-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdWk8NlvhwxEl5ejCFfhjTw+2KyLh1/u5grJqj8VjQebZni6qpn2/VpJ+oZQAOGq Ai8nnKI9r+t2ZYf+TD/c7A== /in/edgar/work/0000950148-00-002359/0000950148-00-002359.txt : 20001115 0000950148-00-002359.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950148-00-002359 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MRV COMMUNICATIONS INC CENTRAL INDEX KEY: 0000887969 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 061340090 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11174 FILM NUMBER: 766304 BUSINESS ADDRESS: STREET 1: 20415 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187730900 MAIL ADDRESS: STREET 1: 20415 NORDHOFF ST CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 v67213e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT. FOR THE TRANSITION PERIOD FROM _______________ TO ______________ COMMISSION FILE NUMBER 0-25678 MRV COMMUNICATIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 06-1340090 (STATE OF OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 20415 NORDHOFF STREET, CHATSWORTH, CA 91311 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 773-0900 Check whether the issuer: (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of September 30, 2000, there were 72,451,510 shares of Common Stock, $.0017 par value per share, outstanding. 2 MRV COMMUNICATIONS, INC. Form 10-Q September 30, 2000 Index
PAGE NUMBER ----------- PART I Financial Information Item 1: Financial Statements: Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 (audited) 3 Condensed Consolidated Statements of Operations (unaudited) for the Nine Months ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine and Three Months ended September 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements (unaudited) 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II OTHER INFORMATION 20 Item 2. Changes in Securities and Use of Proceeds 20 Item 5 Other Events 21 Item 6. Exhibits and Reports on Form 8-K. 22 SIGNATURE 24
As used in this Report, "we, "us", "our", "MRV" or the "Company" refers to MRV Communications, Inc. and its consolidated subsidiaries. 2 3 MRV Communications, Inc. Condensed Consolidated Balance Sheets (In thousands, except par values)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (UNAUDITED) (AUDITED) Assets Current Assets: Cash & cash equivalents $ 38,506 $ 34,330 Short-term investments 61,512 10,141 Accounts receivable, net 64,678 60,637 Inventories 58,239 35,392 Contracts in progress 4,588 -- Refundable income taxes 1,199 3,216 Deferred income taxes 12,165 6,907 Other current assets 15,374 6,336 --------- --------- Total current assets 256,261 156,959 Property And Equipment - At cost, net of depreciation and amortization 64,493 19,600 Other Assets: Goodwill & intangibles 529,776 27,214 U.S. treasury notes 86,616 97,704 Investments in partner companies 22,087 4,232 Deferred income taxes 5,856 5,324 Loan financing costs and other 7,343 3,500 --------- --------- $ 972,432 $ 314,533 --------- --------- Liabilities And Stockholders' Equity Current Liabilities: Current maturities of financing lease obligations $ 2,173 $ 198 Accounts payable 48,943 33,455 Accrued liabilities 28,837 15,403 Short term debt 60,034 -- Deferred revenue 1,314 1,478 --------- --------- Total current liabilities 141,301 50,534 Long-Term Liabilities: Convertible debentures 90,000 90,000 Capital lease obligations, net of current portion 937 1,481 Deferred income taxes 1,187 281 Other long-term liabilities 15,281 2,647 --------- --------- Total long term liabilities 107,405 94,409 Minority Interests 3,491 2,775 Stockholders' Equity: Preferred stock, $0.01 par value: 1,000 shares authorized, no shares issued or outstanding -- -- Common stock, $0.0017 par value: 160,000 shares authorized, 72,452 shares issued and outstanding in 2000 and 56,234 shares outstanding in 1999 123 124 Additional paid-in capital 968,951 191,440 Treasury Stock (133) (133) Deferred compensation (114,399) -- Accumulated deficit (126,370) (18,377) All cumulative other comprehensive loss (7,937) (6,239) --------- --------- Total stockholders' equity 720,235 166,815 --------- --------- $ 972,432 $ 314,533 --------- ---------
See accompanying notes 3 4 MRV Communications, Inc. Condensed Consolidated Statements Of Operations (In thousands, except per share data)
NINE MONTHS ENDED, THREE MONTHS ENDED ---------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------ ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenues, net $ 221,727 $ 214,621 $ 82,720 $ 71,254 --------- --------- --------- --------- Costs And Expenses: Cost of goods sold 136,439 138,614 47,910 44,653 Research and development expenses 27,185 17,973 13,818 5,875 Research and development expenses of consolidated development stage enterprises 21,267 7,540 7,985 2,601 Selling, general and administrative expenses 94,180 45,385 52,699 15,581 Amortization of goodwill and intangibles from acquisitions 40,417 2,884 27,348 951 --------- --------- --------- --------- Operating (loss) income (97,761) 2,225 (67,040) 1,593 Interest expense (3,928) (3,375) (1,125) (1,125) Other income (expense), net (1) (3,514) 3,950 (4,639) 1,290 Provision for income taxes 1,888 2,578 1,005 1,169 Minority interests (902) (39) (570) (22) --------- --------- --------- --------- Net income (loss) $(107,993) $ (183) $ (74,379) $ 567 --------- --------- --------- --------- Net income (loss) per share - Basic $ (1.71) $ (0.00) $ (1.06) $ 0.01 Net income (loss) per share - Diluted $ (1.71) $ (0.00) $ (1.06) $ 0.01 --------- --------- --------- --------- Shares used in per share calculation - Basic 63,286 53,530 70,122 53,868 Shares used in per share calculation - Diluted 63,286 53,530 70,122 60,154 --------- --------- --------- ---------
(1) Includes costs of unconsolidated development stage enterprises of $6,728 and $5,291 for the nine and three months ended September 30, 2000 See accompanying notes 4 5 MRV Communications, Inc. Condensed Consolidated Statements Of Cash Flows (In thousands)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2000 1999 -------- -------- (unaudited) Cash Flows From Operating Activities: -------- -------- Net cash (used in) provided by operating activities $(11,619) $ 2,960 -------- -------- Cash Flows From Investing Activities: Purchases of property and equipment (12,178) (5,707) Purchases of investments (14,269) (7,519) Investments in partner companies (10,785) -- Proceeds from sale or maturity of investments 31,914 24,443 Cash used in acquisitions and equity purchases, net of cash received (44,517) (5,595) -------- -------- Net cash provided by (used in) investing activities (49,835) 5,622 -------- -------- Cash Flows From Financing Activities: Proceeds from line of credit 60,877 -- Net proceeds from issuance of common stock 6,995 1,888 Principal payments on capital lease obligations (544) (404) -------- -------- Net cash provided by financing activities 67,328 1,484 -------- -------- Effect Of Exchange Rate Changes On Cash And Cash Equivalents (1,698) (630) -------- -------- Net Increase In Cash And Cash Equivalents 4,176 9,436 Cash And Cash Equivalents, beginning of period 34,330 20,692 -------- -------- Cash And Cash Equivalents, end of period $ 38,506 $ 30,128 ======== ========
See accompanying notes 5 6 MRV Communications, Inc. Notes To Condensed Consolidated Financial Statements 1. General The accompanying condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of the Company, these unaudited statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of MRV Communications and Subsidiaries as of September 30, 2000, and the results of their operations and their cash flows for the nine and three months then ended. 2. Business Combination On April 24, 2000, the Company completed the acquisition of approximately 97% of the outstanding capital stock of Fiber Optic Communications, Inc. (FOCI), a Republic of China corporation. FOCI is a manufacturer of passive fiber optic components for Wavelength Division Multiplexing. Under the terms of the purchase agreement, FOCI shareholders received approximately $48.6 million in cash and approximately 4.7 million shares of common stock and options to purchase approximately 300,000 shares of common stock for a total purchase price of approximately $310.4 million. The acquisition is being accounted for using the purchase method of accounting. The excess purchase price paid over the fair value of the net identifiable assets acquired of $262.1 million has been recorded as goodwill and is being amortized on a straight-line basis over 5 years. The options to purchase common stock have an aggregate intrinsic value of $14.1 million and are being amortized using the graded vesting method over four years. On May 1, 2000, the Company completed the acquisition of all of the outstanding capital stock of Jolt Limited (Jolt), an Israel corporation. Jolt designs, manufactures and sells multi-port wireless optics communications equipment. Under the terms of the purchase agreement, Jolt shareholders received approximately 1.1 million shares of common stock and options to purchase approximately 749,000 shares of common stock for a total purchase price of approximately $57.7 million. The acquisition is being accounted for using the purchase method of accounting. The excess purchase price paid over the fair value of the net identifiable assets acquired of $32.7 million has been recorded as goodwill and is being amortized on a straight-line basis over 5 years. The options to purchase common stock have an aggregate intrinsic value of $25.0 million and are being amortized using the graded vesting method over four years. On July 12, 2000, the Company completed the acquisition of all of the outstanding capital stock of Quantum Optech Inc. (QOI), a Republic of China corporation. QOI is a manufacturer of optical thin film coating and filters for Dense Wavelength Division Multiplexing. Under the terms of the purchase agreement, QOI shareholders received approximately 1.0 million shares of common stock and options to purchase approximately 160,000 shares of common stock for a total purchase price of approximately $36.2 million. The acquisition is being accounted for using the purchase method of accounting. The