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Finisar Corporation Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: September 6, 2012 04:13PM

Finisar Corporation (FNSR) filed Quarterly Report for the period ended 2012-07-29. Finisar Corporation has a market cap of $1.26 billion; its shares were traded at around $14.01 with a P/E ratio of 21.1 and P/S ratio of 1.3.



Highlight of Business Operations:

The provisional acquisition-date fair value of the consideration transferred totaled $25.1 million, consisting of a $23.7 million upfront cash payment and $1.4 million of contingent consideration. The contingent consideration arrangement requires the Company to pay up to $15 million, payable in cash or shares of the Company's common stock at the Company's option, subject to Red-C achieving a specified level of gross profit during calendar year 2013. The provisional acquisition-date fair value of the contingent consideration arrangement was $1.4 million, which the Company estimated using a probability-weighted discounted cash flow model. The fair value measurement was based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach were as follows: 5% discount rate and 100% probability of achieving an expected level of gross profit. In addition, the Company may be required to pay certain former Red-C shareholders additional cash compensation of up to an aggregate of $5 million contingent upon their continuing employment with the Company for 12-, 24- and 36-month periods subsequent to the acquisition date. Any such amounts will be recorded as compensation expense and recognized over the related respective service periods.

Gross Profit. Gross profit decreased $8.7 million, or 13.1%, to $57.8 million in the quarter ended July 29, 2012 compared to $66.5 million in the quarter ended July 31, 2011. Gross profit as a percentage of revenues decreased by 2.9%, from 29.1% in the quarter ended July 31, 2011 to 26.2% in the quarter ended July 29, 2012. We recorded charges of $9.5 million for obsolete and excess inventory in the quarter ended July 29, 2012 compared to $5.7 million in the quarter ended July 31, 2011. We sold inventory that was written-off in previous periods resulting in a benefit of $4.6 million in the quarter ended July 29, 2012 and $4.0 million in the quarter ended July 31, 2011. As a result, we recognized a net charge of $4.9 million in the quarter ended July 29, 2012 compared to a net charge of $1.7 million in the quarter ended July 31, 2011. Cost of revenues included stock-based compensation charges of $1.3 million in the quarter ended July 29, 2012 and $1.7 million in the quarter ended July 31, 2011. 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 $65.3 million, or 29.6% of revenues, in the quarter ended July 29, 2012 compared to $71.4 million, or 31.3% of revenues, in the quarter ended July 31, 2011. The decrease in gross margin primarily reflects a decline in average selling prices, partially offset by reduced material costs, as well as under-utilization of certain manufacturing facilities and higher net charges for excess and obsolete inventory.

Sales and Marketing Expenses. Sales and marketing expenses increased $1.1 million, or 11.3%, to $10.7 million in the quarter ended July 29, 2012 compared to $9.6 million in the quarter ended July 31, 2011. The increase was primarily due to increases in employee related expenses. Included in sales and marketing expenses were stock-based compensation charges of $1.0 million in the quarter ended July 29, 2012 and $0.8 million in the quarter ended July 31, 2011. Sales and marketing expenses as a percent of revenues increased to 4.8% in the quarter ended July 29, 2012 compared to 4.2% in the quarter ended July 31, 2011.

General and Administrative Expenses. General and administrative expenses decreased $610,000, or 4.4%, to $13.3 million in the quarter ended July 29, 2012 compared to $14.0 million in the quarter ended July 31, 2011. The decrease was due to a $775,000 reduction in transaction-related expenses, as we incurred $325,000 in transaction costs in connection with the acquisition of Red-C in the quarter ended July 29, 2012 compared to $1.1 million incurred in connection with the acquisition of Ignis in the quarter ended July 31, 2011. This reduction, as well as a reduction in legal costs was partially offset by higher stock-based compensation expense. Included in general and administrative expenses were stock-based compensation charges of $2.7 million in the quarter ended July 29, 2012 and $1.9 million in the quarter ended July 31, 2011. General and administrative expenses as a percent of revenues increased to 6.2% in the quarter ended July 29, 2012 compared to 6.1% in the quarter ended July 31, 2011.

Net cash provided by operating activities was $11.2 million in the quarter ended July 29, 2012, compared to $14.9 million in the quarter ended July 31, 2011. Cash provided by operating activities in the quarter ended July 29, 2012 consisted of our net income, as adjusted to exclude depreciation, amortization and other non-cash items totaling $23.4 million, less cash used for working capital requirements primarily related to increase in accounts receivable and decrease in accounts payable and accrued compensation offset by decrease in inventory. Accounts receivable increased by $8.4 million primarily due to slower collections near the end of the quarter. Accrued compensation decreased by $6.6 million due to payment of bonuses during the quarter and accounts payable decreased by $3.8 million due to payments made to suppliers towards the end of the quarter. Inventory decreased by $11.2 million due to usage in the manufacturing process. Cash used in operating activities in the quarter ended July 31, 2011 consisted of our net income, as adjusted to exclude depreciation, amortization and other non-cash items totaling to $15.8 million and cash used for working capital, primarily related to increases in accounts receivable, inventory and accounts payable. Accounts receivable decreased by $13.1 million primarily due to strong collections at 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 $3.7 million due to increased purchases to support projected levels of sales.

Read the The complete Report



Stocks Discussed: FNSR,
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