<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT.
FOR THE TRANSITION PERIOD FROM _______________ TO ______________
COMMISSION FILE NUMBER 0-25678
MRV COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1340090
(STATE OF OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
20415 NORDHOFF STREET, CHATSWORTH, CA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 773-0900
Check whether the issuer: (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act 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 [ ]
As of September 30, 2000, there were 72,451,510 shares of Common Stock, $.0017
par value per share, outstanding.
<PAGE> 2
MRV COMMUNICATIONS, INC.
Form 10-Q September 30, 2000
Index
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
PART I Financial Information
Item 1: Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999 (audited) 3
Condensed Consolidated Statements of Operations (unaudited) for the Nine Months
ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine and Three Months
ended September 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10
PART II OTHER INFORMATION 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 5 Other Events 21
Item 6. Exhibits and Reports on Form 8-K. 22
SIGNATURE 24
</TABLE>
As used in this Report, "we, "us", "our", "MRV" or the "Company" refers to MRV
Communications, Inc. and its consolidated subsidiaries.
2
<PAGE> 3
MRV Communications, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par values)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Assets
Current Assets:
Cash & cash equivalents $ 38,506 $ 34,330
Short-term investments 61,512 10,141
Accounts receivable, net 64,678 60,637
Inventories 58,239 35,392
Contracts in progress 4,588 --
Refundable income taxes 1,199 3,216
Deferred income taxes 12,165 6,907
Other current assets 15,374 6,336
--------- ---------
Total current assets 256,261 156,959
Property And Equipment - At cost, net of depreciation and amortization 64,493 19,600
Other Assets:
Goodwill & intangibles 529,776 27,214
U.S. treasury notes 86,616 97,704
Investments in partner companies 22,087 4,232
Deferred income taxes 5,856 5,324
Loan financing costs and other 7,343 3,500
--------- ---------
$ 972,432 $ 314,533
--------- ---------
Liabilities And Stockholders' Equity
Current Liabilities:
Current maturities of financing lease obligations $ 2,173 $ 198
Accounts payable 48,943 33,455
Accrued liabilities 28,837 15,403
Short term debt 60,034 --
Deferred revenue 1,314 1,478
--------- ---------
Total current liabilities 141,301 50,534
Long-Term Liabilities:
Convertible debentures 90,000 90,000
Capital lease obligations, net of current portion 937 1,481
Deferred income taxes 1,187 281
Other long-term liabilities 15,281 2,647
--------- ---------
Total long term liabilities 107,405 94,409
Minority Interests 3,491 2,775
Stockholders' Equity:
Preferred stock, $0.01 par value:
1,000 shares authorized, no shares issued or outstanding -- --
Common stock, $0.0017 par value:
160,000 shares authorized, 72,452 shares issued and
outstanding in 2000 and 56,234 shares outstanding in 1999 123 124
Additional paid-in capital 968,951 191,440
Treasury Stock (133) (133)
Deferred compensation (114,399) --
Accumulated deficit (126,370) (18,377)
All cumulative other comprehensive loss (7,937) (6,239)
--------- ---------
Total stockholders' equity 720,235 166,815
--------- ---------
$ 972,432 $ 314,533
--------- ---------
</TABLE>
See accompanying notes
3
<PAGE> 4
MRV Communications, Inc.
Condensed Consolidated Statements Of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED, THREE MONTHS ENDED
---------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------ -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues, net $ 221,727 $ 214,621 $ 82,720 $ 71,254
--------- --------- --------- ---------
Costs And Expenses:
Cost of goods sold 136,439 138,614 47,910 44,653
Research and development expenses 27,185 17,973 13,818 5,875
Research and development expenses of
consolidated development stage enterprises 21,267 7,540 7,985 2,601
Selling, general and administrative expenses 94,180 45,385 52,699 15,581
Amortization of goodwill and intangibles from
acquisitions 40,417 2,884 27,348 951
--------- --------- --------- ---------
Operating (loss) income (97,761) 2,225 (67,040) 1,593
Interest expense (3,928) (3,375) (1,125) (1,125)
Other income (expense), net (1) (3,514) 3,950 (4,639) 1,290
Provision for income taxes 1,888 2,578 1,005 1,169
Minority interests (902) (39) (570) (22)
--------- --------- --------- ---------
Net income (loss) $(107,993) $ (183) $ (74,379) $ 567
--------- --------- --------- ---------
Net income (loss) per share - Basic $ (1.71) $ (0.00) $ (1.06) $ 0.01
Net income (loss) per share - Diluted $ (1.71) $ (0.00) $ (1.06) $ 0.01
--------- --------- --------- ---------
Shares used in per share calculation - Basic 63,286 53,530 70,122 53,868
Shares used in per share calculation - Diluted 63,286 53,530 70,122 60,154
--------- --------- --------- ---------
</TABLE>
(1) Includes costs of unconsolidated development stage enterprises of $6,728
and $5,291 for the nine and three months ended September 30, 2000
See accompanying notes
4
<PAGE> 5
MRV Communications, Inc.
Condensed Consolidated Statements Of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
-------- --------
Net cash (used in) provided by operating activities $(11,619) $ 2,960
-------- --------
Cash Flows From Investing Activities:
Purchases of property and equipment (12,178) (5,707)
Purchases of investments (14,269) (7,519)
Investments in partner companies (10,785) --
Proceeds from sale or maturity of investments 31,914 24,443
Cash used in acquisitions and equity purchases, net of cash received (44,517) (5,595)
-------- --------
Net cash provided by (used in) investing activities (49,835) 5,622
-------- --------
Cash Flows From Financing Activities:
Proceeds from line of credit 60,877 --
Net proceeds from issuance of common stock 6,995 1,888
Principal payments on capital lease obligations (544) (404)
-------- --------
Net cash provided by financing activities 67,328 1,484
-------- --------
Effect Of Exchange Rate Changes On Cash And Cash Equivalents (1,698) (630)
-------- --------
Net Increase In Cash And Cash Equivalents 4,176 9,436
Cash And Cash Equivalents, beginning of period 34,330 20,692
-------- --------
Cash And Cash Equivalents, end of period $ 38,506 $ 30,128
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
MRV Communications, Inc.
Notes To Condensed Consolidated Financial Statements
1. General
The accompanying condensed consolidated financial statements have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, these unaudited statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of MRV Communications and Subsidiaries as
of September 30, 2000, and the results of their operations and their cash flows
for the nine and three months then ended.
2. Business Combination
On April 24, 2000, the Company completed the acquisition of approximately 97% of
the outstanding capital stock of Fiber Optic Communications, Inc. (FOCI), a
Republic of China corporation. FOCI is a manufacturer of passive fiber optic
components for Wavelength Division Multiplexing. Under the terms of the purchase
agreement, FOCI shareholders received approximately $48.6 million in cash and
approximately 4.7 million shares of common stock and options to purchase
approximately 300,000 shares of common stock for a total purchase price of
approximately $310.4 million. The acquisition is being accounted for using the
purchase method of accounting. The excess purchase price paid over the fair
value of the net identifiable assets acquired of $262.1 million has been
recorded as goodwill and is being amortized on a straight-line basis over 5
years. The options to purchase common stock have an aggregate intrinsic value of
$14.1 million and are being amortized using the graded vesting method over four
years.
On May 1, 2000, the Company completed the acquisition of all of the
outstanding capital stock of Jolt Limited (Jolt), an Israel corporation. Jolt
designs, manufactures and sells multi-port wireless optics communications
equipment. Under the terms of the purchase agreement, Jolt shareholders
received approximately 1.1 million shares of common stock and options to
purchase approximately 749,000 shares of common stock for a total purchase
price of approximately $57.7 million. The acquisition is being accounted for
using the purchase method of accounting. The excess purchase price paid over
the fair value of the net identifiable assets acquired of $32.7 million has
been recorded as goodwill and is being amortized on a straight-line basis over
5 years. The options to purchase common stock have an aggregate intrinsic value
of $25.0 million and are being amortized using the graded vesting method over
four years.
On July 12, 2000, the Company completed the acquisition of all of the
outstanding capital stock of Quantum Optech Inc. (QOI), a Republic of China
corporation. QOI is a manufacturer of optical thin film coating and filters for
Dense Wavelength Division Multiplexing. Under the terms of the purchase
agreement, QOI shareholders received approximately 1.0 million shares of common
stock and options to purchase approximately 160,000 shares of common stock for a
total purchase price of approximately $36.2 million. The acquisition is being
accounted for using the purchase method of accounting. The excess purchase price
paid over the fair value of the net identifiable assets acquired of $27.9
million has been recorded as goodwill and is being amortized on a straight-line
basis over 5 years. The options to purchase common stock have an aggregate
intrinsic value of $2.7 million and are being amortized using the graded
vesting method over four years.
