Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 0-22874

JDS Uniphase Corporation
(Exact name of registrant as specified in its charter)

(408) 546-5000
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year if changed since last report)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Number of shares of common stock outstanding as of January 31, 2003 was 1,415,344,055, including 153,531,201 exchangeable shares of JDS Uniphase Canada Ltd. Each exchangeable share is exchangeable at any time into common stock on a one-for-one basis, entitles a holder to dividend and other rights economically equivalent to those of the common stock, and through a voting trust, votes at meetings of stockholders of the Registrant.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)

See accompanying notes to condensed consolidated financial statements

2

JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per-share data)
(unaudited)

See accompanying notes to condensed consolidated financial statements

3

JDS UNIPHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)

See accompanying notes to condensed consolidated financial statements

4

JDS UNIPHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

        The financial information as of December 31, 2002 and for the three and six months ended December 31, 2002 and 2001 is unaudited, but includes all adjustments that JDS Uniphase Corporation (the "Company") considers necessary for a fair presentation of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information and rules and regulations of the Securities and Exchange Commission. Accordingly, such information does not include all of the information and footnotes required by U.S. GAAP for annual financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2002.

        The balance sheet at June 30, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results for the three and six months ended December 31, 2002 may not be indicative of results for the year ending June 30, 2003 or any future periods.

        The second quarters of fiscal 2003 and 2002 ended on December 28, 2002 and December 29, 2001, respectively. For comparative presentation purposes, all accompanying financial statements and footnotes thereto have been shown as ending on the last day of the calendar month.

Reclassifications:

        The following amounts reported in prior periods have been reclassified to conform to the current-period presentation:

Condensed Consolidated Balance Sheets:

•

Goodwill and other purchased intangibles of $509.7 million as of June 30, 2002 is now separated into goodwill of $332.2 million and other purchased intangibles of $177.5 million.



•

Current portion of capital lease obligations of $1.3 million as of June 30, 2002 is now included in other current liabilities of $143.2 million. In addition, long-term portion of capital lease obligations of $5.5 million as of June 30, 2002 is now included in other non-current liabilities of $8.9 million.

Condensed Consolidated Statements of Operations:

•

Amortization of purchased intangibles of $441.3 million for the three months ended December 31, 2001 is now separated into amortization of goodwill of $331.6 million and amortization of other purchased intangibles of $109.7 million. In addition, amortization of purchased intangibles of $884.6 million for the six months ended December 31, 2001 is now separated into amortization of goodwill of $664.3 million and amortization of other purchased intangibles of $220.3 million.



•

Reduction of goodwill and other long-lived assets of $1,267.6 million for the three months ended December 31, 2001 is now separated into reduction of goodwill of $1,265.1 million and reduction of other long-lived assets of $2.5 million. In addition, reduction of goodwill and other long-lived assets of $1,309.6 million for the six months ended December 31, 2001 is now separated into reduction of goodwill of $1,296.3 million and reduction of other long-lived assets of $13.3 million.

5

Recent Accounting Pronouncements:

SFAS No. 141 and SFAS No. 142:

        In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," which requires all business combinations initiated after June 30, 2001 be accounted for using the purchase method. In addition, SFAS No. 141 further clarifies the criteria to recognize purchased intangibles separately from goodwill. Specifically, SFAS No. 141 requires that an intangible asset may be separately recognized only if such an asset meets the contractual-legal criterion or the separability criterion.

        On July 1, 2002, in accordance with SFAS No. 141, the Company reassessed the goodwill and other purchased intangibles previously recorded in acquisitions prior to July 1, 2001 and determined that as of July 1, 2002, the Company had approximately $10.8 million of separately recognized purchased intangibles, consisting of acquired assembled workforce, that did not meet the new recognition criteria for an intangible asset to be recognized apart from goodwill. This amount was reclassified to goodwill on July 1, 2002.

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets," under which goodwill and other purchased intangibles with indefinite useful lives are no longer amortized but are reviewed for impairment annually, or more frequently if certain events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment test for goodwill involves a two-step process: step one consists of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount is in excess of the fair value, step two requires the comparison of the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. Any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill will be recorded as an impairment loss. The impairment test for purchased intangibles with indefinite useful lives consists of a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss. Purchased intangibles with finite useful lives continue to be amortized over their useful lives and are reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

        The Company adopted SFAS No. 142 on July 1, 2002. However, goodwill and purchased intangibles with indefinite useful lives acquired after June 30, 2001 were immediately subject to the non-amortization provision of SFAS No. 142. As such, goodwill totaling $236.8 million associated with the Company's acquisitions of the optical transceiver unit from IBM ("Datacom") in December 2001 and Scion Photonics ("Scion") in April 2002 was not amortized in fiscal 2002. The adoption of SFAS No. 142 is expected to have a material impact on the Company's consolidated financial position and results of operations primarily because goodwill is no longer amortized. Application of the non-amortization provisions has eliminated goodwill amortization of approximately $3.3 million and $10.8 million during the second quarter and first half of fiscal 2003, respectively, related to acquisitions completed prior to July 1, 2001.

        In conjunction with the implementation of SFAS No. 142, the Company completed the transitional impairment review related to the carrying value of goodwill as of July 1, 2002 and determined that there was no impairment beyond amounts previously recorded as of that date. For the three months ended September 30, 2002, due to the presence of impairment indicators for the goodwill associated with three of the Company's reporting units, the Company performed an additional impairment review of the goodwill associated with those reporting units during the first quarter of fiscal 2003 and recorded an estimated impairment charge of $224.4 million. The Company completed the impairment review during the second quarter of fiscal 2003 and recorded an additional impairment charge of $1.3 million (see Note 8).

