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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 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
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UNIPHASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 163 BAYPOINTE PKWY, SAN JOSE, CA 95134 94-2579683
(STATE OR OTHER (ADDRESS OF PRINCIPAL (ZIP CODE) (I.R.S. EMPLOYER
JURISDICTION OF EXECUTIVE OFFICES) IDENTIFICATION
INCORPORATION OR NO.)
ORGANIZATION)
Registrant's telephone number, including area code (408) 434-1800
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------- ------------------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 11, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $1,248,093,559 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 11, 1998, the Registrant had 38,647,120 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE (To the Extent Indicated Herein)
Portions of registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders (Part III)
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<PAGE>
PART I
Item 1. Business
General
Uniphase Corporation (the "Company" or "Uniphase") was formed
as a Delaware corporation in October, 1993. The Company designs,
develops, manufactures and markets components and modules for fiber
optic telecommunications and cable television (CATV) systems, laser
subsystems, and laser-based semiconductor wafer defect examination and
analysis equipment. The Company's telecommunications and CATV
divisions design, develop, manufacture and market semiconductor
lasers, high-speed external modulators, transmitters and other
components for fiber optic networks in the telecommunications and CATV
industries. 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.
The Company's Ultrapointe subsidiary designs, develops, manufactures
and markets advanced laser-based systems for semiconductor wafer
defect examination and analysis.
The Company entered the telecommunications market in May 1995.
Currently, the Company's portfolio of telecommunications products
includes those produced by Uniphase Telecommunications Products ("UTP"),
UTP Fibreoptics ("UFP"), Uniphase Laser Enterprise ("ULE"), Uniphase
Network Components ("UNC"), Uniphase Fiber Components ("UFC"),
Uniphase Netherlands ("UNBV") and Chassis Engineering, Inc. ("Chassis").
The following table summarizes the Company's investment in the
telecommunications, cable television and data communications markets
through continued development of photonic technology and acquisitions.
<TABLE>
<CAPTION>
Date Entity Location Source Products
- -------------- ------------ --------------- ------------- -----------------------------------
<S> <S> <S> <S> <S>
August 1998 UTP-Chassis Massachusetts Acquisition Component packaging
June 1998 UNBV Netherlands Acquisition Source lasers for
telecommunications,
CATV and multimedia,
External modulators,
Optical amplifiers
January 1998 UNC California Start-up Grating-based network modules
November 1997 UFC Australia Acquisition Fiber Bragg gratings
March 1997 ULE Switzerland Acquisition Pump lasers of optical amplifiers
July 1996 UTP-TSD Pennsylvania Start-up CATV transmitters, amplifiers
May 1996 UFP United Kingdom Acquisition Laser packaging for data
and telecommunications
May 1995 UTP-EPD Connecticut Acquisition External modulators
</TABLE>
Industry segment financial data can be found in Note 10 of Notes to
Consolidated Financial Statements.
Company Strategy
Uniphase's strategy is to leverage its expertise in optoelectronics
to become the leading merchant supplier of modules and components for
optical networking systems. The Company believes its customers are
constantly reducing the number of suppliers for components in their
optical networks, and its ability to offer a catalog of optical
components to customers is a strategic advantage over suppliers of
single-source products. The Company has undertaken a series of internally
funded development programs as well as certain acquisitions in order to
offer a broad portfolio of optical components for telecommunications
system suppliers and integrators. The key elements of Uniphase's business
strategy are as follows:
o Increase Breadth of Product Offerings to Key Customers. The
Company's customers continue to seek both a reduction in the
number of suppliers from which they purchase the components
and other parts for their systems and an increase in the
level of integration in the optoelectronic and optical
products that they purchase from these suppliers. The
Company believes that reductions in the number of suppliers
and the manufacturing steps required at the customer level
enable these customers to better focus their time and
resources on aspects of their business that involve more of
their core competencies and their own competitive advantages
over other system providers. Through both internal
development and acquisition of key technologies and
manufacturing capabilities developed by others, the Company
seeks to position itself as a "one-stop" source of an
increasingly greater variety of components and integrated
solutions for its demanding customer base. The Company
believes that its recent acquisition of Philips
Optoelectronics has positioned the Company with the broadest
portfolio of active optical components in its industry. In
addition, recent introductions of the Company's integrated
laser modulator assembly (ILMA) and wavelocker frequency
locking device for DWDM applications reflect the results of
the Company's internal development efforts to expand the
level of product integration that it makes available to its
customer base.
o 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
telecommunications and laser subsystems products to meet
these specific needs. The Company focuses on selling its
components 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.
o Provide Product Reliability and Bellcore Qualified
Applications. The Company considers its technological
leadership, product leadership and relationships with key
customers to be important competitive factors. The Company
believes one of the barriers to entry in the long-haul, metro
and submarine telecommunications markets is the life-test and
quality control criteria established by Bell Labs, one of the
world's foremost commercial research and development
organizations for communications applications. Uniphase's
research and development efforts continue to focus on the
core technologies critical to the Company's success in
telecommunications, which are high-power pump laser, new
source lasers, optical modules, and passive components
featuring increased reliability that leads to reduced network
costs.
o Enhance global sales organizations for existing and targeted
telecommunications system suppliers. The market for
optoelectronic components in the telecommunications industry
is global and generally fragmented. The Company believes the
current component market for telecommunications devices
includes small, single-product suppliers, module-level
packaging suppliers both with and without component
manufacturing abilities and large multi-national system
integrators with multiple market strategies. Over the past
three years, the Company has invested considerable resources
to market itself as a singly focused supplier of high-quality
optical components for photonic networking applications. The
Company believes its global sales organization with dedicated
teams for its largest customers and targeted system-
integrators which are seeking new or second source component
suppliers in a fragmented market is creating significant new
business opportunities for the Company.
o Seek complementary acquisitions. The telecommunications
industry is experiencing rapid consolidation and realignment
due to globalization, deregulation and rapidly changing
competitive technologies such as fiber optics for CATV,
wireless communications, and the Internet. The Company has
grown in part by acquiring telecommunications businesses and
may continue to do so in the future. While the Company
has no current commitments with respect to any future
acquisitions, the Company frequently evaluates the strategic
opportunities to it and may in the future pursue additional
acquisitions of additional products, technologies or businesses.
Products and Markets
The Company offers optoelectronic products in three principal
product markets: fiber optic modules and components for
telecommunications, laser subsystems and semiconductor capital equipment.
The Company's laser subsystems were the Company's initial product
offering that 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. Since May 1995, the
Company has undertaken a series of strategic initiatives to position
itself as a full-line merchant supplier of optical modules and components
for fiber optic telecommunication systems.
The following table sets forth the Company's net sales by product family
in fiscal 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30,
--------------------------------
Product Markets 1998 1997 1996
- ----------------------------------------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Telecommunications Components........ $110,228 $51,706 $14,924
Laser Subsystems..................... 46,282 39,894 36,565
Semiconductor Capital Equipment...... 19,291 15,366 17,584
---------- ---------- ----------
$175,801 $106,966 $69,073
========== ========== ==========
</TABLE>
Telecommunications Components
Fiber optic networks are gaining widespread acceptance in new and
upgraded telecommunications and CATV systems worldwide. The use of fiber
optic cable results in substantially 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 key enablers of the expansion to fiber optic systems has been
advancements in photonic components and system capacity enhancements such
as wave division multiplexing (WDM) transmission techniques. The key
components include discreet devices such as laser diodes, modulators, and
optical modules (subassemblies) such as transmitters and optical
amplifiers. The Company's principal photonic components and modules are
as follows:
o Pump Lasers and Optical Amplifiers. Optical amplifiers are
commonly used in terrestrial and submarine fiber systems that
span more than 150 km and operate in the low-loss 1550nm
wavelength range. Amplifiers are used in high-speed OC-48
and OC-192 WDM systems (up to 40 wavelengths) incorporating
pump lasers at 980nm and 1480nm depending upon the
application. Optical amplifiers are also used in the trunking
(backbone) portion of CATV networks. These trunking lines
are typically 50-100 km in length and operate at 1550nm.
Amplifiers are also being deployed at the distribution
portion of some CATV networks, especially in international
installations.
o External Modulators for Telecommunications and CATV
Transmitters. External modulation is being used by network
system suppliers that are developing transmission hardware
incorporating WDM. WDM is capable of increasing the capacity
of a fiber route up to 40 times without upgrading to more
expensive electronic multiplexing/demultiplexing equipment.
WDM is compatible with the current installed base of most
fiber optic networks to significantly increase the data
carrying capacity of such networks. External modulators are
usually lithium niobate or electro-absorption applications.
External modulators operate at higher laser power than other
forms of modulation 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 optical amplifiers.
o CATV Transmitters. Principal cable television applications
are externally modulated transmitters for trunk-line
applications, directly modulated transmitters for the
distribution portion of CATV network, and return-path lasers
for interactive communications. Externally modulated
transmitters operate at the preferred optical wavelength of
1550nm and incorporate high power pump lasers and modulators
for the transmission of broadcast television signals over
long distances. Directly modulated transmitters are typically
deployed at the neighborhood node of the CATV network using
either 1310nm or a low-cost 1550nm transmitter. Return path
lasers allow cable operators to upgrade existing networks for
two-way communications. 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 service providers for the transmission of
voice, data and video.
o Source Lasers for Telecommunications and CATV Transmitters.
Lasers are the light sources for signals transmitted along
fiber networks at wavelengths of 1310nm or 1550nm. CATV
applications typically utilize 1310 lasers for analog and
hybrid fiber-coaxial (HFC) signal distribution. Both 1550nm
and 1310nm can be modulated externally or directly. External
modulation has enhanced the flexibility and performance of
fiber optic systems through its signal encoding technique of
providing a continuously powered laser light source. This
light output is switched in a separate crystal of lithium
niobate, where the light from the laser travels along
waveguides patterned into lithium niobate crystals and
electrical signals for transmission in the optical fiber.
Direct modulation provides another alternative to modulating
a beam of light. In direct modulation, the light output from a
laser diode is switched on and off to generate a signal. This
frequent switching, however, causes wavelength instability
and limits the power and modulation rate, thereby
constraining the performance of the signal.
o Fiber Bragg Gratings and Modules. Gratings are used to
combine, stabilize or selectively separate optical signals.
Grating-based modules are utilized to isolate signals prior
to reaching an optical amplifier and provide the ability to
add/drop multiple signals for regeneration purposes.
o 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. The Company offers custom packaged optical
sources and detectors for a variety of fiber-based data
communications applications such as single-fiber Ethernet and
Token Ring.
Laser Subsystems 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 heat dissipation elements.
Solid state lasers are smaller, use less power and are expected to
be the primary laser technology in the future as compared to conventional
gas lasers. Current applications for the Company's solid state lasers include
DNA sequencing, direct-to-plate printing, flow cytometry, particle counting,
spectrometry and semiconductor wafer inspection. 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 Helium-Neon gas lasers has
substantially declined as most customers are now using semiconductor
diode lasers to satisfy bar code scanning applications. Through the
acquisition of UNBV, the Company obtained manufacturing capability of a
solid state visible laser used in high-speed printing and certain
multimedia applications.
Semiconductor Capital Equipment Products
Uniphase's Ultrapointe subsidiary supplies wafer defect and review
systems and software for the semiconductor industry. The semiconductor
industry is moving to increasingly smaller and consequently more complex
devices. As dimensions shrink and complexity increases, semiconductors
become more susceptible to damage or loss from correspondingly smaller
defects, which must be detected and the cause resolved for viable yields to
be maintained. The Ultrapointe system examines wafers in conjunction with
another manufacturer's automated inspection system, and is incorporated
into the semiconductor manufacturing process to detect and locate defects
as small as 0.1 micron. The Ultrapointe system's magnification is about
35,000 times, versus about 6,000 times for conventional microscope systems.
Additionally, the optional Identifier software package provides automatic
defect classification (ADC), improving the performance of the Ultrapointe
system.
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. The semiconductor equipment industry that Ultrapointe markets its
products into is currently experiencing a downturn. The Company does not
currently intend to make any further investments into the semiconductor
equipment industry and is contemplating either the divestiture or
discontinuation of its Ultrapointe subsidiary. Such actions will allow
management to focus its efforts on developing telecommunications, CATV and
laser subsystems markets.
Sales and Marketing
The Company markets its telecommunications components to OEMs
through its direct sales force in San Jose, California; Bloomfield,
Connecticut; Chalfont, Pennsylvania; Switzerland, the Netherlands,
Australia and the United Kingdom. In addition, the Company sells its
products through distributors in selected European countries, Japan,
Taiwan, Korea and India. Selected OEM customers for telecommunications
components include:
<TABLE>
<S> <C>
Alcatel Lucent
Ciena Nortel
Fujitsu Pirelli
General Instruments Scientific Atlanta
GPT Siemens
Lasertron
</TABLE>
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. Laser subsystem applications include
biotechnology instruments, wafer inspection systems, graphics and
printing systems. In fiscal 1998, Uniphase marketed its Ultrapointe
Systems primarily through KLA-Tencor's worldwide distribution channels
under an exclusive OEM agreement that expires in June, 2000, at which
point in time KLA-Tencor has the option to extend this agreement for up
to three additional one-year periods.
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 telecommunications and laser subsystems
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 and Europe. In Japan, the Company's laser subsystems
distributor, Autex, assists in performing support and service functions.
KLA-Tencor provides sales, installation, warranty and post-warranty
support of Ultrapointe Systems.
Research and Development
During fiscal years 1998, 1997 and 1996, Uniphase incurred $14.3
million, $9.3 million and $5.8 million, respectively, on research and
development. In fiscal 1998, 1997 and 1996, Uniphase recorded charges
totaling $99.6 million, $33.3 million and $4.5 million, respectively for
acquired in-process research and development in connection with the
acquisitions of UNBV and UFC in 1998, ULE in 1997 and UFP in 1996.
The Company is developing new and enhanced telecommunications
components and expanding its manufacturing capability for these products.
For example, the Company continues to increase the power output of its
pump lasers and the number of source lasers available for multi-channel
WDM applications. Higher performance modulators and transmitters are
under development, as are advanced multi-gigabit modulators. The Company
continues to develop packaging technology for a number of its optoelectronic
components so as to enable it to supply integrated, packaged modules to its
customer base. The Company continues to invest in solid state laser
applications for industrial processes and wafer defect review capabilities
for higher density semiconductor devices.
Manufacturing
The Company manufactures its optoelectronic, telecommunication and
CATV component products at a number of its facilities in the United States,
Europe and Australia. The Company manufactures pump lasers in Zurich,
Switzerland, whereas source lasers for telecommunications, CATV and
multimedia applications are manufactured in Eindhoven, the Netherlands. The
Company's lithium-niobate modulators are manufactured in Bloomfield,
Connecticut, whereas its electro-absorption modulators are manufactured in
the Netherlands. Fiber-Bragg gratings are manufactured in Sydney, Australia,
and CATV transmitters and amplifiers are produced in Chalfont, Pennsylvania.
Data communications products are manufactured at the Company's facilities in
Witney, United Kingdom. Solid state laser subsystem products, argon laser
subsystems, power supplies and grating-based modules are manufactured at its
San Jose, California facility and its Helium-Neon lasers are manufactured at
its Manteca, California facility. The Company assembles and tests its
Ultrapointe Systems at its San Jose, California facility. 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.
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.
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 source lasers and pump lasers for telecommunications
applications, competitors include Fujitsu, Pirelli, Corning, Lucent, and
SDL, Inc. With respect to external modulator products for CATV and
telecommunications suppliers, competitors include Lucent Technologies,
Crystal Technology, Inc., Fujitsu, Integrated Optical Components, Ltd.,
and Sumitomo Cement Opto Electronics Group. With respect to 1310nm and
1550nm CATV transmitters, competitors include AEL, Harmonic Lightwaves,
Kablerhydt, Ortel, Synchronous Communications and PAi. Other CATV
equipment suppliers may also enter this market. With respect to fiber-
Bragg gratings and grating-based modules, competitors include JDS-Fitel,
Lucent, E-Tek and Corning. With respect to laser diode products for data
communications and local telecommunications suppliers, the Company's
competitors include Oz Optics and SDL-Optics as well as larger
optoelectronic suppliers such as AMP and Hewlett-Packard.
In the laser subsystems market, Uniphase competes primarily with
American Laser, Coherent, Ion Laser Technology, NEC, Omnichrome,
Spectra-Physics, Toshiba, Carl Zeiss, Melles-Griot, Hitachi, Lightwave,
Opto Power Corporation, 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.
Patents and Proprietary Rights
Intellectual property rights that apply to various Uniphase products
include patents, trade secrets, and trademarks. Because of the rapidly
changing technology and a broad distribution of patents in the
optoelectronics industry, the Company's intention is not to rely primarily
on intellectual property rights to protect or establish its market
position. The Company does not intend to broadly license its intellectual
property rights unless it can obtain adequate consideration or enter into
acceptable patent cross-license agreements. The Company holds 95 United
States patents and access to 295 corresponding foreign patents on
technologies related to its products and processes. The United States
patents expire on dates ranging from 1999 to 2016.
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, 1998 the Company's backlog was approximately $30.8 million
as compared to a backlog of approximately $34.2 million at June 30, 1997.