On July 12, 2000, the Company completed the acquisition of all of the
outstanding capital stock of AstroTerra Corporation (AstroTerra), a California
corporation. AstroTerra develops and manufactures free-space optical laser
communication systems for data and telecommunication network. Under the terms of
the purchase agreement, AstroTerra shareholders received approximately 1.6
million shares of common stock and options to purchase approximately 809,000
shares of common stock for a total purchase price of approximately $160.3
million. The acquisition is being accounted for using the purchase method of
accounting. The excess purchase price paid over the fair value of the net
identifiable assets acquired of $108.3 million has been recorded as goodwill and
is being amortized on a straight-line basis over 5 years. The options to
purchase common stock have an aggregate intrinsic value of $50.0 million and
are being amortized using the graded vesting method of over four years.
On July 21, 2000, the Company completed the acquisition of approximately 99
percent of the outstanding capital stock of Optronics International Corp. (OIC),
a Republic of China corporation. OIC is a manufacturer of high temperature
semiconductor lasers, transceivers and detectors for optical networks. Under the
terms of the purchase agreement, OIC shareholders received approximately 3.4
million shares of common stock and options to purchase approximately 800,000
shares of common stock for a total purchase price of approximately $124.2
million. The acquisition is being accounted for using the purchase method of
accounting. The excess purchase price paid over the fair value of the net
identifiable assets acquired of $99.7 million has been recorded as goodwill and
is being amortized on a straight-line basis over 5 years. The options to
purchase common stock have an aggregate intrinsic value of $13.4 million and
are being amortized using the graded vesting method of over four years.
6
<PAGE> 7
The results of operations of these acquisitions have been included in the
Company's consolidated financial statements from the date of acquisition. The
following unaudited pro forma financial information presents the combined
results of operations of MRV, FOCI, QOI, Jolt, AstroTerra and OIC as if the
acquisitions had occurred as of January 1, 1999 and 2000, giving effect to
certain adjustments, including amortization of goodwill and other intangibles
and deferred compensation charges (in thousands).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
2000 1999
----------- -----------
<S> <C>
Revenues, net $ 237,809 $ 240,880
Net income (loss) (185,837) (129,558)
Basic and diluted net loss per share (2.94) (2.42)
</TABLE>
3. Earnings Per Share
Basic earnings (loss) per common share are computed using the weighted average
number of common shares outstanding during the period. Diluted earnings (loss)
per common share include the incremental shares issuable upon the assumed
exercise of stock options. The effect of the assumed conversion of $90.0 million
convertible debentures has not been included, as it would be anti-dilutive. For
the nine and three months ended September 30, 2000, common stock equivalents
were not considered in the diluted computation, as their effect was
antidilutive.
4. Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." For year-end financial statements, SFAS No. 130 requires that net
income (loss) and all other non-owner changes in equity be displayed in a
financial statement with the same prominence as other consolidated financial
statements. In addition, the standard requires companies to display the
components of comprehensive income as follows (in thousands).
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------------------
2000 1999 2000 1999
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
Net Income (loss) $ (107,993) $ (183) $ (74,379) $ 567
Change in foreign currency translation (1,698) (1,438) 760 52
---------- --------- ---------- ----------
Comprehensive loss $ (109,691) $ (1,621) $ (73,619) $ 619
========== ========= ========== ==========
</TABLE>
5. Inventories
Inventories are stated at the lower of cost or market and consist of materials,
labor and overhead. Cost is determined by the first-in, first out method.
Inventories consist of the following as of September 30, 2000 and December 31,
1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ ------------------
<S> <C> <C>
Raw materials $ 21,033 $ 8,475
Work-in-process 20,716 8,083
Finished goods 16,490 18,834
--------- ---------
$ 58,239 $ 35,392
========= =========
</TABLE>
6. Stock Distribution
On May 26, 2000, the Company completed a two-for-one stock split. The effect of
this stock split has been reflected in the accompanying condensed consolidated
financial statements for all periods presented.
7. Segment Reporting and Geographical Information
The Company operates under a business model that creates and manages start-up
companies and independent business units. These companies fall into two
segments, operating entities and development stage enterprises. Segment
information is therefore being provided on this basis which differs from prior
period presentations of portions of the operating entities as segments.
Development stage enterprises that the Company has created or invested in are
developing optical components, subsystems and networks and products for the
infrastructure of the Internet. Operating entities of the Company design,
manufacture and distribute
7
<PAGE> 8
optical components, optical subsystems, optical networking solutions, Internet
infrastructure products and provide IT system integration services.
The accounting policies of the segments are the same as those described in the
summary of significant accounting polices. The Company evaluates segment
performance based on revenues, operating income (loss) and total assets of each
segment. As such, there are no separately identifiable segment assets nor are
there any separately identifiable statements of operations data below operating
income.
Business Segment Net Revenues for the nine and three months ended September 30,
2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
--------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Operating entities $ 221,727 $ 214,621 $ 82,720 $ 71,254
Development stage enterprises -- -- -- --
---------- ---------- --------- ---------
Total Revenues $ 221,727 $ 214,621 $ 82,720 $ 71,254
========== ========== ========= =========
</TABLE>
There were no inter-segment sales in the nine and three months ended September
30, 2000 and 1999.
Business Segment Profit (Loss) for the nine and three months ended September 30,
2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Operating income (loss):
Operating entities $ (76,494) $ 9,765 $ (59,055) $ 4,194
Development stage enterprises (21,267) (7,540) (7,985) (2,601)
---------- -------- ---------- ---------
$ (97,761) $ 2,225 $ (67,040) $ 1,593
========== ======== ========== =========
</TABLE>
For the nine and three months ended and as of September 30, 2000, the Company
had no single customer that accounted for more than 10 percent of revenue or
accounts receivable. The Company does not track customer revenue by region for
each individual reporting segment. A summary of external revenue by region
follows (in thousands).
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- ---------------------------
(In thousands) 2000 1999 2000 1999
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
United States $ 87,416 $ 91,377 $ 32,384 $ 29,958
Asia Pacific 27,102 21,566 8,931 7,373
European 102,696 96,544 40,153 31,028
Other 4,513 5,134 1,252 2,895
---------- ---------- --------- ---------
Total net sales $ 221,727 $ 214,621 $ 82,720 $ 71,254
========== ========== ========= =========
</TABLE>
Income (loss) before provision for income taxes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- --------------------------
(In thousands) 2000 1999 2000 1999
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
United States $ (99,778) $ 2,198 $ (74,022) $ 993
Non-United States (6,327) 197 648 743
---------- ---------- ---------- ---------
Income (loss) before provision
for income taxes $ (106,105) $ 2,395 $ (73,374) $ 1,736
========== ========== ========== =========
</TABLE>
8
<PAGE> 9
8. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Investments and Hedging Activities," as amended by SFAS No. 137 and SFAS No.
138. The Company will adopt the statement in January 2001 and does not expect
the adoption of this statement to have a material impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commissions (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides
additional guidance on the recognition, presentation and disclosure of revenue
in financial statements. The Company has reviewed this bulletin and believes
that its current revenue recognition policy is consistent with the guidance of
SAB No. 101.
In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain transactions dating back to December 1998. The adoption
of FIN 44 did not have a significant impact on MRV's financial position or
results of operations.
9. Supplemental Unaudited Pro Forma Financial Data
The purpose of the following unaudited pro forma condensed consolidated
statements of operations for the nine and three months ended September 30, 2000
and 1999 is to present the results of operations excluding certain charges such
as non-cash amortization of intangibles from acquisitions, non-cash deferred
compensation expense and expenses associated with development stage enterprises
(In thousands, except per share data).
<TABLE>
<CAPTION>
NINE MONTHS ENDED, THREE MONTHS ENDED
-------------------------- --------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues, net $221,727 $214,621 $ 82,720 $ 71,254
-------- -------- -------- ----------
Cost and Expenses:
Cost of goods sold 132,107 138,614 44,322 44,653
Research and development expenses 20,388 17,973 8,180 5,875
Selling, general and administrative expenses 58,997 45,385 22,941 15,581
-------- -------- -------- --------
Operating income 10,235 12,649 7,277 5,145
Interest expense related to convertible notes (3,928) (3,375) (1,125) (1,125)
Other income, net 3,214 5,617 652 1,974
Provision for income taxes 3,351 2,578 2,468 1,169
Minority interests (902) (39) (570) (22)
-------- -------- -------- --------
Net income (loss) $ 5,268 $ 12,274 $ 3,766 $ 4,803
-------- -------- -------- --------
Net income (loss) per share - basic $ 0.08 $ 0.23 $ 0.05 $ 0.09
-------- -------- -------- --------
Net income (loss) per share - diluted $ 0.07 $ 0.21 $ 0.05 $ 0.08
-------- -------- -------- --------
Shares used in per - share calculation - basic 63,286 53,530 70,122 53,868
Shares used in per - share calculation - diluted 72,657 58,586 79,816 60,154
-------- -------- -------- --------
</TABLE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS TOGETHER WITH THE CONDENSED FINANCIAL STATEMENTS AND THE NOTES TO
CONDENSED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS FORM 10-Q. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY.
THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN THE
"FORWARD LOOKING STATEMENTS" SECTION OF THIS FORM 10-Q AND THE "RISK FACTORS"
SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND AS AMENDED ON FORM
10-K/A, FOR THE YEAR ENDED DECEMBER 31, 1999. WE UNDERTAKE NO OBLIGATION TO
UPDATE ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION
BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
OVERVIEW
Our business is optical technology and Internet infrastructure. Our core
operations include the design, manufacturing and sale of two groups of products:
(i) optical networking and Internet infrastructure products, primarily
subscribers' management, network element management, and physical layer,
switching and routing management systems in fiber optic metropolitan networks
and (ii) fiber optic components for the transmission of voice, video and data
across enterprise, telecommunications and cable television networks. Our
advanced optical networking and Internet infrastructure solutions greatly
enhance the functionality of carrier and network service provider networks.
Furthermore, our fiber optic components incorporate proprietary technology,
which delivers high performance under demanding environmental conditions.
On November 10, 2000, our subsidiary Luminent commenced the initial public
offering of its common stock, selling 12,000,000 shares at $12.00 per share. We
currently plan to distribute all of our shares of Luminent common stock to our
stockholders on the later of three months after the receipt of a favorable
private letter ruling from the Internal Revenue Service or six months after this
offering, although we are not obligated to do so. There are various conditions
that must be satisfied or waived by us in our sole discretion, prior to the
distribution. These conditions include, among other things, the receipt of a
private letter ruling from the Internal Revenue Service that our distribution of
our shares of Luminent common stock to the holders of our common stock will be
tax-free to our stockholders and us for United States federal income tax
purposes. The exact distribution formula and record date to qualify for any
distribution will be determined at a future date. Luminent designs, manufactures
and sell as comprehensive line of fiber optic components that enable
communications equipment manufactures to provide optical networking equipment
for the rapidly growing metropolitan and access segments of the communications
networks.
9
<PAGE> 10
On October 6, 2000, our subsidiary Optical Access filed a registration
statement with the Securities and Exchange Commission for the initial public
offering of its common stock. Optical Access designs, manufactures and markets
an optical wireless solution that delivers high-speed communications traffic to
the portion of the communications network commonly know as the last mile, which
extends from the end user to the service provider's central office. The
registration statement related to these securities has been not yet become
effective. These securities may not be sold no may offers to buy be accepted,
prior to the time the registration statement becomes effective. This
announcement does not constitute an offer to sell or the solicitation of an
offer to buy. There will not be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
We completed several strategic acquisitions since December 31, 1999. These
acquisitions were made to expand our product offering, enhance our technological
expertise and expand our manufacturing capabilities. A summary of our
acquisitions is as follows:
<TABLE>
<CAPTION>
Form of Consideration and
Acquired Company Consideration Other Notes to Acquisition
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fiber Optic Communications, Inc. $310.4 million $48.6 million in cash and 5.0 million shares of
common stock and options issued; approximately 97%
of capital stock assumed; goodwill recorded of
$262.1 million; deferred stock compensation recorded
of $14.1 million
Quantum Optech Inc. $36.2 million 1.2 million shares of common stock and options
issued; 100% of capital stock assumed; goodwill
recorded of $27.9; deferred stock compensation
recorded of $2.7 million
Optronics International Corp. $124.2 million 4.2 million shares of common stock and options
issued; approximately 99% of capital stock assumed;
goodwill recorded of $99.7 million; deferred stock
compensation recorded of $13.4 million
AstroTerra Corporation $160.3 million 2.4 million shares of common stock and options
issued; 100% of capital stock assumed; goodwill
recorded of $108.3 million; deferred stock
compensation recorded of $50.0 million
Jolt Limited $57.7 million 1.9 million shares of common stock and options
issued; 100% of capital stock assumed; goodwill
recorded of $32.7 million; deferred stock
compensation recorded of $25.0 million
</TABLE>
Fiber Optic Communications, Quantum Optech and Optronics International were
acquired and contributed to Luminent as part of its spin-off. Fiber Optic
Communications provides expertise in developing and manufacturing passive fiber
optic components for Wavelength Division Multiplexing. Quantum Optech
specializes in developing and manufacturing optical thin film coating and
filters for Dense Wavelength Division Multiplexing. Finally, Optronics provides
its expertise in developing and manufacturing high temperature semiconductor
lasers, transceivers and detectors for optical networks. These acquisitions also
provided additional manufacturing capabilities for future growth.
AstroTerra and Jolt were acquired and will be contributed to Optical Access as
part of its spin-off. AstroTerra develops and manufactures free-space optical
wireless communication systems to connect data and telecommunications networks.
Jolt develops and manufactures multi-port wireless optics communications
equipment. These acquisitions provided strategic components and technology for
Optical Access' wireless optical solution.
We will continue to pursue and seek out future acquisitions that provide
synergies with existing product offerings and technology or allow us to
penetrate into new markets and grow of business model.
10
<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of total
net sales for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
----------------------------- -----------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
AS A PERCENTAGE OF REVENUE, NET
Revenues, net 100% 100% 100% 100%
Costs and Expenses
Cost of goods sold 62% 65% 58% 63%
Research and development expenses 12% 8% 17% 8%
Research and development expenses of consolidated
development stage enterprises 10% 4% 10% 4%
Selling, general and administrative expenses 42% 21% 64% 22%
Amortization of goodwill and intangibles from
acquisitions 18% 1% 33% 1%
----- ----- ----- -----
Operating (loss) income (44%) 1% (81%) 2%
Interest expense (2%) (2%) (1%) (2%)
Other income, net (2%) 2% (-6%) 2%
Provision for income taxes 1% 1% 1% 2%
Minority interests 0% 0% (-1%) 0%
----- ----- ----- -----
Net (loss) income (-49%) 0% (-90%) 1%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET SALES. We generally recognize revenue upon shipment of our products. We
defer revenue recognition on shipment of certain products to where return
privileges exist until the products are sold through to end-users. Net sales for
the third quarter increased 16%, to $82.7 million from $71.3 million for the
three months ended September 30, 1999. This increase was due in part to an
increase in our fiber optic components business, specifically relating to
existing business and growth through recent acquisitions. The expansion of the
fiber optic industry in recent quarters has also contributed to our increase in
net sales. Further growth was due to the Internet infrastructure products, such
as greater acceptance of our In-Reach(TM) product line, which enables remote
management of data networks, and products designed for wireless networks.
GROSS PROFIT. Gross profit is equal to our net sales less our cost of sales. Our
cost of sales includes materials, direct labor and overhead. Cost of inventory
is determined by the first-in, first-out method. Gross profit for the third
quarter of fiscal year 2000 increased 31%, to $34.8 million from $26.6 million
for the three months ended September 30, 1999. Prior to deferred stock
compensation expenses, gross profit would have increased 39%, to $38.4 million
for the three months ended September 30, 2000. Our gross margins (defined as
gross profit as a percentage of net sales) are generally affected by price
changes over the life of the products and the overall mix of products sold.
Higher gross margins are generally expected from new products and improved
production efficiencies as a result of increased utilization. Conversely, prices
for existing products generally will continue to decrease over their respective
life cycles.
Our gross margin increased to 42% for the three months ended September 30, 2000,
from 37% for the three months ended September 30, 1999. Prior to deferred stock
compensation expenses, gross margin would have increased to 48% for the three
months ended September 30, 2000. Our increase in gross margin is partly a
result of our decision in February 2000 to discontinue the production and sale
of low margin LAN switches for enterprise networks. Furthermore, our increase
in gross margin was also attributed to the increase sale of higher margin
products such as those for 3G wireless networks and other Internet
infrastructure products.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A expenses increased 238%, to
$52.7 million from $15.6 million for the three months ended September 30, 1999.
SG&A expenses were 64% of net sales, compared to 22% of net sales for the three
months ended September 30, 1999. Prior to deferred stock compensation expenses,
SG&A would have increased 47%, to $22.9 million from $15.6 million for the
three months ended September 30, 1999. SG&A expenses would have been 28% of net
sales, compared to 22% for the three months ended September 30, 1999. These
increases principally resulted from our recent acquisitions. Furthermore, we
have increased personnel and related costs in our operating entities in line
with our business expansion.
