UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-22874
Uniphase Corporation
(Exact name of registrant as specified in its charter)
Delaware 94-2579683
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
163 Baypointe Parkway
San Jose, CA 95134
(Address of principal executive offices) (Zip Code)
(408) 434-1800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 9, 1998.
Common Stock $.001 par value 38,737,885
Class Number of Shares
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales.............................. $54,196 $38,473
Cost of sales.......................... 27,375 19,954
--------- ---------
Gross profit......................... 26,821 18,519
--------- ---------
Operating expenses:
Research and development............. 5,382 2,886
Royalty and license.................. 428 485
Selling, general and administrative.. 7,521 6,293
--------- ---------
Total operating expenses............... 13,331 9,664
--------- ---------
Income (loss) from operations.......... 13,490 8,855
Interest and other income, net......... 895 762
--------- ---------
Income (loss) before income taxes.... 14,385 9,617
Income tax expense..................... 4,675 3,414
--------- ---------
Net income (loss)...................... $9,710 $6,203
========= =========
Basic earnings (loss) per share........ $0.25 $0.18
========= =========
Dilutive earnings (loss) per share..... $0.24 $0.17
========= =========
Weighted average common shares
Outstanding.......................... 38,382 34,368
Dilutive effect of stock options
Outstanding.......................... 2,912 2,652
--------- ---------
Weighted average common shares
Outstanding, assuming dilution....... 41,294 37,020
========= =========
</TABLE>
See accompanying notes.
<PAGE>
UNIPHASE CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $30,029 $39,801
Short-term investments............................ 75,627 54,831
Accounts receivable, less allowances for returns
and doubtful accounts of $684 at September 30,
1998 and $550 at June 30, 1998.................. 38,516 40,413
Inventories....................................... 22,988 20,809
Deferred income taxes............................. 4,321 4,321
Other current assets.............................. 3,709 4,850
------------ ------------
Total current assets........................... 175,190 165,025
Property, plant, and equipment, net.................. 64,378 56,533
Intangible assets, including goodwill................ 46,915 43,679
Long-term deferred income taxes and other assets..... 4,221 4,106
------------ ------------
Total assets................................... $290,704 $269,343
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable..................................... $1,916 $ --
Accounts payable.................................. 15,191 14,856
Accrued payroll and related expenses.............. 6,782 7,793
Income taxes payable.............................. 4,550 7,697
Other accrued expenses............................ 11,960 15,430
------------ ------------
Total current liabilities...................... 40,399 45,776
Accrued pension and other non-current liabilities.... 6,505 5,666
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares - 1,000,000
Issued and outstanding shares - 100,000 at
September 30, and June 30, 1998................ -- --
Common stock, $0.001 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 38,658,857
at September 30, 1998 and 38,190,456 at
June 30, 1998.................................. 39 38
Additional paid-in capital........................ 318,142 307,409
Accumulated deficit............................... (78,506) (88,216)
Other stockerholders' equity...................... 4,125 (1,330)
------------ ------------
Total stockholders' equity..................... 243,800 217,901
------------ ------------
Total liabilities and stockholders' equity..... $290,704 $269,343
============ ============
</TABLE>
See accompanying notes.
