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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-22874
UNIPHASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 163 BAYPOINTE PKWY SAN JOSE, CA 95134 94-2579683
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<S> <C> <C> <C>
(STATE OR OTHER (ADDRESS OF PRINCIPAL (ZIP CODE) (I.R.S. EMPLOYER
JURISDICTION OF EXECUTIVE OFFICES) IDENTIFICATION
INCORPORATION OR NO.)
ORGANIZATION)
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Registrant's telephone number, including area code (408) 434-1800
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.001 per share
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
As of September 10, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $583,869,000 based
upon the average of the high and low prices of the Common Stock as reported on
The Nasdaq National Market on such date. Shares of Common Stock held by
officers, directors and holders of more than 5% of the outstanding Common Stock
have been excluded from this calculation because such persons may be deemed to
be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of September 10, 1996, Registrant had 16,218,582 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
Portions of registrants 1996 Annual Report to Stockholders (Parts II and
IV)
Portions of registrant's Proxy Statement for its 1996 Annual Meeting of
Stockholders (Part III)
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PART I
ITEM 1. BUSINESS
GENERAL
Uniphase Corporation ("Uniphase" or the "Company") is an optoelectronics
company that designs, develops, manufactures and markets laser subsystems,
laser-based semiconductor wafer defect examination and analysis equipment and
fiber optic telecommunications equipment products. Optoelectronics is a
technology that extends the speed and capacity of conventional electronic
solutions by addressing many of the constraints of the electron with the
particle of light, the photon. Since its founding, Uniphase has shipped over one
million lasers and has become a leading supplier of laser subsystems for OEMs in
the biotechnology, industrial process control, semiconductor wafer inspection,
and graphics and printing markets.
The Company's strategy is to leverage its core competencies in laser
technology to develop highly focused and differentiated applications where there
is a convergence of market need and optoelectronic technology. The Company's
knowledge of laser technology enabled it to introduce an optoelectronics
application for the semiconductor capital equipment industry, the Ultrapointe
laser imaging system ("Ultrapointe System"), in June 1993. The Ultrapointe
System works in conjunction with automated inspection systems from vendors such
as Tencor Instruments ("Tencor") and KLA Instruments ("KLA") to enable
semiconductor manufacturers to more accurately identify and classify defects.
This defect examination and analysis procedure enables semiconductor
manufacturers to improve yields by identifying and containing process problems.
In November 1995, Tencor became the exclusive OEM reseller of the Ultrapointe
System. In May 1996, the Company introduced its Identifier software product, an
optional feature that provides automated defect classification ("ADC")
capability for Ultrapointe Systems. Working in conjunction with the Ultrapointe
System, the Identifier software automates the defect classification process,
thereby improving the precision and repeatability of defect classification.
The Company extended its optoelectronic product offerings by acquiring
Uniphase Telecommunications Products, Inc. ("UTP") in May 1995. UTP designs,
develops, manufactures and markets high-speed external modulators and
transmitters for fiber optic networks in the long-haul telecommunications and
cable television ("CATV") industries. In May 1996, the Company acquired two
affiliated companies, GCA Fibreoptics Ltd. ("GCA") and Fiberoptic Alignment
Solutions, Inc. ("FAS") which the Company combined and now operates as a
division of UTP under the name of UTP Fibreoptics. The acquisition of UTP
Fibreoptics expands the Company's presence in the optoelectronic communications
market. UTP Fibreoptics custom packages laser diodes, LEDs and photodetectors
for OEMs for use in fiber optic networks for local telecommunications and data
communications.
COMPANY STRATEGY
The Company seeks to leverage its expertise in optoelectronics to develop
highly focused and differentiated applications where there is a convergence of
market need and optoelectronic technology. Uniphase seeks to integrate its
strengths in photonics, electronics and software development to provide
innovative and cost effective solutions to its customers. The key elements of
Uniphase's business strategy are as follows:
- Capitalize on Expertise in Laser Technology and Laser
Manufacturing. Since its inception in 1979, Uniphase has sold over one
million lasers to OEM customers and has become a leader in certain market
segments. The Company is currently developing solid state lasers for its
existing OEM customers and new applications. In this regard, Uniphase has
commercially introduced a series of green wavelength solid state
microlasers and a series of continuous wave and pulsed infrared solid
state lasers. In addition, the Company is in the late stage of
development of blue wavelength solid state microlasers. The Company
believes that it is well positioned to continue development of and
penetrate the market for solid state lasers, which the Company believes
will be the primary commercial laser technology in the future.
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- Offer Applications Differentiated by Optoelectronic Technologies. The
Company's expertise in laser technology has enabled it to successfully
introduce and market applications products in the semiconductor capital
equipment and telecommunications equipment markets. The Company's
Ultrapointe Systems utilize high resolution laser imaging systems for the
examination and analysis of wafer defects that are as small as 0.1
micron. The Company also develops and produces optical external
modulators and associated transmitters for fiberoptic CATV transmission
systems as well as modulators for long haul fiber optic digital
transmission. In May 1996, the Company acquired UTP Fibreoptics as a
continuance of its strategy to pursue selected opportunities where
optoelectronic technology converges on specific market needs. Through UTP
Fibreoptics, the Company will offer custom packaged laser diodes and
photodetectors for the efficient transmission of voice, data and video
across local fiber optic systems.
- Provide Cost-Effective, Demand-Driven Solutions to its OEM
Customers. The Company seeks, through close relationships, to understand
its customers' needs at an early stage in the customers' product
development cycles and to design its laser subsystems and
telecommunications equipment products to meet these specific needs. The
Company focuses on selling its subsystems to customers at the design-in
phase of a product, creating the potential for recurring sales throughout
a product's life. Following design-in of its products, the Company shifts
its focus to obtaining manufacturing efficiencies, quality enhancements
and cost reductions during the product life.
- Maintain Industry and Customer Diversity. Uniphase sells its laser
subsystems to numerous OEMs in the biotechnology, measurement systems,
semiconductor equipment and graphics and printing system industries,
which reduces the Company's vulnerability to a downturn in any specific
industry or company. The Company has also increased the diversity of its
industry and customer base by leveraging its expertise in laser
technology to develop products for the semiconductor capital equipment
and telecommunications equipment markets.
PRODUCTS AND MARKETS
The Company offers optoelectronic products in three principal product
families: laser subsystems, semiconductor capital equipment and fiber optic
telecommunications equipment products. The Company's laser subsystems were the
Company's initial product offering and these operations have enabled the Company
to invest in the further development of its laser technology and to offer new
applications products. In fiscal 1994, the Company first shipped its Ultrapointe
System for defect examination and analysis of semiconductor wafers. In May 1995,
the Company acquired UTP to provide high-speed external modulators and
transmitters for the fiber optic networks in the long-haul telecommunications
and CATV industries. In May 1996, the Company acquired UTP Fibreoptics, which
custom packages laser diodes, LEDs and photodetectors for OEMs for use in fiber
optic networks for local telecommunications and data communications. The
following table sets forth the Company's net sales by product family in fiscal
years 1996 and 1995.
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NET SALES
FISCAL YEAR ENDED
JUNE 30,
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PRODUCT CATEGORY 1996 1995
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(IN THOUSANDS)
<S> <C> <C>
Laser Subsystems......................................... $36,565 $33,837
Semiconductor Capital Equipment.......................... 17,584 7,428
Telecommunications Equipment(1).......................... 14,924 1,017
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$69,073 $42,282
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(1) The Company first entered the telecommunications equipment market through
the acquisition of UTP in a transaction accounted for as a purchase on May
15, 1995. As a result, telecommunications equipment net sales for fiscal
1995 reflect the inclusion of UTP operations from May 15, 1995 and UTP
Fibreoptics operations from June 1, 1996.
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LASER PRODUCTS
Background
Today, lasers are used in a variety of applications in the biotechnology,
semiconductor, consumer electronics, graphic arts and industrial process control
and measurement industries. For example, in the biotechnology field, lasers are
incorporated in flow cytometers, which identify and analyze biological cells, in
DNA sequencers, which measure and identify DNA patterns, and in certain surgical
instruments. In the semiconductor field, lasers are used to perform automated
test and measurement functions. In consumer electronics markets, lasers are an
enabling technology in laser printers and compact disc players. In the
industrial process control and measurement field, lasers are used for bar code
scanning.
The principal factors that distinguish different types of lasers and
determine the particular laser suitable for a specific application are
wavelength (color), cost, operating life and output power, which is measured in
terms of watts ("W") or milliwatts ("mW"). Lasers are capable of emitting light
from low frequency, long wavelength (greater than 700 nm) infrared light through
the visible spectrum to high frequency, short wavelength (less than 400 nm)
ultraviolet light. For example, the wavelength of the laser is of key importance
in causing the fluorescence of dyes in biotechnology applications. In addition,
laser light at shorter green and blue wavelengths is capable of being focused to
smaller, more intense points of light, enabling higher resolution optoelectronic
applications, such as semiconductor wafer inspection.
Four types of lasers commonly available today are gas, liquid,
semiconductor diode and solid state, each of which derives its classification
from the lasing material it uses. Examples of gas lasers include argon lasers
used for biotechnology applications and carbon dioxide lasers used for
industrial welding applications. Liquid dye lasers are sold primarily in
research markets. Semiconductor diode lasers are used in CD players and in
telecommunications equipment.
The Company believes that solid state lasers will ultimately address all of
the applications currently served by gas lasers and that new applications for
lasers, such as marking and micromachining, will be made possible by solid state
technology. Solid state lasers use a solid material such as crystal, glass or
certain fibers as their lasing medium and, in some cases, use a semiconductor
diode laser as the energy source to stimulate their lasing medium. While
infrared solid state lasers are commercially available, shorter wavelength green
and blue solid state lasers have been commercialized on a very limited basis to
date due to cost and performance issues. The Company believes that further
development of green and blue solid state lasers may lead to significant market
opportunities for these shorter wavelength laser subsystems. In order to provide
its customers with the benefits of the smaller size and the improved efficiency
of solid state lasers, the Company is developing microlaser products.
Laser Subsystems Markets and Products
Uniphase's principal laser subsystem products consist of air-cooled argon
gas laser subsystems, which generally emit blue or green light, Helium Neon
("He-Ne") laser subsystems, which generally emit red or green light and solid
state lasers, which generally emit infrared, blue or green light. These systems
consist of a combination of a laser head containing the lasing medium, power
supply, cabling and packaging, including
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heat dissipation elements. Uniphase's principal laser subsystem products and
representative applications include:
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LASER TYPE WAVELENGTH POWER PRICE RANGE(1) APPLICATIONS
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Gas:
He-Ne 633 nm 1-25 mW $ 50-$1,500 CAE Photoplotting
Argon 458-515 nm 3-75mW $ 2,500-$12,000 Capillary Electrophoresis
Solid State: Color Separation
Microlaser 473-1064 nm 5-50 mW $ 4,000-$9,000 Direct-to-Plate Printing
DNA Sequencing
Flow Cytometry
Particle Counting
Semiconductor Wafer Inspection
Stablelight 1064 nm Up to 4W $15,000-$20,000 Spectrometry
Daylight 349-1064 nm Up to 1mJ pulsed $30,000-$40,000 Micro Machining Marking
</TABLE>
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(1) Product prices vary depending on order volume, power output and other
customer requirements and configurations.
The overall market for gas lasers is mature and is expected to decline as
technology transitions from conventional lasers, including gas and liquid, to
solid state lasers, which the Company expects to be the primary laser technology
in the future. In comparison to gas lasers, solid state lasers are smaller and
use less power. Sales of the Company's argon gas lasers have increased in recent
years primarily as a result of increased sales of such products for use in
biotechnology and semiconductor applications. Use of He-Ne gas lasers has
substantially declined as most customers are now using semiconductor diode
lasers to satisfy bar code scanning applications.
Uniphase introduced a series of green wavelength solid state microlasers in
May 1994. The Company is in the late stage of development of blue wavelength
solid state lasers and, in fiscal 1996, the Company has shipped such lasers to
certain customers for evaluation purposes. These products consist of a power
supply and an infrared diode laser coupled to a proprietary crystal structure
contained in a temperature controlled housing. The Company believes that these
products will ultimately address the principal markets currently served by
Uniphase's argon laser products. The Company also believes that the reduced size
and power requirements of these microlasers will permit new applications for
these products, although no assurance can be given that these microlasers will
achieve commercial acceptance for use in existing or any new applications.
Uniphase introduced a series of continuous wave and pulsed infrared solid
state laser systems at the Conference on Laser and Electro-Optics in May 1995.
These products consist of a power supply and a number of high power diodes or
diode arrays coupled to a proprietary crystal structure in a stable mechanical
structure. The continuous wave product, Stablelight, produces up to 4W of
infrared power and is principally used by customers in industrial process
control and measurement applications. The Daylight product produces pulses up to
1 milli-Joule ("mJ") and is designed for customers with micro machining or
marking requirements.
SEMICONDUCTOR CAPITAL EQUIPMENT PRODUCTS
Background
Technological advances and demands for increasing levels of performance
have led the semiconductor industry to develop more complicated devices with
increasingly smaller geometries. A current state-of-the-art microprocessor may
have four million transistors per square centimeter, four or five "wiring"
levels and require 400 process steps during its manufacture, providing ample
opportunities for particle contamination to occur on the wafer and cause
defects. As semiconductor feature sizes decrease, devices become increasingly
susceptible to smaller defects during their manufacture. It has been estimated
that 80% of the loss of manufacturing yield is caused by particle contamination
that occurs on the wafer during the manufacturing process.
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One of the semiconductor industry's responses to the increasing
vulnerability of semiconductor devices to smaller defects has been to employ
defect detection and inspection that is closely linked to the manufacturing
process. Semiconductor process engineers monitor their processes more closely,
identifying defects and their origins in order to reduce their recurrence and
maintain and improve process yields. Presently, automated inspection systems
such as those manufactured by Tencor and KLA are used on-line to detect and
locate defects as small as 0.1 micron. A single wafer may be inspected numerous
times during its progression through manufacturing. These on-line detection
systems use advanced image processing and innovative laser scanning technologies
to achieve high sensitivity and speed.
Detecting the presence of defects is only the first step in preventing
their recurrence. After detection, the defects must be examined in order to
identify their size, shape and the process step in which the defect occurred.
This examination is called "defect classification." The resulting description of
the defects is then added to a computer database. This database is used to
monitor defect trends and to pinpoint the sources of defects and contaminating
particles to specific process steps or pieces of equipment. Identification of
the sources of defects in the lengthy and complex semiconductor manufacturing
process has become essential for maintaining high yield production.
While automated inspection systems have progressed to being able to detect
submicron defects, the conventional optical microscopes that have traditionally
been used for defect classification are not capable of examining such defects.
With a state-of-the-art, conventional optical microscope, a 0.3 micron defect,
which is nearly the entire minimum feature size of today's microprocessor,
appears only as a dark speck. Further, certain types of defects that are
embedded in or under films created during gas phase semiconductor manufacturing
processes are not currently observable by such microscopes. Other very shallow
defects, which are often only 0.1 micron high and which may occur during the
chemical mechanical polishing ("CMP") process, are also not observable by
conventional microscopes.
The Ultrapointe System Solution
The Company established its Ultrapointe subsidiary in fiscal 1992 and began
shipping Ultrapointe Systems in fiscal 1994. The Ultrapointe System is a laser
imaging system ("LIS") that is capable of examining microscopic defects with the
ease and speed of conventional microscopes while also offering increased
resolution and the ability to provide three-dimensional ("3-D") images. This
system combines state-of-the-art high speed laser scanning technology, real-time
confocal imaging and digital image reconstruction to allow for 3-D imaging of
semiconductor defects as small as 0.1 micron. The Ultrapointe System works in
conjunction with automated inspection systems from vendors such as Tencor and
KLA to enable semiconductor manufacturers to more accurately identify and
classify defects. This defect examination and analysis procedure enables
semiconductor manufacturers to improve yields by identifying and containing
process problems. Ultrapointe Systems operate in the manufacturing cleanroom,
adjacent to automated inspection systems, and can in seconds produce detailed
images of defects even when they are very small or embedded or buried in films.
The Company believes that its Ultrapointe System is the only currently
available, non-destructive wafer inspection tool with increased resolution and
3-D imaging capabilities that is capable of both examining certain sub-surface
wafer defects and accurately analyzing the sources of defects.
The Ultrapointe System utilizes an optical technique called scanning laser
confocal microscopy. This technique uses, through high power microscopic optics,
an argon laser as an intense light source to scan a wafer's surface numerous
times. The return signal from the laser is processed by the system's computer
workstation, which provides a complete topological image of the wafer's surface
at the system's console and can display in a high resolution format defects as
small as 0.1 micron. Typical magnifications afforded by Ultrapointe Systems
approximate 35,000x, as compared with conventional white light microscopes upper
magnification limits of approximately 6,000x. Through software developed by the
Company, the system's workstation can also evaluate and classify defects,
communicate with automated inspection systems and store images and other data.
The Company currently offers two versions of its Ultrapointe System, the
Ultrapointe LIS 500, which has a base list price of $275,000, and the
Ultrapointe LIS 1010, which has a base list price of $368,000. These
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products differ primarily in the degree of software image manipulation available
to the operator. The systems can also be tailored, through software, to
interface with various automated inspection systems and local area networks. The
Ultrapointe LIS 500 includes full wafer automation and handling and a Silicon
Graphics workstation. The images available include a conventional, real time
white light microscopy image, real time laser confocal "slices" and a multiple
slice top view of the wafer surface and defect. The full resolving power of the
laser images is available and surface, embedded and buried defects can be
viewed. This product can be upgraded at any time with advanced two dimensional
("2-D") and 3-D imaging accessories. The Ultrapointe LIS 1010 incorporates all
of the features of the Ultrapointe LIS 500 while using a more advanced version
of the Silicon Graphics workstation.
