-----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, MkkAFrpTAftnU57IqYdCxhnpMz2fjimaw17tceMA1nn+kcGIRHAlRxG9BhWz35VG IzgYjnM8pusS5MGgdYWgfw== 0000891618-01-502154.txt : 20020410 0000891618-01-502154.hdr.sgml : 20020410 ACCESSION NUMBER: 0000891618-01-502154 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010929 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JDS UNIPHASE CORP /CA/ CENTRAL INDEX KEY: 0000912093 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 942579683 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22874 FILM NUMBER: 1784213 BUSINESS ADDRESS: STREET 1: 210 BAYPOINTE PKWY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084341800 MAIL ADDRESS: STREET 1: 210 BAYPOINTE PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 f77140e10-q.txt FORM 10-Q FOR PERIOD ENDED SEPTEMBER 29,2001 [JDS UNIPHASE LOGO] UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 29, 2001 ------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- ----------------- Commission file number 0-22874 ----------------------------- JDS Uniphase Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 94-2579683 - --------------------------------------------- ----------------------------------- (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 210 Baypointe Parkway San Jose, CA 95134 - --------------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) (408) 434-1800 - --------------------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - --------------------------------------------------------------------------------------------- (Former name, former address and former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of shares of Common Stock outstanding as of the latest practicable date, November 1, 2001 was 1,327,696,241, including 153,549,804 Exchangeable Shares of JDS Uniphase Canada Ltd. Each Exchangeable share is exchangeable at any time into Common Stock on a one-for-one basis, entitles a holder to dividend and other rights economically equivalent to those of the Common Stock, and through a voting trust, votes at meetings of stockholders of the Registrant. PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS JDS UNIPHASE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in millions)
September 30, June 30, 2001 2001 ------------- -------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 290.7 $ 762.8 Short-term investments 1,463.4 1,049.4 Accounts receivable, less allowance for doubtful accounts of $53.3 at September 30, 2001 and $40.3 at June 30, 2001 260.7 477.6 Inventories 232.1 287.6 Deferred income taxes 461.9 340.2 Refundable income taxes 31.2 31.2 Other current assets 92.1 87.5 --------- --------- Total current assets 2,832.1 3,036.3 Property, plant and equipment, net 976.8 1,173.0 Deferred income taxes 398.1 806.3 Goodwill and other intangible assets, net 6,564.2 7,045.6 Long-term investments 136.7 169.0 Other assets 20.5 15.2 --------- --------- Total assets $10,928.4 $12,245.4 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 94.4 $ 190.6 Accrued payroll and related expenses 103.5 133.0 Income taxes payable 31.6 30.6 Restructuring accrual 165.1 105.2 Deferred income taxes 28.2 63.0 Warranty accrual 84.1 49.7 Other current liabilities 255.1 276.4 --------- --------- Total current liabilities 762.0 848.5 Deferred income taxes 618.8 672.4 Other non-current liabilities 4.4 5.2 Long-term debt 10.7 12.8 Stockholders' equity: Preferred stock -- -- Common stock and additional paid-in capital 68,018.4 67,955.3 Accumulated deficit (58,448.8) (57,224.4) Accumulated other comprehensive loss (37.1) (24.4) --------- --------- Total stockholders' equity 9,532.5 10,706.5 --------- --------- Total liabilities and stockholders' equity $10,928.4 $12,245.4 ========= =========
See accompanying notes to condensed consolidated financial statements 2 JDS UNIPHASE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share data) (unaudited)
Three months ended -------------------------------- September 30, September 30, 2001 2000 ------------- ------------- Net sales $ 328.6 $ 786.5 Cost of sales 343.3 436.7 --------- --------- Gross profit (loss) (14.7) 349.8 Operating expenses: Research and development 69.2 62.4 Selling, general and administrative 106.3 116.2 Amortization of purchased intangibles 443.3 1,107.4 Acquired in-process research and development -- 8.9 Reduction of goodwill and other long-lived assets 42.0 -- Restructuring charges 243.0 -- --------- --------- Total operating expenses 903.8 1,294.9 Loss from operations (918.5) (945.1) Reduction in value of investments (106.5) -- Activity related to equity method investments (19.3) (41.2) Interest and other income, net 15.1 13.6 --------- --------- Loss before income taxes (1,029.2) (972.7) Income tax expense 195.2 43.9 --------- --------- Net loss $(1,224.4) $(1,016.6) ========= ========= Basic and dilutive loss per share $ (0.93) $ (1.07) ========= ========= Shares used in per share calculation: Basic and dilutive 1,322.7 946.6 ========= =========
See accompanying notes to condensed consolidated financial statements 3 JDS UNIPHASE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited)
THREE MONTHS ENDED SEPTEMBER 30, ------------------------- 2001 2000 -------- -------- OPERATING ACTIVITIES Net loss ..................................................................... $(1,224.4) $(1,016.6) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation expense ...................................................... 78.9 31.9 Amortization expense ...................................................... 443.3 1,107.4 Acquired in-process research and development .............................. -- 8.9 Amortization of deferred compensation ..................................... 23.8 -- Reduction of goodwill and other long-lived assets ......................... 42.0 -- Noncash restructuring costs ............................................... 141.3 -- Activity related to equity method investments ............................. 19.3 41.2 Reduction in value of investments ......................................... 106.5 -- Tax benefit on non-qualified stock options ................................ -- 44.7 Change in deferred income taxes, net ...................................... 198.2 (11.2) Loss on disposal of fixed assets .......................................... 4.5 -- Changes in operating assets and liabilities: Accounts receivable ....................................................... 216.9 (111.7) Inventories ............................................................... 55.5 (12.3) Other current assets ...................................................... (4.6) 9.2 Income taxes payable ...................................................... 1.0 (42.1) Accounts payable, accrued liabilities, warranty accrual, and other current liabilities ..................................................... (35.1) (27.4) -------- -------- Net cash provided by operating activities ...................................... 67.1 22.0 -------- -------- INVESTING ACTIVITIES Purchase of available-for-sale investments, net .............................. (502.9) (144.2) Acquisitions of businesses, net of cash acquired ............................. (5.7) (65.2) Purchase of property, plant and equipment .................................... (55.6) (144.7) Other assets, net ............................................................ (5.3) (18.0) -------- -------- Net cash used in investing activities .......................................... (569.5) (372.1) -------- -------- FINANCING ACTIVITIES Repayment of debt ............................................................ (2.1) (3.4) Proceeds from issuance of common stock ....................................... 33.4 249.7 -------- -------- Net cash provided by financing activities ...................................... 31.3 246.3 -------- -------- Effect of exchange rates on cash and cash equivalents .......................... (1.0) (1.9) -------- -------- Decrease in cash and cash equivalents .......................................... (472.1) (105.7) Cash and cash equivalents at beginning of period ............................... 762.8 319.0 -------- -------- Cash and cash equivalents at end of period ..................................... $ 290.7 $ 213.3 ======== ========
See accompanying notes to condensed consolidated financial statements 4 JDS UNIPHASE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION The financial information at September 30, 2001 and for the three months ended September 30, 2001 and 2000 is unaudited, but includes all adjustments (consisting only of normal recurring adjustments) that the JDS Uniphase Corporation ("JDS Uniphase" or the "Company") considers necessary for a fair presentation of the financial information set forth herein, in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such information does not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2001. The balance sheet at June 30, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The results for the three months ended September 30, 2001 may not be indicative of results for the year ending June 30, 2002 or any future period. The Company operates and reports financial results on a fiscal year ending on the Saturday closest to June 30. The first fiscal quarter of 2002 and 2001 ended on September 29, 2001 and September 30, 2000, respectively. For ease of discussion and presentation, all accompanying financial statements have been shown as ending on the last day of the calendar month. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. Specifically, SFAS 141 requires that an intangible asset may be separately recognized only if such an asset meets the contractual-legal criterion or the separability criterion. The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after). The Company is currently evaluating the impact of SFAS 141 and has not yet determined the impact that adopting SFAS 141 will have on its financial statements. On adoption, the Company will be required to reassess the goodwill and intangible assets previously recorded in acquisitions prior to July 1, 2001 to determine if the new recognition criteria for an intangible asset to be recognized apart from goodwill are met. As of September 30, 2001, the Company has approximately $42.2 million of separately recognized intangible assets that do not meet the new recognition criteria for an intangible asset to be recognized apart from goodwill and the unamortized balance as of June 30, 2002 will be reclassified to goodwill. In July 2001, the FASB issued Statements of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. For intangible assets with indefinite useful lives, the impairment review will involve a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss. For goodwill, the impairment test shall be a two-step process, consisting of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount is in excess of the fair value, the implied fair value of the reporting unit goodwill is compared to the carrying amount of the reporting unit goodwill. Any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill will be recorded as an impairment loss. Separable intangible assets that are deemed to have a finite life will continue to be amortized over their useful lives (but with no maximum life). Intangible assets with finite useful lives will continue to be reviewed for impairment in accordance with Statements of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company will apply the new accounting rules beginning July 1, 2002 and will reassess the useful lives of its separately recognized intangible assets in the first quarter of fiscal 2003. The Company will review for impairment previously recognized intangible assets that are deemed to have indefinite lives upon the completion of this analysis in the first quarter of fiscal 2003. Additionally, upon the adoption of 5 SFAS 142, the Company will perform a transitional impairment review related to the carrying value of goodwill as of July 1, 2002 by the end of the second quarter of fiscal 2003. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001 and those acquired after that date, pre-existing goodwill and intangibles will be amortized during this transition period until adoption whereas new goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not. The Company is currently in the process of determining its reporting units for the purpose of applying the impairment test, analyzing how fair value will be determined for purposes of applying SFAS 142 and quantifying the anticipated impact of adopting the provisions of SFAS 142. The adoption of SFAS 142 is expected to have a material impact on the results of operations primarily due to the nonamortization of goodwill subsequent to the adoption of SFAS 142. Amortization of goodwill was $332.7 million for the three months ended September 30, 2001. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS 121 and the provisions of Accounting Principles Board Opinion (APB 30), "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" with regard to reporting the effects of a disposal of a segment of a business. SFAS 144 retains many of the provisions of FAS 121, but significantly changes the criteria that would have to be met to classify an asset as held for disposal such that long-lived assets to be disposed of other than by sale are considered held and used until disposed of. In addition, SFAS 144 retains the basic provisions of APB 30 for presentation of discontinued operations in the statement of operations but broadens that presentation to a component of an entity. The Company will apply SFAS 144 beginning July 1, 2002. The Company is currently evaluating the potential impact, if any, the adoption of SFAS 144 will have on its financial position and results of operations. NOTE 2. COMPREHENSIVE LOSS Accumulated other comprehensive loss presented in the accompanying consolidated balance sheets consists of the accumulated net unrealized gains or losses on available-for-sale short term investments and foreign currency translation adjustments, net of the related tax effect for all periods presented. The tax effects for unrealized losses on short-term investments included in other comprehensive loss were immaterial. At September 30, 2001 and June 30, 2001, the Company had a balance of unrealized gains on available-for-sale investments of $11.0 million and $5.8 million, respectively. Additionally, at September 30, 2001 and September 30, 2000, the Company had $48.1 million and $30.2 million, respectively, of foreign currency translation losses. The components of comprehensive loss are as follows (in millions):
Three months ended September 30, --------------------------- 2001 2000 --------- --------- Net loss $(1,224.4) $(1,016.6) Unrealized gains (losses) 5.3 (1.6) Change in foreign currency translation (18.0) (15.3) --------- --------- Total comprehensive loss $(1,237.1) $(1,033.5) ========= =========