<PAGE>
UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating activities
Net income (loss).................................... $9,710 $6,203
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation expense and amortization.............. 6,119 1,939
Stock compensation expense......................... 123 262
Change in operating assets and liabilities:
Accounts receivable............................. 1,897 (4,527)
Inventories..................................... (2,179) (556)
Deferred income taxes and other current assets.. 1,142 (255)
Accounts payable, accrued liabilities and
other accrued expenses ....................... (2,586) 6,709
---------- ----------
Net cash provided by operating activities.............. 14,226 9,775
---------- ----------
Investing activities
Purchase of short-term investments................... (75,617) (24,398)
Proceeds from sale of short-term investments......... 55,072 25,922
Acquisition of Chassis Engineering, Inc.............. (112) --
Purchase of property, plant and equipment............ (8,229) (3,667)
Purchase of intellectual property.................... -- (500)
Increase in other assets............................. (116) (59)
---------- ----------
Net cash used in investing activities.................. (29,002) (2,702)
---------- ----------
Financing activities
Repayment of notes payable........................... -- (6,061)
Proceeds from issuance of common stock under
stock option and stock purchase plans.......... 5,004 2,272
---------- ----------
Net cash provided by (used in) financing activities.... 5,004 (3,789)
---------- ----------
Increase (decrease) in cash and cash equivalents....... (9,772) 3,284
Cash and cash equivalents at beginning of period....... 39,801 29,186
---------- ----------
Cash and cash equivalents at end of period............. $30,029 $32,470
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Tax benefits from stock option and stock
purchase plan.................................. $4,527 $4,364
Issuance of notes payable......................... $1,916 $--
</TABLE>
See accompanying notes
<PAGE>
UNIPHASE CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business Activities and Basis of Presentation
The financial information at September 30, 1998 and for the three-
month period ended September 30, 1998 and 1997 is unaudited, but includes
all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of the financial
information set forth herein, in accordance with generally accepted
accounting principles for interim financial information, the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such
information does not include all of the information and footnotes
required by generally accepted accounting principles for annual financial
statements. For further information, refer to the Consolidated Financial
Statements and footnotes thereto included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1998.
The results for the three-month period ended September 30, 1998 may
not be indicative of results for the fiscal year ending June 30, 1999 or
any future period.
Impact of Recently Issued Accounting Standards
The Company has adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income," as of the
first quarter of fiscal 1999. SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components, however
it has no impact on the Company's net income or stockholders' equity.
Comprehensive income consists of accumulated net unrealized gain on
available-for-sale investments and foreign currency translation
adjustments. These components of comprehensive income are included in
other stockholders' equity on the accompanying consolidated balance
sheets.
The components of comprehensive income, net of tax, are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Net income.................................. $9,710 $6,203
Change in unrealized gain on
available-for-sale investments............ 169 27
Change in foreign currency translation...... 3,513 17
--------- ---------
Comprehensive income........................ $13,392 $6,247
========= =========
</TABLE>
In 1997, the Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information" was issued. In 1998, the Statement of Financial Accounting
Standards No. 132 ("SFAS 132"), "Employers' Disclosures about Pensions
and Other Post-retirement Benefits" was issued. The Company is required
to adopt the provisions of SFAS 131 and 132 in fiscal year 1999. These
adoptions are not expected to affect results of operations or financial
position but will require either additional disclosures or modifications
to previous disclosures.
In 1998, the Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging
Activities" was also issued and is effective for fiscal years commencing
after June 15, 1999. The effect of adopting SFAS 133 is currently being
evaluated but is not expected to have a material effect on the Company's
financial position or results of operations.
Income Taxes
The effective tax rate used for the three-month periods ended
September 30, 1998 and 1997 were 32.5% and 35.5%, respectively. The
decrease in the effective tax rate was primarily attributable to an
increase in foreign earnings taxed at a lower rate.
Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September June 30,
30, 1998 1998
---------- ----------
<S> <C> <C>
Raw materials and purchased parts........... $2,409 $2,614
Work in process............................. 15,253 11,302
Finished goods.............................. 5,326 6,893
---------- ----------
$22,988 $20,809
========== ==========
</TABLE>
Earnings per Share
Earnings per share for fiscal 1998 has been restated to reflect the
100% stock dividend paid November 12, 1997.
Litigation and Contingencies
Two former employees have commenced wrongful termination actions
against the Company. Summary judgements and subsequent appeals in both
claims have been issued. 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 material adverse
impact on the Company or its operations.
Acquisition of Chassis Engineering Inc.
In August 1998, the Company acquired certain assets of Chassis
Engineering Inc. ("Chassis") for $70,000 in cash and convertible debt of
$2.73 million. Chassis designs, develops, markets and manufactures
packaging solutions for fiber optic and other high performance
components. The convertible debt is composed of a discounted $1.92
million demand obligation and two performance-based instruments totaling
$800,000 that become due upon achieving certain milestones over the
ensuing 9 to 18 months. The convertible debt bears interest at 5.48% and
the principal can be exchanged for newly issued shares of Uniphase common
stock at a price of $55.083 per share. The convertible debt is secured by
a letter of credit issued against the Company's unused revolving bank
line of credit.