The Ultrapointe System currently requires a human operator to classify
defects. In May 1996, the Company introduced its Identifier software product, an
optional feature that provides automatic defect classification capability for
Ultrapointe Systems. Working in conjunction with the Ultrapointe System, the
Identifier software automates the defect classification process, thereby
improving the precision and repeatability of defect classification. The ability
to review defects using ADC software is becoming increasingly important to
semiconductor manufacturers as it facilitates defect classification without
direct operator evaluation at each defect site. This automation can improve
reliability and consistency by eliminating operator-induced variations. In
addition, such automation helps speed analysis of the vast amounts of defect
data and classifications necessary for yield enhancement programs. The Company
developed the Identifier software using technology licensed from ISOA, Inc. and
in cooperation with the semiconductor industry consortium, SEMATECH. The
Identifier has a base list price of $150,000.
In November 1995, the Company entered into a three-year agreement with
Tencor under which Tencor became the exclusive OEM reseller for the Company's
Ultrapointe Systems and the Identifier, the Company's ADC software product.
Under the Agreement, Tencor will distribute the Ultrapointe System under its own
label worldwide and has the responsibility for installation and service of the
systems it sells. The Company retains the right to distribute its products
through its own channels. The Agreement includes a license providing Tencor with
certain ADC technology and payments to the Company to accelerate ADC
development.
TELECOMMUNICATIONS EQUIPMENT PRODUCTS
UTP Background
Fiber optic cable is gaining widespread acceptance in upgrades and new
installations of CATV and telecommunications systems worldwide. The use of fiber
optic cable results in vastly improved performance, flexibility, reliability and
lower installation and operating costs when compared to traditional copper and
coaxial cable. Moreover, technological innovation and market forces are creating
increased demand for communication transmission systems with multiple delivery
capability and higher performance and reliability features. Further,
telecommunications interexchange carriers are being required to provide higher
speed data transmission over longer lengths of installed optical fiber between
electronic repeater stations. Due to the high cost of new fiber installations,
interexchange carriers seek to utilize the installed fiber base to the greatest
extent possible. In the CATV industry, consolidation has resulted in a smaller
number of multiple system operators controlling larger networks. These
operators, who compete with other technologies such as direct broadcast
satellite television, are upgrading their systems and seek economical solutions
that will increase their network flexibility and reliability.
The flexibility and performance of fiber optic systems has been enhanced
through the use of two types of signal encoding techniques: direct modulation
and external modulation. In direct modulation, the light output from a diode
laser is switched on and off to generate a signal, similar to the operation of a
flashlight. This frequent switching, however, causes wavelength instability,
which limits the distance of transmission before signal regeneration is
required. Further, the diode lasers used in direct modulation have limited power
and modulation rate, thereby constraining the performance of the signal
transmission system. In external modulation, the light output of a continuously
powered laser is switched in a separate crystal of lithium niobate. Light from
the laser travels along waveguides patterned into lithium niobate crystals and
electrical
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signals applied to electrodes alongside the waveguides encode the signal onto a
light beam for transmission in the optical fiber. As compared to direct
modulation, external modulation has the following advantages:
- Longer Distances in Telecommunications. External modulators enable
signal transmission over longer distances in telecommunications systems
before signal regeneration is required. External modulation thereby
reduces the required number of expensive repeaters or amplifiers, which
are a significant cost in transmission systems.
- Higher Capacity in Telecommunications. External modulation is being used
by equipment suppliers that are developing transmission hardware
incorporating wavelength division multiplexing ("WDM"). WDM is capable of
increasing the capacity of a fiber route up to 16 times without upgrading
to more expensive electronic multiplexing/demultiplexing equipment. WDM is
compatible with the large installed base of fiber optic networks and can
be used to increase significantly the data carrying capacity of such
networks. External modulators also enable higher data rates (e.g. OC-192
or 10 Gbps) to be effectively transmitted over long distances.
- Longer Distances and Higher Fidelity in CATV. External modulators
operate at higher laser power and therefore allow signals to be
transmitted over longer distances without detection and retransmission. In
addition, external modulation provides inherently higher fidelity because
of lower laser noise and low noise susceptibility to optical system
reflections, such as those arising from existing fiber optic connections.
External modulators are fully compatible with CATV distribution systems
that utilize fiber optical amplifiers.
UTP Products and Markets
In May 1995, the Company purchased UTP, which designs, develops,
manufactures and markets high-speed external modulators and transmitters for
fiber optic networks in the CATV and telecommunications industries. The Company
acquired UTP as part of its strategy to pursue selected opportunities where
opto-electronic technology converges on specific market needs which have not
been adequately addressed by conventional electronic solutions.
The Company produces lithium niobate integrated optic circuits by using its
proprietary Annealed Proton Exchange (APE(R)) fabrication process. The Company
believes that this process produces modulators which have higher optical power
handling, and inherently better fidelity as compared with competing external
modulators. The Company also sells customized external modulators for a variety
of customer applications.
The Company's principal modulator products include:
<TABLE>
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TYPE WAVELENGTH APPLICATION
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<S> <C> <C>
CATV Modulators................ 1300 nm, 1550 nm CATV Super Trunk Transmitter
2.5 Gbps Digital Modulators.... 1300 nm, 1550 nm OC-48 Telecommunications
Microwave and Radio Frequency
Modulators................... 1300 nm, 1550 nm Antenna Links, Radar, Cellular
</TABLE>
UTP began to supply turn-key externally modulated CATV transmitters to CATV
OEMs in September 1995. These transmitters incorporate a continuous-wave diode
laser, a lithium niobate modulator and patented electronic linearity and control
circuitry. The Company routinely customizes its transmitter to the
specifications of the OEM customer. The Company also resells optical fiber
amplifiers as part of providing complete optical transmission functionality to
OEMs.
The principal applications addressed by the Company's telecommunications
equipment products are as follows.
- Cable. The principal cable television applications addressed by the
Company are externally modulated transmitters for trunk-line applications.
These transmitters operate at the preferred optical wavelength of 1550 nm.
They incorporate high power (>20 mw) diode lasers and the Company's
modulators to provide high optical powers for the transmission of
broadcast television signals over long
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distances. In addition, they are compatible with existing optical
amplifier technology, which allows the transmission distance or the
subscriber area to be increased. The Company's modulated transmitters are
designed for use in broadband systems, are operational over bandwidths of
up to 1 Ghz and are compatible with hybrid fiber coax ("HFC") systems
being developed by certain telecommunications equipment providers for the
transmission of voice, data and video.
- Long-Haul Telecommunications. The principal long-haul telecommunications
application addressed by the Company is a 2.5 Gbps transmission system for
long distance telephone interexchange carriers. The Company's external
modulators are used in these systems to significantly increase the space
between repeaters in such systems. The Company's modulators allow the
transmission of up to 32,000 phone conversations over a single fiber to
switching sites across distances of up to 350 miles. In addition, the
Company's external modulators are well suited for WDM applications at 2.5
Gbps. In such applications, multiple wavelength telecommunications signals
are transmitted over the same fiber, thereby multiplying the capacity of
the fiber cable system. Telecommunications customers are presently
deploying systems with four and eight separate wavelengths in order to
accommodate 10 Gbps and 20 Gbps, respectively, using UTP's OC-48
modulators. The Company is also developing a higher speed modulator to
provide similar capability at 10 Gbps (OC-192 data rate).
- Wireless Antenna Links. The rapid growth of wireless communication
systems is producing many deployment situations where the antenna must be
located a significant distance from the telephone base station. The
Company's modulators are well suited for fiber optic transmitter systems
to carry RF signals from the antenna in cellular systems to the base
stations.
- Specialty Products and Markets. In May 1996, UTP entered into an
agreement with Sanders, a Lockheed Martin Company, to develop and produce
fiber optic transmitters for the United States government to be installed
on high performance aircraft. Additional applications for the Company's
integrated optic modulators include fiber optic gyroscopes ("FOGs"),
analog RF fiber optic systems and laboratory and research and development
activities. The Company is a leading commercial supplier of multi-function
integrated optic signal processing chips for FOGs. FOGs are intended for
use in commercial aviation, military/aerospace and industrial
applications. The Company also offers a variety of integrated optic
modulators and switches for use at frequencies to 20 Ghz that are being
used in a large variety of industrial, government and university research
and development programs.
UTP Fibreoptics Products and Markets
In May 1996, the Company acquired UTP Fibreoptics, which custom packages
laser diodes, LEDs and photodetectors for OEMs for use in fiber optic networks.
UTP Fibreoptics uses its proprietary technologies of epoxy-based attachment and
laser welding to attach fiber ("pigtailing") to these optoelectronic components
in a variety of configurations to meet the specific needs of its OEM customers.
The principal applications addressed by UTP Fibreoptics are as follows:
- Data communications. The ever-increasing use of computer networks is
fueling a growth in fiber data communications systems. Fiber offers
advantages over copper-wire links that include longer distance
transmission, higher data rates, ease of multiplexing, and immunity from
electromagnetic interference. UTP Fibreoptics offers custom packaged
optical sources and detectors for a variety of fiber-based data
communications applications such as single-fiber Ethernet and Token Ring.
- Local telecommunications. Low-cost diodes are used in the feeder and
loop portions of the local telephone network to accommodate various data
rates. The Company supplies custom packaged components to
telecommunications equipment manufacturers. For example, UTP Fibreoptics
supplies custom laser-diode submodules for use as optical sources and
detectors in SONET OC-3 (155 Mbps) networks.
- Specialty Markets. UTP Fibreoptics products are well suited for several
specialty markets such as fiber optic test and measurement equipment,
fiber optic sensors and military and aerospace data
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<PAGE> 10
communications applications. For example, the Company pigtails red diode
lasers for use in hand-held fiber optic fault locators.
SALES AND MARKETING
Uniphase markets its laser subsystem products principally to OEMs through
its own sales force in the United States, United Kingdom and Germany and through
a worldwide network of representatives and distributors to service smaller
domestic accounts, including those in the research and education markets. The
Company's sales and marketing strategy for its laser subsystem products is to
establish long term relationships with its OEM customers through early design-in
phase of its laser subsystems into customers applications and through high
levels of customer service and support. The following chart sets forth the
Company's principal OEM customers for laser subsystems by application:
<TABLE>
<CAPTION>
INDUSTRIAL PROCESS
CONTROL AND
MEASUREMENT WAFER INSPECTION GRAPHICS AND PRINTING
BIOTECHNOLOGY INSTRUMENTS INSTRUMENTS SYSTEMS SYSTEMS
- ------------------------- ---------------------- ------------------- --------------------------
<S> <C> <C> <C>
Applied Biosystems Allen-Bradley Co. ADE Corporation Crosfield Electronics Ltd.
Beckman Instruments ASM Lithography, B.V. Nikon Corporation Gerber Systems Corporation
Coulter Corporation Canon Tencor Instruments Optronics, a division of
Intergraph Corporation
Molecular Dynamics ICL Plc Purup Pre-Press A/S
Ortho Diagnostic Systems Scitex Corporation Ltd
</TABLE>
One laser subsystems customer, the Applied Biosystems Division of
Perkin-Elmer Corporation, accounted for approximately 12%, 12% and 12% of the
Company's net sales for fiscal years 1996, 1995, and 1994, respectively. In
addition, in fiscal 1996, Tencor accounted for 13% of the Company's sales
through the purchase of both laser subsystems and Ultrapointe Systems. A
reduction or delay in orders from this customer could adversely affect the
Company's results of operations. In addition, another laser subsystem customer
accounted for 10% of net sales in fiscal year 1994.
Uniphase markets its Ultrapointe Systems through Tencor's worldwide
distribution channels and a network of four independent sales representatives in
the United States and Canada. In Japan, the Company has a distribution agreement
with Tencor and Innotech Corporation for sales to Japan's semiconductor
industry. In Europe and the Pacific Rim, the Company distributes its products
through Tencor; however, the Company has the right to market its products
through its own distribution channels.
As of June 30, 1996, the Company had sold 75 Ultrapointe Systems in the
United States, Japan and Korea. Customers for the Company's Ultrapointe System
include:
<TABLE>
<S> <C>
American Microsystems Micron Technology*
Analog Devices Microunity
Applied Materials Motorola*
Digital Equipment Corporation* Philips Semiconductors*
Fujitsu, Ltd.* Samsung*
IBM Corporation* SEMATECH
Intel* Sony Corporation
LSI Logic Corporation* Toshiba*
Lucent Technologies* (formerly
AT&T) VLSI Technology*
L.G. Semicon VTC
Matsushita Electric* Yamaha Corporation
</TABLE>
- ---------------
* Indicates customers that have purchased multiple Ultrapointe Systems.
UTP markets its telecommunications equipment products to OEMs through its
own direct sales force and is in the process of establishing a sales office in
Chalfont, Pennsylvania. In addition, UTP sells such products
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<PAGE> 11
through distributors in Europe, Australia, Japan and Taiwan. Customers for the
Company's telecommunications equipment products include Ericsson Raynet and
Harmonic Lightwaves.
CUSTOMER SUPPORT AND SERVICE
The Company believes that a high level of customer support is necessary to
successfully develop and maintain long term relationships with its OEM customers
in its laser subsystems and telecommunications equipment businesses. This close
relationship begins at the design-in phase and is maintained as customer needs
change and evolve. The Company provides direct service and support to its OEM
customers through its offices in the United States. The Company's European laser
subsystem customers are serviced through its sales and support offices in the
United Kingdom and Germany. In Japan, the Company's laser subsystems
distributor, Autex, assists in performing support and service functions. The
Company provides support through both on-site customer service and telephone
support from its various facilities that perform sales and service functions.
The Company generally warrants all of its laser products for a period of one
year from the date of shipment. Certain argon lasers carry warranties based on
hours of use.
A high level of customer support is also necessary when providing
production instrumentation for the semiconductor industry. Tencor and all
distributors of Ultrapointe Systems are responsible for sales, installation,
warranty and postwarranty support. Ultrapointe Systems generally carry a
one-year warranty from the date of installation or fifteen months from shipment,
whichever occurs first. Service contracts are available for system support after
the warranty period.
RESEARCH AND DEVELOPMENT
During fiscal years 1996, 1995 and 1994, Uniphase spent $5.8 million, $3.7
million, and $3.1 million, respectively, on research and development. In fiscal
1996 and 1995 Uniphase incurred charges totaling $4.5 million and $4.5 million
for acquired in-process research and development, most of which were incurred in
connection with the acquisition of UTP in fiscal 1995 and UTP Fibreoptics in
fiscal 1996. In fiscal 1996, the Company's laser research and development
efforts focus primarily on the continued development of solid state lasers.
These programs are supported by a $1.4 million award from the Advanced
Technologies Program of the Department of Commerce which expires in December
1996. The Company also has development and licensing agreements with Stanford
University and the University of St. Andrews, Scotland which give the Company
the right to manufacture and sell certain next generation laser products being
developed by these universities. If the Company manufactures such products, it
will be required to pay the universities certain royalties based on sales of the
products.
The Company continues to devote substantial research and development
resources to its Ultrapointe Systems product line. These efforts focus on the
Company's Identifier software product and enhancement of laser images. In
addition to the Identifier, the Company is also exploring a number of methods to
improve the resolution of the scanning laser confocal microscopy technique used
in the Ultrapointe System and, in particular, the Company is currently working
with a leading semiconductor manufacturer to enable the Ultrapointe System to
examine semiconductor masks.
The Company is developing new and enhanced telecommunications equipment
products and enhancing its manufacturing capability for telecommunications
equipment products. For example, higher performance modulators and transmitters
are under development, as are advanced multi-gigabit modulators. In
manufacturing, the Company is developing improved CAD design tools and advanced
modulator packages. The Company also participates in two national consortia: the
Analog Optoelectronics Module Consortium, which seeks to develop new and
cost-effective RF and microwave transmitters and receivers, and the National
Transparent Optical Network Consortium, which is involved in advanced high
capacity WDM fiber optic communications components and networks.
MANUFACTURING
The Company manufactures its argon laser subsystems and related power
supplies at its San Jose, California facility and its He-Ne lasers at its
Manteca, California facility. The Company assembles and tests
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<PAGE> 12
its Ultrapointe Systems and manufactures initial systems of its microlasers at
its San Jose, California facility. The Company's modulator products are
manufactured at its facility in Bloomfield, Connecticut (where it is expanding a
clean room) and its transmitters are manufactured at its facility in Chalfont,
Pennsylvania. UTP Fibreoptics products are manufactured at the Company's
facilities in Witney, United Kingdom and Batavia, Illinois. The Company
manufactures its Stablelight and Daylight solid state laser subsystems products
at its I.E. Optomech Ltd. subsidiary located in the United Kingdom. The Company
has purchasing, materials management, assembly, final testing and quality
assurance functions at each location for the products that are manufactured at
that facility.
The manufacture of the Company's laser subsystems, Ultrapointe Systems and
telecommunications equipment products is a highly complex and precise process,
requiring production in a highly controlled environment. The Company maintains a
newly expanded 2,000 square foot class 100 clean room in which all Ultrapointe
System assembly takes place. Systems are tested and then packaged for direct
shipment into a customer's clean room. Changes in the Company's or its
suppliers' manufacturing processes or the inadvertent use of defective or
contaminated materials by the Company or its suppliers could adversely affect
the Company's ability to achieve acceptable manufacturing yields and product
reliability. To the extent the Company does not achieve such yields or product
reliability, its operating results and customer relationships would be adversely
affected.
