e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 27, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-30684
BOOKHAM, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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20-1303994 |
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(State or Other Jurisdiction
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(I.R.S. Employer |
of Incorporation or Organization)
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Identification Number) |
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2584 Junction Avenue, |
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San Jose, California
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95134 |
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(Address of Principal Executive Offices)
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(Zip Code) |
(408) 383-1400
(Registrants Telephone Number, Including Area Code)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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o Large accelerated filer |
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þ Accelerated filer |
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o Non-accelerated filer
(Do not check if a smaller reporting company) |
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o Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):
Yes o No þ
Number of shares of common stock outstanding as of October 28, 2008: 101,199,902
BOOKHAM, INC.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BOOKHAM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except par value amounts)
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September 27, 2008 |
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June 28, 2008 |
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ASSETS
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Current assets: |
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Cash and cash equivalents |
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$ |
29,678 |
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$ |
32,863 |
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Short-term investments |
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12,910 |
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17,845 |
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Restricted cash |
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611 |
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1,154 |
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Accounts receivable, net |
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51,169 |
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45,665 |
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Inventories |
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58,497 |
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59,612 |
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Prepaid expenses and other current assets |
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5,199 |
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6,007 |
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Total current assets |
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158,064 |
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163,146 |
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Goodwill |
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7,881 |
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7,881 |
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Other intangible assets, net |
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7,115 |
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7,829 |
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Property and equipment, net |
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32,740 |
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32,962 |
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Other non-current assets |
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233 |
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272 |
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Total assets |
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$ |
206,033 |
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$ |
212,090 |
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities: |
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Accounts payable |
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$ |
20,983 |
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$ |
21,501 |
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Accrued expenses and other liabilities |
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20,142 |
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20,789 |
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Total current liabilities |
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41,125 |
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42,290 |
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Other long-term liabilities |
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2,141 |
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1,336 |
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Deferred gain on sale-leaseback |
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17,875 |
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19,402 |
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Total liabilities |
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61,141 |
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63,028 |
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Commitments and contingencies (Note 9)
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Stockholders equity: |
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Preferred stock: 5,000 shares authorized; none issued and outstanding |
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Common stock: |
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$0.01 par value per share; 175,000 shares authorized;
101,448 shares issued and outstanding at September
27, 2008
100,740 shares issued and outstanding at June 28, 2008 |
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1,014 |
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1,007 |
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Additional paid-in capital |
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1,164,698 |
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1,163,598 |
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Accumulated other comprehensive income |
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36,566 |
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44,036 |
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Accumulated deficit |
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(1,057,386 |
) |
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(1,059,579 |
) |
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Total stockholders equity |
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144,892 |
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149,062 |
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Total liabilities and stockholders equity |
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$ |
206,033 |
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$ |
212,090 |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
3
BOOKHAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
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Three Months Ended |
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September 27, 2008 |
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September 29, 2007 |
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Revenues |
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$ |
66,531 |
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$ |
54,282 |
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Cost of revenues |
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49,902 |
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41,945 |
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Gross profit |
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16,629 |
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12,337 |
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Operating expenses: |
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Research and development |
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7,935 |
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8,692 |
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Selling, general and administrative |
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10,684 |
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11,326 |
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Amortization of intangible assets |
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463 |
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1,997 |
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Restructuring and severance charges |
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1,486 |
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1,217 |
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Legal settlement |
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(184 |
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(Gain) loss on sale of property and equipment |
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16 |
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(235 |
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Total operating expenses |
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20,400 |
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22,997 |
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Operating loss |
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(3,771 |
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(10,660 |
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Other income (expense): |
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Other expense |
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(600 |
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Interest income |
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248 |
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252 |
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Interest expense |
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(192 |
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(134 |
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Gain (loss) on foreign exchange |
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6,496 |
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(412 |
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Total other income (expense) |
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5,952 |
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(294 |
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Income (loss) before income taxes |
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2,181 |
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(10,954 |
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Income tax benefit |
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(12 |
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Net income (loss) |
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$ |
2,193 |
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$ |
(10,954 |
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Net income (loss) per share: |
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Basic |
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$ |
0.02 |
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$ |
(0.13 |
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Diluted |
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$ |
0.02 |
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$ |
(0.13 |
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Shares used in computing net income (loss) per share: |
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Basic |
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100,080 |
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82,586 |
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Diluted |
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100,728 |
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82,586 |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
4
BOOKHAM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
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Three Months Ended |
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September 27, 2008 |
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September 29, 2007 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
2,193 |
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$ |
(10,954 |
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Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |
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Depreciation and amortization |
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3,445 |
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5,241 |
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Stock-based compensation |
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1,217 |
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1,726 |
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Amortization of deferred gain on sale-leaseback |
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(271 |
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(93 |
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Impairment of short-term investments |
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600 |
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Accretion on short-term investments |
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(70 |
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Gain (loss) on sale of property and equipment |
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16 |
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(235 |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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(7,960 |
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(4,602 |
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Inventories |
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159 |
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(383 |
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Prepaid expenses and other current assets |
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619 |
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2,963 |
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Accounts payable |
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(192 |
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1,195 |
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Accrued expenses and other liabilities |
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2,143 |
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(1,627 |
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Net cash provided by (used in) operating activities |
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1,899 |
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(6,769 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(3,206 |
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(2,850 |
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Proceeds from sale of property and equipment |
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9 |
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287 |
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Purchases of available-for-sale investments |
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(6,945 |
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Sales and maturities of available-for-sale investments |
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11,350 |
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Transfer from restricted cash |
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502 |
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4,321 |
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Net cash provided by investing activities |
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1,710 |
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1,758 |
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Cash flows from financing activities: |
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Repayment of other loans |
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(16 |
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(2 |
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Proceeds from bank loan payable |
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501 |
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Amount paid to repurchase shares from former officer |
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(2 |
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Net cash provided by (used in) financing activities |
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(16 |
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497 |
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Effect of exchange rate on cash and cash equivalents |
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(6,778 |
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426 |
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Net decrease in cash and cash equivalents |
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(3,185 |
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(4,088 |
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Cash and cash equivalents at beginning of period |
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32,863 |
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36,631 |
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Cash and cash equivalents at end of period |
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$ |
29,678 |
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$ |
32,543 |
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The accompanying notes form an integral part of these condensed consolidated financial statements.
5
BOOKHAM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Nature of Business
Bookham, Inc., a Delaware corporation, (Bookham, Inc.) designs, manufactures and markets optical
components, modules and subsystems that generate, detect, amplify, combine and separate light
signals principally for use in high-performance fiber optics communications networks. Due to its
advantages of higher capacity and transmission speed, optical transmission has become the
predominant technology for large-scale communications networks. The Companys primary operating
segment is its telecom segment, which addresses this optical communications market. The Companys
remaining product lines, which address certain other optics and photonics markets, such as material
processing, inspection and instrumentation, and research and development; and which leverage the
resources, infrastructure and expertise of its telecom segment, comprise its non-telecom segment.
References herein to the Company mean Bookham, Inc. and its subsidiaries.
Note 2. Basis of Preparation
The accompanying unaudited condensed consolidated financial statements as of September 27, 2008 and
for the three months ended September 27, 2008 and September 29, 2007 have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Article 10 of Regulation S-X, and
include the accounts of Bookham, Inc. and all of its subsidiaries. Accordingly, they do not include
all of the information and footnotes required by such accounting principles for annual financial
statements. In the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation of the Companys consolidated financial
position and operations have been included. The consolidated results of operations for the three
months ended September 27, 2008 are not necessarily indicative of results that may be expected for
any other interim period or for the full fiscal year ending June 27, 2009.
The condensed consolidated balance sheet as of June 28, 2008 has been derived from the audited
consolidated financial statements as of such date. These unaudited condensed consolidated financial
statements should be read in conjunction with the Companys audited consolidated financial
statements included in the Companys Annual Report on Form 10-K for the fiscal year ended June 28,
2008 (the 2008 Form 10-K).
The preparation of the Companys financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported
in those financial statements. These judgments can be subjective and complex, and consequently
actual results could differ from those estimates and assumptions. Descriptions of these estimates
and assumptions are included in the Companys 2008 Form 10-K.
Beginning June 29, 2008, the Company changed the process it uses to estimate audit fees. The
Company now accrues for audit fees based on when services are performed. The impact of this change
on net income for the three months ended September 27, 2008 was to reduce audit fees, which are
included in selling, general and administrative expenses, by $0.4 million.
Note 3. Fair Value
In the first quarter of fiscal 2009, the Company adopted Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements for
all financial assets and financial liabilities and for all non-financial assets and non-financial
liabilities recognized or disclosed at fair value in the financial statements on a recurring basis
(at least annually). SFAS No. 157 clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier value
hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1)
observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted
prices in active markets that are observable either directly or indirectly; and (Level 3)
unobservable inputs in which there is little or no market data, which require the Company to
develop its own assumptions. This hierarchy requires the Company to use observable market data,
when available, and to minimize
the use of unobservable inputs when determining fair value. On a recurring basis, the Company
measures certain financial assets, primarily marketable securities, and liabilities at fair value.
6
The Companys cash equivalents and short-term investment instruments are classified within Level 1,
Level 2 or Level 3 of the fair value hierarchy because they are valued using quoted market prices,
broker or dealer quotations, or alternative pricing sources with reasonable levels of price
transparency. The types of instruments valued based on quoted market prices in active markets
include most U.S. government and agency securities and money market securities. Such instruments
are generally classified within Level 1 of the fair value hierarchy. The types of instruments
valued based on other observable inputs include investment-grade corporate bonds, mortgage-backed
and asset-backed securities. Such instruments are generally classified within Level 2 of the fair
value hierarchy.
In September 2008, Lehman Brothers Holdings Inc. (Lehman) filed a petition under Chapter 11 of
the U.S. Bankruptcy Code. At September 27, 2008, the Company held a Lehman security with par value
of $0.8 million. As of November 4, 2008, the Company does not have an estimate of the recovery
value of this security, but has reduced the carrying value of this security to $0.2 million based
on Level 3 inputs. The $0.6 million impairment charge for the Lehman security was recorded in the
first quarter of fiscal 2009 and is included in other expense in the condensed consolidated
statement of operations.
Assets Measured at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis are shown in the table below by their
corresponding balance sheet caption and consisted of the following types of instruments at
September 27, 2008:
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Fair Value Measurement at Reporting Date Using |
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Quoted Prices |
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Significant |
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in Active |
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Other |
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Significant |
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Markets for |
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Observable |
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Unobservable |
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Identical Assets |
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Inputs |
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Inputs |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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Total |
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(thousands) |
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Cash and cash equivalents (1): |
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Money market funds |
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$ |
10,434 |
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$ |
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$ |
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$ |
10,434 |
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Commercial paper |
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3,054 |
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3,054 |
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Short-term investments: |
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United States agency securities |
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6,104 |
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6,104 |
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United States corporate bonds |
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6,607 |
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199 |
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6,806 |
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Total assets measured at fair value |
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$ |
16,538 |
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$ |
9,661 |
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$ |
199 |
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$ |
26,398 |
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(1) |
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Excludes $16.2 million in cash held in Company bank accounts. |
Derivative Financial Instruments
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, requires the Company to
recognize all derivatives, such as foreign currency forward exchange contracts, on the condensed
consolidated balance sheet at fair value regardless of the purpose for holding the instrument. If
the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged assets, liabilities
or firm commitments through operating results or recognized in other comprehensive income (loss)
until the hedged item is recognized in operating results in the condensed consolidated statements
of operations.
At the end of each accounting period, the Company marks-to-market all foreign currency forward
exchange contracts that have been designated as cash flow hedges and changes in fair value are
recorded in accumulated other comprehensive income until the underlying cash flow is settled and
the contract is recognized in operating results. As of September 27, 2008, there were nine
outstanding foreign currency forward exchange contracts to sell U.S. dollars and buy U.K. pounds
sterling. These contracts have an aggregate notional value of approximately $9.5 million of put and
call options expiring at various times between October 2008 and June 2009. To date, the Company has
not entered into any such contracts for longer than 12 months and accordingly, all amounts included
in accumulated other comprehensive income as of September 27, 2008 will generally be reclassified
into earnings within the next 12 months. As of September 27, 2008, the Company has recorded an
unrealized loss of $1.0 million to accumulated other comprehensive income related to recording the
fair value of the nine foreign currency forward exchange contracts designated as hedges for
accounting purposes.
7
Note 4. Balance Sheet Details
The following table provides details regarding the Companys cash, cash equivalents and short-term
investments at the dates indicated:
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September 27, 2008 |
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June 28, 2008 |
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(in thousands) |
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Cash and cash equivalents: |
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Cash-in-bank |
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$ |
16,190 |
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$ |
16,361 |
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Money market funds |
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10,434 |
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10,022 |
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Commercial paper |
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3,054 |
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6,480 |
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|
|
|
|
$ |
29,678 |
|
|
$ |
32,863 |
|
|
|
|
|
|
|
|
Short-term investments: |
|
|
|
|
|
|
|
|
United States agency securities |
|
$ |
6,104 |
|
|
$ |
2,977 |
|
United States corporate bonds |
|
|
6,806 |
|
|
|
14,868 |
|
|
|
|
|
|
|
|
|
|
$ |
12,910 |
|
|
$ |
17,845 |
|
|
|
|
|
|
|
|
As of September 27, 2008, all of the Companys short-term investments had a maturity of less than
one year.
The following table provides details regarding the Companys inventories at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 27, 2008 |
|
|
June 28, 2008 |
|
|
|
(in thousands) |
|
Inventories: |
|
|
|
|
|
|
|
|
Raw materials |
|
$ |
21,066 |
|
|
$ |
21,140 |
|
Work-in-process |
|
|
28,239 |
|
|
|
24,786 |
|
Finished goods |
|
|
9,192 |
|
|
|
13,686 |
|
|
|
|
|
|
|
|
|
|
$ |
58,497 |
|
|
$ |
59,612 |
|
|
|
|
|
|
|
|
The following table provides details regarding the Companys property and equipment, net at the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 27, 2008 |
|
|
June 28, 2008 |
|
|
|
(in thousands) |
|
Property and equipment, net: |
|
|
|
|
|
|
|
|
Buildings |
|
$ |
17,809 |
|
|
$ |
18,411 |
|
Plant and machinery |
|
|
79,407 |
|
|
|
78,652 |
|
Fixtures, fittings and equipment |
|
|
1,175 |
|
|
|
1,098 |
|
Computer equipment |
|
|
13,396 |
|
|
|
13,846 |
|
|
|
|
|
|
|
|
|
|
|
111,787 |
|
|
|
112,007 |
|
Less: accumulated depreciation |
|
|
(79,047 |
) |
|
|
(79,045 |
) |
|
|
|
|
|
|
|
|
|
$ |
32,740 |
|
|
$ |
32,962 |
|
|
|
|
|
|
|
|
8
The following table provides details regarding the Companys accrued expenses and other liabilities
at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 27, 2008 |
|
|
June 28, 2008 |
|
|
|
(in thousands) |
|
Accrued expenses and other liabilities: |
|
|
|
|
|
|
|
|
Trade creditor accruals |
|
$ |
3,632 |
|
|
$ |
4,090 |
|
Compensation and benefits related accruals |
|
|
6,171 |
|
|
|
6,724 |
|
Warranty accrual |
|
|
2,594 |
|
|
|
2,598 |
|
Other accruals |
|
|
5,987 |
|
|
|
5,657 |
|
Current portion of restructuring accrual |
|
|
1,758 |
|
|
|
1,720 |
|
|
|
|
|
|
|
|
|
|
$ |
20,142 |
|
|
$ |
20,789 |
|
|
|
|
|
|
|
|
Note 5. Goodwill and Other Intangible Assets
The Company reviews its goodwill and other intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of these assets may not be recoverable,
and also reviews goodwill annually in accordance with SFAS No. 142, Goodwill and Other Intangibles.
The values assigned to goodwill and other intangible assets are usually based on estimates and
judgments regarding expectations for the success and life cycle of products and technologies
acquired. A severe decline in expectations could result in significant impairment charges, which
could have a material adverse effect on the Companys business, financial condition and results of
operations.
One potential indicator of goodwill impairment is whether the Companys fair value, as measured by
its market capitalization, has remained below its net book value for a significant period of time.
During the first quarter of fiscal 2009, the lowest closing price for the Companys shares of
common stock was $1.12, as reported by the NASDAQ Global Market, which corresponds to a market
capitalization of $114 million. As of September 27, 2008, the Companys market capitalization was
approximately $118 million, compared to the Companys September 27, 2008 net book value of $145
million. Based on the Companys review of the events that occurred during the first quarter of
fiscal 2009, the Company has determined that there were no events or changes in circumstances which
would have triggered an impairment review. Whether the Companys market capitalization triggers an
impairment charge in any future period will depend on the underlying reasons for the decline in
stock price, the significance of the decline, and the length of time the stock price has been
trading at such prices.
