FINISAR CORP - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarterly Period Ended January 31, 2004

or

o		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)


Delaware		94-3038428
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1308 Moffett Park Drive Sunnyvale, California (Address of principal executive offices)		94089 (Zip Code)

Registrant’s telephone number, including area code:

408-548-1000

Common Stock, $.001 par value

(Title of Class)

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 an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

At March 1, 2004, there were 221,974,488 shares of the registrant’s common stock, $.001 par value, issued and outstanding.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended January 31, 2004


		Page

PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of January 31, 2004 and April 30, 2003		2
	Condensed Consolidated Statements of Operations for the three and nine month periods ended January 31, 2004 and 2003		3
	Condensed Consolidated Statements of Cash Flows for the nine month periods ended January 31, 2004 and 2003		4
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosure About Market Risk		46
Item 4.	Controls and Procedures		46
PART II OTHER INFORMATION
Item 1.	Legal Proceedings		47
Item 6.	Exhibits and Reports on Form 8-K		47
Signatures			49
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION


Item 1.	*Financial Statements*

FINISAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


		January 31, 2004			April 30, 2003


		(Unaudited, in thousands, except
		share and per share data)
ASSETS
Current assets:
	Cash and cash equivalents	$	151,194		$	40,918
	Short-term investments		75,458			78,520
	Restricted investments		9,009			6,737
	Accounts receivable, trade (net)		29,431			23,390
	Accounts receivable, other		6,719			5,362
	Inventories		26,729			36,470
	Prepaid expenses		2,652			2,341
	Deferred income taxes		2,559			3,324

Total current assets			303,751			197,062
Property, plant, equipment and improvements, net			95,255			112,125
Restricted investments, long-term			10,669			3,307
Purchased intangibles, net			38,513			52,910
Goodwill, net			19,985			19,838
Minority investments			24,601			28,844
Other assets			14,119			9,520

Total assets		$	506,893		$	423,606

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable	$	21,417		$	22,872
	Accrued compensation		3,498			4,449
	Other accrued liabilities		12,728			8,474
	Non-cancelable purchase obligations		7,591			9,380
	Income tax payable		602			536
	Current portion of other long-term liabilities		2,000			1,384

Total current liabilities			47,836			47,095
Long-term liabilities:
	Deferred income taxes		2,559			3,324
	Convertible notes, net of unamortized portion of beneficial conversion feature of $21,851 and $30,977 at January 31, 2004 and April 30, 2003, respectively		228,399			94,023
	Other long-term liabilities		2,206			4,184

Total long-term liabilities			233,164			101,531
Stockholders’ equity
	Common stock, $0.001 par value, 221,655,503 shares issued and outstanding at January 31, 2004 and 207,295,693 shares issued and outstanding at April 30, 2003.		222			207
	Additional paid-in capital		1,258,140			1,219,424
	Notes receivable from stockholders		(574	)		(1,077	)
	Deferred stock compensation		(296	)		(1,045	)
	Accumulated other comprehensive income		1,112			841
	Accumulated deficit		(1,032,711	)		(943,370	)

Total stockholders’ equity			225,893			274,980

Total liabilities and stockholders’ equity		$	506,893		$	423,606

See accompanying notes.

FINISAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



		Three Months Ended						Nine Months Ended
		January 31,						January 31,

		2004			2003			2004			2003


		(Unaudited, in thousands,						(Unaudited, in thousands,
		except per share data)						except per share data)
Revenues		$	46,416		$	38,747		$	128,623		$	126,697
Cost of revenues			32,778			30,975			101,281			100,553
Amortization of acquired developed technology			4,656			4,598			13,968			17,434

Gross profit			8,982			3,174			13,374			8,710
Operating expenses:
	Research and development		12,849			11,837			47,459			43,347
	Sales and marketing		4,905			3,966			13,762			15,692
	General and administrative		4,517			3,517			12,826			11,700
	Amortization of deferred stock compensation		115			85			(238	)		(467	)
	Amortization of purchased intangibles		143			143			429			615
	Impairment of goodwill and intangible assets		—			10,101			—			10,586
	Restructuring (benefit) cost		(1,199	)		3,056			1,173			4,230
	Other acquisition costs		45			176			239			207

