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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 19971998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22874
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UNIPHASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 163 BAYPOINTE PKWY, SAN JOSE, CA 95134 94-2579683
(STATE OR OTHER (ADDRESS OF PRINCIPAL (ZIP CODE) (I.R.S. EMPLOYER
JURISDICTION OF EXECUTIVE OFFICES) IDENTIFICATION
INCORPORATION OR NO.)
ORGANIZATION)
Registrant's telephone number, including area code (408) 434-1800
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- --------------------------------------------------------------------------------------------
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ----------------------------- ------------------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of September 15, 1997,11, 1998, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $793,456,741$1,248,093,559 based
upon the average of the high and low prices of the Common Stock as reported on
The Nasdaq National Market on such date. Shares of Common Stock held by
officers, directors and holders of more than 5% of the outstanding Common Stock
have been excluded from this calculation because such persons may be deemed to
be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of September 15, 1997,11, 1998, the Registrant had 17,181,51838,647,120 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE (To the Extent Indicated Herein)
Portions of registrants 1997 Annual Report to Stockholders (Part II)
Portions of registrant's Proxy Statement for its 19971998 Annual Meeting of
Stockholders (Part III)
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PART I
ITEMItem 1. BUSINESS
GENERALBusiness
General
Uniphase Corporation ("Uniphase"(the "Company" or the "Company""Uniphase") is an optoelectronics
company thatwas formed
as a Delaware corporation in October, 1993. The Company designs,
develops, manufactures and markets components and modules for fiber
optic telecommunications equipment products,and cable television (CATV) systems, laser
subsystems, and laser-based semiconductor wafer defect examination and
analysis equipment. Optoelectronics
is a technology that extends the speed and capacity of conventional electronic
solutions by addressing many of the constraints of the electron with the
particle of light, the photon. Since its founding, Uniphase has shipped over one
million lasers and is a supplier of laser subsystems for OEMs in the
biotechnology, industrial process control, semiconductor wafer inspection, and
graphics and printing markets.
The Company's strategy is to leverage its core competencies in laser
technology totelecommunications and CATV
divisions design, develop, highly focusedmanufacture and differentiated applications where there
is a convergence of market need and optoelectronic technology. The Company
extended its optoelectronic product offerings by acquiring Uniphase
Telecommunications Products, Inc. ("UTP") in May 1995. UTP designs, develops,
manufactures and marketssemiconductor
lasers, high-speed external modulators, transmitters and transmittersother
components for fiber optic networks in the long-haul telecommunications and cable television
("CATV")CATV
industries. The UTP modulatorCompany's Laser Division designs, develops,
manufactures and transmitter technology allowmarkets laser subsystems for more
telecommunication information to travel longer distances through a fiber optic
cable. These UTPbroad range of OEM
applications which include biotechnology, industrial process control
and measurement, graphics and printing, and semiconductor equipment.
The Company's Ultrapointe subsidiary designs, develops, manufactures
and markets advanced laser-based systems for semiconductor wafer
defect examination and analysis.
The Company entered the telecommunications market in May 1995.
Currently, the Company's portfolio of telecommunications products
used in conjunction with the wavelength division
multiplexing allows the telecommunication industry to increase capacity of a
fiber route up to sixteen timesincludes those produced by sending multiple signals through a single
optical fiber. The UTP products are also used in the CATV industry to allow
signal transmission over long distances and higher fidelity quality. In May
1996, the Company acquired two affiliated companies, GCA Fibreoptics Ltd.Uniphase Telecommunications Products ("GCA"UTP") and Fiberoptic Alignment Solutions, Inc. ("FAS") which the Company
operates as a division under the name of,
UTP Fibreoptics ("UFP"). UFP custom
packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic
networks for local telecommunications and data communications. In March 1997,
the Company acquired the net assets of, Uniphase Laser Enterprise ("ULE") from
IBM Corporation's, Uniphase
Network Components ("IBM"UNC"), Uniphase Fiber Components ("UFC"),
Uniphase Netherlands ("UNBV") Zurich Research Laboratory in Switzerland. ULE
designs, develops and manufactures the semiconductor chip used in erbium doped
fiber amplifiersChassis Engineering, Inc. ("EDFA"Chassis").
The ULE pump lasers are key components of optical
amplifiers used byfollowing table summarizes the Company's investment in the
telecommunications, cable television and CATV markets. These optical
amplifiers allow optical signalsdata communications markets
through continued development of photonic technology and acquisitions.
Date Entity Location Source Products
- -------------- ------------ --------------- ------------- -----------------------------------
August 1998 UTP-Chassis Massachusetts Acquisition Component packaging
June 1998 UNBV Netherlands Acquisition Source lasers for
telecommunications,
CATV and multimedia,
External modulators,
Optical amplifiers
January 1998 UNC California Start-up Grating-based network modules
November 1997 UFC Australia Acquisition Fiber Bragg gratings
March 1997 ULE Switzerland Acquisition Pump lasers of optical amplifiers
July 1996 UTP-TSD Pennsylvania Start-up CATV transmitters, amplifiers
May 1996 UFP United Kingdom Acquisition Laser packaging for data
and telecommunications
May 1995 UTP-EPD Connecticut Acquisition External modulators
Industry segment financial data can be found in Note 10 of Notes to
be transmitted over twice the distance of
optoelectronic regenerators and are utilized in the CATV and telecom systems.
The acquisitions of UFP and ULE expands the Company's presence in the
optoelectronic communications markets.
The Company's knowledge of laser technology enabled it to introduce an
optoelectronics application for the semiconductor capital equipment industry,
the Ultrapointe laser imaging system ("Ultrapointe System"), in June 1993. The
Ultrapointe System works in conjunction with automated inspection systems from
vendors such as KLA-Tencor Corporation ("KLA-Tencor," formerly known as KLA
Instruments and Tencor Instruments prior to their merger in fiscal 1997) to
enable semiconductor manufacturers to more accurately identify and classify
defects. This defect examination and analysis procedure enables semiconductor
manufacturers to improve yields by identifying and containing process problems.
In May 1996, theConsolidated Financial Statements.
Company introduced its IdentifierTM software product, an
optional feature that provides automated defect classification ("ADC")
capability for Ultrapointe Systems. Working in conjunction with the Ultrapointe
System, the IdentifierTM software automates the defect classification process,
thereby improving the precision and repeatability of defect classification. In
July 1997, Ultrapointe and KLA-Tencor signed a new OEM agreement, that
superceded all previous agreements, to be the exclusive reseller of the
Ultrapointe System and ADC.
COMPANY STRATEGY
The Company seeksStrategy
Uniphase's strategy is to leverage its expertise in optoelectronics
to develop
highly focusedbecome the leading merchant supplier of modules and differentiated applications where therecomponents for
optical networking systems. The Company believes its customers are
constantly reducing the number of suppliers for components in their
optical networks, and its ability to offer a catalog of optical
components to customers is a convergencestrategic advantage over suppliers of
market needsingle-source products. The Company has undertaken a series of internally
funded development programs as well as certain acquisitions in order to
offer a broad portfolio of optical components for telecommunications
system suppliers and optoelectronic technology. Uniphase seeks
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to integrate its strengths in photonics, electronics and software development to
provide innovative and cost effective solutions to its customers.integrators. The key elements of Uniphase's business
strategy are as follows:
- Capitalize on Expertise in Laser Technology and Laser
Manufacturing. Since its inception in 1979, Uniphase has sold over one
million laserso Increase Breadth of Product Offerings to OEM customers.Key Customers. The
Company is currently developing
solid state lasers for its existing OEMCompany's customers and new applications.
In this regard, Uniphase has commercially introducedcontinue to seek both a series of green
wavelength solid state microlasers and a series of continuous wave and
pulsed infrared solid state lasers. In addition, the Company isreduction in the
late stagenumber of developmentsuppliers from which they purchase the components
and other parts for their systems and an increase in the
level of blue wavelength solid state microlasers.integration in the optoelectronic and optical
products that they purchase from these suppliers. The
Company believes that it is well positionedreductions in the number of suppliers
and the manufacturing steps required at the customer level
enable these customers to continuebetter focus their time and
resources on aspects of their business that involve more of
their core competencies and their own competitive advantages
over other system providers. Through both internal
development and acquisition of key technologies and
penetrate the market for solid state lasers, whichmanufacturing capabilities developed by others, the Company
believes will be the primary commercial laser technology in the future.
- Offer Applications Differentiated by Optoelectronic Technologies. The
Company's expertise in laser technology has enabled itseeks to successfully
introduceposition itself as a "one-stop" source of an
increasingly greater variety of components and market applications products in the semiconductor capital
equipment and telecommunications equipment markets. The Company's
Ultrapointe Systems utilize high resolution laser imaging systemsintegrated
solutions for the
examination and analysis of wafer defects that are as small as 0.1
micron.its demanding customer base. The Company
also developsbelieves that its recent acquisition of Philips
Optoelectronics has positioned the Company with the broadest
portfolio of active optical components in its industry. In
addition, recent introductions of the Company's integrated
laser modulator assembly (ILMA) and produces optical external
modulators and associated transmitterswavelocker frequency
locking device for fiberoptic CATV transmission
systems as well as modulators for long haul fiber optic digital
transmission. The Company intendsDWDM applications reflect the results of
the Company's internal development efforts to offer custom packaged laser diodes
and photodetectors forexpand the
efficient transmissionlevel of voice, data and
video across local fiber optic systems. The Company also designs,
manufactures, and markets pump lasers for optical amplifiers used in
fiber optic telecommunications and CATV systems.
-product integration that it makes available to its
customer base.
o Provide Cost-Effective, Demand-Driven Solutions to its OEM
Customers. The Company seeks, through close relationships, to
understand its customers' needs at an early stage in the
customers' product development cycles and to design its
telecommunications and laser subsystems and telecommunications equipment products to meet
these specific needs. The Company focuses on selling its
subsystemscomponents to customers at the design-in phase of a product,
creating the potential for recurring sales throughout a
product's life. Following design-in of its products, the
Company shifts its focus to obtaining manufacturing
efficiencies, quality enhancements and cost reductions during
the product life.
- Maintain Industryo Provide Product Reliability and Customer Diversity. Uniphase sellsBellcore Qualified
Applications. The Company considers its laser
subsystemstechnological
leadership, product leadership and relationships with key
customers to numerous OEMsbe important competitive factors. The Company
believes one of the barriers to entry in the biotechnology, measurement systems,
semiconductor equipmentlong-haul, metro
and graphicssubmarine telecommunications markets is the life-test and
printing system industries,
which reducesquality control criteria established by Bell Labs, one of the
world's foremost commercial research and development
organizations for communications applications. Uniphase's
research and development efforts continue to focus on the
core technologies critical to the Company's vulnerabilitysuccess in
telecommunications, which are high-power pump laser, new
source lasers, optical modules, and passive components
featuring increased reliability that leads to reduced network
costs.
o Enhance global sales organizations for existing and targeted
telecommunications system suppliers. The market for
optoelectronic components in the telecommunications industry
is global and generally fragmented. The Company believes the
current component market for telecommunications devices
includes small, single-product suppliers, module-level
packaging suppliers both with and without component
manufacturing abilities and large multi-national system
integrators with multiple market strategies. Over the past
three years, the Company has invested considerable resources
to market itself as a downturnsingly focused supplier of high-quality
optical components for photonic networking applications. The
Company believes its global sales organization with dedicated
teams for its largest customers and targeted system-
integrators which are seeking new or second source component
suppliers in any specifica fragmented market is creating significant new
business opportunities for the Company.
o Seek complementary acquisitions. The telecommunications
industry or company.is experiencing rapid consolidation and realignment
due to globalization, deregulation and rapidly changing
competitive technologies such as fiber optics for CATV,
wireless communications, and the Internet. The Company has
also increasedgrown in part by acquiring telecommunications businesses and
may continue to do so in the diversityfuture. While the Company
has no current commitments with respect to any future
acquisitions, the Company frequently evaluates the strategic
opportunities to it and may in the future pursue additional
acquisitions of its
industryadditional products, technologies or businesses.
Products and customer base by leveraging its expertise in laser
technology to develop products for the semiconductor capital equipment
and telecommunications equipment markets.
PRODUCTS AND MARKETSMarkets
The Company offers optoelectronic products in three principal
product families:markets: fiber optic modules and components for
telecommunications, laser subsystems and semiconductor capital equipment and fiber optic
telecommunications equipment products.equipment.
The Company's laser subsystems were the Company's initial product
offering and these operations havethat enabled the Company to invest in the further development of
its laser technology and to offer new applications products. In fiscal
1994, the Company first shipped its Ultrapointe System for defect
examination and analysis of semiconductor wafers. InSince May 1995, the
Company acquired UTPhas undertaken a series of strategic initiatives to provide high-speed external modulatorsposition
itself as a full-line merchant supplier of optical modules and transmitterscomponents
for the fiber optic networks in the long-haul telecommunications
and CATV industries. In May 1996, the Company acquired UFP, which custom
packages laser diodes, LEDs and photodetectors for OEMs for use in fiber optic
networks for local telecommunications and data communications. In March 1997,
the Company
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acquired ULE to manufacture semiconductor chips used in the optoelectronic
communications market.telecommunication systems.
The following table sets forth the Company's net sales by product family
in fiscal years1998, 1997 and 1996:
NET SALES
FISCAL YEAR ENDED
JUNEFiscal Year Ended
June 30,
--------------------
PRODUCT CATEGORY--------------------------------
Product Markets 1998 1997 1996
------------------------------------------------------ -------- -------
(IN THOUSANDS)
Laser Subsystems...................................... $ 39,894 $36,565
Semiconductor Capital Equipment....................... 15,366 17,584
Telecommunications Equipment.......................... 51,706 14,924
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$106,966 $69,073
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LASER PRODUCTS
Background
Today, lasers are used in a variety of applications in the biotechnology,
semiconductor, consumer electronics, graphic arts and industrial process control
and measurement industries. For example, in the biotechnology field, lasers are
incorporated in flow cytometers, which identify and analyze biological cells, in
DNA sequencers, which measure and identify DNA patterns, and in certain surgical
instruments. In the semiconductor field, lasers are used to perform automated
test and measurement functions. In consumer electronics markets, lasers are an
enabling technology in laser printers and compact disc players. In the
industrial process control and measurement field, lasers are used for bar code
scanning.
The principal factors that distinguish different types of lasers and
determine the particular laser suitable for a specific application are
wavelength (color), cost, operating life and output power, which is measured in
terms of watts ("W") or milliwatts ("mW"). Lasers are capable of emitting light
from low frequency, long wavelength (greater than 700 nm) infrared light through
the visible spectrum to high frequency, short wavelength (less than 400 nm)
ultraviolet light. For example, the wavelength of the laser is of key importance
in causing the fluorescence of dyes in biotechnology applications. In addition,
laser light at shorter green and blue wavelengths is capable of being focused to
smaller, more intense points of light, enabling higher resolution optoelectronic
applications, such as semiconductor wafer inspection.
Four types of lasers commonly available today are gas, liquid,
semiconductor diode and solid state, each of which derives its classification
from the lasing material it uses. Examples of gas lasers include argon lasers
used for biotechnology applications and carbon dioxide lasers used for
industrial welding applications. Liquid dye lasers are sold primarily in
research markets. Semiconductor diode lasers are used in CD players and in
telecommunications equipment.
The Company believes that solid state lasers will ultimately address all of
the applications currently served by gas lasers and that new applications for
lasers, such as marking and micromachining, will be made possible by solid state
technology. Solid state lasers use a solid material such as crystal, glass or
certain fibers as their lasing medium and, in some cases, use a semiconductor
diode laser as the energy source to stimulate their lasing medium. While
infrared solid state lasers are commercially available, shorter wavelength green
and blue solid state lasers have been commercialized on a very limited basis to
date due to cost and performance issues. The Company believes that further
development of green and blue solid state lasers may lead to significant market
opportunities for these shorter wavelength laser subsystems. In order to provide
its customers with the benefits of the smaller size and the improved efficiency
of solid state lasers, the Company is developing microlaser products.
Laser Subsystems Markets and Products
Uniphase's principal laser subsystem products consist of air-cooled argon
gas laser subsystems, which generally emit blue or green light, Helium Neon
("He-Ne") laser subsystems, which generally emit red or green light and solid
state lasers, which generally emit infrared, blue or green light. These systems
consist of a combination of a laser head containing the lasing medium, power
supply, cabling and packaging, including
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heat dissipation elements. Uniphase's principal laser subsystem products and
representative applications include:
LASER TYPE WAVELENGTH POWER PRICE RANGE(1) APPLICATIONS
----------------------- ------------ --------- ---------------- --------------------- ----------------------------------------- ---------- ---------- ----------
(in thousands)
Gas:
He-Ne 633 nm 1-25 mW $50-$1,500 CAE Photoplotting
Argon 458-515 nm 3-75 mW $2,500-$12,000 Capillary
Electrophoresis
Color Separation
Solid
State:
Microlaser 473-1064 nm 5-50 mW $4,000-$9,000 Direct-to-Plate
Printing
DNA Sequencing
Flow Cytometry
Particle CountingTelecommunications Components........ $110,228 $51,706 $14,924
Laser Subsystems..................... 46,282 39,894 36,565
Semiconductor Wafer
Inspection
Stablelight 1064 nm Up to 4W $15,000-$20,000 SpectrometryCapital Equipment...... 19,291 15,366 17,584
---------- ---------- ----------
$175,801 $106,966 $69,073
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(1) Product prices vary depending on order volume, power output and other
customer requirements and configurations.
The overall market for gas lasers is mature and is expected to decline as
technology transitions from conventional lasers, including gas and liquid, to
solid state lasers, which the Company expects to be the primary laser technology
in the future. In comparison to gas lasers, solid state lasers are smaller and
use less power. Sales of the Company's argon gas lasers have increased in recent
years primarily as a result of increased sales of such products for use in
biotechnology and semiconductor applications. Use of He-Ne gas lasers has
substantially declined as most customers are now using semiconductor diode
lasers to satisfy bar code scanning applications.
Uniphase introduced a series of green wavelength solid state microlasers in
May 1994. The Company is in the late stage of development of blue wavelength
solid state lasers and the Company has shipped such lasers to certain customers
for evaluation purposes. These products consist of a power supply and an
infrared diode laser coupled to a proprietary crystal structure contained in a
temperature controlled housing. The Company believes that these products will
ultimately address the principal markets currently served by Uniphase's argon
laser products. The Company also believes that the reduced size and power
requirements of these microlasers will permit new applications for these
products, although no assurance can be given that these microlasers will achieve
commercial acceptance for use in existing or any new applications.
Uniphase introduced a series of continuous wave and pulsed infrared solid
state laser systems at the Conference on Laser and Electro-Optics in May 1995.
These products consist of a power supply and a number of high power diodes or
diode arrays coupled to a proprietary crystal structure in a stable mechanical
structure. The continuous wave product, Stablelight, produces up to 4W of
infrared power and is principally used by customers in industrial process
control and measurement applications.
SEMICONDUCTOR CAPITAL EQUIPMENT PRODUCTS
Background
Technological advances and demands for increasing levels of performance
have led the semiconductor industry to develop more complicated devices with
increasingly smaller geometries. A current state-of-the-art microprocessor may
have four million transistors per square centimeter, four or five "wiring"
levels and require 400 process steps during its manufacture, providing ample
opportunities for particle contamination to occur on the wafer and cause
defects. As semiconductor feature sizes decrease, devices become increasingly
susceptible
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to smaller defects during their manufacture. It has been estimated that 80% of
the loss of manufacturing yield is caused by particle contamination that occurs
on the wafer during the manufacturing process.
One of the semiconductor industry's responses to the increasing
vulnerability of semiconductor devices to smaller defects has been to employ
defect detection and inspection that is closely linked to the manufacturing
process. Semiconductor process engineers monitor their processes more closely,
identifying defects and their origins in order to reduce their recurrence and
maintain and improve process yields. Presently, automated inspection systems
such as those manufactured by KLA-Tencor are used on-line to detect and locate
defects as small as 0.1 micron. A single wafer may be inspected numerous times
during its progression through manufacturing. These on-line detection systems
use advanced image processing and innovative laser scanning technologies to
achieve high sensitivity and speed.
Detecting the presence of defects is only the first step in preventing
their recurrence. After detection, the defects must be examined in order to
identify their size, shape and the process step in which the defect occurred.
This examination is called "defect classification." The resulting description of
the defects is then added to a computer database. This database is used to
monitor defect trends and to pinpoint the sources of defects and contaminating
particles to specific process steps or pieces of equipment. Identification of
the sources of defects in the lengthy and complex semiconductor manufacturing
process has become essential for maintaining high yield production.
While automated inspection systems have progressed to being able to detect
submicron defects, the conventional optical microscopes that have traditionally
been used for defect classification are not capable of examining such defects.
With a state-of-the-art, conventional optical microscope, a 0.3 micron defect,
which is nearly the entire minimum feature size of today's microprocessor,
appears only as a dark speck. Further, certain types of defects that are
embedded in or under films created during gas phase semiconductor manufacturing
processes are not currently observable by such microscopes. Other very shallow
defects, which are often only 0.1 micron high and which may occur during the
chemical mechanical polishing ("CMP") process, are also not observable by
conventional microscopes.
The Ultrapointe System Solution
The Company established its Ultrapointe subsidiary in fiscal 1992 and began
shipping Ultrapointe Systems in fiscal 1994. The Ultrapointe System is a laser
imaging system that is capable of examining microscopic defects with the ease
and speed of conventional microscopes while also offering increased resolution
and the ability to provide three-dimensional ("3-D") images. This system
combines state-of-the-art high speed laser scanning technology, real-time
confocal imaging and digital image reconstruction to allow for 3-D imaging of
semiconductor defects as small as 0.1 micron. The Ultrapointe System works in
conjunction with automated inspection systems from vendors such as KLA-Tencor to
enable semiconductor manufacturers to more accurately identify and classify
defects. This defect examination and analysis procedure enables semiconductor
manufacturers to improve yields by identifying and containing process problems.
Ultrapointe Systems operate in the manufacturing cleanroom, adjacent to
automated inspection systems, and can in seconds produce detailed images of
defects even when they are very small or embedded or buried in films. The
Company believes that its Ultrapointe System is the only currently available,
non-destructive wafer inspection tool with increased resolution and 3-D imaging
capabilities that is capable of both examining certain sub-surface wafer defects
and accurately analyzing the sources of defects.
The Ultrapointe System utilizes an optical technique called scanning laser
confocal microscopy. This technique uses, through high power microscopic optics,
an argon laser as an intense light source to scan a wafer's surface numerous
times. The return signal from the laser is processed by the system's computer
workstation, which provides a complete topological image of the wafer's surface
at the system's console and can display in a high resolution format defects as
small as 0.1 micron. Typical magnifications afforded by Ultrapointe Systems
approximate 35,000x, as compared with conventional white light microscopes upper
magnification limits of approximately 6,000x. Through software developed by the
Company, the system's workstation can also evaluate and classify defects,
communicate with automated inspection systems and store images and other data.
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The Ultrapointe System has a base list price of $368,000. The system can
also be tailored, through software, to interface with various automated
inspection systems and local area networks. The Ultrapointe System includes full
wafer automation and handling and a Silicon Graphics workstation. The images
available include a conventional, real time white light microscopy image, real
time laser confocal "slices" and a multiple slice top view of the wafer surface
and defect. The full resolving power of the laser images is available and
surface, embedded and buried defects can be viewed. The product includes
advanced two dimensional ("2-D") and 3-D imaging.
The Ultrapointe System currently requires a human operator to classify
defects. In May 1996, the Company introduced its first Identifier(TM) software
product, an optional feature using white light that provides automatic defect
classification capability for Ultrapointe Systems. Working in conjunction with
the Ultrapointe System, the Identifier(TM) software automates the defect
classification process, thereby improving the precision and repeatability of
defect classification. In December 1996, a laser image version of the
Identifier(TM) was introduced. The laser ADC product has improved classification
capabilities for more complex "metal" layers of semiconductor devices. The
ability to review defects using ADC software is becoming increasingly important
to semiconductor manufacturers as it facilitates defect classification without
direct operator evaluation at each defect site. This automation can improve
reliability and consistency by eliminating operator-induced variations. In
addition, such automation helps speed analysis of the vast amounts of defect
data and classifications necessary for yield enhancement programs. The Company
developed the Identifier(TM) software using technology licensed from ISOA, Inc.
and in cooperation with the semiconductor industry consortium, SEMATECH. The
Identifier(TM) has a base list price of $150,000.
In July 1997, the Company entered into a three-year agreement with
KLA-Tencor under which KLA-Tencor became the exclusive reseller for the
Company's Ultrapointe Systems and the Identifier(TM), the Company's ADC software
product. Under the Agreement, KLA-Tencor will distribute the Ultrapointe System
under its own label worldwide and has the responsibility for installation and
service of the systems it sells.
TELECOMMUNICATIONS EQUIPMENT PRODUCTSTelecommunications Components
Fiber optic cable isnetworks are gaining widespread acceptance in upgradesnew and
new
installations ofupgraded telecommunications and CATV and telecommunications systems worldwide. The use of fiber
optic cable results in vastlysubstantially improved performance, flexibility,
reliability and lower installation and operating costs when compared to
traditional copper and coaxial cable. Moreover, technological innovation
and market forces are creating increased demand for communication
transmission systems with multiple delivery capability and higher
performance and reliability features. Further, telecommunications
interexchange carriers are being required to provide higher speed data
transmission over longer lengths of installed optical fiber between
electronic repeater stations. Due to the high cost of new fiber
installations, interexchange carriers seek to utilize the installed fiber
base to the greatest extent possible. In the CATV industry,
consolidation has resulted in a smaller number of multiple system
operators controlling larger networks. These operators, who compete with
other technologies such as direct broadcast satellite television, are
upgrading their systems and seek economical solutions that will increase
their network flexibility and reliability.
The Company
participates in these markets through its UTP, UFP and ULE subsidiaries.
UTP Background
The flexibility and performancekey enablers of the expansion to fiber optic systems has been
enhanced
through the use of two types of signal encoding techniques: direct modulationadvancements in photonic components and external modulation. In direct modulation, the light output from a diodesystem capacity enhancements such
as wave division multiplexing (WDM) transmission techniques. The key
components include discreet devices such as laser is switched ondiodes, modulators, and
off to generate a signal, similar to the operation of a
flashlight. This frequent switching, however, causes wavelength instability,
which limits the distance of transmission before signal regeneration is
required. Further, the diode lasersoptical modules (subassemblies) such as transmitters and optical
amplifiers. The Company's principal photonic components and modules are
as follows:
o Pump Lasers and Optical Amplifiers. Optical amplifiers are
commonly used in direct modulation have limited powerterrestrial and modulation rate, thereby constraining the performance of the signal
transmission system. In external modulation, the light output of a continuously
powered laser is switched in a separate crystal of lithium niobate. Light from
the laser travels along waveguides patterned into lithium niobate crystalssubmarine fiber systems that
span more than 150 km and electrical
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signals applied to electrodes alongside the waveguides encode the signal onto a
light beam for transmissionoperate in the optical fiber. As comparedlow-loss 1550nm
wavelength range. Amplifiers are used in high-speed OC-48
and OC-192 WDM systems (up to direct
modulation, external modulation has40 wavelengths) incorporating
pump lasers at 980nm and 1480nm depending upon the
following advantages:
- Longer Distancesapplication. Optical amplifiers are also used in Telecommunications.the trunking
(backbone) portion of CATV networks. These trunking lines
are typically 50-100 km in length and operate at 1550nm.
Amplifiers are also being deployed at the distribution
portion of some CATV networks, especially in international
installations.
o External modulators enable signal
transmission over longer distances in telecommunications systems before
signal regeneration is required. External modulation thereby reduces the
required number of expensive repeaters or amplifiers, which are a
significant cost in transmission systems.
- Higher Capacity in Telecommunications.Modulators for Telecommunications and CATV
Transmitters. External modulation is being used by equipmentnetwork
system suppliers that are developing transmission hardware
incorporating wavelength division multiplexing ("WDM").WDM. WDM is capable of increasing the capacity
of a fiber route up to 1640 times without upgrading to more
expensive electronic multiplexing/demultiplexing equipment.
WDM is compatible with the largecurrent installed base of most
fiber optic networks and
can be used to significantly increase significantly the data
carrying capacity of such networks. External modulators also enable higher data rates (e.g. OC-192are
usually lithium niobate or 10 Gbps) to be effectively transmitted over long distances.
- Longer Distances and Higher Fidelity in CATV.electro-absorption applications.
External modulators operate at higher laser power than other
forms of modulation and therefore allow signals to be
transmitted over longer distances without detection and
retransmission. In addition, external modulation provides
inherently higher fidelity because of lower laser noise and
low noise susceptibility to optical system reflections, such
as those arising from existing fiber optic connections.
External modulators are fully compatible with CATV
distribution systems that utilize fiber optical amplifiers.
UTP Products and Markets
In May 1995, the Company purchased UTP, which designs, develops,
manufactures and markets high-speed external modulators and transmitters for
fiber optic networks in theo CATV and telecommunications industries. The Company
acquired UTP as part of its strategy to pursue selected opportunities where
opto-electronic technology converges on specific market needs which have not
been adequately addressed by conventional electronic solutions.
The Company produces lithium niobate integrated optic circuits by using its
proprietary Annealed Proton Exchange (APE(R)) fabrication process. The Company
believes that this process produces modulators which can have higher optical
power handling, and can be fabricated into a bias free mode (advantageous for
digital systems) as compared with competing external modulators. The Company
also sells customized external modulators for a variety of customer
applications.
The Company's principal modulator products include:
TYPE WAVELENGTH APPLICATION
- ----------------------------------- ------------------- -----------------------------------
CATV Modulators.................... 1300 nm, 1550 nm CATV Super Trunk Transmitter
2.5 and 10 Gbps Digital
Modulators....................... 1300 nm, 1550 nm OC-48 and OC-192
Telecommunications, respectively
Microwave and Radio Frequency
Modulators....................... 1300 nm, 1550 nm Antenna Links and Radar
UTP began to supply turn-key externally modulated CATV transmitters to CATV
OEMs in September 1995. These transmitters incorporate a continuous-wave diode
laser, a lithium niobate modulator and patented electronic linearity and control
circuitry. The Company routinely customizes its transmitter to the
specifications of the OEM customer. The Company also resells optical fiber
amplifiers as part of providing complete optical transmission functionality to
OEMs.
The principal applications addressed by UTP products are as follows:
- Long-Haul Telecommunications. The principal long-haul telecommunications
application addressed by the Company is a 2.5 Gbps transmission system
for long distance telephone interexchange carriers. The Company's
external modulators are used in these systems to significantly increase
the space between repeaters in such systems. The Company's modulators
allow the transmission of up to 32,000
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phone conversations over a single fiber to switching sites across
distances of up to 350 miles. In addition, the Company's external
modulators are well suited for WDM applications at 2.5 Gbps. In such
applications, multiple wavelength telecommunications signals are
transmitted over the same fiber, thereby multiplying the capacity of the
fiber cable system. Telecommunications customers are presently deploying
systems with up to 16 separate wavelengths in order to accommodate 40
Gpbs using UTP's OC-48 modulators. The Company is also developing a
higher speed modulator to provide similar capability at 10 Gbps (OC-192
data rate).
- Cable. The principalTransmitters. Principal cable television applications addressed by the
Company
are externally modulated transmitters for trunk-line
applications. Theseapplications, directly modulated transmitters for the
distribution portion of CATV network, and return-path lasers
for interactive communications. Externally modulated
transmitters operate at the preferred optical wavelength of
1550 nm. They1550nm and incorporate high power (20 mw) diodepump lasers and the Company's modulators to provide high optical powers
for the transmission of broadcast television signals over
long distances. In
addition, theyDirectly modulated transmitters are compatible withtypically
deployed at the neighborhood node of the CATV network using
either 1310nm or a low-cost 1550nm transmitter. Return path
lasers allow cable operators to upgrade existing optical amplifier technology,
which allows the transmission distance or the subscriber area to be
increased.networks for
two-way communications. The Company's modulated transmitters
are designed for use in broadband systems, are operational
over bandwidths of up to 1 Ghz and are compatible with hybrid
fiber coax ("HFC") systems being developed by certain
telecommunications equipmentservice providers for the transmission of
voice, data and video.
- Specialty Productso Source Lasers for Telecommunications and Markets. In May 1996, UTP entered into an
agreement with Sanders, a Lockheed Martin Company, to developCATV Transmitters.
Lasers are the light sources for signals transmitted along
fiber optic
transmittersnetworks at wavelengths of 1310nm or 1550nm. CATV
applications typically utilize 1310 lasers for analog and
hybrid fiber-coaxial (HFC) signal distribution. Both 1550nm
and 1310nm can be modulated externally or directly. External
modulation has enhanced the United States government to be installed on highflexibility and performance aircraft. Additional applications for the Company's
integrated optic modulators include fiber optic gyroscopes ("FOGs"),
analog RFof
fiber optic systems and laboratory and research and development
activities. The Companythrough its signal encoding technique of
providing a continuously powered laser light source. This
light output is a leading commercial supplier of
multi-function integrated optic signal processing chips for FOGs. FOGs
are intended for use in commercial aviation, military/aerospace and
industrial applications. The Company also offers a variety of integrated
optic modulators and switches for use at frequencies to 20 Ghz that are
being usedswitched in a large varietyseparate crystal of industrial, governmentlithium
niobate, where the light from the laser travels along
waveguides patterned into lithium niobate crystals and
university
researchelectrical signals for transmission in the optical fiber.
Direct modulation provides another alternative to modulating
a beam of light. In direct modulation, the light output from a
laser diode is switched on and development programs.
UFP Productsoff to generate a signal. This
frequent switching, however, causes wavelength instability
and Markets
In May 1996,limits the Company acquired UFP, which custom packages laser diodes,
LEDspower and photodetectorsmodulation rate, thereby
constraining the performance of the signal.
o Fiber Bragg Gratings and Modules. Gratings are used to
combine, stabilize or selectively separate optical signals.
Grating-based modules are utilized to isolate signals prior
to reaching an optical amplifier and provide the ability to
add/drop multiple signals for OEMs for use in fiber optic networks. UFP uses its
proprietary technologies of epoxy-based attachment and laser welding to attach
fiber ("pigtailing") to these optoelectronic components in a variety of
configurations to meet the specific needs of its OEM customers.
The principal applications addressed by UFP are as follows:
-regeneration purposes.
o Data communications. The ever-increasing use of computer
networks is fueling a growth in fiber data communications
systems. Fiber offers advantages over copper-wire links that
include longer distance transmission, higher data rates, ease
of multiplexing, and immunity from electromagnetic
interference. UFPThe Company offers custom packaged optical
sources and detectors for a variety of fiber-based data
communications applications such as single-fiber Ethernet and
Token Ring.
- Local telecommunications. Low-cost diodesLaser Subsystems Products
Uniphase's principal laser subsystem products consist of air-cooled
argon gas laser subsystems, which generally emit blue or green light,
Helium Neon ("He-Ne") laser subsystems, which generally emit red or green
light, and solid state lasers, which generally emit infrared, blue or
green light. These systems consist of a combination of a laser head
containing the lasing medium, power supply, cabling and packaging,
including heat dissipation elements.
Solid state lasers are usedsmaller, use less power and are expected to
be the primary laser technology in the feederfuture as compared to conventional
gas lasers. Current applications for the Company's solid state lasers include
DNA sequencing, direct-to-plate printing, flow cytometry, particle counting,
spectrometry and loop
portionssemiconductor wafer inspection. Sales of the local telephone network to accommodate various data
rates. The Company supplies custom packaged components to
telecommunications equipment manufacturers. For example, UFP supplies
custom laser-diode submodules for useCompany's
argon gas lasers have increased in recent years primarily as optical sources and detectors in
SONET OC-3 (155 Mbps) networks.
- Specialty Markets. UFPa result of
increased sales of such products are well suited for several specialty
markets such as fiber optic test and measurement equipment, fiber optic
sensors and military and aerospace data communications applications. For
example, the Company pigtails red diode lasers for use in hand-held fiber
optic fault locators.
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ULE Background
A major enhancementbiotechnology and
semiconductor applications. Use of fiber optic systems is dueHelium-Neon gas lasers has
substantially declined as most customers are now using semiconductor
diode lasers to satisfy bar code scanning applications. Through the
development and
deploymentacquisition of the optical fiber amplifier. This optical device amplifies
in-coming optical signals without having to convert them to electrical signals,
as was the case with the older-generation electronic regenerators. These optical
amplifiers are higher performance and lower cost than regenerators. They operate
in the 1550 nm wavelength range where optical fiber has its lowest transmission
loss.
An optical amplifier is composed on a fiber with specially introduced
impurities (erbium), a diode laser for pumping (energizing) the fiber and a
variety of other components such as couplers, isolators and control electronics.
The key components are the fiber and pump laser, and very high reliability had
to be established for each of these new components. The preferred pump laser is
an GaInAs/GaAs structure operating at 980 nm.
Advantages of optically amplified fiber communication systems, compared to
their counterparts using electronic regenerators are:
- Longer distances between amplifiers. Optical amplifiers can span over
twice the distance achievable with optoelectronic regenerators. They also
operate at the most transparent wavelength range of optical fiber.
- Flexible and upgradeable signal content. Optical amplifiers are bit-rate
transparent; for example 155 Mb/s and 2.5 Gb/s data can equally well be
passed through the same amplifier. They also can simultaneously
accommodate multiple wavelengths in a WDM system. Amplifiers are being
deployed for CATV as well as telecom systems.
- Lower cost equipment. Optical amplifiers used in high speed WDM systems
offer considerable savings in regeneration than a comparable electrically
regenerated system.
ULE Products and Markets
In March 1997,UNBV, the Company acquired ULE, which designs, develops,
manufactures and markets pump lasers for optical amplifiers used in fiber optic
telecommunications and CATV systems. This acquisition enables the Company to
provide an additional key component to high-performance fiber optic systems.
ULE produces pump lasers in GaInAs/GaAs materials. These lasers operate at
the preferred pump wavelengthobtained manufacturing capability of 980 nm. ULE invented and brought to
manufacturing a
solid state visible laser fabrication process that incorporates a special
laser-facet passivation technique (referred to as E2) that provides the
necessary laser lifetimes required to meet telecommunication-equipment
reliability. ULE supplies these lasers in chip form and on submounts to
companies that package them for incorporation into amplifiers by telecom OEMs.
These lasers operate at a variety of power levels and wavelengths.
The principal applications addressed by ULE products are as follows:
- Long-haul telecommunications. Optical amplifiers are commonly used into
today's fiber systems that span more than 150 km and operate in the
low-loss 1550 nm wavelength range. The amplifiers are used in high-speed (OC-48)printing and WDMcertain
multimedia applications.
Semiconductor Capital Equipment Products
Uniphase's Ultrapointe subsidiary supplies wafer defect and review
systems (up to 16 wavelengths) ULE provides pumpand software for the majority of amplifiers used today in terrestrial applications.
- Cable. Optical amplifiers are widely used insemiconductor industry. The semiconductor
industry is moving to increasingly smaller and consequently more complex
devices. As dimensions shrink and complexity increases, semiconductors
become more susceptible to damage or loss from correspondingly smaller
defects, which must be detected and the trunking (backbone)
portion of CATV networks. These trunking lines are typically 50-100 km in
length, operate at 1550 nm, and achieve higher signal fidelity by
incorporating the amplifiers. Amplifiers are beginningcause resolved for viable yields to
be usedmaintained. The Ultrapointe system examines wafers in conjunction with
another manufacturer's automated inspection system, and is incorporated
into the semiconductor manufacturing process to detect and locate defects
as small as 0.1 micron. The Ultrapointe system's magnification is about
35,000 times, versus about 6,000 times for conventional microscope systems.
Additionally, the distribution portionoptional Identifier software package provides automatic
defect classification (ADC), improving the performance of somethe Ultrapointe
system.
The Ultrapointe System utilizes an optical technique called
scanning laser confocal microscopy. This technique uses, through high
power microscopic optics, an argon laser as an intense light source to
scan a wafer's surface numerous times. The return signal from the laser
is processed by the system's computer workstation, which provides a
complete topological image of the wafer's surface at the system's console
and can display in a high resolution format defects as small as 0.1
micron. The semiconductor equipment industry that Ultrapointe markets its
products into is currently experiencing a downturn. The Company does not
currently intend to make any further investments into the semiconductor
equipment industry and is contemplating either the divestiture or
discontinuation of its Ultrapointe subsidiary. Such actions will allow
management to focus its efforts on developing telecommunications, CATV networks, especiallyand
laser subsystems markets.
Sales and Marketing
The Company markets its telecommunications components to OEMs
through its direct sales force in international
deployments. ULE provides high-power (200 mW) pumpsSan Jose, California; Bloomfield,
Connecticut; Chalfont, Pennsylvania; Switzerland, the Netherlands,
Australia and the United Kingdom. In addition, the Company sells its
products through distributors in selected European countries, Japan,
Taiwan, Korea and India. Selected OEM customers for these amplifiers.
SALES AND MARKETINGtelecommunications
components include:
Alcatel Lucent
Ciena Nortel
Fujitsu Pirelli
General Instruments Scientific Atlanta
GPT Siemens
Lasertron
Uniphase markets its laser subsystem products principally to OEMs
through its own sales force in the United States, United Kingdom and
Germany and through a worldwide network of representatives and
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distributors to service smaller domestic accounts, including those in the
research and education markets. The Company's salesLaser subsystem applications include
biotechnology instruments, wafer inspection systems, graphics and
marketing strategy for
its laser subsystem products is to establish long term relationships with its
OEM customers through early design-in phase of its laser subsystems into
customers applications and through high levels of customer service and support.
The following chart sets forth the Company's principal OEM customers for laser
subsystems by application:
WAFER INSPECTION
BIOTECHNOLOGY INSTRUMENTS SYSTEMS GRAPHICS AND PRINTING SYSTEMS
- ------------------------- ----------------- ------------------------------------------------
Applied Biosystems ADE Corporation Crosfield Electronics Ltd.
Beckman Instruments Nikon Corporation Gerber Systems Corporation
Coulter Corporation KLA-Tencor Optronics, a division of Intergraph Corporation
Molecular Dynamics Purup Pre-Press A/S
One laser subsystems customer, the Applied Biosystems Division of
Perkin-Elmer Corporation, accounted for approximately 10%, 12% and 12% of the
Company's net sales for fiscal years 1997, 1996, and 1995, respectively. In
addition, in fiscal 1996, KLA-Tencor (formerly known as Tencor) accounted for
13% of the Company's sales through the purchase of both laser subsystems and
Ultrapointe Systems. A reduction or delay in orders from this customer could
adversely affect the Company's results of operations.printing systems. In fiscal 1997,1998, Uniphase marketed its Ultrapointe
Systems primarily through KLA-Tencor's worldwide distribution channels
and a network of four independent
sales representatives in the United States. In Japan, the Company had a
distribution agreement with KLA-Tencor and Innotech Corporation for sales to
Japan's semiconductor industry. In Europe and the Pacific Rim, the Company
distributes its products through KLA-Tencor; however, the Company has the right
to market its products through its own distribution channels. In July 1997,
Ultrapointe and KLA-Tencor signed a newunder an exclusive OEM agreement that superceded all
previous agreements,expires in June, 2000, at which
point in time KLA-Tencor has the option to be the exclusive reseller of the Ultrapointe Systemextend this agreement for up
to three additional one-year periods.
Customer Support and ADC software. Therefore, the distribution agreement with Innotech Corporation
and the four independent sales representation agreements were terminated by
Ultrapointe effective September 1997 and October 1997, respectively.
As of June 30, 1997, the Company had sold 117 Ultrapointe Systems in the
United States, Europe, Japan and the Pacific Rim. Customers for the Company's
Ultrapointe System include:
American Microsystems Microunity
Analog Devices Motorola*
Applied Materials Philips Semiconductors*
Digital Equipment Corporation* Samsung*
Fujitsu, Ltd.* SEMATECH
IBM Corporation* Sony Corporation
Intel* TSMC*
LSI Logic Corporation* Toshiba*
Lucent Technologies* Texas Instruments
L.G. Semicon VLSI Technology*
Matsushita Electric* VTC
Micron Technology* Yamaha Corporation
- ---------------
* Indicates customers that have purchased multiple Ultrapointe Systems.
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The Company markets its telecommunications equipment products to OEMs
through its own direct sales forces in Bloomfield, Connecticut; Chalfont,
Pennsylvania; Switzerland; Germany and Scandinavia. In addition, UTP sells its
products through distributors in select European countries, Japan, Taiwan, Korea
and India. Customers for the Company's telecommunications equipment products
include:
Alcatel Lasertron
Ciena Nortel
General Instruments Scientific Atlanta
GPT TRW
CUSTOMER SUPPORT AND SERVICEService
The Company believes that a high level of customer support is
necessary to successfully develop and maintain long term relationships
with its OEM customers in its telecommunications and laser subsystems and telecommunications equipment
businesses. This close relationship begins at the design-in phase and is
maintained as customer needs change and evolve. The Company provides
direct service and support to its OEM customers through its offices in
the United States. The Company's European laser
subsystem customers are serviced through its salesStates and support offices in the
United Kingdom and Germany.Europe. In Japan, the Company's laser subsystems
distributor, Autex, assists in performing support and service functions.
The
CompanyKLA-Tencor provides support through both on-site customer service and telephone
support from its various facilities that perform sales and service functions.
The Company generally warrants all of its laser products for a period of one
year from the date of shipment. Certain argon lasers carry warranties based on
hours of use.
A high level of customer support is also necessary when providing
production instrumentation for the semiconductor industry. KLA-Tencor and all
distributors of Ultrapointe Systems are responsible for sales, installation, warranty and post-warranty
support.support of Ultrapointe Systems generally carry a
one-year warranty from the date of installation or fifteen months from shipment,
whichever occurs first. Service contracts are available for system support after
the warranty period.
RESEARCH AND DEVELOPMENTSystems.
Research and Development
During fiscal years 1998, 1997 and 1996, and 1995, Uniphase spentincurred $14.3
million, $9.3 million $5.8
million, and $3.7$5.8 million, respectively, on research and
development. In fiscal 1998, 1997 and 1996, and 1995, Uniphase incurredrecorded charges
totaling $33.3$99.6 million, $4.5$33.3 million and $4.5 million, respectively for
acquired in-process research and development which
were incurred in connection with the
acquisitionacquisitions of UNBV and UFC in 1998, ULE in fiscal 1997 and UFP in fiscal 1996 and UTP in fiscal 1995. In fiscal 1997, the Company's laser research
and development efforts focus primarily on the continued development of solid
state lasers. These programs are supported by a $1.4 million award, which
expires in December 1998 from the Advanced Technologies Program of the
Department of Commerce. The Company also has development and licensing
agreements with Stanford University and the University of St. Andrews, Scotland
which give the Company the right to manufacture and sell certain next generation
laser products being developed by these universities. If the Company
manufactures such products, it will be required to pay the universities certain
royalties based on sales of the products.
The Company continues to devote research and development resources to its
Ultrapointe Systems product line. These efforts focus on the Company's
Identifier(TM) software product and enhancement of laser images. In addition to
the Identifier(TM), the Company is also exploring a number of methods to improve
the resolution of the scanning laser confocal microscopy technique used in the
Ultrapointe System and to accommodate future generations of higher density
semiconductor devices. Ultrapointe's efforts regarding the next generation of
semiconductor devices have also been in the handling of larger wafers (300 mm in
diameter).1996.
The Company is developing new and enhanced telecommunications
equipment
productscomponents and enhancingexpanding its manufacturing capability for telecommunications
equipmentthese products.
For example, higherthe Company continues to increase the power output of its
pump lasers and the number of source lasers available for multi-channel
WDM applications. Higher performance modulators and transmitters are
under development, as are advanced multi-gigabit modulators. In
manufacturing, theThe Company
is developing improved CAD design tools and advanced
modulator packages. The
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Company also participates in two national consortia: the Analog Optoelectronics
Module Consortium, which seekscontinues to develop new and cost-effective RF and
microwave transmitters and receivers, and the National Transparent Optical
Network Consortium, which is involved in advanced high capacity WDM fiber optic
communicationspackaging technology for a number of its optoelectronic
components and networks.so as to enable it to supply integrated, packaged modules to its
customer base. The Company is also committedcontinues to the
success of its ULE products by acquiring capital equipmentinvest in support of the
researchsolid state laser
applications for industrial processes and development. ULE is currently focusing its research and development
effort on the packaging ofwafer defect review capabilities
for higher powered pump lasers and pump lasers at other
frequencies.
MANUFACTURINGdensity semiconductor devices.
