- ------ ------ --------- --------- --------- ---------
Balance at June 30, 1998 ..................... 0.1 -- 311.4 0.3 307.2 (26.1) (1.4) 280.0
Shares issued under employee stock
plans and related tax benefits ........... -- -- 12.5 -- 29.5 -- -- 29.5
Common stock and options issued in
connection with JDS FITEL merger,
net of issuance costs .................... -- -- 319.5 0.3 3,482.6 -- -- 3,482.9
Conversion of debt for common stock ........ -- -- 0.4 -- 2.4 -- -- 2.4
Amortization of deferred compensation ...... -- -- -- -- 0.5 -- -- 0.5
Dividends on BCP stock ..................... -- -- -- -- -- (0.6) -- (0.6)
Net loss ................................... -- -- -- -- -- (171.1) -- (171.1)
Net unrealized gain (loss) on
securities available-for-sale ............ -- -- -- -- -- -- (0.2) (0.2)
Foreign currency translation adjustment .... -- -- -- -- -- -- (4.1) (4.1)
---------
Comprehensive loss ......................... -- -- -- -- -- -- -- (175.4)
----- ---- ------ ------ --------- --------- --------- ---------
Balance at June 30, 1999 ..................... 0.1 -- 643.7 0.6 3,822.2 (197.8) (5.7) 3,619.3
---------
Shares issued under employee stock
plans and related tax benefits ........... -- -- 36.6 -- 149.5 -- -- 149.5
Common stock issued
in connection with offerings ............. -- -- 35.8 0.1 713.5 -- -- 713.6
in connection with acquisitions .......... -- -- 219.8 0.2 21,211.4 -- -- 21,211.6
Amortization of deferred compensation ...... -- -- -- -- 0.5 -- -- 0.5
Conversion of Chassis debt ................. -- -- -- -- 0.3 -- -- 0.3
Net loss ................................... -- -- -- -- -- (904.7) -- (904.7)
Net unrealized gain (loss) on
securities available-for-sale ............ -- -- -- -- -- -- (1.8) (1.8)
Foreign currency translation adjustment .... -- -- -- -- -- -- (9.7) (9.7)
---------
Comprehensive loss ......................... -- -- -- -- -- -- -- (916.2)
----- ---- ------ ------ --------- --------- --------- ---------
Balance at June 30, 2000 ..................... 0.1 -- 935.9 $ 0.9 $25,897.4 $(1,102.5) $ (17.2) $24,778.6
===== ==== ====== ====== ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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JDS UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
YEARS ENDED JUNE 30,
--------------------------------------
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES
Net loss ........................................................ $ (904.7) $ (171.1) $ (19.6)
BCP net income for the six months ended December 31, 1997 ....... -- -- (1.0)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation expense ......................................... 52.3 13.9 6.1
Amortization expense ......................................... 898.4 16.8 4.0
Acquired in-process research and development ................. 360.7 210.4 40.3
Stock compensation expense ................................... 0.5 0.5 6.9
Write-off of inventory, equipment and intangible assets ...... -- 2.5 3.6
Change in deferred income taxes, net ......................... (78.9) 5.1 (0.8)
Changes in operating assets and liabilities:
Accounts receivable .......................................... (132.9) (21.5) (12.4)
Inventories .................................................. (94.7) (12.1) 1.7
Refundable income taxes ...................................... -- (0.4) 3.8
Other current assets ......................................... 5.5 (5.1) (1.0)
Income taxes payable ......................................... 18.6 6.2 2.8
Tax benefit on non-qualified stock options ................... 47.8 11.4 6.2
Accounts payable, accrued liabilities, and other
current liabilities ......................................... 108.5 10.4 10.4
-------- -------- --------
Net cash provided by operating activities ......................... 281.1 67.0 51.0
-------- -------- --------
INVESTING ACTIVITIES
Purchase of available-for-sale investments ...................... (2,395.9) (204.8) (187.2)
Sale of available-for-sale investments .......................... 1,757.3 176.4 177.3
Cash acquired from merger with JDS FITEL, net of expenses ....... -- 35.4 --
Cash acquired in the acquisition of E-TEK, net of expenses ...... 190.7 -- --
Cash acquired in the acquisition of OCLI, net of expenses ....... 98.2 -- --
Other acquisitions of businesses, net of cash acquired .......... (189.0) (0.4) (10.8)
Purchase of property, plant and equipment and licenses .......... (280.0) (46.6) (24.9)
Increase in other assets ........................................ (4.8) (0.3) (0.1)
Decrease in other assets ........................................ 3.9 -- --
-------- -------- --------
Net cash used in investing activities ............................. (819.6) (40.3) (45.7)
-------- -------- --------
FINANCING ACTIVITIES
Repayment of notes payable and lease obligations ................ -- -- (6.1)
Repayment of debt acquired ...................................... (45.1) -- --
Proceeds from issuance of common stock in a public offering ..... 713.5 -- --
Proceeds from issuance of common stock other than in the
public offerings ............................................. 113.7 16.0 4.9
Pre-merger dividends paid on BCP stock .......................... -- (0.6) (0.5)
-------- -------- --------
Net cash provided by (used in) financing activities ............... 782.1 15.4 (1.7)
-------- -------- --------
Increase (decrease) in cash and cash equivalents .................. 243.6 42.1 3.6
Cash and cash equivalents at beginning of period .................. 75.4 33.3 29.7
-------- -------- --------
Cash and cash equivalents at end of period ........................ $ 319.0 $ 75.4 $ 33.3
======== ======== ========
See accompanying notes to consolidated financial statements.
48
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Activities
JDS Uniphase Corporation (the "Company" or "JDS Uniphase") was formed by
the merger between Uniphase Corporation and JDS FITEL Inc., pursuant to which
they combined their operations on June 30, 1999. JDS Uniphase is a provider of
advanced fiber optic components and modules. These products are sold to
telecommunications and cable television system providers, which are commonly
referred to as OEMs and include Alcatel, Ciena, Cisco, Corning, Lucent, Marconi,
Motorola, Nortel, ONI Systems, Scientific Atlanta, Siemens, Sycamore and Tyco.
The Company's products are basic building blocks for fiber optic networks and
perform both optical-only, commonly referred to as "passive" functions, and
optoelectronic, commonly referred to as "active" functions, within fiberoptic
networks. The Company's products include semiconductor lasers, high-speed
external modulators, transmitters, amplifiers, couplers, multiplexers,
circulators, tunable filters, optical switches and isolators for fiberoptic
applications. The Company also supplies its OEM customers with test instruments
for both system production applications and network installation. In addition,
the Company designs, manufactures and markets laser subsystems for a broad range
of OEM applications, optical display and projection products used in computer
displays and other similar applications and light interference pigments used in
security products and decorative surface treatments.
Basis of Presentation
The consolidated financial statements include JDS Uniphase and its
wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated.
Cash, Cash Equivalents and Short-term Investments
JDS Uniphase considers all liquid investments with maturities of ninety
days or less when purchased to be cash equivalents. The Company's short-term
investments have initial maturities of greater than ninety days. The Company's
securities are classified as "available-for-sale" in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investment in
Debt and Equity Securities." These investments are carried at fair market value
with any unrealized gains and losses recorded as a separate component of
stockholders' equity. Fair value is based upon market prices quoted on the last
day of the fiscal year. The cost of debt securities sold is based on the
specific identification method. Gross realized gains and losses are included in
interest income and have not been material. The Company's investments consist of
the following:
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN MILLIONS)
JUNE 30, 2000:
Floating rate bonds .................... $128.7 $ -- $ 0.3 $128.4
Municipal bonds ........................ 465.0 -- 1.5 463.5
Auction instruments .................... 69.0 -- -- 69.0
Money market instruments and funds ..... 163.6 -- -- 163.6
------ ------ ------ ------
Total debt investments ................. 826.3 -- 1.8 824.5
Marketable equity investments .......... 16.9 -- -- 16.9
------ ------ ------ ------
Total investments .............. $843.2 $ -- $ 1.8 $841.4
====== ====== ====== ======
JUNE 30, 1999:
Floating rate bonds .................... $ 6.9 $ -- $ -- $ 6.9
Municipal bonds ........................ 80.0 -- 0.1 79.9
Auction instruments .................... 6.0 -- -- 6.0
Money market instruments and funds ..... 83.5 -- -- 83.5
------ ------ ------ ------
$176.4 $ -- $ 0.1 $176.3
====== ====== ====== ======
49
50
The following is a summary of contractual maturities of the Company's
debt investments:
ESTIMATED
AMORTIZED FAIR
COST VALUE
---------- ---------
(IN MILLIONS)
JUNE 30, 2000:
Money market instruments and funds.............................. $ 163.6 $ 163.6
Amounts maturing within one year................................ 226.1 225.9
Amounts maturing after one year, within five years.............. 436.6 435.0
-------- --------
$ 826.3 $ 824.5
======== ========
Available-for-sale investments are included in the consolidated balance
sheets as follows:
2000 1999
-------- --------
(IN MILLIONS)
Cash and cash equivalents........................................ $ 29.2 $ 17.8
Short-term investments........................................... 795.3 158.5
Long-term investments............................................ 16.9 --
-------- --------
Total available-for-sale investments................... $ 841.4 $ 176.3
======== ========
Fair Value of Financial Instruments
The Company has determined the estimated fair value of financial
instruments. The amounts reported for cash, accounts receivable, short-term
borrowings, accounts payable, notes payable and accrued expenses approximate the
fair value because of their short maturities. Investment securities and foreign
currency exchange contracts are reported at their estimated fair value based on
quoted market prices of comparable instruments.
The estimated fair value of fixed rate long-term debt is primarily based
on the borrowing rates currently available to the Company for bank loans with
similar terms and maturities. This fair value approximated the carrying amount
of long-term debt at June 30, 2000.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method)
or market. The components of inventory consist of the following:
JUNE 30,
-----------------
2000 1999
-------- -------
(IN MILLIONS)
Finished goods.......................................... $ 39.2 $ 10.4
Work in process......................................... 176.7 35.9
Raw materials and purchased parts....................... 159.5 41.6
-------- -------
$ 375.4 $ 87.9
======== =======
50
51
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed by the straight-line method over the following estimated useful lives
of the assets: building and improvements, 5 to 45 years; machinery and
equipment, 2 to 10 years; furniture, fixtures, and office equipment, 5 years.
Leasehold improvements are amortized by the straight-line method over the
shorter of the estimated useful lives of the assets or the term of the lease.
The components of property, plant and equipment are as follows:
JUNE 30,
-------------------
2000 1999
-------- --------
(IN MILLIONS)
Land......................................................... $ 33.2 $ 10.0
Building and improvements.................................... 127.4 38.6
Machinery and equipment...................................... 439.8 109.9
Furniture, fixtures and office equipment..................... 40.5 15.3
Leasehold improvements....................................... 28.8 16.4
Construction in progress..................................... 84.1 20.0
-------- --------
753.8 210.2
Less: accumulated depreciation and amortization.............. (83.1) (29.1)
-------- --------
$ 670.7 $ 181.1
======== ========
Equity method of accounting
The Company accounts for investments in joint ventures, limited
liability partnerships and other investments in 50% or less owned companies over
which it has the ability to exercise significant influence using the equity
method of accounting. The Company accounts for the increase or decrease of its
proportionate share of net book value in equity basis investments from the
investees' issuance of stock at a price above or below the net book value per
share as a change to additional paid-in capital. 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.
At June 30, 2000, the Company had the following investments accounted
for using the equity method:
ADVA: On June 30, 2000, the Company acquired E-TEK Dynamics, Inc.
("E-TEK"), which at the time of acquisition had a 31% ownership stake in ADVA, a
publicly traded German company that develops and manufactures fiber optic
components and products At June 30, 2000, the Company's cost and estimated fair
value of its investment in ADVA is $701.1 million. The difference between the
cost of the investment and the underlying equity in the net assets of ADVA will
be amortized over a 5 year period.
The Photonics Fund, LLP: During 2000, the Company contributed $4.8
million for a 40% stake in The Photonics Fund, LLP, a California limited
liability partnership (the "Partnership"), which emphasizes privately negotiated
venture capital equity investments. The Partnership was formed on December 21,
1999 and extends to December 31, 2006, unless extended or terminated as provided
for in the Partnership agreement. At June 30, 2000, the carrying value of the
Company's equity share in the Partnership was $4.8 million. The market value of
the Company's equity share in the Partnership at June 30, 2000 was $12.9
million. The Company's share of the earnings of the Partnership for the quarter
ended June 30, 2000 was $8.1 million, which will be recorded by the Company in
the quarter ended September 30, 2000.
Goodwill and Other Intangible Assets
Intangible assets represent licenses and intellectual property acquired,
purchased intangible assets and the excess acquisition cost over the fair value
of tangible and identified intangible net assets of businesses acquired
(goodwill). Purchased intangible assets include developed technology, trademarks
and trade names, assembled workforces and customer bases. Intangible assets are
being amortized using the straight-line method over estimated useful lives
ranging from 3 to 15 years.
51
52
The amortization and write-off of goodwill and purchased intangibles are
separately presented as a component of operating expenses on the Consolidated
Statement of Operations, whereas the amortization of licenses and other
intellectual property is included in selling, general and administrative
expense. The components of intangible assets are as follows:
JUNE 30,
-------------------------- REMAINING
2000 1999 LIVES
------------ ----------- -------------
(IN MILLIONS)
Goodwill................................... $ 21,307.1 $ 2,583.9 2 - 7 years
Purchased intangibles...................... 1,945.5 881.9 1 - 15 years
Licenses and other intellectual property... 5.6 1.9 1 - 8 years
----------- ----------
23,258.2 3,467.7
Less: accumulated amortization............. (920.4) (23.5)
----------- ----------
$ 22,337.8 $ 3,444.2
=========== ==========
Intangible and other long-lived assets are reviewed whenever indicators
of impairment are present and the undiscounted cash flows are not sufficient to
recover the related asset carrying amount. Intangible assets were reviewed
during the fiscal fourth quarter of 1998 following the Company's acquisition of
Uniphase Netherlands, B.V. ("UNL"). This review indicated that the Uniphase
Fiberoptics Products ("UFP") intangible assets were impaired, as determined
based on the projected undiscounted cash flows from UFP over the next three
years. Cash flow projections took into effect the net sales and expenses
expected from UFP product, as well as maintaining its current manufacturing
capabilities. Consequently, the carry value of the UFP goodwill and other
long-lived assets totaling $2.2 million and $1.5 million, respectively, were
written down as a component of operating expenses during fiscal 1998.