Total operating expenses			21,375			32,881			75,650			85,910

Loss from operations			(12,393	)		(29,707	)		(62,276	)		(77,200	)
Interest income			804			997			2,329			3,626
Interest expense			(3,339	)		(2,862	)		(25,398	)		(8,415	)
Other expense, net			(572	)		(1,211	)		(3,707	)		(50,865	)

Loss before income taxes and cumulative effect of an accounting change			(15,500	)		(32,783	)		(89,052	)		(132,854	)
Provision for income taxes			43			31			289			122

Loss before cumulative effect of an accounting change			(15,543	)		(32,814	)		(89,341	)		(132,976	)
Cumulative effect of an accounting change to adopt SFAS 142.			—			—			—			(460,580	)

Net loss		$	(15,543	)	$	(32,814	)	$	(89,341	)	$	(593,556	)

Loss per share before cumulative effect of an accounting change		$	(0.07	)	$	(0.17	)	$	(0.42	)	$	(0.69	)
Cumulative per share effect of an accounting change to adopt SFAS 142.			—			—			—			(2.37	)

Loss per share — basic and diluted		$	(0.07	)	$	(0.17	)	$	(0.42	)	$	(3.06	)

Shares used in loss per share calculation — basic and diluted			219,900			198,224			214,235			194,021

See accompanying notes.

FINISAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



			Nine Months Ended
			January 31,

			2004			2003


			(Unaudited, in thousands)
Operating Activities:
Net loss			$	(89,341	)	$	(593,556	)
Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization		24,257			15,878
		Amortization of deferred stock compensation		(238	)		(467	)
		Amortization of purchased intangibles		429			615
		Amortization of acquired developed technology		13,968			17,434
		Amortization of beneficial conversion feature		9,126			3,523
		Loss on conversion of convertible notes		10,763			—
		Pro-rata share of losses in a minority investment (equity method)		928			571
		Cumulative effect of an accounting change		—			460,580
		Amortization of premium discount on restricted securities		(220	)		(502	)
		Other than temporary decline in market value of marketable security		528			—
		Loss on disposal of subsidiary assets		—			36,839
		Loss on retirement of assets		122			—
		Impairment of minority investment		1,631			12,000
		Impairment of goodwill and intangible assets		—			10,586
		Gain on sale or discontinuation of product line		—			533
		Loss on retirement of assets		(86	)		—
		Non-employee option expense		962			—
		Other non-cash charges		847			—

		Total non-cash adjustment in operating activities		63,017			557,590

Changes in operating assets and liabilities:
		Accounts receivable		(6,045	)		2,593
		Inventories		9,741			20,053
		Other assets		(3,053	)		1,395
		Accounts payable		(1,455	)		(17,443	)
		Accrued compensation		(951	)		(4,267	)
		Current income taxes		—			42
		Other accrued liabilities		1,599			5,435
		Total change in operating assets and liabilities		(164	)		7,808

	Net cash used in operating activities			(26,488	)		(28,158	)
Investing activities:
Purchases of property, plant, equipment and improvements				(7,673	)		(16,040	)
Sale/(purchase) of short-term investments				7,478			1,690
Purchase of minority investments, net of loan repayments				1,684			154
Acquisition of product line assets				—			(243	)
Proceeds from sale of product line				—			153
Proceeds from disposal of subsidiary assets, net of cash transferred				—			5,407

Net cash provided by (used in) investing activities				1,489			(8,879	)

FINISAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)



	Nine Months Ended
	January 31,

	2004			2003


	(Unaudited, in thousands)
Financing activities:
Payments on capital lease obligations		—			(180	)
Payment received on stockholder note receivable		458			303
Proceeds from convertible debt offering net of issuance costs		130,903			—
Repurchase of convertible notes		(1,860	)		—
Proceeds from exercise of stock options and stock purchase plan net of repurchase of unvested shares		5,774			1,797

Net cash provided by financing activities		135,275			1,920

Net change in cash and cash equivalents		110,276			(35,117	)
Cash and cash equivalents at beginning of period		40,918			75,889

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents