Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
JDSU > SEC Filings for JDSU > Form 10-Q on 6-Nov-2013All Recent SEC Filings

Show all filings for JDS UNIPHASE CORP /CA/

Form 10-Q for JDS UNIPHASE CORP /CA/


6-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as "anticipates," "believes," "can," "can impact," "could," "continue," "estimates," "expects," "intends," "may," "ongoing," "plans," "potential," "projects," "should," "will," "will continue to be," "would," or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. Forward-looking statements include statements such as:

† our expectations regarding demand for our products, including continued trends in end-user behavior and technological advancements that may drive such demand;

† our belief that the Company is well positioned to benefit from certain industry trends and advancements, and our expectations of the role we will play in those advancements;

† our plans for growth and innovation opportunities;

† our plans to continue to operate as a Company comprised of a portfolio of businesses with a focus on optical and broadband innovation;

† financial projections and expectations, including profitability of certain business units, plans to reduce costs and improve efficiencies, the effects of seasonality on certain business units, continued reliance on key customers for a significant portion of our revenue, future sources of revenue, competition and pricing pressures, the future impact of certain accounting pronouncements and our estimation of the potential impact and materiality of litigation;

† our plans for continued development, use and protection of our intellectual property;

† our strategies for achieving our current business objectives, including related risks and uncertainties;

† our plans or expectations relating to investments, acquisitions, partnerships and other strategic opportunities;

† our strategies for reducing our dependence on sole suppliers or otherwise mitigating the risk of supply chain interruptions;

† our research and development plans; and

† our expectations related to our products, including costs associated with the development of new products, product yields, quality and other issues.

Management cautions that forward-looking statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements. These forward-looking statements are only predictions and are subject to risks and uncertainties including those set forth in Part II, Item 1A "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the Securities and Exchange Commission. Moreover, neither we assume nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Forward-looking statements are made only as of the date of this Report and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. We are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.

In addition, Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 29, 2013.

OUR INDUSTRIES AND QUARTERLY DEVELOPMENTS

JDSU provides network and service enablement solutions and optical products for telecommunications service providers, cable operators, and network equipment manufacturers. Our diverse technology portfolio also fights counterfeiting and enables commercial lasers for a range of applications.

In the first quarter of fiscal 2014, we changed the name of our Communication Test and Measurement segment to Network and Service Enablement ("NSE"). The name NSE more accurately reflects the value the Company brings to customers and the evolution of the Company's product portfolio, one that includes communications test instruments as well as microprobes, software and services that provide the visibility necessary throughout the network to improve service and application performance.

To serve its markets, JDSU operates the following business segments:

† Network and Service Enablement


Table of Contents

† Communications and Commercial Optical Products ("CCOP")

† Optical Security and Performance Products ("OSP")

Network and Service Enablement

NSE provides an integrated portfolio of network and service enablement solutions that provide end-to-end visibility and intelligence necessary for consistent, high-quality network, service, and application performance.

These solutions are made up of test instruments and customer experience management solutions ("CEM") supported by microprobes, monitoring software and optimization applications. This portfolio helps network operators and service providers effectively manage the continued growth of network traffic, devices and applications.

As a result of this continued and rapid growth, operators and providers are looking for new ways to drive business agility and generate revenue with innovative services, while continuing to focus on reducing operating costs and improving network performance. To this end, NSE provides world-class network and service enablement solutions, focusing on software and solutions offerings in high-growth markets while leveraging its instruments portfolio. These strategic investments are being placed globally to meet end-customer demand.

JDSU's network enablement solutions include instruments and software to build, activate, certify, troubleshoot, monitor, and optimize networks that are differentiated through superior efficiency, higher profitability, reliable performance, and greater customer satisfaction. These products include instruments and software that access the network to perform installation and maintenance tasks. Our service enablement solutions collect and analyze complete network data to reveal the true customer experience and opportunities for new revenue streams with enhanced management, control, optimization, and differentiation.

NSE solutions address lab and production environments, field deployment and service assurance for Ethernet and IP services over wireless and fixed communications networks, including storage networks. NSE's solutions include one of the largest test instrument portfolios in the industry, with hundreds of thousands of units in active use by major NEMs, operators and services providers worldwide. NSE is leveraging this installed base and knowledge of network management methods and procedures to develop advanced customer experience solutions. These solutions let carriers remotely monitor performance and quality of service and applications performance throughout the entire network. Remote monitoring decreases operating expenses, while early detection increases uptime, preserves revenue, and lets operators better monetize their networks.

NSE customers include wireless and fixed services providers, NEMs, government organizations and large corporate customers. These include major telecom, mobility and cable operators such as AT&T, Bell Canada, Bharti Airtel Limited, British Telecom, China Mobile, China Telecom, Chunghwa Telecom, Comcast, CSL, Deutsche Telecom, France Telecom, Reliance Communications, Softbank, Telefónica, Telmex, TimeWarner Cable, Verizon and Vodafone. NSE customers also include many of the NEMs served by our CCOP segment, including Alcatel-Lucent, Ciena, Cisco Systems, Fujitsu and Huawei. NSE customers also include chip and infrastructure vendors, storage-device manufacturers, storage-network and switch vendors, and deployed private enterprise customers. Storage-segment customers include Brocade, Cisco Systems and EMC.

Communications and Commercial Optical Products

CCOP is a leading provider of optical communications and commercial laser products and technologies and commercial laser components.

Serving telecommunications and enterprise data communications markets, CCOP products include components, modules, subsystems, and solutions for access
(local), metro (intracity), long-haul (city-to-city and worldwide), and submarine (undersea) networks, as well as SANs, LANs and WANs. These products enable the transmission and transport of video, audio and text data over high-capacity fiber-optic cables. CCOP maintains leading positions in the fastest-growing optical communications segments, including ROADMs and tunable XFPs and SFP+s. CCOP's growing portfolio of pluggable transceivers supports LAN/SAN needs and the cloud for customers building proprietary data center networks.

Original equipment manufacturers ("OEM") use CCOP lasers-fiber, diode, direct-diode, diode-pumped solid-state, and gas-that offer low- to high-power output with UV, visible and IR wavelengths. This broad product portfolio addresses the needs of laser clients in applications such as micromachining, materials processing, bio-instrumentation, consumer electronics, graphics, and medical/dental. Core laser technologies include continuous-wave, q-switched and mode-locked lasers addressing application needs from continuous-wave to megahertz repetition rates. Photonic power products transport energy over optical fiber, enabling electromagnetic- and radio-interference-free power and data transmission for remote sensors such as high-voltage line current monitors.


Table of Contents

Gesture recognition systems use both CCOP's gesture recognition light source and OSP's gesture recognition optical filters. These systems simplify the way people interact with technology by enabling the use of natural body gestures, like the wave of a hand, instead of using a device like a mouse or remote control. Emerging markets for gesture recognition include gaming platforms, home entertainment, mobile devices and personal computing.

CCOP's optical communications products customers include Adva, Alcatel-Lucent, Ciena, Cisco Systems, Ericsson, Fujitsu, Huawei, Infinera, Nokia Solutions and Networks, and Tellabs. CCOP's lasers customers include Amada, ASML, Beckman Coulter, Becton Dickinson, Disco, Electro Scientific Industries, and KLA-Tencor.

Optical Security and Performance Products

OSP designs, manufactures, and sells products targeting anti-counterfeiting, consumer electronics, government, healthcare, and other markets.

OSP's security offerings for the currency market include Optically Variable Pigment ("OVP®"), Optically Variable Magnetic Pigment ("OVMP®") and banknote thread substrates. OVP® enables a color-shifting effect used by banknote issuers and security printers worldwide for anti-counterfeiting applications on currency and other high-value documents and products. OVP® protects the currencies of more than 100 countries today.

Leveraging its expertise in spectral management and its unique high-precision coating capabilities, OSP improves the performance of a range of products in the consumer-electronics market. For example, gesture recognition devices designed for gaming platforms use OSP optical filters.

