UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-22874
Uniphase Corporation
(Exact name of Registrant as Specified in its Charter)
Delaware 0-22874 94-2579683
(State of Other (Commission File (IRS Employer Identification
Jurisdiction No.) No.)
of Incorporation)
163 Baypointe Parkway, San Jose, California 95134
(Address of Principal Executive Offices) (Zip Code)
(408) 434-1800
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No_____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of April 26, 1999.
Common Stock $.001 par value 40,399,101
Class Number of Shares
Part I--FINANCIAL INFORMATION
Item 1. Financial Statements
UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales............................. $63,772 $45,479 $121,192 $85,501
Cost of sales......................... 33,538 23,242 62,436 43,762
---------- ---------- ---------- ----------
Gross profit........................ 30,234 22,237 58,756 41,739
---------- ---------- ---------- ----------
Operating expenses:
Research and development............ 5,785 3,359 11,448 6,368
Royalty and license................. 498 490 926 975
Selling, general and administrative. 11,912 7,339 22,439 14,127
Merger costs........................ 5,877 -- 5,877 --
Loss on sale of product line........ 382 -- 382 --
Acquired in-process research and
development....................... -- 6,568 -- 6,568
---------- ---------- ---------- ----------
Total operating expenses.............. 24,454 17,756 41,072 28,038
---------- ---------- ---------- ----------
Income from operations................ 5,780 4,481 17,684 13,701
Interest and other income, net........ 844 760 1,763 1,522
---------- ---------- ---------- ----------
Income before income taxes.......... 6,624 5,241 19,447 15,223
Income tax expense.................... 4,223 3,979 8,898 7,393
---------- ---------- ---------- ----------
Net income ........................... $2,401 $1,262 $10,549 $7,830
========== ========== ========== ==========
Basic earnings per share.............. $0.06 $0.04 $0.27 $0.22
========== ========== ========== ==========
Dilutive earnings per share........... $0.06 $0.03 $0.25 $0.21
========== ========== ========== ==========
Weighted average common shares
Outstanding......................... 39,530 35,194 39,321 34,967
Dilutive effect of stock options
Outstanding......................... 2,728 2,705 2,781 2,766
---------- ---------- ---------- ----------
Weighted average common shares
Outstanding, assuming dilution...... 42,258 37,899 42,102 37,733
========== ========== ========== ==========
</TABLE>
See accompanying notes
<PAGE>
UNIPHASE CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $29,331 $40,525
Short-term investments............................ 84,905 54,831
Accounts receivable, less allowances for returns
and doubtful accounts of $871 at December 31,
1998 and $809 at June 30, 1998.................. 39,920 41,922
Inventories....................................... 26,180 22,137
Deferred income taxes............................. 4,321 4,321
Refundable income taxes and other current assets.. 4,898 4,859
------------ ------------
Total current assets........................... 189,555 168,595
Property, plant, and equipment, net.................. 72,733 57,191
Intangible assets, including goodwill................ 100,504 102,979
Long term deferred income taxes and other assets..... 4,483 4,106
------------ ------------
Total assets................................... $367,275 $332,871
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable..................................... $2,375 $ --
Accounts payable.................................. 22,207 15,784
Accrued payroll and related expenses.............. 8,103 7,793
Income taxes payable.............................. 2,017 7,697
Other accrued expenses............................ 11,461 15,893
------------ ------------
Total current liabilities...................... 46,163 47,167
Accrued pension and other employee benefits.......... 6,204 4,835
Other non-current liabilities........................ 862 831
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares - 1,000,000
Issued and outstanding shares - 100,000 at
December 31, and June 30, 1998................. -- --
Common stock, $0.001 par value
Authorized shares - 100,000,000
Issued and outstanding shares - 39,683,763
at December 31, 1998 and 38,919,966 at
June 30, 1998.................................. 40 39
Additional paid-in capital........................ 325,997 307,447
Accumulated deficit............................... (16,217) (26,118)
Other stockerholders' equity...................... 4,226 (1,330)
------------ ------------
Total stockholders' equity..................... 314,046 280,038
------------ ------------
Total liabilities and stockholders' equity..... $367,275 $332,871
============ ============
</TABLE>
See accompanying notes
<PAGE>
UNIPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Operating activities
Net income........................................... $10,549 $7,830
UBP net income for the six months ended
December 31, 1997.................................. -- (964)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 14,392 3,943
Write-off of product line inventory and equipment.. 1,977 --
Stock compensation expense......................... 246 525
Acquired in-process research and development....... -- 6,568
Change in operating assets and liabilities:
Accounts receivable............................. 2,002 (4,529)
Inventories..................................... (5,638) (452)
Deferred income taxes and other current assets.. (39) --
Accounts payable, accrued liabilities and
other current liabilities..................... 6,100 12,188
---------- ----------
Net cash provided by operating activities.............. 29,589 25,109
---------- ----------
Investing activities
Purchase of short-term investments................... (153,433) (39,951)
Proceeds from sale of short-term investments......... 123,707 37,435
Purchase of property, plant and equipment............ (18,956) (11,833)
Acquisition of assets from Chassis Engineering, Inc.. (112) --
Acquisition of UFC................................... -- (6,696)
Increase in other assets............................. (377) (78)
---------- ----------
Net cash used in investing activities.................. (49,171) (21,123)
---------- ----------
Financing activities
Repayment of notes payable........................... -- (6,061)
Proceeds from issuance of common stock under
stock option and stock purchase plans.............. 9,036 3,323
Pre-merger dividends paid on BCP stock............... (648) (126)
---------- ----------
Net cash provided by (used in) financing activities.... 8,388 (2,864)
---------- ----------
Increase (decrease) in cash and cash equivalents....... (11,194) 1,122
Cash and cash equivalents at beginning of period....... 40,525 29,727
---------- ----------
Cash and cash equivalents at end of period............. $29,331 $30,849
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Tax benefits from stock option and stock
purchase plans................................. $8,189 $6,854
Issuance of notes payable......................... $2,375 $--
</TABLE>
See accompanying notes
<PAGE>
UNIPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Business Activities and Basis of Presentation
The financial information at December 31, 1998 and for the three
and six month periods ended December 31, 1998 and 1997 is unaudited,
but includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair
presentation of the financial information set forth herein, in
accordance with generally accepted accounting principles for interim
financial information, the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, such information does not include all of
the information and footnotes required by generally accepted
accounting principles for annual audited financial statements. For
further information, refer to the Consolidated Financial Statements
and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1998.