Note 6. Restructuring Liabilities
The following table summarizes the activity related to the Companys restructuring liability for
the three months ended September 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restructuring |
|
|
Amounts charged |
|
|
|
|
|
|
|
|
|
|
Accrued |
|
|
|
costs at June 28, |
|
|
to restructuring |
|
|
Amounts paid |
|
|
Adjustments |
|
|
restructuring costs |
|
|
|
2008 |
|
|
costs and other |
|
|
or written-off |
|
|
and reversals |
|
|
at September 27, 2008 |
|
|
|
|
|
|
|
|
|
|
|
(thousands) |
|
|
|
|
|
|
|
|
|
Lease cancellations and commitments |
|
$ |
2,074 |
|
|
$ |
1,509 |
|
|
$ |
(308 |
) |
|
$ |
|
|
|
$ |
3,275 |
|
Termination payments to employees and
related costs |
|
|
754 |
|
|
|
25 |
|
|
|
(306 |
) |
|
|
(48 |
) |
|
|
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring |
|
|
2,828 |
|
|
$ |
1,534 |
|
|
$ |
(614 |
) |
|
$ |
(48 |
) |
|
|
3,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less noncurrent accrued restructuring charges |
|
|
(1,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,942 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges included within
accrued expenses and other liabilities |
|
$ |
1,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with earlier plans of restructuring and cost reduction efforts, the Company continued
to make scheduled payments drawing down the related lease cancellations and commitments and in
connection with payments to terminated employees and related costs. In the first quarter of fiscal
2009, the Company accrued an additional $1.5 million in expense related to existing restructuring
plans for revised estimates of the cash flows for lease cancellations and commitments.
Remaining net payments of lease cancellations and other commitments in connection with the
Companys earlier restructuring and cost reduction efforts are included in the restructuring
accrual as of September 27, 2008.
9
In the first quarter of fiscal 2009, the Company made payments of $0.3 million related to lease
commitments and made payments of $0.3 million in personnel related costs related to transferring
certain non-telecom manufacturing activities from its San Jose, California facility to its
Shenzhen, China facility. Restructuring and severance charges related to this move, the substantial
portion being personnel related, are expected to total $0.4 million over the next two fiscal
quarters. For the first quarter of fiscal 2009, separation payments under the restructuring and
cost reduction efforts were accrued and charged to restructuring in the period that both the
benefit amounts were determined and the amounts had been communicated to the affected employees.
Note 7. Accounting for Uncertainty in Income Taxes
Effective July 1, 2007, the Company adopted FASB Interpretation No. (FIN), 48, Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109. FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of uncertain tax positions taken, or expected to be taken, in a companys income tax
return. FIN No. 48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 utilizes a
two-step approach for evaluating uncertain tax positions accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes. Step one, referred to as recognition, requires a company to
determine if the weight of available evidence indicates that a tax position is more likely than not
to be sustained upon audit, including resolution of related appeals or litigation processes, if
any. Step two, measurement, is based on the largest amount of benefit which is more likely than not
to be realized on ultimate settlement.
The Companys total amount of unrecognized tax benefits as of June 28, 2008 was approximately
$92.3 million. For the three months ended September 27, 2008, there have been no material changes
to the amount of unrecognized tax benefits. Also, the Company had no unrecognized tax benefits
that, if recognized, would affect its effective tax rate for the quarter ended September 27, 2008.
Included in the balance of unrecognized tax benefits at September 27, 2008 is $1.3 million related
to tax positions and estimated interest and penalties for which it is reasonably possible that the
statute of limitations will expire in various jurisdictions within the next twelve months.
The Companys policy is to include interest and penalties related to unrecognized tax benefits
within the Companys provision for (benefit from) income taxes. As of September 27, 2008, the
Company did not have any accrual for payment of interest and penalties related to unrecognized tax
benefits.
The Company files U.S. federal, U.S. state and foreign tax returns and has determined its major tax
jurisdictions are the United States, the United Kingdom and China. Tax returns in the following
jurisdictions remain open to examination by the appropriate governmental agencies: U.S. federal and
China for tax years 2004 to 2008, Switzerland and various U.S. states for tax years 2003 to 2008
and the United Kingdom for tax years 2002 to 2008. The Company is not currently under audit in any
major tax jurisdiction.
Note 8. Credit Agreement
On August 2, 2006, the Company and its wholly-owned subsidiaries Bookham Technology plc, New Focus,
Inc. (New Focus) and Bookham (US) Inc. (the Borrowers) entered into a credit agreement with
Wells Fargo Foothill, Inc. and other lenders for a three-year $25.0 million senior secured
revolving credit facility (the Credit Agreement). Advances are available under the Credit
Agreement based on 80% of qualified accounts receivable, as defined in the Credit Agreement, at
the time an advance is requested.
The obligations of the Borrowers under the Credit Agreement are guaranteed by the Company, Onetta,
Inc., Focused Research, Inc., Globe Y. Technology, Inc., Ignis Optics, Inc., Bookham (Canada) Inc.,
Bookham Nominees Limited and Bookham International Ltd., each a wholly-owned subsidiary of the
Company (together, the Guarantors and together with the Borrowers, the Obligors), and are
secured pursuant to a security agreement (the Security Agreement) by the assets of the Obligors,
including a pledge of the capital stock holdings of the Obligors in certain of their direct
subsidiaries. Any new direct subsidiary of the Obligors is required to execute a guaranty agreement
and join in the Security Agreement. Pursuant to the terms of the Credit Agreement, borrowings made
under the Credit Agreement bear interest at a rate based on either the London Interbank Offered
Rate (LIBOR) plus 2.75% or the banks prime rate plus 1.25%. In the absence of an event of default,
any amounts outstanding under the Credit Agreement may be repaid and re-borrowed at any time until
maturity, which is August 2, 2009.
The obligations of the Borrowers under the Credit Agreement may be accelerated upon the occurrence
of an event of default under the Credit Agreement, which includes customary events of default,
including payment defaults, defaults in the performance of affirmative and negative covenants, the
material inaccuracy of representations or warranties, a cross-default
10
related to other indebtedness in an aggregate amount of $1.0 million or more, bankruptcy and
insolvency related defaults, defaults relating to such matters as ERISA and judgments and a change
of control default. The Credit Agreement contains negative covenants applicable to the Company, the
Borrowers and their subsidiaries, including financial covenants requiring the Borrowers to maintain
a minimum level of earnings before interest, taxes, depreciation and amortization (EBITDA) if the
Borrowers have not maintained minimum liquidity (defined as $30 million of qualified cash and
excess availability, each as also defined in the Credit Agreement), as well as restrictions on
liens, capital expenditures, investments, indebtedness, fundamental changes to the borrowers
business, dispositions of property, making certain restricted payments (including restrictions on
dividends and stock repurchases), entering into new lines of business, and transactions with
affiliates. As of September 27, 2008 and June 28, 2008, there were no borrowings under the Credit
Agreement. As of September 27, 2008, there were $0.3 million in outstanding letters of credit with
a vendor secured by this credit facility.
In connection with the Credit Agreement, the Company agreed to pay a monthly servicing fee of
$3,000 and an unused line fee equal to 0.375% per annum, payable monthly on the unused amount of
revolving credit commitments. To the extent there are letters of credit outstanding under the
Credit Agreement, the Borrowers are obligated to pay the administrative agent a letter of credit
fee at a rate equal to 2.75% per annum.
Note 9. Commitments and Contingencies
Guarantees
The Company follows the provisions of FIN 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. The Company has the
following financial guarantees:
|
|
|
In connection with the sale by New Focus of its passive component line to Finisar, Inc.,
New Focus agreed to indemnify Finisar for claims related to the intellectual property sold
to Finisar. This obligation expires in May 2009 and has no limitation on maximum liability.
The Company has not historically paid out any amounts related to this indemnification and
does not expect to in the future, therefore no accrual has been made for this
indemnification. |
|
|
|
|
The Company indemnifies its directors and certain employees as permitted by law, and has
entered into indemnification agreements with its directors and senior officers. The Company
has not recorded a liability associated with these indemnification arrangements as the
Company historically has not incurred any costs associated with such indemnifications and
does not expect to in the future. Costs associated with such indemnifications may be
mitigated by insurance coverage that the Company maintains. |
|
|
|
|
The Company also has indemnification clauses in various contracts that it enters into in
the normal course of business, such as those issued by its banks in favor of several of its
suppliers or indemnification in favor of customers in respect of liabilities they may incur
as a result of purchasing the Companys products should such products infringe the
intellectual property rights of a third party. The Company has not historically paid out
any amounts related to these indemnifications and does not expect to in the future,
therefore no accrual has been made for these indemnifications. |
Provision for warranties
The Company accrues for the estimated costs to provide warranty services at the time revenue is
recognized. The Companys estimate of costs to service its warranty obligations is based on
historical experience and expectation of future conditions. To the extent the Company experiences
increased warranty claim activity or increased costs associated with servicing those claims, the
Companys warranty costs will increase, resulting in a decrease to gross profit and to net income
(loss).
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
Warranty provision beginning of period |
|
$ |
2,598 |
|
|
$ |
2,569 |
|
Warranties issued |
|
|
928 |
|
|
|
622 |
|
Warranties utilized or expired |
|
|
(761 |
) |
|
|
(857 |
) |
Currency translation adjustment |
|
|
(171 |
) |
|
|
36 |
|
|
|
|
|
|
|
|
Warranty provision end of period |
|
$ |
2,594 |
|
|
$ |
2,370 |
|
|
|
|
|
|
|
|
11
Litigation
On June 26, 2001, a putative securities class action captioned Lanter v. New Focus, Inc. et al.,
Civil Action No. 01-CV-5822, was filed against New Focus and several of its officers and directors,
or the Individual Defendants, in the United States District Court for the Southern District of New
York. Also named as defendants were Credit Suisse First Boston Corporation, Chase Securities, Inc.,
U.S. Bancorp Piper Jaffray, Inc. and CIBC World Markets Corp., or the Underwriter Defendants, the
underwriters in New Focuss initial public offering. Three subsequent lawsuits were filed
containing substantially similar allegations. These complaints have been consolidated.
On November 7, 2001, a Class Action Complaint was filed against Bookham Technology plc and others
in the United States District Court for the Southern District of New York. On April 19, 2002,
plaintiffs filed an Amended Class Action Complaint, described below. The Amended Class Action
Complaint names as defendants Bookham Technology plc, Goldman, Sachs & Co. and FleetBoston
Robertson Stephens, Inc., two of the underwriters of Bookham Technology plcs initial public
offering in April 2000, and Andrew G. Rickman, Stephen J. Cockrell and David Simpson, each of whom
was an officer and/or director at the time of Bookham Technology plcs initial public offering.
Various plaintiffs have filed similar actions asserting virtually identical allegations against
more than 300 other public companies, their underwriters, and their officers and directors arising
out of each companys public offering. These actions, including the action against New Focus and
the action against Bookham Technology plc, have been coordinated for pretrial purposes and
captioned In re Initial Public Offering Securities Litigation, 21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended Class Action Complaint in the New Focus
action and an Amended Class Action Complaint in the Bookham Technology plc action (together, the
Amended Class Action Complaints). The Amended Class Action Complaints assert claims under certain
provisions of the securities laws of the United States. They allege, among other things, that the
prospectuses for Bookham Technology plcs and New Focuss initial public offerings were materially
false and misleading in describing the compensation to be earned by the underwriters in connection
with the offerings, and in not disclosing certain alleged arrangements among the underwriters and
initial purchasers of ordinary shares, in the case of Bookham Technology plc, or common stock, in
the case of New Focus, from the underwriters. The Amended Class Action Complaints seek unspecified
damages (or, in the alternative, rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees, experts fees, interest and other expenses. In October
2002, the Individual Defendants were dismissed, without prejudice, from the action subject to their
execution of tolling agreements. In July 2002, all defendants filed Motions to Dismiss the Amended
Class Action Complaints. The motions were denied as to Bookham Technology plc and New Focus in
February 2003. Special committees of the board of directors authorized the companies to negotiate a
settlement of pending claims substantially consistent with a memorandum of understanding negotiated
among class plaintiffs, all issuer defendants and their insurers.
The plaintiffs and most of the issuer defendants and their insurers entered into a stipulation of
settlement for the claims against the issuer defendants, including Bookham Technology plc and New
Focus. This stipulation of settlement was subject to, among other things, certification of the
underlying class of plaintiffs. Under the stipulation of settlement, the plaintiffs would dismiss
and release all claims against participating defendants in exchange for a payment guaranty by the
insurance companies collectively responsible for insuring the issuers in the related cases, and the
assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against
the underwriters. On February 15, 2005, the District Court issued an Opinion and Order
preliminarily approving the settlement provided that the defendants and plaintiffs agree to a
modification narrowing the scope of the bar order set forth in the original settlement agreement.
The parties agreed to the modification narrowing the scope of the bar order, and on August 31,
2005, the District Court issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the underwriter defendants the United States Court of
Appeals for the Second Circuit overturned the District Courts certification of the class of
plaintiffs who are pursuing the claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for Rehearing and Rehearing En Banc with the
Second Circuit on January 5, 2007 in response to the Second Circuits decision and have informed
the District Court that they would like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not reversed. The District Court indicated
that it would defer consideration of final approval of the settlement pending plaintiffs request
for further appellate review.
On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing, but clarified that
the plaintiffs may seek to certify a more limited class in the District Court. In light of the
overturned class certification on June 25, 2007, the District Court signed an Order terminating the
settlement. The actions against Bookham Technology plc and New Focus remain stayed while litigation
proceeds in six test cases against other companies which involve claims virtually identical to
those that
12
have been asserted against Bookham Technology plc and New Focus.
On November 13, 2007, the issuer defendants in certain designated focus cases filed a motion to
dismiss the second consolidated amended class action complaints that were filed in those cases.
On March 26, 2008, the District Court issued an Opinion and Order denying, in large part, the motions to
dismiss the amended complaints in the focus cases.
It is uncertain if the litigations will settle. If settlement of the
litigations do not
occur and litigation against Bookham
Technology plc and New Focus continues, the Company believes that both Bookham Technology plc and
New Focus have meritorious defenses to the claims made in the Amended Class Action Complaints and
therefore believes that such claims will not have a material effect on its financial position,
results of operations or cash flows.
On November 12, 2007, Xian Raysung Photonics Inc. filed a civil suit against Bookham, Inc., and
its wholly-owned subsidiary, Bookham Technology (Shenzhen) Co., Ltd. (Bookham Shenzhen), in the
Xian Intermediate Peoples Court in Shanxi Province of the Peoples Republic of China (PRC). The
complaint filed by Xian Raysung Photonics Inc. alleged that Bookham, Inc. and Bookham Shenzhen
breached an agreement between the parties pursuant to which Xian Raysung Photonics Inc. had
supplied certain sample components and was to supply certain components to Bookham, Inc. and
Bookham Shenzhen. Xian Raysung Photonics Inc. had increased its request that the court award
damages of 20,000,000 Chinese Yuan (approximately $2.9 million based on an exchange rate of $1.00
to 6.81 Chinese Yuan as in effect on September 27, 2008) and had requested that Bookham, Inc. and
Bookham Shenzhen be required to pay its legal fees in connection with the suit.
On September 4, 2008, the Company, on behalf of itself and Bookham Shenzhen, entered into a
settlement agreement with Xian Raysung Photonics Inc. and, as a result, the case pending in the
Xian Intermediate Peoples Court in Shanxi Province of the PRC has been dismissed against both the
Company and Bookham Shenzhen. There was no amount paid to Xian Raysung Photonics Inc. in
connection with the settlement. Each company is responsible for their own legal fees in the matter.
On March 4, 2008, Bookham filed a declaratory judgment complaint captioned Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc., Civil Action No. 5:08-CV-01275-RMW, in the United
States District Court for the Northern District of California, San Jose Division. Bookhams
complaint seeks declaratory judgments that its tunable laser products do not infringe any valid,
enforceable claim of U.S. Patent Nos. 6,658,035, 6,654,400 and 6,687,278, and that all claims of
the aforementioned patents are invalid and unenforceable. Bookhams complaint also contains
affirmative claims for relief against JDS Uniphase Corp. and Agility Communications, Inc. for
statutory unfair competition, and for intentional interference with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and Agility Communications, Inc. answered Bookhams complaint
and asserted counterclaims against Bookham for infringement of U.S. Patent Nos. 6,658,035,
6,654,400 and 6,687,278, which JDS Uniphase Corp. acquired from Agility Communications, Inc. On
October 6, 2008, JDS Uniphase Corp. indicated that its infringement claims are directed at
Bookhams LamdaFlexTM TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000 products.
JDS Uniphase Corp. seeks unspecified compensatory damages, treble damages and attorney fees from
Bookham, and an order enjoining Bookham from future infringement of the patents-in-suit. No
litigation schedule or trial date has yet been set. Any adverse ruling by the court, including an
injunction that could prohibit us from using the technology covered by the patents in our products,
or prolonged litigation may have an adverse effect on our business and any resolution may not be in
our favor.
