e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended November 2, 2008
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-27999
Finisar Corporation
(Exact name of Registrant as specified in its charter)
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Delaware |
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(State or other jurisdiction of
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94-3038428 |
incorporation or organization)
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(I.R.S. Employer |
1389 Moffett Park Drive
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Identification No.) |
Sunnyvale, California
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94089 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code:
408-548-1000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At November 30, 2008, there were 473,029,737 shares of the registrants common stock, $.001
par value, issued and outstanding.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended November 2, 2008
2
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. We use words like anticipates, believes, plans, expects,
future, intends and similar expressions to identify these forward-looking statements. We have
based these forward-looking statements on our current expectations and projections about future
events; however, our business and operations are subject to a variety of risks and uncertainties,
and, consequently, actual results may materially differ from those projected by any forward-looking
statements. As a result, you should not place undue reliance on these forward-looking statements
since they may not occur.
Certain factors that could cause actual results to differ from those projected are discussed
in Item 1A. Risk Factors. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information or future events.
3
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FINISAR
CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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November 2, 2008 |
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April 30, 2008 |
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(In thousands, except share and per share data) |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
44,192 |
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$ |
79,442 |
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Short-term available -for-sale investments |
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7,382 |
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30,577 |
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Accounts receivable, net of allowance for doubtful accounts
of $910 and $635 at November 2, 2008 and April 30, 2008 |
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94,737 |
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48,005 |
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Accounts receivable, other |
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10,237 |
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12,408 |
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Inventories |
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120,873 |
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82,554 |
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Prepaid expenses |
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9,054 |
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7,652 |
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Total current assets |
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286,475 |
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260,638 |
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Long-term available-for-sale investments |
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326 |
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9,236 |
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Property, plant and improvements, net |
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92,136 |
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89,847 |
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Purchased technology, net |
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21,200 |
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11,850 |
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Other intangible assets, net |
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15,982 |
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3,899 |
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Goodwill |
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59,589 |
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88,242 |
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Minority investments |
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14,289 |
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13,250 |
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Other assets |
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3,552 |
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3,241 |
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Total assets |
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$ |
493,549 |
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$ |
480,203 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
72,599 |
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$ |
43,040 |
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Accrued compensation |
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17,621 |
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14,397 |
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Other accrued liabilities |
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36,413 |
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23,397 |
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Deferred revenue |
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4,922 |
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5,312 |
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Current portion of other long-term liabilities |
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6,085 |
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2,436 |
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Convertible notes, net of beneficial conversion feature of
$0 and $2,026 at November 2, 2008 and April 30, 2008 |
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101,918 |
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Non-cancelable purchase obligations |
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5,326 |
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3,206 |
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Total current liabilities |
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142,966 |
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193,706 |
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Long-term liabilities: |
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Convertible notes |
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150,000 |
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150,000 |
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Other long-term liabilities |
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22,217 |
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18,911 |
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Deferred income taxes |
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1,190 |
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8,903 |
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Total long-term liabilities |
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173,407 |
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177,814 |
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Stockholders equity: |
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Preferred stock, $0.001 par value, 5,000,000 shares authorized,
no shares issued and outstanding at November 2, 2008 and April 30, 2008 |
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Common stock, $0.001 par value, 750,000,000 shares authorized,
473,029,712 shares issued and outstanding at November 2, 2008
and 308,839,226 shares issued and outstanding at April 30, 2008 |
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473 |
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309 |
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Additional paid-in capital |
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1,801,642 |
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1,540,241 |
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Accumulated other comprehensive income |
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2,726 |
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12,973 |
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Accumulated deficit |
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(1,627,665 |
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(1,444,840 |
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Total stockholders equity |
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177,176 |
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108,683 |
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Total liabilities and stockholders equity |
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$ |
493,549 |
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$ |
480,203 |
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See accompanying notes.
4
FINISAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share data)
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Three Months Ended |
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Six Months Ended |
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November 2, |
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October 28, |
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November 2, |
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October 28, |
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2008 |
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2007 |
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2008 |
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2007 |
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Revenues |
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Optical subsystems and components |
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$ |
147,746 |
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$ |
90,930 |
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$ |
263,520 |
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$ |
187,290 |
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Network test systems |
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11,760 |
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9,769 |
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24,698 |
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19,144 |
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Total revenues |
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159,506 |
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100,699 |
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288,218 |
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206,434 |
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Cost of revenues |
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109,859 |
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67,180 |
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187,903 |
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138,883 |
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Amortization of acquired developed technology |
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1,503 |
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1,729 |
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2,749 |
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3,458 |
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Gross profit |
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48,144 |
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31,790 |
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97,566 |
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64,093 |
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Operating expenses: |
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Research and development |
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24,868 |
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17,630 |
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45,641 |
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35,132 |
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Sales and marketing |
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10,552 |
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9,178 |
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20,701 |
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19,234 |
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General and administrative |
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11,728 |
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11,914 |
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22,225 |
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20,732 |
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Acquired in-process research and development |
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10,500 |
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10,500 |
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Amortization of purchased intangibles |
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753 |
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490 |
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1,021 |
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980 |
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Impairment of goodwill and intangible assets |
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178,768 |
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178,768 |
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Total operating expenses |
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237,169 |
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39,212 |
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278,856 |
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76,078 |
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Loss from operations |
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(189,025 |
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(7,422 |
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(181,290 |
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(11,985 |
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Interest income |
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657 |
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1,537 |
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1,625 |
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2,952 |
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Interest expense |
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(2,878 |
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(4,358 |
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(6,886 |
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(8,604 |
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Other income (expense), net |
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(3,328 |
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85 |
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(3,271 |
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(48 |
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Loss before income taxes |
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(194,574 |
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(10,158 |
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(189,822 |
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(17,685 |
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Provision for (benefit from) income taxes |
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(7,743 |
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655 |
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(6,997 |
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1,276 |
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Net loss |
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$ |
(186,831 |
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$ |
(10,813 |
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$ |
(182,825 |
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$ |
(18,961 |
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Net loss per share basic and diluted |
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$ |
(0.44 |
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$ |
(0.04 |
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$ |
(0.50 |
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$ |
(0.06 |
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Shares used in computing net loss per share basic and diluted |
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426,601 |
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308,635 |
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367,115 |
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308,634 |
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See accompanying notes.
5
FINISAR
CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Six Months Ended |
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November 2, 2008 |
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October 28, 2007 |
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Operating activities |
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Net loss |
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$ |
(182,825 |
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$ |
(18,961 |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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14,395 |
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12,312 |
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Stock-based compensation expense |
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6,827 |
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5,290 |
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Amortization of beneficial conversion feature of convertible notes |
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1,817 |
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2,453 |
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Amortization of purchased technology and finite lived intangibles |
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1,021 |
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980 |
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Amortization of acquired developed technology |
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2,749 |
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3,458 |
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Amortization of discount on restricted securities |
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(11 |
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Loss (gain) on sale or retirement of assets |
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395 |
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(290 |
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Loss on debt extinguishment |
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232 |
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Gain on remeasurement of derivative liability |
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(1,135 |
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Loss (gain) on sale of equity investment |
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12 |
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(184 |
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Loss on sale of a product line |
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919 |
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Other than temporary decline in fair market value of equity security |
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1,920 |
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Impairment of goodwill |
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178,768 |
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Acquired in-process research and development |
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10,500 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(17,450 |
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1,506 |
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Inventories |
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(5,718 |
) |
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(663 |
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Other assets |
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(1,511 |
) |
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701 |
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Deferred income taxes |
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(7,846 |
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1,088 |
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Accounts payable |
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(104 |
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(9,214 |
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Accrued compensation |
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1,741 |
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(75 |
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Other accrued liabilities |
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(3,046 |
) |
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3,139 |
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Deferred revenue |
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(286 |
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59 |
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Net cash provided by operating activities |
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1,375 |
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1,588 |
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Investing activities |
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Purchases of property, equipment and improvements |
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(15,532 |
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(11,020 |
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Sale (purchase) of short and long-term investments, net |
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30,684 |
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(920 |
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Maturity of restricted securities |
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625 |
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Proceeds from sale of property and equipment |
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420 |
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Proceeds from sale of equity investment |
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90 |
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556 |
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Purchase of subsidiaries, net of cash assumed |
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30,101 |
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Net cash provided by (used in) investing activities |
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45,343 |
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(10,339 |
) |
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Financing activities |
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Repayment of convertible notes related to acquisition |
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(11,918 |
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Proceeds from term loan |
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19,968 |
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Repayments of liability related to sale-leaseback of building |
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(101 |
) |
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(172 |
) |
Repayments of borrowings |
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(1,241 |
) |
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(934 |
) |
Repayment of convertible notes |
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(92,026 |
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Proceeds from exercise of stock options and stock purchase plan |
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3,350 |
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Net cash used in financing activities |
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(81,968 |
) |
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(1,106 |
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Net decrease in cash and cash equivalents |
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(35,250 |
) |
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(9,857 |
) |
Cash and cash equivalents at beginning of period |
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79,442 |
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56,106 |
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Cash and cash equivalents at end of period |
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$ |
44,192 |
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$ |
46,249 |
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
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$ |
3,749 |
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$ |
4,717 |
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Cash paid for taxes |
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$ |
266 |
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$ |
297 |
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Issuance of common stock and assumption of options and warrants in connection with merger |
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$ |
251,382 |
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$ |
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|
See accompanying notes.
6
FINISAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Summary of Significant Accounting Policies
Description of Business
Finisar Corporation is a leading provider of optical subsystems and components that provide
the fundamental optical-electrical interface for connecting equipment used in building a wide range
of communication networks including local area networks, or LANs, storage area networks, or SANs,
metropolitan area networks, or MANs, fiber-to-home networks, or FTTx, cable television networks, or
CATV, and wide area networks, or WANs. Our optical subsystems consist primarily of transceivers and
transponders. These products rely on the use of digital and analog radio frequency, or RF,
semiconductor lasers in conjunction with integrated circuit design and novel packaging technology
to provide a cost-effective means for transmitting and receiving digital signals over fiber optic
cable using a wide range of network protocols, transmission speeds and physical configurations over
distances of 70 meters to 200 kilometers. We also provide wavelength selective switch
reconfigurable optical add/drop multiplexer products, or WSS ROADMs, and linecards that enable
network operators to switch wavelengths in MAN and WAN networks without the need for converting to
an electrical signal. Our line of optical components consists primarily of packaged lasers and
photodetectors used in transceivers, primarily for LAN and SAN applications. Our manufacturing
operations are vertically integrated and include an internal manufacturing, assembly and test
capability. We sell our optical subsystem and component products to manufacturers of storage and
networking equipment such as Alcatel-Lucent, Brocade, Cisco Systems, EMC, Emulex, Ericsson,
Hewlett-Packard Company, Huawei, IBM, Tellabs and Qlogic.
We also provide network test systems primarily to leading storage equipment manufacturers such
as Brocade, EMC, Emulex, Hewlett-Packard Company and Qlogic for testing and validating equipment
designs.
On August 29, 2008, we completed a business combination with Optium Corporation (Optium), a
leading designer and manufacturer of high performance optical subsystems for use in
telecommunications and cable TV network systems (see note 2, Business Combinations). The
combination was consummated as a merger of Optium with a wholly-owned subsidiary of Finisar. The
Company has accounted for the combination using the purchase method of accounting and as a result
has included the operating results of Optium in its consolidated financial results since the August
29, 2008 merger date. The Optium results are included in the Companys optical subsystems and
components segment. The Company believes that the combination of the two companies created the
worlds largest supplier of optical components, modules and subsystems for the communications
industry and will leverage the Companys leadership position in the storage and data networking
sectors of the industry and Optiums leadership position in the telecommunications and CATV sectors
to create a more competitive industry participant.
Finisar Corporation was incorporated in California in April 1987 and reincorporated in
Delaware in November 1999. Finisars principal executive offices are located at 1389 Moffett Park
Drive, Sunnyvale, California 94089, and its telephone number at that location is (408) 548-1000.
Interim Financial Information and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of November 2, 2008
and for the three and six month periods ended November 2, 2008 and October 28, 2007, have been
prepared in accordance with U.S. generally accepted accounting principles for interim financial
statements and pursuant to the rules and regulations of the Securities and Exchange Commission (the
SEC), and include the accounts of Finisar Corporation and its wholly-owned subsidiaries
(collectively, Finisar or the Company). Inter-company accounts and transactions have been
eliminated in consolidation. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the unaudited condensed consolidated financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair presentation of the
Companys financial position at November 2, 2008 and its operating results and cash flows for the
three and six month periods ended November 2, 2008 and October 28, 2007. These unaudited condensed
consolidated financial statements should be read in conjunction with the Companys audited
financial statements and notes for the fiscal year ended April 30, 2008.
The condensed consolidated financial statements for the three and six months ended November 2,
2008 include the operating results of Optium beginning on August 30, 2008 (see note 2, Business
Combinations).
7
Fiscal Periods
The Company maintains its financial records on the basis of a fiscal year ending on April 30,
with fiscal quarters ending on the Sunday closest to the end of the period (thirteen-week periods).
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to
the current year presentation. These changes had no impact on the Companys previously reported
financial position, results of operations and cash flows.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from these
estimates.
Stock-Based Compensation Expense
The Company accounts for stock-based compensation in accordance with Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which
requires the measurement and recognition of compensation expense for all stock-based payment awards
made to employees and directors including employee stock options and employee stock purchases under
the Companys Employee Stock Purchase Plan based on estimated fair values. SFAS 123R requires
companies to estimate the fair value of stock-based payment awards on the date of grant using an
option pricing model. The Company uses the Black-Scholes option pricing model to determine the fair
value of stock based awards under SFAS 123R. The value of the portion of the award that is
ultimately expected to vest is recognized as expense over the requisite service periods in the
Companys consolidated statements of operations.
Stock-based compensation expense recognized in the Companys condensed consolidated statements
of operations for the three and six months ended November 2, 2008 and October 28, 2007 included
compensation expense for stock-based payment awards granted prior to, but not yet vested as of, the
adoption of SFAS 123R, based on the grant date fair value estimated in accordance with the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and compensation expense for
the stock-based payment awards granted subsequent to April 30, 2006 based on the grant date fair
value estimated in accordance with the provisions of SFAS 123R. Compensation expense for
expected-to-vest stock-based awards that were granted on or prior to April 30, 2006 was valued
under the multiple-option approach and will continue to be amortized using the accelerated
attribution method. Subsequent to April 30, 2006, compensation expense for expected-to-vest
stock-based awards is valued under the single-option approach and amortized on a straight-line
basis, net of estimated forfeitures.
Revenue Recognition
The Companys revenue transactions consist predominately of sales of products to customers.
The Company follows the SEC Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition, and
Emerging Issues Task Force (EITF) Issue 00-21, Revenue Arrangements with Multiple Deliverables.
Specifically, the Company recognizes revenue when persuasive evidence of an arrangement exists,
title and risk of loss have passed to the customer, generally upon shipment, the price is fixed or
determinable, and collectability is reasonably assured. For those arrangements with multiple
elements, or in related arrangements with the same customer, the arrangement is divided into
separate units of accounting if certain criteria are met, including whether the delivered item has
stand-alone value to the customer and whether there is objective and reliable evidence of the fair
value of the undelivered items. The consideration received is allocated among the separate units of
accounting based on their respective fair values, and the applicable revenue recognition criteria
are applied to each of the separate units. In cases where there is objective and reliable evidence
of the fair value of the undelivered item in an arrangement but no such evidence for the delivered
item, the residual method is used to allocate the arrangement consideration. For units of
accounting which include more than one deliverable, the Company generally recognizes all revenue
and cost of revenue for the unit of accounting during the period in which the last undelivered item
is delivered.
At the time revenue is recognized, the Company establishes an accrual for estimated warranty
expenses associated with sales, recorded as a component of cost of revenues. The Companys
customers and distributors generally do not have return rights. However, the Company has
established an allowance for estimated customer returns, based on historical experience, which is
netted against revenue.
Sales to certain distributors are made under agreements providing distributor price
adjustments and rights of return under certain circumstances. Revenue and costs relating to
distributor sales are deferred until products are sold by the distributors to end customers.
Revenue recognition depends on notification from the distributor that product has been sold to the
end customer. Also reported by the distributor are product resale price, quantity and end customer
shipment information, as well as inventory on hand. Deferred revenue
8
on shipments to distributors reflects the effects of distributor price adjustments and, the
amount of gross margin expected to be realized when distributors sell-through products purchased
from the Company. Accounts receivable from distributors are recognized and inventory is relieved
when title to inventories transfers, typically upon shipment from the Company at which point the
Company has a legally enforceable right to collection under normal payment terms.
Segment Reporting
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131), establishes standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services, geographic areas and
major customers. The Company has determined that it operates in two segments consisting of optical
subsystems and components and network test systems.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk
include cash, cash equivalents, available-for-sale and restricted investments and accounts
receivable. The Company places its cash, cash equivalents, available-for-sale and restricted
investments with high-credit quality financial institutions. Such investments are generally in
excess of FDIC insurance limits. Concentrations of credit risk, with respect to accounts
receivable, exist to the extent of amounts presented in the financial statements. Generally, the
Company does not require collateral or other security to support customer receivables. The Company
performs periodic credit evaluations of its customers and maintains an allowance for potential
credit losses based on historical experience and other information available to management. Losses
to date have not been material. The Companys five largest customers represented 44.1% and 44.0% of
total accounts receivable at November 2, 2008 and April 30, 2008, respectively.
Current Vulnerabilities Due to Certain Concentrations
During
the three and six months ended November 2, 2008, sales to the
Companys five largest
customers represented 41.1% and 38.1% of total revenues, respectively. During the three and six
months ended October 28, 2007, sales to the Companys five largest customers represented 42.1 % and
43.3% of total revenues, respectively. One customer represented more than 10% of total revenues
during each of these periods.
Included in the Companys condensed consolidated balance sheet at November 2, 2008, are the
net assets of the Companys manufacturing operations, substantially all of which are located at its
overseas manufacturing facilities and which total approximately $60.6 million.
Foreign Currency Translation
The functional currency of the Companys foreign subsidiaries is the local currency. Assets
and liabilities denominated in foreign currencies are translated using the exchange rate on the
balance sheet dates. Revenues and expenses are translated using average exchange rates prevailing
during the year. Any translation adjustments resulting from this process are shown separately as a
component of accumulated other comprehensive income. Foreign currency transaction gains and losses
are included in the determination of net loss.
Research and Development
Research and development expenditures are charged to operations as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising is used infrequently in marketing the
Companys products. Advertising costs were $16,000 and $22,000 in the three and six months ended
November 2, 2008, respectively and $12,500 and $25,500 in the three and six months ended October
28, 2007, respectively.
Shipping and Handling Costs
The Company records costs related to shipping and handling in cost of sales for all periods
presented.
9
Cash and Cash Equivalents
Finisars cash equivalents consist of money market funds and highly liquid short-term
investments with qualified financial institutions. Finisar considers all highly liquid investments
with an original maturity from the date of purchase of three months or less to be cash equivalents.
Investments
Available-for-Sale Investments
Available-for-sale investments consist of interest bearing securities with maturities of
greater than three months from the date of purchase and equity securities. Pursuant to SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities, the Company has classified
its investments as available-for-sale. Available-for-sale securities are stated at market value,
which approximates fair value, and unrealized holding gains and losses, net of the related tax
effect, are excluded from earnings and are reported as a separate component of accumulated other
comprehensive income until realized. A decline in the market value of the security below cost that
is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost
basis for the security.
Other Investments
The Company uses the cost method of accounting for investments in companies that do not have a
readily determinable fair value in which it holds an interest of less than 20% and over which it
does not have the ability to exercise significant influence. For entities in which the Company
holds an interest of greater than 20% or in which the Company does have the ability to exercise
significant influence, the Company uses the equity method. In determining if and when a decline in
the market value of these investments below their carrying value is other-than-temporary, the
Company evaluates the market conditions, offering prices, trends of earnings and cash flows, price
multiples, prospects for liquidity and other key measures of performance. The Companys policy is
to recognize an impairment in the value of its minority equity investments when clear evidence of
an impairment exists, such as (a) the completion of a new equity financing that may indicate a new
value for the investment, (b) the failure to complete a new equity financing arrangement after
seeking to raise additional funds or (c) the commencement of proceedings under which the assets of
the business may be placed in receivership or liquidated to satisfy the claims of debt and equity
stakeholders. The Companys minority investments in private companies are generally made in
exchange for preferred stock with a liquidation preference that is intended to help protect the
underlying value of its investment.
Fair Value Accounting
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of FASB
Statement No. 115 (SFAS 159). FAS 159 expands the use of fair value accounting to eligible
financial assets and liabilities. SFAS 159 is effective as of the beginning of an entitys first
fiscal year commencing after November 15, 2007. The Company evaluated its existing financial
instruments and elected not to adopt the fair value option to account for its financial
instruments. As a result, SFAS 159 did not have any impact on the Companys financial condition or
results of operations as of and for the three and six months ended November 2, 2008. However,
because the SFAS 159 election is based on an instrument-by-instrument election at the time the
Company first recognizes an eligible item or enters into an eligible firm commitment, the Company
may decide to elect the fair value option on new items should business reasons support doing so in
the future.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157), which
is effective for fiscal years beginning after November 15, 2007 and for interim periods within
those years. This statement defines fair value, establishes a framework for measuring fair value
and expands the related disclosure requirements. This statement applies to accounting
pronouncements that require or permit fair value measurements with certain exclusions. The
statement provides that a fair value measurement assumes that the transaction to sell an asset or
transfer a liability occurs in the principal market for the asset or liability or, in the absence
of a principal market, the most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157 defines fair value based
upon an exit price model.
The Company adopted the effective portions of SFAS 157 on May 1, 2008. In February 2008, the
FASB issued FASB Staff Positions (FSP) 157-1 and 157-2 (FSP 157-1 and FAP 157-2). FSP 157-1
amends SFAS 157 to exclude SFAS No. 13, Accounting for Leases (SFAS 13), and its related
interpretive accounting pronouncements that address leasing transactions, while FSP 157-2 delays
the effective date of the application of SFAS 157 to fiscal years beginning after November 15, 2008
for all nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. Non-recurring nonfinancial assets and
nonfinancial liabilities for which the Company has not applied the provisions of SFAS 157 include
those measured at fair value in goodwill impairment testing, intangible assets measured at fair
value for impairment testing, asset retirement obligations initially measured at fair value, and
those initially measured at fair value in a business combination.
10
SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to
measure fair value. Valuation techniques used to measure fair value under SFAS 157 must maximize
the use of observable inputs and minimize the use of unobservable inputs. The standard describes a
fair value hierarchy based on three levels of inputs, of which the first two are considered
observable and the last unobservable, that may be used to measure fair value which are the
following: Level 1 inputs are unadjusted quoted prices in active markets for identical assets or
liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets
or inputs that are observable for the asset or liability, either directly or indirectly through
market corroboration, for substantially the full term of the financial instrument. Level 3 inputs
are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair
value. A financial asset or liabilitys classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
For disclosure purposes, the Company is required to measure the fair value of outstanding debt
on a recurring basis. Long-term debt is reported at amortized cost in accordance with SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. As of November 2, 2008 based on significant
other observable inputs (Level 2), and April 30, 2008 based on quoted market prices (Level 1), the
fair value of the Companys convertible subordinated debt, was approximately $86.3 million and
$200.7 million, respectively. See note 3, Convertible
Debt.
The following table provides the assets carried at fair value measured on a recurring basis as
of November 2, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Other |
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Observable |
|
|
Significant |
|
|
|
|
|
|
For Identical |
|
|
Remaining |
|
|
Unobservable |
|
|
|
|
Assets Measured at Fair Value on a Recurring Basis |
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
Total |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
Total cash equivalents and available-for-sales investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
31,043 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
31,043 |
|
Corporate debt |
|
|
|
|
|
|
5,554 |
|
|
|
|
|
|
|
5,554 |
|
State and municipal obligations |
|
|
|
|
|
|
1,600 |
|
|
|
|
|
|
|
1,600 |
|
Mortgage-backed debt |
|
|
|
|
|
|
554 |
|
|
|
|
|
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents and available-for-sales investments |
|
$ |
31,043 |
|
|
$ |
7,708 |
|
|
$ |
|
|
|
|
38,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and available-for-sales investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
44,192 |
|
Short-term available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,382 |
|
Long-term available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and available-for-sales investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company classifies investments within Level 1 if quoted prices are available in active
markets. Level 1 assets include instruments valued based on quoted market prices in active markets
which generally include money market funds, corporate publicly traded equity securities on major
exchanges and U.S. Treasury notes with quoted prices on active markets.
The Company classifies items in Level 2 if the investments are valued using observable inputs
to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative
pricing sources with reasonable levels of price transparency. These investments include: government
agencies, corporate bonds and commercial paper.