On November 25, 1998, the Company acquired Broadband
Communications Products, Inc. ("BCP") in a pooling of interests
transaction. The Company exchanged 729,510 shares of common stock for
all the outstanding shares of BCP common stock and reserved 418,482
shares for issuance on exercise of BCP options assumed by the Company.
Merger related expenses during the second quarter of fiscal 1999
totaled $5.9 million primarily for legal and accounting services and
fees paid to BCP's financial advisors. The financial information for
the three and six month periods ended December 31, 1997 and at June
30, 1998 has been restated to include the financial position, results
of operations and cash flows of BCP for the corresponding periods.
There were no transactions between BCP and the Company prior to the
combination and no significant adjustments were necessary to conform
BCP's accounting policies. Because of differing year ends, financial
information relating to Uniphase's fiscal years ended June 30, 1997
and 1996 has been combined with financial information relating to
BCP's years ended December 31, 1997 and 1996, respectively. The
consolidated statement of cash flows for the six month period ended
December 31, 1997 includes an adjustment of $964,000 to reduce cash
flow from operations for the income of BCP for the six months ended
December 31, 1997 which is included in the results of operations
twice. Net sales and net income of BCP for the six months ended
December 31, 1997 which are included in the Consolidated
Statements of Income for both fiscal 1998 and 1999 were approximately
$4.1 million and $964,000, respectively. Prior to November 25, 1998,
BCP was a subchapter S Corporation for income tax purposes and,
therefore, did not pay U.S. federal income taxes. BCP will be included
in the Company's U.S. federal income tax return effective November 25,
1998. BCP's net taxable temporary differences were insignificant as of
the date of the merger. BCP will operate as Uniphase Broadband
Products, Inc. ("UBP").
On December 31, 1998, the Company sold substantially all of the
assets of its Ultrapointe subsidiary to KLA-Tencor Corporation ("K-
T"). The Company recorded unusual charges to cost of sales and
operating expenses of $1.6 million and $382,000 respectively, in
connection with the K-T transaction.
The results for the three and six month periods ended December
31, 1998 may not be indicative of results for the fiscal year ending
June 30, 1999 or any future period.
Restatement of Financial Statements
The Company's acquisition of Uniphase Netherlands B.V. ("UNL")
was accounted for using the purchase method of accounting.
Accordingly, the total purchase price was allocated to the assets
acquired and liabilities assumed, including in-process research and
development based on their estimated fair values using valuation
methods believed to be appropriate at the time. The estimated fair
value of the in-process research and development of $93.0 million was
expensed in the fourth quarter of fiscal 1998 (the period in which the
acquisition was consummated). Subsequent to the Securities and
Exchange Commission's letter to the AICPA dated September 9, 1998,
regarding its views on in-process research and development, the
Company has re-evaluated its in-process research and development
charge with respect to the UNL acquisition, revised the purchase price
allocation and restated its financial statements. As a result,
Uniphase made an adjustment to its financial statements for the year
ended June 30, 1998 to decrease the amount of previously expensed in-
process research and development and increase the amount capitalized
as goodwill and other intangibles by $59.3 million. The financial
statements as of December 31, 1998 have been restated to reflect this
change and amortization expense for the quarter and six-month periods
have been increased by $2.1 million and $4.2 million, respectively.
