1
[JDS UNIPHASE LOGO]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-22874
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JDS Uniphase Corporation
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(Exact name of registrant as specified in its charter)
Delaware 94-2579683
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
210 Baypointe Parkway
San Jose, CA 95134
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(Address of principal executive offices) (Zip Code)
(408) 434-1800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock outstanding as of the latest practicable date,
May 2, 2001 was 1,316,222,901, including 173,053,190 Exchangeable Shares of JDS
Uniphase Canada Ltd. Each Exchangeable share is exchangeable at any time into
Common Stock on a one-for-one basis, entitle a holder to dividend and other
rights economically equivalent to those of the Common Stock, and through a
voting trust, vote at meetings of stockholders of the Registrant.
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
March 31, June 30,
2001 2000
----------- -----------
(unaudited)
Restated
ASSETS
Current assets:
Cash and cash equivalents $ 136.7 $ 319.0
Short-term investments 1,836.2 795.3
Accounts receivable, less allowance for doubtful accounts
of $18.8 at March 31, 2001 and $8.2 at June 30, 2000 705.4 381.6
Inventories 672.9 375.4
Deferred income taxes 71.2 62.4
Other current assets 81.3 39.2
----------- -----------
Total current assets 3,503.7 1,972.9
Property, plant and equipment, net 1,193.2 670.7
Deferred income taxes 918.4 642.7
Intangible assets, including goodwill, net 18,348.6 22,337.8
Long term investments 204.1 760.9
Other assets 6.9 4.1
----------- -----------
Total assets $ 24,174.9 $ 26,389.1
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 285.0 $ 195.2
Accrued payroll and related expenses 169.3 98.8
Income taxes payable 86.9 108.6
Accrued expenses and other current liabilities 281.0 244.6
Deferred income taxes 297.2 --
----------- -----------
Total current liabilities $ 1,119.4 647.2
Deferred income taxes 893.0 902.1
Accrued pension and other non-current liabilities 4.5 20.2
Long-term debt 23.6 41.0
Stockholders' equity:
Preferred stock -- --
Common stock and additional paid-in capital 67,664.9 25,898.3
Accumulated deficit (44,862.4) (1,102.5)
Accumulated other comprehensive loss (668.1) (17.2)
----------- -----------
Total stockholders' equity 22,134.4 24,778.6
----------- -----------
Total liabilities and stockholders' equity $ 24,174.9 $ 26,389.1
=========== ===========
See accompanying notes to condensed consolidated financial statements
3
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended Nine months ended
-------------------------------- ------------------------------
March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000
--------------- -------------- -------------- --------------
Restated Restated
Net sales $ 920.1 $ 394.6 $ 2,631.7 $ 906.4
Cost of sales 494.2 202.1 1,380.7 466.6
------------ ------------ ------------ ---------
Gross profit 425.9 192.5 1,251.0 439.8
Operating expenses
Research and development 98.0 33.3 231.6 72.1
Selling, general and administrative 440.8 49.1 662.7 110.7
Amortization of purchased intangibles 2,120.2 249.6 4,331.7 607.6
Reduction of goodwill 39,777.2 -- 39,777.2 --
Acquired in-process research and research
and development 383.7 84.1 392.6 103.7
------------ ------------ ------------ ---------
Total operating expenses 42,819.9 416.1 45,395.8 894.1
Loss from operations (42,394.0) (44,144.8) (454.3) (223.6)
Gain on sale of subsidiary 1,770.2 -- 1,770.2 --
Activity related to equity investments (759.9) -- (853.4) --
Interest and other income, net 4.6 10.0 30.4 26.2
------------ ------------ ------------ ---------
Loss before income taxes (41,379.1) (213.6) (43,197.6) (428.1)
Income tax expense 468.8 27.3 562.3 57.8
------------ ------------ ------------ ---------
Net loss $ (41,847.9) $ (240.9) $ (43,759.9) $ (485.9)
============ ============ ============ =========
Basic and dilutive loss per share $ (36.63) $ (0.32) $ (43.02) $ (0.70)
============ ============ ============ =========
Shares used in per share calculation:
Basic and dilutive 1,142.5 747.6 1,017.3 696.1
See accompanying notes to condensed consolidated financial statements
4
JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Nine months ended
-------------------------
March 31, March 31,
2001 2000
----------- ---------
Restated
Operating activities
Net loss $ (43,759.9) $ (486.0)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Reduction of goodwill 39,777.2 --
Acquired in-process research and development 392.6 103.7
Depreciation and amortization expense 4,446.6 641.0
Gain on sale of subsidiary (1,770.2) --
Stock compensation 21.5 --
Other than temporary decline in marketable equity securities 7.5 --
Activity related to equity investments 853.4 --
Deferred income taxes 411.4 (47.6)
Tax benefits from stock options 90.4 0.3
Changes in operating assets and liabilities:
Accounts receivable (248.7) (89.1)
Inventories (211.7) (55.5)
Other current assets (31.0) 0.9
Accounts payable, accrued liabilities and other accrued expenses 9.4 125.4
----------- --------
Net cash provided (used) by operating activities (11.5) 193.1
----------- --------
Investing activities
Purchase of available for sale investments, net (104.9) (668.3)
Merger related expenses, net of cash acquired 234.6 (91.6)
Purchase of property, plant and equipment (561.0) (153.9)
Other investments (65.3) (7.9)
Increase in other assets (4.0) (0.1)
----------- --------
Net cash used in investing activities (500.6) (921.8)
----------- --------
Financing activities
Proceeds from issuance of common stock and private placement of exchangeable shares -- 713.6
Proceeds from issuance of common stock under stock option and stock purchase plans 393.8 77.9
Principal repayments on notes receivable from stockholders 7.8 --
Repayment of debt acquired (22.6) --
----------- --------
Net cash provided by financing activities 379.0 791.5
----------- --------
Effect of exchange rate changes on cash and cash equivalents (49.2) --
Increase (decrease) in cash and cash equivalents (182.3) 62.8
Cash and cash equivalents at beginning of period 319.0 75.4
----------- --------
Cash and cash equivalents at end of period $ 136.7 $ 138.2
=========== ========
Net cash provided by operating activities excluding indirect acquisition costs paid to SDL
executives $ 289.4 $ 193.1
See accompanying notes to condensed consolidated financial statements
5
JDS UNIPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
The financial information at March 31, 2001 and for the three and nine month
periods ended March 31, 2001 and March 31, 2000 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the JDS
Uniphase or the Company considers necessary for a fair presentation of the
financial information set forth herein, in accordance with generally accepted
accounting principles for interim financial information, the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, such information does
not include all of the information and footnotes required by generally accepted
accounting principles for annual financial statements. For further information,
refer to the Consolidated Financial Statements and footnotes thereto included in
the Company's Annual Report on Form 10-K/A for the year ended June 30, 2000 and
the Form 8-K, as amended, filed on March 23, 2001 regarding the merger with SDL,
Inc.
The balance sheet at June 30, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The results for the three and nine month periods ended March 31, 2001 may not be
indicative of results for the year ending June 30, 2001 or any future period.
Restatement
Following consultation initiated by the Company with the Staff of the Securities
and Exchange Commission, the Company is restating its previously reported
financial statements for the three and nine month periods ended March 31, 2001.
The condensed consolidated financial statements for the three and nine months
ended March 31, 2001 have been restated to (i) reduce the carrying value of
goodwill in the three months ended March 31, 2001 by approximately $39.8 billion
(see Note 5); (ii) reclassify $300.9 million in amounts paid to certain SDL
executives in connection with the acquisition, which were previously recorded as
acquisition costs in the quarter ended March 31, 2001 as compensation expense
for the period (see Note 9); (iii) adjust for other acquisition costs related to
the acquisitions of SDL and E-TEK of $16.8 million (see Note 9); and (iv) write
down the Company's investment in ADVA by $714.5 million due to an other than
temporary decline in the fair value of this investment in the three months ended
March 31, 2001 (see Note 10). Further information on these adjustments is
available on Form 8-Ks filed on April 24, 2001 and July 26, 2001.
FISCAL CALENDAR CHANGE
The Company changed its fiscal calendar effective July 1, 2000. Fiscal years
thereafter will end on the Saturday nearest to June 30, resulting in a 52 or 53
week fiscal year. The change will not result in any differences in fiscal 2001
financial results as compared to the Company's prior fiscal calendar.
6
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met in order to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. The
Company is required to implement SAB 101, effective the quarter ended June 30,
2001, with retroactive application to the beginning of the Company's fiscal
year. Although the Company has not yet completed its assessment of the impact of
SAB 101, the Company's preliminary assessment is that the impact of adopting SAB
101 on its financial position and results of operations in fiscal 2001 and
thereafter, will not be material.
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations." SFAS 141 eliminates the
pooling-of-interests method of accounting for business combinations except for
qualifying business combinations that were initiated prior to July 1, 2001. In
addition, SFAS 141 further clarifies the criteria to recognize intangible assets
separately from goodwill. The requirements of Statement 141 are effective for
any business combination accounted for by the purchase method that is completed
after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after). We
are currently evaluating the impact of SFAS 141.
In July 2001, the FASB issued Statements of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142,
goodwill and indefinite lived intangible assets are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives (but with
no maximum life). The amortization provisions of SFAS 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001. The Company will apply the new
accounting rules beginning July 1, 2002. Because of the different transition
dates for goodwill and intangible assets acquired on or before June 30, 2001 and
those acquired after that date, pre-existing goodwill and intangibles will be
amortized during this transition period until adoption whereas new goodwill and
indefinite lived intangible assets acquired after June 30, 2001 will not. We are
currently evaluating the impact of SFAS 142.
7
NOTE 2. COMPREHENSIVE LOSS
The components of comprehensive loss, are as follows:
(in millions) Three months ended Nine months ended
------------------------- -------------------------
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
----------- --------- ----------- ---------
Net loss $ (41,847.9) $ (240.9) $ (43,759.9) $ (485.9)
Change in unrealized loss on
available-for-sale investments, net of tax (610.6) (0.6) (610.0) (2.5)
Change in foreign currency translation (22.3) (1.2) (40.9) 0.3
----------- -------- ----------- --------
Comprehensive loss $ (42,480.8) $ (242.7) $ (44,410.8) $ (488.1)
=========== ======== =========== ========
During the three months ended March 31, 2001, the Company recorded a charge
related to one of its available-for-sale securities under the provision of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." A charge of approximately $7.5
million related to a decline in the market value of one of the Company's
investments that was deemed to be other than temporary.
NOTE 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities," as
amended, as of the beginning of fiscal 2001. The standards require the Company
to recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of the derivatives will either be offset against the change in fair value
of the hedged assets, liabilities or firm commitments through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The change in a derivative's fair value related to the ineffective
portion of a hedge, if any, will be immediately recognized in earnings. The
effect of adopting SFAS 133, as amended, did not have a material effect on the
Company's financial position or overall trends in results of operations.
The Company's objectives and strategies for holding and issuing derivatives is
to minimize the transaction and translation risks associated with non-functional
currency transactions. Currently, the Company does not enter into fair value or
cash flow hedges.
The Company conducts its business in a number of foreign countries and sells its
products directly to customers in Australia, Canada, China, France, Germany,
Hong Kong, Japan, Netherlands, Taiwan, Singapore and the United Kingdom through
its foreign subsidiaries. These sales are often denominated in the local
country's currency. Therefore, in the normal course of business, the Company's
financial position is routinely subjected to market risk associated with foreign
currency rate fluctuations. The Company's policy is to ensure that business
exposure to foreign exchange risks are identified, measured
8
and minimized using the most effective and efficient methods to eliminate or
reduce such exposures. The Company has entered into a number of foreign currency
forward contracts, but has not designated such contracts as hedges. The foreign
currency forward contracts generally expire within 30 to 60 days. The change in
fair value of these foreign currency forward contracts is recorded as income
(loss) in the Company's Statement of Operations. The Company does not use
derivatives for trading purposes.
NOTE 4. INVENTORIES
The components of inventory consist of the following (in millions):
March 31, June 30,
2001 2000
--------- ---------
Raw materials and purchased parts $ 334.2 $ 159.5
Work in process 197.7 176.7
Finished goods 141.0 39.2
--------- ---------
$ 672.9 $ 375.4
========= =========
NOTE 5. INTANGIBLE ASSETS, INCLUDING GOODWILL
The components of intangible assets are as follows (in millions):
March 31, June 30,
2001 2000
----------- -----------
Goodwill $ 20,857.6 $ 21,307.1
Purchased intangibles 2,731.4 1,945.5
Licenses and other intellectual property 1.9 5.6
----------- -----------
23,590.9 23,258.2
Less: accumulated amortization (5,242.3) (920.4)
----------- -----------
$ 18,348.6 $ 22,337.8
=========== ===========
The Company, as part of its review of financial results for 2001, performed an
assessment of the carrying value of the Company's long-lived assets to be held
and used including significant amounts of goodwill and other intangible assets
recorded in connection with its various acquisitions. The assessment was
performed pursuant to Statement Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (SFAS 121) because of the significant negative industry and
economic trends affecting both the Company's current operations and expected
future sales as well as the general decline of technology valuations. The
conclusion of that assessment was that the decline in market conditions within
the Company's industry was significant and other than temporary. As a result,
the Company recorded a charge of $39.8 billion to reduce goodwill during the
third quarter of 2001 based on the amount by which the carrying amount of these
assets exceeded their fair value. The write down is primarily related to the
goodwill associated with the acquisitions of E-TEK and SDL. Fair value was
determined based on discounted future cash flows for the operating entities that
had separately identifiable cash flows. The cash flow periods used were five
years using annual growth rates of 15 percent to 40 percent, the discount rate
used was 13 percent, and the terminal values were estimated based upon terminal
growth rates of 7 percent. The assumptions
9
supporting the estimated future cash flows, including the discount rate and
estimated terminal values, reflect management's best estimates. The discount
rate was based upon the Company's weighted average cost of capital as adjusted
for the risks associated with its operations.