The Company did not hold financial assets and liabilities which were valued using unobservable
inputs as of November 2, 2008.
Inventories
Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or
market.
11
The Company permanently writes down the cost of inventory that the Company specifically
identifies and considers obsolete or excessive to fulfill future sales estimates. The Company
defines obsolete inventory as inventory that will no longer be used in the manufacturing process.
Excess inventory is generally defined as inventory in excess of projected usage and is determined
using
managements best estimate of future demand, based upon information then available to the
Company. The Company also considers: (1) parts and subassemblies that can be used in alternative
finished products, (2) parts and subassemblies that are likely to be engineered out of the
Companys products, and (3) known design changes which would reduce the Companys ability to use
the inventory as planned.
In quantifying the amount of excess inventory, the Company assumes that the last twelve months
of demand is generally indicative of the demand for the next twelve months. Inventory on hand that is in excess of that demand
is written down. Obligations to purchase inventory acquired by subcontractors based on forecasts
provided by the Company are recognized at the time such obligations arise.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization.
Property and equipment are depreciated on a straight-line basis over the estimated useful lives of
the assets, generally three years to seven years except for buildings, which are depreciated over
twenty-five years.
Goodwill and Other Intangible Assets
Goodwill, purchased technology, and other intangible assets result from acquisitions accounted
for under the purchase method. Amortization of purchased technology and other intangibles has been
provided on a straight-line basis over periods ranging from three to ten years. The amortization of
goodwill ceased with the adoption of SFAS No. 142, Goodwill and Other Intangible Assets (SFAS
142), beginning in the first quarter of fiscal 2003. Intangible assets with finite lives are
amortized over their estimated useful lives. Goodwill is assessed for impairment annually or more
frequently when an event occurs or circumstances change between annual tests that would more likely
than not reduce the fair value of the reporting unit below its carrying value.
Accounting for the Impairment of Long-Lived Assets
The Company periodically evaluates whether changes have occurred to long-lived assets that
would require revision of the remaining estimated useful life of the assets or render them not
recoverable. If such circumstances arise, the Company uses an estimate of the undiscounted value of
expected future operating cash flows to determine whether the long-lived assets are impaired. If
the aggregate undiscounted cash flows are less than the carrying amount of the assets, the
resulting impairment charge to be recorded is calculated based on the excess of the carrying value
of the assets over the fair value of such assets, with the fair value determined based on an
estimate of discounted future cash flows.
Computation of Net Income (Loss) Per Share
Basic and diluted net income (loss) per share is presented in accordance with SFAS No. 128,
Earnings Per Share, for all periods presented. Basic net income (loss) per share has been computed
using the weighted-average number of shares of common stock outstanding during the period. Diluted
net income (loss) per share has been computed using the weighted-average number of shares of common
stock and dilutive potential common shares from options and warrants (under the treasury stock
method) and convertible notes (on an as-if-converted basis) outstanding during the period.
12
The following table presents the calculation of basic and diluted net loss per share (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
November 2, |
|
|
October 28, |
|
|
November 2, |
|
|
October 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(186,831 |
) |
|
$ |
(10,813 |
) |
|
$ |
(182,825 |
) |
|
$ |
(18,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding basic and diluted |
|
|
426,601 |
|
|
|
308,635 |
|
|
|
367,115 |
|
|
|
308,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share |
|
$ |
(0.44 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.50 |
) |
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents related to potentially dilutive securities
excluded from computation above because they are anti-dilutive: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options |
|
|
3,344 |
|
|
|
14,041 |
|
|
|
2,403 |
|
|
|
15,559 |
|
Conversion of convertible subordinated notes |
|
|
30,167 |
|
|
|
31,657 |
|
|
|
30,167 |
|
|
|
31,657 |
|
Conversion of convertible notes |
|
|
|
|
|
|
7,825 |
|
|
|
|
|
|
|
7,825 |
|
Warrants assumed in acquisition |
|
|
21 |
|
|
|
465 |
|
|
|
21 |
|
|
|
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive securities |
|
|
33,532 |
|
|
|
53,988 |
|
|
|
32,591 |
|
|
|
55,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss)
SFAS No. 130, Reporting Comprehensive Income (SFAS 130), establishes rules for reporting and
display of comprehensive income or loss and its components. SFAS 130 requires unrealized gains or
losses on the Companys available-for-sale securities and foreign currency translation adjustments
to be included in comprehensive income (loss).
The components of comprehensive loss for the three and six months ended November 2, 2008 and
October 28, 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
November 2, |
|
|
October 28, |
|
|
November 2, |
|
|
October 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Net loss |
|
$ |
(186,831 |
) |
|
$ |
(10,813 |
) |
|
$ |
(182,825 |
) |
|
$ |
(18,961 |
) |
Foreign currency translation adjustment |
|
|
(7,228 |
) |
|
|
1,441 |
|
|
|
(9,180 |
) |
|
|
1,459 |
|
Change in unrealized loss on securities, net of
reclassification adjustments for realized loss |
|
|
(216 |
) |
|
|
(3,357 |
) |
|
|
(1,067 |
) |
|
|
(3,685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(194,275 |
) |
|
$ |
(12,729 |
) |
|
$ |
(193,072 |
) |
|
$ |
(21,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive income, net of taxes, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
November 2, 2008 |
|
|
April 30, 2008 |
|
Net unrealized gains/(losses) on available-for-sale securities |
|
$ |
(163 |
) |
|
$ |
904 |
|
Cumulative translation adjustment |
|
|
2,889 |
|
|
|
12,069 |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
2,726 |
|
|
$ |
12,973 |
|
|
|
|
|
|
|
|
Income Taxes
We use the liability method to account for income taxes as required by SFAS No. 109,
Accounting for Income Taxes (SFAS 109). As part of the process of preparing our consolidated
financial statements, we are required to estimate income taxes in each of the jurisdictions in
which we operate. This process involves determining our income tax expense together with
calculating the deferred income tax expense related to temporary difference resulting from the
differing treatment of items for tax and accounting purposes,
13
such as deferred revenue or
deductibility of certain intangible assets. These temporary differences result in deferred tax
assets or liabilities, which are included within the consolidated balance sheets.
We record a valuation allowance to reduce our deferred tax assets to an amount that we
estimate is more likely than not to be realized. We consider estimated future taxable income and
prudent tax planning strategies in determining the need for a valuation allowance. When we
determine that it is more likely than not that some or all of our tax attributes will be realizable
by either refundable income taxes or future taxable income, the valuation allowance will be reduced
and the related tax impact will be recorded to the provision in that quarter. Likewise, should we
determine that we are not likely to realize all or part of our deferred tax assets in the future,
an increase to the valuation allowance would be recorded to the provision in the period such
determination was made.
Pending Adoption of New Accounting Standards
In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal
or extension assumptions used in determining the useful life of a recognized intangible asset under
Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets. This new
guidance applies prospectively to intangible assets that are acquired individually or with a group
of other assets in business combinations and asset acquisitions. FSP 142-3 is effective for fiscal
years beginning after December 15, 2008, and early adoption is
prohibited. The impact of FSP 142-3 will depend upon the nature, terms, and size of the
acquisitions the Company consummates after the effective date.
In May 2008, the FASB issued FSP APB 14-1, Accounting for Convertible Debt Instruments That May
Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB 14-1). FSP APB 14-1 requires recognition of both the liability and equity components of convertible debt instruments with cash settlement features. The debt component is required to be recognized at the fair value of a similar
instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. FSP APB 14-1 also requires an accretion of the resulting debt discount over the expected life of the debt.
Retrospective application to all periods presented is required. This standard is effective for the Company in the first quarter of fiscal year 2010. The Company is currently evaluating the impact that FSP APB 14-1 will have on its financial statements.
2. Business Combinations
On August 29, 2008, the Company consummated the combination with Optium, a leading designer
and manufacturer of high performance optical subsystems for use in telecommunications and cable TV
network systems, through the merger of Optium with a wholly-owned subsidiary of the Company. The
Companys management and board of directors believe that the combination of the two companies
created the worlds largest supplier of optical components, modules and subsystems for the
communications industry and will leverage the Companys leadership position in the storage and
data networking sectors of the industry and Optiums leadership position in the telecommunications
and CATV sectors to create a more competitive industry participant. In addition, as a result of
the combination, management believes that the Company should be able to realize cost synergies related to operating expenses
and manufacturing costs resulting from (1) the transfer of production to lower cost locations,
(2) improved purchasing power associated with being a larger company
and (3) cost synergies associated with the
integration of components into product designs previously purchased in the open market by Optium.
The Company has accounted for the combination using the purchase method of accounting and as a
result has included the operating results of Optium in its consolidated financial results since the
August 29, 2008 consummation date. The Optium results are included in the Companys optical
subsystems and components segment. The following table summarizes the components of the total
preliminary purchase price (in thousands):
|
|
|
|
|
Fair value of Finisar common stock issued |
|
$ |
242,821 |
|
Fair value of vested Optium stock options and warrants assumed |
|
|
8,561 |
|
Direct transaction costs |
|
|
2,431 |
|
|
|
|
|
Total preliminary purchase price |
|
$ |
253,813 |
|
|
|
|
|
At the closing of the merger, the Company issued 160,808,659 shares of its common stock valued
at approximately $242.8 million for all of the outstanding common stock of Optium. The value of
the shares issued was calculated using the five day average of the closing price of the Companys
common stock from the second trading day before the merger announcement date on May 16, 2008
through the second trading day following the announcement, or $1.51 per share. There were
approximately 17,202,600 shares of the Companys common stock issuable upon the exercise of the
outstanding options, warrants and restricted stock awards it assumed in accordance with the terms
of the merger agreement. The number of shares was calculated based on the fixed conversion ratio
of 6.262 shares of Finisar common stock for each share of Optium common stock. The purchase price
includes $8.6 million representing the fair market value of the vested options and warrants
assumed.
14
The
Company also expects to recognize approximately $6.5 million of non-cash stock-based
compensation expense related to the unvested options and restricted stock awards assumed on the
acquisition date. This expense will be recognized beginning from the acquisition date over the
remaining service period of the awards. The stock options and warrants were valued using the
Black-Scholes option pricing model using the following weighted
average assumptions:
|
|
|
|
|
Interest rate |
|
|
2.17 - 4.5% |
|
Volatility |
|
|
47 - 136% |
|
Expected life |
|
|
1 - 6 years |
|
Expected dividend yield |
|
|
0% |
|
Direct transaction costs include estimated legal and accounting fees and other external costs
directly related to the merger.
Preliminary Purchase Price Allocation
The Company accounted for the purchase of Optium using the purchase method of accounting. The
purchase price was allocated to tangible and intangible assets acquired and liabilities assumed
based on their estimated fair values at the acquisition date of August 29, 2008. The excess of the
purchase price over the fair value of the net assets acquired was allocated to goodwill. The
Company believes the fair value assigned to the assets acquired and liabilities assumed was based
on reasonable assumptions. The total purchase price has been preliminarily allocated to the fair
value of assets acquired and liabilities assumed as follows (in thousands):
|
|
|
|
|
Tangible assets acquired and liabilities assumed: |
|
|
|
|
Cash and short-term investments |
|
$ |
31,825 |
|
Other current assets |
|
|
64,233 |
|
Fixed assets |
|
|
19,129 |
|
Other non-current assets |
|
|
889 |
|
Accounts payable and accrued liabilities |
|
|
(47,005 |
) |
Other liabilities |
|
|
(973 |
) |
|
|
|
|
Net tangible assets |
|
|
68,098 |
|
Identifiable intangible assets |
|
|
25,100 |
|
In-process research and development |
|
|
10,500 |
|
Goodwill |
|
|
150,115 |
|
|
|
|
|
Total preliminary purchase price allocation |
|
$ |
253,813 |
|
|
|
|
|
The Companys allocation of the purchase price is based upon preliminary estimates and
assumptions with respect to fair value. These estimates and assumptions could change significantly
during the purchase price allocation period, which is up to one year from the acquisition date.
Any change could result in material variances between the Companys future financial results and
the amounts presented in these unaudited condensed consolidated financial statements.
Identifiable Intangible Assets
Intangible assets consist primarily of developed technology, customer relationships and
trademarks. Developed technology is comprised of products that have reached technological
feasibility and are a part of Optiums product lines. This proprietary know-how can be leveraged
to develop new technology and products and improve our existing products. Customer relationships
represent Optiums underlying relationships with its customers. Trademarks represent the fair
value of brand name recognition associated with the marketing of Optiums products. The fair
values of identified intangible assets were calculated using an income approach and estimates and
assumptions provided by both Finisar and Optium management. The rates utilized to discount net
cash flows to their present values were based on the Companys weighted average cost of capital and
ranged from 15% to 30%. This discount rate was determined after consideration for the Companys
rate of return on debt capital and equity and the weighted average return on invested capital. The
amounts assigned to developed technology, customer relationships, and trademarks were $12.1
million, $11.9 million and $1.1 million, respectively. We expect to amortize developed technology,
customer relationships, and trademarks on a straight-line basis over their weighted average
expected useful life of 10, 5, and 1 years, respectively. Developed technology is amortized into
cost of sales while customer relationships and trademarks are amortized into operating expenses.
In-Process Research and Development
The Company expenses in-process research and development (IPR&D) upon acquisition as it
represents incomplete Optium research and development projects that had not reached technological
feasibility and had no alternative future use as of the date of the merger. Technological
feasibility is established when an enterprise has completed all planning, designing, coding, and
testing
15
activities that are necessary to establish that a product can be produced to meet its
design specifications including functions, features, and technical performance requirements. The
value assigned to IPR&D of $10.5 million was determined by considering the importance of each
project to the Companys overall development plan, estimating costs to develop the purchased IPR&D
into commercially viable products, estimating the resulting net cash flows from the projects when
completed and discounting the net cash flows to their present values based on the percentage of
completion of the IPR&D projects.
Pro Forma Financial Information
The unaudited financial information in the table below summarizes the combined results of
operations of the Company and Optium on a pro forma basis after giving effect to the merger with
Optium at the beginning of each period presented. The pro forma information is for informational
purposes only and is not necessarily indicative of the results of operations that would have been
achieved if the merger had happened at the beginning of each of the periods presented.
The unaudited pro forma financial information for the three months ended November 2, 2008
combines the historical results of the Company for the three months ended November 2, 2008 with the
historical results of Optium for one month ended August 29, 2008. The unaudited pro forma
financial information for the six months ended November 2, 2008 combines the historical results of
the Company for the six months ended November 2, 2008 with the historical results of Optium for one
month ended August 29, 2008 and the three months ended August 2, 2008.
The unaudited pro forma financial information for the three months ended October 28, 2007
combines the historical results of the Company for the three months ended October 28, 2007 with the
historical results of Optium for the three months ended November 3, 2007. The unaudited pro forma
financial information for the six months ended October 28, 2007 combines the historical results of
the Company for the six months ended October 28, 2007 with the historical results of Optium for
three months ended July 28, 2007 and the three months ended November 3, 2007.
The following pro forma financial information for all periods presented includes purchase
accounting adjustments for amortization charges from acquired identifiable intangible assets and
depreciation on acquired property and equipment (unaudited; in thousands, except per share
information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
November 2, |
|
October 28, |
|
November 2, |
|
October 28, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|
|
|
|
Net revenue |
|
|
164,280 |
|
|
|
136,819 |
|
|
|
340,210 |
|
|
|
269,426 |
|
Net loss |
|
|
(192,982 |
) |
|
|
(13,156 |
) |
|
|
(192,624 |
) |
|
|
(21,353 |
) |
Net loss per share basic and diluted |
|
$ |
(0.45 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.52 |
) |
|
$ |
(0.06 |
) |
3. Convertible Debt
The Companys convertible subordinated and convertible senior subordinated note balances as of
November 2, 2008 and April 30, 2008 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Fair |
|
|
Interest |
|
Description |
|
Amount |
|
|
Value |
|
|
Rate |
|
As of November 2, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes due 2010 |
|
$ |
50,000 |
|
|
$ |
28,750 |
|
|
|
2.50 |
% |
Convertible senior subordinated notes due 2010 |
|
|
100,000 |
|
|
|
57,500 |
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150,000 |
|
|
$ |
86,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated notes due 2008 |
|
$ |
92,026 |
|
|
$ |
88,443 |
|
|
|
5.25 |
% |
Convertible subordinated notes due 2010 |
|
|
50,000 |
|
|
|
38,128 |
|
|
|
2.50 |
% |
Convertible senior subordinated notes due 2010 |
|
|
100,000 |
|
|
|
74,157 |
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
242,026 |
|
|
$ |
200,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
The Companys convertible subordinated and convertible senior subordinated notes are due by
fiscal year as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended April 30, |
|
|
|
Total |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
Convertible notes |
|
$ |
150,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Notes due 2008
During the second quarter of fiscal 2009, the Company retired, through a combination of cash
purchases in private transactions and repayment upon maturity, the remaining $92.0 million of
outstanding principal and the accrued interest under these notes.
Convertible NoteAcquisition of AZNA LLC
During the first quarter of fiscal 2009, the Company repaid, in cash, the remaining $11.9
million of outstanding principal and $313,000 of accrued interest under the amended convertible
promissory note issued in connection with the acquisition of AZNA LLC.
4. Installment Loans
In July 2008, the Companys Malaysian subsidiary entered into two separate loan agreements
with a Malaysian bank. Under these agreements, the Companys Malaysian subsidiary borrowed a total
of $20 million at an initial interest rate of 5.05% per annum. The first loan is payable in 20
equal quarterly installments of $750,000 beginning in January 2009 and the second loan is payable
in 20 equal quarterly installments of $250,000 beginning in October 2008. Both loans are secured
by certain property of the Companys Malaysian subsidiary, guaranteed by the Company and subject to certain covenants. The Company
was in compliance with all covenants associated with these loans as of November 2, 2008. At
November 2, 2008, the principal balance outstanding under these notes was $19.8 million.
5. Inventories
Inventories consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 2, 2008 |
|
|
April 30, 2008 |
|
Raw materials |
|
$ |
40,244 |
|
|
$ |
19,540 |
|
Work-in-process |
|
|
39,373 |
|
|
|
30,424 |
|
Finished goods |
|
|
41,256 |
|
|
|
32,590 |
|
|
|
|
|
|
|
|
Total inventory |
|
$ |
120,873 |
|
|
$ |
82,554 |
|
|
|
|
|
|
|
|
During the three and six months ended November 2, 2008, the Company recorded charges of $3.8
million and $6.4 million, respectively, for excess and obsolete inventory, and sold inventory that
was written-off in previous periods with an approximate cost of $1.3 million and $3.1 million,
respectively. As a result, cost of revenue associated with the sale of this inventory was zero.
During the three and six months ended October 28, 2007, the Company recorded charges of $3.6
million and $7.4 million, respectively, for excess and obsolete inventory, and sold inventory that
was written-off in previous periods with an approximate cost of $1.7 million and $3.4 million,
respectively. As a result, cost of revenue associated with the sale of this inventory was zero.
6. Property and Equipment
Property and equipment consist of the following (in thousands):
17
|
|
|
|
|
|
|
|
|
|
|
November 2, 2008 |
|
April 30, 2008 |
Land |
|
$ |
|
|
|
$ |
9,747 |
|
Buildings |
|
|
7,505 |
|
|
|
12,019 |
|
Computer equipment |
|
|
44,263 |
|
|
|
40,255 |
|
Office equipment, furniture and fixtures |
|
|
4,242 |
|
|
|
3,383 |
|
Machinery and equipment |
|
|
189,858 |
|
|
|
158,983 |
|
Leasehold improvements |
|
|
14,809 |
|
|
|
14,302 |
|
Contruction-in-process |
|
|
5,714 |
|
|
|
2,941 |
|
|
|
|
Total |
|
|
266,391 |
|
|
|
241,630 |
|
Accumulated depreciation and amortization |
|
|
(174,255 |
) |
|
|
(151,783 |
) |
|
|
|
Property, equipment and improvements (net) |
|
$ |
92,136 |
|
|
$ |
89,847 |
|
|
|
|
7. Sale-leaseback and Impairment of Tangible Assets
During the quarter ended January 31, 2005, the Company recorded an impairment charge of $18.8
million to write down the carrying value of one of its corporate office facilities located in
Sunnyvale, California upon entering into a sale-leaseback agreement. The property was written down
to its appraised value, which was based on the work of an independent appraiser in conjunction with
the sale-leaseback agreement. Due to retention by the Company of an option to acquire the leased
properties at fair value at the end of the fifth year of the lease, the sale-leaseback transaction
was recorded in the Companys quarter ended April 30, 2005 as a financing transaction under which
the sale would not be recorded until the option expired or was otherwise terminated.
During the first quarter of fiscal 2009, the Company amended the sale-leaseback agreement with
the landlord to immediately terminate the Companys option to acquire the leased properties.
Accordingly, the Company finalized the sale of the property by
disposing of the remaining net book value of its corporate office facility in Sunnyvale,
California and the corresponding value of the land resulting in a loss on disposal of approximately
$12.2 million. This loss was offset by the reduction in the carrying value of the financing
liability and other related accounts by approximately $11.9 million, resulting in the recognition
of a net loss on the sale of this property of approximately $343,000 during the three months ended
August 3, 2008. As of August 3, 2008, the carrying value of the property and the financing
liability had been reduced to zero.
8. Income Taxes
The Company recorded an income tax benefit of $7,743,000 and a provision for income taxes of
$655,000, respectively, for the three months ended November 2, 2008 and October 28, 2007. The
provision for the three months ended October 28, 2007 includes non-cash charges of $544,000 for
deferred tax liabilities that were recorded for tax amortization of goodwill for which no financial
statement amortization has occurred under generally accepted accounting principles as promulgated
by SFAS 142 and current tax expense of $111,000 for minimum federal and state taxes and foreign
income taxes arising in certain foreign jurisdictions in which the Company conducts business. The
income tax benefit for the three months ended November 2, 2008 includes a non-cash benefit of
$8,398,000 from the reversal of the previous recorded deferred tax liabilities related to tax
amortization of goodwill for which no financial statement amortization has occurred. The reversal
is a result of the impairment of goodwill in the current quarter. The benefit is offset by current
tax expense of $655,000 for the minimum federal and state taxes and foreign income taxes arising in
certain foreign jurisdictions in which the Company conducts business.
The Company records a valuation allowance against its deferred tax assets for each period in
which management concludes that it is more likely than not that the deferred tax assets will not be
realized. Realization of the Companys net deferred tax assets is dependent upon future taxable
income the amount and timing of which are uncertain. Accordingly, the Companys net deferred tax
assets as of November 2, 2008 have been fully offset by a valuation allowance.
A portion of the valuation allowance for deferred tax assets at November 2, 2008 relates to
the tax benefits of stock option deductions the tax benefit of which will be credited to paid-in
capital if and when realized, and thereafter, income tax expense.
Utilization of the Companys net operating loss and tax credit carryforwards may be subject to
a substantial annual limitation due to the ownership change limitations set forth by Internal
Revenue Code Section 382 and similar state provisions. Such an annual limitation could result in
the expiration of the net operating loss and tax credit carryforwards before utilization.
18
A reconciliation of the beginning and ending amount of the gross unrecognized tax benefits is
as follows (in thousands):
|
|
|
|
|
Gross unrecognized tax benefits balance at May 1, 2008 |
|
$ |
11,700 |
|
|
Add: |
|
|
|
|
Additions due to merger of Optium unrecognized tax benefits |
|
|
500 |
|
|
|
|
|
|
Gross unrecognized tax benefits balance at November 2, 2008 |
|
$ |
12,200 |
|
|
|
|
|
Excluding the effects of recorded valuation allowances for deferred tax assets, $9.5 million
of the unrecognized tax benefits would favorably impact the effective tax rate in future periods if
recognized and $500,000 of unrecognized tax benefits would reduce goodwill if recognized.
It is the companys belief that no significant changes in the unrecognized tax benefit
positions will occur within the next 12 months.
The Company records interest and penalties related to unrecognized tax benefits in income tax
expense. At November 2, 2008, there were no accrued interest or penalties related to uncertain tax
positions. The company estimated no interest or penalties for the quarter ended November 2, 2008.