OSP value-added solutions meet the stringent requirements of commercial and government customers in aerospace and defense. In the aerospace industry, JDSU precision optical filters are a critical component in satellite and spacecraft power- and temperature-control systems. OSP also supplies anti-reflection coatings, beamsplitters, optical filters, laser optics, solar reflectors, and mirrors for a variety of defense and security applications including guidance systems, high-energy laser systems, battlefield eye protection, infrared night-vision systems, and secure optical communications.

During the fourth quarter of fiscal 2013, we made a decision to cease production of certain legacy custom optic products at the end of their lifecycle, including anti-reflection products, solar cell covers, and front-surface mirrors for display and office automation applications as well as certain infrared and box coater solutions. Based on customer requests, we have extended the phase out of these solutions, originally planned to be completed by the end of the second quarter of fiscal 2014, to the end of the third quarter of fiscal 2014.

OSP serves customers such as 3M, Barco, Kingston, Lockheed Martin, Northrup Grumman, Pan Pacific, Seiko Epson, and SICPA.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See "Note 2. Recently Issued Accounting Pronouncements" regarding the effect of certain recent accounting pronouncements on our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a description of the critical accounting policies that affect our more significant judgments and estimates used in the preparation of our consolidated financial statements, refer to Item 7 on Management Discussion and Analysis in our Fiscal 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC").


Table of Contents

RESULTS OF OPERATIONS

The results of operations for the current period are not necessarily indicative of results to be expected for future periods. The following table summarizes selected Consolidated Statements of Operations items (in millions, except for percentages):

                                         Three Months Ended
                                  September 28,       September 29,                    Percentage
                                      2013                2012            Change         Change
Segment Net Revenue:
NSE                              $         171.9     $         169.5    $       2.4           1.4 %
CCOP                                       204.6               194.9            9.7           5.0
OSP                                         52.5                56.5           (4.0 )        (7.1 )
Net revenue                      $         429.0     $         420.9    $       8.1           1.9 %

Amortization of acquired
technologies                     $          11.4     $          17.1    $      (5.7 )       (33.3 )%
Percentage of net revenue                    2.7 %               4.1 %

Gross profit                               185.2               172.6           12.6           7.3 %
Gross margins                               43.2 %              41.0 %

Research and development                    69.6                61.6            8.0          13.0 %
Percentage of net revenue                   16.2 %              14.6 %

Selling, general and
administrative                             107.1               104.7            2.4           2.3 %
Percentage of net revenue                   25.0 %              24.9 %

Restructuring and related
(benefits) charges                          (0.8 )               2.7           (3.5 )      (129.6 )%
Percentage of net revenue                   (0.2 )%              0.6 %

Loss from discontinued
operations, net of tax                         -                (1.8 )          1.8        (100.0 )%
Percentage of net revenue                      - %               0.4 %

Net Revenue

Net revenue increased by $8.1 million, or 1.9%, during the three months ended September 28, 2013 compared to the same period a year ago. This increase was primarily due to increases in our CCOP and NSE segments, partially offset by a decrease in our OSP segment as discussed below.

NSE net revenue increased by $2.4 million, or 1.4%, during the three months ended September 28, 2013 compared to the same period a year ago. This increase was driven by $19.6 million of net revenue increases primarily from our Media Access and Content and Fiber product lines primarily due to an increase in net revenue from key customers in our Media Access and Content product line. This increase was partially offset by $17.2 million of net revenue decreases primarily from our CEM, Cloud and Data Center and Ethernet product lines. These decreases were primarily due to (i) a decrease in net revenue from legacy products in our CEM product line, (ii) a reduction in net revenue due to the wind down of certain products in our Cloud and Data Center product line and
(iii) a decline in volume from key customers in our Ethernet product line in the current period.