On April 18, 2008 the Company settled a lawsuit in the United Kingdom under which it had been
seeking claims against a land developer in connection with the Companys sale of a certain parcel
of land in 2005. In the fiscal year ended June 28, 2008, the Company has recorded a gain of $2.9
million, net of costs, associated with this settlement.
Note 10. Stock-based Compensation Expense
The Company accounts for stock-based compensation under SFAS No. 123R Share-Based Payment, which
requires companies to recognize in their statement of operations all share-based payments,
including grants of stock options, based on the grant date fair value of such share-based awards.
The application of SFAS No. 123R requires the Companys management to make judgments in the
determination of inputs into the Black-Scholes stock option pricing model which the Company uses to
determine the grant date fair value of stock options it grants. This model requires assumptions be
made related to expected stock price volatility, expected option life, risk-free interest rate and
dividend yield. While the risk-free interest rate is a less subjective assumption, typically based
on factual data derived from public sources, the expected stock price volatility and option life
assumptions require a greater level of judgment which make them critical accounting estimates.
The Company has not issued and does not anticipate issuing dividends to stockholders and
accordingly uses a 0% dividend yield assumption for all Black-Scholes stock option pricing
calculations. The Company uses an expected stock-price volatility assumption that is primarily
based on historical realized volatility of the underlying common stock during a period of time.
With regard to the weighted-average option life assumption, the Company evaluates the exercise
behavior of past
grants as a basis to predict future activity.
13
The assumptions used to value stock option grants for the three months ended September 27, 2008 and
September 29, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
September 27, 2008 |
|
September 29, 2007 |
Expected life |
|
4.5 years |
|
4.5 years |
Risk-free interest rate |
|
2.9% - 3.2% |
|
4.2% - 4.9% |
Volatility |
|
70% |
|
79% |
Dividend yield |
|
|
|
|
The amounts included in cost of revenues and operating expenses for stock-based compensation
expenses for the three months ended September 27, 2008 and September 29, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
Stock-based compensation by category of expense: |
|
|
|
|
|
|
|
|
Costs of revenues |
|
$ |
395 |
|
|
$ |
615 |
|
Research and development |
|
|
250 |
|
|
|
451 |
|
Selling, general and administrative |
|
|
572 |
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
$ |
1,217 |
|
|
$ |
1,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation by type of award: |
|
|
|
|
|
|
|
|
Stock options and restricted stock
awards |
|
$ |
1,107 |
|
|
$ |
1,460 |
|
Inventory adjustment to cost of revenues |
|
|
110 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
$ |
1,217 |
|
|
$ |
1,726 |
|
|
|
|
|
|
|
|
As of September 27, 2008 and June 28, 2008, the Company had capitalized $0.2 million and $0.3
million, respectively, of stock-based compensation as inventory.
The following table summarizes the combined activity under all of the Companys equity incentive
plans for the three months ended September 27, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards |
|
Stock |
|
Weighted- |
|
Restricted Stock |
|
Weighted- |
|
|
Available |
|
Options |
|
Average |
|
Awards / Units |
|
Average Grant |
|
|
For Grant |
|
Outstanding |
|
Exercise Price |
|
Outstanding |
|
Date Fair Value |
|
|
(thousands) |
|
(thousands) |
|
|
|
|
|
(thousands) |
|
|
|
|
Balances at June 28, 2008 |
|
|
12,105 |
|
|
|
6,822 |
|
|
$ |
5.87 |
|
|
|
1,503 |
|
|
$ |
2.91 |
|
Granted |
|
|
(2,624 |
) |
|
|
2,624 |
|
|
$ |
1.78 |
|
|
|
|
|
|
|
|
|
Exercised or released |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(715 |
) |
|
$ |
3.04 |
|
Cancelled or forfeited |
|
|
635 |
|
|
|
(495 |
) |
|
$ |
4.72 |
|
|
|
(140 |
) |
|
$ |
4.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 27, 2008 |
|
|
10,116 |
|
|
|
8,951 |
|
|
$ |
4.66 |
|
|
|
648 |
|
|
$ |
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company generally grants stock options that vest over a four to five year service period and
restricted stock awards that
vest over a one to four year service period, and in certain cases each may vest earlier based upon
the achievement of specific performance-based objectives.
14
Supplemental disclosure information about the Companys stock options outstanding as of September
27, 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
Weighted- |
|
|
|
|
|
|
|
|
Average |
|
Average Remaining |
|
Aggregate |
|
|
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
|
|
Shares |
|
Price |
|
Life |
|
Value |
|
|
(thousands) |
|
|
|
|
|
(years) |
|
(thousands) |
Options exercisable at September 27, 2008 |
|
|
3,624 |
|
|
$ |
7.97 |
|
|
|
6.7 |
|
|
$ |
|
|
Options expected to vest at September
27, 2008 |
|
|
8,536 |
|
|
$ |
4.79 |
|
|
|
8.2 |
|
|
$ |
|
|
Options outstanding at September 27, 2008 |
|
|
8,951 |
|
|
$ |
4.66 |
|
|
|
8.2 |
|
|
$ |
|
|
Note 11. Earnings (Loss) Per Share
SFAS No. 128, Earnings Per Share, requires dual presentation of basic and diluted earnings per
share on the face of the statement of operations. Basic earnings per share is computed using only
the weighted-average number of shares of common stock outstanding for the applicable period, while
diluted earnings per share is computed assuming conversion of all potentially dilutive securities,
such as stock options, unvested restricted stock awards and units and warrants during such period.
For the three months ended September 27, 2008, included in the computation of diluted shares
outstanding were 0.6 million shares of common stock issuable upon vesting of outstanding restricted
stock awards. No stock options or warrants were included for the three months ended September 27,
2008 as their exercise prices exceeded the average share price for the period. For the three months
ended September 29, 2007, there were no stock options, warrants or restricted stock awards factored
into the computation of diluted shares outstanding since the Company incurred a net loss in this
period and their inclusion would be anti-dilutive.
For the three month periods ended September 27, 2008 and September 29, 2007, the effects of
potentially dilutive securities (which include warrants, stock options and restricted stock awards)
totaling 19.0 million common shares and 18.1 million common shares, respectively, have been
excluded from the calculation of diluted net income (loss) per share because their inclusion would
have been anti-dilutive.
Note 12. Comprehensive Loss
For the three months ended September 27, 2008 and September 29, 2007, the Companys comprehensive
loss was primarily comprised of its net income (loss), the change in the unrealized gain (loss) on
currency instruments designated as hedges, unrealized loss on short-term investments and foreign
currency translation adjustments. The components of comprehensive loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
Net income (loss) |
|
$ |
2,193 |
|
|
$ |
(10,954 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Unrealized gain (loss) on currency
instruments designated as hedges |
|
|
(1,041 |
) |
|
|
162 |
|
Unrealized loss on short-term investments |
|
|
(17 |
) |
|
|
|
|
Currency translation adjustments |
|
|
(6,412 |
) |
|
|
1,737 |
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(5,277 |
) |
|
$ |
(9,055 |
) |
|
|
|
|
|
|
|
15
Note 13. Segments of an Enterprise and Related Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments, geographic areas and major customers
in financial statements. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing performance. The Chief
Executive Officer of the Company is the Companys chief operating decision maker. As of September
27, 2008, the Company is organized and operates as two operating segments: (i) telecom and (ii)
non-telecom. The telecom segment is responsible for the design, development, chip and filter level
manufacturing, marketing and selling of optical solutions for telecommunications applications. The
non-telecom segment is responsible for the design, development, marketing and selling of
non-telecom products which include photonics and microwave solutions, high power lasers, thin film
filters and VCSELs. The Company evaluates the performance of its segments and allocates resources
based on consolidated revenues and overall performance.
Segment information for the three months ended September 27, 2008 and September 29, 2007 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
Telecom |
|
$ |
52,255 |
|
|
$ |
40,733 |
|
Non-telecom |
|
|
14,276 |
|
|
|
13,549 |
|
|
|
|
|
|
|
|
Consolidated revenues |
|
$ |
66,531 |
|
|
$ |
54,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
Operating loss |
|
|
|
|
|
|
|
|
Telecom |
|
$ |
(1,340 |
) |
|
$ |
(8,886 |
) |
Non-telecom |
|
|
(1,382 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
Total segment operating loss |
|
|
(2,722 |
) |
|
|
(9,169 |
) |
Stock compensation |
|
|
1,217 |
|
|
|
1,726 |
|
Legal Settlement |
|
|
(184 |
) |
|
|
|
|
(Gain) loss on sale of property and equipment |
|
|
16 |
|
|
|
(235 |
) |
|
|
|
|
|
|
|
Consolidated operating loss |
|
$ |
(3,771 |
) |
|
$ |
(10,660 |
) |
|
|
|
|
|
|
|
The following shows revenues by geographic areas based on the delivery locations of the Companys
products:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
|
(thousands) |
|
United States |
|
$ |
19,201 |
|
|
$ |
14,753 |
|
Canada |
|
|
4,655 |
|
|
|
10,624 |
|
Europe: |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
3,536 |
|
|
|
1,683 |
|
Other |
|
|
10,778 |
|
|
|
8,694 |
|
Asia: |
|
|
|
|
|
|
|
|
China |
|
|
14,865 |
|
|
|
10,604 |
|
Other |
|
|
6,412 |
|
|
|
5,781 |
|
Rest of world |
|
|
7,084 |
|
|
|
2,143 |
|
|
|
|
|
|
|
|
|
|
$ |
66,531 |
|
|
$ |
54,282 |
|
|
|
|
|
|
|
|
16
The following table sets forth the Companys long-lived tangible assets by geographic region as of
the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
September 27, 2008 |
|
|
June 28, 2008 |
|
|
|
(thousands) |
|
United States |
|
$ |
1,716 |
|
|
$ |
1,824 |
|
China |
|
|
21,464 |
|
|
|
20,443 |
|
United Kingdom |
|
|
5,157 |
|
|
|
6,296 |
|
Other |
|
|
4,403 |
|
|
|
4,399 |
|
|
|
|
|
|
|
|
|
|
$ |
32,740 |
|
|
$ |
32,962 |
|
|
|
|
|
|
|
|
Significant Customers and Concentration of Credit Risk
For the three months ended September 27, 2008, two customers accounted for 18% (Nortel Networks)
and 13% (Huawei Technologies) of the Companys revenues. For the three months ended September 29,
2007, two customers accounted for 15% (Nortel Networks) and 11% (Cisco Systems) of the Companys
revenues. As of September 27, 2008, two customers accounted for 18% (Nortel Networks) and 14%
(Huawei Technologies) of accounts receivable. As of June 28, 2008, two customers accounted for 15%
(Nortel Networks) and 12% (Huawei Technologies) of accounts receivable.
Note 14. Recent Accounting Pronouncements
With the exception of those discussed below, there have been no recent accounting pronouncements or
changes in accounting pronouncements during the three months ended September 27, 2008, as compared
to the recent accounting pronouncements described in our 2008 Form 10-K, that are of significance,
or potential significance, to the Company.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations. This standard establishes
principles and requirements for how an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired in a business combination. This standard also establishes
disclosure requirements that will enable users to evaluate the nature and financial effects of a
business combination. SFAS No. 141R is effective for the Company for acquisitions made after June
27, 2009. The Company does not anticipate that the adoption of this pronouncement will have a
significant impact on its financial statements, however, the implementation of SFAS No. 141R may
have a material impact on the Companys accounting for businesses acquired by the Company
post-adoption.
In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB
Statement No. 157. FSP No.157-2 delays the effective date of SFAS No. 157 for all non-financial
assets and non-financial liabilities, except for items that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually), until the beginning of
the first quarter of fiscal 2010. The Company is currently evaluating the impact that SFAS No. 157
will have on its consolidated financial statements when it is applied to non-financial assets and
non-financial liabilities that are not measured at fair value on a recurring basis beginning in the
first quarter of fiscal 2010. The major categories of non-financial assets and non-financial
liabilities that are measured at fair value, for which the Company has not yet applied the
provisions of SFAS No. 157, are goodwill and intangible assets.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures for
derivative instruments, including those used in hedging activities. It is effective for fiscal
years and interim periods beginning after November 15, 2008, and will be applicable to the Company
in the third quarter of fiscal 2009. The Company is currently evaluating the effect, if any, that
the adoption of SFAS No. 161 may have on its consolidated results of operations and financial
condition.
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible
Assets. FSP No. 142-3 amends the factors that should be considered in developing assumptions about
renewal or extension used in estimating the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 is intended to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other
generally accepted
accounting principles. FSP No.142-3 is effective for financial statements issued for fiscal years
beginning after December 15, 2008. The measurement provisions of this standard will apply only to
intangible assets of the Company acquired after June 27, 2009.
17
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 supersedes the existing hierarchy contained in the U.S. auditing
standards. The existing hierarchy was carried over to SFAS No. 162 essentially unchanged. SFAS No.
162 becomes effective 60 days following the Securities and Exchange Commissions approval of the
Public Company Accounting Oversight Board amendments to the auditing literature. The new hierarchy
is not expected to change current accounting practice in any area.
In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset in
a Market That Is Not Active, which clarifies the application of SFAS No. 157 when the market for a
financial asset is inactive. Specifically, FSP 157-3 clarifies how (1) managements internal
assumptions should be considered in measuring fair value when observable data are not present,
(2) observable market information from an inactive market should be taken into account and (3) the
use of broker quotes or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP No. 157-3 is effective
immediately and the Company has applied its guidance in the current quarter. The adoption of FSP
No. 157-3 did not have a significant impact on the Companys consolidated results of operations and
financial condition.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements about our plans, objectives,
expectations and intentions. You can identify these statements by words such as expect,
anticipate, intend, scheduled, designed, plan, believe, seek, estimate, may,
will, continue, proposed and similar words. You should read these forward looking statements
carefully. They discuss our future expectations, contain projections of our future results of
operations or our financial condition or state other forward-looking information, and may involve
known and unknown risks over which we have limited or no control. You should not place undue
reliance on forward-looking statements and actual results may differ materially from those
contained in forward looking statements. We cannot guarantee any future results, levels of
activity, performance or achievements. Moreover, we assume no obligation to update forward-looking
statements or update the reasons actual results could differ materially from those anticipated in
forward-looking statements, except as required by law. The factors discussed in the sections
captioned Managements Discussion and Analysis of Financial Condition and Results of Operations
and Risk Factors in this Quarterly Report on Form 10-Q identify important factors that may cause
our actual results to differ materially from the expectations we describe in our forward-looking
statements.
Overview
We design, manufacture and market optical components, modules and subsystems that generate, detect,
amplify, combine and separate light signals principally for use in high-performance fiber optics
communications networks. Due to its advantages of higher capacity and transmission speed, optical
transmission has become the predominant technology for large-scale communications networks. Our
primary operating segment, which we refer to as our telecom segment, addresses the optical
communications market. We are one of the largest vertically-integrated vendors of optical
components used for fiber optic telecommunications network applications. Our customers include
leading equipment systems vendors, including ADVA, Alcatel-Lucent, Ciena, Cisco, Huawei, Nortel
Networks, Tellabs and Tyco. Our remaining product lines, which comprise our non-telecom segment,
leverage our optical component technologies and expertise in manufacturing optical subsystems to
address opportunities in other markets, including industrial, research, semiconductor capital
equipment, military and biotechnology.
Our products typically have a long sales cycle. The period of time between our initial contact with
a customer and the receipt of a purchase order is frequently a year or more. In addition, many
customers perform, and require us to perform, extensive process and product evaluation and testing
of components before entering into purchase arrangements.
Because of recent changes in the spending plans of certain our telecom customers, leading to them
drawing down their existing inventories; we anticipate that our revenues in the near term will
decline. We estimate that our revenues for the second quarter of fiscal 2009 will be between $57
million and $62 million. Further, because of the worldwide financial uncertainty, it is possible
that network providers will significantly reduce capital expenditures in the near term and that
more of the equipment providers whom we supply will therefore draw down inventories, reduce
production levels of existing products and defer introduction of new products. We cannot currently
predict the duration or the overall impact of any such reduced demand in our markets over the next
several quarters. We intend to respond to these trends by carefully controlling our expenses,
focusing on continuing to improve our direct product costs and monitoring our inventory levels.
However, we do expect that the anticipated reductions in revenues in our second fiscal quarter, and
any further reductions beyond such
quarter, will have an impact on our gross margins and income (loss) from operations.
18
Critical Accounting Policies
We believe that several accounting policies we have implemented are important to understanding our
historical and future performance. We refer to such policies as critical because they generally
require us to make judgments and estimates about matters that are uncertain at the time we make the
estimate, and different estimateswhich also would have been reasonable at the timecould have been
used, and would have resulted in materially different reported financial results.
The critical accounting policies we identified in our Annual Report on Form 10-K for the year ended
June 28, 2008 (our 2008 Form 10-K), related to revenue recognition and sales returns, inventory
valuation, accounting for acquisitions and goodwill, impairment of goodwill and other intangible
assets and accounting for share-based payments. It is important that the discussion of our
operating results that follows be read in conjunction with the critical accounting policies
discussed in our 2008 Form 10-K.