9. Intangible Assets Including Goodwill
Intangible Assets
The following table reflects intangible assets subject to amortization as of November 2, 2008
and April 30, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Purchased technology |
|
$ |
123,946 |
|
|
$ |
(102,746 |
) |
|
$ |
21,200 |
|
Purchased trade name |
|
|
4,797 |
|
|
|
(3,582 |
) |
|
|
1,215 |
|
Purchased customer relationships |
|
|
18,864 |
|
|
|
(4,097 |
) |
|
|
14,767 |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
147,607 |
|
|
$ |
(110,425 |
) |
|
$ |
37,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
Purchased technology |
|
$ |
111,846 |
|
|
$ |
(99,996 |
) |
|
$ |
11,850 |
|
Purchased trade name |
|
|
3,697 |
|
|
|
(3,345 |
) |
|
|
352 |
|
Purchased customer relationships |
|
|
6,964 |
|
|
|
(3,417 |
) |
|
|
3,547 |
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
122,507 |
|
|
$ |
(106,758 |
) |
|
$ |
15,749 |
|
|
|
|
|
|
|
|
|
|
|
Estimated remaining amortization expense for each of the next five fiscal years ending April
30, is as follows (in thousands):
19
|
|
|
|
|
Year |
|
Amount |
|
2009 |
|
$ |
4,954 |
|
2010 |
|
|
7,787 |
|
2011 |
|
|
6,938 |
|
2012 |
|
|
5,865 |
|
2013 and beyond |
|
|
11,638 |
|
|
|
|
|
total |
|
$ |
37,182 |
|
|
|
|
|
Patent-Related Costs
On August 4, 2008, the first day of the Companys second quarter for fiscal 2009, the Company
changed its method of accounting for third-party costs related to applying for patents on its
technologies to expensing such costs as incurred from capitalizing such amounts and amortizing them
on a straight-line basis over the estimated economic life of the underlying technology. While the
Company believes that patents and the underlying technology have continuing value, the pace of
technological change and the challenge of estimating the economic life of the underlying technology
make it difficult to estimate the benefits to be derived in the future. The patent-related costs
previously capitalized and amortized consist solely of legal fees for patent applications and other
direct costs incurred in obtaining patents on its internally generated technologies. The Company
believes the new practice is more appropriate since the costs it has historically capitalized
represent only a portion of the total costs incurred to develop the underlying technologies and
bear no relationship to the fair value of those technologies as do the carrying value of
technologies acquired in business combinations. The Company also believes the new practice is
consistent with predominant industry practice. The new method also is consistent with the
historical practice of Optium with which the Company merged on August 29, 2008. Consistent with
FASB Statement No. 154, Accounting Changes and Error Corrections, the effect of the change in
accounting method will be made retroactive to the beginning of the earliest period presented in the
Companys fiscal 2009 condensed consolidated financial statements and the historic quarterly
financial statements have been adjusted to reflect the period-specific effects of applying the new
method.
As a result of the accounting change, the Companys accumulated deficit as of May 1, 2008
increased by $13.3 million to $1,444.8 million. The change in accounting practice increased the
Companys consolidated net loss for the three months ended August 3, 2008 and for the three and six
months ended October 28, 2007 by $710,000, $1.0 million, and $1.9 million, respectively.
The following tables summarize the impact of the change in accounting for patent-related costs
on the Companys condensed consolidated balance sheet as of April 30, 2008, its condensed
consolidated statements of operations for three months ended August 3, 2008 and the three and six
months ended October 28, 2007 and its condensed consolidated cash flows for the six months ended
October 28, 2007. Only the line items affected by the change in accounting are reflected in
the tables below (all amounts, unaudited, in thousands, except per share data):
CONDENSED CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
April 30, 2008 |
|
|
As originally |
|
|
|
|
reported |
|
As adjusted |
Other intangible assets, net |
|
$ |
17,183 |
|
|
$ |
3,899 |
|
Total assets |
|
|
493,487 |
|
|
|
480,203 |
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
(1,431,556 |
) |
|
|
(1,444,840 |
) |
Total stockholders equity |
|
|
121,967 |
|
|
|
108,683 |
|
Total liabilities and stockholders equity |
|
|
493,487 |
|
|
|
480,203 |
|
20
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Three months ended |
|
Six months ended |
|
|
August 3, 2008 |
|
October 28, 2007 |
|
October 28, 2007 |
|
|
As originally |
|
|
|
|
|
As originally |
|
|
|
|
|
As originally |
|
|
|
|
reported |
|
As adjusted |
|
reported |
|
As adjusted |
|
reported |
|
As adjusted |
General and administrative expense |
|
$ |
9,787 |
|
|
$ |
10,497 |
|
|
$ |
10,871 |
|
|
$ |
11,914 |
|
|
$ |
18,862 |
|
|
$ |
20,732 |
|
Total operating expenses |
|
|
40,977 |
|
|
|
41,687 |
|
|
|
38,169 |
|
|
|
39,212 |
|
|
|
74,208 |
|
|
|
76,078 |
|
Loss from operations |
|
|
8,445 |
|
|
|
7,735 |
|
|
|
(6,379 |
) |
|
|
(7,422 |
) |
|
|
(10,115 |
) |
|
|
(11,985 |
) |
Loss before income taxes |
|
|
5,462 |
|
|
|
4,752 |
|
|
|
(9,115 |
) |
|
|
(10,158 |
) |
|
|
(15,815 |
) |
|
|
(17,685 |
) |
Net income (loss) |
|
|
4,716 |
|
|
|
4,006 |
|
|
|
(9,770 |
) |
|
|
(10,813 |
) |
|
|
(17,091 |
) |
|
|
(18,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic |
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
Net income (loss) per share diluted |
|
$ |
0.02 |
|
|
$ |
0.01 |
|
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.06 |
) |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
October 28, 2007 |
|
|
As originally |
|
|
|
|
reported |
|
As adjusted |
Operating Activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,091 |
) |
|
$ |
(18,961 |
) |
Depreciation and amortization |
|
|
13,414 |
|
|
|
12,312 |
|
Change in other assets |
|
|
(2,415 |
) |
|
|
701 |
|
Change in accounts payable |
|
|
(9,070 |
) |
|
|
(9,214 |
) |
Net cash provided by operating activities |
|
|
(1,588 |
) |
|
|
(1,588 |
) |
Goodwill
The following table reflects changes in the carrying amount of goodwill, all of which related
to the optical subsystems and components reporting unit, (in thousands):
|
|
|
|
|
|
|
Optical Subsystems and |
|
|
|
Components |
|
Balance at April 30, 2008 |
|
$ |
88,242 |
|
|
|
|
|
Addition related to acquisition of subsidiary |
|
|
150,115 |
|
Impairment of goodwill |
|
|
(178,768 |
) |
|
|
|
|
Balance at November 2, 2008 |
|
$ |
59,589 |
|
|
|
|
|
Goodwill impairment
The Company performed its annual assessment of goodwill as of the first day of the fourth
quarter of fiscal 2008. The assessment was completed in late June 2008, in connection with the
closing of the Companys 2008 fiscal year, and concluded that
the carrying value of the Companys network test
systems reporting unit exceeded its fair value. This conclusion was based, among other things, on
the assumed disposition of the Companys NetWisdom product line, which had been planned at the
beginning of the fourth quarter (see Note 16, Restructuring and Product Line Sale). Accordingly, in
late June 2008, the Company performed an additional analysis, as
21
required by SFAS 142, which
indicated that an impairment loss was probable because the implied fair value of goodwill related
to its network test systems reporting unit was zero. As a result, the Company recorded
an estimated impairment charge of $40.1 million in the fourth quarter of fiscal 2008. The Company
completed its determination of the implied fair value of the affected goodwill during the first
quarter of fiscal 2009, which did not result in a revision of the estimated charge.
On May 16, 2008, the Company entered into an agreement to combine with Optium Corporation through the merger of Optium
with a wholly-owned subsidiary of the Company. The merger was subject to approval by the stockholders of both companies. The number of shares to be exchanged in the transaction was fixed at 6.262 shares of Finisar common stock for each share of Optium
common stock. The closing price of Finisars common stock on May
16, 2008 was $1.53 while a five-day average used to calculate the consideration paid in the merger was $1.51. The merger was approved by the stockholders of both companies on August
28, 2008, and on August 29, 2008, the merger became effective. The
closing price of Finisars common stock upon the effectiveness
of the merger was $1.45. The preliminary allocation of the merger consideration resulted in the recognition of an additional
$150 million of goodwill, which when combined with the $88 million in previously acquired goodwill prior to the merger, resulted in a total goodwill balance of approximately $238 million. The actual operating results and outlook for both companies
between the date of the definitive agreement and the effective date of the merger had not changed to any significant degree, with both companies separately reporting record revenues for their interim quarters.
Between the effective date of the merger and November 2, 2008, the end of the second quarter of fiscal 2009, the Company concluded that there were sufficient indicators to require an interim goodwill impairment analysis. Among these indicators were a
significant deterioration in the macroeconomic environment largely caused by the widespread unavailability of business and consumer credit, a significant decrease in the Companys market capitalization as a result of a decrease in the trading price of its
common stock to $.61 at the end of the quarter and a decrease in internal expectations for near term revenues, especially those expected to result from the Optium merger. For the purposes of this analysis, the Companys estimates of fair value were based on a combination of the income approach, which estimates the fair value of its reporting units based on future discounted cash flows, and the market approach, which estimates the fair value of its reporting units based on comparable market prices. As of the filing of its
Quarterly Report on Form 10-Q for the second quarter of fiscal 2009, the Company had not completed its analysis due to the complexities involved in determining the implied fair value of the goodwill for the optical subsystems and components reporting unit,
which is based on the determination of the fair value of all assets and liabilities of this reporting unit. However, based on the work performed through the date of the filing, the Company concluded that an impairment loss is probable and can be reasonably estimated. Accordingly, it recorded a $178.8 million non-cash goodwill impairment charge, representing its best estimate of the impairment loss
during the second quarter of fiscal 2009. Giving effect to this impairment charge, the remaining balance of goodwill at November 2, 2008 was $59.6 million, all of which related to the optical subsystems and components reporting unit.
The Company expects to finalize its goodwill impairment analysis during the third quarter of
fiscal 2009. There could be material adjustments to the goodwill impairment charge when the
goodwill impairment test is completed. Any adjustments to its preliminary estimates as a result of
completing this evaluation will be recorded in the financial statements for the quarter ending
February 1, 2009.
22
10. Investments
Available-for-Sale Securities
The following is a summary of the Companys available-for-sale investments as of November 2,
2008 and April 30, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
Investment Type |
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
As of November 2, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
31,043 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
31,043 |
|
Corporate debt |
|
|
5,660 |
|
|
|
|
|
|
|
(106 |
) |
|
|
5,554 |
|
State and municipal obligations |
|
|
1,600 |
|
|
|
|
|
|
|
|
|
|
|
1,600 |
|
Mortgage-backed debt |
|
|
611 |
|
|
|
|
|
|
|
(57 |
) |
|
|
554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
38,914 |
|
|
$ |
|
|
|
$ |
(163 |
) |
|
$ |
38,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
31,043 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
31,043 |
|
Short-term investments |
|
|
7,494 |
|
|
|
|
|
|
|
(112 |
) |
|
|
7,382 |
|
Long-term investments |
|
|
377 |
|
|
|
|
|
|
|
(51 |
) |
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
38,914 |
|
|
$ |
|
|
|
$ |
(163 |
) |
|
$ |
38,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Market |
|
Investment Type |
|
Cost |
|
|
Gain |
|
|
Loss |
|
|
Value |
|
As of April 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
65,551 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
65,551 |
|
Corporate debt |
|
|
30,358 |
|
|
|
68 |
|
|
|
(44 |
) |
|
|
30,382 |
|
Government agency debt |
|
|
4,250 |
|
|
|
104 |
|
|
|
|
|
|
|
4,354 |
|
Mortgage-backed debt |
|
|
2,280 |
|
|
|
11 |
|
|
|
(14 |
) |
|
|
2,277 |
|
Corporate equity securities |
|
|
2,022 |
|
|
|
779 |
|
|
|
|
|
|
|
2,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
104,461 |
|
|
$ |
962 |
|
|
$ |
(58 |
) |
|
$ |
105,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
65,552 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
65,552 |
|
Short-term investments |
|
|
29,734 |
|
|
|
873 |
|
|
|
(30 |
) |
|
|
30,577 |
|
Long-term investments |
|
|
9,175 |
|
|
|
89 |
|
|
|
(28 |
) |
|
|
9,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
104,461 |
|
|
$ |
962 |
|
|
$ |
(58 |
) |
|
$ |
105,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross realized gains and losses for the three and six months ended November 2, 2008 and
October 28, 2007 were immaterial. Realized gains and losses were calculated based on the specific
identification method.
Available-for-Sale Equity Securities
During fiscal 2008, the Company granted an option to a third party to acquire 3.8 million
shares of stock of a publicly-held company held by the Company. The Company determined that this
option should be accounted for under the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which requires the Company to calculate the fair value of the
option at the end of each reporting period, upon the exercise of the option or at the time the
option expires and recognize the change in fair value through other income (expense), net. As of
April 30, 2008, the Company had recorded a current liability of $1.1 million related to the fair
value of this option.
During the first quarter of fiscal 2009, the third party did not exercise its option to
purchase any of the shares and the option expired. Accordingly, the Company reduced the carrying
value of the option liability to zero and recorded $1.1 million of other income during the three
months ended August 3, 2008.
23
During the quarter ended November 2, 2008, the Company sold 300,000 shares of this investment
for $90,000 resulting in a realized loss of $12,000. As of November 2, 2008, the Company classified
the remaining 3.5 million shares as available-for-sale securities in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The Company determined that the
full carrying value of these shares was other-than-temporarily impaired and it recorded a loss of
$1.2 million
during the second quarter of fiscal 2009 in accordance with FSP 115-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. As of November 2, 2008
and April 30, 2008, unrealized gains of $0 and $779,000 are included in accumulated other
comprehensive income, respectively.
11. Minority Investments
Included in minority investments at November 2, 2008 is $14.3 million representing the
carrying value of the Companys minority investment in four privately held companies accounted for
under the cost method. At April 30, 2008, minority investment of $13.3 million represented the
carrying value of the Companys minority investments in the same companies. The $1 million increase
was due to the conversion of a convertible note of one of these companies, plus accrued interest,
into preferred stock of that company which occurred in the first quarter of fiscal 2009.
12. Stockholders Equity
Valuation and Expense Information Under SFAS 123R
The following table summarizes stock-based compensation expense related to employee stock
options, restricted stock awards and employee stock purchases under SFAS 123R for the three and six
months ended November 2, 2008 and October 28, 2007 which was reflected in the Companys operating
results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
November 2, |
|
|
October 28, |
|
|
November 2, |
|
|
October 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Cost of revenues |
|
$ |
863 |
|
|
$ |
703 |
|
|
$ |
1,719 |
|
|
$ |
1,425 |
|
Research and development |
|
|
1,671 |
|
|
|
1,036 |
|
|
|
2,779 |
|
|
|
1,991 |
|
Sales and marketing |
|
|
516 |
|
|
|
442 |
|
|
|
1,033 |
|
|
|
893 |
|
General and administrative |
|
|
720 |
|
|
|
350 |
|
|
|
1,296 |
|
|
|
981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,770 |
|
|
$ |
2,531 |
|
|
$ |
6,827 |
|
|
$ |
5,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total stock-based compensation capitalized as part of inventory as of November 2, 2008 was
$569,000.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes
single option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Option Plans |
|
Employee Stock Purchase Plan |
|
Employee Stock Option Plans |
|
Employee Stock Purchase Plan |
|
|
Three months ended |
|
Six months ended |
|
|
November 2, |
|
October 28, |
|
November 2, |
|
October 28, |
|
November 2, |
|
October 28, |
|
November 2, |
|
October 28, |
|
|
2008 |
|
2007 |
|
2008 |
|
2007 (1) |
|
2008 |
|
2007 |
|
2008 |
|
2007 (1) |
Weighted
average fair value per share |
|
$ |
0.78 |
|
|
$ |
2.21 |
|
|
$ |
0.51 |
|
|
|
n/a |
|
|
$ |
0.78 - $0.99 |
|
|
$ |
2.21 - $2.86 |
|
|
$ |
0.51 |
|
|
|
n/a |
|
Expected term (in years) |
|
|
5.05 |
|
|
|
5.44 |
|
|
|
0.74 |
|
|
|
n/a |
|
|
|
5.05 - 5.14 |
|
|
|
5.44 |
|
|
|
0.74 |
|
|
|
n/a |
|
Volatility |
|
|
74 |
% |
|
|
87 |
% |
|
|
58 |
% |
|
|
n/a |
|
|
|
72-74% |
|
|
|
87% - 88% |
|
|
|
58 |
% |
|
|
n/a |
|
Risk-free interest rate |
|
|
2.8 |
% |
|
|
4.2 |
% |
|
|
3.3 |
% |
|
|
n/a |
|
|
|
2.8% - 3.2% |
|
|
|
4.2% - 4.6% |
|
|
|
3.3 |
% |
|
|
n/a |
|
Dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
n/a |
|
|
|
0.00% |
|
|
|
0.00% |
|
|
|
0.00 |
% |
|
|
n/a |
|
|
|
|
(1) |
|
During the three and six months ended October 28, 2007, purchases of stock under the Companys Purchase Plan were suspended. |
During the three and six months ended November 2, 2008, none and 1,947,944 shares of common
stock were issued under the Companys Employee Stock Purchase
Plan, respectively, and 189,128 and
809,033 stock options were exercised, respectively. As of November 2, 2008, total compensation
cost related to unvested stock options and restricted stock units not
yet recognized was approximately $22.5 million which is
expected to be recognized over the next 31 months on a weighted-average basis.
24
Accuracy of Fair Value Estimates
The Black-Scholes option valuation model requires the input of highly subjective assumptions,
including the expected life of the stock-based award and the stock price volatility. The
assumptions listed above represent managements best estimates,
but these estimates involve inherent uncertainties and the application of management judgment. As a
result, if other assumptions had been used, the Companys recorded stock-based compensation expense
could have been materially different from that depicted above. In addition, the Company is
required to estimate the expected forfeiture rate and only recognize expense for those shares
expected to vest. If the Companys actual forfeiture rate is materially different from the
estimate, stock-based compensation expense could be materially different.
Extension of Stock Option Exercise Periods for Former Employees
The Company could not issue shares of its common stock under its registration statements on
Form S-8 during the period in which it was not current in its obligations to file periodic reports
under the Securities Exchange Act of 1934 due to the pendency of an investigation into its
historical stock option grant practices, as more fully described in Note 17. Pending
LitigationMatters Related to Historical Stock Option Practices. As a result, during parts of 2006
and 2007, options vested and held by certain former employees of the Company could not be exercised
until the completion of the Companys stock option investigation and the Companys filing
obligations had been met. The Company extended the expiration date of these stock options to June
30, 2008. This extension was treated as a modification of the award in accordance with SFAS 123R.
As a result of the extension, the fair value related to these stock options had been reclassified
to current liabilities subsequent to the modification and is subject to mark-to-market provisions
at the end of each reporting period until the earlier of the final settlement or June 30, 2008. The
remaining accrued balance for these stock options as of April 30, 2008 was approximately $341,000.
During the first quarter of fiscal 2009, the Company recognized a benefit of approximately
$332,000 as a result of a decrease in the fair value of these options on June 30, 2008. The
remaining accrued balance of $9,000 related to these stock options was reclassified to equity as of
August 3, 2008. These transactions represented the final settlement of these options.
13. Segments and Geographic Information
The Company designs, develops, manufactures and markets optical subsystems, components and
network test systems for high-speed data communications. The Company views its business as having
two principal operating segments, consisting of optical subsystems and components, and network test
systems.
Optical subsystems consist primarily of transceivers and transponders sold to original
equipment manufacturers. These products rely on the use of digital and analog RF semiconductor
lasers in conjunction with integrated circuit design and novel packaging technology to provide a
cost-effective means for transmitting and receiving digital signals over fiber optic cable using a
wide range of network protocols, transmission speeds and physical configurations over distances of
70 meters to 200 kilometers. The Company also provides wavelength selective switch reconfigurable
optical add/drop multiplexer products, or WSS ROADMs, and linecards that enable network operators
to switch wavelengths in MAN and WAN networks without the need for converting to an electrical
signal. Optical components consist primarily of packaged lasers and photodetectors used in
transceivers, primarily for LAN and SAN applications.
Network test systems include products designed to test the reliability and performance of
equipment for a variety of protocols including Fibre Channel, Gigabit Ethernet, 10 Gigabit
Ethernet, iSCSI, SAS and SATA. These test systems are also sold primarily to original equipment
manufacturers.
Both of the Companys operating segments and its corporate sales function report to the
Chairman and Chief Executive Officer. Where appropriate, the Company charges specific costs to
these segments where they can be identified and allocates certain manufacturing costs, research and
development, sales and marketing and general and administrative costs to these operating segments,
primarily on the basis of manpower levels or a percentage of sales. The Company does not allocate
income taxes, non-operating income, acquisition related costs, stock compensation, interest income
and interest expense to its operating segments. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies. There are no
intersegment sales.
25
Information about reportable segment revenues and income/(losses) is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
November 2, 2008 |
|
October 28, 2007 |
|
November 2, 2008 |
|
October 28, 2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components |
|
$ |
147,746 |
|
|
$ |
90,930 |
|
|
$ |
263,520 |
|
|
$ |
187,290 |
|
Network test systems |
|
|
11,760 |
|
|
|
9,769 |
|
|
|
24,698 |
|
|
|
19,144 |
|
|
|
|
|
|
Total revenues |
|
$ |
159,506 |
|
|
$ |
100,699 |
|
|
$ |
288,218 |
|
|
$ |
206,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components |
|
$ |
7,503 |
|
|
$ |
5,803 |
|
|
$ |
13,972 |
|
|
$ |
11,871 |
|
Network test systems |
|
|
200 |
|
|
|
228 |
|
|
|
423 |
|
|
|
441 |
|
|
|
|
|
|
Total depreciation and amortization expense |
|
$ |
7,703 |
|
|
$ |
6,031 |
|
|
$ |
14,395 |
|
|
$ |
12,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components |
|
$ |
992 |
|
|
$ |
(4,696 |
) |
|
$ |
9,827 |
|
|
$ |
(5,915 |
) |
Network test systems |
|
|
1,507 |
|
|
|
(507 |
) |
|
|
1,921 |
|
|
|
(1,632 |
) |
|
|
|
|
|
Total operating income (loss) |
|
|
2,499 |
|
|
|
(5,203 |
) |
|
|
11,748 |
|
|
|
(7,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired developed technology |
|
|
(1,503 |
) |
|
|
(1,729 |
) |
|
|
(2,749 |
) |
|
|
(3,458 |
) |
Amortization of other intangibles |
|
|
(753 |
) |
|
|
(490 |
) |
|
|
(1,021 |
) |
|
|
(980 |
) |
Impairment of goodwill |
|
|
(178,768 |
) |
|
|
|
|
|
|
(178,768 |
) |
|
|
|
|
Acquired in-process R&D |
|
|
(10,500 |
) |
|
|
|
|
|
|
(10,500 |
) |
|
|
|
|
Interest income (expense), net |
|
|
(2,221 |
) |
|
|
(2,821 |
) |
|
|
(5,261 |
) |
|
|
(5,652 |
) |
Other non-operating income (expense), net |
|
|
(3,328 |
) |
|
|
85 |
|
|
|
(3,271 |
) |
|
|
(48 |
) |
|
|
|
|
|
Total unallocated amounts |
|
|
(197,073 |
) |
|
|
(4,955 |
) |
|
|
(201,570 |
) |
|
|
(10,138 |
) |
|
|
|
|
|
|
Loss before income taxes |
|
$ |
(194,574 |
) |
|
$ |
(10,158 |
) |
|
$ |
(189,822 |
) |
|
$ |
(17,685 |
) |
|
|
|
|
|
The following is a summary of total assets by segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 2, |
|
|
April 30, |
|
|
|
2008 |
|
|
2008 |
|
Optical subsystems and components |
|
$ |
440,540 |
|
|
$ |
375,042 |
|
Network test systems |
|
|
31,012 |
|
|
|
37,936 |
|
Other assets |
|
|
21,997 |
|
|
|
67,225 |
|
|
|
|
|
|
|
|
|
|
$ |
493,549 |
|
|
$ |
480,203 |
|
|
|
|
|
|
|
|
Cash, short-term, restricted and minority investments are the primary components of other
assets in the above table.
26
The following is a summary of operations within geographic areas based on the location of the
entity purchasing the Companys products (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
November 2, |
|
|
October 28, |
|
|
November 2, |
|
|
October 28, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
Revenues from sales to unaffiliated customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
53,725 |
|
|
$ |
31,077 |
|
|
$ |
90,465 |
|
|
$ |
65,253 |
|
Rest of the world |
|
|
105,781 |
|
|
|
69,622 |
|
|
|
197,753 |
|
|
|
141,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
159,506 |
|
|
$ |
100,699 |
|
|
$ |
288,218 |
|
|
$ |
206,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues generated in the United States are all from sales to customers located in the United
States.