excess purchase price paid over the fair value of the net identifiable assets acquired of $27.9 million has been recorded as goodwill and is being amortized on a straight-line basis over 5 years. The options to purchase common stock have an aggregate intrinsic value of $2.7 million and are being amortized using the graded vesting method over four years. On July 12, 2000, the Company completed the acquisition of all of the outstanding capital stock of AstroTerra Corporation (AstroTerra), a California corporation. AstroTerra develops and manufactures free-space optical laser communication systems for data and telecommunication network. Under the terms of the purchase agreement, AstroTerra shareholders received approximately 1.6 million shares of common stock and options to purchase approximately 809,000 shares of common stock for a total purchase price of approximately $160.3 million. The acquisition is being accounted for using the purchase method of accounting. The excess purchase price paid over the fair value of the net identifiable assets acquired of $108.3 million has been recorded as goodwill and is being amortized on a straight-line basis over 5 years. The options to purchase common stock have an aggregate intrinsic value of $50.0 million and are being amortized using the graded vesting method of over four years. On July 21, 2000, the Company completed the acquisition of approximately 99 percent of the outstanding capital stock of Optronics International Corp. (OIC), a Republic of China corporation. OIC is a manufacturer of high temperature semiconductor lasers, transceivers and detectors for optical networks. Under the terms of the purchase agreement, OIC shareholders received approximately 3.4 million shares of common stock and options to purchase approximately 800,000 shares of common stock for a total purchase price of approximately $124.2 million. The acquisition is being accounted for using the purchase method of accounting. The excess purchase price paid over the fair value of the net identifiable assets acquired of $99.7 million has been recorded as goodwill and is being amortized on a straight-line basis over 5 years. The options to purchase common stock have an aggregate intrinsic value of $13.4 million and are being amortized using the graded vesting method of over four years. 6 7 The results of operations of these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition. The following unaudited pro forma financial information presents the combined results of operations of MRV, FOCI, QOI, Jolt, AstroTerra and OIC as if the acquisitions had occurred as of January 1, 1999 and 2000, giving effect to certain adjustments, including amortization of goodwill and other intangibles and deferred compensation charges (in thousands).
NINE MONTHS ENDED SEPTEMBER 30 -------------------------- 2000 1999 ----------- ----------- Revenues, net $ 237,809 $ 240,880 Net income (loss) (185,837) (129,558) Basic and diluted net loss per share (2.94) (2.42)
3. Earnings Per Share Basic earnings (loss) per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share include the incremental shares issuable upon the assumed exercise of stock options. The effect of the assumed conversion of $90.0 million convertible debentures has not been included, as it would be anti-dilutive. For the nine and three months ended September 30, 2000, common stock equivalents were not considered in the diluted computation, as their effect was antidilutive. 4. Comprehensive Income On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." For year-end financial statements, SFAS No. 130 requires that net income (loss) and all other non-owner changes in equity be displayed in a financial statement with the same prominence as other consolidated financial statements. In addition, the standard requires companies to display the components of comprehensive income as follows (in thousands).
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30 ---------------------------------------------------------------- 2000 1999 2000 1999 ------------ ----------- ------------ ---------- Net Income (loss) $ (107,993) $ (183) $ (74,379) $ 567 Change in foreign currency translation (1,698) (1,438) 760 52 ---------- --------- ---------- ---------- Comprehensive loss $ (109,691) $ (1,621) $ (73,619) $ 619 ========== ========= ========== ==========
5. Inventories Inventories are stated at the lower of cost or market and consist of materials, labor and overhead. Cost is determined by the first-in, first out method. Inventories consist of the following as of September 30, 2000 and December 31, 1999 (in thousands):
SEPTEMBER 30, 2000 DECEMBER 31, 1999 ------------------ ------------------ Raw materials $ 21,033 $ 8,475 Work-in-process 20,716 8,083 Finished goods 16,490 18,834 --------- --------- $ 58,239 $ 35,392 ========= =========
6. Stock Distribution On May 26, 2000, the Company completed a two-for-one stock split. The effect of this stock split has been reflected in the accompanying condensed consolidated financial statements for all periods presented. 7. Segment Reporting and Geographical Information The Company operates under a business model that creates and manages start-up companies and independent business units. These companies fall into two segments, operating entities and development stage enterprises. Segment information is therefore being provided on this basis which differs from prior period presentations of portions of the operating entities as segments. Development stage enterprises that the Company has created or invested in are developing optical components, subsystems and networks and products for the infrastructure of the Internet. Operating entities of the Company design, manufacture and distribute 7 8 optical components, optical subsystems, optical networking solutions, Internet infrastructure products and provide IT system integration services. The accounting policies of the segments are the same as those described in the summary of significant accounting polices. The Company evaluates segment performance based on revenues, operating income (loss) and total assets of each segment. As such, there are no separately identifiable segment assets nor are there any separately identifiable statements of operations data below operating income. Business Segment Net Revenues for the nine and three months ended September 30, 2000 and 1999 (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30, --------------------------------- -------------------------------- 2000 1999 2000 1999 --------------- ------------- ------------ -------------- Operating entities $ 221,727 $ 214,621 $ 82,720 $ 71,254 Development stage enterprises -- -- -- -- ---------- ---------- --------- --------- Total Revenues $ 221,727 $ 214,621 $ 82,720 $ 71,254 ========== ========== ========= =========
There were no inter-segment sales in the nine and three months ended September 30, 2000 and 1999. Business Segment Profit (Loss) for the nine and three months ended September 30, 2000 and 1999 (in thousands):
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------ 2000 1999 2000 1999 ------------ ------------- ------------ -------------- Operating income (loss): Operating entities $ (76,494) $ 9,765 $ (59,055) $ 4,194 Development stage enterprises (21,267) (7,540) (7,985) (2,601) ---------- -------- ---------- --------- $ (97,761) $ 2,225 $ (67,040) $ 1,593 ========== ======== ========== =========
For the nine and three months ended and as of September 30, 2000, the Company had no single customer that accounted for more than 10 percent of revenue or accounts receivable. The Company does not track customer revenue by region for each individual reporting segment. A summary of external revenue by region follows (in thousands).
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- --------------------------- (In thousands) 2000 1999 2000 1999 ------------- ------------- ------------- ------------ United States $ 87,416 $ 91,377 $ 32,384 $ 29,958 Asia Pacific 27,102 21,566 8,931 7,373 European 102,696 96,544 40,153 31,028 Other 4,513 5,134 1,252 2,895 ---------- ---------- --------- --------- Total net sales $ 221,727 $ 214,621 $ 82,720 $ 71,254 ========== ========== ========= =========
Income (loss) before provision for income taxes:
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- -------------------------- (In thousands) 2000 1999 2000 1999 ------------- ------------- ------------ ---------- United States $ (99,778) $ 2,198 $ (74,022) $ 993 Non-United States (6,327) 197 648 743 ---------- ---------- ---------- --------- Income (loss) before provision for income taxes $ (106,105) $ 2,395 $ (73,374) $ 1,736 ========== ========== ========== =========
8 9 8. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Investments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. The Company will adopt the statement in January 2001 and does not expect the adoption of this statement to have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commissions (SEC) issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides additional guidance on the recognition, presentation and disclosure of revenue in financial statements. The Company has reviewed this bulletin and believes that its current revenue recognition policy is consistent with the guidance of SAB No. 101. In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain issues, including the definition of an employee, the treatment of the acceleration of stock options and the accounting treatment for options assumed in business combinations. FIN 44 became effective on July 1, 2000, but is applicable for certain transactions dating back to December 1998. The adoption of FIN 44 did not have a significant impact on MRV's financial position or results of operations. 9. Supplemental Unaudited Pro Forma Financial Data The purpose of the following unaudited pro forma condensed consolidated statements of operations for the nine and three months ended September 30, 2000 and 1999 is to present the results of operations excluding certain charges such as non-cash amortization of intangibles from acquisitions, non-cash deferred compensation expense and expenses associated with development stage enterprises (In thousands, except per share data).