RESEARCH AND DEVELOPMENT (R&D). R&D expenses increased 157%, to $21.8 million
from $8.5 million for the three months ended September 30, 1999. R&D expenses of
consolidated development stage enterprises represented a 207% increase to $8.0
million from $2.6 million for the three months ended September 30, 1999. Prior
to deferred stock compensation expenses, R&D would have increased 91%, to $16.2
million. The growth in R&D expense demonstrates our commitment to product
development and continuous technological advancement. The increase in R&D
expenses of consolidated development stage enterprises is due to an acceleration
in the growth of those enterprises consistent with their objectives of bringing
new products to market.
AMORTIZATION OF GOODWILL AND INTANGIBLES FROM ACQUISITIONS. Amortization of
goodwill and intangibles from acquisitions increased to $27.3 million from
$951,000 for the three months ending September 30, 1999. The increase in these
costs were affected by our recent acquisitions which contributed approximately
$25.2 million in additional expense for the three months ended September 30,
2000. We expect to incur additional amortization of goodwill and intangibles
resulting from these acquisitions totaling approximately $26.5 million each
quarter until fully amortized in 2005. Furthermore, as we continue to engage in
strategic acquisitions, additional goodwill and intangibles will be recorded.
INTEREST AND OTHER INCOME AND EXPENSE. In June 1998, we issued $100.0 million
principal amount of 5% convertible subordinate notes due in 2003 (the Notes).
The Notes were offered in a 144A private placement to qualified institutional
investors at the stated amount, less a selling discount of 3%. In late 1998, we
repurchased $10.0 million principal amount of the Notes at a discount from the
stated amount. We incurred $1.2 million in interest expense relating to the
Notes for the three months ended September 30, 2000 and 1999.
The increase in expense in other income (expense), net is primarily attributed
to the costs of our unconsolidated development stage enterprise of $5.3 million
for the three months ended September 30, 2000. For the three months ended
September 30, 1999, these entities were included in our consolidated statements
of operations based on our ownership in those enterprises. The remaining
components of other income (expense), net is primarily interest income
recognized from short-term and long-term investments.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three months
ended September 30, 2000 was $1.0 million, compared to $1.2 million for three
months September 30, 1999. Our income tax expense fluctuates primarily due to
the tax jurisdictions where we currently have operating facilities and varying
tax rates in those jurisdictions.
11
<PAGE> 12
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
NET SALES. Net sales for the nine months ended September 30, 2000 increased 3%,
to $221.7 million from $214.6 million for the nine months ended September 30,
1999. Our revenues were favorably impacted by growth in our fiber optic
components business, which offset our decision in February 2000 to discontinue
the production and sale of our LAN switches for enterprise networks. Further
growth was due to the greater acceptance of our Internet infrastructure
products, such as our In-Reach(TM) product line, and products acquired through
our recent acquisitions, such as products designed for wireless networks.
GROSS PROFIT. Gross profit for the nine months ended September 30, 2000
increased 12%, to $85.3 million from $76.0 million for the nine months ended
September 30, 1999. Our gross margin increased to 38% for the nine months ended
September 30, 2000, from 35% for the nine months ended September 30, 1999. Prior
to deferred stock compensation expenses, our gross margin would have increased
to 40% for the nine months ended September 30, 2000. Our margins increased due
to a favorable shift in product mix toward higher margin product lines, such as
those for 3G wireless networks and other Internet infrastructure products.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A expenses increased 108%, to
$94.2 million for the nine months ended September 30, 1999. SG&A expenses were
42% of net sales, compared to 21% of net sales for the nine months ended
September 30, 1999. Prior to deferred stock compensation expenses, SG&A would
have increased 30%, to $59.0 million for the nine months ended September 30,
2000. SG&A would have been 27% of net sales for the nine months ended September
30, 2000. The increase in SG&A expenses is primarily a result of our recent
acquisitions. We have also increased personnel and related costs in our
operating entities in response to our growth in business.
RESEARCH AND DEVELOPMENT (R&D). R&D expenses increased 90%, to $48.5 million
for the nine months ended September 30, 2000 from $25.5 million for the nine
months ended September 30, 1999. R&D expenses of consolidated development stage
enterprises represented a 182% increase to $21.3 million from $7.5 million for
the nine months ended September 30, 1999. Prior to deferred stock compensation
expenses, R&D would have increased 63%, to $41.7 million for the nine months
ended September 30, 2000. Our increased spending in R&D illustrates our
commitment to continued product development and technological expansion.
Additionally, R&D from our consolidated development stage enterprises continued
to increase as those enterprises strive towards bringing new products to market.
AMORTIZATION OF GOODWILL AND INTANGIBLES FROM ACQUISITIONS. Amortization of
goodwill and intangibles from acquisitions increased to $40.4 million from $2.9
million for the nine months ending September 30, 1999. Furthermore, as we
continue to engage in strategic acquisitions, additional goodwill and
intangibles will be recorded.
INTEREST AND OTHER INCOME AND EXPENSE. In June 1998, we issued $100.0 million
principal amount of 5% convertible subordinate notes due in 2003 (the Notes).
The Notes were offered in a 144A private placement to qualified institutional
investors at the stated amount, less a selling discount of 3%. In late 1998, we
repurchased $10.0 million principal amount of the Notes at a discount from the
stated amount. We incurred $3.9 million and $3.4 million in interest expense
relating to the Notes for the nine months ended September 30, 2000 and 1999,
respectively.
The increase in expense in other income (expense), net is primarily attributed
to the costs of our unconsolidated development stage enterprises of $6.7
million for the nine months ended September 30, 2000. For the nine months ended
September 30, 1999, these entities were included in our consolidated statements
of operations based on our ownership in those enterprises. The remaining
components of other income (expense), net principally represent interest income
recognized from short-term and long-term investments.
PROVISION FOR INCOME TAXES. The provision for income taxes for the nine months
ended September 30, 2000 was $1.9 million, compared to $2.3 million for nine
months September 30, 1999. Our income tax expense fluctuates primarily due to
the tax jurisdictions where we currently have operating facilities and varying
tax rates in those jurisdictions.
Liquidity and Capital Resources
In June 1998, we issued $100.0 million principal amount of 5% convertible
subordinated notes due 2003 (the Notes) in a private placement raising net
proceeds of $96.4 million. The Notes are convertible into our common stock at a
conversion price of $13.52 per share (equivalent to a conversion rate of
approximately 73.94 shares per $1,000 principal amount of notes), representing
an initial conversion premium of 24%, for a total of approximately 7.4 million
shares of our common stock. The Notes bear interest at 5% per annum, which is
payable semi-annually on June 15 and December 15 of each year. The Notes have a
five-year term and are callable by us on June 15, 2001. The premiums payable to
call the Notes will be 102% of the outstanding principal amount during the 12
months ending June 14, 2002 and 101% during the 12 months ending June 14, 2003,
plus accrued interest to the date of redemption.
Cash and cash equivalents were $38.5 million at September 30, 2000, compared to
$34.3 million at December 31, 1999. As of September 30, 2000 we had working
capital of $115.0 million, compared with $106.4 million as of December 31,
1999. The ratio of current assets to current liabilities at September 30, 2000
was 1.8 to 1, compared to 3.1 to 1 at December 31, 1999. This is primarily due
to the consolidation of our recent acquisitions and cash utilized for such
acquisitions.
Cash used in operating activities was $11.6 million for the nine months ended
September 30, 2000, compared to cash provided by operating activities of $3.0
million for the nine months ended September 30, 1999. Cash used in operating
activities was primarily impacted by our net loss, partially offset by the
amortization of goodwill and amortization of deferred stock compensation.
Finally, cash used in operating activities was a result of an overall increase
in our current assets.
Cash used in investing activities was $49.8 million for the nine months ended
September 30, 2000, compared to cash provided by investing activities of $5.6
million for the nine months ended September 30, 1999. We spent approximately
$12.2 million on the purchase of property and equipment for business expansion
and increased manufacturing capacity. We purchased approximately $14.3 million
in investments and invested $10.8 million in partner companies. Finally, the
most significant investment activity for the nine months ended September 30,
2000 was net cash used in our recent acquisitions and equity purchases of $44.5
million.
Cash provided by financing activities was primarily generated through borrowings
from our line of credit and the net proceeds from the issuance of our common
stock. Cash provided by net borrowings from our line of credit was $60.9 million
for the nine months ended September 30, 2000. Net proceeds from the issuance of
our common stock was $7.0 million and $1.9 million for the nine months ended
September 30, 2000 and 1999, respectively.