The effects of the Chassis acquisition on the fiscal 1999 interim
consolidated statement of cash flows were as follows (in thousands):
<TABLE>
<S> <C>
Working capital (deficiency) acquired.............. ($41)
Property and equipment............................. 25
Intangibles........................................ 2,044
---------
Net assets acquired................................ $2,028
=========
Convertible debt issued............................ $1,916
Cash paid, including transaction costs............. 112
---------
Total purchase price............................... $2,028
=========
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net Sales
In the first quarter of fiscal 1999, ended September 30, 1998, net
sales were $54.2 million, which represented a $15.7 million or 41%
increase over net sales of $38.5 million reported for the first quarter
of fiscal 1998. The increase in net sales reflected growth in each of the
Company's major product lines except Ultrapointe. The results for the
first quarter of fiscal 1999 include net sales of Uniphase Netherlands
and Uniphase Fiber Components which were acquired on June 9, 1998 and
November 26, 1997, respectively, in transactions accounted for as
purchases. Net sales increased $5.3 million or 11% over the fourth
quarter of fiscal 1998 amount of $48.9 million because of the same
factors. The Company's Ultrapointe division experienced a decrease in
sales during the first quarter of fiscal 1999 of approximately $3.6
million from the prior calendar quarter primarily because of a downturn
in the semiconductor equipment industry. Sales of Ultrapointe systems in
the second quarter of fiscal 1999 are expected to be comparable to or
even below amounts achieved in the first quarter of fiscal 1999. The
Company is contemplating divestiture or discontinuation of its
Ultrapointe division, and either outcome would cause a cessation of
future Ultrapointe sales.
Results for the three-month period ended September 30, 1998 are not
considered indicative of the results to be expected for any future period
or for the entire year.
Gross Profit
In the first quarter of fiscal 1999, the Company's gross profit
increased 45% to $26.8 million or 49% of net sales from $18.5 million or
48% of net sales in the same period of fiscal 1998. Gross profit
increased over the first quarter of fiscal 1998 primarily due to growth
in each of the Company's major telecommunications product lines. The
increase in gross profit as a percent of sales over the first quarter of
fiscal 1998 largely reflects improved gross margins from the Company's
high volume telecommunications products and a $1.4 million reduction in
excess manufacturing-related reserves, offset by the lower gross margin
rates of recently acquired businesses and the effect of lower sales of
the Company's Ultrapointe division.
In the first quarter of fiscal 1999, gross profit increased $5.7
million or 27% over the fourth quarter of fiscal 1998 amount of $21.1
million or 43% of net sales. The increase in gross profit as a percent
of net sales reflects the aforementioned reduction of excess
manufacturing-related reserves, offset by the lower gross margin rates of
recently acquired businesses and the margin impact of lower sales by the
Company's Ultrapointe division. Gross margin in the fourth quarter of
fiscal 1998 was reduced by certain charges for the integration of
Uniphase Netherlands and higher Ultrapointe inventory provisions.
There can be no assurance that the Company will be able to maintain
its gross margins at current levels. In addition, reduced sales of
Ultrapointe systems may continue to have an adverse effect on gross
margin for the remainder of fiscal 1999. The Company expects that there
will continue to be periodic fluctuations in its gross margins resulting
from changes in its sales and product mix, competitive pricing pressures,
higher costs resulting from new production facilities, manufacturing
yields, acquisitions of businesses that may have different margins than
the Company, inefficiencies associated with new product introductions,
and a variety of other factors.
Research and Development
In the first quarter of fiscal 1999, research and development (R&D)
expense was $5.4 million or 10% of net sales which represented a $2.5
million or 86% increase over R&D expense of $2.9 million or 8% of net
sales in the first quarter of fiscal 1998. R&D expense increased $1.1
million or 26% over R&D expense for the fourth quarter of fiscal 1998
which represented 9% of sales. The increases in R&D expenses as a
percentage of net sales over the comparison periods reflect the higher
R&D spending rates of recently acquired operations and certain internal
start-ups.
