e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended:
June 30, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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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
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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2584 Junction Avenue
San Jose, California
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95134
(Zip Code)
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(Address of Principal Executive
Offices)
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Registrants telephone number, including area code:
408-383-1400
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class:
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Name of each exchange on which registered:
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Common stock, par value $0.01 per
share
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The NASDAQ Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer þ Non-accelerated
filer o
Indicate by check mark whether the registrant is a shell company
(as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant was $280,770,655 based on the
last reported sale price of the registrants common stock
on December 29, 2006 as reported by the NASDAQ Global
Market ($4.07 per share) (reference is made to Part II,
Item 5 herein for a Statement of Assumptions upon which
this calculation is based). As of August 27, 2007, there
were 83,745,227 shares of common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The registrant intends to file a proxy statement pursuant to
Regulation 14A within 120 days of the end of the
fiscal year ended June 30, 2007. Portions of the proxy
statement are incorporated herein by reference into
Part III of this Annual Report on
Form 10-K.
ANNUAL
REPORT ON
FORM 10-K
FOR THE
FISCAL YEAR ENDED JUNE 30, 2007
TABLE OF
CONTENTS
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on
Form 10-K
and the documents incorporated herein by reference contain
forward-looking statements, within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as
amended, about our plans, objectives, expectations and
intentions. You can identify these statements by words such as
expect, anticipate, intend,
objective, plan, goal,
attempt, believe, seek,
estimate, may, will or
continue or similar words or phrases. You should
read statements that contain these words or phrases carefully.
They discuss our future expectations, contain projections of our
expected 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. Our actual results could differ significantly from
results discussed in these forward-looking statements. You
should not place undue reliance on 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. Several of the important factors
that may cause our actual results to differ materially from the
expectations we describe in forward-looking statements are
identified in the sections captioned Business,
Risk Factors, and Managements Discussion
and Analysis of Financial Condition and Results of
Operations in this Annual Report on
Form 10-K
and the documents incorporated herein by reference.
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.
Innovation at the component level has been a primary enabler of
optical networking, facilitating increased transmission
capacity, improving signal quality and lowering cost. Optical
communications equipment vendors initially developed and
manufactured their own optical components. For a variety of
industry-related reasons, the majority of optical equipment
vendors have sold, eliminated or outsourced their internal
component capabilities and now rely on third-party sources for
their optical component needs. In the absence of significant
internal component technology expertise or manufacturing
capability, communications equipment vendors have become more
demanding of their component suppliers, seeking companies with
broad technology portfolios, component innovation expertise,
advanced manufacturing capabilities, the ability to provide more
integrated solutions and financial strength.
We believe we offer one of the most comprehensive end-to-end
portfolios of optical component solutions to the
telecommunications market, enabling us to deliver more of the
components our customers require. Our product portfolio includes
products such as our 10 gigabit per second, or Gb/s, discrete
transmitters, receivers and optical amplifiers. We intend to
maintain our leadership position for these products, as well as
develop new solutions that leverage the knowledge and capital
invested in our current generation of product offerings.
We believe our advanced component design and manufacturing
facilities, which would be very expensive to replicate in the
current market environment, provide a significant competitive
advantage. On-chip, or monolithic, integration of functionality
is more difficult to achieve without access to the production
process, and requires advanced process know-how and equipment.
Although the market for optical integrated circuits is still in
its early stages, it shares many characteristics with the
semiconductor market, including the positive relationship
between the number of features integrated on a chip, the wafer
size and the cost and sophistication of the fabrication
equipment. For this reason, we believe our
3-inch wafer
indium phosphide semiconductor fabrication facility in Caswell,
U.K. provides us a competitive advantage as it allows us to
increase the complexity of the optical circuits that we design
and manufacture.
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We intend to draw upon our internal development and
manufacturing capability to continue to create innovative
solutions for our customers. Recent examples include the
introduction of our family of tunable products, including our
InP tunable laser chip, 10Gb/s iTLA tunabe laser, 10Gb/s iTTA
transmitter module and 10Gb/s SFF tunable transponder, which are
currently either on the market or in early stages of adoption.
In addition we are developing chips and packages targeted at
40Gb/s operations and plan to extend our offerings to operations
requiring even higher data rates over time. We believe our LMC10
transmitter is the only transmitter of its kind on the market
today, and we are currently the sole-source supplier to a number
of customers. We are currently developing monolithic chips that
provide the same functionality as this transmitter.
Through our acquisition and integration of seven optical
components companies and businesses including those of Nortel
Networks Corporation, which we refer to as Nortel Networks, and
Marconi Optical Components Limited, which we refer to as
Marconi, we significantly increased our product portfolio and
manufacturing expertise, and we believe we enhanced our existing
relationships with leading optical systems vendors. As part of
the process of integrating acquired businesses and companies, we
have taken significant steps to rationalize production capacity,
adjust headcount and restructure resources to reduce
manufacturing and operating overhead expenses.
We acquired the optical components business of Nortel Networks
in 2002. In connection with the acquisition, Nortel Networks
entered into a supply agreement with us which specified a
minimum amount of products to be purchased from us. This supply
agreement was amended three times, most recently by the third
addendum to the supply agreement in January 2006. Pursuant to
the second addendum to supply agreement entered into in May
2005, Nortel Networks issued non-cancelable purchase orders,
based on revised pricing, totaling approximately
$100 million, for certain products, including
$50 million of products we were discontinuing as of March
2006. Pursuant to the third addendum to the supply agreement,
Nortel Networks was obligated to purchase $72 million of
our products, which obligations expired in December 2006. As a
result of the expiration of the various purchase obligations
under the supply agreement and related addendums, revenues from
Nortel Networks decreased significantly in the fiscal year ended
June 30, 2007 to $39.9 million as compared to
$110.5 million in the fiscal year ended July 1, 2006.
As a result of the expiration of the purchase obligations under
the third addendum to the supply agreement, combined with a
quarterly reduction in revenues related to a Nortel
Networkss inventory reduction initiative, our revenues
from Nortel Networks decreased from $14.5 million in the
quarter ended December 30, 2006 to $3.1 million in the
quarter ended March 31, 2007. Our revenues from Nortel
Networks increased to $7.6 million in the quarter ended
June 30, 2007 and we expect Nortel to continue to be a
significant customer for the foreseeable future.
One of our key strategic objectives has been, and continues to
be, to diversify our customer and revenue base by increasing
revenues from customers other than Nortel Networks. Our revenues
from customers other than Nortel Networks represented 80%, 52%
and 55% of our total revenues for the fiscal years ended
June 30, 2007, July 1, 2006 and July 2, 2005,
respectively.
Bookham, Inc., a Delaware corporation, was incorporated on
June 29, 2004. On September 10, 2004, pursuant to a
scheme of arrangement under the laws of the United Kingdom,
Bookham, Inc. became the publicly traded parent company of the
Bookham Technology plc group of companies, including Bookham
Technology plc, a public limited company incorporated under the
laws of England and Wales whose stock was previously traded on
the London Stock Exchange and the NASDAQ National Market. Our
common stock is traded on the NASDAQ Global Market under the
symbol BKHM.
We maintain a web site with the address www.bookham.com. Our web
site includes links to our Code of Business Conduct and Ethics
and our Audit Committee, Compensation Committee, and Nominating
and Corporate Governance Committee charters. We are not
including the information contained in our web site or any
information that may be accessed through our web site as part
of, or incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge, through our web site, our
Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
and Current Reports on
Form 8-K,
and amendments to these reports, as soon as reasonably practical
after such material is electronically filed with, or furnished
to, the Securities and Exchange Commission.
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Industry
Background
In the 1990s, telecommunications network vendors and data
communications vendors increasingly incorporated optical systems
into communications infrastructures, taking advantage of the
ability of fiber optic systems to support dramatically greater
bandwidths than traditional copper networks. Widespread adoption
of fiber optic systems has significantly improved the ability of
these networks to transmit and manage the high volume of voice,
video and data traffic generated in recent years by the growth
of the Internet and other innovative communications
technologies. The build-out of fiber optic networks requires
optical components that generate, detect, amplify, combine and
separate light signals as they are transmitted.
During the late 1990s, demand for telecommunications equipment,
and the components that went into that equipment, grew
dramatically. This demand was driven in part by bandwidth
demands resulting from the rise of the Internet and in part by
regulatory changes in the U.S. that opened the
telecommunications markets to new network service providers.
Many of these new networking companies elected to draw upon
optical networking technology and to build their own networks in
response to forecasts for exponential network traffic growth and
these efforts were supported by ready availability of capital.
The business climate for telecommunications companies became
less favorable in late 2000, as network service providers began
to experience significant financial difficulties. Unable to
obtain financing for continued growth, and with actual network
utilization below expectations due to an overbuilt
infrastructure network, service providers stopped buying new
equipment. In turn, many equipment providers stopped buying
components, which severely affected optical component
manufacturers, who were left with significant inventories,
excess production capacity and cost structures not aligned with
industry demand levels. In response, optical component suppliers
reduced manufacturing and operating cost overheads dramatically
in order to sustain their businesses during a period of reduced
demand and to achieve cost efficiencies required to meet their
customers pricing objectives.
As the market for optical systems declined, optical systems
vendors were exposed to many of the same inefficiencies
confronting independent optical component companies. These
challenges, as well as the prioritization on optical systems
design manufacturing, resulted in the divestiture or closure of
many captive optical component businesses. As a result, during
the last four years, optical systems vendors have been seeking
component suppliers with (i) a depth of technology
expertise and breadth of product portfolio that no longer exists
within their own organizations, and (ii) the manufacturing
capabilities that they have sold, outsourced or eliminated.
Fewer customers, each demanding more complete solutions and
requiring continued innovation at reduced cost, have led to
significant consolidation among optical component suppliers. We
have played an active role in this consolidation, acquiring the
optical components businesses of Nortel Networks and Marconi,
among others. We believe that the trend toward consolidation
will continue, providing companies positioned as consolidators
with the opportunity to capture increased market share and to
improve profitability through increased capacity utilization and
other operating efficiencies.
The market for optical components, modules and subsystems
continues to evolve. Telecommunications network vendors are
requiring optical component suppliers to take advantage of
developments in product integration and miniaturization to
provide solutions incorporating multiple optical components on a
single subsystem or module, thereby reducing the need for
component assembly and additional testing by the vendor.
Accordingly, optical component suppliers who are able to offer
more integrated, technologically-advanced modules and subsystems
have an advantage, we believe over suppliers who can only offer
discrete optical components. In addition, we believe that it is
important for optical component suppliers to be vertically
integrated, so that they may also supply components, modules and
subsystems thereby allowing access to a more diversified
customer base as different customers purchase products at
different levels of integration.
In addition, optical component suppliers have increasingly had
to address the requirements of both the telecommunications and
data communications markets. Historically, telecommunications
products were characterized by high performance, high cost and
significant product customization, while data communications
products were characterized by high volume, low cost and
standard product specifications. This distinction is becoming
blurred as technologies evolve that cost-effectively address
both sets of applications at attractive price points, creating
an opportunity to leverage technologies that meet the broader
demands of the two markets. In addition,
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optical technologies originally developed for the communications
industry, such as high-power lasers, are also being deployed in
industrial, automotive, aerospace and military applications. We
believe these technologies offer optical component suppliers the
opportunity to achieve improved margins and leverage embedded
research and development expertise in new applications that are
less dependent on the cycles of the telecommunications industry.
In early 2004, the optical components market showed signs of
recovery, driven by increased capacity requirements of new
applications such as
video-on-demand
and broadband, customers and service providers with stronger
balance sheets, a growing economy and regulatory changes that
spurred competition among providers of voice, video and data
services. Certain signs of recovery in the industry have been
continuing. We believe that there are three primary drivers of
this market: (i) the continued recovery of spending by
telecommunications networking equipment companies, (ii) the
introduction of new, more cost-effective product technologies,
such as our family of tunable products, and (iii) the
expansion of optical networking in the metro space, driven by
the build out of broadband access networks such as
fiber-to-the-home initiatives. In addition, the growing
competition among cable network operators offering voice, video
and data services and traditional telephony service providers is
resulting in increased utilization of optical networking
technologies, including the long-haul backbone where many of our
product offerings are focused, as communications networks
converge.
To succeed in such a challenging and evolving market, we believe
that an optical component supplier must:
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Offer a broad product portfolio of components, modules and
subsystems to provide equipment manufacturers solutions at
different levels of integration;
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Maintain strong relationships with leading optical systems
vendors;
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Develop innovative products that address challenges currently
faced by equipment providers and technologies that provide a
foundation for new products in the future;
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Invest in integrated, cost-efficient manufacturing facilities
which incorporate a variety of process technologies; and
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Possess the necessary scale and cost structure to be
cost-competitive, and the financial resources to endure periodic
industry cycles.
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Our
Solution
We are a leading supplier of optical component solutions for the
telecommunications market. Through a focused acquisition
strategy and internal development, we have significantly
increased our product portfolio and manufacturing expertise, and
enhanced existing relationships with leading optical systems
vendors. We believe we are well-positioned to succeed as an
optical component vendor for the following reasons:
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Breadth of technology and products. We believe
that we offer a comprehensive end-to-end portfolio of optical
component solutions to the telecommunications market. We believe
that our range of technical capabilities allows us to provide
customers with components and integrated solutions to satisfy
their optical component needs, including lasers, receivers,
transmitters, amplifiers, passive components, integrated
subsystems, pluggable modules and our wideband tunable lasers,
transmitters and transponders.
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Leading networking customers. We are suppliers
to leading equipment system vendors, such as Nortel Networks,
Huawei, Cisco and others. For many of our designs, we are
sole-sourced by certain customers, including small form factor
10 Gb/s transmitters and certain optical amplifiers and
receivers. We believe this reflects the technical superiority of
our products and our customers satisfaction with our
products and service.
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Product innovation and technology
leadership. Through internal development and
selective acquisitions of external technology, we continue to
innovate and introduce new products for the telecommunications
market. In general, we focus our development efforts on the
higher performance segment of the market, as we find customers
in this segment value technology differentiation. We also intend
to work to maintain our leadership in existing areas of special
expertise, such as 10Gb/s transmitters, receivers, optical
amplifiers, pump laser chips and tunable products, and to enter
40 Gb/s and 100 Gb/s markets as these market develop.
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Advanced semiconductor manufacturing
facilities. We believe our advanced component
design and manufacturing facilities, which would be very
expensive to replicate in the current market environment, is a
significant competitive advantage. On-chip integration of
functionality is more difficult without access to the production
process, and requires advanced process know-how and equipment.
Our 3-inch
wafer indium phosphide semiconductor fabrication facility in
Caswell, U.K. utilizes advanced production processes to improve
production yields and increase the complexity of the circuits we
design and manufacture.
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Low-cost, advanced assembly facilities. Our
Shenzhen, China facility is an advanced production facility with
approximately 250,000 square feet of manufacturing and
office space. The substantial portion of our revenues are
derived from products shipped out of our Shenzhen facility. We
believe that the transfer of our assembly and test operations to
Shenzhen, while maintaining our Caswell and Zurich facilities,
among others, has enabled us to reduce our costs while helping
to preserve our technology differentiation.
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Realigned cost structure. As part of the
process of integrating acquired businesses and companies, we
have taken significant steps to rationalize production capacity,
decrease headcount and restructure resources to reduce
manufacturing and operating overhead. These steps, while
resulting in significant changes in prior quarters, have
resulted in reduced expenses over the most recently completed
fiscal year and enabled us to deliver our customers component
solutions at lower cost.
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Our
Strategy
Our goal is to maintain and enhance our position as a leading
provider of optical component, module and subsystem solutions
for telecommunications providers and broaden our leadership into
new markets by:
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Leveraging broad product portfolio and technology
expertise. We believe that our broad product
portfolio positions us to increase our penetration of existing
customers, such as Nortel Networks, Cisco and Huawei and gives
us a competitive advantage in winning new customers. In
addition, we intend to continue to apply our optical component
technologies to opportunities in other, non-telecommunications
markets, including military, industrial research, semiconductor
capital equipment and biotechnology, where we believe the use of
those technologies is expanding.
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Providing more comprehensive and technologically advanced
solutions. We intend to continue to invest in
innovative component level technologies that we believe will
allow us to lead the market in quality, price and performance.
We also plan to leverage our component level technologies into a
series of components, modules and subsystems, enabling us to
meet our customers growing demand for complete solutions.
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Continuing to improve cost structure. We
intend to continue to identify and implement cost-saving
programs across our organization, including a cost reduction
plan adopted on January 31, 2007 which was approximately
80% complete as of June 30, 2007 with approximately 70%
savings realized in the quarter ended June 30, 2007. This
plan includes the rationalization of our Caswell, U.K. wafer
facility capacity to match our near term fabrication
requirements. Other plans in recent years included transferring
our assembly and test functions to our lower cost Shenzhen
facility from our Paignton, U.K. facility, and transferring many
of our manufacturing and supply chain management functions to
Shenzhen as well. We intend to continue to focus on managing our
variable costs through yield improvements, labor productivity
gains, component substitutions and aggressive supply chain
management.
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Selectively pursuing acquisitions. As we have
done in the past, we will continue to consider the use of
acquisitions as a means to enhance our scale, obtain critical
technologies and enter new markets.
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Our
Product Offerings
We design, manufacture and market optical components, modules
and subsystems that generate, detect, amplify, combine and
separate light signals with primary application in fiber optic
telecommunications networks. We have significant expertise in
technology such as III-V optoelectronic semiconductors utilizing
indium phosphide and gallium arsenide substrates, thin film
filters and micro-optic assembly and packaging technology. In
addition to these technologies, we also have electronics design,
firmware and software capabilities to produce transceivers,
transponders, optical amplifiers and other value-added
subsystems.
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We believe that our acquisitions of the optical component
businesses of Nortel Networks and Marconi, as well as our
acquisitions of Ignis Optics, New Focus, Avalon Photonics and
Onetta and the assets of Cierra Photonics, Inc., which we refer
to as Cierra Photonics, have significantly enhanced our product
portfolio. We believe our enhanced portfolio will enable us to
provide optical systems suppliers with components, subsystems
and modules based on our components. Our comprehensive array of
products are designed to address our customers goals of
reducing the number of suppliers from whom they purchase.
Our products provide functionality for the various elements
within the optical networking system from transmitting to
receiving light signals, and include products that generate,
detect, amplify, combine and separate light signals. Our product
offerings that are principally aimed at the telecommunications
marketplace include:
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Transmitters. Our transmitter product lines
include products with fixed and tunable wavelength designed for
both long-haul and metro applications at 2.5 Gb/s and 10 Gb/s.
This product line includes lasers that are either directly or
externally modulated depending on the application.
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Transceivers. Our small form factor pluggable
transceiver portfolio includes SFP products operating at
2.5 Gb/s and XFP products operating at 10 Gb/s.
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Tunable lasers and transmitter modules. Our
tunable laser products include discrete lasers and co-packaged
laser modulators to optimize performance and reduce the size of
the product. Our tunable products includes an InP tunable laser
chip, a 10Gb/s iTLA tunable laser, a 10Gb/s iTTA transmitter
module, and a SFF tunable transponder. We are also developing
technology to deliver wide band electronic tunability at
datarates of 40Gb/s and beyond.
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Receivers. Our portfolio of discrete receivers
for metro, long and ultra long-haul applications at 2.5 Gb/s and
10 Gb/s includes avalanche photodiode, or APD, preamp receivers,
as well as photodiode, or PIN, preamp receivers, and PIN and APD
modules and products that feature integrated attenuators.
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Amplifiers. Erbium doped fiber amplifiers, or
EDFAs, are used to boost the brightness of optical signals and
offer compact amplification for ultra long-haul, long-haul and
metro networks. We offer a semi-custom product portfolio of
multi-wavelength amplifiers from gain blocks to full card level
or subsystem solutions designed for use in wide bandwidth wave
division multiplexing, or WDM, optical transmission systems. We
also offer lower cost narrow band
mini-amplifiers.
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Pump laser chips. Our 980 nanometer pump laser
diodes are designed for use as high-power, reliable pump sources
for EDFAs in terrestrial and undersea, or submarine,
applications. Uncooled modules are designed for low-cost,
reliable amplification for metro, cross-connect or other
single/multi channel amplification applications, and submarine
applications.
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Transponder modules. Our transponder modules
provide both transmitter and receiver functions. A transponder
includes electrical circuitry to control the laser diode and
modulation function of the transmitter as well as the receiver
electronics.
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Thin Film Filters. Our thin film filter, or
TFF, products are used for multiplexing and demultiplexing
optical signals within dense WDM transmission systems. In
addition to this, TFF products are used to attenuate and control
light within our amplifier product range.
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The optical technology originally developed for the
telecommunications industry is also increasingly being deployed
in other markets, such as industrial, consumer display and life
sciences, in addition to the test and measurement market where
it has been deployed for some time. Advancements in laser
technology have improved the cost, size and power of devices,
making them more suitable for non-telecommunications
applications. We believe that we are positioned to benefit from
the increased use of lasers in new markets as a leading provider
of such technology, including advanced pump laser technology for
industrial applications. Optical thin film filter technology is
already widely deployed outside of telecommunications; we are
focusing our efforts on developing applications for life
sciences, biotechnology and consumer display industries.
Through our New Focus division, we develop photonics and
microwave solutions for diversified markets such as research,
semiconductor capital equipment and the military. We sell two
primary families of products in the area
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of photonics and microwave solutions: advanced photonic tools
principally used for generating, measuring, moving,
manipulating, modulating and detecting optical signals, and
tunable lasers for test and measurement applications. We sell
our products to the research market primarily via an extensive
catalog, and believe we benefit from the broad market awareness
of our New Focus brand in this market. We pursue a direct sales
approach for the semiconductor capital equipment and military
markets, and currently sell to several of the leading companies
in the semiconductor capital equipment market.
Customers,
Sales and Marketing
We principally sell our optical component products to
telecommunications systems vendors as well as to customers in
the data communications, military, aerospace, industrial and
manufacturing industries. Customers for our photonics and
microwave product portfolio include academic, military and
governmental research institutions that engage in advanced
research and development activities, and semiconductor capital
equipment manufacturers.
We operate in two business segments: (i) optics and
(ii) research and industrial. Optics relates to the design,
development, manufacture, marketing and sale of optical
solutions for telecommunications and industrial applications.
Research and industrial relates to the design, manufacture,
marketing and sale of photonics and microwave solutions.
The following table sets forth our revenues by segment for the
periods indicated:
Revenues
by Segment
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Years Ended
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June 30,
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July 1,
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July 2,
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2007
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2006
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2005
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(In thousands)
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Revenues:
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Optics
|
|
$
|
171,172
|
|
|
$
|
206,019
|
|
|
$
|
176,598
|
|
Research and industrial
|
|
|
31,642
|
|
|
|
25,630
|
|
|
|
23,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated revenues
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
$
|
200,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information on the optics and research and
industrial segments, see Note 12 Segments
of an Enterprise and Related Information to our
consolidated financial statements appearing elsewhere herein.
We acquired the optical components business of Nortel Networks
in 2002. In connection with the acquisition, Nortel Networks
entered into a supply agreement with us which specified a
minimum amount of products to be purchased from us. As noted
above, this supply agreement was amended three times. Pursuant
to the second addendum to our supply agreement, Nortel Networks
issued non-cancelable purchase orders, based on revised pricing,
totaling approximately $100 million, for certain products
to be delivered through March 2006, which included
$50 million of products we were discontinuing. Pursuant to
the third addendum to the supply agreement, Nortel Networks was
obligated to purchase $72 million of our products. These
obligations expired in December 2006. Our optic segment revenues
increased to $206.0 million in the fiscal year ended
July 1, 2006 from $176.6 million the fiscal year ended
July 2, 2005 largely as a result of revenues from Nortel
Networks, which we include in the optic segment revenues, of
$110.5 million in the fiscal year ended July 1, 2006
compared to $89.5 million in the fiscal year ended
July 2, 2005. Our optics segment revenues decreased to
$171.2 million in the fiscal year ended June 30, 2007
from $206.0 million in the fiscal year ended July 1,
2006, largely as a result of the expiration of the various
purchase obligations under the supply agreement and related
addendums with Nortel Networks. Revenues from Nortel Networks in
the fiscal year ended June 30, 2007 decreased to
$39.9 million as compared to $110.5 million in the
fiscal year ended July 1, 2006. Also as a result of the
expiration of the third addendum to the supply agreement,
combined with a quarterly reduction in revenues related to an
inventory reduction initiative at Nortel Networks, our revenues
from Nortel Networks decreased from $14.5 million in the
quarter ended December 30, 2006 to $3.1 million in the
quarter ended March 31, 2007. Our revenues from Nortel
Networks increased to $7.6 million in the quarter ended
June 30, 2007, and we expect Nortel Networks to continue to
be a significant customer for the foreseeable future.
9
Revenues from our research and industrial segment, comprised
primarily of our New Focus division, which designs,
manufactures, markets and sells photonic and microwave
solutions, increased to $31.6 million in the year ended
June 30, 2007, compared to $25.6 million in the fiscal
year ended July 1, 2006, after increasing from $23.6 in the
fiscal year ended July 2, 2005. The changes in both years
were primarily the result of changes in product sales volumes.
General
We believe it is essential to maintain a comprehensive and
capable direct sales and marketing organization. As of
June 30, 2007, we had an established direct sales and
marketing force of 91 people for all of our products sold
in the U.K., China, France, Germany, Switzerland, Canada, Italy
and the U.S. In addition to our direct sales and marketing
force, we also sell and market our products through
international sales representatives and resellers that extend
our commercial reach to smaller geographic locations and
customers that are not currently covered by our direct sales and
marketing force. Our products targeted at research and
industrial applications are also sold through catalogs.
Our products typically have a long sales cycle. The period of
time between our initial contact with a customer to the receipt
of an actual 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.
In certain instances, support services for our products include
customer service and technical support. Customer service
representatives assist customers with orders, warranty returns
and other administrative functions. Technical support engineers
provide customers with answers to technical and product-related
questions. Technical support engineers also provide application
support to customers who have incorporated our products into
custom applications.
The following table sets forth our revenues by geographic region
for the periods, determined based on the country shipped to,
indicated:
Revenues
by Geographic Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Canada
|
|
$
|
56,093
|
|
|
$
|
107,445
|
|
|
$
|
85,006
|
|
United States
|
|
|
45,992
|
|
|
|
47,762
|
|
|
|
54,660
|
|
China
|
|
|
37,672
|
|
|
|
27,781
|
|
|
|
19,420
|
|
Europe
|
|
|
34,382
|
|
|
|
28,753
|
|
|
|
35,001
|
|
Asia other than China
|
|
|
25,204
|
|
|
|
15,655
|
|
|
|
5,019
|
|
Rest of the World
|
|
|
3,471
|
|
|
|
4,253
|
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
$
|
200,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We are subject to risks related to operating in foreign
countries. These risks include, among others: currency
fluctuations; difficulty in accounts receivable collection and
longer collection periods; difficulty in enforcing or adequately
protecting our intellectual property; foreign taxes; political,
legal and economic instability in foreign markets; and foreign
regulations. 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 and
could result in increased operating expenses and reduced
revenues.
Intellectual
Property
We believe that our proprietary technology provides us with a
competitive advantage, and we intend to continue to protect our
technology, as appropriate, including design, process and
assembly aspects. We believe that
10
our intellectual property portfolio is a strategic asset that we
can use to develop our own sophisticated solutions and
applications, or in conjunction with the technologies of the
companies with whom we collaborate, for use in optical
networking. Our intellectual property portfolio is supplemented
by our expertise and application and process engineering
know-how developed by our personnel, including personnel who
joined us from Nortel Networks, Marconi, Cierra Photonics, Ignis
Optics, New Focus, Avalon Photonics and Onetta. We believe that
the future success of our business will depend on our ability to
translate our intellectual property portfolio and the
technological expertise and innovation of our personnel into new
and enhanced products.
As of June 30, 2007, we held 291 U.S. patents and 120
non-U.S. patents,
and we had approximately 200 patent applications pending in
various countries. The patents we currently hold expire between
2007 and 2025. We maintain an active program to identify
technology appropriate for patent protection. We require
employees and consultants to execute non-disclosure and
proprietary rights agreements upon commencement of employment or
consulting arrangements. These agreements 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.
While such agreements may be binding, we may not be able to
enforce them in all jurisdictions.
Although we continue to take steps to identify and protect our
patentable technology and to obtain and protect proprietary
rights to our technology, we cannot be certain the steps we have
taken will prevent misappropriation of our technology. We may,
as appropriate, take legal action to enforce our patents and
trademarks and otherwise to protect our intellectual property
rights, including our trade secrets, which may not be
successful. In the future, situations may arise in which we may
decide to grant licenses to certain of our proprietary
technology.
Research
and Development
Since the inception of Bookham Technology plc in 1988, we have
been committed to our research and development activities. We
spent $43.0 million during the year ended June 30,
2007, $42.6 million during the year ended July 1,
2006, and $44.8 million during the year ended July 2,
2005 on our research and development programs. We believe that
continued focus on the development of our technology is critical
to our future competitive success and our goal is to expand and
develop our line of telecommunications products, particularly in
the area of wideband tunable products, expand and develop our
line of non-telecommunications products and technologies for use
in a variety of different applications, enhance our
manufacturing processes to reduce production costs, provide
increased device performance and reduce product time to market.
We also believe it is critical to focus our resources on those
technologies where our strengths as a company may translate into
the most significant potential for product demand and
profitability. Accordingly, in connection with our cost
reduction plan announced in May 2006, we realigned our product
development portfolio to focus on such programs. As of
June 30, 2007, our research and development organization
comprised 166 people.
Our research and development facilities in Paignton and Caswell,
U.K., Santa Rosa and San Jose, California, Zurich,
Switzerland and Ottawa, Canada, include computer-aided design
stations, modern laboratories and automated test equipment. Our
research and development organization has optical and electronic
integration expertise that facilitates meeting customer-specific
requirements as they arise.
Manufacturing
Our manufacturing capabilities include fabrication processing
for indium phosphide substrates, gallium arsenide substrates and
TTFs, including clean room facilities for each of these
fabrication processes, along with assembly and test capability
and reliability/quality testing. We utilize sophisticated
semiconductor processing equipment, such as epitaxy reactors,
metal deposition systems, and photolithography, etching,
analytical measurement and control equipment. Our assembly and
test facilities include specialized automated assembly
equipment, temperature and humidity control and reliability and
testing facilities.
We lease a facility in which we have an advanced
3-inch wafer
indium phosphide semiconductor fabrication operation, which we
believe is one of our key competitive differentiators. This
facility is located in Caswell U.K. and is leased pursuant to a
20 year lease, which lease period commenced in
March 30, 2006, with an option to extend an additional
5 years after the initial 20 year period and for
additional 2 year increments indefinitely after the initial
25 year period. We previously owned this facility, but in
March 2006 we sold it to a subsidiary of Scarborough
11
Development as a part of a sale-leaseback arrangement. For
additional information about the sale-leaseback arrangement of
the Caswell facility, see Note 6
Commitments and Contingencies to our consolidated
financial statements, appearing elsewhere herein. We also have
assembly and test facilities in Shenzhen, China and
San Jose, California. We have a wafer fabrication facility
in Zurich, Switzerland, and a TTF manufacturing facility in
Santa Rosa, California. We previously had manufacturing
facilities in Paignton, Abingdon, Harlow and Swindon, U.K.;
Columbia, Maryland; Poughkeepsie, New York; and Ottawa, Canada,
all of which are now either closed or have discontinued
manufacturing operations. During 2003, we consolidated our
Ottawa manufacturing equipment and activities into our existing
Caswell facility and consolidated our optical amplifier assembly
and test operations and
chip-on-carrier
operations into our Paignton site. In 2003, we substantially
underutilized our existing manufacturing capacity. In 2004, we
implemented a restructuring plan which included a reduction in
our excess manufacturing floor space to 700,000 square feet
and the transfer of a majority of our assembly and test
operations from Paignton to Shenzhen in order to take advantage
of the comparatively low manufacturing costs in China. The
transfer of assembly and test operations from our Paignton
facility was completed in the March 2007 quarter. During the
first six months of calendar year 2007 we consolidated certain
activities within our Caswell, U.K. wafer facility to
rationalize our capacity to match our near term fabrication
requirements.