6

        A reconciliation of the reported net loss and net loss per share to the amounts adjusted for the exclusion of amortization of: (i) goodwill from acquisitions; (ii) equity method goodwill related to ADVA (see Note 6); and (iii) assembled workforce, net of the related tax effect, was as follows (in millions, except per-share data):

SFAS No. 144:

        In August 2001, the FASB issued SFAS No. 144, which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and certain provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 retains the fundamental provisions of SFAS No. 121 related to: (i) the recognition and measurement of the impairment of long-lived assets to be held and used, and (ii) the measurement of long-lived assets to be disposed by sale. It provides more guidance on estimating cash flows when performing recoverability tests, requires long-lived assets to be disposed of other than by sale to be classified as held and used until disposal, and establishes more restrictive criteria to classify long-lived assets as held for sale. In addition, SFAS No. 144 supersedes the accounting and reporting provisions of APB Opinion No. 30 for the disposal of a segment of a business. However, it retains the basic provisions of APB Opinion No. 30 to report discontinued operations separately from continuing operations and extends the reporting of a discontinued operation to a component of an entity.

        The Company adopted SFAS No. 144 on July 1, 2002. Under SFAS No. 121, excluding asset write-downs associated with the Global Realignment Program, the Company recorded impairment charges of $5,979.4 million in fiscal 2002. The adoption of SFAS No. 144 may have a material impact on the Company's consolidated financial position and results of operations if the industry and economic downturn continues to affect the Company's operations and sales forecasts, primarily because SFAS No. 144 excludes goodwill, which may result in certain long-lived assets being subject to impairment charges sooner than they would have been recorded under SFAS No. 121. During the second quarter and first half of fiscal 2003, the Company recorded impairment charges of $0 and $154.6 million, respectively, under SFAS No. 144 (see Note 9).

7

SFAS No. 146:

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. In addition, SFAS No. 146 establishes that fair value is the objective for initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The effect of the adoption of SFAS No. 146 is dependent on the Company's related activities. As the Company continues to restructure its business under its Global Realignment Program (see Note 10), the Company expects that the adoption of SFAS No. 146 will have a material impact on its consolidated financial position and results of operations, primarily relating to the timing of recognition of future restructuring charges.

SFAS No. 148:

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure," which amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 expands the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The transition provisions do not currently have an impact on the Company's consolidated financial position and results of operations as the Company has not elected to adopt SFAS No. 123's fair value based method of accounting for stock-based employee compensation. The disclosure provisions of SFAS No. 148 are effective for financial statements for interim periods beginning after December 15, 2002. The Company will adopt the disclosure requirements in the third quarter of fiscal 2003.

Interpretation No. 45:

        In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," which requires a guarantor to recognize and measure certain types of guarantees at fair value. In addition, Interpretation No. 45 requires the guarantor to make new disclosures for these guarantees and other types of guarantees that are not subject to the initial recognition and initial measurement provisions. The disclosure requirements are effective for financial statements for interim or annual periods ended after December 15, 2002, while the recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of Interpretation No. 45 during the second quarter of fiscal 2003 (see Note 18) and will adopt the initial recognition and initial measurement provisions in the third quarter of fiscal 2003. The Company is in the process of evaluating the impact the initial recognition and initial measurement provisions will have on its consolidated financial position and results of operations.

Interpretation No. 46:

        In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," which requires companies to consolidate certain types of variable interest entities. Interpretation No. 46 is applicable: (i) immediately for all variable interest

8

entities created after January 31, 2003; or (ii) in the first fiscal year or interim period beginning after June 15, 2003 for those created before February 1, 2003. In accordance with Interpretation No. 46, the Company will be required to consolidate one operating lease pertaining to two separate properties, generally known as a "synthetic lease," beginning in the first quarter of fiscal 2004. Please refer to Note 7 below for further discussion of the potential impact the consolidation of the operating lease will have on the Company's consolidated financial position and results of operations. Except for this operating lease, Interpretation No. 46 is not expected to have a material impact on the Company's consolidated financial position and results of operations.

Note 2. Derivative Instruments and Hedging Activities

        The Company's objectives and strategies for holding derivatives are to minimize the transaction and translation risks associated with non-functional currency transactions. The Company does not use derivatives for trading purposes.

        The Company conducts its business and sells its products directly to customers primarily in North America, Europe and Asia-Pacific. In the normal course of business, the Company's financial position is routinely subject to market risks associated with foreign currency rate fluctuations due to balance sheet positions in other local foreign currencies. The Company's policy is to ensure that business exposures to foreign exchange risks are identified, measured and minimized using foreign currency forward contracts to reduce such risks. The foreign currency forward contracts generally expire within 40 days. The change in fair value of these foreign currency forward contracts is recorded under "Interest and other income, net" in the Company's Condensed Consolidated Statements of Operations. At December 31, 2002, the face value of these foreign currency forward contracts was approximately $40.0 million and the change in fair value of such contracts was not material.

Note 3. Inventories

        The components of inventories consisted of the following (in millions):

        The Company recorded write-downs of excess and obsolete inventories of $16.5 million and $35.4 million for the three and six months ended December 31, 2002, respectively, and $79.8 million and $142.2 million for the three and six months ended December 31, 2001, respectively. The Company recorded these write-downs primarily as a result of the significant decline in the overall levels of forecasted sales as well as changes in expected product mix.