The raw materials and sub-components which the Company requires for the
manufacture of its products are generally available from several sources. The
Company purchases some raw materials and components from single sources, but has
no reason to believe it could not purchase such materials and components from
alternative sources of supply on comparable terms. The Company obtains all the
robotics, workstations, and many optical components used in its Ultrapointe
Systems from Equipe Technologies, Silicon Graphics, Inc., and Olympus
Corporation, respectively. The Company currently utilizes a sole source for the
crystal semiconductor chip sets incorporated in its solid state microlaser
products and acquires its pump diodes for use in its solid state laser products
from SDL Inc., Opto Power Corporation and GEC. Certain of these companies also
manufacture products that compete with those of the Company. The Company obtains
lithium niobate wafers and specialized fiber components used in its
telecommunications products from primarily Crystal Technology, Inc. and Fujikura
Ltd., respectively. From time to time, the Company has experienced delays in
obtaining raw materials and components. However, to date such delays have not
materially affected its operations. The Company does not have long-term volume
purchase agreements with any of these suppliers, and no assurance can be given
that these components will be available in the quantities required by the
Company, if at all.
COMPETITION
The industries in which the Company sells its products are highly
competitive. Uniphase's overall competitive position depends upon a number of
factors, including the price and performance of its products, the level of
customer service and quality of its manufacturing processes, the compatibility
of its products with existing laser systems and Uniphase's ability to
participate in the growth of emerging technologies, such as solid state lasers.
In the argon laser market, Uniphase primarily competes with American Laser,
Coherent, Ion Laser Technology, NEC, Omnichrome, Spectra-Physics, Toshiba and
Carl Zeiss. In the He-Ne laser market, Uniphase considers Melles-Griot, NEC and
Carl Zeiss to be its primary competitors. In the solid state laser markets,
Uniphase's competitors include Coherent, Hitachi, IBM, Lightwave, Opto Power
Corporation, Philips, SDL, Inc., Siemens and Sony.
Significant competitive factors in the market for Ultrapointe Systems
include specific system performance, cost of ownership, support and
infrastructure and the ability to interface to existing automated inspection
systems and local area networks. Ultrapointe Systems compete with the following
three types of devices: scanning electron microscopes, conventional white light
microscopes and laser confocal microscopes. The Company believes that its
principal competitors include Amray, Hitachi, JEOL, Kinetek, Kensington,
Lasertech, Leica, Nidek, Nikon, Stahl Research and Carl Zeiss.
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<PAGE> 13
Competitive factors in the market for the Company's telecommunications
equipment products include price, product performance and reliability, the
capability to provide strong customer support and service, customer
relationships and the breadth of product line. In this market, the Company faces
competition from companies that have substantially greater financial,
engineering, research, development, manufacturing, marketing, service and
support resources, greater name recognition than the Company and long-standing
customer relationships. With respect to modulator products for CATV and
telecommunications equipment suppliers, the Company's competitors include Lucent
Technologies (formerly AT&T Micro Electronics), Crystal Technology, Inc.,
Fujitsu, Integrated Optical Components, Ltd., and Sumitomo Cement Opto
Electronics Group. With respect to CATV 1550 nm transmitters for supply to OEMs,
the Company's competitors include AEL, Harmonic Lightwaves, Kablerhydt, Ortel,
Synchronous Communications and PAi. Other CATV equipment suppliers may also
enter this market. With respect to laser diode products for data communications
and local telecommunications equipment suppliers, the Company's competitors
include Oz Optics, and SDL-Optics as well as larger optoelectronic suppliers
such as AMP and Hewlett-Packard. Potential new technologies may also emerge to
compete with the Company's products, such as electro-absorption modulators that
are being introduced for long-haul telecommunications.
PATENTS AND PROPRIETARY RIGHTS
The Company holds 30 United States patents and certain corresponding
foreign patents on the technologies related to its products and processes. The
United States patents expire on dates ranging from 1999 to 2014. The Company has
applied for additional patents related to its solid state laser products, its
Ultrapointe Systems (three of which were recently issued) and its
telecommunications products. The Company has also acquired several patent
licenses involving areas such as end-pumped solid state lasers, diode-pumped
blue light lasers and waveguides.
The laser, semiconductor equipment, CATV and telecommunications industries
in which the Company sells its products are characterized by frequent litigation
regarding patent and other intellectual property rights. Numerous patents in
these industries are held by others, including academic institutions and
competitors of the Company. Such patents could inhibit the Company's ability to
develop new products for such markets. From time to time, the Company has
received notices claiming that it has infringed third-party patents or other
intellectual property rights. While in the past licenses generally have been
available to the Company where third-party technology was necessary or useful
for the development or production of the Company's products, there can be no
assurance that licenses to third-party technology will be available on
commercially reasonable terms, if at all. Generally, a license, if granted,
would include payments by the Company of up-front fees, ongoing royalties or a
combination thereof. There can be no assurance that such royalty or other terms
would not have a significant adverse impact on the Company's operating results.
The Company is a licensee of a number of third party technologies and
intellectual property rights and is required to pay royalties to these third
party licensors on certain of its products, including its Ultrapointe Systems
and its solid state lasers. In fiscal 1996 and 1995, the Company expensed $1.3
million and $1.2 million, respectively, in license and royalty fees primarily in
connection with its gas laser subsystems. In addition, there can be no assurance
that third parties will not assert claims against the Company with respect to
its existing products or with respect to future products under development by
the Company. In the event of litigation to determine the validity of any
third-party claims, such litigation could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel, whether or not such litigation is determined in favor of the Company.
In the event of an adverse result in any such litigation, the Company could be
required to expend significant resources to develop non-infringing technology or
to obtain licenses to the technology which is the subject of the litigation.
There can be no assurance that the Company would be successful in such
development or that any such licenses would be available to the Company. In the
absence of such a license, the Company could be enjoined from future sales of
the infringing product or products. In fiscal years 1992 and 1993, the Company
incurred substantial legal expenses in connection with a patent infringement
action relating to the Company's current gas laser subsystems brought by
Spectra-Physics Lasers, Inc. ("Spectra-Physics"). While the Spectra-Physics case
has since been settled, no assurance can be given that, in the future, the
Company will be able to avoid similar actions by competitors or others or not be
forced to initiate its own actions to protect its proprietary position.
12
<PAGE> 14
BACKLOG
Backlog consists of written purchase orders for products for which the
Company has assigned shipment dates within the following 12 months. As of June
30, 1996 the Company's backlog was approximately $20.7 million, as compared with
a backlog of approximately $10.1 million at June 30, 1995. Orders in backlog are
firm, but are subject to cancellation or rescheduling by the customer. Because
of possible changes in product delivery schedules and cancellation of product
orders and because the Company's sales will often reflect orders shipped in the
same quarter that they are received, the Company's backlog at any particular
date is not necessarily indicative of actual sales for any succeeding period.
Certain of the Company's laser subsystems customers are adopting "just in time"
techniques with respect to ordering the Company's products, which will cause the
Company to have shorter lead times for providing products. Such shorter lead
times are likely to result in lower backlog.
EMPLOYEES
At June 30, 1996, the Company had a total of 409 full-time employees,
including 62 in research, development and engineering, 41 in sales, marketing
and service, 256 in manufacturing, and 50 in general management, administration
and finance. The Company intends to hire additional personnel during the next 12
months in each of these areas. The Company's future success will depend in part
on its ability to attract, train, retain and motivate highly qualified
employees, who are in great demand. There can be no assurance that the Company
will be successful in attracting and retaining such personnel. The Company's
employees are not represented by any collective bargaining organization, and the
Company has never experienced a work stoppage, slowdown or strike. The Company
considers its employee relations to be good.
13
<PAGE> 15
RISK FACTORS
The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including but not limited to statements regarding the Company's
expectations, hopes, beliefs, intentions or strategies regarding the future.
Actual results could differ materially from those projected in any
forward-looking statements as a result of a number of factors, including those
detailed in this "Risk Factors" portion as well as those set forth elsewhere in
this Report on Form 10-K. The forward-looking statements are made as of the date
hereof and the Company assumes no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ materially
from those projected in the forward-looking statements.
RISKS ASSOCIATED WITH THE TELECOMMUNICATIONS EQUIPMENT MARKET
The Company entered the telecommunications equipment market by acquiring
UTP in May 1995. UTP designs, develops, manufactures and markets high-speed
external modulators and transmitters for fiber optic networks in the long-haul
telecommunications and CATV industries. The CATV and telecommunications
industries are characterized by rapidly evolving technology, intense
competition, fluctuations in capital spending and uncertainty surrounding the
level of governmental regulation. To compete successfully, the Company must
design, develop, manufacture and sell new products that provide increasingly
higher levels of performance and reliability. As new markets develop, the
Company must successfully develop new products for these markets to remain
competitive. There can be no assurance that the Company will successfully
develop new products, or that new products developed by the Company will achieve
market acceptance or not be rendered obsolete or uncompetitive by products of
other companies. Significant competitive factors include product performance and
reliability, product price, the capability to provide strong customer support
and service, customer relationships and breadth of product line. There can be no
assurance that the Company will be able to compete successfully in the future
with respect to these or any other competitive factors or that competition in
these markets will not have a material adverse effect on the Company's business
and operating results. In May 1996, the Company acquired UTP Fibreoptics. UTP
Fibreoptics custom packages laser diodes, LEDs and photodetectors for OEMS for
use in fiber optic networks for local telecommunications and data
communications. Prior to acquiring UTP Fibreoptics, the Company had not been
engaged in local telecommunications and data communications applications and has
no experience in developing, manufacturing, selling or supporting products for
these applications. No assurance can be made that the Company can successfully
provide these applications for the local telecommunications or data
communications markets or that it can successfully assimilate UTP Fibreoptics
into the Company's other business operations.
UTP's and UTP Fibreoptics's products are designed to operate in CATV and
other communications networks that use fiber optic cable to transmit signals.
Thus, demand for the Company's products depends to a significant extent upon the
magnitude and timing of capital spending by CATV and telecommunications
operators for constructing, rebuilding or upgrading fiber optic systems which in
turn directly affects purchases by CATV and telecommunications equipment
suppliers. Furthermore, sales of the Company's CATV products are highly
dependent on the rate at which CATV OEMs and in turn, their customers, the
multiple systems operators ("MSOs"), move to adopt externally modulated products
operating at 1550 nanometers ("nm") for their trunk lines. Although the Company
believes that this technology offers certain advantages, there is no assurance
that OEMs and MSOs will continue to migrate to this solution. In addition, the
uncertainty regarding the level of governmental regulation and regulatory reform
affects capital expenditures in the CATV and telecommunications industries.
There can be no assurance that the Company's business and operating results will
not be materially and adversely affected by these factors.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's Ultrapointe Systems and a portion of its laser subsystems
businesses depend upon capital expenditures by manufacturers of semiconductor
devices, including manufacturers that are opening new or expanding existing
fabrication facilities, which, in turn, depend upon the current and anticipated
market demand for semiconductor devices and the products utilizing such devices.
The semiconductor industry is
14
<PAGE> 16
highly cyclical, and historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment. The
semiconductor industry is currently experiencing a downturn which has led many
semiconductor manufacturers to delay or cancel capital expenditures. Certain of
the Company's customers have delayed or canceled purchase of the Company's
Ultrapointe Systems. There can be no assurance that the Company's operating
results will not be materially and adversely affected by these factors.
Furthermore, there can be no assurance that the semiconductor industry will not
experience further downturns or slowdowns in the future, which may materially
and adversely affect the Company's business and operating results.
DECLINING MARKET FOR GAS LASERS; DEVELOPMENT AND OTHER RISKS RELATING TO SOLID
STATE LASER TECHNOLOGIES
To date, a substantial portion of the Company's revenue has been derived
from sales of gas laser subsystems. The market for gas lasers is mature and is
expected to decline as customers transition from conventional lasers, including
gas, to solid state lasers, which are currently expected to be the primary
commercial laser technology in the future. In response to this transition, the
Company has devoted substantial resources to developing solid state laser
products and has introduced its initial solid state products. To date, sales of
the Company's solid state laser products have been limited and primarily for
customer evaluation purposes. Solid state laser products are still evolving, and
there can be no assurance that the Company's solid state laser products will be
successfully designed into customers' products or achieve commercial sales
volumes. The Company believes that a number of companies are further advanced
than the Company in their development efforts for solid state lasers and are
competing with evaluation units for many of the same design-in opportunities
than the Company is pursuing. It is anticipated that the average selling price
of solid state lasers may be significantly less in certain applications than the
gas laser products the Company is currently selling in these markets. If the
Company is unable to successfully make this transition from gas to solid state
lasers, its business, operating results and financial condition will be
materially and adversely affected. The Company further believes it will be
necessary to continue to reduce the cost of manufacturing and to broaden the
wavelengths provided by its laser products. There can be no assurance that the
Company will successfully develop new solid state laser products, or that any
solid state laser products will achieve market acceptance or not be rendered
obsolete or uncompetitive by products of other companies
MANAGEMENT OF GROWTH; UTP FIBREOPTICS ACQUISITION
The Company has experienced recent growth through both increased levels of
operations in its existing businesses and the acquisition of UTP in May 1995.
The Company is devoting significant resources to develop new solid state lasers
for OEM customers, to improve products and increase market penetration of its
Ultrapointe Systems and to increase its penetration of the CATV and
telecommunications industries. In addition, the Company is now increasing its
marketing, customer support and administrative functions in order to support an
increased level of operations primarily from sales of its telecommunications
equipment products. No assurance can be given that the Company will be
successful in creating this infrastructure or that any increase in the level of
such operations will justify the increased expense levels associated with these
businesses.
In May 1996, the Company acquired UTP Fibreoptics. The total purchase price
of $9.1 million included aggregate consideration of $8.6 million, payable
through a combination of cash and notes, and estimated direct transaction costs
of $500,000. As a result of acquiring UTP Fibreoptics, the Company has entered
the local telecommunications and data communications market in which it had no
previous experience, and has expanded its employee base by approximately 45
persons. The success of the UTP Fibreoptics acquisition will be dependent on the
Company's ability to integrate UTP Fibreoptics into its existing operations as a
division of UTP. UTP's ability to manage UTP Fibreoptics will be complicated by
the geographical distance between UTP's facilities in Bloomfield, Connecticut
and Chalfont, Pennsylvania and UTP Fibreoptics's locations in the United Kingdom
and in Batavia, Illinois. There can be no assurance that the operations of UTP
Fibreoptics can be successfully integrated into UTP or that such integration
will not strain the Company's available management, manufacturing, financial and
other resources.
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<PAGE> 17
The Company also made capital expenditures to acquire certain properties in
San Jose, California totaling 109,000 square feet, which included land,
buildings and improvements for an aggregate purchase price of approximately
$11.0 million and continues to invest in property, plant and equipment needed
for its business requirements, including adding to manufacturing capacity
throughout the Company. Any failure to utilize these areas in an efficient
manner could have a material adverse effect on the Company.
The Company currently has no commitments with respect to any future
acquisitions. The Company, however, frequently evaluates the strategic
opportunities available to it and may in the future pursue acquisitions of
additional complementary products, technologies or businesses. Such acquisitions
by the Company may result in the diversion of management's attention from the
day-to-day operations of the Company's business and may include numerous other
risks, including difficulties in the integration of the operations and products,
integration and retention of personnel of the acquired companies and certain
financial risks. Further acquisitions by the Company may result in dilutive
issuances of equity securities, the incurrence of additional debt, reduction of
existing cash balances, amortization expenses related to goodwill and other
intangible assets and other charges to operations that may materially adversely
affect the Company's business, financial condition or operating results.
VARIABILITY AND UNCERTAINTY OF QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly results. The Company believes that
fluctuations in quarterly results may cause the market price of its Common Stock
to fluctuate, perhaps substantially. Factors which have had an influence on and
may continue to influence the Company's operating results in a particular
quarter include the timing of the receipt of orders from major customers,
product mix, competitive pricing pressures, the relative proportions of domestic
and international sales, costs associated with the acquisition or disposition of
businesses, products or technologies, the Company's ability to design,
manufacture, and ship products on a cost effective and timely basis, the delay
between incurrence of expenses to further develop marketing and service
capabilities and realization of benefits from such improved capabilities, the
announcement and introduction of cost effective new products by the Company and
by its competitors, and expenses associated with any intellectual property
litigation. In addition, the Company's sales will often reflect orders shipped
in the same quarter that they are received. Moreover, customers may cancel or
reschedule shipments, and production difficulties could delay shipments. The
timing of sales of the Company's Ultrapointe Systems may result in substantial
fluctuations in quarterly operating results due to the substantially higher per
unit price of these products relative to the Company's other products. In
addition, the Company sells its telecommunications equipment products to OEMs
who typically order in large quantities and therefore the timing of such sales
may significantly affect the Company's quarterly results. The timing of such OEM
sales can be affected by factors beyond the Company's control, including demand
for the OEM's products and manufacturing issues experienced by OEMs. In this
regard, the Company recently experienced a temporary rescheduling of orders by
one OEM telecommunications customer. As a result of the above factors, the
Company's results of operations are subject to significant variability from
quarter to quarter.