Manufacturing
The Company manufactures its solidoptoelectronic, telecommunication and
CATV component products at a number of its facilities in the United States,
Europe and Australia. The Company manufactures pump lasers in Zurich,
Switzerland, whereas source lasers for telecommunications, CATV and
multimedia applications are manufactured in Eindhoven, the Netherlands. The
Company's lithium-niobate modulators are manufactured in Bloomfield,
Connecticut, whereas its electro-absorption modulators are manufactured in
the Netherlands. Fiber-Bragg gratings are manufactured in Sydney, Australia,
and CATV transmitters and amplifiers are produced in Chalfont, Pennsylvania.
Data communications products are manufactured at the Company's facilities in
Witney, United Kingdom. Solid state laserslaser subsystem products, and argon laser
subsystems, and related power supplies and grating-based modules are manufactured at its
San Jose, California facility and its He-NeHelium-Neon lasers are manufactured at
its Manteca, California facility. The Company assembles and tests its
Ultrapointe Systems and manufactures initial systems of
its microlasers at its San Jose, California facility. The Company's modulator
products are manufactured at its facility in Bloomfield, Connecticut and its
transmitters are manufactured at its facility in Chalfont, Pennsylvania. UFP
products are manufactured at the Company's facilities in Witney, United Kingdom.
ULE lasers are manufactured in Zurich, Switzerland. The Company has
purchasing, materials management, assembly, final testing and quality
assurance functions at each location for the products that are manufactured
at that facility.
The manufacture of the Company's laser subsystems, Ultrapointe Systems and
telecommunications equipment products is a highly complex and precise process,
requiring production in a highly controlled environment. The Company maintains a
2,000 square foot class 100 clean room in which all Ultrapointe System assembly
takes place. Systems are tested and then packaged for direct shipment into a
customer's clean room. Changes in the Company's or its suppliers' manufacturing
processes or the inadvertent use of defective or contaminated materials by the
Company or its suppliers could adversely affect the Company's ability to achieve
acceptable manufacturing yields and product reliability. To the extent the
Company does not achieve such yields or product reliability, its operating
results and customer relationships would be adversely affected.
The raw materials and sub-components which the Company requires for the
manufacture of its products are generally available from several sources. The
Company purchases some raw materials and components from single sources, but has
no reason to believe it could not purchase such materials and components from
alternative sources of supply on comparable terms. The Company obtains all the
robotics, workstations, and many optical components used in its Ultrapointe
Systems from Equipe Technologies, Silicon Graphics, Inc., and Olympus
Corporation, respectively. The Company currently utilizes a sole source for the
crystal chip sets incorporated in its solid state microlaser products and
acquires its pump diodes for use in its solid state laser products from Philips
and Opto Power Corporation. Certain of these companies also manufacture products
that compete with those of the Company. The Company obtains lithium niobate
wafers and specialized fiber components used in its telecommunications products
from primarily Crystal Technology, Inc. and Fujikura Ltd., respectively. From
time to time, the Company has experienced delays in obtaining raw materials and
components. However, to date such delays have not materially affected its
operations. The Company does not have long-term volume purchase agreements with
any of these suppliers, and no assurance can be given that these components will
be available in the quantities required by the Company, if at all.
COMPETITIONCompetition
The industries in which the Company sells its products are highly
competitive. Uniphase's overall competitive position depends upon a
number of factors, including the price and performance of its products,
the level of customer service and quality of its manufacturing processes,
the compatibility of its products with existing laser systems and
Uniphase's ability to participate in the growth of emerging technologies,technologies.
Competitive factors in the market for the Company's
telecommunications equipment products include price, product performance
and reliability, the capability to provide strong customer support and
service, customer relationships and the breadth of product line. In this
market, the Company faces competition from companies that have
substantially greater financial, engineering, research, development,
manufacturing, marketing, service and support resources, greater name
recognition than the Company and long-standing customer relationships.
With respect to source lasers and pump lasers for telecommunications
applications, competitors include Fujitsu, Pirelli, Corning, Lucent, and
SDL, Inc. With respect to external modulator products for CATV and
telecommunications suppliers, competitors include Lucent Technologies,
Crystal Technology, Inc., Fujitsu, Integrated Optical Components, Ltd.,
and Sumitomo Cement Opto Electronics Group. With respect to 1310nm and
1550nm CATV transmitters, competitors include AEL, Harmonic Lightwaves,
Kablerhydt, Ortel, Synchronous Communications and PAi. Other CATV
equipment suppliers may also enter this market. With respect to fiber-
Bragg gratings and grating-based modules, competitors include JDS-Fitel,
Lucent, E-Tek and Corning. With respect to laser diode products for data
communications and local telecommunications suppliers, the Company's
competitors include Oz Optics and SDL-Optics as well as larger
optoelectronic suppliers such as solid state lasers.AMP and Hewlett-Packard.
In the argon laser subsystems market, Uniphase competes primarily competes with
American Laser, Coherent, Ion Laser Technology, NEC, Omnichrome,
Spectra-Physics, Toshiba, and
Carl Zeiss. In the He-Ne laser market, Uniphase considers Melles-Griot, NEC and
Carl Zeiss, to be its primary competitors. In the solid state laser
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markets, Uniphase's competitors include Coherent,Melles-Griot, Hitachi, Lightwave,
Opto Power Corporation, Philips, SDL, Inc., Siemens Sony and Spectra-Physics.Sony.
Significant competitive factors in the market for Ultrapointe
Systems include specific system performance, cost of ownership, support
and infrastructure and the ability to interface to existing automated
inspection systems and local area networks. Ultrapointe Systems compete
with the following three types of devices: scanning electron microscopes,
conventional white light microscopes and laser confocal microscopes. The
Company believes that its principal competitors include Amray, Hitachi,
JEOL, Kinetek, Kensington, Lasertech, Leica, Nidek, Nikon, Stahl Research
and Carl Zeiss.
Competitive factorsPatents and Proprietary Rights
Intellectual property rights that apply to various Uniphase products
include patents, trade secrets, and trademarks. Because of the rapidly
changing technology and a broad distribution of patents in the
market foroptoelectronics industry, the Company's telecommunications
equipment products include price, product performance and reliability, the
capabilityintention is not to provide strong customer support and service, customer
relationships and the breadth of product line. In thisrely primarily
on intellectual property rights to protect or establish its market
theposition. The Company faces
competition from companies that have substantially greater financial,
engineering, research, development, manufacturing, marketing, service and
support resources, greater name recognition than the Company and long-standing
customer relationships. With respectdoes not intend to modulator products for CATV and
telecommunications equipment suppliers, the Company's competitors include Lucent
Technologies, Crystal Technology, Inc., Fujitsu, Integrated Optical Components,
Ltd., and Sumitomo Cement Opto Electronics Group. With respect to CATV 1550 nm
transmitters for supply to OEMs, the Company's competitors include AEL, Harmonic
Lightwaves, Kablerhydt, Ortel, Synchronous Communications and PAi. Other CATV
equipment suppliers may alsobroadly license its intellectual
property rights unless it can obtain adequate consideration or enter this market. With respect to laser diode
products for data communications and local telecommunications equipment
suppliers, the Company's competitors include Oz Optics and SDL-Optics as well as
larger optoelectronic suppliers such as AMP and Hewlett-Packard. ULE competes
with SDL, Inc. in the 980-nm-pump-diode laser market. Potential new technologies
may also emerge to compete with the Company's products, such as
electro-absorption modulators that are being introduced for long-haul
telecommunications.
PATENTS AND PROPRIETARY RIGHTSinto
acceptable patent cross-license agreements. The Company holds 3295 United
States patents and certainaccess to 295 corresponding foreign patents on the
technologies related to its products and processes. The United States
patents expire on dates ranging from 1999 to 2015. The Company has
applied for additional patents related to its solid state laser products, its
Ultrapointe Systems (five of which were recently issued) and its
telecommunications products. The Company has also acquired several patent
licenses involving areas such as end-pumped solid state lasers, diode-pumped
blue light lasers and waveguides.
The laser, semiconductor equipment, CATV and telecommunications industries
in which the Company sells its products are characterized by frequent litigation
regarding patent and other intellectual property rights. Numerous patents in
these industries are held by others, including academic institutions and
competitors of the Company. Such patents could inhibit the Company's ability to
develop or sell new products for such markets. From time to time, the Company
has received notices claiming that it has infringed third-party patents or other
intellectual property rights. While in the past licenses generally have been
available to the Company where third-party technology was necessary or useful
for the development or production of the Company's products, there can be no
assurance that licenses to third-party technology will be available on
commercially reasonable terms, if at all. Generally, a license, if granted,
would include payments by the Company of up-front fees, ongoing royalties or a
combination thereof. There can be no assurance that such royalty or other terms
would not have a significant adverse impact on the Company's operating results.
The Company is a licensee of a number of third party technologies and
intellectual property rights and is required to pay royalties to these third
party licensors on certain of its products, including its Ultrapointe Systems
and its solid state lasers. In fiscal 1997 and 1996, the Company expensed $1.4
million and $1.3 million, respectively, in license and royalty fees primarily in
connection with its gas laser subsystems. In addition, there can be no assurance
that third parties will not assert claims against the Company with respect to
its existing products or with respect to future products under development by
the Company. In the event of litigation to determine the validity of any
third-party claims, such litigation could result in significant expense to the
Company and divert the efforts of the Company's technical and management
personnel, whether or not such
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litigation is determined in favor of the Company. In the event of an adverse
result in any such litigation, the Company could be required to expend
significant resources to develop non-infringing technology or to obtain licenses
to the technology which is the subject of the litigation. There can be no
assurance that the Company would be successful in such development or that any
such licenses would be available to the Company. In the absence of such a
license, the Company could be enjoined from future sales of the infringing
product or products. In fiscal years 1992 and 1993, the Company incurred
substantial legal expenses in connection with a patent infringement action
relating to the Company's current gas laser subsystems brought by
Spectra-Physics Lasers, Inc. ("Spectra-Physics"). While the Spectra-Physics case
has since been settled, no assurance can be given that, in the future, the
Company will be able to avoid similar actions by competitors or others or not be
forced to initiate its own actions to protect its proprietary position.
BACKLOG2016.
Backlog
Backlog consists of written purchase orders for products for which
the Company has assigned shipment dates within the following 12 months.
As of June 30, 19971998 the Company's backlog was approximately $34.2$30.8 million
as compared withto a backlog of approximately $20.7$34.2 million at June 30, 1996.1997.
Orders in backlog are firm, but are subject to cancellation or
rescheduling by the customer. Because of possible changes in product
delivery schedules and cancellation of product orders and because the
Company's sales will often reflect orders shipped in the same quarter thatin
which they are received, the Company's backlog at any particular date is
not necessarily indicative of actual sales for any succeeding period.
Certain of the Company's laser subsystems customers are adoptinghave adopted "just in time" techniques
with respect to ordering the Company's products, which will cause the
Company to have shorter lead times for providing products. Such shorter
lead times are likely to result in lower backlog.
EMPLOYEESEmployees
At June 30, 1996,1998, the Company had a total of 597976 full-time
employees worldwide, including 67134 in research, development and
engineering, 4556 in sales, marketing and service, 418687 in manufacturing,
and 6799 in general management, administration and finance. The Company
intends to hire additional personnel during the next 12 months in each of
these areas. The Company's future success will depend in part on its
ability to attract, train, retain and motivate highly qualified
employees, who are in great demand. There can be no assurance that the
Company will be successful in attracting and retaining such personnel.
TheExcept for its Netherlands operations, the Company's employees are not
represented by any collective bargaining organization,organization. Most hourly and
salaried employees in the Netherlands are represented by the Philips
Collective Labor Agreement. The Company has never experienced a work
stoppage, slowdown or strike. The Company considers its employee
relations to be good.
RISK FACTORSRisk Factors
The statements contained in this Reportreport on Form 10-K that are not
purely historical are forward-looking statements"forward-looking statements" within the meaning of
Section 27A of
the Private Securities Litigation Reform Act of 19331995 and Section 21E of
the Securities Exchange Act of 1934, including, but not limited towithout limitations,
statements regarding the Company's expectations, hopes, beliefs,
anticipations, commitments, intentions orand strategies regarding the
future. Forward looking statements include, but are not limited to,
statements contained in "Item 1. Business," and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's business strategies, products,
markets, sales, marketing, customer support and service, research
and development, manufacturing, competition, backlog, employees,
financial performance, revenue and expense levels in the future and the
sufficiency of its existing assets to fund future operations and capital
spending needs in Business regarding the Company's products and its
strategy. Actual results could differ materially from those projected in any
forward-looking statements as a result of a number of factors, including thosefor the reasons, among others, detailed in thisunder
"Risk Factors" portion as well as those set forth elsewhere in this Report on Form 10-K. The fact that some of the
risk factors may be the same or similar to the Company's past filings
means only that the risks are present in multiple periods. The Company
believes that many of the risks detailed here are part of doing business
in the industry in which the Company competes and will likely be present
in all periods reported. The fact that certain risks are endemic to the
industry does not lessen the significance of the risk. The
forward-looking statements are made as of the date hereofof this Form 10-K and
the Company assumes no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ
materially
from those projected in the forward-looking statements.
MANAGEMENT OF GROWTH; UFP AND ULE ACQUISITIONSManagement of Growth; Acquisition of UFC, UNBV and Chassis
The Company has experienced recentexpects to continue to experience growth through increased levels of
operations in its
existing businesses,telecommunications businesses. In addition, the acquisition of UTP in May 1995, the
acquisition of UFP in May 1996 and the acquisition of ULE in March 1997.Company expects
to supplement this growth though further acquisitions. The Company is
devoting significant resourcesefforts to increase its penetration of the
telecommunications and CATV markets and to develop new solid state lasers
for OEM customers, to improve products and increase market penetration of its
Ultrapointe Systems and to increase its penetration of the CATV and
telecommunications industries.customers. In addition, the Company is now increasing its
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marketing, customer support and administrative functions in order to
support an increased level of operations primarily from sales of its
telecommunications equipmentproducts. Finally, the Company intends to either
maintain or increase its market share in an otherwise declining market
for its gas laser products. No assurance can be given that the Company
will be successful in creating this infrastructure or that any increase
in the level of such operations will be realized or if realized will
justify the increased expense levels associated with these businesses.
In May 1996, the Company acquired UFP. As a result of acquiring UFP, the
Company has entered the local telecommunications and data communications market
in which it had no previous experience, and has expanded its employee base. The
success of the UFP acquisition will be dependent on the Company's ability to
integrate UFP into its existing operations. The Company's ability to manage UFP
will be complicated by the geographical distance of UFP locations in the United
Kingdom and in Batavia, Illinois. There can be no assurance that the operations
of UFP will not strain the Company's available management, manufacturing,
financial and other resources.
In MarchNovember 1997, the Company acquired ULE. As a result of acquiring ULE,UFC. In addition, in June
1998, the Company has gained access to a proven semiconductor based laser application for
useacquired UNBV from Philips and in telecommunications.August 1998 acquired
certain assets of Chassis. The success of the ULE acquisitionthese acquisitions will be
dependent upon the Company's ability to integrate ULE 980 nmmanufacture and sell high power
1550nm lasers and future products used in erbium doped fiber amplifiers (EDFA)wavelength divisional
multiplexing applications and continued demand for UNBV products
by major telecommunications, CATV and multimedia/printing customers. The
Company's ability to manage its growth effectively is dependent upon its
ability to integrate into the Company the acquired entities' operations,
products and personnel, retain key personnel of the acquired entities and
to many major telecommunication
equipment manufacturers.expand the Company's financial and management controls and reporting
systems and procedures. There can be no assurance that the ULE operationsCompany will
not strain the Company's available management, manufacturing, financialbe able to successfully manufacture and other resources.
The Company also made capital expenditures in fiscal 1996 to acquire
certain properties in San Jose, California totaling 109,000 square feet, which
included land, buildingssell these products or manage
such growth, and improvements for an aggregate purchase price of
approximately $11.0 million and continues to invest in property, plant and
equipment needed for its business requirements, including adding to
manufacturing capacity throughout the Company. Any failure to utilize these
areas in an efficient mannerdo so could have a material adverse effect on
the Company.Company's business and operating results.
Variability and Uncertainty of Quarterly Operating Results
The Company currently has no commitments with respectexperienced and expects to any future
acquisitions.continue to experience
significant fluctuations in its quarterly results. The Company however, frequently evaluatesbelieves
that fluctuations in quarterly results may cause the strategic
opportunities availablemarket price of its
common stock to itfluctuate, perhaps substantially. Factors which have had
an influence on and may continue to influence the Company's operating
results in a particular quarter include the timing of the receipt of
orders from a limited number of major customers, product mix, competitive
pricing pressures, relative proportions of domestic and international
sales, costs associated with the acquisition or disposition of
businesses, products or technologies, the Company's ability to design,
manufacture, and ship products on a cost effective and timely basis, the
delay between incurrence of expenses to further develop marketing and
service capabilities and realization of benefits from such improved
capabilities, the announcement and introduction of cost effective new
products by the Company and by its competitors, and expenses associated
with any intellectual property litigation. In addition, the Company's
sales will often reflect orders shipped in the same quarter that they are
received. Moreover, customers may cancel or reschedule shipments, and
production difficulties could delay shipments. The timing of sales of
the Company's Ultrapointe Systems may result in substantial fluctuations
in quarterly operating results due to the substantially higher per unit
prices of these products relative to the Company's other products. In
addition, the Company sells its telecommunications equipment products to
Original Equipment Manufacturers (OEMs) who typically order in large
quantities and therefore the timing of such sales may significantly
affect the Company's quarterly results. The timing of such OEM sales can
be affected by factors beyond the Company's control, including demand for
the OEMs' products and manufacturing risks experienced by OEMs. In this
regard, the Company has historically experienced rescheduling of orders
by customers in each of its markets and may experience such rescheduling
in the future. As a result of the above factors, the Company's results of
operations are subject to significant variability from quarter to
quarter.
There can be no assurance that other acquisitions or dispositions
of businesses, products or technologies by the Company in the future pursue investmentswill
not result in substantial charges or other expenses that may cause
fluctuations in the Company's quarterly operating results.
The acquisition or disposition of other businesses, products or
technologies may also affect the Company's operating results in any
particular quarter. For example, in the second and fourth quarters of
fiscal 1998, the Company incurred charges of $6.6 million and $93.0
million, respectively for acquired in-process research and development in
connection with the acquisition of UFC and UNBV. In the third quarter of
fiscal 1997, the Company incurred charges of $33.3 million for acquired
in-process research and development in connection with the acquisition of
Uniphase Laser Enterprise ("ULE"). In addition, the Company incurred
other charges in connection with acquisitions consummated in fiscal 1998
and 1997. There can be no assurance that acquisitions or dispositions of
additional complementarybusinesses, products technologies or businesses.
Such acquisitionstechnologies by the Company mayin the future will
not result in reorganization of its operations, substantial charges or
other expenses that may cause fluctuations in the diversion of management's
attention from the day-to-day operationsCompany's quarterly
operating results and its cash flows.
Difficulties in Manufacture of the Company's business and may
include numerous other risks, including difficulties in the integration of the
operations and products, integration and retention of personnel of the acquired
companies and certain financial risks. Further acquisitions by the Company may
result in dilutive issuances of equity securities, the incurrence of additional
debt, reduction of existing cash balances, amortization expenses related to
goodwill and other intangible assets and other charges to operations that may
materially adversely affect the Company's business, financial condition or
operating results.
DIFFICULTIES IN MANUFACTURE OF THE COMPANY'S PRODUCTSProducts; Gallium Arsenide
The manufacture of the Company's products involves highly complex
and precise processes, requiring production in highly controlled and
clean environments. Changes in the Company's or its suppliers'
manufacturing process or the inadvertent use of defective or contaminated
materials by the Company or its suppliers could adversely affect the
Company's ability to achieve acceptable manufacturing yields and product
reliability. In addition, UTPthe Company has previously experienced certain
manufacturing yield problems that have materially and adversely affected
both UTP'sits ability to deliver products in a timely manner to its customers
and its operating results. During the fourth quarter of fiscal 1997,1998, the
Company launched an additional productioncommenced construction of a new laser fabrication facility at UTP's
Bloomfield, Connecticut facility.in the
Netherlands. No assurance can be given that the Company will be
successful in manufacturing UTPlaser products in the future at performance
or cost levels necessary to meet its customer needs, if at all. In
addition, UTP
establishedUFC is establishing a transmitter production facility in Chalfont, Pennsylvania in March
1996 and consolidated the transmitter production line previously located in
Bloomfield, Connecticut into this facility in April 1996.Sydney, Australia
for fiber Bragg gratings. The Company has no assurance that this
facility will be able to deliver the planned production
qualities of transmittersmanufacture gratings to customers specifications
at the cost and yield levels required. To the extent the Company or UTP does
not achieve and maintain yields or product reliability, the Company's
operating results and customer relationships will be adversely affected.
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17
The Company is in the process of relocating the ULE operation from its
current facility at the IBM Research Laboratories, which has been leased from
IBM through 1999, to a larger manufacturing facility in Binz, Switzerland. The
relocation of ULE will involve the establishment of a new manufacturing,
research and development, sales and administration facility. Once the ULE
relocation has been completed, the production line will need to be requalified
to assure the high quality demanded by the industry is met by ULE products. ULE
will also need to produce its products at a sufficient capacity and yield. There
can be no assurance that the relocation will be successfully completed by the
time the IBM lease expires or that qualified product can be produced at
sufficient yields to successfully compete with other comparable products or
technologies. The new facility will also need to develop new products to meet
the growing demand for better and faster telecommunication products. There can
be no assurance that these new products can be developed in a timely manner to
meet the market needs, or if developed, that a market for such products
developed will be readily available to the Company. To the extent ULE or the
Company fails to recognize and resolve problems of producing its current and
future products, the results could have an adverse effect on the Company's
ability to service its customers. See also the "Gallium Arsenide" Risk Factor.
The Company's UTP products continue to receive pressure from its customers
to reduce cost and increase capacity. In an effort to meet the Company
customers' needs, the Company intends to increase manufacturing capacity and
reduce production costs by implementing an automated manufacturing system for
the production of its OC-48 modulators. Any delay in increasing production
through the completion of the automation of the manufacturing could materially
effect UTP's and the Company's profit margin and net income. There can be no
assurance the automated manufacturing will be completed in time to meet the
demands of the market. The Company further intends to invest resources in
capital equipment and research and development for the production of the next
generation of UTP modulators, the OC-192. There can be no assurance UTP will be
able to develop the OC-192 modulators to meet customers specifications, or if
developed, that these modulators will be accepted by the market.
GALLIUM ARSENIDE
Gallium Arsenide, referred to as GaAs, is a semiconductor material
that has an electron mobility that is up to five times faster than
silicon. As a result, it is possible to design GaAs circuits that
operate at significantly higher frequencies than silicon circuits. At
similar frequencies, GaAs circuits will produce higher signal strength
(gain) and lower background interference (noise) than silicon circuits,
permitting the transmission and reception of information over longer
distances. GaAs circuits can also be designed to consume less power and
operate more efficiently at lower voltages than silicon circuits.
The fabrication of integrated circuits, particularly GaAs devices
such as those sold by ULE is a highly complex and precise process.
Minute impurities, difficulties in the fabrication process, defects in
the masks used to print circuits on a wafer, wafer breakage or other
factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. Management considers
wafer yields in excess of 18%20% achieving internal lot validation criteria
to be acceptable. ULE has in the past and may
be in the future
experience lower than expected production yields, which could delay
product shipments and adversely affect gross margins, and there can be no
assurance that ULE will be able to maintain acceptable yields in the
future. Because the majority of ULE manufacturing costs are relatively
fixed, manufacturing yields are critical to the results of operations.
To the extent ULE does not achieve acceptable manufacturing yields or
experiences product shipment delays, its business, operating results and
financial condition could be materially and adversely affected.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's Ultrapointe Systems and a portion of its laser subsystems
businesses depend upon capital expenditures by manufacturers of semiconductor
devices, including manufacturers that are opening new or expanding existing
fabrication facilities, which, in turn, depend upon the current and anticipated
market demand for semiconductor devices and the products utilizing such devices.