The following table sets forth our long-lived tangible assets by
geographic region as of the dates indicated:
Long-Lived
Tangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
United Kingdom
|
|
$
|
9,707
|
|
|
$
|
30,319
|
|
|
$
|
40,813
|
|
China
|
|
|
18,462
|
|
|
|
14,529
|
|
|
|
14,905
|
|
Europe other than United Kingdom
|
|
|
3,877
|
|
|
|
4,806
|
|
|
|
5,312
|
|
United States
|
|
|
1,341
|
|
|
|
1,893
|
|
|
|
2,229
|
|
Canada
|
|
|
320
|
|
|
|
616
|
|
|
|
897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived tangible assets
|
|
$
|
33,707
|
|
|
$
|
52,163
|
|
|
$
|
64,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth our total assets by geographic
region as of the dates indicated:
Total
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
United Kingdom
|
|
$
|
58,827
|
|
|
$
|
121,337
|
|
|
$
|
150,876
|
|
United States
|
|
|
69,571
|
|
|
|
46,115
|
|
|
|
47,695
|
|
China
|
|
|
52,736
|
|
|
|
47,611
|
|
|
|
24,940
|
|
Europe other than United Kingdom
|
|
|
21,002
|
|
|
|
19,090
|
|
|
|
11,660
|
|
Canada
|
|
|
2,390
|
|
|
|
2,644
|
|
|
|
3,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
204,526
|
|
|
$
|
236,797
|
|
|
$
|
238,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Competition
The market for our products is highly competitive. We believe we
compete favorably with respect to the following factors:
|
|
|
|
|
product quality, performance and price;
|
|
|
|
on-going product evolution;
|
|
|
|
manufacturing capabilities; and
|
|
|
|
customer service and support.
|
12
With respect to our telecommunications products, we also believe
we compete favorably on the basis of our historical customer
relationships and the breadth of our product lines.
Although we believe that we compete favorably with respect to
these factors, there can be no assurance that we will continue
to do so. We encounter substantial competition in most of our
markets, although no one competitor competes with us across all
product lines or markets.
We believe that our principal competitors in telecommunications
are the major suppliers of optical components and modules,
including both vendors selling to third parties and components
companies owned by large telecommunications equipment
manufacturers. Specifically, we believe that we compete against
two main categories of competitors in telecommunications:
|
|
|
|
|
broad-based merchant suppliers of components, principally JDSU,
Avanex, Opnext, Eudyna, Excelight, Intel and CyOptics; and
|
|
|
|
the vertically integrated equipment manufacturers, such as
Fujitsu, Huawei and Sumitomo.
|
In addition, as we integrate and expand our offerings into new
applications and markets, we may compete against market leaders,
such as Agilent and Finisar in industries such as semiconductor
and data communications, who may have significantly more
resources than we do.
In the area of photonics and microwave solutions, we compete
with a number of companies including Melles Griot, Newport,
Thermo Oriel (a unit of the Thermo Photonics Division of Thermo
Fisher Scientific), Thorlabs, Miteq and Aeroflex.
Employees
As of June 30, 2007, we employed 1,985 persons,
including 166 in research and development, 1,632 in
manufacturing, 91 in sales and marketing, and 96 in finance and
administration. None of our employees are subject to collective
bargaining agreements. We believe that our relations with our
employees are good.
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 Annual Report on
Form 10-K.
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 expect to
generate losses in the future unless we achieve further cost
reductions and revenue increases.
We have never been profitable. We have incurred losses and
negative cash flow from operations since our inception. As of
June 30, 2007, we had an accumulated deficit of
$1,036.7 million.
Our net loss for the year ended June 30, 2007 was
$82.2 million. Our net loss for the year ended July 1,
2006 was $87.5 million, which included an
$18.8 million loss on conversion of convertible debt and
early extinguishment of debt, and an aggregate of
$11.2 million of restructuring charges, partially offset by
an $11.7 million tax gain. For the year ended July 2,
2005, our net loss was $248 million, which included
goodwill and intangibles impairment charges of
$114.2 million and restructuring charges of
$20.9 million.
Even though we generated positive gross margins in each of the
past ten fiscal quarters, we have a history of negative gross
margins. We may not be able to maintain positive gross margins
due to, among other things, new product transitions, changing
product mix or semiconductor facility under-utilization, or if
we do not continue to reduce our costs, improve our product mix
and generate sufficient revenues from new and existing customers
to offset the revenues we lost as a result of the expiration of
minimum purchase requirements under the supply agreement with
Nortel Networks.
13
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 wave length 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.
By 2002, actual demand for optical communications equipment and
components was dramatically less than that forecasted by leading
market researchers only two years before. Even though the market
for optical components has been recovering, particularly in the
metro market segment, there continues to be excess capacity,
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 and
our customers are each dependent upon a limited number of
customers.
Historically, we have generated most of our revenues from a
limited number of customers. Sales to one customer, Nortel
Networks, accounted for 20%, 48% and 45% of our revenues for the
years ended June 30, 2007, July 1, 2006 and
July 2, 2005, respectively. Revenues from any of our major
customers, including Nortel Networks, may decline or fluctuate
significantly in the future. 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.
Historically, Nortel Networks has been our largest customer.
Through December 2006, sales of our products to Nortel Networks
were made pursuant to the terms of a supply agreement. Certain
minimum purchase obligations and favorable pricing provisions
within that supply agreement expired in December 2006 as a
result of which Nortel Networks is no longer obligated to buy
any of our products. Revenues from Nortel Networks decreased
from $14.5 million in the quarter ended December 30,
2006 to $3.1 million in the quarter ended March 31,
2007. Even though revenues from Nortel Networks increased to
$7.6 million in the quarter ended June 30, 2007, in
order to maintain or increase our overall revenue levels, we
must replace any decreases in revenues from Nortel Networks with
revenues from our other existing customers or obtain new
customers, or both. Nortel Networks may not continue to purchase
products from us and is not obligated to do so. Additionally, we
may be required to increase our sales and marketing efforts to
maintain our current revenue levels, and despite these efforts,
we still may not be able to offset any decreased revenues from
Nortel Networks with sales to new or existing customers. Our
inability to replace these revenues will have an adverse impact
on our business and results of operations.
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. Similarly, our
customers 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.
14
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 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 pay expenses will continue to
have a material effect on our operating results. Additional
exposure could result should the exchange rate between the
U.S. dollar and the Chinese Yuan vary more significantly
than it has to date.
We engage in currency transactions in an effort to cover some of
our exposure to such currency fluctuations, and we may be
required to convert currencies to meet our obligations. Under
certain circumstances, these transactions can 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. We are also
planning to transfer certain iterative research and development
related activities from the U.K. to Shenzhen, China. To be
successful in China we will need to continue to:
|
|
|
|
|
qualify our manufacturing lines and the products we produce in
Shenzhen, as required by our customers;
|
|
|
|
attract qualified personnel to operate our Shenzhen facility;
|
|
|
|
retain employees at our Shenzhen facility.
|
There can be no assurance we will be able to do any of these.
Operations in China are subject to greater political, legal and
economic risks than our operations in other countries. In order
to operate the facility, we must obtain and retain required
legal authorization and train and hire a workforce. 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. Employee turnover in China is high
due to the intensely competitive and fluid market for skilled
labor.
We have 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 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 in China, our business and
results of operation 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
15
one of the factors cited above, or a combination of them, could
result in unanticipated costs, which could materially and
adversely affect 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 may increase as we develop new or enhanced
products for new markets, including data communications,
aerospace, industrial and military markets. Our current and
anticipated future dependence on a small number of customers
increases the revenue impact of each 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.
We may
incur additional significant restructuring charges that will
adversely affect our results of operations.
Over the past six 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
Nortel Networks optical components business 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.
As of June 30, 2007, we had spent an aggregate of
$32.0 million on all of our restructuring programs.
On January 31, 2007, we adopted an overhead cost reduction
plan which includes workforce reductions, facility and site
consolidation of our Caswell, U.K. semiconductor operations
within our existing facilities and the transfer of certain
research and development activities to our Shenzhen, China
facility. We began implementing our overhead cost reduction plan
in the quarter ended March 31, 2007. A substantial portion
of this overhead cost reduction plan was completed by
June 30, 2007, and we expect the remainder to be completed
during the fiscal quarters ended September 29, 2007 and
December 29, 2007. We expect this most recent plan to save
an aggregate of between $6.0 million and $7.0 million
a quarter, in comparison to the fiscal quarter ended
December 30, 2006, with a substantial portion of that
savings expected to be initially realized in the fiscal quarter
ended September 29, 2007. The total cost associated with
this plan, the substantial portion being personnel severance and
retention related expenses, is expected to range from
$8.0 million to $9.0 million. Most of the
restructuring charges were incurred and paid during the quarter
ended June 30, 2007, with the remainder expected to be
incurred and paid during the
16
quarters ending September 29, 2007 and December 29,
2007. As of June 30, 2007, we had spent $5.3 million
on this cost reduction plan.
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. For example, during the year ended
July 1, 2006, we incurred significant costs for inventory
production variances associated with unanticipated shifts in the
mix of our customers product orders. 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 is entitled to
receivables of £73.8 million (approximately
$135.8 million, based on an exchange rate of £1.00 to
$1.8403, the noon buying rate on September 2, 2005 for
cable transfers in foreign currencies as certified by the
Federal Reserve Bank of New York) 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 these transactions, Bookham Technology plc
will have 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 constantly 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 modification 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
17
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.
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 may 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
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 result 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, either 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 number of suppliers who could disrupt our business
if they stopped, decreased or delayed shipments.
We depend on a 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 materials and equipment
at any time. The 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. 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.
18
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 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 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. In this regard, 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 patents 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.
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
19
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 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. 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. Certain of our
competitors may be able more quickly and effectively to:
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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; and
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deliver competitive products at lower prices.
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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 profit 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 year ended June 30, 2007, the year ended
July 1, 2006, and the year ended July 2, 2005, 23%,
21%, and 28% of our revenues, respectively, were derived in the
United States and 77%, 79%, and 72% 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 revenues;
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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.
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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.
20
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 on going 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 the substantially larger and geographically more 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 and
for consequential damages. They 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
could adequately cover our costs arising from 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 our ability
to use 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.
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.
21
Risks
Related to Regulatory Compliance and Litigation
If we
fail to maintain an effective system of internal controls, we
may not be able to accurately report our financial results,
which may cause stockholders to lose confidence in the accuracy
of our financial statements.
Effective internal controls are necessary for us to provide
reliable financial reports and effectively prevent fraud. If we
cannot provide reliable financial reports or prevent fraud, our
brand and operating results could be harmed. In addition,
compliance with the internal control requirements, as well as
other financial reporting standards applicable to a public
company, including the Sarbanes-Oxley Act of 2002, has in the
past and will in the future continue to involve substantial cost
and investment of our managements time. We will continue
to spend significant time and incur significant costs to assess
and report on the effectiveness of internal controls over
financial reporting as required by Section 404 of the
Sarbanes-Oxley Act. In our prior fiscal years ended July 1,
2006 and July 2, 2005, we reported certain material
weaknesses, in fiscal 2006 relating to inconsistent treatment of
translation/transaction gains and loses in respect to certain
intercompany loan balances, and in fiscal 2005 relating to:
i) shortage of, and turnover in, qualified financial
reporting personnel to ensure complete application of
U.S. generally accepted accounting principles,
ii) insufficient management review of analyses and
reconciliations, iii) inaccurate updating of accounting
inputs for estimates of complex non-routine transactions, and
iv) accounting for foreign currency exchange transactions.
Although we have since concluded as to the satisfactory
remediation of these material weaknesses, finding more material
weaknesses in the future could make it more difficult for us to
attract and retain qualified persons to serve on our board of
directors or as executive officers, which could harm our
business. In addition, if we discover future material
weaknesses, disclosure of that fact could reduce the
markets confidence in our financial statements, which
could harm our stock price and our ability to raise capital.
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 our New Focus division, 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, 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, Inc. and several of its officers
and directors, or the Individual
22
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 April 19, 2002,
plaintiffs filed an Amended Class Action Complaint,
described below, naming as defendants the Individual Defendants
and the Underwriter Defendants.
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.
The Amended Class Action Complaint asserts claims under
certain provisions of the securities laws of the United States.
It alleges, 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 Complaint seeks
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
Complaint. The motion was 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.
Plaintiffs and most of the issuer defendants and their insurers
entered into a stipulation of settlement for the claims against
the issuer defendants, including us. 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. We believe that both Bookham Technology plc and New
Focus have meritorious defenses to the claims made in the
Amended Class Action Complaint and therefore believe that
such claims will not have a material effect on our financial
position, results of operations or cash flows.
23
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.
A
variety of factors could cause the trading price of our common
stock to be volatile or decline.
The market price of our common stock has been, and is likely to
continue to be, highly volatile due to factors in addition to
publication of our business results, such as:
|
|
|
|
|
announcements by our competitors and customers of their
historical results or technological innovations or new products;
|
|
|
|
developments with respect to patents or proprietary rights;
|
|
|
|
governmental regulatory action; and
|
|
|
|
general market conditions.
|
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 and 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.
The
future sale of substantial amounts of our common stock could
adversely affect the price of our common stock.
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. In January and March 2006, pursuant to a private
placement, we issued an aggregate of 10,507,158 shares of
common stock and warrants to purchase an aggregate of
1,086,001 shares of common stock. Sales by holders of
substantial amounts of shares of our common stock in the public
or private market could adversely affect the market price of our
common stock by increasing the supply of shares available for
sale compared to the demand in the public and private markets to
buy our common stock. These sales may also make it more
difficult for us to sell equity securities in the future at a
time and price that we deem appropriate to meet our capital
needs.
Some
anti-takeover provisions contained in our charter and under
Delaware laws could hinder a takeover attempt.
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.
Such 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. 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 three-year terms and providing that our stockholders can
take action only at a duly called annual or special meeting of
stockholders.
24
These provisions also may have the effect of deterring hostile
takeovers or delaying changes in control or management of us.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We lease our corporate headquarters in San Jose,
California, which has approximately 52,000 square feet, and
includes manufacturing, research and development and office
space, under a lease agreement that will expire on
March 31, 2011. A portion of this corporate headquarters
facility is used by our Research and Industrial segment. We
lease our wafer fabricating facility in Zurich, Switzerland,
which is approximately 124,000 square feet, under a lease
that will expire in June 30, 2012. We lease a second
facility in Zurich, which houses our Avalon subsidiary, and is
approximately 17,000 square feet, under leases that will
expire in December 2007. We lease a thin film manufacturing
facility in Santa Rosa, California, which has approximately
33,000 square feet, under a lease that expires on
December 31, 2011. We lease a 183,000 square foot
facility in Caswell, U.K., which includes wafer fabricating,
assembly and test capabilities, manufacturing support functions
and research and development capabilities and office space,
under a lease that expires in March 2026, with options to extend
an additional 5 years immediately after 2026 and for
two-year increments indefinitely after 2031. We lease our
previously owned facility in Paignton, U.K., which is
approximately 240,000 square feet, comprising manufacturing
space including clean rooms, assembly and test capabilities and
supporting laboratories, office and storage space. In accordance
with the agreement pursuant to which the Paignton, U.K. site was
sold, we were granted an option to lease back a portion of the
Paignton U.K. site from the buyer for a two-year term at a
market-based rent. We have exercised the option and have the
right to terminate the lease at any time on three months prior
notice. We plan to move our remaining Paignton-based research
and development personnel and operations to a smaller site
located at Westfield Business Park in Paignton, U.K. in regards
to which we have signed a lease commencing on January 1,
2008 for a period of 10 years. This lease will expire on
December 31, 2017. We also own our facility in Shenzhen,
China, which is approximately 247,000 square feet
comprising manufacturing space, including clean rooms, assembly
and test capabilities, packaging, storage and office space. All
of these properties are used by our optics segment. In addition,
we lease approximately 275,000 square feet of facilities in
San Jose and Ventura Country California, of which
130,000 square feet expires in 2007, and
145,000 square feet expires in April 2011, both of which we
currently do not utilize.
|
|
Item 3.
|
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, Inc. 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 April 19, 2002, plaintiffs filed an
Amended Class Action Complaint, described below, naming as
defendants the Individual Defendants and the Underwriter
Defendants.
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.
The Amended Class Action Complaint asserts claims under
certain provisions of the securities laws of the United States.
It alleges, among other things, that the prospectuses for
Bookham Technology plcs and New Focuss
25
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 Complaint seeks
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
Complaint. The motion was 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.
Plaintiffs and most of the issuer defendants and their insurers
entered into a stipulation of settlement for the claims against
the issuer defendants, including us. 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. As a
result of the overturned class certification on June 25,
2007, the District Court signed an Order terminating the
settlement. We believe that both Bookham Technology plc and New
Focus have meritorious defenses to the claims made in the
Amended Class Action Complaint and therefore believe that
such claims will not have a material effect on our financial
position, results of operations or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our security holders in
the fourth quarter of fiscal 2007.
26
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information and Holders
Our common stock is traded on the NASDAQ Global Market under the
symbol BKHM. The following table shows, for the
periods indicated, the high and low per share sale prices of
common stock, as reported by the NASDAQ Global Market.
|
|
|
|
|
|
|
|
|
|
|
Per Share of
|
|
|
|
Common Stock
|
|
|
|
High
|
|
|
Low
|
|
|
Quarter
ended
|
|
|
|
|
|
|
|
|
October 1, 2005
|
|
$
|
5.08
|
|
|
$
|
2.98
|
|
December 31, 2005
|
|
$
|
6.21
|
|
|
$
|
4.37
|
|
April 1, 2006
|
|
$
|
9.75
|
|
|
$
|
5.67
|
|
July 1, 2006
|
|
$
|
10.36
|
|
|
$
|
2.87
|
|
September 30, 2006
|
|
$
|
4.17
|
|
|
$
|
2.29
|
|
December 30, 2006
|
|
$
|
4.33
|
|
|
$
|
2.96
|
|
March 31, 2007
|
|
$
|
4.15
|
|
|
$
|
2.08
|
|
June 30, 2007
|
|
$
|
2.60
|
|
|
$
|
1.96
|
|
September 30, 2007 (through
August 27, 2007)
|
|
$
|
3.05
|
|
|
$
|
2.25
|
|
As of August 27, 2007, there were 10,668 holders of record
of our common stock. This number does not include stockholders
who hold their shares in street name or through
broker or nominee accounts.
Dividends
We have never paid cash dividends on our common stock or
ordinary shares. To the extent we generate earnings, we intend
to retain them for use in our business and, therefore, do not
anticipate paying any cash dividends on our common stock in the
foreseeable future.
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data set forth below should be read in
conjunction with our consolidated financial statements and
related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
appearing elsewhere in this Annual Report on
Form 10-K.
Prior to June 2004, Bookham Technology plc reported on a
December 31 fiscal year end basis. In June 2004, Bookham
Technology plc approved a change in its fiscal year end from
December 31 to the Saturday closest to June 30. Pursuant to
a scheme of arrangement under the laws of the United Kingdom,
Bookham, Inc. assumed the financial reporting history of Bookham
Technology plc effective September 10, 2004. In addition,
in connection with the scheme of arrangement, Bookham changed
its corporate domicile from the United Kingdom to the United
States and changed its reporting currency from the U.K. pound
sterling to the U.S. dollar effective September 10,
2004. Subsequent to the scheme of arrangement, our common stock
is traded only on the NASDAQ Global Market whereas, previously,
our ordinary shares had been traded on the London Stock Exchange
and our ADSs had been traded on the NASDAQ National Market,
which is the former name of the NASDAQ Global Market.
27
The selected financial data set forth below at June 30,
2007 and July 1, 2006, and for the years ended
June 30, 2007, July 1, 2006 and July 2, 2005, are
derived from our consolidated financial statements included
elsewhere in this report. The selected financial data at
July 3, 2004 and December 31, 2003 and
December 31, 2002 and for the twelve months ended
July 3, 2004, and each of the year ended December 31,
2003 and December 31, 2002 are derived from our
transitional report on
Form 10-K,
as amended, for the six months ended July 3, 2004.
Consolidated
Statements of Operations Data
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
July 3,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share data)
|
|
|
Net revenues
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
$
|
200,256
|
|
|
$
|
158,198
|
|
|
$
|
146,197
|
|
|
$
|
51,905
|
|
Operating loss
|
|
$
|
(79,857
|
)
|
|
$
|
(77,364
|
)
|
|
$
|
(243,987
|
)
|
|
$
|
(127,197
|
)
|
|
$
|
(131,095
|
)
|
|
$
|
(171,565
|
)
|
Net loss
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
|
$
|
(247,972
|
)
|
|
$
|
(125,078
|
)
|
|
$
|
(125,747
|
)
|
|
$
|
(164,938
|
)
|
Net loss per share (basic and
diluted)
|
|
$
|
(1.17
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(7.43
|
)
|
|
$
|
(5.17
|
)
|
|
$
|
(6.03
|
)
|
|
$
|
(10.92
|
)
|
Weighted average of shares of
common stock outstanding (basic and diluted)
|
|
|
70,336
|
|
|
|
46,679
|
|
|
|
33,379
|
|
|
|
24,243
|
|
|
|
20,845
|
|
|
|
15,100
|
|
Consolidated
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
July 3,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands)
|
|
|
Total assets
|
|
$
|
204,526
|
|
|
$
|
236,797
|
|
|
$
|
238,578
|
|
|
$
|
468,025
|
|
|
$
|
269,498
|
|
|
$
|
351,616
|
|
Total stockholders equity
|
|
$
|
120,967
|
|
|
$
|
135,141
|
|
|
$
|
91,068
|
|
|
$
|
330,590
|
|
|
$
|
164,395
|
|
|
$
|
248,608
|
|
Long-term obligations
|
|
$
|
1,908
|
|
|
$
|
5,337
|
|
|
$
|
76,925
|
|
|
$
|
64,507
|
|
|
$
|
68,255
|
|
|
$
|
55,832
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with
Risk Factors appearing in Item 1A of this
Annual Report on
10-K,
Selected Financial Data appearing in Item 6 of
this Annual Report on
Form 10-K
and our consolidated financial statements and related notes
appearing elsewhere in this Annual Report on
Form 10-K,
including Note 1 to such financial statements. This
discussion and analysis contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ
materially from those anticipated by the forward-looking
statements due to, among other things, our critical accounting
estimates discussed below and important other factors set forth
in this Annual Report on
Form 10-K.
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. We principally sell our
optical component products to optical systems vendors as well as
to customers in the data communications, military, aerospace,
industrial and manufacturing industries. Customers for our
photonics and microwave product portfolio include semiconductor
equipment manufacturers and academic and governmental research
institutions that engage in advanced research and development
activities. Our products typically have a long sales cycle. The
period of time between our initial contact with a customer to
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.
We operate in two business segments: (i) optics and
(ii) research and industrial. Optics relates to the design,
development, manufacture, marketing and sale of optical
solutions for telecommunications and industrial
28
applications. Research and industrial relates to the design,
manufacture, marketing and sale of photonics and microwave
solutions.
Since the beginning of 2002, we have acquired a total of eight
companies and businesses. In 2002, we acquired the optical
components businesses of Nortel Networks and Marconi. In 2003,
we purchased substantially all of the assets of Cierra Photonics
and acquired all of the outstanding capital stock of Ignis
Optics, Inc. During 2004, we acquired New Focus, Inc., and
Onetta, Inc. In fiscal 2006, we acquired Avalon Photonics AG and
City Leasing (Creekside) Limited, or Creekside.
Over the past six 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 optics
components industry. In connection with our acquisitions of
Nortel Networks optical components business 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 new U.S headquarters in San Jose, California.
In May, September and December 2004, we announced additional
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. We expanded these cost reduction
efforts in November 2005 to include the transfer of our
chip-on-carrier
assembly from Paignton to Shenzhen. The transfer of these
operations was substantially 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, which was substantially completed in the quarter ended
March 31, 2007. As of June 30, 2007, we have spent
$32.0 million on these restructuring programs.
On January 31, 2007, we adopted an overhead cost reduction
plan which includes workforce reductions, facility and site
consolidation of our Caswell, U.K. semiconductor operations
within existing U.K. facilities and the transfer of certain
research and development activities to our Shenzhen, China
facility. We began implementing the overhead cost reduction plan
in the quarter ended March 31, 2007 and we expect a
substantial portion of that savings expected to be initially
realized in the fiscal quarter ending September 29, 2007.
The total cost associated with this overhead cost reduction
plan, which is expected to save an aggregate of $6.0 million to
$7.0 million per quarter in comparison to the quarter ended
December 30, 2006, the substantial portion being personnel
severance and retention related expenses, is expected to be
between $8.0 million to $9.0 million. As of
June 30, 2007, we have spent $5.3 million on this cost
reduction plan. The remainder is expected to be incurred and
paid by the end of the December 29, 2007 fiscal quarter.
A substantial portion of our revenues are, and historically have
been, denominated in U.S. dollars, while the substantial
portion of our costs have been incurred in U.K. pounds sterling.
We anticipate that a substantial portion of our cash will
continue to be incurred in U.K. pounds sterling for the
forseeable future. Declines in the value of the U.S. dollar
in comparison with the U.K. pound sterling have resulted, and we
expect will continue to result, in pressure on our cash flow,
margins and operating results, even though having moved assembly
and testing to our facility in Shenzhen, China may help mitigate
our exposure to these fluctuations, but may expose us, to some
extent, to changes in value of the U.S. dollar in
comparison with the Chinese Yuan. We attempt to mitigate our
currency exposure using foreign exchange contracts as we
consider appropriate. Regardless, any weakness in the
U.S. dollar versus the U.K. pound sterling will make it
more difficult for us to achieve improvements in our margins in
the short term.
Recent
Accounting Pronouncements
Effective July 1, 2007, we adopted Financial Accounting
Standards Interpretation, or FIN, No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109. FIN No. 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, and also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition.
29
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
(SFAS No. 109). Step one, 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 cumulative effect of
adopting FIN No. 48 on July 1, 2007 is recognized
as a change in accounting principle, recorded as an adjustment
to the opening balance of retained earnings on the adoption
date. Currently, we are still evaluating the impact of
FIN 48 on our consolidated financial position and results
of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements or SFAS No. 157.
SFAS No. 157 establishes a common definition for
fair value to be applied to guidance under generally
accepted accounting principles in the U.S., or GAAP, requiring
use of fair value, establishes a framework for measuring fair
value, and expands disclosure about such fair value
measurements. SFAS No. 157 is effective for fiscal
years beginning after November 15, 2007. We are currently
assessing the impact of SFAS No. 157 on our
consolidated financial position and results of operations.
In September 2006, the SEC staff issued Staff Accounting
Bulletin 108 Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements, or SAB 108. SAB 108
requires that public companies utilize a
dual-approach to assess the quantitative effects of
financial misstatements. This dual approach includes both an
income statement focused assessment and a balance sheet focused
assessment. The guidance in SAB 108 must be applied to
annual financial statements for fiscal years ending after
November 15, 2006. The adoption of SAB 108 has not had
a material impact on our consolidated financial position and
results of operations.
Application
of Critical Accounting Policies
The discussion and analysis of our financial condition and
results of operations is based on our consolidated financial
statements contained elsewhere in this Annual Report on
Form 10-K,
which have been prepared in accordance with GAAP. The
preparation of our financial statements requires us to make
estimates and judgments that affect our reported assets and
liabilities, revenues and expenses and other financial
information. Actual results may differ significantly from those
based on our estimates or could be materially different if we
used using different assumptions, estimates or conditions. In
addition, our financial condition and results of operations
could vary due to a change in the application of a particular
accounting standard.
We regard an accounting estimate or assumption underlying our
financial statements as a critical accounting
estimate where:
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the nature of the estimate or assumption is material due to the
level of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters
to change; and
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the impact of such estimates and assumptions on our financial
condition or operating performance is material.
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Our significant accounting policies are described in Note 1
to our consolidated financial statements included elsewhere in
this Annual Report on
Form 10-K.
Not all of these significant accounting policies, however,
require that we make estimates and assumptions that we believe
are critical accounting estimates. We have discussed
our accounting policies with the audit committee of our board of
directors, and we believe that the policies described below
involve critical accounting estimates.
Revenue
Recognition and Sales Returns
Revenue represents the amounts, excluding sales taxes, derived
from the provision of goods and services to third-party
customers during a given period. Our revenue recognition policy
follows Securities and Exchange Commission Staff Accounting
Bulletin, or SAB, No. 104, Revenue Recognition in
Financial Statements. Specifically, we recognize product
revenue when persuasive evidence of an arrangement exists, the
product has been shipped, title has transferred, collectibility
is reasonably assured, fees are fixed or determinable and there
are no uncertainties with respect to customer acceptance. For
certain sales, we are required to determine, in particular,
30
whether the delivery has occurred, whether items will be
returned and whether we will be paid under normal commercial
terms. For certain products sold to customers, we specify
delivery terms in the agreement under which the sale was made
and assess each shipment against those terms, and only recognize
revenue when we are certain that the delivery terms have been
met. For shipments to new customers and evaluation units,
including initial shipments of new products, where the customer
has the right of return through the end of the evaluation
period, we recognize revenue on these shipments at the end of an
evaluation period, if not returned, and when collection is
reasonably assured. We record a provision for estimated sales
returns in the same period as the related revenues are recorded,
which is netted against revenue. These estimates are based on
historical sales returns, other known factors and our return
policy. Before accepting a new customer, we review publicly
available information and credit rating databases to provide
ourselves with reasonable assurance that the new customer will
pay all outstanding amounts in accordance with our standard
terms. For existing customers, we monitor historic payment
patterns to assess whether we can expect payment in accordance
with the terms set forth in the agreement under which the sale
was made.
We recognize royalty revenue when it is earned and
collectibility is reasonably assured.
Inventory
Valuation
In general, our inventory is valued at the lower of cost to
acquire or manufacture our products or market value, less
write-offs of inventory we believe could prove to be unsaleable.
Manufacturing costs include the cost of the components purchased
to produce our products and related labor and overhead. We
review our inventory on a monthly basis to determine if it is
saleable. Products may be unsaleable because they are
technically obsolete due to substitute products, specification
changes or excess inventory relative to customer forecasts. We
currently reserve for inventory using methods that take those
factors into account. In addition, if we find that the cost of
inventory is greater than the current market price, we will
write the inventory down to the selling price, less the cost to
complete and sell the product.
Accounting
for Acquisitions and Goodwill
We account for acquisitions using the purchase accounting method
in accordance with SFAS No. 142, Goodwill and
Other Intangible Assets, or SFAS 142. SFAS 142
requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead be tested for
impairment at least annually or sooner whenever events or
changes in circumstances indicate they may be impaired. Under
this method, the total consideration paid, excluding the
contingent consideration that has not been earned, is allocated
over the fair value of the net assets acquired, including
in-process research and development, with any excess allocated
to goodwill (defined as the excess of the purchase price over
the fair value allocated to the net assets). Our judgments as to
fair value of the assets will, therefore, affect the amount of
goodwill that we record. These judgments include estimating the
useful lives over which periods the fair values will be
amortized to expense. For tangible assets acquired in any
acquisition, such as plant and equipment, we estimate useful
lives by considering comparable lives of similar assets, past
history, the intended use of the assets and their condition. In
estimating the useful life of the acquired intangible assets
with definite lives, we consider the industry environment and
specific factors relating to each product relative to our
business strategy and the likelihood of technological
obsolescence. Acquired intangible assets primarily include core
and current technology, patents, supply agreements, capitalized
licenses and customer contracts. We are currently amortizing our
acquired intangible assets with definite lives over periods
generally ranging from three to six years and, in the case of
one specific customer contract, sixteen years.
Impairment
of Goodwill and Other Intangible Assets
Under SFAS 142, goodwill is tested annually for impairment,
in our case during the fourth quarter of each fiscal year, or
more often if an event or circumstance suggests impairment has
occurred. In addition, we review identifiable intangibles,
excluding goodwill, for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not
be recoverable. Circumstances which could trigger an impairment
test include, but are not limited to, significant decreases in
the market price of the asset, significant adverse changes to
the business climate or legal factors, current period cash flow
or operating losses or a forecast of continuing losses
associated with the use of the asset and a current expectation
that the asset will more likely than not be sold or disposed of
significantly below carrying value before the end of its
estimated useful life.
31
SFAS 142 requires that the first phase of testing goodwill
for impairment be based on a business units fair
value, which is generally determined through market
prices. In certain cases, due to the absence of market prices
for a particular element of our business, and as permitted by
SFAS 142, we have elected to base our testing on discounted
future expected cash flows. Although the discount rates and
other input variables may differ, the model we use in this
process is the same model we use to evaluate the fair value of
acquisition candidates and the fairness of offers to purchase
businesses that we are considering for divestiture. The
forecasted cash flows we use are derived from the annual
long-range planning process that we perform and present to our
board of directors. In this process, each business unit is
required to develop reasonable sales, earnings and cash flow
forecasts for the next three to seven years based on current and
forecasted economic conditions. For purposes of testing for
impairment, the cash flow forecasts are adjusted as needed to
reflect information that becomes available concerning changes in
business levels and general economic trends. The discount rates
used for determining discounted future cash flows are generally
based on our weighted average cost of capital and are then
adjusted for plan risk (the risk that a business
will fail to achieve its forecasted results) and country
risk (the risk that economic or political instability in
the countries in which we operate will cause a business
units projections to be inaccurate). Finally, a growth
factor beyond the three to seven-year period for which cash
flows are planned is selected based on expectations of future
economic conditions. Virtually all of the assumptions used in
our models are susceptible to change due to global and regional
economic conditions as well as competitive factors in the
industry in which we operate. In recent years, many of our cash
flow forecasts have not been achieved due in large part to the
unexpected length and depth of the downturn in our industry.