The Company's operating results in a particular quarter may also be
affected by the acquisition or disposition of other businesses, products or
technologies by the Company. For example, in the fourth quarter of fiscal 1995,
the Company incurred charges totaling $5.4 million, primarily for acquired
inprocess research and development in connection with the Company's acquisition
of UTP, and to a lesser extent from the loss on the sale of the Company's diode
laser product line. Such charges reduced net income per share for the fourth
quarter of fiscal 1995 by $0.34 and for fiscal 1995 by $0.33. During the quarter
ended June 30, 1996, the Company incurred a charge of approximately $3.0 million
in connection with the cancellation of certain UTP options and granting of
replacement options to purchase Uniphase Common Stock to UTP employees in order
to operate UTP Fibreoptics as a division of UTP. The Company also incurred a
charge of $4.5 million for acquired in-process research and development in
connection with the acquisition of UTP Fibreoptics in the quarter ended June 30,
1996. There can be no assurance that other acquisitions or dispositions of
businesses, products or technologies by the Company in the future will not
result in substantial charges or other expenses that may cause fluctuations in
the Company's quarterly operating results.
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INTENSE INDUSTRY COMPETITION
The laser, semiconductor capital equipment, CATV and telecommunications
industries in which the Company sells its products are highly competitive. In
each of the markets it serves, the Company faces intense competition from
established competitors, many of which have substantially greater financial,
engineering, research and development, manufacturing, marketing, service and
support resources. The Company is a recent entrant into the semiconductor
capital equipment, the CATV and telecommunications marketplaces and competes
with many companies in those markets that have substantially greater resources,
including greater name recognition, a larger installed base of products and
longer standing customer relationships. In order to remain competitive, the
Company must maintain a high level of investment in research and development,
marketing, and customer service and support. There can be no assurance that the
Company will be able to compete successfully in the laser, semiconductor capital
equipment, CATV or telecommunications industries in the future, that the Company
will have sufficient resources to continue to make such investments, that the
Company will be able to make the technological advances necessary to maintain
its competitive position or that its products will receive market acceptance.
The semiconductor capital equipment market is frequently affected by new product
introductions and new technologies that make existing production and inspection
equipment obsolete. There can be no assurance that others will not introduce
products which compete with the Ultrapointe System or which render the
Ultrapointe System obsolete or uncompetitive based on existing or new
technologies. In addition, there can be no assurance that technological changes
or development efforts by the Company's competitors will not render the
Company's products or technologies obsolete or uncompetitive.
DEPENDENCE ON KEY OEM RELATIONSHIPS
In November 1995, the Company entered into an exclusive OEM resale
agreement with Tencor pursuant to which Tencor will distribute Ultrapointe
Systems through its worldwide distribution channels. As a result of such
agreement, the Company currently expects that Tencor will account for a majority
of Ultrapointe's net sales for the foreseeable future. In addition, one laser
subsystems customer, the Applied Biosystems Division of Perkin-Elmer
Corporation, accounted for approximately 12%, 12% and 12% of the Company's net
sales for fiscal years 1996, 1995, and 1994, respectively. The loss of orders
from these or other OEM relationships could have a materially adverse effect on
the Company's business and operating results.
ATTRACT AND RETAIN KEY PERSONNEL
The future success of the Company is dependent, in part, on its ability to
attract and retain certain key personnel. In particular, the Company's research
and development efforts are dependent on the Company being able to hire and
retain engineering staff with the requisite qualifications. Competition in
recruiting highly skilled engineering personnel is extremely intense, and the
Company is currently experiencing substantial difficulty in identifying and
hiring certain qualified engineering personnel in many areas of its business. No
assurance can be given that the Company will be able to successfully hire such
personnel at the compensation levels that are consistent with the Company's
existing compensation and salary structure. The Company's future success will
also depend to a large extent on the continued contributions of its executive
officers and other key management and technical personnel, none of whom has an
employment agreement with the Company and each of whom would be difficult to
replace. The Company maintains a key person life insurance policy on its Chief
Executive Officer, but it does not maintain such insurance on any other persons.
The loss of the services of one or more of the Company's executive officers or
key personnel or the inability to continue to attract qualified personnel could
delay product development cycles or otherwise have a material adverse effect on
the Company's business and operating results.
CONFLICTING PATENTS AND INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES; POTENTIAL
INFRINGEMENT CLAIMS
The laser, semiconductor capital equipment, CATV and telecommunications
industries in which the Company sells its products are characterized by frequent
litigation regarding patent and other intellectual property rights. Numerous
patents in these industries are held by others, including academic institutions
and competitors of the Company. Such patents could inhibit the Company's ability
to develop new products for such markets. From time to time, the Company has
received notices claiming that it has infringed third-party
17
<PAGE> 19
patents or other intellectual property rights. While in the past licenses
generally have been available to the Company were third-party technology was
necessary or useful for the development or production of the Company's products,
there can be no assurance that licenses to third-party technology will be
available on commercially reasonable terms, if at all. Generally, a license, if
granted, would include payments by the Company of up-front fees, ongoing
royalties or a combination thereof. There can be no assurance that such royalty
or other terms would not have a significant adverse impact on the Company's
operating results. The Company is a licensee of a number of third party
technologies and intellectual property rights and is required to pay royalties
to these third party licensors on certain of its products. During fiscal 1996
and 1995, the Company expensed approximately $1.3 million and $1.2 million,
respectively, in license and royalty fees primarily in connection with its gas
laser subsystems. In addition, there can be no assurance that third parties will
not assert claims against the Company with respect to the Company's existing
products or with respect to future products under development by the Company. In
the event of litigation to determine the validity of any third-party claims,
such litigation could result in significant expense to the Company and divert
the efforts of the Company's technical and management personnel, whether or not
such litigation is determined in favor of the Company. In the event of an
adverse result in any such litigation, the Company could be required to expend
significant resources to develop non-infringing technology or to obtain licenses
to the technology which is the subject of litigation. There can be no assurance
that the Company would be successful in such development or that any such
licenses would be available to the Company. In the absence of such a license,
the Company could be enjoined from future sales of the infringing product or
products. In fiscal years 1992 and 1993, the Company incurred substantial legal
expenses in connection with a patent infringement action relating to the
Company's current gas laser subsystems brought by Spectra-Physics Lasers, Inc.
("Spectra-Physics"). While the Spectra-Physics case has since been settled, no
assurance can be given that, in the future, the Company will be able to avoid
similar actions by competitors or others or that the Company will not be forced
to initiate its own actions to protect its proprietary position
LIMITED PROTECTION OF INTELLECTUAL PROPERTY
The Company's future success depends in part upon its intellectual
property, including trade secrets, know-how and continuing technological
innovation. There can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not develop competitive technologies or products. The
Company currently holds 30 U.S. patents on products or processes and certain
corresponding foreign patents and has applications for certain patents currently
pending. While three patents have been issued with respect to the Company's
Ultrapointe Systems, no assurance can be given that competitors will not
successfully challenge the validity of these patents or design products that
avoid infringement of the Company's proprietary rights with respect to its
Ultrapointe Systems. There can be no assurance that other companies are not
investigating or developing other technologies that are similar to the
Company's, that any patents will issue from any application pending or filed by
the Company or that, if patents do issue, the claims allowed will be
sufficiently broad to deter or prohibit others from marketing similar products.
In addition, there can be no assurance that any patents issued to the Company
will not be challenged, invalidated or circumvented, or that the rights
thereunder will provide a competitive advantage to the Company. Further, the
laws of certain territories in which the Company's products are or may be
developed, manufactured or sold, including Asia, Europe or Latin America, may
not protect the Company's' products and intellectual property rights to the same
extent as the laws of the United States.
DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERS
Various components included in the manufacture of the Company's products
are currently obtained from single or limited source suppliers. A disruption or
loss of supplies from these companies or an increase in price of these
components would have a material adverse effect on the Company's results of
operations, product quality and customer relationships. For example, the Company
obtains all the robotics, workstations and many optical components used in its
Ultrapointe Systems from Equipe Technologies, Silicon Graphics, Inc., and
Olympus Corporation, respectively. The Company currently utilizes a sole source
for the crystal semiconductor chip sets incorporated in the Company's solid
state microlaser products and acquires its pump diodes for use in its solid
state laser products from SDL, Inc., Opto Power Corporation and GEC. The Company
also
18
<PAGE> 20
obtains lithium niobate wafers and specialized fiber components used in its UTP
products primarily from Crystal Technology, Inc. and Fujikura, Ltd.,
respectively. The Company does not have long-term or volume purchase agreements
with any of these suppliers, and no assurance can be given that these components
will be available in the quantities required by the Company, if at all. Further,
UTP depends on relatively specialized components and it cannot be assured that
its respective suppliers will be able to continue to meet UTP's requirements
DIFFICULTIES IN MANUFACTURE OF THE COMPANY'S PRODUCTS
The manufacture of the Company's products involves highly complex and
precise processes, requiring production in highly controlled and clean
environments. Changes in the Company's or its suppliers' manufacturing process
or the inadvertent use of defective or contaminated materials by the Company or
its suppliers could adversely affect the Company's ability to achieve acceptable
manufacturing yields and product reliability. In addition, UTP has previously
experienced certain manufacturing yield problems that have materially and
adversely affected both UTP's ability to deliver products in a timely manner to
its customers and its operating results. The Company recently began
manufacturing UTP products at its newly constructed clean room at UTP's
Bloomfield, Connecticut facility and in May 1996 vacated the clean room space
leased from UTP's former parent corporation. No assurance can be given that the
Company will be successful in manufacturing UTP products in the future at
performance or cost levels necessary to meet its customer needs, if at all. In
addition, UTP established a new transmitter production facility in Chalfont,
Pennsylvania in March 1996 and consolidated the transmitter production line
previously located in Bloomfield, Connecticut into this facility in April 1996.
The Company has no assurance that this facility will be able to deliver the
planned production qualities of transmitters to customers specifications at the
cost and yield levels required. To the extent the Company or UTP does not
achieve and maintain yields or product reliability, the Company's operating
results and customer relationships will be adversely affected.
FUTURE CAPITAL REQUIREMENTS
The Company is devoting substantial resources to the development of new
products for the solid state laser, semiconductor capital equipment, CATV and
telecommunications markets. Although the Company believes existing cash
balances, cash flow from operations and available lines of credit, will be
sufficient to meet its capital requirements at least through the end of calendar
year 1997, the Company may be required to seek additional equity or debt
financing to compete effectively in these markets. The timing and amount of such
capital requirements cannot be precisely determined at this time and will depend
on several factors, including the Company's acquisitions and the demand for the
Company's products and products under development. There can be no assurance
that such additional financing will be available when needed, or, if available,
will be on terms satisfactory to the Company.
VOLATILITY OF COMMON STOCK PRICE
The market price of the Company's Common Stock has recently been and is
likely to continue to be highly volatile and significantly affected by factors
such as fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
governmental regulatory action, developments with respect to patents or
proprietary rights, general market conditions and other factors. Further, the
Company's net sales or operating results in future quarters may be below the
expectations of public market securities analysts and investors. In such event,
the price of the Company's Common Stock would likely decline, perhaps
substantially. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales accounted for approximately 24.3%, 30.3% and 28.2% of
the Company's net sales in fiscal years 1996, 1995 and 1994, respectively, and
the Company expects that international sales will continue to account for a
significant portion of the Company's net sales. The Company may continue to
expand its
19
<PAGE> 21
operations outside of the United States and to enter additional international
markets, both of which will require significant management attention and
financial resources. International sales are subject to inherent risks,
including unexpected changes in regulatory requirements, tariffs, and other
trade barriers, political and economic instability in foreign markets,
difficulties in staffing and management and integration of foreign operations,
longer payment cycles, greater difficulty in accounts receivable collection,
currency fluctuations and potentially adverse tax consequences. Since
substantially all of the Company's foreign sales are denominated in US dollars,
the Company's products may also become less price competitive in countries in
which local currencies decline in value relative to the US dollar. The Company's
business and operating results may also be materially and adversely affected by
lower sales levels which typically occur during the summer months in Europe and
certain other overseas markets. Furthermore, the sales of many of the Company's
OEM customers are dependent on international sales and, consequently, this
further exposes the Company to the risks associated with such international
sales.
ISSUANCE OF PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW
The Board of Directors has the authority to issue up to 1,000,000 shares of
undesignated Preferred Stock and to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any wholly unissued shares of undesignated Preferred Stock and to fix the number
of shares constituting any series and the designation of such series, without
any further vote or action by the Company's stockholders. The Preferred Stock
could be issued with voting, liquidation, dividend and other rights superior to
those of the holders of Common Stock. The issuance of Preferred Stock under
certain circumstances could have the effect of delaying, deferring or preventing
a change in control of the Company.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law prohibiting publicly-held Delaware corporations from
engaging in business combinations with certain stockholders for a specified
period of time without the approval of substantially all of its outstanding
voting stock. Such provisions could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy contest
involving the Company, even if such events could be beneficial, in the short
term, to the interests of the stockholders. In addition, such provisions could
limit the price that certain investors might be willing to pay in the future for
shares of the Company' Common Stock. The Company's Certificate of Incorporation
and Bylaws contain provisions related to the limitations of liability and
indemnification of its directors and officers, dividing its Board of Directors
into three classes of directors serving three-year terms and providing that its
stockholders can take action only a duly called annual or special meeting of
stockholders. These provisions also may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company.
ITEM 2. PROPERTIES
On February 8, 1996, the Company acquired two properties in San Jose,
California, totaling 109,000 square feet, which included land, buildings and
improvements, for an aggregate purchase price of approximately $11.0 million.
One of the properties is the Company's current principal facility previously
occupied under an operating lease which would have expired in August 1998. The
Company has expanded certain of its operations into the additional building. The
Company's principal sales, marketing, technical support, administration, and
research and development operations as well as manufacturing operations for the
argon laser and Ultrapointe products occupy these facilities. The Company is
currently leasing unused space to a tenant.
The Company's manufacturing facilities for its He-Ne laser products occupy
a 20,000 square foot building in Manteca, California. The building is leased
through September 1998. The Company's facilities for its telecommunications
equipment products occupy a 33,000 square foot leased building in Bloomfield,
Connecticut, where its modulator products are manufactured and a 18,000 square
foot leased building in Chalfont, Pennsylvania where its transmitter products
are manufactured. UTP Fibreoptics products are manufactured at the Company's
7,000 square foot facility in Witney, United Kingdom and its 5,000 square foot
facility in Batavia, Illinois. Leases for the Bloomfield, Chalfont, Witney and
Batavia facilities expire in July 2002 (with a lease extension available through
2007), February 2001, December 2013, and July 1999,
20
<PAGE> 22
respectively. The Company also maintains sales and service offices in both the
United Kingdom and Germany to support its European operations.
ITEM 3. LEGAL PROCEEDINGS
During fiscal 1996, two former employees commenced wrongful termination
actions against the Company. The Company believes these claims are without merit
and is vigorously defending them. Even if these claims are adjudicated in favor
of the plaintiffs, the Company does not believe that the ultimate resolution of
these matters will have a material adverse impact on the Company or its
operations.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
21
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is included on the inside back cover
and on pages 32 of the Company's 1996 Annual Report to Stockholders and is
incorporated herein by reference. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 2 of Notes to Consolidated Financial Statements
contained in Item 8.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included in the Financial
Highlights for the five years ended June 30, 1996, which appears on page 1 of
the Company's 1996 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is included in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", which appears on pages 11 to 15 of the Company's 1996 Annual Report
to Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is included on pages 16 to 31 of the
Company's 1996 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
22
<PAGE> 24
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE REGISTRANT
The information required by this Item is included in the Proposal One:
Elections of Directors, Directors and Executive Officers, and Section 16(a)
Beneficial Ownership Reporting Compliance sections of the Company's Proxy
Statement to be filed in connection with the Company's 1996 Annual Meeting of
Stockholders and is incorporated hereby by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Executive
Compensation and Related Information sections of the Company's Proxy Statement
to be filed in connection with the Company's 1996 Annual Meeting of Stockholders
and is incorporated hereby by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Security Ownership
of Certain Beneficial Owners and Management section of the Company's Proxy
Statement to be filed in connection with the Company's 1996 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Compensation
Committee Interlocks and Insider Participation and Certain Transactions sections
of the Company's Proxy Statement to be filed in connection with the Company's
1996 Annual Meeting of Stockholders and is incorporated herein by reference.
23
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
The financial statements listed in the accompanying index to financial
statements and financial statement schedules are filed or incorporated by
reference as part of this annual report.
(A)(2) FINANCIAL STATEMENT SCHEDULES
The financial statements listed in the accompanying index to financial
statements and financial statement schedules are filed or incorporated by
reference as part of this annual report.
(A)(3) EXHIBITS
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as a part of this annual report.
(B) REPORTS ON FORM 8-K
During the third quarter of fiscal year 1996, the Company filed the Current
Report on Form 8-K dated February 8, 1996 reported under Item 2, Acquisition or
Disposition of Assets, the Company's acquisition of certain properties from
Tasman-Sterling Associates, a California general partnership.
