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Finisar Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: September 9, 2011 03:33PM

Finisar Corp. (FNSR) filed Quarterly Report for the period ended 2011-07-31. Finisar Corp. has a market cap of $1.79 billion; its shares were traded at around $19.92 with a P/E ratio of 16.3 and P/S ratio of 1.9.



Highlight of Business Operations:

Gross Profit. Gross profit decreased $4.1 million, or 5.9%, to $66.5 million in the quarter ended July 31, 2011 compared to $70.6 million in the quarter ended August 1, 2010. Gross profit as a percentage of revenues decreased by 4.8%, from 34.0% in the quarter ended August 1, 2010 to 29.1% in the quarter ended July 31, 2011. We recorded charges of $5.7 million for obsolete and excess inventory in the quarter ended July 31, 2011 compared to $3.8 million in the quarter ended August 1, 2010. We sold inventory that was written-off in previous periods resulting in a benefit of $4.0 million in the quarter ended July 31, 2011 and $3.6 million in the quarter ended August 1, 2010. As a result, we recognized a net charge of $1.7 million in the quarter ended July 31, 2011 compared to a net charge of $200,000 in the quarter ended August 1, 2010. Manufacturing overhead included stock-based compensation charges of $1.7 million in the quarter ended July 31, 2011 and $746,000 in the quarter ended August 1, 2010. 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 $71.4 million, or 31.3% of revenues, in the quarter ended July 31, 2011 compared to $72.8 million, or 35.0% of revenues, in the quarter ended August 1, 2010. The decrease in gross margin primarily reflects the higher amortization of acquired developed technology, higher net charges for excess and obsolete inventory, the unfavorable impact of lower pricing on some products, and lower utilization of manufacturing facilities dedicated to ROADM products partially offset by the benefits of increased sales of higher margin high speed components. Although revenues increased by 10% during the quarter ended July 31, 2011 compared to the fiscal 2011 period, manufacturing overhead costs increased by 23% in the same period, primarily due to lower utilization of fixed manufacturing capacity.

General and Administrative Expenses. General and administrative expenses increased $2.9 million, or 26.0%, to $14.0 million in the quarter ended July 31, 2011 compared to $11.1 million in the quarter ended August 1, 2010. The increase was primarily due to $1.1 million of transaction costs incurred in connection with our acquisition of Ignis, an increase to our allowance for bad debt, and the inclusion of $829,000 of general and administrative expenses of Ignis since the date of acquisition. Included in general and administrative expenses were stock-based compensation charges of $1.9 million in the quarter ended July 31, 2011 and $1.0 million in the quarter ended August 1, 2010. General and administrative expenses as a percent of revenues increased to 6.1% in the quarter ended July 31, 2011 compared to 5.3% in the quarter ended August 1, 2010.

Interest Expense. Interest expense decreased $1.2 million, or 57.7%, to $911,000 in the quarter ended July 31, 2011 compared to $2.2 million in the quarter ended August 1, 2010. The decrease was primarily related to lower outstanding convertible and long-term debt balances due to their repayment in fiscal 2011. Interest expense for the quarter ended July 31, 2011 included $841,000 related to our 5% Convertible Subordinated Notes due October 2029 and various other debt instruments acquired with the acquisition of Ignis. Interest expense for the quarter ended August 1, 2010 included $1.3 million related to our 5% Convertible Subordinated Notes due October 2029, $500,000 related to various other debt instruments, and a non-cash charge of $375,000 due to the adoption of authoritative accounting guidance which requires us to separately account for the liability (debt) and equity (conversion option) components of our 2.5% senior subordinated convertible notes that may be settled in cash (or other assets) on conversion in a manner that reflects our non-convertible debt borrowing rate. The separation of the conversion option created an original issue discount in the bond component which is accreted as interest expense over the term of the instrument using the interest method, resulting in an increase in interest expense.

Other Income (Expense), Net. Other income, net was $4.7 million in the quarter ended July 31, 2011 compared to other expense, net of $192,000 in the quarter ended August 1, 2010. Other income, net in the quarter ended July 31, 2011 primarily consisted of a gain of $5.4 million related to remeasurement of our equity interest in Ignis upon obtaining a controlling interest in May 2011, offset by $619,000 of our portion of the net losses of Ignis during the period prior to our acquisition of a controlling interest at up to which time we accounted for our investment using the equity method of accounting. Other expense, net in the quarter ended August 1, 2010 primarily consisted of $248,000 of amortization of issuance costs for our 5% Convertible Subordinated Notes and unrealized non-cash foreign exchange losses of $390,000 related to the re-measurement of a $12.8 million note re-payable in U.S. dollars which was recorded on the books of our subsidiary in Malaysia whose functional currency is the Malaysian ringgit. These expenses were partially offset by realized foreign exchange gains of $457,000.

Considering the acquisition of Ignis during the first quarter of fiscal 2012, net cash provided by operating activities was $14.5 million in the three months ended July 31, 2011, compared to net cash used in operating activities of $6.5 million in the three months ended August 1, 2010. Cash provided by operating activities in the three months ended July 31, 2011 consisted of our net income, as adjusted to exclude depreciation, amortization and other non-cash items totaling $15.4 million, less cash used for working capital requirements primarily related to increases in accounts receivable, inventory and accounts payable. Accounts receivable decreased by $13.1 million primarily due to strong collections near the end of the quarter, offset by an increase in the allowance for doubtful accounts. Inventory increased by $7.1 million and accounts payable increased by $3.7 million due to increased purchases to support projected increased levels of sales. Cash used in operating activities in the three months ended August 1, 2010 consisted of our net income, as adjusted to exclude depreciation, amortization and other non-cash items totaling to $13.7 million and cash used for working capital, primarily related to increases in accounts receivable and inventories, offset by an increase in accounts payable. Accounts receivable increased by $24.9 million primarily due to the increase in revenues. Inventory and accounts payable increased by $15.3 million and $2.3 million, respectively, primarily due to increase in purchases to support higher levels of sales.

Net cash used in financing activities totaled $3.8 million in the three months ended July 31, 2011 compared to net cash provided by financing activities of $3.8 million in the three months ended August 1, 2010. Cash used in financing activities for the three months ended July 31, 2011 primarily reflected proceeds from the exercise of stock options and purchases under our stock purchase plan totaling $2.6 million and repayments of borrowings related to the Ignis acquisition totaling $8.2 million, partially offset by additional borrowings of $1.8 million by Fi-ra (Ignis' Korean subsidiary). Cash provided by financing activities for the three months ended August 1, 2010 primarily reflected proceeds from the exercise of stock options and purchases under our stock purchase plan totaling $4.8 million, partially offset by repayments of borrowings totaling $1.0 million.

Read the The complete Report



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