NOTE 6. LOSS PER SHARE
As the Company incurred a loss for the three and nine month periods ended March
31, 2001, the effect of dilutive securities, totaling 39.8 million and 53.9
million equivalent shares, respectively, have been excluded from the computation
of loss per share, as their impact would be anti-dilutive. As the Company
incurred a loss for the three and nine month periods ended March 31, 2000, the
effect of dilutive securities, totaling 79.3 million and 74.4 million equivalent
shares, respectively, have been excluded from the computation of loss per share,
as their impact would be anti-dilutive. In connection with the acquisition of
SDL (See Note 9), the Company issued 333.8 million shares of its common stock,
and options to purchase 42.6 million additional shares of its common stock.
NOTE 7. INCOME TAX EXPENSE
The Company recorded a tax provision of $468.8 million for the three month
period ended March 31, 2001 as compared to $27.3 million in the same period of
the prior year. For the nine months ended March 31, 2001, the Company recorded a
tax provision of $562.3 million as compared to $57.8 million for the same period
of the prior year. The tax provision recorded for each period differs from the
expected tax benefit that otherwise would be calculated by applying the federal
statutory rate to loss before income taxes primarily because of non-deductible
acquisition-related charges and non-deductible reduction of goodwill.
NOTE 8. OPERATING SEGMENTS
During the three months ended March 31, 2001, JDS Uniphase changed the structure
of its internal organization following the acquisition of SDL, Inc. ("SDL")
which became effective February 13, 2001 (see Note 9).
The Chief Executive Officer has been identified as the Chief Operating Decision
Maker as defined by Statement of Financial Accounting Standards ("SFAS") No.
131. The Chief Executive Officer 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: (i) Amplification and Transmission
Group, and (ii) WDM, Switching and Thin Film Filters Group. The Amplification
and Transmission Group consists primarily of source lasers, pump lasers, pump
modules, external modulators, transmitters, transceivers, optical photodetectors
and receivers, and optical amplifier products used in telecommunications and
cable television ("CATV") applications. The WDM, Switching and Thin Film Filters
Group includes wavelength division multiplexers ("WDM"), isolators, WDM
couplers, monitor tap couplers, gratings, circulators, optical switches, tunable
filters, thin film filters, micro-electro-mechanical-systems, instruments,
waveguides, switches, industrial lasers, and optical display and projection
products. 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
10
internal manufacturing automation products and certain unallocated
corporate-level operating expenses. All of the Company's products are sold
directly to original equipment manufacturers and industrial distributors
throughout the world.
Information on reportable segments is as follows (in millions):
Three months ended Nine months ended
-------------------------- -------------------------
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
----------- ---------- ----------- ---------
Amplification and Transmission:
Shipments $ 441.4 $ 173.1 $ 960.7 $ 417.4
Intersegment sales (7.8) (1.2) (22.9) (1.5)
----------- ---------- ----------- ---------
Net sales to external customers 433.6 171.9 937.8 415.9
Operating income 128.0 46.1 267.3 105.9
WDM, Switching and Thin Film Filters:
Shipments 525.6 242.6 1,775.1 537.9
Intersegment sales (39.6) (19.9) (76.8) (47.2)
----------- ---------- ----------- ---------
Net sales to external customers 486.0 222.7 1,698.3 490.7
Operating income 152.2 76.0 617.8 183.1
Net sales by reportable segments 919.6 394.6 2,636.1 906.6
All other net sales 0.5 -- (4.4) (0.2)
----------- ---------- ----------- ---------
920.1 394.6 2,631.7 906.4
----------- ---------- ----------- ---------
Operating income by reportable segment 280.2 122.1 885.1 289.0
All other operating income (loss) (49.9) 6.7 (97.6) 6.5
Unallocated amounts:
Acquisition related charges and payroll tax
on stock option exercises (42,622.2) (352.4) (44,930.2) (749.8)
Gain on sale of subsidiary and
Other related costs 1,768.1 -- 1,768.1 --
Activity related to equity investments (759.9) -- (853.4) --
Interest and other income, net 4.6 10.0 30.4 26.2
----------- ---------- ----------- ---------
Loss before income taxes $ (41,379.1) $ (213.6) $ (43,197.6) $ (428.1)
=========== ========== =========== =========
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NOTE 9. ACQUISITIONS
During the first nine months of fiscal 2001, the Company completed several
acquisitions, all of which have been accounted for using the purchase method of
accounting. The table below summarizes the purchase transactions during the
current fiscal year (in millions):
Nine Months ended March 31, 2001
In Process
Purchase Purchased Net Tangible Research &
Acquisition Date Price Intangibles Assets Development Goodwill
----------- ------------ --------- ----------- ------------ ----------- ---------
SDL February-01 $41,193.1 $ 967.0 $617.4 $380.7 $39,228.0
OPA January-01 $ 168.5 $ 45.6 $ (4.6) $ 3.0 $ 124.5
Iridian October-00 $ 40.3 $ -- $ 2.3 $ -- $ 38.0
Epion* September-00 $ 184.5 $ 14.6 $ 11.0 $ 8.9 $ 150.0
Other $ 10.2 $ -- $ (0.3) $ -- $ 10.5
* The purchase price includes the issuance of contingent consideration based on
milestones reached during the 9 months ended March 31, 2001, subsequent to the
acquisition date.
SDL
On February 13, 2001, the Company completed the acquisition of SDL Inc., a world
leader in providing products for optical communications and related markets. The
transaction was accounted for as a purchase and accordingly, the accompanying
financial statements include the results of operations of SDL subsequent to the
acquisition date. The merger agreement provided for the exchange of 3.8 shares
of the Company's common stock and options to purchase shares of the Company's
common stock for each common share and outstanding option of SDL, respectively.
The total purchase price of $41.2 billion included consideration of 333.8
million shares of the Company's common stock valued at an average market price
of $111.13 per common share. The average market price is based on the average
closing price for a range of trading days around the announcement date (July 10,
2000) of the merger. In addition, the Company issued options to purchase 42.6
million shares of common stock valued at $4.1 billion in exchange for SDL
options. The Company also provided cash consideration of $0.2 million to the
former shareholders of SDL in respect of fractional shares relinquished in
connection with the acquisition. The value of the options, as well as estimated
direct transaction costs of $44.6 million, have been included as part of the
total purchase cost.
The total purchase cost of the SDL merger is as follows (in millions):
Value of securities issued $ 37,091.9
Assumption of SDL options 4,056.4
Cash consideration 0.2
-----------
Total consideration 41,148.5
Estimated transaction costs 44.6
-----------
Total purchase cost $ 41,193.1
===========
12
The purchase price allocation is as follows (in millions):
Tangible net assets $ 617.4
Intangible assets acquired:
Existing technology 455.4
Core technology 214.2
Trademarks and tradename 46.0
Assembled workforce 47.7
Deferred compensation 203.7
Goodwill 39,228.0
In-process research and development 380.7
-----------
Total purchase price: $ 41,193.1
===========
Tangible net assets acquired include cash, accounts receivable, inventories and
fixed assets (including an adjustment to write-up inventory of SDL to fair value
by $22.9 million and an adjustment to write-up fixed assets of SDL to fair value
by $5.8 million). Liabilities assumed principally include accounts payable,
accrued compensation and accrued expenses.
The Company paid certain SDL executives $300.9 million in consideration of their
agreement to amend their change of control agreements and enter into non-compete
agreements with the Company. These costs were charged to selling, general and
administrative expense as compensation expense during the third quarter of 2001.
A portion of the purchase price has been allocated to developed technology and
acquired in-process research and development. Developed technology and
in-process research and development ("IPR&D") were identified and valued through
analysis of data provided by SDL concerning developmental products, their stage
of development, the time and resources needed to complete them, 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 IPR&D.
Developmental projects that had reached technological feasibility 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 IPR&D and charged to expense upon closing of the merger. The
nature of the efforts required to develop the purchased IPR&D 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 IPR&D, the Company considered the importance of each project to
the overall development plan, estimating costs to develop the purchased IPR&D
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 sales estimates used to value the purchased IPR&D were based on
estimates or relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
SDL and its competitors.
13
The rates utilized to discount the net cash flows to their present value are
based on SDL'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 percent and 20
percent were deemed appropriate for the developed and in-process technology,
respectively.
The estimates used in valuing IPR&D 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 SDL's financial condition and results of operations.
The acquired existing technology, which is comprised of products that are
already technologically feasible, includes products in most of SDL's product
lines. The Company is amortizing the acquired existing technology of
approximately $455.4 million on a straight-line basis over an average estimated
remaining useful life of five years. The acquired core technology represents SDL
trade secrets and patents developed through years of experience in design,
package and manufacture of laser components and modules for fiber optic
telecommunication networks. SDL's products are designed for long-haul
applications, as well as emerging short-haul applications, such as metropolitan
area networks. This proprietary know-how can be leveraged by the Company to
develop new and improved products and manufacturing processes. The Company is
amortizing the acquired core technology of approximately $214.2 million on a
straight-line basis over an average estimated remaining useful life of five
years.
The trademarks and trade names include the SDL trademark and trade name. The
Company is amortizing the trademarks and trade names of approximately $46.0
million on a straight-line basis over an estimated remaining useful life of five
years.
The acquired assembled workforce is comprised of over 1,660 skilled employees
across SDL's Executive, Research and Development, Manufacturing,
Supervisor/Manager, and Sales and Marketing groups. The Company is amortizing
the value assigned to the assembled workforce of approximately $47.7 million on
a straight-line basis over an estimated remaining useful life of four 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 five years.
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 SDL (combining SDL with PIRI, Veritech
and Queensgate) had occurred at the beginning of fiscal 2000 and does not
purport to be indicative of what would have occurred had the acquisition been
made as of the beginning of fiscal 2000 or of results which may occur in the
future. The pro forma 2000 results of operations combines the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development attributable to SDL, for the nine months
ended March 31, 2000 and the historical results of operations of SDL (combining
SDL with PIRI, Veritech and Queensgate) for the nine months ended March 31,
2000.
14
For the nine months
ended March 31,
(in millions, except --------------------------
per share data) 2001 2000
---------- ---------
Revenues $ 2,982.6 $ 1,142.7
Net loss $(48,402.8) $(8,493.7)
Loss per share --
basic and dilutive $ (35.90) $ (8.86)
Effective June 30, 2000, the Company acquired E-TEK Dynamics, Inc. ("E-TEK") and
effective February 4, 2000, the Company acquired Optical Coating Laboratory,
Inc. ("OCLI") in transactions accounted for as purchases. Accordingly, the
historical statement of operations of the Company for 2000 included above does
not include the financial results of E-TEK and OCLI prior to the effective dates
of their acquisitions. The following unaudited pro forma summary presents the
consolidated results of operations of the Company, excluding the charges for
acquired in-process research and development attributable to SDL, E-TEK and
OCLI, for the nine months ended March 31, 2000, the historical results of
operations of SDL (combining SDL with PIRI, Veritech and Queensgate) and E-TEK
for the nine months ended March 31, 2000 and the historical results of
operations of OCLI for the period from July 1, 1999 to February 3, 2000.
For the nine months
ended March 31,
(in millions, except --------------------------
per share data) 2001 2000
---------- ----------
Revenues $ 2,982.6 $ 1,496.0
Net loss $(48,402.8) $(11,050.2)
Loss per share --
basic and dilutive $ (35.90) $ (9.67)
OPA
In January 2001, the Company acquired Optical Process Automation Corp. ("OPA")
of Melbourne, Florida. OPA also has operations in Asheville, North Carolina. OPA
designs and manufactures automated and semi-automated systems for the
manufacture of fiberoptic components and modules. The transaction was accounted
for as a purchase and accordingly, the accompanying financial statements include
the results of operations of OPA subsequent to the acquisition date. The total
purchase price of $168.5 million included consideration of 2.4 million shares of
the Company's common stock valued at $131.8 million, the issuance of options to
purchase an additional 0.7 million shares of JDS Uniphase common stock valued at
$36.5 million in exchange for OPA options and direct transaction costs of $0.2
million. The purchase price allocation included net tangible deficit of $4.6
million, acquired IPR&D of $3.0 million, purchased intangibles of $15.5 million,
$30.1 million related to deferred compensation on unvested options and goodwill
of $124.5 million. The purchased intangibles and goodwill are expected to be
amortized over a period of two to seven years. The purchase price allocation is
preliminary and is dependent upon the Company's final analysis, which it expects
to complete during the fourth quarter of fiscal 2001. Subject to the completion
of certain milestones, the purchase agreement also provides for the issuance of
additional shares of JDS Uniphase common stock, estimated to be approximately
$250.0 million, with the final milestone payment scheduled to be paid on or
prior to January 31, 2004.