The Company filed a report on Form 8-K on June 17, 1996, reporting the
purchase of UTP Fibreoptics and including the audited financial statements of
Fiberoptic Alignment Solutions, Inc. and GCA Fibreoptics Limited in accordance
with Rule 3.05 of Regulation S-X and the pro forma financial information
required by Article 11 of Regulation S-X.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
REFERENCE PAGE
----------------------------------
1996 ANNUAL
FORM 10-K REPORT TO STOCKHOLDERS
--------- ----------------------
<S> <C> <C>
Consolidated Balance Sheets -- June 30, 1996 and 1995........... -- 17
Consolidated Statements of Operations -- June 30, 1996, 1995 and
1994.......................................................... -- 16
Consolidated Statement of Cash Flows -- June 30, 1996, 1995 and
1994.......................................................... -- 18
Consolidated Statement of Stockholders' Equity -- June 30, 1996,
1995 and 1994................................................. -- 19
Notes to Consolidated Financial Statements...................... -- 20-31
Report of Ernst & Young LLP, Independent Auditors............... -- 32
Schedule II -- Valuation and Qualifying Accounts -- June 30,
1996, 1995 and 1994........................................... 25 --
</TABLE>
Financial statement schedules have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Company's financial statements set forth in Item 8 of
this Form 10-K and the notes thereto.
24
<PAGE> 26
UNIPHASE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
DESCRIPTIONS OF PERIOD EXPENSES DEDUCTION(1) PERIOD
- ---------------------------------------------- ---------- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30, 1994
Allowance for doubtful accounts............. $ 95 $ 2 $ (3) $100
Year ended June 30, 1995
Allowance for doubtful accounts............. $100 $ 59 $ 5 $164
Year ended June 30, 1996
Allowance for doubtful accounts............. $164 $139 $ 18 $285
</TABLE>
- ---------------
(1) Charges for uncollectible accounts, net of recoveries.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 25, 1996 UNIPHASE CORPORATION
By: /s/ KEVIN N. KALKHOVEN
------------------------------------
Kevin N. Kalkhoven
President, Chief Executive Officer
and
Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kevin N. Kalkhoven and Danny E. Pettit,
and each of them, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ KEVIN N. KALKHOVEN President, Chief Executive September 25, 1996
- ------------------------------------------ Officer and Chairman of the
Kevin N. Kalkhoven Board (Principal Executive
Officer)
/s/ DANNY E. PETTIT Vice President, Finance, Chief September 25, 1996
- ------------------------------------------ Financial Officer and
Danny E. Pettit Secretary (Principal Financial
and Accounting Officer)
/s/ WILLIAM B. BRIDGES Director September 25, 1996
- ------------------------------------------
William B. Bridges
Director
- ------------------------------------------
Robert C. Fink
/s/ CATHERINE P. GOODRICH Director September 25, 1996
- ------------------------------------------
Catherine P. Goodrich
Director
- ------------------------------------------
Stephen C. Johnson
/s/ ANTHONY R. MULLER Director September 25, 1996
- ------------------------------------------
Anthony R. Muller
Director
- ------------------------------------------
Wilson Sibbett, Ph.D.
</TABLE>
26
<PAGE> 28
UNIPHASE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- ---------------------------------------------------------------------------
<S> <C> <C>
2.1(1) -- Purchase and Sale Agreement between Registrant and Tasman-Sterling
Associates, a California general partnership, dated January 30, 1996.
2.2(8) -- Form of Stock Purchase Agreement between Registrant, Fiberoptic Alignment
Solutions, Inc., an Illinois corporation ("FAS"), Uniphase
Telecommunications Products, Inc., a Delaware corporation, and the
shareholders of FAS named therein, and Amendment No. 1 thereto dated as of
May 31, 1996.
2.3(9) -- Form of Agreement between Registrant and GCA Fibreoptics Limited for the
Sale and Purchase of the entire issued shares capital of GCA Fibreoptics
Limited as of May 24, 1996.
3(i)(b)(2) -- Amended and Restated Certificate of Incorporation.
3(ii)(c)(7) -- Bylaws of the Registrant, as amended.
10.1(2) -- Superseding Patent License Agreement, dated June 21, 1989, between Patlex
Corporation and the Registrant.
10.2(2) -- Project Agreement, dated May 15, 1991, among the members of the National
Storage Industry Consortium, as amended July 1, 1993.
10.3(2) -- Agreement, dated December 2, 1991, between Crosfield Electronics Limited
and the Registrant.
10.4(2) -- License Agreement, dated December 18, 1991, between The Regents of
University of California and the Registrant.
10.5(2) -- License Agreement, dated August 2, 1993, between Research Corporation
Technologies, Inc., and the Registrant.
10.6(3) -- 1984 Amended and Restated Stock Plan.
10.7(3) -- 1993 Flexible Stock Incentive Plan.
10.8(3) -- 1993 Amended and Restated Employee Stock Purchase Plan.
10.9(2) -- Patent License Agreement, dated October 29, 1993, by and between the
Registrant and Molecular Dynamics, Inc.
10.10(4) -- Lease Agreement, dated August 23, 1993, between Eastrich No. 101
Corporation and the Registrant, as amended February 1, 1994.
10.11(5) -- Distribution Agreement, dated May 16, 1994, between Metron Semiconductors
Ltd. and the Registrant.
10.12(5) -- License Agreement, May 9, 1994, between I.E. Optomech Ltd. and the
Registrant.
10.13(6) -- Loan and Security Agreement, dated March 15, 1995, between Bank of the West
and the Registrant.
10.14(7) -- Preferred Partner Agreement, dated October 14, 1994, between Tencor
Instruments and the Registrant.
10.15(7) -- Distributor Agreement, dated October 1, 1994, between Innotech Corporation
and the Registrant.
10.16(7) -- Joint Venture Agreement, dated July 24, 1995, between Daniel Guillot and
the Registrant.
10.17(7) -- Amendment, dated July 14, 1995, to Lease, dated November 6, 1984, between
Alexander/Dorothy Scheflo and the Registrant.
10.18(7) -- Laser Technology Sublicense Agreement, dated October 13, 1994, between The
University Court of The University of St. Andrews through I.E. Optomech and
the Registrant.
10.19(7) -- Nonexclusive Sublicense Agreement, dated July 14, 1995, between Coherent,
Inc. and the Registrant.
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ---------- ---------------------------------------------------------------------------
<S> <C> <C>
10.20(7) -- Sublicense Agreement, dated May 26, 1995, between Stanford University and
the Registrant.
10.21(7) -- License Agreement, dated June 8, 1995, between ISOA, Inc. and the
Registrant.
10.22(7) -- Research and Development Contract, dated January 18, 1995, between the
National Institute of Standards and Technology to the Registrant.
10.23(10) -- Joint Venture agreement, dated July 24, 1995, between Daniel Guillot and
the Registrant, as amended October 6, 1995.
10.24(10) -- OEM Agreement, dated November 20, 1995, between the Registrant and Tencor
Instruments.
10.25(10) -- License Agreement, dated November 20, 1995, between the Registrant and
Tencor Instruments.
10.26(11) -- Amended and Restated 1993 Flexible Stock Incentive Plan.
13 -- Portions of the Annual Report to Stockholders for fiscal year ended
December 30, 1995 expressly incorporated by reference herein.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Ernst & Young LLP, independent auditors.
24.1 -- Powers of Attorney. (See Page 26)
27 -- Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibit to the Company's current Report on
Form 8-K filed February 22, 1996.
(2) Incorporated by reference to the exhibits filed with the Registrant's
registration statement on Form S-1, file number 33-68790, which was
declared effective November 17, 1993.
(3) Incorporated by reference to the exhibits filed with the Registrant's
registration statement on Form S-8, file number 33-74716 filed with the
Securities and Exchange Commission on February 1, 1994.
(4) Incorporated by reference to the exhibits filed with the Registrant's
quarterly report on Form 10-Q for the period ended March 31, 1994 filed
with the Securities and Exchange Commission on May 12, 1994.
(5) Incorporated by reference to the exhibits filed with the Registrant's
annual report on Form 10-K for the period ended June 30, 1994.
(6) Incorporated by reference to the exhibits filed with the Registrant's
quarterly report on Form 10-Q for the period ended March 31, 1995.
(7) Incorporated by reference to the exhibit filed with the Registrant's annual
report on Form 10-K for the period ended June 30, 1995.
(8) Incorporated by reference to the exhibit to the Company's Form S-3/A filed
June 7, 1996.
(9) Incorporated by reference to the exhibit to the Company's Post-Effective
Amendment No. 1 to Registration Statement on Form S-3 filed June 20, 1996.
(10) Incorporated by reference to exhibits filed with the Registrant's quarterly
report on Form 10-Q for the period ended December 31, 1995.
(11) Incorporated by reference to exhibits filed with the Registrant's
registration statement on Form S-8, file number 33-31722 filed with the
Securities and Exchange Commission on February 27, 1996.
28
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 1995 1994 1993 1992
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales $ 69,073 $42,282 $32,922 $ 27,314 $26,405
Income (loss) from operations(1)(2)(3) $ 5,429 $ 581 $ 3,247 $ (1,326) $ 1,772
Net income (loss)(1)(2)(3) $ 2,792 $ 735 $ 2,231 $ (798) $ 1,127
Net income (loss) per share(1)(2)(3) $ 0.21 $ 0.07 $ 0.27 $ (0.14) $ 0.19
Shares used in per share calculation 13,577 10,082 8,274 5,510 5,888
-------- ------- ------- -------- -------
OTHER DATA:
Income from operations before infrequent
or unusual items(4) $ 12,909 $ 5,932 $ 2,892 $ 1,055 $ 2,169
-------- ------- ------- -------- -------
CONSOLIDATED BALANCE SHEET DATA:
Working capital $113,443 $17,316 $18,943 $ 5,002 $ 5,642
Total assets 173,824 31,910 26,214 11,785 11,563
Long-term obligations 7,036 221 -- 132 268
Total stockholders' equity 153,205 24,808 21,331 6,731 7,427
</TABLE>
(1) During fiscal years 1992 and 1993, the Company accrued litigation costs of
$397,000 and $2.4 million, respectively, pertaining primarily to a patent
infringement action brought against the Company, and to a lesser extent in
fiscal 1993, for actions against the Company by certain former employees.
The patent infringement action was settled in fiscal 1993. Due to the
settlement of one of the former employee actions in fiscal 1994 at a cost
less than anticipated and the re-evaluation of the potential liability with
respect to the remaining outstanding lawsuit, the Company reversed $355,000
of accrued legal expense in fiscal 1994. In fiscal 1995, such remaining
lawsuit was dismissed.
(2) During fiscal 1995, the Company incurred charges totaling $5.4 million,
primarily for acquired in-process research and development and, to a lesser
extent, for the loss on the sale of the Company's diode laser product line.
The acquired in-process research and development resulted primarily from the
cash purchase of UTP from United Technologies Corporation for a total
purchase price, including acquisition expenses, of $8.7 million. Such
charges reduced net income per share for fiscal 1995 by $0.33.
(3) During fiscal 1996, the Company incurred charges totaling $4.5 million for
acquired in-process research and development related to the acquisition of
UTP Fibreoptics. The Company also incurred an additional $3.0 million of
compensation expense in connection with the cancellation of certain options
of UTP and granted replacement options to purchase Uniphase Common Stock to
UTP employees in order to operate UTP Fibreoptics as a division of UTP.
(4) Other Data is presented as supplemental information and should not be
construed as a substitute, or better indicator of, results of operations
than income from operations or net income determined in accordance with
generally accepted accounting principles.
[A columnar graph of the table below]
<TABLE>
<CAPTION>
92 93 94 95 96
<S> <C> <C> <C> <C> <C>
Sales ($ millions) 26.40 27.31 32.92 42.28 69.07
Net Income (loss) ($ millions) 1.13 (0.8) 2.23 0.74 4.08(5) 2.79 9.11(5)
Net Income (loss) per Share 0.19 (0.14) 0.27 0.07 0.40(5) 0.21 0.67(5)
</TABLE>
(5) Adjusted net income and net income per share for fiscal 1995 and 1996 to
exclude infrequent or unusual items net of income tax effects.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company designs, develops, manufactures and markets laser subsystems,
laser-based semiconductor wafer defect examination and analysis equipment and
fiber optic telecommunications equipment products. The Company's laser division
designs, develops, manufactures and markets laser subsystems for a broad range
of OEM applications which include biotechnology, industrial process control and
measurement, graphics and printing, and semiconductor equipment. In 1992, the
Company established its Ultrapointe subsidiary, which designs, develops,
manufactures and markets advanced laser-based systems for semiconductor wafer
defect examination and analysis and shipped its first Ultrapointe System in
fiscal 1994.
The Company entered the telecommunications and CATV markets when it
acquired UTP in May 1995. UTP designs, develops, manufactures and markets
high-speed external modulators and transmitters for fiber optic networks in the
CATV and long-haul telecommunications industries. The acquisition was accounted
for as a purchase and, accordingly, historical financial information of the
Company includes the results of UTP from the date of the purchase. In May 1996,
the Company acquired UTP Fibreoptics. The total purchase price of $9.1 million
included aggregate consideration of $8.6 million, payable through a combination
of cash and notes, and estimated direct transaction costs of $500,000. UTP
Fibreoptics custom packages laser diodes, LEDs and photodetectors for OEMs for
use in fiber optic networks for local telecommunications and data
communications.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JUNE 30, 1996 1995 1994
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 52.5 57.0 61.0
----- ----- -----
Gross profit 47.5 43.0 39.0
Operating expenses:
Research and development 8.4 8.8 9.3
Royalty and license 1.9 2.8 3.6
Selling, general and administrative 18.4 17.4 17.3
Infrequent or unusual items:
Acquired in-process research
and development 6.5 10.5 --
Compensation expense 4.3 -- --
Loss on sale of product line -- 2.1 --
Litigation -- -- (1.1)
----- ----- -----
Total operating expenses 39.5 41.6 29.1
----- ----- -----
Income from operations 8.0 1.4 9.9
Interest and other income, net 1.9 1.3 0.6
----- ----- -----
Income before income taxes 9.9 2.7 10.5
Income tax expense 5.9 1.0 3.7
----- ----- -----
Net income 4.0% 1.7% 6.8%
===== ===== =====
Other data:
Income from operations before
infrequent or unusual items 18.7% 14.0% 8.8%
</TABLE>
See notes in the "Financial Highlights" section of this report. In the above
table, "other data" is presented as supplemental information and should not be
construed as a substitute for, or better indicator of, results of operations or
net income determined in accordance with generally accepted accounting
principles.
UNIPHASE CORPORATION
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED JUNE 30,
1996, 1995 AND 1994
NET SALES. Net sales for fiscal 1996 were $69.1 million, which represented a
$26.8 million or 63.4 % increase over net sales of $42.3 million in fiscal 1995.
The increase is primarily due to the inclusion of a full year's revenues from
UTP and increased sales of the Company's Ultrapointe Systems which accounted for
$13.9 million and $10.2 million of the increase in net sales, respectively. Net
sales of laser subsystems for fiscal 1996 increased $2.7 million due primarily
to an increase in sales of the Company's argon gas lasers, principally for use
in biotechnology and semiconductor applications, and to a lesser extent solid
state lasers. Together, these sales offset the decline in the sales of the
Company's mature Helium-Neon ("He-Ne") product line principally in the bar code
scanning market. The Company's international sales for fiscal years 1996, 1995
and 1994 accounted for approximately 24.3%, 30.3% and 28.2% of total net sales,
respectively.
Net sales increased $9.4 million or 28.4% to $42.3 million in fiscal 1995
from $32.9 million in fiscal 1994. This increase was primarily attributable to
higher unit volume shipments of the Company's Ultrapointe Systems and its laser
subsystems. Net sales of Ultrapointe Systems increased 214.2% to approximately
$7.4 million in fiscal 1995 from $2.4 million in fiscal 1994. Net sales of the
Company's lasers subsystems increased $3.3 million in fiscal 1995 from fiscal
1994 due primarily to increased sales of the Company's argon gas lasers,
particularly those used in biotechnology and semiconductor applications. This
increase more than offset a decline in sales of certain of the Company's mature
He-Ne gas lasers. In fiscal 1995, the Company's telecommunications products
accounted for net sales of approximately $1.0 million after the May 1995
acquisition of UTP.
GROSS PROFIT. Gross profit increased 80.4% to $32.8 million or 47.5% of net
sales in fiscal 1996 compared with $18.2 million or 43.0% of net sales in fiscal
1995. Gross profit increased in absolute dollars and as a percentage of net
sales in fiscal 1996 primarily due to the addition of the Company's UTP product
line and the increased sales volumes of Ultrapointe Systems, both of which
currently experience higher gross margins than the Company's laser subsystems.
In addition, improved economies of scale resulting from higher production and
purchasing volumes of components in Ultrapointe Systems had a favorable impact
on gross margin. There can be no assurance that these trends will continue and
that the Company will be able to sustain its gross margin at current levels. The
Company expects that there will continue to be periodic fluctuations in its
gross margin resulting from changes in its sales and product mix, competitive
pricing pressures, manufacturing yields, inefficiencies associated with new
product introductions and a variety of other factors. In addition, certain of
UTP Fibreoptics products provide gross margins below those of the Company's
current telecommunications product lines. As sales from UTP Fibreoptics products
grow as a proportion of the Company's total net sales, these sales could have
the effect of modestly reducing the Company's overall gross margins.