The effects of these adjustments on the previously reported
consolidated financial statements are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31, 1998 December 31, 1998
As Restated As Restated As Restated As Restated
for BCP for UNL for BCP for UNL
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Selling, general and administrative.. $9,795 $11,912 $18,205 $22,439
Total operating expenses............. $22,337 $24,454 $36,838 $41,072
Net income........................... $4,518 $2,401 $14,783 $10,549
Basic earnings per share............. $0.11 $0.06 $0.38 $0.27
Dilutive earnings per share.......... $0.11 $0.06 $0.35 $0.25
As of December 31, 1998
As Restated As Restated
for BCP for UNL
--------------- ---------------
<S> <C> <C>
Intangible assets, including goodwill $45,438 $100,504
Accumulated deficit.................. ($71,283) ($16,217)
</TABLE>
Impact of Recently Issued Accounting Standards
The Company has adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," as
of the first quarter of fiscal 1999. SFAS No. 130 establishes new
rules for the reporting and display of comprehensive income and its
unrealized gain on available-for-sale investments and foreign currency
translation adjustments. These components of comprehensive income are
included in other stockholders' equity on the accompanying
consolidated balance sheets.
The components of comprehensive income, net of tax, are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income.................................. $2,401 $1,262 $10,549 $7,830
Change in unrealized gain on
available-for-sale investments............ 66 (2) 235 25
Change in foreign currency translation...... 2 (16) 3,515 1
--------- --------- --------- ---------
Comprehensive income........................ $2,469 $1,244 $14,299 $7,856
========= ========= ========= =========
</TABLE>
In 1997, the Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information" was issued. In 1998, the Statement of Financial
Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosures
about Pensions and Other Post-retirement Benefits" was issued. The
Company is required to adopt the provisions of SFAS 131 and 132 in
fiscal year 1999. These adoptions are not expected to affect results
of operations or financial position but will require either additional
disclosures or modifications to previous disclosures.
In 1998, the Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging
Activities" was also issued and is effective for fiscal years
commencing after June 15, 1999. The effect of adopting SFAS 133 is
currently being evaluated but is not expected to have a material
effect on the Company's financial position or results of operations.
Income Taxes
The effective tax rates used for the second quarter and the
first six months of fiscal 1999 were 63.8% and 45.8% compared to
75.9% and 48.6% used in the same periods of fiscal 1998. Decreases in
the effective tax rate were primarily attributable to an increase in
foreign earnings taxed at a lower rate and the exclusion of taxable
income derived from UPB as a Subchapter S Corporation through November
24, 1998. The fiscal 1999 provision for income taxes excludes any
effect from non-deductible merger costs incurred in connection with
the acquisition of UBP, whereas fiscal 1998 amounts exclude any effect
from non-deductible acquired in-process research and development
expenses.
Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
December June 30,
31, 1998 1998
---------- ----------
<S> <C> <C>
Raw materials and purchased parts........... $6,077 $2,865
Work in process............................. 13,768 11,998
Finished goods.............................. 6,335 7,274
---------- ----------
$26,180 $22,137
========== ==========
</TABLE>
Acquisition of Assets from Chassis Engineering Inc.
In August 1998, the company acquired certain assets including
inventories, production equipment and certain trade liabilities of
Chassis Engineering Inc. ("Chassis") for $70,000 in cash and
convertible debt of $2.73 million. Chassis designs, develops, markets
and manufactures packaging solutions for fiber optic and other high
performance components. The convertible debt is composed of a
discounted $1.92 million demand obligation and two performance-based
instruments totaling $800,000 that become due upon achieving certain
milestones over the ensuing 9 to 18 months. The Company recorded an
increase of $500,000 to the demand obligation during the quarter ended
December 31, 1998 to reflect satisfaction of the first Chassis
milestone. The convertible debt bears interest at 5.48% and the
principal can be exchanged for newly issued shares of Uniphase common
stock at a price of $55.083 per share. The convertible debt is secured
by a letter of credit issued against the Company's unused revolving
bank line of credit.
The effects of the Chassis asset purchase on the fiscal 1999
interim consolidated statement of cash flows were as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Working capital (deficiency) acquired.............. ($41)
Property and equipment............................. 25
Intangibles........................................ 2,503
---------------
Net assets acquired................................ $2,487
===============
Convertible debt issued............................ $2,375
Cash paid, including transaction costs............. 112
---------------
Total purchase price............................... $2,487
===============
</TABLE>
Subsequent Events
On January 28, 1999, the Company announced the signing of a
Merger Agreement, providing for the pending merger with JDS Fitel,
Inc. ("JDS"). JDS is a publicly held Canadian company (Toronto Stock
Exchange symbol "JDS") that designs and manufactures a broad range of
fiberoptic products and instruments for the telecommunications
industry. The merger with JDS will be accounted for as a purchase
transaction and is subject to a number of contingencies including
approval by stockholders of both companies and certain closing
conditions, including regulatory approvals. As a result, there can be
no assurance that such merger will be consummated. The Merger
Agreement provides for the Company to issue common stock of its wholly
owned Canadian subsidiary that is exchangeable for an equivalent
amount of the Company's common stock ("Exchangeable Shares") to the
stockholders of JDS. As a result of such issuance and assuming
conversion of all Exchangeable Shares, JDS shareholders will own 50%
of the Company's outstanding common stock. The Company anticipates
that a significant portion of the purchase price would result in the
recognition of intangible assets in excess of $2 billion in the period
of consummation, thereby resulting in a net loss in the foreseeable
future due to the amortization of such intangibles.