The semiconductor industry is highly cyclical, and historically has experienced
periods of oversupply, resulting in significantly reduced demand for capital
equipment. Recently, the semiconductor industry has experienced a downturn which
has
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led certain of the Company's customers to delay or cancel purchase of the
Company's Ultrapointe Systems. Results of operations for fiscal 1997, include
sales of Ultrapointe product totaling $15.4 million, downRisks from $17.6 million in
fiscal 1996. The Company believes the short-term outlook for Ultrapointe
products is improving as evidenced by an increase in backlog from 12 systems at
the end of the third quarter of fiscal 1997 to 19 systems at the end of fiscal
1997. There can be no assurance that the Company's operating results will not be
materially and adversely affected by these factors. Furthermore, there can be no
assurance that the semiconductor industry will not experience further downturns
or slowdowns in the future or that the current backlog in Ultrapointe products
will result in actual sales or such backlog is indicative of a meaningful trend,
which may materially and adversely affect the Company's business and operating
results.
RISKS FROM CUSTOMER CONCENTRATIONCustomer Concentration
A relatively limited number of OEM customers historically have
accounted for a substantial portion of UTP's (including ULE) net sales. UTP's sales from
telecommunications products. Sales to any single customer are also
subject to significant variability from quarter to quarter. Such
fluctuations could have a material adverse effect on both UTP and
the Company's
business, operating results or financial condition. The Company expects
that sales of UTP products to a limited number of customers will continue to account for
a high percentage of the net sales for the foreseeable future. Moreover,
there can be no assurance that UTP's current customers will continue to place
orders or that UTPthe Company will be able to obtain new orders from new
telecommunications customers.
DECLINING MARKET FOR GAS LASERS; DEVELOPMENT AND OTHER RISKS RELATING TO SOLID
STATE LASER TECHNOLOGIESDeclining Market for Gas Lasers; Development and Other Risks Relating to
Solid State Laser Technologies
Gas laser subsystems sales accounted for 33.1%26.3%, 37.3% and 47.7%52.9% of
total Company'snet sales for the fiscal years ended 1998, 1997 and 1996, respectively.
The market for gas lasers is mature and is expected to decline as
customers transition from conventional lasers, including gas, to solid
state lasers, which are currently expected to be the primary commercial
laser technology in the future. In response to this transition, the
Company has devoted substantial resources to developing solid state laser
products. To date, sales of the Company's solid state laser products
have been limited and primarily for customer evaluation purposes. The
Company believes that a number of companies are further advanced than the
Company in their development efforts for solid state lasers and are
competing with evaluation units for many of the same design-in
opportunities than the Company is pursuing. It is anticipated that the
average selling price of solid state lasers may be significantly less in
certain applications than the gas laser products the Company is currently
selling in these markets. The Company further believes it will be
necessary to continue to reduce the cost of manufacturing and to broaden
the wavelengths provided by its laser products. There can be no
assurance that the Company's solid state laser products will not be
rendered obsolete or uncompetitive by products of other companies.
VARIABILITY AND UNCERTAINTY OF QUARTERLY OPERATING RESULTSIntense Industry Competition
The Company has experiencedtelecommunications, laser subsystems and expects to continue to experience
significant fluctuations in its quarterly results. The Company believes that
fluctuations in quarterly results may cause the market price of its Common Stock
to fluctuate, perhaps substantially. Factors which have had an influence on and
may continue to influence the Company's operating results in a particular
quarter include the timing of the receipt of orders from major customers,
product mix, competitive pricing pressures, the relative proportions of domestic
and international sales, costs associated with the acquisition or disposition of
businesses, products or technologies, the Company's ability to design,
manufacture, and ship products on a cost effective and timely basis, the delay
between incurrence of expenses to further develop marketing and service
capabilities and realization of benefits from such improved capabilities, the
announcement and introduction of cost effective new products by the Company and
by its competitors, and expenses associated with any intellectual property
litigation. In addition, the Company's sales will often reflect orders shipped
in the same quarter that they are received. Moreover, customers may cancel or
reschedule shipments, and production difficulties could delay shipments. The
timing of sales of the Company's Ultrapointe Systems may result in substantial
fluctuations in quarterly operating results due to the substantially higher per
unit price of these products relative to the Company's other products. In
addition, the Company sells its telecommunications equipment products to OEMs
who typically order in large quantities and therefore the timing of such sales
may significantly affect the Company's
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quarterly results. The timing of such OEM sales can be affected by factors
beyond the Company's control, including demand for the OEM's products and
manufacturing issues experienced by OEMs. In this regard, the Company has
experienced a temporary rescheduling of orders by OEM telecommunications
customers. As a result of the above factors, the Company's results of operations
are subject to significant variability from quarter to quarter.
There can be no assurance that other acquisitions or dispositions of
businesses, products or technologies by the Company in the future will not
result in substantial charges or other expenses that may cause fluctuations in
the Company's quarterly operating results.
The Company's operating results in a particular quarter may also be
affected by the acquisition or disposition of other businesses, products or
technologies by the Company. For example, in the third quarter of fiscal 1997,
the Company incurred charges totaling $33.3 million for acquired in-process
research and development in connection with the acquisition of ULE. In the
fourth quarter of fiscal 1996, the Company incurred charges totaling $7.5
million for acquired in-process research and development related to the
acquisition of UFP and compensation expense in connection with the cancellation
of certain options of UTP and granted replacement options to purchase Uniphase
Common Stock to UTP employees. There can be no assurance that acquisitions or
dispositions of businesses, products or technologies by the Company in the
future will not result in substantial charges or other expenses that may cause
fluctuations in the Company's quarterly operating results.
INTENSE INDUSTRY COMPETITION
The laser, semiconductor capital
equipment CATV and telecommunications
industriesmarkets in which the Company sells its products are highly
competitive. In each of the markets it serves, the Company faces intense
competition from established competitors, many of which have substantially
greater financial, engineering, research and development, manufacturing,
marketing, service and support resources. The Company is a recent
entrant into the telecommunications and semiconductor capital equipment the CATV and telecommunications
marketplaces and competes with many companies in those markets that have
substantially greater resources, including greater name recognition, a
larger installed base of products and longer standing customer
relationships. In order to remain competitive, the Company must maintain
a high level of investment in research and development, marketing, and
customer service and support. There can be no assurance that the Company
will be able to compete successfully in the laser, semiconductor capital
equipment, CATV or telecommunications industries in the future, that the
Company will have sufficient resources to continue to make such
investments, that the Company will be able to make the technological
advances necessary to maintain its competitive position or that its
products will receive market acceptance. The semiconductor capital equipment market is frequently affected by new product
introductions and new technologies that make existing production and inspection
equipment obsolete. There can be no assurance that others will not introduce
products which compete with the Ultrapointe System or which render the
Ultrapointe System obsolete or uncompetitive based on existing or new
technologies. In addition, there can be no
assurance that technological changes or development efforts by the
Company's competitors will not render the Company's products or
technologies obsolete or uncompetitive.
DEPENDENCE ON KEY OEM RELATIONSHIPS
In July 1997, the Company entered into an exclusive OEM Agreement (the
"Agreement") with KLA-Tencor pursuant to which KLA-Tencor will distribute
Ultrapointe Systems through its worldwide distribution channels. This Agreement
supercedes anyAttracting and all prior OEM negotiations, correspondence, understandings
and agreements regarding the Companies' business relationship. The Company
currently expects that KLA-Tencor will account for a majority of Ultrapointe's
net sales for the foreseeable future for Laser Imaging Systems used to analyze
defects on semiconductor wafers and photomasks during the manufacturing process
as well as automatic defect classification software products. The Agreement
outlines minimum quantities in the year of inception, product specifications,
ongoing research and development efforts on the product line, pricing and
payment terms. The Agreement is effective through June 30, 2000 and may be
extended for up to three (3) additional one year renewal periods thereafter.
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On April 30, 1997, Tencor and KLA Instruments merged and formed KLA-Tencor
Corporation. The Company believes that the timing of the receipt of orders and
the related product mix under the Agreement will not be consistent with
historical orders for Ultrapointe Systems given the size and complexities
associated with merging these organizations, consequently, the Company's interim
revenue levels and profit margins may be adversely affected.
In addition, one laser subsystems customer, the Applied Biosystems Division
of Perkin-Elmer Corporation, accounted for approximately 10%, 12% and 12% of the
Company's net sales for fiscal years, 1997, 1996, and 1995, respectively. The
loss of orders from these or other OEM relationships could have a materially
adverse effect on the Company's business and operating results.
ATTRACT AND RETAIN KEY PERSONNELRetaining Key Personnel
The future success of the Company is dependent, in part, on its
ability to attract and retain certain key personnel. In particular, the
Company's research and development efforts are dependent on the Company
being able to hire and retain engineering staff with the requisite
qualifications. Competition in recruiting highly skilled engineering
personnel is extremely intense, and the Company is currently experiencing
substantial difficulty in identifying and hiring certain qualified
engineering personnel in many areas of its business. No assurance can be
given that the Company will be able to successfully hire such personnel
at compensation levels that are consistent with the Company's existing
compensation and salary structure. The Company's future success will
also depend to a large extent on the continued contributions of its
executive officers and other key management and technical personnel, none
of whom has an employment agreement with the Company and each of whom
would be difficult to replace. The Company does not maintainsmaintain a key
person life insurance policy on the Chief Executive Officer. However,
the loss of the services of one or more of the Company's executive
officers or key personnel or the inability to continue to attract
qualified personnel could delay product development cycles or otherwise
have a material adverse effect on the Company's business and operating
results.
CONFLICTING PATENTS AND INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES; POTENTIAL
INFRINGEMENT CLAIMSCyclicality of Semiconductor Industry
The Company's Ultrapointe Systems and a portion of its laser
subsystems business depend upon capital expenditures by manufacturers of
semiconductor devices, including manufacturers that are opening new or
expanding existing fabrication facilities, which, in turn, depend upon
the current and anticipated market demand for semiconductor devices and
products utilizing such devices. The semiconductor industry is highly
cyclical and historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment.
Recently, the semiconductor industry has experienced a downturn and the
Company expects the downturn to continue, which may lead certain of the
Company's customers to delay or cancel purchase of the Company's
Ultrapointe Systems. The Company is contemplating the divestiture of its
Ultrapointe division as well as discontinuing its operations. Results of
operations for fiscal 1998 include $19.3 million in sales of Ultrapointe
products as compared to $15.4 million in fiscal 1997. There can be no
assurance that the Company's operating results will not be materially and
adversely affected should the Company divest or terminate the operations
of Ultrapointe amidst the current downturn in the semiconductor industry.
Furthermore, there can be no assurance that the semiconductor industry
will not experience further downturns or slowdowns in the future which
may materially and adversely affect the Company's business and operating
results or that the current backlog of Ultrapointe products will result
in actual sales or that such backlog is indicative of a meaningful trend.
Dependence on Key OEM Customers and OEM Relationships
In July 1997, the Company entered into an exclusive OEM Agreement
(the "Agreement") with KLA-Tencor Corporation pursuant to which
KLA-Tencor Corporation distributes Ultrapointe Systems through its
worldwide distribution channels. The Company currently expects that
KLA-Tencor Corporation will account for a majority of Ultrapointe's net
sales for the foreseeable future for Laser Imaging Systems used to
analyze defects on semiconductor wafers and photomasks during the
manufacturing process as well as automatic defect classification software
products. The Agreement outlines product specifications, ongoing
research and development efforts on the product line, pricing and payment
terms. The Agreement is effective through June 30, 2000 and may be
extended by KLA-Tencor Corporation for up to three (3) additional one-
year renewal periods thereafter.
One telecommunications customer, CIENA Corporation, accounted for
approximately 12% of the Company's net sales for fiscal 1998. One laser
subsystems customer, the Applied Biosystems Division of Perkin-Elmer
Corporation, accounted for approximately 10% and 12% of the Company's net
sales for fiscal 1997 and 1996, respectively. One additional customer,
KLA-Tencor Corporation, purchased both Laser subsystems and Ultrapointe
systems and accounted for 12% and 13% of the Company's consolidated net
sales in fiscal 1998 and 1996, respectively. No other customers
represented 10% or more of total sales during fiscal 1998. The loss or
delay of orders from these or other OEM customers could have a materially
adverse effect on the Company's business and operating results.
Year 2000
The Company is aware of the risks associated with the operation of
information technology ("IT") and non-information technology ("non-IT")
systems as the millennium (year 2000) approaches. The "Year 2000" problem
is pervasive and complex, with the possibility to affect many IT and non-
IT systems, and is the result of the rollover of the two digit year value
from "99" to "00". Systems that do not properly recognize such date-
sensitive information could generate erroneous data or fail. In addition
to the Company's own systems the Company relies, directly and indirectly,
on external systems of its customers, suppliers, creditors, financial
organizations, utilities providers and government entities, both domestic
and international (collectively, "Third Parties"). Consequently, the
Company could be affected by disruptions in the operations of Third
Parties with which the Company interacts. Furthermore, the purchasing
frequency and volume of customers or potential customers may be affected
by Year 2000 correction efforts as companies expend significant efforts
to make their current systems Year 2000 compliant.
The Company is using both internal and external resources to assess
(a) the Company's state of readiness (including the readiness of Third
Parties, with which the Company interacts) with respect to the Year 2000
problem, (b) the costs to the Company to correct Year 2000 problems
related to its internal IT and non-IT systems, which, if uncorrected,
could have a material adverse effect on the business, financial condition
or results of operations of the Company, (c) the known risks related to
the consequences of any failure to correct any Year 2000 problems
identified by the Company, and (d) the contingency plans, if any, that
should be adopted by the Company should any identified Year 2000 problems
not be corrected. The Company continues to evaluate the estimated costs
associated with the efforts to prepare for Year 2000 based on actual
experience. While the efforts will involve additional costs, the Company
believes, based on available information, that it will be able to manage
its total Year 2000 transition without any material adverse effect on its
business operations, products or financial prospects. The actual outcomes
and results could be affected by future factors including, but not
limited to, the continued availability of skilled personnel, cost
control, the ability to locate and remediate software code problems,
critical suppliers and subcontractors meeting their commitments to be
Year 2000 compliant, and timely actions by customers. The Company
anticipates that it will remediate all Year 2000 risks and be able to
conduct normal operations without having to establish a Year 2000
contingency plan.
The Company is currently working with the applicable suppliers of
its software systems and anticipates that certain of these systems are
currently not Year 2000 compliant, but anticipates that such systems will
be corrected for the Year 2000 problem prior to December 31, 1999. The
Company is currently working with those Third Parties to identify any
Year 2000 problems affecting such Third Parties that could have a
material adverse affect on the Company's business, financial condition or
results of operations. However, it would be impracticable for the Company
to attempt to address all potential Year 2000 problems of Third Parties
that have been or may in the future be identified. Specifically, Year
2000 problems have been or may in the future be identified with respect
to the IT and non-IT systems of Third Parties having widespread national
and international interactions with persons and entities generally (for
example, certain IT and non-IT Systems of governmental agencies,
utilities and information and financial networks) that, if uncorrected,
could have a material adverse impact on the Company's business, financial
condition or results of operations. The Company is still assessing the
effect the Year 2000 problem will have on its suppliers and, at this
time, cannot determine such impact.
Conflicting Patents and Intellectual Property Rights of Third Parties;
Potential Infringement Claims
The laser, semiconductor capital equipment, CATV and telecommunications
industriesmarkets in which the Company sells its products are characterized by
frequent litigation regarding patent and other intellectual property
rights. Numerous patents in these industries are held by others,
including academic institutions and competitors of the Company. Such
patents could inhibit the Company's ability to develop new products for
such markets. The industry in which the Company operates is
characterized by periodic claims of patent infringement or other
intellectual property rights. While in the past licenses generally have
been available to the Company where third-party technology was necessary
or useful for the development or production of the Company's products,
there can be no assurance that licenses to third-party technology will be
available on commercially reasonable terms, if at all. Generally, a
license, if granted, would include payments by the Company of up-front
fees, ongoing royalties or a combination thereof. There can be no
assurance that such royalty or other terms would not have a significant
adverse impact on the Company's operating results. The Company is a
licensee of a number of third party technologies and intellectual
property rights and is required to pay royalties to these third party
licensors on certain of its telecommunications products, including its Ultrapointe
Systemssystems and its solid state lasers. During fiscal 1998, 1997 and 1996,
the Company expensed $2.0 million, $1.4 million and $1.3 million,
respectively, in license and royalty fees primarily in connection with
its gas laser subsystems. In addition, there can be no assurance that
third parties will not assert claims against the Company with the
Company's existing products or with respect to future products under
development by the Company. In the event of litigation to determine the
validity of any third-party claims, such litigation could result in
significant expense to the Company and divert the efforts of the
Company's technical and management personnel, whether or not such
litigation is determined in favor of the Company. In the event of an
adverse result in any such litigation, the Company could be required to
expend significant resources to develop non-infringing technology or to
obtain licenses to the technology which is the subject of the litigation.
There can be no assurance that the Company would be successful in such
development or that any such licenses would be available to the Company.
In the absence of such a license, the Company could be enjoined from
future sales of the infringing product or 19
21
products.
In fiscal years 1992Euro Currency
On January 1, 1999, several member countries of the European Union
will establish fixed conversion rates between their existing sovereign
currencies and 1993,adopt the Euro as their new common legal currency. As of
that date, the Euro will trade on currency exchanges and the legacy
currencies will remain legal tender in the participating countries for a
transition period between January 1999 and January 1, 2002. During the
transition period, noncash payments can be made in the Euro, and parties
can elect to pay for goods and services and transact business using
either the Euro or a legacy currency. Between January 1, 2002 and July 1,
2002 the participating countries will introduce Euro notes and coins and
withdraw all legacy currencies so that they will no longer be available.
The Euro conversion may affect cross-border competition by creating
cross-border price transparency. The Company incurred substantialis assessing its
pricing/marketing strategy in order to insure that it remains competitive
in a broader European market. The Company is also assessing its
information technology systems to allow for transactions to take place in
both the legacy currencies and the Euro and the eventual elimination of
the legacy currencies, and reviewing whether certain existing contracts
will need to be modified. The Company's currency risk and risk management
for operations in participating countries may be reduced as the legacy
currencies are converted to the Euro. Final accounting, tax and
governmental legal expenses in connection with a patent infringement action relatingand regulatory guidance is not available. The Company
will continue to evaluate issues involving introduction of the Euro.
Based on current information and the Company's current gas laser subsystems brought by Spectra-Physics Lasers, Inc.
("Spectra-Physics"). Whileassessment, it
does not expect that the Spectra-Physics case has since been settled, no
assurance can be given that,Euro conversion will have a material adverse
effect on its business or financial condition.
Market Risks
The Company is exposed to financial market risks, including
changes in the future,interest rates, foreign currency exchange rates and
marketable equity security prices. To mitigate these risks, the Company
will be able to avoid
similar actions by competitors or others or that the Company will not be forced
to initiate its own actions to protect its proprietary position.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY
The Company's future success depends in part upon its intellectual
property, including trade secrets, know-how and continuing technological
innovation. There can be no assurance that the steps taken by the Company to
protect its intellectual property will be adequate to prevent misappropriation
or that others will not develop competitive technologies or products.utilizes derivative financial instruments. The Company currently holds 30 U.S. patents on productsdoes not use
derivative financial instruments for speculative or processes and certain
corresponding foreign patents and has applications for certain patents currently
pending. While three patents have been issued with respect to the Company's
Ultrapointe Systems, no assurance can be given that competitors will not
successfully challenge the validity of these patents or design products that
avoid infringementtrading purposes.
The primary objective of the Company's proprietary rights with respectinvestment activities is to
its
Ultrapointe Systems. There can be no assurance that other companies are not
investigating or developing other technologies that are similar topreserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the returns on
a majority of the Company's that any patents will issue from any application pending or filedmarketable investments are floating rate and
municipal bonds, auction instruments and money market instruments
denominated in U.S. dollars. The Company hedges currency risks of
investments denominated in foreign currencies with forward currency
contracts. Gains and losses on these foreign currency investments are
generally offset by corresponding gains and losses on the Company or that, if patents do issue, the claims allowed will be
sufficiently broad to deter or prohibit others from marketing similar products.
In addition, there can be no assurance that any patents issued to the Company
will not be challenged, invalidated or circumvented, or that the rights
thereunder will provide a competitive advantagerelated
hedging instruments, resulting in negligible net exposure to the
Company. Further, the
lawsA substantial portion of certain territories in which the Company's productsrevenue, expense and
capital purchasing activities are or may be
developed, manufactured or sold, including Asia, Europe or Latin America, maytransacted in U.S. dollars. However,
the Company does enter into these transactions in other currencies,
primarily European currencies. To protect against reductions in value
and the volatility of future cash flows caused by changes in foreign
exchange rates, the Company has established hedging programs. Currency
forward contracts are utilized in these hedging programs. The Company's
hedging programs reduce, but do not protectalways entirely eliminate the impact
of foreign currency exchange rate movements. Actual results on the
Company's productsfinancial position may differ materially.
Dependence on Sole and intellectual property rights to the same
extent as the laws of the United States.
DEPENDENCE ON SOLE AND LIMITED SOURCE SUPPLIERSLimited Source Suppliers
Various components included in the manufacture of the Company's
products are currently obtained from single or limited source suppliers.
A disruption or loss of supplies from these companies or an increase in
price of these components would have a material adverse effect on the
Company's results of operations, product quality and customer
relationships. For example, the Company obtains all the robotics,
workstations and many optical components used in its Ultrapointe Systems
from Equipe Technologies, Silicon Graphics, Inc., and Olympus
Corporation, respectively. The Company currently utilizes a sole source
for the crystal semiconductor chip sets incorporated in the Company's
solid state microlaser products and acquires its pump diodes for use in
its solid state laser products from Philips, Opto Power Corporation and GEC. The
Company also obtains lithium niobate wafers, gallium arsenide wafers,
specialized fiber components and certain lasers used in its
UTP and ULEtelecommunications products primarily from Crystal Technology, Inc.,
Fujikura, Ltd., Philips Key Modules, and Sumitomo, respectively. The
Company does not have a long-term or volume purchase agreements with any
of these suppliers, and no assurance can be given that these components
will be available in the quantities required by the Company, if at all.
Further, UTPLimited Protection of Intellectual Property
The Company's future success depends on relatively specialized componentsin part upon its intellectual
property, including trade secrets, know-how and it cannotcontinuing technological
innovation. There can be assuredno assurance that the steps taken by the
Company to protect its respective suppliersintellectual property will be ableadequate to continueprevent
misappropriation or that others will not develop competitive technologies
or products. The Company currently holds 95 U.S. patents on products or
processes and certain corresponding foreign patents and has applications
for certain patents currently pending. There can be no assurance that
other companies are not investigating or developing other technologies
that are similar to meet UTP's
requirements.
FUTURE CAPITAL REQUIREMENTSthe Company's, that any patents will be issued from any
application pending or filed by the Company or that, if patents do issue,
the claims allowed will be sufficiently broad to deter or prohibit others
from marketing similar products. In addition, there can be no assurance
that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights thereunder will provide a
competitive advantage to the Company. Further, the laws of certain
territories in which the Company's products are or may be developed,
manufactured or sold, including Asia, Europe or Latin America, may not
protect the Company's products and intellectual property rights to the
same extent as the laws of the United States.
Future Capital Requirements
The Company is devoting substantial resources for new facilities
and equipment for Uniphase Laser Enterprisethe production of source lasers, fiber-Bragg gratings
and tomodules used in telecommunications and for the development of new
products
for the solid state laser, semiconductor capital equipment, CATV and
telecommunications markets.lasers. Although the Company believes existing cash balances,
cash flow from operations and available lines of credit, will be
sufficient to meet its capital requirements at least through the end of
fiscal 1998,1999, the Company may be required to seek additional equity or
debt financing to compete effectively in these markets. The timing and
amount of such capital requirements cannot be precisely determined at
this time and will depend on several factors, including the Company's
acquisitions and the demand for the Company's products and products under
development. There can be no assurance that such additional financing
will be available when needed, or, if available, will be on terms
satisfactory to the Company.
20
22
POTENTIAL VOLATILITY OF COMMON STOCK PRICEPotential Volatility of Common Stock Price
The market price of the Company's Common Stock has recently been
and is likely to continue to be highly volatile and significantly
affected by factors such as fluctuations in the Company's operating
results, announcements of technological innovations or new products by
the Company or its competitors, governmental regulatory action,
developments with respect to patents or proprietary rights, general
market conditions and other factors. Further, the Company's net revenues
or operating results in future quarters may be below the expectations of
public market securities analysts and investors. In such event, the
price of the Company's Common Stock would likely decline, perhaps
substantially. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies.