The Company will assess enterprise level goodwill for recoverability if
the market capitalization of the Company is less than its net assets. Impairment
will be measured by using the market value method.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
investments and trade receivables. The Company places its cash equivalents and
short-term investments with high credit-quality financial institutions. The
Company invests its excess cash primarily in auction and money market
instruments, and municipal and floating rate bonds. The Company has established
guidelines relative to credit ratings, diversification and maturities that seek
to maintain safety and liquidity. To date, the Company has not experienced
significant losses on any of these investments. The Company sells primarily to
customers involved in the application of laser technology and the manufacture of
telecommunications products. The Company performs ongoing credit evaluations of
its customers and does not require collateral. The Company provides reserves for
potential credit losses, however, such losses and yearly provisions have not
been significant and have been within management's expectations.
Foreign Currency Translation and Exchange Contracts
The Company's international subsidiaries use their local currency as
their functional currency. Assets and liabilities denominated in foreign
currencies are translated using the exchange rate on the balance sheet dates.
Net sales and expenses are translated using average rates of exchange prevailing
during the year. The translation adjustment resulting from this process is
included as a component of other stockholders' equity and comprehensive income
(loss). Foreign currency transaction gains and losses are not material and are
included in the determination of net income.
During fiscal 2000, the Company entered into forward foreign currency
option contracts to hedge certain balance sheet accounts denominated in Swiss
Francs, Dutch Guilders, Canadian Dollars, British Pounds and Japanese Yen. As of
June 30, 2000, the Company had foreign currency option contracts outstanding as
follows (in millions of equivalent U.S. dollars):
Swiss Francs.................................. $ 7.1
Dutch Guilders................................ 3.5
Canadian Dollars.............................. 68.1
British Pounds................................ 2.0
Japanese Yen.................................. 0.4
-------
$ 81.1
=======
These foreign currency contracts expire on various dates in the first
quarter of fiscal 2001. The difference between the fair value and the amortized
carrying value on foreign currency exchange contracts is immaterial.
52
53
While the contract amounts provide one measure of the volume of the
transactions outstanding at June 30, 2000 they do not represent the amount of
the Company's exposure to credit risk. The Company's exposure to credit risk
(arising from the possible inability of the counterparts to meet the terms of
their contracts) is generally limited to the amount, if any, by which the
counterparts' obligations exceed the obligations of the Company.
Revenue Recognition
The Company recognizes revenue generally at the time of shipment, with
provisions established for estimated product returns and allowances. Revenue on
the shipment of evaluation units is deferred until customer acceptance. The
Company provides for the estimated cost to repair products under warranty at the
time of sale.
Stock Split
On September 28, 1999, the Board of Directors approved a two-for-one
stock split of the common stock and Exchangeable shares that became effective
for holders of record as of December 22, 1999. On January 3, 2000, the Board of
Directors approved a second two-for-one stock split of all common stock and
Exchangeable shares for holders of record as of March 2, 2000. All share and per
share amounts included in these consolidated financial statements and notes
applicable to prior periods have been restated to reflect these stock splits.
Loss per Share
As the Company incurred a loss in fiscal 2000, 1999 and 1998, the effect
of dilutive securities totaling 64.4 million, 27.3 million, and 24.0 million
equivalent shares, respectively, have been excluded from the computation as they
are antidilutive. Dilutive securities exclude the conversion of Series A
Preferred Stock until the removal of all contingencies attributable to their
conversion is assured beyond a reasonable doubt.
The following table sets forth the computation of basic and diluted loss
per share:
YEARS ENDED JUNE 30,
----------------------------------
2000 1999 1998
----------- ----------- --------
(IN MILLIONS, EXCEPT SHARE DATA)
Denominator for basic and dilutive earnings (loss) per
share -- weighted average shares................................. 710.9 318.2 283.6
========= ========= =======
Net loss........................................................... $ (904.7) $ (171.1) $ (19.6)
========= ========= =======
Basic and dilutive loss per share.................................. $ (1.27) $ (0.54) $ (0.07)
========= ========= =======
Stock-based Compensation
In accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," the Company records and amortizes, over the related vesting periods,
deferred compensation representing the difference between the price per share of
stock issued or the exercise price of stock options granted and the fair value
of the Company's common stock at the time of issuance or grant. Stock
compensation costs are immediately recognized to the extent the exercise price
is below the fair value on the date of grant and no future vesting criteria
exist.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates and such differences could be material to the financial statements.
Impact of Recently Issued Accounting Standards
The Company adopted Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as
amended as of the beginning of its fiscal year 2001. The Standard will 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
53
54
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 the
Standard is not expected to have a material effect on the Company's financial
position or overall trends in results of operations.
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 revenue recognition policies. The SEC
has deferred the implementation date of SAB 101 until the quarter ended June 30,
2001, with retroactive application to the beginning of the Company's fiscal
year. The SEC intends to issue further definitive guidance on the implementation
of SAB 101. Although the Company cannot complete its assessment of the impact of
SAB 101 until such guidance is issued, 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 connection with
the Company's anticipated transaction to merge with SDL (see Note 13) or in
connection with any other acquisitions subsequent to June 30, 2000. The value
attributed to unvested options will be allocated to deferred compensation and
amortized over the remaining vesting period.
NOTE 2. LINES OF CREDIT AND LONG-TERM DEBT
The Company had an unsecured U.S. $10.0 million revolving bank line of
credit that it converted in May 2000 to a Foreign Exchange and Standby Letter of
Credit facility. The Company also had an unused operating bank line of credit
for Canadian $60.0 million (approximately U.S. $40.0 million). Advances under
the line of credit bear interest at the Canadian Bank prime rate (7.5%) at June
30, 2000. The Company had no outstanding borrowings under this facility at June
30, 2000.
JUNE 30,
2000
-------------
(IN MILLIONS)
Secured term loan, interest at 7.85% per annum. Monthly
principal and interest payments are $0.1 million with
final payment on December 1, 2001....................................... $ 7.3
Secured loan, interest at 1.33% to 1.35% per annum. Interest
is payable monthly. Principal is payable March 15, 2002................. 6.5
Secured term loan, interest at 7.73% per annum. Monthly
principal and interest payments are $0.3 million with
final payment on January 1, 2003........................................ 8.7
Secured term loan, interest at 6.46% per annum. Monthly
principal and interest payments are $0.1 million with
final payment on September 1, 2002...................................... 3.2
Secured term loan, interest at 8.46% per annum. Monthly
principal and interest are $0.2 million with final payment
on April 1, 2003........................................................ 7.1
Secured term loan, interest at 8.01% per annum. Monthly
principal and interest are $0.3 million with final payment
on April 1, 2003........................................................ 9.5
Secured term loan, interest at 6.89% per annum. Monthly
principal and interest are $0.2 million with final payment
on April 1, 2002........................................................ 4.4
Secured term loan, interest at 6.38% per annum. Monthly
principal and interest are $0.2 million with final payment
on January 1, 2002...................................................... 4.4
Secured bond, interest rate is variable and based on "TENR"
plus 0.625% and is reset weekly. The interest rate at June
54
55
30, 2000 was 6.0%. Interest is payable quarterly.
Principal is payable August 1, 2016..................................... 5.0
------
Total..................................................................... 56.1
Less current maturities, included in other current liabilities.......... 15.1
------
Total long-term debt, net of current maturities................. $ 41.0
======
Annual debt maturities are as follows (in millions):
Year 2001........................................................................ $ 15.1
Year 2002........................................................................ 28.2
Year 2003........................................................................ 7.8
Year 2004........................................................................ --
Year 2005........................................................................ --
Thereafter....................................................................... 5.0
-------
$ 56.1
=======
NOTE 3. OTHER CURRENT LIABILITIES
The components of other current liabilities are as follows (in
millions):
JUNE 30,
-----------------
2000 1999
-------- -------
Acquisition costs................................................. $ 135.4 $ 22.5
Temporary labor costs............................................. 8.0 4.8
Accrued expenses due to affiliated company........................ -- 4.3
Warranty reserve.................................................. 11.3 2.4
Facility expansion accruals....................................... 6.6 2.0
Other............................................................. 83.3 10.3
-------- -------
$ 244.6 $ 46.3
======== =======
Acquisition costs at June 30, 2000 consisted primarily of $92.0 million
of estimated direct transaction costs associated with the acquisition of E-TEK,
approximately $34.7 million in costs incurred by E-TEK in connection with the
acquisition and $4.6 million of direct transaction costs associated with other
acquisitions in 2000.
Acquisition costs at June 30, 1999 primarily included approximately $9.1
million of direct costs associated with the JDS FITEL merger and approximately
$10.3 million of costs incurred by JDS FITEL in connection with the merger. At
June 30, 2000, substantially all direct costs associated with the JDS FITEL
merger had been paid.
NOTE 4. INCOME TAXES
The expense (benefit) for income taxes consists of the following (in
millions):
YEARS ENDED JUNE 30,
-----------------------------------
2000 1999 1998
------- ------- -------
Federal:
Current .................. $ 34.0 $ 15.4 $ 7.9
Deferred ................. (17.5) (3.0) (0.4)
------- ------- -------
16.5 12.4 7.5
State:
Current .................. 5.0 1.4 3.2
Deferred ................. (2.3) (0.2) (0.5)
------- ------- -------
2.7 1.2 2.7
Foreign:
Current .................. 115.9 9.8 1.2
Deferred ................. (60.2) (1.9) --
------- ------- -------
55.7 7.9 1.2
------- ------- -------
Income tax expense ....... $ 74.9 $ 21.5 $ 11.4
======= ======= =======
The tax benefit associated with exercises of stock options reduced taxes
currently payable by $47.8 million, $11.4 million and $6.2 million for the years
ended June 30, 2000, 1999 and 1998, respectively.
55
56
Income (loss) before income taxes consisted of the following (in
millions):
YEARS ENDED JUNE 30,
-----------------------------------
2000 1999 1998
------- ------- -------
Domestic ...... $(452.5) $ 29.3 $ (10.9)
Foreign ....... (377.3) (178.9) 2.6
------- ------- -------
$(829.8) $(149.6) $ (8.3)
======= ======= =======
A reconciliation of the income tax expense (benefit) at the federal
statutory rate to the income tax provision (benefit) at the effective tax rate
is as follows (in millions):
YEARS ENDED JUNE 30,
-----------------------------------
2000 1999 1998
------- ------- -------
Income taxes (benefit) computed at federal statutory rate .............. $(290.4) $ (52.4) $ (2.8)
State taxes, net of federal benefit .................................... 1.8 0.8 1.8
Non-deductible acquired in-process research & development .............. 126.2 82.1 13.7
Non-deductible amortization ............................................ 250.4 -- --
Non-deductible merger expenses incurred in pooling of
interests transaction ................................................ -- 2.3 --
Benefit from net earnings of foreign subsidiary considered to
be permanently invested in non-U.S operations ........................ (5.5) (4.6) --
Realization of valuation allowance ..................................... -- (0.4) (1.5)
Tax exempt income ...................................................... (7.1) (1.2) (0.5)
Pre-merger Subchapter S taxes .......................................... -- -- (0.8)
Other .................................................................. (0.5) (5.1) 1.5
------- ------- -------
Income tax expense ................................................... $ 74.9 $ 21.5 $ 11.4
======= ======= =======
Undistributed earnings of a foreign subsidiary amounted to approximately
$27.8 million. Because these earnings are considered to be permanently invested
offshore, the Company has not provided deferred U.S. federal income taxes on
these earnings. Upon distribution of these earnings in the form of dividends or
otherwise, the Company anticipates that it may be subject to U.S. income taxes
net of foreign tax credits. Determination of the amount of the unrecognized
deferred U.S. income tax liability is not practicable at this time because of
the complexities associated with its hypothetical calculation.
The components of deferred taxes consist of the following (in millions):
JUNE 30,
-----------------------
2000 1999
-------- --------
(IN MILLIONS)
Deferred tax assets:
AMT and research tax credit carryforwards ..................... $ 8.4 $ 3.7
Net operating loss carryforwards .............................. 356.7 6.7
Inventory ..................................................... 24.6 1.2
Additional tax basis of intangibles ........................... 4.9 7.4
Deferred compensation ......................................... -- 2.9
Accruals and reserves ......................................... 35.2 1.9
Other ......................................................... 9.2 0.5
Acquisition related items ..................................... 841.5 --
-------- --------
Total deferred tax assets ............................. 1,280.5 24.3
Valuation allowance ........................................... (575.4) (10.9)
-------- --------
Net deferred tax assets ............................... 705.1 13.4
Deferred tax liabilities:
Acquisition related items ..................................... (899.0) (318.2)
Other ......................................................... (3.1) --
-------- --------
Total deferred tax liabilities ........................ (902.1) (318.2)
-------- --------
Total net deferred tax assets (liabilities) ........... $ (197.0) $ (304.8)
======== ========
The valuation allowance increased by approximately $564.5 million, $1.7
million, and $1.5 million in 2000, 1999 and 1998, respectively.
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Approximately $356.7 million of the valuation allowance at June 30, 2000
is attributable to stock option deductions, the benefit of which will be
credited to paid-in capital when realized. Approximately $185.5 million of the
valuation allowance at June 30, 2000 is attributable to deferred tax assets that
when realized, will first reduce unamortized goodwill, the other non-current
intangibles assets of acquired subsidiaries, and then income tax expense.