Unanticipated changes in discount rates from one year to the
next can also have a significant effect on the results of the
calculations. While we believe the estimates and assumptions we
use are reasonable, various economic factors could cause the
results of our goodwill testing to vary significantly.
In the year ended June 30, 2007, our annual impairment
review of goodwill and other intangible assets led to the
recording of no impairment charges. In the year ended
July 1, 2006, our annual impairment review of goodwill and
other intangible assets led to the recording of an impairment
charge of $760,000 due to the impairment of intangible assets of
Ignis Optics. This charge was entirely related to our optics
segment.
In the year ended July 2, 2005, a continued decline in our
share price, and therefore market capitalization, combined with
continuing net losses and a history of not meeting revenue and
profitability targets, suggested that the goodwill related to
certain of our acquisitions was impaired. As a result of these
triggering events, as well as our annual evaluation of goodwill,
and acquired intangible assets we recorded impairment charges
for the year ended July 2, 2005 of approximately
$114.2 million. Approximately $113.6 million of this
amount related to goodwill associated with New Focus, Ignis and
Onetta, and approximately $634,000 related to intangibles of New
Focus, including patents and other technology. Approximately,
$83.3 million of these charges related to the research and
industrial segment, and approximately $30.9 million related
to the optics segment.
Accounting
for Share-Based Payments
SFAS No. 123R, Share-Based Payment, or
SFAS 123R, requires companies to recognize in their
statement of operations all share-based payments to employees,
including grants of employee stock options and restricted stock,
based on their fair values. The application of SFAS 123R
involves significant amounts of judgment in the determination of
inputs into the Black-Scholes-Merton valuation model which we
use to determine the fair value of share-based awards. These
inputs are based upon highly subjective assumptions as to the
volatility of the underlying stock, risk free interest rates and
the expected life of the options. Judgment is also required in
estimating the number of share-based awards that are expected to
be forfeited. As required under the accounting rules, we review
our valuation assumptions at each grant date, and, as a result,
our valuation assumptions used to value employee stock-based
awards granted in future periods may change. If actual results
or future changes in estimates differ significantly from our
current estimates, stock-based compensation expense and our
consolidated results of operations could be materially impacted.
During the years ended June 30, 2007 and July 1, 2006,
we recognized $6.4 million and $8.2 million of
stock-based compensation expense respectively. See also
Note 1, Employee Stock-Based Compensation, of
this
Form 10-K
for further information.
32
Results
of Operations
Revenues
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|
|
|
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Year Ended
|
|
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June 30,
|
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July 1,
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Percentage
|
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July 1,
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|
July 2,
|
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Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
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($ Millions)
|
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|
Net revenues
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$
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202.8
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|
$
|
231.6
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|
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(12
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)%
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|
$
|
231.6
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|
$
|
200.3
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|
|
|
16
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%
|
Year
ended June 30, 2007 versus year ended July 1,
2006
Revenues for the year ended June 30, 2007 decreased by
$28.8 million, or 12%, compared to the year ended
July 1, 2006. Nortel Networks decreased $70.6 million
to $39.9 million, in the year ended June 30, 2007 from
$110.5 million in the year ended July 1, 2006. The
decrease in revenues from Nortel Networks was a result of the
expiration of Nortel Networks purchase obligations under
our Supply Agreement, and addendums thereto, described below.
The decrease was offset by revenues from customers other than
Nortel Networks which increased by $41.8 million in the
year ended June 30, 2007 compared to the year ended
July 1, 2006, primarily due to increased sales volumes, a
reflection we believe of our strategic efforts to diversify our
revenue base to customers other than Nortel Networks. Revenues
from one of these customers, Cisco Systems, increased to
$24.0 million, or 12% of revenues, in the year ended
June 30, 2007, from $15.7 million, or 7% of revenues,
in the year ended July 1, 2006.
Pursuant to the second addendum to our Supply Agreement with
Nortel Networks, entered into in May 2005, Nortel Networks
issued non-cancelable purchase orders, based on revised pricing,
totaling approximately $100 million, for certain products
to be delivered through March 2006, which included
$50 million of products we were discontinuing, which we
refer to as Last-Time Buy products. Our revenues in the year
ended June 30, 2007, included $3.0 million of revenues
from Last-Time Buy products, as compared to $40.6 million
in revenues attributable to Last-Time Buy products in the year
ended July 1, 2006. We expect there to be no further
revenues from Last Time Buy products in future quarters. In
addition, Nortel Networks was obligated to, and did, purchase a
minimum of $72 million of our products pursuant to the
third addendum to the Supply Agreement, which was entered into
in January 2006. These purchase obligations expired at the end
of calendar 2006. As a result of the expiration of these various
purchase obligations under the Supply Agreement with Nortel
Networks, revenues from Nortel Networks decreased significantly
in the quarter ended March 31, 2007, to $3.1 million,
as compared to $14.5 million in the quarter ended
December 30, 2006. In the quarter ended June 30, 2007,
revenues from Nortel Networks were $7.6 million. We expect
Nortel Networks to remain a major customer for the foreseeable
future. We also expect revenues from customers other than Nortel
to increase in at least the first two quarters of fiscal 2008,
as a result of increased sales volumes of both legacy and new
products.
Revenues from our research and industrial segment, comprised
primarily of our New Focus division, which designs,
manufactures, markets and sells photonic and microwave
solutions, increased to $31.6 million in the year ended
June 30, 2007 compared to $25.6 million in the year
ended July 1, 2006, primarily as a result of increased
product sales volumes.
Revenues from our optics segment, which designs, manufactures,
markets and sells optical solutions for telecommunications and
industrial applications, decreased to $171.2 million in the
year ended June 30, 2007 from $206.0 million in the
year ended July 1, 2006, primarily due to the decrease in
revenues from Nortel Networks, partially offset by increases in
revenues from other customers, as described above.
Year
ended July 1, 2006 versus year ended July 2,
2005
Revenues for the year ended July 1, 2006 increased by
$31.3 million, or 16%, compared to the year ended
July 2, 2005. $21.0 million of this increase is
attributable to revenues from Nortel Networks, which increased
to $110.5 million in the year ended July 1, 2006 from
$89.5 million in the year ended July 2, 2005. This
increase in revenues was due to an increase in revenues from
Nortel Networks under the supply agreement with Nortel Networks,
including the terms of the second addendum and third addendum to
the Supply Agreement, described above.
33
Overall the revenues from our optics segment increased by
$29.4 million, or by 17%, to $206.0 million in the
year ended July 1, 2006 from $176.6 million in the
year ended July 2, 2005. The increase in revenues,
excluding revenues from Nortel Networks, was spread across a
large number of customers, none of which exceeded 10% of total
revenues in either year. From a products point of view, the
increases in optics segment revenues in the year ended
July 1, 2006 from the year ended July 2, 2005 was
derived from most major product categories, except for TOA/ROA,
which were generally sold to Nortel Networks as part of the
Last-Time Buy products and revenues for which
decreased by $10.0 million.
Revenues from our research and industrial segment primarily
comprises the products and services of New Focus. Revenues from
the research and industrial segment increased to
$25.6 million in the year ended July 1, 2006 from
$23.7 million in the year ended July 2, 2005 as a
result of increased sales during the period.
Cost
of Revenues
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Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
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|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
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|
($ Millions)
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|
|
Cost of revenues
|
|
$
|
173.5
|
|
|
$
|
190.1
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|
|
|
(9
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)%
|
|
$
|
190.1
|
|
|
$
|
193.6
|
|
|
|
(2
|
)%
|
As a percentage of net revenues
|
|
|
86
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%
|
|
|
82
|
%
|
|
|
|
|
|
|
82
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%
|
|
|
97
|
%
|
|
|
|
|
Our cost of revenues consists of the costs associated with
manufacturing our products, and includes the purchase of raw
materials, labor costs and related overhead, including
stock-based compensation expenses. It also includes the costs
associated with under-utilized production facilities and
resources, as well as the charges for the write-down of impaired
manufacturing assets or restructuring related costs, which are
categorized as Net Charges. Charges for inventory
obsolescence, the cost of product returns and warranty costs are
also included in cost of revenues. Costs and expenses related to
our manufacturing resources, which relate to the development of
new products, are included in research and development.
Year
ended June 30, 2007 versus year ended July 1,
2006
Our cost of revenues for the year ended June 30, 2007
decreased by 9% compared to the year ended July 1, 2006,
primarily due to lower costs corresponding to lower sales
volumes and our restructuring efforts. Our restructuring efforts
produced reductions in our manufacturing overhead costs
primarily as a result of the transition of our assembly and test
facilities, and related activities, which was completed during
the year ended June 30, 2007, from Paignton, U.K. to our
facility in Shenzhen, China, resulting in a lower cost base, as
well as cost reductions in our Caswell U.K. wafer fabrication
facility. We expect cost of revenues to decrease on an annual
basis in fiscal 2008 from these cost reductions and
restructuring efforts being in effect for the full period,
although cost increases may offset, or more than offset, these
savings if our revenues increase during the same fiscal year.
During each of the years ended June 30, 2007 and
July 1, 2006, $1.9 million of stock based compensation
expense was recorded to cost of revenues under SFAS 123R,
which we adopted on July 3, 2005.
Year
ended July 1, 2006 versus year ended July 2,
2005
Our cost of revenues for the year ended July 1, 2006
decreased by 2% compared to the year ended July 2, 2005,
primarily due to the transition of our assembly and test
facilities, and related activities, from Paignton, U.K. to our
facility in Shenzhen, China, which has a lower cost base, the
substantial portion of which was completed by the end of March
2006. The cost reductions associated with the transition of
these activities from Paignton, U.K. to Shenzhen, China were
somewhat offset by the cost of operating both facilities during
significant portions of the transition. This transition was a
part of our 2004 restructuring plans, which are described below
under Restructuring and Severance Charges.
During the year ended July 1, 2006, the reductions in our
cost of revenues were partially offset by $1.9 million of
stock-based compensation expense recorded under SFAS 123R,
which we adopted on July 3, 2005. The year ended
July 2, 2005 included $14,000 of stock based compensation
expense recorded under previous accounting pronouncements.
34
Gross
Margin
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Year Ended
|
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|
|
June 30,
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|
|
July 1,
|
|
|
Percentage
|
|
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July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Gross profit
|
|
$
|
29.3
|
|
|
$
|
41.6
|
|
|
|
(30
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)%
|
|
$
|
41.6
|
|
|
$
|
6.6
|
|
|
|
530
|
%
|
Gross margin rate
|
|
|
14
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
18
|
%
|
|
|
3
|
%
|
|
|
|
|
Gross margin is calculated as revenues less cost of revenues.
Gross margin rate is reflected as a percentage of revenue.
Year
ended June 30, 2007 versus year ended July 1,
2006
Our gross margin rate decreased to 14% for the year ended
June 30, 2007 compared to 18% for the year ended
July 1, 2006. The decrease in gross margin rate was
primarily due to decreased revenues from sales of products to
Nortel Networks as a result of the expiration of Nortel
Networks purchase obligations under the second addendum to
the Supply Agreement, including its obligation to purchase Last
Time Buy products, all of which had favorable pricing terms.
These decreased revenues were only partially offset by lower
costs of operating our assembly and test facility in Shenzhen,
China compared to our previous assembly and test facility in
Paignton, U.K. We expect gross margins to increase in at least
the first two quarters of fiscal 2008 as a result of anticipated
increases in sales volumes of both legacy and new products, and
lower cost of revenues resulting from restructuring activities.
In addition, in the year ended June 30, 2007, we had
negligible revenues from the sale of inventory carried on our
books at zero value, which we obtained in connection with our
2003 purchase of the optical components business of Nortel
Networks, compared to revenues of $9.5 million, and related
profits, on such inventory in the year ended July 1, 2006.
We believe revenues from this zero value inventory will be
negligible in fiscal 2008.
Year
ended July 1, 2006 year ended July 2,
2005
For the year ended July 1, 2006, our gross margins
increased to 18% from 3% in the year ended July 2, 2005
primarily because of the positive impact of higher revenues in
the year ended July 1, 2006, compared to the prior year,
which was spread across our fixed costs, the lower cost base of
our Shenzhen facility compared to our Paignton, U.K. facility,
and favorable pricing terms under the second addendum to our
Supply Agreement with Nortel Networks.
During the year ended July 1, 2006, we had revenues of
$9.5 million related to, and recognized profits on,
inventory that had been carried on our books at zero value
compared to revenues of $19.5 million, and related profits,
on such inventory in the year ended July 2, 2005. The
inventory had originally been acquired in connection with our
purchase of the optical components business of Nortel Networks.
While this inventory is on our books at zero value, and its sale
generates higher margins than most of our new products, we incur
additional costs to complete the manufacturing of these products
prior to sale. The improvements in our gross margins were
partially offset by $1.9 million of stock-based
compensation expenses recorded to cost of revenues under
SFAS 123R, which we adopted on July 2, 2005. Only
$14,000 of stock-based compensation expense was recorded to cost
of revenues in the year ended July 2, 2005 under previous
accounting pronouncements.
Operating
Expenses
Research
and Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Research and development expenses
|
|
$
|
43.0
|
|
|
$
|
42.6
|
|
|
|
1
|
%
|
|
$
|
42.6
|
|
|
$
|
44.8
|
|
|
|
(5
|
)%
|
As a percentage of net revenues
|
|
|
21
|
%
|
|
|
18
|
%
|
|
|
|
|
|
|
18
|
%
|
|
|
22
|
%
|
|
|
|
|
35
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,
and costs related to prototyping.
Year
ended June 30, 2007 versus year ended July 1,
2006
Research and development expenses were $43.0 million in the
year ended June 30, 2007, relatively consistent with
$42.6 million in the year ended July 1, 2006.
Increases related to the costs of new product introduction
efforts, as well as the classification of additional costs as
research and development expenses in connection with a change in
the profile of our Paignton, U.K site from primarily an assembly
and test site to primarily a research and development site, were
offset by the results of our various cost reduction programs. We
expect to realize further cost reductions in the first two
quarters of fiscal 2008 as the remaining cost reductions are
completed and are in effect for full fiscal quarters.
In the year ended June 30, 2007 and the year ended
July 1, 2006, our research and development expenses
included $1.5 million and $1.9 million, respectively,
of stock-based compensation expense recorded under
SFAS 123R.
Year
ended July 1, 2006 versus year ended July 2,
2005
Research and development expenses decreased in the year ended
July 1, 2006 compared to the year ended July 2, 2005
primarily due to a full year of costs savings as a result of the
cost savings efforts implemented in fiscal 2005 under our 2004
restructuring plan.
In the year ended July 1, 2006, the decrease in research
and development expenses was partially offset by
$1.9 million of stock-based compensation expense recorded
under SFAS 123R, which we adopted on July 2, 2005. In
the year ended July 2, 2005, we recorded $8,000 of
stock-based compensation expense as a research and development
expense under previous accounting pronouncements.
Selling,
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Selling, general and
administrative expenses
|
|
$
|
47.8
|
|
|
$
|
52.2
|
|
|
|
(8
|
)%
|
|
$
|
52.2
|
|
|
$
|
60.3
|
|
|
|
(13
|
)%
|
As a percentage of net revenues
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
|
|
|
|
23
|
%
|
|
|
30
|
%
|
|
|
|
|
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.
Year
ended June 30, 2007 versus year ended July 1,
2006
Our selling, general and administrative expenses decreased to
$47.8 million in the year ended June 30, 2007 compared
to $52.2 million in the year ended July 1, 2006,
primarily due to a reduction of $1.5 million in our
stock-based compensation expense, and decreases in insurance,
office and equipment costs.
In the year ended June 30, 2007 and the year ended
July 1, 2006, our selling, general and administrative
expenses included $2.9 million and $4.4 million
respectively, of stock-based compensation expense recorded under
SFAS 123R.
Year
ended July 1, 2006 versus year ended July 2,
2005
Our selling, general and administrative expenses decreased to
$52.2 million in the year ended July 1, 2006 compared
to $60.3 million in the year ended July 2, 2005,
primarily due to cost reductions implemented in fiscal 2005,
which were in effect for the full year ended July 1, 2006,
reductions in costs associated with our compliance with the
Sarbanes-Oxley Act of 2002, an absence of costs incurred during
the year ended July 2, 2005 in connection
36
with our moving administrative activities to a newly established
corporate headquarters in San Jose, California, and
reductions in certain insurance premiums.
In the year ended July 1, 2006, decreases in our selling,
general and administrative expenses were partially offset by
$4.4 million of stock-based compensation expense recorded
under SFAS 123R, which we adopted on July 2, 2005. In
the year ended July 2, 2005, we recorded $742,000 of
stock-based compensation expense as a selling, general and
administrative expense under previous accounting pronouncements.
Amortization
of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Amortization of intangible assets
|
|
$
|
8.9
|
|
|
$
|
10.0
|
|
|
|
(11
|
)%
|
|
$
|
10.0
|
|
|
$
|
11.1
|
|
|
|
(10
|
)%
|
As a percentage of net revenues
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
|
|
Since 2001, we have acquired six optical components companies
and businesses, and one photonics and microwave company, and
amortization tends to increase in connection with the addition
of intangible assets purchased in connection with these
acquisitions. In the year ended June 30, 2007, amortization
of purchased intangible assets decreased from the year ended
July 1, 2006 because purchased intangible assets associated
with our earliest acquisitions became fully amortized during, or
prior to the start of, the fiscal year, and because the full
year of amortization related to our March 2006 acquisition of
Avalon was not significant enough to offset these reductions. We
expect the amortization of intangible assets to decrease in
fiscal 2008 as the purchased intangible assets associated with
additional prior acquisitions will become fully amortized during
the fiscal year.
In the year ended July 1, 2006, amortization of purchased
intangible assets decreased compared to the year ended
July 2, 2005 because purchased intangible assets associated
with our earliest acquisitions became fully amortized during the
fiscal year and because the additional amortization related to
our March 2006 acquisition of Avalon was not significant enough
to offset these reductions.
Restructuring
and Severance Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Lease cancellation and commitments
|
|
$
|
0.9
|
|
|
$
|
1.9
|
|
|
|
(53
|
)%
|
|
$
|
1.9
|
|
|
$
|
4.8
|
|
|
|
(60
|
)%
|
Termination payments to employees
and related costs
|
|
|
9.4
|
|
|
|
9.3
|
|
|
|
1
|
%
|
|
$
|
9.3
|
|
|
|
15.7
|
|
|
|
(41
|
)%
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10.3
|
|
|
$
|
11.2
|
|
|
|
(8
|
)%
|
|
$
|
11.2
|
|
|
$
|
20.9
|
|
|
|
(46
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net revenues
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
5
|
%
|
|
|
10
|
%
|
|
|
|
|
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 substantially 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 transition was substantially completed in the
quarter ended March 31, 2007. As of June 30, 2007, we
had spent $32.0 million on these restructuring programs.
37
On January 31, 2007, we adopted an overhead cost reduction
plan which includes workforce reductions, facility and site
consolidation of our Caswell, U.K. semiconductor operations
within existing U.K. facilities and the transfer of certain
research and development activities to our Shenzhen, China
facility. We began implementing the overhead cost reduction plan
in the quarter ended March 31, 2007. The overhead cost
reduction plan is expected to save an aggregate of
$6.0 million to $7.0 million per quarter, in
comparison to the fiscal quarter ended December 30, 2006,
with a substantial portion of that savings expected to be
initially realized in the fiscal quarter ending
September 29, 2007. The total cost associated with this
overhead cost reduction plan, the substantial portion being
personnel severance and retention related expenses, is expected
to range from $8.0 million to $9.0 million. As of
June 30, 2007, we have spent $5.3 million on this cost
reduction plan. The remainder is expected to be incurred and
paid by the end of the December 29, 2007 fiscal quarter.
In connection with earlier plans of restructuring, the overhead
cost reduction plan and the assumption of restructuring accruals
upon the acquisition of New Focus in March 2004, in the year
ended June 30, 2007, we continued to make scheduled
payments drawing down the related lease cancellations and
commitments. We accrued $0.9 million, $1.6 million and
$4.5 million in the fiscal years ended June 30, 2007,
July 1, 2006 and July 2, 2005, respectively, in
expenses for revised estimates related to these commitments.
Year
ended June 30, 2007
The restructuring and severance charges of $10.3 million in
the year ended June 30, 2007, were primarily associated
with those employees in our assembly and test, and related,
operations in Paignton identified for termination and retained
until the completion of the transfer of the related operations
from Paignton, U.K. to Shenzhen, China, as well as severance and
retention for employees at various sites identified for
termination in connection with our January 2007 overhead cost
reduction plan. Costs of severance and retention were accrued
over the employees remaining service periods.
Restructuring and severance charges in fiscal 2007 also included
$0.9 million of additional accruals related to revised
assumptions as to subleases and final costs associated with
lease facilities exited. Of these additional lease accruals,
$0.9 million were incurred in our research and industrial
segment and all other restructuring charges in fiscal 2007 were
incurred in our optics sector. We anticipate recording
additional restructuring charges associated with these plans in
a range of $1.0 million to $2.0 million over the first
two quarters of fiscal 2008. Restructuring and severance charges
for the year ended June 30, 2007 include $0.3 million
related to non-cash charge for acceleration of restricted stock
and $0.8 million related to payments made in connection
with a separation agreement we executed in May 2007 with our
former chief executive officer.
Year
ended July 1, 2006
The restructuring and severance charges of $11.2 million in
the year ended July 1, 2006 were primarily associated with
severance and retention for those employees in our assembly and
test operations in Paignton identified for termination and
retained until the completion of the transfer of the operations
from Paignton, U.K. to Shenzhen, China. Costs of severance and
retention were accrued over the employees remaining
service periods. Restructuring and severance charges in fiscal
2006 also included $1.9 million of additional accruals
related to revised assumptions as to subleases and final costs
associated with lease facilities exited. Of these additional
accruals, $1.5 million were incurred in our research and
industrial segment and all other restructuring charges in fiscal
2006 were incurred in our optics sector.
Year
ended July 2, 2005
The restructuring and severance charges in the year ended
July 2, 2005 were primarily associated with manufacturing,
research and development, and selling, general and
administrative employees identified for termination under the
restructuring plans referred to above, including the
consolidation of operations, the transfer of our main corporate
functions to the U.S. and the initial stages of the
Paignton to Shenzhen transition. Costs of the employees
severance and retention were accrued over their remaining
service periods. Restructuring and severance charges in fiscal
2005 also include $2.6 million for costs associated with
lease facilities exited, and $2.2 million of additional
accruals related to revised assumptions as to subleases and
final costs associated with lease facilities exited.
38
Impairment
of Goodwill and Other Intangible Assets
SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually, or sooner whenever
events or changes in circumstances indicate that they may be
impaired. We recorded no impairment charges related to goodwill
and other intangible assets in the year ended June 30,
2007. In the fourth quarter of the year ended July 1, 2006,
in connection with our annual review for impairment, we recorded
$760,000 of impairment charges related to purchased intangible
assets associated with our acquisition of Ignis Optics. In the
third quarter of the year ended July 2, 2005, the decline
in our stock price, and therefore market capitalization,
combined with continuing net losses and a history of not meeting
revenue and profitability targets, suggested that the goodwill
related to certain of our acquisitions may have been impaired at
such time. As a result of these triggering events, we performed
a preliminary evaluation of the related goodwill balances. In
the fourth quarter of fiscal 2005, we finalized this evaluation
during our annual evaluation of goodwill, and also performed our
annual evaluation of acquired intangible assets. As a result,
for the year ended July 2, 2005, we recorded impairment
charges of $114.2 million, primarily related to the
impairment of goodwill related to the acquisitions of New Focus,
Ignis Optics and Onetta, as well as $0.6 million related to
the impairment of certain intangible assets related to the
acquisition of New Focus. We recorded no charges for the
impairment of goodwill or intangible assets during any of the
other periods presented herein.
Impairment/(Recovery)
of Other Long-Lived Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Impairment/(recovery) of other
long-lived assets
|
|
$
|
1.6
|
|
|
$
|
(0.8
|
)
|
|
|
(300
|
)%
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
|
N/A
|
|
As a percentage of net revenues
|
|
|
1
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
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), net of selling costs. In connection with this
designation we recorded an impairment charge of
$1.9 million. During the year ended June 30, 2007 we
also recovered $0.3 million from an escrow account related
to a 2004 acquisition and recorded this amount as a recovery of
previously impaired goodwill of Onetta.
During the year ended July 1, 2006, we sold a parcel of
land in Swindon, U.K., which had previously been accounted for
as held for sale, and for which the recorded book value had
previously been written down as impaired. The proceeds from the
sale of this parcel of land were $15.5 million, resulting
in a recovery of previous impairment of $1.3 million, net
of transaction costs. In the fourth quarter of fiscal 2006, in
connection with a review of our long-lived assets for
impairment, we recorded $433,000 of impairment charges, which
offset the recovery related to this land sale.
Gain
on Sale of Property and Equipment and Other Long-lived
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Gain on sale of property and
equipment and other long-lived assets
|
|
$
|
(3.0
|
)
|
|
$
|
(2.1
|
)
|
|
|
43
|
%
|
|
$
|
(2.1
|
)
|
|
$
|
(0.7
|
)
|
|
|
200
|
%
|
As a percentage of net revenues
|
|
|
(1
|
)%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
(1
|
)%
|
|
|
0
|
%
|
|
|
|
|
Gain on sale of property and equipment and other long lived
assets increased in the year ended June 30, 2007 compared
to the year ended July 1, 2006 primarily due to the sale of
fixed assets produced a surplus as a result of our January 2007
overhead cost reduction plan and the completion of the transfer
of assembly and test operations from Paignton, U.K to Shenzhen,
China. Gain on sale of property and equipment and other
long-lived assets increased in
39
the year ended July 1, 2006 compared to the year ended
July 2, 2005 primarily due to the sale of fixed assets made
surplus in connection with the transfer of assembly and test
operations from Paignton, U.K to Shenzhen, China.
Legal
Settlement
On April 3, 2006, we entered into a settlement agreement
with Mr. Howard Yue relating to the lawsuit Mr. Yue
filed against New Focus, Inc., one of our subsidiaries, and
several of its officers and directors in Santa Clara County
Superior Court. This lawsuit was filed by Mr. Yue prior to
our acquisition of New Focus. The terms of the settlement
provided that we would issue to Mr. Yue a $7.5 million
promissory note, payable on or before April 10, 2006, of
which $5.0 million could be satisfied at our option through
the issuance of shares of common stock. In connection with this
settlement, we recorded $7.2 million ($7.5 million,
net of insurance recoveries expected as of that time) as a
charge within operating expense. In the fourth quarter of fiscal
2006, we settled the promissory note for $2.5 million in
cash and $5.0 million of common stock valued on the date of
the payment. We also received $2.2 million from certain
insurance carriers in connection with this settlement, which
reduced our net expense for this settlement to
$5.0 million. In first quarter of the year ended
June 30, 2007 we recorded $490,000 in additional legal
costs related to this settlement. If and when additional
insurers confirm their definitive coverage position, we may
record the amounts of this coverage as recoveries against
operating expenses in the corresponding future periods.
Other
Income/(Expense), Net
Loss
on Conversion and Early Extinguishment of Debt
On January 13, 2006, we entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of these convertible debentures we
issued approximately 10.5 million shares of common stock
and warrants to purchase approximately 1.1 million shares
of common stock, paid approximately $22.2 million in cash,
and recorded a charge of $18.8 million in the fiscal year
ended July 1, 2006 for loss on conversion and early
extinguishment of debt. See Note 16 Debt to our
consolidated financial statements appearing elsewhere herein for
additional disclosures regarding the conversion of the
convertible debentures and early extinguishment of debt.
Interest
Income, Interest Expense, Other Income/(Expense) net,
Gain/(Loss) on Foreign Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
Percentage
|
|
|
July 1,
|
|
|
July 2,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
($ Millions)
|
|
|
Other income/(expense), net
|
|
$
|
|
|
|
$
|
0.3
|
|
|
|
(100
|
)%
|
|
$
|
0.3
|
|
|
$
|
1.4
|
|
|
|
(79
|
)%
|
Interest income
|
|
|
1.2
|
|
|
|
1.1
|
|
|
|
9
|
%
|
|
|
1.1
|
|
|
|
1.1
|
|
|
|
0
|
%
|
Interest expense
|
|
|
(0.6
|
)
|
|
|
(5.1
|
)
|
|
|
(88
|
)%
|
|
|
(5.1
|
)
|
|
|
(5.4
|
)
|
|
|
(6
|
)%
|
Gain/(loss) on foreign exchange
|
|
|
(2.9
|
)
|
|
|
0.7
|
|
|
|
(514
|
)%
|
|
|
0.7
|
|
|
|
(1.0
|
)
|
|
|
(170
|
)%
|
Other income/(expense), net in the year ended July 2, 2005
included a one-time gain of $1.1 million arising from an
acquisition provision related to the closure of the Bookham
(Switzerland) AG pension arrangement.
Interest income was relatively consistent the years ended
June 30, 2007, July 1, 2006 and July 2, 2005.
Interest expense in the years ended July 1, 2006 and
July 2, 2005 included interest on notes payable to Nortel
Networks and the amortization of interest costs related to the
issuance of $25.5 million of convertible notes in December
2004. Interest expense decreased in fiscal 2007 from fiscal 2006
by $4.5 million, and in fiscal 2006 from fiscal 2005 by
$0.3 million due to the conversion and extinguishment of
the convertible notes and payment of the promissory notes issued
to Nortel Networks pursuant to a series of agreements entered
into in January 2006.
Gain/(loss) on foreign exchange includes the net impact from the
re-measurement of intercompany balances and monetary accounts
not denominated in functional currencies, other than the U.S.
dollar, and realized and
40
unrealized gains or losses on foreign currency contracts not
designated as hedges. The net results are largely a function of
exchange rate changes between the U.S dollar and the U.K. pound
sterling and to a lesser degree a function of exchange rate
changes between the U.S. dollar and the Swiss franc and the
Chinese Yuan.
Income
Tax Provision /(Benefit)
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Year Ended
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June 30,
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July 1,
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Percentage
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July 1,
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July 2,
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Percentage
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2007
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2006
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Change
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2006
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2005
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Change
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($ Millions)
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Income tax provision/(benefit)
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$
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0.1
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$
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(11.7
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(101
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)%
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$
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(11.7
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)
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$
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N/A
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We recognize income taxes under the liability method. Deferred
income taxes are recognized for differences between the
financial reporting and tax bases of assets and liabilities at
enacted statutory tax rates in effect for the years in which the
differences are expected to reverse. The effect on deferred
taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
We have incurred substantial losses to date and expect to incur
additional losses in the future. Based upon the weight of
available evidence, which includes our historical operating
performance and the recorded cumulative net losses in all prior
periods, we provided a full valuation allowance against our net
deferred tax assets of $391.8 million at June 30, 2007
and $320.0 million at July 1, 2006.
During fiscal 2006, in connection with our acquisition of
Creekside in August 2005, we recorded a one time tax gain of
$11.8 million related to our anticipated use of tax
attributes to offset deferred tax liabilities assumed.
Liquidity,
Capital Resources and Contractual Obligations
Liquidity
and Capital Resources
Operating
activities
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Year Ended
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June 30,
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July 1,
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July 2,
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2007
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2006
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2005
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($ Millions)
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Net loss
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$
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(82.2
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$
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(87.5
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$
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(248.0
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)
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Non-cash accounting items:
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Depreciation and amortization
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23.2
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30.2
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32.2
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Stock-based compensation,
including non-cash restructuring and severance charges and
expenses related to warrants
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6.7
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10.3
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1.4
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Impairment/(recovery) of goodwill,
intangible assets and other long- lived assets
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1.6
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(0.1
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)
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114.2
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Gain on sale of property and
equipment
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(3.0
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)
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(2.1
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)
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(0.7
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)
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One time tax gain
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(11.8
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)
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Legal settlement
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5.0
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Acquired in-process research and
development
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0.1
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Unrealized gain on foreign
currency contracts and foreign currency re-measurement of notes
payable
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2.3
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Loss on conversion and early
extinguishment of debt
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18.8
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Amortization of deferred gain on
sale leaseback
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(1.4
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)
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(0.3
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)
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Total non-cash accounting items
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27.1
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50.1
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149.4
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Increase in working capital
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(15.7
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)
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(18.8
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(0.2
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)
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Net cash used in operating
activities
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$
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(70.8
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)
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$
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(56.2
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)
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$
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(98.8
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41
Year
ended June 30, 2007
Net cash used in operating activities for the year ended
June 30, 2007 was $70.8 million, primarily resulting
from the net loss of $82.2 million, offset by non-cash
accounting charges of $27.1 million, primarily consisting
of $6.7 million of expense related to stock based
compensation and $23.2 million of expense related to
depreciation and amortization of certain assets. Increases in
working capital of $15.7 million also contributed to the
use of cash, primarily due to decreases in accounts payables and
accrued expenses and other liabilities, partially offset by
decreases in accounts receivable, inventories, prepaid expenses
and other assets.