The Company anticipates that R&D expense will continue to increase
in amounts in future periods, although R&D expense may fluctuate as a
percentage of net sales. In addition, there can be no assurance that
expenditures for R&D will be successful or that improved processes or
commercial products will result from these projects.
Royalty and License
In the first quarter of fiscal 1999, royalty and license expense
was $428,000 as compared to $485,000 in the first quarter of fiscal 1998
and $377,000 in the fourth quarter of fiscal 1998.
The Company continues to develop products in solid state laser,
telecommunications, fiber optic and semiconductor equipment technology
industries. There are numerous patents for these products, some of which
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. A number of the patents in these
industries are conflicting. If there is conflict between a third-party'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.
Selling, General and Administrative
In the first quarter of fiscal 1999, selling, general and
administrative (SG&A) expense was $7.5 million or 14% of net sales, which
represented a $1.2 million or 20% increase over SG&A expense of $6.3
million or 16% of net sales in the first quarter of fiscal 1998. The
decrease in SG&A expense as a percentage of net sales from the first
quarter of the prior year is primarily due to the elimination of the
former UTP headquarters, lower amortization resulting from the write-off
of certain long-lived assets of UTP Fibreoptics in the fourth quarter of
fiscal 1998, a reduction in certain accruals for employee benefit costs
in the first quarter of fiscal 1999, and reduced marketing and overhead
costs of the Ultrapointe division, partially offset by the higher SG&A
expense rates of recently acquired businesses and higher amortization of
intangible assets. SG&A expense decreased $13.9 million or 65% from the
fourth quarter of fiscal 1998 amount of $21.5 million primarily due to
certain reorganization and integration charges recorded in connection
with the acquisition of Uniphase Netherlands in June 1998.
The Company expects the amount of SG&A expenses to increase in the
future, although such expenses may vary as a percentage of net sales in
future periods.
Interest and Other Income, Net
In the first quarter of fiscal 1999, interest and other income, net
was $895,000, which was comparable with interest income of $762,000 and
$981,000 reported in the first and fourth quarters of fiscal 1998,
respectively.
Income Taxes
The effective tax rate used for the first quarter of fiscal 1999
was 32.5% as compared to 35.5% used for the first quarter of fiscal 1998.
The decrease in the effective tax rate was primarily attributable to an
increase in foreign earnings taxed at a lower rate.
Liquidity and Capital Resources
At September 30, 1998 the Company's combined balance of cash, cash
equivalents and short-term investments was $105.7 million. The Company
met its liquidity needs during the first quarter of fiscal 1999 primarily
through cash generated from operating activities of $14.2 million. Cash
provided by operating activities is primarily the result of net income
before depreciation and amortization expense, and lower accounts receivable,
offset in part by increases in inventories and decreases in accounts payable
and accrued expenses.
Cash used in investing activities was $29.0 million in the first
quarter of fiscal 1999. The Company incurred capital expenditures of $8.2
million primarily in facilities improvements and equipment purchases to
expand its manufacturing capacities primarily in its telecommunications
product lines. The Company expects to continue to expand its worldwide
manufacturing capacity, primarily for telecommunication products, by
investing approximately $27.0 million in capital expenditures for the
remainder of fiscal 1999.
The Company generated $5.0 million from financing activities during
the first quarter of fiscal 1999 from the exercise of stock options and
the sale of stock through its employee stock purchase plan. In August
1998, the Company issued $1.9 million of promissory notes in connection
with the acquisition of Chassis Engineering, Inc. (Chassis). The Company
may be obligated to issue incremental notes totaling up to $800,000 based
on certain performance criteria of Chassis over the next 9 to 18 months.
See Notes to Consolidated Financial Statements.
The Company has a $5.0 million revolving line of credit with a
bank. There were no borrowings under the line of credit at September 30,
1998. Advances under the line of credit bear interest at the bank's
prime rate (8.5% at September 30, 1998) and are unsecured. Letters of
credit totaling $2.1 million have been issued for certain foreign
facility leases and the notes issued for the purchase of certain assets
of Chassis that are collateralized by the line of credit. 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. The line
of credit expires on January 28, 1999.