15
IRIDIAN SPECTRAL TECHNOLOGIES LIMITED
In October 2000, the Company acquired the remaining 80.1 percent interest in
Iridian Spectral Technologies Limited ("Iridian") of Ottawa, Canada. Iridian is
a supplier of custom designed thin film filters. The transaction was accounted
for as a purchase and accordingly, the accompanying financial statements include
the results of operations of Iridian subsequent to the acquisition date. The
total purchase price of $40.3 million included consideration of 0.4 million
exchangeable shares of the Company's subsidiary, JDS Uniphase Canada Ltd. valued
at $34.6 million, $4.7 million in cash and direct transaction costs of $1.0
million. The purchase price allocation included net tangible assets of $2.3
million and goodwill of $38.0 million that is expected to be amortized over a
period of five years. The purchase price allocation is preliminary and is
dependent upon the Company's final analysis, which it expects to complete during
the fourth quarter of fiscal 2001.
EPION CORPORATION
In September 2000, the Company acquired Epion Corporation ("Epion") of
Billerica, Massachusetts. Epion is a developer of gas cluster ion beam ("GCIB")
technology and a manufacturer of pulsed laser deposition ("PLD") equipment. The
transaction was accounted for as a purchase and accordingly, the accompanying
financial statements include the results of operations of Epion subsequent to
the acquisition date. The initial purchase price of $95.3 million included
consideration of 0.8 million shares of JDS Uniphase common stock valued at $86.8
million, the issuance of options to purchase an additional 91,862 shares of JDS
Uniphase common stock valued at $8.2 million in exchange for Epion options and
direct transaction costs of $0.3 million. The purchase price allocation included
net tangible assets of $11.0 million, acquired IPR&D of $8.9 million, purchased
intangibles of $10.9 million, $3.7 million related to deferred compensation on
unvested option, and goodwill of $60.8 million. The purchased intangibles and
goodwill are expected to be amortized over a period of three to five years. The
purchase price allocation is preliminary and is dependent upon the Company's
final analysis, which it expects to complete during the fourth 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, estimated to be
approximately $150.0 million, with the final milestone payment scheduled to be
paid on or prior to January 31, 2003. During the second and third quarters of
2001, Epion reached three milestones that resulted in the Company issuing 1.4
million shares of JDS Uniphase common stock valued at $98.7 million (including
$9.5 million related to deferred compensation on unvested options).
16
E-TEK DYNAMICS, INC.
During the three months ended March 31, 2001, the Company completed its
assessment of the purchase price for E-TEK.
The total purchase cost of E-TEK is as follows (in millions):
Value of securities issued $ 15,369.3
Assumption of options 2,005.4
Cash consideration 53.9
Assumption of employee stock purchase plan 45.5
-----------
Total consideration 17,474.1
Direct transactions costs and expenses 32.3
-----------
Total purchase cost $ 17,506.4
===========
The purchase price allocation is as follows (in millions):
Tangible net assets acquired $ 395.0
Marketable equity investments 950.0
Intangible assets acquired:
Developed technology:
Existing technology 248.7
Core technology 168.5
Trademark and tradename 60.4
Assembled workforce 10.7
In-process research and development 250.6
Goodwill 15,422.5
-----------
Total purchase price allocation $ 17,506.4
===========
NOTE 10. EQUITY METHOD OF ACCOUNTING
As of March 31, 2001, the Company had a 29 percent ownership stake in ADVA, a
publicly traded German company that develops and manufactures fiber optic
components and products and a 40 percent ownership stake in the Photonics Fund
("Photonics Fund"), LLP, a California limited liability partnership (the
"Partnership"), which emphasizes privately negotiated venture capital equity
investments. The Company accounts for its investments in ADVA and the Photonics
Fund under the equity method. Due to the limited availability of timely data,
the Company records the adjustments to its equity method investments in the
subsequent quarter.
At June 30, 2000, the Company's cost and estimated fair value of its investment
in ADVA was $701.1 million. In the process of completing the E-TEK purchase
accounting, the Company increased the cost and estimated fair value of its
investment in ADVA to $931.5 million during the first fiscal quarter. The
difference between the cost of the investment and the underlying equity in the
net assets of ADVA is being amortized over a 5 year period. For the three and
nine months ended March 31, 2001, the Company recorded $44.5 million and $133.7
million, respectively, in amortization expense related to the
17
difference between the cost of the investment and the underlying equity in the
net assets of ADVA. The significant decline in the fair value of its investment
in ADVA as of March 31, 2001, which the Company determined was other than
temporary required that its carrying value be written down to fair value as a
new basis and the amount of the write down was included in earnings. As a
result, the Company recognized a $714.5 million charge to earnings to write down
the basis of its investment in ADVA to fair value. For the three and nine months
ended March 31, 2001, the Company recorded a $0.6 million and $6.0 million net
loss in ADVA relating to their three and six months ended December 30, 2000
financial results, respectfully. As of May 7, 2001, ADVA had not announced their
financial results for the three months ended March 31, 2000. The Company will
record its share of the income or loss of ADVA in the three months ended June
30, 2001.
In the three and nine months ended March 31, 2001, the Company recorded a loss
of $0.3 million and a gain of $0.6 million, which represented the Company's
share of the earnings of the Photonics Fund Partnership for the three and six
months ended December 30, 2000. The Company's share of the gain of the
Partnership for the three months ended March 31, 2001 was approximately $0.8
million, which will be recorded by the Company during the three months ended
June 30, 2001.
NOTE 11. SALE OF SUBSIDIARY
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 $1,953.3 million, as well as up to an additional $500.0
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.
After adjusting for the net costs of the assets sold and for the expenses
associated with the divestiture, the Company realized a gain of $1,770.2
million. The shares of Nortel common stock are being accounted for as
available-for-sale securities. At March 31, 2001, the fair value of the shares
declined to $922.5 million. The unrealized loss on the Nortel common shares has
been recorded, net of tax in other comprehensive income.
NOTE 12. SUBSEQUENT EVENTS
Since the beginning of calendar 2001, the Company and its industry have
experienced a dramatic downturn, the primary direct cause of which has been a
precipitous decrease in network deployment and capital spending by
telecommunications carriers. This decrease can be attributable to, among other
things: (a) network overcapacity, as bandwidth demand, while continuing to grow,
did not reach levels sufficient to sustain the pace of network deployment; (b)
constrained capital markets; and (c) other factors, including the general
inability of the CLECs to obtain sufficient access to established
telecommunications infrastructures and consolidation among the
telecommunications carriers. The result was a decrease in the overall demand for
new fiber optic networks and capacity increases on existing networks. In
response, carriers dramatically slowed their purchases of systems from the
Company's customers, which in turned slowed purchases of components and modules
from the Company's competitors and the Company. Moreover, as their sales
declined, the Company's customers moved to reduce their component and module
inventory levels. Consequently, the impact of the slowdown on the Company's
business is magnified, as it faces declining sales as the result of its
customers' declining business and the resulting adjustment to their inventory
levels.
18
In response to the current market environment, in April 2001, the Company
initiated the Global Realignment Program, under which it is restructuring its
business in response to the changes in its industry and customer demand and as
part of its continuing overall integration program. Consequently, this resulted
in the Company recording significant charges in the fourth quarter of 2001 of
$264.3 million, $510.6 million, and $59.8 million, related to restructuring
activities, inventory write-downs, and loss on excess inventory purchase
commitments, respectively.
The Company also expects to incur further material restructuring costs in the
future as it continues to implement the Global Realignment Program. Such charges
will be recognized at the time the specific plans have been determined in
sufficient detail and been approved by management.
In addition, in the fourth quarter of 2001, the Company recorded an additional
reduction in the carrying value of goodwill and other long-lived assets in
accordance with SFAS 121 of approximately $6.9 billion, an additional reduction
to the carrying value of ADVA of $30.2 million, a realized loss on the shares of
Nortel common stock sold during the fourth quarter of 2001 of $559.1 million and
an other-than-temporary reduction in the carrying value of the remaining Nortel
common stock held as of June 30, 2001 of $511.8 million.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT EVENTS
On February 13, 2001, the Company completed the acquisition of SDL Inc., a world
leader in providing products for optical communications and related markets, in
a transaction accounted for as a purchase. The merger agreement provided for the
exchange of 3.8 shares of the Company's common stock and options to purchase
shares of the Company's common stock for each common share and outstanding
option of SDL, respectively. The total purchase price of $41.5 billion included
consideration of 333.8 million shares of the Company's common stock valued at an
average market price of $111.13 per common share. The average market price is
based on the average closing price for a range of trading days around the
announcement date (July 10, 2000) of the merger, which established the terms of
the merger. In addition, the Company issued 42.2 million stock options to
purchase shares of common stock valued at $4.1 billion in exchange for SDL
options, which established the terms of the merger. The value of the options, as
well as estimated direct transaction costs of $44.8 million, have been included
as part of the total purchase cost. See Note 9 of Notes to Condensed
Consolidated Financial Statements.
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 $1,953.3 million, as well as up to an additional $500.0
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.
After adjusting for the net costs of the assets sold and for the expenses
associated with the divestiture, the Company realized a gain of $1,770.2
million. See Note 11 of Notes to Condensed Consolidated Financial Statements.
As of March 31, 2001, the Company determined that the decline in the fair value
of its investment in ADVA was other than temporary requiring that its equity
basis be written down to fair value as a new basis and the amount of the write
down be included in earnings. As a result, the Company recognized a $714.5
million charge to earnings to write down the basis of its investment in ADVA to
fair value. This charge was included in activity related to equity investments.
During the second half of the 1990s through calendar 2000, the fiber optic
communications industry experienced a period of considerable growth, and we
participated in that growth as a leading supplier in these markets. This growth
was attributable primarily to: (a) the introduction of wavelength division
multiplexing (WDM) technology (under which multiple light signals are
transmitted down a single optical fiber cable), which allowed the expansion of
fiber optic network capacity without the expense and time required to install
additional fiber cable; (b) the unprecedented growth during this period in data
traffic, in general, and the internet, in particular, which created
exponentially increasing demand for larger, faster and more robust networks
(commonly collectively referred to loosely as "bandwidth"); (c) the
Telecommunications Act of 1996, which sought to open existing proprietary
telecommunications infrastructures to multiple carriers, and, as a consequence,
created a market for new upstart telecommunications carriers (called competitive
local exchange carriers, or CLECs), each of which moved rapidly to deploy its
own network; and (d) an abundance of relatively low cost capital available for
network development and expansion. Together, these factors fueled a rapid and
substantial installation of fiber optic networks in anticipation of rapidly
growing bandwidth demand and future sales. As a result of the demand placed on
our system provider customers by established and emerging telecommunications
carriers, we faced mounting, unrelenting, demand during this period for our
20
products. In response, we focused much of our efforts on growing our business,
internally and through acquisitions, to meet the increasingly urgent needs of
our customers for higher performance products, increased product breadth and
expanded manufacturing capacity. As a result of these efforts, our quarterly
sales grew rapidly, for example increasing from $87 million for the quarter
ended June 30, 1999 to $925 million for the quarter ended December 31, 2000.
Since the beginning of calendar 2001, we and our industry have experienced a
dramatic downturn, the primary direct cause of which has been a precipitous
decrease in network deployment and capital spending by the telecommunications
carriers. This decrease can be attributable to, among other things: (a) network
overcapacity, as bandwidth demand, while continuing to grow, did not reach
levels sufficient to match the pace of network deployment; (b) constrained
capital markets; and (c) other factors, including the general inability of the
CLECs to obtain sufficient access to established telecommunications
infrastructures and consolidation among telecommunications carriers. All of the
above factors resulted in a decrease in the overall demand for new fiber optic
networks. In response, the carriers dramatically slowed their purchases of
systems from our customers, who in turned slowed purchases of components and
modules from our competitors and from us. Moreover, as their sales declined, our
customers moved to reduce their component and module inventory levels.
Consequently, the impact of the slowdown on our business is magnified, as we
face declining sales as the result of our customers' declining business and the
resulting adjustment to their inventory levels. Currently, we do not see a
reversal of the industry downturn.