NINE MONTHS ENDED, THREE MONTHS ENDED -------------------------- -------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenues, net $221,727 $214,621 $ 82,720 $ 71,254 -------- -------- -------- ---------- Cost and Expenses: Cost of goods sold 132,107 138,614 44,322 44,653 Research and development expenses 20,388 17,973 8,180 5,875 Selling, general and administrative expenses 58,997 45,385 22,941 15,581 -------- -------- -------- -------- Operating income 10,235 12,649 7,277 5,145 Interest expense related to convertible notes (3,928) (3,375) (1,125) (1,125) Other income, net 3,214 5,617 652 1,974 Provision for income taxes 3,351 2,578 2,468 1,169 Minority interests (902) (39) (570) (22) -------- -------- -------- -------- Net income (loss) $ 5,268 $ 12,274 $ 3,766 $ 4,803 -------- -------- -------- -------- Net income (loss) per share - basic $ 0.08 $ 0.23 $ 0.05 $ 0.09 -------- -------- -------- -------- Net income (loss) per share - diluted $ 0.07 $ 0.21 $ 0.05 $ 0.08 -------- -------- -------- -------- Shares used in per - share calculation - basic 63,286 53,530 70,122 53,868 Shares used in per - share calculation - diluted 72,657 58,586 79,816 60,154 -------- -------- -------- --------
ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations YOU SHOULD READ THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS TOGETHER WITH THE CONDENSED FINANCIAL STATEMENTS AND THE NOTES TO CONDENSED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS FORM 10-Q. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT US AND OUR INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY DESCRIBED IN THE "FORWARD LOOKING STATEMENTS" SECTION OF THIS FORM 10-Q AND THE "RISK FACTORS" SECTION OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND AS AMENDED ON FORM 10-K/A, FOR THE YEAR ENDED DECEMBER 31, 1999. WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON, EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE. OVERVIEW Our business is optical technology and Internet infrastructure. Our core operations include the design, manufacturing and sale of two groups of products: (i) optical networking and Internet infrastructure products, primarily subscribers' management, network element management, and physical layer, switching and routing management systems in fiber optic metropolitan networks and (ii) fiber optic components for the transmission of voice, video and data across enterprise, telecommunications and cable television networks. Our advanced optical networking and Internet infrastructure solutions greatly enhance the functionality of carrier and network service provider networks. Furthermore, our fiber optic components incorporate proprietary technology, which delivers high performance under demanding environmental conditions. On November 10, 2000, our subsidiary Luminent commenced the initial public offering of its common stock, selling 12,000,000 shares at $12.00 per share. We currently plan to distribute all of our shares of Luminent common stock to our stockholders on the later of three months after the receipt of a favorable private letter ruling from the Internal Revenue Service or six months after this offering, although we are not obligated to do so. There are various conditions that must be satisfied or waived by us in our sole discretion, prior to the distribution. These conditions include, among other things, the receipt of a private letter ruling from the Internal Revenue Service that our distribution of our shares of Luminent common stock to the holders of our common stock will be tax-free to our stockholders and us for United States federal income tax purposes. The exact distribution formula and record date to qualify for any distribution will be determined at a future date. Luminent designs, manufactures and sell as comprehensive line of fiber optic components that enable communications equipment manufactures to provide optical networking equipment for the rapidly growing metropolitan and access segments of the communications networks. 9 10 On October 6, 2000, our subsidiary Optical Access filed a registration statement with the Securities and Exchange Commission for the initial public offering of its common stock. Optical Access designs, manufactures and markets an optical wireless solution that delivers high-speed communications traffic to the portion of the communications network commonly know as the last mile, which extends from the end user to the service provider's central office. The registration statement related to these securities has been not yet become effective. These securities may not be sold no may offers to buy be accepted, prior to the time the registration statement becomes effective. This announcement does not constitute an offer to sell or the solicitation of an offer to buy. There will not be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. We completed several strategic acquisitions since December 31, 1999. These acquisitions were made to expand our product offering, enhance our technological expertise and expand our manufacturing capabilities. A summary of our acquisitions is as follows:
Form of Consideration and Acquired Company Consideration Other Notes to Acquisition - ------------------------------------------------------------------------------------------------------------------------ Fiber Optic Communications, Inc. $310.4 million $48.6 million in cash and 5.0 million shares of common stock and options issued; approximately 97% of capital stock assumed; goodwill recorded of $262.1 million; deferred stock compensation recorded of $14.1 million Quantum Optech Inc. $36.2 million 1.2 million shares of common stock and options issued; 100% of capital stock assumed; goodwill recorded of $27.9; deferred stock compensation recorded of $2.7 million Optronics International Corp. $124.2 million 4.2 million shares of common stock and options issued; approximately 99% of capital stock assumed; goodwill recorded of $99.7 million; deferred stock compensation recorded of $13.4 million AstroTerra Corporation $160.3 million 2.4 million shares of common stock and options issued; 100% of capital stock assumed; goodwill recorded of $108.3 million; deferred stock compensation recorded of $50.0 million Jolt Limited $57.7 million 1.9 million shares of common stock and options issued; 100% of capital stock assumed; goodwill recorded of $32.7 million; deferred stock compensation recorded of $25.0 million
Fiber Optic Communications, Quantum Optech and Optronics International were acquired and contributed to Luminent as part of its spin-off. Fiber Optic Communications provides expertise in developing and manufacturing passive fiber optic components for Wavelength Division Multiplexing. Quantum Optech specializes in developing and manufacturing optical thin film coating and filters for Dense Wavelength Division Multiplexing. Finally, Optronics provides its expertise in developing and manufacturing high temperature semiconductor lasers, transceivers and detectors for optical networks. These acquisitions also provided additional manufacturing capabilities for future growth. AstroTerra and Jolt were acquired and will be contributed to Optical Access as part of its spin-off. AstroTerra develops and manufactures free-space optical wireless communication systems to connect data and telecommunications networks. Jolt develops and manufactures multi-port wireless optics communications equipment. These acquisitions provided strategic components and technology for Optical Access' wireless optical solution. We will continue to pursue and seek out future acquisitions that provide synergies with existing product offerings and technology or allow us to penetrate into new markets and grow of business model. 10 11 RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of total net sales for the periods indicated.
NINE MONTHS ENDED THREE MONTHS ENDED ----------------------------- ----------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- AS A PERCENTAGE OF REVENUE, NET Revenues, net 100% 100% 100% 100% Costs and Expenses Cost of goods sold 62% 65% 58% 63% Research and development expenses 12% 8% 17% 8% Research and development expenses of consolidated development stage enterprises 10% 4% 10% 4% Selling, general and administrative expenses 42% 21% 64% 22% Amortization of goodwill and intangibles from acquisitions 18% 1% 33% 1% ----- ----- ----- ----- Operating (loss) income (44%) 1% (81%) 2% Interest expense (2%) (2%) (1%) (2%) Other income, net (2%) 2% (-6%) 2% Provision for income taxes 1% 1% 1% 2% Minority interests 0% 0% (-1%) 0% ----- ----- ----- ----- Net (loss) income (-49%) 0% (-90%) 1% ===== ===== ===== =====
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 NET SALES. We generally recognize revenue upon shipment of our products. We defer revenue recognition on shipment of certain products to where return privileges exist until the products are sold through to end-users. Net sales for the third quarter increased 16%, to $82.7 million from $71.3 million for the three months ended September 30, 1999. This increase was due in part to an increase in our fiber optic components business, specifically relating to existing business and growth through recent acquisitions. The expansion of the fiber optic industry in recent quarters has also contributed to our increase in net sales. Further growth was due to the Internet infrastructure products, such as greater acceptance of our In-Reach(TM) product line, which enables remote management of data networks, and products designed for wireless networks. GROSS PROFIT. Gross profit is equal to our net sales less our cost of sales. Our cost of sales includes materials, direct labor and overhead. Cost of inventory is determined by the first-in, first-out method. Gross profit for the third quarter of fiscal year 2000 increased 31%, to $34.8 million from $26.6 million for the three months ended September 30, 1999. Prior to deferred stock compensation expenses, gross profit would have increased 39%, to $38.4 million for the three months ended September 30, 2000. Our gross margins (defined as gross profit as a percentage of net sales) are generally affected by price changes over the life of the products and the overall mix of products sold. Higher gross margins are generally expected from new products and improved production efficiencies as a result of increased utilization. Conversely, prices for existing products generally will continue to decrease over their respective life cycles. Our gross margin increased to 42% for the three months ended September 30, 2000, from 37% for the three months ended September 30, 1999. Prior to deferred stock compensation expenses, gross margin would have increased to 48% for the three months ended September 30, 2000. Our increase in gross margin is partly a result of our decision in February 2000 to discontinue the production and sale of low margin LAN switches for enterprise networks. Furthermore, our increase in gross margin was also attributed to the increase sale of higher margin products such as those for 3G wireless networks and other Internet infrastructure products. SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A expenses increased 238%, to $52.7 million from $15.6 million for the three months ended September 30, 1999. SG&A expenses were 64% of net sales, compared to 22% of net sales for the three months ended September 30, 1999. Prior to deferred stock