Gross profit increased 41.3% to $18.2 million or 43.0% of net sales in
fiscal 1995 from $12.9 million or 39.0% of net sales in fiscal 1994. Gross
profit increased in absolute dollars and as a percentage of net sales due to
several factors, including the higher sales volume of Ultrapointe Systems, which
carry higher gross margins than the Company's laser subsystems. In addition,
improved economies of scale resulting from higher production and purchasing
volumes of Ultrapointe Systems had a favorable impact on gross margin. The
increasing proportion of higher margin argon gas laser subsystems relative to
lower margin He-Ne gas laser subsystems in the Company's sales mix of its laser
products subsystems also contributed to the improvement in gross margin.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense in fiscal
1996 was $5.8 million or 8.4 % of net sales which represented a $ 2.1 million or
57.1 % increase over fiscal 1995. The increase in research and development
expense was primarily due to the addition of UTP expenses which included
expenditures associated with the development of transmitters, and to a lesser
extent, an increase in Ultrapointe expenditures in support of accelerated ADC
software development. For the year ended June 30, 1996, laser subsystems
experienced a decrease in expenditures primarily due to the sale of the laser
division's diode laser product line in June 1995, the redeployment of certain
engineering support to manufacturing and increased reimbursements on expenses
from a certain cooperative agreement with the federal government. This agreement
is scheduled to end on December 31, 1996. The Company is committed to continuing
its significant research and development expenditures
UNIPHASE CORPORATION
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
and expects that the absolute dollar amount of research and development expense
will increase as it invests in developing new products and in expanding and
enhancing its existing product lines, although such expenses may vary as a
percentage of net sales from year to year.
Research and development expense in fiscal 1995 was $3.7 million or 8.8% of
net sales compared with $3.1 million or 9.3% of net sales in fiscal 1994. The
absolute dollar increase in research and development expense in fiscal 1995 was
primarily attributable to the continued development of solid state lasers and
costs associated with improving and enhancing the Ultrapointe Systems product
line.
ROYALTY AND LICENSE EXPENSE. For fiscal 1996, royalty and license expense
increased $165,000 to $1.3 million from $ 1.2 million in fiscal 1995 and
decreased as a percentage of sales to 1.9 % from 2.8 % in fiscal 1995. The
decrease as a percentage of net sales was due to the increasing proportion of
revenues that the Company derived from Ultrapointe Systems, which bear a lower
royalty rate than laser subsystems, and from royalty-free UTP products.
Royalty and license expense was relatively constant in fiscal 1995 from
1994 and decreased as a percentage of net sales to 2.8% in fiscal 1995 from 3.6%
in fiscal 1994. Royalty expense decreased as a percentage of net sales due in
part to lower royalty rates applicable to higher volume sales and international
sales of gas laser subsystems. Increased sales of Ultrapointe Systems, which
bear a lower royalty rate than laser subsystems, also contributed to the
decrease.
The Company continues to develop its solid state laser technology. There
are numerous patents on solid state laser technologies that are held by others,
including academic institutions and competitors of the Company. Such patents
could inhibit the Company's ability to develop, manufacture and sell products in
this area. A number of the patents are conflicting. If there is conflict between
a competitor's patents or products and those of the Company, it could be very
costly for the Company to enforce its rights in an infringement action or defend
such an action brought by another party. In addition, the Company may need to
obtain license rights to certain patents and may be required to make substantial
payments, including continuing royalties, in exchange for such license rights.
There can be no assurance that licenses to third party technology, if needed,
will be available on commercially reasonable terms, if at all.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. In fiscal 1996, selling, general
and administrative expense was $12.7 million or 18.4% of net sales which
represented a $5.3 million or 72.7% increase over selling, general and
administrative expense of $7.4 million or 17.4% of net sales in fiscal 1995. The
increase was attributable to the addition of UTP expenditures (which included
increased expenditures to support the transmitter product line and the
amortization of acquired intangible assets), sales commissions on increased
sales volume of Ultrapointe Systems, increased staffing levels and increased
selling expenses to support the Company's product lines. The Company expects the
dollar amount of its selling, general and administrative expenditures to
increase in the future, although such expenses may vary as a percentage of net
sales from year to year.
Selling, general and administrative expense in fiscal 1995 was $7.4 million
or 17.4% of net sales compared with $5.7 million or 17.3% of net sales in fiscal
1994. The increase in selling, general and administrative expense in fiscal 1995
resulted from increased staffing levels, selling expenses to support the
Company's laser products and new product introductions, sales commissions on
higher sales volume of Ultrapointe Systems, increased business development,
investor relations and stockholder communications activities. In addition,
during fiscal 1994, it was determined that $300,000 of expense previously
accrued in fiscal 1993 for certain intellectual property matters would not have
to be paid, and, accordingly, such costs were reversed as a credit to selling,
general and administrative expense.
INFREQUENT OR UNUSUAL ITEMS. In fiscal 1996, the Company incurred infrequent or
unusual charges which amounted to $7.5 million or 10.8% of net sales. These
charges consisted of acquired in-process research and development expense and
compensation expense. The acquired in-process research and development expense
was $4.5 million or 6.5% of net sales and was attributable to the Company's
purchase of UTP Fibreoptics from its shareholders in June 1996. The compensation
expense was $3.0 million or 4.3% of net sales and resulted from the cancellation
of certain UTP options and granting of replacement options to purchase Uniphase
Common Stock to UTP employees in order to
UNIPHASE CORPORATION
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
operate UTP Fibreoptics as a division of UTP. Additional compensation expense of
$1.4 million will be recognized over the remaining vesting period of
approximately 3 years. See Note 7 of Notes to Consolidated Financial Statements.
In fiscal 1995, the Company incurred infrequent or unusual charges which
amounted to $5.4 million or 12.6% of net sales. These charges consisted of
acquired in-process research and development expense and loss on sale of a
product line. The acquired in-process research and development expense in fiscal
1995 of $4.5 million or 10.5% of net sales resulted primarily from the Company's
purchase of UTP from United Technologies Corporation in May 1995. In June 1995,
the Company incurred a loss of $891,000 on the sale of its diode laser product
line. As part of the sale agreement, the Company obtained a limited
non-exclusive sublicense to a solid state technology patent at a reduced royalty
rate. The diode laser product line was sold primarily due to the commercial
availability of low-cost diode laser component parts from third party
manufacturers and the determination that these external sources will provide
sufficient supply of the components for the foreseeable future. See Notes 10 and
15 of Notes to Consolidated Financial Statements.
During fiscal 1994, the Company reversed a litigation accrual provided in
the prior fiscal year in the amount of $355,000 due to a settlement of certain
litigation at a cost that was less than anticipated and which led to the
reevaluation of the potential liability of one remaining outstanding lawsuit.
This remaining lawsuit was dismissed in fiscal 1995.
INTEREST AND OTHER INCOME, NET. Interest and other income, net in fiscal 1996
increased to $1.4 million from $550,000 in fiscal 1995 and $212,000 in fiscal
1994. The increase in fiscal 1996 was primarily due to the additional interest
income earned on the net proceeds received from the Company's public offerings
of Common Stock in October 1995 and June 1996 and from the sale of Common Stock
to Tencor in November 1995. The increase in fiscal 1995 was the result of
interest income on investments due to the inclusion of a full year of interest
income on the net proceeds of the initial public offering.
INCOME TAX EXPENSE.The Company's effective tax rate was 59.1% in fiscal 1996 as
compared to 35.0% in fiscal 1995. The Company's effective tax rate in fiscal
1996 would have been approximately 36.3% exclusive of the effect of
non-deductible acquired in-process research and development resulting from the
UTP Fibreoptics stock purchase.
The Company's effective tax rate was 35.0% in fiscal 1995 as compared to
35.5% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company's combined balance of cash, cash equivalents
and investments was $113.7 million. The Company has met its liquidity needs to
date primarily through cash generated from operations and sales of its equity
securities.
Cash generated from operations was $7.8 million in fiscal 1996, compared
with $3.2 million and $1.8 million for fiscal years 1995 and 1994, respectively.
The increase in cash generated from operations is attributable to: the
increase in net income that resulted from a significant increase in net sales,
accounts payable and accrued expenses, and the non-cash charges of $4.5 million
of acquired in-process research and development and $3.0 million of compensation
expense. Together, these increases were partially offset by increases in
accounts receivable and inventories. Accounts receivable increased $6.4 million
in fiscal 1996 when compared to fiscal 1995 primarily due to increased sales
volumes. Inventory levels increased in fiscal 1996 when compared to fiscal 1995
primarily due to increased purchases of components to support increased
production that resulted from higher sales levels, particularly in the UTP and
Ultrapointe product lines.
Cash used in investing activities was $83.5 million in fiscal 1996 compared
with $4.3 million and $12.6 million for fiscal years 1995 and 1994,
respectively. The Company's cash used in investing activities increased
primarily due to the investment of excess cash from the proceeds of sales of
common stock. The Company also made capital expenditures of $17.6 million which
included the acquisition of certain properties in San Jose, California totaling
109,000 square feet, for an aggregate purchase price of $11.0 million, and the
construction of a clean room and production facility in support of UTP's
products. In July 1995, the Company also acquired the remaining outstanding
shares of I.E. Optomech Ltd. In May 1996, the Company acquired UTP Fibreoptics.
The total purchase price of $9.1 million included aggregate consideration of
UNIPHASE CORPORATION
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
$8.6 million, payable through a combination of cash and notes, and estimated
direct transaction costs of $500,000.
In fiscal 1996, the Company completed two underwritten public offering of
shares of Common Stock for net proceeds of approximately $105.5 million. In
November 1995, Tencor agreed to become the exclusive OEM reseller of the
Ultrapointe Systems and the Identifier(TM), the Company's ADC software product,
and in connection therewith acquired 666,000 shares of the Company's Common
Stock for a net purchase price of approximately $12.3 million.
The Company has a $5.0 million revolving line of credit with a bank.
Advances under the line of credit bear interest at the bank's prime rate (8.25%
at June 30, 1996) and are secured by inventories and accounts receivable. There
were no borrowings under the line of credit as of June 30, 1996. Under the terms
of the line of credit agreement, the Company is required to maintain certain
minimum working capital, net worth, profitability levels and other specific
financial ratios. The agreement also prohibits the payment of cash dividends and
contains certain restrictions on the Company's ability to borrow money or
purchase assets or interests in other entities without the prior written consent
of the bank. The line of credit expires on November 1, 1996. The Company intends
to renew its line of credit. See Note 2 of Notes to Consolidated Financial
Statements.
The Company believes that its existing cash balances and investments,
together with cash flow from operations and available lines of credit, will be
sufficient to meet its liquidity and capital spending requirements at least
through the end of calendar year 1997. However, possible acquisitions of
complementary businesses, products or technologies may require additional
financing prior to such time. There can be no assurance that additional
financing will be available when required or, if available, will be on terms
satisfactory to the Company. The Company has no present plans, agreements or
commitments, and is not currently engaged in any negotiation with respect to any
such acquisition.
BUSINESS OUTLOOK
The statements contained in this Annual Report to Stockholders which
express the "belief," "anticipation" or "expectation," as well as other
statements which are not historical fact, and statements as to product
compatibility, design, features, functionality and performance insofar as they
may apply prospectively, are forward looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties including, but not limited to, the Company's recent entry into and
the competitiveness of the telecommunications market, the cyclicality of the
semiconductor industry, the declining market for gas lasers, the management of
growth and the variability of quarterly operating results.
The Company expects to continue to experience growth through increased
levels of operations in its business as a whole, including its recent
acquisitions, although the growth rate of each business may vary significantly.
The Company anticipates that a substantial portion of its growth within the next
year will occur within its telecommunications business, in which the Company had
no experience prior to its acquisition of UTP in May 1995. The Company's success
in increasing sales of its telecommunications products will depend in large part
on factors such as but not limited to the following: the magnitude and timing of
capital spending for fiber optic networks by communications operators, the rate
at which OEMs migrate to the externally modulated products offered by the
Company, industry competition and management's ability to execute timely
increases in production and, manage and integrate multi-site operations. The
market for gas lasers is mature and expected to decline; however, the Company
expects sales of certain of its argon gas laser subsystems to increase in the
next fiscal year, principally for biotechnology applications. The Company also
expects to continue to invest significant resources in solid state technology
which it expects will be the primary laser technology of the future. The Company
is concerned about the current downturn in the semiconductor industry which has
led many semiconductor manufacturers including customers of its Ultrapointe
Systems to delay or cancel expenditures. The Company's current expectation is
that the long-term outlook for its Ultrapointe product line is favorable;
however, for the duration of the downturn, the Company intends to manage its
Ultrapointe business conservatively while continuing to invest in development
programs that enhance its product line including its ADC software product. See
also the risks and uncertainties described in Part I of the Company's Annual
Report on Form 10-K under the headings "Description of Business" and "Risk
Factors" that could cause actual results to differ materially from those
projected.
UNIPHASE CORPORATION
<PAGE> 7
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 1995 1994
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales $ 69,073 $ 42,282 $ 32,922
Cost of sales 36,300 24,113 20,067
-------- -------- --------
Gross profit 32,773 18,169 12,855
Operating expenses:
Research and development 5,828 3,710 3,058
Royalty and license 1,337 1,172 1,212
Selling, general, and administrative 12,699 7,355 5,693
Infrequent or unusual items:
Acquired in-process research and development 4,480 4,460 --
Compensation expense 3,000 -- --
Loss on sale of a product line -- 891 --
Litigation -- -- (355)
-------- -------- --------
Total operating expenses 27,344 17,588 9,608
-------- -------- --------
Income from operations 5,429 581 3,247
Interest income 1,570 487 274
Interest expense (79) (25) (37)
Other income (expense), net (92) 88 (25)
-------- -------- --------
Income before income taxes 6,828 1,131 3,459
Income tax expense 4,036 396 1,228
-------- -------- --------
Net income $ 2,792 $ 735 $ 2,231
======== ======== ========
Net income per share $ 0.21 $ 0.07 $ 0.27
======== ======== ========
Shares used in per share calculation 13,577 10,082 8,274
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
(in thousands, except share and per share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 52,463 $ 2,880
Short-term investments 43,731 4,679
Accounts receivable, less allowances for doubtful accounts of
$285 at June 30, 1996 and $164 at June 30,1995 16,700 8,793
Inventories 10,641 5,478
Deferred income taxes and other current assets 3,491 2,367
--------- -------
Total current assets 127,026 24,197
Long-term investments 17,548 --
Property, plant, and equipment, net 20,305 3,452
Intangible assets 8,894 3,178
Other assets 51 1,083
--------- -------
Total assets $ 173,824 $31,910
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 548 $ --
Accounts payable 5,391 2,249
Accrued payroll and related expenses 3,180 1,965
Other accrued expenses 4,464 2,667
--------- -------
Total current liabilities 13,583 6,881
Notes payable 6,061 --
Deferred income taxes 656 --
Other non-current liabilities 319 221
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $0.001 par value:
1,000,000 shares authorized, none issued and outstanding -- --
Common stock, $0.001 par value
Authorized shares - 20,000,000
Issued and outstanding shares - 16,097,855 at June 30, 1996 and
9,515,604 at June 30, 1995 16 10
Additional paid-in capital 141,354 15,751
Retained earnings 11,750 8,958
Net unrealized loss on securities available-for-sale (18) --
Foreign currency translation adjustment 103 89
--------- -------
Total stockholders' equity 153,205 24,808
--------- -------
Total liabilities and stockholders' equity $ 173,824 $31,910
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1996 1995 1994
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,792 $ 735 $ 2,231
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,081 1,136 946
Acquired in-process research and development 4,480 4,460 --
Stock compensation expense 3,094 -- --
Undistributed earnings affiliate -- (114) --
Increase (decrease) in deferred income taxes, net (1,040) (2,188) 179
Loss on sale of product line -- 891 --
Changes in operating assets and liabilities:
Accounts receivable (6,432) (3,286) (754)
Inventories (4,087) (1,244) (788)
Other current assets (90) (391) (259)
Accounts payable, accrued liabilities
income tax payable and other 6,962 3,221 286
--------- -------- --------
Net cash provided by operating activities 7,760 3,220 1,841
--------- -------- --------
INVESTING ACTIVITIES
Notes receivable from related parties -- -- 133
Purchase of available-for-sale investments (74,326) (10,604) (11,156)
Sale of available-for-sale investments 17,726 17,081 --
Acquisition of UTP Fibreoptics 9,150 -- --
Acquisition of remaining interest in I.E. Optomech Ltd. (237) (12) (528)
Acquisition of net assets of United Technologies Photonics, Inc. -- (8,747) --
Acquisition of licenses -- (600) --
Proceeds from sale of product line -- 375 --
Purchase of property, plant and equipment (17,561) (1,808) (1,065)
Decrease (increase) in other assets 91 17 (3)
--------- -------- --------
Net cash used in investing activities (83,457) (4,298) (12,619)
--------- -------- --------
FINANCING ACTIVITIES
Repayment of notes payable (297) -- --
Issuance of notes payable 6,061 -- --
Repurchase of common stock -- -- (8)
Repayment of stock purchase note -- 18 148
Proceeds from the issuance of common stock other
than in the public offerings 1,704 1,024 299
Proceeds from offering of stock 117,812 -- 11,460
Principal payments on capital lease obligations -- (132) (107)
--------- -------- --------
Net cash provided by financing activities 125,280 910 11,792
--------- -------- --------
Increase (decrease) in cash and cash equivalents 49,583 (168) 1,014
Cash and cash equivalents at beginning of period 2,880 3,048 2,034
--------- -------- --------
Cash and cash equivalents at end of period $ 52,463 $ 2,880 $ 3,048
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
<PAGE> 10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
STOCK
ADDITIONAL PURCHASE
COMMON STOCK PAID-IN NOTE
(in thousands) SHARES AMOUNT CAPITAL RECEIVABLE
------ ------ --------- ----------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 5,158 $ 6 $ 948 $(166)
Repurchase of common stock (6) -- (8) --
Exercise of stock options and
related tax benefits 352 -- 695 --
Common stock issued upon
initial public offering,
net of issuance costs 3,308 2 11,458 --
Repayment of stock
purchase note -- -- -- 148
Net income -- -- -- --
Net unrealized gain on
securities available-for-sale -- -- -- --
Foreign currency
translation adjustment -- -- -- --
------- --- --------- -----
Balance at June 30, 1994 8,812 8 13,093 (18)
Exercise of stock options and
related tax benefits 704 2 2,658 --
Repayment of stock
purchase note -- -- -- 18
Net income -- -- -- --
Net realized loss on
securities available-for-sale -- -- -- --
Foreign currency
translation adjustment -- -- -- --
------- --- --------- -----
Balance at June 30, 1995 9,516 10 15,751 --
Exercise of stock options and
related tax benefits 626 -- 4,703 --
Common stock issued upon
public offerings,
net of issuance costs 5,290 5 105,524 --
Common stock issued to Tencor,
net of issuance costs 666 1 12,282 --
Uniphase Telecommunications
Products stock option
compensation -- -- 3,000 --
Amortization of deferred
compensation -- -- 94 --
Net income -- -- -- --
Net unrealized loss on
securities available-for-sale -- -- -- --
Foreign currency
translation adjustment -- -- -- --
------- --- --------- -----
Balance at June 30, 1996 16,098 $16 $ 141,354 $ --
======= === ========= =====
</TABLE>
<TABLE>
<CAPTION>
NET FOREIGN
UNREALIZED CURRENCY
RETAINED GAIN (LOSS) TRANSLATION
(in thousands) EARNINGS ON SECURITIES ADJUSTMENT TOTAL
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 $ 5,992 $-- $ (49) $ 6,731
Repurchase of common stock -- -- -- (8)
Exercise of stock options and
related tax benefits -- -- -- 695
Common stock issued upon
initial public offering,
net of issuance costs -- -- -- 11,460
Repayment of stock
purchase note -- -- -- 148
Net income 2,231 -- -- 2,231
Net unrealized gain on
securities available-for-sale -- 11 -- 11
Foreign currency
translation adjustment -- -- 63 63
------- ---- ----- ---------
Balance at June 30, 1994 8,223 11 14 21,331
Exercise of stock options and
related tax benefits -- -- -- 2,660
Repayment of stock
purchase note -- -- -- 18
Net income 735 -- -- 735
Net realized loss on
securities available-for-sale -- (11) -- (11)
Foreign currency
translation adjustment -- -- 75 75
------- ---- ----- ---------
Balance at June 30, 1995 8,958 -- 89 24,808
Exercise of stock options and
related tax benefits -- -- -- 4,703
Common stock issued upon
public offerings,
net of issuance costs -- -- -- 105,529
Common stock issued to Tencor,
net of issuance costs -- -- -- 12,283
Uniphase Telecommunications
Products stock option
compensation -- -- -- 3,000
Amortization of deferred
compensation -- -- -- 94
Net income 2,792 -- -- 2,792
Net unrealized loss on
securities available-for-sale -- (18) -- (18)
Foreign currency
translation adjustment -- -- 14 14
------- ---- ----- ---------
Balance at June 30, 1996 $11,750 $(18) $ 103 $ 153,205
======= ==== ===== =========
</TABLE>
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Uniphase Corporation (the "Company" or "Uniphase") designs, develops,
manufactures and markets laser subsystems, laser-based semiconductor wafer
defect examination and analysis equipment and fiber optic telecommunications
equipment products. Uniphase operates manufacturing facilities in the United
States and the United Kingdom. The Company's laser division designs, develops,
manufactures and markets laser subsystems for a broad range of OEM applications,
which include biotechnology, industrial process control and measurement,
graphics and printing and semiconductor equipment. Uniphase's domestic
wholly-owned subsidiary, Ultrapointe Corporation, designs, develops,
manufactures and markets advanced laser-based systems for semiconductor wafer
defect examination and analysis. In May 1994, the Company acquired a 49% equity
position in I.E. Optomech Ltd., an optoelectronics company located in the United
Kingdom. The Company increased its ownership percentage on May 1, 1995 to 51.5%
through an additional equity investment and on July 1, 1995, purchased the
remaining equity interest. In May 1995, Uniphase acquired United Technologies
Photonics, Inc., which designs, develops, manufactures and markets high-speed
external modulators and transmitters for fiber optic networks in the CATV and
long-haul telecommunications industries, and which is being operated as a
wholly-owned Uniphase subsidiary, Uniphase Telecommunications Products, Inc.