CCOP net revenue increased by $9.7 million, or 5.0%, during the three months ended September 28, 2013 compared to the same period a year ago. This increase was driven by $41.4 million of net revenue increases primarily from our Gesture Recognition Light Source, Circuit Packs and Pluggable product lines. These increases were primarily due to the continued ramp of a new product in our Gesture Recognition Light Source product line in addition to increased telecom and datacom demand for our Circuit Packs and Pluggable product lines. These increases were partially offset by $31.7 million of net revenue decreases primarily from our ROADMs, Tunables and Passive Components product lines due to lower overall demand.

OSP net revenue decreased by $4.0 million, or 7.1%, during the three months ended September 28, 2013 compared to the same period a year ago. This decrease was driven by $5.5 million of net revenue decreases primarily from our Anti-Counterfeiting product


Table of Contents

line due to higher cyclical demand for currency product in the same period a year ago. This decrease was partially offset by $1.5 million of net revenue increases primarily from our Consumer and Industrial product line driven by demand for our new gesture recognition product released in the second half of fiscal 2013.

Going forward, we expect to continue to encounter a number of industry and market risks and uncertainties that may limit our visibility, and consequently, our ability to predict future revenue, profitability and general financial performance, and that could create quarter over quarter variability in our financial measures. For example, continued economic issues in Europe have led to uncertain demand in our NSE and optical communications product portfolios and we cannot predict when or to what extent this uncertainty will be resolved. Our revenues, profitability, and general financial performance may also be affected by: (a) strong pricing pressures, particularly within our optical communications markets, due to, among other things, a highly concentrated customer base, increasing competition, particularly from Asia-based competitors, and a general commoditization trend for certain products; (b) high product mix variability, particularly in our CCOP and NSE markets, which affects revenue and gross profit; (c) continuing service provider seasonality, which causes demand, revenue and profitability volatility at each level of the communications industry; (d) the current trend of communication industry consolidations, which is expected to continue, that directly affects our CCOP and NSE customer bases and adds additional risk and uncertainty to our financial and business predictability; and (e) activities related to our program of contract manufacturing transitions in our NSE segment that present additional supply chain and product delivery disruption risks, yield and quality concerns and risk of increased cost. These risks limit our ability to predict longer-term revenue, profitability and general financial performance.

We operate primarily in three geographic regions: Americas, Europe Middle East and Africa ("EMEA") and Asia-Pacific. The following table presents net revenue by geographic regions (in millions):

                            Three Months Ended
                     September 28,      September 29,
                          2013               2012
Net revenue:
Americas            $  199.2    46.4 % $  209.8    49.8 %
EMEA                   104.0    24.3       97.0    23.0
Asia-Pacific           125.8    29.3      114.1    27.2
Total net revenue   $  429.0   100.0 % $  420.9   100.0 %

Net revenue was assigned to geographic regions based on customer shipment locations. Net revenue for Americas included net revenue from the United States of $144.7 million and $163.9 million, respectively, for the three months ended September 28, 2013 and September 29, 2012. Net revenue from customers outside the Americas represented 53.6% and 50.2%, respectively, of net revenue for the three months ended September 28, 2013 and September 29, 2012. We expect revenue from customers outside of North America to continue to be an important part of our overall net revenue and net revenue growth opportunities.

Gross Margin

Gross margin increased 2.2 percentage points during the three months ended September 28, 2013 from 41.0% in the same period a year ago to 43.2% in the current period. The increase was primarily due to a reduction in amortization of developed technology in the current period due to certain intangible assets becoming fully amortized in fiscal 2013 and improvements in CCOP gross margin driven by an improvement in production costs and a more favorable product mix as revenue from new products, which generally have higher margins, increased in the current period. This was partially offset by an increase in CCOP net revenue, which yields lower gross margin generally than our other two segments and represented a higher percentage of consolidated net revenue in the current period.

As discussed in more detail under "Net Revenue" above, we sell products in certain markets that are consolidating, undergoing product, architectural and business model transitions, have high customer concentrations, are highly competitive (increasingly due to Asia-Pacific-based competition), are price sensitive and/or are affected by customer seasonal and mix variant buying patterns. We expect these factors to continue to result in variability of our gross margin.