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 in
which 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 customers have adopted "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, 1998, the Company had a total of 976 full-time
employees worldwide, including 134 in research, development and
engineering, 56 in sales, marketing and service, 687 in manufacturing,
and 99 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.
Except for its Netherlands operations, the Company's employees are not
represented by any collective bargaining organization. Most hourly and
salaried employees in the Netherlands are represented by the Philips
Collective Labor Agreement. The Company has never experienced a work
stoppage, slowdown or strike. The Company considers its employee
relations to be good.
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
the Private Securities Litigation Reform Act of 1995 and Section 21E of
the Securities Exchange Act of 1934, including, without limitations,
statements regarding the Company's expectations, hopes, beliefs,
anticipations, commitments, intentions and strategies regarding the
future. Forward looking statements include, but are not limited to,
statements contained in "Item 1. Business," and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's business strategies, products,
markets, sales, marketing, customer support and service, research
and development, manufacturing, competition, backlog, employees,
financial performance, revenue and expense levels in the future and the
sufficiency of its existing assets to fund future operations and capital
spending needs in Business regarding the Company's products and its
strategy. Actual results could differ from those projected in any
forward-looking statements for the reasons, among others, detailed under
"Risk Factors" in this Report on Form 10-K. The fact that some of the
risk factors may be the same or similar to the Company's past filings
means only that the risks are present in multiple periods. The Company
believes that many of the risks detailed here are part of doing business
in the industry in which the Company competes and will likely be present
in all periods reported. The fact that certain risks are endemic to the
industry does not lessen the significance of the risk. The
forward-looking statements are made as of the date of this Form 10-K and
the Company assumes no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ
from those projected in the forward-looking statements.
Management of Growth; Acquisition of UFC, UNBV and Chassis
The Company expects to continue to experience growth in its
existing telecommunications businesses. In addition, the Company expects
to supplement this growth though further acquisitions. The Company is
devoting significant efforts to increase its penetration of the
telecommunications and CATV markets and to develop new solid state lasers
for OEM customers. 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 its
telecommunications products. Finally, the Company intends to either
maintain or increase its market share in an otherwise declining market
for its gas laser 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 be realized or if realized will
justify the increased expense levels associated with these businesses.
In November 1997, the Company acquired UFC. In addition, in June
1998, the Company acquired UNBV from Philips and in August 1998 acquired
certain assets of Chassis. The success of these acquisitions will be
dependent upon the Company's ability to manufacture and sell high power
1550nm lasers and future products used in wavelength divisional
multiplexing applications and continued demand for UNBV products
by major telecommunications, CATV and multimedia/printing customers. 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 entities 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 manufacture and sell these products or 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. 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
prices of these products relative to the Company's other products. In
addition, the Company sells its telecommunications equipment products to
Original Equipment Manufacturers (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 OEMs' products and manufacturing risks experienced by OEMs. In this
regard, the Company has historically experienced rescheduling of orders
by customers in each of its markets and may experience such rescheduling
in the future. As a result of the above factors, the Company's results of
operations are subject to significant variability from quarter to
quarter.
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.
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 acquisition of UFC and UNBV. 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. 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.
Difficulties in Manufacture of the Company's Products; Gallium Arsenide
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, the Company has previously experienced certain
manufacturing yield problems that have materially and adversely affected
both its ability to deliver products in a timely manner to its customers
and its operating results. During the fourth quarter of fiscal 1998, the
Company commenced construction of a new laser fabrication facility in the
Netherlands. No assurance can be given that the Company will be
successful in manufacturing laser products in the future at performance
or cost levels necessary to meet its customer needs, if at all. In
addition, UFC is establishing a production facility in Sydney, Australia
for fiber Bragg gratings. The Company has no assurance that this
facility will be able to manufacture gratings to customers specifications
at the cost and yield levels required. To the extent the Company does
not achieve and maintain yields or product reliability, the Company's
operating results and customer relationships will be adversely affected.
Gallium Arsenide, referred to as GaAs, is a semiconductor material
that has an electron mobility that is up to five times faster than
silicon. As a result, it is possible to design GaAs circuits that
operate at significantly higher frequencies than silicon circuits. At
similar frequencies, GaAs circuits will produce higher signal strength
(gain) and lower background interference (noise) than silicon circuits,
permitting the transmission and reception of information over longer
distances. GaAs circuits can also be designed to consume less power and
operate more efficiently at lower voltages than silicon circuits.
The fabrication of integrated circuits, particularly GaAs devices
such as those sold by ULE is a highly complex and precise process.
Minute impurities, difficulties in the fabrication process, defects in
the masks used to print circuits on a wafer, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. Management considers
wafer yields in excess of 20% achieving internal lot validation criteria
to be acceptable. ULE has in the past and may in the future
experience lower than expected production yields, which could delay
product shipments and adversely affect gross margins, and there can be no
assurance that ULE will be able to maintain acceptable yields in the
future. Because the majority of ULE manufacturing costs are relatively
fixed, manufacturing yields are critical to the results of operations.
To the extent ULE does not achieve acceptable manufacturing yields or
experiences product shipment delays, its business, operating results and
financial condition could be materially and adversely affected.
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.
Declining Market for Gas Lasers; Development and Other Risks Relating to
Solid State Laser Technologies
Gas laser subsystems sales accounted for 26.3%, 37.3% and 52.9% of
net sales for the fiscal years ended 1998, 1997 and 1996, respectively.
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. To date, sales of the Company's solid state laser products
have been limited and primarily for customer evaluation purposes. 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. 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's solid state laser products will not be
rendered obsolete or uncompetitive by products of other companies.
Intense Industry Competition
The telecommunications, laser subsystems and semiconductor capital
equipment markets 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 telecommunications and semiconductor capital equipment
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, 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. 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.
Attracting and Retaining 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 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 does not maintain a key
person life insurance policy on the Chief Executive Officer. However,
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.
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.
Recently, the semiconductor industry has experienced 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 as well as 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.
Dependence on Key OEM Customers and OEM Relationships
In July 1997, the Company entered into an exclusive OEM Agreement
(the "Agreement") with KLA-Tencor Corporation pursuant to which
KLA-Tencor Corporation distributes Ultrapointe Systems through its
worldwide distribution channels. The Company currently expects that
KLA-Tencor Corporation will account for a majority of Ultrapointe's net
sales for the foreseeable future for Laser Imaging Systems used to
analyze defects on semiconductor wafers and photomasks during the
manufacturing process as well as automatic defect classification software
products. The Agreement outlines product specifications, ongoing
research and development efforts on the product line, pricing and payment
terms. The Agreement is effective through June 30, 2000 and may be
extended by KLA-Tencor Corporation for up to three (3) additional one-
year renewal periods thereafter.
One telecommunications customer, CIENA Corporation, accounted for
approximately 12% of the Company's net sales for fiscal 1998. One laser
subsystems customer, the Applied Biosystems Division of Perkin-Elmer
Corporation, accounted for approximately 10% and 12% of the Company's net
sales for fiscal 1997 and 1996, respectively. One additional customer,
KLA-Tencor Corporation, purchased both Laser subsystems and Ultrapointe
systems and accounted for 12% and 13% of the Company's consolidated net
sales in fiscal 1998 and 1996, respectively. No other customers
represented 10% or more of total sales during 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.
Conflicting Patents and Intellectual Property Rights of Third Parties;
Potential Infringement Claims
The laser, semiconductor capital equipment, and telecommunications
markets 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. The industry in which the Company operates is
characterized by periodic claims of patent infringement 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 telecommunications products, Ultrapointe
systems and its solid state lasers. During fiscal 1998, 1997 and 1996,
the Company expensed $2.0 million, $1.4 million and $1.3 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 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 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.
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.
Market Risks
The Company is exposed to financial market risks, including
changes in interest rates, foreign currency exchange rates and
marketable equity security prices. To mitigate these risks, the Company
utilizes derivative financial instruments. The Company does not use
derivative financial instruments for speculative or trading purposes.
The primary objective of the Company's investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the returns on
a majority of the Company's marketable investments are floating rate and
municipal bonds, auction instruments and money market instruments
denominated in U.S. dollars. The Company hedges currency risks of
investments denominated in foreign currencies with forward currency
contracts. Gains and losses on these foreign currency investments are
generally offset by corresponding gains and losses on the related
hedging instruments, resulting in negligible net exposure to the
Company. A substantial portion of the Company's revenue, expense and
capital purchasing activities are transacted in U.S. dollars. However,
the Company does enter into these transactions in other currencies,
primarily European currencies. To protect against reductions in value
and the volatility of future cash flows caused by changes in foreign
exchange rates, the Company has established hedging programs. Currency
forward contracts are utilized in these hedging programs. The Company's
hedging programs reduce, but do not always entirely eliminate the impact
of foreign currency exchange rate movements. Actual results on the
Company's financial position may differ materially.
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 Opto Power Corporation and GEC. The
Company also obtains lithium niobate wafers, gallium arsenide wafers,
specialized fiber components and certain lasers used in its
telecommunications products primarily from Crystal Technology, Inc.,
Fujikura, Ltd., Philips Key Modules, and Sumitomo, 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.
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 95 U.S. patents on products or
processes and certain corresponding foreign patents and has applications
for certain patents currently pending. 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 be issued 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.
Future Capital Requirements
The Company is devoting substantial resources for new facilities
and equipment for the production of source lasers, fiber-Bragg gratings
and modules used in telecommunications and for the development of new
solid state lasers. 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
fiscal 1999, 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.
Potential 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 revenues
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 38.5%, 30.0% and
24.5% of net sales in fiscal years 1998, 1997 and 1996, respectively. 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 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,
integration of foreign operations, longer payment cycles, greater
difficulty in accounts receivable collection, currency fluctuations and
potentially adverse tax consequences. Since a significant portion of the
Company's foreign sales are denominated in U.S. dollars, the Company's
products may also become less price competitive in countries in which
local currencies decline in value relative to the U.S. 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 900,000
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 shareholders. 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, under certain circumstances,
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's Common Stock. The Company's Certificate of
Incorporation and Bylaws contain provisions relating 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 at a duly called
annual or special meeting of stockholders. These provisions also may have
the effect of deterring hostile takeovers or delaying changes in control or
management of the Company.
Item 2. Properties
The Company owns two properties in San Jose, California, totaling
109,000 square feet, which include land, buildings and improvements.
The Company's principal sales, marketing, technical support,
administration, and research and development operations as well as
manufacturing operations for the argon and solid state lasers, grating-
based modules 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 2000. The Company's facilities for
its telecommunications equipment products occupy three leased buildings
of 33,000, 27,500 and 30,000 square feet in Bloomfield, Connecticut,
where its modulator products are manufactured and a 30,000 square foot
leased building in Chalfont, Pennsylvania where its transmitter products
are manufactured. UFP products are manufactured at the Company's 7,000
square foot facility in Witney, United Kingdom and its engineering
efforts are performed at a 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, respectively. As
part of the acquisition of UNBV, the Company entered into two leases
for current and new manufacturing engineering and office space covering
235,000 square feet at the Philips Natlab Research Center located in
Eindhoven, the Netherlands. ULE occupies 60,000 square feet of
manufacturing, engineering and office space in Zurich, Switzerland that
is leased through 2007 and continues to sublease certain clean room and
manufacturing space from IBM at the IBM Research facility in Ruschlikon,
Switzerland. The Company has secured a new facility lease in Sydney,
Australia for 4,500 square feet of production, development and office
space to support its fiber-Bragg grating product. This lease expires in
May, 2003. The Company also maintains sales and service offices in both
the United Kingdom and Germany to support its European operations.
Item 3. Legal Proceedings
On May 19, 1997, Tacan Corporation ("Tacan") filed a lawsuit in the
U.S. District Court for the Southern District of California against
Uniphase Telecommunications Products Inc. ("UTP") a subsidiary of the
Company. The Complaint alleged claims of breach of contract, breach of
implied and express warranties, negligent misrepresentation, conversion
and negligent interference with perspective economic advantage. In
December 1997, UTP and Tacan reached a favorable settlement with no
material effect on the Company's financial condition or results of
operations.
Two former employees have commenced wrongful termination actions
against the Company. Summary judgements and subsequent appeals have been
issued in each claim. 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
A special meeting of the Stockholders was held on Monday, June 29,
1997 to approve the Uniphase Corporation 1998 Employee Stock Purchase
Plan (the "98 Purchase Plan"). The 98 Purchase Plan was approved as
follows: 27,092,868 shares for; 286,050 shares against and 29,181
withheld.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
At September 11, 1998, the Company had approximately 141 holders of record of
its Common Stock and 38,647,120 shares outstanding. The Company has not paid
dividends on its common stock and does not anticipate paying cash dividends in
the foreseeable future. The following high and low closing bid prices indicated
for Uniphase Common Stock are as reported on the Nasdaq National Market during
each of the quarters indicated.
<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C>
Fiscal 1998 Quarter Ended:
June 30.................... 63 40 5/8
March 31................... 44 5/32 33 3/16
December 31................ 46 1/2 28 1/2
September 30............... 40 3/16 28 30/32
Fiscal 1997 Quarter Ended:
June 30.................... 30 5/16 17 18/32
March 31................... 24 3/4 15 29/32
December 31................ 29 3/4 20 5/8
September 30............... 21 1/8 10 3/16
</TABLE>
Item 6. Selected Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended June 30, 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales..................................$175,801 $106,966 $69,073 $42,282 $32,922
Acquired in-process
research and development................. $99,568 $33,314 $4,480 $4,460 $ --
Income (loss) from operations..............($73,003) ($16,852) $5,429 $581 $3,247
Net income (loss)..........................($81,112) ($18,854) $2,792 $735 $2,231
Earnings (loss) per share (1):
Basic.................................... ($2.34) ($0.57) $0.11 $0.04 $0.15
Dilutive................................. ($2.34) ($0.57) $0.10 $0.04 $0.13
Shares used in per share calculation (1):
Basic.................................... 34,723 32,964 24,832 18,216 14,552
Dilutive................................. 34,723 32,964 27,154 20,164 16,548
At June 30, 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data:
Working capital............................$119,249 $108,388 $130,991 $17,316 $18,943
Total assets...............................$269,343 $177,579 $173,824 $31,910 $26,214
Long-term obligations...................... $5,666 $2,475 $7,036 $221 $ --
Total stockholders' equity.................$217,901 $149,777 $153,205 $24,808 $21,331
</TABLE>
1 Earnings per share amounts for all periods prior to fiscal 1998 have been
restated to reflect the 100% stock dividend declared in November, 1997, and
to conform to the requirements of SFAS No. 128,"Earnings per Share".
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
In June 1998, the Company acquired 100% of the capital stock of
Philips Optoelectronics B.V., which became Uniphase Netherlands B.V.
("UNBV") from Koninklijke Philips Electronics N.V. ("Philips"). The total
purchase price of $135.4 million consisted of 3.26 million restricted
shares of common stock, cash of $100,000, $4.0 million in related
acquisition costs, and 100,000 shares of Uniphase Series A Convertible
Preferred Stock that is convertible to Uniphase Common Stock based upon
(i) unit shipments of certain products by UNBV through June 20, 2002, and
(ii) the trading price of Uniphase Common Stock at the time such earnout,
if any, is determined. At the closing of the UNBV acquisition, Philips
became the largest stockholder of record at 8.5% of the Company's
outstanding common stock. Philips also appointed one representative to
the Uniphase Board of Directors upon the closing.
In November 1997, the Company acquired 100% of the capital stock of
Indx Pty Limited, which became Uniphase Fiber Components Pty Limited
("UFC"), and in connection therewith, obtained certain license rights
from Australian Photonics Pty Limited ("AP"). The total purchase price of
$6.9 million included a cash payment of $6.5 million to AP and
acquisition costs of $400,000. UFC designs and manufactures fiber Bragg
grating products for wavelength division multiplexing ("WDM")
applications. In January 1998, the Company created Uniphase Network
Components ("UNC") to develop grating-based modules for WDM applications.
In August 1998, the Company acquired certain assets of Chassis
Engineering, Inc. for $2.8 million. See Note 12 of Notes to Consolidated
Financial Statements.
Results of Operations
The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0%
Cost of sales........................... 52.4% 53.7% 52.5%
---------- ---------- ----------
Gross profit 47.6% 46.3% 47.5%
---------- ---------- ----------
Operating expenses:
Research and development.............. 8.1% 8.7% 8.4%
Royalty and license................... 1.2% 1.3% 1.9%
Selling, general, and administrative.. 23.2% 20.9% 22.7%
Acquired in-process research and
development...................... 56.6% 31.1% 6.5%
---------- ---------- ----------
Total operating expenses................ 89.1% 62.0% 39.5%
---------- ---------- ----------
Income (loss) from operations........... -41.5% -15.7% 8.0%
Interest and other income, net........ 1.8% 3.2% 1.9%
---------- ---------- ----------
Income (loss) before income taxes..... -39.7% -12.5% 9.9%
Income tax expense...................... 6.4% 5.1% 5.9%
---------- ---------- ----------
Net income (loss)....................... -46.1% -17.6% 4.0%
========== ========== ==========
</TABLE>
Years Ended June 30, 1998, 1997 and 1996
Net Sales. Net sales of $175.8 million for fiscal 1998 represented
an increase of $68.8 million or 64.4% over fiscal 1997 net sales of
$107.0 million. The increase is primarily due to the increase across all
product lines in telecommunications and laser subsystem sales of $64.9
million, of which 45.9% was generated by businesses acquired during
fiscal 1998 and 1997. Ultrapointe sales increased $3.9 million in fiscal
1998 over the prior year, although a significant percentage of the
increase was attributable to orders for spare parts and engineering
services. Net sales of $107.0 million for fiscal 1997 represented an
increase of $37.9 million or 54.9% over fiscal 1996 net sales of $69.1
million. The increase in fiscal 1997 over 1996 was primarily due to the
increased sales of telecommunications and laser subsystem products of
$40.1 million. Ultrapointe sales decreased $2.2 million during fiscal
1997 as compared to fiscal 1996 as a downturn in the semiconductor
industry led certain customers to delay or cancel purchases of the
Company's Ultrapointe Systems.