At June 30, 2000, the Company had federal and state net operating loss
carryforwards of approximately $948.1 million and $659.3 million, respectively,
and federal and state research and development credit carryforwards of
approximately $6.0 million and $3.1 million, respectively. The net operating
loss and credit carryforwards will expire at various dates beginning in 2001, if
not utilized.
NOTE 5. LEASE COMMITMENTS
The Company leases manufacturing and office space primarily in Manteca,
California; Bloomfield, Connecticut; Chalfont, Pennsylvania; Horsham,
Pennsylvania; Melbourne, Florida; Witney, United Kingdom; Yamton, United
Kingdom; Zurich, Switzerland; Sydney, Australia; Eindhoven, the Netherlands;
Nepean, Ontario; Trenton, New Jersey; Fremont, California; Santa Rosa,
California; Fife, Scotland; Tokyo, Japan; Kanagawa, Japan; Beijing, China;
Torquay, United Kingdom; Plymouth, United Kingdom; Morrisville, North Carolina;
San Jose, California; Shenzen, China; Markham, Canada; and Sunnyvale, California
under operating leases expiring at various dates through December 2018 and
containing certain renewal options ranging from one to four years. The Company
has the option of terminating two of its lease agreements on December 25, 2003
upon six months written notification.
Future minimum commitments for non-cancelable operating leases are as
follows (in millions):
OPERATING
YEAR ENDING JUNE 30, LEASES
- -------------------- -------------
(IN MILLIONS)
2001......................................................... $ 18.2
2002......................................................... 17.9
2003......................................................... 16.7
2004......................................................... 16.5
2005......................................................... 15.0
Thereafter................................................... 61.9
--------
Total minimum lease payments....................... $ 146.2
========
Rental expense for operating leases for the years ended June 30, 2000,
1999 and 1998 amounted to approximately $ 9.3 million, $5.0 million, and $1.3
million, respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
On June 30, 1999, Furukawa Electric Co., LTD. ("Furukawa") and its
subsidiaries, in conjunction with the Company's acquisition of JDS FITEL,
acquired 24% of the Company's outstanding common stock and Exchangeable shares.
At June 30, 2000, Furukawa owned approximately 15% of the Company's outstanding
common stock and Exchangeable shares.
During fiscal 2000, the Company entered into transactions with Furukawa
in the normal course of business. Balances with related parties that are
included in the consolidated financial statements are immaterial, except for the
following amounts with Furukawa (in millions):
JUNE 30,
2000
-------
Sales............................................ $ 0.9
Purchases........................................ $ 13.1
Accounts receivable.............................. $ 0.6
Accounts payable................................. $ 10.2
NOTE 7. PENSION AND OTHER EMPLOYEE BENEFITS
Defined Benefit Pension and Other Postretirement Benefit Plans
Through the acquisition of Uniphase Laser Enterprise ("ULE") in
Switzerland, the Company acquired two foreign defined benefit pensions plans
related to the employees of ULE. Benefits are based on years of service and
annual compensation on retirement. Plans are funded in accordance with
applicable Swiss regulations.
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In connection with the acquisition of UNL, the Company agreed to
continue to provide pension benefits to its qualified Holland employees through
a multi-employer defined benefit pension plan sponsored by the Holland
Metalworkers Union. Philips is obligated to fully fund the pension benefit
obligation for all periods prior to June 9, 1998 directly to the Metalworkers
Union Plan. The Company has assumed responsibility for funding benefits earned
in excess of those provided by the Holland Metalworkers Union.
On February 4, 2000, the Company acquired Optical Coating Laboratories,
Inc. ("OCLI") and assumed OCLI's pension and other post retirement benefits
plans. OCLI's Scottish subsidiary maintains a contributory defined benefit
pension program covering most of its employees. Benefits are primarily based on
years of service and compensation. The program is funded in conformity with the
requirements of applicable U.K. government regulations. Plan assets are invested
in fixed interest and balanced fund units that are primarily comprised of
corporate equity securities.
OCLI sponsors an unfunded, contributory defined benefit postretirement
plan for its U.S. operations, which provides medical, dental and life insurance
benefits to employees who meet age and years of service requirements prior to
retirement and who agree to contribute a portion of the cost. The Company has
the right to modify or terminate these benefits at any time. OCLI's contribution
is a set amount per retiree depending on the retiree's years of service and
dependent status at the date of retirement and the age of retiree and dependents
when benefits are provided. The retiree pays cost increases.
A summary of the components of net periodic benefit cost for the defined
benefit pension and postretirement benefit plans is presented here (in
millions):
PENSION PLAN POSTRETIREMENT
----------------------------------- BENEFITS
JUNE 30, --------------
----------------------------------- JUNE 30,
2000 1999 1998 2000
------- ------- ------- -------
Defined benefit plans:
Service cost ......................... $ 0.5 $ 0.2 $ 0.6 $ 0.1
Interest cost ........................ 0.3 0.4 0.3 0.2
Expected return on plan assets ....... (0.2) (0.2) (0.2) --
Prior gains (losses) ................. -- (0.0) -- 0.1
------- ------- ------- -------
Net pension expense ............... $ 0.6 $ 0.4 $ 0.8 $ 0.4
======= ======= ======= =======
Weighted average assumptions used each year in accounting for defined
benefit pension and postretirement benefit plans were (in millions):
PENSION PLAN POSTRETIREMENT
------------------- BENEFITS
JUNE 30, --------------
------------------- JUNE 30,
2000 1999 2000
------ ------ ------
ULE pensions:
Discount rate as of year end ....... 3.5% 3.5% n/a
Return on plan assets .............. 4.5% 4.5% n/a
Rate of compensation increase ...... 2.5% 2.5% n/a
UNL pensions:
Discount rate as of year end ....... 4.0% 4.0% n/a
Return on plan assets .............. n/a 4.5% n/a
Rate of compensation increase ...... 2.0% 2.0% n/a
OCLI postretirement benefits:
Discount rate as of year end ....... n/a n/a 7.5%
Return on plan assets .............. n/a n/a n/a
Rate of compensation increase ...... n/a n/a n/a
The assumed health care cost trend rate has a significant effect on the
amounts reported. A 1-percentage-point change in the assumed health care cost
trend rate would have the following effects (in millions):
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- ---------------
Effect on total of service and interest cost components......... $ -- $ --
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Effect on postretirement benefit obligation..................... $ 0.3 $ (0.3)
The following table sets forth the funded status and amounts recognized
in the Consolidated Balance Sheet for the Company's defined benefit pension and
postretirement benefit plans (in millions):
PENSION BENEFITS POSTRETIREMENT
--------------------- BENEFITS
JUNE 30, --------------
--------------------- JUNE 30,
2000 1999 2000
------- ------- -------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year ............ $ 11.8 $ 8.6 $ 2.5
Adjustments ........................................ (3.4) -- --
Service cost ....................................... 0.7 0.2 0.1
Interest cost ...................................... 0.3 0.4 0.2
Plan participants' contributions ................... (0.2) 0.3 --
Benefit payments ................................... -- -- (0.1)
Actuarial (gains) losses ........................... (1.1) 2.3 (0.2)
------- ------- -------
Benefit obligation at end of year .................. $ 8.1 $ 11.8 $ 2.5
======= ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ..... $ 4.7 $ 4.9 $ --
Adjustments ........................................ (1.2) -- --
Actual return on plan assets ....................... (0.2) (0.7) --
Company contributions .............................. 1.2 0.2 --
Plan participants' contributions ................... 0.2 0.3 --
Benefits paid ...................................... -- -- --
------- ------- -------
Fair value of plan assets at end of year ........... $ 4.7 $ 4.7 $ --
------- ------- -------
Funded status of plan (underfunded) ................ $ (3.4) $ (7.1) $ (2.5)
Unrecognized prior service cost .................... -- -- 0.7
Unrecognized net actuarial (gain) loss ............. 0.6 2.4 (0.6)
------- ------- -------
Net prepaid (accrued) benefit cost ................. $ (2.8) $ (4.7) $ (2.4)
======= ======= =======
Amounts recognized in the Consolidated Balance Sheet consist of (in
millions):
PENSION PLAN POSTRETIREMENT
--------------------- BENEFITS
JUNE 30, --------------
--------------------- JUNE 30,
2000 1999 2000
------- ------- -------
Prepaid (accrued) benefit cost ......... $ (1.2) $ -- $ --
Accrued benefit liability .............. (1.6) (2.2) (2.4)
Intangible asset ....................... -- (2.4) --
------- ------- -------
Net prepaid (accrued) benefit cost ..... $ (2.8) $ (4.6) $ (2.4)
======= ======= =======
Plan assets consist primarily of listed stocks, bonds and cash surrender
value life insurance policies.
Other Employee and Postemployment Benefits
JDS Uniphase has an employee 401(k) salary deferral plan, covering all
domestic employees. Employees may make contributions by withholding a percentage
of their salary up to the IRS annual limit ($10,500 for 2000). Company
contributions consist of $0.25 per dollar contributed by the employees with at
least six months of service. Company contributions were approximately $2.5
million, $0.6 million, and $0.4 million for the years ended June 30, 2000, 1999
and 1998, respectively.
Pursuant to the Company's acquisition of OCLI and E-TEK in fiscal 2000,
the Company assumed responsibility of OCLI's and E-TEK's 401(k) Savings Plans.
All employees of OCLI and E-TEK continue their 401(k) participation with their
respective plans. The Company anticipates that the OCLI and E-TEK plans will be
converted to the Company's plan in 2001.
The following is a description of the OCLI and E-TEK plans:
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OCLI has a 401(k) pre-tax voluntary retirement savings plan for its U.S.
employees. The Company matches 100% of the first 3% of deferred salary and 50%
for the next 3% of deferred salary. Eligible employees can defer up to 15% of
their salary, up to the IRS annual limit ($10,500 for 2000). Contributions to
the 401(k) plan are immediately vested. Company matching contributions to the
401(k) plan are funded in cash.
E-TEK sponsors a 401(k) Savings Plan ("E-TEK Plan"). All E-TEK employees
are eligible to participate in the E-TEK Plan following certain minimum
eligibility requirements. Under the E-TEK Plan, employees may elect to
contribute up to 20% of their compensation to the E-TEK Plan, subject to annual
limitations. Matching contributions from E-TEK are 50 cents on the dollar, to a
maximum of $1,000 per year. E-TEK contributions are vested over four years.
Employee contributions are 100% vested at all times.
NOTE 8. STOCKHOLDERS' EQUITY
Preferred Stock
In connection with the acquisition of UNL, the Company issued 100,000
shares of non-voting, non-cumulative Series A Preferred Stock to Philips having
a par value of $0.001 per share. The Series A Preferred Stock is convertible
into additional shares of common stock based on an agreed upon formula for
annual and cumulative shipments of certain products during the four-year period
ending June 30, 2002. The Preferred Stock is also convertible into common stock
upon the occurrence of a Redemption Event, as defined in the Series A Preferred
Stock Agreement.
In June 1998, the Company adopted a Stockholder Rights Agreement, as
amended (the "Company Rights Agreement") and declared a dividend distribution of
one right (a "Right") per share of common stock for stockholders of record as of
July 6, 1998. As adjusted for stock splits and dividends by the Company, each
outstanding share of the Company's common stock currently includes one-eighth of
a Right. Each Right entitles stockholders to purchase 1/1000 share of the
Company's Series B Preferred Stock at an exercise price of $600. The Rights only
become exercisable in certain limited circumstances following the tenth day
after a person or group announces acquisitions of or tender offers for 15% or
more of the Company's common stock. For a limited period of time following the
announcement of any such acquisition or offer, the Rights are redeemable by the
Company at a price of $0.01 per Right. If the Rights are not redeemed, each
Right will then entitle the holder to purchase common stock having the value of
twice the then-current exercise price. For a limited period of time after the
exercisability of the Rights, each Right, at the discretion of the Board, may be
exchanged for either 1/1000 share of the Company's Series B Preferred Stock or
one share of common stock per Right. The Rights expire on June 22, 2008.
The Board of Directors has the authority, without any further vote or
action by the stockholders, to provide for the issuance of an additional 799,999
shares of Preferred Stock from time to time in one or more series with such
designations, rights, preferences and limitations as the Board of Directors may
determine, including the consideration received therefore, the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, redemption fund provisions, conversion rights and voting rights,
all without the approval of the holders of common stock.
Exchangeable Shares of JDS Uniphase Canada Ltd.
On June 30, 1999, in connection with the merger with JDS FITEL, JDS
Uniphase Canada Ltd., a subsidiary of the Company, adopted an Exchangeable Share
rights plan (the "Exchangeable Rights Plan") substantially equivalent to the
Company Rights Agreement. Under the Exchangeable Rights Plan, each Exchangeable
Share issued has an associated right (an "Exchangeable Share Right") entitling
the holder of such Exchangeable Share Right to acquire additional Exchangeable
Shares on terms and conditions substantially the same as the terms and
conditions upon which a holder of shares of common stock is entitled to acquire
either 1/1000 share of the Company's Series B Preferred Stock or, in certain
circumstances, shares of common stock under the Company Rights Agreement. The
definitions of beneficial ownership, the calculation of percentage ownership and
the number of shares outstanding and related provisions of the Company Rights
Agreement and the Exchangeable Rights Plan apply, as appropriate, to shares of
common stock and Exchangeable Shares as though they were the same security. The
Exchangeable Share Rights are intended to have characteristics essentially
equivalent in economic effect to the Rights granted under the Company Rights
Agreement.