The Company believes that its existing cash balances and short-term
investments, together with cash flow from operating activities and
available line of credit will be sufficient to meet its liquidity and
capital spending requirements at least through the end of fiscal 1999.
However, possible acquisitions of businesses, products or technologies
may require additional financing prior to such time. There can be no
assurance that additional financing would be available when required or,
if available, would be on terms satisfactory to the Company.
Risk Factors
Management of Growth
In fiscal 1998 the Company acquired Uniphase Australia (UFC) and
Uniphase Netherlands (UNL), and in August 1998 acquired certain assets of
Chassis. The Company's ability to manage its growth effectively is dependent
upon its ability to integrate into the Company the acquired entities'
operations, products and personnel, retain key personnel of the acquired
entity and to expand the Company's financial and management controls and
reporting systems and procedures. There can be no assurance that the Company
will be able to successfully manage such growth, and failure to do so could
have a material adverse effect on the Company's business and 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 a limited number of major customers, product mix, competitive
pricing pressures, 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.
The Company's ability to forecast its quarterly operating results
can be affected by factors beyond the Company's control. The Company's
net sales often reflect orders shipped in the same quarter that they are
received. Near the end of a particular quarter, customers may cancel
orders, reschedule shipments or the Company may experience production
difficulties that could delay or reduce shipments. The Company frequently
ships more CATV product in the third month of each quarter than in either
of the first two months of the quarter, and shipments in the third month
generally are higher at the end of the month. This pattern is likely to
continue. The timing of sales of the Company's Ultrapointe Systems may
also result in substantial fluctuations in quarterly operating results
due to the substantially higher per unit prices of these products
relative to the Company's other products. As a result of the above
factors, the Company's results of operations are subject to significant
variability from quarter to quarter.
The acquisition or disposition of other businesses, products or
technologies may also affect the Company's operating results in any
particular quarter. For example, in the second and fourth quarters of
fiscal 1998, the Company incurred charges of $6.6 million and $93.0
million, respectively for acquired in-process research and development in
connection with the acquisitions of UFC and UNL. In the third quarter of
fiscal 1997, the Company incurred charges of $33.3 million for acquired
in-process research and development in connection with the acquisition of
Uniphase Laser Enterprise (ULE). In addition, the Company incurred other
charges in connection with acquisitions consummated in fiscal 1998 and
1997. The Company is contemplating divestiture or discontinuation of its
Ultrapointe division, and either outcome could adversely affect the
Company's net income in future periods. There can be no assurance that
acquisitions or dispositions of businesses, products or technologies by
the Company in the future will not result in reorganization of its
operations, substantial charges or other expenses that may cause
fluctuations in the Company's quarterly operating results and its cash
flows.
Cyclicality of Semiconductor Industry
The Company's Ultrapointe Systems and a portion of its laser
subsystems business 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
products utilizing such devices. The semiconductor industry is highly
cyclical and historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment. The
semiconductor industry continues to experience a downturn and the Company
expects the downturn to continue, which may lead certain of the Company's
customers to delay or cancel purchase of the Company's Ultrapointe
Systems. The Company is contemplating the divestiture of its Ultrapointe
division or discontinuing its operations. Results of operations for
fiscal 1998 include $19.3 million in sales of Ultrapointe products as
compared to $15.4 million in fiscal 1997. There can be no assurance that
the Company's operating results will not be materially and adversely
affected should the Company divest or terminate the operations of
Ultrapointe amidst the current downturn in the semiconductor industry.
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 or that the current backlog of Ultrapointe products will result
in actual sales or that such backlog is indicative of a meaningful trend.
Risks from Customer Concentration
A relatively limited number of OEM customers historically have
accounted for a substantial portion of net sales from telecommunications
products. Sales to any single customer are also subject to significant
variability from quarter to quarter. Such fluctuations could have a
material adverse effect on the Company's business, operating results or
financial condition. The Company expects that sales to a limited number
of customers will continue to account for a high percentage of the net
sales for the foreseeable future. Moreover, there can be no assurance
that current customers will continue to place orders or that the Company
will be able to obtain new orders from new telecommunications customers.