We believe that our cash flows from operations will be sufficient to satisfy
our working capital, capital expenditure and research and development
requirements for at least the next 12 months. However, we may require or choose
to obtain additional debt or equity financing in order to finance acquisitions
or other investments in our business. We will continue to devote resources for
expansion our business model and other business requirements. Our future
capital requirements will depend on many factors, including acquisitions, our
rate of revenue growth, the timing and extent of spending to support
development of new products and expansion of sales and marketing, the timing of
new product introductions and enhancements to existing products and market
acceptance of our products.
12
<PAGE> 13
Effects of Inflation
We believe that the relatively moderate rate of inflation in the United States
over the past few years has not had a significant impact on the our sales or
operating results or on the prices of raw materials. However, in view of our
recent expansion of operations in Israel and other countries, which have
experienced substantial inflation, there can be no assurance that inflation will
not have a materially adverse effect on our operating results in the future.
Quantitative and Qualitative Disclosure about Market Risks
We operate on an international basis. A majority of our revenues and expenses
are incurred in U.S. dollars, however, a significant portion of our revenues and
expenses are incurred in other currencies. Fluctuations in the value of the
currencies in which we conduct our business relative to the U.S. dollar will
cause U.S. dollar translation of such currencies to vary from one period to
another. We can not predict the effect of exchange rate fluctuations upon future
operating results. However, because we have expenses as well as revenues in each
of the principal functional currencies, the exposure to our financial results to
currency fluctuations is reduced. We have not historically attempted to reduce
our currency risks through hedging instruments, however, we may do so in the
future.
Recently Issued Accounting Standards
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Investments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS
No. 138, which provides additional guidance for the application of SFAS No. 133
for certain transactions. We will adopt the statement in January 2001 and do
not expect the adoption of this statement to have a material impact on our
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," as amended. SAB 101 summarized certain of the Securities and
Exchange Commission's views in applying generally accepted accounting
principles to revenue recognition in financial statements. We have applied the
provisions of SAB 101 in the consolidated financial statements. The adoption of
SAB 101 did not have a material impact on our financial condition or results of
operations.
In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25," FIN 44 clarifies the application of APB No. 25 for certain
issues,including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain transactions dating back to December 1998. The adoption
of FIN 44 did not have a significant impact on our financial position or
results of operations.
CERTAIN RISK FACTORS THAT COULD AFFECT FUTURE RESULTS
WE HAVE INCURRED NET LOSS IN THE NINE MONTHS ENDED SEPTEMBER 30, 2000
PRIMARILY AS A RESULT OF RECENT ACQUISITIONS. AS A RESULT OF THOSE
ACQUISITIONS AND ADDITIONAL DEFERRED COMPENSATION CHARGES, WE EXPECT TO
CONTINUE TO INCUR NET LOSSES FOR THE FORESEEABLE FUTURE.
We reported a net loss of $108.0 million for the nine months ended September 30,
2000. The net loss was primarily due to amortization of goodwill and deferred
stock compensation related to the FOCI, QOI, AstroTerra and OIC acquisitions. We
recorded amortization of goodwill charges of approximately $ . million for the
nine months ended September 30, 2000 and deferred compensation expenses of $ .
million for the nine months ended September 30, 2000.
In July 2000, we and our wholly-owned subsidiary, Luminent, Inc. entered into
four year employment agreements with Luminent's President and Chief Executive
Officer and Vice President of Finance and Chief Financial Officer. The
agreements provide for annual salaries, performance bonuses and combinations of
stock options to purchase shares of the Company's common stock and Luminent's
common stock. The options to purchase the Company's common stock are immediately
exercisable and are expected to result in deferred compensation charges of
$2,240,000 during the three months ending September 30, 2000. The options to
purchase Luminent's common stock vest over four years. The options granted by
Luminent to its Chief Executive Officer and Chief Financial Officer represent
the right to purchase the number of shares of Luminent common stock equal to
3.5% of the outstanding capital stock of Luminent reflected on a fully diluted
basis immediately prior to its initial public offering at an exercise price per
share equal to lower of (a) the amount determined by dividing one billion
dollars by the number of Luminent shares outstanding prior to the IPO reflected
on a fully diluted basis or (b) 60% of the low end of the filing range for
Luminent's common stock as initially filed with the Securities and Exchange
Commission. We will incur deferred stock compensation expenses relating to these
options in an amount to be determined once the number of shares underlying the
options, the exercise price of the option and the initial public offering price
of the Luminent shares are known. The deferred compensation expense will be
amortized through 2004.
13
<PAGE> 14
OUR PERFORMANCE MAY BE MATERIALLY ADVERSELY AFFECTED BY TECHNOLOGICAL
CHANGES AND PRODUCT DEVELOPMENT DELAYS.
We are engaged in the design and development of devices for the computer
networking, telecommunications and fiber optic communication industries. As with
any new technologies, there are substantial risks that the marketplace may not
accept our new products. Market acceptance of our products will depend, in large
part, upon our ability to demonstrate performance and cost advantages and
cost-effectiveness of our products over competing products and the success of
our and our customers' sales efforts. We can give no assurance that we will be
able to continue to market our technology successfully, or that any of our
current products will continue to, or that our future products will, be accepted
in the marketplace. Moreover, the computer networking, telecommunications and
fiber optic communication industries are characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions,
any of which could render our existing products obsolete. Our success will
depend upon our ability to enhance existing products and to introduce new
products to meet changing customer requirements and emerging industry standards.
We are and will be required to devote continued efforts and financial resources
to develop and enhance our existing products and conduct research to develop new
products. The development of new, technologically advanced products is a complex
and uncertain process requiring high levels of innovation. It also requires the
accurate anticipation of technological and market trends. We can give no
assurance that we will be able to identify, develop, manufacture, market or
support new or enhanced products successfully or on a timely basis. Nor can we
give assurances that new products we introduce will gain market acceptance or
that we will be able to respond effectively to product announcements by
competitors, technological changes or emerging industry standards. Furthermore,
from time to time, we may announce new products or product enhancements,
capabilities or technologies that have the potential to replace or shorten the
life cycle of our existing product offerings. This may cause customers to defer
purchasing our existing products or cause customers to return products to us.
DEFECTS IN OUR PRODUCT RESULTING FROM THEIR COMPLEXITY OR OTHERWISE COULD
HURT OUR FINANCIAL PERFORMANCE.
Complex products, such as those we offer, may contain undetected software or
hardware errors when we first introduce them or when we release new versions.
The occurrence of such errors in the future, and our inability to correct such
errors quickly or at all, could result in the delay or loss of market acceptance
of our products. It could also result in material warranty expense, diversion of
engineering and other resources from our product development efforts and the
loss of credibility with our customers, system integrators and end users. Any of
these or other eventualities resulting from defects in our products could have a
material adverse effect on our business, operating results and financial
condition.
OUR GROWTH RATE MAY BE LOWER THAN HISTORICAL LEVELS AND OUR RESULTS COULD
FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER.
Our revenues may grow at a slower rate in the future than we have experienced in
previous periods and, on a quarter-to-quarter basis, our growth in revenue may
be significantly lower than our historical quarterly growth rates. Our operating
results for a particular quarter are extremely difficult to predict. Our revenue
and operating results could fluctuate substantially from quarter to quarter and
from year to year. This could result from any one or a combination of factors
such as
o the cancellation or postponement of orders,
o the timing and amount of significant orders from our largest
customers,
o our success in developing, introducing and shipping product
enhancements and new products,
o the mix of products we sell,
o adverse effects to our financial statements resulting from, or
necessitated by, past and future acquisitions,
o new product introductions by our competitors,
o pricing actions by us or our competitors,
o the timing of delivery and availability of components from suppliers,
o changes in material costs, and
14
<PAGE> 15
o general economic conditions.
Moreover, the volume and timing of orders we receive during a quarter are
difficult to forecast. From time to time, our customers encounter uncertain and
changing demand for their products. Customers generally order based on their
forecasts. If demand falls below such forecasts or if customers do not control
inventories effectively, they may cancel or reschedule shipments previously
ordered from us. Our expense levels during any particular period are based, in
part, on expectations of future sales. If sales in a particular quarter do not
meet expectations, our operating results could be materially adversely affected.
Furthermore, in certain instances, sales cycles are becoming longer and more
uncertain as we bid on larger projects. As a result, we are finding it more
difficult to predict the timing of the awards of contracts and the actual
placement of orders stemming from awards. We can give no assurance that these
factors or others, such as those discussed below regarding the risks we face
from our international operations or the risks discussed immediately below,
would not cause future fluctuations in operating results. Further, there can be
no assurance that we will be able to continue profitable operations.
THE PRICES OF OUR SHARES HAVE BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE.