compensation expenses, SG&A would have increased 47%, to $22.9 million from $15.6 million for the three months ended September 30, 1999. SG&A expenses would have been 28% of net sales, compared to 22% for the three months ended September 30, 1999. These increases principally resulted from our recent acquisitions. Furthermore, we have increased personnel and related costs in our operating entities in line with our business expansion. RESEARCH AND DEVELOPMENT (R&D). R&D expenses increased 157%, to $21.8 million from $8.5 million for the three months ended September 30, 1999. R&D expenses of consolidated development stage enterprises represented a 207% increase to $8.0 million from $2.6 million for the three months ended September 30, 1999. Prior to deferred stock compensation expenses, R&D would have increased 91%, to $16.2 million. The growth in R&D expense demonstrates our commitment to product development and continuous technological advancement. The increase in R&D expenses of consolidated development stage enterprises is due to an acceleration in the growth of those enterprises consistent with their objectives of bringing new products to market. AMORTIZATION OF GOODWILL AND INTANGIBLES FROM ACQUISITIONS. Amortization of goodwill and intangibles from acquisitions increased to $27.3 million from $951,000 for the three months ending September 30, 1999. The increase in these costs were affected by our recent acquisitions which contributed approximately $25.2 million in additional expense for the three months ended September 30, 2000. We expect to incur additional amortization of goodwill and intangibles resulting from these acquisitions totaling approximately $26.5 million each quarter until fully amortized in 2005. Furthermore, as we continue to engage in strategic acquisitions, additional goodwill and intangibles will be recorded. INTEREST AND OTHER INCOME AND EXPENSE. In June 1998, we issued $100.0 million principal amount of 5% convertible subordinate notes due in 2003 (the Notes). The Notes were offered in a 144A private placement to qualified institutional investors at the stated amount, less a selling discount of 3%. In late 1998, we repurchased $10.0 million principal amount of the Notes at a discount from the stated amount. We incurred $1.2 million in interest expense relating to the Notes for the three months ended September 30, 2000 and 1999. The increase in expense in other income (expense), net is primarily attributed to the costs of our unconsolidated development stage enterprise of $5.3 million for the three months ended September 30, 2000. For the three months ended September 30, 1999, these entities were included in our consolidated statements of operations based on our ownership in those enterprises. The remaining components of other income (expense), net is primarily interest income recognized from short-term and long-term investments. PROVISION FOR INCOME TAXES. The provision for income taxes for the three months ended September 30, 2000 was $1.0 million, compared to $1.2 million for three months September 30, 1999. Our income tax expense fluctuates primarily due to the tax jurisdictions where we currently have operating facilities and varying tax rates in those jurisdictions. 11 12 NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 NET SALES. Net sales for the nine months ended September 30, 2000 increased 3%, to $221.7 million from $214.6 million for the nine months ended September 30, 1999. Our revenues were favorably impacted by growth in our fiber optic components business, which offset our decision in February 2000 to discontinue the production and sale of our LAN switches for enterprise networks. Further growth was due to the greater acceptance of our Internet infrastructure products, such as our In-Reach(TM) product line, and products acquired through our recent acquisitions, such as products designed for wireless networks. GROSS PROFIT. Gross profit for the nine months ended September 30, 2000 increased 12%, to $85.3 million from $76.0 million for the nine months ended September 30, 1999. Our gross margin increased to 38% for the nine months ended September 30, 2000, from 35% for the nine months ended September 30, 1999. Prior to deferred stock compensation expenses, our gross margin would have increased to 40% for the nine months ended September 30, 2000. Our margins increased due to a favorable shift in product mix toward higher margin product lines, such as those for 3G wireless networks and other Internet infrastructure products. SELLING, GENERAL AND ADMINISTRATIVE (SG&A). SG&A expenses increased 108%, to $94.2 million for the nine months ended September 30, 1999. SG&A expenses were 42% of net sales, compared to 21% of net sales for the nine months ended September 30, 1999. Prior to deferred stock compensation expenses, SG&A would have increased 30%, to $59.0 million for the nine months ended September 30, 2000. SG&A would have been 27% of net sales for the nine months ended September 30, 2000. The increase in SG&A expenses is primarily a result of our recent acquisitions. We have also increased personnel and related costs in our operating entities in response to our growth in business. RESEARCH AND DEVELOPMENT (R&D). R&D expenses increased 90%, to $48.5 million for the nine months ended September 30, 2000 from $25.5 million for the nine months ended September 30, 1999. R&D expenses of consolidated development stage enterprises represented a 182% increase to $21.3 million from $7.5 million for the nine months ended September 30, 1999. Prior to deferred stock compensation expenses, R&D would have increased 63%, to $41.7 million for the nine months ended September 30, 2000. Our increased spending in R&D illustrates our commitment to continued product development and technological expansion. Additionally, R&D from our consolidated development stage enterprises continued to increase as those enterprises strive towards bringing new products to market. AMORTIZATION OF GOODWILL AND INTANGIBLES FROM ACQUISITIONS. Amortization of goodwill and intangibles from acquisitions increased to $40.4 million from $2.9 million for the nine months ending September 30, 1999. Furthermore, as we continue to engage in strategic acquisitions, additional goodwill and intangibles will be recorded. INTEREST AND OTHER INCOME AND EXPENSE. In June 1998, we issued $100.0 million principal amount of 5% convertible subordinate notes due in 2003 (the Notes). The Notes were offered in a 144A private placement to qualified institutional investors at the stated amount, less a selling discount of 3%. In late 1998, we repurchased $10.0 million principal amount of the Notes at a discount from the stated amount. We incurred $3.9 million and $3.4 million in interest expense relating to the Notes for the nine months ended September 30, 2000 and 1999, respectively. The increase in expense in other income (expense), net is primarily attributed to the costs of our unconsolidated development stage enterprises of $6.7 million for the nine months ended September 30, 2000. For the nine months ended September 30, 1999, these entities were included in our consolidated statements of operations based on our ownership in those enterprises. The remaining components of other income (expense), net principally represent interest income recognized from short-term and long-term investments. PROVISION FOR INCOME TAXES. The provision for income taxes for the nine months ended September 30, 2000 was $1.9 million, compared to $2.3 million for nine months September 30, 1999. Our income tax expense fluctuates primarily due to the tax jurisdictions where we currently have operating facilities and varying tax rates in those jurisdictions. Liquidity and Capital Resources In June 1998, we issued $100.0 million principal amount of 5% convertible subordinated notes due 2003 (the Notes) in a private placement raising net proceeds of $96.4 million. The Notes are convertible into our common stock at a conversion price of $13.52 per share (equivalent to a conversion rate of approximately 73.94 shares per $1,000 principal amount of notes), representing an initial conversion premium of 24%, for a total of approximately 7.4 million shares of our common stock. The Notes bear interest at 5% per annum, which is payable semi-annually on June 15 and December 15 of each year. The Notes have a five-year term and are callable by us on June 15, 2001. The premiums payable to call the Notes will be 102% of the outstanding principal amount during the 12 months ending June 14, 2002 and 101% during the 12 months ending June 14, 2003, plus accrued interest to the date of redemption. Cash and cash equivalents were $38.5 million at September 30, 2000, compared to $34.3 million at December 31, 1999. As of September 30, 2000 we had working capital of $115.0 million, compared with $106.4 million as of December 31, 1999. The ratio of current assets to current liabilities at September 30, 2000 was 1.8 to 1, compared to 3.1 to 1 at December 31, 1999. This is primarily due to the consolidation of our recent acquisitions and cash utilized for such acquisitions. Cash used in operating activities was $11.6 million for the nine months ended September 30, 2000, compared to cash provided by operating activities of $3.0 million for the nine months ended September 30, 1999. Cash used in operating activities was primarily impacted by our net loss, partially offset by the amortization of goodwill and amortization of deferred stock compensation. Finally, cash used in operating activities was a result of an overall increase in our current assets. Cash used in investing activities was $49.8 million for the nine months ended September 30, 2000, compared to cash provided by investing activities of $5.6 million for the nine months ended September 30, 1999. We spent approximately $12.2 million on the purchase of property and equipment for business expansion and increased manufacturing capacity. We purchased approximately $14.3 million in investments and invested $10.8 million in partner companies. Finally, the most significant investment activity for the nine months ended September 30, 2000 was net cash used in our recent acquisitions and equity purchases of $44.5 million. Cash provided by financing activities was primarily generated through borrowings from our line of credit and the net proceeds from the issuance of our common stock. Cash provided by net borrowings from our line of credit was $60.9 million for the nine months ended September 30, 2000. Net proceeds from the issuance of our common stock was $7.0 million and $1.9 million for the nine months ended September 30, 2000 and 1999, respectively. We believe that our cash flows from operations will be sufficient to satisfy our working capital, capital expenditure and research and development requirements for at least the next 12 months. However, we may require or choose to obtain additional debt or equity financing in order to finance acquisitions or other investments in our business. We will continue to devote resources for expansion our business model and other business requirements. Our future capital requirements will depend on many factors, including acquisitions, our rate of revenue growth, the timing and extent of spending to support development of new products and expansion of sales and marketing, the timing of new product introductions and enhancements to existing products and market acceptance of our products. 