Stock Option Plans
As of June 30, 2000, JDS Uniphase had reserved approximately 176,889,000
shares of common stock for future issuance to employees and directors under its
Restated 1993 Flexible Stock Incentive Plan (the "1993 Option Plan"), the 1996
Non-qualified Stock Option Plan ("the 1996 Option Plan"), and the other various
plans the Company assumed during the year as a result of acquisitions. The Board
of Directors has the authority to determine the type of option and the number of
shares subject to option. The
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exercise price is generally equal to fair value of the underlining stock at the
date of grant. Options generally become exercisable over a four-year period and,
if not exercised, expire from five to ten years from the date of grant. The
following table summarizes option activity through June 30, 2000:
OPTIONS OUTSTANDING
-------------------------- WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR GRANT OF SHARES PRICE
------------ ------------ ---------
(IN THOUSANDS, EXCEPT PRICE PER SHARE)
Balance at June 30, 1997 ........... 8,480 43,000 $ 1.18
Increase in authorized shares .... 25,432 -- --
Granted .......................... (19,392) 19,392 4.62
Canceled ......................... 1,544 (1,544) 1.70
Exercised ........................ -- (7,532) 0.51
Expired .......................... (236) -- --
-------- -------- --------
Balance at June 30, 1998 ........... 15,828 53,316 2.37
Increase in authorized shares .... 57,588 -- --
Granted .......................... (49,712) 49,712 10.22
Canceled ......................... 2,312 (2,312) 4.53
Exercised ........................ -- (11,836) 1.37
Expired .......................... (24) -- --
-------- -------- --------
Balance at June 30, 1999 ........... 25,992 88,880 5.83
Increase in authorized shares .... 98,004 -- --
Granted .......................... (91,365) 91,365 37.42
Canceled ......................... 3,011 (3,011) 14.85
Exercised ........................ -- (35,791) 3.00
Expired .......................... (321) (35) 5.15
-------- -------- --------
Balance at June 30, 2000 ........... 35,321 141,408 $ 26.62
======== ======== ========
The following table summarizes information about options outstanding at
June 30, 2000 (shares in thousands):
OPTIONS OUTSTANDING
-----------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ---------------------
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
AVERAGE RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
-------------------- ----------- ---------- -------- ----------- --------
$ 0.02 -- $ 0.02 47 8.80 $ 0.02 6 $ 0.02
0.10 -- 0.15 3,174 2.30 0.12 3,174 0.12
0.24 -- 0.35 403 3.90 0.27 403 0.27
0.39 -- 0.57 632 4.80 0.41 568 0.39
0.60 -- 0.80 2,857 4.10 0.70 2,829 0.70
0.92 -- 1.30 1,765 5.60 1.06 1,190 1.05
1.48 -- 2.13 5,176 5.60 1.77 3,145 1.74
2.26 -- 3.27 4,814 4.20 2.83 3,446 2.85
3.39 -- 5.06 15,501 5.60 4.22 8,873 4.17
5.12 -- 7.55 13,741 6.00 6.42 4,750 6.28
8.09 -- 11.99 3,679 6.50 9.98 714 10.00
12.53 -- 18.76 14,110 6.40 16.71 3,195 16.67
18.88 -- 27.99 49,199 7.20 21.46 2,577 20.27
28.33 -- 41.96 981 8.30 31.59 -- --
45.03 -- 63.91 8,784 8.20 53.69 85 56.55
74.88 -- 111.63 10,568 9.50 94.10 1 86.56
115.56 -- 146.53 5,977 9.70 127.07 1 117.73
- ---------------------- ------- ------- ------- ------- -------
$ 0.02 -- $146.53 141,408 6.80 $ 26.62 34,957 $ 5.83
=======
Employee Stock Purchase Plans
The JDS Uniphase 1998 Employee Stock Purchase Plan (the "98 Purchase
Plan") was adopted in June 1998. The Company has reserved 20,000,000 shares of
common stock for issuance under the 98 Purchase Plan and has 18,763,760 shares
remaining. The 98 Purchase Plan, effective August 1, 1998, provides eligible
employees with the opportunity to acquire an ownership interest in JDS
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Uniphase through participation in a program of periodic payroll deductions
applied at specific intervals to the purchase of common stock. The Purchase Plan
is structured as a qualified employee stock purchase plan under Section 423 of
the amended Internal Revenue Code of 1986. However, the Purchase Plan is not
intended to be a qualified pension, profit sharing or stock bonus plan under
Section 401(a) of the 1986 Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974. The Purchase Plan will
terminate upon the earlier of August 1, 2008 or the date on which all shares
available for issuance under the Purchase Plan have been sold.
The JDS Uniphase Corporation 1999 Canadian Employee Stock Purchase Plan
(the "Canadian Plan") was adopted in November 1999. The Company has reserved
1,000,000 shares of common stock for issuance under the Canadian Plan and has
936,634 shares remaining. The Canadian Plan has similar provisions to the
Company's existing plans.
Pursuant to the Company's acquisition of OCLI and E-TEK, the Company
continued OCLI and E-TEK's Employee Stock Purchase Plans, which have similar
provisions to the Company's existing plans. The plans will continue through
December 31, 2000 and April 30, 2002 for OCLI and E-TEK, respectively.
Stock Based Compensation
The Company has elected to follow APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting provided for
under SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized in the Company's financial
statements.
In conjunction with the acquisition of ULE in fiscal 1997, the Company
issued stock options to key employees of ULE at a value that was less than the
market value. The Company is recognizing compensation expense for the total
value of $2.0 million over the vesting period of four years. Stock based
compensation expense in fiscal 2000 was immaterial.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. This information is required to be determined as if
the Company had accounted for its employee stock options (including shares
issued under the Employee Stock Purchase Plan, collectively called "options")
granted subsequent to June 30, 1995 under the fair value method of that
statement. The fair value of options granted in 2000, 1999, and 1998 reported
below has been estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions:
EMPLOYEE STOCK PURCHASE
EMPLOYEE STOCK OPTIONS PLAN SHARES
----------------------------------- -----------------------------------
2000 1999 1998 2000 1999 1998
------- ------- ------- ------- ------- -------
Expected life (in years) ........... 5.5 6.1 5.5 0.6 0.5 0.5
Risk-free interest rate ............ 6.0% 5.6% 6.4% 5.0% 5.6% 5.4%
Volatility ......................... 0.70 0.67 0.66 0.70 0.68 0.75
Dividend yield ..................... 0% 0% 0% 0% 0% 0%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of its options. A total of approximately 91,365,000
options, including options assumed through acquisitions, were granted during
fiscal 2000 with exercise prices equal to the market price of the stock on the
grant date. The weighted-average exercise price and weighted-average fair value
of these options were $40.94 and $27.92, respectively. The weighted-average
exercise price and weighted-average fair value of stock options granted during
fiscal 1999 was $10.22 and $3.05 per share, respectively. The weighted average
exercise price and weighted average fair value of stock options granted during
fiscal 1998 was $4.62 and $2.92, respectively. The weighted average fair value
of shares granted under the Employee Stock Purchase Plan during 2000, 1999, and
1998 was $7.93, $1.56 and $1.33, respectively.
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For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
YEARS ENDED JUNE 30,
------------------------------------
2000 1999 1998
------------ ----------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Pro forma net income (loss)..................... $ (1,110.5) $ (228.7) $ (33.7)
Pro forma earnings (loss) per share............. $ (1.56) $ (0.72) $ (0.12)
Pro forma net income represents the difference between compensation
expense recognized under APB 25 and the related expense using the fair value
method of SFAS No. 123 taking into account any additional tax effects of
applying SFAS No. 123. The effects on pro forma disclosures of applying SFAS No.
123 are not likely to be representative of the effects on pro forma disclosures
of future years.
NOTE 9. MERGERS AND ACQUISITIONS
E-TEK Dynamics, Inc.
On June 30, 2000, the Company completed the acquisition of E-TEK, a
designer and manufacturer of high quality components and modules for fiber optic
systems, in a transaction accounted for as a purchase. Accordingly, the
accompanying statements of operations do not include the financial results of
E-TEK. The merger agreement provided for the exchange of 2.2 shares of the
Company's common stock for each common share and outstanding option of E-TEK.
The total purchase price of $17,512.2 million included consideration of 150.1
million shares of the Company's common stock, which includes 0.8 million
Exchangeable Shares of its subsidiary, JDS Uniphase Canada, Ltd., each of which
is exchangeable for one share of its common stock, the issuance of options to
purchase 23.2 million shares valued at $2,005.2 million in exchange for E-TEK
options, the issuance of 0.5 million common shares valued at $45.5 million in
exchange for E-TEK shares to be issued under E-TEK's employee stock purchase
plan, and estimated direct transaction costs of $92.0 million.
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 transaction costs and expenses.............................. 92.0
-----------
Total purchase cost...................................... $ 17,512.2
===========
The preliminary purchase price allocation is as follows (in millions):
Tangible net assets acquired......................................... $ 395.6
Marketable equity investments........................................ 718.0
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............................................................. 15,659.7
-----------
Total purchase price allocation............................ $ 17,512.2
===========
The purchase price allocation is preliminary and is dependent upon the
Company's final analysis, which it expects to complete during the first quarter
of fiscal 2001.
Tangible net assets acquired includes cash, accounts receivable,
inventories and fixed assets (including an adjustment to write-up inventory of
E-TEK to fair value by $48.6 million). Liabilities assumed principally include
accounts payable, accrued compensation and accrued expenses. Goodwill and
intangible assets acquired are each being amortized on a straight-line basis
over estimated useful lives ranging from three to five years.
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A portion of the purchase price has been allocated as an adjustment to
write-up the equity investments of E-TEK to a fair value of $718.0 million. The
fair value includes a $691.0 million increase to E-TEK's investment of ADVA,
which is accounted for under the equity method of accounting. The increase
represents the fair value of the Company's investment, over the net assets of
ADVA, and will be amortized on a straight-line basis over the estimated life of
5 years.
A portion of the purchase price has been allocated to developed
technology and acquired in-process research and development ("IPRD"). Developed
technology and IPRD were identified and valued through extensive interviews,
analysis of data provided by E-TEK concerning developmental products, their
stage of development, the time and resources needed to complete them, and, if
applicable, their expected income generating ability, target markets and
associated risks. The Income Approach, which includes an analysis of the
markets, cash flows and risks associated with achieving such cash flows, was the
primary technique utilized in valuing the developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the merger. The
Company estimates that a total investment of $2.2 million in research and
development over the next 2 to 12 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.
In valuing the IPRD, the Company considered, among other factors, the
importance of each project to the overall development plan, projected
incremental cash flows from the projects when completed and any associated
risks. The projected incremental cash flows were discounted back to their
present value using discount rates ranging from 12% to 20%. Discount rates were
determined after consideration of E-TEK's weighted average cost of capital and
the weighted average return on assets. Associated risks include the inherent
difficulties and uncertainties in completing each project and thereby achieving
technological feasibility, anticipated levels of market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets.
The acquired existing technology, which is comprised of products that
are already technologically feasible, includes products in most of E-TEK's
product line. These include wavelength division multiplexing ("WDM") components
and modules, isolators, couplers, and micro-optic integrated components. The
Company expects to amortize the acquired existing technology of approximately
$248.7 million on a straight-line basis over an average estimated remaining
useful life of 3 years.
The acquired core technology represents E-TEK trade secrets and patents
developed through years of experience in design, package, and manufacture of
passive components for fiber optic telecommunication networks. E-TEK's products
are designed for established terrestrial and submarine long-haul applications,
as well as emerging short-haul applications, such as metropolitan area networks.
This proprietary know-how can be leveraged by E-TEK to develop new and improved
products and manufacturing processes. The Company expects to amortize the
acquired core technology of approximately $168.5 million on a straight-line
basis over an average estimated remaining useful life of 5 years.
The trademarks and trade names include the E-TEK trademark and trade
name as well as all branded E-TEK products, such as E-TEK(TM), Unifuse(TM),
Kaifa(TM) and TIGRA(TM). The Company expects to amortize the trademark and trade
names of approximately $60.4 million on a straight-line basis over an estimated
remaining useful life of 5 years.
The acquired assembled workforce is comprised of over 3,300 skilled
employees across E-TEK's Executive, Research and Development, Manufacturing,
Supervisor/Manager, and Sales and Marketing groups. The Company expects to
amortize the value assigned to the assembled workforce of approximately $10.7
million on a straight-line basis over an estimated remaining useful life of 3 to
5 years.
Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying net
identifiable assets, is being amortized on a straight-line basis over its
estimated remaining useful life of 5 years.
Fujian Casix Laser, Inc.
On April 29, 2000, the Company acquired Fujian Casix Laser Inc
("Casix"), a supplier of crystals, fiberoptic components and optics for
telecommunications networks, for $60 million in cash. Casix is based in Fuzhou,
Fujian, China. Casix's key technologies consist principally of fiberoptic
component processing and precision assembly; optical design, fabrication and
coating; and advanced
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crystal growth and processing. The transaction was accounted for as a purchase,
and accordingly, the accompanying financial statements include the results of
operations of Casix subsequent to the acquisition date. The purchase price
allocation included tangible net assets of $11.4 million and intangible assets
(primarily goodwill) of $48.6 million that are being amortized over a five-year
period.
Cronos Integrated Microsystems, Inc.
On April 19, 2000, the Company acquired Cronos Integrated Microsystems,
Inc. ("Cronos"), a provider of optical micro-electro-mechanical systems ("MEMS")
components and component technology to the fiberoptic communications market, in
a transaction accounted for as a purchase. Accordingly, the accompanying
financial statements include the results of operations of Cronos subsequent to
the acquisition date. The total purchase price of $565.3 million included
consideration of 6.3 million shares of JDS Uniphase common stock, the issuance
of options to purchase 0.2 million shares valued at $15.7 million in exchange
for Cronos options and estimated direct transaction costs of $1.1 million.