        In addition, the Company consumed previously written-down inventories of $15.2 million and $34.3 million for the three and six months ended December 31, 2002, respectively, and $27.2 million and $31.8 million for the three and six months ended December 31, 2001, respectively.

9

Note 4. Goodwill

        The following table presents the changes in goodwill allocated to the reportable segments (in millions):

Note 5. Other Purchased Intangibles

        The following tables present details of the Company's purchased intangibles other than goodwill (in millions):

        Amortization of purchased intangibles was $3.8 million and $12.2 million for the three and six months ended December 31, 2002, respectively, and $109.7 million and $220.3 million for the three and six months ended December 31, 2001, respectively.

10

        Based on the carrying amount of the purchased intangibles as of December 31, 2002, the estimated future amortization is as follows (in millions):

Note 6. Investments

Reduction in Fair Value of Investments:

        The Company periodically reviews its investments for impairment. In the event the carrying value of an investment exceeds its fair value and the decline in fair value is determined to be other-than-temporary, the Company writes down the value of the investment to its fair value. The following table summarizes the components of the reductions in fair value of available-for-sale and non-marketable equity investments (in millions):

        As of December 31, 2002, the Company held 24.7 million shares of Nortel common stock with a fair value of $41.0 million. The Company acquired the shares as a result of the sale of its Zurich, Switzerland subsidiary to Nortel during the third quarter of fiscal 2001. No impairment charge was recorded on the Nortel investment during the three and six months ended December 31, 2002.

        During the second quarter of fiscal 2002, the Company entered into an automation development alliance agreement with Adept (see Note 16). In connection with this alliance, the Company invested $25.0 million in Adept's convertible preferred stock. During the first quarter of fiscal 2003, the Company determined that the decline in fair value of its Adept investment was other-than-temporary and recorded an impairment charge $19.1 million. No impairment charge was recorded during the three and six months ended December 31, 2001.

Equity Method Investments:

        The Company accounts for investments in 50% or less owned companies over which it has the ability to exercise significant influence using the equity method of accounting. As of December 31, 2002, the Company had a commitment to provide additional funding of up to $32.4 million to certain venture capital investment partnerships.

11

        The following table summarizes the charges related to the Company's equity method investments (in millions):

ADVA:

        As of December 31, 2002, the Company had a 29% ownership in ADVA, a German company publicly traded in Germany that develops and manufactures fiberoptic components and products. During the three and six months ended December 31, 2001, the Company recorded $0 and $0.7 million, respectively, of amortization related to the difference between the cost of the investment and the underlying equity in the net assets of ADVA.

        During the three and six months ended December 31, 2001, the Company recorded total charges of $0 and $13.9 million, respectively, to write down the basis of its investment in ADVA as the Company determined the decline in fair value was other-than-temporary.

        During the three and six months ended December 31, 2001, the Company recorded $22.1 million and $26.5 million, respectively, as its pro rata share of ADVA's net losses under the equity method. No pro rata share of ADVA's net losses was recorded during the three and six months ended December 31, 2002. The Company reduced the carrying amount of its investment in ADVA to $0 during the second quarter of fiscal 2002. As the Company had no commitment to provide additional funding to ADVA, no further pro rata share of ADVA's net losses was recorded after the second quarter of fiscal 2002. Should ADVA report net income in future periods, the Company will resume applying the equity method after its pro rata share of ADVA's net income exceeds its pro rata share of ADVA's net losses not recognized during the periods the equity method was suspended.

Other Equity Method Investments:

        During the three and six months ended December 31, 2002, the Company recorded $4.0 million and $6.5 million, respectively, as its pro rata share of net losses in the Photonics Fund and other equity method investments. During the three and six months ended December 31, 2001, these charges totaled $3.7 million and $4.0 million, respectively.

Note 7. Commitments and Contingencies

Pending Litigation:

The Securities Class Actions:

        Beginning on March 27, 2002, the first of numerous federal securities class actions was filed against the Company and several of its current and former officers and directors. On July 26, 2002, the Northern District of California consolidated all the securities actions then filed in or transferred to that court under the title In re JDS Uniphase Corporation Securities Litigation, Master File No. C-02-1486 CW, and appointed the Connecticut Retirement Plans and Trust Funds as Lead Plaintiff.

        An amended consolidated complaint was filed on October 11, 2002. It purports to be brought on behalf of a class consisting of those who acquired the Company's securities from July 27, 1999 through July 26, 2001, as well as on behalf of subclasses consisting of those who acquired the Company's

12

common stock pursuant to its acquisitions of OCLI, E-TEK and SDL. The complaint seeks unspecified damages and alleges various violations of the federal securities laws, specifically Sections 10(b), 14(a), 20(a) and 20A of the Securities Exchange Act of 1934 and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933. It also names one of the Company's stockholders as a defendant. On December 13, 2002, the Company moved to dismiss the amended consolidated complaint. On January 23, 2003, plaintiffs filed an opposition. The Company's reply brief is due on February 24, 2003, and a hearing is scheduled for March 14, 2003. No trial date has been set.