In response to the current market environment, in April 2001, we initiated the
Global Realignment Program, under which we are restructuring our business in
response to the changes in our industry and customer demand and as part of our
continuing overall integration program. Consequently, this resulted in recording
significant special charges in the fourth quarter of 2001 of $264.3 million,
$510.6 million, and $59.8 million, related to restructuring activities,
inventory write-downs, and loss on excess inventory purchase commitments,
respectively.
In addition, on April 24, 2001, we announced that we were evaluating the
carrying value of certain long-lived assets and that such evaluation may result
in a $40 billion reduction in goodwill for the quarter ended March 31, 2001. On
July 26, 2001, we announced that we were recording reductions of $38.7 billion
and $6.1 billion in goodwill and other intangible assets for the quarters ended
March 31, 2001 and June 30, 2001, respectively. We also announced at that time
that we would be conducting a further assessment of our long-lived assets and
that further adjustments to our 2001 results may result from this assessment. We
subsequently completed this review, which resulted in our recording additional
charges to reduce goodwill and other long-lived assets of $1.1 billion and $4.2
billion during the quarters ended March 31, 2001 and June 30, 2001,
respectively. Please refer to Note 5 and Note 12 of the Condensed Consolidated
Financial statements for details on the charges recorded during the three months
ended March 31, 2001 and June 30, 2001, respectively.
The following paragraphs describe the Global Realignment Program in greater
detail.
Global Realignment Program
In April 2001 we initiated our Global Realignment Program (the "Program"), under
which we are restructuring our business in response to the current market
environment and as part of our continuing program to integrate our operations.
21
Specific actions taken under the Global Realignment Program include:
- Reducing our workforce from approximately 29,000 employees to what we
anticipate will be approximately 13,000 employees.
- Eliminating overlapping product development programs and concentrating our
key product development activities in specific global centers, with the
goal to allocate our resources, both geographically and technologically, to
those products and technologies that we believe will be most important to
our customers.
- Consolidating our manufacturing facilities, through building and site
closures, from a total of approximately 6.3 million square feet into
approximately 4.4 million square feet. As of June 30, 2001, nine sites have
been closed or scheduled for closure: Asheville, North Carolina; Bracknell,
England; Freehold, New Jersey; Hillend, Scotland; Oxford, England;
Richardson, Texas; Rochester, New York; Shunde, China and Taipei, Taiwan.
- Integrating our sales force to, among other things, provide each of our
customers with a single point of contact and, in the case of our larger
customers, a dedicated sales team. We have largely completed this task.
This year, we will expand our sales restructuring efforts to include our
customer service programs by creating technical and support centers to
streamline customer interactions with product line managers. Ultimately, we
intend that every customer have a single point of contact for order
placement, status updates, billing and related questions. We also intend to
exploit our global Oracle systems implementation to consolidate
administrative functions and realize cost savings in all areas of product
sales and support and approved by management.
During the fourth quarter of 2001, we recorded total restructuring charges of
$264.3 million as part of the Global Realignment Program. In addition,
approximately $236.6 million of other charges primarily related to inventory
write-downs associated with discontinued products recorded in the fourth quarter
of 2001 were also incurred in the fourth quarter as part of the Program. These
costs were classified as cost of sales. As announced on July 26, 2001, it is
anticipated that the costs of the Global Realignment Program will be between
$900 million and $950 million. We expect to recognize the majority of the
additional charges associated with the Program in the first quarter of 2002 once
the specific plans have been determined in sufficient detail and approved by
management.
The Global Realignment Program is expected to reduce our costs by approximately
$700 million annually after its complete implementation, which is expected by
the end of fiscal 2002. We believe that the measures taken under the Program
will provide us the flexibility to meet our customers' current operating needs
without sacrificing our ability to expand our businesses and respond to future
increases in business levels.
The Global Realignment Program represents our concerted efforts to respond to
the current demands of our industry. However, these efforts may be inappropriate
or insufficient. The Global Realignment Program may not be successful in
achieving the benefits expected, may be insufficient to align our operations
with customer demand and the changes affecting our industry, or may be more
costly or extensive than currently anticipated.
22
RESULTS OF OPERATIONS -- THIRD QUARTER OF 2001 COMPARED TO THIRD QUARTER OF 2000
Net Sales. For the three months ended March 31, 2001, net sales of $920.1
million represented an increase of $525.5 million or 133 percent compared to the
same period of the prior year. Net sales for the Amplification and Transmission
Group increased 152 percent in the three months ended March 31, 2001 compared to
the comparable 2000 period. The increase in net sales for the Amplification and
Transmission Group was due to the acquisitions of SDL and Epitaxx and higher
unit sales volume of optical amplifiers, transmitters, modulators and pump
lasers. Net sales for the WDM, Switching and Thin Film Filters Group increased
118 percent in the three months ended March 31, 2001 compared to the comparable
2000 period. The increase in net sales for the WDM, Switching and Thin Film
Filters Group was primarily due to the acquisition of E-TEK and higher unit
sales volume in wavelength division multiplexers ("WDM"), instruments and
waveguides. The impact of the SDL and E-TEK acquisitions provided approximately
$246.3 million of net sales for the three months ended March 31, 2001. Separate
discussions with respect to net sales and operating profits for each of our
reportable operating segments can be found under the heading Operating Segment
Information.
Our customer base is becoming increasingly more diversified -- our top ten
customers represented 67 percent of sales in the three months ended March 31,
2000 compared to 62 percent in the three months ended March 31, 2001. During the
three months ended March 31, 2001, Alcatel and Nortel Networks represented 13
percent and 10 percent of net sales, respectively. During the three months ended
March 31, 2000, Lucent and Nortel Networks represented 22 percent and 16 percent
of net sales, respectively.
Net sales from customers outside North America represented 35 percent and 24
percent of total net sales for the three months ended March 31, 2001 and 2000,
respectively. The 2001 growth in international sales was primarily within the
European region.
Net sales for the three months ended March 31, 2001 are not indicative of the
expected results for any future period. In addition, there can be no assurance
that the market for our products will grow in future periods at its historical
percentage rate or that certain market segments will not decline. Further, there
can be no assurance that we will be able to increase or maintain our market
share in the future or to achieve historical growth rates.
Gross Margin. Gross margin decreased to 46 percent for the three months ended
March 31, 2001 from 49 percent in the comparable 2000 period. The decrease in
gross margin was primarily due to the following: (i) increased fixed costs due
to manufacturing expansion; (ii) inventory write-downs due to lower sales
estimates for future periods; (iii) price declines consistent with historical
patterns; and, (iv) non-cash stock compensation of $7.4 million. These factors
were partially offset by improved manufacturing efficiencies and a more
favorable mix of higher margin products.
The Company's gross margin can be affected by a number of factors, including
product mix, customer mix, applications mix, product demand, pricing pressures,
manufacturing constraints, higher costs resulting from new production
facilities, product yield, and acquisitions of businesses that may have
different margins than the Company's margins. Considering these factors, gross
margin fluctuations are difficult to predict and there can be no assurance that
the Company will achieve or maintain gross margin percentages at historical
levels in future periods.
23
Research and Development. Research and development ("R&D") expense was $98.0
million, or 11 percent of net sales for the three months ended March 31, 2001 as
compared to $33.3 million, or 8 percent of net sales for the three ended March
31, 2000. The increase in R&D spending is primarily due to increased personnel
costs and other expenses related to the development of new products and
technologies, as well as the continued development and enhancement of existing
products, non-cash stock compensation of $5.9 million, and the inclusion of our
acquisitions completed subsequent to March 31, 2000.
We believe that continued investment in R&D is critical to attaining our
strategic objectives. However, due to our recent announced global realignment
program (see Note 12), we expect our absolute dollar amount of R&D expenses to
decrease over the next three quarters. 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
("SG&A") expense was $440.8 million, or 48 percent of net sales for the three
months ended March 31, 2001 as compared to $49.1 million, or 12 percent of net
sales for the three months ended March 31, 2000. The increase in SG&A was
primarily due to the following: (i) compensation paid to certain SDL executives
at the time of the acquisition of SDL of $300.9 million; (ii) higher
personnel-related costs to support the growth in sales and operations; (iii)
increased professional service expenses; (iv) expansion of our information
systems infrastructure to manage the Company's growth; (v) inclusion of our
acquisitions completed subsequent to March 31, 2000; and, (vi) non-cash stock
compensation of $10.5 million.
Due to our recent announced global realignment program (see Note 12), we expect
our absolute dollar amount of SG&A expenses to decrease over the next three
quarters. We also expect to continue incurring charges to operations, which to
date have been within management's expectations, associated with integrating
recent acquisitions.
Amortization of Purchased Intangibles. For the three months ended March 31,
2001, amortization of purchased intangibles ("API") expense of $2,120.2 million
or 230 percent of net sales represented an increase of $1,870.6 million or 749
percent as compared to the same period of the prior year. The increase in API is
primarily due to the intangible assets generated from the acquisitions of SDL
and E-TEK, which were transactions accounted for as purchases. See Note 9 of
Notes to Condensed Consolidated Financial Statements.
Our API expense will continue to generate net losses at least through the end of
2002 at which time new accounting rules will apply. The balance at March 31,
2001, of goodwill and other intangibles arising from acquisition activity was
$18.3 billion. See Note 5 of Notes to Consolidated Condensed Financial
Statements. API expense could change because of other acquisitions or impairment
of existing identified intangible assets and goodwill in future periods.
Reduction of Goodwill. As part of its review of financial results for 2001, we
performed an assessment of the carrying value of the Company's long-lived assets
to be held and used including significant amounts of goodwill and other
intangible assets recorded in connection with its various acquisitions. The
assessment was performed pursuant to SFAS 121 because of the significant
negative industry and economic trends affecting both the Company's current
operations and expected future sales as well as the general decline of
technology valuations. The conclusion of that assessment was that the decline in
24
market conditions within the Company's industry was significant and other than
temporary. As a result, the Company recorded a charge of $39.8 billion to reduce
goodwill during the third quarter of 2001 based on the amount by which the
carrying amount of these assets exceeded their fair value. The write down is
primarily related to the goodwill associated with the acquisitions of E-TEK and
SDL. Fair value was determined based on discounted future cash flows for the
operating entities that had separately identifiable cash flows. The cash flow
periods used were five years using annual growth rates of 15 percent to 40
percent, the discount rate used was 13 percent, and the terminal values were
estimated based upon terminal growth rates of 7 percent. The assumptions
supporting the estimated future cash flows, including the discount rate and
estimated terminal values, reflect management's best estimates. The discount
rate was based upon the Company's weighted average cost of capital as adjusted
for the risks associated with its operations.
Acquired In-process Research and Development. During February 2001, the Company
acquired SDL which resulted in the write-off of purchased in-process research
and development ("IPR&D") of $380.7 million. During January 2001, the Company
acquired Optical Process Automation Corp. which resulted in the write-off of
IPR&D of $3.0 million. 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 IPR&D that may cause fluctuations in our
quarterly or annual operating results.
A description of the acquired in-process technologies, stage of development,
estimated completion costs, and time to complete at the date of the mergers, 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.
Gain on Sale of Subsidiary. 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 $1,953.3 million. After
adjusting for the net costs of the assets sold and for the expenses associated
with the divestiture, the Company realized a gain of $1,770.2 million.
Activity Related to Equity Investments. For the three months ended March 31,
2001, activity related to equity investments was $759.9 million This includes:
(i) a $714.5 million charge to earnings to write down the carrying value of its
investment in ADVA due to a other than temporary decline in the fair value of
its investment in ADVA, (ii) $44.5 million of amortization expense related to
the difference between the cost of the investment and the underlying equity in
the net assets of ADVA; and (iii) $0.9 million related to our share of the net
income of the Photonics Fund and net loss of ADVA. See Note 10 of Notes to
Condensed Consolidated Financial Statements.
Interest and Other Income. Net interest income for the three months ended March
31, 2001 was $4.6 million compared to $10.0 million for the corresponding 2000
period. The decrease in net interest income during the three months ended March
31, 2001 was primarily due to an other than temporary charge of $7.5 million in
connection with its available-for-sale investments.
Income Tax Expense. We recorded a tax provision of $468.8 million for the three
months ended March 31, 2001 as compared to $27.3 million for the same period of
the prior year. The tax provision recorded for each quarter differs from the tax
benefit that otherwise would be calculated by applying the federal
25
statutory rate to loss before income taxes primarily due to non-deductible
acquisition-related charges and non-deductible reduction of goodwill.
Operating Segment Information
Amplification and Transmission Group. Net sales for the Amplification and
Transmission Group increased 152 percent in the three months ended March 31,
2001 compared to the comparable 2000 period. The increase in net sales for the
Amplification and Transmission Group was due to the acquisitions of SDL and
Epitaxx and higher unit sales volume of optical amplifiers, transmitters,
modulators and pump lasers. Operating income as a percentage of net sales
increased to 30 percent of net sales during the current quarter as compared to
27 percent for the comparable period in 2000. The increase in operating income
as a percentage of net sales was due to improved manufacturing efficiencies, a
more favorable mix of higher margin products and the acquisition of SDL, offset
by price declines consistent with historical patterns and inventory write-downs
and operating expenses.