Research and Development ("R&D")

R&D expense increased by $8.0 million, or 13.0%, during the three months ended September 28, 2013 compared to the same period a year ago. This increase was primarily driven by a $6.0 million increase in labor and benefits expense primarily due to higher headcount and corresponding compensation associated with our continued investment in product development and a $1.9 million reduction in R&D offsets from customer funded product development projects in our CCOP segment in the current period.


Table of Contents

We believe that continuing our investments in R&D is critical to attaining our strategic objectives. We plan to continue to invest in R&D and new products that will further differentiate us in the marketplace and expect our investment in dollar terms to increase in future quarters.

Selling, General and Administrative ("SG&A")

SG&A expense increased by $2.4 million, or 2.3%, during the three months ended September 28, 2013 compared to the same period a year ago. This increase was primarily driven by a $4.9 million increase in labor and benefits expense primarily due to higher headcount and corresponding compensation. This increase was partially offset by a $0.8 million reduction in accelerated depreciation expense related to the exit of facilities in the same period a year ago and a $0.7 million decrease in external costs due to the insourcing of application servers in the fourth quarter of fiscal 2013 net of an increase in associated depreciation expense.

We intend to continue to focus on reducing our SG&A expense as a percentage of revenue. However, we have in the recent past experienced, and may continue to experience in the future, certain non-core expenses, such as mergers and acquisitions-related expenses and litigation expenses, which could increase our SG&A expenses and potentially impact our profitability expectations in any particular quarter.

Restructuring and Related Charges

We continue to reduce costs through targeted restructuring efforts intended to consolidate and rationalize business functions and related locations based on core competencies and cost efficiencies, to align our businesses in response to market conditions. We estimate annualized cost savings of approximately $18.5 million excluding any one-time charges as a result of the restructuring activities initiated in the past year. Refer to "Note 11. Restructuring and Related Charges" for more details.

During the three months ended September 28, 2013, we recorded benefits from restructuring activities of $0.8 million. These benefits relate to previously announced restructuring plans and are primarily the result of the following:

† We incurred restructuring and related benefits from previously announced restructuring plans in the first quarter of fiscal 2014 relating to Management reducing the number of employees impacted by the OSP Operational Realignment Plan which reduced the total liability for this plan by approximately $0.9 million.

During the first quarter of fiscal 2013, we recorded $2.7 million in restructuring and related charges. These charges were a combination of new and continuations of previously announced restructuring plans, primarily as a result of the following:

† During the first quarter of fiscal 2013, Management approved a plan to terminate the CPV product line within CCOP based on limited opportunities for market growth. As a result, a restructuring charge of $0.6 million was recorded towards severance and employee benefits for 13 employees in manufacturing, research and development and selling, general and administrative functions. The affected employees were located in North America, Europe and Asia. All employees have been terminated and all payments related to severance and benefits were paid by the end of the second quarter of fiscal 2013.

† We also incurred restructuring and related charges from previously announced restructuring plans in the first quarter of fiscal 2013 relating to the following: (i) $0.5 million for transfer costs in NSE which was the result of the repair outsourcing initiative approved by Management during the fourth quarter of fiscal 2012, (ii) $0.5 million for the exit of two leased sites in NSE for the plan approved during the fourth quarter of fiscal 2012 and
(iii) $1.1 million of additional severance and employee benefits arising primarily to adjust the accrual for restructuring plans announced in the fourth quarter of fiscal 2012 in NSE.

Our restructuring and other lease exit cost obligations are net of sublease income or lease settlement estimates of approximately $5.2 million. Our ability to generate sublease income, as well as our ability to terminate lease obligations and recognize the anticipated related savings, is highly dependent upon the economic conditions, particularly commercial real estate market conditions in certain geographies, at the time we negotiate the lease termination and sublease arrangements with third parties as well as the performances by such third parties of their respective obligations. While the amount we have accrued represents the best estimate of the remaining obligations we expect to incur in connection with these plans, estimates are subject to . . .

  Add JDSU to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for JDSU - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.