The following is a summary of long-lived assets within geographic areas based on the location
of the assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
November 2, |
|
|
April 30, |
|
|
|
2008 |
|
|
2008 |
|
Long-lived assets |
|
|
|
|
|
|
|
|
United States |
|
|
160,521 |
|
|
|
172,354 |
|
Malaysia |
|
|
29,506 |
|
|
|
32,553 |
|
Rest of the world |
|
|
16,721 |
|
|
|
5,422 |
|
|
|
|
|
|
|
|
|
|
|
206,748 |
|
|
|
210,329 |
|
|
|
|
|
|
|
|
The following is a summary of capital expenditures by reportable segment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
November 2, |
|
|
October 28, |
|
|
|
2008 |
|
|
2007 |
|
Optical subsystems and components |
|
$ |
15,210 |
|
|
$ |
10,870 |
|
Network test systems |
|
|
322 |
|
|
|
150 |
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
15,532 |
|
|
$ |
11,020 |
|
|
|
|
|
|
|
|
14. Warranty
The Company generally offers a one-year limited warranty for its products. The specific terms
and conditions of these warranties vary depending upon the product sold. The Company estimates the
costs that may be incurred under its basic limited warranty and records a liability in the amount
of such costs based on revenue recognized. Factors that affect the Companys warranty liability
include the historical and anticipated rates of warranty claims. The Company periodically assesses
the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Companys warranty liability during the following period were as follows (in
thousands):
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
November 2, 2008 |
|
Beginning balance at April 30, 2008 |
|
$ |
2,132 |
|
Additions during the period based on product sold |
|
|
1,384 |
|
Additions for Optium merger |
|
|
2,884 |
|
Settlements |
|
|
(749 |
) |
Changes in liability for pre-existing warranties, including expirations |
|
|
23 |
|
|
|
|
|
Ending balance at November 2, 2008 |
|
$ |
5,674 |
|
|
|
|
|
15. Non-recourse Accounts Receivable Purchase Agreement
On March 14, 2008, the Company entered into an amended non-recourse accounts receivable
purchase agreement with Silicon Valley Bank that will be available to the Company through March 13,
2009. Under the terms of the agreement, the Company may sell to Silicon Valley Bank up to
$10 million of qualifying receivables, on a revolving basis, whereby all right, title and interest
in the
27
Companys invoices are purchased by Silicon Valley Bank. In these non-recourse sales, the
Company removes sold receivables from its books and records no liability related to the sale, as
the Company has assessed that the sales should be accounted for as true sales in accordance with
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities . The discount interest for the facility is based on the number of days in the discount
period multiplied by Silicon Valley Banks prime rate plus 0.25% and a non-refundable
administrative fee of 0.25% of the face amount of each invoice.
On October 28, 2008, the Company modified its non-recourse accounts receivable purchase
agreement with Silicon Valley Bank. Under the modified terms, the credit line was increased to $16
million and the maturity was extended another year through October 24, 2009. There was no change to
the discount rate for this facility.
During the three and six months ended November 2, 2008, the Company sold approximately $10.0
million and $15.2 million, respectively, of its trade receivables. During the three and six months
ended October 28, 2007, the Company sold approximately $5.1 million and $10.4 million,
respectively, of its trade receivables.
16. Restructuring and Product Line Sale
During the first quarter of fiscal 2009, the Company completed the sale of a product line
related to its network test systems segment to a third party for an 11% equity interest in the
acquiring company in the form of preferred stock and a note convertible into preferred stock. For
accounting purposes, no value has been placed on the equity interest due to the uncertainty in the
recoverability of this investment and note. The sale included the transfer of certain assets,
liabilities and the retention of certain obligations related to the sale of the product line
resulting in a net loss of approximately $919,000 which was included in operating expenses.
As of November 2, 2008, $562,000 of committed facility payments remain accrued and are
expected to be fully utilized by the end of fiscal 2011. This amount relates to payment
obligations under restructuring activities associated with the Companys Scotts Valley facility
that took place in fiscal 2006 and the sale of a product line during the first quarter of fiscal
2009.
17. Pending Litigation
Matters Related to Historical Stock Option Grant Practices
On November 30, 2006, the Company announced that it had undertaken a voluntary review
of its historical stock option grant practices subsequent to its initial public offering in
November 1999. The review was initiated by senior management, and preliminary results of the review
were discussed with the Audit Committee of the Companys board of directors. Based on the
preliminary results of the review, senior management concluded, and the Audit Committee agreed,
that it was likely that the measurement dates for certain stock option grants differed from the
recorded grant dates for such awards and that the Company would likely need to restate its
historical financial statements to record non-cash charges for compensation expense relating to
some past stock option grants. The Audit Committee thereafter conducted a further investigation and
engaged independent legal counsel and financial advisors to assist in that investigation. The Audit
Committee concluded that measurement dates for certain option grants differ from the recorded grant
dates for such awards. The Companys management, in conjunction with the Audit Committee, conducted
a further review to finalize revised measurement dates and determine the appropriate accounting
adjustments to its historical financial statements. The announcement of the investigation, and
related delays in filing the Companys quarterly reports on Form 10-Q for the quarters ended
October 29, 2006 (the October 10-Q), January 28, 2007 (the January 10-Q), and October 28, 2007
(the July 10-Q), and the Companys annual report on Form 10-K for the fiscal year ended April 30,
2007 (the 2007 10-K), resulted in the initiation of regulatory proceedings as well as civil
litigation and claims. On December 4, 2007, the Company filed the October 10-Q, the January 10-Q,
the July 10-Q and the 2007 10-K which included revised financial statements.
Stock Option Derivative Litigation
Following the Companys announcement on November 30, 2006 that the Audit Committee of
the board of directors had voluntarily commenced an investigation of the Companys historical stock
option grant practices, the Company was named as a nominal defendant in several shareholder
derivative cases. These cases have been consolidated into two proceedings pending in federal and
state courts in California. The federal court cases have been consolidated in the United States
District Court for the Northern District of California. The state court cases have been
consolidated in the Superior Court of California for the County of Santa Clara. The plaintiffs in
all cases have alleged that certain of the Companys current or former officers and directors
caused the Company to grant stock options at less than fair market value, contrary to the Companys
public statements (including its financial statements), and that, as a result, those officers and
directors are liable to the Company. No specific amount of damages has been alleged, and by the
nature of the lawsuits, no damages will be alleged against the Company. On May 22, 2007, the state
court granted the Companys motion to stay the state court action pending resolution of the
consolidated federal court action. On June 12, 2007, the plaintiffs in the federal court case filed
an amended complaint to reflect the results of the stock option investigation announced by the
28
Audit Committee in June 2007. On August 28, 2007, the Company and the individual defendants filed
motions to dismiss the complaint. On January 11, 2008, the Court granted the motions to dismiss,
with leave to amend. On May 12, 2008, the plaintiffs filed an amended complaint. The Company and
the individual defendants filed motions to dismiss the amended complaint on July 1, 2008. The
Courts ruling on the motions remains pending.
Trust Indenture Litigation
On January 4, 2007, the Company received three substantially identical purported
notices of default from U.S. Bank Trust National Association, as trustee (the Trustee) for the
Companys 2 1 / 2 % Convertible Senior Subordinated Notes due 2010, the Companys 2
1 / 2 % Convertible Subordinated Notes due 2010 and the Companys 5 1 / 4 %
Convertible Subordinated Notes due 2008 (collectively, the Notes). The notices asserted that the
Companys failure to timely file the October 10-Q with the SEC constituted a default under each of
the three indentures between the Company and the Trustee governing the respective series of Notes
(the Indentures). The notices each indicated that, if the Company did not cure the purported
default within 60 days, an Event of Default would occur under the respective Indenture.
In anticipation of the expiration of the 60-day cure period under the notices on
March 5, 2007, and the potential assertion by the Trustee or the noteholders that an Event of
Default had occurred and a potential attempt to accelerate payment on one or more series of the
Notes, on March 2, 2007, the Company filed a lawsuit in the Superior Court of California for the
County of Santa Clara against U.S. Bank Trust National Association, solely in its capacity as
Trustee under the Indentures, seeking a judicial declaration that the Company was not in default
under the three Indentures.
The Company subsequently received purported
notices of default from the Trustee for each of the Indentures, asserting that the Companys
failure to timely file the January 10-Q and the 2007 10-K with
the SEC constituted additional defaults under each of the
Indentures.
On
June 21, 2007, the Company filed a second declaratory relief action against the
Trustee in the Superior Court of California for the County of Santa
Clara. The second action was essentially identical to the first
action except that it covered the subsequent notices
with respect to the Companys delay in filing, and providing
copies to the Trustee, of periodic reports with the SEC. The Trustee removed this action to the
United States District Court for the Northern District of California.
The Company took the position that no default under the terms of the Indentures ever
occurred. The Company contended that the plain language of each Indenture requires only that the
Company file with the Trustee reports that have actually been filed with the SEC, which the Company
has done.
On January 2, 2008, the Company received an additional notice from the Trustee
alleging that it had defaulted under the Indentures by failing to reimburse the Trustee for
attorney and other fees and expenses it has incurred in the dispute. To forestall any efforts by
the Trustee to declare an acceleration based on this alleged default, the Company has paid
approximately $318,000 in fees and expenses as demanded by the Trustee, under protest and subject
to reservation of rights to seek recovery of all amounts paid.
29
On April 24, 2008, the Trustee filed a motion for summary judgment. The Company filed a
cross-motion for summary judgment on June 6, 2008. On August 25, 2008, the Court denied the
Trustees motion in its entirety and granted the Companys motion, in part, ruling that the
Companys failure to timely file its SEC reports had not
constituted defaults
under the Indentures. However, the Court ruled that the Company was responsible to pay reasonable fees
incurred by the Trustee.
Both parties brought cross-motions for fees. The Trustee claimed over $1 million in fees,
whereas the Company claimed approximately $560,000. On November 21, 2008, the Court awarded the
Company all of its fees but limited the Trustees fees to offset
against the Companys fees, plus the
$318,000 already paid by the Company to the Trustee previously. Effectively, the awards canceled
each other out.
The Company has appealed the ruling made on August 25, 2008 that the Company was responsible
to pay reasonable fees incurred by the Trustee and has until December 22, 2008 to appeal the fees
award made on November 21, 2008.
505 Patent Litigation
DirecTV Litigation
On April 4, 2005, the Company filed an action for patent infringement in the
United States District Court for the Eastern District of Texas against the DirecTV Group, Inc.,
DirecTV Holdings, LLC, DirecTV Enterprises, LLC, DirecTV Operations, LLC, DirecTV, Inc., and Hughes
Network Systems, Inc. (collectively, DirecTV). The lawsuit involves the Companys U.S. Patent
No. 5,404,505, or the 505 patent, which relates to technology used in information transmission
systems to provide access to a large database of information. On June 23, 2006, following a jury
trial, the jury returned a verdict that the Companys patent had been willfully infringed and
awarded the Company damages of $78,920,250. In a post-trial hearing held on July 6, 2006, the Court
determined that, due to DirecTVs willful infringement, those damages would be enhanced by an
additional $25 million. Further, the Court awarded the Company pre-judgment interest on the jurys
verdict in the amount of 6% compounded annually from April 4, 1999, amounting to approximately
$13.4 million. Finally, the Court awarded the Company costs of $147,282 associated with the
litigation. The Court declined to award the Company its attorneys fees. The Court denied the
Companys motion for injunctive relief, but ordered DirecTV to pay a compulsory ongoing license fee
to the Company at the rate of $1.60 per set-top box activated by or on behalf of DirecTV for the
period beginning June 16, 2006 through the duration of the patent, which expires in April 2012. The
Court entered final judgment in the Companys favor and against DirecTV on July 7, 2006. On
September 1, 2006, the Court denied DirecTVs post-trial motions seeking to have the jury verdict
set aside or reversed and requesting a new trial on a number of grounds. In another written
post-trial motion, DirecTV asked the Court to allow DirecTV to place any amounts owed to the
Company under the compulsory license into an escrow account pending the outcome of any appeal and
for those amounts to be refundable in the event that DirecTV were to prevail on appeal. The Court
granted DirecTVs motion and payments under the compulsory license were thereafter made into an
escrow account pending the outcome of the appeal. As of March 31, 2008, DirecTV had deposited
approximately $37 million into escrow.
DirecTV appealed to the United States Court of Appeals for the Federal Circuit. In its
appeal, DirecTV raised issues related to claim construction, infringement, invalidity, willful
infringement and enhanced damages. The Company cross-appealed raising issues related to the denial
of the Companys motion for a permanent injunction, the trial courts refusal to enhance future
damages for willfulness and the trial courts determination that some of the asserted patent claims
are invalid. The appeals were consolidated.
On April 18, 2008, the appeals court issued its decision affirming in part, reversing
in part, and remanding the case for further proceedings before the trial court in Texas.
Specifically, the appeals court ruled that the lower courts interpretation of some of the patent
claim terms was too broad and issued its own, narrower interpretation of those terms. The appeals
court also determined that one of the seven patent claims (Claim 16) found infringed by the jury
was invalid, that DirecTVs infringement of the 505 patent was not willful, and that the trial
court did not err in its determination that various claims of the 505 patent were invalid for
indefiniteness. As a result, the judgment, including the compulsory license, was vacated and the
case was remanded to the trial court to reconsider infringement and validity of the six remaining
patent claims and releasing to DirecTV the escrow funds it had deposited.
On May 2, 2008, the Company filed a petition for rehearing requesting the appeals
court to reconsider its decision invalidating Claim 16, to reconsider its decision affirming the
trial courts determination of indefiniteness, and to clarify its instructions concerning the scope
of further proceeding before the trial court. On May 29, 2008, the appeals court denied the
Companys petition.
On June 5, 2008, the appeals court restored jurisdiction of the case with the trial
court in Texas. Thereafter, the trial court issued an order releasing to DirecTV the funds that it
had deposited into escrow.
30
On July 11, 2008, the United States District Court for the Northern District of
California issued an order in the Comcast lawsuit described below in which it held that one of the
claims of the 505 patent, Claim 25, is invalid. The order in the Comcast lawsuit also, in effect,
ruled invalid a related claim, Claim 24, which is one of the six remaining claims of the
505 patent that were returned to the trial court for retrial in the DirectTV lawsuit. The Company
is in the process of appealing the Comcast ruling.
At a status conference held on September 26, 2008, the court fixed June 12, 2008 for
completion of discovery and October 5, 2009 for trial on infringement, validity and
re-determination of damages. On December 1, 2008, both parties filed motions for summary judgment
on validity. A decision on the motions is expected before mid-March 2009.
Comcast Litigation
On July 7, 2006, Comcast Cable Communications Corporation, LLC (Comcast), filed a
complaint against the Company in the United States District Court for the Northern District of
California, San Francisco Division. Comcast sought a declaratory judgment that the Companys
505 patent is not infringed and is invalid. The 505 patent is the same patent alleged by the
Company in its lawsuit against DirecTV. The Companys motion to dismiss the declaratory judgment
action was denied on November 9, 2006. As a result, on November 22, 2006, the Company filed an
answer and counterclaim alleging that Comcast infringes the 505 patent and seeking damages to be
proven at trial. The court held a claim construction hearing and, on April 6, 2007, issued its
claim construction ruling. On December 4, 2007, the Court partially stayed the case pending the
Federal Circuits decision in the DirecTV appeal, but ordered briefing on the issues that were not
implicated by the pending DirecTV appeal to continue. On December 6, 2007, Comcast filed summary
judgment motions on those issues. These motions sought summary judgment of invalidity and
non-infringement of the patent as well as a limitation on damages until after the commencement of
the lawsuit on July 7, 2006. Determination of the validity and infringement issues was deferred
until the issuance of the Federal Circuit decision in the DirecTV appeal. Summary judgment on the
issue of laches was granted, limiting damages to the period after November 22, 2006, the date the
Company filed its cross-complaint. Post-complaint alleged damages are still very substantial.
At a status conference held on April 24, 2008, the Court accepted the Companys
proposal to narrow the issues for trial and proceed only with the Companys principal claim
(Claim 25), subject to the Company providing a covenant not to sue Comcast on the other previously
asserted claims. On May 22, 2008, Comcast filed its renewed motion for summary judgment of
invalidity and non-infringement. On July 11, 2008, the Court issued an order granting Comcasts
motion for summary judgment on the basis of invalidity and also entered a final judgment in favor
of Comcast. On July 25, 2008 the Company filed its notice of appeal to the Federal Circuit. Oral
argument at the Federal Circuit is expected early in 2009.
On July 25, 2008, Comcast filed motions seeking to recover $139,000 in attorneys fees accrued
after the Federal Circuit decision in the DirecTV case and costs of $224,000 incurred by it from
inception of the case. On September 10, 2008, the Court denied this motion.
EchoStar Litigation
On July 10, 2006, EchoStar Satellite LLC, EchoStar Technologies Corporation and
NagraStar LLC (collectively, EchoStar), filed an action against the Company in the United States
District Court for the District of Delaware seeking a declaration that EchoStar does not infringe,
and has not infringed, any valid claim of the Companys 505 patent. The 505 patent is the same
patent that is in dispute in the DirecTV and Comcast lawsuits. On October 24, 2006, the Company
filed a motion to dismiss the action for lack of a justiciable controversy. The Court denied the
Companys motion on September 25, 2007. The Company filed its answer and counterclaim on
October 10, 2007. On December 4, 2007, the Court approved the parties stipulation to stay the case
pending issuance of the Federal Circuits mandate in the DirecTV case. This stay expired when the
mandate of the Federal Circuit issued in the DirecTV case on April 18, 2008. The Court has yet to
set a case schedule.
XM/Sirius Litigation
On April 27, 2007, the Company filed an action for patent infringement in the
United States District Court for the Eastern District of Texas, Lufkin Division, against
XM Satellite Radio Holdings, Inc., XM Satellite Radio, Inc., and XM Radio, Inc. (collectively,
XM), and Sirius Satellite Radio, Inc. and Satellite CD Radio, Inc. (collectively, Sirius).
Judge Clark, the same judge who presided over the DirecTV trial, has been assigned to the case. The
lawsuit alleges that XM and Sirius have infringed and continue to infringe the Companys
505 patent and seeks an injunction to prevent further infringement, actual damages to be proven at
trial, enhanced damages for willful infringement and attorneys fees. The defendants filed an
answer denying infringement of the 505 patent and asserting invalidity and other defenses. The
defendants also moved to stay the case pending the outcome of the DirecTV appeal and the
re-examination of the 505 patent described below. Judge Clark denied defendants motion for a
stay. The claim construction hearing was held on February 5, 2008, and the trial was set for
September 15, 2008. Judge Clark delayed entering a claims construction order, in anticipation of an
opinion from the Federal Circuit in the DirecTV appeal. The Federal Circuit entered its decision in
the DirecTV appeal on April 18, 2008. At around the same time, the United States Patent and
31
Trademark
Office (the PTO), issued its initial office action in the re-examination proceeding of
the 505 patent rejecting a number of claims in light of prior art. Subsequently, the Company moved
without opposition to stay the case pending further action in the DirecTV case on remand and
re-examination. The Court granted the motion and stayed the case until further order.
Requests for Re-Examination of the 505 Patent
Four requests for re-examination of the Companys 505 patent have been filed with the
PTO. The 505 patent is the patent that is in dispute in the DirecTV, EchoStar, Comcast and
XM/Sirius lawsuits. The PTO granted three of these requests, and these three proceedings have been
combined into a single re-examination. A fourth re-examination request was filed on November 5,
2008
directed at claims 17 and 39 of the 505 Patent. The PTO has three months to decide whether to
grant this request. On February 19, 2008, the PTO issued the first substantive office action with
respect to the three granted requests rejecting 17 of the 48 claims of the reexamined patent. The
Company filed a response to the office action on May 5, 2008. During the re-examination, some or
all of the claims in the 505 patent could be invalidated or revised to narrow their scope, either
of which could have a material adverse impact on the Companys position in the related
505 lawsuits. Resolution of the re-examination of the 505 Patent is likely to take more than
four months.
Securities Class Action
A securities class action lawsuit was filed on November 30, 2001 in the United States
District Court for the Southern District of New York, purportedly on behalf of all persons who
purchased the Companys common stock from November 17, 1999 through December 6, 2000. The complaint
named as defendants the Company, Jerry S. Rawls, its President and Chief Executive Officer,
Frank H. Levinson, its former Chairman of the Board and Chief Technical Officer, Stephen K.
Workman, its Senior Vice President and Chief Financial Officer, and an investment banking firm that
served as an underwriter for the Companys initial public offering in November 1999 and a secondary
offering in April 2000. The complaint, as subsequently amended, alleges violations of Sections 11
and 15 of the Securities Act of 1933 and Sections 10(b) and 20(b) of the Securities Exchange Act of
1934, on the grounds that the prospectuses incorporated in the registration statements for the
offerings failed to disclose, among other things, that (i) the underwriter had solicited and
received excessive and undisclosed commissions from certain investors in exchange for which the
underwriter allocated to those investors material portions of the shares of the Companys stock
sold in the offerings and (ii) the underwriter had entered into agreements with customers whereby
the underwriter agreed to allocate shares of the Companys stock sold in the offerings to those
customers in exchange for which the customers agreed to purchase additional shares of the Companys
stock in the aftermarket at pre-determined prices. No specific damages are claimed. Similar
allegations have been made in lawsuits relating to more than 300 other initial public offerings
conducted in 1999 and 2000, which were consolidated for pretrial purposes. In October 2002, all
claims against the individual defendants were dismissed without prejudice. On February 19, 2003,
the Court denied defendants motion to dismiss the complaint.
In July 2004, the Company and the individual defendants accepted a settlement proposal
made to all of the issuer defendants. Under the terms of the settlement, the plaintiffs would
dismiss and release all claims against participating defendants in exchange for a contingent
payment guaranty by the insurance companies collectively responsible for insuring the issuers in
all related cases, and the assignment or surrender to the plaintiffs of certain claims the issuer
defendants may have against the underwriters. Under the guaranty, the
insurers would have been required to
pay the amount, if any, by which $1 billion exceeds the aggregate amount ultimately collected by
the plaintiffs from the underwriter defendants in all the cases. If
the plaintiffs failed to recover
$1 billion and payment was required under the guaranty, the
Company would have been responsible to pay its
pro rata portion of the shortfall, up to the amount of the self-insured retention under its
insurance policy, which could have been up to $2 million. The Court gave preliminary approval to
the settlement in February 2005. Before the Court issued a final decision on the settlement, on
December 5, 2006, the United States Court of Appeals for the Second Circuit vacated the class
certification of plaintiffs claims against the underwriters in six cases designated as focus or
test cases. Thereafter, the parties withdrew the settlement.
Subsequent to the withdrawal of the proposed settlement, the parties
have engaged in further negotiations in an attempt to structure a new
settlement. These negotiations are ongoing.
If agreement on a new settlement is not
reached and thereafter approved by the Court, the Company intends to defend the lawsuit
vigorously. Because of the inherent uncertainty of litigation, the Company cannot predict its
outcome. If, as a result of this dispute, the Company is required to pay significant monetary
damages, its business would be substantially harmed.
Section 16(b) Lawsuit
A lawsuit was filed on October 3, 2007 in the United States District Court for the
Western District of Washington by Vanessa Simmonds, a purported holder of the Companys common
stock against two investment banking firms that served as underwriters for
32
the initial public
offering of the Companys common stock in November 1999. None of the Companys officers, directors
or employees were named as defendants in the complaint. On February 28, 2008, the plaintiff filed
an amended complaint. The complaint, as amended, alleges that: (i) the defendants, other
underwriters of the offering, and unspecified officers, directors and the Companys principal
shareholders constituted a group that owned in excess of 10% of the Companys outstanding common
stock between November 11, 1999 and November 20, 2000; (ii) the defendants were therefore subject
to the short swing prohibitions of Section 16(b) of the Securities Exchange Act of 1934; and
(iii) the defendants engaged in purchases and sales, or sales and purchases, of the Companys
common stock within periods of less than six months in violation of the provisions of
Section 16(b). The complaint seeks disgorgement of all profits allegedly received by the
defendants, with interest and attorneys fees, for transactions in violation of Section 16(b). The
Company, as the statutory beneficiary of any potential Section 16(b) recovery, is named as a
nominal defendant in
the complaint. This case is one of 55 lawsuits containing similar allegations relating to initial
public offerings of technology company issuers. On July 25, 2008, the defendants filed a motion to
dismiss the amended complaint. Briefing on the motion is complete. The Court will hear oral
arguments on the motion on January 16, 2009.
JDSU/Emcore Patent Litigation
Litigation is pending with JDSU and Emcore Corporation with respect to certain cable
television transmission products acquired in the Companys acquisition of Optium Corporation. On
September 11, 2006, JDS Uniphase Corporation and Emcore Corporation filed a complaint in the United
States District Court for the Western District of Pennsylvania alleging that the Companys 1550 nm
HFC externally modulated transmitter used in cable television applications, in addition to possibly
products as yet unidentified, infringes on two U.S. patents. On March 14, 2007, JDSU and Emcore
filed a second complaint in the United States District Court for the Western District of
Pennsylvania alleging that the Companys 1550 nm HFC quadrature amplitude modulated transmitter
used in cable television applications, in addition to possibly products as yet unidentified,
infringes on another U.S. patent. The Company has answered both of these complaints denying that
it has infringed any of the asserted patents and asserting that those patents are invalid. On
December 10, 2007, the Company filed a complaint in the United States District Court for the
Western District of Pennsylvania seeking a declaration that the patents asserted against the
Companys HFC externally modulated transmitter are unenforceable due to inequitable conduct
committed by the patent applicants and/or the attorneys or agents during prosecution. The
plaintiffs are seeking for the court to declare that Optium has willfully infringed on such patents
and to be awarded up to three times the amount of any compensatory damages found, if any, plus any
other damages and costs incurred. The Court has consolidated all three of these actions and has
scheduled a single trial to begin October 19, 2009. The Company is unable to determine the
ultimate outcome of this litigation.