Historically, the market price of our shares has been extremely volatile. The
market price of our common sock is likely to continue to be highly volatile and
could be significantly affected by factors such as
o actual or anticipated fluctuations in our operating results,
o announcements of technological innovations or new product
introductions by us or our competitors,
o changes of estimates of our future operating results by securities
analysts,
o developments with respect to patents, copyrights or proprietary
rights, and
o general market conditions and other factors.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the common stocks of technology companies. These broad market fluctuations
may adversely affect the market price of our common stock. For example, during
the period of less than 30 days from March 7, 2000 to April 4, 2000, our stock
price (adjusted for a two-for-one stock split effective on May 11, 2000) ranged
from a high of $96.94 to a low of $30. In addition, it is possible that in a
future fiscal quarter, our results of operations will fail to meet the
expectations of securities analysts or investors and, in such event, the market
price of our common stock would be materially adversely affected. For example,
as a result of weaker than anticipated demand for our networking products,
especially in Europe, and delays in transitions to next generation, higher
margin, networking products, in August 1998, we announced that we expected
operating results in the third quarter of 1998 to be adversely affected.
Following that announcement, the market price of our common stock dropped
substantially. Similarly, in February 1999, following our release of fourth
quarter and 1998 financial results, we announced that we did not expect revenues
in the first quarter of 1999 to be as strong as revenues reported for the fourth
quarter of 1998. Following that announcement, the market price of our stock
again dropped significantly. See the section of this prospectus captioned "Price
Range of Common Stock" below.
OUR STOCK PRICE MIGHT SUFFER AS A CONSEQUENCE OF OUR INVESTMENTS IN AFFILIATES.
We have created several start-up companies and formed independent business units
in the optical technology and Internet infrastructure areas. We account for
these investments in affiliates according to the equity or cost methods as
required by accounting principles generally accepted in the United States. The
market value of these investments may vary materially from the amounts shown as
a result of business events specific to these entities or their competitors or
market conditions. Actual or perceived changes in the market value of these
investments could have a material impact on our share price and in addition
could contribute significantly to volatility of our share price.
OUR BUSINESS IS INTENSELY COMPETITIVE AND THE EVIDENT TREND OF CONSOLIDATIONS
IN OUR INDUSTRY COULD MAKE IT MORE SO.
The markets for fiber optic components and networking products are intensely
competitive and subject to frequent product introductions with improved
price/performance characteristics, rapid technological change and the continual
emergence of new industry standards. We compete and will compete with numerous
types of companies including companies that have been established
15
<PAGE> 16
for many years and have considerably greater financial, marketing, technical,
human and other resources, as well as greater name recognition and a larger
installed customer base, than we do. This may give such competitors certain
advantages, including the ability to negotiate lower prices on raw materials and
components than those available to us. In addition, many of our large
competitors offer customers broader product lines, which provide more
comprehensive solutions than our current offerings. We expect that other
companies will also enter markets in which we compete. Increased competition
could result in significant price competition, reduced profit margins or loss of
market share. We can give no assurance that we will be able to compete
successfully with existing or future competitors or that the competitive
pressures we face will not materially and adversely affect our business,
operating results and financial condition. In particular, we expect that prices
on many of our products will continue to decrease in the future and that the
pace and magnitude of such price decreases may have an adverse impact on our
results of operations or financial condition.
There has been a trend toward industry consolidation for several years. We
expect this trend toward industry consolidation to continue as companies attempt
to strengthen or hold their market positions in an evolving industry. We believe
that industry consolidation may provide stronger competitors that are better
able to compete. This could have a material adverse effect on our business,
operating results and financial condition.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
We have grown rapidly in recent years, with revenues increasing from $39.2
million for the year ended December 31, 1995, to $288.5 million for the year
ended December 31, 1999. Our recent growth, both internally and through the
acquisitions we have made since January 1, 1995, has placed a significant strain
on our financial and management personnel and information systems and controls.
As a consequence, we must implement new and enhance existing financial and
management information systems and controls and must add and train personnel to
operate such systems effectively. Our delay or failure to implement new and
enhance existing systems and controls as needed could have a material adverse
effect on our results of operations and financial condition in the future. Our
intention to continue to pursue a growth strategy can be expected to place even
greater pressure on our existing personnel and to compound the need for
increased personnel, expanded information systems, and additional financial and
administrative control procedures. We can give no assurance that we will be able
to successfully manage operations if they continue to expand.
WE FACE RISKS FROM OUR INTERNATIONAL OPERATIONS.
International sales have become an increasingly important segment of our
operations. The following table sets forth the percentage of our total net
revenues from sales to customers in foreign countries for the last three years:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
YEAR ENDED REVENUE
DECEMBER 31, FROM FOREIGN SALES
-------------- ------------------
<S> <C>
1997 60%
1998 59
1999 58
</TABLE>
We have offices in, and conduct a significant portion of our operations in and
from, Israel, Taiwan and China. We are, therefore, directly influenced by the
political and economic conditions affecting Israel, Taiwan and China. Any major
hostilities involving Israel, Taiwan or China, the interruption or curtailment
of trade between Israel, Taiwan or China and their respective trading partners
or a substantial downturn in the economic or financial condition of Israel,
Taiwan or China could have a material adverse effect on our operations. Sales to
foreign customers are subject to government controls and other risks associated
with international sales, including difficulties in obtaining export licenses,
fluctuations in currency exchange rates, inflation, political instability, trade
restrictions and changes in duty rates. Although we have not experienced any
material difficulties in this regard to date, we can give no assurance that we
will not experience material difficulties in the future.
Our sales are currently denominated in U.S. dollars and to date our business has
not been significantly affected by currency fluctuations or inflation. However,
as we conduct business in several different countries, fluctuations in currency
exchange rates could cause our products to become relatively more expensive in
particular countries, leading to a reduction in sales in that country. In
addition, inflation or fluctuations in currency exchange rates in such countries
could increase our expenses. The Single European Currency (Euro) was introduced
on January 1, 1999 with complete transition to this new currency required by
January 2002. We have made and expect to continue to make changes to our
internal systems in order to accommodate doing business in the Euro. Any delays
in our ability to be Euro-compliant could have an adverse impact on our results
of operations or financial condition. Due to numerous uncertainties, we cannot
reasonably estimate at this time the effects a common currency will have on
pricing within the European Union and the resulting impact, if any, on our
financial condition or results of operations.
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To date, we have not hedged against currency exchange risks. In the future, we
may engage in foreign currency denominated sales or pay material amounts of
expenses in foreign currencies and, in such event, may experience gains and
losses due to currency fluctuations. Our operating results could be adversely
affected by such fluctuations or as a result of inflation in particular
countries where material expenses are incurred. Moreover, our operating results
could also be adversely affected by seasonality of international sales, which
are typically lower in Asia in the first calendar quarter and in Europe in the
third calendar quarter. These international factors could have a material
adverse effect on future sales of our products to international end users and,
consequently, our business, operating results and financial condition.
THE SLOWDOWN IN GROWTH RATES IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR GROWTH.
Our success is dependent, in part, on the overall growth rate of the networking
industry. We can give no assurance that the Internet or the industries that
serve it will continue to grow or that the Company will achieve higher growth
rates. Our business, operating results or financial condition may be adversely
affected by any decrease in industry growth rates. In addition, we can give no
assurance that our results in any particular period will fall within the ranges
for growth forecast by market researchers.
WE FACE RISKS INVOLVED IN THE MANUFACTURE AND SUPPLY OF CRITICAL
COMPONENTS FOR OUR PRODUCTS.
We outsource the board-level assembly, test and quality control of material,
components, subassemblies and systems relating to our networking products to
third-party contract manufacturers. Though there are a large number of contract
manufacturers that we can use for outsourcing, we have elected to use a limited
number of vendors for a significant portion of our board assembly requirements
in order to foster consistency in quality of the products. These independent
third-party manufacturers also provide the same services to other companies.
Risks associated with the use of independent manufacturers include
unavailability of or delays in obtaining adequate supplies of products and
reduced control of manufacturing quality and production costs. If our contract
manufacturers failed to deliver needed components timely, we could face
difficulty in obtaining adequate supplies of products from other sources in the
near term. We can give no assurance that our third party manufacturers will
provide us with adequate supplies of quality products on a timely basis, or at
all. While we could outsource with other vendors, a change in vendors may
require significant lead-time and may result in shipment delays and expenses.
Our inability to obtain such products on a timely basis, the loss of a vendor or
a change in the terms and conditions of the outsourcing would have a material
adverse effect on our business, operating results and financial condition.