The total purchase cost of Cronos is as follows (in millions):
Value of securities issued......................................... $ 548.5
Assumption of options.............................................. 15.7
--------
Total equity consideration............................... 564.2
Direct transaction costs and expenses.............................. 1.1
--------
Total purchase cost...................................... $ 565.3
========
The preliminary allocation of the purchase price is as follows (in
millions):
Tangible net assets acquired......................................... $ 1.0
Intangible assets acquired:
Developed technology............................................... 8.0
Core technology.................................................... 4.1
Assembled workforce................................................ 1.8
Goodwill............................................................. 544.1
In-process research and development.................................. 6.3
--------
Total purchase price allocation............................ $ 565.3
========
Tangible net assets acquired includes cash, accounts receivable,
inventories and fixed assets. Liabilities assumed principally include accounts
payable, accrued compensation and accrued expenses. Goodwill and intangible
assets acquired are each being amortized on a straight-line basis over estimated
useful lives ranging from three to five years.
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by Cronos concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where development projects had reached technological feasibility, they
were classified as developed technology and the value assigned to developed
technology was capitalized. Where the development projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the transaction. The
Company estimates that a total investment of $0.3 million in research and
development over the next 6 to 12 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.
In valuing the IPRD, the Company considered, among other factors, the
importance of each project to the overall development plan, projected
incremental cash flows from the projects when completed and any associated
risks. The projected incremental cash flows were discounted back to their
present value using discount rates ranging from 12% to 20%. Discount rates were
determined after consideration of Cronos's weighted average cost of capital and
the weighted average return on assets. Associated risks include the inherent
difficulties and uncertainties in completing each project and thereby achieving
technological feasibility, anticipated levels of market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets.
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The acquired existing technology, which is comprised of products that
are already technologically feasible, includes products in the following areas:
relays and optical communication cross connects. The Company is amortizing the
acquired existing technology of approximately $8.0 million on a straight-line
basis over an average estimated remaining useful life of 5 years.
The acquired core technology represents Cronos trade secrets and patents
developed through years of experience designing and manufacturing
Micro-electromechanical systems components for fiberoptic and RF
telecommunication networks. This knowledge can be leveraged by Cronos to develop
new and improved products and manufacturing processes. The Company is amortizing
the acquired core technology of approximately $4.1 million on a straight-line
basis over an average estimated remaining useful life of 5 years.
The acquired assembled workforce is comprised of approximately 72
skilled employees across Cronos's Sales and Marketing, Management, Supervision,
Quality & Training, General & Administrative, and Engineering groups. The
Company is amortizing the value assigned to the assembled workforce of
approximately $1.8 million on a straight-line basis over an estimated remaining
useful life of 3 years.
Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying net
identifiable assets, is being amortized on a straight-line basis over its
estimated remaining useful life of 5 years.
Optical Coating Laboratory, Inc.
On February 4, 2000, the Company acquired OCLI, a manufacturer of
optical thin film coatings and components used to control and enhance light
propagation to achieve specific effects such as reflection, refraction,
absorption and wavelength separation. The transaction was accounted for as a
purchase and accordingly, the accompanying financial statements include the
results of operations of OCLI subsequent to the acquisition date. The total
purchase price of $2,707.5 million included consideration of 54.0 million shares
of JDS Uniphase common stock, the issuance of options to purchase 6.4 million
shares valued at $267.2 million in exchange for OCLI options and direct
transaction costs of $8.2 million.
The total purchase cost of OCLI is as follows (in millions):
Value of securities issued......................................... $ 2,432.1
Assumption of options.............................................. 267.2
----------
Total equity consideration............................... 2,699.3
Direct transaction costs and expenses.............................. 8.2
----------
Total purchase cost...................................... $ 2,707.5
==========
The purchase price allocation was as follows (in millions):
Tangible net assets acquired......................................... $ 253.2
Intangible assets acquired:
Developed technology:
Telecommunications.............................................. 115.1
Flex Products................................................... 92.2
Applied Photonics............................................... 1.0
Information Industries.......................................... 23.9
Proprietary know-how............................................ 161.9
Trademark and tradename......................................... 38.5
Assembled workforce............................................. 14.3
In-process research and development.................................. 84.1
Goodwill............................................................. 1,927.4
Deferred tax liabilities............................................. (4.1)
----------
Total purchase price allocation............................ $ 2,707.5
==========
Tangible net assets acquired includes cash, accounts receivable,
inventories and fixed assets (including an adjustment to write-up property and
equipment of OCLI to fair value by $28.0 million). Liabilities assumed
principally include accounts payable, accrued compensation and accrued expenses.
Goodwill and intangible assets acquired are each being amortized on a
straight-line basis over estimated useful lives ranging from six to fifteen
years.
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A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by OCLI concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology, and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the merger. The
Company estimates that a total investment of $36.3 million in research and
development over the next 25 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.
In valuing the IPRD, the Company considered, among other factors, the
importance of each project to the overall development plan, projected
incremental cash flows from the projects when completed and any associated
risks. The projected incremental cash flows were discounted back to their
present value using discount rates ranging from 18% to 25%. Discount rates were
determined after consideration of OCLI's weighted average cost of capital and
the weighted average return on assets. Associated risks include the inherent
difficulties and uncertainties in completing each project and thereby achieving
technological feasibility, anticipated levels of market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets.
The acquired existing technology, which is comprised of products that
are already technologically feasible, includes products that are manufactured
and marketed by OCLI's Telecommunications, Flex Products, Applied Photonics, and
Information Industries groups. The Company is amortizing the acquired existing
technology of approximately $232.2 million on a straight-line basis over an
average estimated remaining useful life of 8.2 years.
The acquired proprietary know-how represents OCLI trade secrets and
patents developed through years of experience designing and manufacturing thin
film products. This know-how enables OCLI to develop new and improve existing
thin film products, processes and manufacturing equipment, thereby providing
OCLI with a distinct advantage over its competitors and a reputation for
technological superiority in the industry. The Company is amortizing the
proprietary know-how of approximately $161.9 million on a straight-line basis
over an average estimated remaining useful life of 10.4 years
The trademarks and trade names include the OCLI trademark and trade name
as well as all branded OCLI products such as GlareGuard(R) and processes such as
MetaMode(R). The Company is amortizing the trademark and trade names of
approximately $38.5 million on a straight-line basis over an estimated remaining
useful life of 10 years.
The acquired assembled workforce is comprised of over 1,400 skilled
employees across OCLI's General and Administration, Science and Technology,
Sales and Marketing, and Manufacturing groups. The Company is amortizing the
value assigned to the assembled workforce of approximately $14.3 million on a
straight-line basis over an estimated remaining useful life of 6 years.
Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying net
identifiable assets, is being amortized on a straight-line basis over its
estimated remaining useful life of 7.2 years.
Integrierte Optik GmbH & Co. KG
In January 2000, the Company acquired the remaining 49% minority
interest in Integrierte Optik GmbH & Co. KG ("IOT"), a joint venture of JDS
Uniphase and the Schott Group, for $12.6 million in cash in a transaction
accounted for as a purchase. Prior to the transaction, IOT's balance sheet and
results of operations were consolidated with the Company, with appropriate
adjustments to reflect minority interest of 49%. As a result of the transaction,
the Company's ownership interest increased to 100% and the minority interest
adjustments have been discontinued. IOT manufactures passive optical splitters
for fiberoptic network applications in cable plants and transmission networks.
The purchase price allocation included tangible net assets of $2.9 million and
intangible assets (including goodwill) of $9.7 million that are being amortized
over a five-year period.
Oprel Technologies, Inc.
In December 1999, the Company acquired Oprel Technologies, Inc.
("OPREL"), a developer of optical amplifiers, test equipment and optoelectronic
packaging, located in Nepean, Ontario. The transaction was accounted for as a
purchase and accordingly, the
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accompanying financial statements include the results of operations of OPREL
subsequent to the acquisition date. The Company paid $9.3 million in cash and
issued a total of 190,916 Exchangeable shares of its subsidiary, JDS Uniphase
Canada Ltd., each of which is exchangeable for one share of common stock. The
total purchase cost was $27.7 million. The purchase price allocation included
net tangible assets of $1.4 million and intangible assets (including goodwill)
of $26.3 million that are expected to be amortized over a five-year period.
SIFAM Limited
In December 1999, the Company acquired SIFAM Limited ("SIFAM"), a
supplier of fused components for fiberoptic telecommunications networks, which
is based in the United Kingdom, for $97.6 million in cash. SIFAM products, which
include couplers, wavelength division multiplexers and gain flattening filters,
are used for advanced applications in optical amplifiers and network monitoring.
The transaction was accounted for as a purchase and accordingly, the
accompanying financial statements include the results of operations of SIFAM
subsequent to the acquisition date.
The allocation of the purchase price is as follows (in millions):
Tangible net assets acquired......................................... $ 4.3
Intangible assets acquired:
Developed technology............................................... 27.0
Trade secrets and patents.......................................... 6.1
Assembled workforce................................................ 0.6
Goodwill............................................................. 70.1
In-process research and development.................................. 3.0
Deferred tax liabilities............................................. (13.5)
--------
Total purchase price allocation............................ $ 97.6
========
Tangible net assets acquired includes cash, accounts receivable,
inventories and fixed assets. Liabilities assumed principally include accounts
payable, accrued compensation and accrued expenses. Goodwill and intangible
assets acquired are each being amortized on a straight-line basis over estimated
useful lives ranging from three to five years.
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by SIFAM concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where development projects had reached technological feasibility, they
were classified as developed technology and the value assigned to developed
technology was capitalized. Where the development projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the transaction. The
Company estimates that a total investment of $0.3 million in research and
development over the next 15 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.
In valuing the IPRD, the Company considered, among other factors, the
importance of each project to the overall development plan projected incremental
cash flows from the projects when completed and any associated risks. The
projected incremental cash flows were discounted back to their present value
using discount rates ranging from 14% to 18%. Discount rates were determined
after consideration of SIFAM's weighted average cost of capital and the weighted
average return on assets. Associated risks include the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility, anticipated levels of market acceptance and penetration, market
growth rates and risks related to the impact of potential changes in future
target markets.
The acquired existing technology, which is comprised of products that
are already technologically feasible, includes products in the following areas:
fused couplers and attenuators, pump/signal wavelength division multiplexers,
polished products (polarizers, variable ratio couplers), and gain flattening
filters. The Company is amortizing the acquired existing technology of
approximately $27.0 million on a straight-line basis over an average estimated
remaining useful life of 5 years.
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The acquired core technology represents SIFAM trade secrets and patents
developed through years of experience designing and manufacturing fused
components for fiberoptic telecommunication networks. This knowledge can be
leveraged by SIFAM to develop new and improved products and manufacturing
processes. The Company is amortizing the acquired core technology of
approximately $6.1 million on a straight-line basis over an average estimated
remaining useful life of 5 years.
The acquired assembled workforce is comprised of approximately 50
skilled employees across SIFAM's Sales and Marketing, Management, Supervision,
Quality & Training, General & Administrative, and Engineering groups. The
Company is amortizing the value assigned to the assembled workforce of
approximately $0.6 million on a straight-line basis over an estimated remaining
useful life of 3 years.
Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying net
identifiable assets, is being amortized on a straight-line basis over its
estimated remaining useful life of 5 years.
EPITAXX, INC.
In November 1999, the Company acquired EPITAXX, Inc. ("EPITAXX"), a
supplier of optical detectors and receivers for fiberoptic telecommunications
and cable televisions networks. The transaction was accounted for as a purchase
and accordingly, the accompanying financial statements include the results of
operations of EPITAXX subsequent to the acquisition date. The Company issued
cash in the amount of $9.3 million and a total of approximately 9.0 million
shares of common stock in exchange for all of the outstanding shares of EPITAXX
common stock. Outstanding options to acquire shares of EPITAXX common stock were
converted into options to purchase shares of the Company's common stock at the
same exchange ratio.
The total purchase cost of EPITAXX is as follows (in millions):
Value of securities issued......................................... $ 429.5
Assumption of options.............................................. 61.9
--------
Total equity consideration......................................... 491.4
Cash paid to seller................................................ 9.3
Direct transaction costs and expenses.............................. 1.0
--------
Total purchase cost...................................... $ 501.7
========
The allocation of the purchase price is as follows (in millions):
Tangible net assets acquired......................................... $ 14.2
Intangible assets acquired:
Developed technology............................................... 63.4
Trademark and tradename............................................ 5.4
Assembled workforce................................................ 2.9
Goodwill............................................................. 397.9
In-process research and development.................................. 16.7
Deferred tax liabilities............................................. 1.2
--------
Total purchase price allocation............................ $ 501.7
========
Tangible net assets acquired includes cash, accounts receivable,
inventories and fixed assets. Liabilities assumed principally include accounts
payable, accrued compensation, accrued expenses, and Industrial Revenue Bonds.
Goodwill and intangible assets acquired are each being amortized on a
straight-line basis over estimated useful lives ranging from four to seven
years.
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by EPITAXX concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where development projects had reached technological feasibility, they
were classified as developed technology and the value assigned to developed
technology was capitalized. Where the development projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the merger. The
Company estimates that a total investment of $0.8 million in research and
development over the next 13 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
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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.
In valuing the IPRD, the Company considered, among other factors, the
importance of each project to the overall development plan projected incremental
cash flows from the projects when completed and any associated risks. The
projected incremental cash flows were discounted back to their present value
using discount rates ranging from 12% to 18%. Discount rates were determined
after consideration of EPITAXX's weighted average cost of capital and the
weighted average return on assets. Associated risks include the inherent
difficulties and uncertainties in completing each project and thereby achieving
technological feasibility, anticipated levels of market acceptance and
penetration, market growth rates and risks related to the impact of potential
changes in future target markets.
The acquired existing technology, which is comprised of products that
are already technologically feasible, includes products in the following areas:
high speed receivers for the telecommunications market, optical network
monitoring, and optical detectors/receivers for access/datacom applications and
cable television fiberoptic networks. The Company is amortizing the acquired
existing technology of approximately $63.4 million on a straight-line basis over
an average estimated remaining useful life of 7 years.
The trademarks and trade names include the EPITAXX trademark and trade
name. The Company is amortizing the trademark and trade names of approximately
$5.4 million on a straight-line basis over an estimated remaining useful life of
7 years.