Year
ended July 1, 2006
Net cash used in operating activities for the year ended
July 1, 2006 was $56.2 million, primarily resulting
from the net loss of $87.5 million, offset by non-cash
accounting charges of $50.1 million, primarily consisting
of an $18.8 million loss on conversion and early retirement
of debt, $10.3 million of expense related to stock based
compensation including non-cash restructuring and severance and
expenses related to warrants, $5.0 million of common stock
issued to settle a legal claim brought by Howard Yue, and
$30.2 million related to depreciation and amortization of
certain assets, net of an $11.8 million tax gain. Increases
in working capital of $18.8 million also contributed to the
use of cash, primarily due to decreases in accounts payables and
accrued expenses and other liabilities and an increase in
accounts receivable offset by a decrease in prepaid expenses and
other assets.
Year
ended July 2, 2005
Net cash used in operating activities for the year ended
July 2, 2005 was $98.8 million, primarily resulting
from the net loss of $248.0 million, offset by non-cash
accounting charges of $149.4 million, which included
$114.2 million for the impairment of goodwill and certain
intangibles recorded in connection with past acquisitions,
primarily New Focus, and $32.2 million related to the
depreciation and amortization of certain assets. The increase in
working capital also resulted in a reduction in cash in the
amount of $0.2 million primarily related to higher levels
of inventory.
Investing
Activities
We generated net cash of $7.9 million from investing
activities in the year ended June 30, 2007, primarily from
$9.4 million in proceeds, net of costs, from the sale of
our Paignton, U.K. site (as described further below), and
$5.4 million in proceeds from the sale of property and
equipment. These sources of cash were partially offset by
$6.4 million in capital expenditures. A substantial portion
of the capital spending during this period was incurred in
connection with introduction of our Shenzhen assembly and test,
and related operations.
During the quarter ended September 30, 2006, we designated
the assets underlying our Paignton, U.K. manufacturing site as
held for sale. We recorded an impairment charge of
$1.9 million as a result of this designation. During the
quarter ended December 30, 2006, Bookham Technology plc,
our wholly-owned subsidiary, 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), net of selling costs. In connection with this
transaction, we recorded a loss of $0.1 million which is
included in loss on sale of property and equipment and other
long-lived assets. In accordance with the agreement pursuant to
which the manufacturing site was sold, we were granted an option
to lease back a portion of the Paignton, U.K. site from the
buyer for a two-year term at a market-based rent. We have
exercised the option and have the right to terminate the lease
at any time with three months notice. We plan to move our
remaining Paignton research and development personnel and
operations to a smaller site in January 2008.
We generated net cash of $42.7 million from investing
activities in the year ended July 1, 2006, primarily from
$14.7 million in proceeds, net of costs, from the sale of a
parcel of land in Swindon, U.K. (as described further below),
$9.6 million of cash assumed in connection with the two
acquisitions completed during the year, $23.4 million from
the sale of land and building in Caswell pursuant to a
sale-leaseback transaction, and $2.4 million in proceeds
from the sale of property and equipment. These sources of cash
were partially offset by $10.1 million in capital
expenditures. A substantial portion of the capital spending
during this period was incurred in connection with the
introduction of our Shenzhen assembly and test operations.
42
In the year ended July 2, 2005, we used $2.3 million
of cash in investing activities, primarily relating to
$16.0 million of capital expenditures, along with a
$1.7 million transfer of funds to restricted cash,
partially offset by proceeds of $7.0 million from the sale
of marketable securities, proceeds of $5.7 million from the
disposal of JCA, net of costs, proceeds of $1.4 million
from the sale of property and equipment, and proceeds of
$1.2 million received from the settlement of a loan note
issued by a former New Focus executive officer. A substantial
portion of the capital spending during this period was incurred
in connection with the introduction of our Shenzhen assembly and
test operations.
Caswell
Sale-Leaseback
On March 10, 2006, Bookham Technology plc, our wholly-owned
subsidiary, entered into multiple agreements with a subsidiary
of Scarborough Development, which we refer to as Scarborough,
for the sale and leaseback of the land and buildings located at
our Caswell, United Kingdom, manufacturing site. The sale
transaction, which closed on March 30, 2006, resulted in
proceeds to Bookham Technology plc of £13.75 million
(approximately U.S. $24.0 million using an exchange
rate of £1.00 to $1.7455). Under these agreements, Bookham
Technology plc leases back the Caswell site for an initial term
of 20 years, with options to renew the lease term for
5 years following the initial term and for rolling
2 year terms thereafter. Annual rent is
£1.1 million during the first 5 years of the
lease, approximately £1.2 million during the next
5 years of the lease, approximately £1.4 million
during the next 5 years of the lease and approximately
£1.6 million during the next 5 years of the
lease. Rent during the renewal terms will be determined
according to the then market rent for the site. We have
guaranteed the obligations of Bookham Technology plc under these
agreements. In addition, Scarborough, Bookham Technology plc and
Bookham, Inc. entered into a pre-emption agreement under which
Bookham Technology plc, within the next 20 years, has a
right to purchase the Caswell site in whole or in part on terms
acceptable to Scarborough if Scarborough agrees to terms with or
receives an offer from a third party to purchase the Caswell
facility.
Acquisition
of Creekside
On August 10, 2005, Bookham Technology plc, our wholly
owned subsidiary, entered into a share purchase agreement
pursuant to which Bookham Technology plc purchased all of the
issued share capital of City Leasing (Creekside) Limited, a
subsidiary of Deutsche Bank, for consideration of £1.00,
plus professional fees of approximately £455,000
(approximately $837,000, based on an exchange rate of £1 to
$1.8403). The parties to the share purchase agreement are
Bookham Technology plc, Deutsche Bank and London Industrial
Leasing Limited, a subsidiary of Deutsche Bank, which we refer
to as London Industrial. Creekside was utilized by Deutsche Bank
in connection with the leasing of four aircraft to a third
party. The leasing arrangement is structured as follows: Phoebus
Leasing Limited, a subsidiary of Deutsche Bank, which we refer
to as Phoebus, leases the four aircraft to Creekside under the
primary leases and Creekside in turn sub-leases the aircraft to
a third party. Under the sub-lease arrangement, the third party
lessee who utilizes the aircraft, whom we refer to as the
Sub-Lessee, makes sublease payments to Creekside, who in turn
must make lease payments to Phoebus under the primary leases. To
insulate Creekside from any risk that the Sub-Lessee will fail
to make payments under the sub-lease arrangement, prior to the
execution of the share purchase agreement, Creekside assigned
its interest in the Sub-Lessee payments to Deutsche Bank in
return for predetermined deferred consideration amounts, which
we refer to as Deferred Consideration, which are paid directly
from Deutsche Bank. Additionally, on closing the transaction,
Deutsche Bank loaned Creekside funds to (i) pay
substantially all of the rentals under the primary lease with
Phoebus, excluding an amount equal to £400,000
(approximately $736,000), and (ii) repay an existing loan
made by another wholly owned subsidiary of Deutsche Bank to
Creekside. The obligation of Creekside to repay the Deutsche
Bank loans may be fully offset against the obligation of
Deutsche Bank to pay the Deferred Consideration to Creekside.
As a result of these transactions, Bookham Technology plc will
have available through Creekside cash of approximately
£6.63 million (approximately $12.2 million, based
on an exchange rate of £1.00 to $1.8403). Under the terms
of the agreement, Bookham Technology plc received
£4.2 million (approximately $7.5 million) of
available cash when the transaction closed on August 10,
2005. An additional £1 million (approximately
$1.8 million) has since been received on October 14,
2005, £1 million (approximately $1.8 million) was
received on July 14, 2006 and the balance of approximately
£431,000 (approximately $793,000) was received on
July 16, 2007.
43
At the closing of this transaction, Creekside had receivables
(including services and interest charges) of
£73.8 million (approximately $135.8 million) due
from Deutsche Bank in connection with certain aircraft subleases
of Creekside and cash of £4.7 million (approximately
$8.6 million), of which £4.2 million was
immediately available. The receivables resulted from the
assignment by Creekside to Deutsche Bank prior to Closing of the
benefit of receivables under four lease agreements pursuant to
which Creekside subleases certain aircraft that are subject to
head lease agreements with Phoebus Leasing Limited, a subsidiary
of Deutsche Bank and Creekside as head lessee. The assignment
was made in exchange for the receivables, which are to be paid
by Deutsche Bank to Creekside in three installments, and the
last payment was made on July 16, 2007. We have recorded
these receivables and payables as net assets on our balance
sheet as of June 30, 2007, which is included elsewhere in
this Annual Report on
Form 10-K.
Creekside and Deutsche Bank entered into two facility agreements
relating to a loan in the principal amount of
£18.3 million (approximately $33.7 million) and a
loan in the principal amount of £42.5 million
including interest (approximately $78.2 million), which
together will accrue approximately £3.6 million
(approximately $6.6 million) in interest during the term of
these loans. At the closing, Creekside used the loans to repay
amounts outstanding under a loan dated April 12, 2005
between Creekside, as borrower, and City Leasing (Donside)
Limited, a subsidiary of Deutsche Bank, as lender, and to pay
part of Creeksides rental obligations under the lease
agreements.
At August 10, 2005, Creekside had long-term liabilities to
Deutsche Bank under the loans, an agreement to pay Deutsche Bank
£8.3 million (approximately $15.3 million),
including principal and interest, to cover settlement of current
Creekside tax liabilities and £0.4 million
(approximately $0.7 million) of outstanding payments due to
Deutsche Bank under the lease agreements; we refer to these
collectively as the Obligations.
Creekside will use the Deferred Consideration to pay off the
Obligations over a period of two years, or the Term, such that
the Obligations will be offset in full by the receivables and
result in Bookham Technology plc having excess cash of
approximately £6.63 million (approximately
$12.2 million) available to it during the Term. Bookham
Technology plc expects to surrender certain of its tax losses
against any U.K. taxable income that may arise as a result of
the Deferred Consideration, to reduce any U.K. taxes that would
otherwise be due from Creekside.
The loans issued by Deutsche Bank may be prepaid in whole at any
time with 30 days prior written notice to Deutsche
Bank. The loan for £18.3 million plus interest was
repaid by Creekside on October 14, 2005, and the loan for
£42.5 million is repayable by Creekside in
installments: the first installment of £23.5 million
(approximately $43.2 million) was paid on July 14,
2006; and the second installment of £22.5 million
(approximately $41.4 million) was paid on July 16,
2007. Events of default under the loan include failure by
Creekside to pay amounts under the loans when due, material
breach by Creekside of the terms of the lease agreements and
related documentation, a judgment or order made against
Creekside that is not stayed or complied with within seven days
or an attachment by creditors that is not discharged within
seven days, insolvency of Creekside or failure by Creekside to
make payments with respect to all or any class of its debts,
presentation of a petition for the winding up of Creekside, and
appointment of any administrative or other receiver with respect
to Creekside or any material part of Creeksides assets.
While Deutsche Bank may accelerate repayment under the facility
agreements upon an event of default, the loan will be fully
offset against the receivables, as described above.
Pursuant to the terms of the agreements governing this
transaction, we believe that we have not assumed any material
credit risk in connection with these arrangements. The material
cash flow obligations associated with Creekside are directly
related to Deutsche Banks obligations to pay Creekside the
Deferred Consideration, and Creeksides obligation to repay
the loans to Deutsche Bank. The obligations of Creekside to
repay the Deutsche Bank loan can be fully offset against
Deutsche Banks obligation to pay the Deferred
Consideration. Any Sub-Lessee default has no impact on Deutsche
Banks obligation to pay Creekside the Deferred
Consideration. Regarding the primary leases between Phoebus and
Creekside, all amounts have now been paid. For these reasons, we
believe we do not bear a material risk and have no substantial
continuing payments or obligations.
Under the share purchase agreement and related documents, London
Industrial and Deutsche Bank have indemnified us, Bookham
Technology plc and Creekside with respect to contractual
obligations and liabilities entered into by Creekside prior to
the closing of the transaction and certain tax liabilities of
Creekside that may arise in taxable periods both prior to and
after the closing.
44
Pursuant to an administration agreement between Creekside, City
Leasing Limited, a subsidiary of Deutsche Bank, and Deutsche
Bank, Creekside is to be administered during the Term by City
Leasing Limited to ensure Creekside complies with its
obligations under the lease agreements.
In accordance with the terms of the primary leases and the
sub-leases, Phoebus is ultimately entitled to the four aircraft
in the event of default by the Sub-Lessee. An event of default
will not impact the payment obligations described above.
Sale of
Real Property
In September 2005, our Bookham Technology plc subsidiary entered
into a contract with Abbeymeads LLP to sell a parcel of land in
Swindon, U.K., which had previously been accounted for as held
for sale, and for which the recorded book value had previously
been written down as impaired. Net proceeds from the sale were
$14.7 million, and we recorded a recovery of previous
impairment of $1.3 million in the first quarter of fiscal
2006.
Financing
Activities
In the year ended June 30, 2007, we generated
$59.1 million of cash from financing activities, primarily
consisting of $55.4 million of net proceeds from private
placements of our common stock and warrants to purchase our
common stock on March 22, 2007 and on September 1,
2006, as described below, and $3.8 million drawn on our
$25 million senior secured credit facility with Wells Fargo
Foothill, Inc., also described below.
On March 22, 2007, we entered into a definitive agreement
for a private placement pursuant to which we issued, on
March 22, 2007, 13,640,224 shares of common stock and
warrants to purchase up to 4,092,066 shares of common stock
with certain institutional accredited investors for net proceeds
of approximately $26.9 million. The warrants have a
five-year term, expiring March 22, 2012, and are
exercisable beginning on September 23, 2007 at an exercise
price of $2.80 per share, subject to adjustment based on a
weighted average antidilution formula if we effect certain
equity issuances in the future for consideration per share that
is less than the then current exercise price of such warrants.
On August 31, 2006, we entered into an agreement for a
private placement of common stock and warrants pursuant to which
we issued and sold 8,696,000 shares of common stock and
warrants to purchase up to 2,174,000 shares of common stock
on September 1, 2006, and issued and sold an additional
2,898,667 shares of common stock and warrants to purchase
up to an additional 724,667 shares of common stock in a
second closing on September 19, 2006. In both cases such
shares of common stock and warrants were issued and sold to
certain institutional accredited investors. Our net proceeds
from this private placement, including the second closing, were
$28.7 million. The warrants are exercisable during the
period beginning on March 2, 2007 through September 1,
2011, at an exercise price of $4.00 a share
On January 13, 2006, we entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of these convertible debentures we
issued approximately 10.5 million shares of common stock,
warrants to purchase approximately 1.1 million shares of
common stock, paid approximately $22.2 million in cash, and
recorded a charge of $18.8 million in the fiscal year ended
June 30, 2007 for loss on conversion and early
extinguishment of debt. See Note 16 Debt to our
consolidated financial statements appearing elsewhere herein for
additional disclosures regarding the conversion of the
convertible debentures and early extinguishment of debt.
In the year ended July 1, 2006, we generated
$25.2 million of cash from financing activities, primarily
consisting of $49.5 million of net proceeds from a public
offering of our common stock in October 2005, as described
below, offset by $24.3 million used in connection with the
early retirement of two promissory notes originally issued to
Nortel Networks in connection with our acquisition of their
optical components business and the payment of certain amounts
in connection with the conversion of our convertible debentures
which were issued in December 2004.
In the year ended July 2, 2005, we generated
$14.9 million of cash from financing activities. This
primarily consisted of net proceeds of $24.2 million from
the issuance of convertible debentures and warrants to purchase
45
common stock, offset by the repayment of $4.2 million due
to Nortel Networks under a promissory note and payments of
$5.1 million related to capital lease obligations assumed
primarily in connection with the Onetta acquisition.
On October 17, 2005, we completed a public offering of our
common stock, issuing a total of 11,250,000 shares at a
price per share to the public of $4.75, resulting in proceeds of
$53.4 million, of which we received $49.3 million net
of commissions to the underwriters, offering costs and expenses.
Return/(Loss)
on Investments
Return/(loss) on investments represents net interest, which is
the difference between interest received on our cash and
interest paid on our debts. Return on investments was
$0.7 million in the year ended June 30, 2007, and loss
on investments was $4.0 million in the year ended
July 1, 2006 and $4.3 million in the year ended
July 2, 2005. The changes in return/(loss) on investment
over these periods is due to the elimination of interest on
balances outstanding from the $50 million of notes issued
to Nortel Networks in November 2002 and the elimination of the
amortization of interest, costs and warrants associated with our
issuance of $25.5 million of convertible debt in December
2004, resulting from the payment and retirements of the notes
issued to Nortel Networks and the conversion of
$25.5 million of convertible debt into common stock
pursuant to a series of agreements entered into on
January 13, 2006.
Sources
of Cash
In the past five years, we have funded our operations from
several sources, including through public and private offerings
of equity, issuance of debt and convertible debentures, sale of
assets and net cash obtained in connection with recent
acquisitions. As of June 30, 2007, we held
$42.7 million in cash and cash equivalents (including
restricted cash of $6.1 million). Based on our cash
balances, and expected amounts available under our senior
secured $25 million credit facility, under which advances
are available 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 the end of fiscal 2008. Regardless, to further
strengthen our financial position we may raise additional funds
by any one or a combination of the following: (i) issuing
equity, debt or convertible debt or (ii) selling certain
non core businesses. There can be no guarantee that we will be
able to raise additional funds on terms acceptable to us, or at
all.
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
$25,000,000 senior secured revolving credit facility. Advances
are available under the Credit Agreement based on a percentage
of accounts receivable at the time the advance is requested.
The obligations of the Borrowers under the Credit Agreement are
guaranteed by us, Onetta, 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 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 reborrowed anytime until maturity, which is
August 2, 2009. A termination of the commitment line any
time prior to August 2, 2008 will subject the Borrowers to
a prepayment premium of 1.0% of the maximum revolver amount.
46
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 $1,000,000 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
minimum level of 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 June 30, 2007 we had
$3.8 million drawn and outstanding as bank debt under this
line of credit. We also had $3.1 million of standby letters
of credits with vendors and landlords secured under this credit
agreement, of which $2.7 million expired in August 2007.
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 June 30, 2007, we held $42.7 million in cash and
cash equivalents (including restricted cash of
$6.1 million). Based on our cash balances, and amounts
expected to be available under our senior secured
$25 million credit facility be 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 the end of fiscal 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:
(i) issuing equity, debt or convertible debt or
(ii) selling certain non core businesses. 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.
Risk
Management Foreign Currency Risk
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 the future we expect that a majority of our
revenues will 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, 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
June 30, 2007, we held eight foreign currency forward
exchange contracts with a nominal value of $6.5 million
which include put and call options which expire, or expired, at
various dates from July 2007 to
47
February 2008. During the year ended June 30, 2007, we
recorded a net gain of $1.5 million in our statement of
operations in connection with foreign exchange contracts that
expired during that year. As of June 30, 2007 we recorded
an unrealized gain of $0.2 million to other comprehensive
income in connection with marking our contracts to fair value.
Contractual
Obligations
Our contractual obligations at June 30, 2007, by nature of
the obligation and amount due over certain periods of time, are
set out in the table below:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2008
|
|
|
FY 2009
|
|
|
FY 2010
|
|
|
FY 2011
|
|
|
Thereafter
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Long-term obligations
|
|
$
|
54
|
|
|
$
|
54
|
|
|
$
|
54
|
|
|
$
|
54
|
|
|
$
|
30
|
|
|
$
|
246
|
|
Operating lease obligations
|
|
|
7,477
|
|
|
|
6,117
|
|
|
|
6,113
|
|
|
|
5,788
|
|
|
|
45,556
|
|
|
|
71,051
|
|
Purchase obligations
|
|
|
16,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net commitments
|
|
$
|
24,228
|
|
|
$
|
6,171
|
|
|
$
|
6,167
|
|
|
$
|
5,842
|
|
|
$
|
45,586
|
|
|
$
|
87,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases are future annual commitments under
non-cancelable operating leases, including rents payable for
land and buildings. The purchase obligations consist of our
total outstanding purchase order commitments as at June 30,
2007. Any capital purchases to which we are committed are
included in these outstanding purchase orders under standard
terms and conditions.
Contractual obligations related to our acquisition of Creekside
are described above under Investing Activities.
Off-Balance
Sheet Arrangements
In connection with the sale by New Focus, Inc. of its passive
component line to Finisar, Inc., prior to our acquisition of New
Focus, New Focus agreed to indemnify Finisar for claims related
to the intellectual property sold to Finisar. This
indemnification expires in May 2009 and has no maximum
liability. In connection with the sale by New Focus of its
tunable laser technology to Intel Corporation prior to our
acquisition of New Focus, New Focus indemnified Intel against
losses for certain intellectual property claims. This
indemnification expires in May 2008 and has a maximum liability
of $7.0 million. We do not expect to pay out any amounts in
respect of these indemnifications, therefore no accrual has been
made.
We indemnify our directors and certain employees as permitted by
law, and have entered into indemnification agreements with our
directors. We have not recorded a liability associated with
these indemnification arrangements as we historically have not
incurred any costs associated with such indemnifications and do
not expect to in the future. Costs associated with such
indemnifications may be mitigated by insurance coverage that we
maintain.
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.
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|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest
rates
We finance our operations through a mixture of
shareholders funds, 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 3, 2006. Our only exposure to interest rate
fluctuations is on our cash deposits and for amounts borrowed
under the credit agreement. At June 30, 2007, there was
$3.8 million outstanding under the credit agreement.
48
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 the future we expect that a majority of our
revenues will 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, 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
June 30, 2007, we held eight foreign currency forward
exchange contracts with a nominal value of $6.5 million
which include put and call options which expire, or expired, at
various dates from July 2007 to February 2008 and recorded an
unrealized gain of $0.2 million to other comprehensive
income in connection with marking these contracts to fair value.
It is estimated that a 10% fluctuation in the dollar between
June 30, 2007 and the maturity dates of the put and call
instruments underlying these contracts would lead to a profit of
$0.8 million (U.S. dollar weakening), or loss of
$0.5 million (U.S. dollar strengthening) on our
outstanding foreign currency forward exchange contracts, should
they be held to maturity.
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|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this item may be found on pages F-1
through F-45 of this Annual Report on
Form 10-K.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
(a)
|
Evaluation
of Disclosure 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 June 30,
2007. 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 June 30, 2007, our Chief Executive
Office and Chief Financial Officer concluded that, as of such
date, our disclosure controls and procedures were effective at
the reasonable assurance level.
49
Managements report on our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) and the independent registered
accounting firms related audit report are included
immediately below and are incorporated herein by reference.
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|
(b)
|
Managements
Report on Internal Control Over Financial Reporting
|
Our management is responsible for establishing and maintaining
adequate internal control over our financial reporting, as such
term is defined in Exchange Act
Rule 13a-15(f).
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of June 30, 2007. In
making its assessment of internal control over financial
reporting, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated Framework.
Based on our assessment, management concluded that, as of
June 30, 2007, our internal control over financial
reporting is effective based on these criteria.
Our independent registered public accounting firm,
Ernst & Young LLP, has issued an audit report on the
effectiveness of our internal control over financial reporting.
This report appears below.
|
|
(c)
|
Report of
Independent Registered Public Accounting Firm
|
The Board of Directors and Stockholders of Bookham, Inc.
We have audited Bookham, Incs. internal control over
financial reporting as of June 30, 2007, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO control criteria).
Bookham Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
effectiveness of the companys internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that
50
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, Bookham, Inc. has maintained, in all material
respects, effective internal control over financial reporting as
of June 30, 2007, based on the COSO control criteria.
We also have, audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Bookham, Inc. as of June 30,
2007 and July 1, 2006, and the related consolidated
statements of operations, stockholders equity, and cash
flows for each of the two years in the period ended
June 30, 2007 of Bookham, Inc. and our report dated
August 27, 2007 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
San Jose, California
August 27, 2007
|
|
(d)
|
Changes
in Internal Control over Financial Reporting
|
In our prior year Annual Report on
Form 10-K
for the year ended July 1, 2006, we identified a material
weakness related to the inconsistent treatment of
translation/transaction gains and losses in respect of
intercompany loan balances. During the current fiscal year ended
June 30, 2007, we implemented processes, procedures and
personnel changes that we believe sufficiently remediate these
weakness.
There has been no change in our internal controls over financial
reporting during the fiscal quarter ended June 30, 2007,
other than as discussed in the preceding paragraph of this
Item 9A(d), that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
|
|
Item 9B.
|
Other
Information
|
Not applicable.
|
|
Item 10.
|
Directors,
Executive Officers of the Registrant and Corporate
Governance
|
Information required by this Item is incorporated by reference
to the information under the headings
Proposal I Election of Class III
Directors, Corporate Governance,
Section 16(a) Beneficial Ownership Reporting
Compliance, Code of Business Conduct and
Ethics, and
Non-Director
Executive Officers contained in Bookhams definitive
Proxy Statement for its 2007 annual meeting of stockholders.
|
|
Item 11.
|
Executive
Compensation
|
Information required by this Item is incorporated by reference
to the information under the headings Executive
Compensation, Director Compensation,
Compensation Committee Interlocks and Insider
Participation, Compensation Committee Report,
and Employment and Other Agreements contained in
Bookhams definitive Proxy Statement for its 2007 annual
meeting of stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Information required by this Item is incorporated by reference
to the information under the headings Security Ownership
of Certain Beneficial Owners and Management and
Equity Compensation Plan Information contained in
Bookhams definitive Proxy Statement for its 2007 annual
meeting of stockholders.
51
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information required by this Item is incorporated by reference
to the information under the headings Certain
Relationships and Related Transactions, Director
Independence, Employment, Change of Control and
Severance Arrangements, Proposal I
Election of Class III Directors, and Corporate
Governance contained in Bookhams definitive Proxy
Statement for its 2007 annual meeting of stockholders.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
Information required by this Item is incorporated by reference
under the heading Principal Accounting Fees and
Services and Pre-Approval Policies and
Procedures contained in Bookhams definitive Proxy
Statement for its 2007 annual meeting of stockholders.
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a) The following documents are filed as part of or are
included in this
Form 10-K:
1. Financial Statements
See Index to Consolidated Financial Statements
2. Financial Statement Schedules
Financial statement schedule II: Valuation and Qualifying
Accounts that follows the Notes to Consolidated Financial
Statements is filed as part of this
Form 10-K.
Other financial statement schedules have been omitted since they
are either not required or the information is otherwise included.
3. List of Exhibits
The Exhibits filed as part of this Annual Report on
Form 10-K
are listed on the Exhibit Index immediately preceding such
Exhibits, which Exhibit Index is incorporated herein by
reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed as
exhibits herewith. Documents identified by footnotes are not
being filed herewith and, pursuant to
Rule 12b-32
under the Exchange Act, reference is made to such documents as
previously filed as exhibits with the Securities and Exchange
Commission. Bookhams file number under the Exchange Act is
000-30684.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BOOKHAM, INC.
Name: Alain Couder
|
|
|
|
Title:
|
Chief Executive Officer,
President and Director
|
August 30, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Alain
Couder
Alain
Couder
|
|
Chief Executive Officer, President
and Director (Principal Executive Officer)
|
|
August 30, 2007
|
|
|
|
|
|
/s/ Stephen
Abely
Stephen
Abely
|
|
Chief Financial Officer
(Principal
Financial Officer and Principal
Accounting Officer)
|
|
August 30, 2007
|
|
|
|
|
|
/s/ Peter
Bordui
Peter
Bordui
|
|
Director
|
|
August 30, 2007
|
|
|
|
|
|
/s/ David
Simpson
David
Simpson
|
|
Director
|
|
August 30, 2007
|
|
|
|
|
|
/s/ Lori
Holland
Lori
Holland
|
|
Director
|
|
August 30, 2007
|
|
|
|
|
|
/s/ W.
Arthur Porter
W.
Arthur Porter
|
|
Director
|
|
August 30, 2007
|
|
|
|
|
|
/s/ Joseph
Cook
Joseph
Cook
|
|
Director
|
|
August 30, 2007
|
53
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of Bookham, Inc.
We have audited the accompanying consolidated balance sheets of
Bookham, Inc. as of June 30, 2007 and July 1, 2006,
and the related consolidated statements of operations,
stockholders equity, and cash flows for each of the two
years in the period ended June 30, 2007. Our audits also
included the financial statement schedule for the 2007 and
2006 years listed in the Index at Item 15(a)2. These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Bookham, Inc. at June 30, 2007 and
July 1, 2006, and the consolidated results of its
operations and its cash flows for each of the two years in the
period ended June 30, 2007, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 1 to the Notes to Consolidated
Financial Statements, under the heading Stock Based
Compensation, in fiscal 2006 Bookham, Inc. changed its method of
accounting for stock based compensation.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Bookham, Inc.s internal control over
financial reporting as of June 30, 2007, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated August 27, 2007 expressed
an unqualified opinion thereon.
San Jose, California
August 27, 2007
F-2
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Bookham, Inc.
We have audited the accompanying consolidated statements of
operations, stockholders equity, and cash flows for the
year ended July 2, 2005. Our audit also included the
financial statement schedule for 2005 listed in the Index at
Item 15(a)2. These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
results of operations of Bookham, Inc. and its consolidated cash
flows for the year ended July 2, 2005, in conformity with
U.S. generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared
assuming that Bookham, Inc. will continue as a going concern.
The Company will need to raise additional funding through
external sources prior to December 2005 in order to maintain
sufficient financial resources to continue to operate its
business. In addition, depending on the amount of additional
funding secured prior to December 2005, the Company will also
need to raise sufficient funds before June 2006 in order to
maintain a cash balance of at least $25 million in order to
comply with the loan note covenants. Management are taking
actions to raise additional equity capital and considering the
disposal of selected assets or businesses. These conditions
raise substantial doubt about the Companys ability to
continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from
the outcome of this uncertainty.
Reading, England
September 8, 2005
F-3
BOOKHAM,
INC.