Recent Accounting Pronouncements
With the exception of those discussed below, there have been no recent accounting pronouncements or
changes in accounting pronouncements during the three months ended September 27, 2008, as compared
to the recent accounting pronouncements described in our 2008 Form 10-K, that are of significance,
or potential significance, to us.
In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141R, Business Combinations. This standard establishes principles
and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree
and the goodwill acquired in a business combination. This standard also establishes disclosure
requirements that will enable users to evaluate the nature and financial effects of a business
combination. SFAS No. 141R is effective for us for acquisitions made after June 27, 2009. We do not
anticipate that the adoption of this pronouncement will have a significant impact on our financial
statements; however, the implementation of SFAS No. 141R may have a material impact on our
accounting for businesses we acquire post-adoption.
In February 2008, the FASB issued FASB Staff Position (FSP) No. 157-2, Effective Date of FASB
Statement No. 157. FSP No.157-2 delays the effective date of SFAS No. 157, Fair Value Measurements
for all non-financial assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually), until
the beginning of the first quarter of fiscal 2010. We are currently evaluating the impact that SFAS
No. 157 will have on our consolidated financial statements when it is applied to non-financial
assets and non-financial liabilities that are not measured at fair value on a recurring basis
beginning in the first quarter of fiscal 2010. The major categories of non-financial assets and
non-financial liabilities that are measured at fair value, for which we have not yet applied the
provisions of SFAS No. 157 are goodwill and intangible assets.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures for
derivative instruments, including those used in hedging activities. It is effective for fiscal
years and interim periods beginning after November 15, 2008, and will be applicable to us in the
third quarter of fiscal 2009. We are currently evaluating the effect, if any, that the adoption of
SFAS No. 161 may have on our consolidated results of operations and financial condition.
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible
Assets. FSP No. 142-3 amends the factors that should be considered in developing assumptions about
renewal or extension used in estimating the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 is intended to improve the consistency
between the useful life of a recognized intangible asset under SFAS No. 142 and the period of
expected cash flows used to measure the fair value of the asset under SFAS No. 141R and other
generally accepted accounting principles. FSP No.142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008. The measurement provisions of this standard
will apply only to intangible assets we acquire after June 27, 2009.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS No. 162 supersedes the existing hierarchy contained in the U.S. auditing
standards. The existing hierarchy was carried over to SFAS No. 162 essentially unchanged. SFAS
No. 162 becomes effective 60 days following the Securities and Exchange Commissions approval of
the Public Company Accounting Oversight Board amendments to the auditing literature. The new
hierarchy is not expected to change current accounting practice in any area.
19
In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial Asset in
a Market That Is Not Active, which clarifies the application of SFAS No. 157 when the market for a
financial asset is inactive. Specifically, FSP No. 157-3 clarifies how (1) managements internal
assumptions should be considered in measuring fair value when observable data are not present,
(2) observable market information from an inactive market should be taken into account and (3) the
use of broker quotes or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP No. 157-3 is effective
immediately we have applied its guidance in the current quarter. The adoption of FSP No. 157-3 did
not have a significant impact on our financial statements.
Results of Operations
The following table sets forth our condensed consolidated results of operations for the periods
indicated, along with amounts expressed as a percentage of net revenues, and comparative
information regarding the absolute and percentage changes in these amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
Increase (Decrease) |
|
|
|
(thousands) |
|
|
% |
|
|
(thousands) |
|
|
% |
|
|
(thousands) |
|
|
% |
|
Revenues |
|
$ |
66,531 |
|
|
|
100.0 |
|
|
$ |
54,282 |
|
|
|
100.0 |
|
|
$ |
12,249 |
|
|
|
22.6 |
|
Cost of revenues |
|
|
49,902 |
|
|
|
75.0 |
|
|
|
41,945 |
|
|
|
77.3 |
|
|
|
7,957 |
|
|
|
19.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
16,629 |
|
|
|
25.0 |
|
|
|
12,337 |
|
|
|
22.7 |
|
|
|
4,292 |
|
|
|
34.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
7,935 |
|
|
|
11.9 |
|
|
|
8,692 |
|
|
|
16.0 |
|
|
|
(757 |
) |
|
|
(8.7 |
) |
Selling, general and
administrative |
|
|
10,684 |
|
|
|
16.1 |
|
|
|
11,326 |
|
|
|
20.9 |
|
|
|
(642 |
) |
|
|
(5.7 |
) |
Amortization of
intangible assets |
|
|
463 |
|
|
|
0.7 |
|
|
|
1,997 |
|
|
|
3.7 |
|
|
|
(1,534 |
) |
|
|
(76.8 |
) |
Restructuring and
severance charges |
|
|
1,486 |
|
|
|
2.3 |
|
|
|
1,217 |
|
|
|
2.2 |
|
|
|
269 |
|
|
|
22.1 |
|
Legal settlement |
|
|
(184 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
(184 |
) |
|
|
n/m |
(1) |
(Gain) loss on sale of
property and equipment |
|
|
16 |
|
|
|
0.0 |
|
|
|
(235 |
) |
|
|
(0.4 |
) |
|
|
251 |
|
|
|
n/m |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
20,400 |
|
|
|
30.7 |
|
|
|
22,997 |
|
|
|
42.4 |
|
|
|
(2,597 |
) |
|
|
(11.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(3,771 |
) |
|
|
(5.7 |
) |
|
|
(10,660 |
) |
|
|
(19.7 |
) |
|
|
6,889 |
|
|
|
(64.6 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
(600 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
(600 |
) |
|
|
n/m |
(1) |
Interest income |
|
|
248 |
|
|
|
0.4 |
|
|
|
252 |
|
|
|
0.5 |
|
|
|
(4 |
) |
|
|
(1.6 |
) |
Interest expense |
|
|
(192 |
) |
|
|
(0.3 |
) |
|
|
(134 |
) |
|
|
(0.2 |
) |
|
|
(58 |
) |
|
|
43.3 |
|
Gain (loss) on foreign
exchange |
|
|
6,496 |
|
|
|
9.7 |
|
|
|
(412 |
) |
|
|
(0.8 |
) |
|
|
6,908 |
|
|
|
n/m |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
5,952 |
|
|
|
8.9 |
|
|
|
(294 |
) |
|
|
(0.5 |
) |
|
|
6,246 |
|
|
|
n/m |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
2,181 |
|
|
|
3.3 |
|
|
|
(10,954 |
) |
|
|
(20.2 |
) |
|
|
13,135 |
|
|
|
n/m |
(1) |
Income tax benefit |
|
|
(12 |
) |
|
|
(0.0 |
) |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
n/m |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
2,193 |
|
|
|
3.3 |
|
|
$ |
(10,954 |
) |
|
|
(20.2 |
) |
|
$ |
13,147 |
|
|
|
n/m |
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Revenues in the three month period ended September 27, 2008 increased by $12.2 million, or 22.6%,
compared to the three month period ended September 29, 2007. The increase was largely due to an
increase in sales from our telecom segment of $11.5 million and an increase in non-telecom segment
sales of $0.7 million.
Our increase in telecom sales from the first quarter of fiscal 2008 to fiscal 2009 was primarily
attributable to increases in sales to Huawei Technologies of $5.2 million and Nortel Networks of
$3.9 million For the three months ended September 27,
2008, Nortel Networks accounted for $12.2 million, or 18%, of our total revenues, and Huawei
Technologies accounted for $9.0 million, or 13%, of our total revenues. For the three months ended
September 29, 2007, Nortel Networks accounted for $8.3 million, or 15%, of our revenues, and Cisco
Systems accounted for $6.1 million, or 11%, of our total revenues.
As noted previously, we anticipate that our revenues, primarily our telecom revenues, will be
negatively affected in the second fiscal quarter of fiscal 2009, and that our revenues in the next
several quarters may be impacted by the uncertainty in the worldwide financial markets and
resulting impact on the markets for our products.
20
Cost of Revenues
Our cost of revenues consists of the costs associated with manufacturing our products, and includes
the costs to purchase raw materials and manufacturing-related labor costs and related overhead,
including stock-based compensation expense. It also includes costs associated with under-utilized
production facilities and resources. Charges for inventory obsolescence, the cost of product
returns and warranty costs are also included in cost of revenues. Costs and expenses of the
manufacturing resources which relate to the development of new products are included in research
and development expense.
Our cost of revenues for the three month period ended September 27, 2008 increased $8.0 million, or
19.0%, from the three month period ended September 29, 2007. This increase was primarily due to
higher costs associated with higher sales volumes and $0.5 million in additional manufacturing
overhead costs in connection with the transfer of manufacturing operations of our non-telecom
segment from our San Jose, California facility to our facility in Shenzhen, China. Our cost of
revenues for the three month period ended September 27, 2008 included $0.4 million of stock-based
compensation charges compared to $0.6 million in the three month period ended September 29, 2007.
Gross Margin
Gross margin is calculated as revenues less cost of revenues. The gross margin rate is gross margin
reflected as a percentage of revenues.
Our gross margin increased by $4.3 million in the three months ended September 27, 2008, compared
to the three months ended September 29, 2007. Our gross margin rate increased to 25.0 percent in
the three months ended September 27, 2008, compared to 22.7 percent in the three months ended
September 29, 2007. The increase in gross margin was primarily associated with increased sales
volumes in both of our operating segments for the three months ended September 27, 2008 as compared
to September 29, 2007 due to the fixed nature of certain overheads spread over higher volume and
sourcing a greater portion of our purchases of production inputs from lower cost southeast Asian
suppliers, which were partially offset by increased expenses for the three months ended September
27, 2008 of $0.5 million of additional manufacturing overhead costs in connection with the transfer
of manufacturing operations of our non-telecom segment from our San Jose, California facility to
our facility in Shenzhen, China.
As previously noted, we anticipate our revenues to be lower in the second quarter of fiscal 2009,
and accordingly we expect gross margins in the same quarter to be lower due to lower sales volumes
associated with that revenue decrease, only partly offset by reductions in our manufacturing
overhead expenses implemented in response to the expected revenue decrease.
Research and Development Expenses
Research and development expenses consist primarily of salaries and related costs of employees
engaged in research and design activities, including stock-based compensation charges related to
those employees, costs of design tools and computer hardware, costs related to prototyping and
facilities costs for certain research and development focused sites.
Research and development expenses decreased to $7.9 million in the three month period ended
September 27, 2008 from $8.7 million in the three month period ended September 29, 2007. The
decrease was primarily due to decreases in personnel costs of $0.7 million, stock-based
compensation of $0.2 million due to reductions in personnel and other miscellaneous decreases in
spending of $0.5 million, as a result of our restructurings and cost reduction plans, which were
partially offset by increased costs for materials used in research and development of $0.6 million.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel-related expenses,
including stock-based compensation charges related to employees engaged in sales, general and
administrative functions, legal and professional fees, facilities expenses, insurance expenses and
certain information technology costs.
Selling, general and administrative expenses decreased to $10.7 million in the three month period
ended September 27, 2008 from $11.3 million in the three month period ended September 29, 2007. The
decrease was primarily the result of decreases in personnel costs of $0.4 million and stock-based
compensation of $0.1 million as a result of restructuring and cost reduction
plans and a reduction of $0.1 million in other miscellaneous expenses.
21
Beginning June 29, 2008, we changed the process used to estimate audit fees. We now accrue for
audit fees based on when services are performed. The impact of this change on our net income for
the three months ended September 27, 2008 was to reduce audit fees, which are included in selling,
general and administrative expenses, by $0.4 million.
Amortization of Intangible Assets
In previous years we acquired six optical components companies and businesses and one photonics and
microwave company. Our last such acquisition was in March 2006. Each of these business combinations
added to the balance of our purchased intangible assets, and the related amortization of these
intangible assets was recorded as an expense in each of the three month periods ended September 27,
2008 and September 29, 2007. Subsequent to the three month period ended September 29, 2007, the
purchased intangible assets from certain of these business acquisitions became fully amortized,
which reduced our expense for amortization of purchased intangible assets in the three month period
ended September 27, 2008 by $1.5 million as compared to the same three month period in the prior
year.
Restructuring and Severance Charges
In connection with earlier plans of restructuring, and the assumption of restructuring accruals
upon the March 2004 acquisition of New Focus, we continue to make scheduled payments drawing down
the related lease cancellations and commitments as well as making termination payments to employees
and related costs. In the three month periods ended September 27, 2008 and September 29, 2007 we
accrued $1.5 million and $1.2 million, respectively, in expenses for revised estimates related to
these cancellations and commitments and termination payments to employees and related costs.
Other Income (Expense)
The change in other income (expense) in the three month period ended September 27, 2008 when
compared to the three month period ended September 29, 2007 was primarily related to an increase of
$6.9 million in income related to the re-measurement of short term balances between our
international subsidiaries due to the strong appreciation of the dollar during the quarter ended
September 27, 2008 relative to our other local functional currencies and an expense of $0.6 million
related to the fair value impairment of our short-term investment in a debt security of Lehman
Brothers.
Income Tax Benefit
Although we were profitable for the three-month period ended September 27, 2008, we have incurred
substantial losses to date and expect to incur additional losses in the future. Accordingly, our
income tax provision is negligible in each period presented. Based upon the weight of available
evidence, which includes our historical operating performance and the recorded cumulative net
losses in prior periods, we have provided a full valuation allowance against our net deferred tax
assets at September 27, 2008 and June 28, 2008.
Liquidity and Capital Resources
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
September 27, 2008 |
|
|
September 29, 2007 |
|
|
|
(thousands) |
|
Net income (loss) |
|
$ |
2,193 |
|
|
$ |
(10,954 |
) |
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
3,445 |
|
|
|
5,241 |
|
Stock-based compensation |
|
|
1,217 |
|
|
|
1,726 |
|
Impairment of marketable securities |
|
|
600 |
|
|
|
|
|
(Gain) loss on sale of property and equipment |
|
|
16 |
|
|
|
(235 |
) |
Amortization of deferred gain on sale-leaseback |
|
|
(271 |
) |
|
|
(93 |
) |
|
|
|
|
|
|
|
Total non-cash accounting items |
|
|
5,007 |
|
|
|
6,639 |
|
Increase in working capital |
|
|
(5,231 |
) |
|
|
(2,454 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
$ |
1,969 |
|
|
$ |
(6,769 |
) |
|
|
|
|
|
|
|
22
Net cash provided by operating activities for the three month period ended September 27, 2008 was
$2.0 million, primarily resulting from the net income of $2.2 million and non-cash accounting
charges of $5.0 million, primarily consisting of $3.4 million of expense related to depreciation
and amortization of certain assets and $1.2 million of expense related to stock-based compensation.
A net change in our operating assets and liabilities of $5.2 million due to increases in accounts
receivable and accounts payable, partially offset by decreases in inventories, accrued expenses and
other liabilities and prepaid expenses and other current assets, also contributed to the use of
cash.
Net cash used in operating activities for the three month period ended September 29, 2007 was
$6.8 million, primarily resulting from the net loss of $11.0 million, offset by non-cash accounting
charges of $6.6 million, primarily consisting of $5.2 million of expense related to depreciation
and amortization of certain assets and $1.7 million of expense related to stock-based compensation.
A net change in our operating assets and liabilities of $2.5 million due to increases in accounts
receivable, inventories and accounts payable, partially offset by decreases in accrued expenses and
other liabilities and prepaid expenses and other current assets, also contributed to the use of
cash.
Cash Flows from Investing Activities
Net cash provided by investing activities in the three month period ended September 27, 2008 was
$1.6 million, primarily consisting of $11.3 million in sales and maturities of available-for-sale
investments and $0.5 million from the release of restricted cash, which were partially offset by
$6.9 million in purchases of available-for-sale investments and $3.2 million used in capital
expenditures.
Net cash provided by investing activities in the three month period ended September 29, 2007 was
$1.8 million, primarily consisting of $4.3 million from the release of restricted cash which had
been security on an unoccupied leased facility and $0.3 million in proceeds from the sale of fixed
assets, which were partially offset by $2.9 million used in capital expenditures.
Cash Flows from Financing Activities
There were no significant cash flows from financing activities in the three month period ended
September 27, 2008. Net cash provided by financing activities in the three month period ended
September 29, 2007 was $0.5 million, primarily consisting of $0.5 million in additional borrowings
under our senior secured revolving credit facility with Wells Fargo Foothill, Inc.
Credit Facility
On August 2, 2006, we, with Bookham Technology plc, New Focus and Bookham (US) Inc., each a
wholly-owned subsidiary, which we collectively refer to as the Borrowers, entered into a credit
agreement, or Credit Agreement, with Wells Fargo Foothill, Inc. and other lenders regarding a
three-year $25.0 million senior secured revolving credit facility. Advances are available under the
Credit Agreement based on 80 percent of qualified accounts receivable, as defined in the Credit
Agreement, at the time the advance is requested.