Net sales to customers outside the United States accounted for
$67.6 million, $32.1 million and $16.9 million or 38.5%, 30.0% and 24.5%
of total sales for the years ended June 30, 1998, 1997 and 1996,
respectively. The increase of $35.5 million from fiscal 1997 to fiscal
1998 is primarily due to increased sales of telecommunications products.
The increase in international sales in 1998 was also due to a full
year's sales from ULE, the sales of UFC subsequent to November 26, 1997,
and UNBV sales subsequent to June 9, 1998, all of which represented in
the aggregate 36.8% of the increase in international sales. The fiscal
1997 increase in international sales over fiscal 1996 of $15.2 million
was due primarily to a full year of UFP sales and the acquisition of ULE
in March 1997 combined with other increases in telecommunications product
sales. See Note 10 of Notes to Consolidated Financial Statements.
Gross Profit. Gross profit of $83.7 million, or 47.6% of net sales
for fiscal 1998 represented an increase of $34.1 million or 68.8% over
fiscal 1997 gross profit of $49.6 million, which was 46.3% of net sales.
The increase in gross profit from telecommunications and laser subsystem
product sales of $35.9 million was due in part to an improvement in
manufacturing yields of gallium arsenide based lasers combined with the
lower costs of internally manufactured CATV amplifiers the Company
historically purchased from third parties. Fiscal 1998 amounts include a
full year's gross profit from ULE that also contributed to the increase.
Concurrent with the acquisition of UNBV, the Company initiated
certain actions that resulted in reductions to fiscal 1998 gross profit.
Charges attributable to such actions were for (i) securing additional
manufacturing space, developing and qualifying new products,
retraining its CATV manufacturing staff and providing reserves for
certain inventory in connection with a new supply agreement
with a large CATV customer; (ii) providing inventory reserves
for the estimated impact of integrating UNBV lasers into the Company's
existing telecommunications product portfolios; and (iii) providing for
laser packaging relocation costs and certain other accruals attributable
to integrating UNBV into the Company's operations. These actions were
reflected primarily as increases to inventory reserves and other accrued
expenses.
Gross margin increased to 47.6% in fiscal 1998 from 46.3% in fiscal
1997. The Company realized improved yields on certain telecommunications
products that more than offset a reduction in gross margin from
Ultrapointe products. Gross margin for Ultrapointe products declined
significantly in the second half of fiscal 1998 due to depressed
semiconductor equipment markets, volume discounts attributable to the
distribution agreement with KLA-Tencor, and inventory reserves recorded
in the fourth quarter. The Company's laser subsystem margins were
relatively consistent with the prior fiscal year. The Company experienced
a decrease in gross margins to 46.3% in fiscal 1997 from 47.5% in fiscal
1996. Inventory charges resulting from the Company's change in strategic
focus with respect to diode based laser applications and from the
modification of certain customer and product strategies incorporating
lower powered amplifiers at UTP contributed to the fiscal 1997 decline in
gross margin.
There can be no assurance that the Company will be able to maintain
its gross margins at current levels. 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 Expense. Research and development (R&D)
expense of $14.3 million or 8.1% of net sales represented an increase of
$5.0 million or 53.3% over fiscal 1997 expense of $9.3 million or 8.7% of
net sales. The increase in absolute dollar amounts is primarily due to
the continuing efforts to develop the Company's telecommunications
products, the additional R&D expenses of UFC and UNC in fiscal 1998 and a
full year of R&D expenses from ULE. R&D expense in fiscal 1997 was $9.3
million or 8.7% of net sales, which represented a $3.5 million or 59.8%
increase over fiscal 1996. The increase in R&D expense was largely due to
the continuing efforts to develop the Company's telecommunications
products and, to a lesser extent, the continued development and
modifications of the Ultrapointe Laser Imaging System and automatic
defect classification ("ADC") software.
The Company is committed to continuing its significant R&D
expenditures and expects that the absolute dollar amount of R&D expenses
will increase as it invests in developing new products and in expanding
and enhancing its existing product lines, although R&D expenses may vary
as a percentage of net sales in future periods.
Royalty and License Expense. Royalty and license expense increased
$628,000 to $2.0 million representing an increase of 45.5% over fiscal
1997 expense of $1.4 million. Royalty and license expense decreased as a
percentage of sales to 1.2% compared to 1.3% in fiscal 1997. In fiscal
1997, royalty and license expense increased $43,000 to $1.4 million from
$1.3 million in fiscal 1996, however decreased as a percentage of sales
to 1.3% from 1.9% in fiscal 1996. The decreases as a percentage of net
sales in both fiscal 1998 and fiscal 1997 were due to the increasing
proportion of sales derived from royalty-free telecommunications
products.
The Company continues to develop its telecommunications, solid
state laser, and semiconductor equipment products and technologies. There
are numerous patents on these 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 the future. If there is a 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, or if
available, can be obtained on commercially reasonable terms.
Selling, General and Administrative Expense. Selling, general and
administrative (SG&A) expense of $40.8 million or 23.2% of net sales in
fiscal 1998 represents an increase of $18.4 million or 82.2% over fiscal
1997 expense of $22.4 million or 20.9% of net sales. As described below,
SG&A expenses in each year included charges incurred following
acquisitions.
In the fourth quarter of fiscal 1998, the Company recorded SG&A
charges related to certain initiatives taken following the acquisition of
UNBV. These charges were for (i) reorganizing the Company's management
and sales structures, including the elimination of its UTP headquarters
organization, severance and certain other personnel costs; (ii)
integrating the laser packaging operations of UNBV into the Company
including the write off of certain long-lived assets originating from the
acquisition of UFP in 1996, and starting up production of certain new
products that incorporate UNBV lasers, and (iii) providing for the cost
of renegotiating certain provisions of its distribution agreement with
KLA-Tencor and changing the structure of Ultrapointe in connection with
the continuing downturn in semiconductor capital equipment markets. SG&A
expense for 1998 also includes a full year of ULE expenses. SG&A charges
primarily consisted of compensation related costs, the write-off of
goodwill and other long-lived assets, prototype development and
materials, recruiting and relocation costs.
In fiscal 1997, SG&A expense was $22.4 million or 20.9% of net
sales which represented a $6.7 million or 42.7% increase over SG&A
expense of $15.7 million or 22.7% of net sales in fiscal 1996. The
increase is due in part to the additional expenses of ULE, acquired in
March 1997, and a full year of expenses for UFP which was acquired in May
1996. As a result of the ULE acquisition and a change in strategic focus
for diode-based laser applications, the Company recorded charges to
consolidate its European laser research to Switzerland, close its
Uniphase Lasers, Ltd. facility in Rugby, England, consolidate laser
packaging operations and to recognize the modification of certain
customer and product strategies at UTP incorporating lower powered
amplifiers. The Company also increased its allowance for doubtful
accounts and certain other reserves in the third quarter of fiscal 1997.
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. There can be no assurance that the Company will not incur
reorganization costs associated with managing the growth of its
operations similar to those recorded in fiscal 1998.
Uniphase is currently considering divestiture or termination of its
Ultrapointe operation because of the business conditions in the
semiconductor equipment industry and the Company's desire to focus its
management and financial resources on its telecommunications and laser
businesses. Further one-time charges would result from a termination of
the Ultrapointe operations and may also occur in the event of a
divestiture of Ultrapointe. The net book value of the Ultrapointe
business was approximately $8.4 million at June 30, 1998. There can be no
assurance that the Company will not incur a loss should it sell, divest
or otherwise dispose of the assets of Ultrapointe.
Acquired In-process Research and Development. In fiscal 1998, the
Company incurred charges for in-process research and development of $99.6
million or 56.6% of net sales related to the acquisition of UNBV from
Philips ($93.0 million) and UFC from AP ($6.6 million). In fiscal 1997,
the Company incurred a charge for in-process research and development of
$33.3 million or 31.1% of net sales related to the acquisition of the
assets of ULE from IBM. In fiscal 1996, the Company incurred a charge for
in-process research and development of $4.5 million or 6.5% of net sales
related to the acquisition of UFP. See Note 9 of Notes to Consolidated
Financial Statements. There can be no assurance that acquisitions of
businesses, products or technologies by the Company in the future will
not result in substantial charges that may cause fluctuations in the
Company's quarterly or annual operating results.
Interest and Other Income. Net interest and other income of $3.3
million for fiscal 1998 represented a decrease of $179,000 from fiscal
1997 income of $3.4 million. Fiscal 1997 net interest and other income
increased $2.0 million over fiscal 1996 income of $1.4 million. The
decrease in interest and other income in 1998 was primarily due to the
reduced level of short-term investments resulting from the cash payment
to IBM of $45 million for ULE in March 1997, and the payment to AP of
approximately $6.5 million for UFC and certain licensing rights in
November 1997. In addition, net interest and other income in fiscal 1998
includes lower interest expense as compared to fiscal 1997 resulting from
the retirement of approximately $6.1 million in notes payable in August
1997 originating from the fiscal 1996 acquisition of UFP. The fiscal 1997
increase over fiscal 1996 was due primarily to the increase in interest
earned on the net proceeds of the public offering of common stock in June
1996 and the private placement of common stock with KLA-Tencor in
November 1995.
Income Tax Expense. The Company recorded tax provisions of $11.4
million, $5.4 million and $4.0 million for fiscal 1998, 1997 and 1996,
respectively. The effective tax rates for fiscal 1998, 1997 and 1996 were
(16%), (40%) and 59%, respectively, due primarily to in-process research
and development expenses which provided no immediate tax benefit.
The Company has established a valuation allowance covering a
portion of the gross deferred tax assets originating from its European
subsidiaries acquired in fiscal 1998 and 1997. Approximately $3 million
of the valuation allowance at June 30, 1998 relates to tax benefits of
stock option deductions that will be credited to equity when realized.
The valuation allowance reduces net deferred tax assets to amounts
considered realizable in the near future based on projected future
taxable income. As there can be no assurance that these European
subsidiaries will generate future taxable income, there can be no
assurance that these valuation allowances will be realized.
Liquidity and Capital Resources
At June 30, 1998, the Company's combined balance of cash, cash
equivalents and short-term investments was $94.6 million. During fiscal
1998, the Company met its liquidity needs primarily through cash
generated from operating activities. Net cash provided by operating
activities was $50.0 million in fiscal 1998, compared with $21.5 million
and $7.8 million for fiscal years 1997 and 1996, respectively.
Cash provided by operating activities during fiscal 1998 was
primarily the result of net losses of $81.1 million offset by noncash
charges during the year for depreciation and amortization of $10.1
million, acquired in-process research and development costs of $99.6
million, stock based compensation of $6.9 million and the write-off of
certain long-lived assets totaling $3.6 million. Increases in accounts
receivable of $12.3 million resulted from higher fourth quarter sales in
fiscal 1998 compared to the prior year and an increase in the number of
days receivable outstanding from 55 days at the end fiscal 1997 to 75
days in fiscal 1998. A higher percentage of outstanding receivables in
fiscal 1998 were derived from foreign operations where collection cycles
are generally longer than in the United States. In addition, the fiscal
1998 days sales in accounts receivable reflects receivables acquired from
Philips. Cash flow from operating activities also benefited from
decreases in all other operating assets totaling $4.3 million and
increases to all other operating liabilities of $18.9 million.
Cash used in investing activities was $38.2 million in fiscal 1998
compared with $48.7 million and $83.5 million for fiscal years 1997 and
1996, respectively. The Company's acquisitions of UNBV and UFC in fiscal
1998 used $10.8 million. The Company incurred capital expenditures of
$24.0 million primarily for facilities improvements and equipment
purchases to expand its manufacturing capacity primarily for its
telecommunications product lines. The Company also purchased intellectual
property totaling $550,000 for its telecommunications products
businesses. The Company expects to continue to expand its worldwide
manufacturing capacity, primarily for telecommunications products, by
making approximately $35 million in capital expenditures for fiscal 1999.
The Company used $1.2 million in cash for financing activities in
fiscal 1998 as compared to cash provided by financing activities of $3.9
million in fiscal 1997. In fiscal 1998, the Company generated $4.9
million from the exercise of stock options and the sale of stock through
its employee stock purchase plan. Cash used for financing activities
included the repayment of $6.1 million of notes payable originating from
the acquisition of UFP in fiscal 1996. 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 (8.5% at June 30, 1998) and are
secured by inventories and accounts receivable. There were no borrowings
under the line as of June 30, 1998. The line of credit was pledged as
collateral to secure a letter of credit issued in connection with the
purchase of certain assets of Chassis Engineering, Inc. in August 1998.
See Note 12 of Notes to Consolidated Financial Statements. 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 financial conditions. 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. As of June 30, 1998, the Company was in compliance
with all convenants under the agreement.
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 fiscal 1999. However, possible
investments in or acquisitions of complementary businesses, products or
technologies may require additional financing prior to such time. There
can be no assurance that such additional debt or equity financing will be
available when required or, if available, can be secured on terms
satisfactory to the Company.
<PAGE>
Item 8. Financial Statements and Supplementary Data
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1998.