NOTE 3. FINANCIAL INSTRUMENTS Investments At September 30, 2001, the Company had 24.7 million shares of Nortel Networks Corporation ("Nortel") common stock with a fair value of $138.6 million. During the three months ended September 30, 2001, the Company recognized a reduction in market value of $84.5 million associated with the 24.7 million shares held by the Company as of September 30, 2001, as the Company has determined the decline in the market value of the shares of Nortel common stock to be other-than- temporary. The reduction in market value has been included in the line item "Reduction in value of investments" in its Statement of Operations. Should the market value of the shares of Nortel common stock held by or later sold by the Company continue to decline in the near future, the Company may record additional losses related to these shares. During the three months ended September 30, 2001, the Company recorded a charge of approximately $9.6 million related to a decline in the market value of other available-for-sale investments that were deemed to be other-than-temporary. The reduction in market value has been included in the line item "Reduction in value of investments" in its Statement of Operations. Additionally, during the three months ended September 30, 2001, the Company recorded a charge of approximately $12.4 million related to a decline in the fair value of the Company's non-marketable equity securities accounted for under the cost 6 method that was deemed to be other-than-temporary. The reduction in fair value has been included in the line item "Reduction in value of investments" in its Statement of Operations. Equity Method Investments ADVA: At September 30, 2001, the Company had a 29 percent ownership stake in ADVA. For the three months ended September 30, 2001, the Company recorded $0.7 million in amortization expense related to the difference between the cost of the investment and the underlying equity in the net assets of ADVA. The significant decline in the market value of ADVA, as of September 30, 2001, which the Company determined was other-than-temporary required that its carrying value be written down to market value and the amount of the write-down was included in earnings. As a result, the Company recognized a $13.9 million charge to earnings to write down the basis of its investment in ADVA. For the three months ended September 30, 2001, under the equity method, the Company recorded a net loss of $4.4 million as its pro rata share of ADVA's net loss. The Photonics Fund, LLP: At September 30, 2001, the Company had a 40 percent stake in The Photonics Fund, LLP, a California limited liability partnership (the "Partnership"), which emphasizes privately negotiated venture capital equity investments. For the three months ended September 30, 2001, under the equity method, the Company recorded a net gain of $0.4 million as its pro rata share of the Partnership net gain. The Company's other equity method investments resulted in an aggregate net loss of $0.7 million NOTE 4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company's objectives and strategies for holding and issuing derivatives is to minimize the transaction and translation risks associated with non-functional currency transactions. The Company conducts its business in a number of foreign countries and sells its products directly to customers in Australia, Canada, China, France, Germany, Hong Kong, Japan, Netherlands, Taiwan, Singapore and the United Kingdom through its foreign subsidiaries. These sales are often denominated in the local country's currency. Therefore, in the normal course of business, the Company's financial position is routinely subjected to market risk associated with foreign currency rate fluctuations. The Company's policy is to ensure that business exposures to foreign exchange risks are identified, measured and minimized using the most effective and efficient methods to eliminate or reduce such exposures. The Company has entered into a number of foreign currency forward contracts, but has not designated such contracts as hedges for accounting purposes. The foreign currency forward contracts generally expire within 30 to 90 days. The change in fair value of these foreign currency forward contracts is recorded as income (loss) in the Company's Statement of Operations as a component of interest income and other, net. The notional amount associated with these foreign currency forward contracts at September 30, 2001 is approximately $63.7 million and the fair value of such contracts is not material to the Company's financial statements. The Company does not use derivatives for trading purposes. NOTE 5. INVENTORIES The components of inventory consist of the following (in millions):
September 30, June 30, 2001 2001 ------------- -------- Raw materials and purchased parts $ 68.0 $ 56.1 Work in process 66.2 99.2 Finished goods 97.9 132.3 ------ ------ $232.1 $287.6 ====== ======
The Company recorded an inventory write-down of $62.4 million during the first quarter of 2002 largely for products becoming obsolete due to its new product introductions. NOTE 6. INTANGIBLE ASSETS, INCLUDING GOODWILL The components of intangible assets are as follows (in millions): 7
September 30, June 30, 2001 2001 ------------- --------- Goodwill $10,958.2 $10,985.6 Purchased intangibles 2,340.7 2,353.6 Licenses and other intellectual property 4.5 4.5 --------- --------- 13,303.4 13,343.7 Less: accumulated amortization (6,739.2) (6,298.1) --------- --------- $ 6,564.2 $ 7,045.6 ========= =========
The Company recorded a reduction of goodwill and other intangible assets of $42.0 million during the first quarter of 2002 (see Note 10). NOTE 7. LOSS PER SHARE As the Company incurred a loss for the three months ended September 30, 2001 and 2000, the effect of dilutive securities totaling 26.6 million and 64.8 million equivalent shares, respectively, have been excluded from the computation of loss per share as they are antidilutive. The following table sets forth the computation of basic and diluted loss per share (in millions, except per share data):
September 30, September 30, 2001 2000 ------------- ------------- Denominator for basic and dilutive loss per share -- weighted average shares 1,322.7 946.6 ========= ========= Net loss $(1,224.4) $(1,016.6) ========= ========= Basic and dilutive loss per share $ (0.93) $ (1.07) ========= =========
NOTE 8. INCOME TAX EXPENSE The Company recorded a tax provision of $195.2 million in the first quarter of 2002 as compared to $43.9 million in the same period of the prior year. The provision for income taxes recorded in the first quarter of 2002 differs from the expected tax benefit that would be calculated by applying the federal statutory rate to the loss before income taxes primarily due to non-deductible acquisition-related charges, write-offs of deferred tax assets recorded in prior business combinations relating to assumed employee stock options that either expired unexercised or were exercised during the quarter when the market value of the underlying stock was less than the previously recorded value at the business combination date, and increases in the valuation allowance for non current deferred tax assets due to a reduction in the Company's forecast of future domestic taxable income. Although realization of the Company's net deferred tax assets as of September 30, 2001 is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if forecasts of future domestic taxable income are reduced. The Company anticipates that its tax provision or benefit for income taxes recorded in subsequent quarters of fiscal 2002 may be affected by write-offs of deferred tax assets recorded for employee stock options assumed in prior business combinations that either expire unexercised or are exercised in subsequent quarters when the market value of the underlying stock is less than the previously recorded value at the business combination date. NOTE 9. OPERATING SEGMENTS During the first quarter of 2002, JDS Uniphase changed the structure of its internal organization. Segment information for the prior years has been restated to conform to the current year's presentation. The Chief Executive Officer has been identified as the Chief Operating Decision Maker as defined by Statement of Financial Accounting Standards No. 131 ("SFAS 131"). The Chief Executive Officer allocates resources to each segment based on their business prospects, competitive factors, net sales and operating profits before interest, taxes, and certain purchase accounting related costs. 8 JDS Uniphase designs, develops, manufactures and markets optical components and modules at various levels of integration. The reportable segments are each managed separately because they manufacture and distribute distinct products with different production processes. The Company views its business as having two principal operating segments: (i) Transmission and Network Components Group, and (ii) Thin Film Filters and Instrumentation Group. The Transmission and Network Components Group consists primarily of source lasers, pump lasers, pump modules, external modulators, transmitters, transceivers, optical photodetectors and receivers, isolators, wavelength division multiplexing (WDM) couplers, monitor tap couplers, gratings, circulators, optical switches, tunable filters, micro-electro-mechanical-systems, waveguides, switches, and optical amplifier products used in telecommunications and cable television ("CATV") applications. The Thin Film Filters and Instrumentation Group includes thin film filters, instruments, industrial lasers, and optical display and projection products. The Company's other operating segments, which are below the quantitative threshold defined by SFAS 131, are disclosed in the "all other" category and consist of certain unallocated corporate-level operating expenses. All of the Company's products are sold directly to original equipment manufacturers and industrial distributors throughout the world. Where practicable, the Company allocates corporate sales, marketing, finance and administration expenses to operating segments, primarily as a percentage of net sales. Certain corporate-level operating expenses (primarily charges originating from purchased intangibles, activity related to equity method investments, loss on sale of investments, other expenses and acquired-in process research and development expenses) are not allocated to operating segments. In addition, the Company does not allocate income taxes, non-operating income and expenses or specifically identifiable assets to its operating segments. 9 Intersegment sales are recorded at either cost or cost plus an agreed upon intercompany profit on intersegment sales. Information on reportable segments is as follows (in millions):
Three months ended ------------------------------- September 30, September 30, 2001 2000 ------------- ------------- Transmission and Network Components: Shipments $ 242.8 $ 698.0 Intersegment sales -- -- --------- -------- Net sales to external customers 242.8 698.0 Operating income (loss) (323.8) 215.0 Thin Film Products and Instrumentation: Shipments 88.9 128.2 Intersegment sales (5.1) (39.7) --------- -------- Net sales to external customers 83.8 88.5 Operating income (loss) (18.0) 58.7 Net sales by reportable segments 326.6 786.5 All other net sales 2.0 -- --------- -------- 328.6 786.5 --------- -------- Operating income (loss) by reportable segment (341.8) 273.7 All other operating loss (67.1) (19.0) Unallocated amounts: Acquisition related charges and payroll taxes on stock option exercises (509.6) (1,199.8) Reduction in fair value of investments (106.5) -- Activity related to equity method investments (19.3) (41.2) Interest and other income, net 15.1 13.6 --------- -------- Loss before income taxes $(1,029.2) $ (972.7) ========= ========
10 NOTE 10. SPECIAL CHARGES
Balance as Balance as of of June 30, Additional Cash Non-cash September 30, 2001 Charges Payments Charges 2001 ----------- ---------- -------- -------- ------------- (in millions) Restructuring activities Phase 1 (fourth quarter fiscal 2001): Worldwide workforce reduction $ 43.1 $-- $(20.9) $-- $ 22.2 Lease commitments 62.1 -- (1.7) -- 60.4 ------ ------ ------ ------ ------ Restructuring charges Phase 1: 105.2 -- (22.6) -- 82.6 Restructuring activities Phase 2 (first quarter fiscal 2002): Worldwide workforce reduction -- 55.8 (19.2) -- 36.6 Facilities and equipment -- 141.3 -- (141.3) -- Lease commitments -- 45.9 -- -- 45.9 ------ ------ ------ ------ ------ Restructuring charges Phase 2: -- 243.0 (19.2) (141.3) 82.5 Reduction of goodwill and other long-lived assets -- 42.0 -- (42.0) -- ------ ------ ------ ------ ------ Special charges $105.2 $285.0 $(41.8) $(183.3) $165.1 ====== ====== ====== ====== ======
Since the beginning of calendar 2001, the Company and its industry have experienced a dramatic downturn, the primary direct cause of which has been a precipitous decrease in network deployment and capital spending by telecommunications carriers. This decrease can be attributable to, among other things: (a) network overcapacity, as bandwidth demand, while continuing to grow, did not reach levels sufficient to sustain the pace of network deployment; (b) constrained capital markets; and (c) other factors, including the general inability of the competitive local exchange carriers ("CLECs") to obtain sufficient access to established telecommunications infrastructures and consolidation among the telecommunications carriers. The result was a decrease in the overall demand for new fiber optic networks and capacity increases on existing networks. In response, carriers dramatically slowed their purchases of systems from the Company's customers, which in turned slowed purchases of components and modules from the Company's competitors and the Company. Moreover, as our customers' sales declined, the Company's customers moved to reduce their component and module inventory levels. Consequently, the impact of the slowdown on the Company's business is magnified, as it faces declining sales as the result of its customers' declining business and the resulting adjustment to their inventory levels. In April 2001, the Company initiated the Global Realignment Program (the "Program"), under which it is restructuring its business in response to the changes in its industry and customer demand and as part of its continuing overall integration program. Consequently, this resulted in the Company recording $264.3 million and $243.0 million related to restructuring activities in the fourth quarter of fiscal 2001 and first quarter of fiscal 2002, respectively. Restructuring activities Phase 1 (Fourth Quarter of Fiscal 2001) During the three months ended June 30, 2001, the Company had completed and approved plans to close nine operations located in North America, Europe and Asia, vacate approximately 25 buildings or 1.2 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce its workforce by approximately 9,000 employees. Worldwide workforce reduction During the three months ended June 30, 2001, the Company had recorded a charge of approximately $79.1 million primarily related to severance and fringe benefits associated with the reduction of 9,000 employees. Of the 9,000 terminations for which costs have been accrued prior to June 30, 2001, approximately 8,200 were engaged in manufacturing activities and approximately 7,100, 1,200, and 700 were from sites located in North America, Europe and Asia, respectively. As of September 30, 2001, 7,976 employees had been terminated in connection with Phase 1 of the restructuring activities. In 11 addition, the Company incurred non-cash severance charges of $11.1 million related to the modification of a former executive's stock options. The remaining cash expenditures relating to workforce reduction and termination agreements will be paid throughout the second quarter of 2002. Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations closed as of June 30, 2001 were in Asheville, North Carolina; Bracknell, United Kingdom; Freehold, New Jersey; Hillend, United Kingdom; Oxford, United Kingdom; Richardson, Texas; Rochester, New York; Shunde, China and Taipei, Taiwan. The total number of sites closed under the Global Realignment Program, including both Phase 1 and Phase 2, is seventeen. Property and equipment that was disposed of or removed from operations resulted in a charge of $122.2 million of which of which $29.4 million, $89.3 million and $3.5 million, related to the Thin Film Products and Instrumentation Group, Transmission and Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, the Company incurred a charge of $63.0 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. The Company determined that it would take approximately three to twenty-one months to sublease the various properties that will be vacated in connection with the Phase 1 of the restructuring activities. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2015. The Company anticipates completing implementation of its Phase 1 restructuring program during the next nine months. Restructuring activities Phase 2 (First Quarter of Fiscal 2002) In addition to Phase 1 restructuring activities, during the three months ended September 30, 2001, the Company had completed and approved plans to close eight operations located in North America, Europe and Asia, vacate approximately eleven buildings or 0.8 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce its workforce by 5,156 employees. Worldwide workforce reduction During the three months ended September 30, 2001, the Company had recorded a charge of approximately $55.8 million primarily related to severance and fringe benefits associated with the reduction of 5,156 employees. Of the 5,156 terminations for which costs have been accrued during the three months ended September 30, 2001, 4,232 were engaged in manufacturing activities and 4,818, 292, and 46 were from sites located in North America, Europe and Asia, respectively. During the three months ended September 30, 2001, 2,951 employees had been terminated under Phase 2 of the restructuring activities. The workforce reduction in aggregate under the Global Realignment Program is 16,000 employees. Prior to the date of the financial statements, management with the appropriate level of authority, approved and committed the Company to a plan of termination which included the benefits terminated employees would receive. During the three months ended September 30, 2001, the expected termination benefits were communicated to employees in detail sufficient to enable them to determine the nature and amounts of their individual severance benefits. The remaining cash expenditures relating to workforce reduction and termination agreements will be paid throughout the second and third quarters of fiscal 2002. Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations being closed as Part 2 of the restructuring program at September 30, 2001 are in 12 Arnhem, Netherlands; Plymouth, United Kingdom; Witham, United Kingdom; Manteca, California; Gloucester, Massachusetts; Victoria, British Columbia; and two operations in Ottawa, Ontario. The total number of sites closed under the Global Realignment Program, including both Phase 1 and Phase 2, is seventeen. Property and equipment that was disposed or removed from operations resulted in a charge of $141.3 million of which $11.8 million, $129.5 million and nil related to the Thin Film Products and Instrumentation Group, Transmission and Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, the Company incurred a charge of $45.9 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. The Company determined that it would take approximately three to twenty-four months to sublease the various properties that will be vacated in connection with the Phase 2 of the restructuring activities. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2020. The Company anticipates completing implementation of its Phase 2 restructuring program during the next twelve months. In addition, because the Company restructured certain of its businesses and realigned its operations to focus on profit contribution, high growth markets, and core opportunities, the Company reduced the workforce that had been valued in previous acquisitions. In accordance with Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company wrote the related intangible assets down to their fair value and recorded charges of $10.8 million related to the reduction in purchased intangibles and $31.2 million related to goodwill associated with these assets. The charge is included in the "Reduction of goodwill and other long-lived assets" caption in the Statements of Operations. Impairment of goodwill and other long-lived assets The Company, as part of its review of financial results for the three months ended September 30 2001, also performed an assessment of the carrying value of the Company's long-lived assets to be held and used including significant amounts of goodwill and other intangible assets recorded in connection with its various acquisitions. The assessment was performed pursuant to SFAS 121 because of the significant negative industry and economic trends affecting both the Company's current operations and expected future sales as well as the general decline of technology valuations. The conclusion of the SFAS 121 assessment was that the Company had no additional required write-downs during the three months ended September 30, 2001. In addition, in accordance with the Company's policy of assessing enterprise level goodwill, there was no required reduction in enterprise level goodwill during the three months ended September 30, 2001. The Company determined that the remaining intangible asset balances will continue to be amortized on a straight-line basis over the remaining useful lives established at the time of the related acquisition as the remaining useful life of these intangible assets has not changed. NOTE 11. SUBSEQUENT EVENTS On October 29, 2001, the Company entered into an automation development alliance agreement with Adept Technology ("Adept"). In connection with this alliance, the Company invested $25 million in Adept convertible preferred stock. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT EVENTS In response to the current market environment, in April 2001, we initiated the Global Realignment Program, under which we are restructuring our business in response to the changes in our industry and customer demand and as part of our continuing overall integration program. The Global Realignment Program includes: - - Beginning in the fourth quarter of fiscal 2001 and continuing through the first quarter of 2002, we recorded costs of $778 million related to the implementation of the Global Realignment Program. The charges recorded in the first quarter of 2002 included $278 million in restructuring and related charges, of which $243 million was reported as restructuring charges, $26 million was charged to cost of goods sold, and $9 million was charged to operating expenses. Included in the total costs of the Global Realignment Program are charges for obsolete inventory write-downs related to product platform consolidation, accelerated depreciation, and moving and employee costs related to the phasing out of certain facilities and equipment. - - Reducing our workforce from approximately 29,000 employees to approximately 13,000 employees. - - As of September 30, 2001, seventeen sites have been closed or scheduled for closure. During the fourth quarter of 2001 and the first quarter of 2002, we recorded total restructuring charges of $264.3 million and $243.0 million as part of the Global Realignment Program. In addition, approximately $236.6 million and $62.4 million of other charges primarily related to inventory write-downs associated with discontinued products recorded in the fourth quarter of 2001 and first quarter of 2002. These costs were classified as cost of sales. The Global Realignment Program is expected to reduce our costs by approximately $800 million annually after its complete implementation, which is expected by the end of fiscal 2002. We believe that the measures taken under the Program will provide us the flexibility to meet our customers' current operating needs without sacrificing our ability to expand our businesses and respond to future increases in business levels. The Global Realignment Program represents our concerted efforts to respond to the current demands of our industry. However, these efforts may be inappropriate or insufficient. The Global Realignment Program may not be successful in achieving the cost reductions or other benefits expected, may be insufficient to align our operations with customer demand and the changes affecting our industry, or may be more costly or extensive than currently anticipated. Impact of Recently Issued Accounting Standards In July 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 eliminates the pooling-of-interests method of accounting for business combinations except for qualifying business combinations that were initiated prior to July 1, 2001. In addition, SFAS 141 further clarifies the criteria to recognize intangible assets separately from goodwill. Specifically, SFAS 141 requires that an intangible asset may be separately recognized only if such an asset meets the contractual-legal criterion or the separability criterion. The requirements of Statement 141 are effective for any business combination accounted for by the purchase method that is completed after June 30, 2001 (i.e., the acquisition date is July 1, 2001 or after). We are currently evaluating the impact of SFAS 141 and have not yet determined the impact that adopting SFAS 141 will have on its financial statements. On adoption, we will be required to reassess the goodwill and intangible assets previously recorded in acquisitions prior to July 1, 2001 to determine if the new recognition criteria for an intangible asset to be recognized apart from goodwill are met. As of September 30, 2001, we have approximately $42.2 million of separately recognized intangible assets that do not meet the new recognition criteria for an intangible asset to be recognized apart from goodwill and the unamortized balance as of June 30, 2002 will be reclassified to goodwill. In July 2001, the FASB issued Statements of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." Under SFAS 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. For intangible assets with indefinite useful lives, 14 the impairment review will involve a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss. For goodwill, the impairment test shall be a two-step process, consisting of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount is in excess of the fair value, the implied fair value of the reporting unit goodwill is compared to the carrying amount of the reporting unit goodwill. Any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill will be recorded as an impairment loss. Separable intangible assets that are deemed to have a finite life will continue to be amortized over their useful lives (but with no maximum life). Intangible assets with finite useful lives will continue to be reviewed for impairment in accordance with Statements of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, we will apply the new accounting rules beginning July 1, 2002 and will reassess the useful lives of its separately recognized intangible assets in the first quarter of fiscal 2003. We will review for impairment previously recognized intangible assets that are deemed to have indefinite lives upon the completion of this analysis in the first quarter of fiscal 2003. Additionally, upon the adoption of SFAS 142, we will perform a transitional impairment review related to the carrying value of goodwill as of July 1, 2002 by the end of the second quarter of fiscal 2003. Because of the different transition dates for goodwill and intangible assets acquired on or before June 30, 2001 and those acquired after that date, pre-existing goodwill and intangibles will be amortized during this transition period until adoption whereas new goodwill and indefinite lived intangible assets acquired after June 30, 2001 will not. We are currently in the process of determining its reporting units for the purpose of applying the impairment test, analyzing how fair value will be determined for purposes of applying SFAS 142 and quantifying the anticipated impact of adopting the provisions of SFAS 142. The adoption of SFAS 142 is expected to have a material impact on the results of operations primarily due to the nonamortization of goodwill subsequent to the adoption of SFAS 142. Amortization of goodwill was $332.7 million for the three months ended September 30, 2001. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets," which supercedes SFAS 121 and the provisions of Accounting Principles Board Opinion (APB 30), "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" with regard to reporting the effects of a disposal of a segment of a business. SFAS 144 retains many of the provisions of FAS 121, but significantly changes the criteria that would have to be met to classify an asset as held for disposal such that long-lived assets to be disposed of other than by sale are considered held and used until disposed of. In addition, SFAS 144 retains the basic provisions of APB 30 for presentation of discontinued operations in the statement of operations but broadens that presentation to a component of an entity. We will apply SFAS 144 beginning July 1, 2002. We are currently evaluating the potential impact, if any, the adoption of SFAS 144 will have on its financial position and results of operations. RESULTS OF OPERATIONS -- FIRST QUARTER OF 2002 COMPARED TO FIRST QUARTER OF 2001 Net Sales. For the three months ended September 30, 2001, net sales of $328.6 million represented a decrease of $457.9 million or 58 percent compared to the same period of the prior year. The decline in our net sales is due to: (i) lower demand across all telecommunication products due to the severe industry downturn; (ii) price declines in our products; and (iii) generally weaker global economy. The impact of acquisitions completed subsequent to September 30, 2000 provided approximately $43.3 million of net sales for the three months ended September 30, 2001. Separate discussions with respect to net sales and operating profits for each of our reportable operating segments can be found under the heading Operating Segment Information. We had one customer representing more than ten percent of net sales during the three months ended September 30, 2001 compared to three in the comparable prior year period. During the three months ended September 30, 2001, Alcatel represented 14 percent of net sales. During the three months ended September 30, 2000, Nortel, Lucent, and Alcatel represented 17 percent, 15 percent and 11 percent of net sales, respectively. Net sales to customers outside North America represented 30 percent of net sales for the three months ended September 30, 2001 and 2000. Gross Margin. Gross margin decreased to negative 4 percent for the three months ended September 30, 2001 from 44 percent in the comparable fiscal 2001 period. The decrease in gross margin was primarily due to the following: (i) inventory write-downs of $62.4 million largely for products becoming obsolete in connection with new product introductions; (ii) price declines in our products; (iii) higher warranty costs during the three months ended September 30, 2001 compared to the same 15 period of the prior year; (iv) non-recurring costs associated with the Global Realignment Program of $25.9 million; and, (v) non-cash stock compensation expenses of $8.6 million. Our gross margin can generally be affected by a number of factors, including product mix, customer mix, applications mix, product demand, pricing pressures, manufacturing constraints, warranty costs, higher costs resulting from new production facilities, product yield, non-cash stock compensation expenses, and acquisitions of businesses that may have different margins than ours. If actual orders do not match our forecasts, as we experienced in the second half of 2001 and the first quarter of fiscal 2002, we may have excess or shortfalls of some materials and components as well as excess inventory purchase commitments. Furthermore, we could experience reduced or delayed product shipments or incur additional inventory write-downs and cancellation charges or penalties, which would increase our costs and could seriously harm our business. Considering these factors, gross margin fluctuations are difficult to predict and there can be no assurance that we will achieve or maintain gross margin percentages at historical levels in future periods. Research and Development. Research and development ("R&D") expense was $69.2 million, or 21 percent of net sales for the three months ended September 30, 2001 as compared to $62.4 million, or 8 percent of net sales for the three months ended September 30, 2000. The increase in R&D spending is due to the continued development and enhancement of existing products, non-cash stock compensation expense of $4.9 million, and the inclusion of acquisitions completed subsequent to September 30, 2000. These increases were offset by the elimination of overlapping product development programs as part of our Global Realignment Program. The increase in R&D as a percentage of net sales is due to our net sales declining faster than our R&D spending. We believe that continued investment in R&D is critical to attaining our strategic objectives. However, due to our recent announced Global Realignment Program, we expect our level of R&D expenses to decline in future quarters. We expect to spend over 15 percent of net sales over the remainder of fiscal 2002 on R&D. There can be no assurance that expenditures for R&D will continue at expected levels or that such expenditures will be successful or that improved processes or commercial products will result from these projects. Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expense was $106.3 million, or 32 percent of net sales for the three months ended September 30, 2001 as compared to $116.2 million, or 15 percent of net sales for the three months ended September 30, 2000. The decrease in SG&A spending was due to the following (i) lower expenses resulting from the Global Realignment Program, (ii) lower payroll tax expenses related to the lower value of non-qualified stock option exercises, and (iii) lower sales commissions. These cost reductions were offset by (i) non-cash stock compensation expenses of $10.3 million and (ii) higher depreciation charges resulting from the implementation of our Enterprise Resource Planning system, the acquisition of SDL, and other information technology capital assets. Due to our Global Realignment Program, we expect our SG&A expenses to decline in future quarters. We also expect to continue incurring charges to operations, which to date have been within management's expectations, associated with integrating recent acquisitions. There can be no assurance however as to the amount or nature of our future SG&A expenses. Amortization of Purchased Intangibles. For the three months ended September 30, 2001, amortization of purchased intangibles ("API") expense of $443.3 million or 135 percent of net sales represented a decrease of $664.1 million or 60 percent as compared to the same period of the prior year. The decrease in API is due to the intangible assets written-off during the third and fourth quarters of fiscal 2001. We expect that our API expense will continue to contribute or cause net losses, at least through the end of fiscal 2002 at which time new accounting rules will apply. The balance at September 30, 2001, of goodwill and other intangibles arising from acquisition activity was $6.6 billion (see Note 6 of Notes to Consolidated Condensed Financial Statements). Acquired In-process Research and Development. During September 2000, we acquired Epion which resulted in the write-off of acquired in-process research and development ("IPR&D") of $8.9 million. This amount was expensed on the acquisition date because the acquired technology had not yet reached technological feasibility and had no future alternative use. There can be no assurance that acquisitions of businesses, products or technologies by us in the future will not result in substantial charges for acquired IPR&D that may cause fluctuations in our quarterly or annual operating results. A description of the current status of acquired in-process research and development projects for each acquisition can be found later in this Management's Discussion and Analysis of Financial Condition and Results of Operations. 16 Reduction of Goodwill and Other Long-lived Assets. Pursuant to our Global Realignment Program, we restructured certain of our businesses and realigned our operations to focus on profit contribution, high growth markets, and core opportunities, we reduced the workforce that had been valued in previous acquisitions. In accordance with SFAS 121, we wrote the related intangible assets down to their fair value and recorded a charge of $10.8 million related to the reduction in purchased intangibles and $31.2 million related to goodwill associated with these assets. It is possible that the estimates and assumptions used under a SFAS 121 assessment may change in the near term resulting in the need to write-down our goodwill and other long-lived assets. In addition, it is possible we may incur additional reductions in goodwill if our market capitalization declines to a level that is less than our net assets in future periods. Restructuring Costs. In April 2001, we initiated the Global Realignment Program (the "Program"), under which we are restructuring our business in response to the changes in our industry and customer demand and as part of our continuing overall integration program. Consequently, this resulted in us recording $264.3 million and $243.0 million related to restructuring activities in the fourth quarter of fiscal 2001 and first quarter of fiscal 2002, respectively. During the three months ended September 30, 2001, we incurred non-cash changes and cash payments related to the Global Realignment Program of $141.3 million and $41.8 million, respectively. Restructuring activities Phase 2 During the three months ended September 30, 2001, we completed and approved plans to close eight operations located in North America, Europe and Asia, vacate approximately eleven buildings or 0.8 million square feet of manufacturing and office space at operations to be closed, as well as at continuing operations, and reduce our workforce by approximately 5,156 employees. Worldwide workforce reduction During the three months ended September 30, 2001, we recorded a charge of approximately $55.8 million primarily related to severance and fringe benefits associated with the reduction of 5,156 employees. Of the 5,156 terminations for which costs have been accrued prior to September 30, 2001, 4,232 were engaged in manufacturing activities and 4,818, 292, and 46 were from sites located in North America, Europe and Asia, respectively. As of September 30, 2001, 2,951 employees had been terminated under Phase 2 of the restructuring activities. The workforce reduction in aggregate under the Global Realignment Program is 16,000 employees. The remaining cash expenditures related to workforce reduction and completed termination agreements will be paid throughout the second and third quarters of fiscal 2002. Consolidation of excess facilities and equipment The consolidation of excess facilities includes the closure of certain manufacturing, research and development facilities, and administrative and sales offices throughout North America, Europe and Asia for business activities that have been restructured as part of the Program. The operations being closed as of September 30, 2001 under Phase 2 of the Restructuring Program are in Arnhem, Netherlands; Plymouth, United Kingdom; Witham, United Kingdom; Manteca, California; Gloucester, Massachusetts; Victoria, British Columbia; and two operations in Ottawa, Ontario. The total number of sites closed under the Global Realignment Program, including both Phase 1 and Phase 2, is seventeen. Property and equipment that was disposed or removed from operations resulted in a charge of $141.3 million of which $11.8 million, $129.5 million and nil related to the Thin Film Products and Instrumentation Group, Transmission and Network Components Group, and other operating segments, respectively. The property and equipment write-down consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture, and fixtures. In addition, we incurred a charge of $45.9 million for exiting and terminating leases primarily related to excess or closed facilities with planned exit dates. We estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and then current real estate market conditions. We determined that it would take approximately three to twenty-four months to sublease the various properties that will be vacated in connection with Phase 2 of the restructuring activities. Amounts related to the lease expense (net of anticipated sublease proceeds) will be paid over the respective lease terms through 2020. We anticipate completing implementation of our restructuring program during the next twelve months. 17 Reduction in value of investments. At September 30, 2001, we had 24.7 million shares of Nortel common stock at a market value of $138.6 million. During the quarter, we recognized a reduction in market value of $84.5 million associated with the 24.7 million shares held by us as of September 30, 2001, as we determined the decline in the market value of the shares of Nortel common stock to be other-than-temporary. We also recorded a charge of $9.6 million in connection with other available-for-sale investments because of an other-than-temporary decline in market value. In addition, we recorded a charge of $12.4 million related to a decline the fair value of our non-marketable equity securities accounted for under the cost method that was deemed to be other-than-temporary. Activity Related to Equity Investments. For the three months ended September 30, 2001, activity related to equity investments was $19.3 million. This includes: (i) a $13.9 million charge to earnings to write down the carrying value of our investment in ADVA due to a other-than-temporary decline in its market value, (ii) $0.7 million of amortization expense related to the difference between the cost of the investment and the underlying equity in the net assets of ADVA; and (iii) $4.7 million related to our share of the net loss of ADVA and other equity method investments and net income on the Photonics Fund. Interest and Other Income. Net interest income increased $1.5 million during the three months ended September 30, 2001 over that of the comparable period during fiscal 2001 because of additional cash received from the proceeds of employee stock ownership programs and the sale of equity investments in interest income generating investments. Income Tax Expense. We recorded a tax provision of $195.2 million in the first quarter of 2002 as compared to $43.9 million in the same period of the prior year. The provision for income taxes recorded in the first quarter of 2002 differs from the expected tax benefit that would be calculated by applying the federal statutory rate to the loss before income taxes primarily due to non-deductible acquisition-related charges, write-offs of deferred tax assets recorded in prior business combinations relating to assumed employee stock options that either expired unexercised or were exercised during the quarter when the market value of the underlying stock was less than the previously recorded value at the business combination date, and increases in the valuation allowance for non current deferred tax assets due to a reduction in our forecast of future domestic taxable income. Although realization of our net deferred tax assets as of September 30, 2001 is not assured, management believes it is more likely than not that these deferred tax assets will be realized. The amount of deferred tax assets considered realizable, however, could be reduced in the near term if forecasts of future domestic taxable income are reduced. We anticipate that our tax provision or benefit for income taxes recorded in subsequent quarters of fiscal 2002 may be affected by write-offs of deferred tax assets recorded for employee stock options assumed in prior business combinations that either expire unexercised or are exercised in subsequent quarters when the market value of the underlying stock is less than the previously recorded value at the business combination date. Operating Segment Information Transmission and Network Components. Net sales for the Transmission and Network Components Group decreased 65 percent in the three months ended September 30, 2001 compared to the comparable period in the prior year. The decrease in net sales is due a lower demand across all the products due to the severe telecommunications industry downturn. Net sales for the three months ended September 30, 2001 also include a full quarter's contribution of net sales from the acquisition of SDL. Operating loss as a percentage of net sales was 133 percent during the current quarter as compared to operating income of 31 percent of net sales for the comparable period in the prior year. The decrease in operating income as a percentage of net sales was due to the significant decline in sales during the current period resulting in a higher fixed cost base, inventory write-downs, and the costs associated with the Global Realignment Program implemented during April 2001. Thin Film Products and Instrumentation. Net sales for the Thin Film Products and Instrumentation Group decreased 5 percent in the three months ended September 30, 2001 compared to the comparable period in the prior year. The decrease in net sales for the Thin Film Products and Instrumentation Group was primarily due to significant unit volume declines of the Instrumentation products during the three months ended September 30, 2001. Operating loss as a percentage of net sales was 21 percent during the current quarter as compared to operating income of 66 percent of net sales for the comparable period in the prior year. The decrease in operating income as a percentage of net sales was due to the decline in sales during the current period resulting in a higher fixed cost base, inventory write-downs, and the costs associated with the Global Realignment Program implemented during April 2001. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, our combined balance of cash, cash equivalents and short-term investments was $1,754.1 million. Operating activities generated $67.1 million during the three months ended September 30, 2001 primarily resulting from the 18 following: (i) non-cash accounting charges for depreciation, stock based compensation, reduction of goodwill and other long-lived assets, non-cash restructuring costs, reduction in the value of investments, activity related to equity method investments, and amortization of intangibles, (ii) decrease in accounts receivable, and (iii) decrease in net deferred income taxes. These items were partially offset by a decrease in current liabilities. Cash used by investing activities was $569.5 million in the three months ended September 30, 2001. We incurred capital expenditures of $55.6 million for facilities expansion and capital equipment purchases during the first quarter of fiscal 2002. We currently expect to spend approximately $150 million for capital equipment purchases and leasehold improvements during the remainder of fiscal 2002, although there can be no assurance as to the actual level and nature of our future capital expenditures. During the first three months of fiscal 2002, we invested excess net cash of $502.9 million in short-term investments. Our financing activities for the three months ended September 30, 2001 provided cash of $31.3 million. The exercise of stock options and the sale of stock through our employee stock purchase plans provided $33.4 million in cash offset by the repayment of assumed debt of $2.1 million. We had $10.7 million of debt outstanding at September 30, 2001. This debt was assumed from entities we acquired. We can, at our election, prepay the debt. In addition, we have two standby letter of credit facilities totaling approximately $11.0 million. We also had an unsecured operating U.S. dollar line of credit totaling $25.0 million. We had no outstanding borrowings under this facility at September 30, 2001. We believe that our existing cash balances and investments, together with cash flow from operations will be sufficient to meet our liquidity and capital spending requirements at least through the foreseeable future. However, possible investments in or acquisitions of complementary businesses, products or technologies may require additional financing prior to such time. There can be no assurance that additional debt or equity financing will be available when required or, if available, can be secured on terms satisfactory to us. CURRENT STATUS OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT PROJECTS We periodically review the stage of completion and likelihood of success of each of the IPR&D projects. The current status of the IPR&D projects for all significant mergers and acquisitions during the past three years are as follows: SDL The products under development at the time of acquisition included: (1) pump laser chips; (2) pump laser modules; (3) Raman chips and amplifiers; (4) external modulators and drivers; and (5) industrial laser products. The pump laser chips and industrial laser products have been completed at a cost consistent with our expectations. The pump laser modules and Raman chips are expected to be completed by the fourth quarter of fiscal 2002. We have incurred costs of $31.9 million, with estimated costs to complete of $3.9 million. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. 19 Epion The products under development at the time of acquisition included Gas Cluster Ion Beam technology used for atomic scale surface smoothing and cleaning where surface or film quality is of great importance. Epion has incurred $2.9 million to date and estimates that a total investment of approximately $4.0 million in research and development over the next 24 months will be required to complete the IPR&D. The nature of the efforts required to develop the purchased IPR&D into commercially viable products principally relate to the completion of all planning, designing, prototyping, verification and testing activities that are necessary to establish that the products can be produced to meet their design specifications, including functions, features and technical performance requirements. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. E-TEK The products under development at the time of acquisition included: (1) wavelength division multiplexers (WDM's); (2) submarine products; and (3) other component products and modules. The WDM and submarine products have been completed at a cost consistent with our expectations. Our development efforts for other components and modules include attenuators, circulators, switches, dispersion equalization monitors and optical performance monitors. Our development efforts fell behind schedule on some of these products but are now complete at a cost of $7.7 million. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. OCLI The products under development at the time of the acquisition included: (1) thin film filters and switches, (2) optical display and projection products, and (3) light interference pigments. Thin film filters includes switches and dispersion compensators. The MEMS 2x2 Switch development has been terminated at OCLI and transferred to another division within the Company. Thin film dispersion compensator research has been cancelled. We incurred post acquisition costs of approximately $4.9 million. The optical display and projection products development has been terminated due to the uncertainty of current market conditions. Light interference pigments are currently in the commercial stage of the development cycle for this product family and these projects were completed in the first quarter of calendar year 2002. We have incurred post-acquisition research and development expenses of approximately $16.2 million and estimates that cost to complete these projects will be another $0.4 million. The differences between the actual outcome noted above and the assumptions used in the original valuation of the technology are not expected to significantly impact our results of operations and financial position. SIFAM The products under development at the time of the acquisition included: (1) miniature couplers; (2)-combined components; and (3) micro-optic devices. Miniature coupler development and combined components development are complete at a cost consistent with our expectations. Micro-optic device development is currently being evaluated relative to similar efforts already underway within our organization. The costs incurred post acquisition for micro-optic device development has been consistent with our expectations. EPITAXX The products under development at the time of the acquisition included (1) high-speed receivers and (2) an optical spectrum analyzer product. The high-speed receiver and optical spectrum analyzer have been completed at costs consistent with our expectations. JDS FITEL The products under development at the time of our merger included: (i) Thermo Optic Waveguide Attenuators, (ii) Solid State Switch, (iii) 50 GHz WDM, and (iv) Erbium Doped Fiber Amplifiers ("EDFA"). Thermo Optic Waveguide Attenuator development was discontinued in the first quarter of 2001, due to lower than expected demands for this product, and higher demands for other products. Solid State Switch, WDM and EDFA developments are complete at a cost consistent with our expectations. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS FOREIGN EXCHANGE We generate a significant portion of our sales from sales to customers located outside the United States, principally in Europe. International sales are made mostly from our foreign subsidiaries in the local countries and are typically denominated in either U.S. dollars or the local currency of each country. These subsidiaries also incur most of their expenses in the local currency. Accordingly, all foreign subsidiaries use the local currency as their functional currency. Our international business is subject to risks typical of an international business including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, our future results could be materially adversely impacted by changes in these or other factors. We enter into foreign exchange forward contracts to offset the impact of currency fluctuations on certain nonfunctional currency assets and liabilities, primarily denominated in the Australian dollar, Canadian dollar, Euro and British pound. The foreign exchange forward contracts we enter into generally have original maturities ranging from one to three months. We do not enter into foreign exchange forward contracts for trading purposes. We do not expect gains or losses on these contracts to have a material impact on our financial results. INTEREST RATES We invest our cash in a variety of financial instruments, including fixed and floating rate bonds, municipal bonds, auction instruments and money market instruments. These investments are denominated in U.S. and Canadian dollars. Cash balances in foreign currencies overseas are operating balances and are primarily invested in short-term deposits of a local operating bank. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted because of a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations because of changes in interest rates or we may suffer losses in principal if forced to sell securities that have seen a decline in market value because of changes in interest rates. Our investments are made in accordance with an investment policy approved by the Board of Directors. Under this policy, no investment securities can have maturities exceeding three years and the average duration of the portfolio can not exceed eighteen months. LEASES We are exposed to interest rate risk associated with leases on our facilities where payments are tied to the London Interbank Offered Rate ("LIBOR"). We have evaluated the hypothetical change in lease obligations held at September 30, 2001 due to changes in the LIBOR. The modeling technique used measures hypothetical changes in lease obligations arising from selected hypothetical changes in LIBOR. The hypothetical market changes reflected immediate parallel shifts in the LIBOR curve of plus or minus 50 BPS, 100 BPS, and 150 BPS over a 12-month period. The results of this analysis were not material in comparison to our financial results. 21 RISK FACTORS OUR OPERATING RESULTS AND STOCK PRICE FLUCTUATE SUBSTANTIALLY Operating results for future periods are never perfectly predictable even in the most certain of economic times, and we expect to continue to experience fluctuations in our quarterly results and in our guidance, when provided, for financial performance in future periods. These fluctuations, which in the future may be significant, could cause substantial variability in the market price of our stock. In addition to those concerns discussed below, all of the concerns we have discussed under "Risk Factors" could affect our operating results from time to time. Our operating results and stock price are affected by fluctuations in our customers' businesses Our business is dependent upon product sales to telecommunications network system providers, who in turn are dependent for their business upon orders for fiber optic systems from telecommunications carriers. Any downturn in the business of any of these parties affects us. Moreover, our sales often reflect orders shipped in the same quarter in which they are received, which makes our sales vulnerable to short-term fluctuations in customer demand and difficult to predict. In general, customer orders may be cancelled, modified or rescheduled after receipt. Consequently, the timing of these orders and any subsequent cancellation, modification or rescheduling of these orders have affected and will in the future affect our results of operations from quarter to quarter. Also, as our customers typically order in large quantities, any subsequent cancellation, modification or rescheduling of an individual order may alone affect our results of operations. We are experiencing decreased sales and increased difficulty in predicting future operating results As the result of currently unfavorable economic and market conditions, (a) our sales are declining, (b) we are unable to predict future sales accurately, and (c) we are currently unable to provide long-term guidance for future financial performance. The conditions contributing to this difficulty include: - - uncertainty regarding the capital spending plans of the major telecommunications carriers, upon whom our customers and, ultimately we, depend for sales; - - the telecommunications carriers' current limited access to the capital required for expansion; - - our customers decreasing inventory levels, which, in turn, reduces our sales; - - lower near term sales visibility; and - - general market and economic uncertainty. Based on these and other factors, many of our major customers have reduced, modified, cancelled or rescheduled orders for our products and have expressed uncertainty as to their future requirements. As a result, we currently anticipate that our net sales in future periods may decline. In addition, our ability to meet financial expectations for future periods may be harmed. We have incurred, and may in the future incur, inventory-related charges, the amounts of which are difficult to predict accurately As a result of the business downturn we have incurred charges to align our inventory with actual customer requirements over the near term. We use a rolling six-month forecast based on anticipated product orders, product order history, forecasts, and backlog to assess our inventory requirements. As discussed above, our ability to forecast our customers' needs for our products in the current economic environment is very limited. We have incurred, and may in the future incur, significant inventory-related charges. In the fourth quarter of 2001, we incurred charges related to inventory write-downs and losses on excess inventory purchase commitments of $510.6 million, and $59.8 million, respectively. We may incur significant similar charges in future periods. Moreover, because of our current difficulty in forecasting sales, we may in the future revise our previous forecasts. While we believe, based on current information, that the inventory-related charges recorded in 2001, are appropriate, subsequent changes to our forecast may indicate that these charges were insufficient or even excessive. As a result of these and other factors, our stock price has declined substantially over the past year. Despite this decline, the market price of our stock and the stocks of many of the other companies in the optical components, modules and systems 22 industries continue to trade at high multiples of earnings. An outgrowth of these multiples and market volatility is the significant vulnerability of our stock price and the stock prices of our customers and competitors to any actual or perceived fluctuation in the strength of the markets we serve, no matter how minor in actual or perceived consequence. Consequently, these multiples and, hence, market prices may not be sustainable. These broad market and industry factors have caused and may in the future cause the market price of our stock to decline, regardless of our actual operating performance or the operating performance of our customers. IF WE FAIL TO MANAGE OR ANTICIPATE OUR FUTURE GROWTH, OUR BUSINESS WILL SUFFER The optical networking business has historically grown, at times rapidly, and we have grown accordingly. We have made and, although we are currently in an industry downturn, expect to continue to make significant investments to enable our future growth through, among other things, internal expansion programs, internal product development and acquisitions and other strategic relationships. If we fail to effectively manage or anticipate our future growth effectively, particularly during periods of industry decline, such as these, our business will suffer. Difficulties associated with integrating our acquired businesses could harm our overall business operations Our growth strategy includes acquisitions of other companies, technologies and product lines to complement our internally developed products. In fact, we are the product of several substantial acquisitions, including, among others, JDS FITEL on June 30, 1999, OCLI on February 4, 2000, E-TEK on June 30, 2000 and SDL on