RISKS ASSOCIATED WITH INTERNATIONAL SALESRisks Associated with International Sales
International sales accounted for approximately 30.0%38.5%, 30.0% and
24.5% and 28.9% of the Company's net revenuessales in fiscal years 1998, 1997 and 1996, and 1995, respectively,
and therespectively. The
Company expects that international sales will continue to account for a
significant portion of the Company's net revenues.sales. The Company may continue
to expand its operations outside of the United States and to enter
additional international markets, both of which will require significant
management attention and financial resources. International sales are
subject to inherent risks, including unexpected changes in regulatory
requirements, tariffs and other trade barriers, political and economic
instability in foreign markets, difficulties in staffing and management,
and integration of foreign operations, longer payment cycles, greater
difficulty in accounts receivable collection, currency fluctuations and
potentially adverse tax consequences. Since substantially alla significant portion of the
Company's foreign sales are denominated in U.S. dollars, the Company's
products may also become less price competitive in countries in which
local currencies decline in value relative to the U.S. dollar. The
Company's business and operating results may also be materially and
adversely affected by lower sales levels which typically occur during the
summer months in Europe and certain other overseas markets. Furthermore,
the sales of many of the Company's OEM customers are dependent on
international sales and, consequently, this further exposes the Company
to the risks associated with such international sales.
ISSUANCE OF PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAWIssuance of Preferred Stock; Potential Anti-Takeover Effects of Delaware
Law
The Board of Directors has the authority to issue up to 1,000,000900,000
shares of undesignated Preferred Stock and to determine the powers,
preferences and rights and the qualifications, limitations or
restrictions granted to or imposed upon any wholly unissued shares of
undesignated Preferred Stock and to fix the number of shares constituting
any series and the designation of such series, without any further vote
or action by the Company's shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to
those of the holders of Common Stock. The issuance of Preferred Stock
under certain circumstances could have the effect of delaying, deferring
or preventing a change in control of the Company.
The Company is subject to the provisions of Section 203 of the
Delaware General Corporation Law prohibiting, under certain circumstances,
publicly-held Delaware corporations from engaging in business combinations
with certain stockholders for a specified period of time without the
approval of substantially all of its outstanding voting stock. Such
provisions could delay or impede the removal of incumbent directors and
could make more difficult a merger, tender offer or proxy contest involving
the Company, even if such events could be beneficial, in the short term, to
the interests of the stockholders. In addition, such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. The Company's Certificate of
Incorporation and Bylaws contain provisions relating to the limitations of
liability and indemnification of its directors and officers, dividing its
Board of Directors into three classes of directors serving three-year terms
and providing that its stockholders can take action only at a duly called
annual or special meeting of stockholders. These provisions also may have
the effect of deterring hostile takeovers or delaying changes in control or
management of the Company.
LEGAL PROCEEDINGS
On May 19, 1997, Tacan Corporation ("Tacan") filed a lawsuit in the U.S.
District Court for the Southern District of California (the "Southern California
Action") against Uniphase Telecommunications
21
23
Products Inc. ("UTP") a subsidiary of the Company. The Complaint alleges claims
of breach of contract, breach of implied and express warranties, negligent
misrepresentation, conversion and negligent interference with perspective
economic advantage. The claims arise out of sales to Tacan of products made by
UTP that Tacan claims were defective and did not meet contract specifications,
and as a result caused Tacan to suffer damages in the form of lost earnings and
damage to its reputation and goodwill. The damages claimed are unspecified, but
Tacan alleges that they are expected to exceed $1.6 million. Tacan also seeks
punitive damages for UTP's alleged conversion of equipment ordered and built for
Tacan but which UTP allegedly has refused to ship to Tacan. UTP has filed a
motion, scheduled for hearing on November 3, 1997, to dismiss, or in the
alternative, stay the Southern California action on the ground that there is a
prior action pending between the parties regarding the same dispute. That prior
action was filed by UTP on November 6, 1996 in the U.S. District Court for the
District of Connecticut (the "Connecticut Action"). In the Connecticut Action,
UTP alleges claims against Tacan for breach of contract, breach of the covenant
of good faith and fair dealing, statutory theft, unjust enrichment and unfair
competition. UTP seeks to recover in excess of $695,000 for amounts that Tacan
refused to pay for equipment ordered and/or received by Tacan from UTP. UTP also
seeks punitive damages and treble damages pursuant to Connecticut law. Tacan
made a motion to dismiss the Connecticut Action for lack of personal
jurisdiction over Tacan and for improper venue. On August 11, 1997, Tacan's
motion to dismiss was denied and the Connecticut Action will therefore proceed.
On September 19, 1997, Tacan responded to UTP's complaint in the Connecticut
Action by denying liability, raising affirmative defenses, and asserting
counterclaims against UTP. Tacan's counterclaims in the Connecticut Action
largely duplicate the claims alleged by Tacan in the Southern California Action.
In addition, however, Tacan has alleged a claim for unfair trade practices under
Connecticut law. In its counterclaims, Tacan seeks damages in amounts to be
proven at trial but allegedly exceeding $11.6 million. Tacan also seeks punitive
damages under the Connecticut Unfair Trade Practice Act.
No discovery has been taken in the Southern California action and no trial
date has been set. Preliminary written discovery has been taken by UTP in the
Connecticut action but no trial has been set. The Company believes the foregoing
litigation with Tacan will not have a material negative impact on the Company's
financial condition or results of operations. However, given the inherent
uncertainty of litigation and the early stage of discovery, there can be no
assurance that the ultimate outcome in the litigation will be in the Company's
favor, or that the diversion of management's attention, and any costs associated
with the lawsuit, will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEMItem 2. PROPERTIESProperties
The Company owns two properties in San Jose, California, totaling
109,000 square feet, which includedinclude land, buildings and improvements.
The Company's principal sales, marketing, technical support,
administration, and research and development operations as well as
manufacturing operations for the argon and solid state lasers, grating-
based modules and Ultrapointe products occupy these facilities. The
Company is currently leasing unused space to a tenant.
The Company's manufacturing facilities for its He-Ne laser products
occupy a 20,000 square foot building in Manteca, California. The
building is leased through September 1998.2000. The Company's facilities for
its telecommunications equipment products occupy twothree leased buildings
of 33,000, 27,500 and 20,00030,000 square feet in Bloomfield, Connecticut,
where its modulator products are manufactured and a 18,00030,000 square foot
leased building in Chalfont, Pennsylvania where its transmitter products
are manufactured. UFP products are manufactured at the Company's 7,000
square foot facility in Witney, United Kingdom and its engineering
efforts are performed at a 5,000 square foot facility in Batavia,
Illinois. Leases for the Bloomfield, Chalfont, Witney and Batavia
facilities expire in July 2002 (with a lease extension available through
2007), February 2001, December 2013, and July 1999, respectively. As
a part of the acquisition of ULE,UNBV, the Company leased certain clean rooms, laboratories,entered into two leases
for current and new manufacturing engineering and office space totaling 12,000covering
235,000 square feet at the IBMPhilips Natlab Research FacilityCenter located in
Eindhoven, the Netherlands. ULE occupies 60,000 square feet of
manufacturing, engineering and office space in Zurich, Switzerland that
is leased through 2007 and continues to sublease certain clean room and
manufacturing space from IBM. ULE utilizes these facilitiesIBM at the IBM Research facility in Ruschlikon,
Switzerland. The Company has secured a new facility lease in Sydney,
Australia for 4,500 square feet of production, development and office
space to manufacture 980 nm lasers. As thissupport its fiber-Bragg grating product. This lease with IBM expires in
1999, the Company has leased a 60,000 square foot
building expiring in 2007 in Binz, Switzerland for the purposes of relocating
the ULE operations.May, 2003. The Company also maintains sales and service offices in both
the United Kingdom and Germany to support its European operations.
22
24
ITEMItem 3. LEGAL PROCEEDINGSLegal Proceedings
On May 19, 1997, Tacan Corporation ("Tacan") filed a lawsuit in the
U.S. District Court for the Southern District of California (the "Southern California
Action") against
Uniphase Telecommunications Products Inc. ("UTP") a subsidiary of the
Company. The Complaint allegesalleged claims of breach of contract, breach of
implied and express warranties, negligent misrepresentation, conversion
and negligent interference with perspective economic advantage. The Company believes
the Southern California Action will not haveIn
December 1997, UTP and Tacan reached a material negative impact on the
Company's financial condition or results of operations. However, given the
inherent uncertainty of litigation and the early stage of discovery, there can
befavorable settlement with no
assurance that the ultimate outcome in the Southern California Action will
be in the Company's favor, or that the diversion of management's attention, and
any costs associated with the lawsuit, will not have a material adverse effect on the Company's financial condition or results of
operations.
SeveralTwo former employees have commenced wrongful termination actions
against the Company. Summary judgements and subsequent appeals have been
issued in each claim. The Company believes these claims are without merit
and is vigorously defending them. Even if these claims are adjudicated in
favor of the plaintiffs, the Company does not believe that the ultimate
resolution of these matters will have a material adverse impact on the
Company or its operations.
In the ordinary course of business, various lawsuits and claims are
filed against the Company. While the outcome of these matters is
currently not determinable, management believes that the ultimate
resolution of these matters will not have a material adverse effect on
the Company's financial statements.
ITEMItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submittedSubmission of Matters to a voteVote of security holders during the fourth
quarterSecurity Holders
A special meeting of the fiscal year covered by this report.Stockholders was held on Monday, June 29,
1997 to approve the Uniphase Corporation 1998 Employee Stock Purchase
Plan (the "98 Purchase Plan"). The 98 Purchase Plan was approved as
follows: 27,092,868 shares for; 286,050 shares against and 29,181
withheld.
PART II
ITEMItem 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERSMarket for Registrant's Common Equity and Related Stockholder Matters
At September 11, 1998, the Company had approximately 141 holders of record of
its Common Stock and 38,647,120 shares outstanding. The information required by this Item is includedCompany has not paid
dividends on its common stock and does not anticipate paying cash dividends in
the foreseeable future. The following high and low closing bid prices indicated
for Uniphase Common Stock are as reported on the inside back cover
and on page 42Nasdaq National Market during
each of the Company'squarters indicated.
High Low
---------- ----------
Fiscal 1998 Quarter Ended:
June 30.................... 63 40 5/8
March 31................... 44 5/32 33 3/16
December 31................ 46 1/2 28 1/2
September 30............... 40 3/16 28 30/32
Fiscal 1997 Quarter Ended:
June 30.................... 30 5/16 17 18/32
March 31................... 24 3/4 15 29/32
December 31................ 29 3/4 20 5/8
September 30............... 21 1/8 10 3/16
Item 6. Selected Financial Data
(in thousands, except per share amounts)
Years Ended June 30, 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Consolidated Statement of Operations Data:
Net sales..................................$175,801 $106,966 $69,073 $42,282 $32,922
Acquired in-process
research and development................. $99,568 $33,314 $4,480 $4,460 $ --
Income (loss) from operations..............($73,003) ($16,852) $5,429 $581 $3,247
Net income (loss)..........................($81,112) ($18,854) $2,792 $735 $2,231
Earnings (loss) per share (1):
Basic.................................... ($2.34) ($0.57) $0.11 $0.04 $0.15
Dilutive................................. ($2.34) ($0.57) $0.10 $0.04 $0.13
Shares used in per share calculation (1):
Basic.................................... 34,723 32,964 24,832 18,216 14,552
Dilutive................................. 34,723 32,964 27,154 20,164 16,548
At June 30, 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data:
Working capital............................$119,249 $108,388 $130,991 $17,316 $18,943
Total assets...............................$269,343 $177,579 $173,824 $31,910 $26,214
Long-term obligations...................... $5,666 $2,475 $7,036 $221 $ --
Total stockholders' equity.................$217,901 $149,777 $153,205 $24,808 $21,331
1 Earnings per share amounts for all periods prior to fiscal 1998 have been
restated to reflect the 100% stock dividend declared in November, 1997, Annual Reportand
to Stockholders and is
incorporated herein by reference. See "Item 7 --conform to the requirements of SFAS No. 128,"Earnings per Share".
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
-- LiquidityIntroduction
In June 1998, the Company acquired 100% of the capital stock of
Philips Optoelectronics B.V., which became Uniphase Netherlands B.V.
("UNBV") from Koninklijke Philips Electronics N.V. ("Philips"). The total
purchase price of $135.4 million consisted of 3.26 million restricted
shares of common stock, cash of $100,000, $4.0 million in related
acquisition costs, and Capital Resources"100,000 shares of Uniphase Series A Convertible
Preferred Stock that is convertible to Uniphase Common Stock based upon
(i) unit shipments of certain products by UNBV through June 20, 2002, and
(ii) the trading price of Uniphase Common Stock at the time such earnout,
if any, is determined. At the closing of the UNBV acquisition, Philips
became the largest stockholder of record at 8.5% of the Company's
outstanding common stock. Philips also appointed one representative to
the Uniphase Board of Directors upon the closing.
In November 1997, the Company acquired 100% of the capital stock of
Indx Pty Limited, which became Uniphase Fiber Components Pty Limited
("UFC"), and in connection therewith, obtained certain license rights
from Australian Photonics Pty Limited ("AP"). The total purchase price of
$6.9 million included a cash payment of $6.5 million to AP and
acquisition costs of $400,000. UFC designs and manufactures fiber Bragg
grating products for wavelength division multiplexing ("WDM")
applications. In January 1998, the Company created Uniphase Network
Components ("UNC") to develop grating-based modules for WDM applications.
In August 1998, the Company acquired certain assets of Chassis
Engineering, Inc. for $2.8 million. See Note 212 of Notes to Consolidated
Financial Statements
containedStatements.
Results of Operations
The following table sets forth for the periods indicated certain
financial data as a percentage of net sales:
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
Net sales............................... 100.0% 100.0% 100.0%
Cost of sales........................... 52.4% 53.7% 52.5%
---------- ---------- ----------
Gross profit 47.6% 46.3% 47.5%
---------- ---------- ----------
Operating expenses:
Research and development.............. 8.1% 8.7% 8.4%
Royalty and license................... 1.2% 1.3% 1.9%
Selling, general, and administrative.. 23.2% 20.9% 22.7%
Acquired in-process research and
development...................... 56.6% 31.1% 6.5%
---------- ---------- ----------
Total operating expenses................ 89.1% 62.0% 39.5%
---------- ---------- ----------
Income (loss) from operations........... -41.5% -15.7% 8.0%
Interest and other income, net........ 1.8% 3.2% 1.9%
---------- ---------- ----------
Income (loss) before income taxes..... -39.7% -12.5% 9.9%
Income tax expense...................... 6.4% 5.1% 5.9%
---------- ---------- ----------
Net income (loss)....................... -46.1% -17.6% 4.0%
========== ========== ==========
Years Ended June 30, 1998, 1997 and 1996
Net Sales. Net sales of $175.8 million for fiscal 1998 represented
an increase of $68.8 million or 64.4% over fiscal 1997 net sales of
$107.0 million. The increase is primarily due to the increase across all
product lines in Item 8.
ITEM 6. SELECTED FINANCIAL DATAtelecommunications and laser subsystem sales of $64.9
million, of which 45.9% was generated by businesses acquired during
fiscal 1998 and 1997. Ultrapointe sales increased $3.9 million in fiscal
1998 over the prior year, although a significant percentage of the
increase was attributable to orders for spare parts and engineering
services. Net sales of $107.0 million for fiscal 1997 represented an
increase of $37.9 million or 54.9% over fiscal 1996 net sales of $69.1
million. The information required by this Item is includedincrease in fiscal 1997 over 1996 was primarily due to the
increased sales of telecommunications and laser subsystem products of
$40.1 million. Ultrapointe sales decreased $2.2 million during fiscal
1997 as compared to fiscal 1996 as a downturn in the Financial
Highlightssemiconductor
industry led certain customers to delay or cancel purchases of the
Company's Ultrapointe Systems.
Net sales to customers outside the United States accounted for
$67.6 million, $32.1 million and $16.9 million or 38.5%, 30.0% and 24.5%
of total sales for the five years ended June 30, 1998, 1997 and 1996,
respectively. The increase of $35.5 million from fiscal 1997 to fiscal
1998 is primarily due to increased sales of telecommunications products.
The increase in international sales in 1998 was also due to a full
year's sales from ULE, the sales of UFC subsequent to November 26, 1997,
and UNBV sales subsequent to June 9, 1998, all of which appearsrepresented in
the aggregate 36.8% of the increase in international sales. The fiscal
1997 increase in international sales over fiscal 1996 of $15.2 million
was due primarily to a full year of UFP sales and the acquisition of ULE
in March 1997 combined with other increases in telecommunications product
sales. See Note 10 of Notes to Consolidated Financial Statements.
Gross Profit. Gross profit of $83.7 million, or 47.6% of net sales
for fiscal 1998 represented an increase of $34.1 million or 68.8% over
fiscal 1997 gross profit of $49.6 million, which was 46.3% of net sales.
The increase in gross profit from telecommunications and laser subsystem
product sales of $35.9 million was due in part to an improvement in
manufacturing yields of gallium arsenide based lasers combined with the
lower costs of internally manufactured CATV amplifiers the Company
historically purchased from third parties. Fiscal 1998 amounts include a
full year's gross profit from ULE that also contributed to the increase.
Concurrent with the acquisition of UNBV, the Company initiated
certain actions that resulted in reductions to fiscal 1998 gross profit.
Charges attributable to such actions were for (i) securing additional
manufacturing space, developing and qualifying new products,
retraining its CATV manufacturing staff and providing reserves for
certain inventory in connection with a new supply agreement
with a large CATV customer; (ii) providing inventory reserves
for the estimated impact of integrating UNBV lasers into the Company's
existing telecommunications product portfolios; and (iii) providing for
laser packaging relocation costs and certain other accruals attributable
to integrating UNBV into the Company's operations. These actions were
reflected primarily as increases to inventory reserves and other accrued
expenses.
Gross margin increased to 47.6% in fiscal 1998 from 46.3% in fiscal
1997. The Company realized improved yields on page 1certain telecommunications
products that more than offset a reduction in gross margin from
Ultrapointe products. Gross margin for Ultrapointe products declined
significantly in the second half of fiscal 1998 due to depressed
semiconductor equipment markets, volume discounts attributable to the
distribution agreement with KLA-Tencor, and inventory reserves recorded
in the fourth quarter. The Company's laser subsystem margins were
relatively consistent with the prior fiscal year. The Company experienced
a decrease in gross margins to 46.3% in fiscal 1997 from 47.5% in fiscal
1996. Inventory charges resulting from the Company's change in strategic
focus with respect to diode based laser applications and from the
modification of certain customer and product strategies incorporating
lower powered amplifiers at UTP contributed to the fiscal 1997 decline in
gross margin.
There can be no assurance that the Company will be able to maintain
its gross margins at current levels. The Company expects that there will
continue to be periodic fluctuations in its gross margins resulting from
changes in its sales and product mix, competitive pricing pressures,
higher costs resulting from new production facilities, manufacturing
yields, acquisitions of businesses that may have different margins than
the Company, inefficiencies associated with new product introductions,
and a variety of other factors.
Research and Development Expense. Research and development (R&D)
expense of $14.3 million or 8.1% of net sales represented an increase of
$5.0 million or 53.3% over fiscal 1997 expense of $9.3 million or 8.7% of
net sales. The increase in absolute dollar amounts is primarily due to
the continuing efforts to develop the Company's telecommunications
products, the additional R&D expenses of UFC and UNC in fiscal 1998 and a
full year of R&D expenses from ULE. R&D expense in fiscal 1997 was $9.3
million or 8.7% of net sales, which represented a $3.5 million or 59.8%
increase over fiscal 1996. The increase in R&D expense was largely due to
the continuing efforts to develop the Company's telecommunications
products and, to a lesser extent, the continued development and
modifications of the Ultrapointe Laser Imaging System and automatic
defect classification ("ADC") software.
The Company is committed to continuing its significant R&D
expenditures and expects that the absolute dollar amount of R&D expenses
will increase as it invests in developing new products and in expanding
and enhancing its existing product lines, although R&D expenses may vary
as a percentage of net sales in future periods.
Royalty and License Expense. Royalty and license expense increased
$628,000 to $2.0 million representing an increase of 45.5% over fiscal
1997 expense of $1.4 million. Royalty and license expense decreased as a
percentage of sales to 1.2% compared to 1.3% in fiscal 1997. In fiscal
1997, royalty and license expense increased $43,000 to $1.4 million from
$1.3 million in fiscal 1996, however decreased as a percentage of sales
to 1.3% from 1.9% in fiscal 1996. The decreases as a percentage of net
sales in both fiscal 1998 and fiscal 1997 were due to the increasing
proportion of sales derived from royalty-free telecommunications
products.
The Company continues to develop its telecommunications, solid
state laser, and semiconductor equipment products and technologies. There
are numerous patents on these technologies that are held by others,
including academic institutions and competitors of the Company. Such
patents could inhibit the Company's ability to develop, manufacture and
sell products in the future. If there is a conflict between a
competitor's patents or products and those of the Company, it could be
very costly for the Company to enforce its rights in an infringement
action or defend such an action brought by another party. In addition,
the Company may need to obtain license rights to certain patents and may
be required to make substantial payments, including continuing royalties,
in exchange for such license rights. There can be no assurance that
licenses to third party technology, if needed, will be available, or if
available, can be obtained on commercially reasonable terms.
Selling, General and Administrative Expense. Selling, general and
administrative (SG&A) expense of $40.8 million or 23.2% of net sales in
fiscal 1998 represents an increase of $18.4 million or 82.2% over fiscal
1997 expense of $22.4 million or 20.9% of net sales. As described below,
SG&A expenses in each year included charges incurred following
acquisitions.
In the fourth quarter of fiscal 1998, the Company recorded SG&A
charges related to certain initiatives taken following the acquisition of
UNBV. These charges were for (i) reorganizing the Company's management
and sales structures, including the elimination of its UTP headquarters
organization, severance and certain other personnel costs; (ii)
integrating the laser packaging operations of UNBV into the Company
including the write off of certain long-lived assets originating from the
acquisition of UFP in 1996, and starting up production of certain new
products that incorporate UNBV lasers, and (iii) providing for the cost
of renegotiating certain provisions of its distribution agreement with
KLA-Tencor and changing the structure of Ultrapointe in connection with
the continuing downturn in semiconductor capital equipment markets. SG&A
expense for 1998 also includes a full year of ULE expenses. SG&A charges
primarily consisted of compensation related costs, the write-off of
goodwill and other long-lived assets, prototype development and
materials, recruiting and relocation costs.
In fiscal 1997, SG&A expense was $22.4 million or 20.9% of net
sales which represented a $6.7 million or 42.7% increase over SG&A
expense of $15.7 million or 22.7% of net sales in fiscal 1996. The
increase is due in part to the additional expenses of ULE, acquired in
March 1997, and a full year of expenses for UFP which was acquired in May
1996. As a result of the ULE acquisition and a change in strategic focus
for diode-based laser applications, the Company recorded charges to
consolidate its European laser research to Switzerland, close its
Uniphase Lasers, Ltd. facility in Rugby, England, consolidate laser
packaging operations and to recognize the modification of certain
customer and product strategies at UTP incorporating lower powered
amplifiers. The Company also increased its allowance for doubtful
accounts and certain other reserves in the third quarter of fiscal 1997.
The Company expects the amount of SG&A expenses to increase in the
future, although such expenses may vary as a percentage of net sales in
future periods. There can be no assurance that the Company will not incur
reorganization costs associated with managing the growth of its
operations similar to those recorded in fiscal 1998.
Uniphase is currently considering divestiture or termination of its
Ultrapointe operation because of the business conditions in the
semiconductor equipment industry and the Company's desire to focus its
management and financial resources on its telecommunications and laser
businesses. Further one-time charges would result from a termination of
the Ultrapointe operations and may also occur in the event of a
divestiture of Ultrapointe. The net book value of the Ultrapointe
business was approximately $8.4 million at June 30, 1998. There can be no
assurance that the Company will not incur a loss should it sell, divest
or otherwise dispose of the assets of Ultrapointe.
Acquired In-process Research and Development. In fiscal 1998, the
Company incurred charges for in-process research and development of $99.6
million or 56.6% of net sales related to the acquisition of UNBV from
Philips ($93.0 million) and UFC from AP ($6.6 million). In fiscal 1997,
the Company incurred a charge for in-process research and development of
$33.3 million or 31.1% of net sales related to the acquisition of the
assets of ULE from IBM. In fiscal 1996, the Company incurred a charge for
in-process research and development of $4.5 million or 6.5% of net sales
related to the acquisition of UFP. See Note 9 of Notes to Consolidated
Financial Statements. There can be no assurance that acquisitions of
businesses, products or technologies by the Company in the future will
not result in substantial charges that may cause fluctuations in the
Company's quarterly or annual operating results.