Our audits also included the financial statement schedule listed
in the index at Item 14(a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Uniphase Corporation at June 30, 1998 and 1997,
and the consolidated results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statements schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
\s\ Ernst & Young LLP
San Jose, California
August 4, 1998
<PAGE>
UNIPHASE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................... $175,801 $106,966 $69,073
Cost of sales........................... 92,139 57,411 36,300
---------- ---------- ----------
Gross profit 83,662 49,555 32,773
---------- ---------- ----------
Operating expenses:
Research and development.............. 14,279 9,312 5,828
Royalty and license................... 2,008 1,380 1,337
Selling, general, and administrative.. 40,810 22,401 15,699
Acquired in-process research and
development...................... 99,568 33,314 4,480
---------- ---------- ----------
Total operating expenses................ 156,665 66,407 27,344
---------- ---------- ----------
Income (loss) from operations........... (73,003) (16,852) 5,429
Interest income......................... 2,964 3,985 1,570
Interest expense........................ (69) (421) (79)
Other income (expense), net............. 356 (134) (92)
---------- ---------- ----------
Income (loss) before income taxes..... (69,752) (13,422) 6,828
Income tax expense...................... 11,360 5,432 4,036
---------- ---------- ----------
Net income (loss)....................... ($81,112) ($18,854) $2,792
========== ========== ==========
Basic earnings (loss) per share......... ($2.34) ($0.57) $0.11
========== ========== ==========
Dilutive earnings (loss) per share...... ($2.34) ($0.57) $0.10
========== ========== ==========
Shares used in per share calculation:
Basic................................ 34,723 32,964 24,832
========== ========== ==========
Dilutive............................. 34,723 32,964 27,154
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNIPHASE CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $39,801 $29,186
Short-term investments............................ 54,831 52,009
Accounts receivable, less allowances for
doubtful accounts of $550 at June 30, 1998
and $1,877 at June 30, 1997..................... 40,413 20,317
Inventories....................................... 20,809 18,668
Refundable income taxes........................... 2,219 6,010
Deferred income taxes............................. 4,321 5,882
Other current assets.............................. 2,631 1,643
--------- ---------
Total current assets........................... 165,025 133,715
Property, plant, and equipment, net.................. 56,533 31,251
Long-term deferred income taxes...................... 3,976 1,581
Intangible assets other than goodwill................ 23,364 8,902
Intangible assets.................................... 20,315 2,067
Other assets......................................... 130 63
--------- ---------
Total assets................................... $269,343 $177,579
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable.................. $ -- $6,061
Accounts payable.................................. 14,856 4,781
Accrued payroll and related expenses.............. 7,793 4,528
Income taxes payable.............................. 7,697 5,049
Other accrued expenses............................ 15,430 4,908
--------- ---------
Total current liabilities...................... 45,776 25,327
Accrued pension and other employee benefits.......... 4,835 2,392
Other non-current liabilities........................ 831 83
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares - 1,000,000
Issued and outstanding shares - 100,000 at
June 30, 1998 and none at June 30, 1997........ -- --
Common stock, $0.001 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 38,190,456 at
June 30, 1998 and 33,843,934 at June 30, 1997.. 38 34
Additional paid-in capital........................ 307,409 156,864
Accumulated deficit............................... (88,216) (7,104)
Other stockerholders' equity...................... (1,330) (17)
--------- ---------
Total stockholders' equity..................... 217,901 149,777
--------- ---------
Total liabilities and stockholders' equity..... $269,343 $177,579
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNIPHASE CORPORATION
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Other
------------------- ------------------ Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity Total
--------- --------- --------- -------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995............. -- $ -- 19,032 $20 $15,741 $8,958 $89 $24,808
Shares issued under
employee stock plans
and related tax benefits........ -- -- 1,252 -- 4,703 -- -- 4,703
Common stock issued upon
public offering,
net of issuance costs........... -- -- 10,580 10 105,519 -- -- 105,529
Common stock issued to KLA-
Tencor, net of issuance costs... -- -- 1,332 2 12,281 -- -- 12,283
Stock compensation................. -- -- -- -- 3,000 -- -- 3,000
Amortization of deferred
compensation.................... -- -- -- -- 94 -- -- 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............. -- -- 32,196 32 141,338 11,750 85 153,205
Shares issued under
employee stock plans
and related tax benefits........ -- -- 1,648 2 14,655 -- -- 14,657
Amortization of deferred
compensation.................... -- -- -- -- 871 -- -- 871
Net loss........................... -- -- -- -- -- (18,854) -- (18,854)
Net unrealized gain on
securities available-for-sale... -- -- -- -- -- -- 29 29
Foreign currency
translation adjustment.......... -- -- -- -- -- -- (131) (131)
--------- --------- --------- -------- ---------- ---------- ------------ ---------
Balance at June 30, 1997............. -- -- 33,844 34 156,864 (7,104) (17) 149,777
Shares issued under
employee stock plans
and related tax benefits........ -- -- 1,086 1 11,273 -- -- 11,274
Preferred and common stock
issued to Philips, net
of issuance costs............... 100 -- 3,260 3 131,341 -- -- 131,344
Amortization of deferred
compensation.................... -- -- -- -- 1,051 -- -- 1,051
Stock Compensation................. -- -- -- -- 6,880 -- -- 6,880
Net loss........................... -- -- -- -- -- (81,112) -- (81,112)
Net unrealized gain on
securities available-for-sale... -- -- -- -- -- -- 43 43
Foreign currency
translation adjustment.......... -- -- -- -- -- -- (1,356) (1,356)
--------- --------- --------- -------- ---------- ---------- ------------ ---------
Balance at June 30, 1998............. 100 $ -- 38,190 $38 $307,409 ($88,216) ($1,330) $217,901
========= ========= ========= ======== ========== ========== ============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNIPHASE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating activities
Net income (loss)................................ ($81,112) ($18,854) $2,792
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation expense........................ 6,112 3,079 1,582
Amortization expense........................ 4,002 1,617 499
Acquired in-process research and
development............................... 99,568 33,314 4,480
Stock compensation expense.................. 6,880 871 3,094
Write-off of property, equipment and
intangible assets......................... 3,605 1,977 --
Decrease in deferred income taxes, net...... (834) (1,591) (1,040)
Changes in operating assets and liabilities:
Accounts receivable......................... (12,323) 1,883 (6,432)
Inventories................................. 2,374 (5,169) (4,087)
Refundable income taxes..................... 3,791 (1,450) --
Other current assets........................ (988) 721 (90)
Income taxes payable........................ 9,042 2,652 587
Accounts payable, accrued liabilities,
and other accrued expenses............... 9,902 2,417 6,375
--------- --------- ---------
Net cash provided by operating activities.......... 50,019 21,467 7,760
--------- --------- ---------
Investing activities
Purchase of available-for-sale investments....... (187,246) (97,959) (74,326)
Sale of available-for-sale investments........... 184,467 107,258 17,726
Acquisition of Uniphase Netherlands B.V.......... (4,100) -- --
Acquisition of Uniphase Fiber Components
Ltd. Pty, net of cash acquired............... (6,696) -- --
Acquisition of net assets of Laser Enterprise.... -- (45,900) --
Acquisition of UTP Fibreoptics and remaining
interest in I.E. Optomech Ltd................. -- -- (9,387)
Acquisition of licenses.......................... (550) -- --
Purchase of property, plant and equipment........ (24,031) (12,048) (17,561)
Decrease (increase) in other assets.............. (67) (11) 91
--------- --------- ---------
Net cash used in investing activities.............. (38,223) (48,660) (83,457)
--------- --------- ---------
Financing activities
Repayment of notes payable and lease obligations. (6,061) (548) (297)
Issuance of notes payable........................ -- -- 6,061
Proceeds from issuance of common stock other
than in the public offerings................... 4,880 4,464 1,704
Proceeds from offering of stock.................. -- -- 117,812
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... (1,181) 3,916 125,280
--------- --------- ---------
Increase (decrease) in cash and cash equivalents... 10,615 (23,277) 49,583
Cash and cash equivalents at beginning of period... 29,186 52,463 2,880
--------- --------- ---------
Cash and cash equivalents at end of period......... $39,801 $29,186 $52,463
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNIPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS ACTIVITIES and SUMMARY of SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Uniphase Corporation (the "Company" or "Uniphase") designs,
develops, manufactures and markets components and modules for fiber optic
telecommunications and cable television (CATV) systems, laser subsystems,
and laser-based semiconductor wafer defect examination and analysis
equipment. The Company's telecommunications and CATV divisions design,
develop, manufacture and market semiconductor lasers, high-speed external
modulators and transmitters for fiber optic networks in the
telecommunications and CATV industries. 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. The Company's Ultrapointe subsidiary designs, develops,
manufactures and markets advanced laser-based systems for semiconductor
wafer defect examination and analysis. The Company entered the
telecommunications market in May 1995. Currently, the Company's portfolio
of telecommunications products include those produced by Uniphase
Telecommunications Products ("UTP"), UTP Fibreoptics ("UFP"), Uniphase
Laser Enterprise ("ULE"), Uniphase Network Components ("UNC"), Uniphase
Fiber Components ("UFC") and Uniphase Netherlands ("UNBV").
Basis of Presentation
The consolidated financial statements include Uniphase and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash, Cash Equivalents and Short-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 greater than ninety days. The
Company's securities are classified as available-for-sale and are
recorded at fair value. Fair value is based upon market prices quoted on
the last day of the fiscal year. The cost of debt securities sold is
based on the specific identification method. 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>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
JUNE 30, 1998:
Floating rate bonds........... $9,740 $ -- $ -- $9,740
Municipal bonds............... 60,216 64 10 60,270
Auction instruments........... 6,101 -- -- 6,101
Money market instruments...... 5,851 -- -- 5,851
---------- ----------- ----------- ---------
$81,908 $64 $10 $81,962
========== =========== =========== =========
JUNE 30, 1997:
Floating rate bonds........... $14,122 $ -- $ -- $14,122
Municipal bonds............... 42,008 38 27 42,019
Auction instruments........... 4,702 -- -- 4,702
Money market instruments...... 3,896 -- -- 3,896
---------- ----------- ----------- ---------
$64,728 $38 $27 $64,739
========== =========== =========== =========
</TABLE>
The following is a summary of contractual maturities of the Company's
investments:
<TABLE>
<CAPTION>
JUNE 30, 1998:
Estimated
Amortized Fair
Cost Value
----------- ---------
(in thousands)
<S> <C> <C>
Money market funds..................................... $5,851 $5,851
Amounts maturing within one year....................... 56,996 57,047
Amounts maturing after one year, within five years..... 19,061 19,064
----------- ---------
$81,908 $81,962
=========== =========
</TABLE>
Fair Value of Financial Instruments
The Company has determined the estimated fair value of financial
instruments. The amounts reported for cash and cash equivalents, accounts
receivable, short-term borrowings, accounts payable, notes payable and
accrued expenses approximate the fair value due to their short
maturities. Investment securities and foreign currency exchange contracts
are reported at their estimated fair value based on quoted market prices
of comparable instruments.
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,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Finished goods........................... $6,893 $2,324
Work in process.......................... 11,302 10,468
Raw materials and purchased parts........ 2,614 5,876
----------- -----------
$20,809 $18,668
=========== ===========
</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,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Land..................................... $4,868 $4,868
Building and improvements................ 8,772 8,556
Machinery and equipment.................. 36,566 21,839
Furniture, fixtures and office
equipment.............................. 6,915 4,882
Leasehold improvements................... 4,871 2,114
Construction in progress................. 12,162 722
----------- -----------
74,154 42,981
Less: accumulated depreciation and
amortization........................... (17,621) (11,730)
----------- -----------
$56,533 $31,251
=========== ===========
</TABLE>
Goodwill and Other Intangible Assets
Intangible assets primarily represent acquired developed technology
and the excess acquisition cost over the fair value of tangible and
intangible net assets of businesses acquired (goodwill). Intangible
assets are being amortized using the straight-line method over estimated
useful lives ranging from 3 to 7 years. Accumulated amortization of
intangible assets at June 30, 1998 and 1997 was $3,161,000 and $696,000,
respectively.
Long-lived assets are reviewed whenever indicators of impairment
are present and the undiscounted cash flows are not sufficient to recover
the related asset carrying amount. At June 30, 1997 intangible assets
included the excess of the investment in UFP over the fair market of the
net assets acquired of approximately $4.3 million. The intangible assets
were reviewed during the fourth quarter of 1998 following the Company's
acquisition of UNBV. This review indicated that the UFP intangible assets
were impaired, as determined based on the projected cash flows from UFP
over the next three years. The cash flow projections take into effect the
net sales and expenses expected from UFP products, as well as maintaining
its current manufacturing capabilities. Consequently, the carrying value
of the UFP goodwill and other long-lived assets totaling $2.2 million and
$1.4 million, respectively, were written off as a component of operating
expenses during fiscal 1998.
At June 30, 1996, intangible assets included the excess of the
investment in I.E. Optomech ("Optomech") over the fair market value of
the net assets acquired of approximately $527,000. The intangible asset
was reviewed during the third quarter of 1997 in light of the Company's
acquisition of ULE and the resultant closure of Optomech. This review
indicated that the Optomech intangible asset was impaired, as determined
based on projected cash flows from Optomech over the remaining
amortization period. The cash flow projections take into effect the
change in strategic focus by the Company for semiconductor laser-based
applications due to the acquisition of ULE, the costs and expected
benefit from Optomech products prospectively, and management's intention
to cease capital funding at Optomech. Consequently, the carrying value of
the Optomech intangible assets totaling $477,000 was written off as a
component of operating expenses during fiscal 1997.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
short-term investments and trade receivables. The Company places its cash
equivalents and short-term investments with high credit-quality financial
institutions. The Company invests its excess cash primarily in auction
and money market instruments, and municipal and floating rate bonds. The
Company has established guidelines relative to credit ratings,
diversification and maturities that seek to maintain safety and
liquidity. The Company sells primarily to customers involved in the
application of laser technology, the manufacture of semiconductors, or
the manufacture of telecommunications equipment products. The Company
performs ongoing credit evaluations of its customers and does not require
collateral. The Company provides reserves for potential credit losses,
however such losses and yearly provisions have not been significant and
have been within management's expectations.
Foreign Currency Translation and Exchange Contracts
The Company's international subsidiaries use their local currency
as their functional currency. Assets and liabilities denominated in
foreign currencies are translated using the exchange rate on the balance
sheet dates. Net sales and expenses are translated using average rates of
exchange prevailing during the year. The translation adjustment resulting
from this process is shown separately as a component of other
stockholders' equity. Foreign currency transaction gains and losses are
not material and are included in the determination of net income.
During fiscal 1998, the Company entered into forward foreign
currency option contracts to hedge certain balance sheet accounts
denominated in Swiss Francs, Dutch Guilders, and German Marks. As of
June 30, 1998, the Company had foreign currency option contracts
outstanding in Swiss Francs, Dutch Guilders and German Marks for
approximately $2.4 million, $4.0 million and $600,000, respectively.
These foreign currency contracts expire on various dates in the first
quarter of fiscal 1999. The difference between the fair value and the
amortized contract value on foreign currency exchange contracts is
immaterial.
While the contract amounts provide one measure of the volume of the
transactions outstanding at June 30, 1998 they do not represent the
amount of the Company's exposure to credit risk. The Company's exposure
to credit risk (arising from the possible inability of the counterparts
to meet the terms of their contracts) is generally limited to the amount,
if any, by which the counterparts' obligations exceed the obligations of
the Company.
Revenue Recognition
The Company recognizes revenue generally at the time of shipment.
Revenue on the shipment of evaluation units is deferred until customer
acceptance. The Company provides for the estimated cost to repair
products under warranty at the time of sale.
Earnings (loss) per Share
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128, "Earnings per Share". Statement
No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. The
Company's diluted earnings per share are very similar to the previously
reported primary earnings per share. All earnings per share amounts for
all prior periods presented, where necessary, have been restated to
conform to the Statement 128 requirements and to reflect the 100% stock
dividend discussed in Note 8 to these consolidated financial statements.
As the Company incurred a loss in fiscal 1998 and 1997, the effect of
dilutive securities totaling 2,824,000 and 2,695,000 equivalent shares,
respectively, have been excluded from the 1998 and 1997 computation as
they are antidilutive. Dilutive securities exclude the conversion of
Series A Preferred Stock until the removal of all contingencies
attributable to their conversion is assured beyond a reasonable doubt.
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Denominator for basic earnings (loss)
per share-weighted average shares.... 34,723 32,964 24,832
Effect of dilutive securities:
Stock options outstanding............ -- -- 2,322
---------- ---------- ----------
Denominator for diluted earnings
(loss) per share..................... 34,723 32,964 27,154
========== ========== ==========
Net income (loss)....................... ($81,112) ($18,854) $2,792
========== ========== ==========
Basic earnings (loss) per share......... ($2.34) ($0.57) $0.11
========== ========== ==========
Dilutive earnings (loss) per share...... ($2.34) ($0.57) $0.10
========== ========== ==========
</TABLE>
Stock-based Compensation
In accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees," the Company records and amortizes, over the related
vesting periods, deferred compensation representing the difference
between the price per share of stock issued or the exercise price of
stock options granted and the fair value of the Company's common stock at
the time of issuance or grant. Stock compensation costs are immediately
recognized to the extent the exercise price is below the fair value on
the date of grant and no future vesting criteria exist.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Impact of Recently Issued Accounting Standards
In 1997, the Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income," was issued and is
effective for fiscal years commencing after December 15, 1997.
In 1997, the Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information," was issued and is effective for fiscal years commencing
after December 15, 1997.
In 1998, the Statement of Financial Accounting Standards No. 132
("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued and is effective for fiscal years
commencing after December 15, 1997.
The Company is required to adopt the provisions of SFAS 130, 131
and 132 in fiscal year 1999 and expects the adoption will not 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 Instrument and Hedging
Activities" was 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.
Reclassification
The Company separately classified goodwill on the Consolidated
Balance Sheets and has included stock based compensation as selling,
general and administrative expense on the Consolidated Statements of
Operations. For comparative purposes, amounts in the prior years have
been reclassified to conform to current year presentations.
NOTE 2. LINE of CREDIT
The Company has a $5.0 million revolving bank line of credit that
expires on January 28, 1999. Advances under the line of credit bear
interest at the bank's prime rate (8.5% at June 30, 1998) 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, 1998.
NOTE 3. OTHER ACCRUED EXPENSES
The components of other accrued expenses are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Acquisition and reorganization costs..... $8,294 $1,335
Warranty reserve......................... 1,906 1,005
Royalties payable........................ 587 405
Other accrued liabilities................ 4,643 2,163
----------- -----------
$15,430 $4,908
=========== ===========
</TABLE>
Acquisition and reorganization costs include the estimated amount
for exiting certain Philips facilities currently occupied by UNBV over
the next twelve months.
NOTE 4. INCOME TAXES
The expense (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1998 1997 1996
---------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Federal:
Current........................ $7,848 $4,635 $4,381
Deferred....................... (361) 367 (934)
---------- ----------- -----------
7,487 4,268 3,447
State:
Current........................ 3,245 1,222 635
Deferred....................... (524) (160) (130)
---------- ----------- -----------
2,721 1,062 505
Foreign:
Current........................ 1,152 1,166 84
Deferred....................... -- (1,064) --
---------- ----------- -----------
1,152 102 84
---------- ----------- -----------
Income tax expense............ $11,360 $5,432 $4,036
========== =========== ===========
</TABLE>
The tax benefit associated with exercises of stock options reduced
taxes currently payable by $6.2 million, $10.2 million and $3.0 million
for the years ended June 30, 1998, 1997 and 1996, respectively.