        On July 26, 2002, a securities class action captioned Zelman v. JDS Uniphase Corp., No. 02-CV-6002, was filed in the District Court for the Southern District of New York. The complaint, brought by a stockholder purporting to represent a class of purchasers of certain GOALS debt securities issued by an investment bank during the period from March 6, 2001 through September 26, 2001, named the Company, one of its stockholders, and several of its current and former officers and directors as defendants and alleges violations of the federal securities laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5. The action was transferred to the Northern District of California on September 11, 2002 and assigned a Northern District case number, No. C-02-4656 MJJ. On October 31, 2002, the District Court related the action to In re JDS Uniphase Corporation Securities Litigation, but did not consolidate the action with In re JDS Uniphase Corporation Securities Litigation. On January 7, 2003, the Court appointed Shirley Zelman as Lead Plaintiff. No trial date has been set.

The Derivative Actions:

        Eleven derivative actions purporting to be brought on the Company's behalf have been filed in state and federal courts against several of its current and former officers and directors. Some of these actions also named its independent auditors, Ernst & Young LLP, as a defendant. All were based on the same factual allegations and circumstances as the purported securities class actions and alleged state law claims for breach of fiduciary duty, misappropriation of confidential information, waste of corporate assets, contribution and indemnification, insider trading, abuse of control, gross mismanagement and unjust enrichment. These actions seek unspecified damages and no trial date has been scheduled in any of these actions. These eleven actions included: Coykendall v. Kaplan, CV 806911, filed on April 11, 2002 in California Superior Court for the County of Santa Clara; Plotkin v. Kaplan, CV 807496, filed on May 1, 2002 in the same court; Wright v. Straus, CV 807799, filed on May 13, 2002 in the same court; Schienberg v. Straus, CV810211, filed on August 9, 2002 in the same court; Bogosian v. Straus, CIV 422822, filed on May 16, 2002 in California Superior Court for the County of San Mateo; Abo v. Kaplan, CIV 423693, filed on June 19, 2002 in the same court; Williams v. Ernst & Young, CIV 425385, filed on September 3, 2002 in the same court; Equitec-Cole Roesler, LLC v. JDS Uniphase Corp., No. CIV 426235, filed on October 8, 2002 in the same court; Cromas v. Straus, Civil Action No. 19580, filed on April 25, 2002 in the Delaware Court of Chancery for New Castle County; Corwin v. Kaplan, No. C-02-2020-VRW, filed on April 24, 2002 in the District Court for the Northern District of California; and Shalom v. Kaplan C-02-2989 SC ARB, filed on June 21, 2002 in the same court.

        On September 27, 2002, the District Court for the Northern District of California vacated its order to show cause regarding the Court's jurisdiction over the federal court actions (Corwin and Shalom) and consolidated the two actions into Corwin v. Kaplan, Master File No. C-02-2020 CW. On December 13, 2002, the Company moved to dismiss the consolidated federal actions. On January 23, 2003, plaintiffs filed an opposition. The Company's reply brief is due on February 24, 2003, and a hearing is scheduled for March 14, 2003.

        On January 27, 2003, the California state derivative actions were coordinated and consolidated in Santa Clara County Superior Court under the title In re JDS Uniphase Corporation Derivative Litigation,

13

Master File No. CV 806911. Plaintiffs must file a consolidated amended derivative complaint by March 13, 2003. No trial date has been set in either the state or federal court actions.

The OCLI Shareholder Action:

        On February 3, 2003, an action captioned Pang v. Dwight, No. 02-231989, was filed in California Superior Court for the County of Sonoma. The complaint was brought by a stockholder who purports to represent a class of former shareholders of OCLI who exchanged their OCLI common stock for the Company's common stock when the Company acquired OCLI in February 2000. The complaint names as defendants former directors of OCLI and asserts causes of action for breach of fiduciary duty and breach of the duty of candor. The action seeks unspecified damages and no trial date has been scheduled.

        The Company believes that the factual allegations and circumstances underlying the securities class actions, the derivative actions and the OCLI shareholder action are without merit. The costs of defending these lawsuits have been significant, will continue to be costly and may not be covered by the Company's insurance policies. The defense of these lawsuits could also result in continued diversion of the management's time that could prove to be disruptive to normal business operations. There can be no assurance that the Company will prevail or that the costs of defending these lawsuits will be covered by its insurance policies. An unfavorable outcome or settlement of this litigation could have a material adverse effect on the Company's financial position, liquidity or results of operations.

Other Contingencies:

        During the second quarter of fiscal 2003, the Company determined that a payment on a dispute was probable and estimable. As a result, the Company accrued $8.3 million in connection with the dispute and included the amount under "Selling, general and administrative" expense in the Condensed Consolidated Statement of Operations for the three months ended December 31, 2002. The amount represents the Company's current best estimate of the cost to resolve such dispute. The actual cost may be greater or less than the accrued amount.

        The Company is a party to other litigation matters and claims, which are normal in the course of its operations. While the results of such litigation matters and claims cannot be predicted with certainty, the Company believes that their final outcome will not have a material adverse impact on the Company's financial position, liquidity, or results of operations.

Lease Commitments:

        As of December 31, 2002, the Company had one master lease agreement with a special purpose entity (the "Lessor"), managed and administered by a trustee, for the development of manufacturing, research and development and administrative facilities in Melbourne, Florida and Raleigh, North Carolina. Under a related credit agreement, a group of financial institutions has committed to fund the Lessor a maximum of $59.6 million to develop the projects. As of December 31, 2002, $42.3 million have been drawn and no further withdrawal is permitted as the funding period has expired in accordance with the lease agreement. The lease has an initial term of five years, which began on August 4, 2000, and the Company has an option to renew the lease for two additional terms of one year each, subject to certain conditions. At any time prior to the expiration date of the lease, the Company may, at its option, purchase the properties from the Lessor for $44.6 million (the "Termination Value"), representing the principal balance of the loan and capitalized interest. If the Company elects not to purchase the properties, it may exercise its option to sell them to a third party at market value within 180 days before the end of the lease term. Under the sale option, the Company keeps any sale proceeds in excess of the Termination Value. If the sale proceeds are below the Termination Value, the Company is obligated to pay up to approximately $37.5 million of any shortfall.

