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Finisar Corp. Reports Operating Results (10-Q)

March 10, 2011 | About:
gurufocus

10qk

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Finisar Corp. (FNSR) filed Quarterly Report for the period ended 2011-01-30.

Finisar Corp. has a market cap of $1.99 billion; its shares were traded at around $24.61 with a P/E ratio of 25.6 and P/S ratio of 3.1.

Highlight of Business Operations:

Gross Profit. Gross profit increased $32.4 million, or 62.6%, to $84.1 million in the quarter ended January 30, 2011 compared to $51.7 million in the quarter ended January 31, 2010. Gross profit as a percentage of revenues increased by 1.0%, from 31.0% in the quarter ended January 31, 2010 to 32.0% in the quarter ended January 30, 2011. We recorded charges of $6.9 million for obsolete and excess inventory in the quarter ended January 30, 2011 compared to $4.1 million in the quarter ended January 31, 2010. We sold inventory that was written-off in previous periods resulting in a benefit of $3.1 million in the quarter ended January 30, 2011 and $4.3 million in the quarter ended January 31, 2010. As a result, we recognized a net charge of $3.8 million in the quarter ended January 30, 2011 compared to a net credit of $200,000 in the quarter ended January 31, 2010. Manufacturing overhead included stock-based compensation charges of $1.3 million in the quarter ended January 30, 2011 and $909,000 in the quarter ended January 31, 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 $90.4 million, or 34.4% of revenues, in the quarter ended January 30, 2011 compared to $53.6 million, or 32.1% of revenues, in the quarter ended January 31, 2010. The

Gross profit increased $116.5 million or 96.3%, to $237.4 million in the nine months ended January 30, 2011 compared to $120.9 million in the nine months ended January 31, 2010. Gross profit as a percentage of revenues increased by 6.0%, from 27.4% in the nine months ended January 31, 2010 to 33.3% in the nine months ended January 30, 2011. We recorded charges of $13.5 million for obsolete and excess inventory in the nine months ended January 30, 2011 compared to $18.9 million in the nine months ended January 31, 2010. We sold inventory that was written-off in previous periods resulting in a benefit of $9.5 million in the nine months ended January 30, 2011 and $11.4 million in the nine months ended January 31, 2010. As a result, we recognized a net charge of $4.0 million in the nine months ended January 30, 2011 compared to $7.5 million in the nine months ended January 31, 2010. Manufacturing overhead includes stock-based compensation charges of $3.4 million in the nine months ended January 30, 2011 and $3.2 million in the nine months ended January 31, 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 $248.3 million, or 34.9% of revenues, in the nine months ended January 30, 2011 compared to $135.2 million, or 30.6% of revenues, in the nine months ended January 31, 2010. The increase in gross margin primarily reflects the benefits of higher manufacturing unit volume and the increase in sales of higher margin high speed components and ROADM products, partially offset by the unfavorable impact of lower pricing on some products. Manufacturing overhead costs in the nine months ended January 30, 2011 increased by 43% compared to the nine months ended January 31, 2010 whereas the increase in revenues was 61% in the same period, primarily due to higher utilization of fixed manufacturing capacity.

Interest Expense. Interest expense decreased $776,000, or 34.6%, to $1.5 million in the quarter ended January 30, 2011 compared to $2.2 million in the quarter ended January 31, 2010. The decrease was primarily related to lower outstanding debt due to repayment of $3.9 million aggregate principal amount of our 2 1/2% Convertible Subordinated Notes due 2010 and $25.7 million principal amount of our 2 1/2% Convertible Senior Subordinated Notes due 2010 in the second quarter of fiscal 2011 and repayment of the $2.6 million remaining balance of a loan in the third quarter of fiscal 2010. Interest expense for the quarter ended January 30, 2011 included $1.2 million related to our 5% Convertible Subordinated Notes due October 2029 and $260,000 related to various other debt instruments. Interest expense for the quarter ended January 31, 2010 included $1.2 million related to our 5% Convertible Subordinated Notes due October 2029, $190,000 related to our convertible subordinated notes which were fully repaid in October 2010, $400,000 related to various other debt instruments and a non-cash charge of $383,000 due to the accretion of the original issue discount related to our senior convertible notes.