February 13, 2001. We expect to continue this strategy. Critical to the success of this strategy and, ultimately, our business as a whole, is the ordered, efficient integration of acquired businesses into our organization. If our integration efforts are unsuccessful, our businesses will suffer. Successful integration depends upon: - - our ability to integrate the manufacture, sale and marketing of the products of the businesses acquired with our existing products; - - our ability to complete product development programs and consolidate research and development efforts; - - our ability to retain key personnel of the acquired business and effectively organize the acquired business' personnel with our own; - - our ability to consolidate and reorganize operations with those of the acquired business; and - - our ability to expand our information technology systems (including accounting and financial systems, management controls and procedures). Our integration efforts, which are ongoing, may not be successful and may result in unanticipated operations problems, expenses and liabilities and the diversion of management attention. Our acquisition strategy is costly Our acquisition strategy is costly. For example, we have incurred direct costs associated with the combination of Uniphase and JDS FITEL of $12.0 million, incurred $8.2 million associated with the acquisition of OCLI, incurred $32.3 million associated with the acquisition of E-TEK and incurred $44.6 associated with the acquisition of SDL. In addition, we paid certain SDL executives $300.9 million in consideration of their agreement to amend their change of control agreements and enter into non-compete agreements with us. We may incur additional material charges in subsequent quarters to reflect additional costs associated with these and other combinations and acquisitions, which will be expensed as incurred. Moreover, to the extent an acquired business does not perform as expected, we have and may continue to incur substantial additional unforeseen costs to develop, restructure or dispose of such business. Nonperforming or underperforming acquired businesses may also divert management attention, dilute the value of our common stock and exchangeable shares and weaken our financial condition. Our Global Realignment Program may not be successful As part of our continuing integration efforts and in response to the current economic slowdown, we recently commenced a Global Realignment Program, under which we are, among other things: 23 - - consolidating our product development programs and eliminating overlapping programs, - - consolidating our manufacturing of several products from multiple sites into specific locations around the world, and - - realigning our sales organization to offer customers a single point of contact within the company, and creating regional and technical centers to streamline customer interactions with product line managers. Implementation of the Global Realignment Program involves reductions in our workforce and facilities and, in certain instances, the relocation of products, technologies and personnel. We will incur significant expenses to implement the program and we expect to realize significant future cost savings as a result. As with our other integration efforts, the Global Realignment Program may not be successful in achieving the expected benefits within the expected timeframes, may be insufficient to align our operations with customer demand and the changes affecting our industry, may disrupt our operations, or may be more costly than currently anticipated. Even if the Global Realignment Program is successful, our sales must increase for us to be profitable. If we fail to commercialize new product lines our business will suffer We intend to continue to develop new product lines and to improve existing product lines to meet our customers' diverse and changing needs. However, our development of new products and improvements to existing products may not be successful, as: - - we may fail to complete the development of a new product or product improvement; or - - our customers may not purchase the new product or improved product because, among other things, the product is too expensive, is defective in design, manufacture or performance, or is uncompetitive, or because the product has been superceded by another product or technology. Nonetheless, if we fail to successfully develop and introduce new products and improvements to existing products, our business will suffer. Furthermore, new products require increased sales and marketing, customer support and administrative functions to support anticipated increased levels of operations. We may not be successful in creating this infrastructure nor may we realize any increased sales and operations to offset the additional expenses resulting from this increased infrastructure. In connection with our recent acquisitions, we have incurred expenses in anticipation of developing and selling new products. Our operations may not achieve levels sufficient to justify the increased expense levels associated with these new businesses. Any failure of our information technology infrastructure could harm our business We rely upon the capacity, reliability and security of our information technology hardware and software infrastructure and our ability to expand and update this infrastructure in response to our growth and changing needs. In connection with our growth, we are constantly updating our current information technology infrastructure and expect to incur significant costs and expend significant management and other resources relating to our upgrade efforts. Among other things, we are currently unifying our manufacturing, accounting, sales and human resource data systems using an Oracle platform and expanding and upgrading our networks and integrating our voice communications systems. Any failure to manage, expand and update our information technology infrastructure could hurt our business. WE HAVE MANUFACTURING AND PRODUCT QUALITY CONCERNS If we do not achieve acceptable manufacturing volumes, yields and costs, our business will suffer Our success depends upon our ability to timely deliver products to our customers at acceptable volume and cost levels. The manufacture of our products involves highly complex and precise processes, requiring production in highly controlled and clean environments. Changes in our manufacturing processes or those of our suppliers, or their inadvertent use of defective or contaminated materials, could significantly hurt our ability to meet our customers' product volume and quality needs. Moreover, in some cases, existing manufacturing techniques, which involve substantial manual labor, may not achieve the volume or cost targets of our customers. In these cases, we will need to develop new manufacturing processes and techniques, which are anticipated to involve higher levels of automation, to achieve these targets, and we will need to undertake other efforts to reduce manufacturing costs. Currently, we are devoting significant funds and other resources to (a) the development 24 of advanced manufacturing techniques to improve product volumes and yields and reduce costs, and (b) realign some of our product manufacturing to locations offering optimal labor costs. These efforts may not be successful. If we fail to achieve acceptable manufacturing yields, volumes and costs, our business will be harmed. If our customers do not qualify our manufacturing lines for volume shipments, our operating results could suffer Customers will not purchase any of our products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for the product. Each new manufacturing line must go through varying levels of qualification with our customers. Moreover, under our Global Realignment Program we are consolidating our worldwide manufacturing operations. Among other things, we will be moving the manufacturing of some of our products to other facilities. The manufacturing lines for these products at the consolidated facilities must undergo qualification with our customers before commercial manufacture of these products can recommence. The qualification process, whether for new products or in connection with the relocation of manufacturing of current products, determines whether the manufacturing line achieves the customers' quality, performance and reliability standards. Delays in qualification can cause a product to be dropped from a long-term supply program and result in significant lost sales opportunities over the term of that program. We may experience delays in obtaining customer qualification of our manufacturing lines and, as a consequence, our operating results and customer relationships would be harmed. If our products fail to perform, our business will suffer Our business depends on our producing excellent products of consistently high quality. To this end, our products are rigorously tested for quality both by us and our customers. Nevertheless, our products are highly complex and our customers testing procedures are limited to evaluating our products under likely and foreseeable failure scenarios. For various reasons (including, among others, the occurrence of performance problems unforeseeable in testing), our products may fail to perform as expected. Failures could result from faulty design or problems in manufacturing. In either case, we could incur significant costs to repair and/or replace defective products under warranty, particularly when such failures occur in installed systems. We have experienced such failures in the past and remain exposed to such failures, as our products are widely deployed throughout the world in multiple demanding environments and applications. In some cases, product redesigns or additional capital equipment may be required to correct a defect. In addition, any significant or systemic product failure could result in lost future sales of the affected product and other products, as well as customer relations problems. ACCOUNTING TREATMENT OF OUR ACQUISITIONS HAS IMPACTED OUR OPERATING RESULTS Our operating results are adversely impacted by purchase accounting treatment, primarily due to the impact of amortization of and other reductions in the carrying value of goodwill and other intangibles originating from acquisitions Under accounting principles generally accepted in the United States through June 30, 2001, we accounted for most of our acquisitions using the purchase method of accounting. Under purchase accounting, we recorded the market value of our common shares and the exchangeable shares of our subsidiary, JDS Uniphase Canada Ltd., issued in connection with acquisitions and the fair value of the stock options assumed and the amount of direct transaction costs as the cost of acquiring these entities. That cost is allocated to the individual assets acquired and liabilities assumed, including various identifiable intangible assets such as in-process research and development, acquired technology, acquired trademarks and trade names and acquired workforce, based on their respective fair values. We allocated the excess of the purchase cost over the fair value of the net identifiable assets to goodwill. The impact of purchase accounting on our operating results is significant. For fiscal 2001, we recorded an acquisition related amortization expense of $5,387.0 million. Additionally, we also incur other purchase accounting related costs and expenses in the period a particular transaction closes to reflect purchase accounting adjustments adversely affecting gross profit and the costs of integrating new businesses or curtailing overlapping operations. Purchase accounting treatment of our mergers and acquisitions, at least through the end of 2002 at which time new accounting rules will apply, will result in a net loss, which will have a material and adverse effect on our results of operations. The downturn in telecommunications equipment and financial markets created unique circumstances with regard to the assessment of certain of our long-lived assets and investments. In the second half of fiscal 2001, we evaluated the carrying 25 value of certain long-lived assets and acquired equity investments, consisting primarily of goodwill and other intangible assets and our investment in ADVA. We were carrying a large amount of goodwill on our balance sheet because of our significant acquisitions as accounting rules require that goodwill be recorded based on stock prices at the time merger agreements are executed and announced, and our merger agreements were negotiated and announced at times when market valuations were considerably higher than at present. During the last quarter of fiscal 2001, under applicable accounting rules, we began to evaluate the carrying value of our goodwill and certain other long-lived assets. As the result of this evaluation, we recorded reductions of $39.8 billion and $10.3 billion in goodwill and other intangible assets for the quarters ended March 31, 2001 and June 30, 2001, respectively. In addition, we recorded a $715 million charge for the quarter ended March 31, 2001 to write down the value of our investment in ADVA. It is possible that our operating results would be adversely affected by additional write-downs of our goodwill and other long-lived assets. OUR SALES ARE DEPENDENT UPON A FEW KEY CUSTOMERS Our customer base is highly concentrated. Historically, orders from a relatively limited number of optical system providers accounted for a substantial portion of our net sales. During 2001, three customers, Nortel Networks Corporation, Alcatel, and Lucent Technologies, Inc., accounted for 14 percent, 12 percent and 10 percent of net sales, respectively. During 2000, Lucent Technologies, Inc., and Nortel Networks Corporation, accounted for 21 percent and 15 percent of net sales, respectively. We expect that, for the foreseeable future, sales to a limited number of customers will continue to account for a high percentage of our net sales. Sales to any single customer may vary significantly from quarter to quarter. If current customers do not continue to place orders, we may not be able to replace these orders with new orders from new customers. In the telecommunications industry, our customers evaluate our products and competitive products for deployment in their telecommunications systems. Our failure to be selected by a customer for particular system projects can significantly impact our business, operating results and financial condition. Similarly, even if our customers select us, the failure of those customers to be selected as the primary suppliers for an overall system installation could adversely affect us. Such fluctuations could materially harm our business. INTERRUPTIONS AFFECTING OUR KEY SUPPLIERS COULD DISRUPT PRODUCTION, COMPROMISE OUR PRODUCT QUALITY AND ADVERSELY AFFECT OUR SALES We obtain various components included in the manufacture of our products from single or limited source suppliers. A disruption or loss of supplies from these companies or a price increase for these components would materially harm our results of operations, product quality and customer relationships. In addition, we currently utilize a sole source for the crystal semiconductor chip sets incorporated in our solid state microlaser products for use in our solid state laser products from Opto Power Corporation and GEC. We obtain lithium niobate wafers, gallium arsenide wafers, specialized fiber components and some lasers used in our telecommunications products primarily from Crystal Technology, Inc., Fujikura, Ltd., Philips Key Modules and