CONSOLIDATED BALANCE SHEETS
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|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share
|
|
|
|
and par value amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,631
|
|
|
$
|
37,750
|
|
Restricted cash
|
|
|
6,079
|
|
|
|
1,428
|
|
Accounts receivable, net of
allowances for doubtful accounts and product returns of $1,201
and $990
|
|
|
33,685
|
|
|
|
26,280
|
|
Receivables from a related party,
net
|
|
|
|
|
|
|
7,499
|
|
Inventories
|
|
|
52,114
|
|
|
|
53,860
|
|
Current deferred tax asset
|
|
|
|
|
|
|
348
|
|
Prepaid expenses and other current
assets
|
|
|
9,121
|
|
|
|
11,436
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
137,630
|
|
|
|
138,601
|
|
|
|
|
|
|
|
|
|
|
Long-term restricted cash
|
|
|
|
|
|
|
4,119
|
|
Goodwill
|
|
|
7,881
|
|
|
|
8,881
|
|
Other intangible assets, net
|
|
|
11,766
|
|
|
|
19,667
|
|
Property and equipment, net
|
|
|
33,707
|
|
|
|
52,163
|
|
Non-current deferred tax asset
|
|
|
13,248
|
|
|
|
12,911
|
|
Other non-current assets
|
|
|
294
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
204,526
|
|
|
$
|
236,797
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
21,101
|
|
|
$
|
26,143
|
|
Liabilities to a related party
|
|
|
|
|
|
|
4,250
|
|
Bank loan payable
|
|
|
3,812
|
|
|
|
|
|
Accrued expenses and other
liabilities
|
|
|
22,704
|
|
|
|
32,024
|
|
Current deferred tax liability
|
|
|
13,248
|
|
|
|
12,911
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
60,865
|
|
|
|
75,328
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liability
|
|
|
|
|
|
|
348
|
|
Other long-term liabilities
|
|
|
1,908
|
|
|
|
4,989
|
|
Deferred gain on sale-leaseback
|
|
|
20,786
|
|
|
|
20,991
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
83,559
|
|
|
|
101,656
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
(Note 6)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
$.01 par value;
175,000,000 shares authorized; 83,275,394 and
57,978,908 shares issued and outstanding at June 30,
2007 and July 1, 2006, respectively
|
|
|
832
|
|
|
|
580
|
|
Additional paid-in capital
|
|
|
1,114,391
|
|
|
|
1,053,626
|
|
Accumulated other comprehensive
income
|
|
|
42,444
|
|
|
|
35,460
|
|
Accumulated deficit
|
|
|
(1,036,700
|
)
|
|
|
(954,525
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
120,967
|
|
|
|
135,141
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
204,526
|
|
|
$
|
236,797
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-4
BOOKHAM,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30, 2007
|
|
|
July 1, 2006
|
|
|
July 2, 2005
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Revenues
|
|
$
|
162,941
|
|
|
$
|
121,138
|
|
|
$
|
110,751
|
|
Revenues from a related party
|
|
|
39,873
|
|
|
|
110,511
|
|
|
|
89,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
202,814
|
|
|
|
231,649
|
|
|
|
200,256
|
|
Cost of revenues
|
|
|
173,493
|
|
|
|
190,085
|
|
|
|
193,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
29,321
|
|
|
|
41,564
|
|
|
|
6,609
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
43,025
|
|
|
|
42,587
|
|
|
|
44,833
|
|
Selling, general and administrative
|
|
|
47,820
|
|
|
|
52,167
|
|
|
|
60,250
|
|
Amortization of intangible assets
|
|
|
8,884
|
|
|
|
10,004
|
|
|
|
11,107
|
|
Restructuring and severance charges
|
|
|
10,347
|
|
|
|
11,197
|
|
|
|
20,888
|
|
Legal settlement
|
|
|
490
|
|
|
|
4,997
|
|
|
|
|
|
Acquired in-process research and
development
|
|
|
|
|
|
|
118
|
|
|
|
|
|
Impairment of goodwill and other
intangible assets
|
|
|
|
|
|
|
760
|
|
|
|
114,226
|
|
Impairment/(recovery) of other
long-lived assets
|
|
|
1,621
|
|
|
|
(832
|
)
|
|
|
|
|
Gain on sale of property and
equipment and other long-lived assets
|
|
|
(3,009
|
)
|
|
|
(2,070
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
109,178
|
|
|
|
118,928
|
|
|
|
250,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(79,857
|
)
|
|
|
(77,364
|
)
|
|
|
(243,987
|
)
|
Other income/(expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion and early
extinguishment of debt
|
|
|
|
|
|
|
(18,842
|
)
|
|
|
|
|
Other income/(expense), net
|
|
|
|
|
|
|
298
|
|
|
|
1,382
|
|
Interest income
|
|
|
1,239
|
|
|
|
1,113
|
|
|
|
1,107
|
|
Interest expense
|
|
|
(573
|
)
|
|
|
(5,128
|
)
|
|
|
(5,439
|
)
|
Gain/(loss) on foreign exchange
|
|
|
(2,879
|
)
|
|
|
677
|
|
|
|
(1,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income/(expense), net
|
|
|
(2,213
|
)
|
|
|
(21,882
|
)
|
|
|
(3,970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(82,070
|
)
|
|
|
(99,246
|
)
|
|
|
(247,957
|
)
|
Income tax provision/(benefit)
|
|
|
105
|
|
|
|
(11,749
|
)
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
|
$
|
(247,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and
diluted)
|
|
$
|
(1.17
|
)
|
|
$
|
(1.87
|
)
|
|
$
|
(7.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common
stock outstanding (basic and diluted)
|
|
|
70,336
|
|
|
|
46,679
|
|
|
|
33,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-5
BOOKHAM,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flows used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
|
$
|
(247,972
|
)
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
23,167
|
|
|
|
30,231
|
|
|
|
32,208
|
|
Stock-based compensation, including
non-cash restructuring and severance charges
|
|
|
6,666
|
|
|
|
8,863
|
|
|
|
750
|
|
Impairment/(recovery) of goodwill,
intangibles assets and other long-lived assets
|
|
|
1,621
|
|
|
|
(72
|
)
|
|
|
114,226
|
|
Gain on sale of property and
equipment
|
|
|
(3,009
|
)
|
|
|
(2,070
|
)
|
|
|
(650
|
)
|
One time tax gain
|
|
|
|
|
|
|
(11,785
|
)
|
|
|
|
|
Legal settlement
|
|
|
|
|
|
|
4,997
|
|
|
|
|
|
Acquired in-process research and
development
|
|
|
|
|
|
|
118
|
|
|
|
|
|
Unrealized gain on foreign currency
contracts
|
|
|
|
|
|
|
|
|
|
|
1,687
|
|
Unrealized gain on marketable
securities
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Loss on conversion and early
extinguishment of debt
|
|
|
|
|
|
|
18,842
|
|
|
|
|
|
Foreign currency re-measurement of
notes payable
|
|
|
|
|
|
|
|
|
|
|
638
|
|
Amortization of deferred gain on
sale leaseback
|
|
|
(1,435
|
)
|
|
|
(278
|
)
|
|
|
|
|
Amortization of interest expense
for warrants and beneficial conversion feature
|
|
|
|
|
|
|
1,292
|
|
|
|
673
|
|
Changes in operating assets and
liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
2,514
|
|
|
|
(5,834
|
)
|
|
|
622
|
|
Inventories
|
|
|
4,298
|
|
|
|
383
|
|
|
|
(5,813
|
)
|
Prepaid and other current assets
|
|
|
3,079
|
|
|
|
8,973
|
|
|
|
6,256
|
|
Accounts payable
|
|
|
(6,275
|
)
|
|
|
(6,487
|
)
|
|
|
2,416
|
|
Accrued expense and other
liabilities
|
|
|
(19,224
|
)
|
|
|
(15,863
|
)
|
|
|
(3,813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(70,773
|
)
|
|
|
(56,187
|
)
|
|
|
(98,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(6,433
|
)
|
|
|
(10,113
|
)
|
|
|
(16,008
|
)
|
Proceeds from sale of property and
equipment
|
|
|
5,387
|
|
|
|
2,396
|
|
|
|
1,429
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
9,575
|
|
|
|
|
|
Proceeds from sale-leaseback of
Caswell facility
|
|
|
|
|
|
|
23,444
|
|
|
|
|
|
Proceeds from sale of asset held
for re-sale
|
|
|
9,402
|
|
|
|
14,734
|
|
|
|
|
|
Settlement of related party note
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
Proceeds from disposal of
subsidiaries, net of costs
|
|
|
|
|
|
|
|
|
|
|
5,736
|
|
Proceeds from sale of maturities of
available for sale investments
|
|
|
|
|
|
|
|
|
|
|
6,978
|
|
Transfer (to)/from restricted cash
|
|
|
(427
|
)
|
|
|
2,656
|
|
|
|
(1,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by/(used in)
investing activities
|
|
|
7,929
|
|
|
|
42,692
|
|
|
|
(2,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common
stock, net
|
|
|
55,444
|
|
|
|
49,548
|
|
|
|
3
|
|
Proceeds from short term loan
|
|
|
3,812
|
|
|
|
|
|
|
|
|
|
Repayment of capital lease
obligations
|
|
|
|
|
|
|
|
|
|
|
(5,132
|
)
|
Proceeds from issuance of
convertible debentures and warrants to purchase common stock,
net of issuance costs
|
|
|
|
|
|
|
|
|
|
|
24,230
|
|
Cash paid in connection with early
extinguishment of notes payable
|
|
|
|
|
|
|
(21,000
|
)
|
|
|
|
|
Cash paid in connection with
conversion of convertible debentures
|
|
|
|
|
|
|
(3,282
|
)
|
|
|
|
|
Repayment of loans
|
|
|
(108
|
)
|
|
|
(49
|
)
|
|
|
(4,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
59,148
|
|
|
|
25,217
|
|
|
|
14,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash
|
|
|
2,577
|
|
|
|
1,094
|
|
|
|
1,438
|
|
Net (decrease)/increase in cash and
cash equivalents
|
|
|
(1,119
|
)
|
|
|
12,816
|
|
|
|
(84,748
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
37,750
|
|
|
|
24,934
|
|
|
|
109,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
36,631
|
|
|
$
|
37,750
|
|
|
$
|
24,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow
disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
105
|
|
|
$
|
22
|
|
|
$
|
56
|
|
Cash paid for interest
|
|
$
|
5,012
|
|
|
$
|
7,481
|
|
|
$
|
4,196
|
|
Supplemental disclosures of non
cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in connection with
debt and extinguishment of debt
|
|
$
|
12,417
|
|
|
$
|
4,385
|
|
|
$
|
5,354
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-6
BOOKHAM,
INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at July 3, 2004
|
|
|
32,612,555
|
|
|
$
|
326
|
|
|
$
|
917,639
|
|
|
$
|
(1,354
|
)
|
|
$
|
33,035
|
|
|
$
|
(619,056
|
)
|
|
|
|
|
|
$
|
330,590
|
|
Exercise of common stock warrants
by Nortel Networks
|
|
|
900,000
|
|
|
|
9
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
|
|
Issuance of restricted stock
|
|
|
249,859
|
|
|
|
3
|
|
|
|
779
|
|
|
|
(478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304
|
|
Issuance of shares upon the
exercise of common stock options
|
|
|
811
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Issuance of shares to CP Santa Rosa
Enterprises Corp.
|
|
|
38,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of shares in respect of
Measurement Microsystems
A-Z
Inc.
|
|
|
3,402
|
|
|
|
|
|
|
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250
|
|
Beneficial conversion feature
associated with convertible redeemable notes
|
|
|
|
|
|
|
|
|
|
|
1,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,969
|
|
Issuance of warrants in connection
with convertible redeemable notes
|
|
|
|
|
|
|
|
|
|
|
5,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,354
|
|
Amortization of deferred stock
compensation, net of cancellations
|
|
|
|
|
|
|
|
|
|
|
(364
|
)
|
|
|
1,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
660
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
Unrealized loss on financial
instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
(153
|
)
|
|
|
(153
|
)
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(247,972
|
)
|
|
|
(247,972
|
)
|
|
|
(247,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(248,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2005
|
|
|
33,805,437
|
|
|
$
|
338
|
|
|
$
|
925,677
|
|
|
$
|
(808
|
)
|
|
$
|
32,889
|
|
|
$
|
(867,028
|
)
|
|
|
|
|
|
$
|
91,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-7
BOOKHAM,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS
EQUITY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at July 2, 2005
|
|
|
33,805,437
|
|
|
$
|
338
|
|
|
$
|
925,677
|
|
|
$
|
(808
|
)
|
|
$
|
32,889
|
|
|
$
|
(867,028
|
)
|
|
|
|
|
|
$
|
91,068
|
|
Issuance of shares upon the
exercise of common stock options
|
|
|
58,627
|
|
|
|
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303
|
|
Issuance of restricted stock
|
|
|
1,050,000
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Issuance of shares to CP Santa Rosa
Enterprises Corp.
|
|
|
5,100
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Common stock issued in connection
with the settlement of Yue lawsuit
|
|
|
537,635
|
|
|
|
5
|
|
|
|
4,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Common stock issued in public
offering
|
|
|
11,250,000
|
|
|
|
113
|
|
|
|
49,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,234
|
|
Common stock issued upon conversion
of convertible debt
|
|
|
5,386,365
|
|
|
|
54
|
|
|
|
25,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,210
|
|
Common stock issued in connection
with debt equity exchange
|
|
|
5,120,793
|
|
|
|
51
|
|
|
|
33,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,853
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,056
|
|
|
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,864
|
|
Common stock issued in connection
with Avalon acquisition
|
|
|
764,951
|
|
|
|
8
|
|
|
|
6,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,500
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on hedging
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573
|
|
|
|
|
|
|
|
573
|
|
|
|
573
|
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,998
|
|
|
|
|
|
|
|
1,998
|
|
|
|
1,998
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,497
|
)
|
|
|
(87,497
|
)
|
|
|
(87,497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(84,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 1, 2006
|
|
|
57,978,908
|
|
|
$
|
580
|
|
|
$
|
1,053,626
|
|
|
$
|
|
|
|
$
|
35,460
|
|
|
$
|
(954,525
|
)
|
|
|
|
|
|
$
|
135,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-8
BOOKHAM,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS
EQUITY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income
|
|
|
Deficit
|
|
|
Income
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at July 1, 2006
|
|
|
57,978,908
|
|
|
$
|
580
|
|
|
$
|
1,053,626
|
|
|
$
|
|
|
|
$
|
35,460
|
|
|
$
|
(954,525
|
)
|
|
|
|
|
|
$
|
135,141
|
|
Issuance of shares upon the
exercise of common stock options
|
|
|
3,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares upon vesting of
restricted stock units
|
|
|
7,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted stock to
non-employee directors
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resolution of contingent
consideration in connection with Avalon acquisition
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Common stock issued in private
placements
|
|
|
25,234,891
|
|
|
|
252
|
|
|
|
55,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,445
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,277
|
|
Restricted stock vesting
accelaration related to restructuring and severance charges
|
|
|
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on hedging
transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361
|
)
|
|
|
|
|
|
|
(361
|
)
|
|
|
(361
|
)
|
Currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,345
|
|
|
|
|
|
|
|
7,345
|
|
|
|
7,345
|
|
Net loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82,175
|
)
|
|
|
(82,175
|
)
|
|
|
(82,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(75,191
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
|
83,275,394
|
|
|
$
|
832
|
|
|
$
|
1,114,391
|
|
|
|
|
|
|
$
|
42,444
|
|
|
$
|
(1,036,700
|
)
|
|
|
|
|
|
$
|
120,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these
consolidated financial statements.
F-9
BOOKHAM,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Summary
of Significant Accounting Policies
|
Description
of Business
Bookham Technology plc was incorporated under the laws of
England and Wales on September 22, 1988. On
September 10, 2004, pursuant to a scheme of arrangement
(the Scheme of Arrangement) under the laws of the
United Kingdom, Bookham Technology plc became a wholly-owned
subsidiary of Bookham, Inc., a Delaware corporation
(Bookham, Inc.). Bookham, Inc. principally designs,
manufactures and markets optical components, modules and
subsystems for the telecommunications industry, and also
manufactures high-speed electronic components for the
telecommunications, defense and aerospace industries. References
to the Company mean Bookham, Inc. and its
subsidiaries consolidated business activities since
September 10, 2004 and Bookham Technology plcs
consolidated business activities prior to September 10,
2004.
Basis
of Presentation
The Company assumed Bookham Technology plcs financial
reporting history effective September 10, 2004. As a
result, management deems Bookham Technology plcs
consolidated business activities prior to September 10,
2004 to represent the Companys consolidated business
activities as if the Company and Bookham Technology plc
historically had been the same entity. The consolidated
financial statements include Bookham, Inc. and its wholly-owned
subsidiaries. All intercompany transactions and balances have
been eliminated. The Company has included the results of
operations of its acquired entities from the date of acquisition.
The Company operates on a 52/53 week year ending on the
Saturday closest to June 30. Fiscal 2007, 2006 and 2005 all
were comprised of 52 weeks.
Foreign
Currency Transactions and Translation Gains and
Losses
The assets and liabilities of the Companys foreign
operations are translated from their respective functional
currencies into U.S. dollars at the rates in effect at the
consolidated balance sheet dates, and revenue and expense
amounts are translated at the average rate during the applicable
periods reflected on the consolidated statements of operations.
Foreign currency translation adjustments are recorded as
accumulated other comprehensive income, except for the
translation adjustment of short-term intercompany loans which
are recorded as other income or expense. Gains and losses from
foreign currency transactions, realized and unrealized in the
event of foreign currency transactions not designated as hedges,
and those transactions denominated in currencies other than the
Companys functional currency, are recorded as gain/(loss)
on foreign exchange in the consolidated statements of
operations. See Note 1 Derivative Financial
Instruments.
Use of
Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles
(GAAP) requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Estimates are used for, but
are not limited to, the allowances for doubtful accounts;
accruals for sales returns; inventory write-downs and
write-offs; warranty accruals; the useful lives of fixed assets;
impairment charges on long-lived assets, goodwill and other
intangible assets; losses on facility leases and other charges;
accrued liabilities and other reserves; and stock-based
compensation. Actual results could differ from these estimates
and such differences may be material to the amounts reported in
the Companys financial statements.
Reclassifications
Certain reclassifications have been made to the balances as of
and for the periods ended July 1, 2006 and July 2,
2005 to conform to the June 30, 2007 presentation. These
reclassifications were not material and had no impact on the
Companys loss from operations or net loss.
F-10
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Cash Equivalents
Cash and cash equivalents are recorded at market value. The
Company considers all liquid investment securities with an
original maturity date of three months or less to be cash
equivalents. Any realized gains and losses on liquid investment
securities are included in other income/(expense), net in the
consolidated statements of operations.
Restricted
Cash
Restricted cash of $6.1 million includes $4.1 million
in irrevocable letters of credit as collateral for the
performance of the Companys obligations under certain
facility lease agreements along with other letters of credit and
bank accounts otherwise restricted.
Inventories
Inventories are stated at the lower of cost (determined using
the first in, first out method) or market value (determined
using the estimated net realizable value). The Company plans
production based on orders received and forecasted demand and
maintains a stock of certain items. The Company must order
components and build inventories in advance of product
shipments. These production estimates are dependent on the
Companys assessment of current and expected orders from
its customers, including consideration that orders are subject
to cancellation with limited advance notice prior to shipment.
Property
and Equipment
The Company records its property and equipment at cost less
accumulated depreciation. Depreciation is recorded when assets
are placed into service and it is computed using the
straight-line method over the estimated useful lives of the
assets as follows:
|
|
|
Buildings
|
|
Twenty years
|
Plant and machinery
|
|
Three to five years
|
Fixtures, fittings and equipment
|
|
Three to five years
|
Computer equipment
|
|
Three years
|
Long-Lived
Assets Including Goodwill and Other Acquired Intangible
Assets
The Company reviews property and equipment and certain
identifiable intangibles, excluding goodwill, for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable on an annual
basis. Recoverability of these assets is measured by comparing
their carrying amounts to market prices or future discounted
cash flows the assets are expected to generate. If property and
equipment or certain identifiable intangibles are considered to
be impaired, the impairment to be recognized would equal the
amount by which the carrying value of the asset exceeds its fair
market value based on market prices or future discounted cash
flows.
The Company has adopted Statement of Financial Accounting
Standard (SFAS) SFAS No. 142,
Goodwill and Other Intangible Assets
(SFAS 142) which requires that goodwill and
intangible assets with indefinite useful lives be tested for
impairment at least annually or sooner whenever events or
changes in circumstances indicate that they may be impaired.
SFAS 142 also requires that intangible assets with definite
lives be amortized over their estimated useful lives and
reviewed for impairment whenever events or changes in
circumstances indicate an assets carrying value may not be
recoverable in accordance with SFAS 144, Accounting
for Impairment or Disposal of Long-Lived Assets. The
Company is currently amortizing its acquired intangible assets
with definite lives over periods ranging from 3 to 6 years
and 15 years as to one specific customer contract.
F-11
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the year ended July 1, 2006, the Companys annual
review of goodwill and intangible assets led to the recording of
an impairment charge of $760,000, all of which related to
intangibles in the Companys optics segment. A concurrent
review of other long-lived assets led to an additional
impairment charge of $433,000.
In the year ended July 2, 2005, the Company recorded
impairment charges of $114,226,000, of which $113,592,000
related to goodwill and $634,000 related to intangibles. Of
these charges, $83,326,000 related to the research and
industrial segment, and $30,900,000 related to the optics
segment. See Note 14 Goodwill and Other
Intangible Assets, for additional information regarding these
impairment charges.
Derivative
Financial Instruments
SFAS No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging
Activities, requires the Company to recognize all
derivatives, such as foreign currency forward exchange
contracts, on the 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), net until the
hedged item is recognized in operating results on the
consolidated statements of operations.
For derivative instruments that are designated and qualify as a
cash flow hedge, the purpose of which is to hedge the exposure
to variability in expected future cash flows that is
attributable to a particular risk, the effective portion of the
gain or loss on the derivative instrument is reported as a
component of other comprehensive income/(loss) on the statement
of shareholders equity and reclassified into operating
results in the same period or periods during which the hedged
transaction affects operating results. The remaining gain or
loss on the derivative instrument in excess of the cumulative
change in the present value of future cash flows of the hedged
item, if any, is recognized in current operating results on the
consolidated statements of operations during the period of
change. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized as other
income/(expense) during the period of change. The amounts
recognized due to the anticipated transactions failing to occur
or ineffective hedges were not material for all periods
presented.
The Company is exposed to fluctuations in foreign currency
exchange rates. As the business has become multinational in
scope, the Company has become subject to fluctuations based upon
changes in the exchange rates between the currencies in which
the Company collects revenue and pays expenses. The Company
engages in currency hedging transactions in an effort to
minimize the effects of fluctuations in exchange rates and to
convert currencies to meet its obligations. In the majority of
these contracts the Company agrees under certain circumstances
to sell U.S. dollars in exchange for U.K. pounds sterling.
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 comprehensive income until the
underlying cash flow is settled and the contract is recognized
in operating results. As of June 30, 2007, there were eight
outstanding foreign currency forward exchange contracts to sell
U.S. dollars and buy U.K. pound sterling. These contracts
have an aggregate nominal value of approximately
$6.5 million of put and call options expiring from July
2007 to February 2008. 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 June 30, 2007 will generally be
reclassified into earnings within the next 12 months. As of
June 30, 2007, the Company recorded an unrealized gain of
$0.2 million to other comprehensive income relating to
recording the fair value of the eight foreign currency forward
exchange contracts designated as hedges for accounting purposes.
Advertising
Expenses
The cost of advertising is expensed as incurred. The
Companys advertising costs for the years ended
June 30, 2007, July 1, 2006, and July 2, 2005
were $226,000, $302,000, and $473,000, respectively.
F-12
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenue
Recognition
Revenue represents the amounts (excluding sales taxes) derived
from the providing of goods and services to third-party
customers during the period. The Companys revenue
recognition policy follows Securities and Exchange Commission
(SEC) Staff Accounting Bulletin (SAB)
No. 104 (SAB 104), Revenue
Recognition in Financial Statements. Specifically, the
Company recognizes product revenue when persuasive evidence of
an arrangement exists, the product has been shipped, title has
transferred, collectibility is reasonably assured, fees are
fixed or determinable and there are no uncertainties with
respect to customer acceptance. For shipments to new customers
and evaluation units, including initial shipments of new
products, where the customer has the right of return through the
end of the evaluation period, the Company recognizes revenue on
these shipments at the end of an evaluation period, if not
returned, and when collection is reasonably assured. The Company
records a provision for estimated sales returns in the same
period as the related revenues are recorded, which is netted
against revenue. These estimates are based on historical sales
returns, other known factors and the Companys return
policy.
The Company recognizes royalty revenue when it is earned and
collectability is reasonably assured.
The Company applies the same revenue recognition policy to both
its optics and research and industrial operating segments.
Shipping and handling costs are included in costs of revenue.
Research
and Development
Company-sponsored research and development costs are expensed as
incurred.
Income
Taxes
The Company recognizes income taxes under the liability method
under which deferred income taxes are recognized for differences
between the financial reporting and tax bases of assets and
liabilities at enacted statutory tax rates in effect for the
years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized
in income in the period that includes the enactment date of the
change in rates.
Stock-Based
Compensation
At June 30, 2007, the Company had active stock-based
employee compensation plans, as described in
Note 10 Stockholders Equity. Prior to
July 3, 2005, the Company accounted for its plans under the
recognition and measurement provisions of Accounting Principles
Board Opinion (APB) No. 25 (APB
25), Accounting for Stock Issued to Employees,
and related Interpretations, as permitted by Financial
Accounting Standards Board Statement No. 123
(SFAS 123), Accounting for Stock-Based
Compensation. Effective July 3, 2005, the Company
adopted the fair value recognition provisions of FASB Statement
No. 123R (SFAS 123R), Share-Based
Payment, using the modified prospective transition method
and accordingly, the Company has not restated the consolidated
results of operations for fiscal years prior to its adoption of
SFAS 123R. Under that transition method, stock-based
compensation cost recognized during the years ended
June 30, 2007 and July 1, 2006 includes:
(a) compensation cost for all share-based payments granted
prior to, but not yet vested as of July 3, 2005, based on
the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and (b) compensation
cost for all share-based payments granted subsequent to
July 3, 2005, based on the grant date fair value estimated
in accordance with the provisions of SFAS 123R. Stock
options generally vest over a four to five year service period,
and restricted stock awards generally vest over a one to four
year period, and in certain cases each may vest earlier based
upon the achievement of specific performance-based objectives as
set by the Companys Board of Directors.
As a result of adopting SFAS 123R on July 3, 2005, the
Companys loss before income taxes and net loss for the
years ended June 30, 2007 and July 1, 2006 were
$6.4 million and $8.2 million greater, respectively,
than if it had continued to account for stock-based compensation
under APB 25. Basic and diluted loss per share for the year
F-13
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ended June 30, 2007 and July 1, 2006 were $0.09 and
$0.17 per share higher, respectively, than they would have been
had the Company not adopted SFAS 123R. The Company had no
capitalized stock-based compensation costs at July 2, 2005.
The Company has capitalized into inventory $534,000 and $650,000
of stock-based compensation costs at June 30, 2007 and
July 1, 2006, respectively. Deferred stock-based
compensation of $808,000 as of July 2, 2005, which was
accounted for under APB 25, has been reclassified into
additional
paid-in-capital.
Prior to July 3, 2005, and under the intrinsic value
method, in accordance with APB 25, and as permitted by
SFAS 123, the Company recorded stock-based employee
compensation resulting from stock options granted with an
exercise price below the fair market value of the stock on the
date of grant. Stock-based compensation expense reflected in the
as reported net loss includes expenses for compensation expense
related to the amortization of certain acquisition related
deferred compensation expense. There were no grants with
exercise prices set below market prices on the date of grant
during the periods presented.
The following table illustrates the pro forma effect on net loss
and loss per share if the Company had applied the fair value
recognition provisions of SFAS 123 to share-based awards
granted under the Companys equity plans in all periods
presented. For purposes of this pro forma disclosure, the value
of the share-based awards was estimated using a
Black-Scholes-Merton option-pricing formula and amortized to
expense over the applicable vesting periods and forfeitures were
accounted for upon occurrence:
|
|
|
|
|
|
|
Year Ended
|
|
|
|
July 2,
|
|
|
|
2005
|
|
|
|
(In thousands except
|
|
|
|
per share data)
|
|
|
Net loss as reported
|
|
$
|
(247,972
|
)
|
Add: Stock-based employee
compensation expense, included in the determination of net loss
as reported
|
|
|
750
|
|
Deduct: Total stock-based employee
compensation expense determined under the fair value method for
all awards
|
|
|
(6,826
|
)
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(254,048
|
)
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
Basic and diluted as
reported
|
|
$
|
(7.43
|
)
|
Basic and diluted pro
forma
|
|
$
|
(7.61
|
)
|
The weighted average fair value of stock options granted at fair
market value during the years ended June 30, 2007,
July 1, 2006 and July 2, 2005 were $2.28, $4.97 and
$6.15, respectively. Total compensation cost related to
non-vested awards not yet recognized as of June 30, 2007
was $12.6 million, of which $9.1 million relates to
time based vesting awards expected to be recognized over
8.14 year weighted average basis and $3.5 million
relates to performance based vesting awards for which the
achievement of the related performance targets has not yet been
deemed as probable in particular periods. The fair value of
stock options vested during the year are $8.5 million.
The weighted-average fair value for stock options granted was
calculated using the Black-Scholes-Merton option-pricing model
based on the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Volatility
|
|
|
81
|
%
|
|
|
87
|
%
|
|
|
89
|
%
|
Weighted-average estimated life
|
|
|
4.5 years
|
|
|
|
4.0 years
|
|
|
|
4.0 years
|
|
Weighted-average risk free
interest rate
|
|
|
4.9
|
%
|
|
|
4.5
|
%
|
|
|
2.9
|
%
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Consistent with our valuation method for the disclosure-only
provisions of SFAS 123, we are using the
Black-Scholes-Merton option-pricing model to value the
compensation expense associated with our stock-based awards
under SFAS 123(R). In addition, we estimate forfeitures
when recognizing compensation expense, and we will adjust our
estimate of forfeitures over the requisite service period based
on the extent to which actual forfeitures differ, or are
expected to differ, from such estimates. Changes in estimated
forfeitures will be recognized through a cumulative
catch-up
adjustment in the period of change and will also impact the
amount of compensation expense to be recognized in future
periods.
Accumulated
Other Comprehensive Income
For the years ended June 30, 2007 and July 1, 2006,
the Companys accumulated other comprehensive income was
comprised of its unrealized gains on foreign currency forward
exchange contracts designated as hedges and foreign currency
translation adjustments.
The components of accumulated other comprehensive income are as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Unrealized gains on foreign
exchange contracts
|
|
$
|
212
|
|
|
$
|
573
|
|
Currency translation adjustments
|
|
|
42,232
|
|
|
|
34,887
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income
|
|
$
|
42,444
|
|
|
$
|
35,460
|
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Developments
Effective July 1, 2007, Bookham is required to adopt
Financial Accounting Standards Interpretation, or
FIN No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement
No. 109. FIN No. 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, and also provides guidance on derecognition,
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
(SFAS No. 109). Step one, 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 cumulative effect of
adopting FIN No. 48 on July 1, 2007 is recognized
as a change in accounting principle and recorded as an
adjustment to the opening balance of retained earnings on the
adoption date. Currently, Bookham is still evaluating the impact
of FIN 48 on its consolidated financial position and
results of operations.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements or SFAS No. 157.
SFAS No. 157 establishes a common definition for
fair value to be applied to guidance, requiring use
of fair value, establishes a framework for measuring fair value,
and expands disclosure about such fair value measurements.
SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007. We are currently assessing the
impact of SFAS No. 157 on our consolidated financial
position and results of operations.
In September 2006, the SEC staff issued Staff Accounting
Bulletin 108 Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year
Financial Statements (SAB 108).
SAB 108 requires that public companies utilize a
dual-approach to assessing the quantitative effects
of financial misstatements. This dual approach includes both an
income statement focused assessment and a balance sheet focused
assessment. The guidance in SAB 108 must be applied to
annual financial statements for fiscal years ending after
November 15, 2006. The adoption of SAB 108 has not had
a material impact on our consolidated financial position and
results of operations.
F-15
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
Concentration
of Revenues and Credit and Other Risks
|
The Company places its cash and cash equivalents with and in the
custody of financial institutions with high credit standing and,
by policy, limits the amounts invested with any one institution,
type of security and issuer.
Nortel Networks Corporation accounted for 20% of our revenue in
the year ended June 30, 2007, 48% in the year ended
July 1, 2006, and 45% in the year ended July 2, 2005.
Cisco Systems, Inc. accounted for 12% of our revenue in the year
ended June 30, 2007. Revenues from both customers were
generated in the Companys optics segment. For the years
ended June 30, 2007, July 1, 2006 and July 2,
2005, no other customer accounted for more than 10% of the
Companys total revenues.
At June 30, 2007 and July 1, 2006, Nortel Networks
Corporation. accounted for 12% and 22% of the Companys
gross accounts receivable balance, respectively. At
June 30, 2007 and July 1, 2006, Huawei Technologies
Co., Ltd. accounted for 11% and 13% of the Companys gross
accounts receivable balance, respectively.
Trade receivables are recorded at the invoiced value. Allowances
for uncollectible trade receivables are based upon historical
loss patterns, the number of days that billings are past due and
an evaluation of the potential risk of loss associated with
specific problem accounts. The Company performs ongoing credit
evaluations of its customers and does not typically require
collateral or guarantees.
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
20,238
|
|
|
$
|
17,006
|
|
Work in process
|
|
|
18,489
|
|
|
|
20,823
|
|
Finished goods
|
|
|
13,387
|
|
|
|
16,031
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,114
|
|
|
$
|
53,860
|
|
|
|
|
|
|
|
|
|
|
Inventories are valued at the lower of the cost to acquire or
manufacture the product or market value. The manufacturing cost
includes the cost of the components purchased to produce
products, the related labor and overhead. On a monthly basis,
inventory is reviewed to determine if it is believed to be
saleable. Products may be unsaleable because they are
technically obsolete or excess, due to substitute products or
specification changes or because the Company holds an excessive
amount of inventory relative to customer forecasts. Inventory is
currently valued using methods that take these factors into
account. In addition, if it is determined that cost is greater
than selling price then inventory is written down to market
value defined as the selling price less costs to complete and
sell the product.
During the years ended July 1, 2006 and July 2, 2005,
the Company had revenues of $9.5 million and
$19.5 million, respectively, related to, and recognized
profits on, inventory that had been carried on the
Companys books at zero value. The Company had no revenues
from zero value inventories in the year ended June 30,
2007. These inventories were originally acquired in connection
with the purchase of the optical components business of Nortel
Networks. While this inventory is carried on the Companys
books at zero value, and its sale generates higher margins than
most of the new products, the Company incurs additional costs to
complete the manufacturing of these products prior to sale.
Revenues from this inventory are expected to be insignificant in
the future.
F-16
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Property,
Plant and Equipment
|
Property, plant and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Land
|
|
$
|
|
|
|
$
|
5,996
|
|
Buildings
|
|
|
18,303
|
|
|
|
22,409
|
|
Plant and machinery
|
|
|
66,575
|
|
|
|
64,357
|
|
Fixtures, fittings and equipment
|
|
|
420
|
|
|
|
228
|
|
Computer equipment
|
|
|
13,598
|
|
|
|
12,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98,896
|
|
|
|
105,171
|
|
Less accumulated depreciation
|
|
|
(65,189
|
)
|
|
|
(53,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,707
|
|
|
$
|
52,163
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $14,012,000, $20,227,000, and
$20,753,000 for the years ended June 30, 2007, July 1,
2006 and July 2, 2005, respectively.
|
|
5.
|
Accrued
Expenses and Other Liabilities
|
Accrued expenses and other current liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Accounts payable accruals
|
|
$
|
4,324
|
|
|
$
|
4,497
|
|
Compensation and benefits related
accruals
|
|
|
5,212
|
|
|
|
5,465
|
|
Warranty accrual
|
|
|
2,569
|
|
|
|
3,429
|
|
Other accruals
|
|
|
7,886
|
|
|
|
5,700
|
|
Current portion of restructuring
accrual
|
|
|
2,713
|
|
|
|
12,933
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,704
|
|
|
$
|
32,024
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Long-term portion of restructuring
accrual
|
|
$
|
1,678
|
|
|
$
|
3,196
|
|
Environmental liabilities
|
|
|
|
|
|
|
1,140
|
|
Other long-term liabilities
|
|
|
230
|
|
|
|
653
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,908
|
|
|
$
|
4,989
|
|
|
|
|
|
|
|
|
|
|
Warranty
accrual
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 increases to net loss.
