Business context and reporting period
This filing is for JDS Uniphase Corporation (JDSU), not a company identified in the filing as VIAVI Solutions Inc. It reports the first quarter of fiscal 2013, the three months ended September 29, 2012, compared with the three months ended October 1, 2011. JDSU operated through Communications Test and Measurement (CommTest), Communications and Commercial Optical Products (CCOP), and Optical Security and Performance Products (OSP).
Financial results and liquidity
| Metric | Quarter ended Sep. 29, 2012 | Prior-year quarter |
|---|---|---|
| Revenue | $420.9 million | $415.8 million |
| Gross profit / margin | $172.6 million / 41.0% | $181.6 million / 43.7% |
| Operating income | $0.1 million | $5.4 million |
| Continuing-operations net loss | $9.8 million | $3.6 million |
| Net loss / diluted loss per share | $11.6 million / $0.05 | $5.8 million / $0.03 |
| Cash provided by operating activities | $43.1 million | $22.9 million |
Revenue grew 1.2%. By segment, CommTest revenue declined 8.3% to $169.5 million, CCOP rose 8.1% to $194.9 million, and OSP rose 11.7% to $56.5 million. Segment operating income was $16.8 million for CommTest, $23.8 million for CCOP, and $21.2 million for OSP.
At quarter-end, cash and cash equivalents were $332.6 million, short-term investments $366.2 million, and restricted cash $31.5 million, totaling $730.3 million. Short-term debt was $249.9 million; it consisted of the carrying amount of the 1% Senior Convertible Notes. The notes’ principal amount was $261.0 million after a $50 million principal repurchase during the quarter. The $250 million revolving credit facility was undrawn, and the company reported covenant compliance. Total current assets were $1,262.6 million and current liabilities $590.7 million. Cash and cash equivalents decreased $68.5 million during the quarter.
Cash used in investing activities was $72.5 million, including $17.8 million for property and equipment and $9.1 million net cash for the GenComm acquisition; cash used in financing was $41.1 million, primarily reflecting the convertible-note repurchase. Stockholders’ equity was $1,042.4 million at September 29, 2012, versus $1,038.8 million at June 30, 2012.
Material changes versus the prior comparable period
Gross margin fell 2.7 percentage points, primarily because of product mix and lower CommTest revenue; CCOP also recorded $0.8 million of inventory write-offs and $2.6 million of accelerated amortization related to ending its concentrated photovoltaic product line. A favorable $1.9 million out-of-period adjustment, primarily for prior-year cost of sales, reduced the current-quarter net loss. Management said the correction was not material to prior periods or expected to be material to fiscal 2013.
CommTest weakness reflected lower service-provider spending amid macroeconomic uncertainty, particularly in Europe and North America, as well as foreign-exchange effects and the wind-down of legacy products. CCOP growth came mainly from optical communications products; OSP growth was driven by currency products. Operating income fell to near breakeven as reported, despite lower SG&A, with higher acquired-intangible amortization and restructuring charges also affecting results.
Outlook, commentary, risks and unusual items
The filing provides no specific revenue or earnings guidance. Management said it expected continued uncertainty in demand and quarter-to-quarter variability, and believed existing cash, investments, and revolving-facility availability would be sufficient for liquidity needs, including repayment of the convertible notes expected no later than May 2013. Management estimated approximately $20.6 million of annualized savings from restructuring initiated over the prior year.
Risks highlighted include weak or uncertain economic conditions, especially in Europe; pricing pressure and competition, including from Asia-based suppliers; customer concentration and industry consolidation; product-mix volatility and seasonality; and potential supply, delivery, yield, quality, and cost disruption from CommTest manufacturing transitions. Investment values and liquidity, foreign exchange, and pension funding are additional exposures. The pension plans were underfunded by $91.9 million at quarter-end.
JDSU agreed to sell its Hologram Business for $11.5 million in cash, subject to working-capital adjustment and an earnout of up to $4.0 million; the sale closed October 12, 2012. The business was reported as discontinued operations and recorded a $1.8 million quarterly net loss. A Texas franchise-tax audit could result in $0 to $34.2 million of additional tax, plus interest and penalties; management did not expect a material adverse outcome based on information then available. A planned rescission offer for certain unregistered employee stock-purchase-plan shares could require payments of up to approximately $6.2 million if all eligible holders participate. The company also reported $63.0 million of unrecognized tax benefits and $24.3 million accrued for related interest and penalties.
Management reported effective disclosure controls and procedures and no material changes in risk factors from its fiscal 2012 Form 10-K. The filing notes that interim results may not indicate full-year or future performance.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is JDS Uniphase Corporation, although the request metadata names VIAVI Solutions Inc.
- Track CommTest revenue and margins, and whether the demand pressures and manufacturing-transition risks abate.
- Assess cash available for the convertible-note repayment, including the additional $50 million repurchase on October 1, 2012, after quarter-end.
- Check the final proceeds and any earnout from the Hologram Business sale, and participation and cost of the ESPP rescission offer.
- Monitor the Texas tax audit, unrecognized tax benefits, pension funding, and restructuring savings against associated charges and obligations.