The acquired assembled workforce is comprised of approximately 400
skilled employees across EPITAXX's Executive, Research and Development,
Manufacturing, Quality Assurance, Sales and Marketing, and General and
Administrative groups. The Company is amortizing the value assigned to the
assembled workforce of approximately $2.9 million on a straight-line basis over
an estimated remaining useful life of 4 years.
Goodwill, which represents the excess of the purchase price of an
investment in an acquired business over the fair value of the underlying net
identifiable assets, is being amortized on a straight-line basis over its
estimated remaining useful life of 7 years.
Ramar Corporation
In October 1999, the Company acquired Ramar Corporation ("Ramar") of
Northborough, Massachusetts for $1.0 million in cash and convertible debt as
described below, in a transaction accounted for as a purchase and accordingly,
the accompanying financial statements include the results of operations of Ramar
subsequent to the acquisition date. Ramar designs, develops and manufactures
lithium-niobate products for telecommunications applications. The convertible
debt is composed of $3.5 million in demand obligations and two performance-based
instruments totaling $1.0 million that become due upon achieving certain
milestones over the ensuing 12 to 24 months. The convertible debt bears interest
at 5.54% per annum and the principal can be exchanged for newly issued shares of
common stock at a price of $27.961 per share. The total purchase cost was $4.5
million. The purchase price allocation included net tangible assets of $0.2
million and intangible assets (including goodwill) of $4.3 million (net of
deferred tax) that are being amortized over a five year period. Convertible debt
of $3.5 million is included in other current liabilities.
Acquisition of AFC Technologies, Inc.
In August 1999, the Company acquired AFC Technologies, Inc. ("AFC") of
Ottawa, Canada for $22.0 million in cash and common stock of $17.5 million in a
transaction accounted for as a purchase and accordingly, the accompanying
financial statements include the results of operations of AFC subsequent to the
acquisition date. AFC designs, develops and manufactures fiber amplifiers for
telecommunications applications. The purchase price allocation included net
tangible assets of $1.3 million and intangible assets (including goodwill) of
$38.2 million that are being amortized over a five-year period.
JDS FITEL
Effective June 30, 1999, the Company combined its operations with JDS
FITEL Inc. of Ottawa, Canada in a transaction accounted for as a purchase.
Accordingly, the accompanying financial statements include the results of
operations of JDS FITEL subsequent to the acquisition date. JDS FITEL primarily
manufactures passive products that include components and modules that route and
guide optical signals transmitted through a fiberoptic network. The total
purchase price of $3,496.7 million includes the issuance of common shares or
Exchangeable Shares of JDS Uniphase Canada Ltd. for all of the outstanding JDS
FITEL common shares based on the outstanding JDS FITEL common shares on June 30,
1999, the exchange ratio of 2.0342 of a JDS Uniphase share of common stock or
2.0342 of an Exchangeable Share of JDS Uniphase Canada Ltd. for each JDS FITEL
common share and an average market price per JDS Uniphase common share of
$20.428 per share. The average market price per JDS Uniphase common share is
based on the average closing price for a range of trading days (January 22
through February 4, 1999) around the announcement date (January 28,
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1999) of the merger. In addition, JDS Uniphase issued options to purchase 26.4
million JDS Uniphase common shares in exchange for outstanding JDS FITEL options
with the number of shares and the exercise price appropriately adjusted by the
exchange ratio. The value of the options, as well as direct transaction expenses
of $12.0 million, have been included as a part of the total purchase cost. In
addition, the Company granted options to purchase approximately 27.2 million
shares of JDS Uniphase Common Shares to certain former JDS FITEL employees
subsequent to the effective date of the merger.
The total purchase cost of the JDS FITEL merger was as follows (in
millions):
Value of securities issued......................................... $ 3,263.1
Assumption of JDS FITEL options.................................... 221.6
----------
Total equity consideration......................................... 3,484.7
Direct transaction costs and expenses.............................. 12.0
----------
Total purchase cost................................................ $ 3,496.7
==========
The purchase price was allocated as follows:
Tangible net assets acquired......................................... $ 244.8
Intangible assets acquired:
Developed technology............................................... 490.5
Trademark and tradename............................................ 348.0
Assembled workforce................................................ 19.2
Goodwill............................................................. 2,501.1
In-process research and development.................................. 210.4
Deferred tax liabilities............................................. (317.3)
----------
Total purchase price allocation............................ $ 3,496.7
==========
Tangible net assets acquired includes $47.4 million of cash acquired
from JDS FITEL. Tangible net assets of JDS FITEL also include short-term
investments, accounts receivable, inventories and fixed assets. Liabilities
assumed principally include accounts payable, accrued compensation and accrued
expenses. Goodwill and intangible assets acquired are each being amortized on a
straight-line basis over estimated useful lives of five years.
A portion of the purchase price has been allocated to developed
technology and IPRD. Developed technology and IPRD were identified and valued
through extensive interviews, analysis of data provided by JDS FITEL concerning
developmental products, their stage of development, the time and resources
needed to complete them, and, if applicable, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing the
developed technology and IPRD.
Where developmental projects had reached technological feasibility, they
were classified as developed technology and the value assigned to developed
technology was capitalized. Where the developmental projects had not reached
technological feasibility and had no future alternative uses, they were
classified as IPRD and charged to expense upon closing of the merger. The
Company estimates that a total investment of $0.4 million in research and
development over the next 3 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.
In valuing the IPRD, JDS Uniphase considered, among other factors, the
importance of each project to the overall development plan projected incremental
cash flows from the projects when completed and any associated risks. The
projected incremental cash flows were discounted back to their present value
using a discount rate of 27%. This discount rate was determined after
consideration of JDS FITEL's weighted average cost of capital and the weighted
average return on assets. Associated risks include the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility, anticipated levels of market acceptance and penetration, market
growth rates and risks related to the impact of potential changes in future
target markets.
The IPRD relates to sophisticated optical components and modules that
manage light transmission through today's most advanced telecommunications
systems. The IPRD is comprised of four main categories: (i) Thermo Optic
Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz Wavelength Division
Multiplexing ("WDM"), and (iv) Erbium Doped Fiber Amplifiers.
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Broadband Communication Products, Inc.
On November 25, 1998, the Company acquired BCP of Melbourne, Florida in
a tax-free reorganization that was accounted for as a pooling of interests. BCP
manufactures high-speed and high-bandwidth fiber optic products including
transmitters, receivers and multiplexers used to extend the reach of fiber optic
transmission into metropolitan and local access networks. The Company exchanged
5.8 million shares of JDS Uniphase common stock and reserved 3.3 million shares
for BCP options assumed by the Company. Merger related expenses of approximately
$6.0 million are included in Merger and other expenses in fiscal 1999. Separate
net sales and related net income (loss) amounts of the merged entities are
presented in the following table (in millions).
JUNE 30,
---------------------
1999 1998
--------- --------
(UNAUDITED)
(IN MILLIONS)
Net Sales:
JDS Uniphase through September 30, 1998............................... $ 54.2 $ 175.8
BCP through September 30, 1998........................................ 3.2 9.4
JDS Uniphase subsequent to September 30, 1998......................... 225.4 --
--------- --------
Net sales as reported................................................. $ 282.8 $ 185.2
========= ========
Net loss:
JDS Uniphase through September 30, 1998............................... $ 7.6 $ (21.8)
BCP through September 30, 1998........................................ 0.6 2.2
JDS Uniphase subsequent to September 30, 1998......................... (179.2) --
--------- --------
Net loss as reported............................................... $ (171.1) $ (19.6)
========= ========
Chassis Engineering, Inc.
In August 1998, the Company acquired certain assets of Chassis
Engineering Inc. ("Chassis") for $70,000 in cash and convertible debt of $2.73
million. Chassis designs, develops, markets and manufactures packaging solutions
for fiber optic and other high performance components. The convertible debt is
composed of a $1.93 million demand obligation and two performance-based
instruments totaling $0.8 million that become due upon achieving certain
milestones over the ensuing 9 to 18 months. The convertible debt bears interest
at 5.48% and principal can be exchanged for newly issued shares of Uniphase
common stock at a price of $6.89 per share. The convertible debt is secured by a
letter of credit issued against the Company's unused revolving bank line of
credit. In February 1999, the holder tendered the $1.93 million obligation and a
performance-based instrument valued at $0.5 million for 359,920 shares of common
stock.
Uniphase Netherlands
On June 9, 1998, the Company acquired 100% of the capital stock of
Uniphase Netherlands B.V. (formerly Philips Optoelectronics B.V.) from Philips.
UNL designs, develops, manufactures and markets high performance semiconductor
lasers, photo diodes and components for telecommunications, CATV, multimedia and
printing markets. The total purchase price of $135.4 million consisted of 26.1
million shares of common stock, cash of $100,000 and $4.0 million in related
acquisition costs. Philips became the largest stockholder of record at 8.5% of
the Company's common stock at the date of closing. In addition, the Company
issued 0.1 million shares of Series A Preferred Stock to Philips as contingent
consideration and interest thereon worth up to 458 million Dutch Guilders
(approximately $220 million). The number of shares of common stock to be issued
upon conversion of this preferred stock is tied to unit shipments of certain
products by UNL during the four-year period ending June 30, 2002 and the
Company's stock price at the date the contingency attributable to the unit
shipments is removed. The contingent consideration is not included in the
acquisition cost above, but will be recorded at the current fair value as
additional purchase price representing additional goodwill when the aggregate
unit shipment criteria are met. The additional goodwill will be amortized over
its remaining life.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include the
results of operations of UNL subsequent to the acquisition date. The purchase
price was allocated to the net assets and in-process research and development
acquired. The purchased intangible assets and goodwill are being amortized over
seven years.
In-process research and development was identified and valued through
extensive interviews, analysis of data provided by UNL concerning developmental
products, their stage of development, the time and resources needed to complete
them, and, if applicable, their expected income generating ability, target
markets and associated risks. The Income Approach, which includes an analysis of
the markets, cash flows, and risks associated with achieving such cash flows,
was the primary technique utilized in valuing purchased research and development
project.
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The Company considered, among other factors, the importance of each
project to the overall development plan, and the projected incremental cash
flows from the projects when completed and any associated risks. The projected
incremental cash flows were discounted back to their present value using a
discount rate of 27%. This discount rate was determined after consideration of
UNL's weighted average cost of capital and the weighted average return on
assets. Associated risks include the inherent difficulties and uncertainties in
completing each project and thereby achieving technological feasibility,
anticipated levels of market acceptance and penetration, market growth rates and
risks related to the impact of potential changes in future target markets. Since
the acquisition date, some of the acquired in-process research and development
projects have been completed and the related products have been released. The
third generation in-process research and development projects acquired are still
in development. The Company estimates that these projects will be released upon
completion through 2002.
This analysis resulted in a valuation of $33.7 million for acquired
in-process research and development that had not reached technological
feasibility and did not have alternative future uses. Therefore, in accordance
with generally accepted accounting principles, the $33.7 million was expensed.
The Company estimates that a total investment of $32.7 million in research and
development over the next three years will be required to complete the
in-process research and development.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development, as if the acquisition of UNL had occurred
at the beginning of fiscal 1997 and does not purport to be indicative of what
would have occurred had the acquisition been made as of the beginning of fiscal
1997 or of results which may occur in the future.
The purchase price was allocated as follows (in millions):
Working capital (deficiency) acquired................................... $ (1.2)
Property, plant and equipment........................................... 7.1
Assembled work force and customer base.................................. 2.9
Developed technology.................................................... 13.1
Goodwill................................................................ 81.8
Other liabilities....................................................... (2.0)
In-process research and development..................................... 33.7
--------
Total purchase price.................................................... $ 135.4
========
Uniphase Fiber Components
On November 26, 1997, the Company acquired 100% of the capital stock of
Uniphase Fiber Components Pty Ltd. (formerly INDX Pty Ltd.) and obtained certain
licensing rights from Australia Photonics Pty Limited (AP). UFC designs and
manufactures fiber optic reflection filters (fiber Bragg gratings) for
wavelength division multiplexing (WDM) applications. The total purchase price of
$6.9 million included a cash payment of $6.5 million to AP and acquisition
expenses of $0.4 million.
The acquisition has been accounted for as a purchase and accordingly,
the accompanying financial statements include the results of operations of UFC
subsequent to the acquisition date. The purchase price was allocated to the net
assets and the IPRD acquired. The purchased intangible assets are being
amortized over the estimated useful life of 5 years.
IPRD was identified and valued through extensive interviews, analysis of
data provided by UFC concerning developmental products, their stage of
development, the time and resources needed to complete them, and, if applicable,
their expected income generating ability, target markets and associated risks.
The Income Approach, which includes an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing purchased research and development project.
The Company considered, among other factors, the importance of each
project to the overall development plan, and the projected incremental cash
flows from the projects when completed and any associated risks. The projected
incremental cash flows were discounted back to their present value using a
discount rate of 20%. This discount rate was determined after consideration of
UFC's weighted average cost of capital and the weighted average return on
assets. Associated risks include the inherent difficulties and uncertainties in
completing each project and thereby achieving technological feasibility,
anticipated levels of market acceptance and penetration, market growth rates and
risks related to the impact of potential changes in future target markets. Since
the acquisition date, some of the acquired in-process research and development
projects have been completed and the related products have been released.
This analysis resulted in a valuation of $6.6 million for acquired
in-process research and development that had not reached technological
feasibility and did not have alternative future uses. Therefore, in accordance
with generally accepted accounting
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principles, such $6.6 million was charged to income. The Company estimates that
a total investment of $1.9 million in research and development over the next
year will be required to complete the in-process research and development.