F-17
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Movements in the warranty accrual are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Warranty accrual at beginning of
period
|
|
$
|
3,429
|
|
|
$
|
3,782
|
|
|
$
|
4,606
|
|
Change in liability for
pre-existing warranties, including expiration
|
|
|
(713
|
)
|
|
|
(610
|
)
|
|
|
(327
|
)
|
Warranties issued
|
|
|
2,037
|
|
|
|
2,447
|
|
|
|
2,482
|
|
Warranties utilized
|
|
|
(2,497
|
)
|
|
|
(2,243
|
)
|
|
|
(3,032
|
)
|
Foreign currency movements
|
|
|
313
|
|
|
|
53
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total warranty accrual at end of
period
|
|
$
|
2,569
|
|
|
$
|
3,429
|
|
|
$
|
3,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Agreement
On August 2, 2006, the Company, with Bookham Technology
plc, New Focus, Inc. and Bookham (US) Inc., each a wholly-owned
subsidiary of the Company (collectively, the
Borrowers), entered into a credit agreement (the
Credit Agreement) with Wells Fargo Foothill, Inc.
and other lenders regarding a three-year $25,000,000 senior
secured revolving credit facility. Advances are available under
the Credit Agreement based on a percentage of accounts
receivable at the time the advance is requested. As of
June 30, 2007, the Company had $3.8 million drawn and
outstanding as bank debt under this line of credit. The Company
also had $3.1 million of standby letters of credits with
vendors and landlords secured under this credit agreement, of
which $2.7 million expired in August 2007.
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 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 U.S. prime interest rate
as quoted in the Wall Street Journal plus 1.25 percentage
points. In the absence of an event of default, any amounts
outstanding under the Credit Agreement may be repaid and
borrowed again anytime until maturity, which is August 2,
2009. A termination of the commitment line anytime prior to
August 2, 2008 will subject the Borrowers to a prepayment
premium of 1.0% of the maximum revolver amount.
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 $1,000,000 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 EBITDA (if the Borrowers have not
maintained minimum levels of liquidity defined as
$30 million of qualified cash and qualified accounts
receivables, as defined in the Credit Agreement), as well as
restrictions on liens, capital expenditures, investments,
indebtedness, fundamental changes, dispositions of property,
making certain restricted payments (including restrictions on
dividends and stock repurchases), entering into new lines of
business, and transactions with affiliates.
F-18
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Commitments
and Contingencies
|
Operating
Leases
The Company leases certain of its facilities under
non-cancelable operating lease agreements that expire at various
dates from fiscal 2008 through 2026. Rent expense for these
leases was $4,434,000, $2,372,000 and $3,490,000, during the
years ended June 30, 2007, July 1, 2006 and
July 2, 2005, respectively.
Caswell
Sale-Leaseback
On March 10, 2006, the Companys Bookham Technology
plc subsidiary entered into multiple agreements with a
subsidiary of Scarborough Development (Scarborough)
for the sale and leaseback of the land and buildings located at
its Caswell, United Kingdom, manufacturing site. The sale
transaction, which closed on March 30, 2006, resulted in
immediate proceeds to Bookham Technology plc of
£13.75 million (approximately
U.S. $24 million). Under these agreements, Bookham
Technology plc leases back the Caswell site for an initial term
of 20 years, with options to renew the lease term for
5 years following the initial term and for rolling
2 year terms thereafter. Annual rent is
£1.1 million (approximately $2.2 million based on
the exchange rate of $1.989 as of June 30,
2007) during the first 5 years of the lease,
£1.2 million (approximately $2.4 million based on
the exchange rate of $1.989 as of June 30,
2007) during the next 5 years of the lease,
£1.4 million (approximately $2.8 million based on
the exchange rate of $1.989 as of June 30,
2007) during the next 5 years of the lease and
£1.6 million (approximately $3.2 million based on
the exchange rate of $1.989 as of June 30,
2007) during the next 5 years of the lease. Rent
during the renewal terms will be determined according to the
then market rent for the site. The obligations of Bookham
Technology plc under these agreements are guaranteed by the
Company. In addition, Scarborough, Bookham Technology plc and
the Company entered into a pre-emption agreement with the buyer
under which Bookham Technology plc, within the next
20 years, has a right to purchase the Caswell site in whole
or in part on terms acceptable to Scarborough if Scarborough
agrees to terms with or receives an offer from a third party to
purchase the Caswell facility. Under the provisions of
SFAS 13, Accounting for Leases, the Company has
deferred a related gain of $20.4 million, which will be
amortized ratably against rent expense over the initial
20 year term of the lease. As of June 30, 2007, the
unamortized balance of this deferred gain is $20.8 million.
The Company is recognizing the rent expense related to payments
over the term of the lease.
The Companys future minimum lease payments under
non-cancelable operating leases, including the sale-leaseback of
the Caswell facility and $9.2 million related to unoccupied
facilities as a result of the Companys restructuring
activities, are as follows (in thousands):
|
|
|
|
|
|
For fiscal year ending on or about
June 30,
|
|
|
|
|
2008
|
|
$
|
7,477
|
|
2009
|
|
|
6,117
|
|
2010
|
|
|
6,113
|
|
2011
|
|
|
5,788
|
|
2012
|
|
|
3,637
|
|
Thereafter
|
|
|
41,919
|
|
|
|
|
|
|
Total
|
|
$
|
71,051
|
|
|
|
|
|
|
Guarantees
The Company follows the provisions of FASB Interpretation
No. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness to Others, an interpretation
F-19
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, Inc. of its passive
component line to Finisar, Inc. prior to the Companys
acquisition of New Focus, New Focus agreed to indemnify Finisar
for claims related to the intellectual property sold to Finisar.
This indemnification expires in May 2009 and has no maximum
liability. In connection with the sale by New Focus of its
tunable laser technology to Intel Corporation prior to the
Companys acquisition of New Focus, New Focus indemnified
Intel against losses for certain intellectual property claims.
This indemnification expires in May 2008 and has a maximum
liability of $7.0 million. The Company does not expect to
pay out any amounts in respect of these indemnifications,
therefore no accrual has been made.
|
|
|
|
The Company indemnifies its directors and certain employees as
permitted by law, and has entered into indemnification
agreements with its directors. 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.
|
Settlement
of Yue Litigation
On April 3, 2006, the Company entered into a definitive
settlement agreement, or the Settlement Agreement, with
Mr. Howard Yue, or the Plaintiff, relating to the lawsuit
the Plaintiff filed against New Focus, Inc., a subsidiary of the
Company, and several of its officers and directors in
Santa Clara County Superior Court. The lawsuit, which was
originally filed on February 13, 2002, is captioned Howard
Yue v. New Focus, Inc. et al, Case No. CV808031, or
the Yue Litigation, and relates to events that occurred prior to
the Companys acquisition of New Focus, Inc.
The terms of the Settlement Agreement provided that the Company
would issue to the Plaintiff a $7.5 million promissory
note, or the Note, payable on or before April 10, 2006, of
which $5.0 million could be satisfied by the Company, at
its option, through the issuance of shares of common stock.
Pursuant to the Settlement Agreement, the Company issued the
Note on April 3, 2006 and satisfied the terms of the Note
in full by issuing to the Plaintiff 537,635 shares of
common stock valued at $5.0 million on April 4, 2006
and paying $2.5 million in cash on April 5, 2006 and
paying $2.5 million in cash on April 5, 2006. The
Plaintiff filed dismissal papers in the Yue litigation on
April 6, 2006.
The defense fees for this litigation have been paid by the
insurers under the applicable New Focus directors and officers
insurance policy. The Company and New Focus, Inc. have demanded
that the relevant insurers fully fund this settlement within
policy limits. At this time certain of the insurers have not
confirmed to the Company their definitive coverage position on
this matter. As the terms of this settlement had been reached
during the year ended July 1, 2006, the Company recorded
$7.2 million ($7.5 million, net of insurance
recoveries expected as of that time) as an other operating
expense in the Companys results of operations for the year
ended July 1, 2006. The Company recorded an additional
$0.5 million as an other operating expense for the year
ended June 30, 2007, for additional defense fees related to
this settlement. If and when additional insurers confirm their
definitive coverage position, the Company will record the
amounts of this coverage as recoveries against operating
expenses in the corresponding future periods.
F-20
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
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, Inc. 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 April 19, 2002, plaintiffs filed an
Amended Class Action Complaint, described below, naming as
defendants the Individual Defendants and the Underwriter
Defendants.
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.
The Amended Class Action Complaint asserts claims under
certain provisions of the securities laws of the United States.
It alleges, 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 Complaint seeks
unspecified damages (or in the alternative rescission for those
class members who no longer hold the Companys 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 Complaint. The motion was 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.
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. 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
F-21
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Company believes that both Bookham Technology
plc and New Focus have meritorious defenses to the claims made
in the Amended Class Action Complaint and therefore
believes that such claims will not have a material effect on its
financial position, results of operations or cash flows.
|
|
7.
|
Restructuring
and Severance Charges
|
In May, September and December 2004, the Company announced
restructuring plans, including the transfer of its 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 the
Companys
chip-on-carrier
assembly from Paignton to Shenzhen. The transfer of these
operations was substantially completed in the quarter ended
March 31, 2007. In May 2006, the Company 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, which was substantially completed in the quarter ended
March 31, 2007. As of June 30, 2007, the Company had
spent $32.0 million on these restructuring programs.
On January 31, 2007, the Company adopted an overhead cost
reduction plan which includes workforce reductions, facility and
site consolidation of its Caswell, U.K. semiconductor operations
within existing U.K. facilities and the transfer of certain
research and development activities to its Shenzhen, China
facility. The Company began implementing the overhead cost
reduction plan in the quarter ended March 31, 2007. The
total cost associated with this overhead cost reduction plan,
the substantial portion being personnel severance and retention
related expenses, is expected to range from $8.0 million to
$9.0 million. As of June 30, 2007, the Company had
spent $5.3 million on this cost reduction plan. The
remainder is expected to be incurred and paid by the end of the
December 29, 2007 fiscal quarter.
In connection with earlier plans of restructuring, and the
assumption of restructuring accruals upon the acquisition of New
Focus in March 2004, in the year ended June 30, 2007, the
Company continued to make scheduled payments drawing down the
related lease cancellations and commitments. The Company accrued
$0.9 million, $1.6 million and $4.5 million in
the fiscal years ended June 30, 2007, July 1, 2006 and
July 2, 2005, respectively, in expenses for revised
estimates related to these commitments. Remaining net payments
of lease cancellations and commitments in connection with the
Companys earlier restructuring and cost reduction efforts
are included in the restructuring accrual as of June 30,
2007. The related operating lease commitments outstanding as of
June 30, 2007 are reflected in the disclosures in
Note 6 Commitments and Contingencies.
For all periods presented, 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.
F-22
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the activity related to the
restructuring liability for the year ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Amounts Charged
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs
|
|
|
to Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
at July 1,
|
|
|
and Severance
|
|
|
Adjustments for
|
|
|
Amounts Paid or
|
|
|
|
|
|
at June 30,
|
|
|
|
2006
|
|
|
Charges
|
|
|
Non-cash Charges
|
|
|
Written-off
|
|
|
Other
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
11,438
|
|
|
$
|
867
|
|
|
$
|
|
|
|
$
|
(8,408
|
)
|
|
$
|
(52
|
)
|
|
$
|
3,845
|
|
Termination payments to employees
and related costs
|
|
|
4,691
|
|
|
|
9,480
|
|
|
|
(295
|
)
|
|
|
(13,692
|
)
|
|
|
362
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring
|
|
|
16,129
|
|
|
$
|
10,347
|
|
|
$
|
(295
|
)
|
|
$
|
(22,100
|
)
|
|
$
|
310
|
|
|
|
4,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued
restructuring charges
|
|
|
(3,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,678
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges
included within accrued expenses and other liabilities
|
|
$
|
12,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts charged to restructuring in the statement of
operations for the year ended June 30, 2007 is $10,347,000.
Charges for termination payments are primarily in connection
with the final transfers of assembly and test and related
operations from Paignton to Shenzhen and related to the January
2007 overhead cost reduction discussed above. Charges for lease
cancellations and commitments are primarily related to changing
assumptions as to sub-lease assumptions regarding previously
exited buildings. Restructuring and severance charges for the
year ended June 30, 2007 include $0.3 million related
to a non-cash charge for acceleration of restricted stock and
$0.8 million related to payments made in connection with a
separation agreement the Company executed in May 2007 with its
former Chief Executive Officer.
The following table summarizes the activity related to the
restructuring liability for the year ended July 1, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
Restructuring
|
|
|
Amounts Charged
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
Costs
|
|
|
to Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
at July 2,
|
|
|
and Severance
|
|
|
Adjustments for
|
|
|
Amounts Paid or
|
|
|
|
|
|
at July 1,
|
|
|
|
2005
|
|
|
Charges
|
|
|
Non-cash Charges
|
|
|
Written-off
|
|
|
Other
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Lease cancellations and commitments
|
|
$
|
18,533
|
|
|
$
|
1,997
|
|
|
$
|
|
|
|
$
|
(9,030
|
)
|
|
$
|
(62
|
)
|
|
$
|
11,438
|
|
Termination payments to employees
and related costs
|
|
|
6,300
|
|
|
|
9,157
|
|
|
|
|
|
|
|
(10,706
|
)
|
|
|
(60
|
)
|
|
|
4,691
|
|
Write-off on disposal of assets
and related costs
|
|
|
|
|
|
|
43
|
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued restructuring
|
|
|
24,833
|
|
|
$
|
11,197
|
|
|
$
|
|
|
|
$
|
(19,779
|
)
|
|
$
|
(122
|
)
|
|
|
16,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less non-current accrued
restructuring charges
|
|
|
(9,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued restructuring charges
included within accrued expenses and other liabilities
|
|
$
|
14,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount charged to restructuring in the statement of
operations for the year ended July 1, 2006 is $11,197,000.
Charges for termination payments are primarily in connection
with the transfer of assembly and test
F-23
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and related operations from Paignton to Shenzhen. Charges for
lease cancellations and commitments are primarily related to
changing sub-lease assumptions regarding previously exited
buildings.
|
|
8.
|
Employee
Benefit Plans
|
In the United States, the Company sponsors a 401(k) plan that
allows voluntary contributions by eligible employees, who may
elect to contribute up to the maximum allowed under the
U.S. Internal Revenue Service regulations. The Company
generally makes 25% matching contributions (up to a maximum of
$2,000 per eligible employee per year) and it recorded related
expenses of $490,000, $491,000, and $642,000 in the years ended
June 30, 2007, July 1, 2006, and July 2, 2005,
respectively.
The Company also contributes to a United Kingdom based defined
contribution pension scheme for directors and employees, and to
an additional defined contribution plan for the benefit of one
director. Contributions, and the related expenses, under these
plans were $2.4 million, $2.7 million, and $859,000
for the years ended June 30, 2007, July 1, 2006, and
July 2, 2005, respectively.
For financial reporting purposes, the Companys pre-tax
loss from continuing operations includes the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
(9,692
|
)
|
|
$
|
(43,817
|
)
|
|
$
|
(66,981
|
)
|
Foreign
|
|
|
(72,378
|
)
|
|
|
(55,428
|
)
|
|
|
(180,976
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(82,070
|
)
|
|
$
|
(99,245
|
)
|
|
$
|
(247,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the tax provision/(benefit) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(4
|
)
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Foreign
|
|
|
109
|
|
|
|
23
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
23
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
(11,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
105
|
|
|
$
|
(11,749
|
)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reconciliations of the income tax provision at the statutory
rate to the Companys provision for income tax are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Tax benefit at federal statutory
rate
|
|
$
|
(28,724
|
)
|
|
$
|
(34,736
|
)
|
|
$
|
(86,784
|
)
|
Unbenefitted domestic losses and
credits
|
|
|
3,392
|
|
|
|
12,131
|
|
|
|
13,996
|
|
Unbenefitted foreign losses and
credits
|
|
|
25,437
|
|
|
|
10,856
|
|
|
|
72,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision/(benefit)
|
|
$
|
105
|
|
|
$
|
(11,749
|
)
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxation
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Companys deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
314,760
|
|
|
$
|
260,042
|
|
Depreciation and capital losses
|
|
|
79,648
|
|
|
|
72,308
|
|
Inventory valuation
|
|
|
1,069
|
|
|
|
2,025
|
|
Accruals and reserves
|
|
|
4,161
|
|
|
|
7,559
|
|
Capitalized research and
development
|
|
|
2,848
|
|
|
|
3,650
|
|
Tax credit carryforwards
|
|
|
10,147
|
|
|
|
9,262
|
|
Stock Compensation
|
|
|
1,592
|
|
|
|
1,319
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
414,225
|
|
|
|
356,165
|
|
Valuation allowance
|
|
|
(391,806
|
)
|
|
|
(320,025
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
22,419
|
|
|
$
|
36,140
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
|
Other Impairments and Deferred Tax
Liabilities
|
|
|
(8,073
|
)
|
|
|
(8,073
|
)
|
Forthaven deferred tax liability
|
|
|
(14,346
|
)
|
|
|
(28,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(22,419
|
)
|
|
$
|
(36,140
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Tax Assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Companys valuation allowance increased by $71,781,000
and decreased by $10,408,000, and increased by $47,572,000 for
the years ended June 30, 2007, July 1, 2006 and
July 2, 2005, respectively.
Recognition of deferred tax assets is appropriate when
realization of such assets is more likely than not. Based upon
the weight of available evidence, which includes the
Companys historical operating performance and the recorded
cumulative net losses in all prior fiscal periods, the Company
has provided a full valuation allowance against its net deferred
tax assets.
As of June 30, 2007, the Company had foreign net operating
loss carry forwards of approximately $698,822,000, $49,604,000,
$25,371,000 and $17,790,000 in the U.K., Switzerland, China, and
Canada, respectively. The U.K. and Canada net operating losses
do not expire, the Switzerland net operating loss will expire in
F-25
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
various years from 2007 through 2013 if unused, and the China
net operating loss will expire in various years from 2007
through 2009 if unused. The Company also has U.S. federal
and state net operating losses of approximately $222,362,000 and
$222,696,000 respectively, which will expire in various years
from 2009 through 2027 if unused.
As of June 30, 2007, the Company has U.S. federal,
state, and foreign research and investment tax credit carry
forwards of approximately $435,000, $11,642,000 and $2,144,000
respectively. The federal credit will expire in various years
from 2011 through 2027 if unused. The state research and
development credits can be carried forward indefinitely. The
foreign credits will expire in various years from 2015 through
2027 if unused.
Utilization of net operating loss carry forwards and credit
carry forwards are subject to substantial annual limitations due
to ownership changes as provided in the Internal Revenue Code of
1986, as amended, as well as similar state and foreign tax laws.
The Company has not provided for U.S. federal income and
state income taxes on all of the
non-U.S. subsidiaries
undistributed earnings as of June 30, 2007 because such
earnings are intended to be indefinitely reinvested. Upon
distribution of those earnings in the form of dividends or
otherwise, the Company would be subject to applicable
U.S. federal and state income taxes.
In July 2006, the FASB issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109. This
Interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with FASB Statement No. 109. It
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods and disclosures. It will be effective for fiscal years
beginning after December 15, 2006. Earlier application of
the provisions of this Interpretation is encouraged if the
enterprise has not yet issued financial statements, including
interim financial statements, in the period this Interpretation
is adopted. The provisions of this Interpretation apply to all
tax positions upon initial adoption of this Interpretation. Only
tax positions that meet the recognition threshold criteria at
the effective date may be recognized or continue to be
recognized upon adoption of this Interpretation. The cumulative
effect of applying the provisions of this Interpretation will be
reported as an adjustment to the opening balance of retained
earnings for that fiscal year, presented separately. The Company
is currently evaluating the accounting and disclosure
requirements of this Interpretation and is required to adopt it
at the beginning of its fiscal year 2008.
On March 22, 2007, the Company entered into a definitive
agreement for a private placement pursuant to which it issued
and sold, on March 22, 2007, 13,640,224 shares of
common stock and warrants to purchase up to
4,092,066 shares of common stock with certain institutional
accredited investors for net proceeds to the Company of
approximately $26.9 million. The warrants have a five year
term and are exercisable beginning on September 23, 2007 at
an exercise price of $2.80 per share, subject to adjustment
based on a weighted average antidilution formula if the Company
effects certain equity issuances in the future for consideration
per share that is less than the then current exercise price per
share of such warrants. The fair value of these warrants was
determined to be $6.3 million as of March 22, 2007.
On August 31, 2006, the Company entered into an agreement
for a private placement of common stock and warrants pursuant to
which it issued and sold 8,696,000 shares of common stock
and warrants to purchase up to 2,174,000 shares of common
stock on September 1, 2006, and issued and sold an
additional 2,898,667 shares of common stock and warrants to
purchase up to an additional 724,667 shares of common stock
in a second closing on September 19, 2006. In both cases,
such shares of common stock and warrants were issued and sold to
certain institutional accredited investors. Net proceeds to the
Company from this private placement, including the second
closing, were $28.7 million. The warrants are exercisable
during the period beginning on March 2, 2007 through
F-26
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
September 1, 2011, at an exercise price of $4.00 per share.
The fair value of these warrants was determined to be
$6.1 million as of August 31, 2006.
On April 3, 2006, the Company entered into the Settlement
Agreement with Mr. Howard Yue relating to a lawsuit
Mr. Yue filed against New Focus, Inc., a subsidiary of the
Company, and several of its officers and directors in
Santa Clara County Superior Court. The lawsuit, which was
originally filed on February 13, 2002, relates to events
that occurred prior to the Companys acquisition of New
Focus, Inc. The terms of the Settlement Agreement provided that
the Company would issue to Mr. Yue a $7.5 million
promissory note of which $5.0 million could be satisfied by
the Company, at its option, through the issuance of its common
stock. Pursuant to the Settlement Agreement, on April 4,
2006, the Company issued 537,635 shares of its common stock
with a then current market value of $5.0 million to
Mr. Yue and, on April 5, 2006, the Company paid the
remaining $2.5 million due under the promissory note in
cash.
On March 22, 2006, the Company acquired all of the
outstanding share capital of Avalon Photonics AG for
764,951 shares of its common stock. Subject to the
achievement of certain future integration and revenue
milestones, the Avalon shareholders and their designees were
potentially entitled to receive up to 347,705 additional shares
of common stock, consisting of up to 139,082 shares for
achieving the integration milestone and up to
208,623 shares for achieving revenue milestones. The
integration milestone was not achieved resulting in adjustment
of $1.0 million against additional
paid-in-capital.
It is unlikely the revenue milestones will be achieved. See
Note 13 Business Combinations, for additional
disclosures regarding this acquisition.
On January 13, 2006, the Company entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of the convertible debentures the
Company issued approximately 10.5 million shares of common
stock, warrants to purchase approximately 1.1 million
shares of common stock, paid approximately $22.2 million in
cash, and recorded a charge of $18.8 million in the fiscal
year ended July 1, 2006 for loss on conversion and early
extinguishment of debt. See Note 16 Debt.
On October 17, 2005, the Company completed a public
offering of its common stock, issuing a total of
11,250,000 shares at a price per share of $4.75, raising
$53.4 million and receiving $49.3 million net of
commissions to the underwriters, offering costs and expenses.
In June 2007, the Company granted options to purchase
886,500 shares of common stock and issued
886,500 shares of restricted stock (including 217,500
restricted stock units) under existing stock incentive plans.
The options have an exercise price of $2.01, have a term of ten
years and vest ratably over 48 months with the first
12 months of vesting deferred until the one year
anniversary of the grant. The restricted stock grants vest when
the Company achieves earnings before interest, taxes,
depreciation and amortization, excluding restructuring charges,
one-time items and charges for stock-based compensation greater
than zero.
In February 2007, the Company issued 96,300 restricted stock
units under existing stock incentive plans. The restricted stock
units vest upon the achievement of certain development targets.
Effective February 2007, the Company also accelerated the
vesting of 128,906 shares of restricted stock, granted in
November 2005, in connection with a separation agreement
executed in May 2007 with its former Chief Executive Officer.
In November 2005, the Company granted options to purchase
4,762,500 shares of common stock and issued
1,100,000 shares of restricted stock (including 50,000
restricted stock units) under existing stock incentive plans.
The options have an exercise price of $4.91, have a term of ten
years and vest ratably over 48 months with the first
12 months of vesting deferred until the one year
anniversary of the grant. The restricted stock grants vest as to
50% ratably over 48 months, as to 25% when the Company
achieves earnings before interest, taxes, depreciation and
amortization, excluding restructuring charges, one-time items
and charges for stock-based compensation cumulatively greater
than zero for two successive quarters, and as to 25% when the
Company achieves earnings before
F-27
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest, taxes, depreciation and amortization, excluding
restructuring charges, one-time items and charges for
stock-based compensation cumulatively greater than 8% of
revenues for two successive quarters.
On February 9, 2005, the Company granted an aggregate of
249,859 shares of common stock to the then Chief Executive
Officer, who is no longer employed by the Company, and the Chief
Financial Officer (the Participants) under the
Companys 2004 stock incentive plan. In connection with the
grant, the Participants surrendered outstanding options for an
aggregate of 853,406 shares of common stock. Pursuant to
the terms of the award, the shares vested in their entirety and
became free from transfer restrictions on the one year
anniversary of the grant date based on the achievement of the
following criteria: (A) the Participant had been
continuously employed by the Company during the period,
(B) on or before the anniversary, the Company had filed on
a timely basis any report required pursuant to Item 308 of
Regulation S-K
of the Securities Act of 1933, as amended, and (C) on the
anniversary date, the Company did not have any material weakness
that had not been remedied to the satisfaction of the Audit
Committee of the Companys board of directors. Prior to
adopting SFAS 123(R), the Company recorded deferred
compensation of approximately $782,000 representing the fair
market value of the restricted shares on the date of the grant.
The deferred compensation was amortized over the term of the
agreement as a charge to compensation expense, with the grants
revalued at each reporting period, with the deferred
compensation adjusted accordingly. During the fiscal year ended
July 2, 2005, prior to the Companys adoption of
SFAS 123R, the Company recorded an expense of $307,000
related to these shares. During the fiscal year ended
July 1, 2006, the Company applied the provisions of
SFAS 123R to these shares, and recorded an expense of
$447,000 during that period related to these shares. On
February 9, 2006, these shares of restricted stock vested.
On September 22, 2004, options to purchase
1,730,950 shares of common stock of the Company were
granted to employees at an exercise price of $6.73 per share.
One half of the options vest on a time based schedule
(twenty-five percent of such amount vests one year from the
grant date, with the remaining seventy-five percent of such
amount vesting monthly over the next three years) and the
remaining half vest on a performance based schedule. The
performance based schedule options vest as follows:
(i) fifty percent of the performance based shares vest when
the Company achieves cash flow break-even (which is defined as
the point when the Company generates earnings before interest,
taxes, depreciation and amortization (excluding one-time items)
greater than zero in any fiscal quarter) and (ii) the
remaining fifty percent of these performance based shares vest
upon the Company achieving profitability (which is defined as
the point at which the Company generates a profit before
interest and taxes (excluding one-time items) that is greater
than zero in any fiscal quarter). As of June 30, 2007,
424,345 shares underlying these options have vested. Any
unvested performance based options will vest in full on
September 22, 2009, regardless of the achievement of the
underlying performance targets.
In December 2004, in connection with a 7% convertible note
private placement as described in
Note 16-
Debt, the Company issued warrants to purchase
2,001,963 shares of its common stock. These warrants have
an exercise price of $6.00 per share and expire on
December 20, 2009.
During 2003, the Company assumed warrants to purchase
4,881 shares of common stock as part of the terms of
acquisition of Ignis Optics. The warrants, which have an
exercise price of $40.00 per share, expire beginning in April
2008. As of June 30, 2007, all of these warrants remained
outstanding.
In 2002, the Company issued a warrant to purchase
900,000 shares of common stock to Nortel Networks as part
of the purchase price for the acquisition of the optical
components business of Nortel Networks. The Company valued the
warrants at $6,685,000 based on the fair market value of the
Companys common stock as of the announcement date of the
acquisition. The warrant was exercised in full on
September 7, 2004 at an exercise price of approximately
$0.06 per share.
F-28
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In addition to the stock option grants described above, the
following summarizes all employee stock option activity for the
periods provided below:
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
Weighted Average
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Outstanding at July 3, 2004
|
|
|
3,206,612
|
|
|
$
|
15.21
|
|
Granted
|
|
|
2,002,178
|
|
|
|
6.70
|
|
Exercised
|
|
|
(811
|
)
|
|
|
4.74
|
|
Cancelled
|
|
|
(1,960,727
|
)
|
|
|
13.90
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 2, 2005
|
|
|
3,247,252
|
|
|
|
13.87
|
|
Granted
|
|
|
5,130,660
|
|
|
|
4.97
|
|
Exercised
|
|
|
(58,627
|
)
|
|
|
5.15
|
|
Cancelled
|
|
|
(998,416
|
)
|
|
|
12.70
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 1, 2006
|
|
|
7,320,869
|
|
|
|
7.79
|
|
Granted
|
|
|
1,260,550
|
|
|
|
2.28
|
|
Exercised
|
|
|
(3,678
|
)
|
|
|
2.69
|
|
Cancelled
|
|
|
(2,148,293
|
)
|
|
|
7.23
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2007
|
|
|
6,429,448
|
|
|
|
9.16
|
|
|
|
|
|
|
|
|
|
|
F-29
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes option information relating to options
outstanding under the Companys stock option plans as of
June 30, 2007 as well as options the Company assumed from
Bookham Technology plc in connection with the scheme of
arrangement pursuant to which Bookham Technology plc became a
wholly-owned subsidiary of the Company. Because the Company
tracks the options issued under Bookham Technology plcs
plans and assumed by the Company in the scheme of arrangement
separately from those issued under plans, the following
information in presented in two separate sets of exercise price
ranges (in U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable
|
|
|
Weighted Average
|
|
|
|
|
Range of Exercise Prices
|
|
As of 06/30/07
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
As of 06/30/07
|
|
|
Exercise Price
|
|
|
|
|
|
U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 2.01- 2.01
|
|
|
881,500
|
|
|
|
10.02
|
|
|
$
|
2.01
|
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
2.18- 4.70
|
|
|
403,577
|
|
|
|
9.33
|
|
|
|
2.99
|
|
|
|
63,654
|
|
|
|
3.27
|
|
|
|
|
|
4.91- 4.91
|
|
|
3,402,813
|
|
|
|
8.42
|
|
|
|
4.91
|
|
|
|
1,435,698
|
|
|
|
4.91
|
|
|
|
|
|
4.99- 6.73
|
|
|
825,427
|
|
|
|
7.52
|
|
|
|
6.60
|
|
|
|
460,431
|
|
|
|
6.64
|
|
|
|
|
|
6.73- 19.33
|
|
|
394,269
|
|
|
|
4.81
|
|
|
|
13.57
|
|
|
|
357,076
|
|
|
|
14.03
|
|
|
|
|
|
19.33-510.28
|
|
|
116,242
|
|
|
|
5.78
|
|
|
|
30.90
|
|
|
|
107,467
|
|
|
|
31.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.01-510.28
|
|
|
6,023,828
|
|
|
|
8.31
|
|
|
|
5.66
|
|
|
|
2,424,326
|
|
|
|
7.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed from U.K. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.91- 10.81
|
|
|
33,600
|
|
|
|
7.06
|
|
|
|
10.00
|
|
|
|
24,074
|
|
|
|
10.01
|
|
|
|
|
|
11.71- 11.71
|
|
|
65,258
|
|
|
|
6.92
|
|
|
|
11.71
|
|
|
|
49,497
|
|
|
|
11.71
|
|
|
|
|
|
14.01- 14.90
|
|
|
17,000
|
|
|
|
5.27
|
|
|
|
14.22
|
|
|
|
17,000
|
|
|
|
14.22
|
|
|
|
|
|
15.61- 15.61
|
|
|
114,860
|
|
|
|
5.38
|
|
|
|
15.61
|
|
|
|
114,860
|
|
|
|
15.61
|
|
|
|
|
|
16.01- 16.01
|
|
|
15,150
|
|
|
|
6.10
|
|
|
|
16.01
|
|
|
|
14,518
|
|
|
|
16.01
|
|
|
|
|
|
16.01- 27.07
|
|
|
127,407
|
|
|
|
5.57
|
|
|
|
25.79
|
|
|
|
123,282
|
|
|
|
25.75
|
|
|
|
|
|
27.07-721.43
|
|
|
32,345
|
|
|
|
3.80
|
|
|
|
155.75
|
|
|
|
31,845
|
|
|
|
157.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 9.91-721.43
|
|
|
405,620
|
|
|
|
5.72
|
|
|
$
|
28.85
|
|
|
|
375,076
|
|
|
$
|
30.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,429,448
|
|
|
|
|
|
|
|
|
|
|
|
2,799,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Reserved
Common stock is reserved for future issuance as follows:
|
|
|
|
|
|
|
June 30,
|
|
|
|
2007
|
|
|
Stock option plan:
|
|
|
|
|
Outstanding options
|
|
|
6,429,448
|
|
Warrants
|
|
|
10,083,578
|
|
Reserved for contingent purchase
consideration
|
|
|
208,623
|
|
Reserved for future option grants
|
|
|
2,245,249
|
|
|
|
|
|
|
Total
|
|
|
18,966,898
|
|
|
|
|
|
|
F-30
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
If the Company had reported net income, as opposed to a net
loss, the calculation of diluted earnings per share would have
included an additional 18,111,000, 11,509,657 and 10,140,319
common equivalent shares related to outstanding share options
and warrants (determined using the treasury stock method) for
the years ended June 30, 2007, July 1, 2006 and
July 2, 2005, respectively.
|
|
12.
|
Segments
of an Enterprise and Related Information
|
The Company is currently organized and operates as two operating
segments: (i) optics and (ii) research and industrial.