14

        On an annual basis or when indicators of impairment exist, the Company is required to evaluate the expected fair value of the properties at the end of the lease term. In the event the Company determines that it is probable and estimable that the expected fair value of the properties at the end of the lease term will be less than the Termination Value, the Company accrues for the estimated loss. The Company recorded the following charges in connection with the estimated loss on the properties (in millions):

Raleigh, North Carolina Properties:

        In connection with its Phase 2 restructuring activities, the Company announced its plan to vacate buildings located in the Raleigh, North Carolina site (see Note 10). During the first quarter of fiscal 2002 and second quarter of fiscal 2003, the Company accrued losses of $11.8 million and $3.5 million, respectively, representing the difference between the expected fair value of the properties at the end of the lease term and their carrying value. The Company recorded the charges under "Restructuring charges" in the Condensed Consolidated Statements of Operations.

Melbourne, Florida Properties:

        During the second quarter of fiscal 2003, the Company accrued a loss of $7.4 million, representing the difference between the expected fair value of the properties at the end of the lease term and their carrying value, and recorded the amount as an asset, which is being amortized on a straight-line basis through the end of the lease term. As of December 31, 2002, $2.8 million were included under "Other current assets" and $3.9 million were included under "Other assets" in the Condensed Consolidated Balance Sheet. Amortization expense totaled $0.7 million in the second quarter of fiscal 2003 and was recorded under "Selling, general and administrative expense" in the Condensed Consolidated Statement of Operations.

        Neither the real estate assets nor the debt associated with the development of the projects was included on the Company's Condensed Consolidated Balance Sheet as of December 31, 2002. In January 2003, the FASB issued Interpretation No. 46, which will require the Company to consolidate the real estate assets and liabilities associated with the operating lease beginning in the first quarter of fiscal 2004. If the Company were to consolidate this operating lease on January 1, 2003, the potential impact on the Company's financial position and results of operations would be as follows:

Condensed Consolidated Balance Sheet:

15

Condensed Consolidated Statement of Operations:

        After consolidation, the Company would incur additional depreciation of approximately $0.1 million quarterly. In addition, quarterly rent expense of approximately $0.2 million, which consists of interest-only payment based on a variable London Interbank Offer Rate ("LIBOR"), would be classified as interest expense in the Condensed Consolidated Statement of Operations as a result of the consolidation.

        As of December 31, 2002, the Company restricted $46.9 million of its short-term investments as collateral for specified obligations of the Lessor under the lease. These investment securities are restricted as to withdrawal and are managed by third parties subject to certain limitations under the Company's investment policy. In addition, the Company must maintain a minimum consolidated tangible net worth, as defined, of $500.0 million.

16

Note 8. Reduction of Goodwill

        For the three and six months ended December 31, 2002, the Company recorded $1.3 million and $225.7 million, respectively, of impairment charges in accordance with SFAS No. 142. For the three and six months ended December 31, 2001, the Company recorded $1,265.1 million and $1,296.3 million, respectively, of impairment charges in accordance with SFAS No. 121.

Fiscal 2003 Charges:

        On July 1, 2002, the Company adopted SFAS No. 142, under which goodwill is reviewed for impairment annually, or more frequently if certain events or changes in circumstances indicate that the carrying value may not be recoverable. In addition, the Company was required to perform a transitional impairment review related to the carrying value of goodwill as of July 1, 2002. During the first quarter of fiscal 2003, the Company completed the transitional impairment review related to the carrying value of goodwill as of July 1, 2002 and determined that there was no impairment beyond amounts previously recorded as of that date.

        As part of its quarterly review of financial results in the first quarter of fiscal 2003, the Company noted indicators that the carrying value of its goodwill related to three reporting units may not be recoverable and performed an additional impairment review of its goodwill. The impairment review was performed because of the prolonged economic downturn affecting the Company's operations and revenue forecasts. As the Company determined that the continued decline in market conditions within the Company's industry was significant and prolonged, the Company evaluated the recoverability of its goodwill in accordance with SFAS No. 142 during the first quarter of fiscal 2003. The Company did not identify any impairment indicators during the second quarter of fiscal 2003.

        The first step of the interim SFAS No. 142 analysis consisted of a comparison of the fair value of the reporting units with their carrying amount, including the goodwill allocated to each reporting unit. The fair value of the reporting units was determined based on a combination of the income approach, which estimates the fair value based on the future discounted cash flows, and the market approach, which estimates the fair value based on comparable market prices. Under the income approach, the Company assumed a cash flow period of 5 years, long-term annual growth rates of 9% to 33%, a discount rate of 12.5% and terminal value growth rates of 5% to 7%. Based on the first step analysis, the Company determined that the carrying amount of three reporting units within the Communications Products Group was in excess of their fair value. As such, the Company was required to perform the second step analysis on the three reporting units that have failed the first step test to determine the amount of the impairment loss. The second step analysis consisted of comparing the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill for each of the three reporting units, with an impairment charge resulting from any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill.