33
Export Compliance
During mid-2007, Optium became aware that certain of its analog RF over fiber products may,
depending on end use and customization, be subject to the International Traffic in Arms
Regulations, or ITAR. Accordingly, Optium filed a detailed voluntary disclosure with the United
States Department of State describing the details of possible inadvertent ITAR violations with
respect to the export of a limited number of certain prototype products, as well as related
technical data and defense services. Optium may have also made unauthorized transfers of
ITAR-restricted technical data and defense services to foreign persons in the workplace.
Additional information has been provided upon request to the Department of State with respect to
this matter. In late 2008, a grand jury subpoena from the office of the U.S. Attorney for the
Eastern District of Pennsylvania was received requesting documents from 2005 through the present
referring to, relating to or involving the subject matter of the above referenced voluntary
disclosure and export activities.
In connection with a review of its compliance with applicable export regulations in late 2008,
the Company discovered that it had made certain deemed exports to foreign national employees with
respect to certain of its commercial products without the necessary deemed export licenses or
license exemptions under the Export Administration Regulations, or EAR. Accordingly, the Company
has filed a detailed voluntary disclosure with the United States Department of Commerce describing
these deemed export violations.
While the Departments of State and Commerce encourage voluntary disclosures and generally
afford parties mitigating credit under such circumstances, the Company nevertheless could be
subject to continued investigation and potential regulatory consequences ranging from a no-action
letter, government oversight of facilities and export transactions, monetary penalties, and in
extreme cases, debarment from government contracting, denial of export privileges and criminal
sanctions, any of which would adversely affect the Companys results of operations and cash flow.
These inquiries may require the Company to expend significant management time and incur significant
legal and other expenses. The Company cannot predict how long it will take or how much more time
and resources it will have to expend to resolve these government inquiries, nor can it predict the
outcome of these inquiries.
Other Litigation
In the ordinary course of business, the Company is a party to litigation, claims and
assessments in addition to those described above. Based on information currently available,
management does not believe the impact of these other matters will have a material adverse effect
on its business, financial condition, results of operations or cash flows of the Company.
18. Guarantees and Indemnifications
In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the
fair value of the obligations it assumes under that guarantee. As permitted under Delaware law and
in accordance with the Companys Bylaws, the Company indemnifies its officers and directors for
certain events or occurrences, subject to certain limits, while the officer or director is or was
serving at the Companys request in such capacity. The term of the indemnification period is for
the officers or directors lifetime. The Company may terminate the indemnification agreements with
its officers and directors upon 90 days written notice, but termination will not affect claims for
indemnification relating to events occurring prior to the effective date of termination. The
maximum amount of potential future indemnification is unlimited; however, the Company has a
director and officer insurance policy that may enable it to recover a portion of any future amounts
paid.
The Company enters into indemnification obligations under its agreements with other companies
in its ordinary course of business, including agreements with customers, business partners, and
insurers. Under these provisions the Company generally indemnifies and holds harmless the
indemnified party for losses suffered or incurred by the indemnified party as a result of the
Companys activities or the use of the Companys products. These indemnification provisions
generally survive termination of the underlying agreement. In some cases, the maximum potential
amount of future payments the Company could be required to make under these indemnification
provisions is unlimited.
The Company believes the fair value of these indemnification agreements and loan guarantees is
minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of
November 2, 2008. To date, the Company has not incurred material costs to defend lawsuits or settle
claims related to these indemnification agreements and payments under the loans are expected to be
paid when due.
34
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ substantially from those anticipated in these
forward-looking statements as a result of many factors, including those referred to in Part II,
Item 1A. Risk Factors below. The following discussion should be read together with our
consolidated financial statements and related notes thereto included elsewhere in this report.
Business Overview
Finisar Corporation is a leading provider of optical subsystems and components that provide
the fundamental optical-electrical interface for connecting equipment used in building a wide range
of communication networks including local area networks, or LANs, storage area networks, or SANs,
metropolitan area networks, or MANs, fiber-to-home networks, or FTTx, cable television networks, or
CATV, and wide area networks, or WANs. Our optical subsystems consist primarily of transceivers and
transponders These products rely on the use of digital and analog RF semiconductor lasers in
conjunction with integrated circuit design and novel packaging technology to provide a
cost-effective means for transmitting and receiving digital signals over fiber optic cable using a
wide range of network protocols, transmission speeds and physical configurations over distances of
70 meters to 200 kilometers. We also provide wavelength selective switch reconfigurable optical
add/drop multiplexer products, or WSS ROADMs, and linecards that enable network operators to switch
wavelengths in MAN and WAN networks without the need for converting to an electrical signal. Our
line of optical components consists primarily of packaged lasers and photodetectors used in
transceivers, primarily for LAN and SAN applications. Our manufacturing operations are vertically
integrated and include an internal manufacturing, assembly and test capability. We sell our
optical subsystem and component products to manufacturers of storage and networking equipment such
as Brocade, Cisco Systems, EMC, Emulex, Ericsson, Hewlett-Packard Company, Huawei, IBM, Tellabs and
Qlogic.
We also provide network test systems primarily to leading storage equipment manufacturers such
as Brocade, EMC, Emulex, Hewlett-Packard Company and Qlogic for testing and validating equipment
designs.
On August 29, 2008, we completed a business combination with Optium Corporation, a leading
designer and manufacturer of high performance optical subsystems for use in telecommunications and
cable TV network systems (see note 2 to condensed consolidated financial statements). The
combination was consummated as a merger of Optium with a wholly-owned subsidiary of Finisar. We
have accounted for the combination of Finisar and Optium using the purchase method of accounting
and as a result have included the operating results of Optium in our consolidated financial results
since the August 29, 2008 merger date. The Optium results are included in our optical subsystems
and components segment. We believe that the combination of the two companies created the worlds
largest supplier of optical components, modules and subsystems for the communications industry and
will leverage the Companys leadership position in the storage and data networking sectors of the
industry and Optiums leadership position in the telecommunications and CATV sectors to create a
more competitive industry participant.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make judgments, estimates and assumptions in the preparation of
our consolidated financial statements and accompanying notes. Actual results could differ from
those estimates. We believe there have been no significant changes in our critical accounting
policies as discussed in our Annual Report on Form 10-K for the year ended April 30, 2008 other
than the adoption of SFAS No. 157 (see note 1 to condensed consolidated financial statements).
35
Results of Operations
The following table sets forth certain statement of operations data as a percentage of
revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
November 2, |
|
|
|
|
|
|
October 28, |
|
|
|
|
|
|
November 2, |
|
|
|
|
|
|
October 28, |
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Optical subsystems and components |
|
|
92.6 |
% |
|
|
|
|
|
|
90.3 |
% |
|
|
|
|
|
|
91.4 |
% |
|
|
|
|
|
|
90.7 |
% |
|
|
|
|
Network test systems |
|
|
7.4 |
|
|
|
|
|
|
|
9.7 |
|
|
|
|
|
|
|
8.6 |
|
|
|
|
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
|
|
100.0 |
|
|
|
|
|
Cost of revenues |
|
|
68.9 |
|
|
|
|
|
|
|
66.7 |
|
|
|
|
|
|
|
65.2 |
|
|
|
|
|
|
|
67.3 |
|
|
|
|
|
Amortization of acquired developed technology |
|
|
0.9 |
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
30.2 |
|
|
|
|
|
|
|
31.6 |
|
|
|
|
|
|
|
33.8 |
|
|
|
|
|
|
|
31.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
15.6 |
|
|
|
|
|
|
|
17.5 |
|
|
|
|
|
|
|
15.8 |
|
|
|
|
|
|
|
17.0 |
|
|
|
|
|
Sales and marketing |
|
|
6.6 |
|
|
|
|
|
|
|
9.1 |
|
|
|
|
|
|
|
7.2 |
|
|
|
|
|
|
|
9.3 |
|
|
|
|
|
General and administrative |
|
|
7.4 |
|
|
|
|
|
|
|
11.8 |
|
|
|
|
|
|
|
7.7 |
|
|
|
|
|
|
|
10.0 |
|
|
|
|
|
Acquired in-process research and development |
|
|
6.6 |
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
Amortization of purchased intangibles |
|
|
0.5 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
Impairment of goodwill |
|
|
112.1 |
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
62.0 |
|
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
148.8 |
|
|
|
|
|
|
|
38.9 |
|
|
|
|
|
|
|
96.7 |
|
|
|
|
|
|
|
36.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(118.6 |
) |
|
|
|
|
|
|
(7.3 |
) |
|
|
|
|
|
|
(62.9 |
) |
|
|
|
|
|
|
(5.8 |
) |
|
|
|
|
Interest income |
|
|
0.4 |
|
|
|
|
|
|
|
1.5 |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
Interest expense |
|
|
(1.8 |
) |
|
|
|
|
|
|
(4.3 |
) |
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(4.2 |
) |
|
|
|
|
Other income (expense), net |
|
|
(2.1 |
) |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
(1.1 |
) |
|
|
|
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(122.1 |
) |
|
|
|
|
|
|
(10.0 |
) |
|
|
|
|
|
|
(65.8 |
) |
|
|
|
|
|
|
(8.6 |
) |
|
|
|
|
Provision for (benefit from) income taxes |
|
|
(4.9 |
) |
|
|
|
|
|
|
0.7 |
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(117.2 |
)% |
|
|
|
|
|
|
(10.7 |
)% |
|
|
|
|
|
|
(63.4 |
)% |
|
|
|
|
|
|
(9.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues. Revenues increased $58.8 million, or 58.4%, to $159.5 million in the quarter ended
November 2, 2008 compared to $100.7 million in the quarter ended October 28, 2007. Sales of optical
subsystems and components and network performance test systems represented 92.6% and 7.4%,
respectively, of total revenues in the quarter ended November 2, 2008, compared to 90.3% and 9.7%,
respectively, in the quarter ended October 28, 2007.
Revenues increased $81.8 million, or 39.6%, to $288.2 million in the six months ended November
2, 2008 compared to $206.4 million in the six months ended October 28, 2007. Sales of optical
subsystems and components and network performance test systems represented 91.4% and 8.6%,
respectively, of total revenues in the six months ended November 2, 2008, compared to 90.7% and
9.3%, respectively, in the six months ended October 28, 2007.
Optical subsystems and components revenues which include $36.5 million from Optium, increased
$56.8 million, or 62.5%, to $147.7 million in the quarter ended November 2, 2008 compared to $90.9
million in the quarter ended October 28, 2007. Excluding the Optium revenues, optical subsystem
revenues increased $20.3 million, or 22.3%, to $111.2 million compared to $90.9 million in the
quarter ended October 28, 2007. Of this increase, sales of new products for 10/40 Gbps
applications for both LAN/SAN and longer distance MAN applications increased $11.4 million while
sales of products for shorter distance LAN/SAN applications less than 10 Gbps increased $9.0
million due primarily to increased sales of 4 and 8 Gbps products for storage applications. Of the
$56.8 million increase in revenues including the results of Optium, sales of products for 10/40
Gbps applications increased $35.8 million, sales of products for shorter distance LAN/SAN
applications less than 10 Gbps increased $9.0 million, sales of ROADM products increased $8.8
million, and sales of CATV products increased $3.2 million.
Optical subsystems and components revenues which include $36.5 million from Optium, increased
$76.2 million, or 40.7%, to $263.5 million in the six months ended November 2, 2008 compared to
$187.3 million in the six months ended October 28, 2007. Excluding the Optium revenues, optical
subsystem revenues increased $39.7 million, or 21.2%, to $227.0 million compared to $187.3 million
in the six months ended October 28, 2007. Of this increase, sales of new products for 10/40 Gbps
applications for both LAN/SAN and longer distance MAN applications increased $25.4 million and
sales of products for shorter distance LAN/SAN applications less than 10 Gbps increased $13.5
million. Including the results of Optium, sales of products for 10/40 Gbps applications increased
$49.7 million, sales of products for shorter distance LAN/SAN applications less than 10 Gbps
increased $15.0 million, sales of ROADM products increased $8.8 million, and sales of CATV products
increased $3.3 million.
Network test systems revenues increased $2.0 million, or 20.4%, to $11.8 million in the
quarter ended November 2, 2008 compared to $9.8 million in the quarter ended October 28, 2007 and
increased $5.6 million, or 29.0%, to $24.7 million in the six months ended November 2, 2008
compared to $19.1 million in the six months ended October 28, 2007. These increases were
36
primarily
due to the recent introduction of several new products for testing 8 Gbps Fibre Channel, 3/6 Gbps
SAS/SATA, and 10 Gbps Fibre Channel over Ethernet products being developed and used at OEM system
manufacturers.
Amortization of Acquired Developed Technology. Amortization of acquired developed technology,
a component of cost of revenues, decreased $226,000, or 13.1%, to $1.5 million in the quarter ended
November 2, 2008 compared to $1.7 million in the quarter ended October 28, 2007 and decreased
$709,000, or 20.5%, to $2.8 million in the six months ended November 2, 2008
compared to $3.5 million in the six months ended October 28, 2007. These decreases were
primarily due to the full amortization during fiscal 2008 of certain assets associated with the
Honeywell, Infineon, and InterSan acquisitions, partially offset by $403,000 of amortization of
Optium assets.
Gross Profit. Gross profit increased $16.3 million, or 51.4 %, to $48.1 million in the
quarter ended November 2, 2008 compared to $31.8 million in the quarter ended October 28, 2007.
The increase in gross profit was primarily due to the Optium merger.
Gross profit as a percentage of total revenue was 30.2% in the quarter ended November 2, 2008
compared to 31.6% in the quarter ended October 28, 2007. We recorded charges of $3.8 million for
obsolete and excess inventory in the quarter ended November 2, 2008 compared to $3.6 million in the
quarter ended October 28, 2007. We sold inventory that was written-off in previous periods
resulting in a benefit of $1.3 million in the quarter ended November 2, 2008 and $1.7 million in
the quarter ended October 28, 2007. As a result, we recognized a net charge of $2.5 million in the
quarter ended November 2, 2008 compared to $1.9 million in the quarter ended October 28, 2007.
Manufacturing overhead includes stock-based compensation charges of $863,000 in the quarter ended
November 2, 2008 and $703,000 in the quarter ended October 28, 2007. Excluding amortization of
acquired developed technology, the net impact of excess and obsolete inventory charges and
stock-based compensation charges, gross profit would have been $53.0 million, or 33.2% of revenue,
in the quarter ended November 2, 2008 compared to $36.1 million, or 35.9% of revenue in the quarter
ended October 28, 2007. The decrease in adjusted gross profit margin was primarily due to the
inclusion of two months of Optiums operating results during the quarter ended November 2, 2008.
Gross profit increased $33.5 million, or 52.2 %, to $97.6 million in the six months ended
November 2, 2008 compared to $64.1 million in the six months ended October 28, 2007.
The increase in gross profit was partially due to the Optium merger.
Gross profit
as a percentage of total revenue was 33.8% in the six months ended November 2, 2008 compared to
31.0% in the six months ended October 28, 2007. We recorded charges of $6.4 million for obsolete
and excess inventory in the six months ended November 2, 2008 compared to $7.4 million in the six
months ended October 28, 2007. We sold inventory that was written-off in previous periods resulting
in a benefit of $3.1 million in the six months ended November 2, 2008 and $3.4 million in the six
months ended October 28, 2007. As a result, we recognized a net charge of $3.3 million in the six
months ended November 2, 2008 compared to $4.0 million in the six months ended October 28, 2007.
Manufacturing overhead includes stock-based compensation charges of $1.7 million in the six months
ended November 2, 2008 and $1.4 million in the six months ended October 28, 2007. Excluding
amortization of acquired developed technology, the net impact of excess and obsolete inventory
charges and stock-based compensation charges, gross profit would have been $105.3 million, or 36.5%
of revenue, in the six months ended November 2, 2008 compared to $73.0 million, or 35.4% of revenue
in the six months ended October 28, 2007. The increase in adjusted gross profit margin was
primarily due to a more favorable product mix resulting from increased sales of higher margin
network performance test systems and optical subsystems for 10/40 Gbps applications, as well as
cost efficiencies associated with higher shipment volumes, partially offset by lower gross margins
on sales of Optium products that were included for two months during the six month period ended
November 2, 2008.
Research and Development Expenses. Research and development expenses increased $7.3 million,
or 41.1%, to $24.9 million in the quarter ended November 2, 2008 compared to $17.6 million in the
quarter ended October 28, 2007. The increase was primarily due to $4.2 million in additional
expenses as a result of the Optium merger, an increase in employee related expenses of $1.2 million
and increases in the costs of development materials of $724,000. Included in research and
development expenses were stock-based compensation charges of $1.7 million in the quarter ended
November 2, 2008 and $1.0 million in the quarter ended October 28, 2007. Research and development
expenses as a percent of revenues decreased to 15.6% in the quarter ended November 2, 2008 compared
to 17.5% in the quarter ended October 28, 2007.
Research and development expenses increased $10.5 million, or 29.9%, to $45.6 million in the
six months ended November 2, 2008 compared to $35.1 million in the six months ended October 28,
2007. The increase was primarily due to $4.2 million in additional expenses as a result of the
Optium merger, an increase in employee related expenses of $2.8 million and increases in the costs
of development materials of $2.1 million. Included in research and development expenses were
stock-based compensation charges of $2.8 million in the six months ended November 2, 2008 and $2.0
million in the six months ended October 28, 2007. Research and development expenses as a percent of
revenues decreased to 15.8% in the six months ended November 2, 2008 compared to 17.0% in the six
months ended October 28, 2007.
Sales and Marketing Expenses. Sales and marketing expenses increased $1.4 million, or 15.0%,
to $10.6 million in the quarter ended November 2, 2008 compared to $9.2 million in the quarter
ended October 28, 2007. The increase in sales and marketing expenses was primarily due to $832,000
in additional expense as a result of the Optium merger. Included in sales and marketing expenses
were stock-based compensation charges of $516,000 in the quarter ended November 2, 2008 and
$442,000 in the quarter
37
ended October 28, 2007. Sales and marketing expenses as a percent of
revenues decreased to 6.6% in the quarter ended November 2, 2008 compared to 9.1% in the quarter
ended October 28, 2007.
Sales and marketing expenses increased $1.5 million, or 7.6%, to $20.7 million in the six
months ended November 2, 2008 compared to $19.2 million in the six months ended October 28, 2007.
The increase in sales and marketing expenses was primarily due to $832,000 in additional expense as
a result of the Optium merger. Included in sales and marketing expenses were stock-based
compensation charges of $1.0 million in the six months ended November 2, 2008 and $893,000 in the
six months ended October 28, 2007. Sales and marketing expenses as a percent of revenues decreased to 7.2% in the six
months ended November 2, 2008 compared to 9.3% in the six months ended October 28, 2007.
General and Administrative Expenses. General and administrative expenses decreased $186,000,
or 1.6%, to $11.7 million in the quarter ended November 2, 2008 compared to $11.9 million in the
quarter ended October 28, 2007. The decrease was primarily due to a $3.0 million decrease in legal
and consulting fees as a result of the completion of our stock option investigation. This decrease
was partially offset by the addition of $1.8 million in
expenses as a result of the Optium merger, and an increase in employee related expenses of $741,000. Included in general and
administrative expenses were stock-based compensation charges of $720,000 in the quarter ended
November 2, 2008 and $350,000 in the quarter ended October 28, 2007. General and administrative
expenses as a percent of revenues decreased to 7.4% in the quarter ended November 2, 2008 compared
to 11.8% in the quarter ended October 28, 2007.
General and administrative expenses increased $1.5 million, or 7.2%, to $22.2 million in the
six months ended November 2, 2008 compared to $20.7 million in the six months ended October 28,
2007. The increase was primarily due to $1.8 million in additional expenses as a result of the
Optium merger, an increase in employee related expenses of $1.2 million, and a non-cash charge of
$919,000 related to the sale of a product line. These increases were partially offset by a $4.0
million decrease in legal and consulting fees as a result of the completion of our stock option
investigation. Included in general and administrative expenses were stock-based compensation
charges of $1.3 million in the six months ended November 2, 2008 and $981,000 in the six months
ended October 28, 2007. General and administrative expenses as a percent of revenues decreased to
7.7% in the six months ended November 2, 2008 compared to 10.0% in the six months ended October 28,
2007.
Acquired In-process Research and Development. In-process research and development, or IPR&D,
expenses were $10.5 million in the quarter and six month period ended November 2, 2008, compared to
$0 in the quarter and six month period ended October 28, 2007. The IPR&D charges were related to
the Optium merger.
Amortization of Purchased Intangibles. Amortization of purchased intangibles increased
$263,000, or 53.7%, to $753,000 in the quarter ended November 2, 2008 compared to $490,000 in the
quarter ended October 28, 2007 and increased $41,000, or 4.2%, to $1.0 million in the six months
ended November 2, 2008 compared to $980,000 in the six months ended October 28, 2007. The increase
was primarily due the addition of amortization associated with the Optium merger offset by the
reduction in amortization of certain assets associated with our AZNA and Kodeos acquisitions. The
amortization related to the Optium merger for the two months included in the quarter and six month
periods ended November 2, 2008 was $485,000.
Impairment of Goodwill. As a result of the ongoing financial liquidity crisis, the current
economic recession, reductions to our internal revenue forecasts, changes to our internal operating
forecasts and a drastic reduction in our market capitalization, during the period, we performed an
analysis to determine if there was an indication of impairment of our intangible assets. As a
result of this analysis, we determined that the goodwill related to our optical subsystems and
components reporting unit was impaired and had an implied fair value of $59.6 million. As a result,
we recorded an estimated impairment charge of $178.8 million during the quarter ended November 2,
2008.
As of November 2, 2008 we had not completed the goodwill impairment
analysis but expect to do so during the third quarter of fiscal 2009.
Interest Income. Interest income decreased $880,000, or 57.3%, to $657,000 in the quarter
ended November 2, 2008 compared to $1.5 million in the quarter ended October 28, 2007 and decreased
$1.3 million, or 45.0%, to $1.6 million in the six months ended November 2, 2008 compared to $3.0
million in the six months ended October 28, 2007. These decreases were due primarily to a decrease
in our cash balance as a result of the principal repayment of $92.0 million on our 5 1/4% convertible
notes due October 15, 2008.
Interest Expense. Interest expense decreased $1.5 million, or 34.0%, to $2.9 million in the
quarter ended November 2, 2008 compared to $4.4 million in the quarter ended October 28, 2007. The
decrease was primarily related to the principal repayment of
$92.0 million on our 5 1/4% convertible
notes due October 15, 2008. Of the total interest expense for the quarters ended November 2, 2008
and October 28, 2007, approximately $2.2 million and $3.1 million, respectively, was related to our
convertible subordinated notes due in 2008 and 2010 and other borrowings, and $671,000 and $1.3
million, respectively, represented a non-cash charge to amortize the beneficial conversion feature
of the notes due in 2008.
38
Interest expense decreased $1.7 million, or 20.0%, to $6.9 million in the six months ended
November 2, 2008 compared to $8.6 million in the six months ended October 28, 2007. The decrease
was primarily related to the principal repayment of $92.0 million on our 5 1/4% convertible notes due
October 15, 2008. Of the total interest expense for the six months ended November 2, 2008 and
October 28, 2007, approximately $5.1 million and $6.2 million, respectively, was related to our
convertible subordinated notes due in 2008 and 2010 and other borrowings and $1.8 million and $2.5
million, respectively, represented a non-cash charge to amortize the beneficial conversion feature
of the notes due in 2008.
Other Income (Expense), Net. Other expense was $3.3 million in the quarter ended November 2,
2008 compared to other income of $85,000 in the quarter ended October 28, 2007. Other expense was
$3.3 million in the six months ended November 2, 2008 compared to $48,000 in the six months ended
October 28, 2007. Other expense in the quarter and six month periods ended November 2, 2008 was
primarily related to a $1.7 million non-cash foreign exchange loss related to the remeasurement of
a $19.8 million note re-payable in U.S. dollars which is recorded on the books of our subsidiary in
Malaysia whose functional currency is the Malaysian Ringgit and a $1.2 million other-than-temporary
write-down of a minority investment during the period.