<PAGE>
UNIPHASE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Recent Events
On January 28, 1999, the Company announced the signing of a
Merger Agreement, providing for the pending merger with JDS-Fitel,
Inc. ("JDS"). JDS is a publicly held Canadian company (Toronto Stock
Exchange symbol "JDS") that designs and manufactures a broad range of
fiberoptic products and instruments for the telecommunications
industry. The merger with JDS will be accounted for as a purchase
transaction and is subject to a number of contingencies including
approval by stockholders of both companies and certain closing
conditions, including regulatory approvals. As a result, there can be
no assurance that such merger will be consummated. The Merger
Agreement provides for the Company to issue common stock of its
wholly-owned Canadian subsidiary that is exchangeable for an
equivalent amount of the Company's common stock ("Exchangeable
Shares") to the stockholders of JDS. As a result of such issuance and
assuming conversion of all Exchangeable Shares, JDS shareholders will
own 50% of the Company's outstanding common stock. The Company
anticipates that a significant portion of the purchase price would
result in the recognition of intangible assets in excess of $2 billion
in the period of consummation, thereby resulting in a net loss in the
foreseeable future due to the amortization of such intangibles.
On November 25, 1998, the Company acquired Broadband
Communications Products, Inc. ("BCP") in a transaction accounted for
as a pooling of interests. See Notes to Interim Consolidated Financial
Statements. BCP will operate as Uniphase Broadband Products, Inc.
("UBP"). UBP manufactures high-speed and high-bandwidth fiber optic
products including transmitters, receivers and multiplexers used to
extend the reach of fiber optic transmission into metropolitan and
local access networks. Results for the second quarter include $5.9
million of costs associated with the merger.
On December 31, 1998, the company sold substantially all of the
assets of its Ultrapointe subsidiary to KLA-Tencor Corporation ("K-T")
and recognized a pre-tax charge of $382,000 and a charge to cost of
sales of $1.6 million in connection with the transaction.
Net Sales
In the second quarter of fiscal 1999, ended December 31, 1998,
net sales were $63.8 million, which represented a 40% increase over
net sales of $45.5 million reported for the second quarter of fiscal
1998. For the first six months of fiscal 1999, net sales were $121.2
million, which represented a 42% increase over net sales of $85.5
million in the same period of fiscal 1998. The increase in net sales
for the quarter and six-month periods was primarily due to increased
sales of the Company's telecommunications products and the addition of
certain recently acquired businesses offset by lower levels of net
sales from Ultrapointe products. Results for the six-month period
ended December 31, 1998 included the operations of Uniphase
Netherlands (UNL) which was acquired in a purchase transaction in
June, 1998. Net sales increased $6.4 million or 11% over the first
quarter of fiscal 1999 amount of $57.4 million, primarily because of
growth in telecommunications product sales. No customer represented
10% or more of the Company's net sales for either the quarter or six
months ended December 31, 1998.
Results for the three and six-month periods ended December 31,
1998 are not considered indicative of the results to be expected for
any future period or for the entire year. In addition, there can be no
assurance that the market for the Company's products will grow in
future periods at its historical percentage rate or that certain
market segments will not decline. Further, there can be no assurance
that the Company will be able to increase or maintain its market share
in the future or to achieve historical growth rates.
Gross Profit
In the second quarter of fiscal 1999, the Company's gross profit
increased 36% to $30.2 million or 47% of net sales from gross profit
of $22.2 million or 49% of net sales in the same period of fiscal
1998. Gross margin as a percentage of net sales for the quarter
declined as compared to the prior year because of the charge resulting
from the disposal of Ultrapointe assets. Gross margin for the second
quarter increased due to a $1.1 million decrease in certain inventory
reserves, offset by a $1.0 million increase in reserve provisions
related to certain new products shipped to customers. For the first
six months of fiscal 1999, gross profit increased 41% to $58.8 million
or 48% of net sales from $41.7 million or 49% of net sales in the same
period of fiscal 1998. The increase in gross profit over fiscal 1998
for the six-month period is due to increased sales of certain
telecommunications products and a $1.4 million reduction in excess
manufacturing related reserves (in addition to the aforementioned
reserve changes in the second quarter), offset by the lower gross
margin rates of certain businesses acquired in fiscal 1998. Gross
profit increased $1.7 million or 6% over the first quarter of fiscal
1999 when it represented 50% of net sales.
There can be no assurance that the Company will be able to
maintain its gross margin at current levels in future periods. In
addition, cessation in sales of Ultrapointe systems will result in
reduced gross profit that may not be offset by an increase in gross
profit from the sale of other products. The Company expects that there
will continue to be periodic fluctuations in its gross margin
resulting from changes in its sales and product mix, competitive
pricing pressures, higher cost resulting from new production
facilities, manufacturing yields, acquisitions of businesses that may
have different margins than the Company, inefficiencies associated
with new product introductions, and a variety of other factors.
Research and Development
In the second quarter of fiscal 1999, research and development
(R&D) expense was $5.8 million or 9% of net sales, which represented a
$2.4 million or 72% increase over R&D expense of $3.4 million or 7% of
net sales in the second quarter of fiscal 1998. For the first six
months of fiscal 1999, R&D expense was $11.4 million or 9% of net
sales, which represents a $5.1 million or 80% increase over R&D
expense of $6.4 million or 7% of net sales in the same period in
fiscal 1998. The increase in R&D expense is primarily due to expenses
of the Company's recently acquired Netherlands subsidiary and
continued development and enhancement of the Company's existing
telecommunications product lines. R&D expense increased 2% over the
first quarter of fiscal 1999, although it decreased as a percentage of
sales from 10% to 9% due to higher sequential growth in net sales for
the comparable periods and a decline in Ultrapointe R&D expenses.