In the first quarter of fiscal 1999, CIENA Corporation and Nortel
Networks accounted for 11% and 10% of net sales, respectively. CIENA
accounted for approximately 12% of the Company's net sales for fiscal
1998. One additional customer, KLA-Tencor Corporation, purchased both
laser subsystems and Ultrapointe systems and accounted for 12% of the
Company's consolidated net sales in fiscal 1998. The loss or delay of
orders from these or other OEM customers could have a materially adverse
effect on the Company's business and operating results.
Year 2000
The Company is aware of the risks associated with the operation of
information technology ("IT") and non-information technology ("non-IT")
systems as the millennium (year 2000) approaches. The "Year 2000" problem
is pervasive and complex, with the possibility to affect many IT and non-
IT systems, and is the result of the rollover of the two digit year value
from "99" to "00". Systems that do not properly recognize such date-
sensitive information could generate erroneous data or fail. In addition
to the Company's own systems the Company relies, directly and indirectly,
on external systems of its customers, suppliers, creditors, financial
organizations, utilities providers and government entities, both domestic
and international (collectively, "Third Parties"). Consequently, the
Company could be affected by disruptions in the operations of Third
Parties with which the Company interacts. Furthermore, the purchasing
frequency and volume of customers or potential customers may be affected
by Year 2000 correction efforts as companies expend significant efforts
to make their current systems Year 2000 compliant.
The Company is using both internal and external resources to assess
(a) the Company's state of readiness (including the readiness of Third
Parties, with which the Company interacts) with respect to the Year 2000
problem, (b) the costs to the Company to correct Year 2000 problems
related to its internal IT and non-IT systems, which, if uncorrected,
could have a material adverse effect on the business, financial condition
or results of operations of the Company, (c) the known risks related to
the consequences of any failure to correct any Year 2000 problems
identified by the Company, and (d) the contingency plans, if any, that
should be adopted by the Company should any identified Year 2000 problems
not be corrected. The Company continues to evaluate the estimated costs
associated with the efforts to prepare for Year 2000 based on actual
experience. While the efforts will involve additional costs, the Company
believes, based on available information, that it will be able to manage
its total Year 2000 transition without any material adverse effect on its
business operations, products or financial prospects. The actual outcomes
and results could be affected by future factors including, but not
limited to, the continued availability of skilled personnel, cost
control, the ability to locate and remediate software code problems,
critical suppliers and subcontractors meeting their commitments to be
Year 2000 compliant, and timely actions by customers. The Company
anticipates that it will remediate all Year 2000 risks and be able to
conduct normal operations without having to establish a Year 2000
contingency plan.
The Company is currently working with the applicable suppliers of
its software systems and anticipates that certain of these systems are
currently not Year 2000 compliant, but anticipates that such systems will
be corrected for the Year 2000 problem prior to December 31, 1999. The
Company is currently working with those Third Parties to identify any
Year 2000 problems affecting such Third Parties that could have a
material adverse affect on the Company's business, financial condition or
results of operations. However, it would be impracticable for the Company
to attempt to address all potential Year 2000 problems of Third Parties
that have been or may in the future be identified. Specifically, Year
2000 problems have been or may in the future be identified with respect
to the IT and non-IT systems of Third Parties having widespread national
and international interactions with persons and entities generally (for
example, certain IT and non-IT Systems of governmental agencies,
utilities and information and financial networks) that, if uncorrected,
could have a material adverse impact on the Company's business, financial
condition or results of operations. The Company is still assessing the
effect the Year 2000 problem will have on its suppliers and, at this
time, cannot determine such impact.
Euro Currency
On January 1, 1999, several member countries of the European Union
will establish fixed conversion rates between their existing sovereign
currencies and adopt the Euro as their new common legal currency. As of
that date, the Euro will trade on currency exchanges and the legacy
currencies will remain legal tender in the participating countries for a
transition period between January 1999 and January 1, 2002. During the
transition period, noncash payments can be made in the Euro, and parties
can elect to pay for goods and services and transact business using
either the Euro or a legacy currency. Between January 1, 2002 and July 1,
2002 the participating countries will introduce Euro notes and coins and
withdraw all legacy currencies so that they will no longer be available.