Provision for Income Taxes. We recorded an income tax benefit of $7.7 million and an income
tax provision of $655,000, respectively, for the quarters ended November 2, 2008 and October 28,
2007 and an income tax benefit of $7.0 million and an income tax provision of $1.3 million,
respectively, for the six months ended November 2, 2008 and October 28, 2007. The income tax
benefit for the quarter ended November 2, 2008 includes a non-cash benefit of $8.4 million from the
reversal of previously recorded deferred tax liabilities as a result of the impairment of goodwill
in the current quarter and current tax expense of $655,000 for minimum federal and state taxes and
foreign income taxes arising in certain foreign jurisdictions in which we conduct business. The
income tax provision for the quarter ended October 28, 2007 includes a non-cash charge $544,000 for
deferred tax liabilities that were recorded for tax amortization of goodwill for which no financial
statement amortization has occurred under generally accepted accounting principles as promulgated
by SFAS 142 and current tax expense of $111,000 for minimum federal and state taxes and foreign
income taxes arising in certain foreign jurisdictions in which we conduct business. The income tax
benefit for the six month period ended November 2, 2008 includes a non-cash benefit of $7.8 million
from the reversal of previously recorded deferred tax liabilities as a result of the impairment of
goodwill in the current quarter and current tax expense of $849,000 for minimum federal and state
taxes and foreign income taxes arising in certain foreign jurisdictions in which we conduct
business. The income tax provision for the six months ended October 28, 2007 includes a non-cash
charge $1.1 million for deferred tax liabilities that were recorded for tax amortization of
goodwill for which no financial statement amortization has occurred under generally accepted
accounting principles as promulgated by SFAS 142 and current tax expense of $188,000 for minimum
federal and state taxes and foreign income taxes arising in certain foreign jurisdictions in which
we conduct business. Due to the uncertainty regarding the timing and extent of our future
profitability, we have recorded a valuation allowance to offset our deferred tax assets which
represent future income tax benefits associated with our operating losses. There can be no
assurance that our deferred tax assets subject to the valuation allowance will ever be realized.
Liquidity and Capital Resources
At November 2, 2008, cash, cash equivalents and short-term and long-term available-for-sale
investments were $51.9 million compared to $119.3 million at April 30, 2008. Of this amount,
long-term available-for-sale investments totaled $326,000, which consisted of readily saleable debt
securities. At November 2, 2008, total short- and long-term debt was $174.4 million, compared to
$257.6 million at April 30, 2008.
Net cash provided by operating activities totaled $1.4 million in the six months ended
November 2, 2008, compared to $1.6 million in the six months ended October 28, 2007. Cash provided
by operating activities in the six months ended November 2, 2008 primarily consisted of operating
loss adjusted for depreciation, amortization and other non-cash related items in the income
statement totaling $35.6 million and offset by $34.2 million in additional working capital which
was primarily related to increases in inventory, accounts receivable, and other assets and a
decrease in accrued compensation, offset by an increase in accounts payable and deferred revenue.
Cash provided by operating activities for the six months ended October 28, 2007 primarily consisted
of operating losses adjusted for depreciation, amortization and other non-cash related items in the
income statement totaling $5.0 million offset by $3.4 million in additional working capital which
was primarily related to a decrease in accounts payable.
Net cash provided by investing activities totaled $45.3 million in the six months ended
November 2, 2008 compared to net cash used in investing activities of $10.4 million in the six
months ended October 28, 2007. Net cash provided by investing activities in the six months ended
November 2, 2008 was primarily related to the net maturities of available-for-sale investments
offset by purchases of equipment to support production expansion. Cash invested in the six months
ended October 28, 2007 was primarily related equipment purchases to support production expansion at
our Texas and Malaysia facilities and the purchase of short-term investments.
Net cash used in financing activities totaled $82.0 million in the six months ended November
2, 2008 compared to $1.1 million in the six months ended October 28, 2007. Cash provided by
financing activities for the six months ended November 2, 2008 primarily reflected proceeds of
$20.0 million from bank borrowings and proceeds from the exercise of stock options and purchases
under our stock purchase plan totaling $3.4 million, offset by repayments of $92 million on our
outstanding 5 1/4% convertible subordinated
39
notes on October 15, 2008 and repayment on borrowings of
$13.4 million. Cash used in financing activities for the six months ended October 28, 2007 was due
to repayments on borrowings.
On October 28, 2008, we amended certain agreements with Silicon Valley
Bank to reallocate the amounts available to us under various credit
facilities
and to extend the term of these facilities to October 24, 2009. The total amount of
credit available to us under these agreements is $70 million.
On March 14, 2008, we entered into an amended letter of credit reimbursement agreement with
Silicon Valley Bank that was available through March 13, 2009. Under the terms of the amended
agreement, Silicon Valley Bank is providing a $10.5 million letter of credit facility covering
existing letters of credit issued by Silicon Valley Bank and any other letters of credit that we
may require. Outstanding letters of credit secured by this agreement at November 2, 2008 totaled
$8.4 million. On October 28, 2008, this agreement was
amended further to decrease the amount
available under the agreement to $9 million and extend the maturity through October 24, 2009
On March 14, 2008, we entered into an amended non-recourse accounts receivable purchase
agreement with Silicon Valley Bank that was available to the Company through March 13, 2009. Under
the terms of the agreement, the Company may sell to Silicon Valley Bank up to $10 million of
qualifying receivables whereby all right, title and interest in the Companys invoices are
purchased by Silicon Valley Bank. On October 28, 2008, this
agreement was amended further to
increase the amount available under the agreement to $16 million and extend the maturity through
October 24, 2009.
On March 14, 2008, we entered into a revolving line of credit agreement with Silicon Valley
Bank. Under the terms of the agreement, the bank provided a $50 million revolving line of credit
that was available to us through March 13, 2009. Borrowings under this line are collateralized by
substantially all of our assets except our intellectual property rights and bear interest, at our
option, at either the banks prime rate or the LIBOR rate plus 2.5%. The agreement is subject to
certain financial covenants that may restrict our ability to borrow under this line of credit. On
October 28, 2008, this agreement was amended to decrease the amount available under the agreement
to $45 million and extend the maturity through October 24, 2009. At November 2, 2008, there was no
balance outstanding under this line of credit.
We retired our outstanding 5 1/4% convertible subordinated notes, in the principal amount of $92
million, during the second fiscal quarter of 2009 through a combination of private purchases and
repayment at maturity. We believe that our existing balances of cash, cash equivalents and
short-term investments, together with the cash expected to be generated from our future operations,
will be sufficient to meet our cash needs for working capital and capital expenditures for at least
the next 12 months. We may however
require additional financing to fund our operations in the future. A significant contraction
in the capital markets, particularly in the technology sector, may make it difficult for us to
raise additional capital if and when it is required, especially if we experience disappointing
operating results. If adequate capital is not available to us as required, or is not available on
favorable terms, our business, financial condition and results of operations will be adversely
affected.
Contractual Obligations and Commercial Commitments
At November 2, 2008, we had contractual obligations of $241.6 million as shown in the
following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
After |
|
Contractual Obligations |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
4-5 Years |
|
|
5 Years |
|
|
Short-term debt |
|
$ |
6,085 |
|
|
$ |
6,085 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term debt |
|
|
18,325 |
|
|
|
|
|
|
|
10,575 |
|
|
|
7,750 |
|
|
|
|
|
Convertible debt |
|
|
150,000 |
|
|
|
|
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
Interest on debt |
|
|
10,570 |
|
|
|
4,917 |
|
|
|
5,150 |
|
|
|
503 |
|
|
|
|
|
Operating leases |
|
|
51,335 |
|
|
|
7,231 |
|
|
|
11,275 |
|
|
|
8,772 |
|
|
|
24,057 |
|
Purchase obligations |
|
|
5,326 |
|
|
|
5,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
241,641 |
|
|
$ |
23,559 |
|
|
$ |
177,000 |
|
|
$ |
17,025 |
|
|
$ |
24,057 |
|
|
|
|
|
|
|
Short-term debt of $6.1 million represents the current portion of a note payable to a
financial institution and a loan from a Malaysian bank.
Long-term debt consists of the long-term portion of a note payable to a financial institution
and a loan from a Malaysian bank in the principal amount of $18.3 million.
Convertible debt consists of a series of convertible subordinated notes in the aggregate
principal amount of $50.0 million due October 15, 2010 and a series of convertible senior
subordinated notes in the aggregate principal amount of $100.0 million due
40
October 15, 2010. The notes are convertible by the holders of the notes at any time prior to maturity into shares of
Finisar common stock at specified conversion prices. The notes are redeemable by us, in whole or
in part. Annual interest payments on the convertible subordinated notes are approximately $ 3.8
million.
Interest on debt consists of the scheduled interest payments on our short-term, long-term, and
convertible debt.
Operating lease obligations consist primarily of base rents for facilities we occupy at
various locations.
Purchase obligations consist of standby repurchase obligations and are related to materials
purchased and held by subcontractors on our behalf to fulfill the subcontractors purchase order
obligations at their facilities. Our repurchase obligations of $5.3 million have been expensed and
recorded on the balance sheet as non-cancelable purchase obligations as of November 2, 2008.
Off-Balance-Sheet Arrangements
At November 2, 2008 and April 30, 2008, we did not have any off-balance sheet arrangements or
relationships with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which are typically established for
the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited
purposes.
41
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment
portfolio. The primary objective of our investment activities is to preserve principal while
maximizing yields without significantly increasing risk. We place our investments with high credit
issuers in short-term securities with maturities ranging from overnight up to 36 months or have
characteristics of such short-term investments. The average maturity of the portfolio will not
exceed 18 months. The portfolio includes only marketable securities with active secondary or resale
markets to ensure portfolio liquidity. We have no investments denominated in foreign country
currencies and therefore our investments are not subject to foreign exchange risk.
We invest in equity instruments of privately held companies for business and strategic
purposes. These investments are included in other long-term assets and are accounted for under the
cost method when our ownership interest is less than 20% and we do not have the ability to exercise
significant influence. For entities in which we hold greater than a 20% ownership interest, or
where we have the ability to exercise significant influence, we use the equity method. For these
non-quoted investments, our policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. We identify and record
impairment losses when events and circumstances indicate that such assets are impaired. If our
investment in a privately-held company becomes marketable equity securities upon the companys
completion of an initial public offering or its acquisition by another company, our investment
would be subject to significant fluctuations in fair market value due to the volatility of the
stock market.
There has been no material change in our interest rate exposure since April 30, 2008.
Item 4. Controls and Procedures
Evaluation of Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this quarterly report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the second quarter
of fiscal 2009 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Part I, Item I, Financial Statements Note 17. Pending Litigation for
a description of pending legal proceedings, including material developments in certain of those
proceedings during the quarter ended November 2, 2008.
Item 1A. Risk Factors
On August 29, 2008, we consummated a combination with Optium Corporation through the merger of
Optium with a wholly-owned subsidiary of Finisar. The completion of the merger gave rise to a
number of special risks and uncertainties that are described below under the heading We are
subject to a number of special risks as a result of our recently completed combination with
Optium. In addition to these specific merger-related risks, the combination of Optiums business
and operations with Finisars resulted in a number of changes in the risk factors previously
disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended
April 30, 2008, and the addition of several new risk factors. Accordingly, the following
discussion updates and replaces the disclosure contained in the Annual Report on Form 10-K.
We are subject to a number of special risks as a result of our recently completed combination with
Optium.
On May 15, 2008, we entered into an agreement with Optium Corporation, providing for the
merger of Optium and a subsidiary of Finisar, with Optium surviving as a subsidiary of Finisar.
The merger was consummated on August 29, 2008, and, pursuant to the merger, we issued approximately
161 million shares of Finisar common stock to the former stockholders of Optium.
42
Our future results of operation will be substantially influenced by the operations of the
former Optium business, and, as a result of the merger, we will be subject to a number of special
risks and uncertainties, including the following:
|
|
|
Failure to achieve the strategic objectives of the merger could have a material
adverse effect on our revenues, operating results and expense levels. In the event
that estimated pre-tax cost synergies are not realized, the merger may be
substantially dilutive to our earnings per share thereafter as well. In addition,
we cannot assure you that our growth rate will equal the historical growth rate
experienced by either Finisar or Optium prior to the merger. |
|
|
|
|
We will face significant challenges in integrating the organizations and
operations of Finisar and Optium in a timely and efficient manner. The integration
of the two companies will be complex and time consuming and will require significant
attention from management and other personnel, which may distract their attention
from the day-to-day business of the combined company. The diversion of managements
attention and any difficulties associated with integrating Optium into Finisar could
have a material adverse effect on our operating results and our stock price, and
could result in a delay or even the inability to achieve the anticipated benefits of
the merger. Failure to successfully integrate the operations of the two companies
could have a material adverse effect on our business and operating results. |
|
|
|
|
To be successful, we must retain and motivate executives and other key employees,
including those in managerial, technical, marketing and information technology
support positions. Our employees may experience uncertainty about their future role
both before and after strategies with regard to the combined company are announced
or executed. This potential uncertainty may adversely affect our ability to attract
and retain key personnel. We must continue to motivate our employees and keep them
focused on our strategies and goals, which may be particularly difficult due to the
potential distractions of the merger or the loss of key employees due to such
uncertainties. |
|
|
|
|
As a result of the merger, Finisar has become a substantially larger
organization. We may face challenges inherent in efficiently managing our enlarged
workforce of approximately 5,000 employees located in a total of 14 facilities
around the world, including the need to implement appropriate systems, policies,
benefits and compliance programs. The inability to successfully manage these
geographically more diverse locations and substantially larger combined workforce
could have a material adverse effect on our operating results and, as a result, on
the market price of our common stock. |
|
|
|
|
We may incur charges to operations, in amounts that are not currently reasonably
estimable, in subsequent quarters to reflect costs associated with the valuation of
the merger and the integration of the two companies. Unanticipated costs associated
with the merger, if significant, could adversely affect our future liquidity and
operating results. |
Our quarterly revenues and operating results fluctuate due to a variety of factors, which may
result in volatility or a decline in the price of our stock.
The quarterly operating results of both Finisar and Optium have varied significantly due to a
number of factors, including:
|
|
|
fluctuation in demand for their products; |
|
|
|
|
the timing of new product introductions or enhancements by both companies and
their competitors; |
|
|
|
|
the level of market acceptance of new and enhanced versions of their products; |
|
|
|
|
the timing or cancellation of large customer orders; |
43
|
|
|
the length and variability of the sales cycle for their products; |
|
|
|
|
pricing policy changes by both companies and their competitors and suppliers; |
|
|
|
|
the availability of development funding and the timing of development revenue; |
|
|
|
|
changes in the mix of products sold; |
|
|
|
|
increased competition in product lines, and competitive pricing pressures; and |
|
|
|
|
the evolving and unpredictable nature of the markets for products incorporating
their optical components and subsystems. |
We expect that the operating results of the combined company will continue to fluctuate in the
future as a result of these factors and a variety of other factors, including:
|
|
|
fluctuations in manufacturing yields; |
|
|
|
|
the emergence of new industry standards; |
|
|
|
|
failure to anticipate changing customer product requirements; |
|
|
|
|
the loss or gain of important customers; |
|
|
|
|
product obsolescence; and |
|
|
|
|
the amount of research and development expenses associated with new product
introductions. |
Our operating results could also be harmed by:
|
|
|
the continuation or worsening of the current global economic slowdown or economic
conditions in various geographic areas where we or our customers do business; |
|
|
|
|
acts of terrorism and international conflicts or crises; |
|
|
|
|
other conditions affecting the timing of customer orders; or |
|
|
|
|
a downturn in the markets for our customers products, particularly the data
storage and networking and telecommunications components markets. |
We may experience a delay in generating or recognizing revenues for a number of reasons.
Orders at the beginning of each quarter typically represent a small percentage of expected revenues
for that quarter and are generally cancelable with minimal notice. Accordingly, we depend on
obtaining orders during each quarter for shipment in that quarter to achieve our revenue
objectives. Failure to ship these products by the end of a quarter may adversely affect our
operating results. Furthermore, our customer agreements typically provide that the customer may
delay scheduled delivery dates and cancel orders within specified timeframes without significant
penalty. Because we base our operating expenses on anticipated revenue trends and a high percentage
of our expenses are fixed in the short term, any delay in generating or recognizing forecasted
revenues could significantly harm our business. It is likely that in some future quarters our
operating results will again decrease from the previous quarter or fall below the expectations of
securities analysts and investors. In this event, it is likely that the trading price of our common
stock would significantly decline.
As a result of these factors, our operating results may vary significantly from quarter to
quarter. Accordingly, we believe that period-to-period comparisons of our results of operations
are not meaningful and should not be relied upon as indications of future performance. Any
shortfall in revenues or net income from levels expected by the investment community could cause a
decline in the trading price of our stock.
44
We may have insufficient cash flow to meet our debt service obligations, including payments due on
our subordinated convertible notes.
We will be required to generate cash sufficient to conduct our business operations and pay our
indebtedness and other liabilities, including all amounts due on our outstanding 21/2%
convertible senior subordinated notes due October 15, 2010 totaling $100 million and our
21/2% convertible subordinated notes due October 15, 2010 totaling $50 million. In
addition, the $100 million in principal amount of our 21/2% convertible senior
subordinated notes that mature in October 2010 include a net share settlement feature under which
we are required to pay the principal portion of the notes in cash upon conversion. Our existing
balances of cash, cash equivalents and short-term investments are not sufficient to repay these
notes, and we may not be able to cover our future debt service obligations from our operating cash
flow. Our ability to meet our future debt service obligations will depend upon our future
performance, which will be subject to financial, business and other factors affecting our
operations, many of which are beyond our control. Accordingly, we cannot assure you that we will be
able to make required principal and interest payments on the notes due in 2010.
We may not be able to obtain additional capital in the future, and failure to do so may harm our
business.
We believe that our existing balances of cash, cash equivalents and short-term investments
will be sufficient to meet our cash needs for working capital and capital expenditures for at least
the next 12 months. We may, however, require additional financing to fund our operations in the
future or to repay the principal of our outstanding convertible subordinated notes. Due to the
unpredictable nature of the capital markets, particularly in the technology sector, we cannot
assure you that we will be able to raise additional capital if and when it is required, especially
if we experience disappointing operating results. If adequate capital is not available to us as
required, or is not available on favorable terms, we could be required to significantly reduce or
restructure our business operations. If we do raise additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of our stockholders could be
significantly diluted, and these newly-issued securities may have rights, preferences or privileges
senior to those of existing stockholders.
Failure to accurately forecast our revenues could result in additional charges for obsolete or
excess inventories or non-cancellable purchase commitments.
We base many of our operating decisions, and enter into purchase commitments, on the basis of
anticipated revenue trends which are highly unpredictable. Some of our purchase commitments are not
cancelable, and in some cases we are required to recognize a charge representing the amount of
material or capital equipment purchased or ordered which exceeds our actual requirements. In the
past, we have sometimes experienced significant growth followed by a significant decrease in
customer demand such as occurred in fiscal 2001, when revenues increased by 181% followed by a
decrease of 22% in fiscal 2002. Based on projected revenue trends during these periods, we acquired
inventories and entered into purchase commitments in order to meet anticipated increases in demand
for our products which did not materialize. As a result, we recorded significant charges for
obsolete and excess inventories and non-cancelable purchase commitments which contributed to
substantial operating losses in fiscal 2002. Should revenue in future periods again fall
substantially below our expectations, or should we fail again to accurately forecast changes in
demand mix, we could be required to record additional charges for obsolete or excess inventories or
non-cancelable purchase commitments.
If we encounter sustained yield problems or other delays in the production or delivery of our
internally-manufactured components or in the final assembly and test of our transceiver products,
we may lose sales and damage our customer relationships.
Our manufacturing operations are highly vertically integrated. In order to reduce our
manufacturing costs, we have acquired a number of companies, and business units of other companies,
that manufacture optical components incorporated in our optical subsystem products and have
developed our own facilities for the final assembly and testing of our products. For example, we
design and manufacture many critical components including all of the short wavelength VCSEL lasers
incorporated in transceivers used for LAN/SAN applications at our wafer fabrication facility in
Allen, Texas and manufacture a portion of our internal requirements for longer wavelength lasers at
our wafer fabrication facility located in Fremont, California. We assemble and test most of our
transceiver products at our facility in Ipoh, Malaysia. As a result of this vertical integration,
we have become increasingly dependent on our internal production capabilities. The manufacture of
critical components, including the fabrication of wafers, and the assembly and testing of our
products, involve highly complex processes. For example, minute levels of contaminants in the
manufacturing environment, difficulties in the fabrication process or other factors can cause a
substantial portion of the components on a wafer to be nonfunctional. These problems may be
difficult to detect at an early stage of the manufacturing process and often are time-consuming and
expensive to correct. From time to time, we have experienced problems achieving acceptable yields
at our wafer fabrication facilities, resulting in delays in the availability of components.
Moreover, an increase in the rejection rate of products during the quality control process before,
during or after manufacture, results in lower yields and margins. In addition, 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 significantly
reduced our manufacturing yields, resulting in low or negative margins on those products. Poor
manufacturing yields over a prolonged period of time could adversely affect our ability to deliver
our subsystem products to our
45
customers and could also affect our sale of components to customers in the merchant market.
Our inability to supply components to meet our internal needs could harm our relationships with
customers and have an adverse effect on our business.
We may lose sales if our suppliers or independent contractors fail to meet our needs.
We currently purchase a number of key components used in the manufacture of our products from
single or limited sources, and we rely on several independent contract manufacturers to supply us
with certain key subassemblies, including printed circuit boards. We depend on these sources to
meet our production needs. Moreover, we depend on the quality of the components and subassemblies
that they supply to us, over which we have limited control. We have encountered shortages and
delays in obtaining components in the past and expect to encounter additional shortages and delays
in the future. If we cannot supply products due to a lack of components, or are unable to redesign
products with other components in a timely manner, our business will be significantly harmed. We
generally have no long-term contracts with any of our component suppliers or contract
manufacturers. As a result, a supplier or contract manufacturer can discontinue supplying
components or subassemblies to us without penalty. If a supplier were to discontinue supplying a
key component, our business may be harmed by the resulting product manufacturing and delivery
delays. We are also subject to potential delays in the development by our suppliers of key
components which may affect our ability to introduce new products. Similarly, disruptions in the
services provided by our contract manufacturers or the transition to other suppliers of these
services could lead to supply chain problems or delays in the delivery of our products. These
problems or delays could damage our relationships with our customers and adversely affect our
business.
We use rolling forecasts based on anticipated product orders to determine our component and
subassembly requirements. Lead times for materials and components that we order vary significantly
and depend on factors such as specific supplier requirements, contract terms and current market
demand for particular components. If we overestimate our component requirements, we may have excess
inventory, which would increase our costs. If we underestimate our component requirements, we may
have inadequate inventory, which could interrupt our manufacturing and delay delivery of our
products to our customers. Any of these occurrences would significantly harm our business.
We are dependent on widespread market acceptance of our optical subsystems and components, and our
revenues will decline if the markets for these products do not expand as expected.
We currently derive a substantial majority of our revenue from sales of our optical subsystems
and components. We expect that revenue from these products will continue to account for a
substantial majority of our revenue for the foreseeable future. Accordingly, widespread acceptance
of these products is critical to our future success. If the market does not continue to accept our
optical subsystems and components, our revenues will decline significantly. Our future success
ultimately depends on the continued growth of the communications industry and, in particular, the
continued expansion of global information networks, particularly those directly or indirectly
dependent upon a fiber optics infrastructure. As part of that growth, we are relying on increasing
demand for voice, video and other data delivered over high-bandwidth network systems as well as
commitments by network systems vendors to invest in the expansion of the global information
network. As network usage and bandwidth demand increase, so does the need for advanced optical
networks to provide the required bandwidth. Without network and bandwidth growth, the need for
optical subsystems and components, and hence our future growth as a manufacturer of these products,
and systems that test these products, will be jeopardized, and our business would be significantly
harmed.
Many of these factors are beyond our control. In addition, in order to achieve widespread
market acceptance, we must differentiate ourselves from our competition through product offerings
and brand name recognition. We cannot assure you that we will be successful in making this
differentiation or achieving widespread acceptance of our products. Failure of our existing or
future products to maintain and achieve widespread levels of market acceptance will significantly
impair our revenue growth.
We depend on large purchases from a few significant customers, and any loss, cancellation,
reduction or delay in purchases by these customers could harm our business.
A small number of customers have consistently accounted for a significant portion of the
revenues of both Finisar and Optium. For example, sales to Finisars top five customers
represented 42% of Finisars revenues in fiscal 2008, and for its fiscal year ended August 2, 2008,
Optium generated 62% of its revenues from its five largest end customers. Our success will depend
on our continued ability to develop and manage relationships with our major customers. Although we
are attempting to expand our customer base, we expect that significant customer concentration will
continue for the foreseeable future. We may not be able to offset any decline in revenues from our
existing major customers with revenues from new customers, and our quarterly results may be
volatile because we are dependent on large orders from these customers that may be reduced
or delayed.