The obligations of the Borrowers under the Credit Agreement are guaranteed by us, Onetta, Inc.,
Focused Research, Inc.,
Globe Y. Technology, Inc., Ignis Optics, Inc., Bookham (Canada) Inc.,
Bookham Nominees Limited and Bookham International Ltd., each also a wholly-owned subsidiary (which
we refer to collectively as the Guarantors and together with the Borrowers, as the Obligors), and
are secured pursuant to a security agreement, or the Security Agreement, by the assets of the
Obligors, including a pledge of the capital stock holdings of the Obligors in some of their direct
subsidiaries. Any new direct subsidiary of the Obligors is required to execute a guaranty agreement
in substantially the same form and join in the Security Agreement.
Pursuant to the terms of the Credit Agreement, borrowings made under the Credit Agreement bear
interest at a rate based on either the London Interbank Offered Rate (LIBOR) plus 2.75 percentage
points or the banks prime rate plus 1.25 percentage points. In the absence of an event of default,
any amounts outstanding under the Credit Agreement may be repaid and re-borrowed at any time until
maturity, which is August 2, 2009.
The obligations of the Borrowers under the Credit Agreement may be accelerated upon the occurrence
of an event of default under the Credit Agreement, which includes customary events of default, including payment defaults,
defaults in the performance of affirmative and negative covenants, the inaccuracy of
representations or warranties, a cross-default related to indebtedness in an aggregate amount of
$1.0 million or more, bankruptcy and insolvency related defaults, defaults relating to such matters
as ERISA and judgments and a change of control default. The Credit Agreement contains negative
covenants applicable to the Borrowers and their subsidiaries, including financial covenants
requiring the Borrowers to maintain a
23
minimum level of earnings before interest, taxes,
depreciation and amortization (EBITDA) if the Borrowers have not maintained minimum liquidity
defined as $30 million of qualified cash and excess availability, each as also defined in the
Credit Agreement, as well as restrictions on liens, capital expenditures, investments,
indebtedness, fundamental changes to the Borrowers business, dispositions of property, making
certain restricted payments (including restrictions on dividends and stock repurchases), entering
into new lines of business and transactions with affiliates. As of September 27, 2008 and June 28,
2008, there were no amounts outstanding under this line of credit. At September 27, 2008, we had
$0.3 million in outstanding standby letters of credits with a vendor secured under this credit
agreement.
In connection with the Credit Agreement, we agreed to pay a monthly servicing fee of $3,000 and an
unused line fee equal to 0.375% per annum, payable monthly on the unused amount of revolving credit
commitments. To the extent there are letters of credit outstanding under the Credit Agreement, the
Borrowers are obligated to pay the administrative agent a letter of credit fee at a rate equal to
2.75% per annum.
Future Cash Requirements
As of September 27, 2008, we held $29.7 million in cash and cash equivalents, $0.6 million in
restricted cash and $12.9 million in short-term investments. Based on our cash balances, and
amounts expected to be available under our senior secured $25.0 million credit facility, which are
based on a percentage of accounts receivable at the time the advance is requested, we believe we
have sufficient financial resources in order to operate as a going concern through our next four
fiscal quarters from the quarter ended September 27, 2008. Regardless, to further strengthen our
financial position, in the event of unforeseen circumstances, or in the event needed to fund growth
in future financial periods, we may raise additional funds by any one or a combination of the
following: issuing equity, debt or convertible debt or the sale of certain product lines and/or
portions of our business. There can be no guarantee that we will be able to raise additional funds
on terms acceptable to us, or at all.
From time to time, we have engaged in discussions with third parties concerning potential
acquisitions of product lines, technologies and businesses. We continue to consider potential
acquisition candidates. Any of these transactions could involve the issuance of a significant
number of new equity securities, debt, and/or cash consideration. We may also be required to raise
additional funds to complete any such acquisition, through either the issuance of equity securities
or borrowings. If we raise additional funds or acquire businesses or technologies through the
issuance of equity securities, our existing stockholders may experience significant dilution.
Contractual Obligations
During the quarter ended September 27, 2008 there have been no material changes to the contractual
obligations disclosed as of June 28, 2008 in our 2008 Form 10-K.
Off-Balance Sheet Arrangements
In connection with the sale by New Focus of its passive component line to Finisar, Inc., New Focus
agreed to indemnify Finisar for claims related to the intellectual property sold to Finisar. This
obligation expires in May 2009 and has
no limitation on maximum liability.
We indemnify our directors and certain employees as permitted by law, and have entered into
indemnification agreements with our directors and executive officers. We have not recorded a
liability associated with these indemnification arrangements as we historically have not incurred
any costs associated with such indemnification obligations and do not expect to in the future.
Costs associated with such indemnification obligations may be mitigated by insurance coverage that
we maintain, however such insurance may not cover any, or may cover only a portion of, the amounts
we may be required to pay. In addition, we may not be able to maintain such insurance coverage in
the future.
We also have indemnification clauses in various contracts that we enter into in the normal course
of business, such as those issued by our bankers in favor of several of our suppliers or
indemnification in favor of customers in respect of liabilities they may incur as a result of
purchasing our products should such products infringe the intellectual property rights of a third
party. We have not historically paid out any amounts related to these indemnifications and does not
expect to in the future, therefore
no accrual has been made for these indemnifications.
Other than as set forth above, we are not currently party to any material off-balance sheet
arrangements.
24
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We finance our operations through a mixture of the issuance of equity securities, finance leases,
working capital and by drawing on a three year $25.0 million senior secured revolving credit
facility under a credit agreement we entered into on August 2, 2006. Our only exposure to interest
rate fluctuations is on our cash deposits and for amounts borrowed under the credit agreement. At
September 27, 2008 and June 28, 2008, there were no borrowings outstanding and $0.3 million of
standby letters of credit with vendors and landlords secured under the credit agreement. We monitor
our interest rate risk on cash balances primarily through cash flow forecasting. Cash that is
surplus to immediate requirements is invested in short-term deposits with banks accessible with one
days notice and invested in overnight money market accounts. We believe our interest rate risk is
immaterial.
Foreign currency
We are exposed to fluctuations in foreign currency exchange rates and interest rates. As our
business has grown and become multinational in scope, we have become increasingly subject to
fluctuations based upon changes in the exchange rates between the currencies in which we collect
revenues and pay expenses. Despite our change in domicile from the United Kingdom to the United
States in 2004, and our movement of certain functions, including assembly and test operations, from
the United Kingdom to China, in the future we expect that a majority of our revenues will continue
to be denominated in U.S. dollars, while a significant portion of our expenses will continue to be
denominated in U.K. pounds sterling. Fluctuations in the exchange rate between the U.S. dollar and
the U.K. pound sterling and, to a lesser extent, other currencies in which we collect revenues and
pay expenses, could affect our operating results. This includes the Chinese Yuan and the Swiss
franc in which we pay expenses in connection with operating our facilities in Shenzhen, China, and
Zurich, Switzerland. To the extent the exchange rate between the U.S. dollar and the Chinese Yuan
were to fluctuate more significantly than experienced to date, our exposure would increase. We
enter into foreign currency forward exchange contracts in an effort to mitigate our exposure to
such fluctuations between the U.S. dollar and the U.K. pound sterling, and we may be required to
convert currencies to meet our obligations. Under certain circumstances, foreign currency forward
exchange contracts can have an adverse effect on our financial condition. As of September 27, 2008,
we held nine foreign currency forward exchange contracts with a notional value of $9.5 million which
include put and call options which expire, or expired, at various dates from October 2008 to
June 2009 and we have recorded an unrealized loss of $1.0 million to other comprehensive income
(loss) in connection with marking these contracts to fair value. It is estimated that a 10%
fluctuation in the dollar between September 27, 2008 and the maturity dates of the put and call
instruments underlying these contracts would lead to a profit of $0.4 million (U.S. dollar
weakening), or loss of $1.5 million (U.S. dollar strengthening) on our outstanding foreign currency
forward exchange contracts, should they be held to maturity.
In October, 2008, we entered into seven new foreign
currency forward exchange contracts with a
notional value of $8.5 million, which include put and call options which expire at various dates
from November 2008 to June 2009. In addition, we replaced three existing foreign currency forward
exchange contracts with a nominal value of $4.5 million which were originally expiring at various
dates from October 2008 to December 2008 with new contracts which expire at various dates from
August 2009 to September 2009.
Item 4. Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of September 27, 2008. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, or the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by the company in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the companys management, including its principal executive
and principal financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure controls and procedures as of September
27, 2008, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such
date, our disclosure controls and procedures were effective at the reasonable assurance level.
There was no change in our internal control over financial reporting during the quarter ended
September 27, 2008 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 26, 2001, a putative securities class action captioned Lanter v. New Focus, Inc. et al.,
Civil Action No. 01-CV-5822 was filed against New Focus and several of its officers and directors,
or the Individual Defendants, in the United States District Court for the Southern District of New
York. Also named as defendants were Credit Suisse First Boston Corporation, Chase Securities, Inc.,
U.S. Bancorp Piper Jaffray, Inc. and CIBC World Markets Corp., or the Underwriter Defendants, the
underwriters in New Focuss initial public offering. Three subsequent lawsuits were filed
containing substantially similar allegations. These complaints have been consolidated.
On November 7, 2001, a Class Action Complaint was filed against Bookham Technology plc and others
in the United States District Court for the Southern District of New York. On April 19, 2002,
plaintiffs filed an Amended Class Action Complaint, described below. The Amended Class Action
Complaint names as defendants Bookham Technology plc, Goldman, Sachs & Co. and FleetBoston
Robertson Stephens, Inc., two of the underwriters of Bookham Technology plcs initial public
offering in April 2000, and Andrew G. Rickman, Stephen J. Cockrell and David Simpson, each of whom
was an officer and/or director at the time of Bookham Technology plcs initial public offering.
Various plaintiffs have filed similar actions asserting virtually identical allegations against
more than 300 other public companies, their underwriters, and their officers and directors arising
out of each companys public offering. These actions, including the action against New Focus and
the action against Bookham Technology plc, have been coordinated for pretrial purposes and
captioned In re Initial Public Offering Securities Litigation, 21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended Class Action Complaint in the New Focus
action and an Amended Class Action Complaint in the Bookham Technology plc action (together, the
Amended Class Action Complaints). The Amended Class Action Complaints assert claims under certain
provisions of the securities laws of the United States. They allege, among other things, that the
prospectuses for Bookham Technology plcs and New Focuss initial public offerings were materially
false and misleading in describing the compensation to be earned by the underwriters in connection
with the offerings, and in not disclosing certain alleged arrangements among the underwriters and
initial purchasers of ordinary shares, in the case of Bookham Technology plc, or common stock, in
the case of New Focus, from the underwriters. The Amended Class Action Complaints seek unspecified
damages (or, in the alternative, rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees, experts fees, interest and other expenses. In October
2002, the Individual Defendants were dismissed, without prejudice, from the action subject to their
execution of tolling agreements. In July 2002, all defendants filed Motions to Dismiss the Amended
Class Action Complaints. The motions were denied as to Bookham Technology plc and New Focus in
February 2003. Special committees of the board of directors authorized the companies to negotiate a
settlement of pending claims substantially consistent with a memorandum of understanding negotiated
among class plaintiffs, all issuer defendants and their insurers.
The plaintiffs and most of the issuer defendants and their insurers entered into a stipulation of
settlement for the claims against the issuer defendants, including Bookham Technology plc and New
Focus. This stipulation of settlement was subject to, among other things, certification of the
underlying class of plaintiffs. Under the stipulation of settlement, the plaintiffs would dismiss
and release all claims against participating defendants in exchange for a payment guaranty by the
insurance companies collectively responsible for insuring the issuers in the related cases, and the
assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against
the underwriters. On February 15, 2005, the District Court issued an Opinion and Order
preliminarily approving the settlement provided that the defendants and plaintiffs agree to a
modification narrowing the scope of the bar order set forth in the original settlement agreement.
The parties agreed to the modification narrowing the scope of the bar order, and on August 31,
2005, the District Court issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the underwriter defendants the United States Court of
Appeals for the Second Circuit overturned the District Courts certification of the class of
plaintiffs who are pursuing the claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for Rehearing and Rehearing En Banc with the
Second Circuit on January 5, 2007 in response to the Second Circuits decision and have informed
the District Court that they would like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not reversed. The District Court indicated
that it would defer consideration of final approval of the settlement pending plaintiffs request
for further appellate review.
26
On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing, but clarified that
the plaintiffs may seek to certify a more limited class in the District Court. In light of the
overturned class certification on June 25, 2007, the District
Court signed an Order terminating the settlement. The actions against Bookham Technology plc and
New Focus remain stayed while litigation proceeds in six test cases against other companies which
involve claims virtually identical to those that have been asserted against Bookham Technology plc
and New Focus. On November 13, 2007, the issuer defendants in certain
designated focus cases filed a motion to
dismiss the second consolidated amended class action complaints that were filed in those cases.
On March 26, 2008, the District Court issued an Opinion and Order denying, in large part, the motions
to dismiss the amended complaints in the focus cases.
It
is uncertain if the litigations will settle. If settlement of the litigations do not occur and litigation against Bookham Technology plc and New Focus continues,
the Company believes that both Bookham Technology plc and New Focus have meritorious defenses to
the claims made in the Amended Class Action Complaints and therefore believes that such claims will
not have a material effect on its financial position, results of operations or cash flows.
On November 12, 2007, Xian Raysung Photonics Inc. filed a civil suit against Bookham, Inc., and
its wholly-owned subsidiary, Bookham Technology (Shenzhen) Co., Ltd. (Bookham Shenzhen), in the
Xian Intermediate Peoples Court in Shanxi Province of the Peoples Republic of China (PRC). The
complaint filed by Xian Raysung Photonics Inc. alleged that Bookham, Inc. and Bookham Shenzhen
breached an agreement between the parties pursuant to which Xian Raysung Photonics Inc. had
supplied certain sample components and was to supply certain components to Bookham, Inc. and
Bookham Shenzhen. Xian Raysung Photonics Inc. had increased its request that the court award
damages of 20,000,000 Chinese Yuan (approximately $2.9 million based on an exchange rate of $1.00
to 6.81 Chinese Yuan as in effect on September 27, 2008) and had requested that Bookham, Inc. and
Bookham Shenzhen be required to pay its legal fees in connection with the suit.
On September 4, 2008, the Company, on behalf of itself and its wholly-owned subsidiary, Bookham
Shenzhen, entered into a settlement agreement with Xian Raysung Photonics Inc. and, as a result,
the case pending in the Xian Intermediate Peoples Court in Shanxi Province of the PRC has been
dismissed against both the Company and Bookham Shenzhen. There was no amount paid to Xian Raysung
Photonics Inc. in connection with the settlement. Each company is responsible for their own legal
fees in the matter.
On March 4, 2008, Bookham filed a declaratory judgment complaint captioned Bookham, Inc. v. JDS
Uniphase Corp. and Agility Communications, Inc., Civil Action No. 5:08-CV-01275-RMW, in the United
States District Court for the Northern District of California, San Jose Division. Bookhams
complaint seeks declaratory judgments that its tunable laser products do not infringe any valid,
enforceable claim of U.S. Patent Nos. 6,658,035, 6,654,400 and 6,687,278, and that all claims of
the aforementioned patents are invalid and unenforceable. Bookhams complaint also contains
affirmative claims for relief against JDS Uniphase Corp. and Agility Communications, Inc. for
statutory unfair competition, and for intentional interference with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and Agility Communications, Inc. answered Bookhams complaint
and asserted counterclaims against Bookham for infringement of U.S. Patent Nos. 6,658,035,
6,654,400 and 6,687,278, which JDS Uniphase Corp. acquired from Agility Communications Inc. On
October 6, 2008, JDS Uniphase Corp. indicated that its infringement claims are directed at
Bookhams LamdaFlexTM TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000 products.
JDS Uniphase Corp. seeks unspecified compensatory damages, treble damages and attorney fees from
Bookham, and an order enjoining Bookham from future infringement of the patents-in-suit. No
litigation schedule or trial date has yet been set. Any adverse ruling by the court, including an
injunction that could prohibit us from using the technology covered by the patents in our products,
or prolonged litigation may have an adverse effect on our business, financial condition and results
of operations and any resolution may not be in our favor.
Item 1A. Risk Factors
Investing in our securities involves a high degree of risk. You should carefully consider the risks
and uncertainties described below in addition to the other information included or incorporated by
reference in this Quarterly Report on Form 10-Q. If any of the following risks actually occur, our
business, financial condition or results of operations would likely suffer. In that case, the
trading price of our common stock could fall.
Risks Related to Our Business
We have a history of large operating losses and we may not be able to achieve profitability in the
future.
Although we were profitable for the three months ended September 27, 2008, we have historically
incurred losses and negative cash flows from operations since our inception. As of September 27,
2008, we had an accumulated deficit of $1,057.4 million. We do not expect to be profitable in the
quarter ending December 27, 2008.