The purchase price allocation is as follows (in millions):
Working capital (deficiency) acquired............................... $ (0.1)
Property, plant and equipment....................................... 0.3
Identified intangibles.............................................. 0.2
In-process research and development................................. 6.5
-------
Total purchase price................................................ $ 6.9
=======
Unaudited Pro Forma Information
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development, as if the acquisition of E-TEK, OCLI and
JDS FITEL had occurred at the beginning of fiscal 1999 and does not purport to
be indicative of what would have occurred had the acquisition been made as of
the beginning of fiscal 1999 or of results which may occur in the future. The
pro forma 2000 and 1999 results of operations combines the consolidated results
of operations of the Company, excluding the charge for acquired in-process
research and development attributable to E-TEK, OCLI and JDS FITEL, for the
years ended June 30, 2000 and 1999 with the historical results of operations of
E-TEK, OCLI, and JDS FITEL for the years ended June 30, 2000 and 1999, April 30,
2000 and 1999, and May 31, 2000 and 1999, respectively. The pro forma 2000 and
1999 results exclude the effect of other acquisitions, as the impact to the
results of operations for 2000 and 1999 would not be materially different from
those shown below.
YEAR ENDED
JUNE 30,
-------------------------
2000 1999
------------ -----------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
Net sales.................................. $ 1,900.7 $ 966.9
Net loss................................... $ (4,030.3) $ (4,369.4)
Loss per share............................. $ (4.70) $ (5.63)
NOTE 10. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
During the first quarter of fiscal 2000, JDS Uniphase changed the
structure of its internal organization following the merger with JDS FITEL that
became effective on the close business June 30, 1999. Segment information for
the prior years has been restated to conform to the current year's presentation.
The President and Chief Operating Officer has been identified as the
Chief Operating Decision Maker as defined by SFAS 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: Components and Modules. The
Components Group consists primarily of source lasers, pump lasers, external
modulator products, packaged lasers for fiber-based data communications,
couplers, filters, isolators, circulators, switches, attenuators, fiber Bragg
gratings, and connector products used primarily in telecommunications
applications. The Modules Group includes transmitters, amplifiers, transceivers,
and test instruments used in telecommunications and cable TV. 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, certain
corporate-level operating expenses and the Ultrapointe product line that was
sold in 1999. All of the Company's products are sold directly to original
equipment manufacturers and industrial distributors throughout the world.
In fiscal 2000, the operating segments and corporate sales reported to
the Chief Operating Officer (COO). Where practicable, the Company allocates
Corporate sales, marketing, finance and administration expenses to operating
segments, primarily as a percentage of net sales. Certain corporate-level
operating expenses (primarily charges originating from purchased intangibles,
merger costs and other expenses and acquired-in process research and development
expenses) are not allocated to operating segments. In addition, the Company does
not allocate income taxes, non-operating income and expenses or specifically
identifiable assets to its operating segments.
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Information about reportable segments sales and net income are as
follows (in millions):
YEAR ENDED JUNE 30,
--------------------------------------
2000 1999 1998
-------- -------- --------
Components:
Shipments ................................. $ 961.8 $ 169.4 $ 83.0
Intersegment sales ........................ 122.6 3.8 --
-------- -------- --------
Net sales to external customers ........... $ 839.2 $ 165.6 $ 83.0
Operating income .......................... $ 341.0 $ 53.2 $ 23.8
Modules:
Shipments ................................. $ 429.5 $ 62.0 $ 34.2
Intersegment sales ........................ 0.3 -- --
-------- -------- --------
Net sales to external customers ........... $ 429.2 $ 62.0 $ 34.2
Operating income .......................... $ 91.8 $ 15.9 $ 2.7
Net sales by reportable segments ............ $1,268.4 $ 227.6 $ 117.2
All other net sales ......................... 162.0 55.2 68.0
-------- -------- --------
Net sales ................................... $1,430.4 $ 282.8 $ 185.2
======== ======== ========
Operating income by reportable segments ..... $ 432.8 $ 69.1 $ 26.5
All other operating income (loss) ........... 7.6 3.8 7.9
Unallocated amounts:
Acquisition related charges ............... (1,257.6) (232.9) (45.9)
Other, net ................................ (47.9) -- --
Interest and other income, net ............ 35.3 3.6 3.3
-------- -------- --------
Loss before income taxes .................... $ (829.8) $ (156.4) $ (8.2)
======== ======== ========
JDS Uniphase operates primarily in two geographic regions: North America
and Europe. The following table shows sales and other identifiable assets by
geographic region (in millions):
YEARS ENDED JUNE 30,
---------------------------------------
2000 1999 1998
--------- --------- ---------
Net sales:
North America .............. $ 1,103.7 $ 168.5 $ 114.7
Europe ..................... 256.8 103.8 18.7
Rest of World .............. 69.9 10.6 51.8
--------- --------- ---------
Total net sales .... $ 1,430.4 $ 282.8 $ 185.2
Identifiable assets:
North America .............. $26,141.3 $ 3,994.5 $ 239.2
Europe ..................... 194.7 97.1 92.2
Rest of World .............. 53.1 4.5 1.5
--------- --------- ---------
Total assets ....... $26,389.1 $ 4,096.1 $ 332.9
========= ========= =========
Net sales are attributed to countries based on the location of
customers. Rest of World includes Japan, Australia and Asia. The increase in net
sales to North America customers from fiscal 1999 to 2000 is primarily
attributable to increased customer demand for high channel count systems to meet
increased bandwidth requirements, the inclusion of a full year's sales from JDS
FITEL, which sells a higher mix of its products to customers in the U.S. and
Canada, as well as acquisitions that were completed in fiscal 2000 (see Note 9).
The increase in net sales to Europe was also a result of the increased customer
demand as well as acquisitions completed in fiscal 2000 (see Note 9). The
decline in net sales to rest of world customers from fiscal 1998 to 1999 is
primarily attributable to the disposal of the Ultrapointe product line.
Identifiable assets are those assets of the Company that are identified with the
operations of the corresponding geographic area. Identified intangible assets
and goodwill of $22,337.8 million are included in domestic assets.
During fiscal 2000, two customers, Lucent Technologies, Inc and Nortel
Networks Corp, and their affiliates accounted for 21% and 15% of consolidated
net sales, respectively. During fiscal 1999, none of the Company's customers
exceeded 10% of consolidated net sales, whereas two customers, KLA-Tencor
Corporation and Ciena Corporation, accounted for 11% and 11% of the Company's
consolidated net sales during fiscal 1998.
NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION
The consolidated statement of cash flows for fiscal 2000, excludes non
cash operating and investing activities of $1,044.2 million and $21,234.5
million, respectively, in connection with the Company's acquisitions in fiscal
2000, of which the most significant were E-TEK and OCLI. During fiscal 2000, the
Company assumed $106.3 million of debt from the acquisitions of E-TEK, OCLI, and
EPITAXX, of which $45.1 million has been prepaid during the year (see Note 2).
The consolidated statement of cash flows for fiscal
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1999 excludes non cash operating and investing activities of $184.8 million and
$3.5 billion respectively, in connection with Uniphase's merger with JDS, FITEL
Inc., whereas the consolidated statement of cash flows for fiscal 1998 excludes
noncash investing activities of $131.3 million in common stock issued to
Philips. Net cash provided by operating activities reflects cash payments for
interest and income taxes as follows (in millions):
YEARS ENDED JUNE 30,
---------------------------------
2000 1999 1998
------- ------- -------
Cash payments for:
Interest ................... $ 3.4 $ -- $ 0.1
Income taxes ............... $ 67.9 $ 9.3 $ 2.3
NOTE 12. UNAUDITED QUARTERLY RESULTS
The following table contains selected unaudited consolidated statement
of operations data for each quarter of fiscal years 2000 and 1999.
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1999 1999 1999
-------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales ............................................. $ 57.4 $ 63.8 $ 74.5 $ 87.1 230.1
Cost of sales ......................................... 28.9 33.5 36.3 40.0 125.2
Gross profit ........................................ 28.5 30.3 38.2 47.1 104.9
Operating expenses:
Research and development ............................ 5.6 5.8 7.3 8.3 17.2
Selling, general, and administrative ................ 7.1 8.4 9.1 12.8 27.9
Amortization of purchased intangibles ............... 3.9 4.0 3.9 3.9 172.9
Acquired in-process research and development ........ -- -- -- 210.4 --
Other operating expenses ............................ -- 6.3 0.5 -- --
-------- -------- -------- -------- --------
Total operating expenses .............................. 16.6 24.5 20.8 235.4 218.0
Income (loss) from operations ......................... 11.9 5.8 17.4 (188.3) (113.1)
Interest and other income, net ........................ 0.9 0.8 0.9 1.0 5.5
-------- -------- -------- -------- --------
Income (loss) before income taxes ..................... 12.8 6.6 18.3 (187.3) (107.6)
Income tax expense .................................... 4.7 4.2 5.5 7.0 6.3
-------- -------- -------- -------- --------
Net income (loss) ..................................... $ 8.1 $ 2.4 $ 12.8 $ (194.3) $ (113.9)
======== ======== ======== ======== ========
Earnings (loss) per share(1):
Basic ............................................... $ 0.03 $ 0.01 $ 0.04 $ (0.60) $ (0.17)
Diluted ............................................. $ 0.02 $ 0.00 $ 0.04 $ (0.60) $ (0.17)
Number of weighted average shares outstanding(1):
Basic ............................................... 312.9 316.2 320.3 323.6 673.9
Diluted ............................................. 338.1 338.1 347.2 323.6 673.9
Net sales ............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ......................................... 50.3% 52.5% 48.7% 45.9% 54.4%
-------- -------- -------- -------- --------
Gross profit ........................................ 49.7% 47.5% 51.3% 54.1% 45.6%
Operating expenses:
Research and development ............................ 9.8% 9.1% 9.8% 9.5% 7.5%
Selling, general, and administrative ................ 12.4% 13.2% 12.2% 14.7% 12.1%
Amortization of purchased intangibles ............... 6.8% 6.3% 5.2% 4.5% 75.1%
Acquired in-process research and development ........ -- -- -- 241.6% 0.0%
Other operating expenses ............................ -- 9.9% 0.7% -- 0.0%
-------- -------- -------- -------- --------
Total operating expenses ..................... 28.9% 38.4% 27.9% 270.3% 94.7%
Income (loss) from operations ......................... 20.7% 9.1% 23.4% (216.1)% (49.2)%
Interest and other income, net ........................ 1.6% 1.3% 1.2% 1.1% 2.4%
-------- -------- -------- -------- --------
Income (loss) before income taxes ................... 22.3% 10.3% 24.6% (215.0)% (46.8)%
Income tax expense .................................... 8.2% 6.6% 7.4% 8.0% 2.7%
-------- -------- -------- -------- --------
Net income (loss) ..................................... 14.1% 3.8% 17.2% (223.1)% (49.5)%
======== ======== ======== ======== ========
DEC. 31, MAR. 31, JUNE 30,
1999 2000 2000
-------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales ............................................. $ 281.7 $ 394.6 $ 524.0
Cost of sales ......................................... 139.2 202.1 285.2
Gross profit ........................................ 142.5 192.5 238.8
Operating expenses:
Research and development ............................ 21.6 33.3 41.2
Selling, general, and administrative ................ 33.8 49.1 62.1
Amortization of purchased intangibles ............... 185.1 249.6 289.3
Acquired in-process research and development ........ 19.7 84.1 256.9
Other operating expenses ............................ -- -- --
-------- -------- --------
Total operating expenses .............................. 260.2 416.1 649.5
Income (loss) from operations ......................... (117.7) (223.6) (410.7)
Interest and other income, net ........................ 10.7 10.0 9.1
-------- -------- --------
Income (loss) before income taxes ..................... (107.0) (213.6) (401.6)
Income tax expense .................................... 24.2 27.3 17.2
-------- -------- --------
Net income (loss) ..................................... $ (131.2) $ (240.9) $ (418.8)
======== ======== ========
Earnings (loss) per share(1):
Basic ............................................... $ (0.19) $ (0.32) $ (0.54)
Diluted ............................................. $ (0.19) $ (0.32) $ (0.54)
Number of weighted average shares outstanding(1):
Basic ............................................... 690.5 747.6 782.0
Diluted ............................................. 690.5 747.6 782.0
Net sales ............................................. 100.0% 100.0% 100.0%
Cost of sales ......................................... 49.4% 51.2% 54.4%
-------- -------- --------
Gross profit ........................................ 50.6% 48.8% 45.6%
Operating expenses:
Research and development ............................ 7.7% 8.4% 7.9%
Selling, general, and administrative ................ 12.0% 12.4% 11.9%
Amortization of purchased intangibles ............... 65.7% 63.3% 55.2%
Acquired in-process research and development ........ 7.0% 21.3% 49.0%
Other operating expenses ............................ 0.0% 0.0% 0.0%
-------- -------- --------
Total operating expenses ..................... 92.4% 105.4% 124.0%
Income (loss) from operations ......................... (41.8)% (56.7)% (78.4)%
Interest and other income, net ........................ 3.8% 2.5% 1.7%
-------- -------- --------
Income (loss) before income taxes ................... (38.0)% (54.1)% (76.6)%
Income tax expense .................................... 8.6% 6.9% 3.3%
-------- -------- --------
Net income (loss) ..................................... (46.6)% (61.0)% (79.9)%
======== ======== ========
- ----------
(1) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly per common share
information may not equal the annual loss per common share. All share
and per share information has been retroactively restated to reflect the
two-for-one stock splits effective December 22, 1999 and March 2, 2000.
NOTE 13. SUBSEQUENT EVENTS
On July 10, 2000, the Company signed a definitive agreement to merge
with SDL, in a transaction valued at approximately $41.0 billion. The merger
agreement provides for the exchange of 3.8 shares of JDS Uniphase common stock
for each common share of SDL. Completion of the transaction is subject to
customary closing conditions, including the approval of stockholders of both
companies and regulatory approvals. Following completion of the transaction, SDL
will operate as a wholly-owned subsidiary of JDS Uniphase. SDL designs,
manufactures and sells semiconductor lasers, laser-based systems, and fiber
optic related solutions.