12 13 Effects of Inflation We believe that the relatively moderate rate of inflation in the United States over the past few years has not had a significant impact on the our sales or operating results or on the prices of raw materials. However, in view of our recent expansion of operations in Israel and other countries, which have experienced substantial inflation, there can be no assurance that inflation will not have a materially adverse effect on our operating results in the future. Quantitative and Qualitative Disclosure about Market Risks We operate on an international basis. A majority of our revenues and expenses are incurred in U.S. dollars, however, a significant portion of our revenues and expenses are incurred in other currencies. Fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar will cause U.S. dollar translation of such currencies to vary from one period to another. We can not predict the effect of exchange rate fluctuations upon future operating results. However, because we have expenses as well as revenues in each of the principal functional currencies, the exposure to our financial results to currency fluctuations is reduced. We have not historically attempted to reduce our currency risks through hedging instruments, however, we may do so in the future. Recently Issued Accounting Standards In June 1998 and June 1999, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Investments and Hedging Activities," and SFAS No. 137, which delayed the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS No. 138, which provides additional guidance for the application of SFAS No. 133 for certain transactions. We will adopt the statement in January 2001 and do not expect the adoption of this statement to have a material impact on our financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," as amended. SAB 101 summarized certain of the Securities and Exchange Commission's views in applying generally accepted accounting principles to revenue recognition in financial statements. We have applied the provisions of SAB 101 in the consolidated financial statements. The adoption of SAB 101 did not have a material impact on our financial condition or results of operations. In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25," FIN 44 clarifies the application of APB No. 25 for certain issues,including the definition of an employee, the treatment of the acceleration of stock options and the accounting treatment for options assumed in business combinations. FIN 44 became effective on July 1, 2000, but is applicable for certain transactions dating back to December 1998. The adoption of FIN 44 did not have a significant impact on our financial position or results of operations. CERTAIN RISK FACTORS THAT COULD AFFECT FUTURE RESULTS WE HAVE INCURRED NET LOSS IN THE NINE MONTHS ENDED SEPTEMBER 30, 2000 PRIMARILY AS A RESULT OF RECENT ACQUISITIONS. AS A RESULT OF THOSE ACQUISITIONS AND ADDITIONAL DEFERRED COMPENSATION CHARGES, WE EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE FORESEEABLE FUTURE. We reported a net loss of $108.0 million for the nine months ended September 30, 2000. The net loss was primarily due to amortization of goodwill and deferred stock compensation related to the FOCI, QOI, AstroTerra and OIC acquisitions. We recorded amortization of goodwill charges of approximately $ . million for the nine months ended September 30, 2000 and deferred compensation expenses of $ . million for the nine months ended September 30, 2000. In July 2000, we and our wholly-owned subsidiary, Luminent, Inc. entered into four year employment agreements with Luminent's President and Chief Executive Officer and Vice President of Finance and Chief Financial Officer. The agreements provide for annual salaries, performance bonuses and combinations of stock options to purchase shares of the Company's common stock and Luminent's common stock. The options to purchase the Company's common stock are immediately exercisable and are expected to result in deferred compensation charges of $2,240,000 during the three months ending September 30, 2000. The options to purchase Luminent's common stock vest over four years. The options granted by Luminent to its Chief Executive Officer and Chief Financial Officer represent the right to purchase the number of shares of Luminent common stock equal to 3.5% of the outstanding capital stock of Luminent reflected on a fully diluted basis immediately prior to its initial public offering at an exercise price per share equal to lower of (a) the amount determined by dividing one billion dollars by the number of Luminent shares outstanding prior to the IPO reflected on a fully diluted basis or (b) 60% of the low end of the filing range for Luminent's common stock as initially filed with the Securities and Exchange Commission. We will incur deferred stock compensation expenses relating to these options in an amount to be determined once the number of shares underlying the options, the exercise price of the option and the initial public offering price of the Luminent shares are known. The deferred compensation expense will be amortized through 2004. 13 14 OUR PERFORMANCE MAY BE MATERIALLY ADVERSELY AFFECTED BY TECHNOLOGICAL CHANGES AND PRODUCT DEVELOPMENT DELAYS. We are engaged in the design and development of devices for the computer networking, telecommunications and fiber optic communication industries. As with any new technologies, there are substantial risks that the marketplace may not accept our new products. Market acceptance of our products will depend, in large part, upon our ability to demonstrate performance and cost advantages and cost-effectiveness of our products over competing products and the success of our and our customers' sales efforts. We can give no assurance that we will be able to continue to market our technology successfully, or that any of our current products will continue to, or that our future products will, be accepted in the marketplace. Moreover, the computer networking, telecommunications and fiber optic communication industries are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions, any of which could render our existing products obsolete. Our success will depend upon our ability to enhance existing products and to introduce new products to meet changing customer requirements and emerging industry standards. We are and will be required to devote continued efforts and financial resources to develop and enhance our existing products and conduct research to develop new products. The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation. It also requires the accurate anticipation of technological and market trends. We can give no assurance that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully or on a timely basis. Nor can we give assurances that new products we introduce will gain market acceptance or that we will be able to respond effectively to product announcements by competitors, technological changes or emerging industry standards. Furthermore, from time to time, we may announce new products or product enhancements, capabilities or technologies that have the potential to replace or shorten the life cycle of our existing product offerings. This may cause customers to defer purchasing our existing products or cause customers to return products to us. DEFECTS IN OUR PRODUCT RESULTING FROM THEIR COMPLEXITY OR OTHERWISE COULD HURT OUR FINANCIAL PERFORMANCE. Complex products, such as those we offer, may contain undetected software or hardware errors when we first introduce them or when we release new versions. The occurrence of such errors in the future, and our inability to correct such errors quickly or at all, could result in the delay or loss of market acceptance of our products. It could also result in material warranty expense, diversion of engineering and other resources from our product development efforts and the loss of credibility with our customers, system integrators and end users. Any of these or other eventualities resulting from defects in our products could have a material adverse effect on our business, operating results and financial condition. OUR GROWTH RATE MAY BE LOWER THAN HISTORICAL LEVELS AND OUR RESULTS COULD FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER. Our revenues may grow at a slower rate in the future than we have experienced in previous periods and, on a quarter-to-quarter basis, our growth in revenue may be significantly lower than our historical quarterly growth rates. Our operating results for a particular quarter are extremely difficult to predict. Our revenue and operating results could fluctuate substantially from quarter to quarter and from year to year. This could result from any one or a combination of factors such as o the cancellation or postponement of orders, o the timing and amount of significant orders from our largest customers, o our success in developing, introducing and shipping product enhancements and new products, o the mix of products we sell, o adverse effects to our financial statements resulting from, or necessitated by, past and future acquisitions, o new product introductions by our competitors, o pricing actions by us or our competitors, o the timing of delivery and availability of components from suppliers, o changes in material costs, and 14 15 o general economic conditions. Moreover, the volume and timing of orders we receive during a quarter are difficult to forecast. From time to time, our customers encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. If demand falls below such forecasts or if customers do not control inventories effectively, they may cancel or reschedule shipments previously ordered from us. Our expense levels during any particular period are based, in part, on expectations of future sales. If sales in a particular quarter do not meet expectations, our operating results could be materially adversely affected. Furthermore, in certain instances, sales cycles are becoming longer and more uncertain as we bid on larger projects. As a result, we are finding it more difficult to predict the timing of the awards of contracts and the actual placement of orders stemming from awards. We can give no assurance that these factors or others, such as those discussed below regarding the risks we face from our international operations or the risks discussed immediately below, would not cause future fluctuations in operating results. Further, there can be no assurance that we will be able to continue profitable operations. THE PRICES OF OUR SHARES HAVE BEEN AND MAY CONTINUE TO BE HIGHLY VOLATILE. Historically, the market price of our shares has been extremely volatile. The market price of our common sock is likely to continue to be highly volatile and could be significantly affected by factors such as o actual or anticipated fluctuations in our operating results, o announcements of technological innovations or new product introductions by us or our competitors, o changes of estimates of our future operating results by securities analysts, o developments with respect to patents, copyrights or proprietary rights, and o general market conditions and other factors. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stocks of technology companies. These broad market fluctuations may adversely affect the market price of our common stock. For example, during the period of less than 30 days from March 7, 2000 to April 4, 2000, our stock price (adjusted for a two-for-one stock split effective on May 11, 2000) ranged from a high of $96.94 to a low of $30. In addition, it is possible that in a future fiscal quarter, our results of operations will fail to meet the expectations of securities analysts or investors and, in such event, the market price of our common stock would be materially adversely affected. For example, as a result of weaker than anticipated demand for our networking products, especially in Europe, and delays in transitions to next generation, higher margin, networking products, in August 1998, we announced that we expected operating results in the third quarter of 1998 to be adversely affected. Following that announcement, the market price of our common stock dropped substantially. Similarly, in February 1999, following our release of fourth quarter and 1998 financial results, we announced that we did not expect revenues in the first quarter of 1999 to be as strong as revenues reported for the fourth quarter of 1998. Following that announcement, the market price of our stock again dropped significantly. See the section of this prospectus captioned "Price Range of Common Stock" below. OUR STOCK PRICE MIGHT SUFFER AS A CONSEQUENCE OF OUR INVESTMENTS IN AFFILIATES. We have created several start-up companies and formed independent business units in the optical technology and Internet infrastructure areas. We account for these investments in affiliates according to the equity or cost methods as required by accounting principles generally accepted in the United States. The market value of these investments may vary materially from the amounts shown as a result of business events specific to these entities or their competitors or market conditions. Actual or perceived changes in the market value of these investments could have a material impact on our share price and in addition could contribute significantly to volatility of our share price. OUR BUSINESS IS INTENSELY COMPETITIVE AND THE EVIDENT TREND OF CONSOLIDATIONS IN OUR INDUSTRY COULD MAKE IT MORE SO. The markets for fiber optic components and networking products are intensely competitive and subject to frequent product introductions with improved price/performance characteristics, rapid technological change and the continual emergence of new industry standards. We compete and will compete with numerous types of companies including companies that have been established 15 16 for many years and have considerably greater financial, marketing, technical, human and other resources, as well as greater name recognition and a larger installed customer base, than we do. This may give such competitors certain advantages, including the ability to negotiate lower prices on raw materials and components than those available to us. In addition, many of our large competitors offer customers broader product lines, which provide more comprehensive solutions than our current offerings. We expect that other companies will also enter markets in which we compete. Increased competition could result in significant price competition, reduced profit margins or loss of market share. We can give no assurance that we will be able to compete successfully with existing or future competitors or that the competitive pressures we face will not materially and adversely affect our business, operating results and financial condition. In particular, we expect that prices on many of our products will continue to decrease in the future and that the pace and magnitude of such price decreases may have an adverse impact on our results of operations or financial condition. There has been a trend toward industry consolidation for several years. We expect this trend toward industry consolidation to continue as companies attempt to strengthen or hold their market positions in an evolving industry. We believe that industry consolidation may provide stronger competitors that are better able to compete. This could have a material adverse effect on our business, operating results and financial condition. WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH. We have grown rapidly in recent years, with revenues increasing from $39.2 million for the year ended December 31, 1995, to $288.5 million for the year ended December 31, 1999. Our recent growth, both internally and through the acquisitions we have made since January 1, 1995, has placed a significant strain on our financial and management personnel and information systems and controls. As a consequence, we must implement new and enhance existing financial and management information systems and controls and must add and train personnel to operate such systems effectively. Our delay or failure to implement new and enhance existing systems and controls as needed could have a material adverse effect on our results of operations and financial condition in the future. Our intention to continue to pursue a growth strategy can be expected to place even greater pressure on our existing personnel and to compound the need for increased personnel, expanded information systems, and additional financial and administrative control procedures. We can give no assurance that we will be able to successfully manage operations if they continue to expand. WE FACE RISKS FROM OUR INTERNATIONAL OPERATIONS. International sales have become an increasingly important segment of our operations. The following table sets forth the percentage of our total net revenues from sales to customers in foreign countries for the last three years:
PERCENT OF TOTAL YEAR ENDED REVENUE DECEMBER 31, FROM FOREIGN SALES -------------- ------------------ 1997 60% 1998 59 1999 58
We have offices in, and conduct a significant portion of our operations in and from, Israel, Taiwan and China. We are, therefore, directly influenced by the political and economic conditions affecting Israel, Taiwan and China. Any major hostilities involving Israel, Taiwan or China, the interruption or curtailment of trade between Israel, Taiwan or China and their respective trading partners or a substantial downturn in the economic or financial condition of Israel, Taiwan or China could have a material adverse effect on our operations. Sales to foreign customers are subject to government controls and other risks associated with international sales, including difficulties in obtaining export licenses, fluctuations in currency exchange rates, inflation, political instability, trade restrictions and changes in duty rates. Although we have not experienced any material difficulties in this regard to date, we can give no assurance that we will not experience material difficulties in the future. Our sales are currently denominated in U.S. dollars and to date our business has not been significantly affected by currency fluctuations or inflation. However, as we conduct business in several different countries, fluctuations in currency exchange rates could cause our products to become relatively more expensive in particular countries, leading to a reduction in sales in that country. In addition, inflation or fluctuations in currency exchange rates in such countries could increase our expenses. The Single European Currency (Euro) was introduced on January 1, 1999 with complete transition to this new currency required by January 2002. We have made and expect to continue to make changes to our internal systems in order to accommodate doing business in the Euro. Any delays in our ability to be Euro-compliant could have an adverse impact on our results of operations or financial condition. Due to numerous uncertainties, we cannot reasonably estimate at this time the effects a common currency will have on pricing within the European Union and the resulting impact, if any, on our financial condition or results of operations. 16 17 To date, we have not hedged against currency exchange risks. In the future, we may engage in foreign currency denominated sales or pay material amounts of expenses in foreign currencies and, in such event, may experience gains and losses due to currency fluctuations. Our operating results could be adversely affected by such fluctuations or as a result of inflation in particular countries where material expenses are incurred. Moreover, our operating results could also be adversely affected by seasonality of international sales, which are typically lower in Asia in the first calendar quarter and in Europe in the third calendar quarter. These international factors could have a material adverse effect on future sales of our products to international end users and, consequently, our business, operating results and financial condition. THE SLOWDOWN IN GROWTH RATES IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR GROWTH. Our success is dependent, in part, on the overall growth rate of the networking industry. We can give no assurance that the Internet or the industries that serve it will continue to grow or that the Company will achieve higher growth rates. Our business, operating results or financial condition may be adversely affected by any decrease in industry growth rates. In addition, we can give no assurance that our results in any particular period will fall within the ranges for growth forecast by market researchers. WE FACE RISKS INVOLVED IN THE MANUFACTURE AND SUPPLY OF CRITICAL COMPONENTS FOR OUR PRODUCTS. We outsource the board-level assembly, test and quality control of material, components, subassemblies and systems relating to our networking products to third-party contract manufacturers. Though there are a large number of contract manufacturers that we can use for outsourcing, we have elected to use a limited number of vendors for a significant portion of our board assembly requirements in order to foster consistency in quality of the products. These independent third-party manufacturers also provide the same services to other companies. Risks associated with the use of independent manufacturers include unavailability of or delays in obtaining adequate supplies of products and reduced control of manufacturing quality and production costs. If our contract manufacturers failed to deliver needed components timely, we could face difficulty in obtaining adequate supplies of products from other sources in the near term. We can give no assurance that our third party manufacturers will provide us with adequate supplies of quality products on a timely basis, or at all. While we could outsource with other vendors, a change in vendors may require significant lead-time and may result in shipment delays and expenses. Our inability to obtain such products on a timely basis, the loss of a vendor or a change in the terms and conditions of the outsourcing would have a material adverse effect on our business, operating results and financial condition. We rely heavily on our own production capability for critical semiconductor lasers and light emitting diodes used in our products. Because we manufacture these and other key components at our own facility and such components are not readily available from other sources, any interruption of our manufacturing process could have a material adverse effect on our operations. Furthermore, we have a limited number of employees dedicated to the operation and maintenance of our wafer fabrication equipment, the loss of any of whom could result in our inability to effectively operate and service such