The Euro conversion may affect cross-border competition by creating
cross-border price transparency. The Company is assessing its
pricing/marketing strategy in order to insure that it remains competitive
in a broader European market. The Company is also assessing its
information technology systems to allow for transactions to take place in
both the legacy currencies and the Euro and the eventual elimination of
the legacy currencies, and reviewing whether certain existing contracts
will need to be modified. The Company's currency risk and risk management
for operations in participating countries may be reduced as the legacy
currencies are converted to the Euro. Final accounting, tax and
governmental legal and regulatory guidance is not available. The Company
will continue to evaluate issues involving introduction of the Euro.
Based on current information and the Company's current assessment, it
does not expect that the Euro conversion will have a material adverse
effect on its business or financial condition.
The statements contained in this Report on Form 10-Q 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. Such forward-looking statements include, but are
not limited to, statements regarding the Company's expectations,
anticipations, hopes, beliefs, intentions or strategies regarding the
future, such as statements relating to the possible divestiture or
discontinuation of the Ultrapointe division, future anticipated R&D
expenses of the Company, expectations as to the continual downturn of the
semiconductor industry and expectations as to sales to a limited number
of customers continuing to account for a high percentage of the Company's
sales. Actual results could differ materially from those projected in
any forward-looking statements as a result of a change in the Company's
policies or current intentions, as well as a number of other factors,
including those detailed in the "Risk Factors" portion as well as those
set forth from time to time in the Company's Reports on Form 10-K, 10-Q
and Annual Reports to Stockholders. 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.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. Legal Proceedings, in the Registrant's
Annual Report on Form 10-K for the year ended June 30, 1998 and Part II,
Item 1.
Item 2. Changes in Securities
In August 1998, the Company acquired certain assets of Chassis for
$70,000 in cash and $2.73 million of convertible debt. Such convertible
debt was issued pursuant to an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended. The convertible debt is
composed of a discounted $1.92 million demand obligation and two
performance-based instruments totaling $800,000 that become due upon
achieving certain milestones over the ensuing 9 to 18 months. The
convertible debt bears interest at 5.48% and the principal can be
exchanged for newly issued shares of Uniphase common stock at a price of
$55.083 per share. The convertible debt is secured by a letter of credit
issued against the Company's revolving bank line of credit.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended September 30, 1998, no matters were
submitted for stockholders' vote.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule
b) Reports on Form 8-K
The Company filed reports on form 8-K/A on August 24, 1998 and form
8-K/A Amendment 1 on August 25, 1998 reporting the purchase of Uniphase
Netherlands B.V. and including the audited financial statements of
Philips Optoelectronics, B.V., a division of Koninklijke Philips
Electronics, N.V. in accordance with Rule 3.05 of Regulation S-X and the
pro forma financial information required by Article 11 of Regulation S-X.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Uniphase Corporation
---------------------------------------------
(Registrant)
Date November 12, 1998 \s\ Anthony R. Muller
------------------- ---------------------------------------------
Anthony R. Muller,
Senior Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM CONDENSED CONSOLIDATED BALANCE SHEETS,
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 30,029
<SECURITIES> 75,627
<RECEIVABLES> 39,200
<ALLOWANCES> 684
<INVENTORY> 22,988
<CURRENT-ASSETS> 175,190
<PP&E> 64,378
<DEPRECIATION> 0
<TOTAL-ASSETS> 290,704
<CURRENT-LIABILITIES> 40,399
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 243,761
<TOTAL-LIABILITY-AND-EQUITY> 290,704
<SALES> 54,196
<TOTAL-REVENUES> 54,196
<CGS> 27,375
<TOTAL-COSTS> 27,375
<OTHER-EXPENSES> 13,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,385
<INCOME-TAX> 4,675
<INCOME-CONTINUING> 9,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,710
<EPS-PRIMARY> $0.25
<EPS-DILUTED> $0.24
</TABLE>