In August 2000, the Company 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
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77
controlled by a long-term ground lease. The Research Triangle Park facility,
when tenants improvements are complete, will provide approximately 151,000
square feet space for manufacturing and office on approximately 110 acres.
The lease term for these facilities is five years beginning August 2000,
with an option to extend the lease term for two successive periods of one year
each. The total approximate minimum lease payments for these facilities for the
next five years will be $20.5 million. The Company has an option to purchase the
property (land or ground lease interest) and improvements for $59.6 million or,
at the end of the lease, to arrange for the sale of the property to a third
party with the Company retaining an obligation to the owner for the difference
between the sales price and the guaranteed residual value of $50.2 million if
the sales price is less than this amount, subject to certain provisions of the
lease.
As part of the above lease transactions, the Company will restrict
approximately $60.0 million of its investment securities as collateral for
specified obligations of the lessors under the leases. These investment
securities are restricted as to withdrawal and are managed by a third party
subject to certain limitations under the Company's investment policy. In
addition, the Company must maintain a minimum consolidated tangible net worth,
as defined, of $500.0 million.
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, 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 dependant upon the Company's final
analysis, which it expects to complete during the second 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.
NOTE 14. SUBSEQUENT EVENTS (UNAUDITED)
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 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information regarding directors and executive officers required by
Item 10 is included in the Company's Definitive Proxy Statement filed on October
26, 2000 in connection with the Annual Stockholders' Meeting held on December
13, 2000 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Executive
Compensation and Related Information sections of the Company's Definitive Proxy
Statement filed on October 26, 2000 in connection with the Annual Stockholders'
Meeting held on December 13, 2000 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Security
Ownership of Certain Beneficial Owners and Management section of the Company's
Definitive Proxy Statement filed on October 26, 2000 in connection with the
Annual Stockholders' Meeting held on December 13, 2000 and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Compensation
Committee Interlocks and Insider Participation and Certain Transactions sections
of the Company's Definitive Proxy Statement filed on October 26, 2000 in
connection with the Annual Stockholders' Meeting held on December 13, 2000 and
is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following index reflects the "Index to Financial Statements and
Financial Statement Schedules," included in the Company's Current Report on Form
8-K, filed with the SEC on September 1, 2000.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Report of Ernst & Young LLP, Independent Auditors
Consolidated Statements of Operations -- Years ended June 30, 2000, 1999
and 1998
Consolidated Balance Sheets -- June 30, 2000 and 1999
Consolidated Statements of Stockholders' Equity -- Years ended June 30,
2000, 1999 and 1998
Consolidated Statements of Cash Flows -- Years ended June 30, 2000, 1999
and 1998
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed as part of this
current report. All other financial statement schedules have been omitted
because they are not applicable or are not required or the information required
to be set forth therein is included in the Company's consolidated financial
statements set forth in this Annual Report on Form 10-K/A and the note thereto.
JDS UNIPHASE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS(2) DEDUCTION(1) PERIOD
----------- ------------ ---------- ----------- ------------ ----------
(IN MILLIONS)
Year ended June 30, 2000:
Allowance for doubtful accounts.............. $ 1.1 $ 0.8 $ 6.3 $ -- $ 8.2
Year ended June 30, 1999:
Allowance for doubtful accounts.............. $ 0.8 $ 0.3 $ 0.5 $ 0.5 $ 1.1
Year ended June 30, 1998:
Allowance for doubtful accounts.............. $ 1.9 $ 0.4 $ 0.4 $ 1.9 $ 0.8
- ----------
(1) Charges for uncollectible accounts, net of recoveries.
(2) Allowance assumed through the merger with OCLI, E-TEK, and Epitaxx in
fiscal 2000, JDS FITEL in fiscal 1999, and the acquisitions of UNL and
UFC in fiscal 1998.
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80
(a)(3) EXHIBITS
JDS UNIPHASE CORPORATION
ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 2000
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
3.1 Restated Certificate of Incorporation.
3.2(1) Certificate of Designation.
3.3(2) Certificate of Designation.
3.4(3) Certificate of Designation.
3.5 Bylaws of the Company, as amended.
4.1(4) Fourth Amended and Restated Rights Agreement.
4.2(5) Exchangeable Share Provisions attaching to the exchangeable shares of JDS Uniphase Canada Ltd. (formerly
3506967 Canada Inc.).
4.3(6) Voting and Exchange Trust Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and
CIBC Mellon Trust Company.
4.4(6) Exchangeable Share Support Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and
JDS Uniphase Nova Scotia Company.
4.5(6) JDS Uniphase Canada Ltd. Rights Agreement dated as of June 30, 1999 between the JDS Uniphase Canada Ltd. and
CIBC Mellon Trust Company.
4.6(6) Registration Rights Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and The
Furukawa Electric Co., Ltd.
10.1(7) Amended and Restated 1993 Flexible Stock Incentive Plan.
10.2(8) Stockholder Agreement dated as of June 9, 1998, by and between Uniphase Corporation, and Koninklijke Philips
Electronics N.V.
10.3(8) Series A Preferred Conversion and Redemption Agreement dated as of June 9, 1998, by and between Uniphase
Corporation and Koninklijke Philips Electronics N.V.
10.4 1998 Employee Stock Purchase Plan, as amended.
10.5(6) Support Agreement dated as of April 29, 1999, by and among Uniphase Corporation, 3506967 Canada Inc., The
Furukawa Electric Company, Ltd., and JDS FITEL Inc.
10.6(9) Employment Agreement for Russ Johnson.
10.7(9) Employment Agreement for Frederick Leonberger.
10.8(9) Employment Agreement for Dan E. Pettit.
10.9(9) Employment Agreement for Anthony R. Muller.
10.10(9) Employment Agreement for Kevin N. Kalkhoven.
10.11(10) Retention and Change of Control Agreement for Jozef Straus, Ph.D.
10.12(10) Retention and Change of Control Agreement for M. Zita Cobb.
10.13(10) First Amendment to Employment Agreement for Kevin Kalkhoven.
10.14 Amended and restated 1999 Canadian Employee Stock Purchase Plan
21.1(10) Subsidiaries of the Company.
23.1 Consent of Ernst &Young LLP, Independent auditors.
24.1(10) Powers of Attorney.
27.1(10) Financial Data Schedule for the year ended June 30, 2000.
- ------------
(1) Incorporated by reference to exhibit 3.(i)(d) to the Company's Report of
Form 10-K filed September 28, 1998.
(2) Incorporated by reference to exhibit 4.1 to the Company's Registration
Statement on Form S-3 filed July 14, 1999.
80
81
(3) Incorporated by reference to exhibit 10.3 to the Company's current
Report on Form 8-K filed June 24, 1998.
(4) Incorporated by reference to the Company's Registration Statement on
Form 8-A 12G/A filed on February 13, 2001.
(5) Incorporated by reference to the Company's Definitive Proxy Statement on
Schedule 14A filed on June 2, 1999.
(6) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the period ending June 30, 1999.
(7) Incorporated by reference to exhibits filed with the Company's
registration statement on form S-8, file number 33-31722 filed with the
Securities and Exchange Commission on February 27, 1996.
(8) Incorporated by reference to the exhibit to the Company's Current Report
on Form 8-K filed June 24, 1998.
(9) Incorporated by reference to the exhibit filed with the Company's
quarterly report on Form 10-Q for the period ended September 30, 1999.
(10) Incorporated by reference to exhibits 10.11, 10.12, 10.13, 21.1, 24.1,
and 27.1 to the Company's Annual Report on Form 10-K filed on September
28, 2000.
(b) REPORTS ON FORM 8-K
The Company filed two reports on Form 8-K/A during the fourth quarter
ended June 30, 2000. Information regarding the items reported on is as follows:
DATE ITEM REPORTED ON
- ---- ----------------
May 22, 2000 Unaudited Pro forma Condensed Combined Consolidated Statement of Operations for JDS Uniphase and
Optical Coating Laboratory, Inc. Combined for the Nine Months ended March 31, 2000.
May 31, 2000 Consolidated Financial Statements for Optical Coating Laboratory, Inc. Combined for the Quarter
ended March 31, 2000.
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82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: February 13, 2001 JDS UNIPHASE CORPORATION
By: /s/ ANTHONY R. MULLER
---------------------------------------
Anthony R. Muller
Executive Vice President and CFO
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JOZEF STRAUS, PH.D* Co-Chairman and Chief Executive February 13, 2001
- ------------------------------------ Officer (Principal Executive Officer) -----------------
Jozef Straus, Ph. D
Co-Chairman and President of the February 13, 2001
- ------------------------------------ Actives Group -----------------
Donald R. Scifres, Ph.D.
President and Chief Operating Officer February 13, 2001
- ------------------------------------ -----------------
Charles J. Abbe
/s/ ANTHONY R. MULLER Executive Vice President, February 13, 2001
- ------------------------------------ Chief Financial Officer and Secretary -----------------
Anthony R. Muller (Principal Financial and Accounting Officer)
/s/ MARTIN A. KAPLAN* Co-Chairman February 13, 2001
- ------------------------------------ -----------------
Martin A. Kaplan
/s/ BRUCE D. DAY* Director February 13, 2001
- ------------------------------------ -----------------
Bruce D. Day
/s/ ROBERT E. ENOS* Director February 13, 2001
- ------------------------------------ -----------------
Robert E. Enos
/s/ JOHN A. MacNAUGTON* Director February 13, 2001
- ------------------------------------ -----------------
John A. MacNaughton
/s/ WILSON SIBBETT, PH.D* Director February 13, 2001
- ------------------------------------ -----------------
Wilson Sibbett, Ph.D.
/s/ CASIMIR S. SKRZYPCZAK* Director February 13, 2001
- ------------------------------------ -----------------
Casimir S. Skrzypczak
/s/ PETER A. GUGLIELMI* Director February 13, 2001
- ------------------------------------ -----------------
Peter A. Guglielmi
/s/ WILLIAM J. SINCLAIR* Director February 13, 2001
- ------------------------------------ -----------------
William J. Sinclair
/s/ DONALD J. LISTWIN* Director February 13, 2001
- ------------------------------------ -----------------
Donald J. Listwin
*By: /s/ Anthony R. Muller
- ------------------------------------
Anthony R. Muller
Attorney-in-fact
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
3.1 Restated Certificate of Incorporation.
3.2(1) Certificate of Designation.
3.3(2) Certificate of Designation.
3.4(3) Certificate of Designation.
3.5 Bylaws of the Company, as amended.
4.1(4) Fourth Amended and Restated Rights Agreement.
4.2(5) Exchangeable Share Provisions attaching to the exchangeable shares of JDS Uniphase Canada Ltd. (formerly
3506967 Canada Inc.).
4.3(6) Voting and Exchange Trust Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and
CIBC Mellon Trust Company.
4.4(6) Exchangeable Share Support Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and
JDS Uniphase Nova Scotia Company.
4.5(6) JDS Uniphase Canada Ltd. Rights Agreement dated as of June 30, 1999 between the JDS Uniphase Canada Ltd. and
CIBC Mellon Trust Company.
4.6(6) Registration Rights Agreement dated as of July 6, 1999 between the Company, JDS Uniphase Canada Ltd. and The
Furukawa Electric Co., Ltd.
10.1(7) Amended and Restated 1993 Flexible Stock Incentive Plan.
10.2(8) Stockholder Agreement dated as of June 9, 1998, by and between Uniphase Corporation, and Koninklijke Philips
Electronics N.V.
10.3(8) Series A Preferred Conversion and Redemption Agreement dated as of June 9, 1998, by and between Uniphase
Corporation and Koninklijke Philips Electronics N.V.
10.4 1998 Employee Stock Purchase Plan, as amended.
10.5(6) Support Agreement dated as of April 29, 1999, by and among Uniphase Corporation, 3506967 Canada Inc., The
Furukawa Electric Company, Ltd., and JDS FITEL Inc.
10.6(9) Employment Agreement for Russ Johnson.
10.7(9) Employment Agreement for Frederick Leonberger.
10.8(9) Employment Agreement for Dan E. Pettit.
10.9(9) Employment Agreement for Anthony R. Muller.
10.10(9) Employment Agreement for Kevin N. Kalkhoven.
10.11(10) Retention and Change of Control Agreement for Jozef Straus, Ph.D.
10.12(10) Retention and Change of Control Agreement for M. Zita Cobb.
10.13(10) First Amendment to Employment Agreement for Kevin Kalkhoven.
10.14 Amended and restated 1999 Canadian Employee Stock Purchase Plan
21.1(10) Subsidiaries of the Company.
23.1 Consent of Ernst &Young LLP, Independent auditors.
24.1(10) Powers of Attorney.
27.1(10) Financial Data Schedule for the year ended June 30, 2000.
- ------------
(1) Incorporated by reference to exhibits 3.(i)(d) to the
Company's Report of Form 10-K filed September 28, 1998.
(2) Incorporated by reference to exhibits 4.1 to the Company's
Registration Statement on Form S-3 filed July 14, 1999.
84
(3) Incorporated by reference to exhibit 10.3 to the Company's current
Report on Form 8-K filed June 24, 1998.
(4) Incorporated by reference to the Company's Registration Statement on
Form 8-A 12G/A filed on February 13, 2001.
(5) Incorporated by reference to the Company's Definitive Proxy Statement on
Schedule 14A filed on June 2, 1999.
(6) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the period ending June 30, 1999.
(7) Incorporated by reference to exhibits filed with the Company's
registration statement on form S-8, file number 33-31722 filed with the
Securities and Exchange Commission on February 27, 1996.
(8) Incorporated by reference to the exhibit to the Company's Current Report
on Form 8-K filed June 24, 1998.
(9) Incorporated by reference to the exhibit filed with the Company's
quarterly report on Form 10-Q for the period ended September 30, 1999.
(10) Incorporated by reference to exhibits 10.11, 10.12, 10.13, 21.1, 24.1,
and 27.1 to the Company's Annual Report on Form 10-K filed on September
28, 2000.