Interest and Other Income. Net interest and other income of $3.3
million for fiscal 1998 represented a decrease of $179,000 from fiscal
1997 income of $3.4 million. Fiscal 1997 net interest and other income
increased $2.0 million over fiscal 1996 income of $1.4 million. The
decrease in interest and other income in 1998 was primarily due to the
reduced level of short-term investments resulting from the cash payment
to IBM of $45 million for ULE in March 1997, and the payment to AP of
approximately $6.5 million for UFC and certain licensing rights in
November 1997. In addition, net interest and other income in fiscal 1998
includes lower interest expense as compared to fiscal 1997 resulting from
the retirement of approximately $6.1 million in notes payable in August
1997 originating from the fiscal 1996 acquisition of UFP. The fiscal 1997
increase over fiscal 1996 was due primarily to the increase in interest
earned on the net proceeds of the public offering of common stock in June
1996 and the private placement of common stock with KLA-Tencor in
November 1995.
Income Tax Expense. The Company recorded tax provisions of $11.4
million, $5.4 million and $4.0 million for fiscal 1998, 1997 and 1996,
respectively. The effective tax rates for fiscal 1998, 1997 and 1996 were
(16%), (40%) and 59%, respectively, due primarily to in-process research
and development expenses which provided no immediate tax benefit.
The Company has established a valuation allowance covering a
portion of the gross deferred tax assets originating from its European
subsidiaries acquired in fiscal 1998 and 1997. Approximately $3 million
of the valuation allowance at June 30, 1998 relates to tax benefits of
stock option deductions that will be credited to equity when realized.
The valuation allowance reduces net deferred tax assets to amounts
considered realizable in the near future based on projected future
taxable income. As there can be no assurance that these European
subsidiaries will generate future taxable income, there can be no
assurance that these valuation allowances will be realized.
Liquidity and Capital Resources
At June 30, 1998, the Company's combined balance of cash, cash
equivalents and short-term investments was $94.6 million. During fiscal
1998, the Company met its liquidity needs primarily through cash
generated from operating activities. Net cash provided by operating
activities was $50.0 million in fiscal 1998, compared with $21.5 million
and $7.8 million for fiscal years 1997 and 1996, respectively.
Cash provided by operating activities during fiscal 1998 was
primarily the result of net losses of $81.1 million offset by noncash
charges during the year for depreciation and amortization of $10.1
million, acquired in-process research and development costs of $99.6
million, stock based compensation of $6.9 million and the write-off of
certain long-lived assets totaling $3.6 million. Increases in accounts
receivable of $12.3 million resulted from higher fourth quarter sales in
fiscal 1998 compared to the prior year and an increase in the number of
days receivable outstanding from 55 days at the end fiscal 1997 to 75
days in fiscal 1998. A higher percentage of outstanding receivables in
fiscal 1998 were derived from foreign operations where collection cycles
are generally longer than in the United States. In addition, the fiscal
1998 days sales in accounts receivable reflects receivables acquired from
Philips. Cash flow from operating activities also benefited from
decreases in all other operating assets totaling $4.3 million and
increases to all other operating liabilities of $18.9 million.
Cash used in investing activities was $38.2 million in fiscal 1998
compared with $48.7 million and $83.5 million for fiscal years 1997 and
1996, respectively. The Company's acquisitions of UNBV and UFC in fiscal
1998 used $10.8 million. The Company incurred capital expenditures of
$24.0 million primarily for facilities improvements and equipment
purchases to expand its manufacturing capacity primarily for its
telecommunications product lines. The Company also purchased intellectual
property totaling $550,000 for its telecommunications products
businesses. The Company expects to continue to expand its worldwide
manufacturing capacity, primarily for telecommunications products, by
making approximately $35 million in capital expenditures for fiscal 1999.
The Company used $1.2 million in cash for financing activities in
fiscal 1998 as compared to cash provided by financing activities of $3.9
million in fiscal 1997. In fiscal 1998, the Company generated $4.9
million from the exercise of stock options and the sale of stock through
its employee stock purchase plan. Cash used for financing activities
included the repayment of $6.1 million of notes payable originating from
the acquisition of UFP in fiscal 1996. The Company has a $5.0 million
revolving line of credit with a bank. Advances under the line of credit
bear interest at the bank's prime rate (8.5% at June 30, 1998) and are
secured by inventories and accounts receivable. There were no borrowings
under the line as of June 30, 1998. The line of credit was pledged as
collateral to secure a letter of credit issued in connection with the
purchase of certain assets of Chassis Engineering, Inc. in August 1998.
See Note 12 of Notes to Consolidated Financial Statements. Under the
terms of the line of credit agreement, the Company is required to
maintain certain minimum working capital, net worth, profitability levels
and other financial conditions. The agreement prohibits the payment of
cash dividends and contains certain restrictions on the Company's ability
to borrow money or purchase assets or interests in other entities without
the prior written consent of the bank. The line of credit expires on
January 28, 1999. As of June 30, 1998, the Company was in compliance
with all convenants under the agreement.
The Company believes that its existing cash balances and
investments, together with cash flow from operations and available lines
of credit will be sufficient to meet its liquidity and capital spending
requirements at least through the end of fiscal 1999. However, possible
investments in or acquisitions of complementary businesses, products or
technologies may require additional financing prior to such time. There
can be no assurance that such additional debt or equity financing will be
available when required or, if available, can be secured on terms
satisfactory to the Company.
Item 8. Financial Statements and Supplementary Data
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
UNIPHASE CORPORATION
We have audited the accompanying consolidated balance sheets of
Uniphase Corporation as of June 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1998.
Our audits also included the financial statement schedule listed
in the index at Item 14(a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Uniphase Corporation at June 30, 1998 and 1997,
Annual Reportand the consolidated results of its operations and its cash flows for
each of the three years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statements schedule, when considered in relation to Stockholdersthe
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
\s\ Ernst & Young LLP
San Jose, California
August 4, 1998
UNIPHASE CORPORATION
Consolidated Statements of Operations
(In thousands, except per share data)
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
Net sales............................... $175,801 $106,966 $69,073
Cost of sales........................... 92,139 57,411 36,300
---------- ---------- ----------
Gross profit 83,662 49,555 32,773
---------- ---------- ----------
Operating expenses:
Research and development.............. 14,279 9,312 5,828
Royalty and license................... 2,008 1,380 1,337
Selling, general, and administrative.. 40,810 22,401 15,699
Acquired in-process research and
development...................... 99,568 33,314 4,480
---------- ---------- ----------
Total operating expenses................ 156,665 66,407 27,344
---------- ---------- ----------
Income (loss) from operations........... (73,003) (16,852) 5,429
Interest income......................... 2,964 3,985 1,570
Interest expense........................ (69) (421) (79)
Other income (expense), net............. 356 (134) (92)
---------- ---------- ----------
Income (loss) before income taxes..... (69,752) (13,422) 6,828
Income tax expense...................... 11,360 5,432 4,036
---------- ---------- ----------
Net income (loss)....................... ($81,112) ($18,854) $2,792
========== ========== ==========
Basic earnings (loss) per share......... ($2.34) ($0.57) $0.11
========== ========== ==========
Dilutive earnings (loss) per share...... ($2.34) ($0.57) $0.10
========== ========== ==========
Shares used in per share calculation:
Basic................................ 34,723 32,964 24,832
========== ========== ==========
Dilutive............................. 34,723 32,964 27,154
========== ========== ==========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30,
-------------------
1998 1997
--------- ---------
Assets
Current assets:
Cash and cash equivalents......................... $39,801 $29,186
Short-term investments............................ 54,831 52,009
Accounts receivable, less allowances for
doubtful accounts of $550 at June 30, 1998
and $1,877 at June 30, 1997..................... 40,413 20,317
Inventories....................................... 20,809 18,668
Refundable income taxes........................... 2,219 6,010
Deferred income taxes............................. 4,321 5,882
Other current assets.............................. 2,631 1,643
--------- ---------
Total current assets........................... 165,025 133,715
Property, plant, and equipment, net.................. 56,533 31,251
Long-term deferred income taxes...................... 3,976 1,581
Intangible assets other than goodwill................ 23,364 8,902
Intangible assets.................................... 20,315 2,067
Other assets......................................... 130 63
--------- ---------
Total assets................................... $269,343 $177,579
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable.................. $ -- $6,061
Accounts payable.................................. 14,856 4,781
Accrued payroll and related expenses.............. 7,793 4,528
Income taxes payable.............................. 7,697 5,049
Other accrued expenses............................ 15,430 4,908
--------- ---------
Total current liabilities...................... 45,776 25,327
Accrued pension and other employee benefits.......... 4,835 2,392
Other non-current liabilities........................ 831 83
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value:
Authorized shares - 1,000,000
Issued and outstanding shares - 100,000 at
June 30, 1998 and none at June 30, 1997........ -- --
Common stock, $0.001 par value
Authorized shares - 50,000,000
Issued and outstanding shares - 38,190,456 at
June 30, 1998 and 33,843,934 at June 30, 1997.. 38 34
Additional paid-in capital........................ 307,409 156,864
Accumulated deficit............................... (88,216) (7,104)
Other stockerholders' equity...................... (1,330) (17)
--------- ---------
Total stockholders' equity..................... 217,901 149,777
--------- ---------
Total liabilities and stockholders' equity..... $269,343 $177,579
========= =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
Consolidated Statements of Stockholders' Equity
(In thousands)
Preferred Stock Common Stock Additional Retained Other
------------------- ------------------ Paid-in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity Total
--------- --------- --------- -------- ---------- ---------- ------------ ---------
Balance at June 30, 1995............. -- $ -- 19,032 $20 $15,741 $8,958 $89 $24,808
Shares issued under
employee stock plans
and related tax benefits........ -- -- 1,252 -- 4,703 -- -- 4,703
Common stock issued upon
public offering,
net of issuance costs........... -- -- 10,580 10 105,519 -- -- 105,529
Common stock issued to KLA-
Tencor, net of issuance costs... -- -- 1,332 2 12,281 -- -- 12,283
Stock compensation................. -- -- -- -- 3,000 -- -- 3,000
Amortization of deferred
compensation.................... -- -- -- -- 94 -- -- 94
Net income......................... -- -- -- -- -- 2,792 -- 2,792
Net unrealized loss on
securities available-for-sale... -- -- -- -- -- -- (18) (18)
Foreign currency
translation adjustment.......... -- -- -- -- -- -- 14 14
--------- --------- --------- -------- ---------- ---------- ------------ ---------
Balance at June 30, 1996............. -- -- 32,196 32 141,338 11,750 85 153,205
Shares issued under
employee stock plans
and related tax benefits........ -- -- 1,648 2 14,655 -- -- 14,657
Amortization of deferred
compensation.................... -- -- -- -- 871 -- -- 871
Net loss........................... -- -- -- -- -- (18,854) -- (18,854)
Net unrealized gain on
securities available-for-sale... -- -- -- -- -- -- 29 29
Foreign currency
translation adjustment.......... -- -- -- -- -- -- (131) (131)
--------- --------- --------- -------- ---------- ---------- ------------ ---------
Balance at June 30, 1997............. -- -- 33,844 34 156,864 (7,104) (17) 149,777
Shares issued under
employee stock plans
and related tax benefits........ -- -- 1,086 1 11,273 -- -- 11,274
Preferred and common stock
issued to Philips, net
of issuance costs............... 100 -- 3,260 3 131,341 -- -- 131,344
Amortization of deferred
compensation.................... -- -- -- -- 1,051 -- -- 1,051
Stock Compensation................. -- -- -- -- 6,880 -- -- 6,880
Net loss........................... -- -- -- -- -- (81,112) -- (81,112)
Net unrealized gain on
securities available-for-sale... -- -- -- -- -- -- 43 43
Foreign currency
translation adjustment.......... -- -- -- -- -- -- (1,356) (1,356)
--------- --------- --------- -------- ---------- ---------- ------------ ---------
Balance at June 30, 1998............. 100 $ -- 38,190 $38 $307,409 ($88,216) ($1,330) $217,901
========= ========= ========= ======== ========== ========== ============ =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
Years Ended June 30,
-----------------------------
1998 1997 1996
--------- --------- ---------
Operating activities
Net income (loss)................................ ($81,112) ($18,854) $2,792
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation expense........................ 6,112 3,079 1,582
Amortization expense........................ 4,002 1,617 499
Acquired in-process research and
development............................... 99,568 33,314 4,480
Stock compensation expense.................. 6,880 871 3,094
Write-off of property, equipment and
intangible assets......................... 3,605 1,977 --
Decrease in deferred income taxes, net...... (834) (1,591) (1,040)
Changes in operating assets and liabilities:
Accounts receivable......................... (12,323) 1,883 (6,432)
Inventories................................. 2,374 (5,169) (4,087)
Refundable income taxes..................... 3,791 (1,450) --
Other current assets........................ (988) 721 (90)
Income taxes payable........................ 9,042 2,652 587
Accounts payable, accrued liabilities,
and other accrued expenses............... 9,902 2,417 6,375
--------- --------- ---------
Net cash provided by operating activities.......... 50,019 21,467 7,760
--------- --------- ---------
Investing activities
Purchase of available-for-sale investments....... (187,246) (97,959) (74,326)
Sale of available-for-sale investments........... 184,467 107,258 17,726
Acquisition of Uniphase Netherlands B.V.......... (4,100) -- --
Acquisition of Uniphase Fiber Components
Ltd. Pty, net of cash acquired............... (6,696) -- --
Acquisition of net assets of Laser Enterprise.... -- (45,900) --
Acquisition of UTP Fibreoptics and remaining
interest in I.E. Optomech Ltd................. -- -- (9,387)
Acquisition of licenses.......................... (550) -- --
Purchase of property, plant and equipment........ (24,031) (12,048) (17,561)
Decrease (increase) in other assets.............. (67) (11) 91
--------- --------- ---------
Net cash used in investing activities.............. (38,223) (48,660) (83,457)
--------- --------- ---------
Financing activities
Repayment of notes payable and lease obligations. (6,061) (548) (297)
Issuance of notes payable........................ -- -- 6,061
Proceeds from issuance of common stock other
than in the public offerings................... 4,880 4,464 1,704
Proceeds from offering of stock.................. -- -- 117,812
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... (1,181) 3,916 125,280
--------- --------- ---------
Increase (decrease) in cash and cash equivalents... 10,615 (23,277) 49,583
Cash and cash equivalents at beginning of period... 29,186 52,463 2,880
--------- --------- ---------
Cash and cash equivalents at end of period......... $39,801 $29,186 $52,463
========= ========= =========
See accompanying notes to consolidated financial statements.
UNIPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS ACTIVITIES and SUMMARY of SIGNIFICANT ACCOUNTING POLICIES
Business Activities
Uniphase Corporation (the "Company" or "Uniphase") designs,
develops, manufactures and markets components and modules for fiber optic
telecommunications and cable television (CATV) systems, laser subsystems,
and laser-based semiconductor wafer defect examination and analysis
equipment. The Company's telecommunications and CATV divisions design,
develop, manufacture and market semiconductor lasers, high-speed external
modulators and transmitters for fiber optic networks in the
telecommunications and CATV industries. The Company's Laser Division
designs, develops, manufactures and markets laser subsystems for a broad
range of OEM applications which include biotechnology, industrial process
control and measurement, graphics and printing, and semiconductor
equipment. The Company's Ultrapointe subsidiary designs, develops,
manufactures and markets advanced laser-based systems for semiconductor
wafer defect examination and analysis. The Company entered the
telecommunications market in May 1995. Currently, the Company's portfolio
of telecommunications products include those produced by Uniphase
Telecommunications Products ("UTP"), UTP Fibreoptics ("UFP"), Uniphase
Laser Enterprise ("ULE"), Uniphase Network Components ("UNC"), Uniphase
Fiber Components ("UFC") and Uniphase Netherlands ("UNBV").
Basis of Presentation
The consolidated financial statements include Uniphase and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash, Cash Equivalents and Short-term Investments
Uniphase considers all liquid investments with maturities of ninety
days or less when purchased to be cash equivalents. The Company's
short-term investments have maturities of greater than ninety days. The
Company's securities are classified as available-for-sale and are
recorded at fair value. Fair value is incorporated hereinbased upon market prices quoted on
the last day of the fiscal year. The cost of debt securities sold is
based on the specific identification method. Unrealized gains and losses
are reported as a separate component of stockholders' equity. Gross
realized gains and losses are included in interest income and have not
been material. The Company's investments consist of the following:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ----------- ---------
(in thousands)
JUNE 30, 1998:
Floating rate bonds........... $9,740 $ -- $ -- $9,740
Municipal bonds............... 60,216 64 10 60,270
Auction instruments........... 6,101 -- -- 6,101
Money market instruments...... 5,851 -- -- 5,851
---------- ----------- ----------- ---------
$81,908 $64 $10 $81,962
========== =========== =========== =========
JUNE 30, 1997:
Floating rate bonds........... $14,122 $ -- $ -- $14,122
Municipal bonds............... 42,008 38 27 42,019
Auction instruments........... 4,702 -- -- 4,702
Money market instruments...... 3,896 -- -- 3,896
---------- ----------- ----------- ---------
$64,728 $38 $27 $64,739
========== =========== =========== =========
The following is a summary of contractual maturities of the Company's
investments:
JUNE 30, 1998:
Estimated
Amortized Fair
Cost Value
----------- ---------
(in thousands)
Money market funds..................................... $5,851 $5,851
Amounts maturing within one year....................... 56,996 57,047
Amounts maturing after one year, within five years..... 19,061 19,064
----------- ---------
$81,908 $81,962
=========== =========
Fair Value of Financial Instruments
The Company has determined the estimated fair value of financial
instruments. The amounts reported for cash and cash equivalents, accounts
receivable, short-term borrowings, accounts payable, notes payable and
accrued expenses approximate the fair value due to their short
maturities. Investment securities and foreign currency exchange contracts
are reported at their estimated fair value based on quoted market prices
of comparable instruments.
Inventories
Inventories are valued at the lower of cost (first-in, first-out
method) or market. The components of inventory consist of the following:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Finished goods........................... $6,893 $2,324
Work in process.......................... 11,302 10,468
Raw materials and purchased parts........ 2,614 5,876
----------- -----------
$20,809 $18,668
=========== ===========
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
computed by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONSthe straight-line method over the following estimated useful
lives of the assets: building and improvements, 5 to 40 years; machinery
and equipment, 2 to 5 years; furniture, fixtures, and office equipment, 5
years. Leasehold improvements are amortized by the straight-line method
over the shorter of the estimated useful lives of the assets or the term
of the lease. The information requiredcomponents of property, plant and equipment are as
follows:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Land..................................... $4,868 $4,868
Building and improvements................ 8,772 8,556
Machinery and equipment.................. 36,566 21,839
Furniture, fixtures and office
equipment.............................. 6,915 4,882
Leasehold improvements................... 4,871 2,114
Construction in progress................. 12,162 722
----------- -----------
74,154 42,981
Less: accumulated depreciation and
amortization........................... (17,621) (11,730)
----------- -----------
$56,533 $31,251
=========== ===========
Goodwill and Other Intangible Assets
Intangible assets primarily represent acquired developed technology
and the excess acquisition cost over the fair value of tangible and
intangible net assets of businesses acquired (goodwill). Intangible
assets are being amortized using the straight-line method over estimated
useful lives ranging from 3 to 7 years. Accumulated amortization of
intangible assets at June 30, 1998 and 1997 was $3,161,000 and $696,000,
respectively.
Long-lived assets are reviewed whenever indicators of impairment
are present and the undiscounted cash flows are not sufficient to recover
the related asset carrying amount. At June 30, 1997 intangible assets
included the excess of the investment in UFP over the fair market of the
net assets acquired of approximately $4.3 million. The intangible assets
were reviewed during the fourth quarter of 1998 following the Company's
acquisition of UNBV. This review indicated that the UFP intangible assets
were impaired, as determined based on the projected cash flows from UFP
over the next three years. The cash flow projections take into effect the
net sales and expenses expected from UFP products, as well as maintaining
its current manufacturing capabilities. Consequently, the carrying value
of the UFP goodwill and other long-lived assets totaling $2.2 million and
$1.4 million, respectively, were written off as a component of operating
expenses during fiscal 1998.
At June 30, 1996, intangible assets included the excess of the
investment in I.E. Optomech ("Optomech") over the fair market value of
the net assets acquired of approximately $527,000. The intangible asset
was reviewed during the third quarter of 1997 in light of the Company's
acquisition of ULE and the resultant closure of Optomech. This review
indicated that the Optomech intangible asset was impaired, as determined
based on projected cash flows from Optomech over the remaining
amortization period. The cash flow projections take into effect the
change in strategic focus by the Company for semiconductor laser-based
applications due to the acquisition of ULE, the costs and expected
benefit from Optomech products prospectively, and management's intention
to cease capital funding at Optomech. Consequently, the carrying value of
the Optomech intangible assets totaling $477,000 was written off as a
component of operating expenses during fiscal 1997.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents,
short-term investments and trade receivables. The Company places its cash
equivalents and short-term investments with high credit-quality financial
institutions. The Company invests its excess cash primarily in auction
and money market instruments, and municipal and floating rate bonds. The
Company has established guidelines relative to credit ratings,
diversification and maturities that seek to maintain safety and
liquidity. The Company sells primarily to customers involved in the
application of laser technology, the manufacture of semiconductors, or
the manufacture of telecommunications equipment products. The Company
performs ongoing credit evaluations of its customers and does not require
collateral. The Company provides reserves for potential credit losses,
however such losses and yearly provisions have not been significant and
have been within management's expectations.
Foreign Currency Translation and Exchange Contracts
The Company's international subsidiaries use their local currency
as their functional currency. Assets and liabilities denominated in
foreign currencies are translated using the exchange rate on the balance
sheet dates. Net sales and expenses are translated using average rates of
exchange prevailing during the year. The translation adjustment resulting
from this Itemprocess is shown separately as a component of other
stockholders' equity. Foreign currency transaction gains and losses are
not material and are included in the section entitled
"Management's Discussiondetermination of net income.
During fiscal 1998, the Company entered into forward foreign
currency option contracts to hedge certain balance sheet accounts
denominated in Swiss Francs, Dutch Guilders, and AnalysisGerman Marks. As of
Financial ConditionJune 30, 1998, the Company had foreign currency option contracts
outstanding in Swiss Francs, Dutch Guilders and ResultsGerman Marks for
approximately $2.4 million, $4.0 million and $600,000, respectively.
These foreign currency contracts expire on various dates in the first
quarter of Operations," which appearsfiscal 1999. The difference between the fair value and the
amortized contract value on pages 15 to 21foreign currency exchange contracts is
immaterial.
While the contract amounts provide one measure of the volume of the
transactions outstanding at June 30, 1998 they do not represent the
amount of the Company's exposure to credit risk. The Company's exposure
to credit risk (arising from the possible inability of the counterparts
to meet the terms of their contracts) is generally limited to the amount,
if any, by which the counterparts' obligations exceed the obligations of
the Company.
Revenue Recognition
The Company recognizes revenue generally at the time of shipment.
Revenue on the shipment of evaluation units is deferred until customer
acceptance. The Company provides for the estimated cost to repair
products under warranty at the time of sale.
Earnings (loss) per Share
In 1997, Annual Reportthe Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 128, "Earnings per Share". Statement
No. 128 replaced the previously reported primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. The
Company's diluted earnings per share are very similar to Stockholdersthe previously
reported primary earnings per share. All earnings per share amounts for
all prior periods presented, where necessary, have been restated to
conform to the Statement 128 requirements and to reflect the 100% stock
dividend discussed in Note 8 to these consolidated financial statements.
As the Company incurred a loss in fiscal 1998 and 1997, the effect of
dilutive securities totaling 2,824,000 and 2,695,000 equivalent shares,
respectively, have been excluded from the 1998 and 1997 computation as
they are antidilutive. Dilutive securities exclude the conversion of
Series A Preferred Stock until the removal of all contingencies
attributable to their conversion is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAassured beyond a reasonable doubt.
The information required by this Item is included on pages 22following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share data):
Years Ended June 30,
--------------------------------
1998 1997 1996
---------- ---------- ----------
Denominator for basic earnings (loss)
per share-weighted average shares.... 34,723 32,964 24,832
Effect of dilutive securities:
Stock options outstanding............ -- -- 2,322
---------- ---------- ----------
Denominator for diluted earnings
(loss) per share..................... 34,723 32,964 27,154
========== ========== ==========
Net income (loss)....................... ($81,112) ($18,854) $2,792
========== ========== ==========
Basic earnings (loss) per share......... ($2.34) ($0.57) $0.11
========== ========== ==========
Dilutive earnings (loss) per share...... ($2.34) ($0.57) $0.10
========== ========== ==========
Stock-based Compensation
In accordance with APB Opinion No. 25, "Accounting for Stock Issued
to 41Employees," the Company records and amortizes, over the related
vesting periods, deferred compensation representing the difference
between the price per share of stock issued or the exercise price of
stock options granted and the fair value of the Company's common stock at
the time of issuance or grant. Stock compensation costs are immediately
recognized to the extent the exercise price is below the fair value on
the date of grant and no future vesting criteria exist.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Impact of Recently Issued Accounting Standards
In 1997, Annual Report to Stockholdersthe Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income," was issued and is
incorporated hereineffective for fiscal years commencing after December 15, 1997.
In 1997, the Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures About Segments of an Enterprise and Related
Information," was issued and is effective for fiscal years commencing
after December 15, 1997.
In 1998, the Statement of Financial Accounting Standards No. 132
("SFAS 132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued and is effective for fiscal years
commencing after December 15, 1997.
The Company is required to adopt the provisions of SFAS 130, 131
and 132 in fiscal year 1999 and expects the adoption will not affect
results of operations or financial position but will require either
additional disclosures or modifications to previous disclosures.
In 1998, the Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instrument and Hedging
Activities" was issued and is effective for fiscal years commencing after
June 15, 1999. The effect of adopting SFAS 133 is currently being
evaluated but is not expected to have a material effect on the Company's
financial position or results of operations.
Reclassification
The Company separately classified goodwill on the Consolidated
Balance Sheets and has included stock based compensation as selling,
general and administrative expense on the Consolidated Statements of
Operations. For comparative purposes, amounts in the prior years have
been reclassified to conform to current year presentations.
NOTE 2. LINE of CREDIT
The Company has a $5.0 million revolving bank line of credit that
expires on January 28, 1999. Advances under the line of credit bear
interest at the bank's prime rate (8.5% at June 30, 1998) and are secured
by reference.
ITEMinventories and accounts receivable. Under the terms of the line of
credit agreement, the Company is required to maintain certain minimum
working capital, net worth, profitability levels and other specific
financial ratios. In addition, the agreement prohibits the payment of
cash dividends and contains certain restrictions on the Company's ability
to borrow money or purchase assets or interests in other entities without
the prior written consent of the bank. There were no borrowings under the
line of credit at June 30, 1998.
NOTE 3. OTHER ACCRUED EXPENSES
The components of other accrued expenses are as follows:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Acquisition and reorganization costs..... $8,294 $1,335
Warranty reserve......................... 1,906 1,005
Royalties payable........................ 587 405
Other accrued liabilities................ 4,643 2,163
----------- -----------
$15,430 $4,908
=========== ===========
Acquisition and reorganization costs include the estimated amount
for exiting certain Philips facilities currently occupied by UNBV over
the next twelve months.
NOTE 4. INCOME TAXES
The expense (benefit) for income taxes consists of the following:
Years Ended June 30,
----------------------------------
1998 1997 1996
---------- ----------- -----------
(in thousands)
Federal:
Current........................ $7,848 $4,635 $4,381
Deferred....................... (361) 367 (934)
---------- ----------- -----------
7,487 4,268 3,447
State:
Current........................ 3,245 1,222 635
Deferred....................... (524) (160) (130)
---------- ----------- -----------
2,721 1,062 505
Foreign:
Current........................ 1,152 1,166 84
Deferred....................... -- (1,064) --
---------- ----------- -----------
1,152 102 84
---------- ----------- -----------
Income tax expense............ $11,360 $5,432 $4,036
========== =========== ===========
The tax benefit associated with exercises of stock options reduced
taxes currently payable by $6.2 million, $10.2 million and $3.0 million
for the years ended June 30, 1998, 1997 and 1996, respectively.
A reconciliation of the income tax expense (benefit) at the federal
statutory rate to the income tax expense (benefit) at the effective tax rate is
as follows:
Years Ended June 30,
----------------------------------
1998 1997 1996
---------- ----------- -----------
(in thousands)
Income taxes (benefit) computed
at federal statutory rate..... ($23,716) ($4,563) $2,321
State taxes, net of federal
benefit....................... 1,796 701 333
Acquired in-process research
and development for which no
tax benefit is currently
recognizable.................. 33,853 9,466 1,523
Realization of valuation
allowance..................... (1,547) -- --
Tax exempt income............... (527) (502) (213)
Other........................... 1,501 330 72
---------- ----------- -----------
Income tax expense............ $11,360 $5,432 $4,036
========== =========== ===========
The components of deferred taxes consist of the following:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Deferred tax assets:
AMT and research tax credit
carryforwards.......................... $2,813 $350
Net operating loss carryforwards........ -- 2,872
Inventory reserve....................... 1,336 447
Additional tax basis of intangibles..... 31,286 9,848
Deferred compensation................... 2,637 --
Warranty and other reserves............. 538 1,527
Other................................... 1,430 767
----------- -----------
Total deferred tax assets............. 40,040 15,811
Valuation allowance..................... (31,743) (7,797)
----------- -----------
Net deferred tax assets............... 8,297 8,014
Deferred tax liabilities:
Other................................... -- 551
----------- -----------
Total deferred tax liabilities........ -- 551
----------- -----------
Total net deferred tax assets......... $8,297 $7,463
=========== ===========
Approximately $3.0 million of the valuation allowance at June 30,
1998 relates to tax benefits of stock option deductions, which will be
credited to equity when realized. The balance of the valuation allowance
relates to the additional tax basis of intangibles, which will be
realized, generally, over a 15-year period. The valuation allowance
reduces net deferred tax assets to amounts considered realizable in the
near future based on projected future taxable income.
NOTE 5. LEASE COMMITMENTS
The Company leases manufacturing and office space primarily in
Manteca, California; Bloomfield, Connecticut; Chalfont, Pennsylvania;
Witney, United Kingdom; Zurich, Switzerland; Sydney, Australia and
Eindhoven, the Netherlands under operating leases expiring at various
dates through December 2013 and containing certain renewal options
ranging from one to four years. The Company has the option of terminating
two of its lease agreements on December 25, 2003 upon six months written
notification.
Future minimum commitments for noncancelable operating leases are
as follows:
Operating
Year Ending June 30, Leases
---------------------------------- -----------
(in thousands)
1999............................ $4,074
2000............................ 4,462
2001............................ 4,347
2002............................ 4,223
2003............................ 4,001
Thereafter...................... 28,140
-----------
Total minimum lease payments.... $49,247
===========
Rental expense for operating leases for the years ended June 30,
1998, 1997, and 1996 amounted to approximately $1,207,000, $904,000 and
$685,000, respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
As discussed in Note 9, the Company acquired 100% of the capital
stock of Philips Optoelectronics B.V. from Koninklijke Philips
Electronics N.V. ("Philips"). Subsequent to the acquisition, Philips owns
approximately 8.5% of the Company's outstanding common stock and has one
seat on the Company's Board of Directors. The Company has operating
leases for manufacturing facilities and site service agreements for
network support and information systems at the Philips NATLAB Center in
Eindhoven, the Netherlands. In addition, the Company is obligated to
provide future design and development services on certain laser
technology to Philips that the Company believes will be of strategic
importance to Philips' existing consumer and business electronics
operations. The Company is obligated to provide 15 million Dutch Guilders
(approximately $7.5 million) of such services through April 2000, of
which approximately 10 million Dutch Guilders is expected to be provided
ratably between July 1998 and April 2000.
Pursuant to the Philips transaction, Philips has committed to
provide interim treasury, export, distribution and certain site services
to the Company for its operations in the Netherlands to minimize
disruptions to its business activity. Lease commitments to Philips
included in Note 5 above represent 76% of total future minimum
commitments for non-cancelable operating leases. Balances with related
parties that are included in the consolidated financial statements are
immaterial except for the following amounts with Philips:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Accounts receivable...................... $6,805 $ --
Accounts payable......................... $442 $ --
These balances are expected to settle on or before December 31, 1998.
NOTE 7. PENSION and OTHER EMPLOYEE BENEFITS
Pensions
Through the acquisition of ULE in Switzerland, the Company assumed
two foreign defined-benefit pension plans related to the employees of
ULE. Benefits are based on years of service and annual compensation on
retirement. Plans are funded in accordance with applicable Swiss
regulations.
The funded status of the foreign defined-benefit plans is
summarized below:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Accumulated benefit obligation........... $3,819 $3,129
=========== ===========
Vested benefit obligation................ $3,819 $3,129
=========== ===========
Projected benefit obligation............. ($6,586) ($6,448)
Fair market value of plan assets......... 4,909 4,488
Unrecognized net asset................... (775) --
----------- -----------
Projected benefit obligation less than
(in excess of) plan assets............... ($2,452) ($1,960)
=========== ===========
The components of net pension costs for 1998 and 1997 are as follows:
June 30,
-----------------------
1998 1997
----------- -----------
(in thousands)
Service cost............................. $626 $458
Interest cost............................ 339 322
Expected return on plan assets........... (253) (224)
----------- -----------
Net pension expense...................... $712 $556
=========== ===========
For fiscal 1998 and 1997, the weighted average discount rates and
long-term rates for compensation increases used for estimating the
benefit obligations and the expected return on plan assets were as follows:
Discount rate...................................... 5.0%
Rate of increase in compensation levels............ 3.5%
Expected long-term return on assets................ 4.0%
Plan assets of the foreign plans consist primarily of listed
stocks, bonds and cash surrender value life insurance policies.
In connection with the acquisition of UNBV, the Company agreed to
continue to provide pension benefits to its qualified Holland employees
through a multi-employer defined benefit pension plan sponsored by the
Holland Metalworkers Union. Philips is obligated to fully fund the
pension benefit obligation for all periods prior to June 9, 1998 directly
to the Metalworkers Union Plan. The Company assumed a $2.0 million
liability at acquisition for the projected benefit obligation in excess
of assets expected to be transferred to the multi-employer plan by
Philips in accordance with SFAS No.87 "Employer's Accounting for
Pensions." Pension expense for fiscal 1998 under this plan was
immaterial. The amount of accumulated benefits and net assets of the
multi-employer plan is not currently available to the Company.
Other Employee and Postemployment Benefits
Uniphase has an employee 401(k) salary deferral plan, covering all
domestic employees. Employees may make contributions by withholding a
percentage of their salary up to $10,000 per year. Company contributions
consist of $.25 per dollar contributed by the employees with at least six
months of service. Company contributions were approximately $426,000,
$309,000 and $215,000 for the years ended June 30, 1998, 1997, and 1996,
respectively.
NOTE 8. STOCKHOLDERS' EQUITY
Preferred Stock
In connection with the acquisition of UNBV, the Company issued
100,000 shares of non-voting, non-cumulative Series A Preferred Stock to
Philips having a par value of $.001 per share. The Series A Preferred
Stock is convertible into additional shares of common stock based on an
agreed upon formula for annual and cumulative shipments of certain
products during the four-year period ending June 30, 2002. The Preferred
Stock is also convertible into common stock upon the occurrence of a
Redemption Event, as defined in the Series A Preferred Stock Agreement.
In June 1998, the Company adopted a Stockholder Rights Agreement (a
"Right") for stockholders of record as of July 6, 1998. Each Right will
entitle stockholders to purchase 1/1000 share of the Company's Series B
Preferred Stock at an exercise price of $270. The Rights only become
exercisable in certain limited circumstances following the tenth day
after a person or group announces acquisitions of or tender offers for
15% or more of the Company's common stock. For a limited period of time
following the announcement of any such acquisition or offer, the Rights
are redeemable by the Company at a price of $.01 per Right. If the
Rights are not redeemed, each Right will then entitle the holder to
purchase common stock having the value of twice the then-current exercise
price. For a limited period of time after the exercisability of the
Rights, each Right, at the discretion of the Board, may be exchanged for
either 1/1000 share of the Company's Series A Preferred Stock or one
share of common stock per Right. The Rights expire on June 22, 2008.
The Board of Directors has the authority, without any further vote
or action by the stockholders, to provide for the issuance of an
additional 900,000 shares of Preferred Stock from time to time in one or
more series with such designations, rights, preferences and limitations
as the Board of Directors may determine, including the consideration
received therefore, the number of shares comprising each series, dividend
rates, redemption provisions, liquidation preferences, redemption fund
provisions, conversion rights and voting rights, all without the approval
of the holders of common stock.
Stock Dividend
In November 1997, the stockholders of the Company approved an
increase in the number of shares of common stock authorized from
20,000,000 to 50,000,000 shares and the Company declared a 100% stock
dividend. The stock dividend was paid November 12, 1997. All share and
per share amounts included in the accompanying consolidated financial
statements and notes thereto applicable to prior periods have been
restated to reflect this stock dividend.
Stock Option Plans
As of June 30, 1998, Uniphase has reserved approximately 8,224,000
shares of common stock for future issuance to employees, directors and
consultants under its 1984 Amended and Restated Stock Option Plan (the
"1984 Option Plan"), the Amended and Restated 1993 Flexible Stock
Incentive Plan (the "1993 Option Plan") and the 1996 Non-qualified Stock
Option Plan ("the 1996 Option Plan"). The Board of Directors has the
authority to determine the type of option and the number of shares
subject to option. The exercise price is generally equal to fair value of
the underlining stock at the date of grant. Options generally become
exercisable over a four-year period and, if not exercised, expire from
five to ten years from the date of grant. The following table summarizes
option activity through June 30, 1998:
Options Outstanding
-----------------------
Weighted
Shares Average
Available Number Exercise
for Grant of shares Price
---------- ----------- -----------
(in thousands, except price per share)
Balance at June 30, 1995........ 916 5,171 $2.21
Increase in authorized shares... 420 -- --
Granted......................... (1,408) 1,408 5.98
Canceled........................ 156 (492) 1.99
Exercised....................... -- (1,058) 1.22
---------- ----------- -----------
Balance at June 30, 1996........ 84 5,029 3.33
Increase in authorized shares... 2,742 -- --
Granted......................... (2,002) 2,002 20.15
Canceled........................ 236 (228) 12.44
Exercised....................... -- (1,428) 2.69
---------- ----------- -----------
Balance at June 30, 1997........ 1,060 5,375 9.41
Increase in authorized shares... 2,760 -- --
Granted......................... (2,005) 2,005 36.93
Canceled........................ 193 (193) 13.56
Exercised....................... -- (942) 4.04
Expired......................... (30) -- --
---------- ----------- -----------
Balance at June 30, 1998........ 1,978 6,245 $18.92
========== =========== ===========
The following table summarizes the stock options outstanding as of
June 30, 1998:
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Average Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (in years) Price Exercisable Price
- --------------------- ----------- ----------- ---------- ----------- ----------
$ 0.23 - $ 1.20 731,977 4.09 $ 0.92 731,977 $ 0.92
$ 1.94 - $ 3.05 663,535 5.80 $ 2.70 508,195 $ 2.65
$ 3.44 - $ 5.88 910,438 7.71 $ 5.50 522,096 $ 5.50
$ 7.31 - $15.00 203,348 5.92 $ 9.83 80,475 $ 8.53
$16.42 - $16.42 680,000 6.68 $16.42 212,500 $16.42
$17.00 - $25.00 837,970 6.57 $21.72 318,604 $22.37
$25.63 - $31.63 624,614 6.82 $29.35 78,864 $25.63
$32.38 - $36.53 686,896 7.29 $34.13 56,111 $32.95
$36.84 - $44.75 771,000 7.63 $39.30 2,222 $44.75
$52.75 - $56.13 135,650 7.91 $53.64 -- $ --
----------- ----------- ---------- ----------- ----------
$ 0.23 - $56.13 6,245,428 6.64 $18.92 2,511,044 $ 8.03
=========== ===========
Employee Stock Purchase Plans
The Uniphase 1993 Employee Stock Purchase Plan (the "93 Purchase
Plan") was adopted in October 1993, amended during fiscal 1994 and
expires December, 1998. The Company has reserved 400,000 shares of common
stock for issuance under the 93 Purchase Plan. The 93 Purchase Plan
provides eligible employees with the opportunity to acquire an ownership
interest in Uniphase through participation in a program of periodic
payroll deductions applied at specific intervals to the purchase of
common stock. The 93 Purchase Plan is structured as a qualified employee
stock purchase plan under Section 423 of the amended Internal Revenue
Code of 1986. However, the 93 Purchase Plan is not intended to be a
qualified pension, profit sharing or stock bonus plan under Section
401(a) of the 1986 Code and is not subject to the provisions of the
Employee Retirement Income Security Act of 1974. During fiscal 1998,
employees purchased 147,835 shares of common stock under the 93 Purchase
Plan and 121,539 shares are available for future issuance. The Company
terminated the 93 Purchase Plan in August 1998 and cancelled any shares
then remaining but unissued.
The Uniphase 1998 Employee Stock Purchase Plan (the "98 Purchase
Plan") was adopted in June 1998. The Company has reserved 1,000,000
shares of common stock for issuance under the 98 Purchase Plan. The 98
Purchase Plan, effective August 1, 1998, provides eligible employees with
the opportunity to acquire an ownership interest in Uniphase through
participation in a program of periodic payroll deductions applied at
specific intervals to the purchase of common stock. The Purchase Plan is
structured as a qualified employee stock purchase plan under Section 423
of the amended Internal Revenue Code of 1986. However, the Purchase Plan
is not intended to be a qualified pension, profit sharing or stock bonus
plan under Section 401(a) of the 1986 Code and is not subject to the
provisions of the Employee Retirement Income Security Act of 1974. The
Purchase Plan will terminate upon the earlier of August 1, 2008 or the
date on which all shares available for issuance under the Purchase Plan
have been sold.
Stock Based Compensation
The Company has elected to follow APB Opinion No. 25, "Accounting
for Stock Issued to Employees," in accounting for its employee stock
options because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. Under APB No. 25,
when the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no
compensation expense is recognized in the Company's financial statements.
During fiscal 1996, the Company replaced all options to purchase
UTP stock previously issued to UTP employees with options to purchase
stock of the Company. The Company incurred compensation expense totaling
$4.4 million in connection with such options granted which were effective
May 15, 1996. Of this total $3.0 million, related to options which have
vested as of the grant date, was charged to expense in the fiscal year
ended June 30, 1996. The remaining $1.4 million was charged to expense
over the remaining vesting period of three years. In conjunction with the
acquisition of ULE in fiscal 1997, the Company issued stock options to
key employees of ULE at a value that was less than the market value. The
Company is recognizing compensation expense for the total value of $2.0
million over the vesting period of four years. Stock based compensation
expense in fiscal 1998 was approximately $6.9 million and is included as
a component of operating expenses. These options had a weighted average
fair value of $42.95 per share.
Pro forma information regarding net income and earnings per share
is required by SFAS No. 123. This information is required to be
determined as if the Company had accounted for its employee stock options
(including shares issued under the Employee Stock Purchase Plan,
collectively called "options") granted subsequent to June 30, 1995 under
the fair value method of that statement. The fair value of options
granted in 1998, 1997 and 1996 reported below has been estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions:
Employee Stock
Employee Purchase
Stock Options Plan Shares
-------------------- --------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
Expected life (in years)... 5.5 5.5 5.5 0.5 0.5 0.5
Risk-free interest rate.... 6.4% 6.5% 5.9% 5.9% 5.4% 5.4%
Volatility................. 0.66 0.64 0.64 0.76 0.75 0.57
Dividend yield............. 0% 0% 0% 0% 0% 0%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair
value of its options. A total of approximately 2,005,000 options were
granted during fiscal 1998 with exercise prices equal to the market price
of the stock on the grant date. The weighted-average exercise price and
weighted-average fair value of these options were $36.93 and $23.32,
respectively. The weighted-average exercise price and weighted-average
fair value of stock options granted during fiscal 1997 was $22.07 and
$13.74 per share, respectively. The weighted average exercise price and
weighted average fair value of stock options granted during fiscal 1996
was $5.98 and $4.59, respectively. The weighted average fair value of
shares granted under the Employee Stock Purchase Plan during 1998, 1997
and 1996 was $10.63, $7.08 and $3.35, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (in thousands except for earnings per share
information):
Years Ended June 30,
-----------------------------
1998 1997 1996
--------- --------- ---------
Pro forma net income (loss).......... ($95,161) ($23,070) $1,720
Pro forma earnings (loss) per share.. ($2.74) ($0.70) $0.06
Pro forma net income represents the difference between compensation
expense recognized under APB 25 and the related expense using the fair
value method of SFAS No. 123 taking into account any additional tax
effects of applying SFAS No. 123. The effects on pro forma disclosures of
applying SFAS No. 123 are not likely to be representative of the effects
on pro forma disclosures of future years. Because SFAS No. 123 is
applicable only to options granted subsequent to June 30, 1995, the pro
forma effect will not be fully reflected until 1999.
NOTE 9. CHANGES INACQUISITIONS
Uniphase Netherlands
On June 9, 1998, the Company acquired 100% of the capital stock of
Uniphase Netherlands B.V. (formerly Philips Optoelectronics B.V.) from
Philips. UNBV designs, develops, manufactures and markets high
performance semiconductor lasers, photo diodes and components for
telecommunications, CATV, multimedia and printing markets. The total
purchase price of $135.4 million consisted of 3,259,646 shares of common
stock, cash of $100,000 and $4.0 million in related acquisition costs.
The common stock is subject to restrictions from trading for twelve
months from the transaction date, and Philips became the largest
stockholder of record at 8.5% of the Company's common stock at the date
of closing. In addition, the Company issued 100,000 shares of Series A
Preferred Stock to Philips as contingent consideration worth up to 175
million Dutch Guilders (approximately $87 million). The number of shares
of common stock to be issued upon conversion of this preferred stock is
tied to unit shipments of certain products by UNBV during the four-year
period ending June 30, 2002 and the Company's stock price at the date the
contingency attributable to the unit shipments is removed. The contingent
consideration is not included in the acquisition cost above, but is
recorded when the aggregated unit shipment criteria are assured beyond a
reasonable doubt.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include
the results of operations of UNBV subsequent to the acquisition date. The
purchase price was allocated to the net assets and in-process research
and development acquired. The purchased intangible assets and goodwill
are being amortized in accordance with the Company's policy for
intangible assets.
To determine the value of the acquired in-process research and
development, the Company considered, among other factors, the stage of
development of each project, the time and efforts needed to complete each
project, expected income, target markets and associated risks. Associated
risks included inherent difficulties and uncertainties in completing the
project and thereby achieving technical feasibility, and risks related to
the viability of and potential changes in future target markets. The
Company applied a discount rate of 25% in the valuation of in-process
technology. This analysis resulted in a valuation of $93,000,000 for
acquired in-process research and development that had not reached
technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles,
the $93,000,000 was expensed. The Company estimates that a total
investment of $32,666,000 in research and development over the next three
years will be required to complete the in-process research and
development.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development, as if the acquisition of UNBV had
occurred at the beginning of fiscal 1997 and does not purport to be
indicative of what would have occurred had the acquisition been made as
of the beginning of fiscal 1997 or of results which may occur in the
future.
Year Ended June 30,
-------------------
(in thousands, except per share data) 1998 1997
--------- ---------
Net sales............................................ $204,339 $131,566
Net income (loss).................................... $7,144 ($26,004)
Earnings (loss) per share............................ $0.19 ($0.72)
The effects of the UNBV acquisition on the 1998 consolidated statement
of cash flows were as follows (in thousands):
Working capital (deficiency) acquired............................ ($1,155)
Property, plant and equipment.................................... 7,084
Intangibles...................................................... 38,523
Other liabilities................................................ (2,008)
In-process research and development.............................. 93,000
---------
Total purchase price............................................. $135,444
=========
Uniphase Fiber Components
On November 26, 1997, the Company acquired 100% of the capital
stock of Uniphase Fiber Components Pty Ltd. (formerly INDX Pty Ltd.) and
obtained certain licensing rights from Australia Photonics Pty Limited
(AP). UFC designs and manufactures fiber optic reflection filters (fiber
Bragg gratings) for wavelength division multiplexing (WDM) applications.
The total purchase price of $6,896,000 included a cash payment of
$6,496,000 to AP and acquisition expenses of $400,000.