A reconciliation of the income tax expense (benefit) at the federal
statutory rate to the income tax expense (benefit) at the effective tax rate is
as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1998 1997 1996
---------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Income taxes (benefit) computed
at federal statutory rate..... ($23,716) ($4,563) $2,321
State taxes, net of federal
benefit....................... 1,796 701 333
Acquired in-process research
and development for which no
tax benefit is currently
recognizable.................. 33,853 9,466 1,523
Realization of valuation
allowance..................... (1,547) -- --
Tax exempt income............... (527) (502) (213)
Other........................... 1,501 330 72
---------- ----------- -----------
Income tax expense............ $11,360 $5,432 $4,036
========== =========== ===========
</TABLE>
The components of deferred taxes consist of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Deferred tax assets:
AMT and research tax credit
carryforwards.......................... $2,813 $350
Net operating loss carryforwards........ -- 2,872
Inventory reserve....................... 1,336 447
Additional tax basis of intangibles..... 31,286 9,848
Deferred compensation................... 2,637 --
Warranty and other reserves............. 538 1,527
Other................................... 1,430 767
----------- -----------
Total deferred tax assets............. 40,040 15,811
Valuation allowance..................... (31,743) (7,797)
----------- -----------
Net deferred tax assets............... 8,297 8,014
Deferred tax liabilities:
Other................................... -- 551
----------- -----------
Total deferred tax liabilities........ -- 551
----------- -----------
Total net deferred tax assets......... $8,297 $7,463
=========== ===========
</TABLE>
Approximately $3.0 million of the valuation allowance at June 30,
1998 relates to tax benefits of stock option deductions, which will be
credited to equity when realized. The balance of the valuation allowance
relates to the additional tax basis of intangibles, which will be
realized, generally, over a 15-year period. The valuation allowance
reduces net deferred tax assets to amounts considered realizable in the
near future based on projected future taxable income.
NOTE 5. LEASE COMMITMENTS
The Company leases manufacturing and office space primarily in
Manteca, California; Bloomfield, Connecticut; Chalfont, Pennsylvania;
Witney, United Kingdom; Zurich, Switzerland; Sydney, Australia and
Eindhoven, the Netherlands 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 its lease agreements on December 25, 2003 upon six months written
notification.
Future minimum commitments for noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Operating
Year Ending June 30, Leases
---------------------------------- -----------
(in thousands)
<S> <C>
1999............................ $4,074
2000............................ 4,462
2001............................ 4,347
2002............................ 4,223
2003............................ 4,001
Thereafter...................... 28,140
-----------
Total minimum lease payments.... $49,247
===========
</TABLE>
Rental expense for operating leases for the years ended June 30,
1998, 1997, and 1996 amounted to approximately $1,207,000, $904,000 and
$685,000, respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
As discussed in Note 9, the Company acquired 100% of the capital
stock of Philips Optoelectronics B.V. from Koninklijke Philips
Electronics N.V. ("Philips"). Subsequent to the acquisition, Philips owns
approximately 8.5% of the Company's outstanding common stock and has one
seat on the Company's Board of Directors. The Company has operating
leases for manufacturing facilities and site service agreements for
network support and information systems at the Philips NATLAB Center in
Eindhoven, the Netherlands. In addition, the Company is obligated to
provide future design and development services on certain laser
technology to Philips that the Company believes will be of strategic
importance to Philips' existing consumer and business electronics
operations. The Company is obligated to provide 15 million Dutch Guilders
(approximately $7.5 million) of such services through April 2000, of
which approximately 10 million Dutch Guilders is expected to be provided
ratably between July 1998 and April 2000.
Pursuant to the Philips transaction, Philips has committed to
provide interim treasury, export, distribution and certain site services
to the Company for its operations in the Netherlands to minimize
disruptions to its business activity. Lease commitments to Philips
included in Note 5 above represent 76% of total future minimum
commitments for non-cancelable operating leases. Balances with related
parties that are included in the consolidated financial statements are
immaterial except for the following amounts with Philips:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Accounts receivable...................... $6,805 $ --
Accounts payable......................... $442 $ --
These balances are expected to settle on or before December 31, 1998.
</TABLE>
NOTE 7. PENSION and OTHER EMPLOYEE BENEFITS
Pensions
Through the acquisition of ULE in Switzerland, the Company assumed
two foreign defined-benefit pension plans related to the employees of
ULE. Benefits are based on years of service and annual compensation on
retirement. Plans are funded in accordance with applicable Swiss
regulations.
The funded status of the foreign defined-benefit plans is
summarized below:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Accumulated benefit obligation........... $3,819 $3,129
=========== ===========
Vested benefit obligation................ $3,819 $3,129
=========== ===========
Projected benefit obligation............. ($6,586) ($6,448)
Fair market value of plan assets......... 4,909 4,488
Unrecognized net asset................... (775) --
----------- -----------
Projected benefit obligation less than
(in excess of) plan assets............... ($2,452) ($1,960)
=========== ===========
</TABLE>
The components of net pension costs for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
<S> <C> <C>
Service cost............................. $626 $458
Interest cost............................ 339 322
Expected return on plan assets........... (253) (224)
----------- -----------
Net pension expense...................... $712 $556
=========== ===========
</TABLE>
For fiscal 1998 and 1997, the weighted average discount rates and
long-term rates for compensation increases used for estimating the
benefit obligations and the expected return on plan assets were as follows:
Discount rate...................................... 5.0%
Rate of increase in compensation levels............ 3.5%
Expected long-term return on assets................ 4.0%
Plan assets of the foreign plans consist primarily of listed
stocks, bonds and cash surrender value life insurance policies.
In connection with the acquisition of UNBV, the Company agreed to
continue to provide pension benefits to its qualified Holland employees
through a multi-employer defined benefit pension plan sponsored by the
Holland Metalworkers Union. Philips is obligated to fully fund the
pension benefit obligation for all periods prior to June 9, 1998 directly
to the Metalworkers Union Plan. The Company assumed a $2.0 million
liability at acquisition for the projected benefit obligation in excess
of assets expected to be transferred to the multi-employer plan by
Philips in accordance with SFAS No.87 "Employer's Accounting for
Pensions." Pension expense for fiscal 1998 under this plan was
immaterial. The amount of accumulated benefits and net assets of the
multi-employer plan is not currently available to the Company.
Other Employee and Postemployment Benefits
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 $10,000 per year. Company contributions
consist of $.25 per dollar contributed by the employees with at least six
months of service. Company contributions were approximately $426,000,
$309,000 and $215,000 for the years ended June 30, 1998, 1997, and 1996,
respectively.
NOTE 8. STOCKHOLDERS' EQUITY
Preferred Stock
In connection with the acquisition of UNBV, the Company issued
100,000 shares of non-voting, non-cumulative Series A Preferred Stock to
Philips having a par value of $.001 per share. The Series A Preferred
Stock is convertible into additional shares of common stock based on an
agreed upon formula for annual and cumulative shipments of certain
products during the four-year period ending June 30, 2002. The Preferred
Stock is also convertible into common stock upon the occurrence of a
Redemption Event, as defined in the Series A Preferred Stock Agreement.
In June 1998, the Company adopted a Stockholder Rights Agreement (a
"Right") for stockholders of record as of July 6, 1998. Each Right will
entitle stockholders to purchase 1/1000 share of the Company's Series B
Preferred Stock at an exercise price of $270. The Rights only become
exercisable in certain limited circumstances following the tenth day
after a person or group announces acquisitions of or tender offers for
15% or more of the Company's common stock. For a limited period of time
following the announcement of any such acquisition or offer, the Rights
are redeemable by the Company at a price of $.01 per Right. If the
Rights are not redeemed, each Right will then entitle the holder to
purchase common stock having the value of twice the then-current exercise
price. For a limited period of time after the exercisability of the
Rights, each Right, at the discretion of the Board, may be exchanged for
either 1/1000 share of the Company's Series A Preferred Stock or one
share of common stock per Right. The Rights expire on June 22, 2008.
The Board of Directors has the authority, without any further vote
or action by the stockholders, to provide for the issuance of an
additional 900,000 shares of Preferred Stock from time to time in one or
more series with such designations, rights, preferences and limitations
as the Board of Directors may determine, including the consideration
received therefore, the number of shares comprising each series, dividend
rates, redemption provisions, liquidation preferences, redemption fund
provisions, conversion rights and voting rights, all without the approval
of the holders of common stock.
Stock Dividend
In November 1997, the stockholders of the Company approved an
increase in the number of shares of common stock authorized from
20,000,000 to 50,000,000 shares and the Company declared a 100% stock
dividend. The stock dividend was paid November 12, 1997. All share and
per share amounts included in the accompanying consolidated financial
statements and notes thereto applicable to prior periods have been
restated to reflect this stock dividend.
Stock Option Plans
As of June 30, 1998, Uniphase has reserved approximately 8,224,000
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"), the Amended and Restated 1993 Flexible Stock
Incentive Plan (the "1993 Option Plan") and the 1996 Non-qualified Stock
Option Plan ("the 1996 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 is generally equal to fair value of
the underlining stock at the date of grant. Options generally become
exercisable over a four-year period and, if not exercised, expire from
five to ten years from the date of grant. The following table summarizes
option activity through June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding
-----------------------
Weighted
Shares Average
Available Number Exercise
for Grant of shares Price
---------- ----------- -----------
(in thousands, except price per share)
<S> <C> <C> <C>
Balance at June 30, 1995........ 916 5,171 $2.21
Increase in authorized shares... 420 -- --
Granted......................... (1,408) 1,408 5.98
Canceled........................ 156 (492) 1.99
Exercised....................... -- (1,058) 1.22
---------- ----------- -----------
Balance at June 30, 1996........ 84 5,029 3.33
Increase in authorized shares... 2,742 -- --
Granted......................... (2,002) 2,002 20.15
Canceled........................ 236 (228) 12.44
Exercised....................... -- (1,428) 2.69
---------- ----------- -----------
Balance at June 30, 1997........ 1,060 5,375 9.41
Increase in authorized shares... 2,760 -- --
Granted......................... (2,005) 2,005 36.93
Canceled........................ 193 (193) 13.56
Exercised....................... -- (942) 4.04
Expired......................... (30) -- --
---------- ----------- -----------
Balance at June 30, 1998........ 1,978 6,245 $18.92
========== =========== ===========
</TABLE>
The following table summarizes the stock options outstanding as of
June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Average Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (in years) Price Exercisable Price
- --------------------- ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 0.23 - $ 1.20 731,977 4.09 $ 0.92 731,977 $ 0.92
$ 1.94 - $ 3.05 663,535 5.80 $ 2.70 508,195 $ 2.65
$ 3.44 - $ 5.88 910,438 7.71 $ 5.50 522,096 $ 5.50
$ 7.31 - $15.00 203,348 5.92 $ 9.83 80,475 $ 8.53
$16.42 - $16.42 680,000 6.68 $16.42 212,500 $16.42
$17.00 - $25.00 837,970 6.57 $21.72 318,604 $22.37
$25.63 - $31.63 624,614 6.82 $29.35 78,864 $25.63
$32.38 - $36.53 686,896 7.29 $34.13 56,111 $32.95
$36.84 - $44.75 771,000 7.63 $39.30 2,222 $44.75
$52.75 - $56.13 135,650 7.91 $53.64 -- $ --
----------- ----------- ---------- ----------- ----------
$ 0.23 - $56.13 6,245,428 6.64 $18.92 2,511,044 $ 8.03
=========== ===========
</TABLE>
Employee Stock Purchase Plans
The Uniphase 1993 Employee Stock Purchase Plan (the "93 Purchase
Plan") was adopted in October 1993, amended during fiscal 1994 and
expires December, 1998. The Company has reserved 400,000 shares of common
stock for issuance under the 93 Purchase Plan. The 93 Purchase Plan
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 93 Purchase Plan is structured as a qualified employee
stock purchase plan under Section 423 of the amended Internal Revenue
Code of 1986. However, the 93 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. During fiscal 1998,
employees purchased 147,835 shares of common stock under the 93 Purchase
Plan and 121,539 shares are available for future issuance. The Company
terminated the 93 Purchase Plan in August 1998 and cancelled any shares
then remaining but unissued.
The Uniphase 1998 Employee Stock Purchase Plan (the "98 Purchase
Plan") was adopted in June 1998. The Company has reserved 1,000,000
shares of common stock for issuance under the 98 Purchase Plan. The 98
Purchase Plan, effective August 1, 1998, 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 August 1, 2008 or the
date on which all shares available for issuance under the Purchase Plan
have been sold.
Stock Based Compensation
The Company has elected to follow APB Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its employee stock
options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB No. 25,
when the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized in the Company's financial statements.
During fiscal 1996, the Company replaced all options to purchase
UTP stock previously issued to UTP employees with options to purchase
stock of the Company. The Company incurred compensation expense totaling
$4.4 million in connection with such options granted which were effective
May 15, 1996. Of this total $3.0 million, related to options which have
vested as of the grant date, was charged to expense in the fiscal year
ended June 30, 1996. The remaining $1.4 million was charged to expense
over the remaining vesting period of three years. In conjunction with the
acquisition of ULE in fiscal 1997, the Company issued stock options to
key employees of ULE at a value that was less than the market value. The
Company is recognizing compensation expense for the total value of $2.0
million over the vesting period of four years. Stock based compensation
expense in fiscal 1998 was approximately $6.9 million and is included as
a component of operating expenses. These options had a weighted average
fair value of $42.95 per share.
Pro forma information regarding net income and earnings per share
is required by SFAS No. 123. This information is required to be
determined as if the Company had accounted for its employee stock options
(including shares issued under the Employee Stock Purchase Plan,
collectively called "options") granted subsequent to June 30, 1995 under
the fair value method of that statement. The fair value of options
granted in 1998, 1997 and 1996 reported below has been estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
Employee Stock
Employee Purchase
Stock Options Plan Shares
-------------------- --------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Expected life (in years)... 5.5 5.5 5.5 0.5 0.5 0.5
Risk-free interest rate.... 6.4% 6.5% 5.9% 5.9% 5.4% 5.4%
Volatility................. 0.66 0.64 0.64 0.76 0.75 0.57
Dividend yield............. 0% 0% 0% 0% 0% 0%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair
value of its options. A total of approximately 2,005,000 options were
granted during fiscal 1998 with exercise prices equal to the market price
of the stock on the grant date. The weighted-average exercise price and
weighted-average fair value of these options were $36.93 and $23.32,
respectively. The weighted-average exercise price and weighted-average
fair value of stock options granted during fiscal 1997 was $22.07 and
$13.74 per share, respectively. The weighted average exercise price and
weighted average fair value of stock options granted during fiscal 1996
was $5.98 and $4.59, respectively. The weighted average fair value of
shares granted under the Employee Stock Purchase Plan during 1998, 1997
and 1996 was $10.63, $7.08 and $3.35, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income (loss).......... ($95,161) ($23,070) $1,720
Pro forma earnings (loss) per share.. ($2.74) ($0.70) $0.06
</TABLE>
Pro forma net income represents the difference between compensation
expense recognized under APB 25 and the related expense using the fair
value method of SFAS No. 123 taking into account any additional tax
effects of applying SFAS No. 123. The effects on pro forma disclosures of
applying SFAS No. 123 are not likely to be representative of the effects
on pro forma disclosures of future years. Because SFAS No. 123 is
applicable only to options granted subsequent to June 30, 1995, the pro
forma effect will not be fully reflected until 1999.
NOTE 9. ACQUISITIONS
Uniphase Netherlands
On June 9, 1998, the Company acquired 100% of the capital stock of
Uniphase Netherlands B.V. (formerly Philips Optoelectronics B.V.) from
Philips. UNBV designs, develops, manufactures and markets high
performance semiconductor lasers, photo diodes and components for
telecommunications, CATV, multimedia and printing markets. The total
purchase price of $135.4 million consisted of 3,259,646 shares of common
stock, cash of $100,000 and $4.0 million in related acquisition costs.
The common stock is subject to restrictions from trading for twelve
months from the transaction date, and Philips became the largest
stockholder of record at 8.5% of the Company's common stock at the date
of closing. In addition, the Company issued 100,000 shares of Series A
Preferred Stock to Philips as contingent consideration worth up to 175
million Dutch Guilders (approximately $87 million). The number of shares
of common stock to be issued upon conversion of this preferred stock is
tied to unit shipments of certain products by UNBV during the four-year
period ending June 30, 2002 and the Company's stock price at the date the
contingency attributable to the unit shipments is removed. The contingent
consideration is not included in the acquisition cost above, but is
recorded when the aggregated unit shipment criteria are assured beyond a
reasonable doubt.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include
the results of operations of UNBV subsequent to the acquisition date. The
purchase price was allocated to the net assets and in-process research
and development acquired. The purchased intangible assets and goodwill
are being amortized in accordance with the Company's policy for
intangible assets.
To determine the value of the acquired in-process research and
development, the Company considered, among other factors, the stage of
development of each project, the time and efforts needed to complete each
project, expected income, target markets and associated risks. Associated
risks included inherent difficulties and uncertainties in completing the
project and thereby achieving technical feasibility, and risks related to
the viability of and potential changes in future target markets. The
Company applied a discount rate of 25% in the valuation of in-process
technology. This analysis resulted in a valuation of $93,000,000 for
acquired in-process research and development that had not reached
technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles,
the $93,000,000 was expensed. The Company estimates that a total
investment of $32,666,000 in research and development over the next three
years will be required to complete the in-process research and
development.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development, as if the acquisition of UNBV had
occurred at the beginning of fiscal 1997 and does not purport to be
indicative of what would have occurred had the acquisition been made as
of the beginning of fiscal 1997 or of results which may occur in the
future.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
(in thousands, except per share data) 1998 1997
--------- ---------
<S> <C> <C>
Net sales............................................ $204,339 $131,566
Net income (loss).................................... $7,144 ($26,004)
Earnings (loss) per share............................ $0.19 ($0.72)
</TABLE>
The effects of the UNBV acquisition on the 1998 consolidated statement
of cash flows were as follows (in thousands):
<TABLE>
<S> <C>
Working capital (deficiency) acquired............................ ($1,155)
Property, plant and equipment.................................... 7,084
Intangibles...................................................... 38,523
Other liabilities................................................ (2,008)
In-process research and development.............................. 93,000
---------
Total purchase price............................................. $135,444
=========
</TABLE>
Uniphase Fiber Components
On November 26, 1997, the Company acquired 100% of the capital
stock of Uniphase Fiber Components Pty Ltd. (formerly INDX Pty Ltd.) and
obtained certain licensing rights from Australia Photonics Pty Limited
(AP). UFC designs and manufactures fiber optic reflection filters (fiber
Bragg gratings) for wavelength division multiplexing (WDM) applications.