        As of the filing of the Quarterly Report on Form 10-Q for the first quarter of fiscal 2003, the Company had not completed the second step analysis due to the complexities involved in determining the implied fair value of the goodwill of each reporting unit. However, the Company determined that an impairment loss was probable and could be reasonably estimated. Therefore, as permitted by SFAS No. 142, the Company recorded an estimated impairment charge of $224.4 million to reduce the carrying value of its goodwill in the first quarter of fiscal 2003.

        During the second quarter of fiscal 2003, the Company completed the second step analysis in connection with the impairment review for the first quarter of fiscal 2003 and recorded an additional impairment charge of $1.3 million, as the actual impairment charge was determined to be higher than the estimated charge recorded in the first quarter of fiscal 2003.

17

        The following table summarizes the impairment charges recorded during the second quarter and first half of fiscal 2003 (in millions):

Fiscal 2002 Charges:

        As a result of the Phase 2 restructuring activities in the first quarter of fiscal 2002 (see Note 10), the Company restructured its businesses and realigned its operations to focus on certain markets and core opportunities. In the process, the Company abandoned certain redundant products and product platforms and reduced its workforce that had been valued in previous acquisitions. In accordance with SFAS No. 121, the Company wrote down the related intangible assets to their fair value, which was deemed to be $0, and recorded total charges of $31.2 million related to goodwill.

        As part of its quarterly reviews of financial results, the Company noted indicators in the second quarter of fiscal 2002 that the carrying value of its goodwill may not be recoverable and performed an impairment review. The impairment review was performed pursuant to SFAS No. 121 because of the prolonged economic downturn affecting the Company's operations and revenue forecasts. As a result of the prolonged economic downturn, the Company's projected future revenue and cash flows for certain of the Company's asset groupings were revised downward in the second quarter of fiscal 2002. Therefore, the Company recorded charges to reduce goodwill based on the amounts by which the carrying amounts of these assets exceeded their fair value. Fair value was determined based on discounted future cash flows for the operating entities that had separately identifiable cash flows.

        The following table summarizes the write-downs of goodwill for the second quarter of fiscal 2002 (in millions):

        The Company assumed a cash flow period of 5 years, a discount rate of 14%, and terminal growth rates of 5% to 7%. The long-term annual growth rates are higher in the early years of the 5-year cash flow period, representing the Company's estimated growth in the period of industry recovery, and a reduced growth rate in the later years.

Note 9. Reduction of Other Long-Lived Assets

        For the three and six months ended December 31, 2002, the Company recorded $0 and $154.6 million, respectively, of reductions in the carrying value of its long-lived assets in accordance with SFAS No. 144. For the three and six months ended December 31, 2001, the Company recorded $2.5 million and $13.3 million, respectively, of reductions in the carrying value of its long-lived assets in accordance with SFAS No. 121. These charges excluded asset write-downs associated with the Global

18

Realignment Program (see Note 10). The following table summarizes the components of the reductions of other long-lived assets (in millions):

        Total reductions of other long-lived assets for all periods were primarily related to business units within the Company's Communications Products Group.

Fiscal 2003 Charges:

Assets Held and Used:

        On July 1, 2002, the Company adopted SFAS No. 144, under which long-lived assets other than goodwill are tested for recoverability if certain events or changes in circumstances indicate that the carrying value may not be recoverable. The Company noted indicators during the first quarter of fiscal 2003 that the carrying value of its long-lived assets, including purchased intangibles recorded in connection with its various acquisitions and property, plant and equipment, may not be recoverable and performed an impairment review. The impairment review was performed pursuant to SFAS No. 144 because of the prolonged economic downturn affecting the Company's operations and revenue forecasts. As a result of the prolonged economic downturn, the Company's projected future revenue and cash flows for certain of the Company's asset groupings were revised downward in the first quarter of fiscal 2003. Therefore, the Company evaluated the recoverability of its long-lived assets and recorded impairment charges based on the amounts by which the carrying amounts of these assets exceeded their fair value. For purchased intangibles, fair value was determined based on discounted future cash flows for the operating entities that had separately identifiable cash flows. For tangible fixed assets, the Company valued these assets that were subject to impairment using specific appraisals.

        The following table summarizes the write-downs of purchased intangibles and property, plant and equipment by acquisition for the first quarter of fiscal 2003 (in millions):

        During the second quarter of fiscal 2003, the Company noted no impairment indicators in connection with its long-lived assets held and used, and accordingly, a test of recoverability of its long-lived assets was not required for the second quarter of fiscal 2003.

19

Assets Held for Sale:

        During the first quarter of fiscal 2003, the Company announced an agreement to sell the majority of the assets of Cronos to MEMSCAP, a supplier of optical micro-electro-mechanical system solutions. The Company completed the sale during the second quarter of fiscal 2003 (see Note 17). In accordance with SFAS No. 144, the Company was required to measure these assets held for sale, consisting primarily of property and equipment, at the lower of their carrying amount or fair value less cost to sell during the first quarter of fiscal 2003. The Company recognized a loss of $6.6 million in connection with these assets held for sale.

        During the second quarter of fiscal 2003, the Company completed the sale of SIFAM to SIFAM Fibre Optics Limited (see Note 17). In accordance with SFAS No. 144, the Company measured the assets held for sale, consisting of property and equipment, at the lower of their carrying amount or fair value less cost to sell during the first quarter of fiscal 2003. The Company recognized a loss of $0.3 million in connection with these assets held for sale.