("UTP"). At the end of fiscal 1995, the Company sold the net assets of its diode
laser product line, which was previously operated in a Los Angeles facility. In
June 1996, the Company acquired two affiliated companies, GCA Fibreoptics Ltd.
("GCA") and Fiberoptic Alignment Solutions, Inc. ("FAS") which the Company
combined and operates under the name UTP Fibreoptics as a division of UTP. UTP
Fibreoptics custom packages laser diodes, light emitting diodes ("LEDs") and
photodetectors for OEMs for use in fiber optic networks. Uniphase also has
wholly-owned subsidiaries in Germany and the United Kingdom to market and
service its products in Europe.
BASIS OF PRESENTATION
The consolidated financial statements include Uniphase, its wholly-owned
subsidiaries, I.E. Optomech subsequent to obtaining controlling interest on May
1, 1995, UTP and UTP Fibreoptics subsequent to their purchase by the Company in
May 1995 and June 1996, respectively. All significant intercompany accounts and
transactions have been eliminated. Amounts applicable to the minority interest
of I.E. Optomech from May 1, 1995 to July 1, 1995 are insignificant.
UNIPHASE CORPORATION
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CASH, CASH EQUIVALENTS, AND SHORT-TERM AND LONG-TERM INVESTMENTS
Uniphase considers all liquid investments with maturities of ninety days or
less when purchased to be cash equivalents. The Company's short-term investments
have maturities of one year or less and long-term investments have maturities of
over one year. The Company's securities are classified as available-for-sale and
are recorded at fair value. Fair value is based upon quoted market prices on the
last day of the fiscal year. The cost of debt securities sold is based on the
specific identification method. Unrealized gains and losses are reported as a
separate component of stockholders' equity. Gross realized gains and losses are
included in interest income and have not been material. The Company's
investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(in thousands) -------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Floating rate bonds $ 15,660 $-- $ -- $ 15,660
Municipal bonds 56,114 28 46 56,096
Auction instruments 25,839 -- -- 25,839
Money market instruments 13,474 -- -- 13,474
-------- --- -------- --------
$111,087 $28 $ 46 $111,069
======== === ======== ========
Included in cash and cash equivalents $ 49,790 $-- $ -- $ 49,790
Included in short-term investments 43,745 9 23 43,731
Included in long-term investments 17,552 19 23 17,548
-------- --- -------- --------
$111,087 $28 $ 46 $111,069
======== === ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1995 GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(in thousands) ------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Auction instruments $3,000 $ -- $ -- $3,000
Municipal bonds 1,679 -- -- 1,679
Certificate of deposits 1,003 -- -- 1,003
Money market instruments 549 -- -- 549
------ ----- ------ ------
$6,231 $ -- $ -- $6,231
====== ===== ====== ======
Included in cash and cash equivalents $1,552 $ -- $ -- $1,552
Included in short-term investments 4,679 -- -- 4,679
------ ----- ------ ------
$6,231 $ -- $ -- $6,231
====== ===== ====== ======
</TABLE>
UNIPHASE CORPORATION
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market. The components of inventory consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
(in thousands) ------- ------
<S> <C> <C>
Finished goods $ 2,159 $2,043
Work in process 4,382 1,072
Raw materials and purchased parts 4,100 2,363
------- ------
$10,641 $5,478
======= ======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is computed
by the straight-line method over the following estimated useful lives of the
assets: building and improvements, 5 to 40 years; machinery and equipment, 2 to
5 years; furniture, fixtures, and office equipment, 5 years. Leasehold
improvements are amortized by the straight-line method over the shorter of the
estimated useful lives of the assets or the term of the lease. The components of
property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
(in thousands) -------- -------
<S> <C> <C>
Land $ 4,868 $ --
Building and improvements 7,582 --
Machinery and equipment 8,342 4,944
Furniture, fixtures, and office equipment 3,788 2,887
Leasehold improvements 1,439 556
-------- -------
26,019 8,387
Less: accumulated depreciation and amortization (5,714) (4,935)
-------- -------
$ 20,305 $ 3,452
======== =======
</TABLE>
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, short-term
and long-term investments and trade receivables. The Company places its cash
equivalents, short-term and long-term investments with high credit-quality
financial institutions. The Company invests its excess cash primarily in auction
instruments, municipal bonds, floating rate bonds and money market instruments.
The Company has established guidelines relative to credit ratings,
diversification and maturities that seek to maintain safety and liquidity. The
Company sells primarily to customers involved in the application of laser
technology, the manufacture of semiconductors or telecommunications equipment.
The Company performs ongoing credit evaluations of its customers and does not
require collateral. The Company provides reserves for potential credit losses,
and such losses and yearly provisions have not been significant and have been
within management's expectations.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated
using the exchange rate on the balance sheet dates. Revenues and expenses are
translated using average rates of exchange prevailing during the year. The
translation adjustment resulting from this process is shown separately as a
component of stockholders' equity. Foreign currency transaction gains and losses
are not material and are included in the determination of net income.
REVENUE RECOGNITION
Revenue from the sale of products is generally recognized upon shipment.
Revenue on the shipment of Ultrapointe Systems on evaluation is deferred until
customer acceptance. The Company provides for the estimated cost to repair
products under warranty at the time of sale.
UNIPHASE CORPORATION
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenues from UTP's research contracts are recognized on the
percentage-of-completion method, measured by costs incurred to date to estimated
total costs for each contract. Under this method, revenues are recognized as
various stages of research contracts are completed. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined.
The Company is party to certain research and development contracts with
third parties whereby the Company is obligated to spend certain specified
amounts over periods ranging from two to three years on certain research and
development activities and will be reimbursed by the third party participants
for a portion of such expenditures. During fiscal 1996 and 1995, the Company
earned reimbursements of $704,000 and $245,000 in connection with these
contracts which were recorded as credits to research and development expense.
The corresponding amounts during fiscal 1994 were insignificant. At June 30,
1996, a total of approximately $1,578,000 remains to be expended under these
contracts for which the Company will receive reimbursements of approximately
$767,000. The research activities covered by the contracts are complementary to
the Company's own research and development activities. At the end of the
contracts, the Company will own or have access to the technology developed in
connection with the contracts.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from stock options
using the treasury stock method. Since fully diluted earnings per share differs
from primary earnings per share by less than 3%, only primary earnings per share
is shown below. Shares used in the per share computations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------ ------ -----
<S> <C> <C> <C>
Weighted average common shares 12,416 9,108 7,276
Stock options 1,161 974 998
------ ------ -----
Total 13,577 10,082 8,274
====== ====== =====
</TABLE>
STOCK SPLIT
On April 27, 1996, the Company's Board of Directors approved a
two-for-one split of its Common Stock (the "Stock Split") to be effected in the
form of a 100% stock dividend, payable on June 3, 1996 to stockholders of record
on May 20, 1996. All prior period common stock and per share data in these
financial statements and the notes thereto have been adjusted to reflect this
stock split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications, relating to geographic sales information, have
been made to the fiscal 1994 and fiscal 1995 presentation to conform to the
fiscal 1996 presentation.
UNIPHASE CORPORATION
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the first quarter of the fiscal year 1997 and, based on current
circumstances, does not believe the effect of adoption will be material. The
Company is evaluating the impact of the new standard on its financial position,
results of operations, and cash flows, and expects the effect to be immaterial.
In October 1995, the FASB issued Statement No. 123 "Accounting for
Stock-Based Compensation" which also will be effective for the Company's 1996
fiscal year. Statement 123 allows companies which have stock-based compensation
arrangements with employees to adopt a new fair-value basis of accounting for
stock options and other equity instruments, or to continue to apply the existing
accounting rules under APB Opinion 25 "Accounting for Stock Issued to Employees"
but with additional financial statement disclosure. The Company expects to
continue to account for stock-based compensation arrangements under APB Opinion
25 and therefore does not expect Statement 123 to have a material impact on its
financial position, results of operations and cash flows.
2 LINE OF CREDIT
The Company has a $5.0 million revolving bank line of credit that expires
on November 1, 1996. Advances under the line of credit bear interest at the
bank's prime rate (8.25% at June 30, 1996) and are secured by inventories and
accounts receivable. Under the terms of the line of credit agreement, the
Company is required to maintain certain minimum working capital, net worth,
profitability levels and other specific financial ratios. In addition, the
agreement prohibits the payment of cash dividends and contains certain
restrictions on the Company's ability to borrow money or purchase assets or
interests in other entities without the prior written consent of the bank. There
were no borrowings under the line of credit at June 30, 1996. The Company
intends to seek renewal of this line of credit.
Through the acquisition of UTP Fibreoptics, the Company assumed
established lines of credit that are as follows:
GCA maintains approximately $1,500,000 under a revolving line of credit
agreement. Advances under the line of credit bear interest at 2% above the
bank's prime rate (8.00% at June 30, 1996) and are secured by the UK accounts
receivable of GCA. As of June 30, 1996 the outstanding balance was $408,000.
FAS agreed to a $150,000 revolving line of credit agreement. Advances under
the line of credit bear interest at 2% above the bank's prime rate (8.25% at
June 30, 1996) and are secured by all receivables, inventory, property, plant
and equipment, and any cash and non-cash proceeds of any of the foregoing items.
Under the terms of the agreement, the Company is required to maintain certain
debt to tangible net worth ratios and net cash flow related to the long-term
debt. The agreement has been guaranteed by two former significant shareholders
of FAS. As of June 30, 1996 the outstanding balance was $140,000.
UNIPHASE CORPORATION
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 OTHER ACCRUED EXPENSES
The components of other accrued expenses are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
(in thousands) ------ ------
<S> <C> <C>
Income taxes payable $ 807 $ 221
Royalties payable 536 435
Warranty reserve 598 385
Other accrued liabilities 2,523 1,626
------ ------
$4,464 $2,667
====== ======
</TABLE>
4 INCOME TAXES
The expense for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------- ------- ------
<S> <C> <C> <C>
Federal:
Current $ 4,381 $ 1,967 $ 806
Deferred (934) (1,688) 173
------- ------- ------
3,447 279 979
State:
Current 635 550 196
Deferred (130) (500) 6
------- ------- ------
505 50 202
Foreign:
Current 84 67 47
------- ------- ------
Income tax expense $ 4,036 $ 396 $1,228
======= ======= ======
</TABLE>
A reconciliation of the income tax expense at the federal statutory rate to
the income tax expense at the effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------- ------- -------
<S> <C> <C> <C>
Income taxes (benefit) computed
at the federal statutory rate $ 2,321 $ 385 $ 1,176
State taxes, net of federal benefit 333 33 133
Acquired in-process
research and development 1,523 -- --
Tax exempt income (213) -- --
Research, development,
and foreign tax credits -- (15) (132)
Other 72 (7) 51
------- ------- -------
$ 4,036 $ 396 $ 1,228
======= ======= =======
</TABLE>
The components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
(in thousands)
<S> <C> <C>
Deferred tax assets:
State taxes $ 188 $ 186
Inventory reserve 268 234
Vacation accruals 123 128
Deferred compensation 1,168 --
Intangibles and acquired in-process
research and development 1,591 1,760
Warranty reserve 223 139
Diode laser product line write-off -- 257
Other accruals not deductible for tax 268 110
------ ------
Total deferred tax assets 3,829 2,814
Deferred tax liabilities:
Tax over book depreciation -- 19
Interest charge DISC commission 551 613
UTP Fibreoptics intangibles 1,711 --
Other 32 --
------ ------
Total deferred tax liabilities 2,294 632
------ ------
Total net deferred tax assets $1,535 $2,182
====== ======
</TABLE>
UNIPHASE CORPORATION
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company believes that net deferred tax assets are more likely than not
to be realized from the Company's ongoing operations. Thus, no valuation
allowance is deemed necessary. Cumulative undistributed earnings of Uniphase's
foreign subsidiaries were approximately $348,000, $282,000 and $99,000 at June
30, 1996, 1995 and 1994, respectively. These amounts have been permanently
reinvested, and accordingly, no provision for federal and state income taxes has
been provided thereon. The tax benefit associated with exercises of stock
options reduced taxes currently payable by $2,999,000, $1,636,000 and $346,000
for the years ended June 30, 1996, 1995 and 1994, respectively. Such benefits
are credited to additional paid-in capital when realized.
5 LEASE COMMITMENTS
The Company leases manufacturing and office space primarily in Manteca,
California, Bloomfield, Connecticut, Chalfont, Pennsylvania and Witney, United
Kingdom under operating leases expiring at various dates through December 2013
and containing certain renewal options ranging from one to four years. The
Company has the option of terminating two of the lease agreements on December
25, 2003 upon six months written notification.
Future minimum commitments for noncancelable operating leases, which
excludes $221,000 accrued at June 30, 1996 for vacated space upon sale of a
product line, are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
(in thousands)
<C> <C>
1997 $ 694
1998 681
1999 559
2000 533
2001 484
Thereafter 347
------
Total minimum lease payments $3,298
======
</TABLE>
Rental expense for operating leases for the years ended June 30, 1996,
1995 and 1994 amounted to approximately $685,000, $605,000 and $530,000,
respectively.