The total purchase price of $6,896,000 included a cash payment of
$6,496,000 to AP and acquisition expenses of $400,000.
The acquisition has been accounted for as a purchase and
accordingly, the accompanying fiscal 1998 financial statements include
the results of operations of UFC subsequent to the acquisition date. The
purchase price was allocated to the net assets and the in-process
research and development acquired. The purchased intangible assets are
being amortized over the estimated useful life of 5 years. Pro forma
results of operations as if the transaction had occurred at the beginning
of the year are not shown as the effect would not be material.
To determine the value of the acquired in-process research and
development, the Company considered, among other factors, the state of
development of each project, the time and efforts needed to complete each
project, expected income, target markets and associated risks. Associated
risks included inherent difficulties and uncertainties in completing the
projects and thereby achieving technical feasibility, and risks related
to the viability of and potential changes in future target markets. The
Company applied a discount rate of 20% in the valuation of in-process
technology. This analysis resulted in a valuation of $6,568,000 for
acquired in-process research and development that had not reached
technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles,
such $6,568,000 was charged to income. The Company estimates that a total
investment of $1.9 million in research and development over the next year
will be required to complete the in-process research and development.
The effects of the UFC acquisition on the 1998 consolidated statement
of cash flows were as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Working capital (deficiency) acquired.......................... ($344)
Property, plant and equipment.................................. 279
Intangibles.................................................... 193
In-process research and development............................ 6,568
---------
Total purchase price........................................... $6,696
=========
</TABLE>
Uniphase Laser Enterprise
On March 10, 1997, the Company acquired the net assets of ULE from
IBM. ULE designs and manufactures semiconductor diode laser chips used by
the telecommunications industry. The total purchase price of $45,900,000
includes a cash payment of $45,000,000 to IBM and acquisition expenses of
$900,000.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include
the results of operations of ULE subsequent to the acquisition date. The
purchase was allocated to the net assets and in-process research and
development acquired. The purchased intangible assets are being amortized
over the estimated useful life of 5 years.
To determine the value of the acquired in-process research and
development, the Company considered, among other factors, the stage of
development of each project, the time and efforts needed to complete each
project, expected income, target markets and associated risks. Associated
risks included inherent difficulties and uncertainties in completing the
project and thereby achieving technical feasibility, and risks related to
the viability of and potential changes in future target markets. The
Company applied a discount rate of 20% in the valuation of in-process
technology. This analysis resulted in a valuation of $33,314,000 for
acquired in-process research and development that had not reached
technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles,
the $33,314,000 was expensed.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development, as if the acquisition of ULE had
occurred at the beginning of fiscal 1996 and does not purport to be
indicative of what would have occurred had the acquisition been made as
of the beginning of fiscal 1996 or of results which may occur in the
future.
<TABLE>
<CAPTION>
(in thousands, except per share data) Year Ended June 30,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Net sales............................................ $123,813 $88,264
Net income........................................... $17,159 $6,618
Earnings per share................................... $0.52 $0.25
</TABLE>
The effects of the ULE acquisition on the 1997 consolidated statement
of cash flows were as follows (in thousands):
<TABLE>
<S> <C>
Working capital acquired........................................ $8,358
Property, plant and equipment................................... 3,477
Prepaid lease and service agreements............................ 1,064
Intangibles..................................................... 4,733
Other liabilities............................................... (5,046)
In-process research and development............................. 33,314
---------
Total purchase price............................................ $45,900
=========
</TABLE>
UTP Fibreoptics
On May 31, 1996, the Company acquired 100% of the outstanding
shares of GCA and FAS. GCA and FAS operates as UFP. UFP 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, and $6,061,000 notes payable to
the former stockholders and $500,000 in related acquisition costs. The
principal and accumulated interest on the notes was paid in August 1997.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include
the results of operations of UFP 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
over the purchase price are being amortized over its estimated useful
life of 5 years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisition of UFP 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,
(in thousands, except per share data) 1996
---------
<S> <C>
Net sales...................................................... $74,781
Net income..................................................... $6,635
Earnings per share............................................. $0.25
</TABLE>
The effects of the UFP 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>
NOTE 10. 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>
Years Ended June 30,
--------------------------------
(In thousands) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales:
United States-domestic................ $109,429 $73,785 $52,313
United States-export.................. 47,681 20,043 13,742
Europe................................ 19,945 22,816 8,738
Intercompany.......................... (1,254) (9,678) (5,720)
---------- ---------- ----------
Total net sales..................... $175,801 $106,966 $69,073
========== ========== ==========
Operating income (loss):
United States......................... ($79,283) $12,452 $4,987
Europe................................ 6,530 (28,693) (77)
Eliminations.......................... (250) (611) 519
---------- ---------- ----------
Total operating income (loss)....... ($73,003) ($16,852) $5,429
========== ========== ==========
Identifiable assets:
United States......................... $177,100 $149,008 $168,095
Europe................................ 92,243 28,571 5,729
---------- ---------- ----------
Total assets........................ $269,343 $177,579 $173,824
========== ========== ==========
</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 telecommunications customer accounted for 12% of the Company's
consolidated net sales in fiscal 1998. Another customer purchased both
laser subsystems and Ultrapointe Systems that accounted for a combined
12% and 13% of the Company's consolidated net sales in fiscal 1998 and
1996, respectively. One other laser subsystem customer accounted for 10%
and 12% of the Company's consolidated net sales in fiscal years 1997 and
1996, respectively.
NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION
The consolidated statement of cash flows for fiscal 1998 excludes
noncash investing activities of $131.3 million in common stock issued to
Philips. Net cash provided by operating activities reflects cash payments
for interest and income taxes as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------
1998 1997 1996
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash payments for:
Interest...................................... $69 $217 $43
Income taxes.................................. $2,318 $2,262 $1,107
</TABLE>
Note 12. SUBSEQUENT EVENT (UNAUDITED)
In August 1998, the Company acquired certain assets of Chassis
Engineering Inc. ("Chassis") for $70,000 in cash and convertible debt of
$2.73 million. Chassis designs, develops, markets and manufactures
packaging solutions for fiber optic and other high performance
components. The convertible debt is composed of a $1.93 million demand
obligation and two performance-based instruments totaling $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 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
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
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
1998 Annual Meeting of Stockholders and is incorporated herein by
reference.
Item 11.Executive Compensation
The information required by this Item is included in the Executive
Compensation and Related Information sections of the Company's Proxy
Statement to be filed in connection with the Company's 1998 Annual
Meeting of Stockholders and is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is included in the Security
Ownership of Certain Beneficial Owners and Management section of the
Company's Proxy Statement to be filed in connection with the Company's
1998 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 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Consolidated Statements of Operations -- Years ended June 30,
1998, 1997 and 1996.........................................
Consolidated Balance Sheets -- June 30, 1998 and 1997.........
Consolidated Statements of Stockholders' Equity -- Years ended
June 30, 1998, 1997 and 1996................................
Consolidated Statements of Cash Flows -- Years ended June 30,
1998, 1997 and 1996.........................................
Notes to Consolidated Financial Statements....................
Report of Ernst & Young LLP, Independent Auditors.............
(a)(2) Financial Statement Schedules
The following financial statement schedules is filed as part of
this annual report. All other financial statement schedules have been
omitted because they are not applicable or are not required or the
information required to be set forth therein is included in the
Company's consolidated financial statements set forth in Item 8 of this
Form 10-K and the notes thereto.
UNIPHASE CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Charged Balance
at to Costs Charged to at
Beginning and Other Deduction End of
Description of Period Expenses Accounts(2) (1) Period
- --------------------------------- --------- --------- ----------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998:
Allowance for doubtful accounts. $1,877 $118 $386 $1,831 $550
Year ended June 30, 1997:
Allowance for doubtful accounts. $285 $582 $1,083 $73 $1,877
Year ended June 30, 1996:
Allowance for doubtful accounts. $164 $139 $ -- $18 $285
</TABLE>
(1) Charges for uncollectible accounts, net of recoveries.
(2) Allowance assumed through the acquisition of UNBV and UFC in fiscal
1998 and ULE in fiscal 1997.
(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
The Company filed reports on Form 8-K on June 24, 1998, Form 8-K/A
on August 24, 1998 and Amendment 1 to Form 8-K/A Amendment 1 on August 25,
1998 reporting the purchase of UNBV 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 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 28, 1998 UNIPHASE CORPORATION
By: /s/ KEVIN N. KALKHOVEN
-----------------------
Kevin N. Kalkhoven
Chairman and Chief Executive
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kevin N. Kalkhoven and Anthony R.
Muller, 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
- ----------------------------- ----------------------------- ------------------
<S> <C> <C>
/s/ KEVIN N. KALKHOVEN Chairman and Chief Executive September 28, 1998
- ----------------------------- Officer (Principal Executive
Kevin N. Kalkhoven Officer)
/s/ ANTHONY R. MULLER Senior Vice President, September 28, 1998
- ----------------------------- Chief Financial
Anthony R. Muller Officer and Secretary
(Principal Financial and
Accounting Officer)
/s/ ROBERT C. FINK Director September 28, 1998
- -----------------------------
Robert C. Fink
Director September 28, 1998
- -----------------------------
Catherine P. Lego
/s/ STEPHEN C. JOHNSON Director September 28, 1998
- -----------------------------
Stephen C. Johnson
/s/ WILSON SIBBETT, Ph.D. Director September 28, 1998
- -----------------------------
Wilson Sibbett, Ph.D.
/s/ CASIMIR S. SKRZYPCZAK Director September 28, 1998
- -----------------------------
Casimir S. Skrzypczak
/s/ PETER GUGLIELMI Director September 28, 1998
- -----------------------------
Peter Guglielmi
/s/ WILLEM HAVERKAMP Director September 28, 1998
- -----------------------------
Willem Haverkamp
/s/ Martin Kaplan Director September 28, 1998
- -----------------------------
Martin Kaplan
</TABLE>
<PAGE>
UNIPHASE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- ------------- ---------------------------------------------------------
<S> <C>
2.1(13)* Exhibit D to Purchase Agreement among Uniphase Corporation,
International Business Machines Corporation, and Uniphase Laser
Enterprise AG (previously filed)
3(i)(b)(1) Amended and Restated Certificate of Incorporation.
3(i)(c) Certificate of Amendment to Amended and Restated Certificate of
Incorporation
3(i)(d) Certificate of Designation
3(ii)(c)(6) Bylaws of the Registrant, as amended.
10.1(1) Superseding Patent License Agreement, dated June 21, 1989,
between Patlex Corporation and the Registrant.
10.2(1) Agreement, dated December 2, 1991, between Crosfield
Electronics Limited and the Registrant.
10.3(1) License Agreement, dated December 18, 1991, between The Regents
of University of California and the Registrant.
10.4(1) License Agreement, dated August 2, 1993, between Research
Corporation Technologies, Inc., and the Registrant.
10.5(2) 1984 Amended and Restated Stock Plan.
10.6(2) 1993 Amended and Restated Employee Stock Purchase Plan.
10.7(1) Patent License Agreement, dated October 29, 1993, by and
between the Registrant and Molecular Dynamics, Inc.
10.8(4) Loan and Security Agreement, dated January 28, 1997 between
Bank of the West and the Registrant.
10.9(5) Distributor Agreement, dated October 1, 1994, between Innotech
Corporation and the Registrant.
10.10(5) Amendment, dated July 14, 1995, to Lease, dated November 6,
1984, between Alexander/Dorothy Scheflo and the Registrant.
10.11(5) Nonexclusive Sublicense Agreement, dated July 14, 1995, between
Coherent, Inc. and the Registrant.
10.12(5) Sublicense Agreement, dated May 26, 1995, between Stanford
University and the Registrant.
10.12(6) Joint Venture Agreement, dated July 24, 1995, between Daniel
Guillot and the Registrant.
10.13(5) License Agreement, dated June 8, 1995, between ISOA, Inc. and
the Registrant.
10.14(7) Purchase and Sale Agreement between Registrant and
Tasman-Sterling Associates, a California general partnership,
dated January 30, 1996.
10.15(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.
10.16(6) Joint Venture agreement, dated July 24, 1995, between Daniel
Guillot and the Registrant, as amended October 6, 1995.
10.17(10) Amended and Restated 1993 Flexible Stock Incentive Plan.
10.18(11) OEM Agreement dated July 24, 1997 by and between KLA-Tencor
Corporation and the Registrant.
10.19(12) Purchase Agreement amoung Uniphase Corporation, International
Business Machines Corporation and Uniphase Laser Enterprise AG
10.20(12) Technology License Agreement
10.21(12) Patent License Agreement
10.22(12) The Agreement for Exchange of Confidential Information
10.23 (16) Master Purchase Agreement dated as of May 29, 1998, by and
among Koninklijke Philips Electronics N.V., Uniphase
Corporation, Uniphase Opto Holdings, Inc., and Uniphase
International C.V.
10.24(16) Stockholder Agreement dated as of June 9, 1998, by and between
Uniphase Corporation. and Koninklijke Philips Electronics N.V.
10.25(16) Certificate of Designation of the Series A Preferred Stock
dated as of May 29, 1998, executed by Uniphase Corporation.
10.26(16) Series A Preferred Conversion and Redemption Agreement dated as
of June 9, 1998, by and between Uniphase Corporation and
Koninklijke Philips Electronics N.V.*
10.27(16) Asset Sale Agreement (U.S. Intangible Assets) dated as of June
9, 1998, by and between Uniphase Corporation and Koninklijke
Philips Electronics N.V.
10.28(16) Asset Sale Agreement (Foreign Intangible Assets) dated as of
June 9, 1998, by and between Uniphase Corporation and
Koninklijke Philips Electronics N.V.
10.29(16) Lease dated as of June 9, 1998 between Uniphase Netherlands
B.V. and Nederlandse Philips Bedrijven B.V.
10.30(16) Lease dated as of June 9, 1998 between Uniphase Netherlands
B.V. and Nederlandse Philips Bedrijven B.V.
10.31(16) Site Services Agreement dated as of June 9, 1998 between
Uniphase Netherlands B.V. and Nederlandse Philips Bedrijven B.V.
10.32 1998 Employee Stock Purchase Plan
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP, independent auditors
24.1 Powers of Attorney
27.1 Financial Data Schedule for the Years Ended June 30, 1998,
1997 and 1996.
27.2 Financial Data Schedule for the Quarters Ended September 30,
and December 31, 1997.
</TABLE>
- ---------------
* The SEC has granted confidential treatment for certain portions of this
exhibit.
(1) 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.
(2) 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.
(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
December 31, 1996 as filed on February 14, 1997.
(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 exhibits filed with the Registrant's
quarterly report on Form 10- Q for the period ended December 31,
1995.
(9) Incorporated by reference to the exhibit to the Company's current
report on Form 8-K filed February 22, 1996.
(10) Incorporated by reference to the exhibit to the Company's form
S-3/A filed June 7, 1996.
(11) 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.
(12) 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.
(13) Incorporated by reference to exhibits filed with Registrant's
registration statement on form S-3A, Amendment No. 2, file number
333-27931 filed with the Securities and Exchange Commission on
August 12, 1997. Confidential treatment has been requested with
respect to certain portions.
(14) Incorporated by reference to the exhibit to the Company's current
Report on Form 8-K filed March 25, 1997.
(15) Incorporated by reference to the exhibit to the Company's Report
on Form 8-K/A filed October 6, 1997.
(16) Incorporated by reference to the exhibit to the Company's current
Report on Form 8-K filed June 24, 1998.
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Uniphase Corporation, a corporation organized and existing under
the laws of the State of Delaware, (the "Corporation") hereby
certifies as follows:
FIRST: That, in lieu of a meeting, the Board of Directors of
the Corporation, by unanimous written consent of its members, have
adopted a resolution proposing and declaring advisable the following
amendment to the Amended and Restated Certificate of Incorporation of
the Corporation:
RESOLVED, that paragraph 4.1 of Article 4 of the Corporation's Amended
and Restated Certificate of Incorporation shall be amended, subject to
stockholder approval, to read in its entirety as follows:
"4.1. Authorized Capital Stock. The Corporation is authorized to
issue two classes of stock to be designated, respectively, `Common
Stock' and `Preferred Stock.' The total number of shares which the
Corporation is authorized to issue is fifty-one million (51,000,000)
shares. Fifty million (50,000,000) shares shall be Common Stock, each
having a par value of one-tenth of one cent ($.001). One million
(1,000,000) shares shall be Preferred Stock, each having a par value
of one-tenth of one cent ($.001)."