The markets in which we have historically sold our optical subsystems and components products
are dominated by a relatively small number of systems manufacturers, thereby limiting the number of
our potential customers. Similarly, Optium has depended primarily on a limited number of major
carrier customers for the sale of its products in the telecommunications market.
46
Recent consolidation of Optiums customer base and the risk of further consolidation may have
a material adverse impact on our business. Our dependence on large orders from a relatively small
number of customers makes our relationship with each customer critically important to our business.
We cannot assure you that we will be able to retain our largest customers, that we will be able to
attract additional customers or that our customers will be successful in selling their products
that incorporate our products. We have in the past experienced delays and reductions in orders from
some of our major customers. In addition, our customers have in the past sought price concessions
from us, and we expect that they will continue to do so in the future. Cost reduction measures that
we have implemented over the past several years, and additional action we may take to reduce costs,
may adversely affect our ability to introduce new and improved products which may, in turn,
adversely affect our relationships with some of our key customers. Further, some of our customers
may in the future shift their purchases of products from us to our competitors or to joint ventures
between these customers and our competitors. The loss of one or more of our largest customers, any
reduction or delay in sales to these customers, our inability to successfully develop relationships
with additional customers or future price concessions that we may make could significantly harm our
business.
Because we do not have long-term contracts with our customers, our customers may cease purchasing
our products at any time if we fail to meet our customers needs.
Typically, we do not have long-term contracts with our customers. As a result, our agreements
with our customers do not provide any assurance of future sales. Accordingly:
|
|
|
our customers can stop purchasing our products at any time without penalty; |
|
|
|
|
our customers are free to purchase products from our competitors; and |
|
|
|
|
our customers are not required to make minimum purchases. |
Sales are typically made pursuant to inventory hub arrangements under which customers may draw
down inventory to satisfy their demand as needed or pursuant to individual purchase orders, often
with extremely short lead times. If we are unable to fulfill these orders in a timely manner, it is
likely that we will lose sales and customers. If our major customers stop purchasing our products
for any reason, our business and results of operations would be harmed.
The markets for our products are subject to rapid technological change, and to compete effectively
we must continually introduce new products that achieve market acceptance.
The markets for our products are characterized by rapid technological change, frequent new
product introductions, substantial capital investment, changes in customer requirements and
evolving industry standards with respect to the protocols used in data communications,
telecommunications and cable TV networks. Our future performance will depend on the successful
development, introduction and market acceptance of new and enhanced products that address these
changes as well as current and potential customer requirements. For example, the market for
optical subsystems is currently characterized by a trend toward the adoption of pluggable modules
and subsystems that do not require customized interconnections and by the development of more
complex and integrated optical subsystems. We expect that new technologies will emerge as
competition and the need for higher and more cost-effective bandwidth increases. The introduction
of new and enhanced products may cause our customers to defer or cancel orders for existing
products. In addition, a slowdown in demand for existing products ahead of a new product
introduction could result in a write-down in the value of inventory on hand related to existing
products. We have in the past experienced a slowdown in demand for existing products and delays in
new product development and such delays may occur in the future. To the extent customers defer or
cancel orders for existing products due to a slowdown in demand or in the expectation of a new
product release or if there is any delay in development or introduction of our new products or
enhancements of our products, our operating results would suffer. We also may not be able to
develop the underlying core technologies necessary to create new products and enhancements, or to
license these technologies from third parties. Product development delays may result from numerous
factors, including:
|
|
|
changing product specifications and customer requirements; |
|
|
|
|
unanticipated engineering complexities; |
|
|
|
|
expense reduction measures we have implemented, and others we may implement, to
conserve our cash and attempt to achieve and sustain profitability; |
|
|
|
|
difficulties in hiring and retaining necessary technical personnel; |
|
|
|
|
difficulties in reallocating engineering resources and overcoming resource
limitations; and |
|
|
|
|
changing market or competitive product requirements. |
The development of new, technologically advanced products is a complex and uncertain process
requiring high levels of innovation and highly skilled engineering and development personnel, as
well as the accurate anticipation of technological and market trends. The introduction of new
products also requires significant investment to ramp up production capacity, for which benefit
will not be realized if customer demand does not develop as expected. Ramping of production
capacity also entails risks of delays which
47
can limit our ability to realize the full benefit of the new product introduction. We cannot
assure you that we will be able to identify, develop, manufacture, market or support new or
enhanced products successfully, if at all, or on a timely basis. Further, we cannot assure you that
our new products will gain market acceptance or that we will be able to respond effectively to
product announcements by competitors, technological changes or emerging industry standards. Any
failure to respond to technological change would significantly harm our business.
Continued competition in our markets may lead to a reduction in our prices, revenues and market
share.
The end markets for optical products have experienced significant industry consolidation
during the past few years while the industry that supplies these customers has not. As a result,
the markets for optical subsystems and components and network performance test systems are highly
competitive. Our current competitors include a number of domestic and international companies, many
of which have substantially greater financial, technical, marketing and distribution resources and
brand name recognition than we have. We may not be able to compete successfully against either
current or future competitors. Companies competing with us may introduce products that are
competitively priced, have increased performance or functionality, or incorporate technological
advances and may be able to react quicker to changing customer requirements and expectations.
There is also the risk that network systems vendors may re-enter the subsystem market and begin to
manufacture the optical subsystems incorporated in their network systems. Increased competition
could result in significant price erosion, reduced revenue, lower margins or loss of market share,
any of which would significantly harm our business. For optical subsystems, we compete primarily
with Avago Technologies, Capella Intelligent Subsystems, CoAdna Photonics, Emcore, Fujitsu Computer
Systems, JDS Uniphase, Opnext, Oplink, StrataLight Communications, Sumitomo, and a number of
smaller vendors. For network test systems, we compete primarily with Agilent Technologies and
LeCroy. BKtel, Emcore, Olson Technology and Yagi Antenna are our main competitors with respect to
our cable TV products. Our competitors continue to introduce improved products and we will have to
do the same to remain competitive.
Decreases in average selling prices of our products may reduce our gross margins.
The market for optical subsystems is characterized by declining average selling prices
resulting from factors such as increased competition, overcapacity, the introduction of new
products and increased unit volumes as manufacturers continue to deploy network and storage
systems. We have in the past experienced, and in the future may experience, substantial
period-to-period fluctuations in operating results due to declining average selling prices. We
anticipate that average selling prices will decrease in the future in response to product
introductions by competitors or us, or by other factors, including pricing pressures from
significant customers. Therefore, in order to achieve and sustain profitable operations, we must
continue to develop and introduce on a timely basis new products that incorporate features that can
be sold at higher average selling prices. Failure to do so could cause our revenues and gross
margins to decline, which would result in additional operating losses and significantly harm our
business.
We may be unable to reduce the cost of our products sufficiently to enable us to compete with
others. Our cost reduction efforts may not allow us to keep pace with competitive pricing pressures
and could adversely affect our margins. In order to remain competitive, we must continually reduce
the cost of manufacturing our products through design and engineering changes. We may not be
successful in redesigning our products or delivering our products to market in a timely manner. We
cannot assure you that any redesign will result in sufficient cost reductions to allow us to reduce
the price of our products to remain competitive or improve our gross margins.
Shifts in our product mix may result in declines in gross margins.
Our gross profit margins vary among our product families, and are generally higher on our
network performance test systems than on our optical subsystems and components. Our optical
products sold for longer distance MAN and telecom applications typically have higher gross margins
than our products for shorter distance LAN or SAN applications. Gross margins on individual
products fluctuate over the products life cycle. Our overall gross margins have fluctuated from
period to period as a result of shifts in product mix, the introduction of new products, decreases
in average selling prices for older products and our ability to reduce product costs, and these
fluctuations are expected to continue in the future.
Our customers often evaluate our products for long and variable periods, which causes the timing
of our revenues and results of operations to be unpredictable.
The period of time between our initial contact with a customer and the receipt of an actual
purchase order may span a year or more. During this time, customers may perform, or require us to
perform, extensive and lengthy evaluation and testing of our products before purchasing and using
the products in their equipment. These products often take substantial time to develop because of
their complexity and because customer specifications sometimes change during the development cycle.
Our customers do not typically share information on the duration or magnitude of these
qualification procedures. The length of these qualification processes also may vary substantially
by product and customer, and, thus, cause our results of operations to be unpredictable. While our
potential customers are qualifying our products and before they place an order with us, we may
incur substantial research and development and
48
sales and marketing expenses and expend significant management effort. Even after incurring
such costs we ultimately may not sell any products to such potential customers. In addition, these
qualification processes often make it difficult to obtain new customers, as customers are reluctant
to expend the resources necessary to qualify a new supplier if they have one or more existing
qualified sources. Once our products have been qualified, the agreements that we enter into with
our customers typically contain no minimum purchase commitments. Failure of our customers to
incorporate our products into their systems would significantly harm our business.
We will lose sales if we are unable to obtain government authorization to export certain of our
products, and we would be subject to legal and regulatory consequences if we do not comply with
applicable export control laws and regulations.
Exports of certain of our products are subject to export controls imposed by the
U.S. Government and administered by the U.S. Departments of State and Commerce. In certain
instances, these regulations may require pre-shipment authorization from the administering
department. For products subject to the Export Administration Regulations, or EAR, administered by
the Department of Commerces Bureau of Industry and Security, the requirement for a license is
dependent on the type and end use of the product, the final destination, the identity of the end
user and whether a license exception might apply. Virtually all exports of products subject to the
International Traffic in Arms Regulations, or ITAR, administered by the Department of States
Directorate of Defense Trade Controls, require a license. Certain of our fiber optics products are
subject to EAR and certain of our RF over fiber products, as well as certain products developed
with government funding, are currently subject to ITAR.
Given the current global political climate, obtaining export licenses can be difficult and
time-consuming. Failure to obtain export licenses for these shipments could significantly reduce
our revenue and materially adversely affect our business, financial condition and results of
operations. Compliance with U.S. Government regulations may also subject us to additional fees and
costs. The absence of comparable restrictions on competitors in other countries may adversely
affect our competitive position.
During mid-2007, Optium became aware that certain of its analog RF over fiber products may,
depending on end use and customization, be subject to ITAR. Accordingly, Optium filed a detailed
voluntary disclosure with the United States Department of State describing the details of possible
inadvertent ITAR violations with respect to the export of a limited number of certain prototype
products, as well as related technical data and defense services. Optium may have also made
unauthorized transfers of ITAR-restricted technical data and defense services to foreign persons in
the workplace. Additional information has been provided upon request to the Department of State
with respect to this matter. On October 14, 2008, a grand jury subpoena from the office of the
U.S. Attorney for the Eastern District of Pennsylvania was received requesting documents from 2005
through the present referring to, relating to or involving the subject matter of our voluntary
disclosure and export activities.
In connection with a review of our compliance with applicable export regulations in late 2008,
we discovered that we had made certain deemed exports to foreign national employees with respect
to certain of our commercial product without the necessary deemed export licenses or license
exemptions under the EAR. Accordingly, we have filed a detailed voluntary disclosure with the
United States Department of Commerce describing these deemed export violations.
While the Departments of State and Commerce encourage voluntary disclosures and generally
affords parties mitigating credit under such circumstances, we nevertheless could be subject to
continued investigation and potential regulatory consequences ranging from a no-action letter,
government oversight of facilities and export transactions, monetary penalties, and in extreme
cases, debarment from government contracting, denial of export privileges and criminal sanctions,
any of which would adversely affect our results of operations and cash flow. These inquiries may
require us to expend significant management time and incur significant legal and other expenses.
We cannot predict how long it will take or how much more time and resources we will have to expend
to resolve these government inquiries, nor can we predict the outcome of these inquiries.
We depend on facilities located outside of the United States to manufacture a substantial portion
of our products, which subjects us to additional risks.
In addition to our principal manufacturing facility in Malaysia, Finisar operates smaller
facilities in China and Singapore. As a result of the Optium merger, we now operate additional
facilities in Australia and Israel. We also rely on several contract manufacturers located in Asia
for our supply of key subassemblies. Each of these facilities and manufacturers subjects us to
additional risks associated with international manufacturing, including:
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unexpected changes in regulatory requirements; |
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legal uncertainties regarding liability, tariffs and other trade barriers; |
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inadequate protection of intellectual property in some countries; |
49
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greater incidence of shipping delays; |
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greater difficulty in overseeing manufacturing operations; |
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greater difficulty in hiring talent needed to oversee manufacturing operations; |
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potential political and economic instability; and |
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the outbreak of infectious diseases such as severe acute respiratory syndrome, or
SARS, which could result in travel restrictions or the closure of our facilities or
the facilities of our customers and suppliers. |
Any of these factors could significantly impair our ability to source our contract
manufacturing requirements internationally.
Our future operating results may be subject to volatility as a result of exposure to foreign
exchange risks.
We are exposed to foreign exchange risks. Foreign currency fluctuations may affect both our
revenues and our costs and expenses and significantly affect our operating results. Prices for our
products are currently denominated in U.S. dollars for sales to our customers throughout the world.
If there is a significant devaluation of the currency in a specific country relative to the dollar,
the prices of our products will increase relative to that countrys currency, our products may be
less competitive in that country and our revenues may be adversely affected.
Although we price our products in U.S. dollars, portions of both our cost of revenues and
operating expenses are incurred in foreign currencies, principally the Malaysian ringit, the
Chinese yuan, the Australian dollar and the Israeli shekel. As a result, we bear the risk that the
rate of inflation in one or more countries will exceed the rate of the devaluation of that
countrys currency in relation to the U.S. dollar, which would increase our costs as expressed in
U.S. dollars. To date, we have not engaged in currency hedging transactions to decrease the risk of
financial exposure from fluctuations in foreign exchange rates.
Our business and future operating results are subject to a wide range of uncertainties arising out
of the continuing threat of terrorist attacks and ongoing military actions in the Middle East.
Like other U.S. companies, our business and operating results are subject to uncertainties
arising out of the continuing threat of terrorist attacks on the United States and ongoing military
actions in the Middle East, including the economic consequences of the war in Iraq or additional
terrorist activities and associated political instability, and the impact of heightened security
concerns on domestic and international travel and commerce. In particular, due to these
uncertainties we are subject to:
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increased risks related to the operations of our manufacturing facilities in
Malaysia; |
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greater risks of disruption in the operations of our China, Singapore, and
Israeli facilities and our Asian contract manufacturers and more frequent instances
of shipping delays; and |
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the risk that future tightening of immigration controls may adversely affect the
residence status of non-U.S. engineers and other key technical employees in our U.S.
facilities or our ability to hire new non-U.S. employees in such facilities. |
Past and future acquisitions could be difficult to integrate, disrupt our business, dilute
stockholder value and harm our operating results.
In addition to our recent combination with Optium, we have completed the acquisition of ten
privately-held companies and certain businesses and assets from six other companies since October
2000. We continue to review opportunities to acquire other businesses, product lines or
technologies that would complement our current products, expand the breadth of our markets or
enhance our technical capabilities, or that may otherwise offer growth opportunities, and we from
time to time make proposals and offers, and take other steps, to acquire businesses, products and
technologies.
The Optium merger and several of our other past acquisitions have been material, and
acquisitions that we may complete in the future may be material. In 13 of our 17 acquisitions, we
issued common stock or notes convertible into common stock as all or a portion of the
consideration. The issuance of common stock or other equity securities by us in any future
transaction would dilute our stockholders percentage ownership.
50
Other risks associated with acquiring the operations of other companies include:
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problems assimilating the purchased operations, technologies or products; |
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unanticipated costs associated with the acquisition; |
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diversion of managements attention from our core business; |
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adverse effects on existing business relationships with suppliers and customers; |
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risks associated with entering markets in which we have no or limited prior
experience; and |
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potential loss of key employees of purchased organizations. |
Not all of our past acquisitions have been successful. During fiscal 2003, we sold some of the
assets acquired in two prior acquisitions, discontinued a product line and closed one of our
acquired facilities. As a result of these activities, we incurred significant restructuring charges
and charges for the write-down of assets associated with those acquisitions. We cannot assure you
that we will be successful in overcoming problems encountered in connection with future
acquisitions, and our inability to do so could significantly harm our business. In addition, to the
extent that the economic benefits associated with any of our acquisitions diminish in the future,
we may be required to record additional write downs of goodwill, intangible assets or other assets
associated with such acquisitions, which would adversely affect our operating results.
We have made and may continue to make strategic investments which may not be successful, may
result in the loss of all or part of our invested capital and may adversely affect our operating
results.
Through fiscal 2008, we made minority equity investments in early-stage technology companies,
totaling approximately $55 million. Our investments in these early stage companies were primarily
motivated by our desire to gain early access to new technology. We intend to review additional
opportunities to make strategic equity investments in pre-public companies where we believe such
investments will provide us with opportunities to gain access to important technologies or
otherwise enhance important commercial relationships. We have little or no influence over the
early-stage companies in which we have made or may make these strategic, minority equity
investments. Each of these investments in pre-public companies involves a high degree of risk. We
may not be successful in achieving the financial, technological or commercial advantage upon which
any given investment is premised, and failure by the early-stage company to achieve its own
business objectives or to raise capital needed on acceptable economic terms could result in a loss
of all or part of our invested capital. In fiscal 2003, we wrote off $12.0 million in two
investments which became impaired. In fiscal 2004, we wrote off $1.6 million in two additional
investments, and in fiscal 2005, we wrote off $10.0 million in another investment. During fiscal
2006, we reclassified $4.2 million of an investment associated with the Infineon acquisition to
goodwill as the investment was deemed to have no value. During fiscal 2009, we wrote off $1.2
million for another investment that became impaired. We may be required to write off all or a
portion of the $14.3 million in such investments remaining on our balance sheet as of November 2,
2008 in future periods.
We are subject to pending legal proceedings.
A securities class action lawsuit was filed on November 30, 2001 in the United States District
Court for the Southern District of New York, purportedly on behalf of all persons who purchased our
common stock from November 17, 1999 through December 6, 2000. The complaint named as defendants
Finisar, certain of our current and former officers, and an investment banking firm that served as
an underwriter for our initial public offering in November 1999 and a secondary offering in April
2000. The complaint, as subsequently amended, alleges violations of Sections 11 and 15 of the
Securities Act of 1933 and Sections 10(b) and 20(b) of the Securities Exchange Act of 1934. No
specific damages are claimed. Similar allegations have been made in lawsuits relating to more than
300 other initial public offerings conducted in 1999 and 2000, which were consolidated for pretrial
purposes. In October 2002, all claims against the individual defendants were dismissed without
prejudice. On February 19, 2003, the Court denied defendants motion to dismiss the complaint. In
July 2004, we and the individual defendants accepted a settlement proposal made to all of the
issuer defendants. The proposed settlement was thereafter withdrawn.
Subsequent to the withdrawal of the proposed settlement, the parties
have engaged in further negotiations in an attempt to structure a new
settlement.
There is no assurance that agreement on a new settlement will
be reached or approved by the Court. If agreement on a new
settlement is not reached and subsequently approved
by the Court, we intend to defend the lawsuit vigorously. Because of the inherent uncertainty of
litigation, however, we cannot predict its outcome. If, as a result of this dispute, we are
required to pay significant monetary damages, our business would be substantially harmed.
We have been named as a nominal defendant in several purported shareholder derivative lawsuits
concerning the granting of stock options. These cases have been consolidated into two proceedings
pending in federal and state courts in California. The plaintiffs in all of these cases have
alleged that certain current or former officers and directors of Finisar caused it to grant stock
options at less than fair market value, contrary to our public statements (including statements in
our financial statements), and that, as a result, those officers and directors are liable to
Finisar. No specific amount of damages has been alleged and, by the nature of the lawsuits no
damages will be alleged, against Finisar. On May 22, 2007, the state court granted our motion to
stay the state court action
51
pending resolution of the consolidated federal court action. On August 28, 2007, we and the
individual defendants filed motions to dismiss the complaint which were granted on January 11,
2008. On May 12, 2008, the plaintiffs filed a further amended complaint in the federal court
action. On July 1, 2008, we and the individual defendants filed motions to dismiss the amended
complaint. We cannot predict whether these actions are likely to result in any material recovery
by, or expense to, us. We expect to continue to incur legal fees in responding to these lawsuits,
including expenses for the reimbursement of legal fees of present and former officers and directors
under indemnification obligations. The expense of defending such litigation may be significant. The
amount of time to resolve these and any additional lawsuits is unpredictable and these actions may
divert managements attention from the day-to-day operations of our business, which could adversely
affect our business, results of operations and cash flows.
Because of competition for technical personnel, we may not be able to recruit or retain necessary
personnel.
We believe our future success will depend in large part upon our ability to attract and retain
highly skilled managerial, technical, sales and marketing, finance and manufacturing personnel. In
particular, we may need to increase the number of technical staff members with experience in
high-speed networking applications as we further develop our product lines. Competition for these
highly skilled employees in our industry is intense. In making employment decisions, particularly
in the high-technology industries, job candidates often consider the value of the equity they are
to receive in connection with their employment. Therefore, significant volatility in the price of
our common stock may adversely affect our ability to attract or retain technical personnel.
Furthermore, changes to accounting principles generally accepted in the United States relating to
the expensing of stock options may limit our ability to grant the sizes or types of stock awards
that job candidates may require to accept employment with us. Our failure to attract and retain
these qualified employees could significantly harm our business. The loss of the services of any of
our qualified employees, the inability to attract or retain qualified personnel in the future or
delays in hiring required personnel could hinder the development and introduction of and negatively
impact our ability to sell our products. In addition, employees may leave our company and
subsequently compete against us. Moreover, companies in our industry whose employees accept
positions with competitors frequently claim that their competitors have engaged in unfair hiring
practices. We have been subject to claims of this type and may be subject to such claims in the
future as we seek to hire qualified personnel. Some of these claims may result in material
litigation. We could incur substantial costs in defending ourselves against these claims,
regardless of their merits.
Our failure to protect our intellectual property may significantly harm our business.
Our success and ability to compete is dependent in part on our proprietary technology. We rely
on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality
agreements to establish and protect our proprietary rights. We license certain of our proprietary
technology, including our digital diagnostics technology, to customers who include current and
potential competitors, and we rely largely on provisions of our licensing agreements to protect our
intellectual property rights in this technology. Although a number of patents have been issued to
us, we have obtained a number of other patents as a result of our acquisitions, and we have filed
applications for additional patents, we cannot assure you that any patents will issue as a result
of pending patent applications or that our issued patents will be upheld. Additionally,
significant technology used in the product lines obtained as a result of the Optium merger is not
the subject of any patent protection, and we may be unable to obtain patent protection on such
technology in the future. Any infringement of our proprietary rights could result in significant
litigation costs, and any failure to adequately protect our proprietary rights could result in our
competitors offering similar products, potentially resulting in loss of a competitive advantage and
decreased revenues. Despite our efforts to protect our proprietary rights, existing patent,
copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of
some foreign countries do not protect our proprietary rights to the same extent as do the laws of
the United States. Attempts may be made to copy or reverse engineer aspects of our products or to
obtain and use information that we regard as proprietary. Accordingly, we may not be able to
prevent misappropriation of our technology or deter others from developing similar technology.
Furthermore, policing the unauthorized use of our products is difficult and expensive. We are
currently engaged in pending litigation to enforce certain of our patents, and additional
litigation may be necessary in the future to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. In connection with the
pending litigation, substantial management time has been, and will continue to be, expended. In
addition, we have incurred, and we expect to continue to incur, substantial legal expenses in
connection with these pending lawsuits. These costs and this diversion of resources could
significantly harm our business.
Claims that we infringe third-party intellectual property rights could result in significant
expenses or restrictions on our ability to sell our products.
The networking industry is characterized by the existence of a large number of patents and
frequent litigation based on allegations of patent infringement. We have been involved in the past
as a defendant in patent infringement lawsuits, and are currently defending a patent infringement
lawsuit filed against Optium by JDS Uniphase Corporation and EMCORE Corporation. From time to
time, other parties may assert patent, copyright, trademark and other intellectual property rights
to technologies and in various jurisdictions that are important to our business. Any claims
asserting that our products infringe or may infringe proprietary rights of third parties, if
determined adversely to us, could significantly harm our business. Any claims, with or without
merit, could be time-consuming, result in costly litigation, divert the efforts of our technical
and management personnel, cause product shipment delays or
52
require us to enter into royalty or licensing agreements, any of which could significantly
harm our business. In addition, our agreements with our customers typically require us to
indemnify our customers from any expense or liability resulting from claimed infringement of third
party intellectual property rights. In the event a claim against us was successful and we could not
obtain a license to the relevant technology on acceptable terms or license a substitute technology
or redesign our products to avoid infringement, our business would be significantly harmed.
Numerous patents in our industry are held by others, including academic institutions and
competitors. Optical subsystem 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 those licenses on commercially reasonable terms, patents or other intellectual
property held by others could inhibit our development of new products. 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 products may contain defects that may cause us to incur significant costs, divert our
attention from product development efforts and result in a loss of customers.
