Business context and reporting period
This is JDS Uniphase Corporation’s unaudited Form 10-Q for its fiscal third quarter ended March 30, 2013, and the nine months then ended. The filing identifies JDS Uniphase—not VIAVI Solutions—as the registrant; investors should verify the company and filing identity. JDSU reported three segments: Communications Test and Measurement (CommTest), Communications and Commercial Optical Products (CCOP), and Optical Security and Performance Products (OSP).
Financial results and liquidity
Amounts are in millions of dollars except per-share data.
| Metric | Three months ended Mar. 30, 2013 | Prior-year quarter | Nine months ended Mar. 30, 2013 | Prior-year period |
|---|---|---|---|---|
| Revenue | $405.3 | $403.3 | $1,255.6 | $1,228.4 |
| Gross profit / margin | $155.3 / 38.3% | $167.8 / 41.6% | $516.9 / 41.2% | $523.9 / 42.6% |
| Operating loss | $(21.3) | $(6.4) | $(6.3) | $(0.1) |
| Net loss | $(28.0) | $(17.4) | $(35.5) | $(33.4) |
| Net loss per share | $(0.12) | $(0.08) | $(0.15) | $(0.15) |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $130.7 | $81.8 |
At March 30, 2013, cash and cash equivalents were $257.7, short-term investments $350.4, and restricted cash $30.7, totaling $638.8. Current assets were $1,171.0 and current liabilities $501.2. Short-term debt was $159.6, comprising the remaining carrying amount of 1% Senior Convertible Notes; the $250 million revolving facility had no borrowings. The company reported compliance with debt covenants. Nine-month capital expenditures were $46.7.
Material changes versus comparable periods
- Quarterly revenue rose 0.5%; nine-month revenue rose 2.2%. CCOP growth more than offset lower CommTest revenue; quarterly OSP revenue was slightly lower.
- Quarterly gross margin fell 3.3 percentage points, primarily due to $11.3 of inventory charges and accelerated amortization associated with exiting low-speed wireline, plus pricing pressure in CommTest. Nine-month margin fell 1.4 points.
- Quarterly operating loss widened to $21.3 from $6.4, and net loss widened to $28.0 from $17.4. For nine months, operating loss was $6.3 versus near break-even in the prior year, while net loss increased modestly.
- CommTest quarterly revenue declined 2.0% and segment operating income fell to $13.0 from $20.1. CCOP revenue increased 3.5% and operating income rose to $19.2 from $14.1. OSP revenue declined 1.0% and operating income was broadly flat at $18.6.
- Nine-month operating cash flow increased to $130.7 from $81.8. Cash and cash equivalents nevertheless declined $143.4, reflecting debt repurchases, acquisitions, capital spending, and investment purchases.
- Short-term debt decreased from $292.8 at June 30, 2012, following $150.0 principal repurchases during the nine months. Goodwill increased to $114.8, primarily following acquisitions.
Outlook, management commentary, risks and unusual items
- Management said existing cash, investments, and revolver availability should cover liquidity and capital needs, including repayment of the remaining $161.0 principal amount of convertible notes. After quarter-end, JDSU launched a tender offer to repurchase the notes at par, expiring May 15, 2013.
- No formal revenue or earnings guidance is provided in the supplied filing text. Management expects R&D spending in dollars to increase in future quarters and estimated approximately $26.5 of annualized savings from restructuring actions initiated in the prior year.
- Risks cited include uncertain demand, especially in Europe; pricing pressure and competition; customer concentration and procurement delays; product mix and seasonality; industry consolidation; and supply-chain, yield, quality, and cost risks from contract-manufacturing transitions. Management cautioned that these factors limit forecasting visibility.
- JDSU acquired Arieso for approximately $89.6 cash and acquired GenComm for approximately $15.2; Arieso contributed only $0.4 of revenue and an estimated $2.2 net loss after acquisition, excluding acquisition costs. The company sold its Hologram Business for $11.5 gross proceeds, recognizing a $0.6 gain; a contingent earn-out of up to $4.0 was not recognized.
- The low-speed wireline exit caused $11.3 of inventory charges and $2.2 of accelerated intangible amortization in the quarter. A separate CPV product-line exit had generated $2.6 accelerated amortization earlier in the fiscal year.
- The company recorded out-of-period adjustments that reduced nine-month net loss by $2.5; management and the Audit Committee concluded the errors were not material to prior-year statements or expected to be material to fiscal 2013 full-year statements.
- Other exposures include $61.1 of unrecognized tax benefits and $24.3 accrued for tax interest and penalties; an $89.9 pension underfunding; ordinary-course legal claims; and guarantees for which maximum exposure could not be reasonably estimated. A Texas tax audit matter was settled for $0.1. Management reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- Confirm the registrant and reporting-period mapping: the supplied filing is JDS Uniphase’s fiscal Q3 2013 10-Q, not a filing titled VIAVI Solutions.
- Review the remaining convertible-note repurchase outcome and its effect on cash, liquidity, and debt after May 15, 2013.
- Assess whether CCOP growth and restructuring savings can offset CommTest weakness, lower gross margin, and the costs of product-line exits.
- Evaluate the quality and sustainability of operating cash flow, including working-capital movements and continuing capital and acquisition spending.
- Monitor acquisition integration, customer demand and concentration, supply-chain transitions, tax exposures, pension obligations, and legal contingencies.