SECOND: That the stockholders of the Corporation have approved
at a Special Meeting of Stockholders held on October 16, 1997 said
amendment in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in
accordance with applicable provisions of Sections 242 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Uniphase Corporation has caused this
Certificate of Amendment to Amended and Restated Certificate of
Incorporation to be signed by its President and attested to by its
Secretary this _______ day of November, 1997.
UNIPHASE CORPORATION
By
Kevin Kalkhoven
President
ATTEST:
/s/ Dan E. Pettit
Dan E. Pettit
Secretary
UNIPHASE CORPORATION
CERTIFICATE OF DESIGNATION
OF THE VOTING POWERS, DESIGNATION,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF THE
SERIES B PREFERRED STOCK
_____________________________________
Pursuant to Section 151 of the General Corporation Law of the
State of Delaware
_____________________________________
The undersigned officers of Uniphase Corporation, a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), in accordance with the provisions of
Section 103 thereof, DO HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of
Directors of the Corporation by its Restated Certificate of
Incorporation (the "Certificate"), the said Board of Directors, at a
duly called meeting held on June 11, 1998, at which a quorum was present
and acted throughout, adopted the following resolution, which resolution
remains in full force and effect on the date hereof creating a Series of
100,000 shares of Preferred Stock having a par value of $.001 per share,
designated as Series B Preferred Stock (the "Series B Preferred
Stock") out of the class of 1,000,000 shares of preferred stock of the
par value of $.001 per share (the "Preferred Stock"):
RESOLVED, that pursuant to the authority vested in the Board of
Directors in accordance with the provisions of its Certificate, the
Board of Directors does hereby create, authorize and provide for 100,000
shares of its authorized Preferred Stock to be designated and issued as
the Series B Preferred Stock, having the voting powers, designation,
relative, participating, optional and other special rights, preferences
and qualifications, limitations and restrictions that are set forth as
follows:
1. Dividends and Distributions. (A) Subject to the prior and
superior rights of the holders of any shares of any other Series of
Preferred Stock or any other shares of stock of the Corporation ranking
prior and superior to the shares of Series B Preferred Stock with
respect to dividends, each holder of one one-thousandth (1/1000) of a
share (a "Unit") of Series B Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for that purpose, (i) quarterly dividends payable in
cash on the last day of February, May, August and November in each year
(each such date being a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of
such Unit of Series B Preferred Stock, in an amount per Unit (rounded to
the nearest cent) equal to the greater of (a) $.01 or (b) subject to the
provision for adjustment hereinafter set forth, the aggregate per share
amount of all cash dividends declared on shares of the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the
first issuance of a Unit of Series B Preferred Stock, and (ii) subject
to the provision for adjustment hereinafter set forth, quarterly
distributions (payable in kind) on each Quarterly Dividend Payment Date
in an amount per Unit equal to the aggregate per share amount of all
non-cash dividends or other distributions (other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock, by reclassification or otherwise) declared on shares of
Common Stock since the immediately preceding Quarterly Dividend Payment
Date, or with respect to the first Quarterly Dividend Payment Date,
since the first issuance of a Unit of Series B Preferred Stock. In the
event that the Corporation shall at any time after June 22, 1998 (the
"Rights Declaration Date") (i) declare any dividend on outstanding
shares of Common Stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, then in each such case
the amount to which the holder of a Unit of Series B Preferred Stock was
entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which shall be the number of shares of Common
Stock that are outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on
Units of Series B Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the shares
of Common Stock (other than a dividend payable in shares of Common
Stock); provided, however, that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $.01 per Unit
on the Series B Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and shall be cumulative on
each outstanding Unit of Series B Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such Unit
of Series B Preferred Stock, unless the date of issuance of such Unit is
prior to the record date for the first Quarterly Dividend Payment Date,
in which case, dividends on such Unit shall begin to accrue from the
date of issuance of such Unit, or unless the date of issuance is a
Quarterly Dividend Payment Date or is a date after the record date for
the determination of holders of Units of Series B Preferred Stock
entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on Units of Series B Preferred Stock in an amount less than the
aggregate amount of all such dividends at the time accrued and payable
on such Units shall be allocated pro rata on a unit-by-unit basis among
all Units of Series B Preferred Stock at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of
Units of Series B Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment thereof.
2. Voting Rights. The holders of Units of Series B Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each Unit of Series B Preferred Stock shall entitle the holder thereof
to one vote on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on outstanding
shares of Common Stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock or (iii) combine the outstanding
shares of Common Stock into a smaller number of shares, then in each
such case the number of votes per Unit to which holders of Units of
Series B Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator
of which shall be the number of shares of Common Stock outstanding
immediately after such event and the denominator of which shall be the
number of shares of Common Stock that were outstanding immediately prior
to such event; and
(B) Except as otherwise provided herein, in the Certificate or the
Bylaws of the Corporation or as required by law, the holders of Units of
Series B Preferred Stock and the holders of shares of Common Stock shall
vote together as one class on all matters submitted to a vote of
stockholders of the Corporation, and such holders shall have no special
voting rights and their consents shall not be required for taking any
corporate action.
3. Certain Restrictions. (A) Whenever quarterly dividends or
other dividends or distributions payable on Units of Series B Preferred
Stock as provided herein are in arrears, thereafter and until all
accrued and unpaid dividends and distributions, whether or not declared,
on outstanding Units of Series B Preferred Stock shall have been paid in
full, the Corporation shall not (i) declare or pay dividends on, make
any other distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of junior stock; (ii) declare or pay
dividends on or make any other distributions on any shares of parity
stock, except dividends paid ratably on Units of Series B Preferred
Stock and shares of all such parity stock on which dividends are payable
or in arrears in proportion to the total amounts to which the holders of
such Units and all such shares are then entitled; (iii) redeem or
purchase or otherwise acquire for consideration shares of any parity
stock, provided, however, that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any junior stock; (iv) purchase or otherwise
acquire for consideration any Units of Series B Preferred Stock, except
in accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such Units.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 3, purchase or otherwise acquire such
shares at such time and in such manner.
4. Reacquired Shares. Any Units of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such Units shall, upon their cancellation, become
authorized but unissued shares (or fractions of shares) of Preferred
Stock and may be reissued as part of a new Series of Preferred Stock to
be created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth herein.
5. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares
of junior stock unless the holders of Units of Series B Preferred Stock
shall have received, subject to adjustment as hereinafter provided in
paragraph (B), the greater of either (a) $.01 per Unit plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether
or not earned or declared, to the date of such payment, or (b) the
amount equal to the aggregate per share amount to be distributed to
holders of shares of Common Stock, or (ii) to the holders of shares of
parity stock, unless simultaneously therewith distributions are made
ratably on Units of Series B Preferred Stock and all other shares of
such parity stock in proportion to the total amounts to which the
holders of Units of Series B Preferred Stock are entitled under clause
(i)(a) of this sentence and to which the holders of shares of such
parity stock are entitled, in each case upon such liquidation,
dissolution or winding up.
(B) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on outstanding shares
of Common Stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock, or (iii) combine outstanding shares
of Common Stock into a smaller number of shares, then in each such case
the aggregate amount to which holders of Units of Series B Preferred
Stock were entitled immediately prior to such event pursuant to clause
(i)(b) of paragraph (A) of this Section 5 shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be
the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such
event.
6. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction
in which the shares of Common Stock are exchanged for or converted into
other stock or securities, cash and/or any other property, then in any
such case Units of Series B Preferred Stock shall at the same time be
similarly exchanged for or converted into an amount per Unit (subject to
the provision for adjustment hereinafter set forth) equal to the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each
share of Common Stock is converted or exchanged. In the event the
Corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on outstanding shares of Common Stock payable
in shares of Common Stock, (ii) subdivide outstanding shares of Common
Stock, or (iii) combine outstanding Common Stock into a smaller number
of shares, then in each such case the amount set forth in the
immediately preceding sentence with respect to the exchange or
conversion of Units of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which shall be
the number of shares of Common Stock that are outstanding immediately
after such event and the denominator of which shall be the number of
shares of Common Stock that were outstanding immediately prior to such
event.
7. Redemption. The Units of Series B Preferred Stock and shares
of Series B Preferred Stock shall not be redeemable.
8. Ranking. The Units of Series B Preferred Stock and shares of
Series B Preferred Stock shall rank junior to all other Series of the
Preferred Stock and to any other class of Preferred Stock that hereafter
may be issued by the Corporation as to the payment of dividends and the
distribution of assets, unless the terms of any such Series or class
shall provide otherwise.
9. Fractional Shares. The Series B Preferred Stock may be
issued in Units or other fractions of a share, which Units or fractions
shall entitle the holder, in proportion to such holder's units or
fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights
of holders of Series B Preferred Stock.
10. Certain Definitions. As used in this resolution with respect
to the Series B Preferred Stock, the following terms shall have the
following meanings:
(A) The term "Common Stock" shall mean the class of stock
designated as the common stock, par value $.001 per share, of the
Corporation at the date hereof or any other class of stock resulting
from successive changes or reclassification of the common stock.
(B) The term "junior stock" (i) as used in Section 3 shall mean
the Common Stock, any Series A Preferred Stock, $.001 par value, of the
Corporation and any other class or Series of capital stock of the
Corporation hereafter authorized or issued over which the Series B
Preferred Stock has preference or priority as to the payment of
dividends and (ii) as used in Section 5, shall mean the Common Stock and
any other class or Series of capital stock of the Corporation over which
the Series B Preferred Stock has preference or priority in the
distribution of assets on any liquidation, dissolution or winding up of
the Corporation.
(C) The term "parity stock" (i) as used in Section 3 shall mean
any class or Series of stock of the Corporation hereafter authorized or
issued ranking pari passu with the Series B Preferred Stock as to
dividends and (ii) as used in Section 5, shall mean any class or
Series of capital stock ranking pari passu with the Series B Preferred
Stock in the distribution of assets on any liquidation, dissolution or
winding up.
IN WITNESS WHEREOF, Uniphase Corporation has caused this
Certificate to be signed by its Chairman and Chief Executive Officer and
its Secretary this ____ day of June 1998.
UNIPHASE CORPORATION
By: /s/ Kevin N. Kalkhoven
________________________________
Kevin N. Kalkhoven
President
By: /s/ Michael C. Phillips
________________________________
Michael C. Phillips
Assistant Secretary
UNIPHASE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE
The Uniphase Corporation 1998 EMPLOYEE STOCK PURCHASE PLAN
(the "Plan") is intended to provide eligible employees of the Company
and one or more of its Corporate Affiliates with the opportunity to
acquire a proprietary interest in the Company through participation in a
plan designed to qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code (the "Code").
II. DEFINITIONS
For purposes of administration of the Plan, the following
terms shall have the meanings indicated:
Base Compensation means (i) the regular basic earnings paid
to a Participant by one or more Participating Companies plus (ii) all
contributions made on the Participant's behalf pursuant to any qualified
salary deferral arrangement under Section 401(k) of the Code and to a
plan qualified under Section 125 of the Code in effect for Employees.
The calculation of Base Compensation may also include, at the discretion
of the Plan Administrator (such discretion to be applied uniformly to
all participants), overtime, shift differentials and other
differentials. Compensation shall be calculated on the basis of
equivalent bi-weekly straight-time hours multiplied by straight-time
rate.
Board means the Board of Directors of the Company.
Company means Uniphase Corporation, a Delaware corporation,
and any corporate successor to all or substantially all of the assets or
voting stock of Uniphase Corporation, which shall by appropriate action
adopt the Plan.
Corporate Affiliate means any company which is either the
parent corporation or a subsidiary corporation of the Company (as
determined in accordance with Section 424 of the Code), including any
parent or subsidiary corporation which becomes such after the Effective
Date.
Effective Date means August 1, 1998. However, should any
Corporate Affiliate become a Participating Company in the Plan after
such applicable date, then such entity shall designate a separate
Effective Date with respect to its employee-Participants.
Employee means any person who is regularly engaged, for a
period of more than 20 hours per week and more than 5 months per
calendar year, in the rendition of personal services to the Company or
any other Participating Company for earnings considered wages under
Section 3121(a) of the Code.
Quarter means any three-month period commencing August 1,
November 1 February 1 or May 1, during each calendar year during the
term of the Plan.
Participant means any Employee of a Participating Company
who is actively participating in the Plan.
Participating Company means the Company and such Corporate
Affiliate or Affiliates as may be designated from time to time by the
Board.
Plan Administrator means either the Board or a Committee of
the Board that is responsible for administration of the Plan.
Stock means shares of the common stock of the Company.
III. ADMINISTRATION
(a) The Plan shall be administered by the Plan
Administrator which shall have full and exclusive discretionary
authority to construe, interpret and apply the terms of the Plan, to
determine eligibility and to adjudicate all disputed claims filed under
the Plan. Every finding, decision and determination made by the Plan
Administrator shall, to the full extent permitted by Applicable Law, be
final and binding upon all persons.
(b) No member of the Committee while serving as such shall
be eligible to participate in the Plan.
IV. PURCHASE PERIODS
(a) Stock shall be offered for purchase under the Plan
through a series of successive purchase periods until such time as (i)
the maximum number of shares of Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated in accordance with Article X or Article XI.
(b) The Plan shall be implemented in a series of
overlapping purchase periods, each to be of such duration (not to exceed
twenty-four (24) months per purchase period) as determined by the Plan
Administrator prior to the commencement date of the purchase period.
The initial purchase period will begin on the Effective Date and
subsequent purchase periods will commence, at the Plan Administrator's
discretion, either on the first day of each succeeding Quarter or of
each alternate succeeding Quarter. Accordingly, either four (4) or two
(2) separate purchase periods may commence in each subsequent calendar
year during which the Plan remains in existence. The Plan Administrator
shall have the authority to change the length of any purchase period by
announcement at least thirty (30) days prior to the commencement of such
purchase period and to determine whether subsequent purchase periods
shall be consecutive or overlapping. A purchase period may be
terminated by the Plan Administrator on any date of exercise if the Plan
Administrator determines that the termination of the purchase period is
in the best interests of the Company and its stockholders.
(c) The Participant shall be granted a separate purchase
right for each purchase period in which he/she participates. The
purchase right shall be granted on the first day of the purchase period
and shall be automatically exercised in (i) successive quarterly
installments on the last day of each Quarter such purchase right remains
outstanding, in the case of quarterly purchase periods, or (ii)
successive semi-annual installments on the last day of each alternate
Quarter such purchase right remains outstanding, in the case of semi-
annual purchase periods.
(d) An Employee may participate in only one purchase
period at a time. Accordingly, an Employee who wishes to join a new
purchase period must withdraw from the current purchase period in which
he/she is participating and must also enroll in the new purchase period
prior to the commencement date for that period.
(e) The acquisition of Stock through participation in the
Plan for any purchase period shall neither limit nor require the
acquisition of Stock by the Participant in any subsequent purchase
period.
(f) Under no circumstances shall any purchase rights
granted under the Plan be exercised, nor shall any shares of Stock be
issued hereunder, until such time as (i) the Plan shall have been
approved by the Company's stockholders and (ii) the Company shall have
complied with all applicable requirements of the Securities Act of 1933
(as amended), all applicable listing requirements of any securities
exchange on which the Stock is listed and all other applicable
requirements established by law or regulation.
V. ELIGIBILITY AND PARTICIPATION
(a) Every Employee of a Participating Company shall be
eligible to participate in the Plan on the first day of the first
purchase period following the Employee's commencement of service with
the Company or any Corporate Affiliate, but in no event shall
participation commence prior to the Effective Date.
(b) In order to participate in the Plan for a particular
purchase period, the Employee must complete the enrollment forms
prescribed by the Plan Administrator (including a purchase agreement and
a payroll deduction authorization) and file such forms with the Plan
Administrator (or its designate) prior to the commencement date of the
purchase period.
(c) The payroll deduction authorized by a Participant for
purposes of acquiring Stock under the Plan may be any multiple of 1% of
the Base Compensation paid to the Participant during the relevant
purchase period, up to a maximum of 10%. The deduction rate so
authorized shall continue in effect for the entire purchase period
unless the Participant shall, prior to the end of the purchase period
for which the purchase right is in effect, reduce the rate by filing the
appropriate form with the Plan Administrator (or its designate). The
reduced rate shall become effective as soon as practicable following the
filing of such form. Each Participant shall be permitted such a rate
reduction only four (4) times in each purchase period. The reduced
rate shall continue in effect for the entire purchase period and for
each subsequent purchase period, unless the Participant shall, prior to
the commencement of any subsequent purchase period, designate a
different rate (up to the 10% maximum) by filing the appropriate form
with the Plan Administrator (or its designate). The new rate shall
become effective for the first purchase period commencing after the
filing of such form. Payroll deductions, however, will automatically
cease upon the termination of the Participant's purchase right in
accordance with Section VII(d) or (e) below.