The acquisition has been accounted for as a purchase and
accordingly, the accompanying fiscal 1998 financial statements include
the results of operations of UFC subsequent to the acquisition date. The
purchase price was allocated to the net assets and the in-process
research and development acquired. The purchased intangible assets are
being amortized over the estimated useful life of 5 years. Pro forma
results of operations as if the transaction had occurred at the beginning
of the year are not shown as the effect would not be material.
To determine the value of the acquired in-process research and
development, the Company considered, among other factors, the state of
development of each project, the time and efforts needed to complete each
project, expected income, target markets and associated risks. Associated
risks included inherent difficulties and uncertainties in completing the
projects and thereby achieving technical feasibility, and risks related
to the viability of and potential changes in future target markets. The
Company applied a discount rate of 20% in the valuation of in-process
technology. This analysis resulted in a valuation of $6,568,000 for
acquired in-process research and development that had not reached
technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles,
such $6,568,000 was charged to income. The Company estimates that a total
investment of $1.9 million in research and development over the next year
will be required to complete the in-process research and development.
The effects of the UFC acquisition on the 1998 consolidated statement
of cash flows were as follows (in thousands):
Working capital (deficiency) acquired.......................... ($344)
Property, plant and equipment.................................. 279
Intangibles.................................................... 193
In-process research and development............................ 6,568
---------
Total purchase price........................................... $6,696
=========
Uniphase Laser Enterprise
On March 10, 1997, the Company acquired the net assets of ULE from
IBM. ULE designs and manufactures semiconductor diode laser chips used by
the telecommunications industry. The total purchase price of $45,900,000
includes a cash payment of $45,000,000 to IBM and acquisition expenses of
$900,000.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include
the results of operations of ULE subsequent to the acquisition date. The
purchase was allocated to the net assets and in-process research and
development acquired. The purchased intangible assets are being amortized
over the estimated useful life of 5 years.
To determine the value of the acquired in-process research and
development, the Company considered, among other factors, the stage of
development of each project, the time and efforts needed to complete each
project, expected income, target markets and associated risks. Associated
risks included inherent difficulties and uncertainties in completing the
project and thereby achieving technical feasibility, and risks related to
the viability of and potential changes in future target markets. The
Company applied a discount rate of 20% in the valuation of in-process
technology. This analysis resulted in a valuation of $33,314,000 for
acquired in-process research and development that had not reached
technological feasibility and did not have alternative future uses.
Therefore, in accordance with generally accepted accounting principles,
the $33,314,000 was expensed.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, excluding the charge for acquired
in-process research and development, as if the acquisition of ULE had
occurred at the beginning of fiscal 1996 and does not purport to be
indicative of what would have occurred had the acquisition been made as
of the beginning of fiscal 1996 or of results which may occur in the
future.
(in thousands, except per share data) Year Ended June 30,
-------------------
1997 1996
--------- ---------
Net sales............................................ $123,813 $88,264
Net income........................................... $17,159 $6,618
Earnings per share................................... $0.52 $0.25
The effects of the ULE acquisition on the 1997 consolidated statement
of cash flows were as follows (in thousands):
Working capital acquired........................................ $8,358
Property, plant and equipment................................... 3,477
Prepaid lease and service agreements............................ 1,064
Intangibles..................................................... 4,733
Other liabilities............................................... (5,046)
In-process research and development............................. 33,314
---------
Total purchase price............................................ $45,900
=========
UTP Fibreoptics
On May 31, 1996, the Company acquired 100% of the outstanding
shares of GCA and FAS. GCA and FAS operates as UFP. UFP custom packages
laser diodes, light emitting diodes ("LEDs") and photodetectors for use
in fiber optic networks. The total purchase price of $9,150,000 consisted
of approximately $2,589,000 cash payment, and $6,061,000 notes payable to
the former stockholders and $500,000 in related acquisition costs. The
principal and accumulated interest on the notes was paid in August 1997.
The acquisition has been accounted for by the purchase method of
accounting and accordingly, the accompanying financial statements include
the results of operations of UFP subsequent to the acquisition date. The
purchase included net assets and acquired in-process research and
development of $4,827,000 at fair market value. The excess of $1,913,000
over the purchase price are being amortized over its estimated useful
life of 5 years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company as if the acquisition of UFP had
occurred at the beginning of fiscal 1995 and does not purport to be
indicative of what would have occurred had the acquisition been made as
of the beginning of fiscal 1995 or of results which may occur in the
future.
Year
Ended
June 30,
(in thousands, except per share data) 1996
---------
Net sales...................................................... $74,781
Net income..................................................... $6,635
Earnings per share............................................. $0.25
The effects of the UFP acquisition on the 1996 consolidated statement
of cash flows were as follows (in thousands):
Working capital acquired....................................... $609
Property, plant and equipment.................................. 924
Intangibles and goodwill, net
of deferred taxes............................................ 4,323
Other liabilities.............................................. (1,186)
In-process research and development............................ 4,480
---------
Total purchase price........................................... $9,150
=========
NOTE 10. GEOGRAPHIC AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSUREINDUSTRY SEGMENT INFORMATION
Uniphase operates in two geographic regions: the United States and
Europe. The Company operates in a single industry segment - the design,
manufacture and sale of laser subsystems and laser based products. The
following table shows sales, operating income (loss) and other financial
information by geographic region:
Years Ended June 30,
--------------------------------
(In thousands) 1998 1997 1996
---------- ---------- ----------
Net sales:
United States-domestic................ $109,429 $73,785 $52,313
United States-export.................. 47,681 20,043 13,742
Europe................................ 19,945 22,816 8,738
Intercompany.......................... (1,254) (9,678) (5,720)
---------- ---------- ----------
Total net sales..................... $175,801 $106,966 $69,073
========== ========== ==========
Operating income (loss):
United States......................... ($79,283) $12,452 $4,987
Europe................................ 6,530 (28,693) (77)
Eliminations.......................... (250) (611) 519
---------- ---------- ----------
Total operating income (loss)....... ($73,003) ($16,852) $5,429
========== ========== ==========
Identifiable assets:
United States......................... $177,100 $149,008 $168,095
Europe................................ 92,243 28,571 5,729
---------- ---------- ----------
Total assets........................ $269,343 $177,579 $173,824
========== ========== ==========
Intercompany transfers represent products that are transferred
between geographic areas on a basis intended to reflect as nearly as
possible the market value of the products. Identifiable assets are those
assets of the Company that are identified with the operations of the
corresponding geographic area.
One telecommunications customer accounted for 12% of the Company's
consolidated net sales in fiscal 1998. Another customer purchased both
laser subsystems and Ultrapointe Systems that accounted for a combined
12% and 13% of the Company's consolidated net sales in fiscal 1998 and
1996, respectively. One other laser subsystem customer accounted for 10%
and 12% of the Company's consolidated net sales in fiscal years 1997 and
1996, respectively.
NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION
The consolidated statement of cash flows for fiscal 1998 excludes
noncash investing activities of $131.3 million in common stock issued to
Philips. Net cash provided by operating activities reflects cash payments
for interest and income taxes as follows:
Years Ended June 30,
-----------------------------
1998 1997 1996
--------- --------- ---------
(in thousands)
Cash payments for:
Interest...................................... $69 $217 $43
Income taxes.................................. $2,318 $2,262 $1,107
Note 12. SUBSEQUENT EVENT (UNAUDITED)
In August 1998, the Company acquired certain assets of Chassis
Engineering Inc. ("Chassis") for $70,000 in cash and convertible debt of
$2.73 million. Chassis designs, develops, markets and manufactures
packaging solutions for fiber optic and other high performance
components. The convertible debt is composed of a $1.93 million demand
obligation and two performance-based instruments totaling $800,000 that
become due upon achieving certain milestones over the ensuing 9 to 18
months. The convertible debt bears interest at 5.48% and principal can be
exchanged for newly issued shares of Uniphase common stock at a price of
$55.083 per share. The convertible debt is secured by a letter of credit
issued against the Company's unused revolving bank line of credit
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
23
25
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE REGISTRANTItem 10.Directors, Executive Officers and Other Officers of the
Registrant
The information required by this Item is included in the Proposal
One: Elections of Directors, Directors and Executive Officers, and
Section 16(a) Beneficial Ownership Reporting Compliance sections of the
Company's Proxy Statement to be filed in connection with the Company's
19971998 Annual Meeting of Stockholders and is incorporated herebyherein by
reference.
ITEM 11. EXECUTIVE COMPENSATIONItem 11.Executive Compensation
The information required by this Item is included in the Executive
Compensation and Related Information sections of the Company's Proxy
Statement to be filed in connection with the Company's 19971998 Annual
Meeting of Stockholders and is incorporated herebyherein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTItem 12.Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is included in the Security
Ownership of Certain Beneficial Owners and Management section of the
Company's Proxy Statement to be filed in connection with the Company's
19971998 Annual Meeting of Stockholders and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 13.Certain Relationships and Related Transactions
The information required by this Item is included in the
Compensation Committee Interlocks and Insider Participation and Certain
Transactions sections of the Company's Proxy Statement to be filed in
connection with the Company's 19971998 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
ITEMItem 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORMExhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) FINANCIAL STATEMENTS
The financial statements listed in the accompanying index to financial
statements and financial statement schedules are filed or incorporated by
reference as part of this annual report.
(a)(2) FINANCIAL STATEMENT SCHEDULES
The financial statements listed in the accompanying index to financial
statements and financial statement schedules are filed or incorporated by
reference as part of this annual report.
(a)(3) EXHIBITS
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as a part of this annual report.
(b) REPORTS ON FORM 8-K
The Company filed reports on form 8-K/A Amendment 1 and Amendment 2 on May
23, 1997 and June 10, 1997, respectively, reporting the purchase of ULE and
including the audited financial statements of Laser Enterprise, a division of
International Business Machines in accordance with Rule 3.05 of Regulation S-X
and the pro forma financial information required by Article 11 of Regulation
S-X.
24
26Financial Statements
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
REFERENCE PAGE
------------------------------------
1997 ANNUAL
FORM 10-K REPORT TO STOCKHOLDERS
--------- ----------------------
Consolidated Statements of Operations -- Years ended June 30,
1997, 1996 and 1995......................................... -- 22
Consolidated Balance Sheets -- June 30, 1997 and 1996......... -- 23
Consolidated Statements of Stockholders' Equity -- Years ended
June 30, 1997, 1996 and 1995................................ -- 24
Consolidated Statements of Cash Flows -- Years ended June 30,
1997, 1996 and 1995......................................... -- 25
Notes to Consolidated Financial Statements.................... -- 25
Report of Ernst & Young LLP, Independent Auditors............. -- 26-40
Schedule II -- Valuation and Qualifying Accounts -- June 30,
1997, 1996 and 1995......................................... 26 --
Years ended June 30,
1998, 1997 and 1996.........................................
Consolidated Balance Sheets -- June 30, 1998 and 1997.........
Consolidated Statements of Stockholders' Equity -- Years ended
June 30, 1998, 1997 and 1996................................
Consolidated Statements of Cash Flows -- Years ended June 30,
1998, 1997 and 1996.........................................
Notes to Consolidated Financial Statements....................
Report of Ernst & Young LLP, Independent Auditors.............
(a)(2) Financial Statement Schedules
The following financial statement schedules is filed as part of
this annual report. All other financial statement schedules have been
omitted because they are not applicable or are not required or the
information required to be set forth therein is included in the
Company's consolidated financial statements set forth in Item 8 of this
Form 10-K and the notes thereto.
25
27
UNIPHASE CORPORATION
SCHEDULE II --- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COST AND OTHER DEDUCTION END OF
DESCRIPTIONS OF PERIOD EXPENSES ACCOUNTS(2)Balance Charged Balance
at to Costs Charged to at
Beginning and Other Deduction End of
Description of Period Expenses Accounts(2) (1) PERIODPeriod
- -------------------------------------------- ---------- ------------------------------------------- --------- --------- ----------- --------- ----------
(IN THOUSANDS)(In thousands)
Year ended June 30, 19971998:
Allowance for doubtful accounts...........accounts. $1,877 $118 $386 $1,831 $550
Year ended June 30, 1997:
Allowance for doubtful accounts. $285 $582 $ 1,083$1,083 $73 $1,877
Year ended June 30, 19961996:
Allowance for doubtful accounts...........accounts. $164 $139 $ -- $18 $ 285
Year ended June 30, 1995
Allowance for doubtful accounts........... $100 $ 59 $ -- $ 5 $ 164$285
- ---------------
(1) Charges for uncollectible accounts, net of recoveries.
(2) Allowance assumed through the acquisition of ULE.
26UNBV and UFC in fiscal
1998 and ULE in fiscal 1997.
(a)(3) Exhibits
The exhibits listed in the accompanying index to exhibits are filed or
incorporated by reference as a part of this annual report.
(b) Reports on Form 8-K
The Company filed reports on Form 8-K on June 24, 1998, Form 8-K/A
on August 24, 1998 and Amendment 1 to Form 8-K/A Amendment 1 on August 25,
1998 reporting the purchase of UNBV and including the audited financial
statements of Philips Optoelectronics, B.V., a division of Koninklijke
Philips Electronics, N.V. in accordance with Rule 3.05 of Regulation S-X and
the pro forma financial information required by Article 11 of Regulation S-X.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 24, 199728, 1998 UNIPHASE CORPORATION
By: /s/ KEVIN N. KALKHOVEN
-----------------------------------------------------------
Kevin N. Kalkhoven
Chairman and Chief Executive
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kevin N. Kalkhoven and Danny E. Pettit,Anthony R.
Muller, and each of them, his or her attorneys-in-fact, each with the power
of substitution, for him or her in any and all capacities, to sign any
amendments to this Report on Form 10-K, and to file the same with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATESignature Title Date
- ----------------------------------------------- ------------------------- ------------------------------------------------ ----------------------------- ------------------
/s/ KEVIN N. KALKHOVEN Chairman and Chief Executive September 24, 199728, 1998
- ---------------------------------------------------------------------------- Officer (Principal Executive Officer
Kevin N. Kalkhoven (Principal Executive
Officer)
/s/ DANNY E. PETTITANTHONY R. MULLER Senior Vice President, Finance, September 24, 199728, 1998
- ---------------------------------------------------------------------------- Chief Financial
Anthony R. Muller Officer
Danny E. Pettit and Secretary
(Principal Financial and
Accounting Officer)
/s/ WILLIAM B. BRIDGES Director September 24, 1997
- -----------------------------------------------
William B. Bridges
/s/ ROBERT C. FINK Director September 24, 199728, 1998
- ----------------------------------------------------------------------------
Robert C. Fink
/s/ CATHERINE P. LEGO Director September 24, 199728, 1998
- ----------------------------------------------------------------------------
Catherine P. Lego
/s/ STEPHEN C. JOHNSON Director September 28, 1998
- ----------------------------------------------------------------------------
Stephen C. Johnson
/s/ ANTHONY R. MULLERWILSON SIBBETT, Ph.D. Director September 24, 199728, 1998
- -----------------------------------------------
Anthony R. Muller
Director
- ----------------------------------------------------------------------------
Wilson Sibbett, Ph.D.
/s/ CASIMIR S. SKRZYPCZAK Director September 28, 1998
- ----------------------------------------------------------------------------
Casimir S. Skrzypczak
/s/ PETER GUGLIELMI Director September 28, 1998
- -----------------------------
Peter Guglielmi
/s/ WILLEM HAVERKAMP Director September 28, 1998
- -----------------------------
Willem Haverkamp
/s/ Martin Kaplan Director September 28, 1998
- -----------------------------
Martin Kaplan
27
29
UNIPHASE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 19971998
EXHIBIT
NUMBER EXHIBIT DESCRIPTIONExhibit
Number Exhibit Title
- ------------- -------------------------------------------------------------------------------------------------------------------------------------
2.1(13)* Exhibit D to Purchase Agreement among Uniphase Corporation,
International Business Machines Corporation, and Uniphase Laser
Enterprise AG (previously filed)
3(i)(b)(2)(1) Amended and Restated Certificate of Incorporation.
3(i)(c) Certificate of Amendment to Amended and Restated Certificate of
Incorporation
3(i)(d) Certificate of Designation
3(ii)(c)(7)(6) Bylaws of the Registrant, as amended.
10.1(2)10.1(1) Superseding Patent License Agreement, dated June 21, 1989,
between Patlex 10.2(2) Corporation and the Registrant.
10.2(1) Agreement, dated December 2, 1991, between Crosfield
Electronics Limited and the Registrant.
10.3(2)10.3(1) License Agreement, dated December 18, 1991, between The Regents
of University of California and the Registrant.
10.4(2)10.4(1) License Agreement, dated August 2, 1993, between Research
Corporation Technologies, Inc., and the Registrant.
10.5(3)10.5(2) 1984 Amended and Restated Stock Plan.
10.6(3) 1993 Flexible Stock Incentive Plan.
10.7(3)10.6(2) 1993 Amended and Restated Employee Stock Purchase Plan.
10.8(2)10.7(1) Patent License Agreement, dated October 29, 1993, by and
between the Registrant and Molecular Dynamics, Inc.
10.9(4) License Agreement, May 9, 1994, between I.E. Optomech Ltd. and the
Registrant.
10.10(5)10.8(4) Loan and Security Agreement, dated January 28, 1997 between
Bank of the West and the Registrant.
10.11(6)10.9(5) Distributor Agreement, dated October 1, 1994, between Innotech
Corporation and the Registrant.
10.10(5) Amendment, dated July 14, 1995, to Lease, dated November 6,
1984, between Alexander/Dorothy Scheflo and the Registrant.
10.11(5) Nonexclusive Sublicense Agreement, dated July 14, 1995, between
Coherent, Inc. and the Registrant.
10.12(5) Sublicense Agreement, dated May 26, 1995, between Stanford
University and the Registrant.
10.12(6) Joint Venture Agreement, dated July 24, 1995, between Daniel
Guillot and the Registrant.
10.13(6) Amendment, dated July 14, 1995, to Lease, dated November 6, 1984, between
Alexander/Dorothy Scheflo and the Registrant.
10.14(6) Laser Technology Sublicense Agreement, dated October 13, 1994, between The
University Court of The University of St. Andrews through I.E. Optomech and
theRegistrant.
10.15(6) Nonexclusive Sublicense Agreement, dated July 14, 1995, between Coherent,
Inc. and the Registrant.
10.16(6) Sublicense Agreement, dated May 26, 1995, between Stanford University and
the Registrant.
10.17(6)10.13(5) License Agreement, dated June 8, 1995, between ISOA, Inc. and
the Registrant.
10.18(6) Research and Development Contract, dated January 18, 1995, between the
National Institute of Standards and Technology to the Registrant.
10.19(8)10.14(7) Purchase and Sale Agreement between Registrant and
Tasman-Sterling Associates, a California general partnership,
dated January 30, 1996.
10.20(9) Form of Stock Purchase Agreement between Registrant, Fiberoptic Alignment
Solutions, Inc., an Illinois corporation ("FAS"), Uniphase
Telecommunications Products, Inc., a Delaware corporation, and the
shareholders of FAS named therein, and Amendment No. 1 thereto datedas of
May 31, 1996.
28
30
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------------- ----------------------------------------------------------------------------
10.21(10)10.15(9) Form of Agreement between Registrant and GCA Fibreoptics
Limited for the Sale and Purchase of the entire issued shares
capital of GCA Fibreoptics Limited as of May 24, 1996.
10.22(7)10.16(6) Joint Venture agreement, dated July 24, 1995, between Daniel
Guillot and the Registrant, as amended October 6, 1995.
10.23(7) OEM Agreement, dated November 20, 1995, between the Registrant and Tencor
Instruments.
10.24(7) License Agreement, dated November 20, 1995, between the Registrant and
Tencor Instruments.
10.25(11)10.17(10) Amended and Restated 1993 Flexible Stock Incentive Plan.
10.26(12)10.18(11) OEM Agreement dated July 24, 1997 by and between KLA-Tencor
Corporation and the Registrant.
10.28(1)10.19(12) Purchase Agreement amongamoung Uniphase Corporation, International
Business Machines Corporation and Uniphase Laser Enterprise AG
10.29(1)10.20(12) Technology License Agreement
10.30(1)10.21(12) Patent License Agreement
10.31(1)10.22(12) The Agreement for Exchange of Confidential Information
13 Portions10.23 (16) Master Purchase Agreement dated as of May 29, 1998, by and
among Koninklijke Philips Electronics N.V., Uniphase
Corporation, Uniphase Opto Holdings, Inc., and Uniphase
International C.V.
10.24(16) Stockholder Agreement dated as of June 9, 1998, by and between
Uniphase Corporation. and Koninklijke Philips Electronics N.V.
10.25(16) Certificate of Designation of the 1997 Annual Report to Stockholders expressly incorporatedSeries A Preferred Stock
dated as of May 29, 1998, executed by reference herein.Uniphase Corporation.
10.26(16) Series A Preferred Conversion and Redemption Agreement dated as
of June 9, 1998, by and between Uniphase Corporation and
Koninklijke Philips Electronics N.V.*
10.27(16) Asset Sale Agreement (U.S. Intangible Assets) dated as of June
9, 1998, by and between Uniphase Corporation and Koninklijke
Philips Electronics N.V.
10.28(16) Asset Sale Agreement (Foreign Intangible Assets) dated as of
June 9, 1998, by and between Uniphase Corporation and
Koninklijke Philips Electronics N.V.
10.29(16) Lease dated as of June 9, 1998 between Uniphase Netherlands
B.V. and Nederlandse Philips Bedrijven B.V.
10.30(16) Lease dated as of June 9, 1998 between Uniphase Netherlands
B.V. and Nederlandse Philips Bedrijven B.V.
10.31(16) Site Services Agreement dated as of June 9, 1998 between
Uniphase Netherlands B.V. and Nederlandse Philips Bedrijven B.V.
10.32 1998 Employee Stock Purchase Plan
21.1 Subsidiaries of the Registrant.Registrant
23.1 Consent of Ernst & Young LLP, independent auditors.auditors
24.1 Powers of Attorney. (See Page 26)
27Attorney
27.1 Financial Data Schedule for the Years Ended June 30, 1998,
1997 and 1996.
27.2 Financial Data Schedule for the Quarters Ended September 30,
and December 31, 1997.
- ---------------
* The SEC has granted confidential treatment for certain portions of this
exhibit.
(1) Incorporated by reference to the exhibit to the Company's current Report on
Form 8-K filed March 25, 1997.
(2) Incorporated by reference to the exhibits filed with the
Registrant's registration statement on Form S-1, file number
33-68790, which was declared effective November 17, 1993.
(3)(2) Incorporated by reference to the exhibits filed with the
Registrant's registration statement on Form S-8, file number
33-74716 filed with the Securities and Exchange Commission on
February 1, 1994.
(4)(5) Incorporated by reference to the exhibits filed with the
Registrant's annual report on Form 10-K10- K for the period ended June
30, 1994.
(5)(6) Incorporated by reference to the exhibits filed with the
Registrant's quarterly report on Form 10-Q for the period ended
December 31, 1996 as filed on February 14, 1997.
(6)(7) Incorporated by reference to the exhibit filed with the
Registrant's annual report on form 10-K10- K for the period ended June
30, 1995.
(7)(8) Incorporated by reference to exhibits filed with the Registrant's
quarterly report on Form 10-Q10- Q for the period ended December 31,
1995.
(8)(9) Incorporated by reference to the exhibit to the Company's current
Reportreport on Form 8-K filed February 22, 1996.
(9)(10) Incorporated by reference to the exhibit to the Company's form
S-3/A filed June 7, 1996.
(10)(11) Incorporated by reference to the exhibit to the Company's
Post-Effective Amendment No. 1 to Registration Statement on Form
S-3 filed June 20, 1996.
29
31
(11)(12) Incorporated by reference to exhibits filed with the Registrant's
registration statement on form S-8, file number 33-31722 filed
with the Securities and Exchange Commission on February 27, 1996.
(12)(13) Incorporated by reference to exhibits filed with Registrant's
registration statement on form S-3A, Amendment No. 2, file number
333-27931 filed with the Securities and Exchange Commission on
August 12, 1997. 30Confidential treatment has been requested with
respect to certain portions.
(14) Incorporated by reference to the exhibit to the Company's current
Report on Form 8-K filed March 25, 1997.
(15) Incorporated by reference to the exhibit to the Company's Report
on Form 8-K/A filed October 6, 1997.
(16) Incorporated by reference to the exhibit to the Company's current
Report on Form 8-K filed June 24, 1998.