Fiscal 2002 Charges:

        As a result of the Phase 2 restructuring activities in the first quarter of fiscal 2002 (see Note 10), the Company restructured its businesses and realigned its operations to focus on certain markets and core opportunities. In the process, the Company abandoned certain redundant products and product platforms and reduced its workforce that had been valued in previous acquisitions. In accordance with SFAS No. 121, the Company wrote down the related intangible assets to their fair value, which was deemed to be $0, and recorded total charges of $10.8 million related to purchased intangibles other than goodwill.

        As part of its quarterly reviews of financial results, the Company noted indicators in the second quarter of fiscal 2002 that the carrying value of its long-lived assets, including significant amounts of purchased intangibles recorded in connection with its various acquisitions, may not be recoverable and performed an impairment review. The impairment review was performed pursuant to SFAS No. 121 because of the prolonged economic downturn affecting the Company's operations and revenue forecasts. As a result of the prolonged economic downturn, the Company's projected future revenue and cash flows for certain of the Company's asset groupings were revised downward in the second quarter of fiscal 2002. Therefore, the Company recorded charges to reduce its long-lived assets based on the amounts by which the carrying amounts of these assets exceeded their fair value. Fair value was determined based on discounted future cash flows for the operating entities that had separately identifiable cash flows.

        The following table summarizes the write-downs of its long-lived assets, consisting of purchased intangibles, for the second quarter of fiscal 2002 (in millions):

        The Company assumed a cash flow period of 5 years, a discount rate of 14%, and terminal growth rates of 5% to 7%. The long-term annual growth rates are higher in the early years of the 5-year cash flow period, representing the Company's estimated growth in the period of industry recovery, and a reduced growth rate in the later years.

20

Note 10. Global Realignment Program Charges

Overview:

        In April 2001, the Company initiated the Global Realignment Program, under which it began restructuring its business in response to the economic downturn. Through the end of the second quarter of fiscal 2003, the Company implemented five phases of restructuring activities and recorded total restructuring charges of $623.1 million. In addition, the Company incurred charges other than restructuring of $448.1 million related to the Global Realignment Program. These charges are summarized as follows (in millions):

        Under the Global Realignment Program, the Company is consolidating and reducing its manufacturing, research and development, sales and administrative facilities in North America, Europe and Asia-Pacific. The total number of sites closed or scheduled for closure is 28. Based on the decisions made through the end of the second quarter of fiscal 2003, the Company will reduce its total workforce by approximately 19,300 employees. As of December 31, 2002, 17,290 employees have been terminated.

        Activities associated with the Global Realignment Program from inception through the end of the second quarter of fiscal 2003 are discussed in further detail below.

21

Phase 1 Restructuring Activities:

        The Company implemented its Phase 1 restructuring activities during the fourth quarter of fiscal 2001. The following table summarizes the Company's Phase 1 restructuring charges from inception through the end of the second quarter of fiscal 2003 (in millions):

        In connection with the Phase 1 restructuring activities, management with the appropriate level of authority approved and committed the Company to plans to close 9 sites, vacate buildings at the closed sites as well as at other continuing operations, and reduce its workforce by approximately 8,800 employees. These sites were located in Asheville, North Carolina; Bracknell, United Kingdom; Freehold, New Jersey; Hillend, United Kingdom; Oxford, United Kingdom; Richardson, Texas; Rochester, New York; Shunde, China; and Taipei, Taiwan.

Workforce Reduction:

        In connection with the Phase 1 restructuring activities, the Company recorded total charges of $79.1 million primarily related to severance and fringe benefits associated with the reduction of approximately 8,800 employees, which includes non-cash severance charges of $11.1 million related to the modification of a former executive's stock options. During fiscal 2002, the Company recorded a decrease of $10.5 million to the accrual balance, as the actual amounts paid for such charges were lower than originally estimated.

        Approximately 8,100 employees were engaged in manufacturing, 200 in research and development, and 500 in selling, general and administrative functions. Approximately 7,100 employees were located in North America, 900 in Europe, and 800 in Asia-Pacific. The Company has substantially completed its Phase 1 workforce reduction during the fourth quarter of fiscal 2002. The remaining accrual balance reflects severance and benefit payments to certain terminated employees.

22

Facilities and Equipment and Lease Costs:

        In connection with the Phase 1 restructuring activities, property and equipment that were disposed of or removed from operations resulted in a charge of $122.2 million, of which $89.3 million were related to the Communications Products Group, $29.4 million were related to the Thin Film Products Group and $3.5 million were related to the "All Other" category for segment reporting purposes (see Note 14). The property and equipment write-downs consisted primarily of owned buildings, leasehold improvements, computer equipment and related software, production and engineering equipment, and office equipment, furniture and fixtures. During fiscal 2002 and the second quarter of fiscal 2003, the Company recorded total adjustments of $5.1 million and $4.9 million, respectively, primarily due to additional declines in the fair market value of owned buildings held for disposal. In addition, during fiscal 2002, the Company received $2.4 million of cash proceeds in excess of the estimated salvage value of certain restructured assets sold. These cash proceeds totaled $0.3 million and $0.9 million, respectively, for the second quarter and first half of fiscal 2003.

        The Company has substantially completed the disposal of its restructured assets through auctions, donations and scrapping of the assets. The remaining assets are primarily owned buildings that could not be sold within twelve months as was previously expected. The market conditions in the cities where these buildings are located, Plymouth, United Kingdom and Taipei, Taiwan, have continued to weaken during fiscal 2003. This was exacerbated with the continued economic downturn in the communications industry. The Company currently anticipates disposing of these assets within the next 9 to 12 months.