equipment. Wafer fabrication is sensitive to many factors, including variations and impurities in the raw materials, the fabrication process, performance of the manufacturing equipment, defects in the masks used to print circuits on the wafer and the level of contaminants in the manufacturing environment. We can give no assurance that we will be able to maintain acceptable production yields and avoid product shipment delays. In the event adequate production yields are not achieved, resulting in product shipment delays, our business, operating results and financial condition could be materially adversely affected. WE HAVE SUFFERED ADVERSE FINANCIAL CONSEQUENCES AS A RESULT OF THE XYPLEX ACQUISITION. On January 30, 1998, we completed the Xyplex acquisition from Whittaker Corporation. Xyplex is a leading provider of access solutions between enterprise networks and WAN and/or Internet service providers. The purchase price paid to Whittaker consisted of $35 million in cash and three-year warrants to purchase up to 842,804 shares of our common stock at an exercise price of $17.50 per share. In connection with the Xyplex acquisition, we incurred charges of $20.6 million and $15.7 million for purchased technology and restructuring during the year ended December 31, 1998. The charges resulting from the Xyplex acquisition resulted in our incurring a net loss of $20.1 million or $0.43 per share during the year ended December 31, 1998. We originally recorded charges of $30.6 million related to research and development projects in progress at the time of the Xyplex acquisition. Although we reported these charges in our first, second and third quarter results of 1998 in accordance with established accounting practice and valuations of Xyplex' purchased technology in progress provided by independent valuators, we reconsidered these valuations in light of subsequent SEC guidance regarding valuation methodology. Based on this newer valuation methodology, we reduced the value of the purchased technology in progress related to the Xyplex acquisition to $20.6 million and increased the amount of goodwill by $9.9 million. This has resulted in additional charges during 1998 of $759,000 and charges during 1999 of 17 18 approximately $828,000 for amortization of intangibles, including goodwill, resulting from the Xyplex acquisition charges and will continue to result in annual charges of approximately $828,000 after 1999 as these intangibles are amortized through January 2010. Recent actions and comments from the SEC have indicated that the SEC is reviewing the current valuation methodology of purchased in-process research and development related to business combinations. Unlike the case of many other companies, the SEC has not notified us of any plans to review our methodology for valuing purchased in-process research and development. Our action in 1998 to reconsider that valuation of in process research and development related to the Xyplex acquisition was voluntary. We believe we are in compliance with all of the rules and related guidance as they currently exist. However, there can be no assurance that the SEC will not review our accounting for the Xyplex acquisition and seek to apply retroactively new guidance and further reduce the amount of purchased in-process research and development we have expensed. This would result in an additional restatement of our previously filed financial statements and could have a material adverse impact on our financial results for periods subsequent to the acquisition. FUTURE HARM COULD RESULT FROM ADDITIONAL ACQUISITIONS. An important element of our strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability or enhance our technological capabilities. Future acquisitions could have a material adverse effect on our business, financial condition and results of operations because of the o possible charges to operations for purchased technology and restructuring similar to those incurred in connection with the Xyplex acquisition mentioned above, o potentially dilutive issuances of equity securities, o incurrence of debt and contingent liabilities; o incurrence of amortization expenses related to goodwill and other intangible assets and deferred compensation charges similar to those arising with the acquisitions of FOCI, OIC, QOI and Astroterra mentioned above, o difficulties assimilating the acquired operations, technologies and products, o diversion of management's attention to other business concerns, o risks of entering markets in which we have no or limited prior experience, o potential loss of key employees of acquired organizations, and o difficulties in honoring commitments made to customers by management of the acquired entity prior to the acquisition. We can give no assurance as to whether we can successfully integrate the products, technologies or personnel of any business that we might acquire in the future. IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE TO COMPETE. We rely on a combination of trade secret laws and restrictions on disclosure and patents, copyrights and trademarks to protect our intellectual property rights. We cannot assure you that our pending patent applications will be approved, that any patents that may issue will protect our intellectual property or that third parties will not challenge any issued patents. Other parties may independently develop similar or competing technology or design around any patents that may be issued to us. We cannot be certain that the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Any such litigation, regardless of outcome, could be expensive and time consuming, and adverse determinations in any such litigation could seriously harm our business. 18 19 WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS, WHICH COULD BE COSTLY AND SUBJECT US TO SIGNIFICANT LIABILITY. From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights to technologies that are important to us. We expect we will increasingly be subject to license offers and infringement claims as the number of products and competitors in our market grows and the functioning of products overlaps. In this regard, in March 1999, we received a written notice from Lemelson Foundation Partnership in which Lemelson claimed to have patent rights in our vision and automatic identification operations, which are widely used in the manufacture of electronic assemblies. In April 1999, we received a written notice from Rockwell Corporation in which Rockwell claimed to have patent rights in certain technology related to our metal organic chemical vapor deposition, or MOCVD, processes. In October 1999, we received written notice from Lucent Technologies, Inc. in which Lucent claimed we have violated certain of Lucent's patents falling into the general category of communications technology, with a focus on networking functionality. In October 1999, we received a written notice from Ortel Corporation, which has since been acquired by Lucent, in which Ortel claimed to have patent rights in certain technology related to our triplexer and duplexer products. We are evaluating the patents noted in the letters. Others' patents, including Lemelson's, Rockwell's, Lucent's and Ortel's, may be determined to be valid, or some of our products may ultimately be determined to infringe the Lemelson, Rockwell, Lucent and Ortel patents, or those of other companies. Lemelson, Rockwell, Lucent or Ortel or other companies may pursue litigation with respect to these or other claims. The results of any litigation are inherently uncertain. In the event of an adverse result in any litigation with respect to intellectual property rights relevant to our products that could arise in the future, we could be required to obtain licenses to the infringing technology, to pay substantial damages under applicable law, to cease the manufacture, use and sale of infringing products or to expend significant resources to develop non-infringing technology. Licenses may not be available from third parties, including Lemelson, Rockwell, Lucent or Ortel, either on commercially reasonable terms or at all. In addition, litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail. Accordingly, any infringement claim or litigation against us could significantly harm our business, operating results and financial condition. In the future, we may initiate claims or litigation against third parties for infringement of our proprietary rights to protect these rights or to determine the scope and validity of our proprietary rights or the proprietary rights of competitors. These claims could result in costly litigation and the diversion of our technical and management personnel. NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY BE VERY EXPENSIVE, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MANUFACTURE AND SELL OUR PRODUCTS. From time to time we may be required to license technology from third parties to develop new products or product enhancements. We cannot assure you that third-party licenses will be available to us on commercially reasonable terms, if at all. The inability to obtain any third-party license required to develop new products and product enhancements could require us to obtain substitute technology of lower quality or performance standards or at greater cost, either of which could seriously harm our ability to manufacture and sell our products. WE ARE DEPENDENT ON CERTAIN MEMBERS OF OUR SENIOR MANAGEMENT. We are substantially dependent upon Dr. Shlomo Margalit, our Chairman of the Board of Directors and Chief Technical Officer, and Mr. Noam Lotan, our President and Chief Executive Officer. The loss of the services of either of these officers could have a material adverse effect on us. We have entered into employment agreements with Dr. Margalit and Mr. Lotan and are the beneficiary of key man life insurance policies in the amounts of $1.0 million on each of their lives. However, we can give no assurance that the proceeds from these policies will be sufficient to compensate us in the event of the death of any of these individuals, and the policies are not applicable in the event that any of them becomes disabled or is otherwise unable to render services to us. OUR BUSINESS REQUIRES US TO ATTRACT AND RETAIN QUALIFIED PERSONNEL. Our ability to develop, manufacture and market our products and our ability to compete with our current and future competitors depends, and will continue to depend, in large part, on our ability to attract and retain qualified personnel. Competition for qualified personnel in the networking and fiber optics industries is intense, and we will be required to compete for such personnel with companies having substantially greater financial and other resources than we do. If we should be unable to attract and retain qualified personnel, our business could be materially adversely affected. We can give no assurance that we will be able to attract and retain qualified personnel. 