VI. STOCK SUBJECT TO PLAN
(a) The Stock purchasable by Participants under the Plan
shall, solely in the Board's discretion, be made available from either
authorized but unissued Stock or from reacquired Stock, including shares
of Stock purchased on the open market. The total number of shares of
Stock which may be issued under the Plan shall not exceed 1,000,000
shares (subject to adjustment under Section VI(b).
(b) In the event any change is made to the Stock
purchasable under the Plan by reason of any recapitalization, stock
dividend, stock split, combination of shares or other change affecting
the outstanding common stock of the Company as a class without receipt
of consideration, then appropriate adjustments shall be made by the Plan
Administrator to the class and maximum number of shares purchasable
under the Plan, the class and maximum number of shares purchasable per
Participant under any purchase right outstanding at the time or
purchasable per Participant over the term of the Plan, and the class and
number of shares and the price per share of the Stock subject to
outstanding purchase rights held by Participants under the Plan.
VII. PURCHASE RIGHTS
An Employee who participates in the Plan for a particular
purchase period shall have the right to purchase Stock on the purchase
dates designated by the Plan Administrator for such purchase period upon
the terms and conditions set forth below and shall execute a purchase
agreement embodying such terms and conditions and such other provisions
(not inconsistent with the Plan) as the Plan Administrator may deem
advisable.
(a) Purchase Price. The purchase price per share shall be
the lesser of (i) 85% of the fair market value of a share of Stock on
the date on which the purchase right is granted or (ii) 85% of the fair
market value of a share of Stock on the date the purchase right is
exercised. For purposes of determining such fair market value (and for
all other valuation purposes under the Plan), the fair market value per
share of Stock on any date shall be the closing selling price per share
on such date, as officially quoted on the principal exchange on which
the Stock is at the time traded or, if not traded on any exchange, the
mean of the highest bid and the lowest asked prices (or, if such
information is available, the closing price per share) of the Stock on
such date, as reported on the NASDAQ system. If there are no sales of
Stock on such day, then the closing selling price (or, to the extent
applicable, the mean of the highest bid and lowest asked prices) for the
Stock on the next preceding day for which there do exist such quotations
shall be determinative of fair market value.
(b) Number of Purchasable Shares. The number of shares
purchasable by a Participant on any particular purchase date shall be
the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the quarterly or
semi-annual period beginning with the start of the purchase period or
the most recent purchase date in the same purchase period (whichever is
applicable), together with any amount carried over from the preceding
purchase date in the same purchase period pursuant to the provisions of
Section VII(f), by the purchase price in effect for such purchase date.
However, the maximum number of shares purchasable by the Participant
pursuant to any one outstanding purchase right shall not exceed 5,000
shares (subject to adjustment under Section VI(b)).
Under no circumstances shall purchase rights be granted
under the Plan to any Employee if such Employee would, immediately after
the grant, own (within the meaning of Section 424(d) of the Code), or
hold outstanding options or other rights to purchase, stock possessing
5% or more of the total combined voting power or value of all classes of
stock of the Company or any of its Corporate Affiliates.
(c) Payment. Payment for Stock purchased under the Plan
shall be effected by means of the Participant's authorized payroll
deductions. Such deductions shall begin on the first pay day coincident
with or immediately following the commencement date of the relevant
purchase period and shall terminate with the pay day ending with or
immediately prior to the last day of the purchase period. The amounts
so collected shall be credited to the Participant's individual account
under the Plan, but no interest shall be paid on the balance from time
to time outstanding in the account. The amounts collected from a
Participant may be commingled with the general assets of the Company and
may be used for general corporate purposes.
(d) Termination of Purchase Rights.
(i) A Participant may, prior to any purchase date,
terminate his/her outstanding purchase right under the Plan
by filing the prescribed notification form with the Plan
Administrator (or its designate). The Company will then
refund the payroll deductions which the Participant made
with respect to the terminated purchase right, and no
further amounts will be collected from the Participant with
respect to such terminated right.
(ii) The termination shall be irrevocable with
respect to the particular purchase period to which it
pertains and shall also require the Participant to re-enroll
in the Plan (by making a timely filing of a new purchase
agreement and payroll deduction authorization) if the
Participant wishes to resume participation in a subsequent
purchase period.
(e) Termination of Employment. If a Participant ceases
Employee status during any purchase period, then the Participant's
outstanding purchase right under the Plan shall immediately terminate
and all sums previously collected from the Participant and not
previously applied to the purchase of stock during such purchase period
shall be promptly refunded. However, should the Participant die or
become permanently disabled while in Employee status, then the
Participant or the person or persons to whom the rights of the deceased
Participant under the Plan are transferred by will or by the laws of
descent and distribution (the "successor") will have the election,
exercisable at any time prior to the purchase date for the quarterly or
semi-annual period in which the Participant dies or becomes permanently
disabled, to (i) withdraw all of the funds in the Participant's payroll
account at the time of his/her cessation of Employees status or
(ii) have such funds held for purchase of shares of Stock on the
purchase date. In no event, however, shall any further payroll
deductions be added to the Participant's account following his/her
cessation of Employee status.
For purposes of the Plan: (a) a Participant shall be
considered to be an Employee for so long as such Participant remains in
the employ of the Company or any other Participating Company under the
Plan and (b) a Participant shall be deemed to be permanently disabled if
he/she is unable, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous
duration of at least twelve (12) months, to engage in any substantial
gainful employment.
(f) Stock Purchase. Outstanding purchase rights shall be
automatically exercised in a series of successive installments as
provided in Section IV(c). The exercise shall be effected by applying
the amount credited to the Participant's account on the last date of the
Quarter, in the case of a purchase period in which purchases are
effected quarterly, or the last date of the alternate Quarter, in the
case of a purchase period in which purchases are effected semi-annually,
to the purchase of whole shares of Stock (subject to the limitations on
the maximum number of purchasable shares set forth in Section VII(b)) at
the purchase price in effect for such purchase date. Any amount
remaining in the Participant's account after such exercise shall be held
for the purchase of Stock on the next quarterly or semi-annual purchase
date within the purchase period; provided, however, that any amount not
applied to the purchase of Stock at the end of a purchase period shall
be refunded promptly after the close of the purchase period and any
amount not applied to the purchase of stock by reason by the
Section VII(b) limitations on the maximum number of purchasable shares
shall be refunded promptly after the quarterly or semi-annual purchase
date.
(g) Proration of Purchase Rights. Should the total number
of shares of Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make
a pro-rata allocation of the available shares on a uniform and
nondiscriminatory basis, and any amounts credited to the accounts of
Participants shall, to the extent not applied to the purchase of Stock,
be refunded to the Participants.
(h) Rights as Stockholder. A Participant shall have no
rights as a stockholder with respect to shares covered by the purchase
rights granted to the Participant under the Plan until the shares are
actually purchased on the Participant's behalf in accordance with
Section VII(f). No adjustments shall be made for dividends,
distributions or other rights for which the record date is prior to the
date of such purchase.
A Participant shall be entitled to receive, as soon as
practicable after the date of each purchase, stock certificates for the
number of shares purchased on the Participant's behalf.
(i) Assignability. No purchase rights granted under the
Plan shall be assignable or transferable by a Participant except by will
or by the laws of descent and distribution, and the purchase rights
shall, during the lifetime of the Participant, be exercisable only by
such Participant.
(j) Merger or Liquidation of Company. In the event the
Company or its stockholders enter into an agreement to dispose of all or
substantially all of the assets or outstanding capital stock of the
Company by means of a sale, merger or reorganization in which the
Company will not be the surviving corporation (other than a
reorganization effected primarily to change the State in which the
Company is incorporated) or in the event the Company is liquidated, then
all outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to such sale, merger, reorganization or
liquidation by applying all sums previously collected from Participants
pursuant to their payroll deductions in effect for such rights to the
purchase of whole shares of Stock, subject, however, to the applicable
limitations of Section VII(b).
VIII. ACCRUAL LIMITATIONS
(a) No Participant shall be entitled to accrue rights to
acquire Stock pursuant to any purchase right under this Plan if and to
the extent such accrual, when aggregated with (I) Stock rights accrued
under other purchase rights outstanding under this Plan and (II) similar
rights accrued under other employee stock purchase plans (within the
meaning of Section 423 of the Code) of the Company or its Corporate
Affiliates, would otherwise permit such Participant to purchase more
than $25,000 worth of stock of the Company or any Corporate Affiliate
(determined on the basis of the fair market value of such stock on the
date or dates such rights are granted to the Participant) for each
calendar year such rights are at any time outstanding.
(b) For purposes of applying the accrual limitations of
Section VIII(a), the right to acquire Stock pursuant to each purchase
right outstanding under the Plan shall accrue as follows:
(i) The right to acquire Stock under each such
purchase right shall accrue in a series of successive
quarterly or semi-annual installments as and when the
purchase right first becomes exercisable for each
installment as provided in Section IV(c).
(ii) No right to acquire Stock under any
outstanding purchase right shall accrue to the extent the
Participant has already accrued in the same calendar year
the right to acquire $25,000 worth of Stock (determined on
the basis of the fair market value on the date or dates of
grant) pursuant to that purchase right or one or more other
purchase rights which may have been held by the Participant
during such calendar year.
(iii) If by reason of the Section VIII(a)
limitations, the Participant's outstanding purchase right
does not accrue for a particular purchase date of any
purchase period, then the payroll deductions which the
Participant made during that quarterly or semi-annual period
with respect to such purchase right shall be promptly
refunded.
(c) In the event there is any conflict between the
provisions of this Article VIII and one or more provisions of the Plan
or any instrument issued thereunder, the provisions of this Article VIII
shall be controlling.
IX. STATUS OF PLAN UNDER FEDERAL TAX LAWS
(a) The Plan is designed to qualify as an employee stock
purchase plan under Section 423 of the Code. However, after the
Effective Date, the Plan Administrator may, at its discretion, cease to
administer the Plan as a qualified employee stock purchase plan under
Code Section 423. Accordingly, share purchases effected under the Plan
at any time after the Plan ceases to be administered as a qualified
employee stock purchase plan under Code Section 423 (whether pursuant to
purchase rights granted before or after the Plan ceases to be qualified)
shall result in taxable income to each Participant equal to the excess
of (i) the fair market value of the purchased shares on the purchase
date over (ii) the purchase price paid for such shares.
(b) To the extent required by law, the Company's
obligation to deliver shares to the Participant upon the exercise of any
outstanding purchase right shall be subject to the Participant's
satisfaction of all applicable federal, state and local income and
employment tax withholding requirements.
X. AMENDMENT AND TERMINATION
(a) The Board may from time to time alter, amend, suspend
or discontinue the Plan; provided, however, that no such action shall
become effective prior to the exercise of outstanding purchase rights at
the end of the quarterly or semi-annual period in which such action is
authorized. To the extent necessary to comply with Code Section 423,
the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
(b) The Company shall have the right, exercisable in the
sole discretion of the Plan Administrator, to terminate the Plan
immediately following the end of a quarterly or semi-annual purchase
date. Should the Company elect to exercise such right, then the Plan
shall terminate in its entirety, and no further purchase rights shall
thereafter be granted, and no further payroll deductions shall
thereafter be collected, under the Plan.
XI. GENERAL PROVISIONS
(a) The Plan shall terminate upon the earlier of
(i) August 1, 2008 or (ii) the date on which all shares available for
issuance under the Plan shall have been sold pursuant to purchase rights
exercised under the Plan.
(b) All costs and expenses incurred in the administration
of the Plan shall be paid by the Company.
(c) Neither the action of the Company in establishing the
Plan, nor any action taken under the Plan by the Plan Administrator, nor
any provision of the Plan itself shall be construed so as to grant any
person the right to remain in the employ of the Company or any of its
Corporate Affiliates for any period of specific duration, and such
person's employment may be terminated at any time, with or without
cause.
(d) Governing Law. The Plan is to be construed in
accordance with and governed by the internal laws of the State of
California (as permitted by Section 1646.5 of the California Civil Code,
or any similar successor provision) without giving effect to any choice
of law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of California to
the rights and duties of the parties, except to the extent the internal
laws of the State of California are superseded by the laws of the United
States. Should any provision of the Plan be determined by a court of
law to be illegal or unenforceable, the other provisions shall
nevertheless remain effective and shall remain enforceable.
EXHIBIT 21.1
UNIPHASE CORPORATION
SUBSIDIARIES
(ALL 100% OWNED)
Uniphase Ltd.
(Incorporated in the United Kingdom)
Uniphase GmbH
(Incorporated in Germany)
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)
Uniphase Laser Enterprise AG
(Incorporated in Switzerland)
Ultrapointe Corp.
(Incorporated in California)
Uniphase Australia PTY Limited
(Incorporated in Australia)
Uniphase U.K. Holdings, Inc.
(Incorporated in Delaware)
Uniphase OPTO Holdings, Inc.
(Incorporated in Delaware)
Uniphase Netherlands B.V.
(Incorporated in Holland)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to incorporation by reference in the Registration Statement
(Form S-8 No. 33-74716) pertaining to the Uniphase Corporation 1984 Amended
and Restated Stock Plan, the 1993 Flexible Stock Incentive Plan, the 1993
Amended and Restated Employee Stock Purchase Plan; the Registration
Statement (Form S-8 No. 33-31722) pertaining to the Uniphase Corporation
Amended and Restated 1993 Flexible Stock Incentive Plan; the Registration
Statement (Form S-8 No. 333-09937) pertaining to the Uniphase
Telecommunications Products, Inc. 1995 Flexible Stock Incentive Plan; the
Registration Statement (Form S-8 No. 333-39423) pertaining to the Uniphase
Corporation Amended and Restated 1993 Flexible Stock Incentive Plan and
the 1996 Nonqualified Stock Option Plan; the Registration Statement
(Form S-8 No. 333-62465) pertaining to the Uniphase Corporation 1998
Employee Stock Purchase Plan and the Uniphase Corporation Amended and
Restated 1993 Flexible Stock Incentive Plan; and the Registration
Statement (Form S-3 No. 333-27931) of Uniphase Corporation and in the
related Prospectus of our report dated August 4, 1998, with respect to the
consolidated financial statements and schedule of Uniphase Corporation,
included in this Annual Report (Form 10-K), for the year ended June 30, 1998.
\s\ Ernst & Young LLP
San Jose, California
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE PERIOD ENDED JUNE 30, 1998, 1997 AND 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1000
<S> <C> <C> <C>
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1997 JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1998 JUN-30-1997 JUN-30-1996
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<CASH> 39,801 29,186 52,463
<SECURITIES> 54,831 52,009 43,731
<RECEIVABLES> 40,963 22,194 16,985
<ALLOWANCES> 550 1,877 285
<INVENTORY> 20,809 18,668 10,641
<CURRENT-ASSETS> 165,025 133,715 127,026
<PP&E> 74,154 42,981 26,019
<DEPRECIATION> 17,621 11,730 5,714
<TOTAL-ASSETS> 269,343 177,579 173,824
<CURRENT-LIABILITIES> 45,776 25,327 13,583
<BONDS> 0 0 6,061
0 0 0
0 0 0
<COMMON> 38 34 32
<OTHER-SE> 217,863 149,760 153,189
<TOTAL-LIABILITY-AND-EQUITY> 269,343 177,579 173,824
<SALES> 175,801 106,966 69,073
<TOTAL-REVENUES> 175,801 106,966 69,073
<CGS> 92,139 57,411 36,300
<TOTAL-COSTS> 92,139 57,411 36,300
<OTHER-EXPENSES> 156,665 65,825 27,344
<LOSS-PROVISION> 0 582 0
<INTEREST-EXPENSE> 69 421 79
<INCOME-PRETAX> (69,752) (13,422) 6,828
<INCOME-TAX> 11,360 5,432 4,036
<INCOME-CONTINUING> (81,112) (18,854) 2,792
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (81,112) (18,854) 2,792
<EPS-PRIMARY> ($2.34) ($0.57) $0.11
<EPS-DILUTED> ($2.34) ($0.57) $0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTERS ENDED SEPTEMBER 30, 1997 AND DECEMBER 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1000
<S> <C> <C>
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUL-01-1997
<PERIOD-END> SEP-30-1997 DEC-31-1997
<PERIOD-TYPE> 3-MOS 6-MOS
<CASH> 32,470 30,308
<SECURITIES> 50,527 54,564
<RECEIVABLES> 25,724 25,395
<ALLOWANCES> 880 332
<INVENTORY> 19,224 19,180
<CURRENT-ASSETS> 140,855 142,760
<PP&E> 46,649 54,267
<DEPRECIATION> 13,132 14,271
<TOTAL-ASSETS> 187,006 195,090
<CURRENT-LIABILITIES> 21,447 25,060
<BONDS> 0 0
0 0
0 0
<COMMON> 34 35
<OTHER-SE> 162,931 167,352
<TOTAL-LIABILITY-AND-EQUITY> 187,006 195,090
<SALES> 38,473 81,407
<TOTAL-REVENUES> 38,473 81,407
<CGS> 19,954 42,102
<TOTAL-COSTS> 19,954 42,102
<OTHER-EXPENSES> 9,664 26,568
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,617 14,259
<INCOME-TAX> 3,414 7,393
<INCOME-CONTINUING> 6,203 6,866
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,203 6,866
<EPS-PRIMARY> $0.18 $0.20
<EPS-DILUTED> $0.17 $0.19
</TABLE>