Our net income for the quarter ended September 27, 2008 was $2.2 million. Our net loss for the year
ended June 28, 2008 was $23.4 million. Our net loss for the year ended June 30, 2007 was $82.2
million. We may not be able to achieve
profitability in any future period, and if we are unable to do so, we may need additional financing
to execute on our current or future business strategies, which may not be available on commercially
acceptable terms or at all.
27
We may not be able to maintain current levels of gross margins.
We may not be able to maintain positive gross margins due to, among other things, new product
transitions, changing product mix or facility under-utilization. Additionally, we must continue to
reduce our costs and improve our product mix to offset price erosion on certain product categories.
In particular, over the last fiscal year we have introduced a family of tunable products that
account for an increasing percentage of our overall product revenues. In the quarter ended
September 27, 2008, we were capacity constrained in our delivery of these products due to component
supply and production limitations. In addition, we have not yet achieved targeted margins on these
products as we introduce them into large-scale production. Although we have plans in place both to
address production constraints and improve margins in our tunable products, any failure to do so
will adversely affect our financial results, including our goal to achieve sustainable cash flow
positive operations. In addition, over the next two fiscal quarters we expect to incur, in total,
an additional $0.4 million of manufacturing overhead costs in connection with our transfer of the
substantial portion of our San Jose manufacturing operations to our Shenzhen site.
Our success will depend on our ability to anticipate and respond to evolving technologies and
customer requirements.
The market for telecommunications equipment is characterized by substantial capital investment and
diverse and evolving technologies. For example, the market for optical components is currently
characterized by a trend toward the adoption of pluggable components and tunable transmitters that
do not require the customized interconnections of traditional fixed wavelength gold box devices and
the increased integration of components on subsystems. Our ability to anticipate and respond to
these and other changes in technology, industry standards, customer requirements and product
offerings and to develop and introduce new and enhanced products will be significant factors in our
ability to succeed. We expect that new technologies will continue to emerge as competition in the
telecommunications industry increases and the need for higher and more cost efficient bandwidth
expands. The introduction of new products embodying new technologies or the emergence of new
industry standards could render our existing products or products in development uncompetitive from
a pricing standpoint, obsolete or unmarketable.
The market for optical components continues to be characterized by excess capacity and intense
price competition which has had, and will continue to have, a material adverse effect on our
results of operations.
Even though the market for optical components has been gradually recovering from the industry-wide
slump experienced at the beginning of the decade, particularly in the metro market segment, there
continues to be excess capacity for many optical components companies, intense price competition
among optical component manufacturers and continued consolidation in the industry. As a result of
this excess capacity and other industry factors, pricing pressure remains intense. The continued
uncertainties in the telecommunications industry and the global economy make it difficult for us to
anticipate revenue levels and therefore to make appropriate estimates and plans relating to cost
management. Continued uncertain demand for optical components has had, and will continue to have, a
material adverse effect on our results of operations.
We depend on a limited number of customers for a significant percentage of our revenues.
Historically, we have generated most of our revenues from a limited number of customers. For
example, in the three months ended September 27, 2008, our three largest customers accounted for
38% of our revenues. In the fiscal year ended June 28, 2008 and the fiscal year ended June 30,
2007, our three largest customers accounted for 33% and 41% of our revenues, respectively. Revenues
from any of our major customers may decline or fluctuate significantly in the future, which could
have an adverse impact on our business and results of operations. We may not be able to offset any
decline in revenues from our existing major customers with revenues from new customers or other
existing customers.
We and our telecom customers depend upon a limited number of major telecommunications carriers.
Our dependence on a limited number of customers is due to the fact that the optical
telecommunications systems industry is dominated by a small number of large companies. These
customers in turn depend primarily on a limited number of major telecommunications carrier
customers to purchase their products that incorporate our optical components. Many major
telecommunication systems companies and telecommunication carriers are experiencing losses from
operations. The further consolidation of the industry, coupled with declining revenues from our
major customers, may have a material adverse impact on our business.
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We typically do not enter into long-term contracts with our customers and our customers may
decrease, cancel or delay their buying levels at any time with little or no advance notice to us.
Our customers typically purchase our products pursuant to individual purchase orders. While our
customers generally provide us with their expected forecasts for our products several months in
advance, in most cases they are not contractually committed to buy any quantity of products beyond
those in purchase orders previously submitted to us. Our customers may decrease, cancel or delay
purchase orders already in place. If any of our major customers decrease, stop or delay purchasing
our products for any reason, our business and results of operations would be harmed. Cancellation
or delays of such orders may cause us to fail to achieve our short-term and long-term financial and
operating goals and result in excess and obsolete inventory.
As a result of our global operations, our business is subject to currency fluctuations that have
adversely affected our results of operations in recent quarters and may continue to do so in the
future.
Our financial results have been materially impacted by foreign currency fluctuations and our future
financial results may also be materially impacted by foreign currency fluctuations. At certain
times in our history, declines in the value of the U.S. dollar versus the U.K. pound sterling have
had a major negative effect on our profit margins and our cash flow. Despite our change in domicile
from the United Kingdom to the United States in 2004 and the transfer of our assembly and test
operations from Paignton, U.K. to Shenzhen, China, a significant portion of our expenses are still
denominated in U.K. pounds sterling and substantially all of our revenues are denominated in U.S.
dollars. Fluctuations in the exchange rate between these two currencies and, to a lesser extent,
other currencies in which we collect revenues and or pay expenses will continue to have a material
effect on our operating results. For example, from the end of our fiscal quarter ended September
29, 2007 to the end of our fiscal quarter ended September 27, 2008, the U.S. dollar has appreciated
8.4% relative to the U.K. pound sterling, which has favorably impacted our results. If the U.S
dollar stays the same or depreciates relative to the U.K. pound sterling in the future, our future
financial results may also be materially impacted. Additional exposure could also result should the
exchange rate between the U.S. dollar and the Chinese Yuan or Swiss Franc vary more significantly
than they have to date.
We engage in currency hedging transactions in an effort to cover some of our exposure to U.S.
dollar to U.K. pound sterling currency fluctuations, and we may be required to convert currencies
to meet our obligations. Under certain circumstances, these transactions could have an adverse
effect on our financial condition.
We are increasing manufacturing operations in China, which exposes us to risks inherent in doing
business in China.
We are taking advantage of the comparatively low costs of operating in China. We have recently
transferred substantially all of our assembly and test operations, chip-on-carrier operations and
manufacturing and supply chain management operations to our facility in Shenzhen, China, and have
also transferred certain iterative research and development related activities from the U.K. to
Shenzhen, China. We are also transferring certain non-telecom manufacturing operations from our San
Jose, California facility to our Shenzhen facility. The substantial portions of our assembly and
test and related manufacturing operations are now concentrated in our single facility in China. To
be successful in China we will need to:
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qualify our manufacturing lines and the products we produce in Shenzhen, as required by
our customers; |
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attract qualified personnel to operate our Shenzhen facility; and |
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retain employees at our Shenzhen facility. |
There can be no assurance we will be able to do any of these.
Employee turnover in China is high due to the intensely competitive and fluid market for skilled
labor. To operate the facility, and to the extent we are unable to retain our existing workforce,
we will need to continue to hire direct manufacturing personnel, administrative personnel and
technical personnel; obtain and retain required legal authorization to hire such personnel and
incur the time and expense to hire and train such personnel.
Operations in China are subject to greater political, legal and economic risks than our operations
in other countries. In particular, the political, legal and economic climate in China, both
nationally and regionally, is fluid and unpredictable. Our ability to operate in China may be
adversely affected by changes in Chinese laws and regulations such as those related to taxation,
import and export tariffs, environmental regulations, land use rights, intellectual property and
other matters. In addition, we may not obtain or retain the requisite legal permits to continue to
operate in China and costs or operational limitations may be imposed in connection with obtaining
and complying with such permits.
29
We have, in the past, been advised that power may be rationed in the location of our Shenzhen
facility, and were power rationing to be implemented, it could have an adverse impact on our
ability to complete manufacturing commitments on a timely basis or, alternatively, could require
significant investment in generating capacity to sustain uninterrupted operations at the facility,
which we may not be able to do successfully.
We intend to continue to export the majority of the products manufactured at our Shenzhen facility.
Under current regulations, upon application and approval by the relevant governmental authorities,
we will not be subject to certain Chinese taxes and will be exempt from certain duties on imported
materials that are used in the manufacturing process and subsequently exported from China as
finished products. However, Chinese trade regulations are in a state of flux, and we may become
subject to other forms of taxation and duties in China or may be required to pay export fees in the
future. In the event that we become subject to new forms of taxation or export fees in China, our
business and results of operations could be materially adversely affected. We may also be required
to expend greater amounts than we currently anticipate in connection with increasing production at
the Shenzhen facility. Any one of the factors cited above, or a combination of them, could result
in unanticipated costs, which could materially and adversely affect our business.
Our business and results of operations may be negatively impacted by general economic and financial
market conditions and such conditions may increase the other risks that affect our business.
The worlds financial markets are currently experiencing significant turmoil, resulting in
reductions in available credit, dramatically increased costs of credit, extreme volatility in
security prices, potential changes to existing credit terms, rating downgrades of investments and
reduced valuations of securities generally. These events have materially and adversely impacted
the availability of financing to a wide variety of businesses, and the resulting uncertainty has
led to reductions in capital investments, overall spending levels, inventory levels, future product
plans, and sales projections across industries and markets, including our own. These trends could
have a material and adverse impact on the overall demand for our products and our ability to
achieve targeted financial results, as well as our overall financial results from operations. In
addition, our suppliers may also be adversely affected by economic conditions that may impact their
ability to provide important components used in our manufacturing processes on a timely basis, or
at all.
These conditions could also result in reduced capital resources because of reduced credit
availability, higher costs of credit and the stretching of payables by creditors seeking to
preserve their own cash resources. We are unable to predict the likely duration and severity of
the current disruption in financial markets and adverse economic conditions in the U.S. and other
countries, but the longer the duration the greater risks we face in operating our business.
Fluctuations in operating results could adversely affect the market price of our common stock.
Our revenues and operating results are likely to fluctuate significantly in the future. The timing
of order placement, size of orders and satisfaction of contractual customer acceptance criteria, as
well as order or shipment delays or deferrals, with respect to our products, may cause material
fluctuations in revenues. Our lengthy sales cycle, which may extend to more than one year, may
cause our revenues and operating results to vary from period to period and it may be difficult to
predict the timing and amount of any variation. Delays or deferrals in purchasing decisions by our
customers may increase as we develop new or enhanced products for new markets, including data
communications, industrial, research, semiconductor capital equipment, military and biotechnology
markets. Our current and anticipated future dependence on a small number of customers increases the
revenue impact of each such customers decision to delay or defer purchases from us. Our expense
levels in the future will be based, in large part, on our expectations regarding future revenue
sources and, as a result, operating results for any quarterly period in which material orders fail
to occur, or are delayed or deferred could vary significantly.
Because of these and other factors, quarter-to-quarter comparisons of our results of operations may
not be an indication of future performance. In future periods, results of operations may differ
from the estimates of public market analysts and investors. Such a discrepancy could cause the
market price of our common stock to decline.
The investment of our cash balance and our investments in marketable debt securities are subject to
risks which may cause losses and affect the liquidity of these investments.
At September 27, 2008, we had $30.3 million in cash and cash equivalents (including restricted cash
of $0.6 million) and $12.9 million in investments in marketable debt securities. We have
historically invested these amounts in U.S. treasury securities and U.S. government agency
securities, corporate debt, money market funds, commercial paper and municipal bonds. Certain of
these investments are subject to general credit, liquidity, market and interest rate risks. While
we do not
30
hold any investments whose value is directly correlated to sub-prime debt, these risks have been
and may further be exacerbated by U.S. sub-prime mortgage defaults, which have affected various
sectors of the financial markets and caused credit and liquidity issues.
In September 2008, Lehman Brothers Holdings Inc., or Lehman, filed a petition under Chapter 11 of
the U.S. Bankruptcy Code. At September 27, 2008, we held a Lehman security with par value of $0.8
million. As of November 4, 2008, we do not have an estimate of the recovery value of this security,
but we have reduced the carrying value of this security to $0.2 million. The $0.6 million
impairment charge for the Lehman security was recorded in the first quarter of fiscal 2009 and
included in other expense in our accompanying condensed consolidated statement of operations.
There may be further declines in the value of our short-term investments, which we may determine to
be other-than-temporary. These market risks associated with our investment portfolio may have a
negative adverse effect on our results of operations, liquidity and financial condition.
We may record impairment charges which would adversely impact our results of operations.
We review our goodwill, intangible assets and long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amounts of these assets may not be recoverable,
and also review goodwill annually in accordance with SFAS No. 142, Goodwill and Other Intangibles.
During the year ended June 30, 2007, we designated the assets underlying our Paignton, U.K.
manufacturing site as held for sale and subsequently sold the site to a third party for proceeds of
£4.8 million (approximately $9.4 million based on an exchange rate of $1.96 to £1.00 in effect on
the date of sale), net of selling costs. In connection with this designation we recorded an
impairment charge of $1.9 million. During the fiscal year ended July 1, 2006, in connection with a
review of our long-lived assets for impairment, we recorded $433,000 of impairment charges.
One potential indicator of goodwill impairment is whether the Companys fair value, as measured by
its market capitalization, has remained below its net book value for a significant period of time.
Through October 29, 2008, the lowest closing price for the Companys shares of common stock was
$0.47, as reported by the NASDAQ Global Market, which corresponds to a market capitalization of $48
million, compared to the Companys September 27, 2008 net book value of $145 million. Whether the
Companys market capitalization triggers an impairment charge in any future period will depend on
the underlying reasons for the decline in stock price, the significance of the decline, and the
length of time the stock price has been trading at such prices.
In the event that we determine in a future period that impairment exists for any reason, we would
record an impairment charge in the period such determination is made, which would adversely impact
our financial position and results of operations.
We may incur additional significant restructuring charges that will adversely affect our results of
operations.
Over the past nine years, we have enacted a series of restructuring plans and cost reduction plans
designed to reduce our manufacturing overhead and our operating expenses. In 2001, we reduced
manufacturing overhead and our operating expenses in response to the initial decline in demand in
the optical components industry. In connection with our acquisitions of the optical components
business of Nortel Networks in November 2002 and New Focus in March 2004, we enacted restructuring
plans related to the consolidation of our operations, which we expanded in September 2004 to
include the transfer of our main corporate functions, including consolidated accounting, financial
reporting, tax and treasury, from Abingdon, U.K. to our U.S. headquarters in San Jose, California.
In May, September and December 2004, we announced restructuring plans, including the transfer of
our assembly and test operations from Paignton, U.K. to Shenzhen, China, along with reductions in
research and development and selling, general and administrative expenses. These cost reduction
efforts were expanded in November 2005 to include the transfer of our chip-on-carrier assembly from
Paignton to Shenzhen. The transfer of these operations was completed in the quarter ended March 31,
2007. In May 2006, we announced further cost reduction plans, which included transitioning all
remaining manufacturing support and supply chain management, along with pilot line production and
production planning, from Paignton to Shenzhen. This was substantially completed in the quarter
ended June 30, 2007. We have spent an aggregate of $32.8 million on these restructuring programs.
On January 31, 2007, we adopted an overhead cost reduction plan which included workforce
reductions, facility and site consolidation of our Caswell, U.K. semiconductor operations within
our existing U.K. facilities and the transfer of certain research and development activities to our
Shenzhen facility. As of December 27, 2007, this plan was substantially complete.
31
We have incurred expenses of $7.7 million with respect to this cost reduction plan, the substantial
portion being personnel severance and retention related expenses. As a result of the completion of
this plan, we have saved approximately $8 million per fiscal quarter in expenses when compared to
the quarter ended December 30, 2006.
We plan on taking further advantage of the relatively lower operating costs in our Shenzhen
facility by completing the transfer of most of the manufacturing operations from our San Jose,
California non-telecom facility to Shenzhen over the next two quarters. We expect related
restructuring and severance charges to be approximately $0.4 million over the next two quarters,
with anticipated cost savings of approximately $0.4 million to $0.5 million a quarter thereafter,
compared to the quarter ended March 29, 2008, and we expect to incur approximately $0.5 million of
additional manufacturing overhead costs in the next two fiscal quarters in connection with this
transfer. The substantial portion of the restructuring charges are expected to be for personnel
related severance and retention costs.
We may incur charges in excess of amounts currently estimated for these restructuring and cost
reduction plans. We may incur additional charges in the future in connection with future
restructurings and cost reduction plans. These charges, along with any other charges, have
adversely affected, and will continue to adversely affect, our results of operations for the
periods in which such charges have been, or will be, incurred.
Our results of operations may suffer if we do not effectively manage our inventory, and we may
incur inventory-related charges.
We need to manage our inventory of component parts and finished goods effectively to meet changing
customer requirements. Accurately forecasting customers product needs is difficult. Some of our
products and supplies have in the past, and may in the future, become obsolete while in inventory
due to rapidly changing customer specifications or a decrease in customer demand. If we are not
able to manage our inventory effectively, we may need to write down the value of some of our
existing inventory or write off unsaleable or obsolete inventory, which would adversely affect our
results of operations. We have from time to time incurred significant inventory-related charges.