We rely heavily on our own production capability for critical semiconductor
lasers and light emitting diodes used in our products. Because we manufacture
these and other key components at our own facility and such components are not
readily available from other sources, any interruption of our manufacturing
process could have a material adverse effect on our operations. Furthermore, we
have a limited number of employees dedicated to the operation and maintenance of
our wafer fabrication equipment, the loss of any of whom could result in our
inability to effectively operate and service such equipment. Wafer fabrication
is sensitive to many factors, including variations and impurities in the raw
materials, the fabrication process, performance of the manufacturing equipment,
defects in the masks used to print circuits on the wafer and the level of
contaminants in the manufacturing environment. We can give no assurance that we
will be able to maintain acceptable production yields and avoid product shipment
delays. In the event adequate production yields are not achieved, resulting in
product shipment delays, our business, operating results and financial condition
could be materially adversely affected.
WE HAVE SUFFERED ADVERSE FINANCIAL CONSEQUENCES AS A RESULT OF THE
XYPLEX ACQUISITION.
On January 30, 1998, we completed the Xyplex acquisition from Whittaker
Corporation. Xyplex is a leading provider of access solutions between enterprise
networks and WAN and/or Internet service providers. The purchase price paid to
Whittaker consisted of $35 million in cash and three-year warrants to purchase
up to 842,804 shares of our common stock at an exercise price of $17.50 per
share. In connection with the Xyplex acquisition, we incurred charges of $20.6
million and $15.7 million for purchased technology and restructuring during the
year ended December 31, 1998. The charges resulting from the Xyplex acquisition
resulted in our incurring a net loss of $20.1 million or $0.43 per share during
the year ended December 31, 1998.
We originally recorded charges of $30.6 million related to research and
development projects in progress at the time of the Xyplex acquisition. Although
we reported these charges in our first, second and third quarter results of 1998
in accordance with established accounting practice and valuations of Xyplex'
purchased technology in progress provided by independent valuators, we
reconsidered these valuations in light of subsequent SEC guidance regarding
valuation methodology. Based on this newer valuation methodology, we reduced the
value of the purchased technology in progress related to the Xyplex acquisition
to $20.6 million and increased the amount of goodwill by $9.9 million. This has
resulted in additional charges during 1998 of $759,000 and charges during 1999
of
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approximately $828,000 for amortization of intangibles, including goodwill,
resulting from the Xyplex acquisition charges and will continue to result in
annual charges of approximately $828,000 after 1999 as these intangibles are
amortized through January 2010.
Recent actions and comments from the SEC have indicated that the SEC is
reviewing the current valuation methodology of purchased in-process research and
development related to business combinations. Unlike the case of many other
companies, the SEC has not notified us of any plans to review our methodology
for valuing purchased in-process research and development. Our action in 1998 to
reconsider that valuation of in process research and development related to the
Xyplex acquisition was voluntary. We believe we are in compliance with all of
the rules and related guidance as they currently exist. However, there can be no
assurance that the SEC will not review our accounting for the Xyplex acquisition
and seek to apply retroactively new guidance and further reduce the amount of
purchased in-process research and development we have expensed. This would
result in an additional restatement of our previously filed financial statements
and could have a material adverse impact on our financial results for periods
subsequent to the acquisition.
FUTURE HARM COULD RESULT FROM ADDITIONAL ACQUISITIONS.
An important element of our strategy is to review acquisition prospects that
would complement our existing products, augment our market coverage and
distribution ability or enhance our technological capabilities.
Future acquisitions could have a material adverse effect on our business,
financial condition and results of operations because of the
o possible charges to operations for purchased technology and
restructuring similar to those incurred in connection with the Xyplex
acquisition mentioned above,
o potentially dilutive issuances of equity securities,
o incurrence of debt and contingent liabilities;
o incurrence of amortization expenses related to goodwill and other
intangible assets and deferred compensation charges similar to those
arising with the acquisitions of FOCI, OIC, QOI and Astroterra
mentioned above,
o difficulties assimilating the acquired operations, technologies and
products,
o diversion of management's attention to other business concerns,
o risks of entering markets in which we have no or limited prior
experience,
o potential loss of key employees of acquired organizations, and
o difficulties in honoring commitments made to customers by management
of the acquired entity prior to the acquisition.
We can give no assurance as to whether we can successfully integrate the
products, technologies or personnel of any business that we might acquire in the
future.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY
NOT BE ABLE TO COMPETE.
We rely on a combination of trade secret laws and restrictions on disclosure and
patents, copyrights and trademarks to protect our intellectual property rights.
We cannot assure you that our pending patent applications will be approved, that
any patents that may issue will protect our intellectual property or that third
parties will not challenge any issued patents. Other parties may independently
develop similar or competing technology or design around any patents that may be
issued to us. We cannot be certain that the steps we have taken will prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. Any such litigation, regardless of outcome, could be expensive and time
consuming, and adverse determinations in any such litigation could seriously
harm our business.
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WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY
RIGHTS, WHICH COULD BE COSTLY AND SUBJECT US TO SIGNIFICANT LIABILITY.
From time to time, third parties, including our competitors, may assert patent,
copyright and other intellectual property rights to technologies that are
important to us. We expect we will increasingly be subject to license offers and
infringement claims as the number of products and competitors in our market
grows and the functioning of products overlaps. In this regard, in March 1999,
we received a written notice from Lemelson Foundation Partnership in which
Lemelson claimed to have patent rights in our vision and automatic
identification operations, which are widely used in the manufacture of
electronic assemblies. In April 1999, we received a written notice from Rockwell
Corporation in which Rockwell claimed to have patent rights in certain
technology related to our metal organic chemical vapor deposition, or MOCVD,
processes. In October 1999, we received written notice from Lucent Technologies,
Inc. in which Lucent claimed we have violated certain of Lucent's patents
falling into the general category of communications technology, with a focus on
networking functionality. In October 1999, we received a written notice from
Ortel Corporation, which has since been acquired by Lucent, in which Ortel
claimed to have patent rights in certain technology related to our triplexer and
duplexer products. We are evaluating the patents noted in the letters. Others'
patents, including Lemelson's, Rockwell's, Lucent's and Ortel's, may be
determined to be valid, or some of our products may ultimately be determined to
infringe the Lemelson, Rockwell, Lucent and Ortel patents, or those of other
companies. Lemelson, Rockwell, Lucent or Ortel or other companies may pursue
litigation with respect to these or other claims. The results of any litigation
are inherently uncertain. In the event of an adverse result in any litigation
with respect to intellectual property rights relevant to our products that could
arise in the future, we could be required to obtain licenses to the infringing
technology, to pay substantial damages under applicable law, to cease the
manufacture, use and sale of infringing products or to expend significant
resources to develop non-infringing technology. Licenses may not be available
from third parties, including Lemelson, Rockwell, Lucent or Ortel, either on
commercially reasonable terms or at all. In addition, litigation frequently
involves substantial expenditures and can require significant management
attention, even if we ultimately prevail. Accordingly, any infringement claim or
litigation against us could significantly harm our business, operating results
and financial condition.
In the future, we may initiate claims or litigation against third parties for
infringement of our proprietary rights to protect these rights or to determine
the scope and validity of our proprietary rights or the proprietary rights of
competitors. These claims could result in costly litigation and the diversion of
our technical and management personnel.
NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE
TO US OR MAY BE VERY EXPENSIVE, WHICH COULD ADVERSELY
AFFECT OUR ABILITY TO MANUFACTURE AND SELL OUR PRODUCTS.
From time to time we may be required to license technology from third parties to
develop new products or product enhancements. We cannot assure you that
third-party licenses will be available to us on commercially reasonable terms,
if at all. The inability to obtain any third-party license required to develop
new products and product enhancements could require us to obtain substitute
technology of lower quality or performance standards or at greater cost, either
of which could seriously harm our ability to manufacture and sell our products.
WE ARE DEPENDENT ON CERTAIN MEMBERS OF OUR SENIOR MANAGEMENT.
We are substantially dependent upon Dr. Shlomo Margalit, our Chairman of the
Board of Directors and Chief Technical Officer, and Mr. Noam Lotan, our
President and Chief Executive Officer. The loss of the services of either of
these officers could have a material adverse effect on us. We have entered into
employment agreements with Dr. Margalit and Mr. Lotan and are the beneficiary of
key man life insurance policies in the amounts of $1.0 million on each of their
lives. However, we can give no assurance that the proceeds from these policies
will be sufficient to compensate us in the event of the death of any of these
individuals, and the policies are not applicable in the event that any of them
becomes disabled or is otherwise unable to render services to us.
OUR BUSINESS REQUIRES US TO ATTRACT AND RETAIN QUALIFIED PERSONNEL.
Our ability to develop, manufacture and market our products and our ability to
compete with our current and future competitors depends, and will continue to
depend, in large part, on our ability to attract and retain qualified personnel.