Interest expense decreased $1.1 million, or 16.7%, to $5.7 million in the nine months ended January 30, 2011 compared to $6.8 million in the nine months ended January 31, 2010. The decrease was primarily related to lower outstanding debt due to repayment of $47.5 million principal amount of our 2 1/2% Convertible Subordinated Notes due 2010 and our 2 1/2% Convertible Senior Subordinated Notes due 2010 pursuant to exchange offers in the second quarter of fiscal 2010, repurchases of $13.0 million principal amount of our 2 1/2% Convertible Subordinated Notes and $51.9 million of our 2 1/2% Convertible Senior Subordinated Notes in the second quarter of fiscal 2010 and repayment of $3.9 million principal amount of our 2 1/2% Convertible Subordinated Notes due 2010 and $25.7 million principal amount of our 2 1/2% Convertible Senior Subordinated Notes due 2010 in the second quarter of fiscal 2011. Interest expense for the nine months ended January 30, 2011 included $3.7 million related to our 5% Convertible Subordinated Notes due October 2029, $1.2 million related to various other debt instruments and a non-cash charge of $742,000 due to accretion of the original issue discount created by the conversion option in the 2.5% Senior Subordinated Convertible Notes, as interest expense over the term of the instrument using the interest method. Interest expense for the nine months ended January 31, 2010 included $1.8 million related to our convertible subordinated notes which were fully repaid in

Loss on Debt Extinguishment. On August 11, 2009, we retired $33.1million principal amount of our 2 1/2% Convertible Subordinated Notes due 2010 and $14.4 million principal amount of our 2 1/2% Convertible Senior Subordinated Notes due 2010 pursuant to exchange offers which commenced on July 9, 2009. The consideration for the exchange consisted of (i) $525 in cash and (ii) 596 shares of the Company's common stock per $1,000 principal amount of notes. We issued approximately 3.5 million shares of common stock and paid out approximately $24.9 million in cash to the former holders of notes in the exchange offers. The total consideration paid in the exchange was approximately $4.7 million less than the par value of the notes retired. However, in accordance with the provisions of ASC 470-20, this exchange was considered an induced conversion and the retirement of the notes was accounted for as if they had been converted according to their original terms, with that value compared to the fair value of the consideration paid in the exchange offers. The original conversion price of the notes was $30.08 per share. Accordingly, although the trading price of our common stock was $5.04 at the time of the exchange, we recorded a loss on debt extinguishment of $23.7 million in the quarter ended November 1, 2009. We incurred $1.5 million of expenses in connection with the exchange offers which was also recorded as loss on debt extinguishment in the quarter ended November 1, 2009.

Net cash provided by operating activities was $54.9 million in the nine months ended January 30, 2011, compared to net cash used in operating activities of $1.7 million in the nine months ended January 31, 2010. Cash provided by operating activities in the nine months ended January 30, 2011 consisted of our net income, as adjusted to exclude depreciation, amortization and other non-cash items totaling $51.4 million, and cash used for working capital requirements primarily related to increases in accounts receivable, inventory and accounts payable. Accounts receivable increased by $47.6 million primarily due to the increase in shipments. Inventory increased by $35.6 million and accounts payable increased by $6.4 million due to increased purchases to support increased sales. Cash used in operating activities in the nine months ended January 31, 2010 consisted of net loss, as adjusted to exclude depreciation, amortization and other non-cash items totaling to $69.1 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 $34.6 million primarily due to the increase in revenues. Inventory and accounts payable increased by $12.4 million and $16.7 million, respectively, primarily due to increase in purchases to support higher levels of sales.

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