Any such charges we incur in future periods could significantly adversely affect our results of
operations.
Bookham Technology plc may not be able to utilize tax losses and other tax attributes against the
receivables that arise as a result of its transaction with Deutsche Bank.
On August 10, 2005, Bookham Technology plc purchased all of the issued share capital of City
Leasing (Creekside) Limited, a subsidiary of Deutsche Bank. Creekside was entitled to receivables
of £73.8 million (approximately $135.8 million, based on an exchange rate of £1.00 to $1.8403 on
September 2, 2005) from Deutsche Bank in connection with certain aircraft subleases and these
payments have been applied over a two-year term to obligations of £73.1 million (approximately
$134.5 million based on an exchange rate of £1.00 to $1.8403) owed to Deutsche Bank. As a result of
the completion of these transactions, Bookham Technology plc has had available through Creekside
cash of approximately £6.63 million (approximately $12.2 million based on an exchange rate of £1.00
to $1.8403). We expect Bookham Technology plc to utilize certain expected tax losses and other tax
attributes to reduce the taxes that might otherwise be due by Creekside as the receivables are
paid. In the event that Bookham Technology plc is not able to utilize these tax losses and other
tax attributes when U.K. tax returns are filed for the relevant periods (or these tax losses and
other tax attributes do not arise), Creekside may have to pay taxes, reducing the cash available
from Creekside. In the event there is a future change in applicable U.K. tax law, Creekside and in
turn Bookham Technology plc, would be responsible for any resulting tax liabilities, which amounts
could be material to our financial condition or operating results.
Our products are complex and may take longer to develop than anticipated and we may not recognize
revenues from new products until after long field testing and customer acceptance periods.
Many of our new products must be tailored to customer specifications. As a result, we are
developing new products and using new technologies in those products. For example, while we
currently manufacture and sell discrete gold box technology, we expect that many of our sales of
gold box technology will soon be replaced by pluggable modules. New products or modifications to
existing products often take many quarters to develop because of their complexity and because
customer specifications sometimes change during the development cycle. We often incur substantial
costs associated with the research and development and sales and marketing activities in connection
with products that may be purchased long after we have incurred the costs associated with
designing, creating and selling such products. In addition, due to the rapid technological changes
in our market, a customer may cancel or modify a design project before we begin large-scale
manufacture of the product and receive revenue from the customer. It is unlikely that we would be
able to recover the expenses for cancelled or unutilized design projects. It is difficult to
predict with any certainty, particularly in the present economic climate, the
frequency with which customers will cancel or modify their projects, or the effect that any
cancellation or modification would have on our results of operations.
32
If our customers do not qualify our manufacturing lines or the manufacturing lines of our
subcontractors for volume shipments, our operating results could suffer.
Most of our customers do not purchase products, other than limited numbers of evaluation units,
prior to qualification of the manufacturing line for volume production. Our existing manufacturing
lines, as well as each new manufacturing line, must pass through varying levels of qualification
with our customers. Our manufacturing lines have passed our qualification standards, as well as our
technical standards. However, our customers also require that we pass their specific qualification
standards and that we, and any subcontractors that we may use, be registered under international
quality standards. In addition, we have in the past, and may in the future, encounter quality
control issues as a result of relocating our manufacturing lines or introducing new products to
fill production. We may be unable to obtain customer qualification of our manufacturing lines or we
may experience delays in obtaining customer qualification of our manufacturing lines. Such delays
or failure to obtain qualifications would harm our operating results and customer relationships.
Delays, disruptions or quality control problems in manufacturing could result in delays in product
shipments to customers and could adversely affect our business.
We may experience delays, disruptions or quality control problems in our manufacturing operations
or the manufacturing operations of our subcontractors. As a result, we could incur additional costs
that would adversely affect gross margins, and product shipments to our customers could be delayed
beyond the shipment schedules requested by our customers, which would negatively affect our
revenues, competitive position and reputation. Furthermore, even if we are able to deliver products
to our customers on a timely basis, we may be unable to recognize revenues at the time of delivery
based on our revenue recognition policies.
We may experience low manufacturing yields.
Manufacturing yields depend on a number of factors, including the volume of production due to
customer demand and the nature and extent of changes in specifications required by customers for
which we perform design-in work. Higher volumes due to demand for a fixed, rather than continually
changing, design generally results in higher manufacturing yields, whereas lower volume production
generally results in lower yields. In addition, lower yields may result, and have in the past
resulted, from commercial shipments of products prior to full manufacturing qualification to the
applicable specifications. Changes in manufacturing processes required as a result of changes in
product specifications, changing customer needs and the introduction of new product lines have
historically caused, and may in the future cause, significantly reduced manufacturing yields,
resulting in low or negative margins on those products. Moreover, an increase in the rejection rate
of products during the quality control process, before, during or after manufacture, results in
lower yields and margins. Finally, manufacturing yields and margins can also be lower if we receive
or inadvertently use defective or contaminated materials from our suppliers.
We depend on a limited number of suppliers who could disrupt our business if they stopped,
decreased or delayed shipments.
We depend on a limited number of suppliers of raw materials and equipment used to manufacture our
products. Some of these suppliers are sole sources. We typically have not entered into long-term
agreements with our suppliers and, therefore, these suppliers generally may stop supplying us
materials and equipment at any time. Our reliance on a sole supplier or limited number of suppliers
could result in delivery problems, reduced control over product pricing and quality, and an
inability to identify and qualify another supplier in a timely manner. In addition, given the
current macroeconomic downturn, some of our suppliers that may be small or undercapitalized may
experience financial difficulties that could prevent them from supplying us materials and
equipment. Any supply deficiencies relating to the quality or quantities of materials or equipment
we use to manufacture our products could adversely affect our ability to fulfill customer orders
and our results of operations.
Our intellectual property rights may not be adequately protected.
Our future success will depend, in large part, upon our intellectual property rights, including
patents, design rights, trade secrets, trademarks, know-how and continuing technological
innovation. We maintain an active program of identifying technology appropriate for patent
protection. Our practice is to require employees and consultants to execute non-disclosure and
proprietary rights agreements upon commencement of employment or consulting arrangements. These
agreements
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acknowledge our exclusive ownership of all intellectual property developed by the individuals
during their work for us and require that all proprietary information disclosed will remain
confidential. Although such agreements may be binding, they may not be enforceable in full or in
part in all jurisdictions and any breach of a confidentiality obligation could have a very serious
effect on our business and the remedy for such breach may be limited.
Our intellectual property portfolio is an important corporate asset. The steps we have taken and
may take in the future to protect our intellectual property may not adequately prevent
misappropriation or ensure that others will not develop competitive technologies or products. We
cannot assure investors that our competitors will not successfully challenge the validity of our
patents or design products that avoid infringement of our proprietary rights with respect to our
technology. There can be no assurance that other companies are not investigating or developing
other similar technologies, that any patents will be issued from any application pending or filed
by us or that, if patents are issued, the claims allowed will be sufficiently broad to deter or
prohibit others from marketing similar products. In addition, we cannot assure investors that any
patents issued to us will not be challenged, invalidated or circumvented, or that the rights under
those patents will provide a competitive advantage to us. Further, the laws of certain regions in
which our products are or may be developed, manufactured or sold, including Asia-Pacific, Southeast
Asia and Latin America, may not protect our products and intellectual property rights to the same
extent as the laws of the United States, the U.K. and continental European countries. This is
especially relevant now that we have transferred all of our assembly and test operations and
chip-on-carrier operations, including certain engineering related functions, from our facilities in
the U.K. to Shenzhen, China and as our competitors establish manufacturing operations in China to
take advantage of comparatively low manufacturing costs.
Our products may infringe the intellectual property rights of others which could result in
expensive litigation or require us to obtain a license to use the technology from third parties, or
we may be prohibited from selling certain products in the future.
Companies in the industry in which we operate frequently receive claims of patent infringement or
infringement of other intellectual property rights. We have, from time to time, received such
claims, including from competitors and from companies that have substantially more resources than
us.
For example, on March 4, 2008, we filed a declaratory judgment complaint captioned Bookham, Inc. v.
JDS Uniphase Corp. and Agility Communications, Inc., Civil Action No. 5:08-CV-01275-RMW, in the
United States District Court for the Northern District of California, San Jose Division. Our
complaint seeks declaratory judgments that our tunable laser products do not infringe any valid,
enforceable claim of U.S. Patent Nos. 6,658,035, 6,654,400 and 6,687,278, and that all claims of
the aforementioned patents are invalid and unenforceable. Our complaint also contains affirmative
claims for relief against JDS Uniphase Corp. and Agility Communications, Inc. for statutory unfair
competition, and for intentional interference with economic advantage.
On July 21, 2008, JDS Uniphase Corp. and Agility Communications, Inc. answered our complaint and
asserted counterclaims against Bookham for infringement of U.S. Patent Nos. 6,658,035, 6,654,400
and 6,687,278, which JDS Uniphase Corp. acquired from Agility Communications, Inc. On October 6,
2008, JDS Uniphase Corp. indicated that its infringement claims are directed at Bookhams
LamdaFlexTM TL500 VCJ; TL5000VLJ; TL3000; TL7000; TL8000 and TL9000 products.. JDS
Uniphase Corp. seeks unspecified compensatory damages, treble damages and attorney fees from
Bookham, and an order enjoining Bookham from future infringement of the patents-in-suit. No
litigation schedule or trial date has yet been set. Any adverse ruling by the court, including an
injunction that could prohibit us from using the technology covered by the patents in our products,
or prolonged litigation may have an adverse effect on our business and any resolution may not be in
our favor.
Third parties may in the future assert claims against us concerning our existing products or with
respect to future products under development. We have entered into and may in the future enter into
indemnification obligations in favor of some customers that could be triggered upon an allegation
or finding that we are infringing other parties proprietary rights. If we do infringe a third
partys rights, we may need to negotiate with holders of those rights relevant to our business. We
have from time to time received notices from third parties alleging infringement of their
intellectual property and where appropriate have entered into license agreements with those third
parties with respect to that intellectual property. We may not in all cases be able to resolve
allegations of infringement through licensing arrangements, settlement, alternative designs or
otherwise. We may take legal action to determine the validity and scope of the third-party rights
or to defend against any allegations of infringement. In the course of pursuing any of these means
or defending against any lawsuits filed against us, we could incur significant costs and diversion
of our resources. Due to the competitive nature of our industry, it is unlikely that we could
increase our prices to cover such costs. In addition, such claims could result in significant
penalties or injunctions that could prevent us from selling some of our products in certain markets
or result in settlements that require payment of significant royalties that could adversely affect
our ability to price our products profitably.
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If we fail to obtain the right to use the intellectual property rights of others necessary to
operate our business, our ability to succeed will be adversely affected.
Certain companies in the telecommunications and optical components markets in which we sell our
products have experienced frequent litigation regarding patent and other intellectual property
rights. Numerous patents in these industries are held by others, including academic institutions
and our competitors. Optical component suppliers may seek to gain a competitive advantage or other
third parties may seek an economic return on their intellectual property portfolios by making
infringement claims against us. In the future, we may need to obtain license rights to patents or
other intellectual property held by others to the extent necessary for our business. Unless we are
able to obtain such licenses on commercially reasonable terms, patents or other intellectual
property held by others could inhibit or prohibit our production and sale of existing products and
our development of new products for our markets. Licenses granting us the right to use third-party
technology may not be available on commercially reasonable terms, if at all. Generally, a license,
if granted, would include payments of up-front fees, ongoing royalties or both. These payments or
other terms could have a significant adverse impact on our operating results. In addition, in the
event we are granted such a license it is likely such license would be non-exclusive and other
parties, including competitors, may be able to utilize such technology. Our larger competitors may
be able to obtain licenses or cross-license their technology on better terms than we can, which
could put us at a competitive disadvantage.
The markets in which we operate are highly competitive, which could result in lost sales and lower
revenues.
The market for fiber optic components and modules is highly competitive and such competition could
result in our existing customers moving their orders to competitors. We are aware of a number of
companies that have developed or are developing optical component products, including tunable
lasers, pluggables and thin film filter products, among others, that compete directly with our
current and proposed product offerings. Certain of our competitors may be able to more quickly and
effectively:
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respond to new technologies or technical standards; |
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react to changing customer requirements and expectations; |
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devote needed resources to the development, production, promotion and sale of products;
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deliver competitive products at lower prices. |
Many of our current competitors, as well as a number of our potential competitors, have longer
operating histories, greater name recognition, broader customer relationships and industry
alliances and substantially greater financial, technical and marketing resources than we do. In
addition, market leaders in industries such as semiconductor and data communications, who may also
have significantly more resources than we do, may in the future enter our market with competing
products. All of these risks may be increased if the market were to further consolidate through
mergers or other business combinations between competitors.
We may not be able to compete successfully with our competitors and aggressive competition in the
market may result in lower prices for our products or decreased gross margins. Any such development
would have a material adverse effect on our business, financial condition and results of
operations.
We generate a significant portion of our revenues internationally and therefore are subject to
additional risks associated with the extent of our international operations.
For the quarter ended September 27, 2008 and for the years ended June 28, 2008 and June 30, 2007,
29%, 25% and 23% of our revenues, respectively, were derived in the United States and 71%, 75% and
77% of our revenues, respectively, were derived outside the United States. We are subject to
additional risks related to operating in foreign countries, including:
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currency fluctuations, which could result in increased operating expenses and reduced
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greater difficulty in accounts receivable collection and longer collection periods; |
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difficulty in enforcing or adequately protecting our intellectual property; |
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foreign taxes; |
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political, legal and economic instability in foreign markets; and |
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foreign regulations. |
35
Any of these risks, or any other risks related to our foreign operations, could materially
adversely affect our business, financial condition and results of operations.
Our business will be adversely affected if we cannot manage the significant changes in the number
of our employees and the size of our operations.
We have significantly reduced the number of employees and scope of our operations because of
declining demand for certain of our products and continue to reduce our headcount in connection
with our ongoing restructuring and cost reduction efforts. During periods of growth or decline,
management may not be able to sufficiently coordinate the roles of individuals to ensure that all
areas of our operations receive appropriate focus and attention. If we are unable to manage our
headcount, manufacturing capacity and scope of operations effectively, the cost and quality of our
products may suffer, we may be unable to attract and retain key personnel and we may be unable to
market and develop new products. Further, the inability to successfully manage a more
geographically diverse organization, or any significant delay in achieving successful management,
could have a material adverse effect on us and, as a result, on the market price of our common
stock.
We may be faced with product liability claims.
Despite quality assurance measures, defects may occur in our products. The occurrence of any
defects in our products could give rise to liability for damages caused by such defects, including
consequential damages. Such defects could, moreover, impair the markets acceptance of our
products. Both could have a material adverse effect on our business and financial condition. In
addition, we may assume product warranty liabilities related to companies we acquire, which could
have a material adverse effect on our business and financial condition. In order to mitigate the
risk of liability for damages, we carry product liability insurance with a $26 million aggregate
annual limit and errors and omissions insurance with a $5 million annual limit. We cannot assure
investors that this insurance would adequately cover our costs arising from any defects in our
products or otherwise.
If we fail to attract and retain key personnel, our business could suffer.
Our future depends, in part, on our ability to attract and retain key personnel. Competition for
highly skilled technical people is extremely intense and we continue to face difficulty identifying
and hiring qualified engineers in many areas of our business. We may not be able to hire and retain
such personnel at compensation levels consistent with our existing compensation and salary
structure. Our future also depends on the continued contributions of our executive management team
and other key management and technical personnel, each of whom would be difficult to replace. The
loss of services of these or other executive officers or key personnel or the inability to continue
to attract qualified personnel could have a material adverse effect on our business.
Similar to other technology companies, we rely upon stock options and other forms of equity-based
compensation as key components of our executive and employee compensation structure. Historically,
these components have been critical to our ability to retain important personnel and offer
competitive compensation packages. Without these components, we would be required to significantly
increase cash compensation levels (or develop alternative compensation structures) in order to
retain our key employees. Accounting rules relating to the expensing of equity compensation may
cause us to substantially reduce, modify, or even eliminate, all or portions of our equity
compensation programs which may, in turn, prevent us from retaining or hiring qualified employees
and declines in our stock price could reduce or eliminate the retentive effects of our equity
compensation programs.
Our business and future operating results may be adversely affected by events outside of our
control.
Our business and operating results are vulnerable to interruption by events outside of our control,
such as earthquakes, fire, power loss, telecommunications failures, political instability, military
conflict and uncertainties arising out of terrorist attacks, including a global economic slowdown,
the economic consequences of additional military action or additional terrorist activities and
associated political instability, and the effect of heightened security concerns on domestic and
international travel and commerce.
We may not be able to raise capital when desired on favorable terms, or at all, or without dilution
to our stockholders.