        In connection with the Phase 1 restructuring activities, the Company incurred charges of $63.0 million for exiting and terminating leases primarily related to excess or closed facilities with planned future exit dates. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and real estate market conditions. During fiscal 2002, the Company recorded a net increase of $0.7 million to the accrual balance. This adjustment consisted of an increase of $8.4 million due to changes in real estate market conditions, which resulted in changes regarding estimated vacancy duration and sublease income, offset by a decrease of $7.7 million as a result of negotiating subleases and termination agreements. During the second quarter of fiscal 2003, the Company recorded a decrease of $1.0 million to the accrual balance primarily due to changes in real estate market conditions, which resulted in changes regarding estimated vacancy duration and sublease income. The Company anticipates that it will take approximately 16 to 33 months to sublease the remaining various vacated properties. Amounts related to the lease expense, net of anticipated sublease proceeds, will be paid over the respective lease terms through fiscal 2018.

23

Phase 2 Restructuring Activities:

        The Company implemented its Phase 2 restructuring activities during the first quarter of fiscal 2002. The following table summarizes the Company's Phase 2 restructuring charges from inception through the end of the second quarter of fiscal 2003 (in millions):

        In connection with the Phase 2 restructuring activities, management with the appropriate level of authority approved and committed the Company to plans to close 8 sites, vacate buildings at the closed sites as well as at other continuing operations, and reduce its workforce by approximately 5,300 employees. These sites were located in Arnhem, Netherlands; Gloucester, Massachusetts; Manteca, California; Plymouth, United Kingdom; Victoria, British Columbia; Witham, United Kingdom; and two sites in Ottawa, Ontario.

Workforce Reduction:

        In connection with the Phase 2 restructuring activities, the Company recorded total charges of $55.8 million primarily related to severance and fringe benefits associated with the reduction of approximately 5,300 employees. During fiscal 2002 and the first quarter of fiscal 2003, the Company recorded a decrease of $5.0 million and $1.9 million to the accrual balance, respectively, as the actual amounts paid for such charges were lower than originally estimated.

        Approximately 4,400 employees were engaged in manufacturing, 400 in research and development, and 500 in selling, general and administrative functions. Approximately 4,950 employees were located in North America, 300 in Europe, and 50 in Asia-Pacific. The Company completed its Phase 2 workforce reduction during the first quarter of fiscal 2003.

Facilities and Equipment and Lease Costs:

        In connection with the Phase 2 restructuring activities, property and equipment that were disposed of or removed from operations resulted in total charges of $141.3 million, of which $129.5 million were related to the Communications Products Group and $11.8 million were related to the Thin Film Products Group. The property and equipment write-downs consisted primarily of leasehold improvements, computer equipment and related software, production and engineering equipment, and

24

office equipment, furniture and fixtures. During fiscal 2002, the Company recorded total adjustments of $2.9 million as a result of differences between the actual and estimated net book value of assets written down. In addition, during fiscal 2002, the Company received approximately $3.2 million of cash proceeds in excess of the estimated salvage value of certain restructured assets sold. These cash proceeds totaled $0.3 million and $1.9 million, respectively, during the second quarter and first half of fiscal 2003. The Company has substantially completed its disposal of the restructured assets.

        In connection with the Phase 2 restructuring activities, the Company accrued total charges of $45.9 million for exiting and terminating leases primarily related to excess or closed facilities with planned future exit dates. The Company estimated the cost of exiting and terminating the facility leases based on the contractual terms of the agreements and real estate market conditions. During fiscal 2002, the Company recorded a net decrease of $6.8 million to the accrual balance. This adjustment consisted of a decrease of $7.4 million due to changes in real estate market conditions, which resulted in changes regarding estimated vacancy duration and sublease income, offset by an increase of $0.6 million as a result of negotiating subleases and termination agreements. During the first quarter of fiscal 2003, the Company made a decision to re-occupy and put back into operations approximately half of a building that had previously been vacated under the restructuring plan and recorded a reduction of $0.6 million to the accrued lease charges. During the second quarter of fiscal 2003, the Company recorded an additional $9.4 million to the accrual balance. This adjustment included $3.5 million of accrued charges, representing the difference between the expected fair value of the Company's properties located in Raleigh, North Carolina, at the end of the lease term and their cost basis (see Note 7), and $5.9 million of additional charges related to other properties due to changes in real estate market conditions, which resulted in changes regarding estimated vacancy duration and sublease income. The Company anticipates that it will take approximately 16 to 18 months to sublease the remaining various vacated properties. Amounts related to the lease expense, net of anticipated sublease proceeds, will be paid over the respective lease terms through fiscal 2011.

Phase 3 Restructuring Activities:

        The Company implemented its Phase 3 restructuring activities during the fourth quarter of fiscal 2002. The following table summarizes the Company's Phase 3 restructuring charges from inception through the end of the second quarter of fiscal 2003 (in millions):

        In connection with the Phase 3 restructuring activities, management with the appropriate level of authority approved and committed the Company to plans to close 7 sites, vacate buildings at the closed sites and reduce its workforce by approximately 1,600 employees. These sites were located in Columbus, Ohio; Eatontown, New Jersey; San Jose, California; Sydney, Australia; Toronto, Ontario; Torquay, United Kingdom; and Waghaeusel-Kirrlach, Germany. The operations located in the San Jose,

25