WDM, Switching and Thin Film Filters. Net sales for the WDM, Switching and Thin
Film Filters Group increased 118 percent in the three months ended March 31,
2001 compared to the comparable 2000 period. The increase in net sales for the
WDM, Switching and Thin Film Filters Group was primarily due to higher unit
sales volume in wavelength division multiplexers ("WDM"), instruments and
waveguides. Net sales for the three months ended March 31, 2001 also include a
full quarter's contribution of net sales from the acquisition of E-TEK.
Operating income as a percentage of net sales declined to 31 percent of net
sales during the current quarter as compared to 34 percent for the comparable
period in 2000. The decrease in operating income as a percentage of net sales
were due to price declines, inventory write-downs and operating expenses,
partially offset by improved manufacturing efficiencies and a more favorable mix
of higher margin products.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE NINE
MONTHS ENDED MARCH 31, 2000
Net Sales. For the nine months ended March 31, 2001, net sales were $2,631.7
million an increase of $1,725.3 million or 190 percent compared to the same
period of the prior year. Net sales for the Amplification and Transmission Group
increased 125 percent in the nine months ended March 31, 2001 compared to the
comparable 2000 period. The increase in net sales for the Amplification and
Transmission Group was primarily due to higher unit sales volume of optical
receivers, transmitters, modulators and pump lasers, and the acquisitions of SDL
and Epitaxx. Net sales for the WDM, Switching and Thin Film Filters Group
increased 246 percent in the nine months ended March 31, 2001 compared to the
comparable 2000 period. The increase in net sales for the WDM, Switching and
Thin Film Filters Group was primarily due to the acquisitions of E-TEK and OCLI
and higher unit sales volume in wavelength division multiplexers ("WDM"),
instruments and waveguides. The impact of the SDL, E-TEK and OCLI acquisitions
provided approximately $899.5 million of net sales for the nine months ended
March 31, 2001. Separate discussions with respect to net sales and operating
profits for each of our reportable operating segments can be found under the
heading Operating Segment Information.
Our top ten customers represented 67 percent of net sales for both the nine
months ended March 31, 2001 and 2000. Nortel, Lucent, and Alcatel represented 15
percent, 12 percent and 11 percent of our net sales
26
for the nine months ended March 31, 2001, respectively. During the nine months
ended March 31, 2000, Lucent and Nortel Networks represented 22 percent and 15
percent of net sales, respectively.
Net sales from customers outside North America represented 32 percent and 23
percent of total net sales for the nine months ended March 31, 2001 and 2000,
respectively. The 2001 growth in international sales was primarily within the
European region.
Net sales for the nine month period ended March 31, 2001 are not indicative of
the expected results for any future period. In addition, there can be no
assurance that the market for our products will grow in future periods at its
historical percentage rate or that certain market segments will not decline.
Further, there can be no assurance that we will be able to increase or maintain
our market share in the future or to achieve historical growth rates.
Gross Margin. Gross margin decreased to 48 percent for the nine months ended
March 31, 2001 from 49 percent in the comparable 2000 period. The decrease in
gross margin was primarily due to the following: (i) impact of purchase
accounting adjustments of $60.1 million, (ii) price declines of certain
products, (iii) inventory write-downs due to lower sales estimates for future
periods, and (iv) non-cash stock compensation of $7.4 million in the third
quarter of 2001. These factors were offset by improved manufacturing
efficiencies and more favorable mix of higher margin products.
The Company's gross margin can be affected by a number of factors, including
product mix, customer mix, applications mix, product demand, pricing pressures,
manufacturing constraints, higher costs resulting from new production
facilities, product yield, and acquisitions of businesses that may have
different margins than ours. Considering these factors, gross margin
fluctuations are difficult to predict and there can be no assurance that the
Company will achieve or maintain gross margin percentages at historical levels
in future periods.
Research and Development. For the first nine months of 2001, research and
development ("R&D") was $231.6 million, or 9 percent of net sales as compared to
$72.1 million, or 8 percent of net sales for the corresponding 2000 period. The
increase in R&D spending is primarily due to the continued development and
enhancement of the Company's Amplification and Transmission, and WDM, Switching
and Thin Film Filters products and the inclusion of our acquisitions completed
during the periods presented.
We believe that continued investment in research and development is critical to
attaining our strategic objectives. However, due to our recent announced global
realignment program (see Note 12), we expect our absolute dollar amount of R&D
expenses to decrease over the near future. 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
("SG&A") expense was $662.7 million, or 25 percent of net sales for the nine
months ended March 31, 2001 as compared to $110.7 million, or 12 percent of net
sales for the nine months ended March 31, 2000. The increase in SG&A was
primarily due to the following: (i) compensation paid to certain SDL executives
at the time of the acquisition of SDL of $300.9 million; (ii) higher
personnel-related costs to support the growth in sales and operations; (iii)
expansion of our information systems infrastructure to manage the Company's
growth; (iv) inclusion of our acquisitions completed subsequent to March 31,
2000; (v) non-cash stock
27
compensation charges; and, (vi) higher payroll tax expenses related to the
exercise of non-qualified stock option exercises.
We expect the absolute dollar amount of SG&A expenses to decrease in the future
as part of our global realignment program (see Note 12). We also expect to
continue incurring charges to operations, which to date have been within
management's expectations, associated with integrating recent acquisitions.
Amortization of Purchased Intangibles. For the nine months ended March 31, 2001,
API expense of $4,331.7 million represented an increase of $3,724.1 or 613
percent as compared to the same period of the prior year. The increase in API is
primarily due to the intangible assets generated from the acquisitions of SDL
and E-TEK, which were transactions accounted for as purchases. See Note 9 of
Notes to Condensed Consolidated Financial Statements.
Our API expense will continue to generate net losses at least through the end of
2002 at which time new accounting rules will apply. The balance at March 31,
2001, of goodwill and other intangibles arising from acquisition activity was
$18.3 billion. See Note 5 of Notes to Consolidated Condensed Financial
Statements. API expense could change because of other acquisitions or impairment
of existing identified intangible assets and goodwill in future periods.
Reduction of Goodwill. As part of its review of financial results for 2001, we
performed an assessment of the carrying value of the Company's long-lived assets
to be held and used including significant amounts of goodwill and other
intangible assets recorded in connection with its various acquisitions. The
assessment was performed pursuant to SFAS 121 because of the significant
negative industry and economic trends affecting both the Company's current
operations and expected future sales as well as the general decline of
technology valuations. The conclusion of that assessment was that the decline in
market conditions within the Company's industry was significant and other than
temporary. As a result, the Company recorded a charge of $39.8 billion to reduce
goodwill during the third quarter of 2001 based on the amount by which the
carrying amount of these assets exceeded their fair value. The write down is
primarily related to the goodwill associated with the acquisitions of E-TEK and
SDL. Fair value was determined based on discounted future cash flows for the
operating entities that had separately identifiable cash flows. The cash flow
periods used were five years using annual growth rates of 15 percent to 40
percent, the discount rate used was 13 percent, and the terminal values were
estimated based upon terminal growth rates of 7 percent. The assumptions
supporting the estimated future cash flows, including the discount rate and
estimated terminal values, reflect management's best estimates. The discount
rate was based upon the Company's weighted average cost of capital as adjusted
for the risks associated with its operations.
Acquired In-process Research and Development. During February 2001, the Company
acquired SDL, Inc. which resulted in the write-off of purchased in-process
research and development ("IPR&D") of $380.7 million. During January 2001, the
Company acquired Optical Process Automation Corp. which resulted in the
write-off of IPR&D of $3.0 million. During September 2000, the Company acquired
Epion Corporation which resulted in the write-off of IPR&D of $8.9 million.
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 IPR&D that may cause fluctuations in our quarterly or
annual operating results.
28
A description of the acquired in-process technologies, stage of development,
estimated completion costs, and time to complete at the date of the mergers, as
well as the current status of acquired IPR&D projects for each acquisition can
be found at the end of this Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Gain on Sale of Subsidiary. 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 $1,953.3 million. After
adjusting for the net costs of the assets sold and for the expenses associated
with the divestiture, the Company realized a gain of $1,770.2 million.
Activity Related to Equity Investments. For the nine months ended March 31,
2001, activity related to equity investments was a net loss of $853.4 million
This includes: (i) a $714.5 million charge to earnings to write down the
carrying value of its investment in ADVA due to a other than temporary decline
in the fair value of its investment in ADVA, (ii) $133.7 million of amortization
expense related to the difference between the cost of the investment and the
underlying equity in the net assets of ADVA; and (iii) $5.2 million related to
our share of the net income of the Photonics Fund and net loss of ADVA. See Note
10 of Notes to Condensed Consolidated Financial Statements.
Interest and Other Income. Net interest income for the nine months ended March
31, 2001 was $30.4 million compared to $26.2 million for the corresponding 2000
period. The increase in interest and other income was the result of higher
investment balances obtained through cash generated from operating activities,
our acquisition of E-TEK and proceeds from the issuance of common stock under
our stock option and stock purchase plans. These factors were partially offset
by an other than temporary charge of $7.5 million in connection with the
Company's available-for-sale investments.
Income Tax Expense. For the nine months ended March 31, 2001, we recorded a tax
provision of $562.3 million as compared to $57.8 million for the same period of
the prior year. The tax provision recorded for each period differs from the tax
benefit that otherwise would be calculated by applying the federal statutory
rate to loss before income taxes primarily due to non-deductible
acquisition-related charges and non-deductible reduction of goodwill.
Operating Segment Information
Amplification and Transmission Group. Net sales for the Amplification and
Transmission Group increased 125 percent in the nine months ended March 31, 2001
compared to the comparable 2000 period. The increase in net sales for the
Amplification and Transmission Group was primarily due to higher unit sales
volume of optical receivers, transmitters, modulators and pump lasers, and the
acquisitions of SDL and Epitaxx. Operating income as a percentage of net sales
increased to 29 percent of net sales during the nine months ended March 31, 2001
compared to 25 percent for the comparable period in 2000. The increase in
operating income as a percentage of net sales was due to improved manufacturing
efficiencies, the sale of higher margin new products and the acquisitions of SDL
and Epitaxx, offset by price declines consistent with historical patterns and
higher inventory reserve requirements.
WDM, Switching and Thin Film Filters. Net sales for the WDM, Switching and Thin
Film Filters Group increased 246 percent in the nine months ended March 31, 2001
compared to the comparable 2000 period. The increase in net sales for the WDM,
Switching and Thin Film Filters Group was primarily due
29
to the acquisitions of E-TEK and OCLI and higher unit sales volume in wavelength
division multiplexers ("WDM"), instruments and waveguides. Net sales for the
nine months ended March 31, 2001 also include a full nine months of contribution
of net sales from the acquisition of E-TEK and seven additional months of
contribution of net sales from the acquisition of OCLI. Operating income as a
percentage of net sales was relatively flat at 36 percent of net sales during
the first nine months of fiscal 2001 as compared to 37 percent to the comparable
2000 period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, our combined balance of cash, cash equivalents and short-term
investments was $1,972.9 million, an increase of $858.6 million from June 30,
2000. Excluding the impact of indirect acquisition costs of $300.9 million paid
to SDL executives in connection with the acquisition of SDL, operating
activities generated $289.4 million during the nine months ended March 31, 2001
primarily resulting from the following: (i) earnings before non-cash accounting
charges for depreciation, IPR&D, stock based compensation, reduction of
goodwill, activity related to equity interests in equity investments, and
amortization of intangibles, (ii) increase in deferred income taxes, and (iii)
tax benefit from employee stock options. These items were partially offset by
increases in accounts receivable and inventory and the gain on the divestiture
of the Zurich subsidiary.
Cash used by investing activities was $500.6 million in the nine months ended
March 31, 2001. We incurred capital expenditures of $561.0 million for
facilities expansion and capital equipment purchases to expand our information
systems infrastructure and manufacturing capacities. During the first nine
months of 2001, the Company invested excess net cash of $170.2 million in short
term and long-term investments. In addition, we acquired Epion, OPA, and SDL
during 2001 and these acquisitions provided an additional $234.6 million of
cash.
Our financing activities for the nine months ended March 31, 2001 provided cash
of $379.0 million as compared to $791.5 million in the same period of the prior
year. The exercise of stock options and the sale of stock through our employee
stock purchase plans provided $393.8 million in cash offset by the repayment of
debt acquired of $22.6 million. Cash provided by financing activities in the
prior year was primarily attributable to our sale of common stock in a public
offering of common stock in August 1999.
We had outstanding debt totaling $23.6 million. This debt was assumed from
entities we acquired in fiscal 2000. The Company can, at its election, prepay
the debt. In addition, the Company has an U.S. dollar line of credit totaling
$25.0 million and $1.0 billion Yen (approximately U.S. $9.0 million). As of
March 31, 2001, the Company has not utilized any of these lines of credit.