The optics segment designs, develops, manufactures, markets and
sells optical solutions for telecommunications and industrial
applications. The research and industrial segment designs,
manufactures, markets and sells photonic and microwave
solutions. The Company evaluates the performance of its segments
and allocates resources based on consolidated revenues and
overall profitability.
Segment and geographic information for the years ended
June 30, 2007, July 1, 2006 and July 2, 2005 is
presented below. Revenues are attributed to countries based on
the location of customers.
Information on reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Optics
|
|
$
|
171,172
|
|
|
$
|
206,019
|
|
|
$
|
176,598
|
|
Research and industrial
|
|
|
31,642
|
|
|
|
25,630
|
|
|
|
23,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net revenues
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
$
|
200,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Optics
|
|
$
|
(85,004
|
)
|
|
$
|
(82,760
|
)
|
|
$
|
(159,154
|
)
|
Research and industrial
|
|
|
2,829
|
|
|
|
(4,737
|
)
|
|
|
(88,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net loss
|
|
$
|
(82,175
|
)
|
|
$
|
(87,497
|
)
|
|
$
|
(247,972
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of tangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Optics
|
|
$
|
13,875
|
|
|
$
|
20,072
|
|
|
$
|
20,532
|
|
Research and industrial
|
|
|
137
|
|
|
|
155
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated depreciation
|
|
$
|
14,012
|
|
|
$
|
20,227
|
|
|
$
|
20,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures for long-lived
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Optics
|
|
$
|
5,986
|
|
|
$
|
9,920
|
|
|
$
|
15,913
|
|
Research and industrial
|
|
|
447
|
|
|
|
193
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total expenditures
for long-lived assets
|
|
$
|
6,433
|
|
|
$
|
10,113
|
|
|
$
|
16,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information regarding the Companys operations by
geographic area is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
July 2,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Canada
|
|
$
|
56,093
|
|
|
$
|
107,445
|
|
|
$
|
85,006
|
|
United States
|
|
|
45,992
|
|
|
|
47,762
|
|
|
|
54,660
|
|
China
|
|
|
37,672
|
|
|
|
27,781
|
|
|
|
19,420
|
|
Europe
|
|
|
34,382
|
|
|
|
28,753
|
|
|
|
35,001
|
|
Asia other than China
|
|
|
25,204
|
|
|
|
15,655
|
|
|
|
5,019
|
|
Rest of the world
|
|
|
3,471
|
|
|
|
4,253
|
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
202,814
|
|
|
$
|
231,649
|
|
|
$
|
200,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the Companys long-lived
tangible assets by geographic region as of the dates indicated
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
July 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
United Kingdom
|
|
$
|
9,707
|
|
|
$
|
30,319
|
|
China
|
|
|
18,462
|
|
|
|
14,529
|
|
Europe other than United Kingdom
|
|
|
3,877
|
|
|
$
|
4,806
|
|
United States
|
|
|
1,341
|
|
|
$
|
1,893
|
|
Canada
|
|
|
320
|
|
|
|
616
|
|
|
|
|
|
|
|
|
|
|
Total long-lived tangible assets
|
|
$
|
33,707
|
|
|
$
|
52,163
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Business
Combinations
|
Acquisition
of Creekside
On August 10, 2005, the Companys Bookham Technology
plc subsidiary acquired all of the share capital of City Leasing
(Creekside) Limited (Creekside) for consideration of
approximately £1, plus transaction costs. The following is
the purchase price allocation related to this business
combination (in thousands):
|
|
|
|
|
|
|
Purchase
|
|
|
|
Price
|
|
|
|
Allocation
|
|
|
Purchase price:
|
|
|
|
|
Cash
|
|
$
|
|
|
Transaction costs
|
|
|
685
|
|
|
|
|
|
|
|
|
$
|
685
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Cash, including restricted cash
|
|
$
|
8,378
|
|
Net monetary assets
|
|
|
4,092
|
|
Deferred tax liabilities
|
|
|
(11,785
|
)
|
|
|
|
|
|
|
|
$
|
685
|
|
|
|
|
|
|
F-32
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The net monetary assets acquired primarily represent lease
receivables and loans payable to and from parties related to the
entity from which Bookham Technology plc acquired Creekside.
Bookham Technology plc has the right to offset these balances,
and in accordance with FIN 39, Offsetting of Amounts
Related to Certain Contracts is reflecting these amounts
net on its balance sheet. The contracts underlying the
receivables and loans are denominated in United Kingdom pounds
sterling. These loans, in principal amounts at the date of
acquisition of $32 million and $75 million based on
the October 1, 2005 exchange rate of 1.76 U.S. dollars
per UK pound sterling, accrue interest at annual rates of 5.54%
and 5.68%, respectively. The first loan was paid in full on
October 14, 2005 and the second loan was paid in full in
equal installments on July 14, 2006, paid as scheduled on
that date, and July 16, 2007, paid as scheduled on that
date with the lease receivables received substantially
concurrent with this schedule. The Company anticipates applying
capital allowances of Bookham Technology plc to reduce tax
liabilities assumed from Creekside. Accordingly, as a result of
the acquisition of Creekside, in the year ended July 1,
2006 the Company has recognized a one time tax gain of
$11.8 million related to the expected realization of these
tax assets. No results of Creekside have been included in the
Companys results of operations for periods prior to
August 10, 2005, after which point Creekside is included in
the Companys consolidated results of operations.
Acquisition
of Avalon Photonics, AG
Avalon Photonics, AG (Avalon) is a producer of
multimode and single mode short wavelength VCSEL or
VCSEL-arrays. On March 22, 2006, the Company acquired all
of the outstanding share capital of Avalon, a company organized
under the laws of Switzerland, under an agreement pursuant to
which it issued 764,951 shares of common stock to the
Avalon shareholders and their designees, valued at $5,500,000 as
of the date of acquisition. In addition, subject to the
achievement of certain future integration and revenue
milestones, the Avalon shareholders and their designees were
entitled to receive up to 347,705 additional shares of common
stock. As 139,082 shares related to integration milestones
were fixed as to number and believed to be achievable, the value
of these shares, $1,000,000 as of the date of acquisition, was
included as part of the consideration in the allocation of the
purchase price. In the year ended June 30, 2007 it was
determined the integration milestone would not be achieved and
the $1,000,000 related to these contingent shares was reversed
as a reduction of goodwill and additional paid-in capital. The
issuance of the remaining 208,623 shares is contingent upon
Avalon achieving certain revenue criteria over a two-year
period. As of June 30, 2007, the Company does not believe
it is likely the revenue criteria will be achieved. Should any
additional contingent consideration result from the achievement
of the revenue criteria it will be accounted for as additional
goodwill. $118,000 of the proceeds was allocated to in-process
research and development (IPR&D) projects. The
pro forma results of operations of Avalon prior to
March 22, 2006 were immaterial to the Company.
To determine the value of the developed technology of Avalon,
the expected future cash flow attributed to all existing
technology was discounted, taking into account risks related to
the characteristics and application of the technology, existing
and future markets and assessments of the lifecycle stage of the
technology.
The value of IPR&D of Avalon was determined based on the
expected cash flow attributed to in-process projects, taking
into account revenue that is attributable to previously
developed technology, the level of effort to date in the
IPR&D, the percentage of completion of the project and the
level of risk associated with the in-process technology. The
projects identified as in-process are those that were underway
at Avalon at the time of the acquisition and that required
additional efforts in order to establish technological
feasibility. The value of IPR&D was included in the
Companys results of operations during the period of the
Avalon acquisition.
The value of the acquired patent portfolio was determined based
on the income approach, as it most accurately reflected the fair
value associated with unique assets such as a patent.
Specifically, the relief from royalty method was utilized to
arrive at an estimate of fair value. This methodology estimates
the amount of hypothetical royalty income that could be
generated if the patents were licensed by an independent,
third-party owner to the business currently using the patents in
an arms-length transaction. This is the royalty savings to
the owners of the patent portfolio in that the owner is not
required to pay a royalty for the use of the patents.
F-33
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The value of supply contracts was determined based on discounted
cash flows. The discounted cash flow method was considered to be
the most appropriate methodology, as it reflects the present
value of the operating cash flows generated by the contracts
over their returns.
A summary of the purchase price allocation pertaining to the
Avalon acquisition is as follows:
|
|
|
|
|
|
|
Avalon
|
|
|
|
(In thousands)
|
|
|
Purchase price
|
|
$
|
6,500
|
|
Transaction and other direct
acquisition costs
|
|
|
200
|
|
|
|
|
|
|
|
|
$
|
6,700
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
Net tangible assets acquired
|
|
$
|
1,804
|
|
Intangible assets acquired:
|
|
|
|
|
Supply contracts and customer
relationships
|
|
|
539
|
|
Core and current technology
|
|
|
1,695
|
|
In-process research and development
|
|
|
118
|
|
Goodwill
|
|
|
2,544
|
|
|
|
|
|
|
|
|
$
|
6,700
|
|
|
|
|
|
|
Amortization period of intangibles acquired from Avalon are as
follow:
|
|
|
|
|
|
|
|
|
Supply contracts and customer
relationships
|
|
|
|
|
|
|
7 years
|
|
Core and current technology
|
|
|
|
|
|
|
4 - 6 years
|
|
F-34
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Goodwill
and Other Intangible Assets
|
The following are summaries of information related to the
Companys goodwill and other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles Assets
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Goodwill
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net Book Value
|
|
|
|
(In thousands)
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 3, 2004
|
|
$
|
119,953
|
|
|
$
|
65,329
|
|
|
$
|
21,480
|
|
|
$
|
43,849
|
|
Acquired
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
11,107
|
|
|
|
(11,107
|
)
|
Disposals
|
|
|
|
|
|
|
(6,568
|
)
|
|
|
(2,413
|
)
|
|
|
(4,155
|
)
|
Impairment
|
|
|
(113,592
|
)
|
|
|
(634
|
)
|
|
|
|
|
|
|
(634
|
)
|
Exchange rate adjustment
|
|
|
(327
|
)
|
|
|
(579
|
)
|
|
|
(636
|
)
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2005
|
|
|
6,260
|
|
|
|
57,548
|
|
|
|
29,538
|
|
|
|
28,010
|
|
Acquired
|
|
|
2,621
|
|
|
|
2,234
|
|
|
|
|
|
|
|
2,234
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
10,004
|
|
|
|
(10,004
|
)
|
Disposals
|
|
|
|
|
|
|
(929
|
)
|
|
|
(929
|
)
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
(760
|
)
|
|
|
|
|
|
|
(760
|
)
|
Exchange rate adjustment
|
|
|
|
|
|
|
739
|
|
|
|
552
|
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1, 2006
|
|
|
8,881
|
|
|
|
58,832
|
|
|
|
39,165
|
|
|
|
19,667
|
|
Adjustment
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
9,155
|
|
|
|
(9,155
|
)
|
Exchange rate adjustment
|
|
|
|
|
|
|
4,868
|
|
|
|
3,614
|
|
|
|
1,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
$
|
7,881
|
|
|
$
|
63,700
|
|
|
$
|
51,934
|
|
|
$
|
11,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
July 1, 2006
|
|
|
Impairment
|
|
|
Disposals
|
|
|
Additions
|
|
|
Adjustment
|
|
|
June 30, 2007
|
|
|
|
(In thousands)
|
|
|
Supply agreements
|
|
$
|
4,213
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,213
|
|
Customer relationships
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
1,059
|
|
Customer databases
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Core and current technology
|
|
|
35,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
35,155
|
|
Patent portfolio
|
|
|
14,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,834
|
|
|
|
19,446
|
|
Customer contracts
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,868
|
|
|
|
63,700
|
|
Less accumulated amortization
|
|
|
(39,165
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,155
|
)
|
|
|
(3,614
|
)
|
|
|
(51,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
19,667
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9,155
|
)
|
|
$
|
1,254
|
|
|
$
|
11,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
July 2, 2005
|
|
|
Impairment
|
|
|
Disposals
|
|
|
Additions
|
|
|
Adjustment
|
|
|
July 1, 2006
|
|
|
|
(In thousands)
|
|
|
Supply agreements
|
|
$
|
4,157
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
56
|
|
|
$
|
4,213
|
|
Customer relationships
|
|
|
487
|
|
|
|
|
|
|
|
|
|
|
|
539
|
|
|
|
25
|
|
|
|
1,051
|
|
Customer databases
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Core and current technology
|
|
|
34,750
|
|
|
|
(760
|
)
|
|
|
(929
|
)
|
|
|
1,695
|
|
|
|
373
|
|
|
|
35,129
|
|
Patent portfolio
|
|
|
14,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235
|
|
|
|
14,612
|
|
Customer contracts
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,548
|
|
|
|
(760
|
)
|
|
|
(929
|
)
|
|
|
2,234
|
|
|
|
739
|
|
|
|
58,832
|
|
Less accumulated amortization
|
|
|
(29,538
|
)
|
|
|
|
|
|
|
929
|
|
|
|
(10,004
|
)
|
|
|
(552
|
)
|
|
|
(39,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
28,010
|
|
|
$
|
(760
|
)
|
|
$
|
|
|
|
$
|
(7,770
|
)
|
|
$
|
187
|
|
|
$
|
19,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
Translation
|
|
|
Balance at
|
|
|
|
July 3, 2004
|
|
|
(JCA)
|
|
|
Impairment
|
|
|
Disposals
|
|
|
Additions
|
|
|
Adjustment
|
|
|
July 2, 2005
|
|
|
|
(In thousands)
|
|
|
Supply agreements
|
|
$
|
5,482
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,242
|
)
|
|
$
|
|
|
|
$
|
(83
|
)
|
|
$
|
4,157
|
|
Customer relationships
|
|
|
617
|
|
|
|
(10
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
487
|
|
Customer databases
|
|
|
599
|
|
|
|
(467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Core and current technology
|
|
|
36,660
|
|
|
|
(620
|
)
|
|
|
(156
|
)
|
|
|
(870
|
)
|
|
|
|
|
|
|
(264
|
)
|
|
|
34,750
|
|
Patent portfolio
|
|
|
14,951
|
|
|
|
(41
|
)
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
(175
|
)
|
|
|
14,377
|
|
Capitalized licenses
|
|
|
3,318
|
|
|
|
(3,318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer contracts
|
|
|
3,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57
|
)
|
|
|
3,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,329
|
|
|
|
(4,456
|
)
|
|
|
(634
|
)
|
|
|
(2,112
|
)
|
|
|
|
|
|
|
(579
|
)
|
|
|
57,548
|
|
Less accumulated amortization
|
|
|
(21,480
|
)
|
|
|
|
|
|
|
|
|
|
|
2,413
|
|
|
|
(11,107
|
)
|
|
|
636
|
|
|
|
(29,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
43,849
|
|
|
$
|
(4,456
|
)
|
|
$
|
(634
|
)
|
|
$
|
301
|
|
|
$
|
(11,107
|
)
|
|
$
|
57
|
|
|
$
|
28,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
On March 22, 2006, Bookham acquired all of the outstanding
share capital of Avalon Photonics for total stock consideration
valued at $6.7 million, including contingent consideration
valued at $1,000,000, see Note 13 Business
Combinations. The goodwill arising from this combination was
$2,544,000. This goodwill was adjusted down to $1,544,000 in the
year ended June 30, 2007 to reverse the $1.0 million
contingent consideration as a result of certain integration
milestones not being achieved.
No other acquisitions by the Company resulted in recognition of
goodwill in the years ended June 30, 2007, July 1,
2006 and July 2, 2005.
Intangible
Assets
Intangible assets have primarily been acquired through business
combinations and are being amortized on a straight line basis
over the estimated useful life of the related asset, generally
three to six years, except for fifteen years as to a specific
customer contract.
F-36
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The expected future annual amortization expense of other
intangible assets is as follows (in thousands):
|
|
|
|
|
|
|
Amounts
|
|
|
Fiscal year ending
|
|
|
|
|
2008
|
|
$
|
4,575
|
|
2009
|
|
|
1,675
|
|
2010
|
|
|
1,443
|
|
2011
|
|
|
1,115
|
|
2012
|
|
|
659
|
|
Thereafter
|
|
|
2,299
|
|
|
|
|
|
|
Total expected future amortization
|
|
$
|
11,766
|
|
|
|
|
|
|
As of June 30, 2007, the weighted average amortization
period for intangible assets is 9 years, including
10 years for supply contracts, 4 years for the
Companys customer database, 9 years for patents and
11 for core and current technologies.
Impairment
of Goodwill and Other Intangible Assets
The Company has adopted SFAS No. 142
(SFAS 142), Goodwill and Other Intangible
Assets. SFAS 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least
annually or sooner whenever events or changes in circumstances
indicate that they may be impaired. SFAS 142 generally
requires these impairment tests to be based on a business
units fair value, which is generally
determined through market prices, although in certain cases, in
the event of an absence of market prices for particular elements
of the relevant business, SFAS 142 also permits the use of
discounted future expected cash flows as a basis for testing.
The Company has applied both approaches, as appropriate.
The Companys annual impairment review of goodwill and
other intangibles led to the recording of no impairment charges
for the year ended June 30, 2007, and the recording of an
impairment charge of $760,000 due to the impairment of
intangibles related to Ignis Optics, Inc. which had been
acquired in October 2003 for the year ended July 1, 2006.
This charge was entirely related to the optics segment.
In the year ended July 2, 2005, a continued decline in the
Companys share price, and therefore market capitalization,
combined with continuing net losses and a history of not meeting
revenue and profitability targets, suggested that the goodwill
related to certain of its acquisitions may have been impaired.
As a result of these triggering events, the Company performed an
evaluation of the related goodwill balances, and performed its
annual evaluation of acquired intangible assets. In total, in
the year ended July 2, 2005, the Company recorded
impairment charges of approximately $114,226,000, approximately
$113,592,000 related to goodwill associated with New Focus, Inc.
acquired in March 2004, Ignis Optics, Inc., acquired in October
2003, and Onetta, Inc. acquired in June 2004 and approximately
$634,000 related to intangibles of New Focus, including patents
and other technology. Approximately $83,326,000 of these charges
related to the research and industrial segment and approximately
$30,900,000 of these charges related to the optics segment.
|
|
15.
|
Related
Party Transactions
|
As of July 1, 2006 and July 2, 2005, Nortel Networks
owned 6.9% and 11.8% of the Companys outstanding shares of
common stock, respectively. To the best of the Companys
knowledge, Nortel Networks owns no outstanding shares of common
stock as of June 30, 2007. Since the Companys
acquisition of Nortel Networks Optical Components in 2002, the
Company has also been party to a series of supply agreements,
and addendums thereto, with Nortel Networks, which expired as to
all material terms and obligations during the year ended
June 30, 2007, and Nortel Networks has also held notes
payable from the Company, which were settled in January 2006.
F-37
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accordingly, the Company does not consider Nortel Networks to be
a related party as of June 30, 2007. However, because of
the significance of these transactions since the Companys
acquisition of Nortel Networks Optical Components in 2002, the
following details of transactions with Nortel Networks, trading
balances with Nortel Networks, and history of other transactions
with Nortel Network, are being presented by the Company.
In the ordinary course of business, the Company has entered into
the following transactions with Nortel Networks for the years
ended June 30, 2007, July 1, 2006 and July 2,
2005, and had the following trading balances outstanding at
June 30, 2007, July 1, 2006 and July 2, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to
|
|
|
Purchases from
|
|
|
Receivables from
|
|
|
Liabilities to
|
|
|
|
Nortel
|
|
|
Nortel
|
|
|
Nortel
|
|
|
Nortel
|
|
|
|
(In thousands)
|
|
|
June 30, 2007
|
|
$
|
39,873
|
|
|
$
|
5,020
|
|
|
$
|
4,154
|
|
|
$
|
1,831
|
|
July 1, 2006
|
|
|
110,511
|
|
|
|
|
|
|
|
7,499
|
|
|
|
4,250
|
|
July 2, 2005
|
|
|
89,505
|
|
|
|
508
|
|
|
|
7,271
|
|
|
|
722
|
|
Historical
Transactions with Nortel
Prior to January 13, 2006, Nortel Networks, and
subsidiaries of Nortel Networks, held promissory notes with an
aggregate principal amount of $45.9 million. In connection
with a series of transactions entered into on January 13,
2006, the promissory notes were settled in full on
January 13, 2006 (See Note 16 Debt).
On January 13, 2006, the Company entered into a third
addendum to the Optical Components Supply Agreement dated
November 8, 2002 with Nortel Networks Limited (the
Supply Agreement). This third addendum obligated
Nortel Networks to purchase $72 million of the
Companys product during the 2006 calendar year. The
addendum also eliminated provisions requiring the Company to
grant a license for the assembly, test, post-processing and test
intellectual property (excluding wafer technology) of certain
critical products to Nortel Networks Limited and to any
designated alternative supplier if the Companys cash
balance was less than $25 million, as well as the
provisions giving Nortel Networks Limited the right to buy all
Nortel Networks Limited inventory then held by the Company and
requiring the Company to grant a license to Nortel Networks
Limited or any alternative supplier for the manufacture of all
products covered by the first addendum to the Supply Agreement
if the Companys cash balance was less than
$10 million.
These January 13, 2006 transactions, as well as the
transactions described in Note 16, were the culmination of
a series of transactions since the Companys acquisition of
Nortel Networks Optical Components (NNOC) in 2002
under which obligations to Nortel Networks Limited were created
and amended, and a supply agreement similarly was entered into
and amended. The following describes this series of transactions:
|
|
|
|
|
At the time of the Companys acquisition of NNOC in
November 2002, a subsidiary of the Company issued a
$30 million secured loan note due November 8, 2005
(the $30m Note) and a $20 million unsecured
loan note due November 8, 2007 (the Original $20m
Note) to affiliates of Nortel Networks. In connection with
the issuance of these notes, the Company and Nortel Networks
entered into security agreements with respect to certain assets
of the Company. In September 2004, the Original $20m Note was
exchanged for a $20 million note convertible into shares of
the Companys common stock (the New $20m Note);
|
|
|
|
On December 2, 2004, (i) the $30m Note was amended and
restated to, among other things, extend the final maturity date
by one year from November 8, 2005 to November 8, 2006
and (ii) the New $20m Note was amended and restated to,
among other things, provide that it would not convert into the
Companys common stock (collectively, the Amended and
Restated Notes). The Amended and Restated Notes were
secured by the assets that secured the $30m Note, as well as
certain additional property, plant and equipment of the Company.
The Amended and Restated Notes also contained certain
limitations, including restrictions on asset sales and a
requirement that the Company maintain a cash balance of at least
$25 million;
|
F-38
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
On February 7, 2005, the Company, Bookham Technology plc
and certain of the Companys other subsidiaries entered
into a Notes Amendment and Waiver Agreement with Nortel Networks
Corporation and Nortel Networks UK Limited, relating to the
$25 million cash balance covenant set forth in the Amended
and Restated Notes. Under the waiver, the obligation to maintain
this cash balance was waived until August 7, 2006; and
|
|
|
|
On February 7, 2005, the Company also entered into an
addendum (the The First Addendum) to the Supply
Agreement. The First Addendum effected the following changes to
the Supply Agreement:
|
|
|
|
|
|
The term of the Supply Agreement was extended by one year to
November 2006, provided that Nortel Networks obligation to
purchase a percentage of certain optical components from the
Company was to expire in accordance with the terms of the Supply
Agreement in November 2005;
|
|
|
|
Nortel Networks provided the Company with a purchase commitment
for last time buys, or certain of the Companys
discontinued products, which Nortel Networks was obligated to
purchase as these products were manufactured and delivered. If
the Company failed meet milestones set out in an agreed upon
delivery schedule for last-time buy products by more
than 10% in aggregate revenue for three consecutive weeks, and
did not rectify the failure within 30 days, those products
would have been deemed critical products, subject to the
relevant provisions of the Supply Agreement described below.
|
The following terms were put in place:
|
|
|
|
|
At Nortel Networks request, the Company agreed to increase
its manufacturing would critical product wafer in-feeds against
a Nortel Networks agreed upon manufacturing schedule. Upon
manufacture and placement into inventory, Nortel Networks agreed
to pay a holding and inventory fee pending Nortel Networks
outright purchase of such wafers. In addition, Nortel Networks
could at its election supply any capital equipment required in
connection with the requisite inventory buildup or extend the
time period for meeting its demand if its demand required the
Company to increase its capital equipment to meet the demand in
the required time period;
|
|
|
|
If at any time the Company (a) had a cash balance of less
than $25 million; (b) was unable to manufacture
critical products in any material respect, and that inability
continued uncured for a period of six weeks, or (c) was
subject to an insolvency event, such as a petition or assignment
in bankruptcy, appointment of a trustee, custodian or receiver,
or entrance into an arrangement for the general benefit of
creditors, then the Company would have to grant a license for
the assembly, post-processing and test intellectual property
(but excluding wafer technology) of certain critical products to
Nortel Networks and to any designated alternative supplier;
|
|
|
|
If the Companys cash balance were less than
$10 million or there were an insolvency event, Nortel
Networks Limited would have had the right to buy all Nortel
Networks inventory held by the Company, and the Company would
have had to grant a license to Nortel Networks Limited or any
alternative supplier for the manufacture of all products covered
by the First Addendum;
|
|
|
|
The Companys licensing and related obligations would
terminate on February 7, 2007, unless the license had been
exercised, in which case they would terminate 24 months
from the date the license was exercised, provided that at that
time, among other things, the Company had a cash balance of
$25 million and had been able to meet Nortel Networks
demand for the subject products; and
|
|
|
|
Pursuant to the First Addendum, the Company was obligated to
make prepayments under the $30 million note and the
$20 million note issued to Nortel Networks UK Limited on a
pro rata basis in the following amounts upon the occasion of any
one of the events described below:
|
|
|
|
|
|
$1.0 million if the Company failed to deposit intellectual
property relating to all covered products in escrow and its cash
balance was below $10 million;
|
F-39
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
$1.0 million in each case if (a) the Company failed to
deliver 90% of scheduled last time buys through April 2005,
subject to cure provisions (b) the Company failed to meet
90% of scheduled critical component wafer manufacturing through
August 2005, subject to cure provisions, or (c) the Company
failed to use commercially reasonable efforts to provide for an
alternative supplier of two identified product lines when
obligated to do so under the agreement; and
|
|
|
|
$2.0 million in each case if (a) the Company failed to
deliver 75% of scheduled last time buys through August 2005,
subject to cure provisions, or (b) the Company failed to
meet 75% of scheduled critical product deliveries through
November 2005, subject to cure provisions.
|
|
|
|
|
|
On March 28, 2005, the Company entered into a letter
agreement (the Letter Agreement) with Nortel
Networks pursuant to which the Company and Nortel Networks
agreed to enter into definitive documentation further amending
certain terms of the supply agreement, the Amended and Restated
Notes and documentation related to the Amended and Restated
Notes, including the security agreements entered into in
connection with the Amended and Restated Notes;
|
|
|
|
On May 2, 2005, the Company and Nortel Networks entered
into definitive agreements formally documenting the arrangements
contemplated by the Letter Agreement. The terms of the
definitive agreements were effective April 1, 2005 and
include, among other agreements including a security agreement,
a further Addendum (the Second Addendum) to the
supply agreement and a Second Notes Amendment and Waiver
Agreement between the Company and Nortel Networks relating to
the Amended and Restated Notes (the Notes Agreement);
|
|
|
|
The Second Addendum, which amended the terms and provisions of
the Supply Agreement as amended by the First Addendum, increased
the prices and adjusted the payment terms of certain products
shipped to Nortel Networks under the Supply Agreement. The
increased prices and adjusted payment terms continued for one
year beginning April 1, 2005. Such prices and payment terms
were subject to termination if an event of default occurred and
continued under the Amended and Restated Notes or if a change in
control or bankruptcy event occurred;
|
|
|
|
Pursuant to the Second Addendum, Nortel Networks confirmed the
arrangements in the Letter Agreement to issue non-cancelable
purchase orders for last-time buys for certain
products and other non last-time buy products. The
products were to be delivered to Nortel Networks Limited over
the next 12 months beginning on April 1, 2005. This
resulted in the issuance of a non-cancelable purchase order for
such products valued at approximately $100 million with
approximately $50 million of last-time buy
products and $50 million for other non last-time
buy products. A specific delivery schedule was agreed for
the last-time buy products, however, the delivery
schedule and composition of the non last-time buy
products was subject to change as agreed between the parties.
The Second Addendum also formally confirmed increases in the
prices and adjustments in the payment terms of certain products
shipped to Nortel Networks under the Supply Agreement. Pursuant
to the Notes Agreement, Nortel Networks UK Limited waived
through May 2, 2006 the terms of the Amended and Restated
Notes requiring prepayment in the event the Company raised
additional capital. This waiver applied to net proceeds of up to
$75 million in the aggregate, provided that the Company
used such proceeds for working capital purposes in the ordinary
course of business. The waiver would have terminated prior to
May 2, 2006 if an event of default had occurred and were
continuing under the Amended and Restated Notes or if a change
in control or bankruptcy event occurred; and
|
|
|
|
The Notes Agreement further amended the Amended and Restated
Notes to provide that an event of default under the Supply
Agreement would constitute an event of default under the Amended
and Restated Notes. An event of default would occur under the
Supply Agreement (and therefore the Amended and Restated Notes)
upon:
|
|
|
|
|
|
the Companys intentional cessation of shipment of products
to Nortel Networks against an agreed delivery schedule;
|
F-40
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
the Companys failure to deliver products pursuant to the
Supply Agreement to the extent that Nortel Networks would be
entitled to cancel all or part of an order, provided that Nortel
Networks provided written notice of such default;
|
|
|
|
the Companys failure to meet a milestone for a last time
buy product, provided that Nortel Networks provided written
notice of such default;
|
|
|
|
the Companys breach of or default under any one of its
material obligations under the Supply Agreement which continued
for more than 10 calendar days;
|
|
|
|
any other default by the Company which would entitle Nortel
Networks to terminate the Supply Agreement; or
|
|
|
|
any event of default under the Amended and Restated Notes.
|
|
|
|
|
|
Pursuant to the Notes Agreement, the Company and certain of its
subsidiaries entered into security agreements securing the
obligations of the Company and its subsidiaries under the
Amended and Restated Notes and the Supply Agreement. These
obligations were secured by the assets already securing the
obligations of the Company and its subsidiaries under the
Amended and Restated Notes as of December 2, 2004, as well
as by Nortel Networks specific inventory and accounts
receivable under the Supply Agreement and the Companys
real property located in Swindon, United Kingdom. However, the
Company was permitted to sell the Swindon property provided that
no event of default had occurred and was continuing under the
Amended and Restated Notes, and provided that the Company used
the proceeds of such sale for working capital purposes in the
ordinary course of business.
|
Other
Related Party Transactions
During the quarter ended January 1, 2005, the Company
settled a $5.9 million promissory note due from a former
officer and director of New Focus, which the former officer and
director had entered into with New Focus in connection with a
separation agreement in July 2002. The note, including accrued
interest of $0.6 million, was settled for a cash payment of
$1.2 million. At the time of the acquisition of New Focus,
the note had been assumed and recorded on the Companys
books at a value of $1.75 million, and in the quarter ended
January 1, 2005, the Company recorded the $550,000
difference between book value and the payment amount as a
purchase price adjustment increasing the goodwill recorded in
connection with the New Focus acquisition.
On January 13, 2006, the Company entered into a series of
transactions to (i) retire $45.9 million aggregate
principal amount of outstanding notes payable to Nortel Networks
UK Limited and (ii) convert $25.5 million in
outstanding convertible debentures which were issued in December
2004. In connection with the satisfaction of these debt
obligations and conversion of these convertible debentures, the
Company issued approximately 10.5 million shares of common
stock, issued warrants to purchase approximately
1.1 million shares of common stock, paid approximately
$22.2 million in cash and recorded an expense of
$18.8 million in the fiscal year ended July 1, 2006
for loss on conversion and early extinguishment of debt.