The Company anticipates that R&D expense will continue to
increase in amounts in future periods, although R&D expense may
fluctuate as a percentage of net sales. In addition, there can be no
assurance that expenditures for R&D will be successful or that
improved processes or commercial products will result from these
projects.
Royalty and License
In the second quarter of fiscal 1999, royalty and license
expense of $498,000 was consistent with the same quarter in fiscal
1998 and the first quarter of fiscal 1999. For the first six months of
fiscal 1999, royalty and license expense of $926,000 was comparable to
the corresponding fiscal 1998 amount of $975,000.
The Company continues to develop products for its solid state
laser and telecommunications markets. There are numerous patents for
these products, some of which are held by others, including academic
institutions and competitors of the Company. Such patents could
inhibit the Company's ability to develop, manufacture and sell
products. A number of the patents in these industries are conflicting.
If there is conflict between a third-party's patents or products and
those of the Company, it could be very costly for the Company to
enforce its rights in an infringement action or defend such an action
brought by another party. In addition, the Company may need to obtain
license rights to certain patents and may be required to make
substantial payments, including continuing royalties, in exchange for
such license rights. There can be no assurance that licenses to third
party technology, if needed, will be available on commercially
reasonable terms.
Selling, General and Administrative
In the second quarter of fiscal 1999, selling, general and
administrative (SG&A) expense was $11.9 million or 19% of net sales,
which represented a $4.6 million or 62% increase over SG&A expense of
$7.3 million or 16% of net sales in the second quarter of fiscal 1998.
For the first six months of fiscal 1999, SG&A expense was $22.4
million or 19% of net sales which represented a $8.3 million or 59%
increase over SG&A expense of $14.1 million or 17% of net sales in the
same period of fiscal 1998. SG&A expense increased $1.4 million or 13%
over the first quarter of fiscal 1999 amount of $10.5 million or 18%
of net sales. Increases in SG&A expense in absolute dollars and as a
percentage of net sales were due to increases of $3.4 million and
$10.5 million for the quarter and six month periods compared to the
prior year in amortization of intangible assets resulting from recent
business acquisitions and higher costs to support certain
telecommunications products. These increases were partially offset by
the elimination of certain costs attributable to the UTP headquarters
and the write-off of certain long lived assets at UTP-Fibreoptics in
the fourth quarter of fiscal 1998 as well as reduced marketing and
overhead costs for the Ultrapointe product line.
The Company expects SG&A expenses to increase in the future,
although such expenses may vary as a percentage of sales.
Other Operating Expenses
In the second quarter of fiscal 1999, the Company recorded pre-
tax merger related costs of $5.9 million in connection with the
acquisition of UBP in a transaction accounted for a pooling of
interests. In addition, the Company recognized a $382,000 pre-tax loss
on the disposal of substantially all the assets of its Ultrapointe
product line. In the second quarter of fiscal 1998, the Company
recognized a pre-tax charge of $6.6 million in acquired in-process
research and development charges in connection with its acquisition of
Indx Pty Ltd. of Australia.
Interest and Other Income, Net
In the second quarter of fiscal 1999, interest and other income,
net was $844,000, which was comparable with interest income of
$760,000 in the second quarter of fiscal 1998. For the first six
months of fiscal 1999, interest and other income, net increased to
$1.8 million from $1.5 million in the same period of fiscal 1998. The
increase in interest and other income is primarily the result of
interest income on higher levels of investments.
Income Taxes
The effective tax rates for the second quarter and the first six
months of fiscal 1999 were 63.8% and 45.8% compared to 75.9% and 48.6%
used in the same periods of fiscal 1998. Decreases in the effective
tax rates were primarily attributable to an increase in foreign
earnings taxed at a lower rate and the exclusion of taxable income
derived from UBP as a Subchapter S Corporation through November 24,
1998. The fiscal 1999 provision for income taxes excludes the effect
of non-deductible merger costs incurred in connection with the
acquisition of UBP, whereas fiscal 1998 amounts exclude the effect of
non-deductible acquired in-process research and development expenses.
Liquidity and Capital Resources
At December 31, 1998 the Company's combined balance of cash,
cash equivalents and short-term investments was $114.2 million. The
Company has met its liquidity needs during fiscal 1999 primarily
through cash generated from operating activities totaling $29.6
million. Cash provided by operating activities is primarily the result
of net income before depreciation, amortization, asset write-offs,
lower accounts receivable and increased current liabilities, offset in
part by increases in inventories.
Cash used in investing activities was $49.2 million for the
first six months of fiscal 1999. The Company incurred capital
expenditures of $19.0 million primarily for facilities and equipment
purchases to expand its manufacturing capacities. The Company expects
to continue to expand its worldwide manufacturing capacity, primarily
for telecommunication products by investing approximately $18 million
in capital expenditures for the remainder of fiscal 1999.