19 20 OUR ABILITY TO ISSUE PREFERRED STOCK COULD ADVERSELY AFFECT THE RIGHTS OF HOLDERS OF COMMON STOCK AND DETER A TAKE-OVER. We are authorized to issue up to 1,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by stockholders. The terms of any such series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any such preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management. PART II - OTHER INFORMATION Item 2. Changes in Securities (a) Not applicable (b) Not applicable (c) (i) In July 2000, the Company issued an aggregate of approximately 1.0 million shares of common stock and options to purchase approximately 160,000 shares of common stock to the shareholders of Quantum Optech Inc. (QOI), , a Republic of China corporation in exchange for the Company's acquisition of approximately of the outstanding capital stock of OIC from these shareholders. (ii) In July 2000, the Company issued an aggregate of 1.6 million shares of common stock and options to purchase approximately 809,000 shares of common stock to the shareholders of AstroTerra Corporation (AstroTerra), a California corporation in exchange for the Company's acquisition of the outstanding capital stock of AstroTerra from these shareholders. (iii) In July 2000, the Company issued an aggregate of approximately 3.4 million shares of common stock and options to purchase approximately 800,000 shares of common stock shares of common stock to the shareholders of Optronics International Corp. (OIC), a Republic of China corporation in exchange for the Company's acquisition of approximately of the outstanding capital stock of OIC from these shareholders. (iv) In August 2000, the Company issued an aggregate of approximately 120,400 shares to Broadband Highway, Inc. one of its partner companies in connection with its investment in this partner company receiving for such shares 5,800,000 shares of Series A Convertible Preferred Stock of the partner company. (v) In August 2000 the Company issued an aggregate of 1,000,000 shares of its Common Stock to Charlotte's Networks, Inc. one of its partner companies in connection with its investment in this partner company receiving for such shares 3,522,333 shares of Series B Convertible Preferred Stock, $.001 par value per share of the partner company. The issuance of the shares referred to above were not effected through a broker-dealer, and no underwriting discounts or commissions were paid in connection with such issuance. As to the transactions described in subsection (c)(i) and (iii), exemption from registration requirements is claimed under the Securities Act of 1933 (the "Securities Act") in reliance on Regulation S under the Securities Act. The Company believed that the buyers were outside the United States and no directed selling efforts were made in the United States. Each Investor (all of whom had addresses outside the United States) represented that it was not a "U.S. Person" as defined in Regulation S and, at the time the buy order for these transaction was originated, each Investor was outside the United States and no offer to purchase the Securities was made in the United States. Each Investor agreed not to reoffer or sell the securities, or to cause any transferee permitted under the Securities Purchase Agreement to reoffer or sell the Securities, within the United States, or for the account or benefit of a U.S. person, (i) as part of the distribution of the securities at any time, or (ii) otherwise, only in a transaction meeting the requirements of Regulation S, including without limitation, where the offer (i) is not made to a person in the United States and either (A) at the time the buy order is originated, the buyer is outside the United States or the Company and any person acting on its behalf reasonably believe that the buyer is outside the United States, or (B) the transaction is executed in, on or through the facilities of a designated offshore securities market and neither the seller nor any person acting on its behalf knows that the transaction has been pre-arranged 20 21 with a buyer in the United States, and (ii) no direct selling efforts shall be made in the United States by the buyer, an affiliate or any person acting on their behalf, or in a transaction registered under the Securities Act or pursuant to an exemption from such registration. Appropriate legends were affixed to the certificates evidencing the securities in such transaction. As to the transactions described in subsection (c)(ii), (iv) and (v), exemption from registration requirements is claimed under the Securities Act of 1933 (the "Securities Act") in reliance on in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder. The purchasers represented their intention to acquire the securities for investment only and not with a view to, or for sale in connection with, any distribution thereof and appropriate legends were affixed to the certificates evidencing the securities in such transactions. The purchasers had adequate access to information about the Company. (d) Not applicable. Item 5. Other Events On November 9, 2000, Luminent, Inc., the Company's subsidiaryissued a press release announcing the pricing of the initial public offering of Luminent's Common Stock. A copy of that press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27 Financial Data Schedule 99.1 Press Release dated November 9, 2000. (b) Reports on Form 8-K Four reports on Form 8-K were filed during the quarter covered by this Report, as follows: (i) A report on Form 8-K/A dated July 7, 2000 was filed on July 8, 2000 supplementing and completing the Form 8-K dated May 8, 2000 filed on May 9, 2000 reporting the acquisition of Fiber Optic Communications, Inc. In that Form 8-K/A, the following financial statements and pro forma financial information were filed under Item 7: Financial statements of Fiber Optics Communications, Inc. as follows: Audited Consolidated Financial Statements As Of December 31, 1997, 1998 And 1999: Report of Independent Auditors Consolidated Balance Sheets at December 31, 1997, 1998 and 1999 Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 1997, 1998 and 1999 Consolidated Statements of Changes in Stockholders Equity for the year ended December 31, 1997, 1998 and 1999 Consolidated Statements of Cash Flows for the year ended December 31, 1997, 1998 and 1999 Notes to Consolidated Financial Statements Unaudited Consolidated Financial Statements as of March 31, 1999 and 2000: Consolidated Balance Sheets at March 31, 1999 and 2000 Consolidated Statements of Operations And Comprehensive Income for the Periods Ended March 31, 1999 and 2000 21 22 Consolidated Statements Of Cash Flows For the Periods Ended March 31, 1999 and 2000 Notes to Consolidated Financial Statements Pro Forma Financial Information: Unaudited Pro Forma Condensed Consolidated Financial Information Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1999 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Three Months Ended March 31, 2000 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information (ii) A report on Form 8-K dated July 26, 2000 was filed on July 27, 2000 reporting the acquisition of AstroTerra under Item 2 and 7. (iii) A report on Form 8-K dated August 3, 2000 was filed on August 4, 2000 reporting the acquisition of OIC under Item 2 and 7 and other matters under Item 5. In that Form 8-K, the following financial statements and pro forma financial information were filed under Item 7: Financial Statements of OIC: Independent Auditors' Report Balance Sheets at December 31, 1997, 1998 and 1999 Statements of Operations and Comprehensive Income for the years ended December 31, 1997, 1998 and 1999 Statements of Shareholders' Equity for the years ended December 31, 1997, 1998 and 1999 Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 Notes to Financial Statements Balance Sheets at December 31, 1999 (audited) and June 30,2000 (unaudited) Statements of Operations and Comprehensive Income for the six months ended June 30, 1999 and 2000 Statements of Cash Flows for the six months ended June 30, 1999 and 2000 (unaudited) Notes to Financial Statements (b) Pro forma Financial Information Unaudited Pro Forma Condensed Consolidated Financial Information Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six months ended June 30, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 1999 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information 22 23 (iv) A report on Form 8-K/A dated September 22, 2000 was filed on September 22, 2000 supplementing and completing the Form 8-K referred to in subparagraph (i) above. In that Form 8-K/A, the following financial statements and pro forma financial information were filed under Item 7: (a) Financial Statements of AstroTerra: Report of Independent Public Accountants Balance Sheets at December 31, 1998 and 1999 (audited) and June 30, 2000 (unaudited) Statements of Operations for the years ended December 31, 1997, 1998 and 1999 (audited) and the six months ended June 30, 1999 and 2000 (unaudited) Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999 (audited) and the six months ended June 30, 1999 and 2000 (unaudited) Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 (audited) and the six months ended June 30, 1999 and 2000 (unaudited) Notes to Financial Statements (b) Pro Forma Financial Information Unaudited Pro Forma Condensed Consolidated Financial Information Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Six Month Period Ended June 30, 2000 Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1999 Notes to Unaudited Pro Forma Condensed Consolidated Financial Information 23 24 Signatures Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant certifies that it has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on November 14, 2000. MRV COMMUNICATIONS, INC. By: /s/ Edmund Glazer ------------------------------------------ Edmund Glazer Vice President of Finance and Administration and Chief Financial Officer 24 EX-27 2 v67213ex27.txt EXHIBIT 27
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 38,506 148,128 74,927 10,249 58,239 256,261 94,504 30,011 972,432 141,301 90,000 0 0 123 720,112 972,432 221,727 221,727 136,439 183,049 3,514 1,150 3,928 (106,105) 1,888 (107,993) 0 0 0 (107,993) (1.71) (1.71)
EX-99.1 3 v67213ex99-1.txt EXHIBIT 99.1 1 LUMINENT, INC. ANNOUNCES PRICING OF INITIAL PUBLIC OFFERING FOR IMMEDIATE RELEASE Chatsworth, CA, November 9, 2000, Luminent, Inc. today announced that its initial public offering of 12,000,000 shares of common stock was priced at $12.00 per share. All of the shares are being offered by Luminent. Luminent's shares are expected to begin trading tomorrow on the Nasdaq National Market under the symbol "LMNE." Luminent designs, manufactures and sells a comprehensive line of fiber optic components that enable communications equipment manufacturers to provide optical networking equipment for the rapidly growing metropolitan and access segments of the communications network. Luminent is a subsidiary of MRV Communications, Inc. (Nasdaq: MRVC). Credit Suisse First Boston has lead managed the underwriting group, with CIBC World Markets, Robertson Stephens, U.S. Bancorp Piper Jaffray and First Security Van Kasper serving as the co-managers. The underwriters have a 30-day option to purchase up to 1,800,000 additional shares of common stock from Luminent to cover over-allotments, if any. This press release is neither an offer to sell nor solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state. Offers may be made only by means of a prospectus. A registration statement relating to these securities was filed with and declared effective by the Securities and Exchange Commission. Copies of the prospectus may be obtained from Credit Suisse First Boston 11 Madison Avenue, New York, NY 10010-3629, (212) 325-2000. Contact: Luminent - Diana Hayden - 818-886-6782 -----END PRIVACY-ENHANCED MESSAGE-----