Competition for qualified personnel in the networking and fiber optics
industries is intense, and we will be required to compete for such personnel
with companies having substantially greater financial and other resources than
we do. If we should be unable to attract and retain qualified personnel, our
business could be materially adversely affected. We can give no assurance that
we will be able to attract and retain qualified personnel.
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OUR ABILITY TO ISSUE PREFERRED STOCK COULD ADVERSELY
AFFECT THE RIGHTS OF HOLDERS OF COMMON STOCK AND DETER A TAKE-OVER.
We are authorized to issue up to 1,000,000 shares of preferred stock. This
preferred stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by the board of directors without further
action by stockholders. The terms of any such series of preferred stock may
include voting rights (including the right to vote as a series on particular
matters), preferences as to dividend, liquidation, conversion and redemption
rights and sinking fund provisions. No preferred stock is currently outstanding.
The issuance of any such preferred stock could materially adversely affect the
rights of the holders of our common stock, and therefore, reduce the value of
our common stock. In particular, specific rights granted to future holders of
preferred stock could be used to restrict our ability to merge with, or sell our
assets to, a third party and thereby preserve control by the present management.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
(a) Not applicable
(b) Not applicable
(c) (i) In July 2000, the Company issued an aggregate of approximately 1.0
million shares of common stock and options to purchase approximately 160,000
shares of common stock to the shareholders of Quantum Optech Inc. (QOI), , a
Republic of China corporation in exchange for the Company's acquisition of
approximately of the outstanding capital stock of OIC from these shareholders.
(ii) In July 2000, the Company issued an aggregate of 1.6 million shares of
common stock and options to purchase approximately 809,000 shares of common
stock to the shareholders of AstroTerra Corporation (AstroTerra), a California
corporation in exchange for the Company's acquisition of the outstanding capital
stock of AstroTerra from these shareholders.
(iii) In July 2000, the Company issued an aggregate of approximately 3.4
million shares of common stock and options to purchase approximately 800,000
shares of common stock shares of common stock to the shareholders of Optronics
International Corp. (OIC), a Republic of China corporation in exchange for the
Company's acquisition of approximately of the outstanding capital stock of OIC
from these shareholders.
(iv) In August 2000, the Company issued an aggregate of approximately
120,400 shares to Broadband Highway, Inc. one of its partner companies in
connection with its investment in this partner company receiving for such shares
5,800,000 shares of Series A Convertible Preferred Stock of the partner company.
(v) In August 2000 the Company issued an aggregate of 1,000,000 shares of
its Common Stock to Charlotte's Networks, Inc. one of its partner companies in
connection with its investment in this partner company receiving for such shares
3,522,333 shares of Series B Convertible Preferred Stock, $.001 par value per
share of the partner company.
The issuance of the shares referred to above were not effected through a
broker-dealer, and no underwriting discounts or commissions were paid in
connection with such issuance.
As to the transactions described in subsection (c)(i) and (iii), exemption from
registration requirements is claimed under the Securities Act of 1933 (the
"Securities Act") in reliance on Regulation S under the Securities Act. The
Company believed that the buyers were outside the United States and no directed
selling efforts were made in the United States. Each Investor (all of whom had
addresses outside the United States) represented that it was not a "U.S. Person"
as defined in Regulation S and, at the time the buy order for these transaction
was originated, each Investor was outside the United States and no offer to
purchase the Securities was made in the United States. Each Investor agreed not
to reoffer or sell the securities, or to cause any transferee permitted under
the Securities Purchase Agreement to reoffer or sell the Securities, within the
United States, or for the account or benefit of a U.S. person, (i) as part of
the distribution of the securities at any time, or (ii) otherwise, only in a
transaction meeting the requirements of Regulation S, including without
limitation, where the offer (i) is not made to a person in the United States and
either (A) at the time the buy order is originated, the buyer is outside the
United States or the Company and any person acting on its behalf reasonably
believe that the buyer is outside the United States, or (B) the transaction is
executed in, on or through the facilities of a designated offshore securities
market and neither the seller nor any person acting on its behalf knows that the
transaction has been pre-arranged
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with a buyer in the United States, and (ii) no direct selling efforts shall be
made in the United States by the buyer, an affiliate or any person acting on
their behalf, or in a transaction registered under the Securities Act or
pursuant to an exemption from such registration. Appropriate legends were
affixed to the certificates evidencing the securities in such transaction.
As to the transactions described in subsection (c)(ii), (iv) and (v), exemption
from registration requirements is claimed under the Securities Act of 1933 (the
"Securities Act") in reliance on in reliance on Section 4(2) of the Securities
Act or Regulation D promulgated thereunder. The purchasers represented their
intention to acquire the securities for investment only and not with a view to,
or for sale in connection with, any distribution thereof and appropriate legends
were affixed to the certificates evidencing the securities in such transactions.
The purchasers had adequate access to information about the Company.
(d) Not applicable.
Item 5. Other Events
On November 9, 2000, Luminent, Inc., the Company's subsidiaryissued a press
release announcing the pricing of the initial public offering of Luminent's
Common Stock. A copy of that press release is attached as Exhibit 99.1 to this
Form 8-K and is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 Financial Data Schedule
99.1 Press Release dated November 9, 2000.
(b) Reports on Form 8-K
Four reports on Form 8-K were filed during the quarter covered by this Report,
as follows:
(i) A report on Form 8-K/A dated July 7, 2000 was filed on July 8, 2000
supplementing and completing the Form 8-K dated May 8, 2000 filed on
May 9, 2000 reporting the acquisition of Fiber Optic Communications,
Inc. In that Form 8-K/A, the following financial statements and pro
forma financial information were filed under Item 7:
Financial statements of Fiber Optics Communications, Inc. as follows:
Audited Consolidated Financial Statements As Of December 31, 1997,
1998 And 1999:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 1997, 1998 and 1999
Consolidated Statements of Operations and Comprehensive Income for the
years ended December 31, 1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders Equity for the year
ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the year ended December 31,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
Unaudited Consolidated Financial Statements as of March 31, 1999 and
2000:
Consolidated Balance Sheets at March 31, 1999 and 2000
Consolidated Statements of Operations And Comprehensive Income for the
Periods Ended March 31, 1999 and 2000
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Consolidated Statements Of Cash Flows For the Periods Ended March 31,
1999 and 2000
Notes to Consolidated Financial Statements
Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March
31, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1999
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Three Months Ended March 31, 2000
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
(ii) A report on Form 8-K dated July 26, 2000 was filed on July 27, 2000
reporting the acquisition of AstroTerra under Item 2 and 7.
(iii) A report on Form 8-K dated August 3, 2000 was filed on August 4, 2000
reporting the acquisition of OIC under Item 2 and 7 and other matters under Item
5. In that Form 8-K, the following financial statements and pro forma financial
information were filed under Item 7:
Financial Statements of OIC:
Independent Auditors' Report
Balance Sheets at December 31, 1997, 1998 and 1999
Statements of Operations and Comprehensive Income for the years ended
December 31, 1997, 1998 and 1999
Statements of Shareholders' Equity for the years ended December 31,
1997, 1998 and 1999
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999
Notes to Financial Statements
Balance Sheets at December 31, 1999 (audited) and June 30,2000
(unaudited)
Statements of Operations and Comprehensive Income for the six months
ended June 30, 1999 and 2000
Statements of Cash Flows for the six months ended June 30, 1999 and
2000 (unaudited)
Notes to Financial Statements
(b) Pro forma Financial Information
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June
30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the six months ended June 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
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(iv) A report on Form 8-K/A dated September 22, 2000 was filed on September
22, 2000 supplementing and completing the Form 8-K referred to in subparagraph
(i) above. In that Form 8-K/A, the following financial statements and pro forma
financial information were filed under Item 7:
(a) Financial Statements of AstroTerra:
Report of Independent Public Accountants
Balance Sheets at December 31, 1998 and 1999 (audited) and June 30,
2000 (unaudited)
Statements of Operations for the years ended December 31, 1997, 1998
and 1999 (audited) and the six months ended June 30, 1999 and 2000
(unaudited)
Statements of Stockholders' Equity for the years ended December 31,
1997, 1998 and 1999 (audited) and the six months ended June 30, 1999
and 2000 (unaudited)
Statements of Cash Flows for the years ended December 31, 1997, 1998
and 1999 (audited) and the six months ended June 30, 1999 and 2000
(unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Financial Information
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June
30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Six Month Period Ended June 30, 2000
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the Year Ended December 31, 1999
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
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Signatures
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant certifies that it has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized
on November 14, 2000.
MRV COMMUNICATIONS, INC.
By: /s/ Edmund Glazer
------------------------------------------
Edmund Glazer
Vice President of Finance and
Administration and Chief Financial Officer
24