Our products are complex and defects may be found from time to time. Networking products
frequently contain undetected software or hardware defects when first introduced or as new versions
are released. In addition, our products are often embedded in or deployed in conjunction with our
customers products which incorporate a variety of components produced by third parties. As a
result, when problems occur, it may be difficult to identify the source of the problem. These
problems may cause us to incur significant damages or warranty and repair costs, divert the
attention of our engineering personnel from our product development efforts and cause significant
customer relation problems or loss of customers, all of which would harm our business.
Our business and future operating results may be adversely affected by events outside our control.
Our business and operating results are vulnerable to events outside of our control, such as
earthquakes, fire, power loss, telecommunications failures and uncertainties arising out of
terrorist attacks in the United States and overseas. Our corporate headquarters and a portion of
our manufacturing operations are located in California. California in particular has been
vulnerable to natural disasters, such as earthquakes, fires and floods, and other risks which at
times have disrupted the local economy and posed physical risks to our property. We are also
dependent on communications links with our overseas manufacturing locations and would be
significantly harmed if these links were interrupted for any significant length of time. We
presently do not have adequate redundant, multiple site capacity if any of these events were to
occur, nor can we be certain that the insurance we maintain against these events would be adequate.
The conversion of our outstanding convertible subordinated notes would result in substantial
dilution to our current stockholders.
We currently have outstanding 21/2% convertible senior subordinated notes due 2010
in the principal amount of $100 million and 21/2% convertible subordinated notes due
2010 in the principal amount of $50 million. The $50 million in principal amount of our
21/2% notes are convertible, at the option of the holder, at any time on or prior to
maturity into shares of our common stock at a conversion price of $3.705 per share. The
$100 million in principal amount of our 21/2% senior notes are convertible at a
conversion price of $3.28, with the underlying principal payable in cash, upon the trading price of
our common stock reaching $4.92 for a period of time. An aggregate of approximately 13,500,000
shares of common stock would be issued upon the conversion of all outstanding convertible
subordinated notes at these exchange rates, which would dilute the voting power and ownership
percentage of our existing stockholders. We have previously entered into privately negotiated
transactions with certain holders of our convertible subordinated notes for the repurchase of notes
in exchange for a greater number of shares of our common stock than would have been issued had the
principal amount of the notes been converted at the original conversion rate specified in the
notes, thus resulting in more dilution. Although we do not currently have any plans to enter into
similar transactions in the future, if we were to do so there would be additional dilution to the
voting power and percentage ownership of our existing stockholders.
Delaware law, our charter documents and our stockholder rights plan contain provisions that could
discourage or prevent a potential takeover, even if such a transaction would be beneficial to our
stockholders.
Some provisions of our certificate of incorporation and bylaws, as well as provisions of
Delaware law, may discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. These include provisions:
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authorizing the board of directors to issue additional preferred stock; |
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prohibiting cumulative voting in the election of directors; |
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limiting the persons who may call special meetings of stockholders; |
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prohibiting stockholder actions by written consent; |
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creating a classified board of directors pursuant to which our directors are
elected for staggered three-year terms; |
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permitting the board of directors to increase the size of the board and to fill
vacancies; |
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requiring a super-majority vote of our stockholders to amend our bylaws and
certain provisions of our certificate of incorporation; and |
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establishing advance notice requirements for nominations for election to the
board of directors or for proposing matters that can be acted on by stockholders at
stockholder meetings. |
We are subject to the provisions of Section 203 of the Delaware General Corporation Law which
limit the right of a corporation to engage in a business combination with a holder of 15% or more
of the corporations outstanding voting securities, or certain affiliated persons.
In addition, in September 2002, our board of directors adopted a stockholder rights plan under
which our stockholders received one share purchase right for each share of our common stock held by
them. Subject to certain exceptions, the rights become exercisable when a person or group (other
than certain exempt persons) acquires, or announces its intention to commence a tender or exchange
offer upon completion of which such person or group would acquire, 20% or more of our common stock
without prior board approval. Should such an event occur, then, unless the rights are redeemed or
have expired, our stockholders, other than the acquirer, will be entitled to purchase shares of our
common stock at a 50% discount from its then-Current Market Price (as defined) or, in the case of
certain business combinations, purchase the common stock of the acquirer at a 50% discount.
Although we believe that these charter and bylaw provisions, provisions of Delaware law and
our stockholder rights plan provide an opportunity for the board to assure that our stockholders
realize full value for their investment, they could have the effect of delaying or preventing a
change of control, even under circumstances that some stockholders may consider beneficial.
We do not currently intend to pay dividends on Finisar common stock and, consequently, a
stockholders ability to achieve a return on such stockholders investment will depend on
appreciation in the price of the common stock.
We have never declared or paid any cash dividends on Finisar common stock and we do not
currently intend to do so for the foreseeable future. We currently intend to invest our future
earnings, if any, to fund our growth. Therefore, a stockholder is not likely to receive any
dividends on such stockholders common stock for the foreseeable future.
Our stock price has been and is likely to continue to be volatile.
The trading price of our common stock has been and is likely to continue to be subject to
large fluctuations. Our stock price may increase or decrease in response to a number of events and
factors, including:
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trends in our industry and the markets in which we operate; |
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changes in the market price of the products we sell; |
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changes in financial estimates and recommendations by securities analysts; |
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acquisitions and financings; |
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quarterly variations in our operating results; |
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the operating and stock price performance of other companies that investors in
our common stock may deem comparable; and |
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purchases or sales of blocks of our common stock. |
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Part of this volatility is attributable to the current state of the stock market, in which
wide price swings are common. This volatility may adversely affect the prices of our common stock
regardless of our operating performance. If any of the foregoing occurs, our stock price could
fall and we may be exposed to class action lawsuits that, even if unsuccessful, could be costly to
defend and a distraction to management.
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Item 4. Submission of Matters to a Vote of Security Holders.
Our annual meeting of stockholders was held on August 28, 2008. At the meeting, the following
matters were submitted to a vote of our stockholders:
Approval of the Issuance of Shares of Finisar Common Stock. The issuance of shares of our
common stock in connection with the merger of our wholly-owned subsidiary with and into Optium
Corporation was approved by a vote of 196,296,808 shares for; 1,559,601 shares against; 144,531
shares abstaining; and 87,106,369 broker non-votes.
Election of Directors. The following persons were elected as Class III directors, to hold
office for three-year terms:
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Shares Voted |
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Name |
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Affirmatively |
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Votes Withheld |
Jerry S. Rawls |
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281,757,136 |
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3,350,171 |
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Dominique Trempont |
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281,177,957 |
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3,763,549 |
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Ratification of Appointment of Independent Registered Public Accounting Firm. The appointment
of Ernst & Young LLP to serve as our independent registered public accounting firm for the fiscal
year ending April 30, 2009 was ratified by a vote of 283,081,185 shares for; 1,583,593 shares
against; and 442,530 shares abstaining.
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Item 6. Exhibits
The following exhibits are filed herewith:
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10.23*
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Optium Corporation 2000 Stock Incentive Plan(1) |
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10.24*
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Optium Corporation 2006 Stock Option and Incentive Plan and Israeli Addendum to 2006 Stock
Option and Incentive Plan(2) |
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10.25*
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Form of Amended and Restated Warrant to Purchase Common Stock(3) |
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10.26*
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Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and Eitan Gertel(4) |
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10.27*
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Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and
Christopher Brown(5) |
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10.28*
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Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and
Mark Colyar(6) |
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10.29
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First Amendment to lease for 200 Precision Road, Horsham, PA by and between Horsham Property
Assoc., L.P. and Optium Corporation dated January 4, 2008(7) |
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10.30*
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Form of Deferred Stock Award for Israeli grantees under Optium Corporation 2006 Stock Option and Incentive Plan(8) |
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10.31*
|
|
Form of Deferred Stock Award for directors under Optium Corporation 2006 Stock Option and Incentive Plan(9) |
|
|
|
10.32*
|
|
Form of Stock Option Grant Notice under the Optium Corporation 2006 Stock Option and Incentive Plan(10) |
|
|
|
10.33*
|
|
Form of Stock Option Grant Notice for Australian Employees under the Optium Corporation 2006
Stock Option and Incentive Plan(11) |
|
|
|
10.34*
|
|
Form of Employee Incentive Stock Option Agreement under the Optium Corporation 2006 Stock
Option and Incentive Plan(12) |
|
|
|
10.35*
|
|
Form of Employee Non-Qualified Stock Option Agreement under the Optium Corporation 2006
Stock Option and Incentive Plan(13) |
10.36*
|
|
Form of Non-Employee Non-Qualified Stock Option Agreement under the Optium Corporation 2006
Stock Option and Incentive Plan(14) |
|
|
|
10.37*
|
|
Form of Australian Employee Non-Qualified Stock Option Agreement under the Optium
Corporation 2006 Stock Option and Incentive Plan(15) |
|
|
|
10.38*
|
|
Form of Deferred Stock Award under Optium Corporation 2006 Stock Option and Incentive
Plan(16) |
|
|
|
10.39
|
|
Lease Agreement, dated December 7, 2007, by and between Charvic Pty Ltd and Optium Australia
Pty Limited for premises located at 244 Young Street, Waterloo, NSW, Australia(17) |
|
|
|
10.40
|
|
Agreement and Plan of Merger by and among Optium Corporation, CLP Acquisition I Corp.,
Kailight Photonics, Inc. and the Stockholders Representatives named therein dated March 27,
2007 as amended by the Acknowledgement and Agreement to the Agreement and Plan of Merger dated
April 11, 2007(18) |
|
|
|
10.41
|
|
Lease Agreement between Optium
Corporation and 200 Precision Drive Investors, LLC for the
premises located at 200 Precision Drive, Horsham, Pennsylvania, dated September 26, 2006(19) |
|
|
|
10.42
|
|
Unprotected Lease Agreement by and among Kailight Photonics, Ltd., Niber Promotions and
Investments, Ltd., Atido Holding Ltd. and Roller Electric Works, Ltd. dated May 11, 2006(20) |
|
|
|
10.43*
|
|
Employment Agreement between Optium Corporation and Eitan Gertel, dated as of April 14, 2006(21) |
|
|
|
10.44*
|
|
Employment Agreement between Optium Corporation and Mark Colyar, dated as of April 14, 2006(22) |
57
|
|
|
10.45*
|
|
Employment Agreement between Optium Corporation and Christopher Brown, dated as of August 28, 2006(23) |
|
|
|
10.46*
|
|
Stock Option and Grant Notice, dated March 3, 2007, for Eitan Gertel(24) |
|
|
|
10.47*
|
|
Stock Option and Grant Notice, dated March 3, 2007, for Mark Colyar(25) |
|
|
|
10.48*
|
|
Stock Option and Grant Notice, dated March 3, 2007, for Christopher Brown(26) |
|
|
|
10.49*
|
|
Stock Option and Grant Notices, dated March 14, 2006, February 14, 2006, June 23, 2005 and
May 1, 2003, for Eitan Gertel(27) |
|
|
|
10.50*
|
|
Stock Option and Grant Notices, dated April 14, 2006, April 5, 2005, March 1, 2004 and
May 1, 2003, for Mark Colyar(28) |
|
|
|
10.51*
|
|
Stock Option and Grant Notices, dated August 28, 2006, for Christopher Brown(29) |
|
|
|
10.52*
|
|
Deferred Stock Award Agreement, dated September 25, 2007, for Eitan Gertel(30) |
|
|
|
10.53*
|
|
Deferred Stock Award Agreement, dated September 25, 2007, for Mark Colyar(31) |
|
|
|
10.54*
|
|
Deferred Stock Award Agreement, dated September 25, 2007, for Christopher Brown(32) |
|
|
|
10.55*
|
|
Deferred Stock Award Agreement,
dated August 25, 2008, for Eitan Gertel |
|
|
|
10.56*
|
|
Deferred Stock Award Agreement,
dated August 25, 2008, for Mark Colyar |
|
|
|
10.57*
|
|
Deferred Stock Award Agreement,
dated August 25, 2008, for Christopher Brown |
|
|
|
10.58
|
|
Sixth Amendment to Non-Recourse Receivables Purchase Agreement dated as of October 28, 2008
by and between Silicon Valley Bank and Finisar Corporation |
|
|
|
10.59
|
|
Sixth Amendment to Letter of Credit Reimbursement Agreement dated as of October 28, 2008 by
and between Silicon Valley Bank and Finisar Corporation |
|
|
|
10.60
|
|
First Loan Modification Agreement dated as of October 30, 2008 by and between Silicon Valley
Bank and Finisar Corporation |
|
|
|
18
|
|
Letter regarding change in accounting principle |
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.3
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification of Principal
Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.3
|
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Compensatory plan or management contract |
|
(1) |
|
Incorporated by reference to Exhibit 99.1 to Registrants Registration Statement on Form S-8
filed on September 9, 2008. |
|
(2) |
|
Incorporated by reference to Exhibit 99.2 to Registrants Registration Statement on Form S-8
filed on September 9, 2008. |
|
(3) |
|
Incorporated by reference to Exhibit 99.3 to Registrants Registration Statement on Form S-8
filed on September 9, 2008. |
|
(4) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
|
(5) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
58
|
|
|
(6) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
|
(7) |
|
Incorporated by reference to Exhibit 10.6 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
|
(8) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Quarterly Report on Form
10-Q filed on December 13, 2007. |
|
(9) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Quarterly Report on Form
10-Q filed on December 13, 2007. |
|
(10) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(11) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(12) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(13) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(14) |
|
Incorporated by reference to Exhibit 10.5 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(15) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(16) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
|
(17) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on December 13, 2007. |
|
(18) |
|
Incorporated by reference to Exhibit 2.1 to Optium Corporations Current Report on Form 8-K
filed on May 21, 2007. |
|
(19) |
|
Incorporated by reference to Exhibit 10.23 to Optium Corporations Registration Statement on
Form S-1/A (333-135472) filed on October 11, 2006. |
|
(20) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Current Report on Form 8-K
filed on May 21, 2007. |
|
(21) |
|
Incorporated by reference to Exhibit 10.17 to Optium Corporations Registration Statement on
Form S-1 (333-135472) filed on June 29, 2006. |
|
(22) |
|
Incorporated by reference to Exhibit 10.18 to Optium Corporations Registration Statement on
Form S-1 (333-135472) filed on June 29, 2006. |
|
(23) |
|
Incorporated by reference to Exhibit 10.22 to Optium Corporations Registration Statement on
Form S-1 (333-135472) filed on September 28, 2006.
|
|
(24) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(25) |
|
Incorporated by reference to Exhibit 10.5 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(26) |
|
Incorporated by reference to Exhibit 10.6 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(27) |
|
Incorporated by reference to Exhibit 10.36 to Optium Corporations Annual Report on Form 10-K
filed on October 24, 2007. |
|
(28) |
|
Incorporated by reference to Exhibit 10.37 to Optium Corporations Annual Report on Form 10-K
filed on October 24, 2007. |
|
(29) |
|
Incorporated by reference to Exhibit 10.38 to Optium Corporations Annual Report on Form 10-K
filed on October 24, 2007. |
59
|
|
|
(30) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
|
(31) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
|
(32) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
60
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.
|
|
|
|
|
|
FINISAR CORPORATION
|
|
|
By: |
/s/ JERRY S. RAWLS
|
|
|
Jerry S. Rawls |
|
|
Chairman of the Board |
|
|
|
|
|
|
By: |
/s/ EITAN GERTEL
|
|
|
Eitan Gertel |
|
|
Chief Executive Officer |
|
|
|
|
|
|
By: |
/s/ STEPHEN K. WORKMAN
|
|
|
Stephen K. Workman |
|
|
Senior Vice President, Finance and Chief Financial Officer |
|
|
Dated:
December 17, 2008
61
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.23*
|
|
Optium Corporation 2000 Stock Incentive Plan(1) |
|
|
|
10.24*
|
|
Optium Corporation 2006 Stock Option and Incentive Plan and Israeli Addendum to 2006 Stock
Option and Incentive Plan(2) |
|
|
|
10.25*
|
|
Form of Amended and Restated Warrant to Purchase Common Stock(3) |
|
|
|
10.26*
|
|
Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and Eitan Gertel(4) |
|
|
|
10.27*
|
|
Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and
Christopher Brown(5) |
|
|
|
10.28*
|
|
Deferred Stock Award Agreement, dated March 11, 2008, by and between Optium Corporation and
Mark Colyar(6) |
|
|
|
10.29
|
|
First Amendment to lease for 200 Precision Road, Horsham, PA by and between Horsham Property
Assoc., L.P. and Optium Corporation dated January 4, 2008(7) |
|
|
|
10.30*
|
|
Form of Deferred Stock Award for Israeli grantees under Optium Corporation 2006 Stock Option and Incentive Plan(8) |
|
|
|
10.31*
|
|
Form of Deferred Stock Award for directors under Optium Corporation 2006 Stock Option and Incentive Plan(9) |
|
|
|
10.32*
|
|
Form of Stock Option Grant Notice under the Optium Corporation 2006 Stock Option and Incentive Plan(10) |
|
|
|
10.33*
|
|
Form of Stock Option Grant Notice for Australian Employees under the Optium Corporation 2006
Stock Option and Incentive Plan(11) |
|
|
|
10.34*
|
|
Form of Employee Incentive Stock Option Agreement under the Optium Corporation 2006 Stock
Option and Incentive Plan(12) |
|
|
|
10.35*
|
|
Form of Employee Non-Qualified Stock Option Agreement under the Optium Corporation 2006
Stock Option and Incentive Plan(13) |
|
10.36*
|
|
Form of Non-Employee Non-Qualified Stock Option Agreement under the Optium Corporation 2006
Stock Option and Incentive Plan(14) |
|
10.37*
|
|
Form of Australian Employee Non-Qualified Stock Option Agreement under the Optium
Corporation 2006 Stock Option and Incentive Plan(15) |
|
|
|
10.38*
|
|
Form of Deferred Stock Award under Optium Corporation 2006 Stock Option and Incentive
Plan(16) |
|
|
|
10.39
|
|
Lease Agreement, dated December 7, 2007, by and between Charvic Pty Ltd and Optium Australia
Pty Limited for premises located at 244 Young Street, Waterloo, NSW, Australia(17) |
|
|
|
10.40
|
|
Agreement and Plan of Merger by and among Optium Corporation, CLP Acquisition I Corp.,
Kailight Photonics, Inc. and the Stockholders Representatives named therein dated March 27,
2007 as amended by the Acknowledgement and Agreement to the Agreement and Plan of Merger dated
April 11, 2007(18) |
|
|
|
10.41
|
|
Lease Agreement between Optium
Corporation and 200 Precision Drive Investors, LLC for the
premises located at 200 Precision Drive, Horsham, Pennsylvania, dated September 26, 2006(19) |
|
|
|
10.42
|
|
Unprotected Lease Agreement by and among Kailight Photonics, Ltd., Niber Promotions and
Investments, Ltd., Atido Holding Ltd. and Roller Electric Works, Ltd. dated May 11, 2006(20) |
|
|
|
10.43*
|
|
Employment Agreement between Optium Corporation and Eitan Gertel, dated as of April 14, 2006(21) |
62
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.44*
|
|
Employment Agreement between Optium Corporation and Mark Colyar, dated as of April 14, 2006(22) |
|
|
|
10.45*
|
|
Employment Agreement between Optium Corporation and Christopher Brown, dated as of August 28, 2006(23) |
|
|
|
10.46*
|
|
Stock Option and Grant Notice, dated March 3, 2007, for Eitan Gertel(24) |
|
|
|
10.47*
|
|
Stock Option and Grant Notice, dated March 3, 2007, for Mark Colyar(25) |
|
|
|
10.48*
|
|
Stock Option and Grant Notice, dated March 3, 2007, for Christopher Brown(26) |
|
|
|
10.49*
|
|
Stock Option and Grant Notices, dated March 14, 2006, February 14, 2006, June 23, 2005 and
May 1, 2003, for Eitan Gertel(27) |
|
|
|
10.50*
|
|
Stock Option and Grant Notices, dated April 14, 2006, April 5, 2005, March 1, 2004 and
May 1, 2003, for Mark Colyar(28) |
|
|
|
10.51*
|
|
Stock Option and Grant Notices, dated August 28, 2006, for Christopher Brown(29) |
|
|
|
10.52*
|
|
Deferred Stock Award Agreement, dated September 25, 2007, for Eitan Gertel(30) |
|
|
|
10.53*
|
|
Deferred Stock Award Agreement, dated September 25, 2007, for Mark Colyar(31) |
|
|
|
10.54*
|
|
Deferred Stock Award Agreement, dated September 25, 2007, for Christopher Brown(32) |
|
|
|
10.55*
|
|
Deferred Stock Award Agreement,
dated August 25, 2008, for Eitan Gertel |
|
|
|
10.56*
|
|
Deferred Stock Award Agreement,
dated August 25, 2008, for Mark Colyar |
|
|
|
10.57*
|
|
Deferred Stock Award Agreement,
dated August 25, 2008, for Christopher Brown |
|
10.58
|
|
Sixth Amendment to Non-Recourse Receivables Purchase Agreement dated as of October 28, 2008
by and between Silicon Valley Bank and Finisar Corporation |
|
|
|
10.59
|
|
Sixth Amendment to Letter of Credit Reimbursement Agreement dated as of October 28, 2008 by
and between Silicon Valley Bank and Finisar Corporation |
|
|
|
10.60
|
|
First Loan Modification Agreement dated as of October 30, 2008 by and between Silicon Valley
Bank and Finisar Corporation |
|
|
|
18
|
|
Letter regarding change in accounting principle |
|
|
|
31.1
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.3
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1
|
|
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.2
|
|
Certification of Principal
Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.3
|
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
* |
|
Compensatory plan or management contract |
|
(1) |
|
Incorporated by reference to Exhibit 99.1 to Registrants Registration Statement on Form S-8
filed on September 9, 2008. |
|
(2) |
|
Incorporated by reference to Exhibit 99.2 to Registrants Registration Statement on Form S-8
filed on September 9, 2008. |
|
(3) |
|
Incorporated by reference to Exhibit 99.3 to Registrants Registration Statement on Form S-8
filed on September 9, 2008. |
|
(4) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
63
|
|
|
(5) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
|
(6) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
|
(7) |
|
Incorporated by reference to Exhibit 10.6 to Optium Corporations Quarterly Report on Form
10-Q filed on March 13, 2008. |
|
(8) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Quarterly Report on Form
10-Q filed on December 13, 2007. |
|
(9) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Quarterly Report on Form
10-Q filed on December 13, 2007. |
|
(10) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(11) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(12) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(13) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(14) |
|
Incorporated by reference to Exhibit 10.5 to Optium Corporations Quarterly Report on Form
10-Q filed on December 12, 2006. |
|
(15) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(16) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
|
(17) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Quarterly Report on Form
10-Q filed on December 13, 2007. |
|
(18) |
|
Incorporated by reference to Exhibit 2.1 to Optium Corporations Current Report on Form 8-K
filed on May 21, 2007. |
|
(19) |
|
Incorporated by reference to Exhibit 10.23 to Optium Corporations Registration Statement on
Form S-1/A (333-135472) filed on October 11, 2006. |
|
(20) |
|
Incorporated by reference to Exhibit 10.1 to Optium Corporations Current Report on Form 8-K
filed on May 21, 2007. |
|
(21) |
|
Incorporated by reference to Exhibit 10.17 to Optium Corporations Registration Statement on
Form S-1 (333-135472) filed on June 29, 2006. |
|
(22) |
|
Incorporated by reference to Exhibit 10.18 to Optium Corporations Registration Statement on
Form S-1 (333-135472) filed on June 29, 2006.
|
|
(23) |
|
Incorporated by reference to Exhibit 10.22 to Optium Corporations Registration Statement on
Form S-1 (333-135472) filed on September 28, 2006.
|
|
(24) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(25) |
|
Incorporated by reference to Exhibit 10.5 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(26) |
|
Incorporated by reference to Exhibit 10.6 to Optium Corporations Quarterly Report on Form
10-Q filed on March 7, 2007. |
|
(27) |
|
Incorporated by reference to Exhibit 10.36 to Optium Corporations Annual Report on Form 10-K
filed on October 24, 2007. |
|
(28) |
|
Incorporated by reference to Exhibit 10.37 to Optium Corporations Annual Report on Form 10-K
filed on October 24, 2007. |
64
|
|
|
(29) |
|
Incorporated by reference to Exhibit 10.38 to Optium Corporations Annual Report on Form 10-K
filed on October 24, 2007. |
|
(30) |
|
Incorporated by reference to Exhibit 10.2 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
|
(31) |
|
Incorporated by reference to Exhibit 10.3 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
|
(32) |
|
Incorporated by reference to Exhibit 10.4 to Optium Corporations Current Report on Form 8-K
filed on September 28, 2007. |
65