Sumitomo, respectively. These materials are important components of certain of our products and we currently do not have alternative sources for such materials. Also, we do not have long-term or volume purchase agreements with any of these suppliers, and these components may not in the future be available in the quantities required by us, if at all, in which case our business could be materially harmed. ANY FAILURE TO REMAIN COMPETITIVE IN OUR INDUSTRY WOULD HARM OUR OPERATING RESULTS If our business operations are insufficient to remain competitive in our industry, our operating results could suffer The telecommunications markets in which we sell our products are highly competitive and characterized by rapidly changing and converging technologies. We face intense competition from established competitors and the threat of future competition from new and emerging companies in all aspects of our business. Among our current competitors are our customers, who are vertically integrated and either manufacture and/or are capable of manufacturing some or all of the products we sell to them. In addition to our current competitors, we expect that new competitors providing niche, and potentially broad, product solutions will increase in the future. While the current economic downturn has reduced the overall level of business in our industry, the competition for that business remains fierce. To remain competitive in both the current and future business climates, we believe we must maintain a substantial commitment to focused research and development, improve the efficiency of our manufacturing operations, and streamline our marketing and sales efforts, and attendant customer service and support. Under our Global Realignment Program, we have ongoing initiatives in each of these areas. However, our efforts to remain competitive, under the Global Realignment Program and otherwise, may be unsuccessful. Among other things, we may not have sufficient resources to continue to make the investments necessary to remain competitive, or we may not make the 26 technological advances necessary to remain competitive. In addition, notwithstanding our efforts, technological changes, manufacturing efficiencies or development efforts by our competitors may render our products or technologies obsolete or uncompetitive. Our industry is consolidating Our industry is consolidating and we believe it will continue to consolidate in the future as companies attempt to strengthen or hold their market positions in an evolving industry. We anticipate that consolidation will accelerate as the result of the current industry downturn. We believe that industry consolidation may result in stronger competitors that are better able to compete as sole-source vendors for customers. This could lead to more variability in operating results as we compete to be a single vendor solution and could hurt our business. Fiber optic component average selling prices are declining Prices for telecommunications fiber optic products generally decline over time as new and more efficient components and modules, with increased functionality, are developed, manufacturing processes improve and competition increases. The current economic downturn has exacerbated the general trend, as declining sales have forced telecommunications carriers and their systems provider suppliers to reduce costs, leading to increasing pricing pressure on us and our competitors. Weakened demand for optical components and modules has created an oversupply of these products, which has increased pressure on us to reduce our prices. To the extent this oversupply is not corrected in subsequent periods, we anticipate continuing pricing pressure. Moreover, currently, fiber optic networks have significant excess capacity. Industry participants disagree as to the amount of this excess capacity. However, to the extent that there is significant overcapacity and this capacity is not profitably utilized in subsequent periods, we expect to face additional pricing pressure. In response to pricing pressure, we must continue to (1) timely develop and introduce new products that incorporate features that can be sold at higher selling prices, (2) increase the efficiency of our manufacturing operations, and (3) generally reduce costs. Failure to do so could cause our net sales and gross margins to decline, which would harm our business. If we fail to attract and retain key personnel, our business could suffer Our future depends, in part, on our ability to attract and retain key personnel. In addition, our research and development efforts depend on hiring and retaining qualified engineers. Competition for highly skilled engineers is extremely intense, and, the current economic downturn notwithstanding, we continue to face difficulty identifying and hiring qualified engineers in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our existing compensation and salary structure. Our future also depends on the continued contributions of our executive officers and other key management and technical personnel, each of whom would be difficult to replace. We do not maintain a key person life insurance policy on our chief executive officer or any other officer. The loss of the services of one or more of our executive officers or key personnel or the inability to continue to attract qualified personnel could delay product development cycles or otherwise materially harm our business. As a consequence of the current economic downturn and as part of our Global Realignment Program, we announced a reduction in our global workforce from 29,000 employees to 13,000 employees. To date, we have not lost the services of any personnel (either through the announced reduction or otherwise), which has had or which we expect will have a material adverse effect on our business or financial condition. However, we cannot predict the impact our recent workforce reductions and any reductions we are compelled to make in the further will have on our ability to attract and retain key personnel in the future. WE FACE RISKS RELATED TO OUR INTERNATIONAL OPERATIONS AND SALES Our customers are located throughout the world. In addition, we have significant offshore operations, including manufacturing facilities, sales personnel and customer support operations. Our operations outside North America include facilities in the United Kingdom, the Netherlands, Germany, Australia and the People's Republic of China. Our international presence exposes us to risks not faced by wholly North American companies. Specifically, we face the following risks, among others: 27 - - our ability to comply with the customs, import/export and other trade compliance regulations of the countries in which we do business, together with any unexpected changes in such regulations; - - tariffs and other trade barriers; - - political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and research facilities; - - difficulties in staffing and management; - - language and cultural barriers; - - seasonal reductions in business activities in the summer months in Europe and some other countries; - - integration of foreign operations; - - longer payment cycles; - - greater difficulty in accounts receivable collection; - - currency fluctuations; and - - potentially adverse tax consequences. Net sales to customers outside the United States and Canada accounted for $1,043.4 million, $326.7 million and $114.4 million or 32 percent, 23 percent, and 40 percent of net sales for the years ended June 30, 2001, 2000 and 1999, respectively. We expect that sales to customers outside of North America will continue to account for a significant portion of our net sales. We continue to expand our operations outside of the United States and to enter additional international markets, both of which will require significant management attention and financial resources. Since a significant portion of our foreign sales are denominated in U.S. dollars, our products may also become less price competitive in countries in which local currencies decline in value relative to the U.S. dollar. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may also materially and adversely affect our business. Furthermore, the sales of many of our optical system provider customers depend on international sales and consequently further exposes us to the risks associated with such international sales. We have significant and increasing operations in the People's Republic of China and those operations are subject to greater political, legal and economic risks than those faced by our other international operations. In particular, the political, legal and economic climate in China is extremely fluid and unpredictable. Among other things, the legal system in China, both at the national and regional levels, remains highly underdeveloped and subject to change, with little or no prior notice, for political or other reasons. Moreover, the enforceability of applicable existing Chinese laws and regulations is uncertain. These concerns are exacerbated for foreign businesses, such as ours, operating in China. Our business could be materially harmed by any modifications to the political, legal or economic climate in China or the inability to enforce applicable Chinese laws and regulations. IF WE HAVE INSUFFICIENT PROPRIETARY RIGHTS OR IF WE FAIL TO PROTECT THOSE WE HAVE, OUR BUSINESS WOULD BE MATERIALLY HARMED We may not obtain the intellectual property rights we require Others, including academic institutions and our competitors hold numerous patents in the industries in which we operate. We may seek to acquire license rights to these or other patents or other intellectual property to the extent necessary for our business. Unless we are able to obtain such licenses on commercially reasonable terms, patents or other intellectual property held by others could inhibit our development of new products for our markets. While in the past licenses generally have been available to us where third-party technology was necessary or useful for the development or production of their products, in the future licenses to third-party technology may not be available on commercially reasonable terms, if at all. Generally, a license, if granted, includes payments by us of up-front fees, ongoing royalties or a combination thereof. Such royalty or other 28 terms could have a significant adverse impact on our operating results. We are a licensee of a number of third-party technologies and intellectual properties rights and are required to pay royalties to these third-party licensors on some of our telecommunications products and laser subsystems. Our products may be subject to claims that they infringe the intellectual property rights of others The industry in which we operate experiences periodic claims of patent infringement or other intellectual property rights. We have in the past and may from time to time in the future receive notices from third parties claiming that our products infringe upon third-party proprietary rights. Any litigation to determine the validity of any third-party claims, regardless of the merit of these claims, could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not we are successful in such litigation. If we are unsuccessful in any such litigation, we could be required to expend significant resources to develop non-infringing technology or to obtain licenses to the technology that is the subject of the litigation. We may not be successful in such development or such licenses may not be available on terms acceptable to us, if at all. Without such a license, we could be enjoined from future sales of the infringing product or products. We are currently subject to various claims regarding third party intellectual property rights. These claims are not expected to have a material adverse effect on our business. Our intellectual property rights may not be adequately protected Our future depends in part upon our intellectual property, including trade secrets, know-how and continuing technological innovation. We currently hold numerous U.S. patents on products or processes and corresponding foreign patents and has applications for some patents currently pending. The steps taken by us to protect our intellectual property may not adequately prevent misappropriation or ensure that others will not develop competitive technologies or products. Other companies may be investigating or developing other technologies that is similar to our own. It is possible that patents may not be issued from any application pending or filed by us and, if patents do issue, the claims allowed may not be sufficiently broad to deter or prohibit others from marketing similar products. Any patents issued to us may be challenged, invalidated or circumvented. Further, the rights under our patents may not provide a competitive advantage to us. In addition, the laws of some territories in which our products are or may be developed manufactured or sold, including Asia, Europe or Latin America may not protect our products and intellectual property rights to the same extent as the laws of the United States. IF WE FAIL TO SUCCESSFULLY MANAGE OUR EXPOSURE TO WORLDWIDE FINANCIAL MARKETS, OUR OPERATING RESULTS COULD SUFFER We are exposed to financial market risks, including changes in interest rates, foreign currency exchange rates and marketable equity security prices. We utilize derivative financial instruments to mitigate these risks. We do not use derivative financial instruments for speculative or trading purposes. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, a majority of our marketable investments are floating rate and municipal bonds, auction instruments and money market instruments denominated in U.S. dollars. We mitigate currency risks of investments denominated in foreign currencies with forward currency contracts. If we designate such contracts as hedges and they are determined to be effective, depending on the nature of the hedge, changes in the fair value of derivatives will be offset against the change in fair value of assets, liabilities or firm commitments through earnings (fair value hedges) or recognized in other comprehensive income until the hedged item is recognized in earnings (cash flow hedges). The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. A substantial portion of our sales, expense and capital purchasing activities are transacted in U.S. dollars. However, we do enter into these transactions in other currencies, primarily Canadian and European currencies. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, we enter into foreign currency forward contracts. The contracts reduce, but do not always entirely eliminate, the impact of foreign currency exchange rate movements. Actual results on our financial position may differ materially. IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL AT THE TIMES, IN THE AMOUNTS AND UPON THE TERMS REQUIRED, OUR BUSINESS COULD SUFFER We have devoted substantial resources for new facilities and equipment to the production of our products. Currently we are incurring substantial costs associated with restructuring our business and operations under our Global Realignment Program. Although we believe existing cash balances, cash flow from operations, available lines of credit, and proceeds from the realization of investments in other businesses will be sufficient to meet our capital requirements at least for the next 12 months, we may be required to seek additional equity or debt financing to compete effectively in these markets. We cannot precisely determine the timing and amount of such capital requirements and will depend on several factors, including our acquisitions 29 and the demand for our products and products under development. Such additional financing may not be available when needed, or, if available, may not be on terms satisfactory to us. OUR CURRENTLY OUTSTANDING PREFERRED STOCK AND OUR ABILITY TO ISSUE ADDITIONAL PREFERRED STOCK COULD HARM THE RIGHTS OF OUR COMMON STOCKHOLDERS In connection with the acquisition of Uniphase Netherlands in June 1998, we issued 100,000 shares of non-voting, non-cumulative Series A Preferred Stock to Philips Electronics having a par value of $0.001 per share. The Series A Preferred Stock is generally convertible into additional shares of common stock based on an agreed upon formula for annual and cumulative shipments of certain products during the four-year period ending June 30, 2002. The number of shares of common stock to be issued upon conversion of this preferred stock is tied to unit shipments of certain products by UNL during the four-year period ending June 30, 2002 and our stock price at the date the contingency attributable to the unit shipments is removed. During the fourth quarter of 2001, Uniphase Netherlands achieved cumulative shipments of certain products that will require us to issue at least $90.8 million of the Company's common stock to Philips. The number of common shares to be issued is based on the stock price at the end of the earn-out period and cannot currently be calculated. In June 1998, we adopted a Stockholder Rights Agreement, as amended and declared a dividend distribution of one right per share of common stock for stockholders of record as of July 6, 1998. As adjusted for stock splits and dividends by us, each outstanding share of our common stock currently includes one-eighth of a right. Each right entitles stockholders to purchase 1/1000 share of our Series B Preferred Stock at an exercise price of $3,600. The rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 15 percent or more of our common stock. For a limited period of time following the announcement of any such acquisition or offer, the rights are redeemable by us at a price of $0.01 per right. If the rights are not redeemed, each right will then entitle the holder to purchase common stock having the value of twice the then-current exercise price. For a limited period of time after the exercisability of the rights, each right, at the discretion of our board of directors, may be exchanged for either 1/1000 share of Series B Preferred Stock or one share of common stock per right. The rights expire on June 22, 2008. Our board of directors has the authority to issue up to 799,999 shares of undesignated preferred stock and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued shares of undesignated preferred stock and to fix the number of shares constituting any series and the designation of such series, without the consent of our stockholders. The preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the holders of common stock. The issuance of Series B Preferred Stock or any preferred stock subsequently issued by our board of directors, under some circumstances, could have the effect of delaying, deferring or preventing a change in control. Some provisions contained in the rights plan, and in the equivalent rights plan that our subsidiary, JDS Uniphase Canada Ltd., has adopted with respect to our exchangeable shares, may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change in control. For example, such provisions may deter tender offers for shares of common stock or exchangeable shares which offers may be attractive to the stockholders, or deter purchases of large blocks of common stock or exchangeable shares, thereby limiting the opportunity for stockholders to receive a premium for their shares of common stock or exchangeable shares over the then-prevailing market prices. SOME ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND UNDER DELAWARE LAWS COULD HINDER A TAKEOVER ATTEMPT We are subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with some stockholders for a specified period of time without the approval of the holders of substantially all of our outstanding voting stock. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the short term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation and bylaws contain provisions relating to the limitations of liability and indemnification of our directors and officers, dividing our board of directors into three classes of directors serving three-year terms and providing that our stockholders can take action only at a duly called annual or special meeting of stockholders. These provisions also may have the effect of deterring hostile takeovers or delaying changes in control or management of us. 30 FORWARD-LOOKING STATEMENTS Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as "plans," "hopes," "believes," "estimates," "will continue to be," "will be," "continue to," "intend," "expect to," "anticipate that," " to be" or "can impact" or similar words. These forward-looking statements include any statements we make, or implications suggested by statements we make, as to: - - the impact on our business and financial condition of new Financial Accounting Standards ("FAS") -- FAS 141, FAS 142 and FAS 144. - - our ability to realize our deferred tax assets and the effect of deferred tax assets recorded for assumed employee stock options on our tax provision or benefit for income taxes recorded in future periods. - - the future prospects for and growth of us and our industry, including, without limitation, (a) the extent and duration of the current economic downturn, (b) the timing and extent of any recovery from such downturn, (c) the viability, development and growth of new fiber optic telecommunications markets, including the metro and fiber to the curb markets, and (d) the benefits and opportunities for us and others in our industry provided by such new markets, - - the implementation of our Global Realignment Program, the timing and level of cost reductions and other benefits we expect to receive as a result of the Program, and the expected cost to complete the Program, including, without limitation, (a) the level of the expected workforce reductions, (b) the benefits we expect to receive from the elimination and consolidation of research and development programs and manufacturing facilities, and (c) the benefits we expect to receive from integrating our sales force and restructuring our customer service program, - - the sufficiency of existing cash balances and investments, together with cash flow from operations and available lines of credit to meet our liquidity and capital spending requirements for future periods, and - - the cost to complete our acquired in-process research and development and the expected amortization of such costs. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include, among other things, the risk that (1) the current economic downturn may be more severe and long-lasting than we can anticipate, and, notwithstanding our projections, beliefs and expectations for our business, may cause our business and financial condition to suffer, (2) due to the current economic slowdown, in general, and setbacks in our customers' businesses, in particular, our ability to predict our financial performance, in particular, and our future success, in general, for future periods is far more difficult than in previous periods; (3) our ongoing integration and restructuring efforts, including, among other things, the Global Realignment Program, may not be successful in achieving their cost saving and other expected benefits, may be insufficient to align our operations with customer demand and the changes affecting our industry, or may be more costly or extensive than currently anticipated; (4) increasing pricing pressure, as the result of the economic downturn and competitive factors, may harm our revenues and profit margins; (5) our research and development programs may be insufficient or too costly or may not produce new products, with performance, quality, quantity and price levels satisfactory to our customers; and (6) our ongoing efforts to reduce product costs to our customers, through, among other things, automation, improved manufacturing processes and product rationalization may be unsuccessful. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward- looking statements and are subject to risks and uncertainties including the risks set forth above. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform such statements to actual results or to changes in our expectations. 31 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS N/A ITEM 2. CHANGES IN SECURITIES During the first quarter of fiscal 2002, the Company issued 0.5 million shares of the Company's common stock in connection with the acquisition of OPA valued at $4.0 million. These shares were issued in connection with milestones achieved as part of initial purchase agreement. The issuance of the common stock was exempt from registration pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended. During the first quarter of fiscal 2002, the Company issued 0.3 million shares of the Company's common stock to Rockwell International Corporation. The issuance of common stock was exempt from registration pursuant to Section 4(2) of the Securities Act regarding transactions by an issuer not involving any public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES N/A ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS N/A ITEM 5. OTHER INFORMATION N/A ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 99.1 Beneficial Ownership Table b) Reports on Form 8-K The Company filed five reports on Form 8-K during the quarter ended September 30, 2001. Information regarding the items reported on is as follows:
DATE OF REPORT ITEM REPORTED ON - -------------- ---------------- September 24, 2001 Regulation FD disclosure in connection with revised guidance for future periods. September 19, 2001 Regulation FD disclosure in connection with additional charges recorded to fiscal 2001 results. September 4, 2001 Regulation FD disclosure in connection with a stockholder update delivered by the officers of the Company on September 4, 2001 that included written communication comprised of slides. July 26, 2001 Regulation FD disclosure in connection with a conference call delivered by the officers of the Company on July 26, 2001. July 24, 2001 Regulation FD disclosure in connection with a
32 stockholder update delivered by the officers of the Company on July 24, 2001 that included written communication comprised of slides.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JDS Uniphase Corporation --------------------------------------------------- (Registrant) Date: November 12, 2001 /s/ Anthony R. Muller --------------------------------------------------- Anthony R. Muller, Executive Vice President and CFO (Principal Financial and Accounting Officer) 33 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 99.1 Beneficial Ownership Table
EX-99.1 3 f77140ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company with respect to the beneficial ownership as of August 15, 2001, by (i) all persons who are beneficial owners of five percent (5%) or more of the Company's Common Stock (including Exchangeable Shares), (ii) each director and nominee, (iii) the Named Executive Officers (defined below), and (iv) all current directors and executive officers as a group. As of August 15, 2001, 1,151,129,342 shares of the Company's Common Stock were outstanding, and as of the same date, 172,872,190 Exchangeable Shares were outstanding (excluding Exchangeable Shares owned by the Company and its affiliates which are not voted). The amounts and percentages of Common Stock beneficially owned are reported on the basis of regulations of the Securities and Exchange Commission (the "Commission") governing the determination of beneficial ownership of securities. Under the rules of the Commission, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of securities as to which such person has no economic interest.
NUMBER OF SHARES BENEFICIALLY OWNED ------------------------ NAME NUMBER PERCENTAGE ---- ------ ---------- 5% STOCKHOLDERS FEJ Holding Inc. and FEJ Sales, Inc.(1) ................................... 126,870,080 9.6% c/o The Furukawa Electric Co. Ltd 6-1 Marunouchi 2-chome Chiyoda-ku, Tokyo 100-8322 Japan NAMED EXECUTIVE OFFICERS AND DIRECTORS Donald R. Scifres, Ph.D. (2) .............................................. 9,943,433 * Jozef Straus, Ph.D. (3) ................................................... 4,923,448 * Anthony R. Muller (4) ..................................................... 2,349,066 * M. Zita Cobb (5) .......................................................... 1,610,385 * Bruce D. Day (6) .......................................................... 512,465 * Gregory P. Dougherty (7) .................................................. 496,539 * Robert Enos (8) ........................................................... 452,237 * Martin A. Kaplan (9) ...................................................... 335,959 * Casmir S. Skrzypczak (10) ................................................. 306,137 * Peter A. Guglielmi (11) ................................................... 256,833 * John A. MacNaughton (12) .................................................. 219,605 * Donald J. Listwin (13) .................................................... 118,333 * All directors and executive officers as a group (17 persons) (14) ......... 25,091,450 1.9%
- ----------- * Less than 1% (1) Includes 126,749,080 shares issuable upon exchange of the Exchangeable Shares of JDS Uniphase Canada Ltd. Based upon a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2001. (2) Includes (i) 2,057,411 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001, (ii) 113,617 shares held by the Scifres 2000 Charitable Unitrust dated 12/14/00, (iii) 161,455 shares held by the Scifres Family 1999 Charitable Trust, and (iv) 6,715,276 shares held by the Scifres Revocable Living Trust. (3) Includes 4,922,954 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (4) Includes 1,625,076 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (5) Includes 1,607,661 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (6) Includes 500,265 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001 and 12,200 shares issuable upon exchange of the Exchangeable Shares of JDS Uniphase Canada Ltd. (7) Includes 486,400 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (8) Includes 440,237 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001 and 12,000 shares issuable upon exchange of the Exchangeable Shares of JDS Uniphase Canada Ltd. (9) Includes (i) 1,600 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001, (ii) 800 shares held by Mr. Kaplan as custodian for his son and daughter, (iii) 800 shares held by Mr. Kaplan's son, and ( iv) 260 shares held by Mr. Kaplan's spouse. (10) Includes 298,333 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (11) Includes 240,833 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (12) Includes 203,333 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001 and 16,272 shares issuable upon exchange of the Exchangeable Shares of JDS Uniphase Canada Ltd. (13) Includes 118,333 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001. (14) Includes 16,576,742 shares subject to stock options currently exercisable or exercisable within 60 days of August 15, 2001, and 40,472 shares issuable upon exchange of the Exchangeable Shares of JDS Uniphase Canada Ltd. -----END PRIVACY-ENHANCED MESSAGE-----