The rapidly changing industry in which we operate, the length of time between developing and
introducing a product to market and frequent changing customer specifications for products, among
other things, makes our prospects difficult to evaluate. It is possible that we may not generate
sufficient cash flow from operations or otherwise have sufficient capital
resources to meet our future capital needs. If this occurs, we may need additional financing to
execute on our current or future business strategies.
36
In the past, we have sold shares of our common stock in public offerings, private placements or
otherwise in order to fund our operations. On November 13, 2007, we completed a public offering of
16,000,000 shares of common stock that generated $40.8 million of cash, net of underwriting
commissions and expenses. On March 22, 2007, pursuant to a private placement, we issued 13,640,224
shares of common stock and warrants to purchase up to 4,092,066 shares of common stock. In
September 2006, pursuant to a private placement, we issued an aggregate of 11,594,667 shares of
common stock and warrants to purchase an aggregate of 2,898,667 shares of common stock.
If we raise funds through the issuance of equity or convertible debt securities, our stockholders
may be significantly diluted, and these newly-issued securities may have rights, preferences or
privileges senior to those of securities held by existing stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If adequate funds are
not available or are not available on acceptable terms, if and when needed, our ability to fund our
operations, develop or enhance our products, or otherwise respond to competitive pressures could be
significantly limited.
Risks Related to Regulatory Compliance and Litigation
Our business involves the use of hazardous materials, and we are subject to environmental and
import/export laws and regulations that may expose us to liability and increase our costs.
We historically handled small amounts of hazardous materials as part of our manufacturing
activities and now handle more and different hazardous materials as a result of the manufacturing
processes related to the New Focus division of our non-telecom segment, the optical components
business acquired from Nortel Networks and the product lines we acquired from Marconi.
Consequently, our operations are subject to environmental laws and regulations governing, among
other things, the use and handling of hazardous substances and waste disposal. We may incur costs
to comply with current or future environmental laws. As with other companies engaged in
manufacturing activities that involve hazardous materials, a risk of environmental liability is
inherent in our manufacturing activities, as is the risk that our facilities will be shut down in
the event of a release of hazardous waste. The costs associated with environmental compliance or
remediation efforts or other environmental liabilities could adversely affect our business. Under
applicable EU regulations, we, along with other electronics component manufacturers, are prohibited
from using lead and certain other hazardous materials in our products. We have incurred
unanticipated expenses in connection with the related reconfiguration of our products, and could
lose business or face product returns if we failed to implement these requirements properly or on a
timely basis.
In addition, the sale and manufacture of certain of our products require on-going compliance with
governmental security and import/export regulations. Our New Focus division has, in the past, been
notified of potential violations of certain export regulations which on one occasion resulted in
the payment of a fine to the U.S. federal government. We may, in the future, be subject to
investigation which may result in fines for violations of security and import/export regulations.
Furthermore, any disruptions of our product shipments in the future, including disruptions as a
result of efforts to comply with governmental regulations, could adversely affect our revenues,
gross margins and results of operations.
Litigation regarding Bookham Technology plcs and New Focus initial public offering and follow-on
offering and any other litigation in which we become involved, including as a result of
acquisitions or the arrangements we have with suppliers and customers, may substantially increase
our costs and harm our business.
On June 26, 2001, a putative securities class action captioned Lanter v. New Focus, Inc. et al.,
Civil Action No. 01-CV-5822, was filed against New Focus and several of its officers and directors,
or the Individual Defendants, in the United States District Court for the Southern District of New
York. Also named as defendants were Credit Suisse First Boston Corporation, Chase Securities, Inc.,
U.S. Bancorp Piper Jaffray, Inc. and CIBC World Markets Corp., or the Underwriter Defendants, the
underwriters in New Focuss initial public offering. Three subsequent lawsuits were filed
containing substantially similar allegations. These complaints have been consolidated.
On November 7, 2001, a Class Action Complaint was filed against Bookham Technology plc and others
in the United States District Court for the Southern District of New York. On April 19, 2002,
plaintiffs filed an Amended Class Action Complaint, described below. The Amended Class Action
Complaint names as defendants Bookham Technology plc, Goldman, Sachs & Co. and FleetBoston
Robertson Stephens, Inc., two of the underwriters of Bookham Technology plcs initial public
offering in April 2000, and Andrew G. Rickman, Stephen J. Cockrell and David Simpson, each of whom
was an officer and/or director at the time of Bookham Technology plcs initial public offering.
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Various plaintiffs have filed similar actions asserting virtually identical allegations against
more than 300 other public companies, their underwriters, and their officers and directors arising
out of each companys public offering. These actions, including the action against New Focus and
the action against Bookham Technology plc, have been coordinated for pretrial purposes and
captioned In re Initial Public Offering Securities Litigation, 21 MC 92.
On April 19, 2002, plaintiffs filed a Consolidated Amended Class Action Complaint in the New Focus
action and an Amended Class Action Complaint in the Bookham Technology plc action (together, the
Amended Class Action Complaints). The Amended Class Action Complaints assert claims under certain
provisions of the securities laws of the United States. They allege, among other things, that the
prospectuses for Bookham Technology plcs and New Focuss initial public offerings were materially
false and misleading in describing the compensation to be earned by the underwriters in connection
with the offerings, and in not disclosing certain alleged arrangements among the underwriters and
initial purchasers of ordinary shares, in the case of Bookham Technology plc, or common stock, in
the case of New Focus, from the underwriters. The Amended Class Action Complaints seek unspecified
damages (or, in the alternative, rescission for those class members who no longer hold our or New
Focus common stock), costs, attorneys fees, experts fees, interest and other expenses. In October
2002, the Individual Defendants were dismissed, without prejudice, from the action subject to their
execution of tolling agreements. In July 2002, all defendants filed Motions to Dismiss the Amended
Class Action Complaints. The motions were denied as to Bookham Technology plc and New Focus in
February 2003. Special committees of the board of directors authorized the companies to negotiate a
settlement of pending claims substantially consistent with a memorandum of understanding negotiated
among class plaintiffs, all issuer defendants and their insurers.
The plaintiffs and most of the issuer defendants and their insurers entered into a stipulation of
settlement for the claims against the issuer defendants, including Bookham Technology plc and New
Focus. This stipulation of settlement was subject to, among other things, certification of the
underlying class of plaintiffs. Under the stipulation of settlement, the plaintiffs would dismiss
and release all claims against participating defendants in exchange for a payment guaranty by the
insurance companies collectively responsible for insuring the issuers in the related cases, and the
assignment or surrender to the plaintiffs of certain claims the issuer defendants may have against
the underwriters. On February 15, 2005, the District Court issued an Opinion and Order
preliminarily approving the settlement provided that the defendants and plaintiffs agree to a
modification narrowing the scope of the bar order set forth in the original settlement agreement.
The parties agreed to the modification narrowing the scope of the bar order, and on August 31,
2005, the District Court issued an order preliminarily approving the settlement.
On December 5, 2006, following an appeal from the underwriter defendants the United States Court of
Appeals for the Second Circuit overturned the District Courts certification of the class of
plaintiffs who are pursuing the claims that would be settled in the settlement against the
underwriter defendants. Plaintiffs filed a Petition for Rehearing and Rehearing En Banc with the
Second Circuit on January 5, 2007 in response to the Second Circuits decision and have informed
the District Court that they would like to be heard as to whether the settlement may still be
approved even if the decision of the Court of Appeals is not reversed. The District Court indicated
that it would defer consideration of final approval of the settlement pending plaintiffs request
for further appellate review.
On April 6, 2007, the Second Circuit denied plaintiffs petition for rehearing, but clarified that
the plaintiffs may seek to certify a more limited class in the District Court. In light of the
overturned class certification on June 25, 2007, the District Court signed an Order terminating the
settlement. The actions against Bookham Technology plc and New Focus remain stayed while litigation
proceeds in six test cases against other companies which involve claims virtually identical to
those that have been asserted against Bookham Technology plc and New Focus. On November 13, 2007, the
issuer defendants in certain designated focus cases filed a motion to dismiss the second consolidated
amended class action complaints that were filed in those cases. On March 26, 2008, the District Court
issued an Opinion and Order denying, in large part, the motions to dismiss the amended complaints in
the focus cases.
It
is uncertain if the litigations will settle. If settlement of the litigations do not occur and litigation against Bookham Technology plc and New Focus continues, the Company believes that both Bookham
Technology plc and New Focus have meritorious defenses to the claims made in the Amended Class
Action Complaints and therefore believes that such claims will not have a material effect on its
financial position, results of operations or cash flows.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters
that may arise from time to time could have a material adverse effect on our business, results of
operations and financial condition. Any litigation to which we are subject may be costly and,
further, could require significant involvement of our senior management and may divert managements
attention from our business and operations.
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Some anti-takeover provisions contained in our charter, by-laws and under Delaware laws could
hinder business combinations with third parties.
We are subject to the provisions of Section 203 of the General Corporation Law of the State of
Delaware prohibiting, under some circumstances, publicly-held Delaware corporations from engaging
in business combinations with some stockholders for a specified period of time without the approval
of the holders of substantially all of our outstanding voting stock. Our certificate of
incorporation and bylaws contain provisions relating to the limitations of liability and
indemnification of our directors and officers, dividing our board of directors into three classes
of directors serving staggered three year terms and providing that our stockholders can take action
only at a duly called annual or special meeting of stockholders. In addition, our certificate of
incorporation authorizes us to issue up to 5,000,000 shares of preferred stock with designations,
rights and preferences determined from time-to-time by our board of directors. All of these
provisions could delay or impede the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving us, even if such events could be beneficial, in the
short-term, to the interests of the stockholders. In addition, such provisions could limit the
price that some investors might be willing to pay in the future for shares of our common stock.
These provisions also may have the effect of deterring hostile takeovers or delaying changes in
control or management of us.
Risks Related to Our Common Stock
A variety of factors could cause the trading price of our common stock to be volatile or decline.
The trading price of our common stock has been, and is likely to continue to be, highly volatile.
Many factors could cause the market price of our common stock to rise and fall. In addition to the
matters discussed in other risk factors included herein, some of the reasons for the fluctuations
in our stock price are:
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fluctuations in our results of operations; |
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changes in our business, operations or prospects; |
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hiring or departure of key personnel; |
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new contractual relationships with key suppliers or customers by us or our competitors; |
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proposed acquisitions by us or our competitors; |
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financial results that fail to meet public market analysts expectations and changes in
stock market analysts recommendations regarding us, other optical technology companies or
the telecommunication industry in general; |
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future sales of common stock, or securities convertible into or exercisable for common
stock; |
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adverse judgments or settlements obligating us to pay damages; |
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acts of war, terrorism, or natural disasters; |
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industry, domestic and international market and economic conditions, including the global
macroeconomic downturn we are currently experiencing; |
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low trading volume in our stock; |
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developments relating to patents or property rights; and |
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government regulatory changes. |
Since Bookham Technology plcs initial public offering in April 2000, Bookham Technology plcs ADSs
and ordinary shares, our shares of common stock and the shares of our customers and competitors
have experienced substantial price and volume fluctuations, in many cases without any direct
relationship to the affected companys operating performance. An outgrowth of this market
volatility is the significant vulnerability of our stock price and the stock prices of our
customers and competitors to any actual or perceived fluctuation in the strength of the markets we
serve, regardless of the actual consequence of such fluctuations. As a result, the market prices
for these companies are highly volatile. These broad market and industry factors caused the market
price of Bookham Technology plcs ADSs, ordinary shares, and our common stock to fluctuate, and may
in the future cause the market price of our common stock to fluctuate, regardless of our actual
operating performance or the operating performance of our customers.
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If we do not meet the NASDAQ Global Market continued listing requirements, our common stock may be
delisted.
As of October 28, 2008, the closing bid price of the Companys common stock on the NASDAQ Global
Market was $0.47, which is below the minimum $1.00 per share requirement for continued inclusion on
the NASDAQ Global Market pursuant to NASDAQ Marketplace Rule 4450(a)(5), or the Rule. In accordance
with the Rule, if the Companys stock price were to remain below $1.00 for a period of 30
consecutive business days, NASDAQ would provide written notification that the Companys securities
may be delisted unless the bid price of the Companys common stock closes at $1.00 per share or
more for a minimum of 10 consecutive business days within 180 calendar days from such notification.
Given the current extraordinary market conditions, NASDAQ has determined to suspend the bid price
and market value of publicly held shares requirements through Friday, January 16, 2009. In that
regard, on October 16, 2008, NASDAQ filed an immediately effective rule change with the Securities
and Exchange Commission, such that companies will not be cited for any new concerns related to bid
price or market value of publicly held shares deficiencies. These rules will be reinstated on
Monday, January 19, 2009.
When the Rule is reinstated on January 19, 2009, there can be no assurance that the bid price of
the Companys common stock will be above $1.00 per share, or that we will be able to achieve
compliance with the Rule within the given compliance period.
We may incur significant costs from class action litigation due to our expected stock volatility.
Our stock price may fluctuate for many reasons, including as a result of public announcements
regarding the progress of our product development efforts, the addition or departure of key
personnel, variations in our quarterly operating results and changes in market valuations of
companies in our industry. Recently, when the market price of a stock has been volatile, as our
stock price may be, holders of that stock have occasionally brought securities class action
litigation against the company that issued the stock. If any of our stockholders were to bring a
lawsuit of this type against us, even if the lawsuit were without merit, we could incur substantial
costs defending the lawsuit. The lawsuit could also divert the time and attention of our
management. In addition, if the suit were resolved in a manner adverse to us, the damages we could
be required to pay may be substantial and would have an adverse impact on our ability to operate
our business.
Because we do not intend to pay dividends, stockholders will benefit from an investment in our
common stock only if it appreciates in value.
We have never declared or paid any dividends on our common stock. We anticipate that we will retain
any future earnings to support operations and to finance the development of our business and do not
expect to pay cash dividends in the foreseeable future. As a result, the success of an investment
in our common stock will depend entirely upon any future appreciation in its value. There is no
guarantee that our common stock will appreciate in value or even maintain the price at which
stockholders have purchased their shares.
We can issue shares of preferred stock that may adversely affect your rights as a stockholder of
our common stock.
Our certificate of incorporation authorizes us to issue up to 5,000,000 shares of preferred stock
with designations, rights and preferences determined from time-to-time by our board of directors.
Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights superior to those of holders
of our common stock. For example, an issuance of shares of preferred stock could:
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adversely affect the voting power of the holders of our common stock; |
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make it more difficult for a third party to gain control of us; |
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discourage bids for our common stock at a premium; |
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limit or eliminate any payments that the holders of our common stock could expect to
receive upon our liquidation; or |
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otherwise adversely affect the market price of our common stock. |
We may in the future issue additional shares of authorized preferred stock at any time.
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Item 4. Submission of Matters to a Vote of Security Holders
On October 22, 2008, we held our 2008 annual meeting of stockholders. At the meeting, W. Arthur
Porter, Joseph Cook and Edward Collins were re-elected as Class I Directors, to serve until our
2011 annual meeting of stockholders or until their respective successors are duly elected and
qualified. The results of these elections were as follows: 72,915,438 shares of common stock were
voted in favor of the election of Dr. Porter and 5,160,493 shares of common stock were withheld;
72,913,676 shares of common stock were voted in favor of the election of Mr. Cook and 5,162,255
shares of common stock were withheld; and 74,387,000 shares of common stock were voted in favor of
the election of Mr. Collins and 3,688,931 shares of common stock were withheld. There were no
broker non-votes.
The terms of office of the following directors, who were not up for re-election at our 2008 annual
meeting of stockholders, continued after our 2008 annual meeting of stockholders: Alain Couder,
Lori Holland, Bernard Couillaud, Peter Bordui and David Simpson.
At our 2008 annual meeting of stockholders, stockholders ratified the selection of Grant Thornton
LLP by the audit committee of our board of directors as our independent registered public
accounting firm for our current fiscal year by a vote of 75,758,434 shares of common stock in
favor, 2,254,004 shares of common stock against and 63,493 shares of common stock abstained. There
were no broker non-votes.
Item 6. Exhibits
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed
as part of this Quarterly Report on Form 10-Q, which Exhibit Index is incorporated herein by
reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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BOOKHAM, INC. |
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Date: November 4, 2008
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By:
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/s/ Jerry Turin
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Jerry Turin |
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Chief Financial Officer (Principal |
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Financial and Accounting Officer) |
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EXHIBIT INDEX
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Exhibit |
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Description of Exhibit |
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3.1(1)
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Amended and Restated By-laws of Bookham, Inc., as amended |
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3.1(2)
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Restated Certificate of Incorporation of Bookham, Inc. |
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
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31.2
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Certification of Chief Financial Officer Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002. |
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32.1
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. |
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32.2
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. |
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(1) |
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Previously filed as Exhibit 3.1 to the Registrants 2007 Annual Report on Form 10-K (File
No. 000-30684) for the year ended June 30, 2007 and incorporated herein by reference. |
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Previously filed as Exhibit 3.1 to the Registrants Current Report on Form 8-K (File
No. 000-30684) on September 10, 2004. |
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