6 EMPLOYEE BENEFIT PLAN
Uniphase has an employee 401 (k) salary deferral plan, covering all
domestic employees. Employees may make contributions by withholding a percentage
of their salary up to $9,500 per year. Company contributions consist of $0.25
per dollar contributed by employees with at least six months of service. Company
contributions were approximately $215,000, $131,000 and $100,000 for the years
ended June 30, 1996, 1995, and 1994, respectively.
UNIPHASE CORPORATION
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 STOCK OPTION PLANS
As of June 30, 1996, Uniphase has reserved 2,557,000 shares of common
stock for future issuance to employees, directors and consultants under its 1984
Amended and Restated Stock Option Plan (the "1984 Option Plan") and Amended and
Restated 1993 Flexible Stock Incentive Plan (the "1993 Option Plan"). The Board
of Directors has the authority to determine the type of option and the number of
shares subject to option. The exercise price cannot be less than the fair value
at the date of grant. Options generally become exercisable over a four-year
period and, if not exercised, expire from five to ten years from the date of
grant. The following table summarizes option activity through June 30, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------
SHARES AGGREGATE
AVAILABLE NUMBER PRICE EXERCISE
FOR GRANT OF SHARES PER SHARE PRICE
(in thousands, except price per share) --------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Balance at June 30, 1994 600 2,486 $0.46 - $4.63 $ 5,123
Increase in authorized shares 700 -- -- --
Granted (874) 874 $3.88 - $11.57 7,354
Canceled 32 (128) $1.30 - $9.88 (373)
Exercised -- (646) $0.46 - $4.63 (827)
---- ------ -------
Balance at June 30, 1995 458 (2,586) $0.46 - $11.57 11,277
Increase in authorized shares 210 -- -- --
Granted (704) 704 $5.48 - $25.50 7,903
Canceled 78 (246) $0.46 - $18.06 (949)
Exercised -- (529) $0.46 - $9.88 (1,287)
---- ------ -------------- -------
Balance at June 30, 1996 42 2,515 $0.46 - $25.50 $16,944
==== ====== =======
</TABLE>
UNIPHASE CORPORATION
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options for 1,083,000 shares are exercisable as of June 30, 1996.
In fiscal 1995, certain employees of UTP were granted tandem stock options
whereby such employees received options to purchase shares of either Common
Stock of UTP (the "UTP Options") under the UTP 1995 Flexible Stock Incentive
Plan (the "1995 Option Plan") or Common Stock of Uniphase (the "Uniphase
Options") under Uniphase's 1993 Option Plan. Under the tandem option plan
structure, the aggregate value of the UTP Options and the Uniphase Options that
were granted to each optionee are equal. The optionees could exercise either
their UTP Options or Uniphase Options, but not both. When the optionees
exercised their options as to UTP Common Stock, their corresponding Uniphase
Options automatically terminate, and vice versa.
During fiscal 1996, the Company assumed all options to purchase UTP stock
previously issued to UTP employees and granted replacement options to such
employees to purchase stock of the Company. Management believed this decision
was necessary to operate UTP Fibreoptics as a division of UTP. The Company will
incur compensation expense totaling $4,400,000 in connection with such options
granted which were effective May 15, 1996. Of this total $3,000,000, related to
options which have vested to date, has been charged to expense in the fiscal
year ended June 30, 1996. The remaining $1,400,000 will be charged to expense
over the remaining vesting period of approximately three years.
8 EMPLOYEE STOCK PURCHASE PLAN
The Uniphase 1993 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in October 1993 and amended during fiscal 1994. The Company has reserved
400,000 shares of common stock for issuance under the Purchase Plan. The
Purchase Plan, effective February 1, 1994, provides eligible employees with the
opportunity to acquire an ownership interest in Uniphase through participation
in a program of periodic payroll deductions applied at specific intervals to the
purchase of common stock. The Purchase Plan is structured as a qualified
employee stock purchase plan under Section 423 of the amended Internal Revenue
Code of 1986. However, the Purchase Plan is not intended to be a qualified
pension, profit sharing or stock bonus plan under Section 401(a) of the 1986
Code and is not subject to the provisions of the Employee Retirement Income
Security Act of 1974. The Purchase Plan will terminate upon the earlier of
December 31, 1998 or the date on which all shares available for issuance under
the Purchase Plan have been sold. During fiscal 1996, employees purchased 97,176
shares of common stock under the Purchase Plan and 244,974 shares are available
for future issuance.
9 INVESTMENT IN I.E. OPTOMECH LTD.
During fiscal 1994 and 1995, the Company, through a series of
transactions, purchased all of the outstanding common stock of I.E. Optomech
Ltd., a privately held optoelectronics company located in the United Kingdom.
I.E. Optomech develops, manufactures and sells solid state lasers. The purchase
price was not significant to the Company.
10 ACQUISITION OF UNIPHASE TELECOMMUNICATIONS PRODUCTS, INC.
On May 15, 1995, the Company acquired all the net assets of UTP, from
United Technologies Corporation. UTP designs, develops, manufactures and markets
high-speed external modulators and transmitters for fiber optic networks in the
CATV and long-haul telecommunications industries. The total purchase price of
$8,747,000 included a cash payment of $8,050,000 to United Technologies
Corporation and $697,000 for related acquisition expenses. The acquisition has
been accounted for by the purchase method of accounting and accordingly, the
accompanying financial statements include the results of operations of UTP
subsequent to the acquisition date. The fair value of the net assets and
acquired in-process research and development purchased was
UNIPHASE CORPORATION
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$7,975,000. The excess of $772,000 of the acquisition price over such fair value
and the purchased intangible assets are being amortized over estimated useful
lives ranging from 5 to 10 years. Accumulated amortization is approximately
$349,000 at June 30, 1996.
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the acquisition of UTP had occurred at the
beginning of fiscal 1994 and does not purport to be indicative of what would
have occurred had the acquisition been made as of the beginning of fiscal 1994
or of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995 1994
(in thousands, except per share data) ------- -------
<S> <C> <C>
Net sales $46,512 $39,967
Net income $ 222 $ 2,756
Net income per Common Share $ .02 $ .34
</TABLE>
The effects of the UTP acquisition on the 1995 consolidated statement of
cash flows were as follows (in thousands):
<TABLE>
<S> <C>
Working capital acquired $1,215
Property, plant and equipment 1,260
Intangibles and goodwill 2,072
In-process research and development 4,200
------
Total purchase price $8,747
======
</TABLE>
11 ACQUISITION OF UTP FIBREOPTICS
On May 31, 1996, the Company acquired 100% of the outstanding shares of
GCA Fibreoptics Ltd. ("GCA") and Fiberoptic Alignment Solutions, Inc. ("FAS").
GCA and FAS will operate as a division of UTP under the name UTP Fibreoptics.
UTP Fibreoptics custom packages laser diodes, light emitting diodes ("LEDs") and
photodetectors for use in fiber optic networks. The total purchase price of
$9,150,000 consisted of approximately $2,589,000 cash payment, $6,061,000 notes
payable to the former shareholders and an estimated $500,000 in related
acquisition costs. The principal and accumulated interest on the notes is due
and payable in full in August 1997. The notes earn interest at a rate of 6%
compounded annually. Accrued interest expense as of June 30, 1996 was $30,000.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include the
results of operations of UTP Fibreoptics subsequent to the acquisition date. The
purchase included net assets and acquired in-process research and development of
$4,827,000 at fair market value. The excess of $1,913,000 of the acquisition
price over such fair value, the purchased intangible assets and the related
deferred taxes are being amortized over the estimated useful life of 7 years.
The accumulated amortization as of June 30, 1996 is approximately $65,000.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisition of UTP Fibreoptics
had occurred at the beginning of fiscal 1995 and does not purport to be
indicative of what would have occurred had the acquisition been made as of the
beginning of fiscal 1995 or of results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995
(in thousands, except per share data) ------- -------
<S> <C> <C>
Net sales $74,781 $48,104
Net income $ 6,635 $ 1,078
Net income per share $ 0.49 $ 0.11
</TABLE>
The effects of the UTP Fibreoptics acquisition on the 1996 consolidated
statement of cash flows were as follows (in thousands):
<TABLE>
<S> <C>
Working capital acquired $ 609
Property, plant and equipment 924
Intangibles and goodwill, net of deferred taxes 4,323
Other liabilities (1,186)
In-process research and development 4,480
-------
Total purchase price $ 9,150
=======
</TABLE>
UNIPHASE CORPORATION
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12 ACQUISITION OF REAL ESTATE
On February 8, 1996, the Company acquired two properties in San Jose,
California, totaling 109,000 square feet, which includes land and buildings, for
an aggregate purchase price of approximately $11.0 million. One of the
properties is the Company's current principal facility previously occupied under
an operating lease which would have expired in August 1998. The Company's
principal sales, marketing, technical support, administration, and research and
development operations as well as manufacturing operations for the argon laser
and Ultrapointe products occupy these facilities. The Company has agreed to
lease certain unused space to Centigram Communications Corporation (Centigram)
of which an executive officer is also a director of the Company. The Company
received rental income from Centigram of approximately $43,000 as well as a
security deposit of approximately $43,000 in fiscal 1996.
13 PUBLIC OFFERINGS
During the fiscal year 1996, the Company received proceeds, net of
expenses, of approximately $105,529,000 from two follow on public offerings of
5,290,000 shares of common stock.
14 PRIVATE PLACEMENT OF COMMON STOCK
In November 1995, Tencor agreed to become the exclusive OEM reseller of
the Ultrapointe Systems and the Identifier, the Company's ADC software product,
and in connection therewith acquired 666,000 shares of the Company's Common
Stock for a net purchase price of approximately $12.3 million.
15 SALE OF DIODE LASER PRODUCT LINE
The Company sold its diode laser product line for $375,000 in cash on June
30, 1995. The loss on sale of the product line was $891,000. In conjunction with
the sale, the Company also obtained a limited non-exclusive sublicense to a
solid state technology patent at a reduced royalty rate.
16 LITIGATION AND CONTINGENCIES
During fiscal 1994, the Company settled one of two remaining lawsuits
against the Company which had been filed by certain former employees. Due to the
settlement of this lawsuit at a cost which was less than anticipated and the
re-evaluation of the potential liability with respect to the remaining
outstanding lawsuit (which was subsequently dismissed in fiscal 1995), the
Company reversed $355,000 of accrued legal expense. In addition, during fiscal
1994, it was determined that certain costs accrued for in fiscal 1993, with
respect to certain third party patents, would not have to be paid. As a result
of this determination, accrued expenses of $300,000 were reversed in fiscal 1994
as a credit to selling, general and administrative expense.
During fiscal 1996, two former employees commenced wrongful termination
actions against the Company. The Company believes these claims are without merit
and is vigorously defending them. Even if these claims are adjudicated in favor
of the plaintiffs, the Company does not believe that the ultimate resolution of
these matters will have a material adverse impact on the Company or its
operations.
In the ordinary course of business, various lawsuits and claims are filed
against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's financial statements.
UNIPHASE CORPORATION
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17 GEOGRAPHIC AND INDUSTRY SEGMENT INFORMATION
Uniphase operates in two geographic regions: the United States and
Europe. The Company operates in a single industry segment, the design,
manufacture and sale of laser subsystems and laser based products. The
following table shows sales, operating income (loss) and other financial
information by geographic region:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) --------- -------- --------
<S> <C> <C> <C>
Net sales:
United States-domestic $ 53,313 $ 29,456 $ 23,654
United States-export 13,742 10,967 7,872
Europe 8,738 7,100 6,498
Intercompany (5,720) (5,241) (5,102)
--------- -------- --------
Total net sales $ 69,073 $ 42,282 $ 32,922
========= ======== ========
Operating income (loss):
United States $ 4,987 $ 276 $ 3,115
Europe (77) 299 107
Eliminations 519 6 25
--------- -------- --------
Total operating income $ 5,429 $ 581 $ 3,247
========= ======== ========
Identifiable assets:
United States $ 168,095 $ 28,785 $ 24,219
Europe 5,729 3,125 1,995
--------- -------- --------
Total assets $ 173,824 $ 31,910 $ 26,214
========= ======== ========
</TABLE>
Intercompany transfers represent products that are transferred between
geographic areas on a basis intended to reflect as nearly as possible the market
value of the products. Identifiable assets are those assets of the Company that
are identified with the operations of the corresponding geographic area.
One customer purchased both laser subsystems and Ultrapointe Systems and
accounted for a combined 13% of the Company's consolidated net sales in fiscal
1996. One laser subsystem customer accounted for 12%, 12% and 12% of the
Company's consolidated net sales in the years ended June 30, 1996, 1995, and
1994, respectively. In addition, another laser subsystem customer accounted for
10% of the Company's consolidated net sales in the year ended June 30, 1994.
18 SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996 1995 1994
(in thousands) ------ ------ ----
<S> <C> <C> <C>
Cash paid for interest $ 43 $ 11 $ 28
Cash paid for income taxes $1,107 $1,213 $965
</TABLE>
19 QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
(in thousands,
except per share amounts) SEPT 30 DEC 31 MAR 31 JUN 30
------- ------- ------- --------
<S> <C> <C> <C> <C>
Fiscal 1996:
Net sales $12,793 $15,673 $18,876 $ 21,732
Gross profit 5,819 7,363 9,058 10,533
Income (loss) from operations 1,913 2,395 3,692 (2,571)
Net income (loss) 1,216 1,892 2,553 (2,869)(1)
Net income (loss) per share $ 0.12 $ 0.14 $ 0.17 $ (0.20)(1)
Fiscal 1995:
Net sales $ 9,083 $ 9,941 $11,122 $ 12,136
Gross profit 3,835 4,095 4,838 5,401
Income (loss) from operations 990 1,232 1,668 (3,309)
Net income (loss) 697 885 1,124 (1,971)(1)
Net income (loss) per share $ 0.07 $ 0.09 $ 0.11 $ (0.21)(1)
</TABLE>
1 Results in the fourth quarter included infrequent or unusual items. In fiscal
1996, these items included in-process research and development and a
compensation expense related to the acquisition of UTP Fibreoptics. In fiscal
1995, these items included primarily in-process research and development
associated with the acquisition of UTP. Excluding such items, net income for
the fourth quarter ended June 30, 1996 and 1995 would have been approximately
$3.4 million or $0.22 per share and $1.4 million or $0.13 per share,
respectively. This supplemental information should not be construed as a
substitute for, or better indicator of, results of operations or net income
determined in accordance with generally accepted accounting principles.
UNIPHASE CORPORATION
<PAGE> 23
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Uniphase Corporation
We have audited the accompanying consolidated balance sheets of Uniphase
Corporation as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Uniphase
Corporation at June 30, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
San Jose, California
July 30, 1996
COMMON STOCK MARKET PRICE
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED FISCAL 1996 QUARTER ENDED
SEPT 30 DEC 31 MAR 31 JUN 30 SEPT 30 DEC 31 MAR 31 JUN 30
----- ----- ----- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 5 1/2 8 1/8 10 12 1/8 19 1/16 19 21 1/4 35 1/2
Low 3 7/8 5 1/4 6 3/8 8 7/8 10 3/8 12 1/2 14 7/8 18 5/8
</TABLE>
The high and low closing bid prices are as reported on the Nasdaq National
Market during each of the quarters for Uniphase Common Stock. At September 10,
1996, the Company had approximately 54 holders of record of its Common Stock and
16,218,582 shares outstanding. The Company has not paid dividends on its common
stock and does not anticipate paying cash dividends in the foreseeable future.
UNIPHASE CORPORATION
<PAGE> 1
EXHIBIT 21.1
UNIPHASE CORPORATION
SUBSIDIARIES
(ALL 100% OWNED)
Uniphase Ltd.
(Incorporated in the United Kingdom)
Uniphase GmbH
(Incorporated in Germany)
I.E. Optomech Ltd.
(Incorporated in the United Kingdom)
Uniphase Telecommunications Products, Inc.
(Incorporated in Delaware)
Uniphase International (Barbados) Limited
(Incorporated in Barbados)
Uniphase International Limited
(Incorporated in Bermuda)
UTP Fibreoptics Limited
(Incorporated in the United Kingdom)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Uniphase Corporation of our report dated July 30, 1996, included in the
1996 Annual Report to Stockholders of Uniphase Corporation.
Our audits also included the financial statement schedule of Uniphase
Corporation listed in Item 14(a). This schedule is the responsibility of the
company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements pertaining to the Uniphase Corporation 1984 Amended and Restated
Stock Option Plan, the Amended and Restated 1993 Flexible Stock Incentive Plan,
the 1993 Amended and Restated Employee Stock Purchase Plan and the Uniphase
Telecommunications Products, Inc. 1995 Flexible Stock Incentive Plan of our
report dated July 30, 1996, with respect to the consolidated financial
statements incorporated herein by reference in this Annual Report (Form 10-K)
for the year ended June 30, 1996.
/s/ Ernst & Young LLP
San Jose, California
September 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 52,463
<SECURITIES> 43,731
<RECEIVABLES> 16,985
<ALLOWANCES> 285
<INVENTORY> 10,641
<CURRENT-ASSETS> 127,026
<PP&E> 26,019
<DEPRECIATION> 5,714
<TOTAL-ASSETS> 173,824
<CURRENT-LIABILITIES> 13,583
<BONDS> 6,061
0
0
<COMMON> 16
<OTHER-SE> 153,189
<TOTAL-LIABILITY-AND-EQUITY> 173,824
<SALES> 69,073
<TOTAL-REVENUES> 69,073
<CGS> 36,300
<TOTAL-COSTS> 36,300
<OTHER-EXPENSES> 27,344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 6,828
<INCOME-TAX> 4,036
<INCOME-CONTINUING> 2,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,792
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