The Company generated $8.4 million from financing activities
during fiscal 1999 resulting from the exercise of stock options and
the sale of stock through an employee stock purchase plan. Cash used
for financing activities relates to dividends of $648,000 paid to the
former shareholders of BCP prior to its acquisition by the Company on
November 25, 1998.
The Company has a $5.0 million revolving line of credit with a
bank. There were no borrowings under the line of credit at December
31, 1998. Advances under the line of credit bear interest at the
bank's prime rate (7.75% at December 31, 1998) and are unsecured.
Under the terms of the line of credit agreement, the Company is
required to maintain certain minimum working capital, net worth,
profitability levels and other specific financial ratios. In
addition, the agreement prohibits the payment of cash dividends and
contains certain restrictions on the Company's ability to borrow money
or purchase assets or interests in other entities without the prior
written consent of the bank. The line of credit expires on March 30,
1999.
In connection with the acquisition of UNL in June 1998, the
Company may be obligated for additional consideration and interest
thereon in the form of the Company's common stock with a maximum value
of 458 million Dutch Guilders (approximately $285 million). The
number of shares of common stock to be issued for the contingent
consideration is dependent upon the unit shipments of certain UNL
products during the four-year period ending June 30, 2002 and the
price of the Company's common stock at the time the contingent
consideration is determined. The contingent consideration will be
recorded as additional acquisition cost in the Company's financial
statements at the time payment of such amounts is probable. As of
December 31, 1998 the Company is not obligated to recognize any
contingent consideration resulting from the UNL acquisition.
The Company believes that its existing cash balances and short-
term investments, together with existing cash flow from operations and
available line of credit will be sufficient to meet its liquidity and
capital spending requirements at least through the end of calendar
year 1999. However, possible acquisitions of businesses, products or
technologies may require additional financing prior to such time.
There can be no assurance that additional financing would be available
when required or, if available, would be on terms satisfactory to the
Company.
Risk Factors
Variability and Uncertainty of Quarterly Operating Results
Our Quarterly Operating Results are Uncertain and May Vary
We have experienced and expect to continue to experience
significant fluctuations in our quarterly results. Fluctuations in our
quarterly results may cause substantial fluctuations in the market
price of our common stock. Factors which have influenced and may
continue to influence our operating results in a particular quarter
include:
- the timing of the receipt of product orders from a limited
number of major customers,
- our ability to manufacture technically advanced products
with satisfactory yields on a timely basis,
- product mix,
- competitive pricing pressures,
- relative proportions of domestic and international sales,
- costs associated with the acquisition or disposition of
businesses,
- our ability to timely and cost effectively design,
manufacture and ship products,
- the timing differences between when we incur expenses to
increase our marketing and sales capabilities and when we
realize benefits, if any, from such expenditures,
- the announcement and introduction of new products by us
and by our competitors, and
- expenses associated with any intellectual property
litigation.
In addition, our sales often reflect orders shipped in the same
quarter that they are received. Also, customers may cancel or
reschedule shipments near the end of a particular quarter, and
production difficulties could delay shipments. We frequently ship more
CATV products in the third month of each quarter than in each of the
first two months of the quarter and shipments in the third month
generally are higher at the end of the month. In addition, we sell our
telecommunications equipment products to Original Equipment
Manufacturers (OEMs) who typically order in large quantities and
therefore the timing of such sales may significantly affect our
quarterly results. The timing of such OEM sales can be affected by
factors beyond our control, such as demand for the OEMs' products and
manufacturing risks experienced by OEMs. In this regard, we have
experienced rescheduling of orders by customers in each of our markets
and may experience similar rescheduling in the future. As a result of
all of these factors, the Company's results from operations may vary
significantly from quarter to quarter.
Be advised that future mergers, acquisitions or dispositions of
businesses, products or technologies by the Company may result in
substantial charges or other expenses that may cause fluctuations in
the Company's quarterly operating results. The mergers, acquisition or
disposition of other businesses, products or technologies may also
affect the Company's operating results in any particular quarter. For
example, the Company has recorded significant acquisition or
disposition-related charges in each of its fiscal years since 1995. In
the second quarter of fiscal 1999, we recorded charges of $5.9 million
in connection with our merger with UBP and charges of $1.6 million and
$382,000 for inventory and asset write-offs associated with the sale
of the Ultrapointe product line, respectively. In the second and
fourth quarters of fiscal 1998, we incurred charges of $6.6 million
and $33.7 million, respectively, for acquired in-process research and
development in connection with the acquisition of UFC and UNL. In the
third quarter of fiscal 1997, we incurred charges of $33.3 million for
acquired in-process research and development in connection with the
acquisition of ULE. In addition, we incurred other charges in
connection with acquisitions completed in fiscal 1999, 1998 and 1997.
Be advised that future mergers, acquisitions or dispositions of
businesses, products or technologies by the Company may 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.
Our Acquisitions and Growth Strategies May Create Risks to our
Business
We have historically achieved our growth through a combination
of mergers, acquisitions and internally developed new products. As
part of our strategy to sustain growth, we expect to continue to
pursue mergers and acquisitions of other companies, technologies and
complementary product lines. We also expect to continue developing new
solid state lasers, components and other products for OEM customers
and attempting to further penetrate the telecommunications and CATV
markets through these new products. Both courses of action involve
certain risks to the Company.
In March 1997, the Company acquired ULE, which manufactures our
980-nm pump lasers for optical amplifiers. In June 1998, we acquired
UNL which manufactures our source lasers, external modulators and
optical amplifiers. In the case of both acquisitions, we acquired
businesses that had previously been engaged primarily in research and
development and that needed to make the transition from a research
activity to a commercial business with sales and profit levels that
are consistent with our overall financial goals for the Company. This
transition has not yet been completed at UNL, which continues to
operate at higher expense levels and lower gross margins than those
required to meet our profitability goals. As previously discussed in
this Form 10-Q, we have also signed a Merger Agreement, providing for
the pending combination with JDS-Fitel, Inc. of Ottawa, Canada. In
addition, in November 1998, the Company acquired Broadband
Communications Products, Inc. and in August 1998, acquired certain
assets of Chassis. The success of each of these mergers and
acquisitions will depend upon our ability to manufacture and sell high
power lasers and other components, modules and subsystems used in
wavelength division multiplexing applications and continued demand for
these acquired products by telecommunications and CATV customers. Our
ability to manage our growth effectively depends upon the integration
into the Company of the merged and acquired entities operations,
products and personnel, the retention of key personnel of the merged
and acquired entities and the expansion of our financial and
management controls and reporting systems and procedures. The Company
cannot assure that we will successfully manufacture and sell these
products or successfully manage such growth, and failure to do so
could have a material adverse effect on the Company's business,
financial condition and operating results. Since 1997, when we
acquired ULE, we have increased our marketing, customer support and
administrative functions to support an increased level of operations
primarily from our telecommunications products. The Company cannot and
does not assure success in creating this infrastructure nor can it or
will it ensure any increase in the level of its sales and operations
through its new products. We commenced and developed start-up
operations at UTP in 1996 to penetrate CATV markets, and at UNC in
1998 to develop and market a line of complementary optical components
for our telecommunications customers. In each case, we hired
development, manufacturing and other staff in anticipation of
developing and selling new products. The Company cannot and will not
assure that its operations will achieve levels sufficient to justify
the increased expense levels associated with these new businesses.
We are Dependent on a Limited Number of Customers
Historically, orders from a relatively limited number of OEM
customers accounted for a substantial portion of our net sales from
telecommunications products. In telecommunications markets, our
customers evaluate our products and competitive products for
deployment in large telecommunications systems that they are
installing. Our failure to be selected by a customer for particular
system projects can significantly and adversely effect our business,
operating results and financial condition. Similarly, if our customers
are not selected as the primary supplier for an overall system
installation, we can be similarly adversely affected. Further, sales
to any single customer may vary significantly from quarter to quarter.
Such fluctuations could have a material adverse effect on the
Company's business, operating results and financial condition. We
expect that, for the foreseeable future, sales to a limited number of
customers will continue to account for a high percentage of our net
sales. The Company cannot and does not assure that current customers
will continue to place orders or that the Company will obtain new
orders from new customers.
One telecommunications customer, CIENA Corporation, accounted
for approximately 11% of our net sales for fiscal 1998. One laser subsystems
customer, the Applied Biosystems Division of Perkin-Elmer Corporation,
accounted for approximately 11% of our net sales for fiscal 1996. One
additional customer, KLA-Tencor Corporation, purchased both Laser subsystems
and Ultrapointe systems and accounted for 11% and 12% of our consolidated net
sales in fiscal 1998 and 1996, respectively. The Ultrapointe product line was
sold to KLA-Tencor Corporation in December 1998 and will not be a source of
future sales for the Company. 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, financial condition and operating results.
Year 2000
We are 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, and may affect many IT and non-IT
systems. The Year 2000 problem results from 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 our own systems we rely on external
systems, of our customers, suppliers, creditors, financial
organizations, utilities providers and government entities, both
domestic and international (which we collectively refer to as "Third
Parties"). Consequently, we could be affected by disruptions in the
operations of Third Parties with which we interact. Furthermore, as
customers expend resources to correct their own systems, they may
reduce their purchasing frequency and volume of our products.
We are using both internal and external resources to assess:
- the Company's state of readiness (including the readiness of
Third Parties, with which we interact) concerning the Year
2000 problem,
- our costs to correct material Year 2000 problems related
to our internal IT and non-IT systems,
- the known risks related to any failure to correct any Year
2000 problems we identify, and
- the contingency plan, if any, that we should adopt should
and identified Year 2000 problems not be corrected.
We continue 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, we believe, based on available
information, that we will manage our total Year 2000 transition
without any material adverse effect on the Company's 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 Year
2000 compliance commitments, and
- timely actions by customers.
We anticipate that we will remediate all Year 2000 risks and be
able to conduct normal operations without having to establish a Year
2000 contingency plan.
We are working with our software system suppliers and believe
that certain of these systems are currently not Year 2000 compliant. However,
we anticipate that such systems will be corrected for the Year 2000 problem
prior to December 31, 1999. We are working with those Third Parties to
identify any Year 2000 problems affecting such Third Parties that could have a
material adverse affect on our business, financial condition or results of
operations. However, it would be impracticable for us 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 arisen or may
arise regarding 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. We are still assessing the effect the Year 2000
problem will have on its suppliers and, at this time, cannot determine such
impact.
European Currency Change
On January 1, 1999, several member countries of the European
Union established fixed conversion rates between their existing
sovereign currencies and adopted the Euro as their new common legal
currency. The Euro has and will trade on currency exchanges and the
legacy currencies will remain legal tender in the participating
countries for a transition period through 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, which will no longer be
available. The Euro conversion may affect cross-border competition by
creating cross-border price transparency. We are assessing our
pricing/marketing strategy in order to insure that we remain
competitive in a broader European market. We are also assessing our
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. Our 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 are not
yet available. We will continue to evaluate issues involving
introduction of the Euro. Based on current information and our current
assessment, we do not expect that the Euro conversion will have a
material adverse effect on the Company's business, financial condition
or results from operations.
Our Common Stock Price May be Volatile
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 our operating results,
- announcements of technological innovations or new products
by us or
our competitors,
- governmental regulatory action,
- developments with respect to patents or proprietary
rights, and
- general market conditions.
Further, our sales, operating results or cash flows 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.
The statements contained in this Report on Form 10-Q that are not
purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Such forward-looking statements
include, but are not limited to, statements regarding the Company's
expectations, anticipations, hopes, beliefs, intentions or strategies
regarding the future. Actual results could differ materially from
those projected in any forward-looking statements as a result of a
change in the Company's policies or current intentions, as well as a
number of other factors, including those detailed in the "Risk
Factors" portion as well as those set forth from time to time in the
Company's Reports on Form 10-K, 10-Q and Annual Reports to
Stockholders. The forward-looking statements are made as of the date
hereof and the Company assumes no obligation to update the forward-
looking statements, or to update the reasons why actual results could
differ materially from those projected in the forward-looking
statements.
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Item 3. Legal Proceedings, in the
Registrant's Annual Report on Form 10-K for the year ended June 30,
1998 and Part II, Item 1. Legal Proceedings in the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1998.
Item 2. Changes in Securities
In November 1998, the stockholders of the Company approved an
increase in the number of shares of common stock authorized from
50,000,000 to 100,000,000 shares.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders (the "Annual Meeting") of
the Company was held on November 10, 1998.
At the Annual Meeting, three items were put to a vote of the
stockholders:
1. The election of three Class II directors of the Company to
serve until the 2001 Annual Meeting of Stockholders, and until
their successors are elected and qualified;
2. An amendment to increase the aggregate number of shares of
common stock which the Company is authorized to issue from
50,000,000 to 100,000,000 shares.
3. The appointment of Ernst & Young LLP as the independent
auditors for the Company for the fiscal year ending June 30,
1999.
The voting results were:
<TABLE>
<CAPTION>
Item For Against Abstained
------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
1. Directors
Peter Guglielmi................ 35,204,837 0 52,820
Professor Wilson Sibbett....... 35,204,837 0 52,820
Willem Haverkamp............... 35,204,837 0 52,820
2. Increase in authorized
share capital................ 34,293,798 915,964 47,895
3. Appointment of auditors........ 35,197,693 7,290 52,674
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3(i) (b) (2) Amended and Restated Certificate of Incorporation*
27. Financial Data Schedule
b) Reports on Form 8-K
1) Report on Form 8-K as filed on January 7, 1999 and
2) Report on Form 8-K/A as filed on April 26, 1999
*As previously filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the period ended December 31, 1998.
Uniphase Corporation
(Registrant)
Date April 28, 1999 \s\ Anthony R. Muller
Anthony R. Muller,
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR
THE PERIODS ENDED SEPTEMBER 30, 1998 AND DECEMBER 31,1998,
AND ARE QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JUL-01-1998 JUL-01-1998
<PERIOD-END> SEP-30-1998 DEC-31-1998
<CASH> 31,479 29,331
<SECURITIES> 75,627 84,905
<RECEIVABLES> 40,716 40,791
<ALLOWANCES> 684 871
<INVENTORY> 24,207 26,180
<CURRENT-ASSETS> 179,384 189,555
<PP&E> 87,159 94,646
<DEPRECIATION> 21,913 21,913
<TOTAL-ASSETS> 352,949 367,275
<CURRENT-LIABILITIES> 42,194 46,163
<BONDS> 0 0
0 0
0 0
<COMMON> 39 40
<OTHER-SE> 304,211 314,006
<TOTAL-LIABILITY-AND-EQUITY> 352,949 367,275
<SALES> 57,420 121,192
<TOTAL-REVENUES> 57,420 121,192
<CGS> 28,898 62,436
<TOTAL-COSTS> 28,898 62,436
<OTHER-EXPENSES> 16,618 41,072
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 12,823 19,447
<INCOME-TAX> 4,675 8,898
<INCOME-CONTINUING> 8,148 10,549
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,148 10,549
<EPS-PRIMARY> $0.21 $0.27
<EPS-DILUTED> $0.19 $0.25
</TABLE>