We have entered into several agreements to lease property and improvements
located in Melbourne, Florida and Research Triangle Park, North Carolina. The
Melbourne facility, when construction is complete, will comprise two buildings,
200,000 square feet, and will provide space for office and assembly and light
manufacturing. The underlying 20 acre parcel is subject to a long-term ground
lease. The Research Triangle Park facility will provide approximately 151,000
square feet space for manufacturing and office use on approximately 110 acres.
In connection with these transactions, we have pledged $26.3 million of our
investments as collateral for certain obligations under the leases. The Company
may pledge up to $60 million.
30
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 foreseeable future. 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.
CURRENT STATUS OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS
We periodically review the stage of completion and likelihood of success of each
of the in-process research and development ("IPR&D") projects. The estimates
used in valuing IPR&D were based upon assumptions we believe to be reasonable
but which are inherently uncertain and unpredictable. Our assumptions may be
incomplete or inaccurate, and no assurance can be given that unanticipated
events and circumstances will not occur. Accordingly, actual results may vary
from the projected results. Any such variance may result in a material adverse
effect on our financial condition and results of operations.
The current status of the IPR&D projects for all major mergers and acquisitions
during the past three years are as follows:
SDL
An independent appraiser performed a preliminary allocation under our direction
of the total purchase price of SDL to its individual assets. Of the total
purchase price, $380.7 million has been allocated to IPR&D and was charged to
expense for the three months ended March 31, 2001. The remaining purchase price
has been allocated specifically to identifiable assets acquired.
After allocating value to the IPR&D projects and SDL'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 IPR&D is comprised of five main categories: (1) pump laser chips; (2) pump
laser modules; (3) raman chips and amplifiers; (4) external modulators and
drivers; and (5) industrial laser products. The following is a brief description
of each IPR&D project as of the date of the acquisition:
Pump Laser Chips. SDL supplies high power 980nm pump laser chips to provide
power to optical amplifiers used in fiber optic systems. SDL's pump laser chip
development efforts support future generation optical amplifiers. SDL expects
the development cycle for the current research and development project with
respect to these products to continue for another one to two months, with
expected completion dates in the second quarter of the calendar year 2001.
Development costs incurred to date are approximately $1.6 million with estimated
cost to complete of approximately $0.1 million, which SDL expects to incur
ratably over the remainder of the development cycle.
Pump Laser Modules. SDL supplies 980nm pump laser modules that lead the industry
in output power and performance. SDL expects the development cycle for the
current research and development project with respect to these pump laser
modules to continue for another seven months, with expected completion dates in
the fourth quarter of calendar year 2001. Development costs incurred to date are
approximately $2.4 million with estimated cost to complete of approximately $5.3
million, which SDL
31
expects to incur ratably over the remainder of the development cycle.
Raman Chips and Amplifiers. SDL is engaged in the development of Raman chips and
amplifiers, which are an emerging technology in fiber optic transmissions
systems. Raman amplifiers differ from conventional EDFAs in that they use
installed optical fiber as the amplification medium rather than erbium-doped
fiber. SDL expects the development cycle for the current research and
development project with respect to these Raman chips and amplifiers to continue
for another eighteen months, with expected completion dates starting in the
second quarter of the calendar year 2001 and finishing in the fourth quarter of
calendar year 2002. Development costs incurred to date are approximately $15.7
million with estimated cost to complete of approximately $3.2 million, which SDL
expects to incur ratably over the remainder of the development cycle.
External Modulators and Drivers. SDL supplies external modulators that are
utilized in very high channel count systems with very long propagation
distances. Development costs incurred to date are approximately $2.9 million
with estimated cost to complete of approximately $1.7 million, which SDL expects
to incur ratably over the remainder of the development cycle.
Industrial Products. SDL supplies products for non-communications applications.
These include applications such as printing and materials processing. SDL
expects the development cycle for the current research and development projects
with respect to these industrial products to continue for another month, with an
expected completion date in the second quarter of calendar year 2001.
Development costs incurred to date are approximately $2.3 million with estimated
cost to complete of approximately $0.1 million, which SDL expects to incur
ratably over the remainder of the development cycle.
Value Assigned to In-Process Research and Development
The value assigned to IPR&D was determined by considering the relative
importance of each project to the overall development plan, estimating costs to
develop the purchased IPR&D 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 IPR&D were based on estimates or relevant market sizes and growth
factors, expected trends in technology and the nature and expected timing of new
product introductions by SDL and its competitors.
The rates utilized to discount the net cash flows to their present value are
based on SDL'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 percent and 20
percent were deemed appropriate for the developed and in-process technology,
respectively.
The estimates used in valuing IPR&D 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
32
SDL's financial condition and results of operations.
With respect to the acquired in-process technologies, the calculations of value
were adjusted to reflect the value creation efforts of SDL prior to the merger.
Following are the estimated completion percentages with respect to the current
research and development efforts and technology lives:
PERCENT EXPECTED TECHNOLOGY
PROJECT COMPLETED LIFE
------- --------- -------------------
Pump Laser Chips 92% 5 years
Pump Laser Modules 50% 5 years
Raman Chips and Amplifiers 64% 5 years
External Modulators and Drivers 31% 5 years
Industrial Products 74% 5 years
The value assigned to each acquired IPR&D project was as follows (in millions):
Pump Laser Chips $ 140.8
Pump Laser Modules 22.7
Raman Chips and Amplifiers 113.7
External Modulators and Drivers 87.4
Industrial Products 16.1
--------
Total acquired in-process research and development $ 380.7
========
A portion of the purchase price has been allocated to developed technology and
IPR&D. Developed technology and IPR&D were identified and valued through
analysis of data provided by SDL concerning developmental products, their stage
of development, the time and resources needed to complete them, 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 IPR&D.
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 IPR&D and charged to expense upon closing of the merger. The
Company estimates that a total investment of $10.4 million in research and
development over the next one month to eighteen months will be required to
complete the IPR&D. The nature of the efforts required to develop the purchased
IPR&D 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.
OPA
An independent appraiser performed an allocation under our direction of the
total purchase price of OPA to its individual assets. Of the total purchase
price, $3.0 million has been allocated to IPR&D and was charged to expense in
the quarter ended March 31, 2001. The remaining purchase price has been
allocated specifically to identifiable assets acquired. The product under
development at the time of
33
acquisition was OptoMate, which is an automated and semi-automated system for
the manufacture of fiberoptic components and modules. The OptoMate project is
substantially complete at a cost consistent with our expectations.
34
EPION
An independent appraiser performed an allocation under our direction of the
total purchase price of Epion to its individual assets. Of the total purchase
price, $8.9 million has been allocated to IPR&D and was charged to expense in
the quarter ended September 30, 2000. The remaining purchase price has been
allocated specifically to identifiable assets acquired.
The products under development at the time of acquisition included Gas Cluster
Ion Beam technology used for atomic scale surface smoothing and cleaning where
surface or film quality is of great importance.
Epion has incurred $1.3 million to date and estimates that a total investment of
approximately $5.0 million in research and development over the next 24 months
will be required to complete the IPR&D. The nature of the efforts required to
develop the purchased IPR&D into commercially viable products principally relate
to the completion of all planning, designing, prototyping, verification and
testing activities that are necessary to establish that the products can be
produced to meet their design specifications, including functions, features and
technical performance requirements.
E-TEK
The products under development at the time of acquisition included: (1)
wavelength division multiplexers (WDM's); (2) submarine products: and (3) other
component products and modules. The WDM project has been completed at a cost
consistent with our expectations. The submarine products are on schedule to be
completed by the fourth quarter of calendar 2001. We have incurred costs of $0.8
million to date, with estimated costs to complete of $0.4 million. Our
development efforts for Other Components and Modules include attenuators,
circulators, switches, dispersion equalization monitors and optical performance
monitors. Our development efforts are slightly behind schedule on some of these
products, with estimated completion dates in the second and third quarters of
calendar 2001. The costs incurred to date are approximately $3.5 million, with
estimated costs to complete of $1.6 million. The estimated cost to complete this
technology, in combination with our other continuing research and development
expenses, will not be in excess of our historic expenditures for research and
development as a percentage of our net sales. The differences between the actual
outcome noted above and the assumptions used in the original valuation of the
technology are not expected to significantly impact our results of operations
and financial position.
CRONOS
The products under development at the time of acquisition included: (1) RF
microrelays; (2) variable optical attenuators; and (3) active fiber aligners.
The microrelays development and the variable optical attenuators project are
substantially complete at a cost consistent with our expectations. The active
fiber aligners development project is currently being evaluated relative to
similar efforts already underway within the Company.
OCLI
The products under development at the time of the acquisition included: (1) thin
film filters and switches, (2) optical display and projection products, and (3)
light interference pigments. Thin film filters includes
35
switches and dispersion compensators. 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 3
and 12 months. The Company has incurred post acquisition costs of approximately
$4.9 million with an estimated cost to complete the remaining projects of $3.9
million, which the Company expects to incur ratably for the remainder of the
development cycle.
The optical display and projection products development have been terminated due
to the uncertainty of current market conditions. Light interference pigments are
currently in the pilot stage of the development cycle for this product family
and these projects are on schedule with completion expected in the fourth
quarter of calendar year 2001. The Company has incurred post-acquisition
research and development expenses of approximately $14.8 million and estimates
that cost to complete these projects will be another $1.9 million which the
Company expects to incur ratably over the remainder of the product development
cycle.
SIFAM
The products under development at the time of the acquisition included: (1)
miniature couplers; (2) combined components; and (3) micro-optic devices.
Miniature coupler development and combined components development are
substantially complete at a cost consistent with our expectations. Micro-optic
device development is currently being evaluated relative to similar efforts
already underway within the Company. The costs incurred post acquisition for
micro-optic device development has been consistent with our expectations.
EPITAXX
The products under development at the time of the acquisition included (1)
high-speed receivers, and (2) an optical spectrum analyzer product. The
high-speed receiver and optical spectrum analyzer have been completed at costs
consistent with our expectations.
36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
FOREIGN EXCHANGE
We generate a significant portion of our sales from sales to customers located
outside the United States, principally in Europe. International sales are made
mostly from our foreign subsidiaries in the local countries and are typically
denominated in either U.S. dollars or the local currency of each country. These
subsidiaries also incur most of their expenses in the local currency.
Accordingly, all foreign subsidiaries use the local currency as their functional
currency.
Our international business is subject to risks typical of an international
business including, but not limited to differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, our future results could be
materially adversely affected by changes in these or other factors.
We use foreign currency forward contracts as the vehicle for reducing the
foreign exchange risk with respect to assets and liabilities denominated in
foreign currencies; however, we have not designated these derivatives to be
hedging instruments. Therefore, all gains or losses resulting from the change in
fair value of these contracts have been included in earnings in the current
period. If the Company designates these types of contracts or other derivatives
as hedges in the future, depending on the nature of the hedge, changes in the
fair value of the derivatives will be offset against the change in fair value of
assets, liabilities, or firm commitments through earnings (fair value hedges) or
recognized in other comprehensive income until the hedged item is recognized in
earnings (cash flow hedges). The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings.
At March 31, 2001, the nominal value of our foreign currency forward contracts
totaled approximately $41.6 million equivalent. All foreign currency forward
contracts are carried at fair value and all positions had maturity dates within
three months.
INTEREST RATES
We invest our cash in a variety of financial instruments, including fixed and
floating rate bonds, municipal bonds, auction instruments and money market
instruments. These investments are denominated in U.S. and Canadian dollars.
Cash balances in foreign currencies overseas are operating balances and are
primarily invested in short-term deposits of a local operating bank.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted because of a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, the Company's future investment income may
fall short of expectations because of changes in interest rates or the Company
may suffer losses in principal if forced to sell securities which have seen a
decline in market value because of changes in interest rates.
Our investments are made in accordance with an investment policy approved by the
Board of Directors. Under this policy, no investment securities can have
maturities exceeding three years and the average duration of the portfolio can
not exceed eighteen months.
37
RISK FACTORS
OUR OPERATING RESULTS AND STOCK PRICE FLUCTUATE SUBSTANTIALLY
Operating results for future periods are never perfectly predictable even in the
most certain of economic times, and we expect to continue to experience
fluctuations in our quarterly results and in our guidance, when provided, for
financial performance in future periods. These fluctuations, which in the future
may be significant, could cause substantial variability in the market price of
our stock. In addition to those concerns discussed below, all of the concerns we
have discussed under "Risk Factors" could affect our operating results from time
to time.
Our operating results and stock price are affected by fluctuations in our
customers' businesses
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. Any downturn in the
business of any of these parties affects us. 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.
We are experiencing decreased sales and increased difficulty in predicting
future operating results
As the result of currently unfavorable economic and market conditions, (a) our
sales are declining, (b) we are unable to predict future sales accurately, and
(c) we are currently unable to provide guidance for future financial
performance. The conditions contributing to this difficulty include:
- uncertainty regarding the capital spending plans of the major
telecommunications carriers, upon whom our customers and, ultimately we,
depend for sales;
- the telecommunications carriers' current limited access to the capital
required for expansion;
- our customers decreasing inventory levels, which, in turn, reduces our
sales;
- lower near term sales visibility; and
- general market and economic uncertainty.
Based on these and other factors, many of our major customers have reduced,
modified, cancelled or rescheduled orders for our products and have expressed
uncertainty as to their future requirements. As a result, we currently
anticipate that our net sales in future periods may decline. In addition, our
ability to meet financial expectations for future periods may be harmed.
As a result of these and other factors, our stock price has declined
substantially over the past year. Despite this decline, the market price of our
stock and the stocks of many of the other companies in the
38
optical components, modules and systems industries continue to trade at high
multiples of earnings. An outgrowth of these multiples and market volatility is
the significant vulnerability of our stock price and the stock prices of our
customers and competitors to any actual or perceived fluctuation in the strength
of the markets we serve, no matter how minor in actual or perceived consequence.
Consequently, these multiples and, hence, market prices may not be sustainable.
These broad market and industry factors have caused 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.
IF WE FAIL TO MANAGE OR ANTICIPATE OUR FUTURE GROWTH, OUR BUSINESS WILL SUFFER
The optical networking business has historically grown, at times rapidly, and we
have grown accordingly. We have made and, although we are currently in an
industry downturn, expect to continue to make significant investments to enable
our future growth through, among other things, internal expansion programs,
internal product development and acquisitions and other strategic relationships.
If we fail to effectively manage or anticipate our future growth effectively,
particularly during periods of industry decline, such as these, our business
will suffer.
Difficulties associated with integrating our acquired businesses could harm our
overall business operations
Our growth strategy includes acquisitions of other companies, technologies and
product lines to complement our internally developed products. In fact, we are
the product of several substantial acquisitions, including, among others, JDS
FITEL on June 30, 1999, OCLI on February 4, 2000, E-TEK on June 30, 2000 and SDL
on February 13, 2001. We expect to continue this strategy. Critical to the
success of this strategy and, ultimately, our business as a whole, is the
ordered, efficient integration of acquired businesses into our organization. If
our integration efforts are unsuccessful, our businesses will suffer. Successful
integration depends upon:
- our ability to integrate the manufacture, sale and marketing of the
products of the businesses acquired with our existing products;
- our ability to complete product development programs and consolidate
research and development efforts;
- our ability to retain key personnel of the acquired business and
effectively organize the acquired business' personnel with our own;
- our ability to consolidate and reorganize operations with those of the
acquired business; and
- our ability to expand our information technology systems (including
accounting and financial systems, management controls and procedures).
Our integration efforts, which are ongoing, may not be successful and may result
in unanticipated operations problems, expenses and liabilities and the diversion
of management attention.
39
Our acquisition strategy is costly
Our acquisition strategy is costly. For example, we have incurred direct costs
associated with the combination of Uniphase and JDS FITEL of $12.0 million,
incurred $8.2 million associated with the acquisition of OCLI, incurred $32.3
million associated with the acquisition of E-TEK and incurred $44.6 associated
with the acquisition of SDL. In addition, we paid certain SDL executives $300.9
million in consideration of their agreement to amend their change of control
agreements and enter into non-compete agreements with us. 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. Moreover, to the extent an acquired business does not
perform as expected, we have and may continue to incur substantial additional
unforeseen costs to develop, restructure or dispose of such business.
Nonperforming or underperforming acquired businesses may also divert management
attention, dilute the value of our common stock and exchangeable shares and
weaken our financial condition.
Our Global Realignment Program may not be successful
As part of our continuing integration efforts and in response to the current
economic slowdown, we recently commenced a Global Realignment Program, under
which we are, among other things:
- consolidating our product development programs and eliminating overlapping
programs,
- consolidating our manufacturing of several products from multiple sites
into specific locations around the world, and
- realigning our sales organization to offer customers a single point of
contact within the company, and creating regional and technical centers to
streamline customer interactions with product line managers.
Implementation of the Global Realignment Program involves reductions in our
workforce and facilities and, in certain instances, the relocation of products,
technologies and personnel. We will incur significant expenses to implement the
program and we expect to realize significant future cost savings as a result. As
with our other integration efforts, the Global Realignment Program may not be
successful in achieving the expected benefits within the expected timeframes,
may be insufficient to align the our operations with customer demand and the
changes affecting our industry, may disrupt our operations, or may be more
costly than currently anticipated.
If we fail to commercialize new product lines our business will suffer
We intend to continue to develop new product lines and to improve existing
product lines to meet our customers' diverse and changing needs. However, our
development of new products and improvements to existing products may not be
successful, as:
- we may fail to complete the development of a new product or product
improvement; or
- our customers may not purchase the new product or improved product because,
among other things, the product is too expensive, is defective in design,
manufacture or performance, or is uncompetitive, or because the product has
been superceded by another product or technology.
40
Nonetheless, if we fail to successfully develop and introduce new products and
improvements to existing products, our business will suffer.
Furthermore, new products require increased sales and marketing, customer
support and administrative functions to support anticipated increased levels of
operations. We may not be successful in creating this infrastructure nor may we
realize any increased 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 harm our business
We rely upon the capacity, reliability and security of our information
technology hardware and software infrastructure and our ability to expand and
update this infrastructure in response to our growth and changing needs. In
connection with our growth, we are constantly updating our current information
technology infrastructure and expect to incur significant costs and expend
significant management and other resources relating to our upgrade efforts.
Among other things, we are currently unifying our manufacturing, accounting,
sales and human resource data systems using an Oracle platform and expanding and
upgrading our networks and integrating our voice communications systems. Any
failure to manage, expand and update our information technology infrastructure
could hurt our business.
WE HAVE MANUFACTURING AND PRODUCT QUALITY CONCERNS
If we do not achieve acceptable manufacturing volumes, yields and costs, our
business will suffer
Our success depends upon our ability to timely deliver products to our customers
at acceptable volume and cost levels. 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 hurt our ability to meet our customers' product volume and
quality needs. Moreover, in some cases, existing manufacturing techniques, which
involve substantial manual labor, may not achieve the volume or cost targets of
our customers. In these cases, we will need to develop new manufacturing
processes and techniques, which are anticipated to involve higher levels of
automation, to achieve these targets, and we will need to undertake other
efforts to reduce manufacturing costs. Currently, we are devoting significant
funds and other resources to (a) the development of advanced manufacturing
techniques to improve product volumes and yields and reduce costs, and (b)
realign some of our product manufacturing to locations offering optimal labor
costs. These efforts may not be successful. If we fail to achieve acceptable
manufacturing yields, volumes and costs, our business will be harmed.
If our customers do not qualify our manufacturing lines for volume shipments,
our operating results could suffer
Customers will not purchase any of our products, other than limited numbers of
evaluation units, prior to qualification of the manufacturing line for the
product. Each new manufacturing line must go through varying levels of
qualification with our customers. Moreover, under our Global Realignment Program
we are consolidating our worldwide manufacturing operations. Among other things,
we will be moving
41
the manufacturing of some of our products to other facilities. The manufacturing
lines for these products at the consolidated facilities must undergo
qualification with our customers before commercial manufacture of these products
can recommence. The qualification process, whether for new products or in
connection with the relocation of manufacturing of current products, 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 sales
opportunities over the term of that program. We may experience delays in
obtaining customer qualification of our manufacturing lines and, as a
consequence, our operating results and customer relationships would be harmed.
If our products fail to perform, our business will suffer
Our business depends on our producing excellent products of consistently high
quality. To this end, our products are rigorously tested for quality both by us
and our customers. Nevertheless, our products are highly complex and our
customers testing procedures are limited to evaluating our products under likely
and foreseeable failure scenarios. For various reasons (including, among others,
the occurrence of performance problems unforeseeable in testing), our products
may fail to perform as expected. Failures could result from faulty design or
problems in manufacturing. In either case, we could incur significant costs to
repair and/or replace defective products under warranty, particularly when such
failures occur in installed systems. We have experienced such failures in the
past and remain exposed to such failures, as our products are widely deployed
throughout the world in multiple demanding environments and applications. In
some cases, product redesigns or additional capital equipment may be required to
correct a defect. In addition, any significant or systemic product failure could
result in lost future sales of the affected product and other products, as well
as customer relations problems.
ACCOUNTING TREATMENT OF OUR ACQUISITIONS HAS IMPAIRED OUR OPERATING RESULTS
Our operating results are harmed by purchase accounting treatment, primarily due
to the impact of amortization of and other reductions in the carrying value of
goodwill and other intangibles originating from acquisitions
Under accounting principles generally accepted in the United States through June
30, 2001, we accounted for most of our acquisitions 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 acquisitions and the fair value of the stock
options assumed 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 identifiable assets to goodwill.
The impact of purchase accounting on our operating results is significant. For
fiscal 2001, we recorded an acquisition related amortization expense of $5,387.0
million.
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
42
treatment of our mergers and acquisitions will result in a net loss at least
through the end of 2002 at which time now accounting rules will apply, which
could have a material and adverse effect on the market value of our stock.
The downturn in telecommunications equipment and financial markets created
unique circumstances with regard to the assessment of certain of our long-lived
assets and investments. In the second half of fiscal 2001, we evaluated the
carrying value of certain long-lived assets and acquired equity investments,
consisting primarily of goodwill and other intangible assets and our investment
in ADVA. We were carrying a large amount of goodwill on our balance sheet
because accounting rules require that goodwill be recorded based on stock prices
at the time merger agreements are executed and announced, and our merger
agreements were negotiated and announced at times when market valuations were
considerably higher than at present.
On April 24, 2001, we announced that we were evaluating the carrying value of
certain long-lived assets and that such evaluation may result in an
approximately $40 billion reduction in goodwill for the quarter ended March 31,
2001. On July 26, 2001, we announced that we were recording reductions of $38.7
billion and $6.1 billion in goodwill and other intangible assets for the
quarters ended March 31, 2001 and June 30, 2001, respectively. In addition, we
announced we were recording a $715 million charge for the quarter ended March
31, 2001 to write down the value of our investment in ADVA. We also announced at
that time that we would be conducting a further assessment of our long-lived
assets and that further adjustments to our fiscal 2001 results may result from
this assessment. We subsequently completed this review and it resulted in us
recording additional charges to reduce goodwill and other long-lived assets of
$1.1 billion and $4.2 billion during the quarters ended March 31, 2001 and June
30, 2001, respectively.
We also reclassified $300.9 million in amounts paid to SDL executives in
connection with the acquisition which were previously recorded as acquisition
costs in the quarter ended March 31, 2001 as a one-time charge for that period.
We also recorded a $715 million charge for that period to write down the value
of our equity investment in ADVA.
The largest portion of our goodwill arose from the merger of JDS FITEL and
Uniphase and the subsequent acquisition of SDL, E-TEK, and OCLI. The businesses
associated with these business combinations remain significant operations within
JDS Uniphase notwithstanding the current business downturn and change in market
valuations and each is forecasted to produce positive cash flows over future
periods. The goodwill resulted from our acquiring strategic companies when
valuations were high. However, while we purchased highly valued shares, we were
also in effect exchanging our highly valued shares at the same time so that none
of the transactions resulting in creation of large goodwill balances resulted
from a corresponding outlay of our cash. Had these transactions been done at
different times when valuations were lower with exactly the same share exchange
ratios, the goodwill amounts would have been considerably smaller. However,
waiting for lower valuations may have reduced their strategic value or otherwise
have allowed competitors to buy these companies thereby, eliminating an
opportunity to strengthen JDS Uniphase.
OUR SALES ARE DEPENDENT UPON A FEW KEY CUSTOMERS
Our customer base is highly concentrated. Historically, orders from a relatively
limited number of optical system providers accounted for a substantial portion
of our net sales. During 2001, three customers, Nortel Networks Corporation,
Alcatel, and Lucent Technologies, Inc., accounted for 14 percent, 12
43
percent and 10 percent of net sales, respectively. During 2000, Lucent
Technologies, Inc., and Nortel Networks Corporation, accounted for 21 percent
and 15 percent of net sales, respectively. 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.
INTERRUPTIONS AFFECTING OUR KEY SUPPLIERS COULD DISRUPT PRODUCTION, COMPROMISE
OUR PRODUCT QUALITY AND ADVERSELY AFFECT OUR SALES
We 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 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.
ANY FAILURE TO REMAIN COMPETITIVE IN OUR INDUSTRY WOULD HARM 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 and characterized by rapidly changing and converging technologies.
We face intense competition from established competitors and the threat of
future competition from new and emerging companies in all aspects of our
business. Among our current competitors are our customers, who are vertically
integrated and either manufacture and/or are capable of manufacturing some or
all of the products we sell to them. In addition to our current competitors, we
expect that new competitors providing niche, and potentially broad, product
solutions will increase in the future. While the current economic downturn has
reduced the overall level of business in our industry, the competition for that
business remains fierce. To remain competitive in both the current and future
business climates, we believe we must maintain a substantial commitment to
focused research and development, improve the efficiency of our manufacturing
operations, and streamline our marketing and sales efforts, and attendant
customer service and support. Under our Global Realignment Program, we have
ongoing initiatives in each of these areas. However, our efforts to remain
competitive, under the Global Realignment Program and otherwise, may be
unsuccessful. Among other things, we may not have sufficient resources to
continue to make the investments necessary to remain competitive, or we may not
make the technological advances necessary to remain competitive. In addition,
notwithstanding our efforts, technological changes, manufacturing
44
efficiencies or development efforts by our competitors may render our products
or technologies obsolete or uncompetitive.