The transactions were accounted for under the provisions of APB
26, Early Extinguishments of Debt, except for the
conversion of the convertible debentures, which have been
accounted for in accordance with SFAS 84, Induced
Conversions of Convertible Debt an amendment of APB
Opinion No. 26. In accordance with these
transactions, the Company recorded in other expense a loss of
$18.8 million in the year ended July 1, 2006.
|
|
|
|
|
On January 13, 2006, the Company paid Nortel Networks (UK)
Limited (NNUKL) all $20 million outstanding
principal of, plus all accrued interest on, the Amended and
Restated
Series A-2
Senior Secured Note Due 2007 issued by the Company to NNUKL (the
Series A Note), and the Series A Note was
retired and cancelled. The Company also paid NNUKL all of the
accrued interest on the Amended and Restated
|
F-41
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Series B-1
Senior Secured Note Due 2006 issued by Bookham Technology plc to
NNUKL, the payment of which and performance of all obligations
under which had been fully and unconditionally guaranteed by the
Company.
|
|
|
|
|
|
On January 13, 2006, the Company, Bookham Technology plc
and certain subsidiaries of Bookham Technology plc entered into
a Release Agreement (the Release Agreement) with
Nortel Networks, NNKUL, and certain of their affiliates
(collectively, Nortel). Pursuant to the Release
Agreement, Nortel released its security interests in the
collateral securing the obligations of the Company and Bookham
Technology plc under the Series A Note, the Series B
Note and the Optical Components Supply Agreement dated
November 8, 2002 (the Supply Agreement) between
Bookham Technology plc and Nortel Networks Limited
(NNL).
|
|
|
|
On January 13, 2006, certain accredited institutional
investors entered into separate purchase agreements to purchase
portions of the Series B Note (the Note
Purchasers) from NNUKL. Pursuant to the terms of an
Exchange Agreement, dated as of January 13, 2006 (the
Exchange Agreement), by and among the Company,
Bookham Technology plc and the Note Purchasers, the Company
issued an aggregate of 5,120,793 shares of common stock and
warrants to purchase an aggregate of up to 686,000 shares
of common stock (the Note Exchange Warrants) to the
Note Purchasers in exchange for the Series B Note, which
was retired and cancelled. The Note Exchange Warrants are
exercisable from July 13, 2006 to January 13, 2011 at
an exercise price per share of $7.00.
|
|
|
|
Pursuant to the terms of a Securities Exchange Agreement, dated
as of January 13, 2006 (the Securities Exchange
Agreement), by and among the Company and the investors
named therein (the Debenture Holders), each of the
Debenture Holders exercised its rights to convert a portion of
the Companys 7.0% Senior Unsecured Convertible
Debentures issued in December 2004 and held by such Debenture
Holder (the Debentures) into shares of common stock,
resulting in the issuance of an aggregate of
3,529,887 shares of common stock. Also pursuant to the
Securities Exchange Agreement, the Company paid the Debenture
Holders an aggregate of $1,717,663.16 in cash and issued to the
Debenture Holders an aggregate of 571,011 additional shares of
common stock and warrants (the Initial Warrants) to
purchase up to 304,359 shares of common stock. The Initial
Warrants are exercisable from July 13, 2006 to
January 13, 2011 at an exercise price per share of $7.00.
Subject to the approval of the Companys stockholders
pursuant to the rules of the NASDAQ Stock Market and the terms
of the Securities Exchange Agreement, each of the Debenture
Holders agreed to exercise its rights to convert the remaining
portion of the Debentures, which would result in the issuance of
an aggregate of 178,989 additional shares of common stock. Also
pursuant to the Securities Exchange Agreement, at the time of
such subsequent conversion, the Company agreed to pay the
Debenture Holders an aggregate of $538,408.51 in cash and issue
to the Debenture Holders an aggregate of 1,106,477 shares
of common stock to the Debenture Holders and warrants to
purchase an aggregate of up to 95,461 shares of common
stock, which would be exercisable on the same terms as the
Initial Warrants. The requisite stockholder approval was
received on March 22, 2006 and the transactions described
in the preceding two sentences were consummated on
March 23, 2006.
|
|
|
|
In connection with these transactions, the Company paid
$1.8 million in fees to a third party broker.
|
In determining the accounting loss from these transactions, the
Company applied the fair value of the consideration paid, which
in the case of the warrants to purchase shares of the
Companys common stock, was based on applying the
Black-Scholes-Merton model assuming variables of 84% volatility,
zero dividend yield, an expected life of 5 years, and a
risk free interest rate of 4.34%.
The original terms of the Nortel Networks promissory notes are
described in Note 15 Related Party Transactions.
F-42
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The terms and accounting for the Debentures, prior to the
January 13, 2006 were as follows:
|
|
|
|
|
On December 20, 2004, the Company closed a private
placement of $25.5 million of 7.0% senior unsecured
convertible debentures and warrants to purchase common stock
which resulted in net proceeds of $21.5 million. The
Company forwarded $4.2 million of the proceeds to Nortel
Networks, paying a portion of the Series B Note owed as
part of the acquisition of NNOC. The Debentures were convertible
into shares of common stock at the option of the holder prior to
the maturity of the Debentures on December 20, 2007. The
initial conversion price of the debentures was $5.50 per share,
which represented a premium of approximately 16% over the
closing price of the Companys common stock on
December 20, 2004. The holder also had a right of mandatory
redemption of unpaid principle and accrued and unpaid interest
in the event of a change in control or default, including
penalties in the event of a change in control ranging from ten
percent to twenty percent of the unpaid principle, as determined
based on the timing of the triggering event. The Company had a
right to convert the Debentures into shares of common stock
under certain circumstances. The warrants issued in connection
with the sale of the debentures provided holders thereof the
right to purchase up to an aggregate of 2,001,963 shares of
common stock and were exercisable during the five years from the
date of grant at an initial exercise price of $6.00 per share,
which represents a premium of approximately 26% over the closing
price of common stock on December 20, 2004.
|
|
|
|
The valuation of the financial instruments issued in connection
with this private placement involved judgment affected the
carrying value of each instrument on the balance sheet and the
periodic interest expense recorded. In order to determine the
valuation of these instruments the Company applied the guidance
in Emerging Issues Task Force, EITF Issue
98-5,
Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion
Ratios and EITF Issue
00-27,
Application of Issue
98-5 to
Certain Convertible Instruments to value the Debentures,
the accompanying warrants and the value of the convertibility
element of the Debentures. The Company first determined the fair
value of the warrant and its value relative to the Debenture.
The Company chose to use the Black-Scholes-Merton model to
determine the value of the warrant which requires the
determination of the Companys stocks volatility and
the life of the instrument, among other factors. The Company
determined that its stocks historic volatility of 97% was
representative of its stocks future volatility and used
the contractual term of five years for the life of the
instrument and a risk free interest rate of 2.89%. The valuation
independently derived from the Black-Scholes-Merton model for
the warrant was then compared to the face value of the Debenture
and a relative value of $5.4 million was assigned to the
warrants. The value of the conversion element of the Debenture
was determined based on the difference between the relative
value of the Debenture per share of $4.35 of the
4.6 million shares into which the Debenture could have
converted, compared to the fair market value per share of $4.77
per share of the Companys common stock on the date on
which the Debentures were issued. The value of the conversion
feature of the Debenture was thereby determined to be
$2.0 million. The value of the warrants and the conversion
feature were recorded as a discount to the debt liability on the
balance sheet and were amortized to interest expense based on
the life of the Debenture of three years. In addition, the
Company capitalized $1.9 million related to issuance costs
associated with the Debentures and warrants, which was being
amortized as part of interest expense for the term of the
Debentures, prior to the January 13, 2006 settlement of the
Debentures, as described above.
|
The warrants issued to the holders of the Debentures on
December 20, 2004 are still outstanding.
Other
Debt
As of June 30, 2007, the Companys Switzerland
subsidiary has an unsecured loan payable to a third party for
$246,000 which is repayable in equal monthly installments until
December 2013. This loan bears interest at 5% per annum, which
is payable monthly in arrears.
F-43
BOOKHAM,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
17.
|
Quarter
Summaries (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
March 31,
|
|
|
December 30,
|
|
|
September 30,
|
|
|
July 1,
|
|
|
April 1,
|
|
|
December 31,
|
|
|
October 1,
|
|
|
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Revenues
|
|
$
|
45,106
|
|
|
$
|
44,989
|
|
|
$
|
56,328
|
|
|
$
|
56,391
|
|
|
$
|
54,993
|
|
|
$
|
53,360
|
|
|
$
|
60,726
|
|
|
$
|
62,571
|
|
|
|
|
|
Cost of revenues
|
|
|
37,733
|
|
|
|
40,707
|
|
|
|
48,103
|
|
|
|
46,950
|
|
|
|
50,281
|
|
|
|
47,561
|
|
|
|
44,049
|
|
|
|
48,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
7,373
|
|
|
|
4,282
|
|
|
|
8,225
|
|
|
|
9,441
|
|
|
|
4,712
|
|
|
|
5,799
|
|
|
|
16,677
|
|
|
|
14,375
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
9,154
|
|
|
|
10,853
|
|
|
|
11,525
|
|
|
|
11,493
|
|
|
|
11,264
|
|
|
|
10,914
|
|
|
|
10,007
|
|
|
|
10,401
|
|
|
|
|
|
Selling, general and administrative
|
|
|
10,837
|
|
|
|
12,043
|
|
|
|
12,081
|
|
|
|
12,859
|
|
|
|
12,858
|
|
|
|
13,204
|
|
|
|
12,949
|
|
|
|
13,156
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
1,956
|
|
|
|
2,170
|
|
|
|
2,484
|
|
|
|
2,274
|
|
|
|
2,494
|
|
|
|
2,326
|
|
|
|
2,491
|
|
|
|
2,693
|
|
|
|
|
|
Restructuring and severance charges
|
|
|
1,872
|
|
|
|
4,273
|
|
|
|
1,301
|
|
|
|
2,901
|
|
|
|
5,188
|
|
|
|
2,441
|
|
|
|
1,763
|
|
|
|
1,805
|
|
|
|
|
|
Legal settlement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490
|
|
|
|
(2,153
|
)
|
|
|
7,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in-process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment/(recovery) of goodwill, other intangible and other
long-lived assets
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
|
1,901
|
|
|
|
1,192
|
|
|
|
|
|
|
|
|
|
|
|
(1,263
|
)
|
|
|
|
|
(Gain)/loss on sale of fixed assets
|
|
|
(2,185
|
)
|
|
|
6
|
|
|
|
270
|
|
|
|
(1,100
|
)
|
|
|
(124
|
)
|
|
|
(313
|
)
|
|
|
(685
|
)
|
|
|
(947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
21,354
|
|
|
|
29,345
|
|
|
|
27,661
|
|
|
|
30,818
|
|
|
|
30,719
|
|
|
|
35,840
|
|
|
|
26,525
|
|
|
|
25,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(13,981
|
)
|
|
|
(25,063
|
)
|
|
|
(19,436
|
)
|
|
|
(21,377
|
)
|
|
|
(26,007
|
)
|
|
|
(30,041
|
)
|
|
|
(9,848
|
)
|
|
|
(11,470
|
)
|
|
|
|
|
Other income/(expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on conversion and early extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250
|
)
|
|
|
(18,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income/(expense), net
|
|
|
389
|
|
|
|
777
|
|
|
|
(1,862
|
)
|
|
|
(1,517
|
)
|
|
|
(729
|
)
|
|
|
621
|
|
|
|
(2,079
|
)
|
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
|
(13,592
|
)
|
|
|
(24,286
|
)
|
|
|
(21,298
|
)
|
|
|
(22,894
|
)
|
|
|
(26,986
|
)
|
|
|
(48,012
|
)
|
|
|
(11,927
|
)
|
|
|
(12,320
|
)
|
|
|
|
|
Income tax provision/(benefit)
|
|
|
22
|
|
|
|
37
|
|
|
|
50
|
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
36
|
|
|
|
2
|
|
|
|
(11,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,614
|
)
|
|
$
|
(24,323
|
)
|
|
$
|
(21,348
|
)
|
|
$
|
(22,890
|
)
|
|
$
|
(26,983
|
)
|
|
$
|
(48,048
|
)
|
|
$
|
(11,929
|
)
|
|
$
|
(535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.35
|
)
|
|
$
|
(0.31
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(0.90
|
)
|
|
$
|
(0.28
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share
|
|
|
82,454
|
|
|
|
70,077
|
|
|
|
68,635
|
|
|
|
60,178
|
|
|
|
56,917
|
|
|
|
53,246
|
|
|
|
42,836
|
|
|
|
33,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-44
Schedule II:
Valuation and Qualifying Accounts
Years
Ended June 30, 2007, July 1, 2006 and July 2,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
Exchange
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Rate
|
|
|
Cost and
|
|
|
Deductions
|
|
|
End of
|
|
|
|
Year
|
|
|
Movement
|
|
|
Expensess
|
|
|
Write Offs
|
|
|
Year
|
|
|
|
(In thousands)
|
|
|
Year ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
592
|
|
|
$
|
(22
|
)
|
|
$
|
726
|
|
|
$
|
(465
|
)
|
|
$
|
831
|
|
Product returns
|
|
|
398
|
|
|
|
28
|
|
|
|
112
|
|
|
|
(168
|
)
|
|
|
370
|
|
Year ended July 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
445
|
|
|
|
|
|
|
|
386
|
|
|
|
(239
|
)
|
|
|
592
|
|
Product returns
|
|
|
281
|
|
|
|
|
|
|
|
289
|
|
|
|
(171
|
)
|
|
|
398
|
|
Year ended July 2, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
858
|
|
|
|
(2
|
)
|
|
|
113
|
|
|
|
(524
|
)
|
|
|
445
|
|
Product returns
|
|
|
402
|
|
|
|
|
|
|
|
212
|
|
|
|
(333
|
)
|
|
|
281
|
|
F-45
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
3
|
.1
|
|
Amended and Restated Bylaws of
Bookham, Inc., as amended.
|
|
3
|
.2
|
|
Restated Certificate of
Incorporation of Bookham, Inc. (previously filed as Exhibit 3.1
to Current Report on Form 8-K (file no. 000-30684) dated
September 10, 2004, and incorporated herein by reference).
|
|
10
|
.1
|
|
Agreement and Plan of Merger,
dated September 21, 2003, by and among Bookham Technology plc,
Budapest Acquisition Corp. and New Focus, Inc. (previously filed
as Appendix A to Registration Statement on Form F-4, as amended
(file no. 333-109904) dated February 3, 2004, and incorporated
herein by reference).
|
|
10
|
.2
|
|
Acquisition Agreement dated as of
October 7, 2002 between Nortel Networks Corporation and Bookham
Technology plc (previously filed as Exhibit 1 to Schedule 13D
filed by Nortel Networks Corporation on October 17, 2002, and
incorporated herein by reference).
|
|
10
|
.3*
|
|
Letter Agreement dated November 8,
2002 between Nortel Networks Corporation and Bookham Technology
plc amending the Acquisition Agreement referred to in Exhibit
10.2 (previously filed as Exhibit 4.2 to Amendment No. 2 to
Annual Report on Form 20-F (file no. 000-30684) for the year
ended December 31, 2002, and incorporated herein by reference).
|
|
10
|
.4*
|
|
Optical Components Supply
Agreement dated November 8, 2002, by and between Nortel Networks
Limited and Bookham Technology plc (previously filed as Exhibit
4.3 to Amendment No. 1 to Annual Report on Form 20-F (file no.
000-30684) for the year ended December 31, 2002, and
incorporated herein by reference).
|
|
10
|
.5
|
|
Relationship Deed dated November
8, 2002 between Nortel Networks Corporation and Bookham
Technology plc (previously filed as Exhibit 4.4 to Annual Report
on Form 20-F (file no. 000-30684) for the year ended December
31, 2002, and incorporated herein by reference).
|
|
10
|
.6
|
|
Registration Rights Agreement
dated as of November 8, 2002 among Nortel Networks Corporation,
the Nortel Subsidiaries listed on the signature pages and
Bookham Technology plc (previously filed as Exhibit 4.5 to
Annual Report on Form 20-F (file no. 000-30684) for the year
ended December 31, 2002, and incorporated herein by reference).
|
|
10
|
.7
|
|
Agreement relating to the Sale and
Purchase of the Business of Marconi Optical Components Limited,
dated December 17, 2001, among Bookham Technology plc, Marconi
Optical Components Limited and Marconi Corporation plc
(previously filed as Exhibit 4.1 to Annual Report on Form 20-F
(file no. 000-30684) for the year ended December 31, 2001, and
incorporated herein by reference).
|
|
10
|
.8
|
|
Supplemental Agreement to the
Agreement relating to the Sale and Purchase of the Business of
Marconi Optical Components Limited, dated January 31, 2002,
among Bookham Technology plc, Marconi Optical Components Limited
and Marconi Corporation plc (previously filed as Exhibit 4.2 to
Annual Report on Form 20-F (file no. 000-30684) for the year
ended December 31, 2001, and incorporated herein by reference).
|
|
10
|
.9(1)
|
|
Service Agreement dated July 23,
2001 between Bookham Technology plc and Giorgio Anania
(previously filed as Exhibit 4.5 to Annual Report on Form 20-F
(file no. 000-30684) for the year ended December 31, 2001, and
incorporated herein by reference).
|
|
10
|
.10
|
|
Lease dated May 21, 1997, between
Bookham Technology plc and Landsdown Estates Group Limited, with
respect to 90 Milton Park, Abingdon, England (previously filed
as Exhibit 10.1 to Registration Statement on Form F-1, as
amended (file no. 333-11698) dated April 11, 2000, and
incorporated herein by reference).
|
|
10
|
.11
|
|
Lease dated December 23, 1999 by
and between Silicon Valley Properties, LLC and New Focus, Inc.,
with respect to 2580 Junction Avenue, San Jose, California
(previously filed as Exhibit 10.32 to Amendment No. 1 to
Transition Report on Form 10-K (file no. 000-30684) for the for
the transition period from January 1, 2004 to July 3, 2004, and
incorporated herein by reference).
|
|
10
|
.12(1)
|
|
2004 Employee Stock Purchase Plan
(previously filed as Exhibit 10.18 to Transition Report on Form
10-K (file no. 000-30684) for the transition period from January
1, 2004 to July 3, 2004, and incorporated herein by reference).
|
|
10
|
.13(1)
|
|
2004 Sharesave Scheme
(previously filed as Exhibit 10.20 to Transition Report on Form
10-K (file no. 000-30684) for the transition period from January
1, 2004 to July 3, 2004, and incorporated herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.14(1)
|
|
Directors Fee Agreement
dated as of August 1, 2002, between Bookham Technology plc and
Lori Holland (previously filed as Exhibit 4.23 to Annual Report
on Form 20-F (file no. 000-30684) for the year ended December
31, 2003, and incorporated herein by reference).
|
|
10
|
.15(1)
|
|
Bonus Scheme dated July 20, 2004
between Bookham Technology plc and Giorgio Anania (previously
filed as Exhibit 10.23 to Transition Report on Form 10-K (file
no. 000-30684) for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.16(1)
|
|
Bonus Scheme dated July 20, 2004
between Bookham Technology plc and Stephen Abely (previously
filed as Exhibit 10.25 to Transition Report on Form 10-K (file
no. 000-30684) for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.17(1)
|
|
Bonus Scheme dated July 20, 2004
between Bookham Technology plc and Stephen Turley (previously
filed as Exhibit 10.26 to Transition Report on Form 10-K (file
no. 000-30684) for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.18(1)
|
|
Principal Statement of Terms and
Conditions dated September 13, 2001 between Bookham Technology
plc and Stephen Abely, as amended on July 1, 2003 (previously
filed as Exhibit 10.29 to Transition Report on Form 10-K (file
no. 000-30684) for the transition period from January 1, 2004 to
July 3, 2004, and incorporated herein by reference).
|
|
10
|
.19(1)
|
|
Principal Statement of Terms and
Conditions dated August 15, 2001 between Bookham Technology plc
and Stephen Turley (previously filed as Exhibit 10.30 to
Transition Report on Form 10-K (file no. 000-30684) for the
transition period from January 1, 2004 to July 3, 2004, and
incorporated herein by reference).
|
|
10
|
.20
|
|
Securities Purchase Agreement,
dated as of December 20, 2004, by and between Bookham, Inc. and
the Investors (as such term is defined therein) (previously
filed as Exhibit 99.1 to Current Report on Form 8-K (file no.
000-30684) dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.21
|
|
Registration Rights Agreement,
dated as of December 20, 2004, by and between Bookham, Inc. and
the Investors (as such term is defined therein) (previously
filed as Exhibit 99.2 to Current Report on Form 8-K (file no.
000-30684) dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.22
|
|
Form of Warrant (previously filed
as Exhibit 99.4 to Current Report on Form 8-K (file no.
000-30684) dated December 10, 2004, and incorporated herein by
reference).
|
|
10
|
.23*
|
|
Addendum to Optical Components
Supply Agreement, dated as of February 7, 2005, by and between
Bookham Technology plc and Nortel Networks Limited (previously
filed as Exhibit 10.1 to Quarterly Report on Form 10-Q (file no.
000-30684) for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.24(1)
|
|
UK Subplan to the 2004 Stock
Incentive Plan (previously filed as Exhibit 10.4 to Quarterly
Report on Form 10-Q (file no. 000-30684) for the quarter ended
April 2, 2005, and incorporated herein by reference).
|
|
10
|
.25(1)
|
|
Restricted Stock Agreement dated
February 9, 2005 between Bookham, Inc. and Giorgio Anania
(previously filed as Exhibit 10.5 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended April 2, 2005,
and incorporated herein by reference).
|
|
10
|
.26(1)
|
|
Restricted Stock Agreement dated
February 9, 2005 between Bookham, Inc. and Stephen Abely
(previously filed as Exhibit 10.6 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended April 2, 2005,
and incorporated herein by reference).
|
|
10
|
.27(1)
|
|
Bonus Agreement dated February 9,
2005 between Bookham, Inc. and Giorgio Anania (previously filed
as Exhibit 10.7 to Quarterly Report on Form 10-Q (file no.
000-30684) for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.28(1)
|
|
Bonus Agreement dated February 9,
2005 between Bookham, Inc. and Stephen Abely (previously filed
as Exhibit 10.8 to Quarterly Report on Form 10-Q (file no.
000-30684) for the quarter ended April 2, 2005, and incorporated
herein by reference).
|
|
10
|
.29*
|
|
Addendum to Optical Components
Supply Agreement, dated as of April 1, 2005, by and between
Bookham Technology plc and Nortel Networks Limited (previously
filed as Exhibit 10.36 to Annual Report on Form 10-K (file no.
000-30684) for the year ended July 2, 2005, and incorporated
herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.30(1)
|
|
Contract of Employment between
Bookham Technology plc and Jim Haynes (previously filed as
Exhibit 10.38 to Annual Report on Form 10-K (file no. 000-30684)
for the year ended July 2, 2005, and incorporated herein by
reference).
|
|
10
|
.31
|
|
Share Purchase Agreement dated
August 10, 2005 among London Industrial Leasing Limited,
Deutsche Bank AG (acting through its London Branch) and Bookham
Technology plc (previously filed as Exhibit 10.1 to Quarterly
Report on Form 10-Q (file no. 000-30684) for the quarter ended
October 1, 2005, and incorporated herein by reference).
|
|
10
|
.32
|
|
Loan Facility Agreement dated
August 10, 2005 between City Leasing (Creekside) Limited and
Deutsche Bank AG, Limited, for a facility of up to
£18,348,132.33 (previously filed as Exhibit 10.2 to
Quarterly Report on Form 10-Q (file no. 000-30684) for the
quarter ended October 1, 2005, and incorporated herein by
reference).
|
|
10
|
.33
|
|
Loan Facility Agreement dated
August 10, 2005 between City Leasing (Creekside) Limited and
Deutsche Bank AG, Limited for a facility of up to
£42,500,000.00 (previously filed as Exhibit 10.3 to
Quarterly Report on Form 10-Q (file no. 000-30684) for the
quarter ended October 1, 2005, and incorporated herein by
reference).
|
|
10
|
.34
|
|
2004 Stock Incentive Plan, as
amended, including forms of stock option agreement for incentive
and nonstatutory stock options, forms of restricted stock unit
agreement and forms of restricted stock agreement (previously
filed as Exhibit 10.1 to Quarterly Report on Form 10-Q (file no.
000-30684) for the quarter ended December 31, 2005, and
incorporated herein by reference).
|
|
10
|
.35(1)
|
|
Restricted Stock Agreement dated
November 11, 2005 between Bookham, Inc. and Giorgio Anania
(previously filed as Exhibit 10.2 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.36(1)
|
|
Restricted Stock Agreement dated
November 11, 2005 between Bookham, Inc. and Stephen Abely
(previously filed as Exhibit 10.3 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.37(1)
|
|
Restricted Stock Agreement dated
November 11, 2005 between Bookham, Inc. and Stephen Turley
(previously filed as Exhibit 10.4 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.38(1)
|
|
Restricted Stock Agreement dated
November 11, 2005 between Bookham, Inc. and Jim Haynes
(previously filed as Exhibit 10.5 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.39(1)
|
|
Restricted Stock Agreement dated
November 11, 2005 between Bookham, Inc. and Stephen Turley
(previously filed as Exhibit 10.6 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.40(1)
|
|
Bookham, Inc. Cash Bonus Program
(previously filed as Exhibit 10.7 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.41(1)
|
|
Summary of Director Compensation
(previously filed as Exhibit 10.8 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended December 31,
2005, and incorporated herein by reference).
|
|
10
|
.42(1)
|
|
Form of Indemnification Agreement,
dated October 26, 2005, between Bookham, Inc. and each of
Giorgio Anania, Peter Bordui, Joseph Cook, Lori Holland, Liam
Nagle, W. Arthur Porter and David Simpson (previously filed as
Exhibit 99.1 to Current Report on Form 8-K (file no. 000-30684)
filed on November 1, 2005, and incorporated herein by reference).
|
|
10
|
.43*
|
|
Addendum and Amendment to Optical
Components Supply Agreement, dated January 13, 2006, between
Nortel Networks Limited and Bookham Technology plc (previously
filed as Exhibit 10.1 to Quarterly Report on Form 10-Q (file no.
000-30684) for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.44
|
|
Registration and Lock-Up
Agreement, dated as of January 13, 2006, among Bookham
Technology plc, Bookham, Inc. and Nortel Networks Corporation
(previously filed as Exhibit 10.2 to Quarterly Report on Form
10-Q (file no. 000-30684) for the quarter ended April 1, 2006,
and incorporated herein by reference).
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
10
|
.45
|
|
Agreement for Sale and Leaseback
dated as of March 10, 2006, by and among Bookham Technology plc,
Coleridge (No. 24) Limited and Bookham, Inc. (previously filed
as Exhibit 10.3 to Quarterly Report on Form 10-Q (file no.
000-30684) for the quarter ended April 1, 2006, and incorporated
herein by reference).
|
|
10
|
.46
|
|
Pre-emption Agreement dated as of
March 10, 2006, by and among Bookham Technology plc, Coleridge
(No. 24) Limited and Bookham, Inc. (previously filed as Exhibit
10.4 to Quarterly Report on Form 10-Q (file no. 000-30684) for
the quarter ended April 1, 2006, and incorporated herein by
reference).
|
|
10
|
.47
|
|
Lease dated as of March 10, 2006,
by and among Bookham Technology plc, Coleridge (No. 24) Limited
and Bookham, Inc. (previously filed as Exhibit 10.5 to Quarterly
Report on Form 10-Q (file no. 000-30684) for the quarter ended
April 1, 2006, and incorporated herein by reference).
|
|
10
|
.48
|
|
Exchange Agreement, dated as of
January 13, 2006, by and among Bookham, Inc., Bookham Technology
plc and the Investors (as defined therein) (previously filed as
Exhibit 99.1 to Current Report on Form 8-K (file no. 000-30684)
filed on January 17, 2006, and incorporated herein by reference).
|
|
10
|
.49
|
|
Form of Warrant (previously filed
as Exhibit 99.2 to Current Report on Form 8-K (file no.
000-30684) filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.50
|
|
Securities Exchange Agreement,
dated as of January 13, 2006, by and between Bookham, Inc. and
the Investors (as such term is defined therein) (previously
filed as Exhibit 99.3 to Current Report on Form 8-K (file no.
000-30684) filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.51
|
|
Registration Rights Agreement,
dated as of January 13, 2006, by and between Bookham, Inc. and
the Investors (as such term is defined therein) (previously
filed as Exhibit 99.4 to Current Report on Form 8-K (file no.
000-30684) filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.52
|
|
Form of Warrant (previously filed
as Exhibit 99.5 to Current Report on Form 8-K (file no.
000-30684) filed on January 17, 2006, and incorporated herein by
reference).
|
|
10
|
.53
|
|
Credit Agreement, dated as of
August 2, 2006, among Bookham, Inc., Bookham Technology plc, New
Focus, Inc. and Bookham (US), Inc., Wells Fargo Foothill, Inc.
and other lenders party thereto. (previously filed as Exhibit
10.53 to Annual Report on Form 10-K (file no. 000-30684) for the
year ended July 1, 2006, and incorporated herein by reference).
|
|
10
|
.54
|
|
Security Agreement, dated as of
August 2, 2006, among Bookham, Inc., Onetta, Inc., Focused
Research, Inc., Globe Y. Technology, Inc., Ignis Optics, Inc.,
Bookham (Canada) Inc., Bookham Nominees Limited and Bookham
International Ltd., Wells Fargo Foothill, Inc. and other secured
parties party thereto. (previously filed as Exhibit 10.54 to
Annual Report on Form 10-K (file no. 000-30684) for the year
ended July 1, 2006, and incorporated herein by reference).
|
|
10
|
.55
|
|
Securities Purchase Agreement,
dated as of August 31, 2006, by and among Bookham, Inc. and the
Investors (as defined therein) (previously filed as Exhibit 99.1
to Current Report on Form 8-K (file no. 000-30684) filed on
September 5, 2006 and incorporated herein by reference).
|
|
10
|
.56
|
|
Registration Rights Agreement,
dated as of August 31, 2006, by and among Bookham, Inc. and the
Holders (as defined therein) (previously filed as Exhibit 99.2
to Current Report on Form 8-K (file no. 000-30684) filed on
September 5, 2006 and incorporated herein by reference).
|
|
10
|
.57
|
|
Form of Warrant (previously filed
as Exhibit 99.3 to Current Report on Form 8-K (file no.
000-30684) filed on September 5, 2006 and incorporated herein by
reference).
|
|
10
|
.58
|
|
Securities Purchase Agreement,
dated as of March 22, 2007, by and among Bookham, Inc. and the
Investors (as such term is defined therein) (previously filed as
Exhibit 99.1 to Current Report on Form 8-K (file no. 000-30684)
filed on March 26, 2007 and incorporated herein by reference).
|
|
10
|
.59
|
|
Registration Rights Agreement,
dated as of March 22, 2007, by and among Bookham, Inc. and the
Investors (as such term is defined therein) (previously filed as
Exhibit 99.2 to Current Report on Form 8-K (file no. 000-30684)
filed on March 26, 2007 and incorporated herein by reference).
|
|
10
|
.60
|
|
Form of Warrant (previously filed
as Exhibit 99.3 to Current Report on Form 8-K (file no.
000-30684) filed on March 26, 2007 and incorporated herein by
reference).
|
|
10
|
.61
|
|
Letter Agreement, dated May 7,
2007, between Bookham, Inc. and Peter Bordui (previously filed
as Exhibit 99.1 to Current Report on Form 8-K (file no.
000-30684) filed on May 11, 2007 and incorporated herein by
reference).
|
|
10
|
.62
|
|
Compromise Agreement, dated May
28, 2007, between Bookham Technology plc and Giorgio Anania.
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
21
|
.1
|
|
List of Bookham, Inc. subsidiaries.
|
|
23
|
.1
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
23
|
.2
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
31
|
.1
|
|
Rule 13a-14(a)/15(d)-14(a)
Certification of Chief Executive Officer.
|
|
31
|
.2
|
|
Rule 13a-14(a)/15(d)-14(a)
Certification of Chief Financial Officer.
|
|
32
|
.1
|
|
Section 1350 Certification of
Chief Executive Officer.
|
|
32
|
.2
|
|
Section 1350 Certification of
Chief Financial Officer.
|
|
|
|
* |
|
Confidential treatment requested as to certain portions, which
portions have been omitted and filed separately with the
Commission. |
|
** |
|
The exhibits and schedules to this agreement were omitted by
Bookham, Inc. Bookham, Inc. agrees to furnish any exhibit or
schedule to this agreement supplementally to the Securities and
Exchange Commission upon written request. |
|
(1) |
|
Management contract or compensatory plan or arrangement. |