Our industry is consolidating
Our industry is consolidating and we believe it will continue to consolidate in
the future as companies attempt to strengthen or hold their market positions in
an evolving industry. We anticipate that consolidation will accelerate as the
result of the current industry downturn. We believe that industry consolidation
may result in stronger competitors that are better able to compete as
sole-source vendors for customers. This could lead to more variability in
operating results as we compete to be a single vendor solution and could hurt
our business.
Fiber optic component average selling prices are declining
Prices for telecommunications fiber optic products generally decline over time
as new and more efficient components and modules, with increased functionality,
are developed, manufacturing processes improve and competition increases. The
current economic downturn has exacerbated the general trend, as declining sales
have forced telecommunications carriers and their systems provider suppliers to
reduce costs, leading to increasing pricing pressure on us and our competitors.
Weakened demand for optical components and modules has created an oversupply of
these products, which has increased pressure on us to reduce our prices. To the
extent this oversupply is not corrected in subsequent periods, we anticipate
continuing pricing pressure. Moreover, currently, fiber optic networks have
significant excess capacity. Industry participants disagree as to the amount of
this excess capacity. However, to the extent that there is significant
overcapacity and this capacity is not profitably utilized in subsequent periods,
we expect to face additional pricing pressure.
In response to pricing pressure, we must continue to (1) timely develop and
introduce new products that incorporate features that can be sold at higher
selling prices, (2) increase the efficiency of our manufacturing operations, and
(3) generally reduce costs. Failure to do so could cause our net sales and gross
margins to decline, which would harm our business.
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, the current economic downturn notwithstanding, we continue to face
difficulty 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 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.
45
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 North America include
facilities in United Kingdom, the Netherlands, Germany, Australia and the
People's Republic of China.
Our international presence exposes us to risks not faced by wholly North
American companies. Specifically, we face the following risks, among others:
- our ability to comply with the customs, import/export and other trade
compliance regulations of the countries in which we do business, together
with any unexpected changes in such regulations;
- 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 the United States and Canada accounted for
$1,043.4 million, $326.7 million and $114.4 million or 32 percent, 23 percent,
and 40 percent of net sales for the years ended June 30, 2001, 2000 and 1999,
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. Lower sales
levels that typically occur during the summer months in Europe and some other
overseas markets may also materially and adversely affect our business.
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.
46
We have significant and increasing operations in the People's Republic of China
and those operations are subject to greater political, legal and economic risks
than those faced by our other international operations. In particular, the
political, legal and economic climate in China is extremely fluid and
unpredictable. Among other things, the legal system in China, both at the
national and regional levels, remains highly underdeveloped and subject to
change, with little or no prior notice, for political or other reasons.
Moreover, the enforceability of applicable existing Chinese laws and regulations
is uncertain. These concerns are exacerbated for foreign businesses, such as
ours, operating in China. Our business could be materially harmed by any
modifications to the political, legal or economic climate in China or the
inability to enforce applicable Chinese laws and regulations.
IF WE HAVE INSUFFICIENT PROPRIETARY RIGHTS OR IF WE FAIL TO PROTECT THOSE WE
HAVE, OUR BUSINESS WOULD BE MATERIALLY HARMED
We may not obtain the intellectual property rights we require
Others, including academic institutions and our competitors hold numerous
patents in the industries in which we operate. 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 subject to various claims regarding third party intellectual property
rights. This claim is not expected to have a material adverse effect on our
business.
47
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 sales, expense
and capital purchasing activities are transacted in U.S. dollars. However, we do
enter into these transactions in other currencies, primarily Canadian and
European currencies. To protect against reductions in value and the volatility
of future cash flows caused by changes in foreign exchange rates, we enter into
foreign currency forward contracts. The contracts reduce, but do not always
entirely eliminate, the impact of foreign currency exchange rate movements.
Actual results on our financial position may differ materially.
IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL AT THE TIMES, IN THE AMOUNTS AND UPON
THE TERMS REQUIRED, OUR BUSINESS COULD SUFFER
We have devoted substantial resources for new facilities and equipment to the
production of our products. Currently we are incurring substantial costs
associated with restructuring our business and operations under our Global
Realignment Program. 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
48
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 HARM 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-eighth of a 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 HINDER 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
49
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 Quarterly Report on Form 10-Q/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," "intend," "expect to,"
"anticipate that," " to be" or "can impact" or similar words. These
forward-looking statements include any statements we make, or implications
suggested by statements we make, as to:
- the future prospects for and growth of us and our industry, including,
without limitation, (a) the extent and duration of the current economic
downturn, (b) the timing and extent of any recovery from such downturn, (c)
the viability, development and growth of new fiber optic telecommunications
markets, including the metro and fiber to the curb markets, and (d) the
benefits and opportunities for us and others in our industry provided by
such new markets,
- the implementation of our Global Realignment Program, the timing and level
of benefits we expect to receive as a result of the Program, and the
expected cost to complete the Program, including, without limitation, (a)
the level of the expected workforce reductions, (b) the benefits we expect
to receive from the elimination and consolidation of research and
development programs and manufacturing facilities, and (c) the benefits we
expect to receive from integrating our sales force and restructuring our
customer service program,
- 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 for future periods, and
- the cost to complete our acquired in-process research and development and
the expected amortization of such costs.
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, among other things, the risk that (1) the current
economic downturn may be more severe and long-lasting than we can anticipate,
and, notwithstanding our projects, beliefs and expectations for our business,
may cause our business and financial condition to suffer, (2) due to the current
economic slowdown, in general, and setbacks in our customers' businesses, in
particular, our ability to predict our financial performance, in particular, and
our future success, in general, for future periods is far more difficult than in
previous periods; (3) our ongoing integration and restructuring efforts,
including, among other things, the Global Realignment Program, may not be
successful in achieving their expected benefits, may be insufficient to align
our operations with customer demand and the changes affecting our industry, or
may be more costly or extensive than currently anticipated; (4) increasing
pricing pressure, as the result of the economic downturn and competitive
factors, may harm our revenues and profit margins; (5) our research and
development programs may be insufficient or too costly or may not produce new
products, with performance, quality, quantity and price levels satisfactory to
our customers; and (6) our ongoing efforts to reduce product costs to our
customers, through, among other things, automation, improved manufacturing
processes and product rationalization may be unsuccessful. 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
50
uncertainties including the risks set forth above. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this Quarterly Report on Form
10-Q/A to conform such statements to actual results or to changes in our
expectations.
51
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
In January 2001, the Company acquired the outstanding shares of OPA in exchange
for 2.4 million shares of the Company's common stock, valued at $131.8 million
and the issuance of options to purchase an additional 0.1 million shares of JDS
Uniphase common stock valued at $36.5 million in exchange for OPA options. 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 OPA. Subject to the completion of certain milestones, the
merger 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.
During the second and third quarter of fiscal 2001, the Company issued 1.4
million shares of the Company's common stock in connection with the acquisition
of Epion Corporation valued at $89.2 million. These shares were issued in
connection with milestones achieved as part of initial purchase agreement. The
issuance of the common stock was exempt from registration pursuant to Section
3(a)(10) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Special Meeting of Stockholders (the "Special Meeting") of the Company was
held on February 12, 2001 to consider and vote upon a proposal to approve the
issuance of shares of JDS Uniphase Corporation common stock under the Agreement
and Plan of Merger, dated as of July 9, 2000, by and among JDS Uniphase
Corporation, K2 Acquisition, Inc., a wholly owned subsidiary of JDS Uniphase
Corporation, and SDL, Inc.
The voting results were:
For Against Abstained
--- ------- ---------
608,050,507 3,320,100 2,547,516
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
52
3.1(1) Restated Certificate of Incorporation.
3.2(2) Certificate of Designation.
3.3(3) Certificate of Designation.
3.4(4) Certificate of Designation.
3.5(5) Bylaws of the Company, as amended.
4.1(6) Fourth Amended and Restated Rights Agreement.
4.2(7) Exchangeable Share Provisions attaching to the
exchangeable shares of JDS Uniphase Canada Ltd.
(formerly 3506967 Canada Inc.).
4.3(8) 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(8) 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(8) 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(8) Registration Rights Agreement dated as of July 6,
1999 between the Company, JDS Uniphase Canada Ltd.
and The Furukawa Electric Co., Ltd.
------------------
(1) Incorporated by reference to exhibit 3.1 to the Company's
Report on Form 10-K/A filed February 13, 2001.
(2) Incorporated by reference to exhibit 3.(i)(d) to the Company's
Report of Form 10-K filed September 28, 1998.
(3) Incorporated by reference to exhibit 4.1 to the Company's
Registration Statement on Form S-3 filed July 14, 1999.
(4) Incorporated by reference to exhibit 10.3 to the Company's
current Report on Form 8-K filed June 24, 1998.
(5) Incorporated by reference to exhibit 3.5 to the Company's
Report on Form 10-K/A filed February 13, 2001.
(6) Incorporated by reference to the Company's Registration
Statement on Form 8-A 12G/A filed on February 13, 2001.
53
(7) Incorporated by reference to the Company's Definitive Proxy
Statement on Schedule 14A filed on June 2, 1999.
(8) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the period ending June 30,
1999.
b) Reports on Form 8-K
The Company filed eight reports on Form 8-K during the quarter ended March 31,
2001. Information regarding the items reported on is as follows:
DATE OF REPORT ITEM REPORTED ON
-------------- ----------------
January 31, 2001 Regulation FD disclosure in connection with a stockholder
update delivered by the officers of the Company on January
31, 2001 that included written communication comprised of
slides.
February 1, 2001 Certain information that was inadvertently left out of the
description of Exhibit 99.1 to the Form 8-K filed on January
31, 2001; therefore, an amended Exhibit 99.1 was furnished.
February 6, 2001 The sale of the Zurich business to Nortel Networks Corp.
February 14, 2001 Regulation FD disclosure in connection with an investor
presentation delivered by the officers of the Company on
February 13, 2001 that included information contained in a
script.
February 26, 2001 The consummation of the Agreement and Plan of Reorganization
and Merger among JDS Uniphase Corporation and SDL, Inc.
February 28, 2001 The plan of certain Board of Directors and Executive
Officers under Rule 10b5-1 of the Securities Exchange Act of
1934, as amended, for trading in shares of Registrant's
common stock.
March 6, 2001 Regulation FD disclosure in connection with revised guidance
for future periods.
March 23, 2001 SDL, Incorporated financial statements for the year ended
December 31, 2000 and Unaudited Pro Forma Condensed Combined
Statement of Operations for JDS Uniphase and SDL for the six
54
months ended December 31, 2000 and the twelve months ended
June 30, 2000.
55
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JDS Uniphase Corporation
--------------------------------------------
(Registrant)
Date: September 14, 2001 /s/ Anthony R. Muller
--------------------------------------------
Anthony R. Muller, Executive Vice President
and CFO
(Principal Financial and Accounting Officer)
56
EXHIBIT INDEX
3.1(1) Restated Certificate of Incorporation.
3.2(2) Certificate of Designation.
3.3(3) Certificate of Designation.
3.4(4) Certificate of Designation.
3.5(5) Bylaws of the Company, as amended.
4.1(6) Fourth Amended and Restated Rights Agreement.
4.2(7) Exchangeable Share Provisions attaching to the
exchangeable shares of JDS Uniphase Canada Ltd.
(formerly 3506967 Canada Inc.).
4.3(8) 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(8) 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(8) 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(8) Registration Rights Agreement dated as of July 6,
1999 between the Company, JDS Uniphase Canada Ltd.
and The Furukawa Electric Co., Ltd.
------------------
(1) Incorporated by reference to exhibit 3.1 to the Company's
Report on Form 10-K/A filed February 13, 2001.
(2) Incorporated by reference to exhibit 3.(i)(d) to the Company's
Report of Form 10-K filed September 28, 1998.
(3) Incorporated by reference to exhibit 4.1 to the Company's
Registration Statement on Form S-3 filed July 14, 1999.
(4) Incorporated by reference to exhibit 10.3 to the Company's
current Report on Form 8-K filed June 24, 1998.
(5) Incorporated by reference to exhibit 3.5 to the Company's
Report on Form 10-K/A filed February 13, 2001.
(6) Incorporated by reference to the Company's Registration
Statement on Form 8-A 12G/A filed on February 13, 2001.
57
(7) Incorporated by reference to the Company's Definitive Proxy
Statement on Schedule 14A filed on June 2, 1999.
(8) Incorporated by reference to exhibits filed with the Company's
Annual Report on Form 10-K for the period ending June 30,
1999.